power
is nothing
without
control
Pirelli Annual Report 2018
Table of contents
Table of contents
Letter from the Chairman
Letter from Executive Vice-Chairman and CEO
Notice of Shareholders’ meeting
Corporate Bodies
Presentation of 2018 Pirelli Integrated Report
Power is Nothing Without Control
The Control of the Power
Hurrying Slowly
Standing in the Way of Control
An editorial story
Directors’ Report on Operations
Directors’ Report on Operations
Macroeconomic and market scenario
Significant events of 2018
Group performance and results
Research and development activities
Parent company highlights
Risk factors and uncertainty
Outlook for 2019
Significant events subsequent to the end of the financial year
Alternative performance indicators
Other information
71
72
75
77
89
92
Report on Responsible Management of the Value Chain
Consolidated non-financial disclosure
Report on Responsible Management of the Value Chain
- Consolidated Non-Financial Disclosure Pursuant to
Legislative Decree of December 30, 2016, N. 254
107
Economic dimension
Environmental dimension
Methodological note
108
Social dimension
6
10
14
15
17
18
22
24
26
28
94
100
101
101
103
118
136
159
3
Table of contents
Table of contents
Report on the Corporate Governance and Share Ownership
Report on the Corporate Governance and Share Ownership
of Pirelli & C. S.p.a.
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
Remuneration Committee
199
200
201
201
203
208
209
218
218
220
221
222
223
Remuneration of the Directors
Audit, Risks, Sustainability and Corporate Governance
Committee
System of internal control and risk management
Interests of the Directors and related-party transactions
Board of Statutory Auditors
General Manager Operations
Information flows to the Directors and Statutory Auditors
Relations with Shareholders
Shareholders’ Meetings
Changes since the end of the Year
The Pirelli Website
Considerations on the letter of 21 December 2018 by
the Chairman of the Corporate Governance Committee
Remuneration Report
Remuneration Report
Remuneration Policy for Year 2019
2018 Remuneration report
249
253
Consolidated Financial Statements
Consolidated Financial Statements
Financial Statements
283
284
Explanatory Notes
Scope of Consolidation
Pirelli & C. S.p.A. Separate Financial Statements
Pirelli & C. S.p.A. Separate Financial Statements
Financial Statements
Explanatory Notes
383
384
391
Annexes to the Explanatory Notes
Report of the Board of Statutory Auditors to the
Shareholders’ Meeting
Resolutions
471
Resolutions
Certifications
Certifications
a.Certification of the Consolidated Financial Statements
pursuant to art. 154 bis of Legislative Decree 58 of
February 24, 1998, and pursuant to article 81-ter of
Consob Regulation No. 11971 of May 14, 1999, as amended
b.Independent auditors report on the Consolidated Financial
480
Statements
c.Certification of the Separate Financial Statements
pursuant to art. 154 bis of Legislative Decree 58 of
February 24, 1998, and pursuant to article 81-ter of
Consob Regulation No. 11971 of May 14, 1999, as amended 488
5
477
478
d.Independent auditors report on Separate Financial
Statements
e.GRI Content Index and Correlation Tables
f. Independent Auditor’s Report on the Consolidated
Non-Financial Disclosure in accordance with article 3,
paragraph 10 of Legislative Decree 254/2016 and with
article 5 of CONSOB Regulation 20267 adopted by
resolution of January 2018
224
225
226
229
230
232
232
232
233
234
234
234
271
290
374
447
452
490
496
507
Pirelli Annual Report 2018
Letter from
the Chairman
Ning Gaoning
6
Pirelli Annual Report 2018 Letter from the Chairman
Dear Stakeholder,
In the challenging context of 2018, when the automobile
sector was not immune to the uncertainties of the global
economy, Pirelli showed exceptional resilience compared
with its peers, validating its strategy, put in place in re-
cent years, focused on High Value products for top-of-the-
range cars, motorcycles and bicycles. The decision to become
the sole tyre maker dedicated exclusively to the Consumer
sector has thus proven to be inspired, capitalizing on the
Company’s deep industrial heritage, further enhancing an
already prestigious brand, and the importance of its innova-
tion and leading edge technology.
Pirelli’s positioning at the top of the market goes hand in
hand with its constant commitment to technological inno-
vation. The company maintains one of the highest levels of
R&D investment in the sector and continues to make ad-
vances in its cutting-edge connected tyre technology. In the
area of environmental responsibility and sustainability, in
2018 Pirelli consolidated its position as an industry bench-
mark when, following the annual review of the Dow Jones
Sustainability indices, it was declared a global leader in the
Automobiles & Components sector.
The effectiveness of the company’s business model and
corporate culture is underpinned by governance structures
which are inspired by the best international practices, as
well as the strong role of committees and of the independent
directors. The resulting decision-making processes are fun
7
damental to the company’s solid development and a guaran-
tee to all stakeholders.
In 2018, the ability of Pirelli’s management to not only navigate
the year’s challenges but to bring home impressively good re-
sults once again confirms the Company’s excellence and that
of its people. It is a testament to the clarity and far sighted-
ness of the strategic vision at the top and the consolidated
ability to execute effectively at all levels. The key to this,
of course, is the passion, creativity and enthusiasm that all
Pirelli’s people bring to their work every day. I wish to thank
you all for your contributions to Pirelli’s ongoing success.
Ning Gaoning
Chairman
8
Pirelli Annual Report 2018
9
Letter from
Executive
vice chairmanandCEO
Marco Tronchetti Provera
10
Pirelli Annual Report 2018 Letter from Executive Vice-Chairman and CEO
Dear Stakeholder,
In 2018, the singularity of our business model, focused on
the High Value segment, allowed us to achieve our profit-
ability targets, the slowdown of the automotive market not-
withstanding. In order to enhance the group’s profitability,
we moved to accelerate the focus on High Value, which rep-
resents 64% of sales (57.5% in 2017) and 83% of profitability,
and is not as exposed to the fluctuations of the economic
cycle as the lower tiers.
Combined with cost containment, this offset the faster de-
cline of the Standard segment and allowed us to reach an Ad-
justed Ebit margin before start-up costs of 8.2%, over the one
billion euro level, and an adjusted Ebit margin before start-up
costs of 19.3%, rising from 17.3% in 2017. Net profit, thanks
to improved financial and fiscal management, was over 440
million euro. These figures are the result of a team approach
capable of responding to the signals coming from our markets
with flexibility and speed. This perfectly captures the spirit
of “Power is nothing without control”, the Pirelli catchphrase,
which this year reaches its 25th anniversary and we have
chosen as the title of our Annual Report.
The group’s digital transformation has also been of funda-
mental importance in the achievement of our goals, driving
the progressive evolution of our operating processes and
technology with the aim of greater horizontal integration in
the way we work, in order to manage the growing complexity
and uniqueness of our business model on a global
11
Letter from Executive Vice-Chairman and CEO
scale. The revision of processes and data analysis have, in
fact, increased our ability to foresee and be ready for market
demand and, above all, to supply our customers – both car
makers and consumers – with products that are always more
tailor-made, technologically sophisticated, high performing,
safe and sustainable.
Thanks to our Research & Development, where we invested
over 6% of High Value revenues, we launched Cyber Car,
the first connected tyre for Original Equipment. Capable of
“talking” to the car and of delivering important measure-
ments for car and passenger safety, as well data of use in the
development of the product itself. With the passion that has
set us apart for almost 150 years, we have created products
suited to the new forms of sustainable mobility, developing
tyres for electric vehicles and new products for cars, motor-
cycles and bicycles.
This year we also achieved significant improvements in re-
sults in the environmental, societal and economic context,
earning positions at the top of the key international sustain-
ability indices. We also developed a new natural rubber policy
to promote sustainable and responsible behavior along the
entire supply chain.
Our constant all round efforts have further strengthened
the Pirelli name which stands among the leading brands in
terms of reputation in Italy and worldwide. A brand which
has further solidified its links to the world’s most important
sporting competitions to which we contribute our skills and
from which we also draw to improve ourselves. For the fourth
12
Pirelli Annual Report 2018 Letter from Executive Vice-Chairman and CEO
time, in fact, we renewed the contract for the FIA Formula
1 World Championship for which we will be the Global Tyre
Partner until 2023. As well as continuing to excel in the
Superbike championship, we have also linked our brand to
the world of sailing through a partnership in which Pirelli is
co-title sponsor of Luna Rossa in the challenge to win the
America’s Cup in 2021 – a competition with the same DNA
as Pirelli, based on technology, speed and passion.
The results already obtained and plans that will enable us
to remain competitive in the years ahead are the fruit of the
work of all the women and men of Pirelli. Our people are the
basis for everything, with their teamwork, commitment and
passion. It is all of you whom I must thank for the confidence
and trust of our stakeholders.
Marco Tronchetti Provera
Executive Vice-Chairman and CEO
13
Notice of Shareholders’ meeting
The persons entitled to vote at the general shareholders’ meeting of Pirelli & C. Società per Azioni are called to
an Ordinary Shareholders’ Meeting in Milan at Viale Sarca no. 214, at 10:30 a.m. on Wednesday, 15 May 2019,
in a single call, to discuss and resolve on the following
AGENDA
1. Financial statements as at 31 December 2018; related and consequent resolutions;
2. Appointment of a Director and of the Chairman of the Board of Directors;
3. Remuneration policy: consultation.
14
Pirelli Annual Report 2018 Corporate bodies
Corporate Bodies
BOARD OF DIRECTORS1
Chairman
Executive Vice Chairman
and Chief Executive Officer
Director
Director
Director
Independent Director
Independent Director
Independent Director
Director
Independent Director
Independent Director
Independent Director
Independent Director
Director
Independent Director
Ning Gaoning
Marco Tronchetti Provera
Yang Xingqiang
Bai Xinping
Giorgio Luca Bruno
Laura Cioli
Domenico De Sole
Fan Xiaohua
Ze’ev Goldberg
Giovanni Lo Storto
Marisa Pappalardo
Cristina Scocchia
Tao Haisu
Giovanni Tronchetti Provera
Wei Yintao
SECRETARY OF THE BOARD
Alberto Bastanzio
BOARD OF STATUTORY AUDITORS2
Chairman
Statutory auditors
Alternate Auditors
Francesco Fallacara
Fabio Artoni
Antonella Carù
Luca Nicodemi
Alberto Villani
Elenio Bidoggia
Franca Brusco
Giovanna Oddo
AUDIT, RISKS, SUSTAINABILITY AND CORPORATE GOVERNANCE COMMITTEE
Chairman - Independent Director
Independent Director
Independent Director
Independent Director
Fan Xiaohua
Laura Cioli
Giovanni Lo Storto
Cristina Scocchia
COMMITTEE FOR RELATED PARTY TRANSACTIONS
Chairman - Independent Director
Independent Director
Independent Director
Domenico De Sole
Marisa Pappalardo
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. The Director
Giovanni Lo Storto was appointed by the Shareholders’ Meeting held on May 15, 2018. Ning
Gaoning was co-opted by the Board of Directors on August 7, 2018, replacing Ren Jianxin, who
resigned on July 30, 2018. Chairman Ning Gaoning shall remain in office until the next Meeting.
2 Appointment: May 15, 2018 Expiry: Shareholders’ Meeting convened for the approval of the
Financial Statements at December 31, 2020.
15
NOMINATIONS AND SUCCESSIONS COMMITTEE
Chairman
Director
Director
Director
Marco Tronchetti Provera
Ning Gaoning
Bai Xinping
Giovanni Tronchetti Provera
REMUNERATION COMMITTEE
Chairman – Independent Director
Director
Independent Director
Independent Director
STRATEGIES COMMITTEE
Chairman
Director
Director
Director
Independent Director
Director
Independent Director
Tao Haisu
Bai Xinping
Laura Cioli
Giovanni Lo Storto
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 Organisational Model 231 adopted by the company is chaired
by Prof. Carlo Secchi.
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 on August 31, 2017. Expiry: jointly with the current
Board of Directors.
16
Pirelli Annual Report 2018 Presentation of 2018 Pirelli Integrated Report
Presentation of 2018
Pirelli Integrated Report
The Pirelli 2018 integrated report (Annual Report 2018)
aims to provide a comprehensive overview of the process
of creating value for the Company’s Stakeholders, as
resulting from the integrated management of the financial,
productive, intellectual, human, natural, social and relational
capitals. Reporting reflects the business model adopted
by Pirelli, which is inspired by the United Nations Global
Compact, the principles of Stakeholder Engagement set
forth by the AA1000 and the Guidelines of ISO 26000.
The financial capital, which comprise the company’s
financial resources, supply the sustainable management of
other capital and is in turn influenced by the value created
by the latter. In 2018, business operations generated an
adjusted5 EBIT of €955 million (approximately €1 billion was
the 2018 target), up 9% on 2017 and a margin of 18.4% (+2.0
percentage points on an annual basis). This improvement
was supported by internal levers (price/mix, efficiency, cost
rationalisation) which more than offset the impact of the
external scenario (exchange rate volatility, increase in the
cost of production factors) and the drop in Standard sales.
Adjusted EBIT without start-up costs stood at €1,002.7
million (higher than the target of €1 billion), up 8.2% due to
High Value, which reached a weight of more than 83%.
In turn, the Company’s productive capital, which includes a
geographically diversified production structure with 19 plants
in 12 countries on four continents, is managed with a view
to environmental efficiency, with targets for 2020 (vs. base
year 2009) in terms of reducing water withdrawal, energy
consumption, CO2 emissions and increasing waste recovery.
In this regard, in 2018, compared to 2017, Pirelli recorded
a decrease in absolute water withdrawal of 11.8% and in
specific water withdrawal of 9.8%, a reduction in absolute
energy consumption of 1.6% with a specific index in line with
the values of the previous year, and a reduction in absolute
CO2 emissions of 5.8% and in specific emissions of 3.7%.
In addition, 96% of waste was sent for recovery, effectively
pursuing the “zero waste to landfill” target and reaching the
2020 target (>95% recovery) two years ahead of schedule.
All this has helped to achieve efficiencies on the costs
amounting to €70 million in total, approximately 1.3% of
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. Research and development expenses in 2018 totalled
€219 million (4.2% of sales), of which €202.9 million was
17
for High Value activities (6.1% of High Value revenues). In
turn, Pirelli’s Green Performance products, which combine
performance and respect for the environment, at the end
of 2018 represent 49.8%6 of total tyre turnover (43.5% in
2017 and 41.1% in 2016). By restricting the scope of the
analysis to High Value products7, the percentage of Green
Performance products rises to 57.5%.
The heavy investment in innovation also feeds Pirelli’s
intellectual capital, which comprises a portfolio of active
patents grouped into approximately 763 families covering
product, process and materials innovations, as well as a
globally recognised brand.
The evolution of the cited capitals is closely related to the
commitment, competence and dedication of the human
capital, the heart of the Company’s growth. Merit, ethics
and sharing of strong values and clear policies, dialogue,
attention to welfare and diversity are accompanied by
advanced instruments to attract and retain the best talent.
Investment in a “culture of health and safety at work” and in
training is a priority. The accident frequency index in 2018
was in line with the previous year, with a reduction of 81%
compared to 2009, while investment in training was higher
than 8 average days per employee, thus exceeding for the
sixth consecutive year the target of an average of 7 days
per employee set out in the Company Plan.
Pirelli’s social and relational capitals are based on the
continuous and transparent dialogue that the Company
maintains with its Stakeholders. During 2018, particular
importance was given to consultation of the relevant
stakeholders (including international NGOs, Pirelli’s main
natural rubber suppliers, traders and farmers in the supply
chain, automotive customers, international multilateral
organisations) in order to achieve the publication of the
Manual for the implementation of the Pirelli Policy on
the Sustainable Management of Natural Rubber and the
roadmap of activities for the three-year period 2019-2021.
In methodological terms, in the preparation of the Annual
Report 2018 the principles of Integrated Reporting contained
in the Framework of the International Integrated Reporting
Council (IIRC) have been considered, the sustainability
performance complies with the GRI Standards, and with the
provisions of Legislative Decree no. 254 of 30 December
2016, following the process dictated by the principles of the
AA1000 APS (materiality, inclusivity and responsiveness),
the Parent Financial Statements and the Consolidated
Financial Statements have been prepared on the basis of the
IAS/IFRS international accounting standards.
5 Before non-recurring and restructuring costs.
6 Figure obtained by weighing the value of sales of Green Performance tyres on the total value of
sales of Group tyres. Green Performance products identify the tyres that Pirelli produces throughout
the world and that fall under rolling resistance and wet grip classes A, B, C according to the labelling
parameters set by European legislation. The 2016 and 2017 values have been updated following the
acquisition of new data.
7 High Value products are determined by equal or greater than 18 inches and, in addition, include all
“Specialties” products (Run Flat, Self-Sealing, Noise Cancellation System).
Pirelli Annual Report 2018
1818
Pirelli Annual Report 2018 Power is Nothing Without Control
Of the many images that have captured the spirit of Pirelli
over the years, perhaps one of the most extraordinary is that
of American sprinter Carl Lewis in the typical starting posi-
tion wearing a pair of red stiletto heels. Already a world re-
cord holder and having won his eighth Olympic gold medal,
Carl Lewis and those heels perfectly embodied the message
that Pirelli wanted to convey: power is nothing without con-
trol. Twenty-five years on, those words are more relevant than
ever before.
The 2018 Annual Report celebrates this with a short film,
a photo essay and the reflections of three authors who each
offer their personal insight into the famous slogan, presented
from their own unique point of view.
Writer Lisa Halliday, author of the novel Asymmetry and 2017
winner of the Whiting Award presented to emerging writers,
plays on the contrast between the narrative of the story and its
digressions. She highlights that the story must be fast-paced
and pressing, bringing the captivating storyline to life, while
the digressions break up the narrative. The middle ground
between these two elements delivers a sort of compromise
between power and control, leading to a piece that unfolds
rapidly yet slowly.
The eternal conflict between power and control, a struggle
written into the DNA of every human being, is expressed per-
fectly by Pulitzer Prize winner J.R. Moehringer in his short
storytelling masterpiece about the ups and downs of a New
York Mets baseball pitcher. This piece can be read in one sit-
ting, much like Andre Agassi’s biography which was ghost
written by Moehringer.
Adam Greenfield, guru of the digital world and author of the
non-fiction book Radical Technologies, explores power and
control in today’s world, where the most daring state-of-the-
art technologies provide us with ever-increasing power, even
if, in reality, we have not yet learnt to control them.
1919
20
Pirelli Annual Report 2018 21
Sport
J.R. Moehringer was born in New York in 1964 and was a correspondent for the Los Angeles Times. For one of the stories published there,
Crossing Over, he won the Pulitzer Prize. His first book, the critically acclaimed The Tender Bar: A Memoir, topped the US best seller lists for
many weeks and was subsequently published in many countries to great success. It was nominated book of the year by the New York Times,
Esquire, the Los Angeles Times Book Review, Entertainment Weekly, USA Today and New York Magazine. After reading it, Andre Agassi
contacted Moehringer to ask him to work on the drafting of his memoir. Agassi’s Open climbed to the top of the New York Times best seller list
and of many Italian ones, and was enthusiastically received by both the public and critics. He also published Sutton and his story
Resurrecting the Champ was a finalist for the Pulitzer Prize.
The Control
of the Power
by J.R. Moehringer
A bright sunny day in the 1970s.
My Uncle Charlie, a drinker, a gambler, a ne’er-do-well,
but a god in my eyes, took me to a baseball game. We went
to see the New York Mets, who were dreadful, the worst
team in baseball, but also gods in my eyes.
I was seven, I think. The memory is hazy, so I can’t vouch
for its accuracy. But maybe that’s a good thing, maybe
that’s the best thing, since inaccuracy is a central point
of the story.
The pitcher for the Mets that day was a baby-faced cow-
boy with a right arm kissed by God. He threw smoke.
He threw comets. He threw fastballs nearly 100 miles
an hour, close to the fastest speed ever recorded, and I
noted with glee the tight eyes and pursed lips of every
batter who stepped into the box against him.
But it wasn’t the cowboy’s awesome power that terrorized
the batters. It was his complete lack of control. More often
than not he had no idea where that baseball was going.
There’s always the chance that a baseball will slip from
a pitcher’s grasp, that it will take an errant turn, hit the
batter in the face or head. The chance is slim, but that
underlying fear is a key part of the game’s fundamental
confrontation. With the cowboy, however, the slim chance
was a likelihood. A question of when, not if.
22
The Control of the Power
In fact everyone has special powers.
The ones who succeed are the ones
who find ways of achieving durable,
consistent control over their powers.
definitions of things.”
Georgia O’Keefe, one of America’s most important art-
ists, a towering figure of Modernism, soul, mystery, pas-
sion. But in a famous letter to her dear friend she singled
out the importance of keeping cool. “Self-control is a
wonderful thing [...] I think we must even keep ourselves
from feeling too much [...] often [...] if we are going to
keep sane and see with a clear
unprejudiced vision.”
This war between power and
control is woven into our DNA,
because it’s woven into the
DNA of the universe. It was
there at the start, moments
after the Big Bang, physicists
tell us: Energy versus Entropy, locked in a knife fight.
The fight rages to this day. All energy, unless constrained,
veers toward entropy, or chaos.
Energy equals power; constraint is control.
It’s so simple, we forget.
Performance experts say the best method of cultivating
control is to form good work habits, develop simple and
repeatable mechanics, then practice, practice fiendishly.
But this is only one path to control. There are many.
Of course, too much control creates its own problems. If
power without control is nothing, control without power
is death.
Just when you think you’ve got it all figured out… ball four.
The struggle begins again.
Actually it never ends, a realization that
can be hugely discouraging.
On such days I think back to a wild cowboy, and a beloved
philosophe, and with a sigh I ask myself: What are you
gonna do?
Our seats were good, right off first base. It felt as though
we could reach out and touch that lurid streak of white-vi-
olet light arcing from the cowboy’s hand to the catcher’s
mitt. I recall the leathery bang of each pitch slamming
into the mitt, a deeply satisfying sound, like a paper bag
filled with air being smashed. Pow pow pow.
Even more satisfying was the fact that every pitch was
a strike. By some miracle the
cowboy had it that day, power
and control. For five or six in-
nings he held the other team
to no runs and struck out eight
or nine batters along the way.
His face was pure joy. As mine
must have been.
Then, just like that, he lost it. The ball started drifting.
Left, right, up, down. It started sailing, bouncing in the
dirt. Uncle Charlie sighed. Here it comes, he said.
Ball four. The cowboy walked a batter.
Ball four. He walked another batter.
Along with his control, the cowboy lost his composure.
He started to sweat like the guilty man in a police lineup.
I looked at Uncle Charlie, frantic. Do something. Uncle
Charlie looked at me with the placid frown of an ancient
Stoic. What are you gonna do?
Another walk. The crowd stirred. Groans and boos rained
down from the nosebleeds.
What’s going to happen? I asked Uncle Charlie.
He lit a Marlboro and slowly held up four fingers. Sure
enough, one two three four, the cowboy threw four
straight balls, issuing another walk and forcing in a run.
At last the manager came out to lasso the cowboy. By
then, however, it was too late. The other team had seized
the lead, and the momentum, and the Mets did what they
always do. They lost.
On the drive home Uncle Charlie went from Stoic to phi-
losophe as he discussed the case of this pitcher. To have
such a gift, he said, and to waste it like that---how sad.
To me, it was more than sad. It was tragic.
Years later I still think of that pitcher, still use him as
motivation. He’s an object lesson for anyone struggling
with this question of control, which is to say: everyone.
We all make the mistake now and then of thinking the
great athletes, actors, painters, doctors, entrepreneurs,
et al., are gifted with special powers. In fact everyone
has special powers. The ones who succeed are the ones
who find ways of achieving durable, consistent control
over their powers.
Glenn Gould, the fearsome pianist, obsessed about his
beat-up old Steinway CD 318, and his special wooden stool
with the legs sawed off, because both gave him maximum
touch, feel, connection with the instrument. “This is the
secret of doing Bach on the piano,” he said. “You must
have that immediacy of response, that control over fine
23
Art and Culture
Lisa Halliday grew up in Medfield, Massachusetts, and attended Harvard University before working as a literary agent in
New York. Her writing has appeared in The Paris Review and she received a Whiting Award for Fiction in 2017. Her first
novel, Asymmetry, was named one of the Top Ten Books of 2018 by The New York Times, The New Yorker, Time Magazine,
and many other publications. She currently lives in Milan, Italy, with her husband and daughter.
Hurrying
Slowly
by Lisa Halliday
Life moves fast, or at any rate inexorably. While we continue
to process one moment, the next is here. Creativity, especially
when undertaken in solitude, can feel like an artificial pause,
a temporary withdrawal from the world in order to take stock
and articulate your impressions. This is one kind of artistic
control: the discipline of subtracting yourself from the action
and getting down to work.
Another kind of control is that which an artist exerts on her
material, appropriating information and observations and re-
casting them into something new. By articulating the unar-
ticulated, imposing order and form on what was disorderly
and amorphous, an artist apprehends her subject and comes
to possess it by expressing it in her terms.
Then there is technical control: the micromanaging of words
(or chords, or brushstrokes, or échappés), until a truce be-
tween ambition and achievability is reached. The seeming in-
finitude of artistic choices makes this a maddening endeavor,
a compulsive striving toward perfection even while acknowl-
edging that perfection doesn’t exist.
And indeed this is something else that must be controlled: the
compulsion to control.
For one hundred years, the slim writing manual The Elements
of Style has exhorted American students to “make every word
tell.” Lean, lucid sentences, all needless words omitted: these,
24
Hurrying Slowly
The power that propels such a journey
is nothing without control because
control is what harnesses artistic
potential and directs it.
artistic potential and directs it. (Control imposed by some-
one other than the artist, such as censorship or state control,
does something else: it can be an obstacle but also an impe-
tus, spurring art in the form of protest or radical experiments
devised to circumvent it.) A propulsive narrative is propulsive
because authorial control minimizes pointless deviations. It
also admits meaningful ones
and keeps their proportions in
check. Generally, we like to feel
agile, efficient, unimpeded. At
the same time we appreciate art
that conjures a world that is re-
alistically chaotic and ensnaring.
We want, through art, to feel that
even if we cannot avoid the inexorable we are approaching it
with cognizance and grace. A good writer takes the reader on
a ride the reader wishes won’t end; an artist sets in motion a
journey that continues long after the last word is read.
we are taught, are the virtues of a clear and compelling text.
But are they also the virtues of literature? In Six Memos for
the Next Millennium, written in 1985, Italo Calvino proposes
five qualities that writers working in the 21st century might
aspire to attain in their work: Lightness, Quickness, Exacti-
tude, Visibility, and Multiplicity. Presumably Calvino would
find little to argue with in The El-
ements of Style, for the elemental
style it champions facilitates the
very qualities he prescribes. Yet
in his memo on Quickness (in
the original Rapidità), Calvino
also makes a counterintuitive
case: for lingering, for diver-
sions, for narratives that give an impression of nonlinear or
dilated time. There is value, Calvino believes, even in stories
that seem never to arrive at their destination.
“The digression,” he writes, “is a strategy for putting off the
ending, a multiplying of time within the work, a perpetual
evasion or flight.” He also quotes Carlo Levi’s introduction to
Tristam Shandy (a novel, according to Calvino, “completely
composed of digressions”):
If a straight line is the shortest distance between two
fated and inevitable points, digressions will lengthen
it; and if these digressions become so complex, so
tangled and tortuous, so rapid as to hide their own
tracks, who knows—perhaps death may not find us,
perhaps time will lose its way, and perhaps we our-
selves can remain concealed in our shifting hiding
places.
Immortality through perpetual digression. The idea is con-
sistent with what Calvino, who died before he could write
his sixth memo, calls his personal motto: Festina lente. Hur-
ry slowly. The Elements of Style teaches us that our writing
should be rigorously streamlined. Not incompatibly, Calvi-
no advises that even frictionless prose can seem to tarry and
meander, backtrack and lose its way. In fact, such controlled
discursions are often what turn merely elegant sentences into
something transcendent. Not only do the deviations seem to
defy death and time, they also resonate with the unstraightfor-
wardness of life itself. If an artist can simultaneously evoke
two seemingly opposite impressions—lightness and weight,
quickness and slowness, exactitude and uncertainty, visibili-
ty and opacity—he in turn evokes the multiplicity of human
experience. Frequently the more pleasing quality prevails as
a style while its foil serves as the subject. For example, a
story’s theme might be life’s detours and delays, but these
are communicated in a sleek, aerodynamic style that speeds
the narrative up or slows it down according to the author’s
intuitions as to what is beautiful and apt.
Art is a journey, a distance traveled by the consciousness.
This is true for both artist and viewer, performer and audi-
ence, writer and reader. The power that propels such a journey
is nothing without control because control is what harnesses
25
Innovation
Adam Greenfield is a London-based writer and urbanist. His most recent book was Radical Technologies: The
Design of Everyday Life(Verso, 2017), and his next, Power at Human Scale, will be forthcoming from the same
publisher in 2020.” High-resolution headshot enclosed.
Standing in the
Way of Control
by Adam Greenfield
For a quarter-century now, Pirelli has offered its wares to the
world under the slogan “power is nothing without control.”
This, it has to be said, is highly unusual among commercial
catchphrases: in the first place because it is true, but also in
that it happens to encapsulate a valuable life lesson.
It is above all true in its original domain of application. The
lover of driving immediately thinks of, say, Kimi Räikkönen,
his low-slung Ferrari tenaciously gripping the wet Spa-Fran-
corchamps asphalt as he pushes it through a 300 kph turn.
Or, reaching further back into automotive history, the sheer
brio of an open-topped Fiat 514 clinging to the rooftop curves
of the Lingotto test track, the banked concrete warm in the
Turinese sun. These are situations in which brute motive
power alone, in whatever amount it might be gathered and
yoked by the ambitious, will not and cannot guarantee that
one achieves one’s objective; if anything, its heedless appli-
cation can easily spell disaster. What is asked of the driver
at such moments is to exert the most precise direction over
the massed energies at their command, a precision that can
only be achieved when one is both furnished with the right
equipment and has some degree of insight into the nature of
its interface with the world. So far, so good. But perhaps the
sentiment has more to teach us if we pursue its implications
beyond the realm of the merely literal.
26
Standing in the Way of Control
The distinction between power and
control ranks among the central
challenges of our time. Our Promethean
technologies offer us more and more
power by the day, but the plain fact is
that we haven’t yet learned how
to control them.
driving is concerned, control requires traction, and traction
upon a road surface in its turn depends on friction — that is
to say, on difference, even resistance.
Control, in other words, is an emergent property: a dynamic
negotiation of the interface between differences as it is ex-
pressed in any given moment. Even US military doctrine rec-
ognizes this, defining “command” as “the exercise of author-
ity,” and “control,” by contrast,
as “feedback about the effects of
the action taken.”
It is, to be sure, an open question
whether there can be any prog-
ress in human affairs but that
which is strictly technical. But
in 2019, with the evidence of our
failures of control piling up all
around us, perhaps we’re finally
learning respect for the com-
plexity of the circumstances in
which we’re embedded — for nothing teaches respect quite
as effectively as having once been burned.
Power in this sense is an adolescent thing. But it is not com-
pletely ridiculous to think that at least where our capacity
to wield and control powerful tools is concerned, we may
at last be nearing childhood’s end. As never before, there is
quite literally a world to win. The hard work — and with any
luck, the earned satisfaction and pride in a difficult job well
done — begins now. I can’t wait to see what we do together.
It will be true of any situation in which there’s some gap,
some slippage between one’s capacity to exert raw force upon
the world and their ability to direct that force with any par-
ticular finesse. And this is why it has never rung truer than
it does at this very moment in history, for the distinction be-
tween power and control ranks among the central challenges
of our time. Our Promethean technologies offer us more and
more power by the day, but the
plain fact is that we haven’t yet
learned how to control them.
Equipped with an array of shiny
new tools, we clumsily inter-
vene in systems of the greatest
complexity — systems like the
climate, the genome or the sum
of interactions we think of as h
man society, whose cross-con-
nections, interdependencies and
feedback loops produce emer-
gent order in ways far subtler than we currently understand.
These are situations and contexts that confound our ordi-
nary, everyday sense of causality. They break the push-hard-
er-to-go-faster logic of the simple Newtonian mechanics we
learned in earliest childhood — a logic most of us long ago
internalized, and still unconsciously rely upon even in cir-
cumstances where it simply does not apply. In short: systems
like these don’t respond to our desires in straightforward,
linear ways. If we ever hope to operate effectively in such
domains, we must give up our simpleminded insistence on
linear force, and learn how to apply the power of our tools
with all the suppleness, tact, insight and discretion the situ-
ation calls for.
And make no mistake, that power is all but unprecedented.
In no previous moment of our history as a species, excepting
only perhaps that in which we first acquired the mastery of
fire, have we found ourselves equipped with such transfor-
mative capabilities. The entire globe is girded with networks
that reach into every household on the planet, and touch just
about every life. The sensing devices connected in this way
span from the surface (or even the interior depths) of the
individual human body straight up to the constellation of plat-
forms glittering in their geostationary orbits. Taken together,
they register our doings, comings and goings even if we our-
selves believe we’ve opted out, along with the state of every
other system we interact with. As a result, it is now given
to us to perceive patterns of rise, fall and flow that (whether
because they transpired beneath or beyond the threshold of
sensibility, in either their temporal or spatial extent) have
eluded us since time out of mind. Increasingly we aim to
rearrange the very bonds of life. Truly the reach of our am-
bitions is unlimited. But again, we lack control in any of these
dimensions. And that is why, before departing entirely from
the realm of the literal, we should note that the interface be-
tween engine and road has one final lesson to teach us. Where
27
Pirelli Annual Report 2018
Power
is NOTHING
Without
Control
An Editorial story
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Pirelli Annual Report 2018 29
POWER
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Pirelli Annual Report 2018 is
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a
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Pirelli Annual Report 2018 GESTURE
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a
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Pirelli Annual Report 2018 word
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a
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Pirelli Annual Report 2018 smile
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,
it
san
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Pirelli Annual Report 2018 attitude
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an
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Pirelli Annual Report 2018 image
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asmall
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Pirelli Annual Report 2018 detail
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POWER
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Pirelli Annual Report 2018 is
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a
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Pirelli Annual Report 2018 kiss
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a
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Pirelli Annual Report 2018 color
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aN
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Pirelli Annual Report 2018 IDEA
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a
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Pirelli Annual Report 2018 sign
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a
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Pirelli Annual Report 2018 NOTE
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a
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Pirelli Annual Report 2018 Thumb
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POWER
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Pirelli Annual Report 2018 is
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whatmoves
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Pirelli Annual Report 2018 usforward
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control
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Pirelli Annual Report 2018 is
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whatgets
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Pirelli Annual Report 2018 usthere
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Pirelli Annual Report 2018 Pirelli Annual Report 2018
power
is nothing
without
control
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Pirelli Annual Report 2018
Power is a gesture,
,
a word, a smile. It
s an
,
attitude, an image, a small detail.
Power is a kiss,
a color, an idea. A sign,
a note, a THUMB.
Power is a dream,
s something that pushes us
beyond our limits.
Power is
whaT moves us forward
Control is
what gets us there.
it
68
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Pirelli Annual Report 2018 Pirelli Annual Report 2018
SCAN THE QR CODE TO watch THE VIDEO
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Pirelli Annual Report 2018
,
DIRECTORS
REPORT
ONOPERATIONS
ATDECEMBER 31, 2018
71
Macroeconomic
and market scenario
MACROECONOMIC PERFORMANCE
In 2018 global GDP growth stood at +3.2%, a slight decrease compared to +3.3% for 2017.
GLOBAL GDP GROWTH (ANNUAL CHANGE IN %)
3.2
2.8
2.8
2.0
2.1
1.4
4.9
5
4
3
2
1
0
-1
World
Europe
NAFTA
Latam
CSI
MEA
APAC
2016
2017
2018
Source: IHS Markit, January 2019: growth rate shown for 2018 are estimates.
Europe recorded an increase of +2.0% for 2018 compared to its peak in 2017 (+2.7%). The slowdown was
mainly due to uncertainties on international trade and on the political situation of some European Union
countries, also in view of the upcoming European elections, as well as the so far uncertain deal regarding the
exit from the EU of the United Kingdom.
It was vice versa for the US economy where GDP growth strengthened in 2018 to +2.9% compared to +2.2%
for 2017, also thanks to the fiscal stimulus introduced by the government and to its positive effects on
consumption, investment and employment (the unemployment rate decreased further to 3.9% from 4.4% for
2017). The inflationary effects of growth (a consumer price index of +2.4%) pushed the US Federal Reserve to
progressively increase the benchmark rate from 1.5% at the beginning of the year to 2.5% in December 2018.
The performance of emerging markets was mixed. The Brazilian economy (+1.3% GDP growth in 2018) was
impacted by the transport workers’ strike in May and by the fall in vehicle exports during the second half of
the year linked to the collapse of demand in Argentina. The contraction of the economies of Argentina and
Turkey was particularly accentuated, both of which were hit by currency crises. There was recovery instead for
Russia’s economy and for those of the CIS (Commonwealth of Independent States) member states, sustained
by oil prices, which more than offset the tightening of sanctions by the United States.
Growth of the Chinese economy was +6.6% in 2018 (+6.7% for 2017) despite measures to reduce the use
of credit and trade tensions with the United States, thanks to the fiscal stimulus measures introduced by the
government.
On the currency front, the performance of the Euro vs USD exchange rate for 2018 reflected the growth
differential of the two economies and the rise in US interest rates compared to the substantial stability of
interest rates as set by the ECB. Against the US Dollar, the European currency rose from an average 1.23 in
the first quarter of 2018 to 1.14 in the fourth quarter, recording an average of 1.18 dollars per euro for the year
(+4.6% compared to the average of 1.13 in 2017).
72
Pirelli Annual Report 2018 The US Dollar also strengthened against the currencies of emerging markets. The Brazilian Real went from
an average of 3.19 against the US Dollar in 2017, to an average of 3.66 for 2018, a depreciation of 13.0%. The
Russian currency averaged 62.60 Roubles per USD during 2018 with a depreciation of 7.0%, compared to an
average exchange rate of 58.30 Roubles per USD in 2017.
The Chinese currency weakened from 6.36 Renminbi per USD for the first quarter of 2018 to 6.92 for the
fourth, resulting in an average for the year of 6.62 per USD, an appreciation of 2.0% compared to the average
of 6.75 in 2017.
EXCHANGE RATE: USD PER EURO
EXCHANGE RATE: BRAZILIAN REAL PER USD
Media 2015:
1.11
Media 2016:
1.11
Media 2017:
1.13
Media 2018:
1.18
Media 2015:
3.34
Media 2016:
3.48
Media 2017:
5.19
Media 2018:
3.66
1.3
1.2
1.1
1.0
5.0
4.0
3.0
2.0
2015
2016
2017
2018
2015
2016
2017
2018
Source: European Central Bank monthly data at December 31, 2018.
RAW MATERIALS
The year 2018 was characterised by increases in the price of energy resources and butadiene, and a decrease
in the price of natural rubber.
Brent recorded an average price for the year of USD 72 per barrel, +31% compared to the average price for
2017. This performance reflected the increase in the price of Brent during the first ten months of 2018 (which
culminated in an average price of USD 81 per barrel in October), offset by a gradual reduction in price during
the last part of the year (to an average of USD 58 per barrel in December). The price rise for 2018 was mainly
influenced by an agreement between the main oil producing countries which limited the production of oil,
and also by fears tied to US sanctions against Iran. During the last part of the year, the increase in crude oil
production in the US, and the slowdown in global economic growth impacted oil’s performance.
The price of natural rubber followed a trend of gradual decline during 2018, moving from an average of USD
1,467 dollars per tonne for the first quarter to USD 1,266 per tonne in the fourth quarter, with an average annual
price of USD 1,365 per tonne, down -17.0% compared to 2017.
73
Directors’ Report on Operations PRICES OF RAW MATERIALS
BRENT US$/barrel
NATURAL RUBBER TSR20 US$/Metric Ton
BUTADIENE EURO/Metric Ton
120
100
80
60
40
20
0
3000
2000
1000
0
2500
2000
1500
1000
500
0
2015
2016
2017
2018
2015
2016
2017
2018
2015
2016
2017
2018
Source: IHS Markit
The average price of butadiene, the main raw material for the production of synthetic rubber, stood at euro
1,011 per tonne for 2018, a decline of -9.0% compared to the average price for 2017. As with the price of oil,
butadiene prices increased during 2018 to reach a peak in October (averaging Euro 1,175 per tonne for the
month) to then return below Euro 1,000 per tonne in December, influenced by the fall in the price of crude oil
and by the slowdown in the global economy.
AUTOMOTIVE MARKETS
The global car market consolidated itself at a level of 93.9 million units sold in 2018 according to IHS
Markit, a fall of -0.3% compared to the previous year when registrations reached an all-time high. Growth
in emerging market such as South America (+7.0%), Russia (+13.6%) and the stability of the car market in
Europe (+0.8%) during 2018 was counterbalanced by the contraction of the car market in APAC (-1.5%), in
the Middle East/Africa (-2.5%) and in North America (-0.7%).
There was a positive performance by car sales in the Premium and Prestige segments (+0.8%) which reached
a 12.6% share of all vehicles sold. This trend, which translates into the continued improvement of the Premium
and Prestige share of the overall car parc, was sustained in particular by APAC (+3.5%) and by North America
(+3.4%). Europe confirmed its position as the region with the highest share of Premium and Prestige sales
(20%).
Thanks to growth of +3.6%, the car parc reached 1.38 billion automobiles (compared to 1.33 billion units in
2017, revised upwards due to an increase in the number of countries included) with the Premium and Prestige
segment share of the car parc at 10.4% (10.3% in 2017) equal to 144 million vehicles in circulation (137 million
for 2017). Europe, NAFTA and APAC represented 92% of the Premium and Prestige car parc.
TYRE MARKETS
Regarding the development of demand in the Car tyre market, a positive trend was seen in the New Premium
segment (car or light truck tyres with a rim diameter of ≥18inches), with growth of +10% during 2018, compared
to a contraction in the segment for tyres with a lower rim diameter (-1.0%). The New Premium segment attained
a 15% share of the total market (14% in 2017).
In Europe, sales of New Premium Car tyres recorded growth of +8.5% for 2018, with a -0.4% performance for
the segment for tyres with a rim diameter of ≤17 inches. In the Original Equipment channel, New Premium sales
grew by +2.1% compared to a decrease in sales recorded for non-New Premium segment tyres (-4.7%). Both
segments were impacted during the second half of 2018 by delays in the introduction of new C02 emission
control procedures for new cars. In the Replacement channel, New Premium sales recorded a growth of +14.3%
compared to +0.7% for tyres ≤17 inches.
In NAFTA, sales for car New Premium tyres rose +10.2% (+12.9% for the Replacement channel, +5.3% for
the Original Equipment channel) compared to a -0.6% decline registered for the non-New Premium segment
74
Pirelli Annual Report 2018 (+0.5% on the Replacement channel, -5.4% on the Original
Equipment channel).
In APAC, sales of New Premium Car tyres equalled +10.4%
(+10.9% for the Replacement channel, +10.1% for the
Original Equipment channel) compared to a -1.8% decline
in sales for the non-New Premium segment (+0.2% for the
Replacement channel, -4.9% for the Original Equipment
channel).
The decline continued for markets in Latin America, with a
further contraction of -6.8% for the total market (Original
Equipment + Replacement); -8.7% for the Replacement
channel while Original Equipment grew by +2.8%.
The market in Russia recovered with growth at +11.7%,
with the Replacement channel at +11.0% and Original
Equipment at +15.9%.
Significant events
of 2018
On January 11, 2018 Pirelli sold, through an operation
reserved for “qualified investors” in Italy, and institutional
investors abroad, the entire investment directly held in
Mediobanca S.p.A. - which corresponded to approximately
1.8% of the relative share capital - with a total net collection
of euro 152.8 million.
On January 22, 2018, as part of the EMTN (Euro Medium
Term Note) program approved at the end of 2017,
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 effective yield at
maturity is equal to 1.479%. The securities were listed on
the Luxembourg Stock Exchange. Furthermore, during the
first weeks of January 2018, Pirelli initiated an operation
to change the financial conditions of the Group’s main
bank credit facility - involving a total notional amount of
euro 4.2 billion, which included a revolving credit facility
for the amount of euro 700 million - which allowed for
the reduction of the applied interest margin by 30 basis
points.
On March 6, 2018 at the Geneva Motor Show, Pirelli
presented the Cyber Car technology, the new system for
Original Equipment which thanks to a sensor, allows for
the interaction between tyre and car.
On March 15, 2018 Pirelli placed a Floating Rate Note to
the value of euro 200 million with maturity in September
2020. The Floating Rate Note issue - intended exclusively
for institutional investors – has allowed for the repayment
75
of the existing debt by the same amount, thereby further
optimising the company’s financial structure by reducing
the cost of debt.
On March 20, 2018 the euro 600 million bond loan
maturing in November 2019 was repaid in advance by
the subsidiary Pirelli International Plc. The loan was
reimbursed at a price of euro 1,031.15 by way of a Make-
Whole Amount for each bond with a value of euro 1,000,
to which euro 5.85 was added as interest accrued up until
the date of the reimbursement.
On May 14, 2018, the Pirelli Board of Directors, upon
the proposal of the Executive Vice Chairman and CEO,
Marco Tronchetti Provera, approved the development of
an organisational structure aimed at consolidating the
implementation of the integrated business model. The
new organisation model provides that all staff functions
and as well as the regions, continue to report to the
Executive Vice Chairman and CEO as regards institutional
issues and overall coordination. In addition, the General
Operations Department entrusted to Andrea Casaluci,
will also report to the Executive Vice Chairman and CEO.
It is a department which assembles staff functions which
already previously reported to Marco Tronchetti Provera,
or report directly such as the Technology area entrusted
to the Executive Vice President of Technology, Maurizio
Boiocchi, and the Digital function, entrusted to Pier Paolo
Tamma.
On May 15, 2018, the Shareholders’ Meeting of Pirelli &
C. S.p.A. approved the Financial Statements for 2017, (as
approved by the Board of Directors on February 26, 2018)
as well as the increase to the number of members of the
Board of Directors to 15, and - upon the proposal by a
group of institutional investors - appointed a new Director,
Giovanni Lo Storto, who has joined the Audit, Risks,
Sustainability and Corporate Governance Committee
and the Remuneration Committee. Giovanni Lo Storto
has declared that he possesses the requisites to qualify
as an Independent Director pursuant to the Finance
Consolidation Act and the self-regulatory Code of
Conduct for listed companies. With this appointment, the
Pirelli Board of Directors is composed of a majority (8 out
of 15 members) of Independent Directors. Furthermore,
the Shareholders’ Meeting appointed the new Board of
Statutory Auditors for the financial years 2018-2020,
which is composed of Francesco Fallacara (Chairman);
Antonella Carù, Fabio Artoni, Luca Nicodemi and Alberto
Villani (effective statutory auditors) and Franca Brusco,
Elenio Bidoggia and Giovanna Oddo (Alternate Auditors).
The fee was set at euro 50,000 for the Statutory Auditors
and euro 75,000 for the Chairman of the Board of Statutory
Auditors. The Shareholders also authorised the Board of
Directors to stipulate a new D&O (Directors & Officers
Liability Insurance Policy), expressed a favourable opinion
on the Remuneration Policy, and approved for the section
related to Total Shareholder Return, the adoption of the
Directors’ Report on Operations 2018-2020 three-year monetary Long Term Incentives
(“LTI Plan”), the latter intended for the entire management
sector correlates with
the 2018-2020 objectives
contained in the 2017-2020 Industrial Plan.
On June 22, 2018, the Pirelli Board of Directors extended
the expiry date (from January 31 to December 31,
2019) and increased the amount of the previous Board’s
authorisation for bond loans from euro 1.0 billion to euro
1.8 billion, of which euro 800 million was placed during the
first quarter of 2018.
On 26 July 2018, Pirelli & C. S.p.A. finalised a “Schuldschein”
loan for a total euro 525 million. The loan, guaranteed by
Pirelli Tyre and granted by primary market participants,
consists of one tranche for the amount of euro 82 million
with three-year maturity, another for euro 423 million with
a five-year maturity, and another for euro 20 million with
a seven-year maturity. The operation has allowed for the
repayment of the existing debt, and thus further optimising
the debt structure and debt cost.
On August 7, 2018 the Pirelli Board of Directors - as
regards the “Pirelli & C. S.p.A. 600,000,000 euro 1.375
per cent Guaranteed Notes due 25 January 2023” (ISIN:
XS1757843146) issued by Pirelli & C. S.p.A as part of the euro
2.0 billion EMTN (Euro Medium Term Note) program listed
on the Luxembourg Stock Exchange - resolved to proceed
with the partial purchase of these bonds. On December 19,
2018 Pirelli repurchased bonds for a total value of euro 47
million out of a total of euro 50 million as part of the mandate
conferred to Goldman Sachs International to proceed with
the partial repurchase of the bond.
On August 7, 2018, the Pirelli Board of Directors, upon
the proposal of the Executive Vice Chairman and CEO,
Marco Tronchetti Provera, proceeded to co-opt Ning
Gaoning for his appointment as Chairman of the Board
of Directors, replacing Ren Jianxin, who resigned on July
30, 2018. Ning Gaoning - who declared that he did not
possess the requisites to qualify as independent pursuant
to the Finance Consolidation Act and the self-regulatory
Code of Conduct - was qualified by the Board in his role as
non-executive Director and has been assigned the legal
representation of the Company pursuant to the Articles
of Association. The Board also appointed the new Director
as a member of the Nominations and Successions
Committee.
On August 13, 2018 Pirelli announced that it had signed
an agreement with the Luna Rossa Challenge to create a
partnership aimed at developing a multi-year project that
will bring about Luna Rossa’s participation in the next
edition of the America’s Cup, scheduled for New Zealand
during the course of 2021. Pirelli and Prada will be the co-
title sponsors for the vessel.
On August 28, 2018 Pirelli announced that it had joined
the United Nations “Road Safety Trust Fund” and - with the
aim of supporting the Fund by having a significant impact
on global road safety - provided an initial contribution of
USD 600,000 (2018-2019).
On September 7, 2018 Pirelli announced that it had
sold its Car tyre factory in Guacara, Venezuela, together
with all the assets held in that country. The operation,
which follows the de-consolidation of accounting on
December 31, 2015, had no financial impact on the
Group. The agreement, which provides for the continuity
of employment, was reached with a consortium of South
American entrepreneurs, and the company Sommers
International as buyer.
On October 9, 2018 the closing was completed for the
purchase by Pirelli Tyre S.p.A. of a 49.0% stake in the Joint
Venture which, through the company Jining Shenzhou
Tyre Co., owns a new Consumer tyre manufacturing
plant in China. The investment, - which had already
been announced on August 1, 2018 along with the
announcement of the preliminary agreement – was for
approximately euro 65 million. Pirelli Tyre S.p.A. will have
the right, to be exercised during the period between
January 1, 2021 and December 31, 2025, to increase its
participation up to 70%.
On October 15, 2018 Pirelli signed the preliminary
agreement with the Agenzia delle Entrate (the Italian
Tax Office) for access to the tax relief concessions of
the Patent Box, with reference to the 2015-2019 fiscal
years. The tax benefit for the three year period 2015-
2017 was equal to approximately euro 54 million to
which is added the benefit for the 2018 financial year
estimated at euro 35 million. As per the proposal by
CEO, Marco Tronchetti Provera, the Board of Directors
allocated the resources of the Patent Box to the
reduction of costs, which will be implemented during
the 2019 financial year in order to continue the double-
digit reduction of exposure on the Standard segment,
as well as the High Value strategy.
On 18 December 2018 Pirelli & C. S.p.A. announced that
it had been admitted - together with the subsidiary Pirelli
Tyre S.p.A. - to the Regime di Adempimento Collaborativo
(Collaborative Compliance Scheme), a new initiative for
dialogue with the Italian Tax Office based on a relationship
of transparency which allows the Company to further
increase its level of certainty on the relevant tax issues.
The admission comes at the end of the positive outcome
of the assessment conducted by the Italian Tax Office on
the “Tax Control Framework” of the company, which is
the system for the detection, management, control and
mitigation of tax risk.
76
Pirelli Annual Report 2018 Group performance
and results
In this document, in addition to the financial measures
as provided for by the International Financial Reporting
Standards (IFRS), alternative performance indicators
derived from IFRS were also used in order to allow for a
better assessment of the of the Group’s operating and
financial performance.
Reference should be made to the paragraph “Alternative
Performance Indicators” for a more detailed description
of these indicators.
* * *
As a result of the assignment in March 2017 by Pirelli &
C. S.p.A. to the parent company Marco Polo International
Holding Italy S.p.A., of the TP Industrial Holding S.p.A.
shares, the company into which almost all of Pirelli’s
Industrial assets had been merged, in continuity with the
2017 financial year some residual activities in China and
Argentina relative to the Industrial business, qualified as
“Discontinued operations”. The results for the financial
year for “Discontinued operations” were classified to the
Income Statement as a single item, “Net income (loss)
related to discontinued operations”. The separation
process for Argentina was completed during the month
of June 2018, while for China completion was completed
during the fourth quarter of 2018.
* * *
The Directors’ Report on Operations at December 31,
2018 has been prepared by applying the new accounting
standards IFRS 15 - Revenues from Contracts with
Customers, and IFRS 9 - Financial Instruments, which
came into force as of January 1, 2018.
The main impacts deriving from their application were as
follows:
→ IFRS 15 - Revenues from Contracts with Customers: as
a result of the application of this accounting standard,
some amounts previously accounted for under costs
and mainly related to variable considerations payable to
indirect customers, and mainly linked to the achievement
of sales targets, have been recorded as a reduction to
revenues or other revenues, with insignificant impact.
The restatement of these amounts did not alter the
operating income or equity of the Group at the date of
the transition (January 1, 2018);
→ IFRS 9 - Financial Instruments: following the application
of this standard, the Group’s equity, at the date of the
transition (January 1, 2018) decreased by euro 1,023
thousand, due to effect of the new model of impairment
applied to financial receivables.
77
The Group has adopted the two principles retrospectively,
taking into account the combined effects deriving from
their first application to equity as of January 1, 2018. The
comparative data for 2017 has not been subjected to
restatement.
During the course of the third quarter of 2018, the inflation
rate accumulated over the past three years in Argentina
exceeded 100%. This, together with other characteristics
of the country’s economy led the Group to adopt, the
accounting standard
IAS 29 - Financial Reporting
in Hyper-inflationary Economies - for the Argentine
subsidiary Pirelli Neumaticos SAIC, as of July 1, 2018. As
a result, the data for non-monetary assets and liabilities
present in the financial statements has been re-evaluated
to eliminate the distortionary effects due to the loss of
purchasing power of the local currency. The inflation rate
used for the purposes of implementing hyperinflation
accounting corresponds to the consumer price index.
The financial statements have been translated into Euro
by applying the period-end exchange rates to the items of
both the Statement of Financial Position and the Income
Statement.
* * *
The 2018 financial year results confirmed the resilience
of the business model which is focused on the High Value
segment, with an operating performance consistent with
the targets for the financial year:
→ Revenues which amounted to euro 5,194.5 million, (the
2018 target had been approximately euro 5.2 billion)
with an organic growth of +3.7%, characterised by the
strengthening of the leadership position in the high-
end products range in all regions: an organic growth
of +10.3% for High Value revenues, which represented
approximately 64.0% of total sales;
→ the EBIT adjusted equalled euro 955.0 million, (the
2018 target had been approximately euro 1 billion)
with a growth of +9.0% compared to 2017 with a
margin of 18.4% (+2.0 % on an annual basis). This
improvement was supported by internal levers (price/
mix, efficiencies, costs rationalisation) which more than
offset the impacts of the external scenario (exchange
rate volatility, increase in the cost of production factors)
and the contraction in Standard segment sales;
→ EBIT adjusted without start-up costs amounted to euro
1002,7 million (higher than euro 1 billion the target), a
growth of +8.2%, thanks to the High Value segment
which achieved a share of more than 83.0% of the EBIT;
→ The net income (loss) related to continuing operations
(Consumer) stood at euro 448.8 million, a growth of
+70.5% compared to euro 263.3 million for 2017.
→ The net financial (liquidity)/debt position, negative to
the amount of euro 3,180.1 million, was an improvement
of to the amount of euro 858.2 million compared to
September 30, 2018 (due to the usual seasonality of
Directors’ Report on Operations working capital) and to the amount of euro 38.4 million
compared to December 31, 2017. The net financial
position at the end of 2018 included approximately
euro 140 million in financial investments advanced to
the Joint Venture in China, as well as the impact of the
slowdown/restructuring in Brazil which should foresee
recovery by 2020. Consequently the net financial
(liquidity)/debt position / EBITDA adjusted without
start-up costs ratio stood at 2.49x (2.7x in 2017, the
2018 target had been 2.35x).
The main actions underlying these results can be
summarised as follows:
→ strengthening of the High Value segment which
represented 63.7% of revenues (up by +6.2% compared
to 57.5% for 2017). High Value volumes recorded a
growth of +11.0%, with an improvement in the market
share for the Car New Premium segment (Pirelli sales
volumes were up by +14.3% for Car tyres ≥18” compared
to the +10.0% growth of the market). Of particular note
was the growing demand for Specialties tyres with
≥18” rim diameters (Run-flat, Pirelli Noise Cancelling
System, Seal-Inside) due to the continuous expansion
of the homologations portfolio for these technologies
(for 2018 approximately 46.0% of the 421 new High
Value homologations were represented by Specialties);
Volume growth for the High Value segment was more
contained in respect of the target of ~+13% and was
impacted by the contraction of the European Original
Equipment market during the second quarter (-4.9%
for the third quarter and -8.7% for the fourth quarter),
following the introduction of the new CO2 emissions
tests (WLTP) as of September 1st.;
→ reduction of exposure on the Standard segment with a
-14.0% contraction in volumes driven by the progressive
exit from products with a lower rim diameter and
lower profitability, in context of the general slowdown
of the Standard market. The increased contraction
compared to the target of -12% was attributable to the
deterioration of the market for the Standard segment
in LatAm (-7.1% for 2018, -14.6% for the fourth quarter).
The combination of High Value and Standard segment
performances resulted in an overall change in volumes
of -3.1%;(the target for 2018 was -2.0%);
→ improvement in the price/mix component: +6.8%
for 2018 (the target for 2018 was +6.5%) due to
the increasing proportion of the high end range, the
progressive improvement of the product mix and
channels, and the price increases put in place in emerging
countries to offset the volatility of exchange rates;
→ the acceleration of the efficiencies program as of the
third quarter (euro 70 million for the entire financial
year, 1.3% of revenues) which more than offset costs
inflation (euro -48 million). These programs involved
industrial and product activities: from the optimisation
of raw material costs and product simplification, to
productivity improvement, thanks to the increasing
digitalisation of processes.
→ rapid implementation of costs recovery actions
(approximately euro 50 million mainly for marketing
budgets and advertising costs, consultancy fees, and
general and administrative expenses) in response to the
worsening of market trends for the Standard segment
in emerging countries, particularly in South America.
As regards the more specific programs, of note were:
→ the strengthening of the partnership with Prestige
and Premium car manufacturers: 421 new High Value
homologations during 2018, with a portfolio increasingly
oriented towards new technologies which reached more
than 2,480 high-end range homologations. During 2018,
Pirelli intensified its collaborative relationships for the
electric car with the major global Premium and Prestige
car manufacturers and with the most innovative Chinese
brands. These partnerships allow for the strengthening
of Pirelli’s positioning on the Replacement channel,
generating a loyalty rate of over 80%;
→ expansion of the High Value productive capacity
mainly in Europe and NAFTA and the conversion of
the Standard segment capacity into High Value in
Brazil, predisposing the processes and organisation of
manufacturing plants to handle the growing complexity
and ever-increasing rim diameters. During 2018, High
Value capacity reached a 60.0% share of production,
with an increase in the High Value capacity of 3 million
units, of which 37.0% was due to conversion;
→ increased distribution coverage mainly in Europe,
NAFTA, and APAC with a greater presence on the car
dealer, retail client and Pirelli Tier 1 channels, where
Pirelli exercises greater control and records higher
sales. The volume share of these channels rose from
51.0% of volumes for 2017 to 57.0% for 2018;
→ the development of business programs which intercept
new end-customer needs (such as Cyber and Velo),
also through the collaboration with the Premium and
Prestige Original Equipment channels. There was the
continuation of projects for the digital transformation
of the Company, while the conversion of Aeolus brand
production into Pirelli brand production was completed
in the manufacturing plant in Jiaozuo for the Car sector
acquired from Aeolus. These activities were reflected
in the sustainment of start-up costs of approximately
euro 47.7 million during the 2018 financial year (euro
50.2 million for 2017).
78
Pirelli Annual Report 2018 The Group’s consolidated Financial Statements are summarised as follows:
(In millions of euro)
12/31/2018
12/31/2017
Net sales
EBITDA adjusted without start-up costs (°)
% of net sales
EBITDA adjusted (°°)
% of net sales
EBITDA
% of net sales
EBIT adjusted without start-up costs (°)
% of net sales
EBIT adjusted (°°°)
% of net sales
EBIT
% of net sales
Net income (loss) from equity investments
Financial income/(expenses)
Net income (loss) before tax
Tax expenses
Tax rate %
Net income (loss) related to 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
Operating working capital related to continuing operations
% of net sales
Other receivables/other payables
Net working capital related to continuing operations
% 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 High Value
Employees (headcount at end of period)
Industrial sites (number)
5,194.5
1,279.1
24.6%
1,234.7
23.8%
1,097.4
21.1%
1,002.7
19.3%
955.0
18.4%
703.1
13.5%
(5.0)
(196.3)
501.8
(53.0)
(10.6%)
448.8
0.44
576.3
(6.4)
442.4
431.6
9,017.8
1,128.5
628.0
(1,604.7)
151.8
2.9%
34.3
186.1
3.6%
10.7
9,214.6
4,550.9
1,483.6
3,180.1
4,468.1
463.4
219.0
4.2%
202.9
6.1%
31,489
19
5,352.3
1,175.1
22.0%
1,137.7
21.3%
1,044.5
19.5%
926.6
17.3%
876.4
16.4%
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
(1,673.6)
(80.4)
(1.5%)
(42.2)
(122.6)
(2.3%)
60.7
9,059.1
4,177.0
1.663.6
3,218.5
4,116.7
489.4
221.5
4.1%
199.9
6.5%
30,189
19
(°) Start-up costs refer to contribution to EBITDA and EBIT (amounting to euro 44.4 millions (euro 37.4 millions in 2017) and euro 47.7 millions (euro 50.2 millions in 2017) respectively) of the Cyber and Velo activities, the
costs for the conversion of Aeolus brand Car products, and costs sustained for the digital transformation of the Group.
(°°) Adjustments refer to non recurring and restructuring expenses amounting to euro 91.5 millions (euro 93.2 millions in 2017), expenses relating to the retention plan approved by the Board of Directors on February 26, 2018 amounting
to euro 13.3 millions and 2018 costs (i) relating to renegotiation of commercial agreements and royalties amounting to euro 14.2 millions and (ii) not pertinent to normal business operations amounting to euro 18.3 millions.
(°°°) Adjustments refer to amortization of intangible assets recognised as a consequence of Business Combinations amounting to euro 114.6 millions (109.6 millions in 2017) which are sumed to adjustments included in
EBITDA adjusted.
79
Directors’ Report on Operations For a better understanding of the Group’s performance, the following quarterly performance information is provided.
(In millions of euro)
1 Q
2 Q
3 Q
4 Q
TOTAL
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
1,310.3
1,339.3
1,320.0
1,346.0
1,294.9
1,353.2
1,269.3
1,313.8
5,194.5
5,352.3
-2.2%
5.7%
-1.9%
5.3%
-4.3%
2.5%
-3.4%
1.0%
-2.9%
3.7%
Net sales
yoy
organic yoy *
EBITDA adjusted without start-up costs
298.0
281.7
310.3
285.1
328.0
298.9
342.8
309.4
1,279.1
1,175.1
% of net sales
22.7%
21.0%
23.5%
21.2%
25.3%
22.1%
27.0%
23.5%
24.6%
22.0%
EBITDA adjusted
288.1
270.4
299.8
276.0
319.8
289.9
327.0
301.4
1,234.7
1,137.7
% of net sales
EBITDA
% of net sales
22.0%
20.2%
22.7%
20.5%
24.7%
21.4%
25.8%
22.9%
23.8%
21.3%
282.4
260.3
290.4
240.4
312.2
315.4
212.4
228.4
1,097.4
1,044.5
21.6%
19.4%
22.0%
17.9%
24.1%
23.3%
16.7%
17.4%
21.1%
19.5%
EBIT adjusted and without start-up costs
229.4
219.5
243.9
223.5
258.8
238.2
270.6
245.4
1,002.7
926.6
% of net sales
EBIT adjusted
% of net sales
EBIT
17.5%
16.4%
18.5%
16.6%
20.0%
17.6%
21.3%
18.7%
19.3%
17.3%
218.4
205.0
231.7
211.2
250.0
226.0
254.9
234.2
955.0
876.4
16.7%
15.3%
17.6%
15.7%
19.3%
16.7%
20.1%
17.8%
18.4%
16.4%
184.0
168.7
193.7
149.5
213.7
222.9
111.7
132.5
703.1
673.6
% of net sales
14.0%
12.6%
14.7%
11.1%
16.5%
16.5%
8.8%
10.1%
13.5%
12.6%
* before exchange rate effect, high inflation accounting in Argentina and adoption effect of new accounting standard IFRS 15
Net sales amounted to euro 5,194.5 million and recorded an organic growth of +3.7% compared to the previous
financial year. The change in revenues equalled -2.9%, including the combined effect of exchange rates and
the application of hyperinflation accounting in Argentina (a total of -5.9%), and the impact deriving from the
application of the new accounting standard IFRS 15 (-0.7%).
High Value revenues for 2018 which amounted to euro 3,309.9 million, represented an organic growth of
+10.3% (+7.5% including the negative exchange rate effect of -2.8%), which accounted for a 63.7% share of
the total turnover (+6.2 p.p. compared to 2017).
2018
% of total
2017
% of total
Variation y/y
High Value
Standard
3.309,9
1.884,6
63.7%
36.3%
3,079.2
2,273.1
57.5%
42.5%
Total net sales
5.194,5
100.0%
5,352.3
100.0%
7.5%
-17.1%
-2.9%
(In millions of euro)
Variation y/y
organic
10.3%
-5.4%
3.7%
80
Pirelli Annual Report 2018 The following table shows the market drivers for the net sales performance:
Volume
Price/mix
Change on a like-for-like basis
Translation effect/High inflation Argentina
Adoption of new accounting standard IFRS 15
Total change
1 Q
2 Q
3 Q
4 Q
Cumulative 2018
-1.5%
7.2%
5.7%
-7.3%
-0.6%
-2.2%
-0.9%
6.2%
5.3%
-6.6%
-0.6%
-1.9%
-3.0%
5.5%
2.5%
-6.1%
-0.7%
-4.3%
-7.1%
8.1%
1.0%
-3.4%
-1.0%
-3.4%
-3.1%
6.8%
3.7%
-5.9%
-0.7%
-2.9%
The performance for sales volumes for the 2018 financial year (-3.1%) reflected the differing trends between
the High Value and Standard segments.
High Value volumes grew sharply: up by +11.0% during 2018 with an improvement in market share in all the
main geographic regions. There was sustained growth for Car tyres with ≥18” rim diameters (+14.3% compared
to the +10.0% growth of the market) thanks to:
→ strong demand in Europe, APAC and North America;
→ the growing demand for Pirelli Specialties with ≥18” rim diameters (Run-flat, Pirelli Noise Cancelling System,
Seal-Inside).
The differential between the growth trend of the High Value segment and that of Car tyres ≥18” was attributable
to the lower demand for ≤17” Specialties, in favour of those with higher rim diameters, and to the performance
of the Premium motorcycle market (+1.8% for 2018 compared to +8.1% for 2017).
Volume growth for the high-end range during the fourth quarter was more contained (+7.2% for High Value
volumes, +7.6% for Car tyres ≥18”), with an extremely positive performance in the Replacement channel, which
recorded a growth of +15.6% for Car tyres ≥18”, while the Original Equipment channel suffered an overall
contraction of -1.2%, impacted in particular by the downturn in the European market following the introduction
of the new CO2 emissions tests (WLTP) as of September 1, 2018. These tests led to a different seasonality
for the Original Equipment channel, with demand in Europe concentrated in the first half-year, and a market
contraction as of the third quarter, continuing also into the fourth quarter.
There was an opposite trend on the Standard segment which recorded a contraction of -14.0% during 2018
and of -22.6% for the fourth quarter. This trend was impacted:
→ the fall in demand for Standard products in mature markets for the first quarter (Europe and NAFTA -5.7%);
→ market contractions in emerging countries, particularly in LatAm (-7.1% for the market in 2018 and -14.6%
for the fourth quarter);
→ by Pirelli’s decision to accelerate the reduction in volumes of lower profitability products.
Improvement of the price/mix: +6.8% for the entire 2018 financial year supported by the growing share of the
High Value segment, by the improvement of the mix in the High Value Standard segment, and by the increase
in prices in emerging markets to counter exchange rate volatility. The price/mix for the fourth quarter was
higher (+8.1%), and mainly reflected the improvement in the product mix, the higher sales on the Replacement
channel and the implementation of the price increases in the emerging markets.
The exchange rate effect was negative mainly for the currencies of emerging countries: -5.9% for the entire
financial year, and -3.4% for the fourth quarter.
81
Directors’ Report on Operations The apportionment of net sales by geographic region was composed as follows:
Europa
Nafta
Asia\Pacific (APAC)
South America
Middle East\Africa\India (MEAI)
Russia and CIS
Total
2018
euro\mln
%
yoy
Organic Yoy*
2,234,2
1,004.1
890.2
691.9
207.1
167.0
43.1%
19.3%
17.1%
13.3%
4.0%
3.2%
5,194.5
100.0%
-0.2%
2.1%
10.4%
-24.4%
-16.8%
4.6%
-2.9%
1.4%
7.6%
13.3%
-3.1%
-6.6%
15.5%
3.7%
2017
%
41.7%
18.4%
15.1%
17.1%
4.7%
3.0%
100.0%
* before exchange rate effect, high inflation accounting in Argentina and adoption effect of new accounting standard IFRS 15
Europe (43.1% of sales) closed the 2018 financial year with an organic growth in revenues of +1.4%, (-0.2%
including the impact of both the exchange rate effect at -0.4%, and the impact deriving from the adoption
of the new accounting standard IFRS 15 of -1.2%). The strengthening of the High Value segment continued,
with an organic growth of +7.0%, which in the second half-year was impacted by a contraction in the Original
Equipment market (-5.0% for the third quarter and -5.0% for the fourth quarter) following the introduction of
the new WLTP CO2 emissions tests, and the weakness of the Premium motorcycle market (-2.4% for 2018
compared to +3.3% for 2017). In this context, Pirelli improved its market share on the Car tyre ≥18” rim diameter
market both on the Original Equipment channel, thanks to the expansion of the homologation portfolio with the
Premium and Prestige producers, and on the Replacement channel, thanks to the pull-through effect.
The Standard segment recorded a negative performance with an organic contraction in revenues of -8.9%, due to:
→ the accelerated reduction of exposure to less profitable products in the presence of an unfavourable market
situation, particularly during the first quarter (-5.7%);
→ the contraction in sales for 17” rim diameters on the Original Equipment channel in favour of higher rim
diameters;
Profitability (Ebit margin adjusted) in the high-teens range increased by more than +1 p.p. compared to
the previous financial year (mid-teens), mostly due to the continued improvement of the mix and to costs
efficiencies.
NAFTA (19.3% of sales) recorded an organic growth in revenues of +7.6% (+2.1% including the negative
exchange rate effect of -4.5% and the impact deriving from the new accounting standard IFRS 15 (negative
at -1.0%), driven by the High Value segment (an organic growth of +9.3%) and in particular by the growth
sustained on the Replacement channel thanks to the introduction of All-Season products. Profitability (Ebit
margin adjusted) improved by more than +1 p.p. and was again at twenties level, thanks to the increased share
of the high-end range and to the progressive strengthening of the US Dollar.
APAC (17.1% of sales) was the region with the highest growth and profitability (an EBIT margin adjusted in
the twenties range), which was a decisive improvement compared to the previous financial year. Revenues
recorded an organic grew of +13.3% (growth of +10.4% including the negative exchange rate effect of -2.9%),
driven by the High Value segment (an organic growth in revenues of +21.0%), thanks to:
→ increased exposure on the Original Equipment channel which counted new supplies and homologations with
European and local brands;
→ increased market share for the Replacement channel thanks to the pull-through effect and an ever wider
commercial presence which counted over 4,500 points of sale.
82
Pirelli Annual Report 2018 Sales on the Standard segment contracted with an organic
change of -8.0%, with a fall in sales for ≤17” rim diameters,
in context of the weakness of the market for that segment.
South America (13.3% of sales) recorded an organic
change in revenues of -3.1% (-24.4% including the
exchange rate effect and the adoption of
inflation
accounting in Argentina totalling a negative -21.1%, and
a negative impact of -0.2% deriving from the application
of the new IFRS 15), mainly due to the drop in volumes of
-14.8% as a result of:
→ the weakness of the market (-6.8% for the total car
market in 2018, -14.4% for the fourth quarter with a
-15.5% contraction on the Replacement channel and
-9.1% in the Original Equipment market);
→ the continuing focus on the mix, with the progressive
reduction of sales of less profitable Standard segment
products with lower rim diameters;
→ the destination of a portion of production for export to
North America in view of the growing demand for High
Value Pirelli products and the progressive growth of the
mix recorded by the Brazilian factories;
A trend of marked improvement for the price/mix (+11.7%
for the financial year, +23.8% for the fourth quarter),
thanks to the increase on prices in Brazil which occurred
in fourth quarter, and to the strong improvement of the
product mix.
Profitability (Ebit margin adjusted) was in the high-single-
digits range, representing a decrease compared to 2017.
This trend was impacted by:
→ the aforementioned contraction in volumes;
→ the impact of the application, as of the third quarter of
2018, of high inflation accounting in Argentina;
→ the increased cost of raw materials rendered more
expensive by unfavourable exchange rates.
These impacts were partly offset by the improvement
in the mix, by higher efficiencies and costs structure
actions (actions on purchases, advertising and marketing
budgets, consultancy, travel expenses and other general
expenses) for approximately euro 20 million in response
to the difficult external environment.
MEAI (4.0% of sales) recorded a negative organic change
in revenues of -6.6% (negative at -16.8% including the
exchange rate effect) due to the reduction in volumes
mainly on the Standard segment of lower and less
profitable rim diameters, in an unfavourable market;
profitability (Ebit margin adjusted) in the low-teens range
had recorded a contraction compared to 2017, impacted
by the impairment of exchange rates particularly in Turkey.
impacted favourably on the results for 2018, with an
organic growth in revenues of +15.5% (a growth of +4.6%
including the negative exchange rate effect of -10.9%)
with significant improvement in profitability (an EBIT
margin adjusted in the high-teens range, compared to the
low-teens range for 2017).
EBIT adjusted without start-up costs amounted to
euro 1,002.7 million, representing a growth of +8.2%
and euro 76.1 million in absolute values compared to the
previous financial year (euro 926.6 million). The EBIT
margin adjusted without start-up costs stood at 19.3%, a
growth of +2 p.p. compared to 2017. Start-up costs which
equalled euro 47.7 million (euro 50.2 million the previous
financial year) were relative to
→ the Cyber business which continued the development
of the Cyber Car and Cyber Tyre Development Kit
technologies, dedicated to Original Equipment Premium
and Prestige customers, those dedicated to the world
fleet (Cyber Fleet), and new consumer solutions to be
launched in 2019;
→ the Velo business, whose range has been expanded
with the introduction of new Road Racing products
(Cinturato Velo) and a line of products dedicated entirely
to electric bikes (Cycl-e). the growing success of the
business, which is expected to break-even in 2019, and
saw confirmation in the collaborations for the Original
Equipment channel launched with Premium bicycle
manufacturers in the course of 2018 (e.g., Pinarello);
→ the conversion of Aeolus brand production into Pirelli
brand production in the manufacturing plant in Jiaozuo
for the Car sector which was completed in 2018;
→ the digital transformation of the Company which,
following the positive results of the activities already
under way, was intensified to support the long-term
efficiency program and to deal with the growing
complexity of the business. The greater resources
allocated to this activity led to an increase in start-up
costs by euro 8 million compared to the financial year
target of euro 40 million.
EBIT adjusted equalled euro 955.0 million, representing an
annual growth of +9.0% and euro +78.6 million in absolute
values compared to the previous financial year (euro
876.4 million), with a margin of 18.4%, an improvement of
+2 p.p. compared to 2017. The improvement in the results
was attributable to the effect of internal levers (price mix,
efficiencies and the costs reduction program) which more
than offset the impacts linked to the deterioration of the
external scenario (raw materials, exchange rate effect
and inflation) and the contraction in sales volumes on the
Standard segment.
In more detail:
In Russia (3.2% of sales) the strategy of focusing on the
more profitable segments plus the recovery of the market
→ the improvement in the price/mix (euro 239 million)
more than offset the impact deriving from the
83
Directors’ Report on Operations increase in raw materials prices (euro -52 million), exchange rate volatility (euro -43 million), as well as the
aforementioned decline in sales volumes (euro -68 million);
→ a positive balance of euro 22 million, between industrial efficiencies (euro 70 million, 1.3% of revenues) and
costs inflation (euro -48 million);
→ the cost reduction plan of euro 50 million, launched during the second half-year of 2018 to counter the decline
in sales on the Standard segment especially in Brazil, contributed in reducing the increase in amortisation
and depreciation and other costs linked to the development of the High Value segment (euro -71 million);
→ start-up costs were slightly less (an impact of euro +2.5 million on the EBIT, which went from euro -50.2
million euro for 2017 to euro -47.7 million for 2018).
2017 EBIT Adjusted
- Internal levers:
Volumes
Price/mix
Amortisation, depreciation and other costs
Start-up costs
Efficiencies
- External levers:
Cost of production factors (commodities)
Cost of production factors (labour/energy/others)
Foreign currency translation
Total change
2018 EBIT adjusted
1 Q
2 Q
3 Q
4 Q
Total
205.0
211.2
226.0
234.2
876.4
(In millions of euro)
(8.0)
62.7
(21.4)
3.5
9.0
(13.8)
(11.4)
(7.2)
13.4
218.4
(4.5)
50.1
(15.9)
0.1
10.0
2.3
(11.9)
(9.7)
20.5
231.7
(16.5)
(39.3)
47.0
4.8
3.4
23.6
(12.7)
(14.1)
(11.5)
24.0
250.0
78.9
11.7
(4.5)
27.5
(27.8)
(10.9)
(14.9)
20.7
254.9
(68.3)
238.7
(20.8)
2.5
70.1
(52.0)
(48.3)
(43.3)
78.6
955.0
The EBIT which amounted to euro 703.1 million (compared to euro 673.6 million for 2017) included:
→ the amortisation of intangible fixed assets identified during the Purchase Price Allocation of euro 114.6
million (euro 109.6 million for 2017).
→ non-recurring and restructuring expenses to the amount of euro 91.5 million (euro 93.2 million for 2017),
for which further details are provided below;
→ costs not pertinent to normal business operations to the amount of euro 18.3 million;
→ costs for the renegotiation of commercial agreements and royalties to the amount of euro 14.2 million, of
which euro 9 million was attributable to the extraordinary reshaping of the technology license agreement
granted to the Aeolus Tyre Co. Ltd, a related party to the Group;
→ expenses relative to the retention plan approved by the Board of Directors on February 26, 2018 to the
amount of euro 13.3 million.
84
Pirelli Annual Report 2018 In particular,
expenses included:
the non-recurring and
restructuring
→ restructuring costs totalling euro 67.5 million of which
euro 47.3 million in costs attributable to rationalisation
measures for the structures of the Standard business
launched at the end of 2018, and which will continue
throughout the 2019-2020 two year period in addition
to euro 20.2 million mainly due to the impairment of
tangible and intangible fixed assets, consistent with the
reduction in the Standard segment capacity;
→ non-recurring costs of euro 24 million, mainly
attributable to the adjustment of the value of pension
funds in the UK following a change in the method for
calculating the Guaranteed Minimum Payment (euro
14.4 million).
The impact on the net income of non-recurring and
restructuring expenses was substantially offset by the
benefits of the Patent Box (euro 89 million for the 2015-
2018 four-year period).
→ the favourable comparison between the (not-yet-
amortised) wash down of fees of euro 61.2 million
included for 2017, and the amount of euro 3.6 million
for 2018, respectively relative to the old bank loan
which was repaid in advance in June 2017, and to the
bond placed by Pirelli International Plc (for the amount
of euro 600 million, with a fixed coupon of 1.75% and
original maturity in November 2019) which was repaid
early in March 2018;
→ the almost neutral balance between the positive effect
deriving from the repricing of the Group’s main bank
credit facility which occurred in January 2018, and
the expenses arising from the early extinction of the
bond placed by Pirelli International Plc (for the amount
of euro 600 million with a fixed coupon of 1.75% and
original maturity in November 2019) carried out in
March 2018 through the exercise of the so-called make-
whole option;
→ lower interest on local product lines, due to a mix of
interest rate cuts, and the reduction of indebtedness
in countries with a high interest rate.
The net income from equity investments was negative at
euro -5 million (a loss of euro -6.9 million for 2017), and
comprised:
The cost of debt on an annual basis (last 12 months) stood
at 3.37%, (2.95% net of repricing impacts), compared to
5.36% at December 31, 2017.
→ the pro-rata share of the loss attributable to the
Indonesian Joint Venture PT Evoluzione Tyres (euro
-10.4 million) evaluated using the equity method;
→ a positive net income (euro 3.7 million) deriving from the
positive change in fair value recorded by Mediobanca
shares up until the date of disposal (January 11, 2018);
→ dividends received during the financial year to the
amount of euro 4.2 million.
Net financial expenses which fell by euro 166.3 million
(from euro 362.6 million for 2017 to euro 196.3 million for
2018) mainly reflected:
→ lower interest by approximately euro 84.9 million, for the
most part due to the lower cost of the main bank credit
facility signed in June 2017 compared to the old bank
loan, as well as the reduction of debt thanks also to the
share capital increase by Marco Polo of approximately
euro 1.2 billion which took place in June 2017;
Tax expenses for 2018 amounted to euro 53 million
against pre-tax earnings of euro 501.8 million with a tax rate
which stood at 10.6%. The tax rate for 2018 was positively
impacted by the benefit derived from the application of
the concessions of the Patent Box tax relief scheme in
accordance with the preliminary agreement signed on
October 15, 2018 with the Italian Tax Office. This benefit,
which equalled approximately euro 89 million (euro 54
million for the three-year 2015-2017 period and euro
35 million in estimated benefits for 2018), substantially
offset non-recurring and restructuring expenses.
The net
income related to continuing operations
(Consumer) amounted to euro 448.8 million compared to
earnings of euro 263.3 million for 2017, a growth of +70.5%.
The net
income related to continuing operations
(Consumer) adjusted amounted to euro 576.3 million
compared to euro 386.8 million for 2017.
85
Directors’ Report on Operations The following table shows the calculation of the net income (loss) related to continuing operations
(Consumer) adjusted:
Net income (loss) related to continuing operations
Amortisation of intangible assets included in PPA
Non-recurring and restructuring expenses
Expenses relating to renegotiation of commercial agreements and royalties
Expenses not pertinent to normal business operations
Retention plan
Net financial expenses
Tax
Net income (loss) related to continuing operations adjusted
(In millions of euro)
2018
2017
448.8
114.6
91.5
14.2
18.3
13.3
2.1
(126.5)
576.3
263.3
109.6
93.2
-
-
-
61.2
(140.5)
386.8
The net income (loss) related to discontinued operations which included the financial data for 2018 of some
residual Industrial activities in China and Argentina, was negative to the total amount of euro 6.4 million, and
whose separation has for the most part been completed.
The total net income was positive to the amount of euro 442.4 million compared to the positive amount of
euro 175.7 million for the previous financial year.
The net income attributable to the Parent Company amounted to euro 431.6 million compared to the positive
result of euro 176.4 million for 2017.
Equity went from euro 4,177.0 million at December 31, 2017 to euro 4,550.9 million at December 31, 2018.
Equity attributable to the Parent Company at December 31, 2018 equalled euro 4,468.1 million compared to
euro 4,116.7 million at December 31, 2017.
This change is shown in the table below:
Equity at 12/31/2017
Adoption of new accounting standard IFRS9
Translation differences
Net income (loss)
Actuarial gains/(losses) on employee benefits
Dividends paid
Transacions with minorities
High inflation accounting Argentina
Other
Total changes
Equity at 12/31/2018
Group
Non-controlling interests
Total
(In millions of euro)
4,116.7
(1.0)
(82.3)
431.6
28.7
-
(36.3)
26.2
(15.5)
351.4
4,468.1
86
60.3
-
0.9
10.8
-
(8.4)
19.0
-
0.2
22.5
82.8
4,177.0
(1.0)
(81.4)
442.4
28.7
(8.4)
(17.3)
26.2
(15.3)
373.9
4,550.9
Pirelli Annual Report 2018 The reconciliation statement for the equity attributable to the Parent Company and the consolidated equity
attributable to the Shareholders of the Parent Company is shown below:
Share Capital
Treasury
reserves
Net income
(loss)
TOTAL
(In millions of euro)
Equity of Pirelli & C. S.p.A. at 12/31/2018
1,904.4
2,325.9
262.4
4,492.7
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
-
-
-
-
-
-
434.4
434.4
4,108.6
(4,570.9)
281.3
(12.8)
-
-
(281.3)
16.1
4,108.6
(4,570.9)
-
3.3
Consolidated equity of Group at 12/31/2018
1,904.4
2,132.1
431.6
4,468.1
The net financial (liquidity)/debt position was negative to the amount of euro 3,180.1 million compared to euro
3,218.5 million at December 31, 2017. It was composed as follows:
(In millions of euro)
12/31/2018
12/31/2017
800.1
53.5
3,929.1
13.8
4,796.5
(1,326.9)
-
(27.2)
(27.4)
(91.2)
3,323.8
(20.1)
(123.6)
3,180.1
559.2
11.2
3,897.1
55.0
4,522.5
(1,118.5)
(33.0)
-
(36.5)
(21.4)
3,313.1
-
(94.6)
3,218.5
Current borrowings from banks and other financial institutions
Current derivative financial instruments
Non-Current borrowings from banks and other financial institutions
Non-Current derivative financial instruments
Total gross debt
Cash and cash equivalents
Securities held for trading
Other financial assets at fair value through Income Statement
Current financial receivables and other assets**
Current derivative financial instruments
Net financial debt *
Non-Current derivative financial instruments
Non-current financial receivables and other assets**
Total net financial (liquidity)/debt position
* Pursuant to Consob Notice of July 28, 2006 and in compliance and in compliance with ESMA/2013/319 Recommendations
** The amount of “financial receivables and other assets” is reported net of the relative impairment amounting to euro 6,1 million.
87
Directors’ Report on Operations The structure of the gross financial debt, which amounted to euro 4,796.5 million, was as follows:
12/31/2018
2019
2020
2021
2022
Maturity date
Use of unsecured financing (“Facilities”)
2,643.9
Bond EURIBOR +0,70% - 2018/2020
Bond 1,375% - 2018/2023
Schuldschein
EIB loans
ISP short term borrowing
Other loans
Total gross debt
199.6
546.6
523.4
10.0
200.0
673.0
-
-
-
-
10.0
200.0
643.7
939.5
199.6
-
-
-
-
7.9
4,796.5
853.7
1,147.0
17.8%
23.9%
-
-
-
81.8
-
-
2.7
84.5
1.8%
1,704.4
-
-
-
-
-
16.7
1,721.1
35.9%
(In millions of euro)
2023 and
beyond
-
-
546.6
441.6
-
-
2.0
990.2
20.6%
At December 31, 2018, the Group had a liquidity margin equal to euro 2,054.1 million composed of euro 700.0
million in the form of non-utilised committed credit facilities, and euro 1,326.9 million in cash, in addition to
financial assets carried at fair value recognised in the Income Statement to the amount of euro 27.2 million.
The performance for cash flows for the financial year was as follows:
2018
1 Q
2 Q
3 Q
4 Q
Total
(In millions of euro)
2017
Total
EBIT adjusted
Amortisation and depreciation (excluding PPA amortization)
Investments in property, plant and equipment and intangible assets
Change in working capital/other
Operating net cash flow
Financial income/(expenses)
Taxes paid
Financial (investments) / disinvestments
Caçula purchase from Brasilian controlled distribution
Acquisition of non-controlling interests
Cash Out for non-recurring and restructuring expenses/other
Other dividends paid
Acquisition of JV China
Minorities
218.4
69.7
(85.3)
(928.8)
231.7
68.1
(93.9)
(68.9)
(726.0)
137.0
(55.2)
(31.1)
155.0
-
(18.5)
(38.2)
-
-
-
(62.8)
(36.2)
0.2
-
-
(11.9)
-
-
-
250.0
254.9
69.8
72.1
955.0
279.7
876.4
261.3
(117.5)
(166.7)
(463.4)
(489.4)
(247.4)
856.9
(388.2)
1,017.2
383.1
(57.5)
(17.9)
(196.3)
(362.6)
(119.0)
(135.5)
-
155.2
123.8
772.1
23.2
-
(15.4)
(63.8)
(12.9)
-
(5.5)
0.7
200.3
304.6
(1.4)
-
(17.3)
-
(65.2)
-
14.8
872.7
(14.5)
-
(1.4)
(18.5)
(72.0)
(8.4)
(65.2)
-
(9.2)
48.3
(9.9)
-
1,189.4
(45.1)
(20.8)
(33.8)
-
-
-
(4.6)
(8.4)
-
-
Differences from foreign currency translation/other
(11.7)
6.4
(18.7)
Net cash flow before extraordinary transactions
(725.7)
32.7
(131.4)
Industrial reorganization
Share capital increase subscribed by Marco Polo
5.3
-
(10.3)
-
9.6
-
Net cash flow
(720.4)
22.4
(121.8)
858.2
38.4
1,694.3
88
Pirelli Annual Report 2018 More specifically, the operating net cash flow for
2018 was positive to the amount of euro 383.1 million
(compared to euro 772.1 million for 2017).
The operating cash flow was impacted by:
→ investments of euro 463.4 million (euro 489.4 million
for 2017) which were primarily aimed at increasing the
capacity of the High Value segment in Europe and the
NAFTA area, at the strategic conversion of the capacity
of the Standard segment into High-Value in Brazil, and
to the continuous improvement of the quality and mix
of all manufacturing plants.
→ the change in working and other capital (euro -388.2
million in cash absorption in 2018).
The performance of working and other capital was mainly
impacted by:
→ the realignment of factoring at historic levels compared
to those of 2017;
→ the increase in inventories, mainly attributable to the
Standard segment, even after the strong slowdown in
sales in LatAm. The level of inventories at the end of
2018 was equal to 21.7% of sales; the Company has
launched a plan to normalise this phenomenon, to
realign inventories to a level below 20.0% of revenues
for 2019;
→ the temporary renegotiation of the terms of collection
for some dealers
in Brazil, given the difficult
macroeconomic environment, which will continue for
the course of the 2019 financial year;
→ the usual financing of pension fund deficits.
Total cash flow, was positive to the amount of euro 38.4
million, and mainly included:
→ cash outflow relative to the balance of financial income
and expenses (euro 196.3 million) and tax expenses
(euro 119 million);
→ restructuring expenses to the amount of euro 21 million
and non-recurring expenses to the amount of euro 50
million (of which euro 31 million was for advisory costs
and fees relative to the IPO process which took place
in 2017);
→ the impact of transactions on equity investments which
occurred during the financial year, including the disposal
of the investment in Mediobanca (euro +152.8 million),
the acquisition of 49.0% of the new JV in China (euro
-65.2 million) and the completion of the strengthening
of the distribution chain in Brazil (euro -19.9 million).
Research and
development activities
innovations
The research and development activities carried out by
Pirelli constitute a central phase for the development
of new products. The Research and Development
department - which dedicates strong attention to
technological
- counts approximately
1,932 personnel (equal to 6.1% of the Group’s human
resources) between the Milan headquarters and the
12 technology centres located in various geographical
areas, and which allow for a direct relationship with the
major car manufacturers. Pirelli’s model for research
and development, implemented in accordance with the
“Open Innovation” model, is carried out through a series of
collaborations with partners who are external to the Group
- such as suppliers, universities and car manufacturers
- in order to pre-empt technological innovations for the
sector and to direct research and development activities
towards meeting the needs of the end consumer.
Research and development expenses for the 2018
financial year totalled euro 219.0 million, (equal to 4.2% of
sales) of which euro 202.9 million was destined for High
Value activities (equal to 6.1% of High Value revenues).
to develop
Pirelli also continued
their CYBER™
technologies which, thanks to the sensor technology
inside the tyre, will contribute in making information
available from time to time in order to increase the
safety or performance of vehicles. At the Geneva Motor
Show, Pirelli presented their 2018 CYBER CAR™, the
new system for Original Equipment which allows for the
interaction between tyre and car. Pirelli also completely
renewed their Cyber Fleet, the system for the monitoring
and management of fleet tyres, presented at the 67th
edition of the IAA Commercial Vehicles Motor Show in
Hannover in 2018.
PRODUCT INNOVATION
In order to develop new products specifically designed to
meet the needs and technical specifications of customers,
Pirelli has established long-lasting relationships with
major Prestige and Premium car manufacturers. The
development of the product together with these car
manufacturers is geared towards producing tyres that
89
Directors’ Report on Operations match the dynamic characteristics and electronics of the
car (the so called perfect fit). Pirelli is the absolute leader
of the Prestige segment with a market share which in
excess that of 50% on the Original Equipment channel,
and is also the leader in supplying to brands such as Aston
Martin, Bentley, Ferrari, Porsche, and Maserati, and is
the sole supplier to Lamborghini, McLaren and Pagani
Automobili. With Premium, instead, there was further
proof of the privileged relationship with companies such
as Alfa Romeo, Audi, BMW, Mercedes, Jaguar and Land
Rover. In addition, in 2018 Pirelli was honoured by the Ford
Motor Company with the Gold World Excellence Award.
is proven by a portfolio
Pirelli’s strong presence
of approximately 3,100 homologations, of which,
approximately 2480 are High Value (80.0%), and more
than 770 are linked to specialties. In particular, Pirelli can
count on a portfolio of over 500 homologations for Run
Flat products, a technology that allows you to drive with
a perforated tyre long enough to reach the nearest tyre
supplier for a replacement. Amongst the brands that have
chosen to homologate their vehicles with Pirelli Run Flat
are Alfa Romeo, BMW, Cadillac, Dodge, Jeep, Mercedes
and Mini. Pirelli Run Flat technology is available on P Zero,
Cinturato, Scorpion and Scorpion Winter, Winter Sottozero
3 and Winter Sottozero Serie II tyres. It is a range that is
able to satisfy 97% of rim diameters from 18” and upwards.
Also during 2018, homologations for Pirelli tyres with PNCS
technology (Pirelli Noise Cancelling System) doubled
compared to the previous financial year, exceeding 150
(there were 78 at the end of 2017). This technology, which
reduces the noise perceived within the vehicle by up to
25%, is increasingly requested by car manufacturers,
especially in the Premium and Prestige segments, in order
to offer greater comfort to car occupants.
During 2018, the Pirelli Scorpion Winter tyre received
prestigious awards from German magazines Auto Bild
Allrad, Off Road and Auto Zeitung. Designed specifically
to maximize the safety and performance of modern SUVs
and CUVs, especially from the Premium range, since its
launch in 2012, the Scorpion Winter tyre has confirmed
itself as the leader in its category. Available with the main
Specialties, the Pirelli Scorpion Winter tyre is chosen
by many manufacturers and has already registered 131
homologations of which 110 are marked on 46 different
car models. In addition, as confirmation of the relevance
of its characteristics, it has won homologations for new
electric vehicles, as well as for the sportiest versions
of SUVs on the market, including Alfa Romeo Stelvio
Quadrifoglio and Lamborghini Urus.
In 2018 Pirelli achieved a new record lap time at the
Nürburgring-Nordschleife circuit for the eighth consecutive
year. A result obtained thanks to the P Zero Trofeo R fitted
to the Lamborghini Aventador SVJ. During the course of the
financial year, Pirelli returned to making tyres for vintage
cars, by creating a new tyre for the Collezione family: the
90
Stella Bianca. The Stelvio Corsa, designed specifically for
the 1962 Ferrari 250 GTO, was also presented. Thanks to
the most up-to-date and advanced technologies, Pirelli
Collezione tyres offer improved grip and better adherence
on wet surfaces, guaranteeing reliability and high levels of
safety, without losing the original style.
In the world of motorcycles - by taking advantage of
the experience gained in fifteen years as the Official
Tyre Supplier for all classes of the FIM World Superbike
Championship - Pirelli has put the best technologies and
patents developed to date to good use in designing the
DIABLO ROSSO™ CORSA II, the new tyre derived from
racing technology but designed for use on the road and
on the track, to meet the requirements of increasingly
more powerful motorcycles. Presented by Pirelli to the
international press at the beginning of April 2018 in South
Africa, the DIABLO ROSSO™ CORSA II emerged the
victor in comparative performance reviews for hypersport
tyres organised by the prestigious German magazines
MOTORRAD and PS Das Sport-Motorrad Magazin, and
the Italian online magazine Red-live.it.
The collaboration between Pirelli and MV Agusta, has
generated the latest limited edition jewel by MV Agusta
and Pirelli Design, the Dragster 800 RR PIRELLI, whose
world premiere came about at the inauguration of the new
P Zero™ World of Monte Carlo store and which is fitted
with the DIABLO™ Supercorsa SP. Pirelli The tank and
windshield are made of a rubber specially formulated by
Pirelli Research and Development technicians to ensure
superior resistance to scratches and other impacts.
Pirelli was selected by Yamaha as the tyre supplier also
for the fifth edition of the Yamaha VR46 Master Camp,
the track training sessions organised by Yamaha Motor’s
Iwata Factory in Japan together with Valentino Rossi’s
VR46 Riders Academy.
In May Pirelli signed a collaboration agreement with
Consorzio Ente Autodromo Pergusa for the modernisation of
the historic Sicilian track which will bolster experimentation
and development activities at the site.
In the Velo world, Pirelli announced its partnership with the
prestigious Italian bicycle manufacturer Pinarello, which
means that Pirelli will supply its P Zero™ Velo for 100% of
the Pinarello Dogma F10 series, Pinarello’s flagship model.
A Pirelli tyre knows how to offer optimal performance,
balanced on all fronts, for rolling resistance, wet grip, dry
grip, handling, puncture resistance and durability, proving
itself capable of meeting the high-performance needs of
the Dogma F10. The 2018 year also saw the launch of, the
Cinturato™ Velo product line, a reinforced tyre, thanks
to the new (patent pending) Armor Tech™ technology
created specific for cycling, which can be used with and
without an inner tube, and offers extreme reliability in all,
even the most adverse road conditions.
Pirelli Annual Report 2018 NEW MATERIALS
The Group is active in the development of new polymers
in order to improve the characteristics of tyres in terms of
rolling resistance, low temperature performance, mileage
and road grip. In addition, the Group’s business focuses on
the development of other non-polymeric materials, such
as; high dispersion silica for wet grip, rolling resistance
and mileage; biomaterials such as lignin and plasticisers/
resins of vegetable origin; nano-fillers for more stable
compounds, lighter structures and linings with elevated
waterproof qualities; new silica surfactants to ensure
performance stability and processability and; vulcanisers
and stabilisers that allow for the development of tyres
with low environmental impact and high performance.
The Group has entered into cooperation agreements
with various international and national institutions and
universities. These agreements – which include numerous
research projects with the University of Milano-Bicocca, as
part of the Consortium for Advanced Materials Research
(CORIMAV), and through the Silvio Tronchetti Provera
Foundation - allow for the development of innovative
materials and solutions which are fundamental to the
development of tyres with reduced environmental impact
and high performance. The Joint Labs agreement between
Pirelli, and the Politecnico di Milano, established in 2011
for research and training in the tyre sector, is aimed at the
development of innovative materials and technologies
for sustainable and increasingly safe mobility. The most
recent phase of the agreement, with a three year (2017-
2020) duration, focuses on two main areas of research:
the area for designing innovative materials and the area
for product and Cyber development.
PROCESS AND PRODUCTIVITY INNOVATION
In order to allow for the effective management of the
diverse ranges of products in the factories, the Group
has
launched the “Smart Manufacturing” program
based on Big Data analytics techniques which flank
the consolidated Lean Manufacturing programs, to
improve production and maintenance processes,
machine productivity and product quality, also from a
predictive perspective, despite a significant reduction
in the size of production batches. During 2018, of note
was the involvement of the Feira de Santana, State of
Bahia, (Brazil) factory in the Smart Manufacturing and
Flexible Factory program, which has already led to its
transformation into a real 4.0 factory, a technology hub
for the production of High Value tyres in South America,
as was already under way also for the Campinas plant
in the state of Sao Paolo. By being at the vanguard of
processes and product development, the Bahia hub, in this
way contributes to the goal of constant improvement in
production efficiency in the Pirelli world. Its digitalisation
process has brought Smart Manufacturing to the factory,
allowing it to improve its results with the use of Big Data
91
and the ability to intervene faster in solving problems.
Also, the digitalisation of information and the intersection
of collected data not only enables machinery to provide
feedback on the performance of an ongoing process, but
to also anticipate the results (feed forward) as well as any
potential problem on the basis of historical data (machine
learning). The use of cloud computing, open source tools
and online programs that analyse data to make future
predictions, in fact, are the other essential elements which
address the complexity and speed of the manufacturing
world, and which make the Bahia factory one of Pirelli’s
most technologically advanced manufacturing locations.
COMMITTENT TO MOTORSPORTS
Pirelli has extended its presence in F1 as the Global Tyre
Partner until 2023. The new agreement foresees for the
introduction of the new 18” tyres in 2021. Their involvment
in the Formula 1™® World Championship has allowed Pirelli
to develop new simulation models which allow for the
further reduction of the time it takes to launch a product
on the market, and to improve the quality of road product
design, rendering them better performing and compliant
with the highest of requirements. The P Zero™ 2019 range
comes in only three colours (even if they comprise more
compounds), the same used for racing Championships.
The three colours are white, yellow and red and correspond
to hard, medium and soft tyres respectively. The Cinturato
will have the same colours as for 2018, being intermediate
(green) and for extreme wet (blue). The idea behind this
change was to make the tyres more easily recognisable,
even at television level, while also clearly indicating which
specific compounds are used in each race.
Pirelli is now engaged in over 460 championships
across all five continents. The different programs range
from open competitions, in some cases with over 20
manufacturers represented, to the single-brand trophies
of world brand such as the Ferrari Challenge and the
Lamborghini Super Trofeo. In order to understand the
enormous commitment of Pirelli to Motorsport, just think
that all these events translate into 1,170 races per year,
all over the world, which employ approximately 1,000
people between engineers, track technicians and other
personnel dedicated to Research and Development.
In the European two wheel Championships which
foresees the participation of several tyre producers,
Pirelli on average fits 70% of the motorcycles deployed
on the paddock, thereby confirming the appreciation
demonstrated by motorcycle riders around the world
for the Pirelli brand. Thanks to its involvement in the
FIM Superbike World Championship, Pirelli has during
the course of the season developed new increased
sizes for the DIABLO™ Superbike. As for the engraved
product DIABLO™ Supercorsa which is used in all the
other classes of World Championship racing, Pirelli has
worked all season to develop the new product, now in its
third generation. Finally, in the field of cycling, in 2018
Directors’ Report on Operations Pirelli and Mitchelton-Scott, a World Tour professional team ranked second in the UCI ranking, announced
a technology partnership. During the 2018 Tour de France, the Australian team exclusively fitted their Scott
bicycles with Pirelli P ZERO™ Velo tyres.
Parent company highlights
The table below shows a summary of the main Income Statement and Statement of Financial Position
figures.
Operating Income (loss)
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)
12/31/2018
12/31/2017
5.6
(32.8)
284.9
4.7
262.4
(50.9)
(123.4)
204.4
140.8
170.9
4,641.7
4,803.1
4,492.7
4,238.4
1,913.8
2,363.0
Operating income was positive to the amount of euro 5.6 million compared to the loss of the previous financial
year equal to euro 50.9 million. The improvement was mainly attributable to advisory costs and fees incurred
to the amount of euro 62 million relative to the IPO process which took place in 2017.
The reduction in financial expenses was mainly attributable to the following factors:
→ the favourable comparison compared to the previous financial year, which included euro 42 million in the
not-yet-amortised wash down of fees relative to the bank loan that was repaid in advance in June 2017;
→ the positive effect deriving from the repricing of the Group’s main bank credit facility which occurred in
January 2018 to the amount of euro 12.4 million;
→ the lower cost of debt.
The net income from equity investments mainly includes the dividends of Pirelli Tyre S.p.A. (euro 270
million compared to euro 200 million for 2017).
For 2018 taxes were positive to the amount of euro 4.7 million compared to the positive amount of
euro 140.8 million for the previous financial year. The significant change was mainly attributable to the
detection during the 2017 financial year of deferred tax assets on tax losses carried forward, surplus
interest payables which had not been deducted, and the ACE tax concession (Economic Growth Aid).
92
Pirelli Annual Report 2018 The following is a summary of the values of the main financial assets:
Equity investments in subsidiaries
- Pirelli Tyre S.p.A.
- Pirelli Ltda
- Pirelli & C. Ambiente S.r.l.
- Pirelli UK Ltd.
- Pirelli Group Reinsurance Company S.A.
- Pirelli Servizi Amministrazione e Tesoreria S.p.A.
- Other companies
(In millions of euro)
12/31/2018
12/31/2017
4,523.8
4,521.8
9.7
-
21.9
6.3
3.2
3.4
9.7
2.0
21.9
6.3
3.2
3.4
A
Total equity investments in subsidiaries
4,568.3
4,568.3
Equity investments in associates and other financial assets
- Eurostazioni S.p.A. - Roma
- Fenice S.r.l.
- Focus Investments S.p.A.
- Mediobanca S.p.A. - Milano
- RCS Mediagroup S.p.A. - Milano
- Fin. Priv Srl
- Fondo Comune di Investimento Immobiliare Anastasia
- Istituto Europeo di Oncologia S.r.l.
- Other companies
B
Total equity investments in associates and other financial assets at fair value through
other comprehensive income
6.3
-
-
-
28.4
15.6
15.6
7.0
0.5
73.4
A+B Total financial assets
4,641.7
Equity increased from euro 4,238.4 million to euro 4,492.7 million:
Equity at 12/31/2017
Net income (loss) for the financial year
Gains/(losses) recognised directly in Equity
Equity at 12/31/2018
93
6.3
2.5
1.4
149.0
30.2
19.9
15.3
6.6
3.6
234.8
4,803.1
(In millions of euro)
4,238.4
262.4
(8.1)
4,492.7
Directors’ Report on Operations The table below shows the composition of equity at December 31, 2018 and the comparison with the
previous financial year:
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
(In millions of euro)
12/31/2018
12/31/2017
1,904.4
1,904.4
380.9
630.4
12.4
92.5
13.0
(7.7)
181.5
1,022.9
262.4
380.9
630.4
12.4
92.5
29.4
(5.4)
-
1,022.9
170.9
4,492.7
4,238.4
Risk factors and uncertainty
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
These are risks which occur outside the sphere of influence of the company. This category includes risks
related to macroeconomic trends, to the evolution of demand, to competitor strategies, to technological
innovation, to the introduction of new regulations, and to country-specific risks (financial, security related,
political and environmental risks) as well as the impacts 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, to product innovation and development, to human resources,
to raw material costs, to production processes, and to 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 do not
necessarily result in any kind of competitive advantage. These types of risks include Information Technology,
Business Interruption, Legal & Compliance, Health, Safety & Environment, and Security related risks.
94
Pirelli Annual Report 2018
At cross roads to the aforesaid risks are corporate social
responsibility risks, environmental and business ethics
risks.
These are risks associated with the non-compliance with
local and international regulations, best practices and
corporate policies regarding the respect for human and
labour rights, and environmental and business ethics, and
can be generated by the organisation either as part of the
relative value chain or as part of the supply chain. These
risks in turn can lead to reputational risks. Reputational
risks are linked to actions or events that could cause a
negative perception of the company on the part of its major
stakeholders. The main areas of risk in this category are, in
addition to the aforementioned risks related to corporate
social-environmental responsibility and business ethics,
also to those risks inherent to leadership, and the quality
and level of product innovation.
EXTERNAL RISKS
RISKS ASSOCIATED WITH GENERAL
ECONOMIC CONDITIONS
AND CHANGING DEMAND IN THE MEDIUM TERM
Pirelli expects a weakening of the world economy during
2019. These expectations are based on a possible
slowdown in international trade, being weighed down
a possible exacerbation of United States and China
tensions and the uncertainty surrounding Brexit. To this is
added a possible deceleration of the American economy,
mainly caused by a more restrictive monetary policy and
the lesser benefits deriving from recent fiscal policies,
together with a weakening of the growth prospects of
the Eurozone. The high degree of political uncertainty
caused by the growing tensions between key European
Union countries will in fact have a detrimental effect on
investments and, more generally, on the confidence of
businesses and consumers. Regarding the emerging
market space, the progressive normalisation of US
monetary policy will continue to represent a significant
risk both in terms of exchange rate volatility and the
cost of sovereign and corporate debt issued in foreign
currencies.
COUNTRY RISK
Where appropriate, Pirelli has adopted a local-for-local
strategy, creating a productive presence
in rapidly
developing countries in order to respond to the local
demand with competitive industrial and logistical costs.
This strategy is aimed at increasing the competitiveness
of the Group, as well as allowing the Group to overcome
potential protectionist measures (customs barriers or
other measures such as technical prerequisites, product
certification, and administrative costs relative to import
procedures, etc.) In context of this strategy, Pirelli operates
in countries (Argentina, Brazil, Mexico and Russia) where
the general economic and political situation and tax
95
regimes may prove unstable in the future. Elements of
uncertainty persisted with the growing tension between
China and the United States and, more generally, on the
medium-long term equilibrium of the current international
trade agreements, which could lead to an alteration of
the normal market dynamics and, more generally, of
business operating conditions. The Group constantly
monitors the evolution of risks (political, economic/
financial and security related) relative to the countries in
which it operates in order to continue to adopt timely (and
if possible advance) measures to mitigate the potential
impacts of any changes arising at local level. Moreover,
in situations of under-utilisation of the capacity of some
factories, the reallocation of production between Group
plants is possible.
RISKS TIED TO A HARD BREXIT
The Group has pro-actively activated a working group
whose goals were to assess potential critical areas, in the
case of a hard Brexit, both in terms of macroeconomic
(amongst other FX volatilities and duties) as well as
operational risks - mainly due to possible delays in the
supply of raw materials and/or finished products - and
to carry out mitigation strategies aimed at reducing
possible negative
likely
scenario continues to point to the orderly withdrawal of
the United Kingdom from the EU, the fact that the British
government failed, at least as at the date of the drafting of
the budget - to ratify the “withdrawal agreement” with the
European Union, which would allow both parties to enter a
transitional period until the end of 2020, has undoubtedly
increased the odds of a hard Brexit.
impact. Although the most
to
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 have a material
impact in the medium-long term on the automotive sector,
and indirectly on the tyre market. On the one hand, these
are represented by the growing phenomena of urbanisation
(according
latest United Nation estimates,
approximately 70% of the global population will live in urban
areas by 2050) and on the other hand, by changes in the
values and behaviour of younger generations (increase in
the average age when a driver’s license is obtained, loss of
importance of owning a car, increased use of various types
of car sharing). Added to these factors is the increasing
spread of information technologies which increasingly
encourages the use of e-commerce and/or telecommuting
along with frequent regulatory
in
the mature as well as emerging economies, aimed at
limiting the presence of polluting vehicles within and near
metropolitan areas. These dynamics may give rise to a
change in automotive sector demand (from changes to
vehicle dimensions/engines which take different types
of fuel/power supply, to the possible resizing of the car
in accordance with the transportation preferences of
citizens), with a potential impact on the dynamics of the tyre
interventions, both
Directors’ Report on Operations sector. Pirelli constantly monitors the evolutionary trends in
automotive sector demand both by participating in national
and international conferences on the topic, and by working
on specific projects together with other major players in the
world of mobility such as the SiMPlify project sponsored by
the World Business Council for Sustainable Development
(WBCSD) which has been active since 2013. The principal
aim of such projects is in fact to study the possible long-
term evolution of urban mobility and to promote solutions
that might improve the social, environmental and financial
well-being of the urban population.
RISKS RELATED TO CLIMATE CHANGE
In accordance with what emerged from the last Climate
Change Risk Assessment of the Group, there are no
significant risks in relation to production processes or the
markets where Pirelli operates over the short to medium-
term horizon. On the other hand, as regards a medium-
long term scenario, the tyre sector could be subject to a
number of risks both of a physical nature (extreme weather
events), as well as of a regulatory nature. Pirelli monitors
these elements of uncertainty through sensitivity and risk
assessment analysis. Opportunities related to climate
change were highlighted in terms of growth in the sales of
Pirelli Green Performance products, which feature tyres
with a lower environmental impact during their life cycle.
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 carbon black) will
continue to be a factor of uncertainty within the Group’s
cost structure, given the strong volatility recorded in
recent years and their impact on the cost of the finished
product.
For the main raw materials purchased by the Group,
possible price scenarios are constantly simulated
in relation to the historical volatility and/or the best
information available on the market (e.g. forward prices).
On the basis of the different scenarios, any increases
in sales prices and/or the different internal actions, for
the recovery of cost efficiencies (use of alternative
raw materials, reduction of the weight of the product,
improvement of the processing quality and reduction of
the levels of waste), which are necessary to guarantee the
expected levels of profitability are identified.
RISKS LINKED TO THE COMPETITIVE POSI-
TIONING OF THE GROUP AND TO THE COM-
PETITIVE DYNAMICS OF THE SECTOR
The market in which the Group operates is characterised
by the presence of numerous operators, some of which
have significant financial and industrial resources with
brands that enjoy a significant level of international or
local notoriety. To date, Pirelli is the only player in the
tyre industry that focuses entirely on the consumer
market on a global scale, with a single brand positioned
in the segment of interest for manufacturers and users
96
of Prestige and Premium vehicles. The intensification of
the level of competition in the sector in which the Group
operates could, in the medium-long term, impact on its
income, equity and financial situation. The high barriers
to entry - both technological and productive - provide
structural mitigation to the potential tightening of the
competitive arena in the Group’s segment of reference.
To this is also be added the uniqueness of the Pirelli’s
strategy which rests - amongst other things - on a wide
homologation-based parc focused on the Prestige and
Premium segments and an ever increasing capacity
focused on the High Value segment.
STRATEGIC RISKS
EXCHANGE RATE RISK
The diverse geographical distribution of Pirelli’s
productive and commercial activities entails the exposure
to exchange rate risks such as transaction risk and
translation risk.
Transaction risk
is generated by transactions of a
commercial and financial nature carried out by individual
companies
in currencies other than the functional
currency, due to fluctuations in exchange rates between
the time when the commercial/financial relationship
originates and the time when the transaction is settled
(collection/payment).
is to minimise the
impact of
The Group’s policy
transaction risk linked to volatility, and for this reason
the Group’s procedures provide that the Operating Units
are responsible for collecting all the relevant information
pertaining to positions subject to transaction risk (mainly
represented by receivables and payables
in foreign
currency). Coverage is then provided in the form of
forward contracts which are entered into where possible
with the Group’s Treasury.
The positions subject to exchange rate risk are mainly
in foreign
represented by receivables and payables
is responsible for
currency. The Group’s Treasury
hedging the resulting net position for each currency
and, in accordance with the established guidelines and
restrictions, it in turn provides for the closure of all risk
positions by trading derivative hedging contracts on the
market, typically forward contracts.
Furthermore, as part of the one year and three year
planning process, the Group formulates exchange rate
forecasts on the basis of the best available information on
the market. Any fluctuation in an exchange rate between
the time of planning and the time when a commercial or
financial transaction originates, results in a translation
risk on future transactions. From time to time the Group
assesses the opportunity to engage in currency hedging
on future transactions for which it typically makes use of
Pirelli Annual Report 2018 either forward buy or sell operations, or optional operations
such as risk reversal (for example, zero cost collars).
interests
Pirelli owns controlling
in companies that
prepare their Financial Statements in currencies other
than the Euro which is the currency used to prepare the
consolidated Financial Statements. This exposes the
Group to currency translation risk, due to the conversion
into Euro of the assets and liabilities of subsidiaries
operating in other currencies. The main exposures to
currency translation risk are constantly monitored and at
present it has been decided not to adopt specific hedging
policies for these exposures.
LIQUIDITY RISK
The principal instruments used by the Group to manage
the risk of insufficient available financial resources to
meet the financial and commercial obligations within
the terms and deadlines established, are its one year
and three year financial plans and its treasury plans, in
order to allow for the complete and correct detection
and measurement of incoming and outgoing cash flows.
The differences between the plans and the final data are
constantly analysed.
The Group has implemented a centralised system for the
management of collections and payments in compliance
with various local currency and tax regulations. Banking
relationships are negotiated and managed centrally, in
order to ensure coverage for short and medium-term
financial needs at the lowest possible cost. Even the
procurement of medium and long-term resources on
the capital market is optimised through centralised
management.
The prudent management of the aforementioned risk
requires the maintenance of an adequate level of cash
or cash equivalents and/or highly
liquid short-term
securities, plus the availability of funds obtainable through
an adequate amount of committed credit facilities and/or
recourse to the capital market.
In addition to the available portion of the committed credit
facility (Revolving Credit Facility) for a total euro 700
million which at December 31, 2018 resulted as being
completely unused, the Pirelli Group has resorted to the
capital market to diversify both products and maturities in
order to seize the best opportunities available from time
to time.
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 market
interest rates.
The group assesses, on the basis of the market circumstances,
whether to enter into derivative contracts, typically interest
97
rate swaps and cross currency interest rate swaps, for
hedging purposes for which hedge accounting is activated
when the conditions set forth in the IFRS 39 are met.
PRICE RISK ASSOCIATED WITH FINANCIAL ASSETS
The Group was exposed to price risk only regarding the
volatility of financial assets such as listed and unlisted
stock securities and bonds, which represented 0.7% of
the total assets of the Group. Derivatives are not normally
set up to limit the volatility of these assets.
CREDIT RISK
Credit risk represents the Group’s exposure to potential
losses resulting from the non-fulfilment of the commercial
and financial obligations undertaken by counterparties. As
regards these commercial counterparties, in order to limit
this risk, Pirelli has implemented procedures to evaluate
customer potential and financial creditworthiness, to
monitor expected collection flows and to take credit
recovery action if and when necessary. The aim of these
procedures is to define customer credit limits, whereby
in the event that those limits are exceeded, the rule to
withhold further supplies is activated. 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.
Other
instruments used for commercial credit risk
management is the taking out of insurance policies. As of
January 2012, the company signed a master agreement
which expired in December 2018, with a leading insurance
company for worldwide coverage for credit risk mainly
related to sales on the Replacement channel (with an
approximate 75% acceptance rate at December 2018).
Insurance coverage has been extended to also cover
the two year 2019-2020 period. At December 31, 2018,
the amount of trade receivables remained essentially
consistent with that at closing the previous financial
year. The Group operates only with highly rated financial
counterparties for the management of its temporary cash
surpluses or for trading in derivative instruments. Pirelli
does not hold public debt instruments from any European
country, and constantly monitors its net credit exposure
to the banking system, and does not show significant
concentrations of credit risk.
RISKS ASSOCIATED WITH HUMAN RESOURCES
The Group is exposed to the risk of loss of resources in
key positions or in possession of “critical know how”. To
address this risk, the Group adopts remuneration policies
periodically updated also based on changes in the general
macroeconomic scenario as well as on the basis of salary
benchmarks. Also planned are long-term incentive plans
and specific non-competition agreements (also with
retention effect) designed amongst other things, to fit
the risk profiles of the activities related to the business.
Directors’ Report on Operations Finally, specific management policies have been adopted
to motivate and retain talent.
in legal, fiscal, trade or labour law disputes. The Group
adopts the necessary measures to prevent and mitigate
any penalties that may result from such proceedings.
OPERATIONAL RISKS
RISKS RELATED TO ENVIRONMENTAL ISSUES
The activities and products of the Pirelli Group are subject
to numerous environmental laws that vary between the
countries where the Group operates. These regulations
have in common their tendency to evolve in an ever more
restrictive manner, also due to the growing concern of the
international community over the issue of environmental
sustainability. Pirelli expects the gradual introduction of
ever stricter laws in relation to the various environmental
aspects on which companies may impact (atmospheric
emissions, waste generation, impacts on soil and water
use, etc.), by virtue of which the Group expects to have
to continue to make investments and/or incur costs that
may be significant.
EMPLOYEE HEALTH AND SAFETY RISKS
In carrying out its activities the Pirelli Group incurs
expenses and costs for the measures necessary to
ensure full compliance with the obligations pursuant to
regulations regarding health and safety in the workplace.
Particularly in Italy the law relating to health and safety
in the workplace (Legislative Decree No. 81/08) and
subsequent amendments, (Legislative Decree No. 106/09)
have introduced new obligations that have impacted on
the management of activities at Pirelli sites, and on the
models for allocating liabilities.
Failure to comply with current health and safety
regulations entails criminal and/or civil penalties at the
expense of those responsible, and in some cases, the
penalties for the violation of regulations are borne by the
Companies themselves in accordance with a European
model of objective liability for companies incorporated in
Italy (Legislative Decree No. 231/01).
DEFECTIVE PRODUCT RISK
As with all manufacturers of goods for sale to the public,
Pirelli is subject to potential liability claims related to any
alleged defects of the materials sold or may be required
to launch recall campaigns for products. Although in
recent years there have been no significant cases and
such events are however covered from an insurance point
of view, any occurrence could have a negative impact
on the reputation of the Pirelli brand. For this reason, the
tyres manufactured by Pirelli are subjected to careful
quality analysis before being placed on the market. The
entire production process is subject to specific quality
assurance procedures aimed at safety, as well as at
constantly elevated performance.
LITIGATION RISKS
In carrying out its activities, Pirelli may become involved
ICT
role of
RISKS RELATED TO INFORMATION SYSTEMS
AND NETWORK INFRASTRUCTURE
(Information and
The supporting
communication
for business
technology) systems
processes, their evolution and development, and for
the Group’s operating activities was also confirmed
during the course of the 2018 financial year as being
fundamental to the achieving of results. Pirelli has
mainly worked towards the prevention and mitigation
of risks connected to possible system malfunctions
through high reliability solutions for the protection of the
corporate information assets, through the enhancement
of the security systems against unauthorised access,
as well as of the business data management solutions.
At the application level Pirelli has intervened in terms of
system adaptation to both comply with local regulations
(the Electronic Invoicing in Italy and Hungary, and
Electronic Payments in Mexico) and to ensure the most
recently released updates (Upgrade of Payroll Italy and
SAP systems). Particular attention has been paid to the
renewal of infrastructural componentry characterised by
technological obsolescence which could entail a greater
risk of breakdowns and incidents which could impact on
the Group’s activities. In particular:
→ Network Security solutions were optimised, as regards
both internet access and interaction with the rest of
the Pirelli network, in public Clouds (Azure, AWS and
AliCloud), in order to improve system protection and
governance.
→ The Virtual Private Clouds (VPC) required for the
business in the Azure and AliCloud environment were
implemented in compliance with the Group’s security
policies.
→ The work continued to bring the Server and Client
environments into compliance through the constant
and progressive updating of the operating systems in
order to reduce their vulnerabilities.
→ The new Disaster Recovery solution was activated,
which substantially reduces recovery times and limits
any loss of data to a minimum.
→ The infrastructures for saving corporate data resident
on user PCs and on central systems were optimised to
reduce the risk of information loss.
→ The work continued on the segregation of the factory
networks within the various locations of the Group, and
with the implementation of protective solutions to the
level of individual machinery.
BUSINESS INTERRUPTION RISKS
The territorial fragmentation of the operating activities
of the Group and their interconnection, expose it to risk
scenarios that could cause the interruption of business
operations for more or less prolonged periods, with the
98
Pirelli Annual Report 2018 consequent impact on the operational capabilities and
results of the Group itself.
Risk scenarios related to natural events or accidents (fires,
floods, earthquakes, etc.), to wilful misconduct (vandalism,
sabotage, etc.), to breakdowns of the auxiliary plants or to
the interruption of the supply of utilities can, in fact, cause
significant property damage, and the reduction and/or
interruption of production, particularly if the event concerns
high volume or specific product (high-end) production sites.
Pirelli monitors their vulnerability to catastrophic natural
events (in particular flood, hurricane and earthquake) with
estimates of any potential damage (based on the given
probability of occurrence) for all the Group’s production
sites. The analyses confirm the adequate monitoring of
business interruption risks, thanks to a complex series of
security measures, systems of prevention of harmful events
and the mitigation of potential impacts on the business, also
in light of the current business continuity plans as well as the
insurance policies in place to cover property damage and
any business interruptions which the Group’s production
facilities might suffer (the Group’s insurance coverage may
however not be sufficient in compensating all potential
losses and liabilities in case of catastrophic events). Even
Pirelli’s supply chain is subject to regular assessment
concerning the potential risk of business interruption in the
qualification phase of new Tier-1 raw materials suppliers.
RISKS RELATIVE TO THE
FINANCIAL REPORTING PROCESS
Pirelli has also implemented a specific and articulated
internal control,
system of risk management and
supported by a dedicated
information technology
application, with regard to the process of preparing the
half-year, annual, separate and consolidated Financial
Statements, in order to safeguard the company’s assets,
compliance with laws and regulations, the efficiency and
effectiveness of corporate operations, as well as the
reliability, accuracy and timeliness of financial reporting.
In particular, the process of preparing financial reports
takes place through the appropriate administrative
and accounting procedures that have been drawn up
in accordance with criteria established by the Internal
Control - Integrated Framework issued by the Committee
of Sponsoring Organisations of the Tradeway Commission.
The administrative/accounting procedures
the
preparation of Financial Statements and all other financial
reports are prepared under the responsibility of the Chief
Financial Officer, who periodically attests to (in any case,
regarding the Financial Statements/consolidated Financial
Statements) their adequacy and effective application.
for
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
99
have been mapped out. The identification of companies
that belong to the Group and the relevant processes
is carried out annually on the basis of quantitative and
qualitative criteria. The quantitative criterion involves the
identification of the Group companies which, in relation
to the selected processes, represent an aggregate value
which exceeds a certain threshold of materiality.
The qualitative criteria
involve the examination of
processes and companies which, in the opinion of the
Chief Executive Officer may present potential areas of
risk despite not falling within the aforesaid quantitative
parameters.
For each selected process, the risk/control objectives
associated with
the Financial
Statements and any related disclosures, as well as to the
effectiveness/efficiency of the internal control system in
general, have been identified.
the preparation of
For each control objective, specific verification procedures
have been implemented and specific responsibilities have
been assigned.
A supervisory system has been implemented on the
controls carried out by way of a mechanism of chain
attestations. Any problems that emerge within the
evaluation process are subject to action plans whose
implementation is verified in subsequent closings.
The quarterly issue of a declaration of the reliability
and accuracy of the data supplied for the purposes of
preparing the Group’s consolidated Financial Statements
is also ultimately provided by the Chief Executive Officer
and the Chief Financial Officer of each subsidiary.
In the lead up to the dates of the Board of Directors’
Meeting which approve the consolidated data at June
30 and December 31st, the results of the verification
procedures are discussed by the Chief Financial Officer
of the Group companies and the Chief Financial Officer.
The Internal Audit Department performs regular audits
aimed at verifying the adequacy of the design and
effectiveness of the controls aimed at the subsidiaries, as
well as the sampling procedures, selected on the basis of
materiality criteria.
REPUTATIONAL RISK AND CORPORATE
SOCIAL-ENVIRONMENTAL RESPONSIBILITY
REPUTATIONAL RISKS
Pirelli has developed an ad hoc digital tool for the
identification, measurement and management of
reputational risk, which is measured in terms of the
probability of occurrence and
impact on reputation.
Reputational risk is understood as a current or prospective
Directors’ Report on Operations risk that might result in a loss in gains and affect the propensity to buy due to a negative perception of the Company
by one or more stakeholders. While on the one hand, reputational risk is construed as a possible consequence
of the occurrence of an adverse event related to one of the three aforementioned macro-risk families, on the
other hand it is managed as an independent event precisely because its scope depends on the expectations of
the stakeholders concerned, as well as the impact of the negative event. The chosen methodology has led to the
identification of a specific set of reputational risks. This mapping emerges from the analysis of a series of internal
and external drivers including: negative events with an impact on reputation which have occurred in the sector
worldwide over the last ten years; interviews with external Key Opinion Leaders on sector trends, aspects of
mobility and sustainability; interviews with internal Key Opinion Leaders with particular reference to the analysis
of the probability of the occurrence of the risks identified.
The risk events identified were then subjected to the qualitative-quantitative assessments of a sample
representative of the general public in the three key Pirelli countries, which led to the definition of the
governance and management structures and the preparation of mitigation and/or crisis management plans.
RISKS RELATIVE TO CORPORATE SOCIAL AND ENVIRONMENTAL
RESPONSIBILITY, BUSINESS ETHICS, AND THIRD-PARTY AUDITS.
Risk management at Pirelli is enterprise-wide and includes the identification, analysis and monitoring of
environmental, social, economic/financial and business ethics risks that are directly or indirectly attributable
to the company, through Pirelli affiliates or from within relations with them, such as the sustainability of the
supply chain.
Before entering a specific market, ad hoc assessments are carried out in order to assess any political, financial,
environmental and social risks, including those connected with human and labour rights.
Together with the ongoing monitoring of the application of Pirelli’s internal requirements regarding financial, social
(particularly regarding human and labour rights), environmental and business ethics on Group sites, which occurs
through periodic audits performed by the Internal Audit Function, Pirelli has adopted an ESG (environmental and
social governance) risk mitigation strategy also with respect to its own supply chain, which is periodically audited
by specialised third party companies. In both cases, where non-compliances are found, it is envisaged that a re-
compliance plan is conceived whose implementation is promptly monitored by the auditing body.
Outlook for 2019
Revenues
Weight of High Value on revenues
Volumes
Volumes High Value
Volumes Standard
Price/Mix
Forex
Ebit margin adjusted
Start-up costs
Net financial position/Ebitda Adjusted without start-up costs
CapEx
100
(In millions of euro)
2018
2019
5,194.5
64%
-3.10%
+11%
-14%
+6.8%
-5.9%
18.4%
48
2.49X
463
~+4%/+6%
~67%
0/+1%
~+11%
-10%/-9%
+5%/+5.5%
-1%/-0.5%
~19%
~40
~2.1X
~430
Pirelli Annual Report 2018 The outlook data for 2019 reflects the strategy of focusing
on the High Value segment and the acceleration of the
reduction of exposure to the Standard segment. The data
also already takes into account the marginal effect of the
reshaping of some of the terms of the license agreements
with the Prometeon Tyre Group and Aeolus.
The forecasts for 2019 are for:
→ revenues to increase by between +4.0% and +6.0%
compared to the euro 5,194.5 million recorded for
2018, supported by the strengthening of the High
Value segment (a 67.0% share of revenues compared
to 64.0% in 2018) and by the continuous improvement
of the price/mix (+5.0%/+ 5.5%);
→ High Value volumes to increase by approximately +11.0%,
plus further acceleration of the reduction of exposure to
the Standard segment (volumes -10.0/-9.0%);
→ total volumes: between 0.0% and +1.0% compared to 2018;
→ an exchange rate effect of approximately -1.0%/-0.5%;
→ growth in profitability with an EBIT margin adjusted of
approximately 19.0% (18.4% for 2018) supported by
the improvement in internal levers (price/mix, costs
efficiencies);
→ a High Value segment share of approximately 85.0% of
the EBIT adjusted without start-up costs (approximately
83.0% for 2018).
→ start-up costs of approximately euro 40 million (euro 47.7
million for 2018) destined to strengthen the Company’s
digital
the continuous
development of Cyber solutions and the start-up of new
Joint Venture production activities in China;
transformation program,
→ reduced indebtedness with a ratio, between the net
financial position and the EBITDA adjusted without
start-up costs of approximately 2.1x8 compared to
2.49x at the end of 2018;
→ investments equal to approximately euro 430 million,
consistent with the 2018 figure.
Pirelli has confirmed its “less than 2 times” 2020 target
for the ratio between the net financial position and the
EBITDA adjusted forecast by the Industrial plan presented
during the IPO. The other forecasts contained in these
Financial Statements will be updated - and are therefore
to be considered obsolete - by the fourth quarter of the
financial year with the presentation of a new plan with
a time span of up until 2022 and which reflects, the new
economic scenario, the continuation of a more accelerated
reduction of Standard volumes, compared to the original
plan whose impacts will be mainly offset by the tax relief
benefits of the Patent Box, and the strengthening of
transformation programs (decomplexity, cost containment
and digital transformation) in order to support the greater
development of the High Value segment.
8 Excluding the impact of the new accounting standard IFRS 16
101
Significant events
subsequent to the end
of the financial year
No significant events occurred since the end of the year.
Alternative
performance indicators
This document, in addition to the financial measures
as provided for by the International Financial Reporting
Standards (IFRS), also includes measures derived from
the latter even though not provided for by the IFRS (Non-
GAAP Measures). These measures are presented in order
to allow for a better assessment of the results of Group
operations and should not be considered as alternatives
to those required by the IFRS.
In particular, the Non-GAAP Measures used were as follows:
→ EBITDA: is equal to the EBIT excluding the depreciation
and amortisation of property, plant and equipment and
intangible assets. The EBITDA is used to measure the
ability to generate earnings from operations, excluding
the impact of investments;
→ EBITDA adjusted: is an alternative measure to the
EBITDA from which are excluded, the non-recurring
and restructuring expenses, the expenses relative to
the retention plan approved by the Board of Directors
on February 26, 2018; and for the 2018 financial year
only, costs relative to the renegotiation of commercial
agreements and royalties, and costs not pertinent to
normal business operations;
→ EBITDA adjusted without start-up costs: is equal to the
EBITDA adjusted but excludes the contribution to the
EBITDA (start-up costs) of the Cyber and Velo activities,
the costs for the conversion of Aeolus brand car products,
and costs sustained for the digital transformation of the
Group. The EBITDA adjusted without start-up costs is an
alternative measure to the EBITDA adjusted but which
excludes start-up costs;
→ EBITDA margin: is calculated by dividing the EBITDA
by revenues from sales and services (net sales). This
measure is used to evaluate operational efficiency,
excluding the impacts arising from investment activities;
Directors’ Report on Operations → EBITDA margin adjusted: is calculated by dividing
the EBITDA adjusted by revenues from sales and
services (net sales). This measure is used to evaluate
operational efficiency, excluding the impacts arising
from investments, the operating costs attributable to
non-recurring and restructuring expenses, the expenses
relative to the retention plan approved by the Board
of Directors on February 26, 2018 and, for the 2018
financial year only, costs relative to the renegotiation
of commercial agreements and royalties, and costs not
pertinent to normal business operations;
→ EBITDA margin adjusted without start-up costs: is
calculated by dividing the EBITDA adjusted without
start-up costs by revenues from sales and services (net
sales). This is an alternative measure to the EBITDA
margin adjusted but which excludes start-up costs;
→ EBIT: is an intermediate measure, which is derived from
the net income (loss) but which excludes the net income
(loss) from discontinued operations, taxes, financial
income, financial expenses and the net income (loss)
from equity investments. The EBIT is used to measure
the ability to generate earnings from operations,
including the impact arising from investment activities;
→ EBIT adjusted: is an alternative measure to the
EBIT from which are excluded the depreciation and
amortisation of property, plant and equipment and
assets recognised as a consequence of Business
Combination, the non-recurring and restructuring
expenses, the expenses relative to the retention plan
approved by the Board of Directors on February 26,
2018 and, for the 2018 financial year only, costs relative
to the renegotiation of commercial agreements and
royalties, and costs not related to the normal operational
management of the business.
→ EBIT adjusted without start-up costs: is equal to the
EBIT adjusted but excludes the contribution to the EBIT
(start-up costs) of the Cyber and Velo activities, the
costs for the conversion of Aeolus brand Car products,
and costs sustained for the digital transformation of
the Group. The EBIT adjusted without start-up costs is
an alternative measure to the EBIT adjusted but which
excludes start-up costs;
→ EBIT margin: is calculated by dividing the EBIT by
revenues from sales and services (net sales). This
measure is used to evaluate operational efficiency;
→ EBIT margin adjusted: is calculated by dividing
the EBIT adjusted by revenues from sales and
services (net sales). This measure is used to evaluate
operational efficiency, but excludes the amortisation
of intangible assets relative to assets recognised as a
consequence of Business Combinations, the operating
costs attributable to non-recurring and restructuring
expenses, the expenses relative to the retention plan
approved by the Board of Directors on February 26,
2018 and, for the 2018 financial year only, costs relative
to the renegotiation of commercial agreements and
royalties, and costs not related to the normal operational
management of the business;
→ EBIT margin adjusted without start-up costs: is
calculated by dividing the EBIT adjusted without start-
up costs by revenues from sales and services (net
sales). This is an measure to the EBIT margin adjusted
but which excludes start-up costs;
→ Net income (loss) related to continuing operations
(Consumer) adjusted: is calculated by excluding
the following items from the net income (loss) from
continuing operations;
→ the amortisation of intangible assets relative to
assets recognised as a consequence of Business
Combinations, the operating costs attributable
to non-recurring and restructuring expenses, the
expenses relative to the retention plan approved
by the Board of Directors on February 26, 2018;
and, for the 2018 financial year only, costs relative
to the renegotiation of commercial agreements
and royalties, and costs not related to the normal
operational management of the business;
→ non-recurring income/costs recognised under
financial income and expenses;
→ non-recurring
income/costs recognised as a
tax item, as well as the tax impact relative to the
adjustments referred to in the previous points.
This is used to measure net profitability, excluding
the impact of the items referred to in the previous
points.
→ Fixed Assets related to continuing operations:
this measure is constituted of the sum of the items,
“Property, plant and equipment”, “Intangible assets”,
“Investments in associates and joint ventures” and
“Other financial assets carried at fair value recognised
under other items in the Statement of Comprehensive
Income”, and “Other financial assets carried at fair
value recognised in the Income Statement” (“Other
financial assets” with reference to comparative data at
December 31, 2017). Fixed assets related to continuing
operations represents non-current assets included in
the net invested capital;
→ Net Operating working capital related to continuing
operations: this measure is constituted by the sum of
“Inventory”, “Trade receivables” and “Trade payables”;
This measure is used to measure the financial
equilibrium of commercial activities.
→ Net working capital related to continuing operations:
this measure consists of the net operating working
capital and other receivables and payables not included
in the “Net financial liquidity/(debt) position”. The
measure represents short-term assets and liabilities
included in the “Net invested capital”, and is used to
measure short-term financial equilibrium;
→ Net invested capital assets available for sale: this
measure is constituted by the difference between
“Assets available for sale” and Liabilities available for
sale”. Net invested capital assets available for sale is
used to measure net assets relative to assets available
for sale;
102
Pirelli Annual Report 2018 → Net invested capital: this measure is constituted by the
sum of (i) fixed assets related to continuing operations,
(ii) net working capital related to continuing operations,
and (iii) net invested capital assets available for sale. Net
invested capital is used to represent the investment of
financial resources;
→ Average net invested capital: this measure consists
of the average between the net invested capital at
the beginning and at the end of the period, excluding
investments in associated companies and Joint Ventures,
“Other financial assets at carried fair value recognised
in the Statement of Comprehensive Income”, and
“Other non-current financial assets carried at fair value
recognised in the Income Statement” (other financial
assets refer to the comparative data at December
31, 2017) and the intangible assets relative to assets
recognised as a consequence of Business Combinations.
This measure is used to calculate the ROI;
→ Provisions: this measure is constituted by the sum
of “Provisions for liabilities and charges (current and
non-current)”, “Employee benefit obligations (current
and non-current)” and “Provisions for deferred taxes.
The item provisions represents the total amount of
liabilities due to obligations of a probable but not
certain nature;
→ ROI: is calculated as the ratio between the EBIT
adjusted and the average net invested capital. ROI is
used as to measure the profitability of invested capital;
→ Net financial debt: calculated pursuant to CONSOB
Communication No. 6064293 of July 28, 2006 and in
compliance with Recommendations ESMA/2013/319.
Net financial debt represents the debt position towards
banks and financial institutions net of cash and cash
equivalents, other current financial assets carried at fair
value recognised in the Income Statement (or “Securities
held for trading” with reference to comparative figures at
December 31, 2017) and “Current financial receivables”
(included in “Other receivables”) and current derivative
financial instruments included in the item “Net financial
position” (included under “Current assets as derivative
financial instruments”);
→ Total net financial (liquidity) debt position: is calculated
as net financial debt less “Non-current financial
receivables” (included in the non-current assets line
item “Other receivables”) and “Non-current derivative
financial instruments included in net financial position”
(included under non-current assets as “Derivative
financial instruments”). Total net financial (liquidity)/
debt position is an alternative measure to net financial
debt that includes long-term financial assets;
→ Total net financial (liquidity) debt position/EBITDA
adjusted without start-up costs; calculated as the ratio
between the Total net financial (liquidity) debt position
and the EBITDA adjusted without start-up costs. This is
used to measure the sustainability of the debt;
→ CapEx (Capital Expenditures) or Investments in
property, plant & equipment and intangible assets:
calculated as the sum of (i) investments (increases)
in intangible assets and (ii) investments (increases) in
property, plant and equipment. This measure represents
the total amount of investments in tangible and
intangible assets;
→ Impact of amortisation and depreciation on
investments: calculated by dividing the investments
(increases) of tangible assets with amortization for
the period. The ratio of investments to amortisation is
used to measure the ability to maintain or restore the
amounts for tangible fixed assets.
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.
The Chairman is endowed with the legal representation
of the Company including in the legal proceedings of the
Company, as well as all other powers attributable to the
Chairman in accordance with the Articles of Association.
To the Executive Vice Chairman and CEO are exclusively
delegated powers for the ordinary management of the
Company and the Group, as well as the power to propose
business and industrial plans and budgets to the Board
of Directors, as well as any resolutions concerning any
strategic industrial partnerships and joint ventures of
which Pirelli is a part.
The Board has
Committees with advisory tasks:
internally
instituted
the following
→ Audit, Risks, Sustainability and Corporate Governance
Committee
→ Remuneration Committee
→ Committee for Related Party Transactions
→ Nominations and Successions Committee
→ Strategies Committee
For more details reference should be made to the section
of this present Report titled “Report on Corporate
Governance and Ownership Structure”, included in the
Financial Statements and published in the Governance
section of the Company’s website (www.pirelli.com).
103
Directors’ Report on Operations INFORMATION ON THE SHARE CAPITAL
AND OWNERSHIP STRUCTURE
The information referred to in Article 123 bis of Legislative
Decree 24 February 1998 n. 58 are reported in the
specific section of this present Report titled “Report on
Corporate Governance and Ownership Structure”,
included in the Financial Statements as well as published
in the Governance section of the Company’s website
(www.pirelli.com).
DEROGATION OF THE PUBLICATION
OF INFORMATION
into account the
The Board of Directors, taking
simplification of regulatory requirements
introduced
by CONSOB in the Issuer’s Regulation No. 11971/99,
resolved to exercise the power to derogate, pursuant to
the provisions of Article 70, paragraph 8, and of Article 71,
paragraph 1-bis of the aforesaid Regulation, the obligations
to publish the disclosure documents required at 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)
Pirelli & C. S.p.A. directly or indirectly controls some
companies based in countries which do not belong to
the European Community (Extra-EU Companies) which
hold particular significance pursuant to Article 15 of
CONSOB Regulation No. 20249 of December 28th 2017
concerning markets.
With reference to the data at December 31, 2018, the
Extra-EU Companies controlled, directly or indirectly,
by Pirelli & C. S.p.A. which are of relevance pursuant to
Article 15 of the Markets Regulation are:
Limited Liability Company Pirelli Tyre Russia (Russia);
Pirelli Pneus Ltda (Brazil); Pirelli Comercial de Pneus Brasil
Ltda (Brazil); Comercial e Importadora de Pneus Ltda.
(Brasile); 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).
Also under the same regulations, the Company has put
in place a specific and appropriate “Group Operating
Regulation” which ensures
immediate, constant and
full compliance with the provisions contained in the
aforementioned CONSOB regulation. In particular, the
competent corporate departments ensure a timely and
periodical identification and publication of the relevant non-
EU companies under the Market Regulation, and - with the
necessary and appropriate collaboration of the companies
involved - guarantee the collection of data and information
and the verification of the circumstances referred to in
the aforesaid Article 15, ensuring the availability of the
information and data provided by the subsidiaries in the
event of a request by CONSOB. In addition, it also provides
for a regular flow of information in order to ensure to the
Board of Statutory Auditors that the Company carries out
the required and appropriate verifications. Finally, the above
“Operating Regulation”, consistently with the regulatory
provisions, governs the provision to the public of the
financial statements (the Statement of Financial Position
and Income Statement) of the relevant non-EU companies
which are subject to the preparation of the consolidated
Financial Statements of Pirelli & C. S.p.A.
It shall therefore be noted that the Company is fully
compliant with the provisions of Article 15 of the
aforementioned CONSOB Regulation No. 20249 of
December 28, 2017 and the subsistence of the conditions
required by the same.
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 body and the constitution of the Committee
for Related Party Transactions (“OPC Committee”), the
OPC Procedure was adopted, without any modification,
favourable opinion
and,
expressed by the members of the OPC Committee, also
by the Board of Directors currently in office.
the unanimous
following
The OPC Procedure can be consulted, together with the
other corporate governance procedures, in the section
of the website at www.pirelli.com dedicated to corporate
governance.
For more details on the procedure for Related Party
Transactions (OPC Procedure), reference is made to the
sections named Directors’ Interests and Related Party
Transactions included in the Annual Report on Corporate
Governance and Ownership Structure contained in the
Financial Statements and group of documents.
***
Pursuant to Article 5 paragraph 8 of CONSOB
Regulation No. 17221 of March 12, 2010 on Related Party
Transactions, and the subsequent CONSOB Resolution
No. 17389 of June 23, 2010, it should be noted that during
the 2018 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
Board of Directors of Pirelli & C. S.p.A. for approval.
Furthermore, there were no Related Party Transactions -
104
Pirelli Annual Report 2018 or changes or developments in the transactions described
in the previous Financial Statements - that significantly
affected the financial position or income of the Group for
the 2018 financial year.
of July 28, 2006, it is hereby specified that during the
course of the 2018 financial year that no exceptional and/
or unusual transactions as defined in the aforesaid Notice
were carried out by the Company.
On February 14, 2019, the Company’s Board of Directors
approved the reshaping of some of the terms of the
existing license agreements with the Prometeon Tyre
Group S.r.l. and the Aeolus Tyre Co., Ltd. For a description
of the aforementioned remodulations and the financial
effects of the same (attributable in part to the 2018
financial year) reference should be made to the sections
of the 2018 Financial Statements indicated below, as well
as to the Disclosure Documents on transactions published
(on a prudent and voluntary basis) by the Company on
February 20, 2019.
The information on related party transactions that is
required pursuant to CONSOB Communication No.
DEM/6064293 of July 28, 2006 is presented in the
Financial Statements, and in the Note entitled “Related
Party Transactions” in the annual Financial Statements at
December 31, 2018.
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. Furthermore, their execution was carried out in
compliance with the OPC Procedure.
COMPLIANCE WITH THE REGULATIONS ON
THE PROTECTION OF PERSONAL DATA
Following the entry into force of EU Regulation 2016/679
and amendments to Legislative Decree No. 196/2003
(introduced by Legislative Decree No. 101/2018), it
should be noted that the Company has started and
completed, with the support of the competent functions,
all the activities necessary to meet the new requisites
of the law, including, amongst others, the preparation of
the registry of data processing operations. The Company
has also appointed a Data Protection Officer (“DPO”) in
the person of lawyer Alberto Bastanzio, whose contact
details were duly communicated to the Guarantor for
the Protection of Personal Data July 25, 2018. The DPO
can be contacted, other than at the registered office of
the Company, also at the following e-mail address: dpo_
pirelli@pirelli.com.
The activities carried out by the DPO during the relevant
reporting period are described in detail in the “Annual
Report of the DPO” available at the registered office of
the Company, to which reference should be made for
further details.
EXCEPTIONAL AND/OR UNUSUAL OPERATIONS
Pursuant to CONSOB Communication No. 6064293
The Board of Directors
Milan, February 26, 2019
105
Directors’ Report on Operations Pirelli Annual Report 2018
REPORTON
RESPONSIBLE
MANAGEMENTOFTHE
VALUE CHAIN
Consolidated non-financial disclosure pursuant to legislative decree of December 30, 2016, N. 254
107
METHODOLOGICAL NOTE
This section of the Annual Report 2018, entitled
“Report on Responsible Management of the Value
Chain” (hereinafter “the Report”), constitutes the
the
“Consolidated Non-Financial Disclosure” of
Company pursuant to Legislative Decree no. 254/2016
and explores the Sustainable Management Model
adopted by Pirelli, the governance tools to support
maintenance and creation of values, relationships
with Stakeholders and related connection with the
development of financial, productive,
intellectual,
human, natural, social and relational capital, which
was mentioned in the “Presentation of 2018 Pirelli
Integrated Annual Report”.
The Report reflects the integrated Business model
adopted by the Group, inspired by the United Nations
Global Compact,
the principles of Stakeholder
Engagement set forth by the AA1000, and the
Guidelines of ISO 26000. Reported information is
prepared in accordance with the Global Reporting
Initiative (GRI) Sustainability Reporting Standards,
published in 2016, Comprehensive option, following
the process suggested by the APS1000 APS principles
inclusivity and responsiveness), and
(materiality,
reporting principles
the
considering
contained in the International Integrated Reporting
Council (IIRC).
integrated
The set of indicators covered by the Report covers is
wider than the list of specific material issues indicated
in the materiality matrix, and this in order to provide a
more complete and transversal view on the Company’s
performance, for the benefit of all Stakeholders.
The report shows the sustainability performance of the
Group in 2018 compared to 2017 and 2016, with respect
to the targets set for 2018 and with a view to the 2019
and/or long-term targets envisaged in the Sustainability
Plan.
Following the change in the industrial scope that took
place on 1 January 2018, which saw the entrance of the
production site of Gravatai, Brazil, the historical values of
the environmental indicators were recalculated in order to
ensure comparability with 2018 data.
The Report is published annually (the previous Pirelli
Annual Report was published in March 2018 with reference
to the year 2017), is approved by the Group’s Board of
Directors and covers the same scope of consolidation of
the Group.
The main information systems that contribute to collect
the data accounted in the Report are: CSR-DM (Corporate
Social Responsibility Data Management), HSE-DM
(Health, Safety and Environment Data Management),
SAP HR (SAP Human Resources) and HFM (Hyperion
Financial Management).
In terms of internal control of the contents of the Report,
the Company, through the Group Compliance function,
has set up a structured system that includes:
→ a dedicated Operating Procedure, in which the roles,
responsibilities and procedures to be followed by
the Group companies in order to ensure adequate
management
non-financial
reporting
information are defined;
and
of
→ an internal control system aimed at providing an
assurance about the correct collection and reporting
of non-financial information, to which an additional
assurance is added for those information considered
to be of particular relevance since, for example, they
fall within the Group Sustainability Plan targets;
→ a verification, following a circulating activity, of all
the non-financial data reported in the Report on
Responsible Management of the Value Chain;
→ the signing of a letter of certification by the Top
Management concerning the data that are collected
through the CSR-DM information system and the
paragraphs of the financial statements of competence.
As regards external audits, the sustainability performance
accounted in the Report is subject to limited audit by an
independent firm (PricewaterhouseCoopers S.p.A.) in
accordance with the criteria indicated in the International
Standard on Assurance Engagements 3000 - Assurance
Engagements other than Audits or Reviews of Historical
Financial
issued by the
International Auditing and Assurance Standards Board.
For further information, reference is made to the related
Auditor’s Report provided at the end of the Annual Report.
As part of this limited audit activity, the data relating to
GHG emissions were also specifically analysed, including
for the purposes of the disclosure process to the Carbon
Disclosure Project (CDP).
Information (ISAE 3000),
The Report is structured into four main areas:
→ an introductory section related to the sustainable
management model adopted by the Company,
Governance and Compliance policies and activities,
Stakeholder Engagement, long-term planning;
→ an “Economic Dimension”, in which the distribution of
added value is detailed along with the management
and performance relating to customers and suppliers;
→ an “Environmental Dimension”, which describes the
management of environmental aspects and impacts
throughout the entire product cycle;
→ a “Social Dimension”, which brings together the
paragraphs dedicated to: governance of human rights,
the internal community and the external community.
At the end of the Annual Report 2018, before the
108
Pirelli Annual Report 2018 Independent Auditor’s Report mentioned above, the
following summary Tables are available:
“Environmental Dimension”, “Industrial Relations” and
“Occupational Health, Safety and Hygiene” of this Report.
→ the GRI Content Index, which shows the full list of
indicators accounted based on the GRI Standards,
indicating the relative page in the Annual Report 2018;
→ a table of correlation between indicators accounted
based on the GRI Standards and the United Nations
Global Compact Principles;
→ a table of correlation between the performance/targets
of the Group and the Sustainable Development Goals
of the United Nations on which the aforementioned
performance and Targets have an impact;
→ a correlation table between the information contained
in the Annual Report and the topics indicated by
Legislative Decree no. 254/2016.
For any clarifications and further information on the content
of the Report, reference is made to the “Contacts” page of
the “Sustainability” section of the website www.pirelli.com.
MANAGEMENT MODEL
The Pirelli Sustainability Model is inspired by the United
Nations Global Compact, the principles of Stakeholder
Engagement set forth by the AA1000 and the Guidelines
of ISO 26000.
Responsible management by Pirelli runs through the
integrates
entire value chain. Every operating unit
economic, social and environmental responsibility in its
own activity, while cooperating constantly with the other
units, implementing the Group strategic guidelines.
The main management systems adopted by Pirelli include
ISO 9001, IATF 16949, ISO/IEC 17025 in the area of
Quality Management, SA8000® for the management
of Social Responsibility at its subsidiaries and along
the supply chain, OHSAS 18001 for the management
of Health and Safety in the workplace, ISO 14001
for environmental management, ISO 14064 for the
quantification and reporting of greenhouse gas emissions
(GHG), the ISO 14040 family rules for the methodology
for calculating the environmental footprint of the product
and the Organisation and, specifically, ISO-TS 14067 and
ISO 14046 for the determination of the Carbon Footprint
and Water Footprint. In February 2018, the Company
also obtained
independent certification (from SGS
Italia S.p.A.) regarding the compliance of its Sustainable
Purchasing Management model based on the ISO 20400
Standard, as well as the independent certification (by
RINA Services S.p.A.) of its system of rules and controls
aimed at preventing corruption according to ISO 37001.
Details on the coverage of these certifications and
methodological reference tools have been given
in
“Our Suppliers”,
the paragraphs
“Our Customers”,
With reference to the Group’s Sustainability Governance,
the Board of Directors of Pirelli & C. S.p.A., supported in its
activities by the Audit, Risks, Sustainability and Corporate
Governance Committee, approves the objectives and
targets for sustainable management integrated in the
Group Plan. The Board of Directors also approves Pirelli’s
Annual Report, including the Consolidated Non-Financial
Disclosure, which is in turn subject to the supervision
of the Board of Statutory Auditors in accordance with
Legislative Decree no. 254 of 30 December 2016.
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 organisational and functional responsibilities. The
Committee ordinarily meets at least once a year.
The organisational structure is thus made up of Group
Sustainability and Risk Governance Department which
has oversight of the management at a Group level and
proposes plans for sustainable development to the
Sustainability Steering Committee. The Sustainability
the Country
Department
Sustainability Managers for overseeing activities covering
all subsidiaries of the Group. The role of the Country
Sustainability Manager is currently held by Country
CEOs, who are supported by their direct subordinates in
the operational management of Country plans.
receives support
from
SUSTAINABILITY PLANNING
The process of sustainable planning is characterised
by specific operational steps aimed at continuous
improvement in performance: evaluation of the context
through benchmarks, dialogue with Stakeholders, needs
raised by internal functions, identification of risks and
opportunities for growth, definition of projects and targets,
implementation, monitoring and reporting.
long-term sustainability
The
the
Industrial Plan and support the sustainable development
thereof.
integrate
targets
The Pirelli Sustainability Plan 2017-2020 with a selected
target of 2025 was updated in 2017, in full alignment with
the Company’s evolution and the related “High Value”
development strategy (for further information, refer to the
Investor Relations section of the Pirelli website), replacing
the previous 2013-2017 Plan with selected targets for
2020. In order to allow the appreciation of numerical
trends in the long term, the reference base year for the
environmental quantitative targets continues to be 2009
also in the new Plan.
109
Report on Responsible Management of the Value Chain The Plan has been developed in accordance with the
“Value Driver” model drawn up by the UN PRI (United
Nations Principles for Responsible Investment) and UN
Global Compact and sets targets that combine growth,
productivity, governance and risk management.
The targets and related performance (for extensive
discussion of which reference is made to the related
sections in this Report) foresee, among other things:
→ growth in Green Performance tyres revenues with a
2020 target of >50% of total turnover and >65% of
High Value products only;
→ improvement of product performance by 2020:
→ car products (compared to 2009): average reduction
in rolling resistance of 20%, and 14% for High Value
products; 15% improvement in performance on wet
surfaces and 15% improvement in noise reduction;
→ motorcycle products (compared to 2009): average
reduction in rolling resistance of 10%, improvement
of 40% in performance on wet surfaces and 30% in
durability;
→ Velo products (compared to 2017 - the launch
year of Pirelli Velo): braking performance +5% and
performance on wet surfaces +10%;
→ digital innovation of process and product;
→ research and development of raw materials with low
environmental impact: for specific product segments,
by 2025 and compared to 2017, the doubling by weight
of the used renewable materials and a 30% reduction
of fossil-derived raw materials is expected;
→ reduction by 2020 in the injury frequency index of
87% 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;
→ zero waste to landfill;
→ investment in employee training of at least an average
of 7 man days;
→ strengthening digital and cross-functional culture
within the company;
of
increasingly
→ adoption
advanced models
of management of
the economic, social and
environmental responsibility of the supply chain with
particular attention to the upstream supply chain;
→ implementation of the new Pirelli Policy on the
sustainable management of the natural rubber supply
chain.
The Pirelli Sustainability Plan
in the
“Sustainability” section of the Company’s website
(www.pirelli.com).
is published
The Countries where the Group is present with commercial
industrial subsidiaries also have a Country
and
110
Sustainability Plan with specific targets identified to align
to the Group’s sustainability targets.
include
The targets of the Country Plans, transversal to
management,
the constant monitoring of
Compliance with the SA8000® Standard, the specific
reduction in the injury frequency index, the specific
reduction (weighted on the total finished product) in
energy consumption and water withdrawal, the increase
in waste recovery, monitoring of the sustainability of the
supply chain, dissemination and local implementation of
Group Policies and engagement with Stakeholders.
The performance of the Sustainability Plan of each
Country is included in the Performance Management
objectives of the related CEOs.
UNITED NATIONS SUSTAINABLE
DEVELOPMENT GOALS (SDGS)
The targets of the 2017-2020 Sustainability Plan with
selected targets at 2025 contribute to the global effort
to achieve the Sustainable Development Goals (SDGs)
presented by the UN in September 2015 and designed to
accompany the activities of sustainable companies up to
2030.
In particular, it is possible to note the strong connection
between the targets mentioned in the previous paragraph
and the following SDGs:
→ 3 - Health and Well-being;
→ 4 - Quality Education;
→ 6 - Clean Water and Sanitation;
→ 7 - Affordable and Clean Energy;
→ 9 - Industry, Innovation and Infrastructure;
→ 12 - Responsible Consumption and Production;
→ 13 - Climate Action.
The Sustainable Objectives listed above are not the only
ones in which the Company is engaged; in addition to the
above, this Report describes initiatives and activities that
refer to other SDGs:
→ 1 - Zero Poverty, in the paragraph “Company Initiatives
for the External Community”;
→ 8 - Decent Work and Economic Growth, in the
paragraphs dedicated to the Internal Community and
in the paragraph “Our Suppliers”;
→ 10 - Reduced Inequalities, in the paragraph “Diversity
Management”;
→ 11 - Sustainable Cities and Communities, in the
paragraph “WBCSD” with reference to the project
“SiMPlify project”;
→ 17 - Partnerships for the Goals, in the paragraphs
“Road Safety”, with reference to the partnerships with
FIA and the UN, “Sustainability of the natural rubber
Pirelli Annual Report 2018 supply chain”, with reference to the partnership with
Kirana Megatara, and “WBCSD”, with reference to the
project “SiMPlify project”.
It is noted that all the sub-paragraphs relating to “Company
Initiatives for the External Community” indicate the main
SDGs that the projects and initiatives described impact
directly.
STAKEHOLDER ENGAGEMENT
The role of Pirelli in an economic and social context is tied
to its capacity to create value through a multi-stakeholder
approach, i.e. by sustainable and lasting growth that can
reconcile the interests and expectations of all those with
whom the Company interacts and especially:
→ customers, since the Pirelli way of doing business is
based on customer satisfaction;
→ employees, who make up the wealth of knowledge and
driving force of the Group;
→ shareholders, investors and the financial community;
→ suppliers, with which it shares a responsible approach
to business;
→ competitors, because improved customer service and
market position depend on fair competition;
→ the environment, institutions, government and non-
government bodies;
→ the communities of the various Countries where the
Group operates on a stable basis, while being aware
of its global responsibilities as a Corporate Global
Citizen.
To the Stakeholders mentioned, a paragraph is dedicated
within this Report, to which reference is made for further
qualitative and quantitative study.
The interactions that take place between Stakeholders
are informed by the AA1000 Model adopted by the
Company and are analysed in detail in order to manage
relations with them effectively and create sustainable and
shared value.
Dialogue, interaction and involvement are calibrated to
meet the needs for consultation with the various types
of Stakeholder and include meetings, interviews, surveys,
joint analyses, roadshows and focus groups.
During 2018, particular relevance was given to the
consultation of the relevant Stakeholders in order to
publish the Manual of Implementation of the Pirelli Policy
on the Sustainable Management of Natural Rubber, as
well as the definition of a roadmap of activities for the
three-year period 2019-2021. The draft version of the
manual was prepared through consultations with local
Stakeholders during the first half of 2018, and then shared
with internationally relevant Stakeholders in view of the
final discussion session held in Milan in October 2018,
attended by international NGOs and Pirelli’s main natural
rubber suppliers, traders and farmers in the supply chain,
automotive customers and
international multilateral
organisations. The Manual and Roadmap 2019-2021 were
published on the Group website in December (for further
information on the sustainable management of natural
rubber, see the paragraph dedicated to this Report).
Also in the course of 2018, meetings were held for the
relevant national and regional Stakeholders in the United
States and the United Kingdom, in order to share the results
and targets of the sustainability plans of the subsidiaries
and to listen to the expectations of the Stakeholders
on the management of issues deemed relevant for the
development of the Subsidiary in the medium to long
term. Similarly, in 2017 meetings were held with the
relevant Stakeholders in Russia and Argentina, and in
2016 in Romania, Mexico, Germany and Turkey. Among
the issues discussed in the various countries are energy
management, technical training and the availability of
adequate skills in the population, road safety, the circular
economy, human capital engagement, the environmental
sustainability of cities, and water and waste management.
Local feedback received from Stakeholders contributed
to the corporate evaluation of the priorities for action
by influencing the development strategy set out in the
Sustainability Plan.
MATERIALITY ANALYSIS AND MAPPING
At the end of 2018, Pirelli initiated the process of updating
the materiality matrix prepared in 2016.
The materiality matrix stems from thorough Stakeholder
Engagement activities that
led to comparing the
expectations of key Stakeholders on a panel of
sustainability issues with the importance that they have for
the success of the business according to the experience
and expectations of the Top Management.
Given the complexity and the
international extent
of corporate Stakeholders and the variety of their
expectations, the panel of Stakeholders of the Company
from which feedback was requested included:
→ the biggest original equipment customers;
→ more than 700 end customers belonging to the most
representative markets;
→ the most important dealers;
→ numerous employees in the various countries where
the Group is present;
→ several Group suppliers;
→ the leading financial analysts;
→ national and supranational institutions and public
administrations;
111
Report on Responsible Management of the Value Chain → international and local NGOs present in the various
Countries in which Pirelli has production activities;
→ universities that have collaborations with the Group.
Stakeholders have been involved through a request
for prioritisation of action on a selection of ESG issues
(Environmental, Social, Governance) relevant for the
development of the Company. The issues have been pre-
selected considering the relative presence in the materiality
matrix of Automobiles and Auto parts producers, the
relevance of the same for the Auto Components sector
according to primary research and sustainable finance
entities, risks and opportunities arising from regulatory
developments, from the expectations of communities,
governmental and non-governmental institutions, and
financial markets.
For this reason it is specified that all the ESG elements
pre-identified through the aforementioned analysis are
material and relevant for the development of Pirelli, with
greater or lesser priority as evidenced by the position of
the different elements within the matrix defined according
to the results of the Stakeholder and Management
interview process.
The topics submitted for evaluation by Stakeholders are
the following:
→ Occupational Health and Safety;
→ Employees Well-being & Work-life Balance;
→ Training and Development;
→ Diversity and Equal Opportunities;
→ Labour Relations Management;
→ Community Engagement;
→ Responsible Procurement;
→ Human Rights;
→ Customer Satisfaction;
→ Product Quality and Safety;
→ Product Environmental Sustainability (Impacts of
the product on the environment: energy efficiency,
mileage, weight reduction etc.);
→ Renewable Materials9;
→ Responsible Use of Natural Resources (energy and
water efficiency, waste for recovery);
→ Climate Change and Greenhouse Gas Emissions
Management;
→ End of Life Tyre Recovery and Recycling;
→ Legal & Regulatory Compliance;
→ Business Ethics and Integrity;
→ Corporate Governance;
→ Financial Health;
→ Road Safety Initiatives.
The priorities expressed by Pirelli and Stakeholders on
the above issues have been represented in a materiality
matrix showing, on the vertical axis, the expectations of
several external and internal Stakeholders, while on the
horizontal one, the importance that the Management
attributes to individual business success factors. The
result of such consolidation was presented and approved
at the Sustainability Steering Committee held in February
2019 and is outlined below.
Finally, it should be noted that the consolidation of the
materiality matrix at Group level tends, by its very nature,
to deviate significantly from the materiality matrix
consolidated by the Group’s Subsidiaries at country level.
Elements of sustainability located in an area of minor
materiality in the matrix at a Group level may be found
to have major materiality for a number of Countries and
specific Stakeholders who are more directly involved.
The reporting of material
issues, related risks and
opportunities to these topics and the methods for
managing them are reported in this Report, in the
paragraph “Operational Risks” (Directors’ Report on
Operations), as well as in the dedicated paragraphs below.
The expectations expressed by the Stakeholders involved
in defining the materiality matrix are considered as
priorities in the definition of the Group Sustainability
strategies.
9 OECD defines “Renewable Natural Resources” as natural resources that, after exploitation,
can return to their previous stock levels by natural processes of growth or replenishment.
112
Pirelli Annual Report 2018 i
h
g
H
y
r
e
V
s
r
e
d
l
o
h
e
k
a
t
S
e
h
t
r
o
f
e
c
n
a
v
e
l
e
R
h
g
H
i
High
Responsible Use of
Natural Resources
Renewable Materials
Climate Change & Greenhouse
Gas Emissions Management
End of Life Tyre
Recovery and Recycling
Employees Well-being
& Work-life Balance
Human Rights
Community Engagement
Product Environmental
Sustainability
Occupational Health & Safety
Product Quality and Safety
Responsible
Procurement
Business Ethics and Integrity
Customer Satisfaction
Diversity and Equal
Opportunity
Legal & Regulatory Compliance
Road Safety Initiatives
Financial Health
Corporate Governance
Training and Development
Labour Relations Management
Relevance for the Company
Very High
MAIN POLICIES
The Sustainable Management Model throughout the value chain is reflected in the main Group Policies,
published on Pirelli’s website in multiple languages and communicated to all employees in their local language.
In particular, the following Policies are recalled:
→ the “Code of Ethics”;
→ the “Code of Conduct”;
→ the “Anti-Corruption” Programme;
→ the “Global Antitrust and Fair Competition” Policy;
→ the Group “Equal Opportunities Statement”;
→ the “Health, Safety and Environment” Policy;
→ the “Global Human Rights” Policy;
→ the “Product Stewardship” Policy;
→ the “Global Quality” Policy;
→ the “Green Sourcing” Policy;
→ the “Social Responsibility Policy on Occupational Health, Safety and Rights and Environment”;
→ the “Global Tax” Policy;
→ the “Institutional Relations - Corporate Lobbying” Policy;
→ the “Global Personal Data Protection” Policy;
→ the “Group Whistleblowing - Group Reporting Procedure”;
→ the “Sustainable Natural Rubber Policy”;
→ the “Pirelli Intellectual Property” (or IPR) Policy.
The contents of the aforementioned Policies and the related methods for implementation are addressed in the
sections of this Report that deal with the related issues.
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Report on Responsible Management of the Value Chain
Next, a focus on the Compliance programmes “231”,
the
“Anti-corruption”,
“Whistleblowing” policy.
“Antitrust” and on
“Privacy”,
PROGRAMS OF COMPLIANCE 231,
ANTI-CORRUPTION, PRIVACY AND ANTITRUST
With regard to the administrative liability of companies and
bodies provided for by Legislative Decree no. 231/2001
(hereinafter also the “Decree”), Pirelli has adopted an
Organization and Management Model (hereinafter also
Model 231) structured in a General Section, which includes
a review of the regulations contained in the Decree, of the
crimes relevant to the Italian companies of the Group and
the procedures for adopting and implementing the Model,
and in a Special Section, which indicates the corporate
processes and the corresponding sensitive activities for
the Group’s Italian companies pursuant to the Decree,
as well as the principles and internal control plans to
supervise these activities.
Taking into account the legislative and jurisprudential
innovations and the evolution of the organisational
structure that took place
in 2018, the Model has
been updated. Similarly, during the year, training and
communication activities on the current Organisational
Model were completed for the entire population of the
Group’s Italian companies.
The process of analysing and implementing the Group
Anti-Corruption Programme continued in 2018 in the
main Countries in which Pirelli operates. The Programme,
available in twenty-two different languages on the Pirelli
website, is the corporate benchmark for the prevention
of corruptive practices and represents a collection of
principles and rules aimed at preventing or reducing the
risk of corruption.
In the document, the Pirelli principles already set out in
the Ethical Code and the Code of Conduct, including zero
tolerance of “corruption of public officials, or any other
party, in any guise or form, or in any jurisdiction even in
places where such activity is admissible in practice,
tolerated, or not challenged in the courts” are restated.
Among the provisions of the Group Anti-Corruption
programme are a prohibition in respect of recipients of the
Code of Ethics from offering gifts and other utilities that
might meet conditions of a breach of rules, or which are
in conflict with the Code of Ethics, or may, if made public,
constitute detriment even only to the image of Pirelli.
Additionally, “Pirelli defends and protects its corporate
assets, and shall procure the means for preventing acts
of embezzlement, theft, and fraud against the Group” and
“condemns the pursuit of personal interest and/or that of
third parties to the detriment of social interests”.
Following the ISO 37001 Certification of the Anti-
Corruption Management System of the companies Pirelli
& C. S.p.A. and Pirelli Tyre S.p.A., a process has begun to
114
certify the system of rules and controls implemented
by foreign affiliates in order to prevent corruption. In
particular, the anti-corruption systems of entities in
Russia and Brazil. These anti-corruption systems inspire
and refer to the Group’s “Anti-Corruption Compliance
Programme”, also guaranteeing full compliance with the
provisions laid down by local regulations.
In 2018 activities were also carried out which were
aimed at analysing the profiles of corruption risk in
the various Countries where the Company is present,
assessing compliance with local laws in force, verifying
the adequacy of corporate oversight updating the risk
analysis where there is a change in the scope with the
“entry” into Countries with “high risk” (on the basis of the
Transparency index), defining training and awareness
programmes where appropriate.
More specifically, the analysis of Risk Profiles
implemented by Pirelli considering:
is
→ the perceived risk deriving from the assessment of the
level of corruption perceived by the Management;
→ the adequacy of guaranteed coverage in areas deemed
potentially at risk of corruption.
The company monitors a process aimed at formalising
the procedures, used by the individual countries, for the
analysis of the relevant counterparties of Pirelli through
an initial due diligence activity, aimed at collecting the
information necessary to assess the existence of the
requisites necessary to business relationships and an
enhanced due diligence aimed at assessing the “integrity”
and reliability of the counterparties.
During 2019, the extension of control activities on
anti-corruption aspects will continue, as well as the
implementation of specific training activities, with regard
to some of the Pirelli Group’s most important countries,
considered a priority for receiving such training due to the
specific elements of the local regulations.
Referring to the contributions made to the External
Community, Pirelli has for many years adopted internal
procedures defining the roles and responsibilities of
the function involved, and the operational process of
planning, achieving monitoring and control of results of
the initiatives supported. The Pirelli procedure specifies
that initiatives may not be promoted for the benefit
of beneficiaries in respect of whom there is direct or
indirect evidence of failure to abide by the human rights,
workers, the environment, or business ethics. The “Pirelli
Values and Ethical Code” set forth in their turn that the
Company “does not provide contributions, advantages,
or other benefits to political parties or trade union
organizations, or to their representatives or candidates,
this without prejudice to its compliance with any relevant
legislation”.
Pirelli Annual Report 2018 Concerning institutional relations of the Group, and
especially activities of corporate lobbying, Pirelli has
adopted a Corporate Lobbying Policy for ensuring this
is done in abidance with principles ratified by the Ethical
Code and the Group Anti-Corruption Programme and in
line with International Corporate Governance Network
principles and in all cases in compliance with laws and
regulations current in countries where Pirelli operates.
In terms of prevention and control, the audits carried
out by Internal Audit Department at Group subsidiaries
include monitoring of crime risks, among which corruption
and fraud figure.
In this regard, it should be noted that, with reference to
2018, on the basis of the reports received through the
whistleblowing reporting channel, 3 cases of fraud were
ascertained to the detriment of the company. There were
no cases of public legal action against the company
regarding corruption practices.
Additionally, during the course of 2018 the Functional
Segregation model was also implemented (so-called
Segregation of Duties), aimed at strengthening the
system of internal controls and preventing the committing
of fraud.
in 2018, Pirelli supported
Also
the activities of
Transparency International, to which Pirelli subscribes
as a supporter in the areas of projects in the matter of
education aimed at promoting an active role of civic and
moral education in strengthening civil society against
crime and corruption, believing that it is only through
proactive and firm actions of value promotion that a
general improvement in the quality of life can be achieved.
With reference to the subject of personal data protection,
during 2018, within the European companies of the
Group, the activities for the adjustment to EU Regulation
2016/679 were completed through, in particular, the
assignment of roles and responsibilities to the internal
organisation of the company, the formalisation of internal
regulations and the updating of documents required by
law. Following the definitive approval by the President of
the Federal Republic of Brazil of new legislation regarding
the protection of personal data, a project was also started
to bring the Brazilian companies of the Group into line
with the new regulations.
In line with the provisions of its Global Antitrust and Fair
Competition Policy, Pirelli operates in accordance with fair
and proper competition for the purpose of development
of the company and at the same time, the market. In this
context, Pirelli constantly updates the Group’s Antitrust
Programme in line with international best practices.
online training activities were carried out, as well as
continuous business assistance activities to facilitate the
management of antitrust issues in the daily conduct of
business activities or relationships with other operators.
in any antitrust
In 2018 Pirelli was not
proceedings or investigations as participants in anti-
competitive conduct.
involved
FOCUS: REPORTING PROCEDURE -
WHISTLEBLOWING POLICY
The Group Reporting Procedure, or Whistleblowing Policy,
which supports the Group’ internal compliance and control
systems, was updated in 2017. Published on the Company
website and internally accessible through intranet and
company bulletin boards in the local language, the Policy
is aimed at both employees and external Stakeholders.
The Policy governs the manner of reporting breaches,
suspected breaches and inducement to breaches in the
matter of law and regulations, principles ratified by the
Ethical Code, including, obviously, equal opportunities,
internal auditing principles, corporate policies, rules and
procedures, and any other behaviour involving commission
or omission of acts that might directly or indirectly lead to
economic-equity detriment, or even one of image, for the
Group and/or its companies.
The Whistleblowing reporting channel is also expressly
referred to by the Sustainability Clauses included in each
supply order/contract as well as by the numerous Group
Policies published on the Company’s website.
Reports may be made also in an anonymous form and
protection of utmost confidentiality is at all times restated,
as too is zero tolerance in respect of acts of reprisal of any
kind against whoever makes a report or is the subject of
the report.
Reports may concern directors, auditors, management,
employees of the Company and, in general, anyone
operating in Italy or abroad for Pirelli or engaging in
business relations with the Group, including partners,
customers, suppliers, consultants, collaborators, auditing
companies, institutions and public entities.
The e-mail box ethics@pirelli.com is made available to
anyone wishing to proceed with an alert, which is valid for all
Group subsidiaries, as well as for the External Community,
and is centrally managed by the Group Internal Audit
function which, in the Pirelli organisation, has a functional
reporting to the Audit, Risks, Sustainability and Corporate
Governance Committee, made up of only independent
directors, and to the Board of Statutory Auditors of Pirelli
& C. S.p.A.
In 2018 Pirelli continued to implement the Antitrust
Programme in the various Countries in which it operates:
Internal Audit Department has the task of analysing all
reports received, even involving corporate functions felt
115
Report on Responsible Management of the Value Chain to be concerned for the activities necessary of verification, in addition to scheduling a specific action plans. In
the event of a report being found to be grounded, adopting fitting disciplinary and/or legal actions is foreseen
for the protection of the Company.
In respect of reports received in the years 2018, 2017 and 2016, below is a summary table and then a further
study of reports from 201810.
Total reports
Of which anonymous
Of which filed closed being absolutely generic.
Of which grounded
2018
2017
2016
70
22
2
23
34
7
1
9
38
7
5
23
Countries of origin of the reports ascertained
Brazil, Italy, Romania, China,
United States and UK
Brazil, Chile, Spain, United
States and UK
Brazil, Italy, Argentina, Chile,
Saudi Arabia, India
Matter alleged in the reports ascertained
Outcome of cases investigated
Violation of the Code of Ethics
and/or company procedures,
fraud against the Company
or third parties, claims by
employees, discrimination.
Violation of the Code of Ethics
and/or company procedures,
fraud against the Company,
claims by employees,
discrimination.
Review and integration of
processes where deemed
fitting, decisions by the
functions concerned and the
Human Resources Department.
Review and integration of
processes where deemed
fitting, decisions by the
functions concerned and the
Human Resources Department.
Irregular conduct of employees,
cases of poor service to
customers and challenges
with suppliers (a case of
late payment and a case of
non-payment of services not
requested by the company).
Review and process integration
where deemed fitting, orders
by the functions concerned and
Human Resources Department,
actions to satisfy customers
and suppliers.
During the course of 2018 the Whistleblowing procedure was activated 70 times. In particular:
→ the 70 reports were received from 7 different Countries (Brazil, Italy, China, Romania, Russia, the United
States and the UK);
→ 90% of the reports (63 cases) were forwarded using the email address ethics@pirelli.com provided, while
10% (7 cases) by sending a letter to management which dealt with informing Internal Audit Department as
per corporate rules;
→ 69% of the reports (48 cases) were signed whereas the remaining 31% (22 cases) were received in
anonymous form;
→ among the signed notifications, 14 were activated by external Stakeholders, of which 9 were related to
breaches of the Code of Ethics and/or company procedures, 4 cases attributable to fraud to the detriment
of the Company or third parties and 1 case relating to reports regarding the quality of the product. It is
objectively impossible to confirm that there were, in absolute terms, no further reports from external
Stakeholders received as a number of reports were, as specified, anonymous.
Of the 70 reports received during the 2018 year, at the beginning of 2019, 6 were found to be at the verification
and in-depth investigation stage, whereas 64 were found to have been concluded. in respect of these latter,
specific activities of verification involving, where necessary, the corporate functions concerned were conducted.
10 The data reported are related only to the consolidated scope of the Consumer business.
Furthermore, with regard to the 7 reports that were still in progress at the reporting date of the
2017 Annual Report, following the conclusion of the verification activities in 5 cases no objective
evidence was found to consider the facts alleged to be true, while in 2 cases the partial veracity of
the reports was confirmed and the company intervened with specific plans aimed at removing the
causes and/or improving the internal control system.
116
Pirelli Annual Report 2018 With regard to the 64 reports for which the verifications
were completed, based on the analyses carried out and the
documentation made available during the assessment, it
emerged that:
→ in 41 cases objective corroborating evidence was
detected such as to hold the facts contended in the
reports received to be true;
→ in the remaining 23 cases the substantial truthfulness
of the facts attributed was found, in particular, 3 cases
concerned fraud against the Company or third parties,
2 cases connected to discriminatory attitudes, 3
cases relating to claims by employees and 15 cases
concerning violations of the Code of Ethics and/or
company procedures. The Company has activated for
all cases, intervening with disciplinary sanctions (calls
and/or dismissals) and with actions aimed at removing
the causes of complaints and/or aimed at improving
the internal control system.
Considering the continuous awareness-raising of the
internal control and the systematic updating of internal
procedures and rules, the increase in reports recorded
in 2018, compared to previous years, can be attributed,
on the one hand, to the Company’s growing attention to
this issue, and on the other to the constant strengthening
of the knowledge of the Policy, in particular during the
Internal Sustainability Audits. The data also confirms
the substantial trust placed with the Company in the
management of the reports.
The Internal Audit Department periodically reported the
reports received and the progress of the analyses carried
out to the competent corporate bodies of Pirelli & C. S.p.A.
117
Report on Responsible Management of the Value Chain Economic dimension
SHARING OF ADDED VALUE
The Values and Ethical Code of Pirelli ratify the undertaking of the Company to operate to ensure responsible
development over the long term, while being aware the bonds and interactions that apply between economic,
social and environmental dimensions. This is to wed the creation of value, progress of the company, the attention
given to Stakeholders and raising standards of living and quality of the environment.
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.
DISTRIBUTION OF ADDED VALUE
(in thousands of euro)
2018
2017
2016
GROSS GLOBAL ADDED VALUE
2,177,745
2,079,628
2,002,436
Remuneration of personnel
(1,067,579)
49.0%
(1,034,647)
49.8%
(986,308)
49.3%
Remuneration of Public Administration
(52,964)
2.4%
(40,848)
2.0%
(75,256)
3.8%
Remuneration of borrowed capital
(196,311)
9.0%
(362,610)
17.4%
(427,190)
21.3%
Remuneration of risk capital
-
0.0%
-
0.0%
-
0.0%
Remuneration of the company
(857.079)
39.4%
(634,727)
30.5%
(506,571)
25.2%
Contributions to the external community
(3,811)
0.2%
(6,796)
0.3%
(7,111)
0.4%
The added value created in 2018 recorded an increase of 4.7% compared to 2017. This change is mainly due to
the reduction in the remuneration of the borrowed capital. Trends in the items determining gross global added
value as shown above, are set out in the Consolidated Financial Statements of this report, to which reference
is made for further in-depth study.
CONTRIBUTIONS TO THE EXTERNAL COMMUNITY
The impact of expenses for corporate initiatives in 2018 for the external community on the net result of the
Group amounted to 0.9% (3.9% in 2017). The table below shows the expenses incurred in the last three years.
The contraction recorded in 2018 derives mainly from the containment of costs of the Headquarter.
CONTRIBUTIONS TO THE EXTERNAL COMMUNITY
(in thousands of euros)
2018
2017
2016
Training and research
Social-cultural initiatives
Sports and solidarity
Total contributions to the external community
877
4,877
1,042
6,796
806
4,859
1,446
7,111
823
2,181
807
3,811
118
Pirelli Annual Report 2018
For further study of the main initiatives supported by
the grants indicated above and relating to the model of
governance, please refer to the paragraphs in this report
devoted to corporate contributions and initiatives for the
benefit of the external community.
In line with what is set forth in the Code of Ethics, Pirelli
“does not provide contributions, advantages, or other
benefits to political parties or trade union organizations,
or to their representatives or candidates, this without
prejudice to its compliance with any relevant legislation”.
LOANS AND CONTRIBUTIONS RECEIVED FROM THE
PUBLIC ADMINISTRATION
The main contributions
administration in 2018 are shown below.
received by
the public
ROMANIA
During 2009, the European Investment Bank (EIB) granted
a loan for a total of €50 million to Pirelli Tyres Romania
S.r.l., granted for the expansion of the Pirelli plant in Slatina,
Romania, for the production of tyres for cars and light
commercial vehicles. The first tranche of the loan, equal
to €20 million, was repaid by Pirelli in May 2017, while in
March and July 2018 Pirelli repaid the second and third
tranches, for a total of €20 million. At the end of 2018,
therefore, €10 million remain outstanding. For the sake of
completeness, it should be noted that the aforementioned
loan was flanked by a similar loan received in support of
the construction of the same production site, disbursed in
2007 and fully repaid at the end of 2013. It should also be
noted that S.C. Pirelli Tyres Romania S.r.l. received a non-
repayable grant totalling €67.8 million from the Romanian
state by way of incentive for local investment of which €13
million was in 2018.
ITALY
During the financial year 2018 Pirelli Tyre S.p.A. received
from the M.I.U.R. - Ministry of Education, University and
Research - a subsidised loan of €5.3 million as an incentive
for the development of an R&D project for the development
of innovative materials in the tyre construction process.
Furthermore, Pirelli Tyre S.p.A. obtained a non-repayable
grant from the Lombardy Region totalling €2.5 million, as
incentives for an R&D project on Smart Manufacturing
issues, of which €0.8 million was collected during the year.
MEXICO
Since the 2018 financial year, Pirelli Neumaticos S.A.
de C.V. (Mexico) has received grant contributions from
the Government of the State of Guanajuato (Mexico)
for investments and generation of employment for a
total of €0.8 million. The company also received grant
contributions from the Mexican Federal Government for
investments and generation of employment related to
the ProMexico project totalling €10 million, of which €1.2
million received during 2018 (the incentives were paid
starting 2012).
RELATIONS WITH INVESTORS
Pirelli considers financial communication to be of strategic
importance as a fundamental tool for consolidating
relations of trust with the financial community.
In
accordance with what is set out in the Values and Code
of Ethics of the Group, Pirelli maintains a constant
dialogue with shareholders, bondholders, analysts
and both institutional and individual investors via the
Investor Relations function and Group Top Management,
promoting communication that is equal, transparent,
timely and accurate.
The Financial Communication activity intensified during
2018. There are numerous opportunities for meetings
with leading institutional investors in Europe (Milan,
London, Paris, Frankfurt, Helsinki and Copenhagen), in
North America (New York, Boston, San Francisco, Los
Angeles, Toronto) and in the Asia Pacific region (Tokyo,
Hong Kong, Singapore). Moreover, particular importance
was attributed to digital communication: in line with
international Best Practices, the “Investors” section of
Pirelli’s website is constantly updated with information on
strategy, business model, market trends and positioning
with respect to competitors.
The interest of the financial community towards Pirelli
is proved by the broad coverage of the stock by 21 of
the main national and international business banks and
brokers and by the inclusion of the company in the FTSE
MIB, Dow Jones 600 A&P indexes and in the FTSE Italian
Brands index.
The evaluation (Target Price) and the analysts’ estimates
(Consensus) are published on the company’s website and
periodically updated.
In an environment characterised by high volatility, with
uncertainties on economic growth and the trend in car
and tyre demand, Pirelli outperformed the main indices
and peers on the stock market, thanks to the High Value
positioning and thanks to its unique and more resilient
business model. Pirelli closes 2018 with a market value of
€5.9 billion (average market capitalisation in December),
-14% from the
listing on 4 October 2017, clearly
outperforming the Italian stock market index (FTSE
Mib -20%), Auto & Parts (EU Stoxx 600 A&P -26%) and
peers (Nokian -26%, Michelin -27%, Continental -43%,
Goodyear -37%, Bridgestone -14%).
119
Report on Responsible Management of the Value Chain Below is a recap of the stock market performance from October 2017:
17-Ott
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
18-Ott
Nov-18
Dec-18
Pirelli
Continental
EU A&P Index
Nokian
Goodyear
FTSE Mib Index
Michelin
Bridgestone
Source: Bloomberg
The commitment to the creation of sustainable value that characterises the Company’s responsible management
and its economic, social and environmental performance, allow the inclusion of Pirelli in some of the most prestigious
sustainability indexes in the world, including Dow Jones Sustainability Index World and Europe, Euronext Vigeo
Eurozone 120, Sustainalytics, FTSE4Good, Ethibel Sustainability Index (ESI) Excellence Europe and ECPI.
With particular reference to the Dow Jones index, in September 2018, Pirelli was recognised as a world leader
in Sustainability for the Auto & Components sector in the Dow Jones Sustainability Indexes World and Europe
Indexes, with a score of 81 compared to a sector median of 32. The analysis, conducted by RobecoSAM,
involved more than 2,000 companies belonging to 60 different industrial sectors.
It should also be noted that in January 2019 Pirelli was recognised as a global leader in the fight against
climate change and included in the Climate A List of the CDP (Carbon Disclosure Project). In 2018 over 7,000
companies reported their greenhouse gas emissions through the CDP, a non-profit organisation supported by
650 institutional investors, who manage assets worth more than $87 trillion.
For more information reference is made to the Investors section of the Pirelli website, which offers a comprehensive
and constantly updated source of information on matters of interest to shareholders and the financial community.
OUR CUSTOMERS
Pirelli is the only global tyre manufacturer entirely dedicated to the Consumer market, which includes tyres
for cars, motorcycles and bicycles. The company is focused on the High Value market and is committed to
developing innovative tyres and Specialties and Superspecialties for a broad product portfolio.
Sales channels include:
→ Original Equipment, addressed directly to the world’s leading car manufacturers;
→ Replacement, for the replacement of tyres on vehicles already in circulation.
In the field of Original Equipment, Sport Utility Vehicles (SUVs) and light commercial vehicles, Pirelli can count
on Europe in terms of a Premium customer market share of over 20%; in the Original Equipment, Prestige
segment, which represents the highest of the range, Pirelli exceeds 50%.
As part of Replacement, there are two broad types of customers: Specialised Resellers and Distributors. Specialised
Resellers are tyre specialists operating on the market in the role of independent businesses; specialised dealers
constitute a fundamental point of contact between the Group and the end consumer. Particular attention is devoted
to specialised dealers in terms of shared development to enhance the product offering integrated with a high
quality level of service, in compliance with Pirelli values and consumer expectations. In 2018, Pirelli can count on
about 15,900 Loyal Resellers globally, with a particular concentration in Europe, Asia-Pacific and South America
(over 75% of the total points of sale). The degree of affiliation varies according to the market and the very presence
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Pirelli Annual Report 2018 of Pirelli, ranging from a softer loyalty (Fidelity Club), which
has as main objective for Pirelli territorial coverage and
for the dealer sales support; to franchise programmes,
in which through the exclusive of the partnership there is
strong focus on business development point of sale overall;
up to the maximum degree of affiliation, represented by the
presence of points of sale owned by Pirelli (327 points of
sale worldwide).
Starting in 2016, and in line with Pirelli’s “Prestige”
strategy, a new retail concept called P ZERO WORLDTM
was created, with the aim of offering top-class services
aimed at satisfying the most demanding consumers. P
ZERO WORLDTM offers its customers the full range of
Pirelli products (Car, P ZEROTM Trophy R, Pirelli Collection,
Color Edition, Moto and Velo) and a series of “customer
oriented” services such as car valet and courtesy car,
all immersed in an environment that allows you to fully
experience Pirelli World, being able to touch the most
important assets such as F1®, the Calendar and the
continuous partnerships of Pirelli Design. The Network P
ZERO WORLDTM by 2020 will identify around 200 shops
among the best Pirelli customers, located in the main
countries of the world. Within the 200 there will be about
8 Flagship Stores, 4 of which are already active (Los
Angeles, Munich, Monte Carlo and Dubai).
“Distributors” are partners who are fundamental to
guaranteeing continuity in the supply of tyres to other
specialised and non-specialised resellers. They do so by
offering local delivery and distribution services throughout
the entire territory. With this in mind, Pirelli is activating
several programmes of close cooperation with the most
important market distributors worldwide.
HIGH VALUE APPROACH TO FUTURE MOBILITY
Pirelli carefully monitors the evolution of the automotive
market and more generally the evolution of mobility. Future
mobility trends such as digitalisation, electrification,
management of sharing vehicles and driving automation,
are gaining more and more momentum and will lead
to an evolution of the mobility sector whose speed is
unprecedented in the field.
The centrality of the Customer, historically fundamental
value for Pirelli, follows the future trends and sees the
Company enrich its product offer in line with its High Value
development strategy. Pirelli’s path in the field of sensors
applied to the tyre continues successfully, with the aim of
transforming the latter into an active element, capable of
retrieving information from the road and transmitting it to
the vehicle.
In the world of bicycle tyres, Pirelli is present with two
product lines: the line dedicated to road racing bikes:
P ZERO™ Velo and CINTURATO™ Velo, and the Urban
CYCL-e™ tyre line.
retailers, Pirelli
In addition to the traditional distribution channel and
specialised
immediately oriented
towards the digital channel, in line with the strong
propensity to purchase online by end consumers. In
addition to the presence on the main sales platforms of
cycling products, Pirelli has created its own international
e-Commerce channel, dedicated to bike tyres, to offer
its range of products accompanied by exclusive editions
beyond the tyre.
The centrality of the mobility of the future in the High
Value strategy saw the introduction in 2017 of a specific
figure in this sense in the company organisation, the
Future Mobility Manager, which has the task, within the
Sustainability & Risk function Governance, to monitor
these trends in the sector and to coordinate their business
activities accordingly.
CUSTOMER FOCUS
Customer focus is a central element of the Group “Values”
and “Ethical Code” and the Quality Policy and Product
Stewardship Policy of Pirelli. These documents outline the
company positioning and are therefore communicated to
all employees in the local language and are available in
many languages on the Pirelli website.
Among the essential elements of the Pirelli approach, the
following are highlighted:
→ consideration of the
impact of
its actions and
behaviour on the customer;
→ exploitation of every opportunity offered by doing
business to satisfy the customer’s needs;
→ anticipation of customer needs;
→ safety, reliability, high performance of products and
services offered, in accordance with local regulations
and more developed national and
international
standards applicable, as well as excellence of
production systems and processes;
→ information to customers and end users to guarantee
an adequate understanding of the environmental
impacts and safety features of Pirelli products, as well
as of the safest ways of using the product.
Pirelli also adopted a clear procedure to grant a feedback
to any customer claim, which
immediate
involves
intervention with respect to the interlocutor.
International Motor Show
With the CYBER™ Car technology, presented at the
Geneva
in March 2018,
information is collected that contributes to increasing
the effectiveness and efficiency of car safety and control
systems in various conditions of use.
TRANSPARENCY, INFORMATION
AND CUSTOMER TRAINING
In the context of advertising communication, Pirelli
has defined a traceable and transparent process for
decisions relating to advertising campaigns and related
121
Report on Responsible Management of the Value Chain media planning, both in the case of promotional activities
managed centrally and locally with central supervision.
In terms of production of advertising campaigns and media
planning, Pirelli uses specific auditing and certification
structures that place the Company at the highest levels
in terms of transparency and traceability in its advertising
investment strategies.
the
IAB
to support
(Interactive
The Pirelli Group endorses
Advertising Bureau) and is associated with the UPA
(Associated Advertising Users), among other things
dedicating ongoing commitment
the
Advertising Code of Corporate Governance of the
association. Through the UPA, Pirelli is a member of the
WFA (World Federation of Advertisers), which commits
participating firms to pursue honest, truthful and fair
competition and communication in compliance with the
code of conduct and self-regulation which they adopt.
Consumer protection is also guaranteed by the choice
of suppliers in the communication sector (creative
agencies, media centres, production companies) that in
turn belong to business and professional associations
governed by ethical codes regarding communication.
Pirelli provides information to customer-distributors and
end customers on a continual basis. This information
concerns both the product and related initiatives, and
is disseminated in a variety of ways, including digital
channels, and this is complemented by information
distributed in hard copy format, as well as the range of
offline and online training activities.
With 55 Car websites (in 29 languages) and 19 Moto
websites (in 11 languages), Pirelli online represents a
fundamental point of contact with the customer in the
tyre purchase process. These product websites, located
not only by language, but also for content, offer and
promotional activities, have the objective of informing
and guiding the consumer, in all countries where Pirelli
markets its products, to the points of sale where to buy
the tyres. In 2018, these websites attracted 7.7 million
unique users, for a total of 10.1 million sessions and 34.5
million page views.
A further digital touchpoint that brings the consumer
to the point of sale is represented by the Retail sites:
present in 7 countries, have intercepted in 2018 1.5
million users (for a total of 5.2 million page views) and
generated about 99,000 appointment bookings, over
33,700 calls to the dealer, about 6,160 contact requests
via e-mail.
In 2018, Pirelli also continued to inform its customers
with a digital newsletter, Paddock News, whose
main objective is to provide an additional means of
communication and contact with the trade, and which
consists of an international edition, coordinated centrally
122
from headquarters, and local-language edition for each
market in which Pirelli operates. Paddock News features
a gallery of new products and news from the Company
and its Business Units: Car, Motorcycle, Motorsport
and Velo. In terms of paper publications, the company
magazine “Pirelli World” continues to play a key role.
Of particular relevance
in terms of communication
on product developments is participation in the main
Autoshow events. At the Geneva Motor Show 2018 Pirelli
presented the CyberTM Car technology. Also in 2018 Pirelli
took part in the most important Consumer Prestige
events, such as the Salon Privé (England) and the Pebble
Beach Concours d’Elegance (California) and realised
three driving events called the P ZEROTM Experience in
Italy, France and Abu Dhabi.
Since 2018 Pirelli has strengthened its commitment
alongside the sports more in line with the prestige
and high performance positioning that characterise
the company and its products: this is the case of the
partnership started with Luna Rossa, challenger of
records of the upcoming America’s Cup 2021, in addition
to the close sponsorship relations with FC Internazionale
Milano, the Italian Winter Sports Federation and the
Alpine Ski World Championships, IIHF World Ice Hockey
Championship and the very successful sponsorships
in the world of engines: from WorldSBK to the best
motorsport championships like Blancpain GT Series and
in particular Formula 1®, of which Pirelli is the Global Tyre
Partner until 2023.
In 2018 Pirelli took part in Eurobike, the main international
cycle fair, where it presented the expansion of the Road
Racing P ZEROTM Velo product range and entry into the
City-Trekking segment with the CYCL-e™ line.
The training of customers on the product even in 2018
was intense in all markets, both at the points of sale and
at the Pirelli sites with visits to the factory, Research
& Development laboratories, and simulations of tyre
performance. During the year there were about 18,000
participations of dealers, belonging to the 22 main
markets, to classroom training courses on the Pirelli
product, technology and sale of the tyre; some of the
courses included visits to the Settimo Torinese (Italy) and
Izmit (Turkey) plants as well as to the Vizzola circuit (Italy)
and the Milan Research and Development Centre.
In 2018 the use of the new online training site TYRE-
CAMPUS™ was consolidated, which now covers 24
markets in 16 different languages. To date, about 12,500
points of sale are registered to the new site for a total
of over 14,500 active users. Training on the product is
provided in an engaging and customisable way on the
various types of distribution channel, with more paths
linked to the individual product families.
Pirelli Annual Report 2018 In order to support the product trainers, Pirelli has developed
a library of technical content was developed for classroom
courses and the “TYRE CAMPUS™ Case” instrument, which
aims to concretely demonstrate the characteristics of Pirelli
tyres, the raw materials used for their manufacturing and
the differences between the different tread. With these
tools, Pirelli trainers around the world can have concrete
and innovative support that allows customers to personally
understand and verify the key characteristics and advanced
technology of Pirelli products.
Pirelli also continues to certify all its dealers who complete
the product training successfully. The certificate
is
indicated by a plaque at the point of sale. This way,
consumers can recognise which dealers are the most
specialised and qualified on the technical features and
benefits of all the products of the Pirelli range.
LISTENING AND EXCHANGING IDEAS
WITH CUSTOMERS AS SOURCES
OF CONTINUOUS IMPROVEMENT
Customer relationships are managed by Pirelli principally
through two channels:
→ The local sales organization, which has direct contact
with the customer network and which, thanks to
advanced information management systems, is able to
process and respond to all information requirements
of the interlocutor on-site;
→ the Pirelli Contact Centres, nearly 30 worldwide
with more than 150 employees, performing business
operations in IT support and order management
(inbound), telemarketing and teleselling (outbound).
In 2018, all the major social media channels of Pirelli have
seen a significant increase in the fan base. Pirelli’s presence
on Facebook has reached over 2.5 million followers, with
a growth of 14.5% over the previous year. Also on Twitter,
the Pirelli accounts have seen an increase in followers,
reaching more than 265,000 people, over 10% more than
in 2017. A very important step forward was on Instagram,
where Pirelli channels reach more than 566,000 followers,
an increase, year-on-year, of 52%. Finally, there are about
18,000 followers of Pirelli on the main online video platform,
YouTube, and over 348,000 followers on LinkedIn.
The success of the website www.pirelli.com, a Pirelli digital
magazine launched at the end of 2015, has also been
confirmed. In 2018, on the new digital communication
platform, Pirelli published over 260 articles - on product,
motorsport, culture and sustainability - gathering over 6.2
million visits, of which almost half were attracted through
social networks and about 4.3 million unique users, an
increase of 16.7% compared to 2017.
As for the Moto world, the Pirelli and Metzeler brands boast
a structured and widespread presence on the main social
networks, with a growing focus on Asian countries, and are
promoters of innovative digital projects. The Pirelli brand, as
well as on the Facebook channel (with more than 923,000
fans connected to the Global Page which includes 12 local
pages) is on Instagram with over 117,000 followers and has
dedicated profiles on Twitter and YouTube. Worthy of note
is the mobile application DIABLO™ Super Biker, which has
been downloaded by over half a million people in the world
and that will be completely renewed and improved in 2019
from the point of view of the usability and functionality
offered to the motorcyclist. The METZELER brand, in
addition to its international website and geo-localised in 18
countries worldwide, is present on Facebook with a Global
Page that has more than 423,000 fans and includes 11
local pages in as many countries. As with the PIRELLI
brand, METZELER has had active Instagram, Twitter
and YouTube profiles for years. The CRM (Customer
Relationship Management) project, in turn, has a priority
position given the passion for the Pirelli product by the
registered motorcyclist community: over 370,000 for
Pirelli Moto and over 55,000 for Metzeler.
Pirelli Velo, in turn, speaks with its consumers also through
a dedicated web magazine called Velo World, which is
an inspirational source of information and stories about
cycling and new trends. Immediately active in Instagram
and Facebook, Pirelli Velo bases its communication on
digital activation in line with the propensities of its target
consumer.
Also in 2018 direct customer listening activities were
carried out both through the Brand Tracking survey
in Pirelli’s Top Market (Italy, Germany, France, United
Kingdom, Brazil, China, United States, and Russia) and
through surveys to consumers with whom Pirelli has a
direct and constant dialogue thanks to structured CRM
activities. The ongoing changes made to this study over
the years have made it possible to refine and improve the
precision of business insights into the brand role, image
profile and characteristics of the different touchpoints
that influence the end customer’s purchase decision.
The “Brand Model” is the Pirelli scheme used to give unity
to communication in terms of personality, tone used and
application of the distinctive traits of the Pirelli Brand.
In terms of performance indicators, Pirelli considers Top
of Mind, Brand Awareness and Brand Consideration.
With reference to the Key Target 18” Up represented by
Premium car owners which can mount tyres with rims
equal or higher than 18 inches, the analysis carried out in
2018 saw Pirelli positioned in the Top Three of the main
tyre brands: in first place for Top of Mind, Brand Awareness
and Brand Consideration in the United Kingdom, in first
place for Top of Mind and Brand Awareness and in the
second place for Brand Consideration in Italy, first for Top
of Mind and third for Brand Consideration in Germany
and in second place for Brand Awareness and Brand
Consideration in France.
123
Report on Responsible Management of the Value Chain Outside Europe, Pirelli is first for Top of Mind and Brand
Awareness and second for Brand Consideration in Brazil,
second for Top of Mind and Brand Consideration in China,
second for Brand Awareness and for Brand Consideration
in Russia and third for Brand Consideration in US.
PRODUCT SAFETY, PERFORMANCE
AND ECO-SUSTAINABILITY
Safety and respect for the environment are two values that
distinguish the Pirelli product offering. Even in 2018 the
company proved to be at the forefront of tyre development
that could on
the one hand provide ever-higher
performance, and on the other respect the environmental
sustainability, safety and comfort requirements required
by the best car companies that choose Pirelli as the first
equipment for their creations, both by customers, who opt
for Pirelli tyres at the time of choosing spare parts.
Of fundamental
importance are the Pirelli Research
& Development efforts, to which innovative solutions
are needed to create new compounds, new processes
and tread patterns that reduce rolling resistance, with a
consequent direct impact on fuel consumption, improve
wet grip, increase safety in any weather conditions and
increase the acoustic comfort inside the cabin thanks to
the Pirelli Noise Cancelling System (PNCS™) technology.
In 2018 Pirelli significantly increased the number of
homologations obtained on electric and hybrid cars. This
type of vehicle belongs to the segment with the highest
growth rate in the coming years and requires specially
developed tyres with precise characteristics, including:
→ low rolling resistance, to increase the life of the car
battery;
→ low acoustic emissions, for greater driving comfort, in
line with the silence of electric traction;
→ greater resistance of the carcass to better support the
weight increase of the car given by the batteries and, at
the same time, guaranteeing better handling;
→ greater resistance of the tread compound to support
the higher torque generated by the electric motor,
ensuring the necessary road holding.
And it is by respecting these targets that Pirelli has obtained
more than 20 homologations on electric cars and about
30 on hybrid vehicles (Plug In Hybrid). Among the former
we find Jaguar I-Pace and Mercedes EQC equipped with
P-ZERO™, SCORPION VERDE™, SCORPION VERDE™
All Season and SCORPION™ Winter. Among the latter are
the Audi A3, A8, Q5, Q7, Bentley Bentayga, Mercedes CLS,
E Class and E Class Coupé, Porsche Panamera and Volvo
V90, S90 and XC90, on which P-ZERO™, CINTURATO™
P7™, CINTURATO™ P7™ Blue, SCORPION VERDE™,
SCORPION VERDE™ All Season e Winter SOTTOZERO™ 3.
2018 saw an important extension of the tread range
in the Pirelli product portfolio. The
already present
SCORPION VERDE™ All Season has been enriched with
new measures marked Three Peaks Mountain Snowflake,
which guarantees exceptional performance even in winter,
while the CINTURATO™ All Season Plus, launched in 2017,
has expanded its range going to cover also measures
dedicated to crossovers and SUVs.
CINTURATO™ All Season Plus is a product mainly
dedicated to drivers in urban areas and is looking for
an innovative and alternative mobility solution. It has a
new tread compound that leads to an improvement in
performance in both winter and summer conditions,
with special attention to snow and wet, thanks to the
presence of the Three Peaks Mountain Snowflake
marking, increasing driving safety, any condition of the
road surface along the way. The main measures and all
the new measures introduced are characterised by the
presence of Seal Inside, a Pirelli technology that allows
you to continue driving without air loss even if a tyre has
been punctured, covering almost 85% of possible causes.
accidental loss of pressure.
Also in the field of high technology, 2018 saw double the
approvals with the Pirelli PNCS™ system (Pirelli Noise
Cancelling System), surpassing the 150 appointments
in original equipment. This innovation is decisive for the
reduction of the noise inside the passenger compartment
generated by the rolling of the tyre as a result of the
stress between the road surface and the tread pattern.
The benefits have been recognised not only by car
manufacturers such as Aston Martin, Audi, Bentley, BMW,
Jaguar-Land Rover, Lamborghini, McLaren, Mercedes,
Porsche and Volvo, but also by end customers who
choose to mount Pirelli PNCS™ tyres as replacements,
registering a volume increase of more than 100% in 2018
compared to the previous year.
Safety and performance of Pirelli products are finally
certified by tests carried out by the most important
automotive magazines, which highlight the strength of
the company even in the most extreme winter conditions.
In 2018, there were six podiums conquered by Pirelli ICE
ZERO™ FR, the non-riveted product developed for rigid
winters that offers excellent levels of grip and safety even
on snow-covered and icy surfaces.
QUALITY AND PRODUCT CERTIFICATION
ISO 9001: since 1970, the Group has had its own Quality
Management System introduced gradually at all its
Plants and, since 1993, Pirelli has obtained certification
of its quality system under the ISO 9001 standard. The
transition process of its Plants and the Headquarters to
certification according to the new ISO 9001: 2015 ended
in September 2018.
IATF 16949:2016: since 1999 the Group has obtained the
certification of its Quality Management System according
to the automotive scheme and subsequent evolutions.
124
Pirelli Annual Report 2018 Following the evolution of ISO 9001:2015 and the new IATF
16949:2016 (Automotive Scheme became private), Pirelli
achieved the Quality Management System certification in
100% of its eligible Plants as at 31 December 2018.
the Materials and
ISO/IEC 17025: Since 1993
Experimentation Laboratory of the Pirelli Tyre S.p.A. and
since 1996 the Experimentation Laboratory of Pirelli
Pneus (Latin America) hold the Quality Management
System, and have been accredited under the ISO/IEC
17025 standard. This system is maintained in accordance
with the standard in force and the ability of the laboratories
to perform accredited tests is evaluated annually. The
labs participate in proficiency tests organised by the
International Standard Organisation, by ETRTO or by
international circuits organised by auto manufacturers.
Specifically in regard to car tyres, the focus on quality is
confirmed by Pirelli’s supremacy in numerous product
tests. It is also guaranteed by its collaboration on product
development and experimentation with
the most
prestigious partners (auto manufacturers, specialised
magazines, driving schools, etc.).
The Product Certifications, which allow the marketing
of the same in the various markets in accordance with
the regulations laid down by the different Countries and,
for some markets, are managed directly by the Quality
Function. The prevailing certifications, obtained in the
Pirelli Group, concern the markets of Europe, NAFTA,
South America, China, Gulf Countries, India, Taiwan,
Indonesia, South Korea, Japan and Australia, and involve
all Pirelli factories. These Certifications periodically
require factory audits by ministerial bodies of the
countries concerned or bodies delegated by them, with
the aim of verifying product compliance at the Pirelli
production sites.
COMPLIANCE
Also in 2018:
→ no cases emerged of non-compliance with regulations
or voluntary codes concerning marketing activities,
including advertising, promotion and sponsorship;
→ no significant final penalties were
levied and/or
paid relating to infringement of laws or regulations,
including those relating to the supply and use of the
Group’s products and/or services;
→ no cases emerged of non-compliance with regulations
information and
or voluntary codes concerning
labelling of products/services;
→ no cases of non-compliance with regulations or
voluntary codes concerning health and safety impacts
of products/services during their life cycle;
→ there were no documented complaints concerning both
violation of privacy and/or the loss of consumers’ data;
→ there were no bans or disputes on the sales of any
Pirelli product.
125
OUR SUPPLIERS
SUPPLY CHAIN SUSTAINABLE
MANAGEMENT SYSTEM
The management model of the supply chain adopted by
Pirelli fully complies with the provisions of the international
guidelines for sustainable procurement ISO 20400, as
certified at the beginning of 2018 by the third party (SGS
Italia S.p.A.) following a thorough evaluation. The analysis
embraced the entire purchasing function of Pirelli,
confirming that the requirements of the ISO standard
were fully met, both in terms of company policies and
strategies, and regarding the management of the internal
processes necessary to implement the sustainability
requirements in the dynamics of procurement, both
in terms of company policies and strategies and, at a
more operational level in the direct management of
the ethical performance of suppliers. The ISO 20400
document “Sustainable Procurement Guidance”, officially
announced in April 2017, is an innovative tool that aims
to promote sustainable purchasing practices within
any public or private organisation, regardless of size or
geographical location, including through the integration of
the sustainability principles enshrined in the ISO 26000
social responsibility guidelines.
The Group’s relations with suppliers and external
collaborators are based on loyalty, impartiality and
respect for equal opportunities for all the subjects
involved in the purchasing processes, as required by the
Group Code of Ethics.
There are also many policies adopted by Pirelli, which
highlights the full integration of the sustainable supply chain.
The sustainable management of the supply chain is also the
subject of the Green Sourcing Policy as well as an integral
part of the “Social Responsibility Policy on Occupational
Health, Safety and Labour Rights, Environment”, of the
“Global Health, Safety and Environment Policy”, of the
“Global Human Rights Policy”, of the “Global Quality
Policy”, of the “Product Stewardship Policy”, of the
Group’s “Sustainable Natural Rubber Policy”. In all the
documents cited, with reference to the specific social
and environmental issues discussed, Pirelli undertakes
to establish and maintain the procedures necessary to
evaluate and select its suppliers on the basis of their level
of social and environmental responsibility, as well as to
request their suppliers implement a similar management
model, in order to strengthen responsible management in
the supply chain that extends beyond its direct supplier.
The Policies mentioned are available in many languages
on the Pirelli website, Sustainability Section, to which
reference is here made for full details.
social,
The
ethics
responsibilities of a Pirelli supplier are assessed together
and business
environmental
Report on Responsible Management of the Value Chain with the economic and product or service quality to be
supplied, right from the selection as potential supplier stage.
Analysis of ESG performance (Environment, Social,
Governance) continues through the qualification stage of
the future supplier pre-analysed at the assessment phase,
and then is “contract bound” though the Sustainability
and business ethics clauses included in every contract/
purchasing order.
After the supply agreement has been made, the
sustainability performance of the supplier is audited by
an independent third party.
The aforementioned Management Model and the related
documentation are available on the institutional Pirelli
website, in the “Suppliers Area” (Pirelli.com/suppliers),
section devoted to the world of supply and accessible to
current and potential Pirelli suppliers, as well as anyone
with an interest in knowing the approach and procedures
adopted by the Company in the areas of purchases of
good and service around the world. The communication
channel is aimed at the utmost clarity and sharing
of Values, Guidelines, documentation and standards
adopted by the Company in relations with suppliers, in
terms of the web also in the individual Countries in which
Pirelli operates.
ESG ELEMENTS IN THE PURCHASING PROCESS
Pirelli uses the same approach to assessing ESG
performance throughout the entire process of interactions
with a supplier, although in different ways among them,
consistently with the
interactions
characterising the specific procedural instances.
intensity of the
During a first phase of selection (or sourcing), and thus
assessment of possible offers for good or services in the
marketplace, a buyer who has been adequately trained
is able to gain a first impression of possible abidance or
otherwise by the requirements of the product and ESG by
the potential supplier. This makes it possible to eliminate
potential future suppliers that are clearly in possible
violation of Pirelli expectations.
to
Pirelli asks suppliers who gain access
the
qualification (or on-boarding) phase to use the portal
available in local language. By accessing it, the supplier
views and simultaneously accepts Pirelli’s requests in
terms of economic, social, environment and business
ethics responsibilities (in case of non-acceptance, the
qualification process cannot initiate), to then proceed
with the filling in of multiple questionnaires, the first of
which concerns respect for fundamental Human and
Labour Rights, considered key by the Company and
such that the absence of just one of them will not allow
the continuation of the qualification process. These
questions require the potential supplier to attest that
its company: checks workers’ ages before hiring them,
and it ascertains that all of its employees satisfy the
minimum legal working age; uses workers provided with
a written labour contract and who work on a voluntary
basis exclusively; abides by workers’ rights of freedom
of association and participation in trade-union activities;
pays wages that meet the minimum legal standards;
manages disciplinary practices, if any, abiding by the law;
abides by and applies legislative/contract provisions in
the matter of work schedules, overtime and rest periods.
The process continues with the request to include quality,
environmental and health and safety certifications; to
document their approach to responsible management
by attaching their Policies and Codes; to provide data
in respect of the rate of accidents at work; to attest to
compliance with labour laws as set forth above and any
litigation there may be. Information is also requested
relating to loss prevention, key elements not only to
prevent future cases of “business interruption”, but also
closely related to the safety of workers employed at the
supplier’s site.
For all potential new suppliers and/or facilities of raw
material and high value added parts (HVA Parts), which by
their nature can become development/long-term partners
for the Company, and which are also attributed much of
the spending of purchases, Pirelli conducts a third-party
preliminary on-site audit from the qualification phase to
verify the level of compliance of the potential supplier
with respect to the principal national and international
regulations on Work, Environment and business ethics.
The non-acceptance of the audit and/or not entering into
a reinstatement plan of any non-compliance shall block
the qualification of the supplier.
In addition to the above, new raw materials and new
auxiliary products are assessed before they are used by
the Group’s operating units with the aim of identifying
any potential critical issue for workers’ health and/or the
environment. The assessments are carried out centrally,
taking into account not only the requirements of the most
restrictive European standards for the management
of hazardous substances, but also the standards and
knowledge currently available internationally (specific
databases, etc.). Finally, the monitoring activity of
producers and suppliers of raw materials used by the
entire Group conforms to the provisions of the Regulation
(EC) no. 1907/2006 (also known as “REACH Regulation”)
and to the provisions of Regulation (EU) 2017/821) on
the so called “conflict minerals” (to which a paragraph is
dedicated later in this Report).
With regard to the contractual stage, for the past decade
the Sustainability and Business Ethics Clauses (including
anti-corruption) have been included systematically in
contracts and orders for the purchase of goods and/or
services and/or works, both with private suppliers and
with the Public Administration (or institutes/enterprises
under public control) or NGOs, worldwide.
126
Pirelli Annual Report 2018 In particular, the clauses:
→ require suppliers to be aware of the principles,
commitments and values contained
in Pirelli’s
sustainability documents, namely “The Values and
Code of Ethics”, the “Code of Conduct”, the “Global
Human Rights Policy”, the “Health, Safety and
Environment Policy”, the “Anti-Corruption Programme”
and the “Product Stewardship Policy”, published and
accessible on the web, which set out Pirelli’s principles
for managing its activities and its relations with third
parties, contractual and otherwise;
→ require that Suppliers confirm their commitment to:
→ not using or supporting the use of child labour and
forced labour;
→ ensuring equal opportunity, freedom of association
and promotion of the development of each
individual;
→ opposing the use of corporal punishment, mental
or 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;
→ not tolerating any type or bribery in any form or
manner and in any legal jurisdiction, even where
such practices are effectively permitted, tolerated,
or not subject to prosecution;
→ assess and reduce the environmental impact of its
own products and services throughout their entire
life cycle;
→ using resources responsibly with the aim of
achieving sustainable development in compliance
with the principles of respect for the environment
and the rights of future generations;
→ establishing and maintaining
the necessary
procedures to evaluate and select suppliers and
sub-suppliers on the basis of their commitments
to social and environmental responsibility, regular
overseeing compliance with this obligation on the
part of the same;
→ specifying that Pirelli reserves the right to verify at
any time through activities of audit, either directly
or through third parties, that fulfilment of the duties
taken on by a supplier has been achieved (see further
details in the next paragraph).
The Sustainability Clauses have been translated into
21 languages so as to ensure maximum clarity and
transparency vis-à-vis a supplier in the matter of the
contract duties that they assume, not only in respect of
the Firm itself, but also at their own site in relations with
their own suppliers.
In terms of maximum guarantee, the Group suppliers
have access to the Whistleblowing Reporting Procedure
(ethics@pirelli.com), expressly indicated in the clauses,
with which to report in full confidentiality any violation or
suspected violation they perceive in relations with Pirelli
and with reference to the contents concerning: “Values
and Code of Ethics”, “Code of Conduct”, Group policies on
“Global Human Rights”, “Health, Safety and Environment”,
“Anti-Corruption Programme” and “Product Stewardship”.
In 2018, among the signed reports, two were sent by
Suppliers. It remains objectively impossible to confirm that
the total number of reports from suppliers corresponds
only to two because some complaints were anonymous,
as specified in the paragraph “Focus: Group Reporting
Procedure - Whistleblowing”, to which reference should
be made for further information.
MONITORING OF ESG PERFORMANCE
Supplier performance is monitored by using the Vendor
Rating system, aimed at defining the quality level of
supplies, the quality of the commercial relationship, the
technical-scientific collaboration and, through on-site
audits by third parties, verifying performance in relation to
human and labour rights, health and safety, environmental
management and business ethics, followed by the periodic
monitoring of the progress of the actions set down in any
improvement plans signed with the supplier. The Vendor
Rating and monitoring of sustainability of suppliers cover
all the goods and geographical purchasing areas and
utilized as an integral part of commercial negotiations.
The results of the Audits are analyzed by the Purchasing
Department and the Sustainability and Risk Governance
Department, commented and discussed to
identify
eventual corrective actions or to improve performance
along with suppliers.
At methodological level, the Purchasing Department and
the Sustainability and Risk Governance Department of the
Group define the Guidelines for the selection of suppliers
to be audited, supporting the Purchasing Managers
and Sustainability Managers that locally coordinate the
auditing activities. Since 2009, in fact, Buyers and local
Sustainability Mangers are asked to identify a roster of
suppliers who, on the basis of the findings of proper Risk
Assessment, they feel to be worthwhile submitting to audit
by a third party at the time of the Annual Audit Campaign.
The risk assessment and thus the “criticality” of suppliers
envisage an assessment based on the following guiding
parameters:
→ the supplier is bound to Pirelli by multi-year contracts;
→ the replacement of the supplier and/or related product
may be complex;
→ the economic burden of the purchase is significant and
for this reason it is considered necessary to verify in
loco, via third party audit commissioned by Pirelli, the
compliance of the supplier with Pirelli ESG expectations,
signed by the supplier in the contract stage;
→ the supplier operates in a Country at ESG risk;
127
Report on Responsible Management of the Value Chain → the supplier has not yet undergone an ESG audit by Pirelli or special criticalities have been detected in
previous audits;
→ there is information, a perception or doubt concerning possible violations by the supplier in the matter of
social, environmental and/or business ethics responsibilities.
The external auditors carry out verification on the basis of a checklist of parameters of sustainability deriving
from the Pirelli Ethical Code, the SA8000® standard (a benchmark tool officially adopted by the Group for
managing social responsibility since 2004) and the “Social Responsibility Policy for Occupational Health, Safety
and Rights, and Environment” of the Pirelli Group (in its turn consistently with the areas of social, environmental
and governance sustainability dictated by Global Compact of the United Nations), the “Social Responsibility for
Health, Safety and Rights at Work, Environment” Policy, the Global Health, Safety and Environment Policy and
the Global Human Rights Policy.
Third-party audits concern suppliers belonging to all product categories such as raw materials, machinery,
logistics services, industrial services, general services and components. Each audit has an average duration
of two days in the field and includes a factory visit, interviews with workers, management and trade union
representatives.
External audits have been carried out since 2009 and continued in 2018, specifically:
Year
2009-2010
2010-2011
2012-2013
2014
2015
2016
2017
2018
Audit Number
72
56
62
78
93
6411
8312
8513
In most cases the 2018 audits involved suppliers of Pirelli operating in Countries where the company is present
at an industrial level, i.e.; Argentina, Brazil, China, Germany, Indonesia, Italy, Mexico, United Kingdom, Romania,
Russia, United States, and Turkey. Or suppliers in Countries from which Pirelli buys raw materials, such as
Guatemala, South Korea, China, Poland, Romania, Italy, Russia, Czech Republic, Malaysia, Thailand and Brazil.
On the basis of audit findings, where necessary and fitting and given also the specific actions to remedy
suggested by the independent Auditor, the supplier signs off on a corrective plan aimed at preventing,
mitigating or remedying any non-compliances detected. The plan foresees specific actions to be implemented
by precise deadlines in addition to clear identification of the responsibilities for the action at the supplier
company and the method of follow-up (documentary or new on-site audit) that will be followed by the auditor
to verify resolution taking place of the non-compliances detected during the audit. The process of monitoring
the implementation status of plans of righting of suppliers, especially, is a dual one: on the one hand the third-
party auditor verifies the status of implementation of the corrective plan, and on the other the Group Internal
Audit Department verifies the adequacy of management and alignment on the part of local functions dealing
with this (Sustainability and Purchasing).
11 of which 9 on potential new suppliers of raw materials.
12 of which 14 on potential new suppliers of raw materials.
13 of which 16 on potential new suppliers of raw materials.
128
Pirelli Annual Report 2018 The results of the audits carried out during the 2018
annual campaign show:
→ 42% of suppliers without non-compliance;
→ a total number of non-conformities found on-site
decreased by 17% compared to 2017.
The non-conformities registered in 2018 are substantially
linked to the processes of health and safety management,
the use of overtime and the correct implementation of
environmental management systems.
MATERIALITY OF ESG IMPACTS ALONG THE SUPPLY
CHAIN
Considering the life cycle of the Pirelli Product (which is
specified in the “Environmental Dimension” chapter of this
report), the environmental impacts of the supply chain are
found prevalently in the category of raw materials, in terms
of direct emissions and impact on indirect emissions of
Pirelli, as well as on the capacity of the material to affect
the emission impact of the production process and on the
energy efficiency of the Pirelli product. With reference
to the water footprint along the life cycle of the Pirelli
product, the impacts are prevalent in the natural rubber
processing business. Upstream of the natural rubber
supply chain is also the risk of deforestation and damage
to biodiversity.
Social type impact (human and labour rights in particular)
are evidenced on the other hand in all categories of
purchases in respect of suppliers operating in Countries
considered to be more greatly at risk as compared to
others from the standpoint of compliance with domestic
and international labour legislation.
Pirelli mitigates the risks mentioned through the
Management Model adopted and up to now described,
which is completed with the engagement activities of the
suppliers referred to below.
SUSTAINABILITY OF THE NATURAL
RUBBER SUPPLY CHAIN
With global demand for natural rubber expected to
increase, sustainable management of the related supply
chain is essential to preserve forests, biodiversity and to
enable sustainable development for local communities
and economies.
The economic, social and environmental sustainability of
the natural rubber supply chain is among the priorities of
Pirelli, with the full awareness that the origins of its rubber
supply chain impact in forestry terms.
The natural rubber supply chain - from upstream to
downstream -
includes producers/growers, traders,
and
processing
manufacturing facilities. Pirelli is at the end of the chain, as
a tyre manufacturer that does not own its own plantations
distribution
companies
plants,
or natural rubber processing plants. Pirelli intends to play
an active role in the aforementioned context, contributing
to the efforts that are globally dedicated to the sustainable
management of natural rubber.
its
issued
“Sustainable
In October 2017, Pirelli
Natural Rubber Policy”, after a long process based on
consultation with key Stakeholders and companies that
have longstanding experience in terms of sustainable
procurement of materials. The draft of the Policy was
presented and discussed with key Stakeholders in a
consultation session held in September 2017, attended by
international NGOs, Pirelli’s main natural rubber suppliers,
traders and farmers from the supply chain, automotive
customers and multilateral international organisations.
As stated in the Policy, Pirelli undertakes to promote,
develop and implement the sustainable and responsible
procurement and use of natural rubber throughout its
entire value chain. In particular, the Policy breaks down the
positioning of the Company in terms of:
→ defence of Human Rights and promotion of decent
working conditions;
→ promotion of the development of local communities
and prevention of conflicts related to land ownership;
→ protection of ecosystems, flora and fauna;
→ no to deforestation, no to the exploitation of the peat
land, no to the use of the fire, and adoption of the “High
Conservation Value (HCV)” and “High Carbon Stock
(HCS)” methodologies;
→ efficient use of resources;
→ ethics and anti-corruption;
→ traceability and mapping of socio-environmental risks
along the supply chain (so-called risk-based approach);
→ clear indication of the governance model envisaged by
the policy, and consideration of the risks identified in
the definition of the purchasing strategies;
→ encouragement of its suppliers and sub-suppliers to the
adoption of solid certification systems, internationally
recognised and verified by third parties, at all levels of
the supply chain;
→ promotion, support
the Company’s active
participation in cooperation initiatives at sector level
and among Stakeholders that play a significant role
in the value chain, in the belief that, in addition to the
individual commitment of companies, a shared effort
can accelerate and strengthen the path towards a
sustainable development of the global natural rubber
supply chain;
for
→ activities aimed at the implementation of the policy;
→ commitment to reporting on the results achieved;
→ making available the Reporting Procedure for any
violations of the Policy.
In December 2018 the Company released the Implementation
Manual for the Pirelli Policy on Sustainable Natural Rubber.
The aim of the manual is to facilitate the understanding of
129
Report on Responsible Management of the Value Chain
the principles, commitments and values expressed in the
Policy, as well as provide guidance for its implementation to
the supply chain. As already happened for the preparation
of the Policy in 2017, also the process of preparation of the
Manual has foreseen the involvement and the consultation
of the main Stakeholders concerned, both locally, with the
main actors of the supply chain (processors, retailers, small
plantation owners), and globally through a global Stakeholder
dialogue event held at the Group Headquarters.
The Manual is the result of more than a year of multi-
stakeholder consultation, begun
in countries with
natural rubber production with producers, dealers, small
plantation owners, non-governmental organisations,
trade union representatives and the rubber industry. The
draft of the Manual was then tested “on the field” and
finally submitted to the evaluation of the international
Stakeholders in a consultation session held in September
2018 at the Pirelli Headquarters in Milan, and attended by
international NGOs, the main suppliers of natural rubber
of Pirelli, traders and farmers from the supply chain,
international multilateral
automotive customers and
organisations. At the same time, Pirelli defined its Action
Plan for the three-year period 2019-2021.
The Policy, the Implementation Manual and the 2019-
2021 Action Plan are published on the Group website, in
the Policy area within the Sustainability section.
In particular, during the course of 2019, Pirelli will activate
training sessions on the Implementation Manual in all the
countries from which the company buys natural rubber, in
local language and for all its suppliers. Particular attention
will be given to providing adequate tools so that training
can in turn be extended by the suppliers themselves,
going down to the level of the plantations.
In addition, in 2019 the supply chain mapping activity will
continue also reaching the plantations of origin, with a
“risk-based” approach in order to map the socio-environmental
risks through partnerships with its suppliers and with the
help of advanced mapping systems (digital and otherwise).
The results of on-site audits carried out by third parties
on the sites of suppliers (natural rubber processors),
which covered almost the entire supply chain, will also be
capitalised. These audits are aimed at assessing the level
of sustainable performance at the transformation sites,
and at understanding the capacity of Suppliers in terms
of direct/indirect control of their supply chain, up to the
identification of the supplying plantations.
During 2018 the partnership between Pirelli and Kirana
Megatara, started in 2014, continued. Kirana Megatara,
one of the largest natural rubber processor in Indonesia,
is one of the leading suppliers of Pirelli worldwide.
The Project between Kirana and Pirelli aims to support
local farmers through training in the most effective
methods in order to improve the productivity of plantations
and through scholarships for their children. Added to this,
starting from 2018, is support for rubber tree replanting
activities, in order to further strengthen the development
of the plantations on the territories already dedicated to
natural rubber while avoiding risks of deforestation.
Increasing the productivity of plantations is a key factor: it
allows farmers to increase their income while decreasing
the risk of deforestation resulting from the abandonment
of unproductive plantations. Training on production
quality, including the provision of origin plants controlled
by specialist agronomists and cultivation equipment,
takes place constantly throughout the year at the farming
communities involved in the project, 110 farmers in a
stable and ongoing manner.
Each year, Pirelli and Kirana Megatara organise an event
called the tapping competition, which sees the best
“tappers” in the place take each other on in a friendly
challenge on the best tapping methods in a day of
celebration for the community, which is also an important
opportunity for training and spreading awareness
among farmers present regarding the best growing and
tapping techniques in order to obtain an increasingly
purer product, free from contamination and therefore
characterised by its high level of quality, necessary to
increase the earnings of families and simultaneously
reduce the impacts of deforestation. In the evening, the
three best tappers are then chosen who, thanks to their
perfect tapping, are awarded prizes for themselves
and their families. Even in 2018, 233 farmers and their
families attended the event, which was held in the south
of the island of Sumatra.
Also held in 2018 was the scholarship presentation
ceremony by Pirelli and Kirana Megatara for the children
of local producers. The ceremony was held in Muara
Enim Regency in the south of the island of Sumatra and
65 scholarships were awarded, with the aim of trying to
ensure an adequate education, in the belief that the future
sustainability of the natural rubber business cannot ignore
the adequate training and development of the coming
generations, and their right to study.
TOGETHER FOR THE SUSTAINABILITY OF NATURAL
RUBBER - THE GPSNR PLATFORM The Pirelli Policy on
the sustainable management of natural rubber, in point
VIII, states: “Pirelli believes that the global challenge
of natural rubber sustainability requires engagement,
cooperation, dialogue and partnership among all involved
actors. In addition to engaging with its suppliers, Pirelli
fosters and supports active cooperation at industry
level and among stakeholders playing a material role in
the natural rubber value chain, with the conviction that
in addition to corporations’ individual engagement, a
shared effort can result in stronger and faster progress
towards sustainable development of the global natural
130
Pirelli Annual Report 2018 rubber supply chain. Pirelli cooperates with national
international governmental, non-governmental,
and
industry-wide and academic initiatives to develop global
sustainable natural rubber policies and principles.”
In line with the stated approach, in 2017 and 2018 Pirelli
played a proactive role in the creation of the Global
Platform for Sustainable Natural Rubber - GPSNR,
together with tyre manufacturers which are also part of
the Tyre Industry Project Group, within the World Business
Council for Sustainable Development. The development
of the Platform benefited from the contribution, ideas
and suggestions of the main categories of Stakeholders
involved in the value chain, such as rubber producers,
processors, automobile manufacturers, and of the
fundamental contribution deriving from the experience of
important international NGOs.
is
The Platform, launched in Singapore in October 2018
with the participation of the first “founding members”,
including Pirelli,
independent, based on multi-
stakeholder dialogue and aims to support the sustainable
development of the natural rubber business globally,
for the benefit of the entire value chain through shared
tools and initiatives based on respect for human and
labour rights, prevention of land grabbing, respect for
biodiversity and increased plant productivity, especially
those of small owners.
The first General Assembly of GPSNR is scheduled for
March 2019.
THE “GREEN SOURCING” POLICY
As at December 2012 Pirelli drew up and issued the
“Green Sourcing” Policy with the aim of stimulating and
incentivising an environmental conscience along the
entire supply chain and encouraging choices that might
reduce the impact on the environment of provisioning
activity by Pirelli of goods and services. The Green
Sourcing Policy implementation system was defined in
2013, both inside Pirelli and in supplier relationships. It is
organised as follows:
→ Pirelli Green Sourcing Manual, an internal document
containing operating guidelines, intended to guide the
activities of the Pirelli functions involved in the Green
Sourcing process;
→ Pirelli Green Purchasing Guidelines, a document
intended for Pirelli suppliers as part of the Contract
for supply and based on the Green Sourcing Manual
containing the KPIs (Key Performance Indicators) for
assessing the Green Performance of these suppliers;
→ integration of Green Performance in the traditional
process of measuring supplier performance (vendor
rating).
The Pirelli Green Sourcing Manual defines four areas of
Green Sourcing: Materials, Capex, Opex and Logistics.
131
Interdepartmental working groups, comprised of
Purchasing, R&D, Quality, HSE and Sustainability
analysed the Green Sourcing process associated with
the merchandise categories falling within the four areas
mentioned above. Green Engineering Guidelines were
also defined for the Materials and Capex areas, where
the design component (what is conceived in-house) is
material to the Pirelli core business.
For the Opex and Logistic areas characterised by goods
categories in respect of which the design component is
not equally significant, Green Operating Guidelines have
in any vent been defined by referring to internationally
recognised best practices.
So, the Green Sourcing Manual is a unique document
that contains:
→ a general part on Green Sourcing issues;
→ the Green Engineering Guidelines (Materials, Capex);
→ the Green Operating Guidelines (Opex, Logistics).
The Green Sourcing Manual will also be adopted by the
Pirelli Training Academy for training purposes by the
functions involved in the process of Green Sourcing.
In 2014, and on the basis of the Guidelines of the Green
Sourcing Manual, the Pirelli Green Purchasing Guidelines
were published on the website www.pirelli.com, so
making them available both to Pirelli suppliers and to
other Stakeholders. In China, Mexico, the United States,
Russia and Italy, by-invitation seminars have been held at
Pirelli offices on the Green Sourcing Guidelines for local
suppliers so as to inform and receive direct feedback on
the way they work.
Additionally, since 2015 Pirelli has been equipped with
an IT platform to support the launch of a campaign to
measure the Green Performance of Pirelli Suppliers
through an electronic questionnaire to be filled out online,
a campaign implemented from April 2016.
At the end of 2018, the Pirelli Green Sourcing Manual
is being updated, while at the same time defining the
framework for actions to reduce/eliminate “single-use
plastic” within Pirelli and along the supply chain. This will
allow it to proceed in 2019 with the subsequent updating
of the Green Purchasing Guidelines.
POLICY ON CONFLICT MINERALS
The concept of Conflict Minerals was introduced by
Section 1502 of the Dodd-Frank Act, a United States
federal law, in 2010. By “conflict minerals” is meant gold,
columbite-tantalite (coltan) cassiterite, wolframite and
their derivatives like tantalum, tin and tungsten that come
from (or are extracted in) the Democratic Republic of
Congo and/or bordering Countries.
Report on Responsible Management of the Value Chain The objective of the rules in respect of Conflict Minerals
(Conflict Mineral Rules) is to discourage the use of
minerals whose sale might finance violent conflicts in
Central Africa where grave violations of human rights have
been recorded for many years. Under Conflict Mineral
Rules, listed companies in the United States are required
to perform reasonable due diligence in tracing the
provenance of these materials and reporting the findings
to the SEC and publishing them on their website, with the
first report to be published by 31 May 2014 (relating to
2013) and subsequently updated each year.
In turn, the European Institutions in May 2017 approved
the 2017/821 Regulation which “establishes duties
in terms of due diligence in the supply chain for EU
importers of tin, tantalum and tungsten, their minerals,
and gold, originating in conflict zones or at high risk”. The
new provisions will apply from January 2021.
Pirelli expresses its position on the management of the
issue in a paragraph dedicated to it in its Global Human
Rights Policy, where it is stated that the Company “requires
that its suppliers conduct proper due diligence within
their supply chain in order to certify that the products
and materials supplied to Pirelli are “conflict free”
throughout the whole supply chain. Pirelli reserves the
right to terminate relations with suppliers in cases where
there is clear evidence of supplying conflict minerals and
however in case of any violation of Human Rights.”
The Policy is published in multiple foreign languages in
the Sustainability section of the pirelli.com website.
In 2017 Pirelli also strengthened its management model,
introducing the request for the following documentation
among the qualification requirements of suppliers that
can be associated with the possible use of conflict
minerals:
→ Conflict Minerals Reporting Template (CMRT);
→ Conflict Minerals policy if present;
→ description of the “Due Diligence” system to identify
and trace the presence of 3T+G minerals.
The management model then extends to the contractual
phase, through the inclusion of a Conflict Minerals clause
that recalls the supplier’s commitment to providing the
Conflict Minerals Reporting Template on an annual basis
and to maintain the results achieved in terms of chain
transparency, in addition to reporting the further progress
pursued and expected.
To give an idea of the scale of the phenomenon for Pirelli,
it is worthwhile stating that the impact is very limited:
the volume of minerals (3T+G) used by Pirelli Tyre in one
year in fact weighs less than a tonne, a quantity which
is less than one millionth of the volume of raw materials
used annually by the Firm and which is equally distributed
132
among most of the tyres produced. To give an example,
a tyre weighing 10 kg contains about 10 mg (milligrams)
equivalent of tin, in the extremely low concentration of
1ppm (one part per million).
With a view to procurement covering only minerals that
are “conflict free”, Pirelli has conducted a comprehensive
investigation on its supply chain, in order to have full
visibility up to the mines or foundries in order to identify
the existence of any “conflict minerals”. The company
asked its suppliers to fill in the CMRT (Conflict Minerals
Reporting Template) form developed by the Responsible
Minerals Initiative (RMI) as developed in the past by the
Electronic Industry Citizenship Coalition (EICC) and the
GeSI (Global e-Sustainability Initiative).
The suppliers polled cover 100% of the “conflict minerals”
risk tied to Group products. More than 90% of suppliers
polled have already given precise indications concerning
the source of the materials in question and listing
foundries as required by the procedure and there was no
evidence of the presence of conflict minerals.
DUE DILIGENCE ON NEW METALS: COBALT
As is known, the Democratic Republic of the Congo (DRC)
is the world’s largest producer of cobalt and holds more
than 50% of the world’s reserves of this metal. Cobalt
is used in Lithium batteries that are an integral part of
electric vehicles, mobile phones and laptops. The demand
for Cobalt is growing very rapidly and its extraction occurs
both in a highly mechanised way and in a traditional way.
Concerning this latter type of extraction, concerns have
recently been raised about unsafe working conditions
and child labour. In 2017, RMI launched a working group
on the sustainable supply of cobalt, with particular regard
to the risk of child labour in the DRC, with a supply chain
monitoring approach similar to the one already in place for
3T+G metals. The Cobalt Reporting Template (CRT) was
recently published (21 December 2018) by RMI. Pirelli
uses some Cobalt salts, a type of raw material commonly
used in the production of tyres. With regard to 2019,
Pirelli has therefore decided to join the “Cobalt Initiative”
launched by RMI and to ask its suppliers to fill in the CRT.
ENGAGEMENT OF SUPPLIERS
Pirelli believes that activities involving suppliers are
essential from the viewpoint of creating environmental
and social value and that are inseparably tied to the
creation of shared economic value. There are many
activities operated by the Company to that effect.
R&D PARTNERSHIPS Pirelli has established several
partnerships with strategic suppliers and universities
for the development of innovative materials with low
environmental
the
paragraphs dedicated to environmental management
of products of this Report). As part of the development
of new nanofillers, for example, pursued since the early
(materials described
impact
in
Pirelli Annual Report 2018 2000s through research contracts with universities
and collaborations with suppliers, Pirelli has begun to
industrially introduce materials of mineral origin in partial
replacement of precipitated silica and carbon black.
Compared to the production processes of the replaced
raw materials, the innovations mentioned have guaranteed
a water saving, as well as a reduction of CO2 emissions by
more than 75%, saving respectively about 12,000 m3 of
water and 650 tonnes of CO2.
This
innovation provides economic benefits related
directly to the material for about €250,000 a year,
although the real sustainable business driver is the
performance that the product acquires, thus becoming
more competitive.
CDP SUPPLY CHAIN For years, Pirelli has participated in
Climate Change and Water programmes promoted by the
Carbon Disclosure Project (CDP). Implementing its Green
Sourcing Policy since 2014 Pirelli has in its turn decided
to extend the request for CDP assessment to its own key
suppliers at a Group level, identified in accordance with
criteria of environmental and economic materiality. In
2018, the selection concerned the suppliers with the most
impact on the Carbon Footprint of the Group in the Raw
Materials, Logistics and Energy categories.
The CDP Supply Chain supports Pirelli in monitoring
Scope 3 emissions from its supply chain and ensures
adequate awareness of suppliers in matters relating to
climate change so as to identify and activate all possible
opportunities for reducing emissions of climate-altering
gases. In 2018, the set of emission reduction actions
implemented by Pirelli suppliers made it possible to avoid
overall the emission of approximately 79 million tonnes
of CO2 equivalent into the atmosphere, combined with
estimated economic savings of US$2.45 billion.
First company among tyre manufacturers to have globally
introduced the CDP Supply Chain in its own supply chain,
Pirelli aims to increase the response rate of suppliers of
Raw Materials from 74% in 2018 to 90% in 2020.
TRAINING OF SUPPLIERS ON SUSTAINABILITY ISSUES
Since 2012, Pirelli has been providing training on
environmental, social and business ethics issues to its
suppliers, identifying each year the applicable pool of
participants based on strategic issues, spending value and
operations by suppliers in Countries considered at risk.
In 2018, training in e-learning format was provided to
strategic suppliers of raw materials, general goods and
services and factory components. The training activity
aims to support suppliers in understanding the Pirelli
sustainability model and the related social, environmental
and business ethical requirements that must be respected
in order to guarantee a sustainable business relationship
with the Company.
Training in 2018 concerned the ISO 20400 Guidelines
(international standard for sustainable purchases), and in
particular:
→ field of application;
→ the fundamentals;
→ the
integration of sustainability
policies and strategies;
into purchasing
→ the so-called “cost of ownership” of the product;
→ the organisation of the Purchasing function with a view
to transversality within the Company and therefore
of greater effectiveness in the implementation of
the sustainable management of the supply chain
pertaining to the various management areas.
The training involved 249 suppliers between Argentina,
Brazil, China, Germany, Indonesia, Italy, Mexico, United
Kingdom, Romania, Russia, United States, Turkey,
Venezuela, and was carried out in local language.
We have already mentioned, previously in this chapter, the
commitment to training the natural rubber supply chain,
an activity that will be central in 2019.
SUPPLIER AWARD The Pirelli Supplier Award, which
is assigned each year to suppliers of excellence, aims
to constantly improve relations with parties from the
standpoint of shared development.
The Supplier Award 2018 was held at the Pirelli headquarters
in Bicocca, in the presence of the Chief Purchasing Office
and Pirelli’s Chief Sustainability and Risk Governance
Officer, who gave awards to nine suppliers operating in
Japan, Italy, the United States, Thailand, Indonesia, the
Netherlands and Switzerland that have distinguished
themselves for quality,
innovation, speed, sustainable
performance, global presence and level of service.
A specific award was granted to sustainable performance
so as to acknowledge the importance that strategies
of “responsibility” that really make a difference have,
by bringing benefits to the entire value chain. In 2018
the award for Sustainability was awarded to a textile
reinforcement supplier that in recent years has shown a
strong and growing engagement on the procurement of
sustainable materials, until producing rayon using only
cellulose from plantations certified for sustainable agro-
forestry management.
TREND OF PURCHASES
The following tables show the value of purchases made
by Pirelli Tyre and the percentage of the relative suppliers
divided by geographical area. These figures show that
the value of purchases is slightly higher in OECD area14
with respect to non-OECD areas, as well as the number
of suppliers.
14 For the complete list of OECD Countries please refer to the official website http://www.oecd.org/
about/membersandpartners/.
133
Report on Responsible Management of the Value Chain 76% of suppliers (up compared to 67% in 2017) operate locally with respect to the Pirelli Tyre subsidiaries
supplied, according to a local for local supply logic and excluding raw material suppliers as they generally
operate where Pirelli does not have its own facilities.
VALUE OF PURCHASES BY GEOGRAPHIC AREA
OECD COUNTRIES
NON-OECD COUNTRIES
2018
2017
2016
Europe
North America
Others
Latin America
Asia
Africa
Others
50%
6%
4%
15%
15%
0%
10%
49%
4%
5%
16%
15%
0%
11%
NUMBER OF SUPPLIERS BY GEOGRAPHIC AREA
OECD COUNTRIES
NON-OECD COUNTRIES
2018
2017
2016
Europe
North America
Others
Latin America
Asia
Africa
Others
54%
5%
5%
22%
6%
0%
8%
56%
5%
4%
26%
5%
0%
4%
The following table shows the breakdown in percentage of the value of Pirelli Tyre purchases by type. With a
weight equal to 46% of the total, the purchasing category which is decidedly more relevant and significant, as
in previous years, regards raw materials.
VALUE OF PURCHASES BY TYPE
Raw Materials
Consumable Materials
Services
Capital goods
2018
2017
2016
46%
5%
36%
13%
46%
5%
36%
13%
52%
5%
4%
15%
14%
0%
10%
55%
5%
4%
27%
4%
0%
5%
46%
5%
38%
11%
134
Pirelli Annual Report 2018 With reference to the percentage of Pirelli Tyre suppliers by type and in the table below, it is noted that suppliers
of consumables and services weigh about 90% of total number of suppliers, despite the weight on the total
value of purchases is lower compared, for example, to that of raw material purchases which, on the other hand,
show a substantial concentration on a few operators.
NUMBER OF SUPPLIERS
Raw Materials
Consumable Materials
Services
Capital goods
2018
2017
2016
2%
29%
61%
8%
3%
23%
64%
10%
The following table represents the percentage composition in the value of the mix of raw materials purchased
by Pirelli Tyre in the three-year period 2016-2018. The volume of raw materials utilised for the production of
tyres in 2018 amounted to approximately 900,000 tonnes, of which approximately 4% derives from recycled
materials, in line with the previous year.
MIX OF RAW MATERIALS PURCHASED
Natural Rubber
Synthetic Rubber
Carbon black
Chemicals
Textile
Steel
TARGETS
2019:
2018
2017
2016
13%
27%
10%
23%
17%
10%
15%
29%
9%
21%
16%
10%
3%
25%
62%
10%
(value)
13%
28%
8%
22%
18%
11%
→ Sustainability of the Natural Rubber supply chain: for 2019-2021 planning, including the details of the
activities planned for 2019, please refer to the publication in the Sustainability section of the Pirelli website,
Sustainability Policies / Sustainable Natural Rubber Policy area;
→ Review of the audit process during the qualification phase of potential new suppliers and/or plants of raw
materials and/or high value added goods, which will see the audit extended to the business continuity elements.
2020:
→ CDP Supply Chain: increase in the response rate of suppliers of Raw Materials from 74% in 2018 to 90%
in 2020.
135
Report on Responsible Management of the Value Chain Environmental dimension
The Pirelli Group considers environmental protection as
a fundamental value in the exercise and development of
its activities.
The Pirelli approach to environmental management is
set forth in accordance with the United Nations Global
Compact, of which Pirelli has been an active member
since 2004, and pursuant to the “Rio Declaration on
Environment and Development”.
The Pirelli Values and Ethical Code states that “key
consideration in investment and business decisions is
environmental sustainability, with the Group supporting
eco-compatible growth, not least through the adoption of
special technologies and production methods (where this
is operationally feasible and economically viable) that allow
for the reduction of the environmental impact of Group
operations, in some cases even below statutory limits”.
The environmental management model adopted
is
detailed in the following Group Policies and specifically:
“Health, Safety and Environment” Policy,
“Product
Stewardship” Policy, “Quality” Policy, “Social Responsibility
Policy for Occupational Health, Safety and Rights, and
Environment”, “Green Sourcing” Policy, based on which
Pirelli undertakes to:
→ assess and reduce the environmental impact of its
own products and services throughout their entire life
cycle, as of products and services purchased;
→ develop products and production processes that are
safe and designed to minimize polluting emissions,
waste generation, consumption of natural resources
available and the causes of climate change, in order to
preserve the environment, biodiversity and ecosystems;
→ manage its environmental activities in full compliance
with applicable laws and in compliance with the
highest international standards;
→ monitor and communicate
its Stakeholders
the environmental performance associated with
processes, products and services throughout the
entire life cycle, promoting its culture of environmental
protection;
to
→ monitor the environmental impacts of its suppliers by
requesting them to adopt the same business model
along the related supply chain;
→ support
customers
and end
in
its
understanding the environmental
products, informing them of the safest use and
disposal methods, facilitating recycling or re-use
where possible;
consumers
impacts of
→ empower and train its workers in order to extend
capital
of
environmental
culture
adequate
conservation.
All the documents mentioned above are communicated to
the Group’s employees in the local language and published
in multiple languages in the Sustainability section of the
pirelli.com website, available to the external community.
JOINING THE TASK FORCE ON CLIMATE-RELATED
FINANCIAL DISCLOSURES (TCFD)
In September 2018 Pirelli formally joined the Task Force
on Climate-Related Financial Disclosures (TCFD) set up
by the Financial Stability Board (FSB).
In supporting the initiative, Pirelli undertook to voluntarily
communicating information on risks and opportunities
related to climate change as indicated in the TCFD
recommendations. Pirelli publishes this
information
publicly both in this report and through the CDP Climate
Change programme.
In particular, the discussion of the four thematic areas
identified by the TCFD recommendations is as follows:
in
the paragraph
→ Governance: the issues relating to Climate Change fall
within the activities whose Governance is described
in the paragraph “Management Model” of this Report,
in the paragraph “Director responsible for
and
sustainability matters” and “Audit, Risks, Sustainability
and Corporate Governance Committee” of the “Report
on the Corporate Governance and Share Ownership of
Pirelli & C. S.p.A.”, included in this report and to which
reference should be made for further information.
→ Strategy: with a view towards long-term management,
Pirelli monitors the Carbon Footprint and Water
Footprint of its entire organisation and is committed
to the progressive reduction of the related impacts
on resources, climate and ecosystems. As described
in detail
“The Pirelli Group
Environmental Strategy” of this Report, the Group has
adopted a control and monitoring system that allows
the identification of the materiality of environmental
impacts along the life cycle of the product on the basis
of which the company defines the response strategy.
→ Risk management: in the area of Risk Management
and opportunities related to Climate Change, the
Group’s Climate Change Risk Assessment was
updated in 2018. The analysis assessed and quantified
the financial impacts (risks and opportunities) linked to
Climate Change, with medium/long-term projections
according to the IPCC15 climate scenarios (RCP 4.5
and RCP 8.5) and the energy transition (IEA 450). For
details, refer to the paragraph “Risks Related to Climate
Change” in the “Directors’ Report on Operations” in
this document, and to what was published in the CDP
Climate Change questionnaire.
15 Intergovernmental Panel on Climate Change.
136
Pirelli Annual Report 2018 → Metrics and Objectives: Pirelli reports the impacts and
performance linked to climate change according to the
metrics defined by the GRI Sustainability Reporting
Standards (in particular, see the “GRI Content Index”
table at the end of this Annual Report for the requests
of the GRI Standard 305 Disclosures: Emissions) and
reports its environmental and product targets that are
most closely linked to climate change, in the present
chapter “Environmental Dimension”.
THE PIRELLI GROUP ENVIRONMENTAL STRATEGY
Monitoring and management of environmental issues
have always played a key role in the business strategy
at Pirelli. With a view to long-term management, Pirelli
monitors the Carbon Footprint and Water Footprint of its
entire organisation and is committed to the progressive
reduction of the related impacts on resources, climate
and ecosystems.
The Group has adopted a control and monitoring
system that allows the identification of the materiality
of environmental impacts throughout the product life
cycle. The infographic on the following pages shows the
Pirelli approach to environmental management and the
specific multi-year targets defined by the Sustainability
Plan, whose performance is reported in the present
report. The Pirelli Group’s Carbon and Water Footprint
are updated to 2018.
As is readily apparent, the materiality of environmental
impacts is concentrated in the use phase of the tyre.
In terms of the Carbon Footprint, the use phase has a
weight of about 91% of total impacts throughout the
entire life cycle of the product, compared to a production
phase that has a weight of only 2.8% of total impacts.
As regards the impact of the Water Footprint, the use
phase of the product is the most significant (44.6% of the
total impacts), followed by the production phase of raw
materials (43.5% of impacts).
The graph can be read either horizontally, following the
stages of life of a tyre one by one, or vertically, thus being
able to appreciate the objectives of reducing the impacts
that the Company has defined for each of the different
stages of life, which will be explored later in this chapter.
At the methodological level, the phases of the life cycle
have been analysed following the Life Cycle Assessment
methodology as defined by the ISO 14040 family of
standards. This approach is capable of validating the
results and the strategic decisions related to it, as
objectively as possible, integrated with the indications
of the “Product Category Rule16” for tyres developed by
the Tyre Industry Project Group of the World Business
16 Set of rules, requirements and specific guidelines for the development of environmental
declarations, for one or more product categories, defined according to ISO 14025.
Council for Sustainable Development. The reporting
impacts also complies with the
of the emission
provisions of the GHG Protocol (Corporate Accounting
and Reporting Standard) and the GRI Sustainability
Reporting Standards. To determine the Carbon Footprint
and the Water Footprint, Pirelli’s calculation model is
respectively inspired by the ISO-TS 14067 technical
specification and the ISO 14046 standard. All the
impacts listed by the standards that are not mentioned,
both upstream and downstream of Pirelli’s industrial
activity are either not applicable or not significant. The
values are shown as a percentage, as the objective of
this infographic is to show the difference in materiality
between the various life stages.
The main environmental impacts are generated by various
activities related to the different stages of the Life Cycle.
In the case of raw materials procurement, the main impact
derives from the related production and distribution. In the
case of tyre production, the main impact is related to the
consumption of electricity and natural gas: in particular the
main pressure in terms of emissions into the atmosphere
and water consumption is attributed to the production
of the latter. In the case of the distribution of new tyres
and their use by customers, the impact derives from the
fuel consumption of vehicles (only the fuel consumption
related to the power absorbed by the rolling resistance
of the tyres is allocated to the customers). Finally, in the
last phase of life considered, the impact derives from the
processing of end-of-life products for recovery thereof
as energy or recycled raw material. With reference to the
Carbon Footprint, the infographic (see the “Drivers” part)
also includes a breakdown of emissions in the three Scope
categories provided by the GHG Protocol.
The central part of the infographic shows the actual
quantification,
in percentage terms, of the Carbon
Footprint and Water Footprint. These two aspects are
summarised by four principal indicators: Primary Energy
Demand (PED), Global Warming Potential (GWP), Water
Depletion (WD) and Eutrophication Potential (EP). The
values are calculated in GJ of energy, tonnes of CO2
equivalent, cubic metres of water and kilograms of
phosphate equivalents.
Primary Energy Demand refers to the quantity of
renewable or non-renewable energy that is taken directly
from the hydrosphere, the atmosphere or the geosphere.
The Global Warming Potential concerns the effect on
the climate of anthropic activities and is calculated, as
mentioned, in tonnes 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 Water Depletion, based on the Swiss model for
ecological scarcity, represents the volume of water used,
137
Report on Responsible Management of the Value Chain compared to the availability of water resources locally,
with the aim of giving greater weight to the volumes
of water taken from areas characterised by a greater
scarcity of this resource.
Eutrophication Potential is the enrichment of nutrients
in a given ecosystem, whether aquatic or terrestrial: air
pollution, emissions into water and agricultural fertilisers
all contribute to eutrophication. The result in aquatic
systems is accelerated growth of algae, which does
not allow sunlight to penetrate the surface of the water
basins. This reduces photosynthesis and thus reduces the
production of oxygen. Low concentrations of oxygen may
cause mass death of fish and anaerobic decomposition
of organic material, seriously compromising the entire
ecosystem.
In terms of environmental materiality, the use phase of the
tyre is overall the most prevalent. In terms of economic
materiality, instead, the amount of company spending in
the process phase is the most relevant, which results in
the opportunity to reduce impacts through investments in
energy efficiency.
In the lower part of the infographic, the actions and
targets adopted by Pirelli are indicated in order to reduce
the environmental impacts in the various phases of the
life cycle.
138
Pirelli Annual Report 2018 139
Report on Responsible Management of the Value Chain 140
Pirelli Annual Report 2018** Values expressed as % of the impacts in the stages of the life cycle* 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).DRIVERSSuppliers PirelliSuppliers Customers Waste Recovery PlayersRaw materials production and transport: the impact is due to resources use by suppliers’ plants.Tyre manufacturing: at Pirelli’s plants the impact comes mainly from electricity and natural gas consumption Tyre manufacturing: at Pirelli factories the impact mainly derives from the consumption of electricity and natural gas.Production and use of fuel by trucks and ships of logistics suppliers, delivering Pirelli tires worldwide Consumption and related production of fuel used by trucks and ships of logistics providers, which deliver Pirelli tyres worldwide.Consumption and related production of the fuel used by customers’ vehicles in the portion allocated to rolling resistance Production and consumption of the fuel of customers’ vehicles due to rolling resistance.Tyre management at end-of-life: old tyres are prepared by specialized companies to be reused both as energy and as regenerated raw material End of Life tyre management: old tyres are prepared by specialized companies to be reused as energy or as regenerated raw material.MATERIALITYEconomicHighEnvironmentalMediumEconomicHighEnvironmentalMediumEconomicMediumEnvironmentalLowEconomicHighEnvironmentalHighEconomicLowEnvironmentalLowPED: GWP:WD: EP:Primary Energy DemandGlobal Warming PotentialWater DepletionEutrophication Potential (Freshwater - Peq)RAW MATERIALSMANUFACTURINGDISTRIBUTIONUSEEND-OF-LIFESTAGES OF LIFECYCLEScope 3Scope 3Scope 1+2+3Scope 3Scope 3IMPACT: CARBON & WATER FOOTPRINT**GWP6.0%26.1%EP43.5%WD9.9%PED2.8%GWP1.1%EP11.9%WD3.5%PED0.2%GWP<0.1%EP<0.1%WD0.2%PED91.0%GWP72.8%EP44.6%WD86.4%PED<0.1%GWP<0.1%EP<0.1%WD<0.1%PEDRESPONSESTRATEGYPRESENCE ON THE MAIN INTERNATIONAL WORKING TABLES(WBCSD, ETRMA) to spread the culture of recoveryREGENERATED RAW MATERIALSResearch projects in order to improve the quality of regenerated materials, with the aim of increasing their percentage portion of the new compoundsGREEN SOURCING POLICYGreen Logistic ProcedureEngagement to reduce Supply chain Carbon & Water Footprint RAW MATERIAL INNOVATIONProgressive introduction of new materials from renewable sourcesBiomaterials, such as high performance silica from renewable sources, biofillers such as lignin and plasticisers/resins of plant originNatural rubber: search for sustainable alternative sourcesFunctionalised Polymers: research on innovative polymers that guarantee reduced environmental impact, improved driving safety and improved production efficiencyPRODUCT INNOVATIONTargets 2020 vs 2009:Rolling Resistance CAR -20%(-14% High Value Products*)Rolling Resistance MOTORCYCLE -10% GREEN PERFORMANCE REVENUESPROCESS EFFICIENCYTargets 2020 vs 2009:ISO 14001 AT ALL PRODUCTION PLANTSSpecific water withdrawal -66% Specific energy consumption -19%Specific emissions of CO2 -17% Waste recovery >95% GREEN PURCHASING GUIDELINES/GREEN SOURCING POLICYTHIRD PARTY AUDITS ON CRITICAL SUPPLIERSSCRAP REDUCTION PROGRAMMECYBER TECHNOLOGIES DEVELOPMENTOE 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.(2020 target: 90% response rate suppliers of Raw Materials)CDP SUPPLY CHAINCar Products >50% of total revenues by 2020 (>65% High Value Products*) 141
Report on Responsible Management of the Value Chain** Values expressed as % of the impacts in the stages of the life cycle* 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).DRIVERSSuppliers PirelliSuppliers Customers Waste Recovery PlayersRaw materials production and transport: the impact is due to resources use by suppliers’ plants.Tyre manufacturing: at Pirelli’s plants the impact comes mainly from electricity and natural gas consumption Tyre manufacturing: at Pirelli factories the impact mainly derives from the consumption of electricity and natural gas.Production and use of fuel by trucks and ships of logistics suppliers, delivering Pirelli tires worldwide Consumption and related production of fuel used by trucks and ships of logistics providers, which deliver Pirelli tyres worldwide.Consumption and related production of the fuel used by customers’ vehicles in the portion allocated to rolling resistance Production and consumption of the fuel of customers’ vehicles due to rolling resistance.Tyre management at end-of-life: old tyres are prepared by specialized companies to be reused both as energy and as regenerated raw material End of Life tyre management: old tyres are prepared by specialized companies to be reused as energy or as regenerated raw material.MATERIALITYEconomicHighEnvironmentalMediumEconomicHighEnvironmentalMediumEconomicMediumEnvironmentalLowEconomicHighEnvironmentalHighEconomicLowEnvironmentalLowPED: GWP:WD: EP:Primary Energy DemandGlobal Warming PotentialWater DepletionEutrophication Potential (Freshwater - Peq)RAW MATERIALSMANUFACTURINGDISTRIBUTIONUSEEND-OF-LIFESTAGES OF LIFECYCLEScope 3Scope 3Scope 1+2+3Scope 3Scope 3IMPACT: CARBON & WATER FOOTPRINT**GWP6.0%26.1%EP43.5%WD9.9%PED2.8%GWP1.1%EP11.9%WD3.5%PED0.2%GWP<0.1%EP<0.1%WD0.2%PED91.0%GWP72.8%EP44.6%WD86.4%PED<0.1%GWP<0.1%EP<0.1%WD<0.1%PEDRESPONSESTRATEGYPRESENCE ON THE MAIN INTERNATIONAL WORKING TABLES(WBCSD, ETRMA) to spread the culture of recoveryREGENERATED RAW MATERIALSResearch projects in order to improve the quality of regenerated materials, with the aim of increasing their percentage portion of the new compoundsGREEN SOURCING POLICYGreen Logistic ProcedureEngagement to reduce Supply chain Carbon & Water Footprint RAW MATERIAL INNOVATIONProgressive introduction of new materials from renewable sourcesBiomaterials, such as high performance silica from renewable sources, biofillers such as lignin and plasticisers/resins of plant originNatural rubber: search for sustainable alternative sourcesFunctionalised Polymers: research on innovative polymers that guarantee reduced environmental impact, improved driving safety and improved production efficiencyPRODUCT INNOVATIONTargets 2020 vs 2009:Rolling Resistance CAR -20%(-14% High Value Products*)Rolling Resistance MOTORCYCLE -10% GREEN PERFORMANCE REVENUESPROCESS EFFICIENCYTargets 2020 vs 2009:ISO 14001 AT ALL PRODUCTION PLANTSSpecific water withdrawal -66% Specific energy consumption -19%Specific emissions of CO2 -17% Waste recovery >95% GREEN PURCHASING GUIDELINES/GREEN SOURCING POLICYTHIRD PARTY AUDITS ON CRITICAL SUPPLIERSSCRAP REDUCTION PROGRAMMECYBER TECHNOLOGIES DEVELOPMENTOE 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.(2020 target: 90% response rate suppliers of Raw Materials)CDP SUPPLY CHAINCar Products >50% of total revenues by 2020 (>65% High Value Products*) RESEARCH AND DEVELOPMENT OF RAW MATERIALS
The Research and Development of innovative materials is
essential in order to design and manufacture increasingly
sustainable tyres that guarantee lower environmental
impacts throughout their life cycle while ensuring greater
driving safety.
The Pirelli Sustainability Plan
includes, for specific
product segments, the doubling in weight of the renewable
materials used and a 30% reduction in fossil-derived raw
materials by 2025 compared to 2017 values.
In this context, Pirelli’s Research & Development focuses,
for example, on:
→ high-dispersion silica for wet grip, rolling resistance
and durability;
→ biomaterials, such as silica from renewable sources,
biofillers such as lignin and plasticisers/resins of plant
origin;
→ textile reinforcements with fibres from renewable
sources;
→ nanofillers for more stable compounds,
structures and highly impermeable liners;
lighter
→ new silica surfactants to guarantee performance
stability and processability.
Pirelli has activated several Joint Development
Agreements with leading suppliers for the study of
new polymers that are able to further improve the
characteristics of tyres for rolling resistance,
low
temperature performance, mileage and road grip.
The Joint Labs agreement (2017-2020) between Pirelli
and the Politecnico of Milan, aimed at research and
training in the tyre industry, covers nanotechnology, the
development of new synthetic polymers, new bifunctional
chemicals and new biopolymers.
In the field of biomaterials, in addition to the introduction
of resins and plasticisers from natural origin, Pirelli has
focused on silica deriving from the rice husk, namely the
outer shell of rice grain. The husk is by weight 20% of
the raw rice grain and it is the main waste of this crop,
because, in many areas of the world, it is not used but
burned in the open air. Thanks to a partnership with
various producers, Pirelli is evaluating the diversified
supply of high performance silica from processes that
start precisely from rice husks used as feedstocks.
The combustion of the carbon part of the husk also
allows a reduction of more than 90% of the amount of
CO2 emitted per kilogram of silica, compared to the
conventional process that instead exploits fossil energy
sources.
Specific projects for the development of new materials
from renewable sources, mainly focused on the use of
waste feedstocks (for example new oils from waste
biomass), are the subject of the framework agreement
between Pirelli, CORIMAV (Consortium for Materials
Research Advanced) and Bicocca University.
In the context of the new nano-fillers, Pirelli has started
to introduce in production process materials of mineral
origin in a partial substitution of precipitated silica
and carbon black. The innovations mentioned provide
a water saving and more than 75% of CO2 emissions
reduction compared to the production processes of raw
materials replaced.
Research continues aimed at diversifying the potential
supply sources of natural rubber, to reduce pressure on
biodiversity in producer Countries and allow the Company
to manage the potential scarcity of raw materials with
greater flexibility.
Further information on Pirelli’s Research & Development
activities can be found in the “Directors’ Report on
Operations” of this Annual Report.
ENVIRONMENTAL IMPACT OF PIRELLI’S
PRODUCTION SYSTEM
ENVIRONMENTAL MANAGEMENT SYSTEM
AND FACTORY’S PERFORMANCE MONITORING
All the production facilities of Pirelli and the tyre testing
field in Vizzola Ticino have Environmental Management
Systems certified under International Standard ISO
14001. The
ISO 14001 was
adopted by Pirelli as a reference in 1997 and, since 2014,
all the certificates have been issued with international
accreditation ANAB (ANSI-ASQ National Accreditation
Board: accrediting entity of the United States).
International Standard
In 2018, the Pirelli production sites completed the
transition path of their Environmental Management
System from ISO 14001:2004 to the 2015 version.
The certification of the environmental management
system according to the ISO 14001 Standard is part of
Pirelli’s Environmental Policy and, as such, is extended
to new settlements that become part of the Group.
The certification activity, together with control and
maintenance of previously implemented and certified
systems, is coordinated on a centralised basis by the
Health, Safety and Environment Department.
The environmental, health and safety performance
of every tyre manufacturing site is monitored with
the web-based Health, Safety and Environment Data
Management (HSE-DM) system, which is processed and
managed centrally by the Health, Safety and Environment
Department. Pirelli has also developed the CSR-DM
(Corporate Social Responsibility Data Management),
142
Pirelli Annual Report 2018 an IT system for managing Group Sustainability information,
which is used to consolidate the environmental and social
performance of all Group subsidiaries worldwide. Both
systems support consolidation of
the environmental
performance accounted for in this report.
SCOPE OF REPORTING
The performances reported in the following paragraphs
concern the three-year period 2016-2017-2018 and cover
the same scope of the Group’s consolidation, including
the impacts of all the units under operational control: from
industrial realities to commercial and administrative sites.
Following the change in the industrial scope that took place
on 1 January 2018, which saw the entry of the Brazilian
production site of Gravataì into the Group, the historical
values of the environmental indicators reported below for
the years 2016 and 2017 have been recalculated in order to
ensure clear comparability with 2018 data.
The amount of finished product used in the calculation of the
specific indices indicated below, in 2018 was approximately
793,000 tonnes.
TREND IN ENVIRONMENTAL PERFORMANCE INDICES
In terms of materiality of environmental impacts (Carbon
and Water Footprint) of the tyre along the entire life cycle,
the production phase accounts for 2.8% of total greenhouse
gas emission impacts and for 11.9% of total water-related
impacts.
The year 2018 saw a decrease in tonnes of finished products
of around -2% compared to the previous year (value
calculated on a like-for-like basis).
The 2018 environmental performance indicators, calculated
on the tonnes of finished product, show a specific index
of energy consumption in line with the previous year, and
a general improvement of all the other specific indices
reported: waste recovery, water withdrawal and greenhouse
gases emission. The positive result of all the indicators is
recorded for the indices referring to the operating income
(compared to the Adjusted EBIT value).
It should be noted that the trend of the above indices is
significantly impacted by the production focus adopted.
Pirelli production is focused on Premium and Prestige tyres
and its production processes are characterised by higher
energy
intensity, more stringent quality specifications,
more complex processing and smaller production batches
compared to the production processes of medium-low end
tyres. In the context of the Premium and Prestige production
cited, the environmental efficiency effort is complex and
relevant, and the associated reduction in the indices is
characterised by a strong environmental and economic value,
in terms of consumption and avoided emissions, resources
saved and avoided costs.
ENERGY MANAGEMENT
Pirelli monitors, manages and reports its energy consumption
through three main indicators:
→ absolute consumption, measured in GJ, which includes
the total consumption of electrical energy, thermal energy,
natural gas and petroleum derivatives (fuel oil, gasoline,
diesel, and LPG);
→ specific consumption, as measured in GJ per tonne of
finished product;
→ specific consumption, as measured in GJ per euro of
Operating Income.
The Sustainability Plan provides for a reduction of -19% of
specific energy consumption by 2020 compared to 2009
values.
In the course of 2018, the energy efficiency plan continued
at all Group plants, already initiated in recent years and
characterised by actions aimed at:
→ improving energy management systems,
through
measurement consumption, smart grid and a daily focus
on technical indicators;
→ optimizing the procurement of energy resources, direct or
indirect;
→ improving the quality of energy transformation;
→ improving the efficiency of distribution plants;
→ improving the efficiency of production plants;
→ recovering energy for secondary uses;
→ applying targeted maintenance plans in order to reduce
energy waste.
With regard to Life Cycle Assessment, the specific
is also mapped, whether
consumption of each plants
dedicated to production or dedicated to the generation of
energy carriers in order to: increase the standard reference
indicators, compare similar families of machinery, evaluate
in detail the energy content of the plants’ different families
of products and sub-products and implement actions to
improve their energy performance.
In terms of compliance, every industrial facility completely
fulfils the indications of law regarding energy consumption
and management. The legislative situation affecting the
Company
introduction of periodic audit
mechanisms on energy management and use, as well as
possible tariff incentives. In this regard, there were no critical
elements or non-conformities.
includes the
The Energy Management System, certified according to the
ISO 50001 standard has been adopted at the Breuberg plant
(Germany). The adoption of the same certification on other
Group sites is being evaluated.
143
Report on Responsible Management of the Value Chain Actions and investments for energy efficiency are alongside the assessment of environmental impacts to
economic sustainability criteria normally applied to all Pirelli projects. The areas for technical action both
concern the traditional themes applied to each industrial area - such as modernisation of thermal insulation,
maintenance of distribution plants, use of technologies using inverters - and special projects assessed
according to the needs of each manufacturing site.
During the course of 2018 the installation of LED (Light Emitting Diode) lighting systems continued at
production sites to replace less efficient systems. To speed up the replacement plan, Pirelli also uses “Light
Service” contracts, which guarantee both energy savings of more than 50% and the quality of light achieved.
Great attention was paid to the efficiency in the transformation of thermal energy and the recovery of thermal
waste for heating of premises. Excellent results were recorded for the reduction of compressed air and steam
losses both on machinery and on the distribution lines, also following the energy audit activities already started
and progressively extended to all the Group factories. In addition, the electrical absorption measurements
performed on individual equipment have made it possible to correlate the specific consumption to the
production in greater detail, in order to optimise the operating conditions.
As regards the digitalisation of energy management, the production plants have been and will be equipped with
smart systems (Green Button), which modulating the energy consumption based on the state of operation of
the machinery, provide to disable the auxiliaries up to a stand-by regime with a minimum energy consumption
at the minimum, but able to guarantee an immediate restart.
For systems dedicated to the generation of energy carriers, following connection under Smart Grid systems,
which allow monitoring and management in automatic and in real time, a more rapid modulation of loads with
excellent results in terms of efficiency has become feasible.
Energy efficiency in 2018 was slowed by several factors: the slowdown of the LATAM market; the deviation for
some plants between the planned volumes and the final result, and the installation of energy-intensive systems
dedicated to the abatement of Volatile Organic Compounds (VOCs).
These exogenous factors are joined by the acceleration of the production mix towards Premium and Prestige
products, characterised by very high technological and performance content, and therefore more complex
processes and smaller production batches compared to medium-low-range tyre production processes. It
follows that such tyres, during production, require a higher specific energy consumption than that of a standard
tyre.
Management with a view to maximize the industrial efficiency, despite the penalising factors previously
described, allowed a very slight increase in consumption in the industrial sector, of approximately 98,793 GJ.
This value was calculated for each factory on the basis of the production volumes of the reporting year and the
change in efficiencies achieved in 2018 from the previous year.
The Group’s 2018 specific energy index therefore remained substantially unchanged (+0.6%) compared to
2017, while it recorded a reduction of -16% compared to 2009, the year on which the plan target is based, which
aims at a reduction of -19% by 2020.
The absolute and specific consumption data reported in the following table were calculated by using direct
measurements and were subsequently converted into GJ by using heating values from official IPCC sources.
Absolute consumption
Specific consumption
2016
2017
2018
GJ
10,832,465
10,860,266
10,688,588
GJ/tonFP
GJ/k€
13.91
12.83
13.40
12.39
13.48
11.19
144
Pirelli Annual Report 2018 The same 2018 data, weighted in economic terms, show an improvement compared to the previous year.
12,000,000
11,000,000
10,000,000
9,000,000
8,000,000
7,000,000
14.20
14.00
13.80
13.60
13.40
13.20
15.00
14.00
13.00
12.00
11.00
10.00
2016
2017
2018
2016
2017
2018
2016
2017
2018
Absolute consumption GJ
Specific consumption GJ/tonFP
Specific consumption GJ/k€
The graph below highlights the “Distribution of energy sources” used in Pirelli production process: among the
direct sources, all non-renewable, which account for 31% of the total, are natural gas and, to a lesser extent,
other liquid fuels such as oil, LPG and diesel (classified as “other”); the remaining 69% is formed from indirect
sources such as electrical energy and steam purchased.
Of the total electricity used by the Group, more than 41% derives from renewable sources (calculation on the
IEA17 database) while for steam, the share generated by renewable sources corresponds to around 14% of the
total.
DISTRIBUTION OF ENERGY SOURCES
1%
28%
29%
1%
29%
27%
1%
30%
26%
Other
Natural gas
Steam purchased
Electricity
41%
42%
43%
2016
2017
2018
MANAGEMENT OF GREENHOUSE GAS EMISSIONS AND CARBON ACTION PLAN
Pirelli monitors and reports its18 emissions of greenhouse gases through the calculation of CO2-equivalent
(CO2-eq) – unit of measurement used for the emissions reported here below –, which takes into account the
contribution of carbon dioxide, methane (CH4) and nitrous oxide (N2O). To quantify emissions, the energy
consumption of all local units under operational control included in the scope of reporting are collected
annually through the CSR-DM IT system.
Greenhouse gases are generated by the combustion of hydrocarbons at production sites, mainly used to
operate heat generators that power Group plants, and particularly those that produce steam for vulcanisers,
or by the consumption of electrical or thermal energy. The former are defined as “direct emissions”, or Scope 1
emissions, as produced within the Company’s production sites, while the latter compose the so-called “indirect
emissions”, or Scope 2 emissions, as they are generated in the plants that produce the energy and steam
purchased and consumed by Pirelli. The Scope 2 emissions are reported in two separate ways: location-based
and market-based (methodology introduced in 2015 with the guideline “GHG Protocol Scope 2 Guidance”).
17 International Energy Agency.
18 GHG inventory perimeter as indicated in paragraph “Scope of Reporting”.
145
Report on Responsible Management of the Value Chain With regard to “other indirect emissions” attributable to
Pirelli Value Chain activities, or Scope 3 emissions, in
addition to the information reported in this section, please
refer to the paragraph “Our Suppliers”/”CDP Supply
Chain” for further information about the specific activities
of the Pirelli Suppliers. Instead, reference is made to the
Group Footprint infographics for the representation of the
impacts of Scope 3 of the various phases of the life cycle.
Regarding Scope 2 emissions, the national average
coefficients are defined with respect to the last year
available on the above reports. It should be noted that the
tyre production industry is not a carbon-intensive industry;
in fact, it falls within the European Emission Trading
Scheme only with reference to thermal power plants above
20 MW of installed capacity. The Company is not subject
to other specific regulations at the global level.
Performance as measured by energy and greenhouse gas
emissions is calculated on the basis of emission factors
obtained from the following sources:
As in the case of energy, Pirelli monitors and accounts for
its direct CO2 (Scope 1) and indirect (Scope 2) by using
three principal indicators:
→ IPCC: Guidelines for National Greenhouse Gas
Inventories (2006)19;
→ Within Scope 2 location-based:
→ absolute emissions, as measured in tonnes;
→ specific emissions, as measured in tonnes per tonne
of finished product;
→ specific emissions, as measured in tonnes per euro of
→ National emission factors20 taken from IEA: CO2
Operating Income.
Emissions from Fuel Combustion21;
→ Within Scope 2 market-based:
→ Specific emission factors of suppliers where
available;
→ Residual-mix emission factors22 taken from RE-DISS
AIB (EU)23 and Green-e (US)24;
The management, calculation and reporting model of
Pirelli’s greenhouse gas emissions has been defined
according to the ISO 14064 standard and the related data
have been subjected to specific limited audit activity by
an independent third party company according to ISAE
3000.
→ Emission factors used in the context of location-
based if other sources of data are not available;
According to the Guidelines of the GHG Protocol Guide,
the level of inventory uncertainty was evaluated as “Good”.
and are reported according to the models proposed by:
→ GHG Protocol: Corporate Accounting and Reporting
Standard;
→ GHG Protocol Scope 2 Guidance.
The Sustainability Plan envisages a reduction in specific
emissions (on tonnes of finished product) of CO2 equal to
-17% by 2020 compared to 2009 values. At the time, the
target was developed according to the methodology in
force, i.e. Scope 1 and Scope 2 location-based.
19 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).
20 Emission factors expressed in CO2/kWh.
21 2018 Publication with update to the 2016 figure.
22 Emission factors expressed in CO2/kWh.
23 2018 Publication with update to the 2017 figure.
24 2018 Publication with update to the 2016 figure.
146
Pirelli Annual Report 2018 The following tables show the performance of the last three-year period:
900,000
850,000
800,000
750,000
700,000
650,000
1.10
1.07
1.04
1.01
0.98
0.95
1.20
1.10
1.00
0.90
0.80
0.70
2016
2017
2018
2016
2017
2018
2016
2017
2018
Absolute emissions tonCO2
Specific emissions tonCO2/tonFP
Specific emissions tonCO2/k€
In 2018, Pirelli recorded a reduction in specific emissions (weighted on tonnes of finished product) of around
-4% compared to 2017 and more than -13% compared to 2009, the year on which the 2020 target is based.
The portion of indirect emissions generated by the projects implemented in Silao (Mexico), Carlisle and Burton
(UK), Settimo Torinese (Italy), Campinas and Gravataì (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 methodology for Scope 2.
GHG EMISSIONS ACCORDING TO SCOPE
2016
2017
2018
Absolute emissions (Scope 1 and Scope 2 location-based)
Scope 1
Scope 2 (location-based)
Scope 2 (market-based)
ton
ton
ton
ton
Specific emissions (Scope 1 and Scope 2 location-based)
ton/tonFP
ton/k€
829,794
829,035
780,998
183,752
188,777
646,042
640,258
190,037
590,961
718,636
659,501
666,886
1.065
0.98
1.023
0.95
0.985
0.82
The following infographic highlights the weight of direct emissions (Scope 1) and indirect emissions (Scope 2
location-based) of the total absolute emissions of Pirelli.
DISTRIBUTION OF GREENHOUSE GAS EMISSIONS ACCORDING TO SCOPE
24%
Scope 1
76%
Scope 2
147
Report on Responsible Management of the Value Chain The improvement in 2018 performance related to greenhouse gas emissions is associated with the energy
efficiency measures described in the previous paragraph and is closely linked to the “Carbon Action Plan”
developed by Pirelli with the aim of 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
in Brazil for the Campinas and Gravataì plants. Thanks to this initiative, in the year 2018, the savings in
terms of avoided CO2 emissions exceeded 21,000 tonnes (Scope 2);
→ the procurement of electrical energy from renewable sources at the plant in Silao (Mexico). In 2018 the
agreement continued for the dedicated supply of electricity generated from wind sources, which in the year
allowed the replacement of over 15 GWh of energy from fossil fuels, for a saving in terms of CO2 emissions
of over 7,000 tonnes (Scope 2);
→ the procurement of electrical energy from renewable sources at the plants in Burton and Carlisle (UK). In
the year 2018 the share of electricity certified from renewable sources exceeded 44 GWh, for an annual
savings in terms of CO2 emissions of more than 12,000 tonnes (Scope 2).
The table below shows the emissions relating to Pirelli’s carbon footprint (Scope 1, 2 and 3) distributed along
the different phases of the value chain.
GHG EMISSIONS Group Footprint
2016
2017
2018
Raw Materials (Scope 3)
Manufacturing (Scope 1 + 2 + 3)
Distribution (Scope 3)
Customers (Scope 3)
End-of-Life (Scope 3)
Total
103 ton
103 ton
103 ton
103 ton
103 ton
103 ton
2,430.5
1,229.5
88.3
2,674.2
1,261.7
91.9
2,659.6
1,231.1
90.0
39,894.9
41,863.6
40,187.2
2.4
2.6
2.5
43,645.6
45,894.0
44,170.4
In 2018, Pirelli continued in the compensation project of CO2 emissions produced the previous year by its
fleet of company cars, through the purchase of carbon credits. Direct issuance of the Pirelli auto policy, which
introduces an Internal Carbon Price model for the economic quantification of the impacts associated with
car emissions, this initiative aims to promote the choice of vehicles with less impact on the environment and
support environmental protection projects. The cars in the Italian company’s fleet in 2017 emitted 820 tonnes
of CO2. In order to offset this impact on the climate, Pirelli purchased carbon credits through two sustainable
forest management projects: an international one, implemented in Brazil, to finance activities under the REDD+
programme (Reducing emissions from deforestation and forest degradation) developed by the UNFCC and
an Italian agroforestry protection project implemented in collaboration with the Forestry Consortium of Pavia.
The activities financed with Pirelli’s contribution were carried out in 2018. The combination of the two projects
has allowed the reduction of a share of about 130% of the emissions generated by company cars in 2017, thus
going well beyond what is required by the policy in view of increasing environmental responsibility.
WATER MANAGEMENT
Pirelli monitors the Water Footprint along the life cycle of the product (as extensively explained earlier in this
chapter), and in terms of materiality, the production phase of the tyres is the third most influential, after the
phases of use of the product and production of raw materials.
148
Pirelli Annual Report 2018 In the aforementioned environmental strategy of Pirelli, the efficient and responsible use of water in production
processes and at workplaces is addressed comprehensively, with actions to improve water efficiency in
production processes, from design of the machinery to Facility Management activities. Particular attention is
paid to the local context of the use of this precious resource, with the use of specific analysis tools (such as
the Global Water Tool of the World Business Council for Sustainable Development) and dedicated action plans.
The Sustainability Plan provides for a reduction target of specific withdrawal of water of -66% by 2020
compared to the 2009 value.
The 2018 recorded an absolute withdrawal equal to about 7.38 million cubic metres, with a reduction of specific
withdrawal of around -10% compared to 2017, which allowed to reach in advance the 2020 target of -66%
compared to 2009.
Thanks to the actions implemented, since 2009 Pirelli has saved about 80 million cubic metres of water: an
amount almost equivalent to the absolute withdrawal of about ten years of the entire Group.
To provide an overall view of the performance in terms of water withdrawal year on year, the following tables
report the indicators:
→ absolute withdrawal, measured in cubic metres, which indicates the total withdrawal of water by the Group;
→ specific withdrawal, measured in cubic metres per tonne of finished product, which indicates the withdrawal
of water used to make one tonne of finished product;
→ specific withdrawal, as measured in cubic metres per euro of Operating Income.
Absolute Withdrawal
Specific Withdrawal
10,000,000
9,000,000
8,000,000
7,000,000
6,000,000
5,000,000
2016
2017
2018
m3
9,336,281
8,370,936
7,382,453
m3/tonFP
m3/k€
12.0
11.1
10.3
9.6
9.3
7.7
13.0
12.0
11.0
10.0
9.0
8.0
12.0
11.0
10.0
9.0
8.0
7.0
2016
2017
2018
2016
2017
2018
2016
2017
2018
Absolute withdrawal m3
Specific withdrawal m3/tonFP
Specific withdrawal m3/k€
All the figures reported in this paragraph have been collected by taking direct or indirect measurements, and
are communicated by the local units. The following two graphs show the distribution of absolute withdrawals
by type of use and the weight of water supply by type of source.
149
Report on Responsible Management of the Value Chain DISTRIBUTION OF WITHDRAWALS BY USE
TYPE OF WATER SOURCES (m3)
Tyre production sites
91%
Public water supply system and other sources
26%
Other sites (warehouses, logistics, etc.)
6%
Offices
3%
Type of Water Sources (m3)
Public water supply system and other sources
Surface water
Internal wells
Total
Surface water
13%
Inside wells
61%
1,900,000
946,000
4,536,000
7,382,000
61% 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 1,800 cubic metres. Lastly, about 196,000 cubic metres of water used, equivalent to
approximately 3% of total withdrawal, are obtained from the waste water treatment of its production processes.
A total of about 5.7 million cubic metres of domestic and industrial waste water were discharged, with 60%
of this into surface water bodies, but always in quantities that are marginal in relation to the volume of the
receiving bodies (always less than 5%) and without significantly impacting biodiversity. The remaining amount
was discharged into sewer networks. Before being discharged into the final recipient, industrial waste water
– adequately treated as necessary – is periodically subjected to analytical tests that certify substantial
compliance with locally applicable statutory limits. In particular, as regards the quality of industrial effluents
of the production facilities, indicative average values are: 12 mg/l of BOD5 (Biochemical Oxygen Demand),
38 mg/l of COD (Chemical Oxygen Demand) and 14 mg/l of Total Suspended Solids.
WASTE MANAGEMENT
The improvement of environmental performance connected with 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.
In 2018, 96% of waste sent for recovery was achieved, with an increase of three percentage points compared
to the previous year and with an increase of 27% compared to 2009, base year of reference. This result made it
possible to reach in advance the target set in the Sustainability Plan which envisages by 2020 that more than
95% of the waste produced will be sent for recovery, with the Zero Waste to Landfill vision.
150
Pirelli Annual Report 2018 Specific waste production saw a stabilisation of the figure in 2018, which stood at 151 kg per tonne of finished
product. Hazardous waste represents 10% of total production and is sent in its entirety to plants located in the
same Country where it is produced.
WASTE BY TYPE OF TREATMENT
TYPE OF WASTE - 2018
8%
7%
4%
92%
93%
96%
Non-hazardous waste sent for recovery
88%
Non-hazardous waste sent for disposal
2%
Hazardous waste sent for recovery
8%
Hazardous waste sent for disposal
2%
2016
2017
2018
Disposal or incineration without energy recovery
Recovery (including: material recovery, energy recovery, recycling and reuse)
The graphs below detail waste production through three main indicators:
→ absolute production, as measured in tonnes;
→ specific production, as measured in kilograms per tonne of finished product;
→ specific production, as measured in kilograms per euro of Operating Income.
Absolute production
Specific production
130.000
120.000
110.000
100.000
90.000
80.000
2016
2017
2018
ton
103,600
111,800
120,100
kg/tonFP
kg/k€
133
123
138
128
151
126
155
150
145
140
135
130
140
135
130
125
120
115
2016
2017
2018
2016
2017
2018
2016
2017
2018
Absolute production ton
Specific production kg/tonFP
Specific production kg/k€
151
Report on Responsible Management of the Value Chain OTHER ENVIRONMENTAL ASPECTS
SOLVENTS Solvents are used as ingredients in processing, mainly to reactivate vulcanised rubber, during the
fabrication and finishing of tyres. Pirelli is committed to the progressive reduction of these substances, both
by optimising their use, and by spreading solvent-free technologies for operations that may be performed even
without their use. This resulted in a further reduction in the specific consumption of solvents of more than
-24% at the end of 2018 compared to the previous year and of -68% compared to 2009, with emissions of
related VOCs slightly lower than total consumption.
Absolute consumption
Specific consumption
tonSOLV
kgSOLV/tonFP
1,181
1.5
1,125
1.4
841
1.1
2016
2017
2018
1,200
1,100
1,000
900
800
700
1.80
1.60
1.40
1.20
1.00
0.80
2016
2017
2018
2016
2017
2018
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 site
located within a protected area of high biological diversity is the site of Vizzola Ticino (Italy). The site hosts
the tyre test track, has an area of 0.37 square kilometres and is part of the Lombard area of the Parco del
Ticino, MAB area25 of UNESCO, characterised by the presence of 23 species included in the IUCN Red List
(International Union for the Conservation of Nature) 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 also carried out, which highlighted the substantial negligence of the
impacts of the activity compared to the context in which the test field is inserted.
NOX EMISSIONS NOx emissions derive directly from the energy-generating processes used. In 2018, the index
based on the tonnes of finished product increased by 5% compared to the 2017 figure, mainly due to a slight
change of the mix of the energy consumed as described above. The emissions were calculated by applying the
emission factors indicated by the EEA (European Environment Agency) to the energy consumption data.
Absolute emissions
Specific emissions
2016
2017
2018
tonNOX
kgNOX/tonFP
967
1.24
917
1.13
943
1.19
25 Man and Biosphere is a group of 686 biosphere reserves in 122 countries in the world
protected by UNESCO with the aim of promoting socio-economic development and conservation
of ecosystems and biological diversity.
152
Pirelli Annual Report 2018
980
960
940
920
900
880
1.30
1.25
1.20
1.15
1.10
1.05
2016
2017
2018
2016
2017
2018
Absolute emissions tonNOx
Specific emissions kgNOx/tonFP
The following graph shows the 2018 weight of direct and indirect NOX emissions out of total NOX emissions.
DISTRIBUTION OF NOX EMISSIONS
27%
Direct
73%
Indirect
OTHER EMISSIONS AND ENVIRONMENTAL ASPECTS The production process does not directly use
substances that are harmful to the ozone layer. These are instead contained in certain closed circuits of the
cooling and air conditioning plants. Therefore, except for accidental and unforeseeable losses, there are no free
emissions into the atmosphere that can be correlated with Pirelli manufacturing activities.
In 2018, direct emissions of SOX, caused by the combustion of diesel and fuel oil, were estimated to be about 11
tonnes (EEA - European Environment Agency emissions standards).
The environmental management systems implemented at the production units have assured constant and
prompt monitoring and intervention regarding potential emergency situations that may arise, as well as the
reports received from Stakeholders. During 2018, a spill of about 1 cubic meter of hydrocarbons took place
at the Campinas site (Brazil). This spill was promptly resolved in consultation with the competent authority.
Furthermore, no complaints or significant sanctions related to environmental issues were recorded.
EXPENSES AND INVESTMENTS
In the three-year period 2016-2018, environmental expenditure related to the production process exceeded
Euro 47 million, of which about 50% was allocated in 2018. About 76% of this amount concerned normal
management and administration of factories, while the remaining 24% was dedicated to preventive measures
and improvement in environmental management.
Lastly, it should be noted that, consistent with the materiality analysis at the beginning of this section of the
Report, the most significant expenses that Pirelli dedicates to the environment are those relating to Product
Research & Development: in 2018, the Company invested Euro 219 million in research and innovation
of its products, with a constant focus on safety performance and reduction of environmental impacts and,
simultaneously, production efficiency.
153
Report on Responsible Management of the Value Chain In the operations area, for the assessment of some new
investments, the potential impacts associated with GHG
emissions are highlighted, evaluating internally a carbon price.
PRODUCT AND USE PHASE:
GREEN PERFORMANCE TARGETS
In line with its position in the Premium and Prestige
segments, Pirelli develops and introduces increasingly
sophisticated products on the market, responding to a
macroeconomic scenario in constant and rapid evolution.
The significant corporate investment in research and
development on materials, compounds, structures and
tread patterns allows Pirelli products to achieve extremely
high performance in terms of braking in dry and wet
conditions and, at the same time, improved environmental
performance such as:
→ less rolling resistance – lower CO2 emissions;
→ less noise – reduced noise pollution;
→ increased mileage – lengthening of tyre life and
reduced exploitation of resources;
→ reduced weight – reduction in use of raw materials and
lower impact on natural resources.
The targets to improve the environmental performances
its products are objective,
adopted by Pirelli for
measurable and they consider the level of materiality
of the impacts along the life cycle of the product with a
perspective of the maximum effectiveness of the action.
In particular, it was seen that the rolling resistance
related to the use phase of the tyre constitutes the
factor with most impact by far 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 2018, the weighted average rolling resistance
of CAR products decreased by 16.4% compared to the
average for 2009.
154
Pirelli Annual Report 2018 CAR
155
Report on Responsible Management of the Value Chain200920182020GREEN AREASAFETY AREAWeight ReductionMileageNoise ReductionRolling Resistance ReductionDry GripWet Grip MOTORCYCLE
GREEN AREA
Rolling Resistance Reduction
SAFETY AREA
Weight Reduction
Wet Performance
Mileage
Braking
2009
2018
2020
Predictability
Green Performance26 products include the CINTURATO™ P7™ Blue, with which 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 resistance while always maintaining A class for wet grip. On average, the CINTURATO™ P7™
Blue guarantees 23% less rolling resistance than the Pirelli reference (rolling resistance class C), combined
with lower fuel consumption and a reduction in the atmospheric emissions associated with it. A vehicle with
CINTURATO™ P7™ Blue tyres that runs 15,000 km a year consumes 5.1% less fuel (equivalent to 52 litres),
and reduces greenhouse gas emissions by 123.5 kilograms of CO2 and has a braking distance on wet 9% lower
than the Pirelli benchmark (class B of wet grip) in the same segment. Comparative TÜV SÜD tests showed that,
at a speed of 80 km/h on a wet surface, the CINTURATO™ P7™ Blue reduces braking by 2.6 metres compared
to a tyre classified B. The CINTURATO™ P7™ Blue was developed for medium-high cylinder cars, as a further
evolution of the CINTURATO™ P7™, the renowned Pirelli Green Performance tyre released in 2009.
26 Green Performance products identify the tyres that Pirelli produces throughout the world and
that fall under rolling resistance and wet skid resistance classes A, B, C according to the labelling
parameters set by European regulations.
156
Pirelli Annual Report 2018 In 2017 Pirelli presented a new generation of the
CINTURATO™ P7™ Blue characterised by a rolling
resistance even lower than the previous one. As a result of
this evolution, the CINTURATO™ P7™ Blue is the tyre with
the world’s largest number of sizes which boast double A
labelling in Europe. At the origin of this improvement is the
“Low Rolling Technology Package”: a solution that combines
new construction processes,
innovative materials and
product design in order to achieve lower rolling resistance
without compromising wet grip performance.
The attention to the environmental impact demonstrated
in the development of the “Low Rolling Technology
Package”, allowed Pirelli to receive from the Italian
Industrial Research Association (AIRI) the “Oscar Masi”
award for industrial innovation 2018, in the field of
“Enabling technologies and innovative solutions for the
sustainable city”.
Also in the field of high performance cars, attention to the
environment has become a discriminating element with the
challenge of reducing rolling resistance while maintaining
performance at the level expected for this segment. For
example, the new all-electric Aston Martin model, Rapid
E, will be equipped with Pirelli P ZERO™ tyres specifically
developed to ensure low rolling resistance, essential
to offer the maximum possible autonomy with only one
recharge, and at the same time maximum performance in
terms of torque management supplied by electric motors,
in addition to high precision on the wet. The tyres on the
Aston Martin Rapid E will also be equipped with the Pirelli
Noise Cancelling System technology, a solution able to
reduce the noise transmitted to the car and, therefore, to
offer the driver superior comfort compared to the case of
using traditional tyres.
As regards motorcycle tyres, we note the introduction on
the market of the METZELER KAROO™ STREET line for
the Enduro on/off segment, characterised by performance
versatility able to combine off-road performance with on-
road characteristics. The new product presents unique
performance especially in the area of grip and traction
in the wet, which traditionally is more delicate for tyres
developed for different surfaces. The
internal tests
showed an improvement of around 5% in the wet braking
area compared to the best competitor in the segment, in
addition to a clearly improved subjective performance in
terms of safety and controllability.
As far as bicycle tyres are concerned, in 2018 Pirelli
expanded its product lines, adding the CINTURATO™ Velo
and the Cycl-e™ range to the P ZERO™ Velo.
CINTURATO™ Velo is a reinforced clincher tyre, which
can be used with and without inner tube, offering extreme
reliability in all road conditions, even the most adverse. It
is a product intended for very wide use: from road racing,
to training, to cross-cycling, to short journeys.
A few weeks after the launch of CINTURATO™ Velo, Pirelli
presented at the Eurobike 2018 the most prestigious
European bicycle fair in the world, the Cycl-e™ range
dedicated to traditional electric bicycles, in urban areas,
trekking and tourism.
The range of Pirelli tyres for electric bicycles, after the first
Cycl-e™ tyre (specified by the Swiss brand Stromer for its
innovative ST-5), has been enriched with 5 new models
that, thanks to the synergy between the compound, the
tread and tyre structure, offer safety and driving pleasure
in any commuting or cycle touring situation. The tyres of
the Cycl-e™ line have been developed and manufactured
using a mixture that contains the powder recovered from
end-of-life tyres. Particular attention was then paid to
maximising the use of natural rubber compounds, raw
material from renewable sources.
Pirelli highest technology products do not stop at the tyres.
Pirelli continues to develop CYBER™ technologies which,
based on the introduction of sensors inside the tyre, will
contribute in the future to making information available
to
increase the safety or performance of vehicles,
including status monitoring, as the occasion arises, of
the state of health of the tyre which, if maintained at the
correct inflation pressure, can positively influence fuel
consumption and vehicle emissions.
technologies are divided
CYBER™
into products
dedicated to original equipment (CYBER CAR™ and
CYBER TYRE™) as well as platforms developed for fleet
management (CYBER FLEET™).
In 2018, at the Geneva Motor Show, Pirelli presented
CYBER CAR™, the new system for original equipment
that, thanks to a sensor, makes the tyre and the car
interact. The new technology, already being tested with
the major car manufacturers, will be on the market for
electric and traditional vehicles. CYBER CAR™ detects
the operating parameters of the tyre and transmits them
to the on-board intelligence that can thus adapt the ABS
and stability control for safer and more efficient driving.
The Perfect Fit Pirelli strategy, which aims to offer each
customer tailor-made products and services, is thus
enhanced with a new solution.
Pirelli has also completely renewed CYBER FLEET™,
the system for monitoring and managing tyres in fleets,
presenting in 2018, at the 67th edition of IAA Commercial
Vehicles in Hannover, the new generation of solutions for
fleets: CYBER FLEET™ Smart and CYBER FLEET™ Gate,
both designed to optimise running costs, increase the
safety and efficiency of road transport, reduce vehicle
downtimes and CO2 emissions. These new solutions
come completely renovated compared to the product for
the truck world that debuted in 2012. CYBER FLEET™
Smart and CYBER FLEET™ Gate, in fact, are based on
Bluetooth communication technology, which has allowed
157
Report on Responsible Management of the Value Chain the simplification and speeding up of tyre monitoring
activities and does not require any hardware support on
board the vehicle. Both solutions are connected to the
Pirelli cloud, where tyre data are processed to provide
estimates and predictions on fuel consumption, vehicle
efficiency and maintenance operations required.
Among the Open Innovation initiatives, has to be noted the
Joint Labs agreement between Pirelli and the Politecnico
of Milan, established in 2011, aimed at research and
training in the tyre sector, in particular through the
development of innovative materials and technologies for
sustainable and increasingly safe mobility. The new phase
of the three-year agreement (2017-2020) focuses on two
research macro-areas: the innovative materials design
area and the product development area and CYBER™.
Throughout the years of partnership, the agreement has
made it possible to achieve important results in terms of tyre
performance, the relative level of safety and sustainability,
thanks to the use of advanced materials. Research has
focused mainly: on the production and functionalisation
of carbonaceous fillers (from graphene, to nanotubes
to carbon black); on the preparation of modified silicate
fibres; on the study of alternative natural rubber sources up
to the synthesis of innovative polymers and self-repairing
materials. Attention has also been paid to the regulatory
area of the mechanics where, since 2011, 12 research
contracts have been activated in the CYBER TYRE™ and
in the F1®, with the study of tyre-asphalt interaction. One
area of particular interest was the study of low-noise tyres
(Silent Tyre project). In fact, innovative test methodologies
have been applied for the indoor measurement of the
acoustic field generated by the rolling tyre.
MANAGEMENT OF END-OF-LIFE TYRES
In terms of materiality, the end-of-life phase of the product
has a low proportion of the total impact of the tyre on the
environment, as already highlighted in the infographic
related to the Group’s Carbon and Water Footprint.
In the world, it is estimated that one billion tyres reach
the end-of-life each year. On a global scale, 67% of end-
of-life tyres (ELTs) are recovered (Source: WBCSD - “TIP -
End-of-Life Tyres”), while in Europe and the United States
the recovery stands at 94% (Source: ETRMA 2016 ELT
Management figures 2016) and 81% (source: USTMA -
2017 US Scrap Tyre Management).
For years, Pirelli has been engaged in the management
of ELTs. The Company actively collaborates with the
main reference entities at national and international level,
promoting the identification and development of solutions
to enhance and promote the sustainable recovery of ELTs,
shared with the various Stakeholders and based on the
Circular Economy model.
In particular, Pirelli is active in the Tyre Industry Project
(TIPG) of the World Business Council for Sustainable
Development (WBCSD), in the ELT working group of
ETRMA (European Tyres and Rubber Manufacturers’
Association) and, at national and local level, it interacts
directly with leading organisations active in the recovery
and recycling of ELTs.
As a member of TIPG, Pirelli Tyre has collaborated on the
publication of guidelines on the management of ELTs,
taking a proactive approach to raising the awareness
both within emerging Countries and those that do not
yet have a system for ELTs recovery, in order to promote
their recovery according to defined management models,
which have already been launched successfully.
The tyre is a mixture of many valuable materials that at end-
of-life allow two paths of recovery: recovery of material or
energy. In the recovery of material, the reclaimed rubber
is already reused by Pirelli in the compounds for new
tyres, thus contributing to the reduction of the related
environmental impact. In order to increase this recovery
rate, research activities continue aimed at improving the
quality of recovered materials in terms of affinity with the
other ingredients present in the compounds.
158
Pirelli Annual Report 2018 Social Dimension
HUMAN RIGHTS GOVERNANCE
Pirelli bases
its activities on compliance with the
universally established Human Rights, as fundamental and
indispensable values of its culture and business strategy,
working to manage and reduce potential risks of violations
and in order to avoid causing – or contributing to causing
– adverse impacts to these rights in the international,
multi-racial, socially and economically diverse context in
which it operates.
The Company promotes respect for Human Rights and
adherence to international standards applicable at its
Partners and Stakeholders and aligns its governance
to the Global Compact of the United Nations, to the
ISO 26000 Guidelines, to the dictates of the SA8000®
Standard and underlying international standards, and the
recommendations contained in the Guiding Principles
Business and Human Rights of the United Nations,
implementing the Protect, Respect and Remedy Framework.
The human rights management processes are handled by the
Pirelli Sustainability & Risk Governance Department, which
acts in concert with the affected and responsible functions,
central and in the various Countries, with reference to both
the Internal and External Community.
The undertaking by Pirelli in favour of human rights is
dealt with extensively in the Group “Global Human Rights”
Policy, which describes the management model adopted
by the Company in respect of core Rights and Values such
as occupational health and safety, non-discrimination,
freedom of association, refusal of forced labour, guarantee
of decent work conditions in economic and sustainable
terms and in terms of working hours, protection of rights
and values of local communities, refusal of any form of
corruption and protection of privacy. Further references
to respect for human rights can also be found in other
company documents: “Values and the Code of Ethics”, the
“Social Responsibility Policy on Occupational Health, Safety
and Rights and Environment”, the “Global Health, Safety
and Environment” Policy, the “Privacy” Policy, the “Equal
Opportunities Statement” and the “Policy on the Sustainable
Management of Natural Rubber”. All the documents were
communicated to employees in the local language and
published on the Pirelli website in multiple languages.
To identify, assess, prevent and mitigate the risks of
violation of Human Rights, the Company:
→ ensures awareness among
its workers through
information and training starting from the course
for new hires (in this regard, reference is made to
the paragraph “Focus: Training on Sustainability and
Corporate Governance”);
159
its suppliers to
→ manages its supply chain responsibly and specifically
includes respect for human rights in the selection
parameters of its suppliers, the contractual clauses
and verifications carried out by third-party audits.
Pirelli also requires
implement
a similar business model on their supply chain,
including adequate due diligence aimed at certifying
that the products and materials provided to Pirelli
are “conflict free” throughout the supply chain. With
specific reference to the natural rubber context, Pirelli
promotes decent working conditions, development
of local communities and prevention of conflicts
related to land ownership (for an in-depth study on
the sustainable management of Natural Rubber, and
other materials, please refer to the paragraph “Our
Suppliers” in this Report);
→ is open to cooperation with government and non-
government, sectoral and academic entities in relation
to the development of global policies and principles
aimed at protecting human rights;
→ before investing in a specific market, conducts ad hoc
assessments of any political, financial, environmental
and social risks, including those related to the respect
of human and labour rights. The internal and external
context is monitored in those Countries where the
Company does operate, in view of preventing negative
impacts on human rights in the ambit of the sphere of
corporate influence, and if so, remedying them;
→ makes available to
its Stakeholders a channel
dedicated to the reporting, even anonymous, of any
situations that constitute or may constitute a risk
of violation of Human Rights (in this regard and with
reference to the reports received in the last three
years, please refer to the paragraph “Focus: reporting
procedure - Whistleblowing Policy” in this Report).
In terms of materiality in the corporate value chain, the
respect for human rights and labour rights assumes
particular importance in human resources and supply
chain management.
In 2017, Pirelli carried out an analysis of the risk of violation
of human rights on its own premises, in the related
supply chain and in the local environment external to
Pirelli, asking the main Stakeholders to fill out a specially
prepared survey. With regard to the perception of internal
risk at the Pirelli offices and in the relative supply chain,
the survey was submitted to the function managers and
to the Sustainability Managers of the Group’s operational
offices, while regarding the perception of risk in the
external context of Pirelli the survey was submitted to
both the aforementioned Pirelli functions and to the
applicable local Non-Governmental Organisations.
The survey asked for an indication of the perceived risk
value on a scale from 0 to 3 (0 = no risk, 1 = low risk, 2 =
medium risk and 3 = high risk) relative to 35 internationally
recognised human rights, deriving from the Universal
Report on Responsible Management of the Value Chain Convention of the Human Rights of the United Nations and the ILO Declaration on the Fundamental Principles
and Rights of Labour.
The consolidation of the feedback received from the Pirelli operations centres, with reference to the internal
risk at the Pirelli offices and in the relative supply chain, did not reveal any significant perceived risks (on
average, a perception of less than 1).
The consolidation of the feedback received from the Non-Governmental Organisations, with reference to the
risk perceived in the local context external to Pirelli, showed, on average, risks between 0.08 and 1.85, with
greater recurrence of the Right to equal pay for the same work, the Right to a decent salary, the Right to a safe
working environment and Freedom from discrimination.
The management of human and labour rights in the Internal Community at Pirelli is outlined in the paragraph on
“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.
INTERNAL COMMUNITY
PIRELLI EMPLOYEES AROUND THE WORLD
The Pirelli workforce as at 31 December 2018 - expressed in Full Time Equivalent and including agency
workers - stood at 31,489 resources (vs. 30,189 in 2017 and 29,787 in 2016), recording a net growth of 1,300
employees compared to the previous year.
BREAKDOWN OF WORKFORCE BY CATEGORY
EXECUTIVES
CADRE
WHITE COLLARS
BLUE COLLARS
TOTAL
2018
2017
2016
288
283
279
1,945
1,856
1,814
4,643
4,630
4,561
24,612
23,420
23,134
31,489
30,189
29,787
These data include agency workers, corresponding to 0.2% of total workforce in 2016 and to 0.1% in 2017 and 2018.
PERCENTAGE OF EMPLOYEES BY CATEGORY, GENDER AND AGE
Executives
Cadre
White collars
Blue collars
Total
2018
<30
30 - 50
>50
M
F
tot
M
F
tot
M
F
tot
M
F
tot
M
F
tot
0%
0%
0%
3%
4%
3%
24%
33%
27%
28%
27%
28%
26%
27%
26%
48%
66%
50%
65%
74%
67%
60%
53%
58%
59%
66%
60%
59%
62%
60%
52%
34%
50%
33%
23%
30%
16%
15%
15%
12%
7%
12%
14%
11%
14%
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Pirelli Annual Report 2018
2017
Executives
Cadre
White collars
Blue collars
Total
M
F
tot
M
F
tot
M
F
tot
M
F
tot
M
F
tot
0%
0%
0%
3%
3%
3%
24%
32%
27%
30%
31%
31%
28%
29%
28%
50%
66%
51%
66%
77%
68%
61%
54%
59%
57%
61%
58%
58%
60%
58%
50%
34%
49%
31%
19%
28%
15%
14%
15%
12%
8%
12%
14%
11%
14%
2016
Executives
Cadre
White collars
Blue collars
Total
M
F
tot
M
F
tot
M
F
tot
M
F
tot
M
F
tot
0%
0%
0%
3%
3%
3%
24%
33%
27%
31%
29%
31%
28%
28%
28%
52%
59%
53%
67%
77%
69%
60%
53%
57%
56%
62%
57%
57%
60%
58%
48%
41%
47%
30%
20%
28%
16%
15%
15%
13%
8%
12%
14%
12%
14%
<30
30 - 50
>50
<30
30 - 50
>50
2017 data cover 99.8% of employees; 2016 data cover 96.5% of employees.
BREAKDOWN OF WORKFORCE BY GEOGRAPHICAL AREA* AND GENDER
2018
2017
2016
Male
Female
Total
Male
Female
Total
Male
Female
Total
EUROPE
13,077
2,432
15,509
12,670
2,338
15,008
12,416
2,341
14,757
NORTH AMERICA
SOUTH AMERICA
MEA
ASIA PACIFIC
2,497
7,577
539
3,247
503
693
56
868
3,000
2,120
499
2,619
1,744
8,270
7,168
595
517
671
44
7,839
6,870
561
529
4,115
3,339
823
4,162
3,913
334
627
52
961
2,078
7,498
581
4,874
TOTAL
26,937
4,552
31,489
25,814
4,375
30,189
25,472
4,315
29,787
BREAKDOWN OF WORKFORCE BY GEOGRAPHICAL AREA* AND CONTRACT
Permanent
Temporary
Agency
Total
2018
EUROPE
NORTH AMERICA
SOUTH AMERICA
MEA
ASIA PACIFIC
TOTAL
14,864
2,987
8,099
583
4,109
30,642
617
0
171
12
6
805
161
29
13
0
0
0
42
15,509
3,000
8,270
595
4,115
31,489
Report on Responsible Management of the Value Chain
EUROPE
NORTH AMERICA
SOUTH AMERICA
MEA
ASIA PACIFIC
TOTAL
EUROPE
NORTH AMERICA
SOUTH AMERICA
MEA
ASIA PACIFIC
TOTAL
Permanent
Temporary
Agency
Total
2017
13,999
2,599
7,469
560
4,138
28,764
990
0
370
1
24
1,384
2016
20
20
1
0
0
41
Permanent
Temporary
Agency
Total
13,577
2,055
7,225
574
4,867
28,298
1,153
0
257
7
7
1,424
27
23
16
0
0
66
15,008
2,619
7,839
561
4,162
30,189
14,757
2,078
7,498
581
4,874
29,787
*: Europe: Austria, Belgium, France, Germany, Greece, Italy, Netherlands, Poland, Czech Rep., United Kingdom, Romania, Russia, Slovakia, Spain, Sweden, Switzerland, Hungary. North America: Canada, Mexico, United States.
South America: Argentina, Brazil, Chile, Colombia. MEA: South Africa, Turkey. Asia Pacific: Australia, China, Japan, Singapore, Taiwan.
EMPLOYEES WITH PART TIME CONTRACT BY GENDER
2018
2017
2016
Male
Female
TOTAL
Male
Female
TOTAL
Male
Female
TOTAL
137
183
320
174
186
360
202
172
374
EMPLOYEE FLOWS BY GEOGRAPHIC AREA, GENDER AND AGE
The following data refer to incoming/outgoing employees. The entry and exit rates are calculated by comparing
the number of entries and exits of each category to the total number of employees belonging to that category
as of 31 December. The disposals and acquisitions of companies or business units, and changes in work
schedules from full-time to part-time are not considered.
162
Pirelli Annual Report 2018 2018 EMPLOYEE FLOWS BY GEOGRAPHICAL AREA*, GENDER AND AGE: ABSOLUTE VALUES AND RATES
INCOMING
OUTGOING
<30
30 - 50
>50
M
F
Total
<30
30 - 50
>50
M
F
Total
1,492
1,052
137
2,271
411
2,682
866
884
449
1,899
301
2,200
44%
12%
4%
17%
17%
17%
25%
10%
13%
15%
12%
14%
1,221
598
29
1,648
200
1,848
969
473
20
1,255
207
1,462
76%
47%
27%
66%
40%
62%
60%
37%
19%
50%
42%
49%
565
1,249
196
1,810
200
2,010
414
900
231
1,360
185
1,545
32%
22%
24%
24%
29%
24%
24%
16%
28%
18%
27%
19%
93
53
2
139
9
148
68
102%
11%
12%
26%
17%
25%
75%
33
7%
8
107
2
109
47%
20%
4%
18%
339
296
8
477
166
643
328
318
6
550
102
652
24%
11%
9%
15%
19%
16%
23%
12%
7%
17%
12%
16%
3,710
3,248
372
6,345
986
7,331
2,645
2,608
714
5,171
797
5,968
45%
17%
9%
24%
22%
23%
32%
14%
16%
19%
18%
19%
EUROPE
NORTH AMERICA
SOUTH AMERICA
MEA
ASIA PACIFIC
TOTAL
2017 EMPLOYEE FLOWS BY GEOGRAPHICAL AREA*, GENDER AND AGE: ABSOLUTE VALUES AND RATES
EUROPE
NORTH AMERICA
SOUTH AMERICA
MEA
ASIA PACIFIC
TOTAL
These data cover 99.8% of employees.
INCOMING
OUTGOING
<30
30 - 50
>50
M
F
Total
<30
30 - 50
>50
M
F
Total
1,196
822
126
1,773
371
2,144
580
822
428
1,433
397
1,830
37%
10%
4%
14%
16%
14%
18%
10%
13%
11%
17%
12%
934
420
17
1,044
327
1,371
555
243
11
655
154
809
63%
41%
20%
49%
14%
52%
37%
23%
13%
31%
31%
31%
702
836
28
1,369
197
1,566
397
680
122
1,053
146
1,199
38%
16%
4%
19%
29%
20%
22%
13%
17%
15%
22%
15%
80
84%
26
6%
0
103
3
106
61
0%
20%
19%
64%
32
7%
3
92
4
96
18%
18%
9%
17%
296
164
5
391
17%
7%
7%
12%
465
497
628
11
931
205
1,136
11%
28%
27%
15%
28%
25%
27%
7%
74
9%
3,208
2,268
176
4,680
972
5,652
2,090
2,405
575
4,164
906
5,070
38%
13%
4%
18%
22%
19%
25%
14%
14%
16%
21%
17%
163
Report on Responsible Management of the Value Chain
2016 EMPLOYEE FLOWS BY GEOGRAPHICAL AREA*, GENDER AND AGE: ABSOLUTE VALUES AND RATES
INCOMING
OUTGOING
<30
30 - 50
>50
M
F
Total
<30
30 - 50
>50
M
F
Total
1,095
688
58
1,543
297
1,840
618
670
346
1,296
337
1,633
36%
8%
2%
12%
13%
12%
20%
829
283
5
939
178
1,117
563
8%
191
11%
10%
14%
11%
2
630
126
756
69%
36%
8%
54%
53%
54%
47%
24%
3%
36%
38%
36%
630
546
14
1,102
88
1,190
476
774
110
1,208
152
1,360
33%
11%
2%
16%
14%
16%
25%
16%
15%
18%
24%
18%
102
43
4
121
28
149
66
87%
10%
19%
23%
54%
26%
56%
211
11%
98
5%
0
255
0%
7%
54
6%
309
169
6%
9%
31
7%
116
6%
5
99
3
102
24%
19%
3
213
5%
5%
6%
75
8%
18%
288
6%
2,867
1,658
81
3,960
645
4,605
1,891
1,782
466
3,446
692
4,139
35%
10%
2%
16%
15%
15%
23%
11%
12%
14%
16%
14%
EUROPE
NORTH AMERICA
SOUTH AMERICA
MEA
ASIA PACIFIC
TOTAL
These data cover 96.5% of employees.
*: Europe: Austria, Belgium, France, Germany, Greece, Italy, Netherlands, Poland, Czech Rep., United Kingdom, Romania, Russia, Slovakia, Spain, Sweden, Switzerland, Hungary. North America: Canada, Mexico, United States.
South America: Argentina, Brazil, Chile, Colombia. MEA: South Africa, Turkey, India, Dubai, Saudi Arabia. Asia Pacific: Australia, China, Japan, Singapore, Taiwan.
During the year, the Company operated internationally to rebalance the employment level aligning it to the
needs of volume related to high market volatility, obtaining a positive occupational balance compared to 2017.
Among the countries in which Pirelli operates, those internationally defined as “mature” markets (including Italy)
have witnessed the strengthening of HQ structures mainly in the areas dedicated to research and development
activities; instead, the internationally defined as “emerging” markets (Romania, Russia, Argentina, Brazil, Chile,
Colombia, Mexico, Venezuela, Egypt, Turkey, China) recorded an increase in the workforce mainly in Romania
and Mexico, due to an alignment of the organisation and production processes with market needs.
As for Brazil, in addition, the reorganisation process of the production structure continued and led to a
downsizing of the workforce especially in the plants of Campinas and Bahia following the crisis situation of the
country and the related negative impact in the Tyre sector.
Pirelli does not employ anyone under the age of 15. There are 41 young people aged between 15 and 18 (16 in
Brazil, 14 in Germany, 3 in the UK, 8 in Switzerland), each for training and integration plans, in harmony with
local laws.
DIVERSITY MANAGEMENT
Pirelli is characterised by a multinational context where individuals manifest a great diversity, whose conscious
management simultaneously creates a competitive advantage for the Company and a shared social value.
Pirelli’s commitment to compliance with equal opportunities and the enhancement of diversity in the
workplace is expressed in the main Group Sustainability documents: the “Ethical Code” approved by the Board
of Directors, the “Social Responsibility Policy for Occupational Health, Safety and Rights, Environment” and the
“Equal Opportunities Statement”.
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Pirelli Annual Report 2018
The training course on Diversity has been part of the Group’s training offering for years.
Internationality and multiculturalism are the characteristic elements of the Group: Pirelli operates in over 160
countries on five continents and 89.6% of employees (as at 31 December 2018) worked outside of Italy.
Awareness of the cultural differences that create the identity of the Company entails displaying the utmost
confidence in management of local origin: 79% of Senior Managers work in their country of origin, where Senior
Managers are those reporting directly to the Executive Vice Chairman and CEO as at 31 December 2018. In order
to develop the innovative and managerial potential inherent in multiculturalism and in dealings with different
professional environments, the Company promotes the growth of its managers through international mobility:
53% of active Senior Managers in 2018 have in fact experienced at least one inter-company assignment during
their professional experience within the Pirelli Group.
Compared to the total number of employees, in 2018 about 66 new inter-group expatriates were recorded,
compared with about 54 postings in 2017 and 80 in 2016. Approximately one third of the new postings were
destined for the main industrial countries, such as China and Germany.
At year-end 2018, the expatriate population totalled about 190 persons (vs. 195 in 2017 and 227 in 2016),
belonging to 19 nationalities and who moved to 24 different Countries on five continents, of which 12% women.
49% of the total expatriate population is made up of employees of foreign nationality.
Pirelli monitors the level of acceptance and appreciation of diversity perceived by employees within their
own reality. The survey is conducted as part of the annual “My Voice” climate survey, conducted in the local
language at Group level (see the dedicated paragraph “Listening: Group opinion survey”). The results of
the survey, conducted in June 2018, were particularly positive with regard to the perception of respect and
management of Diversity, which confirms a distinctive feature of Pirelli’s corporate culture, which is also dealt
with within the educational offer addressed to employees throughout the Group.
A functional tool for the management of equal opportunities and the prevention of risk of breach thereof is
the Group Whistleblowing Procedure, through which employees, suppliers and the External Community can
anonymously report any suspected violation. In 2018, 2 reports were ascertained for cases connected to
discriminatory attitudes, on which the Company intervened, intervening in one case with a disciplinary sanction,
and in the other with specific actions aimed at removing the causes of complaints and aimed at improving the
internal control system. For further information on the reports received, please refer to the paragraph “Focus:
Reporting procedure – Whistleblowing Policy”.
For the composition of the corporate bodies by gender and Diversity Policies reference is made to the “Report
on the Corporate Governance and Share Ownership of Pirelli & C. S.p.A.”, within the present Annual Report,
paragraphs “Sustainability and Diversity Policies”, “Board of Directors - Composition”, “Board of Statutory
Auditors - Composition”.
With regard to the subdivision of the workforce by gender, with reference to the three-year period 2016-2018,
the data show a substantial stability, with a percentage of women in the total population, which stands at 14.5%.
The percentage of female executives remains substantially unchanged, while the percentage of women in
relation to managerial positions (executives + cadres) rose from 20.6% in 2016 to 21.6% in 2017 and 22%
in 2018, mainly due to the growth recorded within the population of cadres, an important element since the
category constitutes a growth area and a landing place for executive positions.
WORKFORCE BY GENDER AND BY CATEGORY - WOMEN’S INCIDENCE
YEAR
2018
2017
2016
EXECUTIVES
CADRES
EXEC+CADRES
(= Tot Manager)
WHITE COLLARS
BLUE COLLARS
TOTAL
10.1%
10.3%
10.0%
23.8%
23.3%
22.3%
22.0%
21.6%
20.6%
34.2%
33.6%
33.8%
10.0%
10.1%
10.1%
14.5%
14.5%
14.5%
165
Report on Responsible Management of the Value Chain Analysing the breakdown by gender in terms of employment contract, the table below shows that also in 2018,
a substantial balance was maintained between men and women.
WORKFORCE BY GENDER AND BY CONTRACT
2018
2017
2016
Male
Female
Total
Male
Female
Total
Male
Female
Total
PERMANENT
97.5%
96.4%
97.3%
95.2%
95.7%
95.3%
94.8%
96.3%
95.0%
TEMPORARY
AGENCY
2.4%
0.1%
3.5%
0.1%
2.6%
0.1%
4.7%
0.1%
4.1%
0.1%
4.6%
0.1%
5.0%
0.2%
3.5%
0.2%
4.8%
0.2%
In 2018 the number of parental leaves used by Pirelli employees corresponds to 288 for women and 721 for men.
With reference to the post-maternity/paternity return rate, the Pirelli figure for the total workforce in all the countries
where the company is present shows that, in 2018, one year after the maternity and paternity event (which occurred
in 2017), 66% of women and 91% of men are still employed at the Company. The reduction in the rate of female
return compared to the previous year is mainly due to the increase in maternity events in countries where the rate
of return to work is historically lower. It should also be noted that the difference in the data between genders should
be considered natural in light of the different socio-cultural contexts in which female workers are inserted.
In the context of gender diversity, Pirelli pays special attention to remuneration equality, constantly monitoring
this issue. The countries considered significant in the analysis at the end of 2018 were Brazil, China, Germany,
Italy, Romania, Mexico, Argentina, USA, Russia, France, Spain, UK and Turkey, representing over 3/4 of the total
workforce subject to the remuneration policy (executives, cadres and employees). At a methodological level, it
should be noted that the pay gaps between men and women were calculated for each Country and at the same
weight of positions held, on the base of the “grade” (i.e. the weight attributed to each position on the basis of
various factors). 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 and the logic of remuneration markets with special features not
comparable with each other.
The average of pay gaps between men and women white collars recorded in these countries is equivalent to 8% in
favour of women, compared with 3% in 2017 and 2% in 2016 also in favour of women; for the cadre category it is
equal to 3% in favour of men, compared with 1% in 2017 and 2016 also in favour of men. A few examples:
→ Italy, which has an difference between average remuneration for men and average remuneration for women of
around 2% in favour of women for the category of employees (compared to 3% in 2017 in favour of women and
1% in 2016 in favour of women) and 2% in favour of men for the category of cadres (compared to 1% in 2017
and 2% in 2016, both in favour of women);
→ Romania, where for the category of employees there is 4% in favour of men (compared to the equal pay of 2017
and 1% in favour of men in 2016) and for the category of cadre there is a 4% in women’s favour;
→ Brazil, where for the category of employees there is a 1% in favour of women (compared to 1% for men in 2017
and substantial retribution in 2016) and for the category of cadres there is equal pay (compared to 1% for men
in 2017 and substantial equal pay in 2016);
→ Germany, which showed an average pay gap between men and women of around 2% in favour of men for the
category of employees (1% in 2017 and 3% in 2016) and 7% also in favour of men for the category of cadres
(compared to 6% in 2017 and in 2016).
With reference to the population of managers, of which women represent 10%, there is an average pay gap of 3%
for women (in 2017 it was 11% and in 2016 it was 8% again in favour of women).
With regard to the workers’ population, all industrial countries with a significant number of observations were
analysed: Brazil, China, Germany, Italy, Mexico, Romania, Russia, Spain, Switzerland, Sweden, Turkey, Argentina,
166
Pirelli Annual Report 2018
USA and UK. For each country the pay gap between men and women has been calculated. The average, weighted
by the number of employees, showed substantial retributive equity.
In particular:
→ China presents a difference between average men’s salary and average female pay around 9% for men, in
line with 2017 and due to the organisational roles currently on average for the male population;
→ Brazil has a pay gap of 6% in favour of women;
→ in Italy there is a 4% in favour of men, in line with 2017;
→ in Romania there is substantial pay equity compared to 2% in 2017 in favour of women.
In regard to the standard salary of new hires during their first year of work at Pirelli, this is greater than the
minimums prescribed by local legislation and there are no differences between men and women or related to
other diversity factors.
Pirelli’s inclusive culture towards different skills, as explained in the Pirelli policy on equal opportunities, is
implemented by all the Group’s affiliates. Under applicable local laws, approximately 1.4% of total employees
in 2018 (in line with 2017 and an increase from the figure of 1.1% in 2016) have some form of disability, net
of the following considerations: the percentage measurement of disabled employees in the multinational
context of the company clashes with the objective difficulty of measuring their number, both because in many
countries where the Group is present, there are no specific laws or regulations promoting their employment
and therefore disabilities are not automatically detected, and because in many countries this information is
deemed confidential and protected by privacy laws; it is therefore likely that the actual percentage of disabled
persons working at Pirelli could be higher than the above figure.
With reference to the “age” factor of the company population, as can be seen from the table below, it is
homogeneous between genders.
AVERAGE EMPLOYEE AGE BY CATEGORY AND GENDER
Executives
Cadres
White collars
Blue collars
Group Average
2018
49
50
50
44
45
45
2017
37
38
38
36
37
37
Executives
Cadres
White collars
Blue collars
Group Average
48
50
50
43
45
44
2016
37
38
38
36
37
37
Executives
Cadres
White collars
Blue collars
Group Average
48
50
50
43
45
44
37
38
38
36
37
37
37
38
38
37
37
37
37
38
38
Female
Male
Total
Female
Male
Total
Female
Male
Total
These data include agency workers, corresponding to 0.2% of total workforce in 2016 and to 0.1% in 2017 and 2018.
167
Report on Responsible Management of the Value Chain Instead, the following table represents the average seniority of service per professional category and gender:
also in 2018, there were no significant differences between men and women.
AVERAGE EMPLOYEE SENIORITY OF SERVICE BY CATEGORY AND GENDER
Executives
Cadres
White collars
Blue collars
Group Average
2018
13
16
15
13
15
14
2017
Executives
Cadres
White collars
13
15
15
13
15
15
2016
Executives
Cadres
White collars
13
15
14
13
14
14
8
9
9
9
9
9
8
9
9
6
9
9
Blue collars
Group Average
7
9
9
7
9
9
Blue collars
Group Average
8
9
9
8
9
9
8
9
9
Female
Male
Total
Female
Male
Total
Female
Male
Total
2017 data cover 99.8% of employees; 2016 data cover 96.5% of employees.
The following procedures and activities to promote equal opportunities have been well-established for years:
→ the use, as far as possible, of candidate lists with a significant presence of women in recruitment processes;
→ provision of training to promote cultural change connected with the promotion of diversity, with specific
modules dedicated to “Diversity Management,” beginning with courses for new hires (e.g. Plunga);
→ introduction of initiatives aimed at respecting cultural and religious diversity (e.g. different and clearly
marked diets in canteens, typical cuisine from cultures other than that of the host country etc.);
→ “multilingual” book stores at the factories;
→ welcome kits for those joining Pirelli at a facility in a country other than their home country;
→ welfare and work-life balance initiatives (in regard, refer to the paragraph “Welfare and initiatives in favour
of the Internal Community” in this report);
→ the presence of the course “Integrating Perspectives” within the School of Management training offering,
aimed at providing participants with tools to train their ability to successfully interact in a global and
heterogeneous environment, understanding and integrating diversity and maximising collective results.
REMUNERATION AND SUSTAINABILITY
The remuneration policies adopted by Pirelli aim to ensure fair remuneration in line with the individual’s contribution
to the success of the Company, recognising the performance and quality of the individual’s professional input.
The purpose is twofold: on the one hand to attract, retain and motivate employees, while on the other to reward and
168
Pirelli Annual Report 2018 promote conduct that is as far as possible consistent with
the corporate culture and values. Compensation policies
and processes for Group management (intended as the
overall executives) are managed by the central Human
Resources and Organisation department, while for non-
executive personnel they are handled on an individual
Country basis. Once again in 2018, and in accordance
with market best practices, the impact of the (short-term
and medium-term) variable component on the aggregate
remuneration of Group management remained very high,
which means that there is a strict correlation between
remuneration and performance.
Management in general is the owner of the Annual
Incentive Plan (MBO) linked to the achievement of annual
economic and financial objectives of the Group and/or
Business Unit and/or Region and/or function.
In 2014, some changes and improvements were made to
the annual incentive system (MBO) which is no longer
related to the Triennial Incentive Plan (LTI) but includes
a form of deferred payment to the following year of a
part (25%) of the annual incentive accrued subject to
accrual of the MBO of the following year. Payment of an
additional amount equal to a variable percentage of the
entire MBO accrued during the previous year will be paid
in line with the degree that the MBO is achieved in the
following year.
At the end of 2018, the sustainability objectives that will
be part of the 2019 MBO are being defined.
The return to the stock market at the beginning of
October 2017 meant that the Company’s medium-
long term objectives should be reviewed for the three-
year period 2018-2020. Consequently by resolution of
the Board of Directors of 28 July 2017, the 2016-2018
Long Term Incentive LTI was terminated early at the end
of 2017 (a year before the natural expiry). The Board
of Directors also approved the payment in 2018 in one
instalment on the basis of reporting the newly measured
goals - even in terms of percentage opportunities for
each individual participant - on the values for the two-
year period (2016-2017).
At the beginning of 2018, a new three-year incentive
plan (LTI 2018-2020) was launched and extended to the
majority of Executives of the Group, in line with the variable
remuneration mechanisms adopted at international level,
totally self-financed as the related expenses are included
in the economic data of the Industrial Plan. The Plan, in line
with international best practices, includes a Sustainability
objective common to all Group Management.
The General Remuneration Policy, approved by the Board
of Directors of Pirelli, establishes the principles and
guidelines to which Pirelli adheres in order to determine
and monitor the application of the remuneration practices
relating to the Directors vested with particular delegations/
offices, to the Managing Directors, to Executives with
strategic responsibilities, to Senior Managers and to
other Group Executives.
Specifically, the Guidelines of the remuneration for the
abovementioned management figures will also cover:
→ fixed and variable remuneration, both short and
medium-long term (it is noted in this regard that
Pirelli currently has no existing forms of remuneration
through equity);
→ compensation in case of dismissal;
→ resignation and termination of employment;
→ clawback clauses for Top Management;
→ introduction of the aforementioned sustainability
objective common to all Group Management.
For updates and details on the Remuneration Policy and
related sustainability indicators, refer to the Governance
section of the Pirelli website, “Remuneration” sub-section.
EMPLOYER BRANDING
In addition to disseminating the company principles,
Employer Branding is also a valuable tool to give visibility
to job opportunities aimed at recent graduates and profiles
with experience, not only in the Italian market but globally.
Considering the countries where Pirelli has a presence
with one or more production plants in Europe, the United
States, South America, the Middle East, Africa, Russia
and Asia-Pacific, numerous events, projects and meetings
were organised in 2018, where the Company promoted
its own Employer Branding initiatives. These activities
are carried out also thanks to the network of contacts
and partnerships with some important universities in the
various countries.
In Italy, Pirelli actively collaborates with Polytechnic
University of Milan, Polytechnic University of Turin,
Bocconi University, UCSC Catholic University and
University of Turin. The latter Universities are located
close to the Pirelli offices in Italy and the Company has
always considered them to be a benchmark for economic
and engineering education of young people. With these
institutions, Pirelli organises Careers Days, round tables,
Job Fairs and company presentations.
Among the channels of Employer Branding used by
Pirelli, the web plays an important role: on the pirelli.com
website, the Company provides a channel dedicated to
those wishing to propose their candidacy for specific
open positions, as well as giving ample information on
the company history, management models adopted,
objectives and results achieved; targeted channels -
including LinkedIn and the University portals - are also
chosen by Pirelli to publish their job offers.
169
Report on Responsible Management of the Value Chain DEVELOPMENT
PERFORMANCE MANAGEMENT
Through the Performance Management (PM) process, Pirelli defines, observes and evaluates the contribution
of each employee in terms of results and behaviours. This is a fundamental opportunity for the development
and orientation of each one in compliance with a set of predefined and critical indicators for the success of
people and therefore of the Company.
A key element of the process is the transparent and open dialogue between the boss and the employee, from the
phase of sharing individual objectives to that of evaluating the results achieved and the behaviours expressed.
In 2018 Pirelli introduced a new Performance Management process supported by a completely renewed and
user-friendly IT platform accessible from all company devices.
These are the main new features:
→ the process and the platform are open all year, so as to better support the continuity of dialogue between
boss and employee and alignment on priority and focus of the performance;
→ an assessment model based on two dimensions: the what (results) and the how (key behaviours);
→ the introduction of a set of six key behaviours equal for the entire company population and considered
key to the achievement of the company’s strategic objectives, namely- Accountability, Knowledge sharing,
Forward thinking, Agility, Cross-functionality, Drive for results.
The introduction of the new model has been accompanied by training sessions aimed at all employees and
other sessions for managers will be provided at the beginning of 2019 in view of the feedback meetings
between boss and employee.
The Performance Management process involves all staff worldwide (executives, cadres and employees) and in
2018 saw a redemption rate (that is, 2017 assessment sheets completed compared to the total number of sheets
opened) equal to 98.5%, of which the redemption rate for women was 97.7%, while that for men was 98.8%.
The percentages of completion by level are shown below:
Executives
Cadres
White collars
100%
98.5%
98.3%
In support of the quality of the Performance assessments, within the Pirelli process includes the so-called
Calibration Meetings, i.e. meetings organised by the managers of the individual functions, Business Unit and
country, with their first reporting and with the Human Resources managers of reference, during which the
evaluations of the persons belonging to a specific organisational unit are put into common use with the aim of
ensuring a shared and balanced distribution of the assessments, to guarantee a process that is as coherent,
homogeneous and objective as possible.
170
Pirelli Annual Report 2018 TALENT DEVELOPMENT
The Talent Development process aims to ensure
business continuity by supporting the identification and
development of people with the potential to cover the
positions of greater complexity, those who already hold
strategic positions and so-called critical know-how (that
is, people with key skills that are difficult to replace).
In 2018, an analysis and redesign of the entire Talent
Development process was carried out globally. A pilot
study was conducted on a sample of talents, aimed at
defining the tools to be used when fully operational from
2019. In 2018 the talent development process identified
in 2017 continued.
In this mapping Pirelli confirms itself as a company
with a strong predisposition to grow talent from within:
the average corporate seniority of the talent pool is, in
fact, over 12 years. The pipeline of talents has a strong
international and multicultural connotation, as their origin
includes as many as 17 different nationalities.
In 2018 the global succession mapping process at the
Region and Headquarter levels was finally activated in a
structured way.
TRAINING
All Pirelli affiliates have adopted the Training@Pirelli
training model, organised, structured and equipped system
to respond to “Group” needs as well as any needs that may
emerge locally at any time from the various affiliates.
The Pirelli training offering is based on one hand on the
strategic priorities of the organisation and the different
functions, and on the other on the needs that arise each
year from the Performance Management process.
Also in 2018, Pirelli was called in various international
locations to illustrate its Training Model, recognized as
benchmark of quality and robustness, already awarded
in 2015 with the Silver Award by the Global Council of
Corporate Universities, in the category “Best Corporate
University embodying the identity, the culture and the brand
of the Organisation in its stakeholders”, award dedicated to
the most important Corporate Universities worldwide.
The three “pillars” on which Training@Pirelli is based are
the Professional Academy, the School of Management
and the Local Education. The first two are designed
centrally and provided centrally and/or locally, while Local
Education is managed and implemented in the individual
countries to meet the specific local needs.
PROFESSIONAL ACADEMIES
The Pirelli Professional Academies cater
the
entire corporate population with the aim of providing
to
continuous technical-professional training, encourage
cross-functional collaboration, ensure the exchange of
expertise and know-how among countries and support
the implementation of tools and procedures within the
organisation.
are
There
ten Academies: Product Academy,
Manufacturing Academy, Commercial Academy, Quality
Academy, Supply Chain Academy, Purchasing Academy,
Finance and Administration Academy, Planning &
Control Academy, Human Resources Academy and
Digital Academy. Sustainable Management elements
are throughout the Academies, with focus for example
on product life cycle (LCA – Life Cycle Assessment),
environmental efficiency of the process, health and
safety, sustainable management of the supply chain,
risk management, diversity management. The new
digitalisation processes are also increasingly recurring
and transversal to the Academy training model.
The faculty of the Academy is mainly composed of
internal trainers, experts from the specific functions
who, based on the training needs and logistical needs,
provide training at central, regional and local level, or
through webinar sessions. The Academy model involves
a significant figure from the function guiding each
Academy, supported by one or more professionals from
the same function and from the Group Training function,
which ensures consistency in the methods of approach,
delivery and evaluation of learning in addition to ensuring
collaboration with the local training teams.
Every year, the Professional Academies meet both the
Top Management and the local training representatives,
with the objective of strategic alignment and sharing of
the results achieved. In 2018, the Professional Academies
offered 231 courses globally.
Among the programmes provided to support the
digital transformation, the training course for two new
professional roles created within all the plants of the
group, namely the smart manufacturing officers and the
smart manufacturing champions, is highlighted.
SCHOOL OF MANAGEMENT
The School of Management (SOM) is the training structure
dedicated to the development of the management culture
within Pirelli. Its target are the populations of Executives,
Talents, Middle Management/Senior Professionals and
Recent Graduates/Juniors.
The focus of management training is calibrated and
outlined every year based on the business challenges that
the Company is required to face. The managerial skills
training model was revisited in 2018 in order to make
the training offer consistent with the six Key Behaviours
identified
in the global performance management
system, to which a paragraph is dedicated in this report.
171
Report on Responsible Management of the Value Chain In addition to the classroom training activities, the School
of Management also offers constantly updated online
tools through the “Train your Brain” section, available to all
managers on the LearningLab international platform.
More than 8,000 training days were provided within the
School of Management during 2018. The participation
in the Warming Up training course, dedicated to the new
graduates of the entire group, involved about 500 young
colleagues in training activities at various Pirelli offices.
LOCAL EDUCATION
The training provided at the local level responds to the
specific training needs of the Pirelli affiliates operating
in the different countries, and is addressed to the entire
company population.
improvement of
The seminars cover areas of expertise ranging from
the
interpersonal skills to stress
management, from the development of IT, language and
regulatory skills at seminars on issues of welfare and
diversity at the Company.
Local training is an important tool for covering content
related to the implementation of new regulations or
agreements. This is the case, among others, of the online
training campaign aimed in 2018 at the staff of all Pirelli
offices in Europe, concerning the provisions concerning
the Protection of Personal Data (“GDPR”).
Similarly, 2018 saw the launch of an intense training
campaign for all Italian employees on health and safety
issues, in compliance with the State-Regions Agreement
of December 2011 for the training of workers pursuant
to Article 37, subsection 2 of Legislative Decree no. 81 of
9 April 2008. And always expanding the local training in
Italy, courses particularly well-regarded and well-attended
in 2018 were:
→ “Basics of employee management”, dedicated to
supporting colleagues who have recently become
managers in the new role;
→ “Parents at work”, an opportunity for exchange in
support of colleagues in the new parental role.
FOCUS: TRAINING ON SUSTAINABILITY
AND CORPORATE GOVERNANCE
Also in 2018, training continued on the Pirelli Sustainable
Management Model, with update on the state of the
Company’s Sustainability Plan.
In addition, there is institutional training in the International
Course “PLunga”, which presents the Group’s Sustainable
Management strategy to all new employees, starting
from the multi-stakeholder approach contextualized
in the integrated economic, environmental and social
management. Training on the Pirelli Model also draws
the attention of new recruits to Group Sustainability
Policies and related commitments, expressed through
the “Code of Ethics”, the “Code of Conduct”, the “Equal
Opportunities Statement”, the “Social Responsibility
Policy for Occupational Health, Safety and Rights and
Environment”, the “Health, Safety and Environment”
Policy, “Global Human Rights” Policy, in addition to the
requirements of the SA8000® Standard. The foregoing
is also the subject of continuous training for all Group
Sustainability Managers and Purchasing Managers.
As occurs every year, in 2018 Pirelli also dedicated a
professional training session dedicated to the Group’s
Sustainability Managers. The
“Pirelli Sustainability
Manager Workshop 2018” was held in November using a
webinar format. The event involved the active participation
of the Top Management of the Company, with strong
cross-functional alignment with a view to achieving the
Group targets as well as demonstrating the fundamental
teamwork that enables the Company to create lasting
and shared value. The virtual session of 2018 was mainly
dedicated to providing an update with respect to the targets
of the Sustainability Plan in progress, and focused on the
deepening of specific issues, including the sustainable
management of the natural rubber supply chain.
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Pirelli Annual Report 2018 PIRELLI TRAINING PERFORMANCE
In 2018 the total training provided amounted to 8.2 days of average training per capita, in line with the
performances recorded in the previous year and with the target set in the Group’s strategic plans (>= 7 days
of average training per capita).
2018
2017
2016
8.2
8.0
9.8
Following is the subdivision of 8.2 average training days by gender and by organisational level:
GROUP
8.2
WOMEN
7.8
MEN
8.4
EXECUTIVES
CADRES AND WHITE COLLARS
BLUE COLLARS
2.6
4.6
9.2
Data at Group level and by category calculated with average headcount for 2018; data by gender calculated with actual headcount as at 31/12/2018.
The high level of training is confirmed for both genders, with a figure of 0.6 for men to be correlated with the
clear prevalence of the male gender in the working population.
In turn, the investments made for the different segments of the company population (blue-collar workers, cadres
and white-collar workers, executives) are in line with those of the past years and balanced in proportion to the
overall training strategies: the strong focus on quality, efficiency and on digitalisation in factories, in addition to
the usual attention to health and safety issues, in fact determine large investments in the working population.
Furthermore, 96.2% of employees (considering the average workforce of the year) participated in at least one
training activity during the year.
Therefore, the total 2018 training investment, net of exceptional increases over the years (due, for example,
to the activities of start-up factories or with significant numbers of hiring employees such as Mexico and
Romania, to specific campaigns of “re-skilling” in the face of technological changes in some factories, etc.)
remains substantially in line with that of previous years.
On a global level, the Professional Academies cover the most significant portion (62%) of the training activities
on the total, and this relates to, among other things, the training and continuous updating of technical skills
related to innovation processes which are strategic for the company. In addition, the Health, Safety and
Environment issues maintained a significant share also in 2018, confirming its relative weight equal to 8% of
the total training provided at Group level.
Consistent with the great digital transformation processes undertaken by the company, the training processes
will also be progressively involved in the digitalisation of content related to both basic and innovation skills, so as to
allow a more widespread, fast and engaging use from 2019 will therefore increase the investment in online training,
currently very low in favour of the clear prevalence of on-the-job training and especially classroom training.
173
Report on Responsible Management of the Value Chain LISTENING: GROUP OPINION SURVEY
In the years 2013-2016 Pirelli consolidated the “My
Voice” climate survey as a tool for actively listening to its
employees around the world, on the basis of which it set
up group and local improvement plans.
In order to guarantee adequate time for defining and
implementing specific action plans by Country/Function/
Business Unit, meeting the needs emerging from the
2016 survey, the My Voice process has been redesigned
in 2017 with respect to the frequency of completion of the
survey (passed from annual to a listening period that will
occur every year and a half), and in the structure of the
questionnaire itself.
In June 2018, the fifth Global My Voice survey was
administered to all Pirelli employees worldwide through
an online questionnaire, which could also done on mobile
devices. A questionnaire which was shorter (38 questions
in 2018 compared to 64 in previous surveys) and easier
to fill out encouraged the maintenance of a participation
rate of over 80% in this fifth edition, at 81% (82% for the
Staff and 80% for the blue-collar workers).
The management of the questionnaire was attributed to
a third party, observing the anonymity of the respondents.
Pirelli then received the results in aggregate form. The 2018
edition of MY VOICE was structured on the Sustainable
Engagement Model, highlighting to what extent the
working environment is engaging for workers, and whether
the engagement of people is sustainable over time.
that enables
More specifically, the Sustainable Engagement model is
based on three dimensions such as energy, engagement
and qualification, and is based on the thesis that a work
environment
individual performance,
providing the resources necessary for people to do your
job well, which promotes individual well-being and the
ability to “go further” in your work, which strengthens the
alignment of people with the objectives of the Company,
and therefore
is an environment that creates the
conditions for an engagement sustainable over time. The
higher the Sustainable Engagement, the more likely it is
that people’s engagement will be lasting.
In 2018 the overall result of the Global Pirelli Employees’
Sustainable Engagement stood at 75%: on a scale of 1 to
5, the answers to the 6 questions regarding Sustainable
Engagement were therefore positive for 3 out of 4
colleagues in the world.
The 2018 survey confirmed Pirelli as a company attentive
to the inclusion of diversity, so much so that it is well above
the market benchmarks on this issue.
with the sense of responsibility (accountability) of their
results. Also in the context of professional development,
Pirelli is above the average of manufacturing companies.
The survey then highlighted the areas to be monitored to
ensure lasting engagement over time, linked to the level
of information on company results, to “how much” the
working environment allows expression of their ideas
on innovation, to the sense of personnel actualisation
and their “energy level”. These results will constitute the
guidelines for action plans that will be drawn up at the
group level and at individual subsidiaries to continue the
constant improvement path.
The results of My Voice 2018 are not comparable with
those of the previous survey, as they are based on different
measurement models (“Sustainable Engagement”
in
2018 as against the Trust Index in the previous surveys).
An exercise conducted on a qualitative level and globally
on 21 of the 38 questions similar to those present in
the previous questionnaire, however, showed a positive
improvement trend for 18 out of 21 questions.
During the last quarter of 2018 and in January 2019 the
results were returned to employees, both globally and
locally, in offices and factories. In 2019 the definition,
collection and monitoring of the specific improvement
plans by Country/Function is envisaged until the next
survey, scheduled for 2020.
WELFARE AND INITIATIVES
FOR THE INTERNAL COMMUNITY
At organisational level, Pirelli for years, has had the figure
of the “Group Welfare Manager”, who is entrusted with
the supervision of welfare activities, jointly with the many
central and local functions concerned, including Health
and Safety at Work, Industrial Relations, Sustainability
and Equal Opportunity Managers of the Group.
The welfare initiatives that Pirelli offers to its employees
vary from country to country, in accordance with the
specific regulatory, social and cultural environments in
which the affiliates operate. In any case, they implement
the shared guidelines at Group level, so that all the offices
of the world are progressively committed to locally
adopting activities, tools and welfare processes aimed
at creating collaborative environments and ensuring
adequate support for the needs of a personal life.
Welfare activities activated at Pirelli affiliates around the
world are attributable to four macro areas of action:
→ lifestyle (e.g. health care, information and awareness-
raising campaigns);
Also the sense of belonging and the pride of working for
Pirelli are confirmed among the highest indices, together
→ family support (e.g. scholarships, summer camps for
employees’ children, inter-company crèche);
174
Pirelli Annual Report 2018 → free time (e.g. open days, sporting and cultural
activities);
→ working life and working environments (e.g. flexible
working hours, facility, individual development training,
cultural growth and group celebrations).
All Group affiliates have the opportunity to share local
best practices through a special section dedicated to
welfare on the corporate Intranet. As an example, some
of the welfare activities activated at Headquarters and at
the various local affiliates will be presented below.
Historically, Pirelli provides infirmaries at all the production
units, where health workers and specialist doctors are
available to all employees during working hours. These
facilities provide advice on extra-work health problems, as
well as first aid and periodic health surveillance activities.
The specialised services performed in Pirelli’s outpatient
and nursing facilities around the world amounted to over
280,000 in 2018 alone (of which around 22,000 were
provided at the historic headquarters in Milan Bicocca).
In the course of 2018 “Pirelli Smart Way” went into
operation, a project that gives the opportunity to all the
staff of Milano Bicocca to use “smart working”, or to
provide their work partly outside the offices, following
agreement with their manager and in compliance with
the rules defined by the Company. The Smart Workers
at Bicocca in 2018 carried out a total of 12,226 days of
Smart Working, taking advantage of the opportunity
offered by the company to manage their work activities
with greater autonomy, responsibility and flexibility,
saving time and commuting costs, and simultaneously
balancing company needs with personal needs. In 2018
it was decided to launch the “Pirelli Smart Way” in an
experimental phase within the Contact Centre in the
Italian Market. The training activities conducted during
the month of December 2018 will allow colleagues in this
area who have asked to access the Smart Working project
from January 2019.
Similar Smart Working Projects are active at various Group
locations: at Pirelli USA (New York, Rome, Southfield, Los
Angeles and the sales force in the field), at the headquarters
in São Paulo, Brazil, Paris and Craiova (Romania).
To support the work-life balance and in particular family
support, in Italy in 2018, the “Bambini in Bicocca”
(Children at Bicocca) project continued, guaranteeing
babysitting and kids club service for employees’ children
of school age (5-10 years) during school holidays. Just in
2018 about 160 children were hosted within the project.
Similarly, in many of the group’s venues, recreational
events are organised periodically dedicated to the families
of employees and also open to the local community;
think of the Mexican initiative “Mama Pirelli” or the now
traditional German working day dedicated to Diversity.
Multiple campaigns to prevent and raise awareness of
a healthy lifestyle, including the “Nutrition workshop”
conducted in Romania or the Brazilian project “Faz Bem”
similar to the “#sentirmibene” campaign launched in Italy
at the end of 2014 and which is organised every year in
a programme of conferences and initiatives aimed at
promoting healthy lifestyles.
Moments of inclusiveness and sharing characterise the
“Open Days”, which take place at numerous affiliates in the
world: these are days dedicated to employees’ families,
with educational workshops, visits to departments, games
and music.
The well-being of workers also comes from a working
is psycho-socially adequate and
environment that
stimulating, where they feel valued and
in which
psychosocial risks and work-related stress are effectively
prevented and countered. To this end, as part of the
Company’s global programme called “Excellence
in
Safety”, Pirelli performs in-depth analyses and acts on key
areas and issues such as improvement of the organisational
structure, clarity of tasks and roles, empowerment
of workers,
in the
organisation, sharing of objectives and motivation with
respect to a common strategy, as key elements for the
prevention and mitigation of occupational stress.
improvement of communication
With regard to the Italian context, among the welfare
initiatives we highlight People Care+, the conversion
programme of the Result Award in welfare services for the
employees of the Italian offices receiving the Result Award.
The programme was made possible thanks to recent
Italian legislation which provides for tax relief with a 10%
substitute tax on the sums paid as a performance bonus,
against the improvement of the company performance
indicators defined
in the company supplementary
contract. Thanks to the supplement paid by the company
equal to 12% of the amount converted and thanks to an
intense awareness and communication campaign, 2018
(the first pilot year of the initiative) saw an adherence
above the average of the applicable benchmark.
INDUSTRIAL RELATIONS
The Industrial Relations policy adopted by the Group is
based on respect for constructive dialogue, fairness and
roles. Relations and negotiations with trade unions are
managed locally by each affiliate in accordance with the
laws, national and/or company-level collective bargaining
agreements, and the prevailing customs and practices in
each country.
At this local level, these activities are supported by the
central departments, which coordinate the activities and
ensure that the aforementioned principles are observed
throughout the Group.
175
Report on Responsible Management of the Value Chain COMPLIANCE WITH STATUTORY AND
CONTRACTUAL OBLIGATIONS GOVERNING
OVERTIME, LEAVE, ASSOCIATION AND
NEGOTIATION, EQUAL OPPORTUNITIES
AND NON-DISCRIMINATION,
BANS ON CHILD AND FORCED LABOUR
Governance to protect Human Rights and Labour is the
subject of Pirelli’s Code of Ethics and specific Policies
adopted by the Company,
in particular the “Social
Responsibility Policy for Health, Safety and Rights at
Work, Environment”, the “Global Human Rights” Policy
and the “Health, Safety and Environment” Policy. All
the aforementioned Policies are public and have been
language to employees.
communicated
Moreover, from 2004 Pirelli has adopted by the
requirements of Standard SA8000® as a reference tool
for managing Social Responsibility at its Affiliates and
along the supply chain.
in the
local
The Management of Diversity and Equal Opportunities,
and responsible management of the supply chain in the
field of human rights and labour are the subject of specific
paragraphs in this Report, to which reference should be
made for further details.
The Pirelli approach has always promoted compliance
with all legal and/or contractual requirements concerning
working hours, the use of overtime and the right to regular
days of rest. These requirements are often the subject of
agreements with trade unions, in line with the regulatory
situation in each country. The use of all holiday days, as a
right of every worker, does not have any restrictions and
the period is generally agreed between employee and
company.
In addition to the trade union dialogue and coordination
between the Headquarters and local functions, Pirelli
verifies the application of the provisions on the respect of
human and labour rights to its affiliates through periodic
audits performed by the Internal Audit Department, in
compliance with a three-year auditing plan to cover all the
Company’s sites. Normally every audit is carried out by
two auditors and takes around 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 audit, granting Pirelli
effective control over all aspects of sustainability. Based
on the results of these audits, an action plan is agreed
between the local managers and central management,
with precise implementation dates and responsibilities
and follow-up verification.
Industrial Relations also have an active role in the
Group’s commitment in terms of health and safety, with
active participation on the part of the union and workers.
In fact, 77% of the Group’s employees are covered
by representative bodies that periodically, with the
Company, monitor and address, the current issues and
awareness and intervention plans/programmes aimed the
improvement of the activities carried out to safeguard the
health and safety of employees.
In compliance with the principle of constructive and
timely dialogue with employees, in all cases of corporate
reorganisation and restructuring, workers and their
representatives are informed in advance, with deadlines
that vary from Country to Country in full compliance with
local legislation, current collective agreements and trade
union agreements.
In 2018, the Industrial Relations activities achieved
important negotiating
results. Multiple collective
agreements were renewed, without any conflict, in Brazil,
Argentina, Mexico, Germany, Romania and Turkey.
During the year, the Company has also operated
internationally to rebalance the level of employment,
aligning it with the volume requirements linked to the
market, however reporting a positive employment balance
for the Group at the end of 2018 compared to 2017.
increased
its workforce
Pirelli
in Romania, Mexico,
while in Italy the central functions related to Digital and
to product research, development and innovation were
further strengthened.
EUROPEAN WORKS COUNCIL (EWC)
The Pirelli European Works Council (EWC), formed in 1998,
holds its ordinary meeting once a year after presentation
of the Group Annual Financial Report, where it is informed
about the operating performance, operating and financial
forecasts,
investments made and planned, research
progress and other matters concerning the Group.
The agreement establishing the EWC provides for the
possibility of holding other extraordinary meetings to
fulfil the information requirements of delegates, in light
of transnational events concerning significant changes to
the corporate structure: opening, restructuring or closing
of premises, important and widespread changes in work
organisation. EWC delegates are provided with the IT
tools they need to perform their duties and a connection
to the corporate Intranet system, for the real-time
communication of official Company press releases.
176
Pirelli Annual Report 2018 The auditors carry out verifications on the basis of a checklist of sustainability parameters deriving from the
SA8000® Standard and the Pirelli Policies mentioned above. All managers from the affiliates involved in the
audits are adequately trained and informed on the audit purpose and procedures by the applicable central
functions, in particular Sustainability, Purchasing, Health and Safety and Industrial Relations.
FOCUS: INTERNAL AUDITS
Year
2014
2015
2016
2017
2018
Countries
Italy, United Kingdom and China
Mexico, Russia (Voronezh plant) and United Kingdom
Germany, Russia (Kirov plant) and United Kingdom (follow-up)
Argentina, Brazil (Campinas and Feira de Santana plants), Mexico, Romania and USA
France, China (Yanzhou plant)
The non-conformities emerged as a result of the audits performed in 2018 were subject of the action plans agreed between the local managers and
central management, and will be subject to follow-ups in 2019 by the Internal Audit Department. None of the audits revealed any breach of ILO Core Labour
Standards, with specific reference to forced labour or child labour, freedom of association and collective bargaining, and non-discrimination.
LABOUR AND SOCIAL SECURITY LAWSUITS
In 2018, as in previous years, the level of work and social security litigation at Group level remained low. The
level of litigation remains high in Brazil, as in previous years, to the point of representing more than 80% of all
the labour lawsuits currently pending against the entire Group. Labour lawsuits are extremely common in this
country and depend on the peculiarities of the local culture. As such, they affect not only Pirelli but also other
multinational companies operating there. Labour lawsuits are generally initiated when an employment contract
is terminated, and they usually involve the interpretation of regulatory and contractual issues that have long
been controversial. The Company has made a major commitment to prevent and resolve these conflicts – to
the extent possible – including through settlement procedures.
UNIONISATION LEVELS AND INDUSTRIAL ACTION
It is impossible to measure the precise percentage of union membership at Group companies, since this
information is not legitimately available in all countries where Pirelli has a presence.
However, it is estimated that more than 40% of Pirelli employees are members of a trade union. As to the
percentage of workers covered by collective agreement, in 2018 it stood at 77% (vs. 76% in 2016). This figure is
associated with the historical, regulatory and cultural differences between each country. Collective agreements
to be renewed in 2018 were renewed without any conflict and strikes.
SUPPLEMENTARY PENSION PLANS, SUPPLEMENTARY HEALTH PLANS AND OTHER SOCIAL BENEFITS
The Group has defined contribution and defined benefit funds, with a substantial prevalence of the former kind
over the latter. To date, the only defined benefit plans are:
→ in the United Kingdom, where the fund relating to the tyre business has been closed to new employees
since 2001 for the introduction of a defined contribution scheme (and closed to future accumulations for all
active employees as at 1 April 2010), while the funds related to the cable business sold in 2005 were closed
to future accumulations in the same year;
→ in the United States, where the fund was closed in 2001 (since 2003, it has not been tied to salary increases)
for the introduction of a contribution scheme (and only applies to retired employees);
→ in Germany, where the fund was closed to new hires from 1982.
Other defined benefit plans exist in Holland and Sweden, but they represent a relatively insignificant liability
for the Group.
177
Report on Responsible Management of the Value Chain The Group also maintains various supplemental Company
medical benefit plans at its affiliates according to local
requirements. These healthcare schemes vary from
country to country in terms of allocation levels and the
types of coverage provided. The plans are managed by
insurance companies or funds created ad hoc, in which
the Company participates by paying a fixed amount as
is done in Italy, or an insurance premium as is done in
Brazil and the United States. For the economic-equity
measurement of the above benefits, reference is made to
the Consolidated Financial Statements, notes “Employee
Benefit Obligations” and “Personnel Costs”.
The social benefits recognised by Pirelli in favour of
employees (including life insurance, invalidity/disability
insurance and additional parental leave) are generally
recognised for all employees, regardless of the type of
permanent, fixed-time or part-time contract, in compliance
with company policies and local union agreements.
OCCUPATIONAL HEALTH, SAFETY AND HYGIENE
to
MANAGEMENT MODEL AND SYSTEM
Pirelli’s approach
responsible management of
occupational health, safety and hygiene is based on
the principles and commitments expressed in “The
Values and Ethical Code” of the Group, in the “Health,
Safety and Environment Policy” in the “Global Human
Rights Policy” and in the “Quality Policy”, in accordance
with the Sustainability Model envisaged by the Global
Compact of the United Nations, with the “Declaration of
the International Labour Organization on fundamental
Principles and rights at Work” and with the “Universal
Declaration of Human Rights” of the United Nations. The
reference tool since 2004 is also the SA8000® standard.
In particular, the “Health, Safety and Environment Policy”
makes Pirelli’s commitment to:
→ manage its activities regarding health and safety
protection at work in compliance with the laws and all
the commitments entered into, as well as according to
the most qualified management international standards;
→ pursue objectives of “no harm to people”, by
implementing actions
identification,
assessment and prevention of risks for health and
safety at work aimed at a continuous reduction in
the number and severity of injuries and occupational
illnesses, activating health surveillance plans in order
to protect workers from specific risks associated with
their business duties;
for early
→ develop and
implement emergency management
programmes to prevent and avoid harm to persons;
→ define, monitor and communicate to its Stakeholders
specific objectives of continuous improvement of
health and safety at work;
→ empower, train and motivate its employees to work
safely involving all levels of the organisation in an
ongoing programme of training and information, aimed
at promoting a culture of safety at work;
→ promote information and awareness-raising on health
and safety issues;
→ provide its employees with ongoing and concrete
support aimed at facilitating the work-life balance;
→ manage its supply chain responsibly by including
issues of health and safety at work in the supplier
selection criteria, the contractual clauses and the audit
criteria, also requiring suppliers to implement a similar
management model in their supply chain (for an outline
on responsible management of the supply chain,
reference is made to the paragraph “Our Suppliers”);
→ make available to all its Stakeholders a channel (the
“Whistleblowing Policy” published on Pirelli’s website)
dedicated to reporting, even anonymously, of any
situations that constitute or may constitute a risk for
the protection of the health, safety and well-being of
people (reference is made to the Paragraph “Focus:
Reporting Procedure - Whistleblowing Policy” of
this Report for an outline of reports received in the
last three years, none of which regarding health and
safety).
All the Documents mentioned above are communicated
to Group employees in their local languages and are
published in the Sustainability section of the Pirelli
website, which should be consulted for full display of the
content.
Pirelli adopts an occupational health and safety
management system structured and certified according
to OHSAS 18001:2007. All certificates are issued with
ANAB international accreditation (ANSI-ASQ National
Accreditation Board
- US accrediting body). The
occupational safety management system was developed
in compliance with procedures and guidelines elaborated
centrally in order to consolidate a “common parlance” that
guarantees sharing, alignment and effective management
in the Group. Following the certification obtained by the
Jiaozuo plants in China and Rome in the United States, at
the end of 2018 all the production plants were certified
according to the OHSAS 18001:2007 Standards.
In 2018, the 10th edition of the Pirelli Health, Safety
and Environment Global Meeting was held. The annual
meeting took place at the Pirelli production site in Merlo,
Argentina. The purpose of this meeting, which brings
together all managers responsible for Health and Safety
in the Group, is to pool the best practices applied by the
various Pirelli sites in the world, with a view to promoting
continuous improvement.
178
Pirelli Annual Report 2018 At local level, in each individual production unit, periodic meetings are held with workers’ representatives
(Health & Safety Committee), with the aim of illustrating, on the basis of the Management System, the activities
carried out and those planned and to provide the results of workplace risk assessments.
FOCUS: HEALTH AND SAFETY OBJECTIVES
Target year
Description of Objective
Update 2018
2020
Reduction in the Accident Frequency Index by
87% compared to 2009 figure.
Frequency Index 2018: 0.29, in line with that of 2017,
with a reduction of 81% compared to 2009
2014-2020
Global implementation of the “Excellence in Safety” programme
Continuation of the programme in the factories
on the basis of the work plan. Development of tools
to monitor and support the programme.
2017-2020
Completion of integration of Health, Safety and Environment
KPIs for the sale/commercial/equities areas;
Integration of systematic data collection and monitoring.
SAFETY CULTURE
In this context, the “Zero Accidents Objective” represents a precise and firm corporate position. From an
industrial point of view, this objective is pursued through investments aimed at technical improvement of
work conditions, while constantly insisting on the cultural and behavioural aspect of all Company players. This
approach, together with the involvement and continuous internal dialogue between management and workers,
has led to a sharp decline in injury rates.
In support of the management model outlined above, in 2013 the Company signed an agreement with DuPont
Sustainable Solutions for the global implementation of the “Excellence in Safety” Programme. The Programme
began in 2014, extending gradually in 2016-2018 to all production sites of the Group. A specific Steering
Committee, chaired by the Operations General Manager, monitors the progress of the programme.
As part of the collaboration with DuPont Sustainable Solutions, Pirelli in 2018 continued to develop the theme
of prevention of psychosocial risks and work-related stress. The most important areas of intervention of
the “Excellence in Safety” Programme are in fact related to the improvement of the governance of safety,
organisational structure, the clarity of the tasks and roles, empowering workers, improving communication
within the organisation, the sharing of objectives, motivation with respect to a common strategy: all substantial
issues for a work environment that is psycho-socially appropriate and stimulating, in which workers feel valued
and the psychosocial risks are effectively prevented and countered. On this issue, during the two-year period
2014-2015 Pirelli joined the European Agency for Health and Safety in the Workplace (EU-OSHA) “Together
for the prevention and management of work-related stress” campaign.
The sharing of the Safety Culture was also supported by the regular newsletters like the Safety Bulletin, and
the sharing of significant events through the traditional channels of internal communication.
SAFETY TRAINING
Around 8% of the total training provided by Pirelli in 2018 addressed occupational health and safety issues.
In addition to safety training offered locally at every Pirelli location (illustrated previously in the paragraph
dedicated to Training), special mention should be made of Group activities and projects, which simultaneously
target several Countries and which allow an alignment of culture and vision, fully benefiting pursuit of the
Company’s own improvement targets. The Manufacturing Academy merits a special mention. This is the Pirelli
Professional Academy dedicated to the sphere of factories, where health, safety and environment issues are
discussed in detail.
MONITORING OF HEALTH AND SAFETY PERFORMANCE AND MAIN INDICATORS
Alongside establishing specific guidelines and procedures for implementing management systems, Pirelli uses
the web-based Health, Safety and Environment Data Management (HSE-DM) system, prepared and managed
centrally by the Health, Safety and Environment Department. This system makes it possible to monitor HSE
performance and prepare numerous types of reports as necessary for management or operating purposes.
179
Report on Responsible Management of the Value Chain The HSE-DM system collects all the information related to accidents and to the particular situations that
occurred in factories, assembly units, sales centres and warehouses directly managed by Pirelli. All factories
have access to information on the most significant accident or near-injury cases through a system called
Safety Alert; in turn, the plants conduct an internal analysis of the verification of the existence of conditions
similar to those that caused the accident or the near-accident and identify any corrective actions. By using this
system, every site is able to analyse the solutions adopted by other plants in order to identify and apply the
most effective corrective actions.
The focus on Leading Indicators was also further developed, namely measuring what preventive measures
should be implemented and how this should be done, without prejudice to the monitoring of the Lagging
Indicators, namely reactive indicators such as the number of accidents and their frequency index.
The performances reported below are for the three-year period 2016-2018 and cover the same perimeter of
the Group’s consolidation.
The 2020 target in the Sustainability Plan is for a reduction in the Frequency Index of 87% compared to 2009.
In 2018, Pirelli registered an accident Frequency Index (FI) of 0.29, in line with the figure from 2017, with a
reduction of 81% compared to 2009. The most representative injuries concern events involving contusions,
cuts and fractures of the upper limbs.
For 2018, in continuity with the previous financial years, the injury rate index for women was decidedly lower
than the value relating to men, also in relation to the fact that the female population is generally engaged in
activities with a lower risk than those of the male population. The graph below shows the trend of FI values by
gender over the last three years:
FI TREND
0.5
0.4
0.3
0.2
0.1
0.0
0.37
0.33
0.11
2016
0.30
0.27
0.07
2017
0.33
0.29
0.08
2018
Frequency Index (FI)
FI Men
FI Women
FI = number of injuries/number of hours effectively worked x 100,000
The following table summarises the distribution of the 2018 Frequency Index by geographical area:
Frequency Index (FI)
0.39
0.20
0.31
0.27
0.02
Europe
North America
South America
MEA
Asia Pacific
180
Pirelli Annual Report 2018 The injury Severity Index (SI) in the Group in 2018 was 0.12, in line with the 2017 figure.
SI TREND
0.16
0.14
0.12
0.10
0.08
0.06
0.04
0.02
0.00
0.12
0.11
0.10
0.06
0.13
0.12
0.03
2016
2017
Severity Index (SI)
SI Men
SI Women
2018
SI = number of days of absence, starting from the first day
after the accident/number of hours effectively worked x 1,000
The following table summarises the distribution of the 2018 Severity Index by geographical area:
Severity Index (SI)
0.15
0.17
0.11
0.04
0.01
Europe
North America
South America
MEA
Asia Pacific
In the case of both the Frequency Index and the Severity Index, the Asia Pacific area performed better than the
other geographical areas in which Pirelli operates, characterised in any case by years of constantly decreasing
rates.
With reference to commuting accidents (not included in the calculation of the FI and SI indices mentioned
above), the following tables show the total number registered by the Group in the last three years and the
distribution by geographical area of the cases in 2018.
Commuting accidents
137
108
121
2016
2017
2018
Commuting accidents
30
42
49
0
0
Europe
North America
South America
MEA
Asia Pacific
Within the production process there were no activities with a high risk or high incidence of occupational
diseases.
181
Report on Responsible Management of the Value Chain
The Frequency Index for occupational diseases in the three-year period 2016-2018 stands at 0.04.
FI TREND - OCCUPATIONAL DISEASES
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0.00
0.04
0.04
0.04
0.04
0.02
2016
2017
2018
FI Occupational Diseases
FI Occupational Diseases Men
FI Occupational Diseases Women
FI occupational diseases = number of occupational
diseases/number of hours effectively worked x 100,000
The following table summarises the distribution by geographical area of the Frequency Index for occupational
diseases in 2018:
FI Occupational illnesses
0.03
0.00
0.10
0.00
0.00
Europe
North America
South America
MEA
Asia Pacific
With regard to accidents for agency workers, the following tables show the number of accidents recorded in
the last three years and the distribution of the injury frequency index of 2018 by gender and, subsequently, by
geographical area:
Injuries involving agency workers
FI agency workers (Men)
FI agency workers (Women)
2016
2017
2018
11
n/a
n/a
3
1.19
0.00
Europe
North America
South America
MEA
Asia Pacific
Injuries involving agency
workers
FI agency workers
8
15.05
0
0.00
0
0.00
0
0.00
8
1.02
0.00
0
0.00
182
Pirelli Annual Report 2018
The Accident Frequency Index for employees of suppliers operating at the Group’s production sites27 is equal
to 0.18. Below are the data for the last three years and the distribution by geographical area of the cases in
2018.
FI contractors
0.35
0.19
0.18
2016
2017
2018
FI contractors
0.15
0.11
0.28
0.00
0.00
Europe
North America
South America
MEA
Asia Pacific
FATALITIES
Fatal accidents Pirelli employees
Fatal accidents contractors
2016
2017
2018
0
0
1
0
0
0
FOCUS: TOWARDS THE “ZERO ACCIDENT OBJECTIVE”
Seventeen Pirelli manufacturing plants were named “sites of excellence” in 2018, since no employees were injured there during the year:
Unit
Factories
Assembly unit
Sales centres
Logistics - TLM
Industrial sites
Kirov, Rome, Jiaozuo, Slatina Motorsport, Bicocca MIRS, Breuberg MIRS, CMP
Sorocaba, Hurlingham, Sao Jose dos Pinhais, Goiana, Didcot, Ibirite
Dackia, AGOM
Feira de Santana and Santo Andre
HEALTH AND SAFETY INVESTMENTS
In the three-year period 2016-2018, investments in health and safety by the Group exceeded €37 million, of
which over €17 million was invested in 2018.
The investments made targeted improvements on machines and plant and, more in general, the workplace
environment as a whole (including improvement of microclimate and lighting conditions, changes in layout for
ergonomic improvement of activities, measures to protect the healthiness of the infrastructure, etc.).
27 The figure covers all the Group’s production sites, with the exception of the Izmit site for the
relative non-significant dimensions.
183
Report on Responsible Management of the Value Chain
EXTERNAL COMMUNITY
INSTITUTIONAL RELATIONS OF THE PIRELLI GROUP
The objective of the Institutional Relations Department
is to create corporate value through the management
of structured relationships with the Stakeholders of
reference in all the countries in which Pirelli is present.
Pirelli’s activities are underpinned by criteria of maximum
transparency, legitimisation and responsibility, both with
regard to information disseminated in public offices, and
to relationships managed with institutional interlocutors
in line with the Code of Ethics, the Institutional Relations -
Corporate Lobbying Policy and the Group Anti-Corruption
Compliance Programme (documents published on the
Pirelli website) as well as in line with the principles of the
International Corporate Governance Network (ICGN)
and in compliance with the laws and regulations in force
in the countries where Pirelli operates.
In the area of institutional relations, Pirelli acts above all via
active monitoring and in-depth analysis of the institutional
and legislative context, as well as identifying the applicable
Stakeholders. The activity of Institutional Relations also
includes an in-depth analysis of the global political and
economic dynamics, linked to the development of the
main topics of corporate interest, and benefits from
collaborations with selected think tanks of international
prestige. Among these are the collaborations with the
Institute for International Policy Studies, the Institute for
International Affairs, the Trilateral Commission and the
Aspen Institute.
its
At an international level, Pirelli interacts with the
main interlocutors present in the countries in which it
operates with its own production sites. When necessary,
the Group promotes initiatives directed towards mutual
understanding and with the purpose of promoting
representation of
interests through a strategy
based on a clear perception of the industrial objectives
and the promotion of the business. Moreover, among
the various instruments of “economic diplomacy”, in
addition to the promotion of bilateral initiatives, Pirelli
is particularly active in certain Business Councils,
among which the chairmanship of the China Business
Forum (BFIC), which it has held since December
2015, stands out. The BFIC is a permanent forum of
dialogue between the business communities of the
two countries set up under the aegis of the Italian
Ministry of Economic Development and the Chinese
Ministry of Commerce. During 2018, as part of the
BFIC, Pirelli continued to pursue activities to promote
bilateral dialogue and initiatives aimed at encouraging
collaboration between the business communities of the
two countries. In particular, as the co-president of the
BFIC and in collaboration with the relevant institutions,
the BFIC has promoted a series of initiatives aimed at
supporting bilateral collaboration, including the 5th
meeting of the BFIC, held in Shanghai on the occasion
of China International Import Expo in the presence of
institutional representatives of both countries, and the
Forum dedicated to SMEs, held in two major Chinese
provinces and which saw the participation of local
institutional leaders and Italian and Chinese companies.
As proof of the Group’s continued commitment to
strengthening relations with the countries in which it
operates, Pirelli took part in official visits in 2018 with
institutional representatives in Italy and abroad. In this
context, a series of bilateral meetings could be held, aimed
at deepening the Group’s industrial and commercial
issues with significant institutional impacts. These include
representatives of the US, British, Chinese, Turkish and
Russian governments.
In China, the Group is also committed to enhancing
relations with local institutional interlocutors, particularly
in areas where it is present with industrial plants, such as
the Shandong Province. Initiatives such as the seminar
in favour of economic cooperation with the Shandong
Province, visits to the Milan Headquarters of the
Governor of Shandong Province and the Chinese Minister
of Science and Technology accompanied by the Minister
of Education, University and Research of the Republic of
Italy, have fostered dialogue with the institutions both at
the local level and at the national level.
As part of the leveraging of the historical relations
between the Company and the United States of America,
where Pirelli has industrial and commercial facilities,
work continued on a number of initiatives related to
institutional projects and activities at the United States
Council for International Business, European American
Chamber of Commerce and Italian American Chamber of
Commerce, the Organisation for International Investment,
and the Eurogrowth initiative of the Atlantic Council. Pirelli
also maintains its Board membership in the Foreign Policy
Association.
Also in Brazil, Pirelli continued to celebrate the country’s
strong links with Italy, promoting, among others, meetings
with institutional representatives. Pirelli also maintains
relations with local institutions to protect its industrial
sites, distributed among the states of Sao Paulo, Bahia
and Rio Grande do Sul, with which a series of initiatives are
also developed to raise awareness on issues such as road
safety, the protection of the territory and the promotion
of culture.
In the European context, one significant activity concerns
Romania, in which Pirelli maintains a constant dialogue
with the main institutional interlocutors in order to
accompany the phases of industrial development at the
Slatina plant. Among the activities carried out in 2018,
during the state visit of the Romanian President in Italy,
184
Pirelli Annual Report 2018 Pirelli participated in the Economic Forum dedicated to
the promotion of bilateral economic relations.
As part of its relations with Turkey, the Group promotes
a constant dialogue with the country’s
institutional
representatives to accompany industrial activities and
keep the monitoring of the country’s economic and
political environment alive. In this regard, in February Pirelli,
together with the heads of the main Italian companies
present in Turkey, took part in a meeting with the Turkish
President and certain Ministers on a state visit to Italy.
In Russia, Pirelli promotes dialogue with institutional
interlocutors in order to support the Group’s industrial and
commercial activities in the country. In 2018, the Italian
Business Council was established in Russia, the chair of
which was entrusted to Pirelli. The Group also participated
in the twenty-second edition of the St. Petersburg
International Economic. Finally, Pirelli participated in the
Italo-Russian Business Forum in Rome, organised in the
margins of the Italian-Russian Council for Economic,
Industrial and Financial Cooperation.
Relations with European
Institutions also focus on
consolidating relations with Stakeholders of reference and
monitoring legislation. The ongoing dialogue and discussion
with the EU Commission, the Council and the European
Parliament concern a wide range of matters of corporate
interest; industrial policy, research and innovation, energy
and environmental policies,
transport and mobility,
technical regulations, domestic market and international
trade. At the various stages of drafting and formulating
European legislation, Pirelli represents Group interests
among EU Stakeholders. The Pirelli Group is enrolled
with the European Registry for Transparency, which was
instituted by an inter-institutional agreement between the
European Parliament and the European Commission.
In Italy, the Group continues to interact with a system of
relations that involve the main institutional bodies, both
central and local. The relations with the Ministry of Foreign
Affairs and International Cooperation are particularly
important in both central and peripheral areas, with which
the information activity is constant with respect to Pirelli’s
global presence to support the enhancement of the
interests of the country system abroad. To mark the Day of
the Republic, Pirelli exhibited its coloured tyres, produced
for the occasion in the special “Tricolour” version, in
the Embassies of the countries where industrial plants
are present. The Group’s relations with the Directorate
General for internationalisation policies and the promotion
of exchanges of the Ministry of Economic Development,
in particular aimed at coordinating the activities of the
Italian China Business Forum, are also distinguished.
During the year, Pirelli also supported various initiatives
to raise awareness on road safety and in favour of cultural
promotion. These include the collaboration with the State
Police for the realisation of the “Together for Safe Driving”
event, hosted in the Auditorium of the Milan Bicocca office.
the promotion and
In Italy, the Group is also always engaged in customary
in-depth analysis of institutional importance concerning,
in particular, issues relating to the Group’s industrial
strengthening of
presence;
international relations in the countries where the Group
operates with industrial sites; the analysis and in-depth
study of the impacts related to the regulatory discipline
of tyres and their entire life cycle; and other issues of road
safety and environmental sustainability related to both
production processes and the product.
MAIN INTERNATIONAL COMMITMENTS
FOR SUSTAINABILITY
The attention of Pirelli to sustainability is also expressed
through participation
in numerous projects and
programmes promoted by international organisations
and institutions in the area of social responsibility. A
number of the principal commitments made by Pirelli
worldwide are illustrated as follows.
UN GLOBAL COMPACT
Pirelli has been an active member of the Global Compact
since 2004 and since 2011 has been part of the Global
Compact Lead Companies. The Group endorses the
“Blueprint for Corporate Sustainability Leadership”,
which offers leadership guidelines envisaged in the Global
Compact to inspire advanced and innovative sustainability
performance in terms of management capacity for the
creation of sustainable value.
In 2018, the Global Compact has proposed a series
of initiatives to provide support in the definition of
strategies and partnerships for the pursuit of Sustainable
Development Goals (SDGs) launched in September 2015
in New York with the aim of accompanying the activities of
sustainable companies until 2030.
In this context, Pirelli’s participation is included in the
action platforms:
→ “Decent Work
in Global Supply Chains”:
in
December 2018 Pirelli and the other participating
companies signed the “Commitment to Action”,
publicly committing themselves to the sustainable
management of their supply chain;
→ “Financial Innovation for the SDGs”: in September
2018 the working group presented its first publication
“SDGs Bonds & Corporate Finance - A Roadmap to
Mainstream Investments”;
→ “Reporting on the SDGs”: following the publication in
2017 of the “Analysis of the Goals and Targets” report,
in July 2018 the working group published the guide
“Integrating the SDGs into Corporate Reporting: A
Practical Guide”.
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Report on Responsible Management of the Value Chain Since 2014, Pirelli has been a Founding Participant of the
SSE Corporate Working Group, the group of companies
that provide their own evaluations and indications as
part of the Sustainable Stock Exchanges (SSE) initiative
promoted by UNPRI, United Nations Conference on
Trade and Development, United Nations Environment
Programme Finance initiative and the UN Global Compact.
The initiative aims to increase the attention of world stock
markets, investors, regulators and companies to the
sustainable performance of companies.
ETRMA – EUROPEAN TYRE AND RUBBER
MANUFACTURERS ASSOCIATION
ETRMA is the main partner of the EU institutions for
the sustainable development of new European policies
for the sector and for their proper implementation. With
the institutional support of the Pirelli Group, in 2018,
the association continued to raise awareness of the
European Commission and European Union Member
Countries on the implementation of market surveillance
for monitoring compliance with regulations on the general
safety of vehicles and tyres and on energy efficiency, as
well as the labelling of tyres in European Countries, and
through the strengthening of the partnership with the
national associations of the sector of which Pirelli is an
active member.
In 2018 ETRMA started the Connected & Autonomous
Driving (CAD) working group aimed at responding to
the new challenges deriving from technological changes
concerning the mobility sector (connectivity, autonomous
driving, etc.); the project is an evolution of the 2030 GEAR
working group that ended at the end of 2017.
Moreover, ETRMA has continued its heavy involvement in
the implementation of the Emission Trading Scheme, with
the aim of reducing the economic impact for the sector
of European energy policies and the European Innovation
Partnership on Raw Materials and guaranteeing fair and
unrestricted access to key raw materials for the sector.
supports
the association
Finally,
the European
Commission in the definition of policies on the Circular
Economy for the sector and is successfully continuing
in promoting sustainable manufacturer responsibility
practices for the management of end-of-life tyres,
thanks to which Europe maintains a 95% recovery rate,
through close collaboration with the various operating
partnerships existing
in European countries. The
ETRMA (and European) best practices continue to be an
international benchmark.
ETRMA maintains a proactive role in the development
of cognitive studies regarding environmental
issues,
such as Tyre Road Wear Particles, and health issues, for
example the filling material obtained from end-of-life
tyres for sports fields. As for the so-called Tyre Road Wear
Particles (TRWP), micrometric particles produced by the
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combined wear and tear of the road and the tyre during
vehicle circulation, ETRMA - launched “The European
TRWP Platform”, a “multi-stakeholder” initiative that
aims to share scientific knowledge and to involve relevant
Sectors and Organisations, in order to identify a holistic
and balanced approach for the definition of possible
actions for the mitigation of the impacts of TRWPs.
IRSG – INTERNATIONAL RUBBER STUDY GROUP
Pirelli, in representation of the European Commission,
is a member of the Industry Advisory Panel of the
International Rubber Study Group (IRSG) based
in
Singapore, an intergovernmental organisation that brings
together producers and consumers of rubber (both
natural and synthetic), acting as a valuable platform for
discussion on issues regarding the supply and demand
for natural and synthetic rubber. It is the principal source
of information and analysis on all aspects related to the
rubber industry. Within IRSG, Pirelli participated in the
Sustainable Natural Rubber Project, which resulted in
the management guidelines for the Sustainable Natural
Rubber Initiative (SNRi) launched in 2014, during the
World Rubber Summit.
WBCSD – WORLD BUSINESS COUNCIL
FOR SUSTAINABLE DEVELOPMENT
Pirelli for years has been a member of the WBCSD (World
Business Council for Sustainable Development). This is
a Geneva-based association of about 200 multinational
companies based in over 30 countries that have made
a voluntary commitment to link economic growth to
sustainable development. In particular, Pirelli endorses
two projects: Tire Industry Project and SiMPlify project
(previously the Sustainable Mobility Project - SMP).
The Tire
Industry Project (TIP), whose members
account for about 65% of global production capacity
of tyres, was founded in 2005 with the objective to
seizing and anticipating the challenges of sustainable
development through the assessment of the potential
impact on health and environment of tyres throughout
their life cycle. The project extends its evaluation
activities to raw materials, tyre debris, with with an
upcoming focus on India rubber and nano-materials.On
the latter issue, in collaboration with the Organization
for Economic Cooperation and Development (OECD),
TIP has developed a specific guide was developed for
the sectors that contains best practices of reference
for research, development and industrialisation of new
nano-materials, so as to ensure that the use of any nano-
material is safe for people and the environment; the
document is available at the website: http://www.oecd.
org/chemicalsafety/nanosafety/nanotechnology-and-
tyres-9789264209152-en.htm.
The TIP has also finalised the development of “product
category rules” (PCR), published in 2018, necessary
to carry out the life cycle assessments (LCAs) of the
Pirelli Annual Report 2018 product, as well as to develop the “environmental product
declarations (EPDs)” for tyres, so that the results are
comparable between the various manufacturers. With
reference to the aggregated sector environmental
reports, TIP has published the first “Key Environmental
Indicators - Tire Industry Project (TIP) over the period
2009-2015” which presents
the environmental
performance related to CO2 emissions, consumption
energy, water withdrawal and ISO 14001 certification of
the environmental management systems of the factories
where the tyres are produced.
Also in 2018, TIP has worked on the international promotion
of best practices on end-of-life tyre management, in
terms of valorisation of recovery and reuse as a second
raw material.
In October 2018 TIP launched the “Global Platform for
Sustainable Natural Rubber” (GPSNR), a multi-stakeholder
platform aimed at promoting a more sustainable
management (from a socio-economic and environmental
point of view) of the value chain of the natural rubber.
Future TIP projects concern the assessment of the
presence of microplastics in the marine environment.
The SiMPlify Project, in which Pirelli has participated
since 2013, has developed a vision linked to an idea
of urban mobility that is universally accessible and
with low environmental impact, for the transport of
both passengers and goods in urban context. The
project (2013-2019) involves international companies
in the automotive, autoparts, transportation, oil & gas,
information and communication technology sectors.
The project used the support of the University of Ghent
and experts in the field and planned a tool based on
numerical data normally available in the municipalities
of cities - such as, for example, the number of
inhabitants, the number of cars, kilometres of cycle
paths - which, together with an on-line survey aimed
at citizens, allow the calculation of 19 indicators on the
state of mobility in the city and a subsequent proposal of
ad hoc solutions derived from best practices available
worldwide. In a first phase the project was implemented
in six pilot cities such as Hamburg, Bangkok, Chengdu,
Indore, Lisbon and Campinas. The project continued
in 2018 and extended its support activities to other
cities worldwide; Pirelli has followed, in particular, the
project of Feira de Santana, home to a major Brazilian
factory of the Group, which, thanks to the support of the
project team, has started a profound review of its urban
mobility. The effectiveness of the project and its tool
is confirmed not only by the satisfaction of the cities
where it has already been used, but also by the various
acknowledgments received from various international
organisations, including the European Commission,
which decided to adopt the tool to support 50 European
cities in this regard.
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EU-OSHA – EUROPEAN OCCUPATIONAL
SAFETY AND HEALTH AGENCY
In 2018, for the seventh consecutive year, Pirelli continued
to be an official partner of the European Occupational
Safety and Health Agency (EU-OSHA), which addresses
a different problem every two years. The 2018-2019
“Healthy Workplaces Manage Dangerous Substances”
campaign aims to raise awareness about the risks posed
by hazardous substances in the work environment and to
promote a culture of preventing these risks. By joining the
Campaign, Pirelli confirms its commitment to promoting
a healthy work environment, in which chemicals are
correctly and carefully managed in order to minimise
risks to workers’ health and the environment.
CSR EUROPE
Since 2010, Pirelli has been a member of the Board
of CSR Europe, represented by the Sustainability and
Risk Governance Director. CSR Europe is a network
of companies in Europe that are leaders in the area of
corporate social responsibility. Its members include more
than 40 multinational companies and 41 national partner
organisations from 33 European countries.
In 2018 CSR Europe continued with the “European
Pact for Youth” initiatives, launched in 2015, and the
“Sustainable Business Exchange”, launched in 2016
to support the achievement of the United Nations’
sustainable development objectives.
Pirelli has chosen CSR Europe for the organisation of
the Pirelli Global Stakeholder Dialogue 2016, of the
consultations of the Stakeholders carried out in the same
year in Romania, Mexico, Germany and Turkey, in 2017 in
Russia and Argentina and in 2018 in the United Kingdom
and the United States. Furthermore, in September 2017
and October 2018, CSR Europe moderated the two multi-
stakeholder consultations held by Pirelli and concerning
the draft of the Company Policy on the sustainable
management of natural rubber (published in October
2017) and the draft of the related Implementation Manual
(published in December 2018).
INTERNATIONAL COMMITMENTS
AGAINST CLIMATE CHANGE
For years Pirelli has shown its commitment to the fight
against climate change, promoting the adoption of
adequate energy policies aimed at the reduction of CO2
emissions.
This commitment was also confirmed in 2018, by joining
the Task Force on Climate-related Financial Disclosures
(TCFD), set up by the Financial Stability Board (FSB), with
which Pirelli undertook to disclose information voluntarily
on risks and opportunities related to climate change as
indicated in the TCFD recommendations.
Report on Responsible Management of the Value Chain Over the years, Pirelli has also participated in numerous
events and projects such as the Climate Conferences
“COP24” in Katowice (2018), “COP23” in Bonn (2017)
and “COP22” in Marrakech (2016), the “Business for
COP 21 Initiative” (2015) and participated in several side
events organised during the “COP21” Climate Conference
in Paris (2015).
Throughout 2014, the Group joined the “Road to Paris
2015” project and signed three initiatives consistent with
its sustainable development strategy:
→ Responsible Corporate Engagement in Climate Policy;
→ Put a Price on Carbon;
→ Climate Change Information in Mainstream Filings of
Companies Communication.
the document
Also in 2014, the Company signed the Trillion Tonne
Communiqué,
requires global
emissions over the next 30 years to remain below the
trillion tonnes of greenhouse gases in order to avoid a rise
in average global temperature higher than 2°C.
that
Pirelli has also signed numerous international agreements
such as “The Carbon Pricing Communiqué” (2012),
the “2nd Challenge Communiqué” (2011), the “Cancún
Communiqué” (2010), the “Copenhagen Communiqué” as
well as the “Bali Communiqué” (2007), the first document
for the development of concrete strategies for a global
climate agreement to be implemented through a joint
government intervention.
COMPANY INITIATIVES
FOR THE EXTERNAL COMMUNITY
As specified in the Group “Ethical Code”, Pirelli provides
support to educational, cultural, and social initiatives for
promoting personal development and improving living
standards. The Company does not provide contributions
or other benefits to political parties or trade union
organisations, or to their representatives or candidates,
this without prejudice to its compliance with any relevant
legislation. Since the founding in 1872, Pirelli has been
aware that an important role in the promotion of civil
progress in all the communities where it operates and,
capitalising on the Company’s natural strengths, it has
identified three focus areas: road safety, technical training
and solidarity through sporting activities for young people.
Pirelli for some years has adopted an internal procedure
to regulate the distribution of gifts and contributions to
the External Community by Group companies, in relation
to the roles and responsibilities of the functions involved,
the operational process of planning, realising and
monitoring the initiatives and the disclosures regarding
the same. Essential support in the identifying of the
actions that best satisfy local requirements comes from
the dialogue with locally operating NGOs. Priority is given
188
to those initiatives whose positive effects on the External
Community are tangible and measurable according to
objective criteria. The internal procedure also specifies
that no initiatives may be taken in favour of beneficiaries
for whom there is direct or indirect evidence of violation
of human rights, worker rights, environmental protection
or business ethics.
The contributions to the External Community by Group
companies are part of a broader strategy to support
the achievement of
the Sustainable Development
Goals of the United Nations (SDGs), in the paragraphs
“UN Sustainable Development Goals” and “UN Global
Compact”. At the end of each of the following paragraphs,
the SDGs are indicated which are most directly impacted
by the activities of the Company described therein.
ROAD SAFETY
Pirelli is synonymous worldwide not only with high
performance, but also safety. Together with environmental
protection, road safety is the key element of the Green
Performance strategy that inspires the Group’s industrial
and commercial choices. Pirelli’s commitment to road
safety takes the form of numerous training and awareness-
raising activities, but above all it translates into research
and the ongoing application of innovative technological
solutions for sustainable transport.
Pirelli’s commitment to road safety passes first and
foremost through the product: the tyre is in fact the only
part of the vehicle that interfaces directly with the road
and as such is the cornerstone of road safety. Road
safety has always been a cornerstone of the Pirelli brand.
“POWER IS NOTHING WITHOUT CONTROL™” is the
Pirelli vision of mobility, which combines performance
and safety. Structural and material improvements to
improve traditional safety performance such as road
grip, wet and dry braking, are combined with the most
advanced technologies such as Run Flat and Seal Inside,
which bring road safety to a higher level, allowing you to
maintain control even in the most critical moments, such
as a puncture.
Pirelli’s commitment to road safety does not stop with
product innovations, but also extends to the promotion
of the principles of road safety and safe driving through
participation in dedicated projects and campaigns.
Bearing witness to this commitment, Pirelli in 2018,
as the first tyre manufacturer to do so, joined the
United Nations “Road Safety Trust Fund” which aims
to support States to reduce the number of deaths and
injuries caused by road accidents. The Fund supports
the implementation of national plans, as well as concrete
actions and projects aimed at improving the safety
of infrastructure and vehicles, promoting the correct
behaviour of road users and managing the post-accident
period efficiently.
Pirelli Annual Report 2018 In 2018 Pirelli also continued to support FIA in the “Action for Road Safety” campaign, created to support the
ten actions for road safety organised by the United Nations at the end of 2011. The FIA campaign promotes
initiatives and training and information campaigns aimed at encouraging more responsible automotive
behaviour and building safer roads and cars. As the Global Partner of this campaign, Pirelli has signed “The
Golden Rules” of road safety, committing itself to disseminate them during events on the topic and through its
distribution network.
On the subject of road safety, Pirelli is also a signatory to the European Road Safety Charter, through which it
engages in various areas, including the dissemination of knowledge about the basic elements of road safety,
the growth of awareness of young drivers on the causes of road accidents, the dissemination of information on
winter safety at its points of sale, training seminars, etc.
Also at Group level, since 2013, Pirelli has participated in the SiMPlify project by the WBCSD that proposes
solutions for the redefinition of urban mobility with a focus on the issues of sustainable mobility and road
safety. For further details on Pirelli’s involvement in this project, reference is made to the paragraph “WBCSD”
of this Report.
There are numerous road safety initiatives implemented in the countries where the Group operates.
In Italy, also in 2018, the activity regarding Assogomma continued: the colleagues involved in product training
were directly involved in the provision of courses to the Traffic Police in the framework of the “Summer of Safety”
activity and participated in the event held in January in Sestriere, where the most senior representatives of the
Italian Traffic Police were spectators and protagonists of the driving of vehicles with summer and winter tyres,
to test for themselves the difference in effectiveness on snow-covered surfaces. Training activities aimed at
raising awareness on the issue of road safety have also been given to young people in a school environment,
through different events held in collaboration with the Traffic Police, and also through training courses at
vocational colleges, as in the case of Don Orione di Fano.
In the USA and Canada, a “Tire Safety Week” was organised, a series of initiatives on safe driving that involved
other tyre manufacturers, and in the UK “Tyre Safety Month” was organised (substantial contribution to
education in road safety); in Mexico, in collaboration with a local television channel, messages on road safety
were broadcast in 2018 in the State of Guanajuato. Also in Mexico, Pirelli sponsored an automobile museum,
lending 19 tyres of different types to the exhibition.
In Russia, as occurs every year in August, Pirelli has collaborated with the city of Kirov (the traffic police
department, car dealers, and the local newspaper) in the “Kirov is for politeness on the road” campaign.
Multiple initiatives in favour of road safety education on two wheels. Pirelli Moto in 2018 increased its
collaboration with driving schools for the development of practical and safe on-road and off-road experience.
The various initiatives include Metzeler Off-road Park, Old School Racing by Alex Gramigni, GS Academy in
collaboration with BMW, Ducati Racing Experience in collaboration with Ducati and True Adventure Academy
in collaboration with Honda.
Lastly, as in previous years, a section of the website was dedicated to driving tips, for summer and winter,
highlighting the important role played by the tyres in the active safety of vehicles and its occupants.
SDGs - Reference Targets:
3.6, dedicated to reducing the number of deaths and injuries due to road accidents;
11.2, in support of safer, more accessible and sustainable transport systems, with particular attention
to the needs of the most vulnerable groups.
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Report on Responsible Management of the Value Chain in the world
TRAINING
The promotion of technical education at all levels and
training are very old values that are well-established
in the history of Pirelli. The Group continues to benefit
from technical and research cooperation with various
including the Polytechnic
Universities
University of Milan, the Polytechnic University of Turin
and the Bicocca University of Milan in Italy, the University
of Craiova and the Polytechnic University of Bucharest
in Romania, the University of Qingdao in China, and
the Technical University of Darmstadt, the University
of Applied Sciences of Aschaffenburg, the DHBW of
Mannheim and the Berufsschule of Michelstadt, Germany,
to name a few.
In China, Pirelli sponsored 36 scholarships for Science
and Technology students of the University of Qingdao.
In Romania the partnerships with the Universities of
Craiova and Pitesti and the Polytechnic University of
Bucharest concern the recognition of scholarships
and the support to an IT Academy and a Master in
Automotive for the faculties of electrotechnics, industrial
automation, electronics, mechanics and physics. Also
in Romania with the technical colleges Alexe Marin and
Metallurgical Technical College, Pirelli organised the
training programme “Train Yourself for Success” which
reached 50 students with courses and workshops on
electronics and mechanics, road safety and information
on tyres. In 2018 Pirelli also hosted 28 students from a
dual school in a pilot project of mechanics and electronics
and supported the participation of a Slatina high school
team at an international robotics competition in Thailand.
In Turkey, Pirelli shared its expertise with the universities
of Kocaeli and Bogazici and hosted 19 short-term interns
and 31 long-term interns who had come from several
universities in the country. In addition, the company
continued the “Chasing Innovation” project launched in
2016 and dedicated to high school students interested
in the topic of innovation and the acquisition of tools and
skills needed for the 21st century.
In Germany, the company supported several middle and
high schools: EGS Höchst, Gymnasium of Michelstadt,
GAS Rai-Breitenbach and CWS Bad Koenig.
In Italy, during 2018, saw the continuation of the Alternanza
Scuola Lavoro project, launched in 2017 and governed by
the 2015 “Good School” law. The project, designed on a
three-year basis, involves two classes of chemical and
technological institutes in the area and aims to accompany
the children belonging to the classes involved throughout
the three-year period, in order to guide them to discover
what a company is, to support them in understanding
the main dynamics of company management and to
help them in the delicate phase of professional choice
and orientation. Adhering to the project, Pirelli therefore
facilitates schools in the regulatory compliance of the
provisions of the Decree, supports the territory in the
promotion of school excellence and internally promotes
the management of generational diversity thanks to the
involvement, within the project, of senior Pirelli colleagues
in the role of mentors and guides for the young students
involved.
Technical training has a fundamental role in the creation of
a skilled labour pool needed to maximise plant productivity.
In Mexico, the Piero Pirelli Institute for technical training,
inaugurated in 2015, is equipped with the most advanced
learning tools (virtual simulator, automatic controls,
pneudraulic systems, electrical, electro-mechanical,
mechanical and measurement systems). Within the
institute, there are numerous classrooms, a showroom
on the process, materials and 3D models of the product,
production workstations that use both virtual reality and
physical warehouse simulators, service areas and offices.
Training does not only concern the production process
at the factory; for Pirelli, the entire life cycle of the tyre is
important. In fact, the Group is focused on disseminating
sustainable agriculture practices for raw materials such
as natural rubber. In Indonesia, in collaboration with the
supplier Kirana Megatara, Pirelli continued the “Rubber
Productivity Enhancement Project” with three main
objectives:
→ educating natural rubber farmers by teaching the
correct procedures for rubber extraction enabling
the protection of natural resources (maximising
productivity and maintaining and extending the life of
trees);
→ to distribute high quality natural rubber trees to
farmers, so as to increase the productivity of trees in
their plantations;
→ giving scholarships to the children of natural rubber
growers, to allow them to go to school and buy school
books.
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Pirelli Annual Report 2018 168 families participated in the programme in 2018.
SDGs - Reference Targets:
4.4, dedicated to increased technical training to youth and adults, aimed at increasing manual skills and entrepreneurship;
9.5, referring to support for scientific research and increased technological capabilities of the industrial sectors.
SPORT AND SOCIAL RESPONSIBILITY
There is a close link between solidarity and sport, in a virtuous circle where commitment to sports becomes
synonymous with the commitment to promoting solidarity and ethics, especially amongst young people.
Getting young people involved in sport is a way to teach the notion of integration to children from different
social groups, and helps prevent negative situations like isolation and solitude. Pirelli signed a global agreement
not only for the sponsorship of the professional football club FC Internazionale Milano (“Inter”), but also as a
partner of the global social project Inter Campus.
Since 1997, Inter Campus has developed social, flexible cooperation and long-term actions, in 29 countries
around the world with the support of 200 local operators, using football as an educational tool to offer needy
boys and girls aged between 6 and 13 the right to play.
Since 2008, Inter and Pirelli, along with a local partner, have been running the Inter Campus social project in
Slatina, Romania. The sports and recreational activities are organised for the entire year, involving over 100
children from different social contexts who have been learning team spirit, social integration and the values
of friendship through football for years. In 2018, 400 boys from the southwest of Romania were hosted in the
Inter Campus Tour.
Since 2012, Pirelli and Inter have replicated the experience of Inter Campus in Mexico: Inter Campus Silao,
near the Pirelli factory, inaugurated by President Felipe Calderon, involves about 120 children from the area.
In 2014, Pirelli and Inter launched an Inter Campus project together in Voronezh, Russia, involving three local
orphanages with about 100 children.
In the United States, Pirelli sponsored the local Rome Braves team in Georgia. In Russia, Turkey and the United
Kingdom, Pirelli has sponsored various charity fundraising events.
In Kirov, Russia, Pirelli sponsored the “Pirelli Cup” in ice hockey, involving several teams of boys (112 participants).
In Germany, Pirelli supported a football tournament for children in Sandbach and a football league in Romania.
SDGs - Reference Targets:
3, dedicated to guaranteeing a healthy lifestyle and promoting well-being for everyone, at all ages.
SOLIDARITY
The responsible approach taken by Pirelli to involvement and inclusion takes the form of social solidarity
activities worldwide. The Company supports educational and didactic programmes that are able to give less
fortunate children the tools to improve their condition; it contributes scholarships and research projects, firmly
believing in training as vital to individual growth and the economic growth of a country.
In Spain, the Company supports programmes providing food for needy families, and a warehouse for the
storage of food for the poor. Pirelli collaborates with the AMPANS Association, which takes care of the
cognitively disabled. Pirelli also contributed to a solidarity project aimed at facilitating job search for people
with intellectual disabilities.
In Moscow, Pirelli contributed to the “Chance” project that provides private lessons to orphans, and some
employees have participated in sports challenges to support programmes for sick children. Pirelli organised an
educational and fun trip to Moscow for a group of orphans of Kirov, a place where Pirelli has a production plant.
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Report on Responsible Management of the Value Chain An important activity undertaken by Pirelli for the Kirov community is the support of orphanages. In Voronezh,
also in Russia, Pirelli helped to build a multifunctional sports area in the Rostovkiy park and the employees took
care of charity for the elderly, bringing in gifts.
In Turkey too, a group of Pirelli employees ran a marathon, raising funds for the education of 130 autistic children,
through the TOHUM foundation. Pirelli also hosted 45 disabled children on a factory visit. In Canada, a group
of employees cooked for the needy, as well as presenting a donation to the Le Garde-Manger philanthropic
agency.
In China, Pirelli supported 90 orphaned and/or impoverished children in Yanzhou. In Mexico, Pirelli is contributing
to the creation of a community centre that offers sporting and cultural activities, as well as technical training,
and will contribute in 2019 to the creation of a community centre in Leon, called the Booster Centre.
In the United States, Pirelli sponsored the Boys & Girls Club of Rome, Georgia, which takes care of disadvantaged
children after school, helping with tasks, sports, career advice and special projects such as robotics.
In the United Kingdom, Pirelli supported a philanthropic trip to Ghana. In Germany, Pirelli sponsored a new
watersport playground for the Mumlingstrolche nursery school and contributed to the Ehrenamtsagentur
association for the integration of refugees into society. Furthermore, Pirelli Deutschland supported the LKMF
association with donations (both by the company and by its employees on a voluntary level) and voluntary work.
LKMF helps disabled people and people with dwarfism. In Romania, 70 Pirelli employees worked to restructure
a centre for child victims of abuse and the company also made a financial donation.
SDGs - Reference Targets:
11, dedicated to the development of cities and social environments that are inclusive, safe and sustainable.
1, on the eradication of poverty in all its forms;
2, related to the elimination of hunger in the world;
HEALTH
Pirelli considers contributing to improving the health services of the communities where it operates to be
important. Since 2008, Pirelli Tyres Romania, in collaboration with the Niguarda Hospital in Milan, has supported
the professional training of medical and nursing professionals and the donation of medical equipment and
devices to Slatina Hospital. Over 290 professionals were trained in this programme, and specifically in oncology,
paediatric care and emergency care. Pirelli Tyres Romania has also provided dental treatment to around 350
children in Slatina through the project Overland for Smile.
In many countries Pirelli promotes a healthy and active lifestyle with various projects, both among its employees
and in the local community. For example, in Mexico it organises a race for employees and their families each
year. In Turkey, a blood donation campaign was organised among the employees.
In several countries, Pirelli makes donations to scientific research and supports voluntary projects by
employees to raise funds for research. In Canada, a donation was made for breast cancer research. In the
Netherlands, Pirelli sponsored the “Friends of Sophia”, projects for children at the Rotterdam hospital and
made donations to two foundations that help children with tumours. The company has also made donations for
paediatric cancer in Belgium.
In the UK, several donations were made for Alzheimer’s, cancer and leukaemia research, and contributions
were paid for neonatal intensive care and a hospice.
In Spain, Pirelli participated in the “Somos Uno” Solidarity Day, raising funds for biomedical research into
childhood diseases and Alzheimer’s.
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Pirelli Annual Report 2018 SDGs - Reference Targets:
3, dedicated to guaranteeing a healthy lifestyle and promoting well-being for everyone, at all ages.
ENVIRONMENTAL INITIATIVES
Many Pirelli employees around the world enthusiastically participate every year in environmental projects.
Employees in France, Russia and Australia wanted to promote recycling initiatives. The New York office has
obtained the “Green Seal Green Office Partner” certification.
In Romania more than 250 Pirelli employees took part in “World Cleanup Day”, while in Russia 40 employees
of the Moscow office, together with a group of orphaned children, planted more than 100 blackcurrant bushes
in the botanical garden. In Voronezh, the employees cleaned the park near the Pirelli factory during the “City
Cleaning Day”. In September 2018 in Kirov, with the participation of Pirelli, the “Clean Games” were held,
competitions to collect and sort the rubbish.
In Mexico, Pirelli continued to sponsor a reforestation project with the State of Guanajuato on 40 hectares
of land, involving employees. In Germany, Pirelli supported the “Plant for the Planet” project, with the
consciousness-raising of children and adults to climate challenges, identifying common actions, including
planting trees. In Turkey, to award 16 “champions” (employees recognised for excellent projects), a donation
was made to the World Wildlife Fund for the adoption of sea turtles.
A major project to preserve the forest areas was Kirana Megatara in Indonesia, already described in this chapter
in the section on training, aimed at maximising productivity and maintaining and extending the useful life of
natural rubber trees.
SDGs - Reference Targets:
12.5, aimed at reducing the generation of waste through reduction, recycling and reuse;
15.2, related to the promotion of sustainable forest management, to reduce deforestation and increase reforestation.
CULTURE AND SOCIAL VALUE
The internationality of Pirelli also emerges from the love for culture, with initiatives in many countries worldwide
also in 2018. The attention to culture, and even more the commitment to preserve it, spread it and enhance it,
are part of the DNA of the creation of social value.
Pirelli in Brazil continued, after the restoration of the Cristo Redentor in Rio de Janeiro, to perform maintenance
on the famous statue. In the field of music, Pirelli sponsors the Mozarteum project in Brazil, which presents
major international classical music orchestras. Also in San Paolo, Pirelli sponsored in 2018 Escola Criativa, an
artistic space and cultural project that gives expression to visual arts such as graffiti, photography and design.
In Romania, Pirelli sponsors theatre days for the community, and employees have donated more than 500
books to create a library for patients at the Slatina Hospital.
In Russia Pirelli was a partner of the Platonov international art festival, in Voronezh. More than 77,000 people
visited the festival, which featured music, theatre, literature and art and culminated in the open air “Music of the
World” concert. Also in Voronezh, Pirelli sponsored the Governor’s Ball, a fund-raising dance to promote young
music and artistic talents. Also in 2018, an exhibition of the Pirelli Calendar was presented at the Multimedia Art
Museum in Moscow, and in other Russian cities. In November, an exhibition was opened at the Kirov Museum,
“History of Tyre Production in Kirov.” The exhibition contains documents, photos and handiworks.
In Turkey, Pirelli made a donation to the Association for Supporting Contemporary Life.
193
Report on Responsible Management of the Value Chain In Italy, the commitment to activities that generate value for the territory is evidenced by the numerous and
consolidated collaborations with prestigious national and international entities and institutions: in particular,
in the art world, with the FAI (Italian Environment Fund), in the world of the theatre with the Piccolo Teatro di
Milano and the No’hma Teresa Pomodoro Theatre, and in music with the Villa Arconati Festival and the Teatro
alla Scala Foundation.
SDGs - Reference Targets:
4, aimed at promoting quality education and all forms of equitable and inclusive learning.
FONDAZIONE PIRELLI (PIRELLI FOUNDATION)
One of the missions of the Fondazione Pirelli, or Pirelli Foundation, established in 2008, is the preservation of
the Group’s historic and cultural heritage and the promotion of its corporate culture through initiatives with a
strong social and cultural impact, exhibitions, as well as collaborations with other cultural institutions.
Also in 2018, the year of the Foundation’s first ten-year anniversary, numerous activities have been launched
aimed at enhancing the company’s historical and artistic heritage. The following initiatives should be noted.
The publishing project “Il Canto della fabbrica” (Mondadori, June 2018, Italian and English edition), dedicated
to the story of the Pirelli factory as a testimony of industry 4.0 and the homonymous concert-event presented
in world premiere on 8 September 2017 in the Manufacturing Department of the Pirelli factory in Settimo
Torinese. The project has also developed in the digital field with the implementation of the dedicated website
ilcantodellafabbrica.org. The communication of the project and the event reached more than 111,400 users
through the Foundation’s social media accounts; 25 articles were released in the press. On 4 June 2018, during
an evening of celebration of the Foundation’s 10 years of activity, the book was presented in the Auditorium of
the Pirelli Headquarters to about 600 people (including over 100 employees). The Italian Chamber Orchestra
conducted by Maestro Salvatore Accardo performed the piece “Il Canto della fabbrica”.
Exhibition “Advertising with a capital P” (from July 2018, Fondazione Pirelli): multimedia exhibition with a focus
on Pirelli advertising from the 1970s to the early 2000s, told through video installations and display of original
communication materials created by great artists and designers, and by international agencies. From July to
December 2018, over 1,700 people visited the exhibition.
Educational and training activities:
→ Pirelli Educational Foundation: about 2,125 primary and secondary school students and about 270 teachers
involved in education and training. The Pirelli Foundation also participated in the Festival of Robotics, the
Conference on Science and Literature at the Istituto Giulio Natta in Milan, the Road Safety Exhibition at the
Wow-Space of Comics, at the Coolest Projects Festival at the Polytechnic University of Milan, proposing
training activities that saw the overall involvement of 670 children and about 80 teachers;
→ University: lessons and guided visits to about 265 students coming from the main Italian and foreign
universities (particularly UCSC Catholic University of the Sacred Heart, University of Milan-Bicocca, IULM,
NABA, Salesian University College Paul VI of Milan, Linköping University, Delft University of Technology).
Digital communication: production of about 800 pieces of social content and activation on the fondazionepirelli.
org website of the weekly section “History and stories from the Pirelli world”. The website has been visited
approximately 54,000 times (+ 24% vs 2017). The Foundation’s social media accounts of the Facebook,
Instagram and Twitter (the latter activated in 2018) have about 9,500 followers (+25% vs 2017).
194
Pirelli Annual Report 2018 Special events dedicated to “Promotion of Reading”:
→ Audiovisual Collection: 89 films catalogued and
→ participation in the “Tempo di libri” fair: around 2,400
visitors were welcomed at the stand, including about
120 children and young people involved in the Pirelli
Foundation Educational activities;
→ “Tales of Milan industrial city” event in collaboration
with Teatro Franco Parenti, Bookcity Milan and
University of Milan-Bicocca (Pirelli Headquarters,
over 400 participants).
Brand enhancement projects to support the Business
Units: research and loans of materials: about 80 requests
divided between Pirelli stand fittings at fairs and events;
PZero stores; plants and offices in Italy and abroad,
merchandising,
in collaboration with Pirelli Design,
product brochures in collaboration with Pirelli Motorsport
and guided tours and events in the Foundation (about 500
guests from July to December 2018).
Projects to enhance the historical heritage in the eyes of
the external community:
→ Research and loans of materials: 86 requests divided
between exhibitions in collaboration with other cultural
institutions (e.g. the Milan Triennale, Urban Centre,
Milan, Assolombarda, Milan), documentaries (e.g.
“NEWMUSEUM (S). Stories of company archives and
museums”, Museimpresa), publications (e.g. “Talking
about a neighbourhood. Places, faces and memories
of Bicocca”“, in collaboration with the University of
Milan-Bicocca);
→ Initiatives to promote the Corporate Culture at the
Pirelli Foundation and the Pirelli Headquarters:
Guided tours of the Bicocca district in collaboration
with the University of Milan-Bicocca: “Discovering
the Gregottian places” (about 200 participants) and
“Bicocca Tales” (about 130 participants); Milan Movie
Week (guided tours with focus on the exhibition
“Publicity with a capital P” at the Foundation (about
100 participants); Open Archives - Photography
Network: guided tours of the Foundation with a focus
on photographers who contributed to the Pirelli
magazine in the 1960s (about 120 participants); 17th
Corporate Culture Week promoted by Museimpresa
(Confindustria, about 200 participants).
Works on the Historical Archive:
→ Photographic Collection: over 1,900 photographs
catalogued and digitalised, 5,331 photographs from
the Pirelli magazine digitalised and 1,000 photographs
published online;
→ Iconographic Collection: 785 catalogued and
digitalised advertisements;
→ Corporate In-House Organ “Facts and News”: 4,200
catalogued articles and 8,212 digitalised pages;
digitalised, and 64 films published online.
280 technical tyre drawings from the 1980s and 1990s
and large-format photography by Luca Comerio (1905)
were also restored.
In July 2018, the premises of the Historical Archives
were refitted with the exhibition of a new selection of
photographs, drawings and paintings, and two recently
acquired advertising posters.
Initiatives for the internal community Among these we
note:
→ Implementation of the assets and activities of the
Pirelli libraries in Milan Bicocca and Bollate: over
7,000 titles in the catalogue and over 1,500,000
materials, including books and multimedia, available
to employees,
the
collaboration with the Common Library System of
Milan (SBM). Overall, more than 3,000 loans were
registered in 2018, over 3,800 movements (loans
and extensions) and over 500 users. The Biblionews
newsletter has been activated with periodic updates
on books, libraries and reading (over 300 members);
the activation of
following
→ “Christmas at the Pirelli Foundation” (“Natale
in
Fondazione Pirelli”): preparation of the Foundation’s
spaces with decorations created from historical
advertisements and distribution of the “Christmas
leaflet (about 500
Tales” (“Racconti di Natale”)
participants).
More than 8,600 people participated in the Foundation’s
activities during 2018.
PIRELLI HANGARBICOCCA™
Pirelli HangarBicoccaTM, which with its 15,000 square
metres is one of the largest exhibition venues in Europe,
is a space dedicated to the production, exhibition and
promotion of contemporary art, created in 2004 from the
reconversion of a vast industrial facility that belonged to
Ansaldo-Breda.
The programming of solo exhibitions by the most
important international artists is distinguished by a
character of research and experimentation and special
attention to site-specific projects which are capable
og maintaining a dialogue with the unique features of
the space. The 2018 artistic programme, curated by
Artistic Director Vicente Todolí and curator Roberta
Tenconi, presented artists of great international profile,
alternating exhibitions of very successful names with
exhibitions of emerging artists. The programme managed
to attract an Italian and international audience composed
195
Report on Responsible Management of the Value Chain of art experts, representatives of the most important
museums, trade journalists and the general press, as well
as an equally large number of enthusiasts, families and
students. During the year there was a total attendance of
about 243,000 visitors who visited the 6 major exhibition
projects dedicated to Italian and international artists,
and the permanent installations I Sette Palazzi Celesti
2004-2015 by Anselm Kiefer and La Sequenza by Fausto
Melotti, in addition to the mural Efêmero by OSGEMEOS:
→ Lucio Fontana, “Ambienti / Environments”;
→ “Take Me (I’m Yours)”;
→ Eva Kot’átková, “The Dream Machine is Asleep”;
→ Matt Mullican, “The Feeling of Things”;
→ Leonor Antunes, “the Last Days in Galliate”;
→ Mario Merz, “Igloos”.
The vocation of Pirelli HangarBicoccaTM is that of a
space which is open to the city and its surroundings, of
an institution that accompanies the normal exhibition
activity with a range of programmes intended to attract
even the general public to contemporary art.
In 2018, the Public Program accompanied the exhibitions
with a full calendar of events, guided tours to the
exhibitions and the district, projections and meetings with
the key players in art and culture.
During the year there were 10 cultural events (daytime
and/or evening) that involved about 9,500 participants
in activities related to current exhibitions, including the
Generosity event at the end of the exhibition “Take Me
(I’m Yours)” which involved approximately 6,700 visitors.
In 2016 Pirelli HangarBicoccaTM launched the Membership
programme with the aim of creating a community that
shares a passion for contemporary art. In two years its
membership has reached the number of about 1,000
active Members. In 2018, 3 new agreements were signed
with the following institutions: Palazzo Strozzi, Florence;
CAMERA - Italian Centre for Photography, Turin; Bagatti
Valsecchi Museum, Milan.
In 2018 there were 11 activities dedicated to Members, of
which: 4 preview visits to exhibitions, 2 curatorial visits,
2 Family Labs reserved for Member Families and 3 visits
to other institutions. 13 dedicated newsletters. Among
the benefits, it is always possible to book in advance the
activities of the Public Programme and to take advantage
of special discounts on the purchase of exhibition
catalogues and the institutional line at the Bookshop and
at IUTA Bistrot.
HB Kids and HB Family activities for children aged
between 4 and 14, saw the participation of 2,000 children
and young people, in line with the figures from the
preceding years. The number of participants who took
part in the School activities was over 11,600 students,
while visits by Italian and foreign students and university
teachers involved about 2,000 people.
The education department also continued its guided
tours proposing activities in Italian and foreign language
in addition to the format “Art on Sunday” involving cultural
mediators in Sunday lessons on the history of art related to
the exhibitions and Bike Tours to discover the Bicocca area.
The Educational Department has collaborated with Italian
and international artists such as Roberto Fassone, Adelita
Husny-Bei and Eva Kot’átková. Projects were also shared
with the Fondazione Franco Albini and Fondazione Merz.
With a view to the enhancement of Anselm Kiefer’s I Sette
Palazzi Celesti 2004-2015, the collaboration with the
Milano Musica Festival continued with a concert weekend
in November 2018.
Inside the Bookshop, in addition to a selection of books
and catalogues related to current exhibitions, children’s
books, art-related essays, reference books are sold
merchandising products, including t-shirts and shoppers
with new graphics, small stationery and umbrellas with
the institutional logo, as well as postcards and posters
with exhibition images.
During the year Pirelli HangarBicoccaTM also hosted
18 major private events including the Annual Dealer
Convention and the Ferrari Customers Gala Dinner, the
Company Meetings of Swatch Italia, Siemens Healthineers,
the new edition of the Barilla World Nutrition Forum, the
dinners of Loro Piana, Moncler, Ducati and Pagani, as well
as the Charity dinners of Fondazione Umberto Veronesi
for fundraising for the paediatric project and Progetto
Itaca, both supported by Pirelli HangarBicoccaTM, granting
free use of the space.
196
Pirelli Annual Report 2018 197
Report on Responsible Management of the Value Chain Pirelli Annual Report 2018
REPORTON
THECORPORATE
GOVERNANCEAND
SHARE OWNERSHIP
OF Pirelli&C.S.p.a.
Pursuant to art. 123-bis of the Consolidated Finance Law (TUF)
(Traditional model of Administration and Control)
(Report approved by the Board of Directors of Pirelli & C. S.p.A. on 26 February 2019 in relation to the year
ended on 31 December 2018. The Report is also available on the website www.pirelli.com)
199
Glossary
Annual General Meeting: the shareholders’ meeting
called to approve the financial statements as of 31
December 2018.
Camfin: Camfin S.p.A., a company established under
Italian law controlled by Marco Tronchetti Provera through
MTP&C, with registered offices in Milan, Viale Sarca
no. 222, Tax Code, VAT and Milan Companies Register
number 00795290154.
ChemChina: China National Chemical Corporation, a
company established under Chinese law (state owned
enterprise or SOE) with registered offices at 62 West
Beisihuan Road, Haidian district, Beijing (People’s Republic
of China), registered with the State Administration of
Industry and Commerce of the People’s Republic of China,
registration number 100000000038808. ChemChina,
also through CNRC, SPV HK1, SPV HK2, SPV Lux and
MPI Italy indirectly controls the Company pursuant to
article 93 of the TUF.
CNRC: China National Tire & Rubber Corporation Ltd., a
company established under Chinese law with registered
offices at 62 West Beisihuan Road, Haidian district,
Beijing (People’s Republic of China), registered with
the State Administration of Industry and Commerce
of the People’s Republic of China, registration number
100000000008065.
Corporate Governance Code: the Corporate Governance
Code for listed companies, approved in July 2018 by the
Corporate Governance Committee and promoted by
Borsa Italiana S.p.A., ABI, Ania, Assogestioni, Assonime
and Confindustria.
Civil Code: the Italian Civil Code.
Board of Directors: the Board of Directors of Pirelli & C.
S.p.A.
Consob: the National Commission for Companies and the
Stock Exchange.
Report Date: indicates 26 February 2019, the date on
which the Board of Directors approved this Report.
First Trading Day: 4 October 2017, being the date on
which the shares of the Company were admitted to
trading on the MTA market organised and managed by
Borsa Italiana S.p.A..
the Registration
Registration Document:
Document filed with Consob by Pirelli on 15 September
2017 in relation to the listing of the Company’s shares
indicates
200
on the MTA, the electronic share market organised and
managed by Borsa Italiana S.p.A..
Year: the financial year to which this Report relates.
Group: collectively Pirelli and its subsidiaries, as defined
in art. 2359 of the Civil Code and art. 93 TUF.
IPO: the procedure for the
listing of Pirelli shares
completed in October 2017 with the start of trading on
the MTA.
LTI: Long-Term Investments Luxembourg S.A., a company
established under Luxembourg law controlled by Sergey
Sudarikov through WHPA Ltd., with registered offices
at 51 Boulevard Grand Duchesse Charlotte, L-2330,
Luxembourg (Grand Duchy of Luxembourg), Luxembourg
Companies and Commerce Register number B-187332.
LTI Italy: LTI Italy S.r.l., a company established under
Italian law, wholly owned by LTI, with registered offices
in Milan, via G. Carducci 32, Tax Code, VAT and Milan-
Monza-Brianza-Lodi Companies Register number
10449980969, subject to early termination, wound up
on 12 October 2018 and removed from the Companies
Register on 11 December 2018.
MTA: Electronic share market organised and managed by
Borsa Italiana S.p.A.
Marco Polo: Marco Polo International Italy S.p.A., a
company established under Italian law with registered
offices at via San Primo 4, Milan, Tax Code, VAT and Milan
Companies Register number 09052130961.
MPI Italy: Marco Polo International Italy S.r.l., a company
established under Italian law indirectly controlled by
ChemChina with registered offices at via San Primo 4,
Milan, Tax Code, VAT and Milan Companies Register
number 10449990968.
MTP&C: Marco Tronchetti Provera & C. S.p.A., a company
established under Italian law with registered offices at
via Bicocca degli Arcimboldi 3, Milan, Tax Code, VAT and
Milan Companies Register number 11963760159.
the shareholders’
New Shareholders’ Agreement:
agreement signed on 28 July 2017 by ChemChina,
CNRC, SRF, SPV HK 1, SPV HK 2, SPV Lux, Camfin, LTI
and MTP&C, with effect from the First Trading Day. The
essential content of the New Shareholders’ Agreement,
to which reference is made for further information, is
available on the Website (www.pirelli.com).
Pirelli: Pirelli & C. S.p.A., a company established under
Italian law with registered offices at viale Piero e Alberto
Pirelli 25, Milan, Tax Code, VAT and Milan Companies
Register number 00860340157.
Pirelli Annual Report 2018 Pirelli International: Pirelli International plc, a company
established under UK law with registered offices in Derby
Road, Burton on Trent (United Kingdom), registered with
the Companies House of England and Wales, number
04108548.
Pirelli Tyre: Pirelli Tyre S.p.A., a company established
under Italian law with registered offices at viale Piero
e Alberto Pirelli 25, Milan, Tax Code, VAT and Milan
Companies Register number 07211330159.
Issuers’ Regulation: the Regulation approved by Consob
resolution 11971/1999 (as amended) on the subject of
issuers.
Related Parties Regulation: the Regulation approved
by Consob resolution 17221 dated 12 March 2010 (as
amended) on the subject of related-party transactions.
Report: this report on corporate governance and the
ownership structure draft pursuant to art. 123-bis TUF.
NFD Report: the Report on Responsible Management
of the Value Chain (which constitutes the Consolidated
non-financial disclosure pursuant to Legislative Decree of
December 30, 2016, no. 254) drafted by the Company in
accordance with the Sustainability Reporting Standards
of the Global Reporting Initiative (GRI) - Comprehensive
option - and the principles of inclusiveness, materiality
and compliance with the AA1000 APS Standard.
Remuneration Report: the report prepared pursuant to
art. 123-ter TUF.
Camfin Demerger: non-proportional partial demerger of
Camfin S.p.A. into a newly incorporated company owned
by Manzoni S.r.l., resolved by the Camfin shareholders’
meeting on 10 December 2018. The Camfin Demerger
came into effect on 17 December 2018.
Marco Polo Demerger: non-proportional total demerger
of Marco Polo into beneficiaries MPI Italy, Camfin and LTI
Italy, resolved by the shareholders’ meeting of Marco Polo
and Camfin on 2 August 2018. The Marco Polo Demerger
came into effect on 8 August 2018.
Website: the institutional website of Pirelli containing
inter alia information about the Company, which can be
found at the Internet domain www.pirelli.com.
Company: Pirelli & C.
SPV HK1: CNRC International Limited, limited company
incorporated under the laws of Hong Kong (People’s
Republic of China), with registered offices at RMS 05-
15, 13A/F South Tower World Finance CTR Harbour City,
17 Canton Rd TST KLN, Hong Kong (People’s Republic of
China), Hong Kong Companies Register number 2222516.
SPV HK2: CNRC International Holding (HK) Limited,
limited company incorporated under the laws of Hong
Kong (People’s Republic of China), with registered
offices at RMS 05-15, 13A/F South Tower World Finance
CTR Harbour City, 17 Canton RD TST KLN, Hong Kong
(People’s Republic of China), Hong Kong Companies
Register number 2228664.
SPV Lux: Fourteen Sundew S.à r.l., Luxembourg limited
company (société à responsabilité limitée) with registered
offices at rue Robert Stümper 7A, L-2557, Luxembourg
(Grand Duchy of Luxembourg), Luxembourg Companies
and Commerce Register number B-195473.
SRF: Silk Road Fund Co., Ltd., a company established
under Chinese law with registered offices at F210-F211,
Winland International Finance Center Tower B, 7 Financial
Street, Xicheng, Beijing (People’s Republic of China),
registered with the State Administration of Industry and
Commerce of the People’s Republic of China, registration
number 100000000045300(4-1).
Articles: the Articles of Association of Pirelli & C., available
on the Website.
TUF: Legislative decree 58 of 24 February 1998, as
(the Consolidated Law on
subsequently amended
Finance).
Introduction
This Report presents the corporate governance system
adopted by the Company. This system is consistent with
the principles contained in the Corporate Governance
Code adopted by the Company28.
1. Company profile
Pirelli, with its 31,500 employees and annual sales of around
Euro 5.2 billion in 2018, ranks among the principal global
manufacturers of tyres and supplier of ancillary services,
being the only operator in the sector exclusively specialised
in the consumer market (tyres for cars, motorcycles and
bicycles), with a globally-recognised brand. The Company
has a distinctive positioning with regard to High Value
tyres, which are manufactured to achieve the highest
levels of performance, safety, quietness and road grip, with
significant input from technology and/or customisation (i.e.
28 The adopting resolution was made by the Board of Directors with effect from 31 August 2017.
201
Report on corporate governance specifically, New Premium, Specialties and Super Specialties tyres and Premium motorcycle tyres). In addition,
the Company currently occupies a leadership position in the Prestige tyres segment, with more than one-third of
the global market in terms of volume, and in the radial segment of the after-market for motorcycle tyres. Pirelli
is also the leader in Europe, China and Brazil, in the after-markets for New Premium car tyres and Premium
motorcycle tyres.
For a profile of the issuer see also the Website.
1.1. MODEL OF CORPORATE GOVERNANCE
The model of corporate governance adopted by Pirelli implements the traditional system of administration
and control, with a Board of Directors (15 members) responsible for managing the business and a Board of
Statutory Auditors entrusted with monitoring the administration and compliance with the law and the Articles.
Pirelli is aware that an efficient system of corporate governance is an essential element for achieving the
objective of sustainable value creation.
The Board has established five committees with the power of making recommendations to, advising and
carrying out analytical work for the Board.
The Shareholders’ Meeting is responsible for adopting resolutions on the matters reserved to it by law or by
the Articles.
The following diagram summarises the Company’s current governance structure.
AUDIT, RISKS
SUSTAINABILITY
AND CORPORATE
GOVERNANCE
COMMITTEE
RELATED-PARTY
TRANSACTIONS
COMMITTEE
REMUNERATION
COMMITTEE
APPOINTMENTS
AND
SUCCESSIONS
COMMITTEE
STRATEGIES
COMMITTEE
EXTERNAL
AUDITOR
SHAREHOLDERS
MEETING
BOARD
OF DIRECTORS
CEO
EXECUTIVE
MANAGEMENT
BOARD OF
STATUTORY AUDITORS
SUPERVISORY
BODY
The legal audit of the accounts is entrusted to PricewaterhouseCoopers S.p.A., the registered external auditing
firm appointed by the Shareholders’ Meeting, following a reasoned recommendation presented by the Board
of Statutory Auditors.
202
Pirelli Annual Report 2018 1.2. SUSTAINABILITY AND DIVERSITY POLICIES
Pirelli has adopted a sustainable management model.
Responsible management by Pirelli addresses the entire
value chain.
The reporting of Pirelli’s sustainable performance has
been included in the Company’s annual report starting
from 2005. For further details see the NFD Report.
Pirelli is characterised by a multinational context in which
people express a huge heritage of diversity. Conscious
management of this diversity generates competitive
advantages, opportunities for the development and
enrichment of the business, and shared corporate values.
Pirelli’s business culture was able to anticipate the topics
and subjects, such as the environment and the gender
diversity, well in advance.
Even at Board level, the abovementioned values are
deemed as success factors and necessary elements to
achieve the Company’s strategic targets.
For this reason, the respect of these values has always
been guaranteed by the shareholders during the renewal of
the Board of Directors - including the last renewal - in terms
of age, gender, nationality, education and professional
background and experience. This enables the Board to
perform its duties in the most effective way, making use of
the contributions made from different points of view, and
to analyse individual situations from multiple perspectives.
In line with the above, on 14 February 2019, the Board of
Directors, having obtained the favourable opinion of the Audit,
Risks, Sustainability and Corporate Governance Committee
and the Appointments and Successions Committee,
adopted a Diversity and Independence Statement in relation
to the composition of the Board of Directors and the Board
of Statutory Auditors.
Pirelli in fact believes that this diversity allows corporate
bodies to carry out their duties in the most effective way,
since they can avail themselves, in their decision-making, of
the contributions made by a range of qualified points of view.
The Company recommends that these values are respected
when its own corporate bodies are renewed or integrated, in
line with the stated diversity and Independence criteria.
The Board of Directors - which avails itself of the
opinions expressed by the Audit, Risks, Sustainability and
Corporate Governance Committee and the Appointments
and Successions Committee - is responsible for the quali-
quantitative assessment of the composition of the Board
itself and the possible updating and amendment of the
Diversity and Independence Statement.
Pirelli implements the criteria for diversity in relation to
the composition of its administration, management and
control bodies and in the entire company structure. See
the NFD Report for further details.
2. Information on the
ownership structure
2.1. STRUCTURE OF SHARE CAPITAL
On the Report Date, the issued share capital of Pirelli
amounts to Euro 1,904,374,935.66 fully paid, and is
represented by 1,000,000,000 ordinary shares without
nominal value. Each share grants the right to one vote.
There are no other categories of share and no financial
instruments have been issued with the right to subscribe
for new shares.
Additionally, the Articles do not provide for the possibility
of increased voting rights or the issue of shares with
multiple voting rights.
2.2. SIGNIFICANT SHAREHOLDINGS OF CAPITAL
The Company is indirectly controlled, pursuant to art.
93 of the TUF, by ChemChina through CNRC and other
subsidiaries of the latter, including MPI Italy, which directly
holds the shareholding in Pirelli.
Based on the communications received by the Company
until the Report Date pursuant to art. 120 TUF, or from
other information available to the Company, the major
direct and indirect shareholdings of Pirelli share capital
are indicated in Table 1, attached to this Report.
2.3. MANAGEMENT AND COORDINATION ACTIVITIES
During the meeting on 31 August 2017, the Board
of Directors of the Company acknowledged the
termination of the direction and coordination activity
of Marco Polo, pursuant to art. 2497 et. seq. of the
Civil Code, with effect from the First Trading Day,
while CNRC retains the right to include Pirelli in its
consolidation perimeter for accounting purposes.
This situation has further strengthened the autonomy
of Pirelli and its management in the definition and
management of the industrial, economic and financial
strategies of the Group.
In particular the Board of Directors of Pirelli noted that,
from the First Trading Day, Pirelli was no longer subject to
any of the activities that typically constitute direction and
coordination activity and therefore, by way of example:
203
Report on corporate governance 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;
2.4. RESTRICTIONS ON THE TRANSFER OF
SECURITIES: SECURITIES THAT CARRY SPECIAL
RIGHTS; EMPLOYEE SHARE OWNERSHIP:
MECHANISM FOR EXERCISING VOTING
RIGHTS; RESTRICTIONS ON VOTING RIGHTS
3. Pirelli is not subject to any group regulations;
4. no organisational-functional link exists between Pirelli,
on the one hand, and Marco Polo and the companies that
control it, on the other hand;
5. Marco Polo, CNRC and/or ChemChina have not carried
out any deeds, adopted any resolutions or made any
communications that might cause reasonable belief
that the decisions of Pirelli are in some way imposed or
required by MPI Italy, CNRC and/or ChemChina;
6. Marco Polo, CNRC and/or ChemChina do not centralise
treasury management activities or other financial support
or coordination functions;
7. Marco Polo, CNRC and/or ChemChina do not issue
directives 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.;
9. Marco Polo, CNRC and/or ChemChina do not make any
crucial decisions regarding the operating strategies of
Pirelli or formulate group strategic guidelines.
Conversely, Pirelli exercises direction and coordination
activity on numerous subsidiaries, having made the
communications required by art. 2497-bis of the Civil Code.
In the meeting on 26 February 2019 the Board of
Directors reiterated the aforementioned assessments
with reference to MPI Italy, confirming the absence of a
subject that exercises direction and coordination activity
over Pirelli.
The Articles do not impose any restrictions on the
transferability of the shares issued by the Company29.
No securities carrying special rights of control have been
issued.
With regard to the shares owned by employees, there
are no specific procedures or restrictions governing the
exercise of their voting rights.
There are no mechanisms that restrict the voting rights
of shareholders, except for the terms and conditions
governing the exercise of the right to attend and vote
at Shareholders’ Meetings, as discussed in the next
paragraph 19 of the Report.
In the event of significant changes to the market
capitalization of the issuer’s shares or to the composition
of the share capital, the Corporate Governance Code
recommends that the board of directors should submit
to the general meeting proposals to amend the Articles in
respect to the percentages required for exercising actions
and rights provided to protect minorities shareholders. This
was not done in 2018, as the conditions laid down in the
Corporate Governance Code did not arise.
2.5. SHAREHOLDERS’ AGREEMENTS
2.5.1. NEW SHAREHOLDERS’ AGREEMENT
On 28 July 2017 ChemChina, CNRC, SRF, SPV HK 1, SPV
HK 2, SPV Lux, Camfin, LTI and MTP&C signed the New
Shareholders’ Agreement30 that governs, on the one hand,
the governance of Pirelli with effect from the First Trading
Day, and the undertaking by CNRC, SRF, Camfin and LTI to
carry out the Marco Polo Demerger, after the First Trading
Day and, in any case, by 31 December 2018, subject to (i) the
29 For completeness please note that, as commonly used in IPO transactions, the shareholders
which signed the New Shareholders’ Agreement undertook not to assign, transfer or dispose, in any
way whatsoever, directly or indirectly (without prejudice to the transfers to the subsidiaries, parent
companies or companies subject to the same control), inter alia, their respective participations directly
or indirectly held in Pirelli until the expiry of the first anniversary as of the First Trading Date (i.e. until
4 October 2018, except for LTI, which could have the right to transfer (without having exercise such
faculty), directly and indirectly, through Marco Polo, its participation in Pirelli after six months from the
First Trading Date, i.e. starting from 4 April 2018). At the Report Date such constraint does not exist
anymore.
30 On 22 March 2015, ChemChina and its wholly controlled subsidiary CNRC, on the one hand,
and Camfin, LTI and Coinv S.p.A. (subsequently merged by incorporation into Camfin), on the other
hand, executed a sale and co-investment agreement (the “Co-investment Contract”) that set forth
the terms and conditions for the completion of a broad corporate and industrial operation aimed at
the acquisition by CNRC (through indirectly controlled companies) of control of Pirelli, its possible
de-listing through the launch of a takeover bid on Pirelli (the “Takeover Bid”); this operation was
intended to create, between CNRC, CF and LTI, a long-term industrial partnership for Pirelli, with
the aim of strengthening the development plans, safeguarding geographically strategic areas
integrating the tyre business into the industrial segment of CNRC and Pirelli, maintaining the
continuity and autonomy of the current management structure of the Pirelli group, all also in view of
a possible relisting of Pirelli. Pursuant to the Co-investment Contract, on 11 August 2015, the parties
of said contract also signed an agreement that set forth, inter alia, the governance of the Italian
companies indirectly controlled by CNRC that had launched the takeover bid and of Pirelli (the “First
Shareholders’ Agreement”) and that confirmed, among the principal objectives of the operation, the
creation of value for Pirelli and its group in view of possible relisting within a period of four years.
With the IPO of 2017, the first shareholders’ agreement was superseded and the New Shareholders’
Agreement was signed.
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Pirelli Annual Report 2018 start of trading (which took place on 4 October 2017) and (ii)
the reimbursement of the loan of Euro 1,250 million obtained
by Marco Polo (which took place on 5 October 2017).
The Marco Polo Demerger was completed in 2018, in line
with the provisions of the New Shareholders’ Agreement. In
particular, on the effective date of the total non-proportional
demerger of Marco Polo (8 August 2018), Marco Polo’s
stake in Pirelli (63.11%) was allocated as follows:
→ MPI Italy, newly incorporated Italian beneficiary
company wholly owned by SPV Lux (in turn indirectly
controlled by ChemChina), received 455,212,508
Pirelli shares equal to 45.52% of its share capital;
→ Camfin, Italian beneficiary company controlled by
MTP&C (in turn controlled by Marco Tronchetti
Provera) received 113,491,546 Pirelli shares equal
to 11.35% of its share capital; and
→ LTI Italy, a newly incorporated beneficiary company
wholly owned by LTI received 62,391,110 Pirelli shares,
equal to 6.24% of its share capital.
Upon completion of the Marco Polo Demerger: (i) the
corporate governance of Pirelli did not change, and (ii)
ChemChina remained the subject that indirectly exercises
control of Pirelli.
It should be noted that, according to the New
Shareholders’ Agreement, while CNRC has retained
control of Pirelli, and CNRC has retained the right
to include Pirelli in its consolidation perimeter for
accounting purposes, Pirelli has not been subject to
the exercise of any direction and coordination activity
pursuant to articles 2497 et seq. of the Civil Code
since the First Trading Date. As a general principle of
the New Shareholders’ Agreement, MTP&C and CNRC
recognised that in line with the previous shareholders
agreements the aim of the governance structures is to
preserve the entrepreneurial culture of Pirelli with focus
on the long-term maintenance of its management and will
be inspired by international best practice among listed
companies. For this reason, MTP&C and CNRC agreed
and stipulated that the task of managing Pirelli is current
top management’s prerogative, with a fundamental role,
in this regard, of Marco Tronchetti Provera, who will
continue to hold the office of Chief Executive Officer and
Executive Vice Chairman of Pirelli and will lead the top
management until the date of approval of the financial
statements of the Company as at 31 December 2019,
ensuring continuity in Pirelli’s business culture. This also
through the attribution to Marco Tronchetti Provera of a
primary role in the procedure for the identification of his
successor as chief executive officer of Pirelli.
It should be noted, furthermore, that as a result of the Marco
Polo Demerger and the expiration, for LTI, of the prescribed
period of lock-up in relation to its Pirelli shareholding, from
4 April 2018, LTI itself is no longer considered a party to the
New Shareholders’ Agreement in relation to the matters
agreed with regard to Pirelli. As of the Marco Polo Demerger
effective date, the provisions on the governance of Pirelli are
binding, and only concern CNRC and MTP&C, as company
at the top of the Camfin chain of holdings.
2.5.2. SRF CONTRACT
On 5 June 2015, SRF, CNRC and ChemChina signed an
“Investment Contract” (the “SRF Contract”) regarding
investment and the participation of SRF, together with
ChemChina and CNRC, in the acquisition of control over
Pirelli.
On 28 July 2017, in the context of the IPO, the
aforementioned parties to the SRF Contract, signed a
supplemental agreement of the SRF Contract itself (the
“Supplemental Agreement”) pursuant to which, as soon
as possible upon completion of the Marco Polo Demerger,
SPV Lux, will, inter alia, assign to CNRC and SRF or to
companies under their control (after the winding up or
demerger of SPV HK) a quantity of Pirelli shares and
cash calculated on the basis of the following distribution
mechanism: (i) the proceeds from the Pirelli shares sold
in the IPO will be divided equally, with the consequence
that, in order to rebalance the mix of Pirelli shares and
cash to be assigned to CNRC and SRF, the quota to
be assigned to CNRC will contain a number of Pirelli
shares and an amount of cash respectively higher and
lower than the number and amounts that CNRC would
have obtained if the division of the proceeds of the Pirelli
shares sold in the IPO had been proportional rather than
equal; and (ii) in any case, CNRC’s stake in Pirelli, directly
or indirectly held, may be no less than 36.5% of the share
capital of the Issuer (the “SPV Lux Allocation”).
that
In the context of the Marco Polo Demerger, on 7 August
2018, the aforementioned parties to the SRF Contract
signed a further supplemental agreement (the “Second
regulates some
Supplemental Agreement”)
aspects of the corporate governance of MPI Italy. The
SRF Contract, as subsequently supplemented and
amended by the Supplemental Agreement and the
Second Supplemental Agreement, attributes to SRF
certain rights and prerogatives in relation to the corporate
governance of SPV HK, SPV Lux, MPI Italy and Pirelli; it
also establishes certain restrictions on the transfer of the
shares of SPV HK.
Nothing in the SRF Contract prejudices the right of
ChemChina to exercise control over Pirelli through CNRC.
Furthermore, on 28 July 2017, SRF and CNRC signed a
“Contract of actions in concert” pursuant to which SRF
assumed a lock-up undertaking and an undertaking to
vote in Pirelli shareholders’ meetings according to the
voting instructions of CNRC, in relation to a number of
Pirelli ‘s shares generated from the SPV Lux Allocation,
equal to 5% of the share capital of Pirelli.
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Report on corporate governance * * *
For further information on the provisions set out in the
abovementioned shareholders’ agreements, see the
extracts from the agreements available on the Website
(also in English), published pursuant to art. 130 of the
Issuers’ Regulation.
* * *
For completeness, with reference to Camfin, it should
be noted that during the Year, also taking account
of the coming into effect of the Camfin Demerger,
the shareholders’ agreement, originally signed on 11
August 2015 by MTP&C, Nuove Partecipazioni S.p.A.
(subsequently merged by incorporation into Camfin),
UniCredit S.p.A, Manzoni S.r.l. and Intesa Sanpaolo S.p.A.
which included some arrangements referable to Pirelli,
was terminated in advance by mutual consent.
2.6. CHANGE OF CONTROL CLAUSES
The most significant contracts containing clauses of this
type are summarised below.
2.6.1. SYNDICATED LONG TERM 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-
Mitsubishi UFJ, Ltd., in their roles as mandated lead
arrangers, bookrunners, underwriters and global
coordinators signed a mandate letter regarding the grant
of an unsecured loan to Pirelli and Pirelli International
(the “Beneficiaries”) for a maximum amount of Euro
4,200,000,000 (the “New Loan”).
The contract signed on 27 June 2017 in relation to the
New Loan envisages, inter alia, that the Beneficiaries shall
repay early that part of the New Loan made available by
each lender if certain events occur, including changes in
the control structure of Pirelli.
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 his close family members, more than
25% of Pirelli post IPO; or (ii) ChemChina ceases to be,
directly or indirectly, individually or together with Camfin or
another company controlled by Marco Tronchetti Provera
or his close family members, the relative majority holder of
the voting rights in Pirelli (i.e. ceases to hold more voting
rights than other parties that act individually or together);
or (iii) any other party (or parties acting together) appoints
or removes the majority of the Board of Directors.
Any takeover by Camfin (or another company directly or
indirectly controlled by Marco Tronchetti Provera or his
close family members) as the parent company of Pirelli
would not represent a change of control on condition that
certain requirements are met, including the requirement
for Marco Tronchetti Provera or a person designated by
him to be the Chairman and the CEO of that company and
CEO of Pirelli.
2.6.2. PT EVOLUZIONE TYRES JOINT VENTURE
On 24 April 2012, Pirelli Tyre and PT Astra Otoparts tbk,
an Indonesian company, signed a Joint Venture Agreement
in relation to PT Evoluzione Tyres, an Indonesian company
incorporated on 6 June 2012 and operating in the production
of motorcycle tyres in the plant of Subang, West Java.
Pursuant to this contract, in the event of a change in the
ownership structure of one of the shareholder that is deemed
to be a change of control event, a put&call procedure could
be activated that, in the extreme case, might lead to the
acquisition by Pirelli Tyre of the entire equity interest held
by PT Astra Otoparts tbk in PT Evoluzione Tyres, with the
consequent termination of the joint venture agreement.
2.6.3. SUPPLY CONTRACT WITH BEKAERT
The Company has a contract for the supply of steelcord with
Bekaert, to which the Company sold the steelcord business
unit in 2014, also in consideration of the contractual
peculiarities connected with the sale transaction.
The contract with Bekaert includes a change of control
clause whereby Bekaert has the right, inter alia, to
withdraw within 90 days after becoming aware of a
situation in which a third party acquires control of Pirelli.
2.6.4. EMTN PROGRAMME AND
NOTES ISSUED IN 2018
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, senior unsecured bonds for a maximum
amount of Euro 2 billion and (ii) in the context of that
programme, authorised the issue by 31 January 2019 of
one or more bonds to be placed with institutional investors
for a maximum total amount of Euro 1 billion. This
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Pirelli Annual Report 2018
resolution was subsequently supplemented on 22 June
2018, increasing the existing authorisation by a further
Euro 800 million - bringing the total amount to a maximum
of Euro 1.8 billion - and extending its time horizon to 31
December 2019 (included). The new securities may be
listed on one or more regulated markets.
Pursuant to the EMTN Programme, bondholders that
subscribe for bonds issued 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.
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 his close family
members, more than 25% of Pirelli; or (ii) ChemChina
ceases to be, directly or indirectly, individually or together
with Camfin or another company controlled by Marco
Tronchetti Provera or his close family members, the
relative majority holder of the voting rights in Pirelli (i.e.
ceases to hold more voting rights than other parties that
act individually or together); or (iii) any other party (or
parties acting together) appoints or removes the majority
of the Board of Directors.
Any takeover by Camfin (or another company directly or
indirectly controlled by Marco Tronchetti Provera or his
close family members) as the parent company of Pirelli,
in place of ChemChina, would not give rise to a change
of control on condition that certain requirements are met,
including the requirement for Marco Tronchetti Provera or
a person designated by him to be the CEO of both that
company and Pirelli.
Under the EMTN PROGRAMME:
1) on 25 January 2018, Pirelli issued a new and unrated
5 year fixed rate notes for an original total nominal
amount of Euro 600 million (an amount that has now
reduced to Euro 553 million following the Company’s
buybacks on the market) called “Pirelli & C. S.p.A.
€600,000,000 1.375% Guaranteed Notes due
2023”; and
2) on 26 March 2018 Pirelli issued a new and unrated
variable rate bond for a total nominal amount of Euro
200 million due in September 2020 called “Pirelli & C.
S.p.A. €200,000,000 Floating Rate Notes due 2020”.
The above-mentioned Change of Control clause applies
to these new notes.
2.6.5 SCHULDSCHEIN: MULTITRANCHE
LOAN FOR A TOTAL OF EURO 525,000,000
On 26 July 2018 Pirelli executed a “schuldschein” loan -
guaranteed by Pirelli Tyre - for a total of Euro 525 million
(the “Schuldschein”), divided as follows: (i) Euro 82
million due in 2021; (ii) Euro 423 million due in 2023; and
(iii) Euro 20 million due in 2025.
The Schuldschein prescribes, inter alia, that Pirelli must
repay the loan in advance, if certain events occur, including
the case of a change in the control structures of Pirelli,
according to terms and conditions that are the same as
those of the EMTN Programme.
2.6.6. BILATERAL LOAN WITH INTESA SANPAOLO
On 22 January 2019, the Board of Directors approved
the stipulation by Pirelli of a medium-long term variable
rate loan of Euro 600 million with Intesa Sanpaolo S.p.A.,
as lending bank and Banca IMI S.p.A., as agent bank and
organising bank (the “Transaction”).
The loan agreement signed on 24 January 2019 in relation
to the Transaction prescribes, inter alia, that Pirelli must
repay the Transaction early should certain events occur,
including changes in the control structure of Pirelli.
Specifically, the change of control clause may only be
activated in the case of a subject or subjects acting in
concert, other than ChemChina, Camfin, MTP&C (or any
other company controlled by Marco Tronchetti Provera or
his close family members) and/or their subsidiaries and/
or any person or persons acting in concert with one of
them should (a) hold a relative majority of votes in Pirelli;
and (b) appoint or remove the majority of the members of
the Board of Directors of Pirelli.
For clarification, the loan contract states that there will
be no change of control if Camfin, MTP&C (or any other
company controlled by Marco Tronchetti Provera or by
one or more of his close family members) participate,
directly or indirectly, in the control of Pirelli, or is entitled,
by virtue of contractual agreement, directly or indirectly,
individually or in concert with one or more subjects, to
designate the CEO of Pirelli.
2.6.7. LICENCE AGREEMENT WITH AEOLUS
On 28 June 2016, Pirelli Tyre concluded an agreement
(subsequently amended on 31 January 2019) with
Aeolus Tyre Co. Ltd, to licence patents and know how for
the production and sale of industrial tyres that expires
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Report on corporate governance
on 31 December 2030, with automatic renewal unless
terminated by the parties. Pursuant to the agreement,
either party has the right to terminate the agreement
in advance, by notice to the other party, if CNRC should
cease to be, directly or indirectly, the single largest
shareholder of Pirelli.
2.7. CLAUSES IN THE ARTICLES
ABOUT PUBLIC OFFERS
The Articles do not provide for exceptions to the
provisions regarding the passivity rule, or application of
the neutralisation rule set out in art. 104-bis TUF.
3. Compliance
Pirelli adheres to the Corporate Governance Code31,
available to the public on the website of the Corporate
Governance Committee, at the following link http://
www.borsaitaliana.it/comitato-corporate-governance/
homepage/homepage.en.htm.
As Pirelli is among the companies included in the FTSE-
MIB
index, the recommendations of the Corporate
Governance Code specifically envisaged for those
companies are applied by the Company. For further
details, see paragraph 22 of the Report.
2.8. MANDATE TO INCREASE SHARE CAPITAL AND
AUTHORISATIONS TO PURCHASE OWN SHARES
This Report has essentially been prepared using the Borsa
Italiana format.
With regard to the year ended 31 December 2018, the
Directors were not granted with mandates to increase
share capital for payment on one or more occasions, or to
issue bonds convertible into ordinary or savings shares or
with warrants carrying the right to subscribe shares.
Similarly, the Shareholders’ Meeting of the Company did
not authorise any purchases of own shares.
On the Report Date, Pirelli is not subject to any non-Italian
laws that might influence the corporate governance
structure of the Company.
31 Resolution adopted by the Board of Directors as part of the IPO process. Note that Pirelli has
adopted the Corporate Governance 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.
208
Pirelli Annual Report 2018 4. Board of Directors
Appointment: 1 August 2017 (with effect from 31 August 2017)
Expiration date: 2019 Financial Statement approval
Board committees: 5
Directors: 15
Executive director: 1
Independent directors: 8
Strategies Committee - Appointments and Successions Committee - Re-
lated-Parties Transactions Committee - Remuneration Committee - Audit,
Risks, Sustainability and Corporate Governance
4.1. APPOINTMENT AND REPLACEMENT OF DIRECTORS
The provisions contained in the Articles, to which reference is made, regarding the appointment and replacement
of directors are summarised below.
APPOINTMENT32
4.1.1
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.
The lists presented by shareholders, signed by those submitting them, must be filed at the registered offices
of the Company at least twenty-five days prior to the date fixed for the Shareholders’ Meeting called to resolve
on the appointment of Board members. These lists are made available to the public at the registered offices, on
the Website and in any other ways envisaged in a relevant Consob regulation, at least twenty-one days prior to
the date of the Shareholders’ Meeting.
Each shareholder may present or contribute to the presentation of just one list and each candidate may be
included in just one list, subject otherwise to becoming ineligible.
Shareholders are only entitled to present lists if, alone or together with other shareholders, they own shares in total
representing at least 1% of the share capital entitled to vote at an Ordinary Shareholders’ Meeting, or any lower
amount specified in a regulation issued by Consob, with the obligation to evidence their ownership of the number
of shares needed for the presentation of lists by the deadline envisaged for the publication of such lists by the
Company.
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 concerned. These declarations
must be accompanied by the curriculum vitae of each candidate, describing their personal and professional
characteristics, indicating the administration and control appointments held by them in other companies and
confirming their satisfaction of the independence requirements envisaged for the directors of listed companies
by law or by the code of conduct adopted by the Company. In order to ensure gender balance, lists containing
three or more candidates must include a number of candidates of different gender that at least satisfies the
minimum required by law and/or any regulations in force at the time, as specified in the notice of call issued for
the Shareholders’ Meeting. Any changes arising prior to the actual date of the Shareholders’ Meeting must be
notified to the Company on a timely basis.
Any lists presented that do not comply with the above instructions will be treated as if not presented.
Each party entitled to vote may only vote for one list.
32 This paragraph contains the information required by art. 123-bis, par. 1, letter l) TUF (regarding
“the rules applicable to the appointment and replacement of directors […] as well as to the
amendment of the articles of association, if different to the legislation and regulations applicable
in the absence of specific rules”).
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Report on corporate governance The Board of Directors is appointed as follows:
a) four-fifths of the directors to be elected are drawn
from the list that obtains the majority of the votes
expressed by the shareholders, as rounded down
to the nearest whole number in the case of fraction
number;
b) the remaining directors are drawn from the other lists,
using the quota method described in the Articles.
Should several candidates obtain the same quota, the
candidate elected will be drawn from the list that has
not yet elected a director or that has elected the minor
number of directors.
If none of those lists has elected a director yet or all of them
have elected the same number of directors, the candidate
elected will be drawn from the list that obtains the largest
number of votes. In the event of a voting tie, again with
more than one candidate obtaining the same quota, the
Shareholders’ Meeting will vote again and the candidate
who receives the largest number of votes will be elected.
If only one list is presented, all the directors will be elected
from that list.
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 gender set
out by laws and/or regulations in force at the time, the
candidate belonging to the most represented gender
and elected, indicated in the list that obtained the
largest number of votes, shall be replaced by the first
candidate belonging to the less represented gender not
already elected, drawn from that list pursuant to the
sequential order of presentation and so on, for each list
(solely for lists that contain three or more candidates)
until the minimum number of directors belonging to the
less represented gender has been obtained. Lastly, if the
above procedure does not ensure the result specified
above, the replacement shall be made by resolution
of the Shareholders’ Meeting, adopted by the relative
majority of the votes expressed, following presentation
of the candidacies of persons belonging to the less
represented gender.
Should application of the list voting mechanism not
obtain the minimum number of independent directors
envisaged by the laws and/or regulations in force, the
non-independent candidate elected indicated with the
highest progressive number in the list that obtained the
largest number of votes shall be replaced by the first
independent candidate not already elected from that list
following the sequential order of presentation, and so on
for each list until the minimum number of independent
directors has been obtained, in all cases in compliance
with the
laws and/or regulations governing gender
balance in force at the time.
210
For the appointment of directors who, for any reason,
in accordance with the slate
were not appointed
voting mechanism, the Shareholders’ Meeting shall
adopt resolutions with the majorities required by
law, without prejudice in all cases to compliance with
the independence and gender balance requirements
specified
laws and/or
regulations in force at the time.
in the Articles and/or the
4.1.2. REPLACEMENT
Should one or more directors cease to hold the office
during the financial year, they shall be replaced pursuant
to art. 2386 of the Civil Code, without prejudice for the
compliance with the legal and/or regulatory provisions in
force at the time on gender balance and the independence
of the directors.
Loss of the independence requirements by a director is
not a cause of removal if the number of directors still in
possession of the legal independence requirements is
not lower than the minimum specified by the laws and/or
regulations in force.
4.1.3. SUCCESSION PLANS
Pursuant to the New Shareholders’ Agreement, even
in order to ensure the continuity of the Pirelli business
culture, Marco Tronchetti Provera has been granted with a
leading role in the procedure for identifying his successor
as the CEO of Pirelli.
In fact, the following procedure will be implemented
as of 1 November 2019: (i) the candidates to be
considered for the succession will be indicated by the
Chief Executive Officer and Executive Vice Chairman
to the Appointments and Succession Committee (the
“Proposed Candidate”), (ii) a
independent,
international HR firm will be engaged to assess the
Proposed Candidates, and (iii) the Appointments and
Succession Committee will resolve, on proposal of the
Chief Executive Officer and Executive Vice Chairman
and, in the event of a voting tie, the latter shall have the
casting vote.
leading,
The Proposed Candidate positively appraised by the HR
firm must be included by CNRC on the voting list for the
appointment of the new Board of Directors and CNRC
must ensure that, during the first meeting of the Board
of Directors appointed by the Shareholders’ Meeting, the
non-independent directors designated by CNRC vote for
and appoint the Proposed Candidate as the new chief
executive officer.
Should Marco Tronchetti Provera no longer be able to
take part in the above activities, for any reason, the above
prerogatives shall be granted to one of the directors
the Appointments and Succession
designated
Committee on recommendation of MTP&C.
in
Pirelli Annual Report 2018 4.2. COMPOSITION
As indicated in the Registration Document:
The Board of Directors in charge at the Report Date was (i)
appointed by the Shareholders’ Meeting held on 1 August
2017 (appointment effective from 31 August 2017) and
(ii) supplemented by the Shareholders’ Meeting of 15
May 2018 with a further independent director (Giovanni
Lo Storto) appointed on the proposal of a group of asset
management companies and institutional investors (the
detailed list is available on the Website), without application
of the slate voting system,
in accordance with the
representations made in the IPO33. Indeed, the Registration
Document specified that a further independent director,
nominated by the minority shareholders at the first
ordinary shareholders’ meeting after the First Trading Day
would join the Board of Directors of the Company. For this
reason the majority shareholder did not participate in the
voting on this point.
Furthermore, following the resignation of Ren Jianxin
from the office of Chairman of the Board of Directors and
Director of the Company (submitted on 30 July 2018 due
to his announced resignation from the office of Chairman
of ChemChina as a result of reaching the age limit), the
Board of Directors, on 7 August 2018, proceeded to appoint
by cooptation Ning Gaoning as a Director of the Company,
pursuant to art. 2386 of the Civil Code, and to also appoint
him Chairman of the Board of Directors. Ning Gaoning’s
office will expire on the Annual General Meeting.
In light of the above, the Board of Directors is composed of
15 members: Ning Gaoning (Chairman), Marco Tronchetti
Provera (Executive Vice Chairman and CEO), Yang
Xingqiang, Bai Xinping, Giorgio Luca Bruno, Laura Cioli,
Domenico De Sole, Ze’ev Goldberg, Tao Haisu, Giovanni
Lo Storto, Marisa Pappalardo, Cristina Scocchia, Giovanni
Tronchetti Provera, Fan Xiaohua and Wei Yintao.
On 31 August 2017, the Board of Directors confirmed
Marco Tronchetti Provera as Chief Executive Officer and
Executive Vice Chairman.
→ Directors Yang Xingqiang, Bai Xinping, Ze’ev Goldberg,
Tao Haisu, Marisa Pappalardo, Fan Xiaohua and Wei
Yintao were designated by CNRC;
→ Directors Marco Tronchetti Provera, Giovanni Tronchetti
Provera, Giorgio Luca Bruno and Laura Cioli were
designated by MTP&C;
→ Directors Domenico De Sole and Cristina Scocchia
were appointed by Marco Polo on joint designation by
CNRC and MTP&C, taking into account the indications
expressed by the Joint Global Coordinators, engaged
as part of the IPO procedure, regarding the professional
characteristics of the directors.
Giovanni Lo Storto was appointed as Director by
designation of a group of asset management companies
and institutional investors.
Ning Gaoning was co-opted to the Board as Director and
Chairman to replace Ren Jianxin, previously appointed by
designation of CNRC.
At the Report Date 26.7% of the Board members are
female and the remaining 73.3% are male. Further,
about 60% of directors are over 50 years of age and
the remaining about 40% are between 35 and 50 years
of age. The average age of the members of the Board
is approximately 55 years and the average age of the
female members is approximately 51 years. The Directors’
average time in office is about 3 years34.
For further details regarding the application of the
diversity and gender criteria in the composition of the
Board of Directors see paragraph 1.2.
33 The Board of Directors, on 22 June 2018, communicated to have evaluate the existence of the
independence requirements of the Director Giovanni Lo Storto declared at the time of appointment.
34 It should be noted that for the purposes of calculating the tenure of the Board, the date of first
appointment of each Director, indicated in Table 2, was considered.
211
Report on corporate governance Table 2, attached herein, provides for the relevant information on each member of the Board of Directors in
office at the Report Date. In addition, a summary of their professional profiles is available on the Website.
The following charts illustrate the composition of the Board of Directors of the Company at the Report Date
(it should be noted that there have been no changes in the composition of the Board of Directors from the
end of the Year to the Report Date), the average length, the average percentage of attendance, the number of
meetings of the Board of Directors and of each Committee during the Year.
Ning Gaoning
Chairman
Marco Tronchetti Provera
Executive Vice Chairman
and Chief Executive Officer
Wei Yintao
Director
Yang Xingqiang
Director
Fan Xiaohua
Director
Giovanni Tronchetti
Provera
Director
Cristina Scocchia
Director
Bai Xinping
Director
Giorgio Luca Bruno
Director
Laura Cioli
Director
Marisa Pappalardo
Director
Domenico De Sole
Director
Tao Haisu
Director
Giovanni Lo Storto
Director
Ze’ev Goldberg
Director
EXECUTIVE
NOT EXECUTIVE
INDEPENDENT DIRECTOR
Audit, Risks,
Sustainability and
Corporate Governance
Committee
Remuneration
Committee
Appointments and
Successions Committee
Strategies
Committee
Related-Parties
Transactions
Committee
212
Pirelli Annual Report 2018 AVERAGE LENGTH OF MEETINGS OF THE BOARD OF DIRECTORS AND BOARD COMMITTEES
Strategies Committee
Appointments Committee
RPT Committee
38,5 min
Remuneration Committee
40 min
ARSCGC
BoD
60 min
132 min
HOURS
1
2
3
AVERAGE PERCENTAGE OF ATTENDANCE TO THE MEETINGS OF THE BOARD OF DIRECTORS AND BOARD COMMITTEES
Strategies Committee
Appointments Committee
RPT Committee
Remuneration Committee
ARSCGC
BoD
94%
95%
94%
100%
75%
80%
85%
90%
95%
100%
NUMBER OF MEETINGS OF THE BOARD OF DIRECTORS AND BOARD COMMITTEES
Strategies Committee
Appointments Committee
RPT Committee
Remuneration Committee
ARSCGC
BoD
0
1
2
3
4
5
6
7
8
9
10
11
12
4.3. LIMITATIONS ON THE NUMBER OF OFFICES HELD
The Board of Directors considers vital that the role of director is held by subjects able to dedicate the necessary
time to the diligent execution of the duties inherent to this office.
Consequently, in line with the above, on 14 February 2019, the Board of Directors, having obtained the favourable
opinion of the Audit, Risks, Sustainability and Corporate Governance Committee and the Appointments and
Successions Committee, resolved to reduce the maximum number of directorships considered compatible
with the office of director of the Company from five to four.
In particular, pursuant to the policy recently adopted by the Board of Directors, it is therefore not considered
compatible with the duties of a director of the Company to be a director or statutory auditor of more
than four other companies other than those subject to the direction and coordination of the Company,
213
Report on corporate governance or its subsidiaries or affiliates, in case of (i) companies
listed on the FTSE/MIB index (or equivalent foreign
index) or (ii) Italian or foreign companies, subject to the
supervision of the competent authorities, that carry out
financial, banking or insurance activities; furthermore,
it is not considered compatible for the same director to
hold more than three executive positions in companies
of the types indicated in points (i) and (ii) above.
Positions held in several companies belonging to the
same group are considered to be a single position and an
executive position prevails over a non-executive position.
The Board of Directors is entitled to make a different
assessment, properly motivated, to be published in the
Report and explained appropriately therein.
Following review by the Audit, Risks, Sustainability and
Corporate Governance Committee, each year the Board
of Directors examines the positions held by each Director
(based on the information provided by that person and/
or on the other information available to the Company). At
the Report Date, no Director holds a number of position
higher than the number set out in the policy adopted by
the Company on 14 February 2019.
Annex A indicates the principal appointments held by the
Directors in companies that do not belong to the Group at
the Report Date.
4.4. INDUCTION PROGRAMME
The Directors perform their duties autonomously
and with competence, pursuing the priority objective
of creating sustainable value over the medium-long
term. They are aware of the responsibilities pertaining
to their role and, like the Statutory Auditors, they are
kept periodically informed by the competent business
functions about the principal regulatory and self-
regulatory changes affecting the Company and the
performance of their duties.
In particular, during the Year, induction sessions were
arranged, also with the support of the top management,
to provide the members of the Board of Directors
with an explanation of the main characteristics of the
activities of Pirelli and its Group, of the field in which
it operates, of the sustainable management model and
of the internal control and risk management system
adopted by the Company. For completeness, it should
be noted, further, that as part of the process of listing,
indications were provided about the legal and regulatory
framework of reference, and the specific procedures
and regulations adopted by the Company. The principal
changes in the aforementioned regulatory framework
are promptly brought to the attention of the Board, also
through the competent committees.
Among the initiatives undertaken, the induction activities
on the organisation of the company, its products and
business activities, system of risk management and
sustainability,
property,
communication strategies and market scenarios should
be noted. In this context, Directors had the opportunity
to have direct encounters with the Company’s principal
managers (who as a rule normally attend the meetings of
the Board of Directors and the committees).
digitalisation,
intellectual
It should also be noted that, after the induction activities
described above, there was an informal meeting for the
visit to the “Pirelli HangarBicocca” foundation, attended
by the independent Directors and members of the
Board of Statutory Auditors, with a presentation of the
foundation’s
informal
meetings of members of the Board of Directors at the
cultural and sporting events organised by the Company,
and after Board meetings.
initiatives. There were further
4.5. ROLE OF THE BOARD OF DIRECTORS
The Board of Directors plays a central role in the guidance
and management of the Company. Pursuant to art. 11 of
the Articles, the Board of Directors manages the business
and, for this purpose, exercises all the widest powers of
management, except for those reserved by law or by the
Articles to the Shareholders’ Meeting.
4.5.1. FUNCTIONING OF THE BOARD OF DIRECTORS
Meetings of the Board of Directors are called by the
Chairman or his deputy and held at the registered
office, or in any another location specified in the notice
of convening, whenever deemed appropriate by the
Chairman in the interests of the Company, or when
requested in writing by the Chief Executive Officer or
by one-fifth of the appointed Directors. Meetings of
the Board of Directors may also be called by the Board
of Statutory Auditors, or by each standing auditor,
following notification sent to the Chairman of the Board
of Directors.
During the Year the Board of Directors in charge at the
Report Date met six times. The average duration of each
meeting was 60 minutes, with attendance of around 89%
of the Directors and 93% of the Independent Directors.
The Independent Directors had informal meetings in the
terms illustrated in the previous paragraph.
For the 2018 financial year and for the current year,
Pirelli disclosed a calendar of the main corporate events
to the market35 (also available on the Website). For the
2019 financial year, the Board is scheduled to meet at
least 5 times (at the Report Date two meetings have
already been held).
35 As a rule this happens in November/December.
214
Pirelli Annual Report 2018 The Directors and Statutory Auditors received the
information deemed necessary
documentation and
in order to be properly informed for the discussion of
the items submitted to them for consideration with a
reasonable and appropriate advanced notice. In fact,
the documentation examined by the Board and the
Committees is usually circulated about ten days prior to
the meeting. In the limited and exceptional cases in which
documentation could not be transmitted so far in advance
(or transmitted closer to the meeting), full information on
the issue to be considered was provided directly during
the meeting, thus ensuring that the Directors could
make informed decisions. Particular attention is paid
to ensuring that information remains confidential, by
sending the documentation relating to the activities of
the board and its committees using specific software that
guarantees that access is reserved to the directors and
statutory auditors only. This is in line with best practice
and with the recommendations contained in the letter
from the Chairman of the Italian Corporate Governance
Committee dated 21 December 2018.
into account the
Taking
international composition
of the Board of Directors, with the presence of three
different nationalities, it is also Company’s practice to
provide the documents to be considered by the Board
and its Committees in the three languages (Italian,
English and Chinese) commonly used by the Directors.
Furthermore, for each meeting of the Board of Directors
and of the Committees, participants are able to use a
simultaneous translation of interventions made in the
three aforementioned languages.
If the Chairman is absent or unavailable, the Chief
Executive Officer chairs the meeting; if the latter is also
absent or unavailable, the meeting is chaired by another
director appointed by the majority of those present. The
Board of Directors appoints a Secretary who may also not
be a Director.
For the resolutions of the Board of Directors to be valid, a
majority of its members must be present, and resolutions
must obtain a majority of the expressed votes.
As recommended by the Corporate Governance Code,
Directors’ awareness of the reality and dynamics of the
Company and the Group is enhanced by the systematic
attendance of top management at their meetings,
enabling them to provide appropriate detail on the items
on the agenda.
The Articles establish that, until different decision of the
Shareholders’ Meeting, the Directors are not bound by the
prohibition contained in art. 2390 of the Civil Code.
During the Year the Board of Directors started the process
of evaluation of its functioning and the functioning of
its Committees (board performance evaluation) for the
2018 financial year36. For the purpose of the assessment
process, the Board was also supported by the assistance
of a primary independent consulting firm specialised in
this area (SpencerStuart). The self-assessment process
was carried out through
interviews with
questions about the size, composition and operation of the
Board of Directors. All members of the Board of Directors
participated in the self-assessment process.
individual
The analysis of the results of the aforementioned board
performance evaluation provided by SpencerStuart
highlights a broadly positive situation. In particular, the
Directors expressed full satisfaction and appreciation on the
size, composition and operation of the Board of Directors
and its Committees. It was also highlighted that the Board
operates in compliance with the Corporate Governance
Code and with the best practice. With reference to the
operation of the Board and its Committees during 2018, the
following areas of excellence were particularly appreciated:
→ clarity and completeness of
the supporting
documentation circulated sufficiently in advance in
view of board meetings;
→ detailed, transparent and qualified reporting activity by
the management to the Board of Directors;
→ effective structure of the Board committees;
→ effective conduction of the meetings of the Board of
Directors;
→ exhaustive reporting provided by the Executive Vice
Chairman and Chief Executive Officer to the Board
on managerial accountability and on the principal
transactions executed at group level;
→ possibility to have constructive dialogue and discussion
at Board meetings.
The Directors expressed particular appreciation for (i)
the constant presence of the Group’s principal managers
(responsible for the appropriate area) at meetings of the
Board of Directors and the Board committees and (ii)
the mix of skills, considered to be excellent, since there
was an abundance of high level managerial expertise,
business experience and strongly international profiles
among its members.
From the investigation, some indications also arised
on how to further improve the operation of the Board:
among these, the need for deeper knowledge of the
different businesses of the Group, also through guided
visits to production sites in the various countries in which
Pirelli operates; the continuation and the development
of induction activities and opportunities for informal
meetings of the directors.
Finally,
it should be noted that the Audit, Risks,
Sustainability and Corporate Governance Committee
36 Given the short period of time between the First Trading Day and the end of the 2017 financial year,
the Board of Directors postponed the start of the process of evaluating its operation and the operation
of its Committees to the 2018 financial year.
215
Report on corporate governance played a guiding role in the board performance evaluation
by (i) defining the investigation methodology and ii)
identifying and appointing the consultant specialised in
this field as facilitator of the process. In particular, the
results were previously reviewed by the Audit, Risks,
Sustainability and Corporate Governance Committee
and then presented to the Board of Directors in its
meeting on 26 February 2019.
4.5.2. MATTERS IN THE BOD’S COMPETENCE
In accordance with the Articles, the Shareholders’
Meeting requires a qualified majority (i.e. favourable votes
by shareholders representing at least 90% of the share
capital of the Company) for the Board to be authorised to
resolve on the following issues:
→ transfer of the operational and administrative
headquarters outside of the municipality of Milan;
→ any transfer and/or deed of disposition, in any form, of
Pirelli know-how (including the granting of licences).
On 31 August 2017, the Board of Directors established
that all resolutions regarding the following matters,
proposed by Pirelli and/or by any company subject
to direction and coordination by Pirelli (excluding
intergroup transactions) must (as an internal restriction
of the power granted to the Chief Executive Office on
that date) be approved by the Board of Directors of the
Company:
(i)
instruments to be
obtaining or granting loans for a total value higher
than Euro 200 million and with a duration of more
than 12 months;
issuing financial
listed on
European or non-European regulated markets or
multilateral trading systems that total more than
Euro 100 million and/or their delisting;
giving guarantees in favour of or in the interests
of third parties for amounts higher than Euro 100
million;
signing derivative contracts (a) with a notional
value higher than Euro 250 million, and (b) except
for those having the sole object and/or effect of
hedging corporate risks (e.g. interest-rate risk,
exchange-rate risk, commodity market risk);
purchasing or selling equity
in
subsidiaries and affiliates for amounts higher than
Euro 150 million and that involve entering into (or
exiting from) geographical and/or commodity
markets;
purchasing or selling equity investments other than
those described in point (v) above for amounts
higher than Euro 250 million;
investments
(ii)
(iii)
(iv)
(v)
(vi)
(vii) purchasing or selling businesses or
lines of
business that have strategic importance or, in any
case, a value of more than Euro 150 million;
(viii) purchasing or selling fixed and other assets that
have strategic importance or, in any case, a total
value of more than Euro 150 million;
216
(ix)
(x)
(xi)
carrying out transactions of greater significance with
related parties, being those satisfying the conditions
envisaged in Attachment 1 to the “Procedure for
Related-Party Transactions” approved by the Board
of Directors of the Company;
defining the Company’s remuneration policy;
determining, in compliance with the Company’s
internal policies and the applicable regulations,
the remuneration of the executive directors and
the directors with specific responsibilities and,
where required, allocating the total remuneration
authorised by the Shareholders’ Meeting among
the members of the Board of Directors pursuant to
art. 2389, par. 3, of the Civil Code;
(xii) approving the strategic, industrial and financial
plans of Pirelli and the Group;
(xiii) adopting corporate governance rules for the
Company and defining guidelines for the corporate
governance of the Group;
(xiv) defining guidelines for the system of internal
control, including the appointment of a Director
responsible for overseeing the system of internal
control, determining the related duties and powers;
(xv) any other matter deemed to be responsibility of
the board of directors of a listed company by the
Corporate Governance Code promoted by Borsa
Italiana, as amended from time to time;
(xvi) approving the budget and the business plan of the
Company and the Group, as well as all significant
changes to those documents; and
(xvii) adopting any resolutions regarding
industrial
partnerships or strategic joint ventures to which
Pirelli and/or any Group company are part,
it being understood that the approval of the transactions
listed above is reserved solely to the Board of Directors
not only if the threshold indicated for each matter are
exceeded, but also if the matters listed from (i) to (ix),
whether considered as a single action or as a series
of coordinated actions (carried out in the context of a
common executive programme or a strategic project)
exceed the amounts indicated in the business plan and/or
the annual budget or (solely for the matters listed from (i)
to (viii)) if they were not included, listed or envisaged in the
business plan or the annual budget.
As required by the Corporate Governance Code, the Board
of Directors has assessed positively the adequacy of the
organisational, administrative and accounting systems and
structure of the Company, with particular reference to the
system of internal control and risk management, making
reference to the analytical work carried out by the Audit,
Risks, Sustainability and Corporate Governance Committee.
The Board has also evaluated the general results of
operations, taking into particular account the information
from delegated bodies and comparing
received
periodically, at least every quarter, the results obtained
with those planned.
Pirelli Annual Report 2018 4.6. DELEGATED BODIES: EXECUTIVE DIRECTORS
With resolution dated 31 August 2017, the Board of
Directors granted the Executive Vice Chairman and
Chief Executive Officer Marco Tronchetti Provera with
all the powers necessary to carry out deeds relating to
all aspects of corporate activity, without any exceptions
aside from those that the law or the Articles reserve to the
Board of Directors; all with the power to grant special and
general powers of attorney that give the representative the
right to sign on behalf of the Company, either separately
or together with others, and all other powers deemed
appropriate by him in the best interests of the Company,
including the right to sub-delegate.
In particular the Executive Vice Chairman and Chief
Executive Officer Marco Tronchetti Provera was granted
with:
a) as sole signatory, powers for the ordinary management
of Pirelli and of the Pirelli Group, with reference to
both Pirelli and any other company (including unlisted
foreign companies) subject to management and
coordination by Pirelli, with the following internal
restrictions and therefore with the assignment of the
related responsibility to the Board of Directors, if:
(i) the threshold amounts envisaged for each of the
b)
matters indicated above are exceeded; or
(ii) for the matters listed from (i) to (ix) in paragraph
4.5.2 above, if the amounts indicated in the
business plan and/or the annual budget are
exceeded; or
(iii) for the matters listed from (i) to (viii) in paragraph
4.5.2 above, if they were not included, listed or
envisaged in the business plan or the annual
budget; and
the power to propose to the Board of Directors
adoption of the following resolutions (together, the
“Significant Matters”):
(i) approval of the business plan and of the budget
of the Company and the Group, as well as all
significant changes to those documents. The
business plan and the annual budget must (a)
address certain operational and financial aspects of
Pirelli including, but not limited to, the identification
of all sources of funding for such business plans
and budgets, as well as the decisions about the
operational activities underlying them; and (b) be
accompanied and supported by adequate and
suitable documentation describing the
items
contained therein;
(ii) any resolutions regarding industrial partnerships
or strategic joint ventures to which Pirelli and/or
any Group company are party, in all cases following
examination by the Strategies Committee,
it being understood that: (a) the power to resolve on the
Significant Matters is reserved solely for the Board of
Directors and/or the Shareholders’ Meeting, as applicable;
and (b) should the Board of Directors not approve the
217
proposal of the Chief Executive Officer and Executive Vice
Chairman, the related resolution must be motivated and, in all
cases, take into account the best interests of the Company.
In light of the above, Executive Vice Chairman and Chief
Executive Officer Marco Tronchetti Provera is identified
as executive director.
Considering the frequency of Board meetings, the Chief
Executive Officer usually reports on his work during those
meetings.
It should be noted that, in addition to the Executive Vice
Chairman and Chief Executive Officer, Pirelli classifies as
executive directors those directors who at the same time
are qualify as executives with strategic responsibilities, if
there should be such Directors, or Directors who also hold
office as Chief Executive Officer or Executive Chairman of
the principal subsidiaries of Pirelli.
At the Report Date, and during the Year, no director other
than the Executive Vice Chairman and Chief Executive
Officer was qualified as executive director. 37
It should also be noted that on 7 August 2018, on the
occasion of the appointment of Ning Gaoning as Chairman
of the Board of Directors, to replace Ren Jianxin, the Board
of Directors - taking account of the governance structure,
the powers conferred on the Executive Vice Chairman and
Chief Executive Officer, and the circumstance that Ning
Gaoning was not being attributed management powers
and that he played no specific role in the elaboration of
business strategies - confirmed that it did not consider the
role of Chairman of the Company to be an executive role.
4.7. INDEPENDENT DIRECTORS
At the Report Date, eight of the fifteen Directors - and
hence over 50% of the members of the Board of Directors
- have the requirements to be qualified as independent
pursuant to the Corporate Governance Code and the
TUF and, specifically: Laura Cioli, Domenico De Sole, Tao
Haisu, Giovanni Lo Storto, Marisa Pappalardo, Cristina
Scocchia, Fan Xiaohua and Wei Yintao. Upon appointment
and thereafter at least on an annual basis, the Board
evaluates whether or not members meet and/or retain the
requirements of independence specified in the Corporate
Governance Code and the TUF for non-executive directors
qualified as independent. This check - which takes into
account not only the information provided by the directors
themselves but also further information that might be
available to the Company, and referring to the requirements
set out in the TUF, as well as to those recommended in the
37 It should be noted that at present no member of the Board of Directors is a key manager of
the Company with strategic responsibilities and/or holds the role of Chief Executive Officer or
Executive Chairman in Pirelli subsidiaries. For completeness, it should be noted that (i) Director
Giovanni Tronchetti Provera is a senior manager of the Company; (ii) Director Giorgio Luca Bruno
was a key manager of the Company with strategic responsibilities during the 2017 financial year and
subsequently a senior manager of the Company until 31 December 2018 (cf. Remuneration Report).
Report on corporate governance Corporate Governance Code - was most recently carried
out during the board meeting on 26 February 2019.
In making its assessments, the Board did not derogate
from any of the criteria prescribed by the Corporate
Governance Code38.
At the same time of the assessments made by the Board
of Directors, the Board of Statutory Auditors confirmed
that, in line with the recommendations of the Corporate
Governance Code, it had verified the proper application
of the assessment criteria and ascertainment procedures
adopted by the Board of Directors to assess the
independence of its members.
None of the Directors qualified as independent at the date
of their appointment had lost this status during their term
of office.
Considering the above, the system of powers and the
share ownership structure, and the provisions on this
subject contained in the Corporate Governance Code,
the Board of Directors decided not to appoint a lead
independent director.
The independent and non-executive directors contribute
to the board discussions, bringing their specific skills,
and, given their number, they have a decisive weight in the
decision-making process of the Board of Directors.
5. Processing
of corporate information
Pirelli has adopted and consolidated over time a
compendium of rules and procedures for the proper
management of corporate information, in compliance with
the regulations applicable to the various types of data.
With reference to the prevention of market abuses, the
Board of Directors of Pirelli has adopted a procedure
for defining the principles and rules for preventing such
abuses by Pirelli, Group companies and their related
parties (the “Market Abuse Procedure”).
In particular, the Market Abuse Procedure - the full version
of which is available on the Website - governs: (a) the
management of “significant information”, being information
that may become “inside information” pursuant to art.
7 of Regulation (EU) 596/2014 (“Inside Information”);
(b) the management and communication to the public of
Inside Information; (c) the creation, keeping and updating
of the register of persons who, in view of their working
or professional activities or the functions they perform,
have access to Inside Information; (d) the obligations
regarding transactions in the shares of the Company, credit
instruments issued by the Company and the derivative
or other financial instruments linked to them, by parties
deemed to be senior decision-makers (“internal dealing”);
(e) the operational 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.
The Market Abuse Procedure also defines rules for
transactions carried out by “Significant Parties” or by
“Persons Closely Related to Significant Parties”
in
financial instruments issued by the Company, with an
annual amount of at least Euro 20,000, in compliance
with the applicable current regulations. In this regard, a
black-out period of 30 calendar days is imposed prior to
the announcement by the Company of the data contained
in annual, half-yearly and periodic financial reports,39
during which time internal dealers are forbidden to carry
out transactions in those financial instruments.
6. Board Committees
The role of the Board committees is to carry out analyses
for, make recommendations to and/or give advice to the
Board in relation to matters deemed worthy of further
investigation, in order to ensure that there is an effective
and informed exchange of opinions about them.
On 31 August 2017, the Board of Directors of the Company
established the Strategies Committee, the Appointments
and Successions Committee, the Audit, Risks, Sustainability
and Corporate Governance Committee, the Remuneration
Committee and the Related-Party Transactions Committee.
38 In particular, no one of the independent directors could be considered as “significant representative”.
39 Annually - as a rule by the end of the year - the Company publishes the calendar of principal
corporate events for the next financial year and promptly updates this calendar in the event of
subsequent amendments.
218
Pirelli Annual Report 2018 6.1. FUNCTIONING OF COMMITTEES
The Committees are appointed by the Board of Directors
and remain in office for the entire mandate of the Board,
meeting whenever deemed appropriate by the Committee
Chairman, or when requested by at least one member, by
the Chairman of the Board of Directors or by the Chief
Executive Officer and, in any case, with the frequency
necessary in order to properly carry out their functions.
The Strategies Committee meets at least 5 days prior
to the Board meeting called to approve the annual
budget and/or the business plan, receiving the related
documentation at least 3 days prior to the meeting.
The Secretary of each Committee is the Secretary of the
Board.
The meetings of the Committees shall be convened
by notice sent to the participants by its Chairman or by
the Secretary of the Committee upon request of the
Chairman.
The documentation and information available (and, in all
cases, the necessary information) are sent in good time to
all members of the relevant Committee so that they can
participate in the meeting in an informed manner.
Committee meetings are quorate when attended by
the majority of appointed members and resolutions are
adopted by the majority of those present. In the event
of a voting tie at meetings of the Appointments and
Successions 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 taken by the Committee Secretary and
recorded in the related minutes book. The Chairman of
each committee informs the Board of Directors about the
outcome of the meetings held.
Committees awareness of the business reality and
dynamics of the Company and the Group is enhanced by
the attendance of top management at their meetings, which
makes it possible to explore the matters on the agenda in
appropriate detail. In particular, as a rule, the Executive Vice
President & Chief Human Resources and Organization
Officer attends the meetings of the Remuneration
Committee, while the Corporate Vice President Internal
Audit and the Head of Sustainability & Risks Governance
attend the meetings of the Audit, Risks, Sustainability and
Corporate Governance Committee.
Committees - which may use the support of external
advisors in carrying out their functions - are granted with
adequate financial resources to perform their tasks with
spending autonomy. The Related-Party Transactions
Committee is entitled to obtain assistance, at the expense
of the Company, from one or more independent experts
selected by the Committee.
Committees are entitled to access relevant business
information and functions in the performance of their
tasks, with support from the Secretary to the Board of
Directors for this purpose.
The entire Board of Statutory Auditors
is entitled
in the activities of the Audit, Risks,
to participate
Sustainability and Corporate Governance Committee,
the Related-Party Transactions Committee and the
Remuneration Committee. One member of the Board of
Statutory Auditors is invited to attend the meetings of
the Appointments and Successions Committee and the
Strategies Committee.
information about the number of meetings
Further
held by each Committee during the Year and about the
attendance of each member at those meetings can be
found in Table 2 attached to this Report.
219
Report on corporate governance 7. Strategies Committee
STRATEGIES COMMITTEE
Name and Surname
Office
Marco Tronchetti Provera
Executive Vice Chairman and Chief Executive Officer
Yang Xingqiang
Not Executive Director
Bai Xinping
Not Executive Director
Giorgio Luca Bruno
Not Executive Director
Domenico De Sole
Not Executive Independent Director
Ze’ev Goldberg
Not Executive Director
Wei Yintao
Not Executive Independent Director
At the Report Date, the Strategies Committee is made of 7 Directors (including 2 Independent Directors):
Marco Tronchetti Provera (Chairman), Giorgio Luca Bruno, Yang Xingqiang, Bai Xinping, Ze’ev Goldberg,
Domenico De Sole and Wei Yintao.
The Strategies Committee advises and makes recommendations to the Board of Directors on the definition
of strategic guidelines, as well as on the identification and definition of terms and conditions for individual
transactions of strategic importance.
In particular, the Strategies Committee:
→ examines the strategic, industrial and financial plans - both short and long term - of the Company and the
Group before their submission to the Board of Directors;
→ helps the Board to assess transactions, initiatives and activities of strategic importance including, in particular:
(i) entry into new geographical markets and businesses; (ii) industrial alliances (e.g. joint ventures); (iii) special
transactions (mergers, spin-offs, capital increases and capital reductions, except for those to cover losses);
(iv) investment projects; (v) industrial and/or financial restructuring projects and programmes;
→ examines periodically the organisational structure of the Company and the Group, presenting any suggestions
and opinions to the Board.
220
Pirelli Annual Report 2018 8. Appointments and Successions Committee
APPOINTMENTS COMMITTEE
Nome e Cognome
Office
Ning Gaoning
Not Executive Chairman
Marco Tronchetti Provera
Executive Vice Chairman and Chief Executive Officer
Bai Xinping
Not Executive Director
Giovanni Tronchetti Provera
Not Executive Director
At the date of this Report, the Appointments and Successions Committee is composed of 4 members: Marco
Tronchetti Provera (Chairman), Ning Gaoning, Giovanni Tronchetti Provera and Bai Xinping. As an exception to
the Corporate Governance Code, the majority of the members of this committee are non-executive directors
(although not independent). This is due to the fact that the committee addresses not only matters relating
to appointments, but also those regarding top management succession, and considering 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 paragraph 4.1.3).
In particular, the Appointments and Successions Committee:
→ prepares opinions for the Board of Directors on the size and composition of the Board and makes
recommendations about the professional roles whose presence on the Board is deemed appropriate;
→ prepares opinions for the Board of Directors on the adoption and/or amendment by the Board of its orientation
towards the number of appointments considered compatible with effective performance as a director of
the Company;
→ makes recommendations to the Board of Directors about any issues regarding application of the prohibition
of competition envisaged in art. 2390 of the Civil Code, should the Shareholders’ Meeting - for organisational
reasons - authorise in advance, on a general basis, exceptions to this prohibition;
→ recommends candidates to the Board of Directors, should it be necessary to co-opt new Directors to replace
Independent Directors;
→ recommends “emergency” top management succession plans to the Board of Directors;
→ prepares opinions for the Board of Directors on the designation of candidates (including persons to be
coopted) for the position of Chief Executive Officer;
→ over proposal of the Chief Executive Officer, identifies criteria for the succession plans covering top and
senior management in general, in order to guarantee the continuity of business strategies.
221
Report on corporate governance 9. Related-Party Transactions Committee
RPT COMMITTEE
Name and Surname
Office
Domenico De Sole
Not Executive Independent Director
Marisa Pappalardo
Not Executive Independent Director
Cristina Scocchia
Not Executive Independent Director
At the Report Date, the Related-Party Transactions Committee is made of 3 Independent Directors: Domenico
De Sole (Chairman), Marisa Pappalardo e Cristina Scocchia.
The Related-Party Transactions Committee provides advice and makes recommendations to the Board
of Directors about transactions with related parties, with the sole exception of matters concerning the
remuneration of directors and executives with strategic responsibilities, which are addressed by the
Remuneration Committee.
In particular, the Related-Party Transactions Committee:
→ prepares advance opinions on the procedures governing the identification and management of related-party
transactions arranged by Pirelli and/or by its subsidiaries, as well as their amendment;
→ prepares advance, reasoned opinions, if expressly requested, on the interest of Pirelli in carrying out a specific
related-party transaction and on the reasonableness and substantial fairness of the relevant conditions;
→ in the case of significant transactions with related parties, the committee is involved in the related negotiations
and the analytical phase via the receipt of complete and timely information, with the right to request information
and to make observations to the persons responsible for carrying out the negotiations or analyses.
222
Pirelli Annual Report 2018 10. Remuneration Committee
REMUNERATION COMMITTEE
Name and Surname
Office
Bai Xinping
Not Executive Director
Laura Cioli
Not Executive Independent Director
Tao Haisu
Not Executive Independent Director
Giovanni Lo Storto
Not Executive Independent Director
At the Report Date, the Remuneration Committee is composed of 4 directors (including 3 independent
directors): Tao Haisu (Chairman); Laura Cioli (Director with adequate knowledge and experience of financial
matters or pay policies), Bai Xinping and Giovanni Lo Storto (Director with adequate knowledge and experience
of financial matters or pay policies).
This Committee has advisory and supervisory functions and makes recommendations to ensure the definition
and the application within the Group of remuneration policies that, on the one hand, attract, motivate and retain
human resources with the professional qualities required to profitably pursue the Group targets and, on the
other hand, are capable of aligning the interests of management with those of the shareholders.
In particular, the Remuneration Committee:
→ helps the Board of Directors to define the general policy for group remuneration, making recommendations
in this regard;
→ assesses periodically the adequacy, overall consistency and concrete application of the general policy for
remuneration, making reference in this last regard to the information provided by the chief executive officers;
makes recommendations to the Board of Directors on this matter;
→ with regard to the executive directors and the other directors with specific responsibilities, makes
recommendations or expresses opinions to the Board: (i) about their remuneration, consistent with the
general policy for remuneration; (ii) about setting performance objectives linked to the variable element of
that remuneration; (iii) about the definition of any non-competition agreements; (iv) about the definition of
any agreements for the termination of working relationships, having regard to the principles established in
the general policy for remuneration;
→ with regard to the executives with strategic responsibilities, checks the consistency of their remuneration
with the general policy for remuneration and expresses an opinion on it pursuant to the procedure for
Related-Party Transactions;
→ helps the Board of Directors to examine proposals to the Shareholders’ Meeting for the adoption of
remuneration plans based on financial instruments;
→ monitors application of the decisions adopted by the Board, verifying in particular the effective achievement
of the established performance objectives;
223
Report on corporate governance The Company’s remuneration policy for the Year includes
a long term incentive plan - so-called LTI plan - which
ensures that the variable remuneration parameters are
linked to long-term objectives. Information about the
2019 remuneration policy and on remuneration paid in
2018 can be found in the Remuneration Report prepared
pursuant to art. 123-ter TUF, which is made available to
the public on the basis and by the deadlines envisaged by
current laws and regulations, including by publication on
the Website.
Finally, it should be noted that the information required
pursuant to art. 123-bis, para. 1, letter i) of the TUF
(regarding “agreements between the company and its
directors […] that envisage indemnities in the event of
resignation or termination without just cause or following
a takeover bid”) is contained in the abovementioned
Remuneration Report.
→ examines and submits to the Board of Directors the
remuneration report that, by name for the members of
the management and control bodies and in aggregate
for the executives with strategic responsibilities: (i)
provides adequate information about each component
of their remuneration; and (ii) explains in detail all
the remuneration paid during the year, for whatever
reason and in whatever form, by the Company and its
subsidiaries.
The directors who are members of the Remuneration
Committee do not attend the meetings of the Committees
held to make recommendations to the Board about their
own remuneration.
11. Remuneration
of the directors
The system for remunerating Group management is
designed to attract, motivate and retain key resources. It is
defined in a way that aligns the interests of management
with those of the shareholders, pursuing the priority
objective of creating sustainable value over the medium-
long term through an effective and verifiable link between
remuneration, on the one hand, and individual and Group
performance, on the other hand.
224
Pirelli Annual Report 2018 12. Audit, Risks, Sustainability
and Corporate Governance Committee
ARSCGC
Name and Surname
Office
Laura Cioli
Not Executive Independent Director
Cristina Scocchia
Not Executive Independent Director
Fan Xiaohua
Not Executive Independent Director
Giovanni Lo Storto
Not Executive Independent Director
At the Report Date, the Audit, Risks, Sustainability and Corporate Governance Committee was composed of 4
independent directors: Fan Xiaohua (Chairman), Laura Cioli, Cristina Scocchia and Giovanni Lo Storto, all with
adequate experience in accounting and finance or in risk management.
The Audit, Risks, Sustainability and Corporate Governance Committee, which incorporates the functions of the
“control and risks committee”, supports the Board of Directors in the assessment and decision-making about
the system of internal control and risk management, as well as in the approval of the periodic financial reports,
as required by art. 7 of the Corporate Governance Code.
In particular, the Audit, Risks, Sustainability and Corporate Governance Committee:
→ assists the Board of Directors, expressing an opinion on: (i) the definition of guidelines for the system of internal
control and risk management, so that the principal risks faced by the Company and its subsidiaries are properly
identified and appropriately measured, managed and monitored; (ii) the determination of the extent to which these
risks are compatible with managing the business in a manner consistent with the strategic objectives identified,
having regard for the risks that might be significant in terms of the sustainability of the business of the Company
over the medium-long term; (iii) the identification of an executive director responsible for supervising the functioning
of the internal control and risk management system, considering the characteristics of the business and the risk
profile;(iv) the assessment, at least annually, of the adequacy of the internal control and risk management system,
considering the characteristics of the business and the risk profile involved, as well as the effectiveness of its
functioning in practice; (v) the approval, at least annually, of the work plan prepared by the head of internal audit and
the head of the compliance department; (vi) the description, in the report on corporate governance, of the essential
elements of the internal control and risk management system and the arrangements for coordination between the
subjects involved, expressing its opinion on their overall adequacy; (vii) the assessment, having obtained the opinion
of the Board of Statutory Auditors, of the results presented by the external auditor in any letter of recommendations
to the management, and any report on fundamental issues identified during the external audit;
→ expresses an opinion on proposals concerning the appointment, revocation, assignment of duties and
determination of the remuneration, consistent with Company policies, of the head of the Internal Audit
Department, and on the adequacy of the resources allocated to the latter in order to carry out his or her
assigned functions;
225
Report on corporate governance → assesses, together with the administrative managers of
the Company and the executive responsible for preparing
the corporate accounting documents, after having obtained
the opinions of the Board of Statutory Auditors and the
external auditor, the proper and consistent application of
the accounting standards adopted by the Group for the
preparation of the consolidated financial statements;
→ at the request of the director responsible, expresses
opinions on specific aspects of the identification of the
principal business risks, and on the design, implementation
and management of the internal control and risk
management system;
→ reviews the periodic reports prepared by the head of
internal audit and of the compliance department;
→ monitors the autonomy, adequacy, effectiveness and
efficiency of the internal audit department;
→ if considered advisable, requests audits of specific
operational areas, informing the Chairman of the Board of
Statutory Auditors at the same time;
→ reports to the Board of Directors on the work undertaken
and on the adequacy of the internal control and risk
management system at least every six months, at the
time the financial statements and the half-year report are
approved;
→ at Board’s request, supports with appropriate preparatory
work the evaluations and decisions of the Board of
Directors concerning the management of risks arising from
any detrimental facts that may have come to its attention;
→ monitors compliance with and the periodic update of
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-
assessment of the Board of Directors;
→ monitors sustainability issues connected to the operation
of the Company’s business and the dynamics of its
interactions with all stakeholders;
→ defines “sustainability” guidelines and proposes them to
the Board of Directors, and monitors compliance with
the rules of conduct that might have been adopted by
the Company and its subsidiaries;
→ assists the Board of Directors in the preparation and
subsequent review and approval of the sustainability report.
13. System of internal
control and risk
management
The Company’s internal control and risk management
system is designed to contribute to the operation of
a healthy and proper business, consistent with the
objectives established by the Board of Directors, by
identifying, managing and monitoring the principal risks
faced by the Company. The internal control and risk
management system allows the principal risks, and the
reliability, accuracy, trustworthiness and timeliness of
financial reporting to be identified, measured, managed
and monitored.
Responsibility for the adoption of an adequate internal
control and risk management system lies on the Board
of Directors which, with the support of the Audit, Risks,
Sustainability and Corporate Governance Committee,
carries out the tasks assigned to it in the Corporate
Governance Code.
A more complete description of the internal control
system adopted by Pirelli can be found in the management
report. In this regard, the Board of Statutory Auditors has
issued a statement on the administration and accounting
systems adopted by the significant subsidiaries of Pirelli
to ensure that the information on the company’s assets,
business and finances required for the preparation of the
consolidated financial statements is regularly received
by the Pirelli’s senior management and external auditor.
13.1. RESPONSIBLE DIRECTOR
The Board has designated Marco Tronchetti Provera as
the director responsible for supervising the functioning of
the internal control system (the “Responsible Director”).
The Responsible Director is in charge of supervising the
functioning of the system of internal control and risk
management and implementing the related guidelines
formulated by the Board of Directors, with the support of
the Audit, Risks, Sustainability and Corporate Governance
Committee, ensuring that all actions necessary for the
implementation of the system are taken.
In particular, the Responsible Director:
→ ensures that the principal business risks are identified,
taking account of the characteristics of the activities
carried out by the Company and its subsidiaries, and
submits them periodically to the Board of Directors
for review;
→ gives execution to the guidelines formulated by
the Board of Directors, supervising the drafting,
implementation and management of the internal
control and risk management system and constantly
monitoring its adequacy and effectiveness;
→ ensures that the system is compliant with any changes
in operating conditions and in the legislative and
regulatory framework;
→ may ask the internal audit department to audit
specific operating areas and compliance with the
internal rules and procedures for the conduct of
business operations; and
226
Pirelli Annual Report 2018 → promptly reports to the Audit, Risks, Sustainability and
Corporate Governance Committee (or to the Board of
Directors) on issues and critical situations identified during
his work or otherwise brought to his attention, so that the
Committee (or the Board) can take appropriate actions.
(i) the reliability of their systems for safeguarding
corporate assets; (ii) the adequacy of their procedures
for recording, controlling and reporting administrative
activities; (iii) the assignment of engagements to the
external auditor and to other firms in its network.
13.2. INTERNAL AUDIT DEPARTMENT
Internal Audit
The Company has established an
Department, directed by Maurizio Bonzi, which has been
attributed responsibilities essentially consistent with
those set out in the Corporate Governance Code.
In particular, the department is tasked with assessing the
adequacy and functioning of the audit, risk management
and corporate governance processes, by providing
independent and objective assurance and advice.
The internal audit Department:
→ audits, both on a continuous basis and in relation to
specific needs and in accordance with international
standards, the effective operation and suitability of
the internal control and risk management system
- suggesting any corrective actions required - by
implementing an audit plan approved each year by the
Board of Directors, based on a structured process of
analysis and prioritisation of the principal risks;
→ carries out audits, also at the request of the Audit, Risks,
Sustainability and Corporate Governance Committee,
the Board of Statutory Auditors and the Responsible
Director, of specific operating areas and compliance
with the internal procedures and rules in the execution
of business operations;
→ drafts periodic reports on its assessment of the
suitability of the internal control and risk management
system. These reports are sent, at least quarterly, to
the Board of Statutory Auditors, the Audit, Risks,
Sustainability and Corporate Governance Committee,
and the Responsible Director of the internal control
system, and, at least every six months, to the Board of
Directors;
→ receives and analyses reports obtained in accordance
with the whistleblowing procedures established by the
Group and regarding any cases of corruption/violation
of the principles of internal control and/or the precepts
of the Code of Ethics, equal opportunities, corporate
rules and regulations, or any other actions or omissions
that, directly or indirectly, might result in economic or
financial losses for or damage to the reputation of the
Group and/or its subsidiaries;
→ provides adequate support to the Supervisory Bodies
established pursuant to art. 6 of the Legislative Decree
231/2001;
→ provides advice and support to the relevant Company
departments – without exercising any decision-making
or authorisation responsibilities – regarding inter alia:
227
As mentioned in paragraph 12, it should be noted that the
Audit, Risks, Sustainability and Corporate Governance
Committee expresses an opinion on proposals concerning
the appointment, revocation, assignment of duties and
determination of the remuneration, consistent with Company
policies, of the head of the internal audit department, as
well as on the adequacy of the resources allocated to the
department in order to carry out the assigned functions.
13.3. COMPLIANCE DEPARTMENT
Operating within the Corporate Affairs, Compliance
and Company Secretary Department, the Compliance
department works with the Legal departments and other
competent company departments to ensure that the
company’s internal regulations, processes and activities
are constantly aligned with the applicable regulatory
framework, participating actively in the identification of
any non-compliance risks that might give rise to judicial
or administrative penalties, with consequent reputational
damage. For further details on the activities performed
by the Compliance department please refer to paragraph
“Programs of Compliance 231, Anti-corruption, Privacy
and Antitrust” of the NFD Report.
13.4. SYSTEM OF RISK MANAGEMENT AND
CONTROL OVER FINANCIAL INFORMATION
Pirelli has implemented a specific and detailed internal
control and risk management system, supported by
dedicated IT software, relating to control on the process
of preparing its half-yearly and annual separate and
consolidated financial information, in order to safeguard
corporate assets and ensure compliance with the relevant
laws and regulations, the efficiency and effectiveness
of business operations and the reliability, accuracy and
timeliness of financial information.
In particular, the financial reporting process is carried out
by applying appropriate administrative and accounting
procedures created
in accordance with the criteria
established by the Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
The administrative/accounting procedures adopted for
the preparation of financial statements and all other
financial disclosures are created under the responsibility
of the Chief Financial Officer, who, together with the
Compliance Department, periodically (and in any case,
Report on corporate governance when the separate/consolidated financial statements are
prepared) checks their adequacy and proper application.
In order to permit certification by the Chief Financial
Officer, the companies and the significant processes that
generate information of an economic-nature, or about
corporate assets, have been mapped. The companies that
are members of the Group and the significant processes
are identified each year on the basis of quantitative
and qualitative criteria. Quantitative criteria include the
identification of those Group companies that represent
an aggregate value, in relation to the processes selected,
that exceeds a predetermined threshold of materiality.
Qualitative criteria include the review of those processes
and of those companies that, as ultimately determined by
the Chief Financial Officer, may present potential areas of
risk despite not falling within the quantitative parameters
described above.
Risks/control objectives have been identified for each
selected process involved in the preparation of the
financial statements and related disclosures, as well as
with regard to the effectiveness/efficiency of the internal
control system in general.
Detailed verification work has been planned, and specific
responsibilities have been defined for each control objective.
A system for supervising the verification work undertaken
has been implemented through a chain-of-certifications
mechanism; any problems that emerge during the
assessment process are the subject of action plans whose
implementation is monitored at subsequent reporting dates.
Finally, the Chief Executive Officers and Chief Financial
Officers of subsidiaries issue half yearly statements
attesting the reliability and accuracy of the data submitted
for the preparation of the Group’s consolidated financial
statements.
Shortly before the Board meetings held to approve the
consolidated data as of 30 June and 31 December, the
Chief Financial Officers share the results of the verification
work carried out with the Chief Financial Officers of each
Group company.
The internal audit Department carries out periodic audits to
verify the adequacy of the design and the effective operation
of the controls carried out on samples of companies and
processes, selected applying materiality criteria.
13.5. DIRECTOR RESPONSIBLE
FOR SUSTAINABILITY MATTERS
On 26 February 2019, the Board of Directors, having
acknowledged the renounce to the proxies on sustainability
matters by the Director Bruno, appointed the Executive
Vice Chairman and Chief Executive Officer Marco
Tronchetti Provera as Sustainability Director. In that role,
he is responsible for supervising sustainability issues
associated with the conduct of the activities of the company,
and its dynamics of interaction with all the stakeholders,
and for
implementing the guidelines defined by the
Board of Directors, with assistance from the Audit, Risks,
Sustainability and Corporate Governance Committee.
13.6. MODEL 231 AND CODE OF ETHICS
The Company has adopted the organisation and
management model envisaged by Decree 231 of 8
June 2001, as subsequently amended (the “Model
231”), in order to create a system of rules designed to
prevent unlawful conduct that might be significant for
the purposes of applying the above regulations and, as
a consequence, has established a supervisory body (the
“Supervisory Body”).
The Company has not extended adoption of Model 231
to its foreign subsidiaries as that model might not be
compatible with their current national regulations and,
therefore, would not entirely eliminate the risk of incurring
penalties as a consequence of their activities.
The Model 231- constantly updated by the Company also
in light of the new legislative provisions - comprises: (a)
a general part covering topics relating, inter alia, to the
applicability and application of Decree 231/2001, the
composition and functioning of the Supervisory Body,
and the system of penalties applicable in the event of
breaches of the standards of conduct specified in Model
231, and (b) special parts containing the general principles
of conduct and the control protocols for each type of
identified offence deemed significant for the Company.
The Supervisory Body was appointed by the Board of
Directors on 31 August 2017 and comprises Carlo Secchi
(Chairman), Antonella Carù (Standing Auditor), Maurizio
Bonzi and Alberto Bastanzio (the last two because of their
respective roles as Corporate Vice President Internal Audit
and Corporate Vice President Corporate Affairs, Compliance
and Company Secretary). The Supervisory Body satisfies the
autonomy, independence, professionalism and continuity of
action requirements specified by law for that body.
Pirelli has adopted a Code of Ethics that sets out principles
for the required conduct of directors, statutory auditors,
executives and employees of the Group and, in general, all
those that work in Italy and abroad on behalf of or for the
benefit of the Group, or that engage in business relations
with the Group, each in the context of their own functions
and responsibilities.
An abstract of the Model 231 is available on the Website.
228
Pirelli Annual Report 2018 13.7. EXTERNAL AUDITOR
The audit company engaged to perform the external audit of
the accounts of the Company is PricewaterhouseCoopers
S.p.A. (the “External Auditing Firm”), with registered and
administrative offices at via Monte Rosa 91, Milan, recorded
on the Register of Auditors established pursuant to art. 6
et seq. of Decree 39/2010, as implemented by Decree 144
of the Ministry of the Economy and Finance dated 20 June
2012.
In particular, the Ordinary Shareholders’ Meeting of the
Company, held on 27 April 2017 engaged the External
Auditing Firm to perform the external audit of Pirelli’s
accounts, pursuant to art. 14 of Decree 39/2010, as amended
by Decree 135/2016, and art. 2409-bis et seq of the Civil
Code, for the three-year period 2017, 2018 and 2019.
The Ordinary Shareholders’ Meeting held on 1 August 2017
confirmed the above appointment to perform the external
audit of the accounts, establishing that, with effect from
the admission of Pirelli shares to trading on the MTA,
such appointment would entail: (i) the external audit of
the accounts (including verification that the accounting
records are properly kept and that the results of operations
are properly reflected in the accounting entries) pursuant
to arts. 13 and 17 of Decree 39/2010 for the financial years
2017-2025, in relation to the separate financial statements
of the Company, the consolidated financial statements
of the Group and the additional related activities; and
(ii) the limited examination of the condensed half-year
consolidated financial statements of Pirelli for the six-
month periods ending on 30 June 2018-2025.
The detail of the fees due to the External Auditing Firm is
shown in the Explanatory Notes.
13.8. CHIEF REPORTING OFFICER
The Board of Directors appointed Francesco Tanzi as
manager responsible for the preparation of corporate and
accounting documentation pursuant to art. 154-bis TUF
(the “Chief Reporting Officer”), with effect from the First
Trading Day and after receiving a favourable opinion from
the Board of Statutory Auditors. The Board of Directors
also verified that the Chief Reporting Officer is expert in
administration, finance and control matters and satisfies
the integrity requirements established for the directors.
The Chief Reporting Officer puts
in place suitable
the
administrative and accounting procedures
preparation of the separate and consolidated financial
statements, as well as of all other financial communications.
for
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 Chief Reporting Officer confirming
that it corresponds to the supporting documentation,
records and accounting entries.
14. Interests of the
directors and related-party
transactions
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.
In particular, the RPT Procedure distinguishes:
1)
transactions of insignificant amount (with a value not
exceeding 150 thousand Euro);
2) transactions of greater significance, being those
exceeding the thresholds envisaged in attachment 3 to
the Related Parties Regulation or those that, although not
exceeding such thresholds, given their nature, strategic
importance, size or commitments, have a significant
impact on the activities of the Company or the Group, or
might affect the operational autonomy of the Company
(Transactions of Strategic Significance); and
3) transactions of minor significance, different from
transactions of greater significance and transactions
of insignificant amount;
establishing stricter rules for the transactions of greater
significance, with regard to both their authorisation
process and the information provided to the market. The
Related-Party Transactions Committee (composed of
independent directors) is required to express an opinion
on all transactions of greater or minor significance, in
terms of the interest of the Company in carrying out the
transaction, as well as the reasonability and substantial
correctness of the related conditions. This opinion is
binding for all transactions of greater or minor significance.
The approval process envisaged by the RPT Procedure is not
required, on the other hand, for transactions of insignificant
amount. The RPT Procedure also envisages certain
exemptions, as well as the possibility of adopting framework
resolutions and, in urgent cases, of making exceptions to the
obligations established in the RPT Procedure.
The full text of the RPT Procedure is available on the
Website. Periodically and at least every three years, the
229
Report on corporate governance Board of Directors - having received the opinion of the
Related-Party Transactions Committee - considers the
need to revise the RPT Procedure.
A special section of the financial statements shows the
principal transactions with related parties undertaken by the
Company.
15. Board
of Statutory Auditors
15.1. APPOINTMENT, REPLACEMENT
AND DURATION IN OFFICE
At the Report Date, reflecting the importance that Pirelli
attributes to the role of the control body, the Board of
Statutory Auditors is composed of five standing auditors and
three alternate auditors who are required to satisfy current
regulatory requirements; in this regard it shall be considered
as subjects and sectors of activity closely related to those of
the company those indicated in the corporate purpose, with
particular reference to companies or entities operating in the
financial, industrial, banking, insurance and real estate fields
and services in general.
The Ordinary Shareholders’ Meeting appoints the Board
of Statutory Auditors and determines its remuneration.
The statutory auditors act with autonomy and independence,
also with regard to the shareholders that elected them.
In order to enable the minority to elect a standing auditor (who
will be the Chairman of the Board of Statutory Auditors) and an
Alternate Auditor, the Board of Statutory Auditors is appointed
on the basis of slates presented by the shareholders, in which
each candidate is listed with a sequence number. Each slate
contains a number of candidates that does not exceed the
number of members to be elected.
Shareholders are only entitled to present a slate if, alone
or together with other shareholders, they hold at least 1%
of the shares entitled to vote at an Ordinary Shareholders’
Meeting, or any lower amount required by a regulation issued
by Consob for the presentation of slates of candidates for
appointment of the Board of Directors. Each shareholder may
present or contribute to the presentation of just one slate.
The slates of candidates, signed by those presenting them,
must be filed at the registered offices of the Company
at least twenty-five days prior to the date fixed for the
Shareholders’ Meeting called to appoint the members of the
Board of Statutory Auditors, unless more time is allowed for
the presentation of candidates in the cases envisaged by
law and/or the regulations. These slates are made available
to the public at the registered offices, on the Website and in
other ways prescribed by Consob, regulation at least twenty-
one days prior to the date of the Shareholders’ Meeting.
Each candidate may be included on just one slate, subject
otherwise to becoming ineligible.
Each slate comprises two sections: one for candidates for
the office of standing auditor and the other for candidates to
the position of alternate auditor. The first candidate in each
section shall be selected from among those registered in
the Register of Chartered Accountants who has worked on
external audits for a period of not less than three years. In
compliance with the regulations in force from time to time
concerning gender balance, slates that - considering both
sections - contain three or more candidates must include
candidates of different gender, both in the section of the slate
for standing auditors and in the section for alternate auditors.
Each party entitled to vote may only vote for one slate. The
members of the Board of Statutory Auditors are elected
as follows:
1)
four standing auditors and two alternate auditors
are drawn, in the sequence listed, from the slate that
obtained the largest number of votes (the majority
slate);
2) the remaining standing auditor and alternate auditor
are drawn, in the sequence listed, from the slate that
obtained the second largest number of votes (the
minority slate) at the Shareholders’ Meeting; should
several slates obtain the same number of votes, a new
vote limited to such slates is held by all those entitled
to vote that attend the Shareholders’ Meeting, and
the candidates on the slate which obtains the simple
majority of the votes will be elected.
Should application of the slate voting mechanism not obtain,
considering the standing and alternate auditors separately,
the minimum number of statutory auditors belonging to
the less represented gender envisaged by the laws and/or
regulations in force at the time, the candidate belonging to
the most represented gender and elected, indicated with the
highest progressive number of each section from the slate
that obtained the largest number of votes, is replaced by the
first candidate belonging to the less represented gender not
already elected from the same section of that slate, pursuant
to the sequential order of presentation.
An auditor is replaced, in the event of death, resignation or
forfeiture, by the first alternate auditor drawn from the same
slate. If this replacement does not allow the Board of Statutory
Auditors to be reconstructed in compliance with current
regulations, including the provisions governing gender balance,
recourse is made to the second alternate auditor drawn from
the same slate. If, subsequently, it becomes necessary to
replace another Auditor drawn from the slate that obtained the
230
Pirelli Annual Report 2018 largest number of votes, recourse is made to the other alternate
auditor drawn from the same slate. Should it be necessary to
replace the Chairman of the Board of Statutory Auditors, the
chair is taken by the second auditor on the same slate as the
Chairman to be replaced, always provided that the replacement
satisfies the requirements for the position established by law
and/or the Articles and complies with the gender balance
requirements envisaged by the laws and/or regulations in
force at the time; if it is not possible to make replacements in
accordance with the above criteria, a Shareholders’ Meeting
will be called to supplement the Board of Statutory Auditors
with resolutions adopted by a relative majority of the votes cast.
When the Shareholders’ Meeting must appoint the standing
and/or alternate auditors necessary for the integration of the
Board of Statutory Auditors, the procedure is the following: if
it is necessary to replace auditors elected from the majority
slate, the appointment is made by a relative majority of
the votes cast, without any slate requirements and without
prejudice, in all cases, to compliance with the gender balance
requirements envisaged by the laws and/or regulations in
force at the time; if, on the other hand, it is necessary to replace
auditors elected from the minority slate, the Shareholders’
Meeting replaces them by a relative majority of the votes
cast, choosing them - where possible - among the candidates
indicated on the slate from which the auditor to be replaced
was drawn and, in all cases, in compliance with the principle
of necessary representation of the minorities that, pursuant
to the Articles, are entitled to participate in the appointment
of the Board of Statutory Auditors, without prejudice in all
cases to compliance with the gender balance requirements
envisaged by the laws and/or regulations in force at the time.
The principle of necessary representation of the minorities is
respected if the auditors elected were previously candidates
on the minority slate or on slates other than that which, at the
time of appointing the Board of Statutory Auditors, obtained
the largest number of votes.
If only one slate is presented, the Shareholders’ Meeting
votes on it; if the slate obtains a relative majority of
the votes cast, the candidates listed in the respective
sections of the slate are appointed as standing auditors
and alternate auditors; the person listed first on the above
slate becomes the Chairman of the Board of Directors.
For the appointment of statutory auditors who, for any
reason, were not appointed in accordance with the procedure
above, the Shareholders’ Meeting adopts resolutions
with the majorities required by law, without prejudice in all
cases to compliance with the gender balance requirements
envisaged by the laws and/or regulations in force at the time.
The outgoing Statutory Auditors may be re-elected.
15.2. COMPOSITION
The Board of Statutory Auditors in charge at the Report
Date was appointed by the Ordinary Shareholders’ Meeting
held on 15 May 2018 (with the slate voting mechanism) and
is made up of the following members: Francesco Fallacara
(Chairman of the Board of Statutory Auditors, appointed by
the minorities), Fabio Artoni, Antonella Carù, Luca Nicodemi
and Alberto Villani as standing auditors, and Franca Brusco
(appointed by the minorities), Elenio Bidoggia and Giovanna
Oddo, as alternate auditors until the date of the Shareholders’
Meeting called for the approval of the financial statements
as of 31 December 2020.
The professional profiles of the members of the Board of
Statutory Auditors are summarised on the Website.
The remuneration of the statutory auditors is discussed in
the Remuneration Report.
The Shareholders’ Meeting of 15 May 2018 confirmed the
appointment of all the standing members of the Board of
Statutory Auditors whose mandates were due to expire.
All the Statutory Auditors can be qualified as independent
on the basis of the criteria specified for Directors40 in the
Corporate Governance Code, in line with the provisions
contained in said Code and as expressly ascertained by
the Board of Statutory Auditors, based on the information
provided by the Statutory Auditors and the information
available to the Board of Statutory Auditors.
This ascertainment is carried out annually.
It should be noted that the Statutory Auditors accepted
their office after having considered whether or not they
could dedicate the necessary time to the performance of
their duties.
During the Year, the Board of Statutory Auditors of Pirelli
met 12 times, with each meeting having an average
duration of about 2 hours.
At the Report Date, 37.5% of the eight members of the Board of
Statutory Auditors (five standing auditors and three alternate
auditors) are female (the percentage is 20% with reference to
the standing auditors only). Furthermore, the average age of
the members of the Board of Statutory Auditors is just above
to 52 years (the average age of the standing Auditors only
is 54). 80% of the standing auditors are between 54 and 58
years of age, while the remaining standing Auditor was 45.
For further details on the application of the diversity
criteria, and of gender, in the composition of the Board of
Statutory Auditors see paragraph 1.2.
During the Year, like the Board of Directors, the Board of
Statutory Auditors started for the first time – in accordance
with the recommendations of the rules of conduct of listed
companies issued by the Italian Board of Professional
40 The Board of Directors, on 22 June 2018, communicated to have evaluate the existence of the
independence requirements of the statutory auditors declared at the time of appointment.
231
Report on corporate governance Accountants and Auditors (Consiglio nazionale dei dottori
commercialisti e degli esperti contabili) - the process to
assess how it operates, with the assistance of independent
consultants SpencerStuart. This self-assessment process
was carried out through individual interviews with questions
about the suitability, size, composition and operation of
the Board of Statutory Auditors itself, in order to certify the
suitability, correctness and effectiveness of its operation. The
positive result of the Board of Statutory Auditors assessment
process are highlighted under the Statutory Auditors Report
to the financial statements as of 31 December 2018.
Table 3 attached provides for the relevant information
about each member of the Board of Statutory Auditors in
charge at the Report Date.
16. General Manager
Operations
It should be noted that on 14 May 2018 the Board of Directors
approved the establishment of the General Operations
Department, under the responsibility of Andrea Casaluci. The
Board granted appropriate responsibilities and operational
powers to the General Manager Operations in order to
perform his role.
17. Information flows
to the Directors
and Statutory Auditors
The Board of Directors of Pirelli adopted a procedure for
information flows to the directors and statutory auditors,
in order to (i) guarantee the transparent management
of the business, (ii) establish conditions for the effective
and efficient management and control of the activities of
the Company and the operations of the business by the
Board of Directors, and (iii) provide the Board of Statutory
Auditors with the necessary sources of information for
the efficient performance of its supervisory role.
The flow of information to the Directors and Statutory
Auditors is assured, preferably, by the transmission of
documents on a timely basis and, in any case, with sufficient
frequency to ensure compliance with the disclosure
requirements established by law and the Articles, and in
accordance with deadlines consistent with the timetables
set for each Board meeting.
These documents may be integrated by explanations
provided by the Chairman, the executive directors or top
managers of the Group in the context of the board meetings,
or at specific informal meetings organised to examine topics
of interest related to the management of the Company.
In any case, the Directors and Statutory Auditors receive
the information published by Pirelli in accordance with
the regulations governing corporate disclosures (such
as press releases and reports) and investment proposals
(prospectuses, howsoever described).
In addition to the matters reserved for examination and/
or approval by the Board of Directors of the Company
pursuant to the law and the Articles, the flow of information
to the Directors and Statutory Auditors contains
information about: (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 articles 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. If the information flows are related to inside
information and/or significant information, they must take
place in accordance and compliance with the procedures
indicated in the Market Abuse Procedure.
18. Relations
with shareholders
Pirelli considers that financial communications have strategic
importance for consolidating the relationship of trust existing
with the financial community. Pirelli maintains constant
dialogue with shareholders, bondholders, institutional and
individual
investors, analysts and, more generally, with
the Italian and international financial community through
the Investor Relations function, in order to promote equal,
transparent, timely and accurate communications.
In line with international best practices, the “Investors”
section on the Website is constantly updated with content of
interest to the financial market, including: strategy (“Equity
Story”), economic-financial data on previous financial
years, analysts’ opinions of Pirelli, and their estimates for
the principal economic-financial indicators (“Consensus”),
monthly developments in the principal automotive tyre
market (“Tyre Market Watch”). The Investor Relations
Department also promotes periodic meetings with
Shareholders and Investors in Italy and abroad.
232
Pirelli Annual Report 2018 19. Shareholders’
Meetings
Pursuant to art. 7 of the Articles, Ordinary and Extraordinary
Shareholders’ Meetings of the Company are held in single call.
Their resolutions are adopted with the majority required by
law, with the sole exception of the authorisation of the Board of
Directors to carry out the deeds listed below, which requires a
qualified majority (votes in favour of shareholders representing
at least 90% of the share capital of the Company):
→ transfer the operational and administrative headquarters
outside of the municipality of Milan;
→ any transfer and/or deed of disposition, in any form, of
Pirelli know-how (including the granting of licences).
Parties entitled to vote may be represented by proxy,
given in accordance with the procedures envisaged by law
and the regulations in force.
Proxies may be notified to the Company via electronic
means by: (i) using the specific section of the Website
indicated by the Company in the notice of call; (ii) sending
an e-mail to the certified e-mail address indicated by the
Company in the notice of call.
The notice of call may also limit to one of the above
methods the specific procedure usable in relation to the
Meeting called by that notice.
For each Meeting, the Company designates one or more
persons to which those entitled to vote at the Meeting may
grant a proxy, with voting instructions for all or just some
of the motions on the agenda. The proxy does not apply to
motions for which no voting instructions were given. The
persons designated to receive proxies for the Meeting
are specified in the related notice of call, together with
relevant procedures and deadlines.
The Ordinary Shareholders’ Meeting for the approval of the
financial statements must be called, in accordance with the
law, by no later than 180 days from the end of the financial year.
In the cases provided by law and in accordance with the
related procedures, the directors must call a Meeting
without delay when requested by shareholders representing
at least one-twentieth of share capital.
The shareholders requesting the Meeting must prepare
a report on their proposals regarding the matters to be
discussed. At the time of publishing the notice of call
for the Meeting and in accordance with the procedures
provided by law, the Board of Directors must make the
report prepared by the shareholders available to the
public, together with its considerations, if any.
233
In the cases, in the manner and with the timing provided by
law, shareholders that, individually or together, represent
at least one-fortieth of share capital may request the
integration of the items of the agenda, indicating in
their request the additional topics proposed by them, or
proposing resolutions on matters already on the agenda.
A notice is published about the addition of items to the agenda
or the presentation of additional proposed resolutions on
matters already on the agenda, by the legal deadlines, in the
manner established for publication of the notice of call.
Shareholders requesting additions to the agenda must
prepare and send to the Board of Directors, by the final
deadline for the presentation of requests for additions, a
report explaining their reasons for the proposed resolutions
on the matters they wish to discuss, or their reasons for the
additional proposed resolutions presented in relation to
matters already on the agenda. At the time of publishing the
notice about the additions to the agenda and in accordance
with the procedures envisaged by law, the Board of Directors
must make the report prepared by the shareholders available
to the public, together with its considerations, if any.
The Shareholders’ Meeting quorum and the validity of
resolutions are governed by law.
The right to attend Shareholders’ Meetings and vote is
governed by the relevant current legislation and is certified
by a communication sent to the Company, by an authorised
its accounting records,
intermediary with reference to
on behalf of the party entitled to vote. This certification is
based on the evidence existing at the end of the accounting
day on the seventh trading day prior to the date fixed for
the Shareholders’ Meeting. The additions and deductions
recorded on those accounts subsequent to that deadline
are not relevant when determining the legitimacy of the right
to vote at the Shareholders’ Meeting. The communication
must be received by the Company within the end of the
third trading day prior to the date fixed for the Shareholders’
Meeting, or within any different deadline established by the
applicable regulations. All without prejudice to the legitimacy
for the Shareholders to attend and vote if the communication
is received by the Company after the above deadlines, on
condition that it is received before business commences at
the Shareholders’ Meeting.
Ordinary and Extraordinary Shareholders’ Meetings are
chaired by the Chairman of the Board of Directors or, if
absent or unavailable, by the Chief Executive Officer. If the
above persons are absent, the chair is taken by another
person appointed by a majority of the share capital
represented at the Shareholders’ Meeting.
The Chairman of the Shareholders’ Meeting is assisted by
a Secretary, appointed by a majority of the share capital
represented at the Shareholders’ Meeting, who does not
need to be a shareholder; assistance from the Secretary
Report on corporate governance is not necessary when the minutes of the Shareholders’
Meeting are drafted by a Notary.
The Chairman of the Shareholders’ Meeting chairs the meeting
and, in accordance with the law and the Articles, moderates its
course. For this purpose, the Chairman - inter alia - verifies that
the meeting has been properly convened, verifies the identity
of those attending and their right to attend, directly or by proxy;
verifies the legal quorum for voting; manages the proceedings,
with the right to change the order of discussion of the items
indicated in the notice of call. The Chairman also adopts
suitable measures to ensure orderly discussions and voting,
determining the related procedures and verifying the results.
Shareholders’ Meeting resolutions are evidenced by the
minutes signed by the Chairman of the Meeting and by
the Secretary of the Meeting or the Notary. The minutes
of Extraordinary Meetings must be taken by a Notary
designated by the Chairman of the Meeting. All copies of
and extracts from minutes not prepared by a Notary are
certified true by the Chairman of the Board of Directors.
The conduct of such meetings is governed by the general
meeting regulations approved by the Shareholders’
Meeting held on 1 August 2017 (available on the Website),
as well as by the law and the Articles.
20. Changes since
the end of the Year
There have not been any changes to the structure of
corporate governance since the end of the Year, except as
already indicated in the previous paragraphs, if applicable.
21. The Pirelli Website
For Pirelli, the Website - in English and in Italian -
represents a fundamental tool to ensure the prompt and
total dissemination of information about the Company
and the Group to all Stakeholders.
Pirelli ensures that it is promptly and thoroughly updated,
so as to guarantee the transparency of information and
compliance with the current laws and regulations applicable
to companies listed on the Italian Stock Exchange.
The Company’s purpose is to provide simple and clear
information for investors and, in general, all its stakeholders,
through the Website, in line with common practice. For this
reason, also taking account of the results of assessments by
independent agencies - most recently in August 2018 - and in
line with the expectations of the Stakeholders, the Company
uses its best endeavours to constantly implement the Website.
22. Considerations
on the Letter of 21
December 2018 by the
Chairman of the Corporate
Governance Committee
With a letter dated 21 December 2018 (the “Letter by the
Chairman”) the Chairman of the Borsa Italiana’s Corporate
Governance Committee, Patrizia Grieco, in the context of
the usual monitoring of the application of the provisions
of the Corporate Governance Code, formulated four
recommendations for listed Companies (the “Committee’s
Recommendations for 2019”) and, at the same time,
expressed the hope that the considerations of each issuer
on these recommendations and any related initiatives they
undertake would be made public with the publication of the
Report.
The Boards of Directors of companies listed in Italy that
adhere to the Corporate Governance Code were invited to:
1. promote within the board an activity assessing the
adequacy of the pre-board reporting received during
the financial year and to ensure that the confidentiality
requirements are safeguarded without compromising
the adequacy and timeliness of the flows of information
that precede the board meetings;
2. apply the criteria of independence defined by the
Corporate Governance Code with greater rigour,
emphasising how cases in which these criteria are
not applied should be an exception, and in any event
extensively justified; the control bodies were invited to
monitor the correct application of these criteria;
3. ensure greater transparency about the methods
used to carry out the board performance evaluation,
expressing the hope that, particularly for the larger
issuers, a member of the board be identified to
oversee the board performance evaluation and that
arrangements are adopted that maximize the individual
contribution made of each director;
4. check that the remuneration policies adopted are
adequate for the pursuit of the aim of the sustainability
of the activities of the company in the medium-long
term; in this regard it was recommended, in particular
to medium-large issuers, that the link between variable
long-term
remuneration and parameters
linked to
234
Pirelli Annual Report 2018 objectives be strengthened, and the possibility of paying sums not linked to predetermined parameters (i.e. “ad
hoc” bonuses) be limited to individual exceptional cases, subject to an adequate explanation.
The Committee’s recommendations for 2019 were brought to the attention of (i) the Audit, Risks, Sustainability and
Corporate Governance Committee and the Board of Statutory Auditors on 13 February 2019, and (ii) the Board of
Directors on 14 February 2019.
A summary of the considerations formulated by the Board of Directors on the above mentioned Committee’s
Recommendations for 2019 is provided below.
The system of corporate governance rules adopted in the past by Pirelli - inspired by international best practices
on corporate governance - is already in line with the principles under the Corporate Governance Code for listed
companies, to which the Company has adhered, as also shown in the periodic reports published in Pirelli’s 2017
financial statements and the half-yearly report at 30 June 2018 of Pirelli, for the reasons listed below:
→ standard pre-board reporting is assured by the Company at least ten days before the meeting (both in Italian
and in all the other languages spoken by members of the company bodies); the confidentiality and traceability of
information and documents sent to the Directors and Statutory Auditors is ensured through the use of a dedicated
computer tool, accessible with personal credentials;
→ there have been no exceptions to the application of the criteria of independence established by the Corporate
Governance Code during the mandate of the current board;
→ a Board Performance Evaluation has been carried out with the aid of a primary independent company specialised
in the subject (SpencerStuart) acting as facilitator of the process (for more details see paragraph 4.5.1);
→ the 2019 Remuneration Policy adopted by the Company provides for a long incentive period (the “LTI plan”)
which ensures that the variable remuneration parameters are linked to long-term targets (for more details see
the Remuneration Report).
The Board of Directors of the Company - having also obtained the favourable opinions of the members of
the competent Committees and of the Board of Statutory Auditors on this subject -, believes that, as promptly
highlighted in this Report, no specific interventions to its own system of corporate governance are needed in relation
to the issues highlighted in the Letter by the Chairman insofar since the Committee’s Recommendations for 2019
were already implemented some time ago.
TABLE 1: SIGNIFICANT SHAREHOLDINGS OF CAPITAL
The subjects which, according to the information published by Consob at the date of publication of this Report
and/or according to further information available to the Company, hold shares with voting rights in Ordinary
Shareholders’ Meetings that represent more than 3% of the ordinary share capital are listed below.
SIGNIFICANT SHAREHOLDINGS OF CAPITAL
Declaring party
Direct Shareholder
% of ordinary capital
% of voting capital
China National Chemical Corporation
Marco Polo International Italy S.r.l.
Tronchetti Provera Marco
Norges Bank
NOTES TO TABLE 1
Camfin S.p.A.
Norges Bank
45.52%
10.05%
3.17%
45.52%
10.05%
3.17%
1 It is useful to note that the information published by Consob on its website by virtue of the communications made by the parties bound by the obligations of Article 120 of the TUF and the Issuers Regulation, could be substantially
different from the real situation, because the obligations to communicate changes in the percentages of shareholdings arise not when there is a simple change in this percentage but only when the holdings exceed or fall below
predetermined thresholds (3%, 5%, and subsequent multiples of 5% up to a 30% threshold and, beyond this threshold, 50%, 66.6% and 90%). It follows, for example, that a shareholder (i.e. a declaring subject) that has declared
ownership of 5.1% of the share capital with voting rights may increase their stake up to 9.9% without thereby having any obligation to notify Consob under Article 120 of the TUF.
Additionally, the Company Articles do not provide for the possibility of increased voting rights or the issue of shares with multiple voting rights.
2 From the information reported on the Consob website, in the section “Investments in financial instruments and aggregate investments”, it appears that in the month of December 2018, LTI transferred its holding in Pirelli to a bank,
pursuant to a buy-back contract between the parties to guarantee a loan granted by said bank, which undertook to transfer said shareholding back to LTI and do everything in its power to exercise the voting rights in accordance with
the instructions given from time to time by LTI.
235
Report on corporate governance TABLE 2: STRUCTURE OF THE BOARD OF DIRECTORS AND COMMITTEES
Board of Directors1
and Corporate Governance
Remuneration Committee3
Appointments Committee
Strategy Committee
RPT Committee
Audit, Risks, Sustainability
Committee2
Office
Members
Year of
birth
Date first
appointed*
Current
mandate
(in office
since)
In office until
Slate4
(**)
Exec.
Non-
exec.
Indep.
Code
Indep.
TUF
Chairman
Ning Gaoning
1958
07 August
2018
07 August
2018
next
shareholders'
meeting5
Executive Vice
Chairman and
Chief Executive
Officer•◊
Marco
Tronchetti
Provera
1948
07 May
20036
31 August
2017
AGM financial
statement 2019
Director
Yang
Xingqiang
1967
Director
Bai Xinping
1968
20
September
2015
02
September
2015
31 August
2017
AGM financial
statement 2019
31 August
2017
AGM financial
statement 2019
Director
Giorgio Luca
Bruno
1960
15 March
2016
31 August
2017
AGM financial
statement 2019
Director
Laura Cioli
1963
01 August
2017
31 August
2017
AGM financial
statement 2019
Director
Director
Domenico De
Sole
1944
01 August
2017
31 August
2017
AGM financial
statement 2019
Ze’ev
Goldberg
1960
02
September
2015
31 August
2017
AGM financial
statement 2019
Director
Tao Haisu
1949
Director
Director
Director
Marisa
Pappalardo
Cristina
Scocchia
Giovanni
Tronchetti
Provera
1960
1973
1983
Director
Fan Xiaohua
1974
Director
Wei Yintao
1971
20 October
20157
31 August
2017
AGM financial
statement 2019
01 August
2017
31 August
2017
AGM financial
statement 2019
01 August
2017
31 August
2017
AGM financial
statement 2019
01 August
2017
31 August
2017
AGM financial
statement 2019
01 August
2017
31 August
2017
AGM financial
statement 2019
01 August
2017
31 August
2017
AGM financial
statement 2019
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Director
Giovanni Lo
Storto
1970
15 May
2018
15 May
2018
AGM financial
statement 2019
m
DIRECTORS WHO CEASED TO HOLD OFFICE DURING THE YEAR
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
No. other
offices
***
(*)
Cfr. All. A
0/1
Cfr. All. A
6/6
Cfr. All. A
5/6
Cfr. All. A
5/6
Cfr. All. A
5/6
Cfr. All. A
5/6
Cfr. All. A
6/6
Cfr. All. A
6/6
Cfr. All. A
5/6
Cfr. All. A
6/6
Cfr. All. A
5/6
Cfr. All. A
6/6
Cfr. All. A
6/6
Cfr. All. A
6/6
Cfr. All. A
3/3
On 30 July 2018, Ren Jianxin resigned from the office of Chairman of the Board of Directors and Director of the Company
Chairman
Ren Jianxin
1958
20 October
2015
31 August
2017
30 July
2018
-
x
-
3/4
Number of meetings of the Board of Directors held during the year: 6
Control and Risks Committee: 5 / Remuneration Committee: 3 / Appointments Committee: 0/ Strategies Committee: 0 / RPT Committee: 10
Indicate the quorum required for minority shareholders to submit a slate for the election of one or more directors (pursuant to art. 147-ter TUF):
1% of the share capital with the right to vote in ordinary shareholders' meetings
The following symbols must be inserted in the “Office“ column:
• This symbol indicates the director responsible for the internal control and risk management system.
◊ This symbol indicates the person principally responsible for the operations of the issuer (Chief Executive Officer or CEO).
* The date of first appointment of each director means the date on which the director was appointed for the first time (in absolute terms) to the BoD of the issuer.
** The slate from which each director was elected is indicated in this column (“M”: majority slate; “m”: minority slate; “BoD”: slate presented by the BoD).
*** The number of offices as director or statutory auditor held by the person in question in other companies listed in regulated markets, including foreign companies, finance companies, banks, insurance companies or of
significant size is shown in this column.
(*). The attendance of the directors at the meetings of the BoD and its committees compared to the total number of meetings he or she could have attended is indicated in this column.
(**). The office held by the person on the Board is indicated in this column: “C”: chairman; “M”: member.
236
(*)
(**)
(*)
(**)
(*)
(**)
(*)
(**)
(*)
(**)
-
-
-
-
-
-
P
M
M
M
M
M
10/10
P
10/10
9/10
M
M
4/5
M
3/3
3/3
M
M
3/3
P
5/5
M
5/5
2/2
P
M
-
-
-
-
-
M
P
M
M
M
1/1
M
-
M
Pirelli Annual Report 2018 Office
Members
Year of
Date first
birth
appointed*
In office until
Exec.
Slate4
(**)
Non-
exec.
Indep.
Code
Indep.
TUF
(*)
(**)
(*)
(**)
(*)
(**)
(*)
(**)
(*)
(**)
Audit, Risks, Sustainability
and Corporate Governance
Committee2
Remuneration Committee3
Appointments Committee
Strategy Committee
RPT Committee
Director
Tao Haisu
1949
3/3
P
3/3
4/5
M
3/3
M
M
5/5
M
5/5
2/2
P
M
1/1
M
-
-
-
-
-
-
P
M
M
M
M
M
-
M
-
-
-
-
-
M
P
M
M
M
10/10
P
10/10
9/10
M
M
TABLE 2: STRUCTURE OF THE BOARD OF DIRECTORS AND COMMITTEES
Board of Directors1
Current
mandate
(in office
since)
Chairman
Ning Gaoning
1958
Executive Vice
Chairman and
Chief Executive
Officer•◊
Tronchetti
1948
Marco
Provera
07 August
07 August
2018
2018
next
shareholders'
meeting5
07 May
20036
31 August
AGM financial
2017
statement 2019
Director
1967
September
Yang
Xingqiang
31 August
AGM financial
2017
statement 2019
Director
Bai Xinping
1968
September
31 August
AGM financial
2017
statement 2019
Director
Giorgio Luca
Bruno
1960
15 March
31 August
AGM financial
2016
2017
statement 2019
Director
Laura Cioli
1963
01 August
31 August
AGM financial
2017
2017
statement 2019
Domenico De
Sole
1944
01 August
31 August
AGM financial
2017
statement 2019
Ze’ev
Goldberg
1960
September
31 August
AGM financial
2017
statement 2019
20
2015
02
2015
2017
02
2015
Marisa
Pappalardo
Cristina
Scocchia
Giovanni
Tronchetti
Provera
1960
1973
1983
Director
Fan Xiaohua
1974
Director
Wei Yintao
1971
20 October
31 August
AGM financial
20157
2017
statement 2019
01 August
31 August
AGM financial
2017
2017
statement 2019
01 August
31 August
AGM financial
2017
2017
statement 2019
01 August
31 August
AGM financial
2017
2017
statement 2019
01 August
31 August
AGM financial
2017
2017
statement 2019
01 August
31 August
AGM financial
2017
2017
statement 2019
Director
Director
Director
Director
Director
x
Cfr. All. A
6/6
No. other
offices
***
(*)
Cfr. All. A
0/1
Cfr. All. A
5/6
Cfr. All. A
5/6
Cfr. All. A
5/6
Cfr. All. A
5/6
Cfr. All. A
6/6
Cfr. All. A
6/6
Cfr. All. A
5/6
Cfr. All. A
6/6
Cfr. All. A
5/6
Cfr. All. A
6/6
Cfr. All. A
6/6
Cfr. All. A
6/6
Cfr. All. A
3/3
-
3/4
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Director
Giovanni Lo
Storto
1970
15 May
2018
15 May
AGM financial
2018
statement 2019
m
DIRECTORS WHO CEASED TO HOLD OFFICE DURING THE YEAR
On 30 July 2018, Ren Jianxin resigned from the office of Chairman of the Board of Directors and Director of the Company
Chairman
Ren Jianxin
1958
20 October
31 August
2015
2017
30 July
2018
Number of meetings of the Board of Directors held during the year: 6
Control and Risks Committee: 5 / Remuneration Committee: 3 / Appointments Committee: 0/ Strategies Committee: 0 / RPT Committee: 10
Indicate the quorum required for minority shareholders to submit a slate for the election of one or more directors (pursuant to art. 147-ter TUF):
1% of the share capital with the right to vote in ordinary shareholders' meetings
NOTES TO TABLE 2
1 The membership of the Board of Directors was supplemented with the appointment of Giovanni Lo Storto as an independent director nominated by the minority shareholders at the ordinary shareholders' meeting held on 15 May 2018,
pursuant to the provisions of the New Shareholders' Agreement.
2 The membership of the Audit, Risks, Sustainability and Corporate Governance Committee was integrated with Director Giovanni Lo Storto following the Shareholders’ Meeting on 15 May 2018.
3 The membership of the Remuneration Committee was integrated with Director Giovanni Lo Storto following the Shareholders’ Meeting on 15 May 2018.
4 All the Directors except Giovanni Lo Storto have been appointed before the First Trading Day. For further details see par. 4.2.
5 On 7 August 2018 the Board of Directors co-opted Ning Gaoning, appointing him Chairman of the Board of Directors pursuant to art. 2386 of the Italian Civil Code. Ning Gaoning's term of office will expire at the next Shareholders' Meeting.
6 Marco Tronchetti Provera assumed the office of General Partner of Pirelli & C. Accomandita per Azioni on 29 April 1986. On 7 May 2003 it was resolved to transform the Company from a joint stock partnership to a limited liability
company, and in consequence, there no longer being the role of general partner, directors were appointed.
7 Tao Haisu was a Director of Pirelli from 20 October 2015 to 15 March 2016.
237
Report on corporate governance Attendance
at meetings
of the Board
of Statutory
Auditors
***
12/12
12/12
12/12
12/12
11/12
-
-
-
Attendance at
Attendance at
meetings of the
meetings of the
BoD
ARSCGC
Attendance at
Attendance at
Attendance at
meetings of the
meetings of the
meetings of
Remuneration
Appointments
the Strategies
Committee
Committee
Committee
Attendance at
meetings of the
RPT Committee
No. other offices
****
6/6
6/6
6/6
6/6
6/6
-
-
-
5/5
5/5
4/5
5/5
5/5
-
-
-
3/3
3/3
3/3
3/3
3/3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10/10
Cf. Annex A
9/10
9/10
Cf. Annex A
Cf. Annex A
10/10
Cf. Annex A
8/10
Cf. Annex A
-
-
-
Cf. Annex A
Cf. Annex A
Cf. Annex A
TABLE 3: STRUCTURE OF THE BOARD OF STATUTORY AUDITORS
Board of Statutory Auditors1
Board of Statutory Auditors1
Office
Members
Year of birth
Date first
appointed *
Current mandate
(in office since)
In office until
Slate
**
Indep. Code
Chairman
Francesco
Fallacara
Standing Auditor
Fabio Artoni
1964
1960
10 May 2012
15 May 2018
14 May 2015
15 May 2018
Standing Auditor
Antonella Carù
1961
10 May 2012
15 May 2018
Standing Auditor
Luca Nicodemi
1973
Standing Auditor
Alberto Villani
1962
05 September
2017
05 September
2017
15 May 2018
15 May 2018
Alternate Auditor
Franca Brusco
1971
15 May 2018
15 May 2018
Alternate Auditor
Elenio Bidoggia
1963
15 May 2018
15 May 2018
Alternate Auditor
Giovanna Oddo
1967
14 May 2015
15 May 2018
AGM financial
statement 2020
AGM financial
statement 2020
AGM financial
statement 2020
AGM financial
statement 2020
AGM financial
statement 2020
AGM financial
statement 2020
AGM financial
statement 2020
AGM financial
statement 2020
m
M
M
M
M
m
M
M
x
x
x
x
x
x
x
x
AUDITORS WHO CEASED TO HOLD OFFICE DURING THE YEAR
No Auditor ceased to hold office during the year, apart from what indicated in note 1 below
Number of meetings of the Board of Statutory Auditors held during the year: 12
Indicate the quorum required for minority shareholders to submit a slate for the election of one or more directors (pursuant to art. 148-ter TUF):
1% of the shares with the right to vote in ordinary shareholders' meetings
* The date of first appointment of each auditor means the date on which the auditor was appointed for the first time (in absolute terms) to the Board of Statutory Auditors of the issuer.
** The slate from which each auditor was elected is indicated in this column (“M”: majority slate; “m”: minority slate).
*** The attendance of the auditors at meetings of the Board of Statutory Auditors compared to the total number of meetings he or she could have attended is indicated in this column.
****The number of offices as director or statutory auditor held by the person in question pursuant to. 148-bis TUF and its implementing provisions in the Consob Issuers' Regulation is shown in this column.
The complete list of offices is published by Consob on its website, pursuant to art. 144-quinquiesdecies of the Consob Issuers’ Regulation.
NOTES TO TABLE 3
1 The information reported in Table 3 takes account of the fact that the Shareholders' Meeting held on 15 May 2018 confirmed the mandates of all the standing auditors members of the Board of Statutory Auditors whose mandates
were due to expire, and appointed Franca Brusco and Elenio Bidoggia as Alternate Auditors (until that date, the alternate auditor in office was Fabio Facchini).
238
Pirelli Annual Report 2018 Board of Statutory Auditors1
Board of Statutory Auditors1
Attendance
at meetings
of the Board
of Statutory
Auditors
***
12/12
12/12
12/12
12/12
11/12
-
-
-
Attendance at
meetings of the
BoD
Attendance at
meetings of the
ARSCGC
Attendance at
meetings of the
Remuneration
Committee
Attendance at
meetings of the
Appointments
Committee
Attendance at
meetings of
the Strategies
Committee
Attendance at
meetings of the
RPT Committee
No. other offices
****
6/6
6/6
6/6
6/6
6/6
-
-
-
5/5
5/5
4/5
5/5
5/5
-
-
-
3/3
3/3
3/3
3/3
3/3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10/10
Cf. Annex A
9/10
9/10
Cf. Annex A
Cf. Annex A
10/10
Cf. Annex A
8/10
Cf. Annex A
-
-
-
Cf. Annex A
Cf. Annex A
Cf. Annex A
Office
Members
Year of birth
In office until
Indep. Code
Date first
appointed *
Current mandate
(in office since)
Slate
**
Chairman
Francesco
Fallacara
10 May 2012
15 May 2018
Standing Auditor
Fabio Artoni
14 May 2015
15 May 2018
1964
1960
Standing Auditor
Antonella Carù
1961
10 May 2012
15 May 2018
Standing Auditor
Luca Nicodemi
1973
Standing Auditor
Alberto Villani
1962
05 September
05 September
2017
2017
15 May 2018
15 May 2018
Alternate Auditor
Franca Brusco
1971
15 May 2018
15 May 2018
Alternate Auditor
Elenio Bidoggia
1963
15 May 2018
15 May 2018
Alternate Auditor
Giovanna Oddo
1967
14 May 2015
15 May 2018
AGM financial
statement 2020
AGM financial
statement 2020
AGM financial
statement 2020
AGM financial
statement 2020
AGM financial
statement 2020
AGM financial
statement 2020
AGM financial
statement 2020
AGM financial
statement 2020
m
M
M
M
M
m
M
M
x
x
x
x
x
x
x
x
AUDITORS WHO CEASED TO HOLD OFFICE DURING THE YEAR
No Auditor ceased to hold office during the year, apart from what indicated in note 1 below
Number of meetings of the Board of Statutory Auditors held during the year: 12
Indicate the quorum required for minority shareholders to submit a slate for the election of one or more directors (pursuant to art. 148-ter TUF):
1% of the shares with the right to vote in ordinary shareholders' meetings
* The date of first appointment of each auditor means the date on which the auditor was appointed for the first time (in absolute terms) to the Board of Statutory Auditors of the issuer.
** The slate from which each auditor was elected is indicated in this column (“M”: majority slate; “m”: minority slate).
*** The attendance of the auditors at meetings of the Board of Statutory Auditors compared to the total number of meetings he or she could have attended is indicated in this column.
****The number of offices as director or statutory auditor held by the person in question pursuant to. 148-bis TUF and its implementing provisions in the Consob Issuers' Regulation is shown in this column.
The complete list of offices is published by Consob on its website, pursuant to art. 144-quinquiesdecies of the Consob Issuers’ Regulation.
NOTES TO TABLE 3
1 The information reported in Table 3 takes account of the fact that the Shareholders' Meeting held on 15 May 2018 confirmed the mandates of all the standing auditors members of the Board of Statutory Auditors whose mandates
were due to expire, and appointed Franca Brusco and Elenio Bidoggia as Alternate Auditors (until that date, the alternate auditor in office was Fabio Facchini).
239
Report on corporate governance ANNEX A
SECTION I: LIST OF MAIN OFFICES HELD BY DIRECTORS, AT THE REPORT DATE,
IN OTHER COMPANIES THAT ARE NOT PART OF THE PIRELLI GROUP
FIRST AND LAST NAME
COMPANY
OFFICE HELD IN THE COMPANY
Ning Gaoning
Sinochem Corporation Ltd:
• China Jinmao Holdings Group Ltd.
• Far East Horizon Ltd.
Chairman of the Board of Directors
Chairman of the Board of Directors
Chairman of the Board of Directors
China National Chemical Corporation:
• China National Chemical Corporation
• Syngenta AG
Chairman of the Board of Directors
Chairman of the Board of Directors
Chairman of the Board of Directors
Marco Tronchetti Provera & C. S.p.A.:
• Camfin S.p.A.
Chairman of the Board of Directors
Chairman of the Board of Directors
Marco Tronchetti Provera
RCS MediaGroup S.p.A.
Director
Yang Xingqiang
Bai Xinping
TP Industrial Holding S.p.A.
Vice Chairman of the Board of Directors
China National Chemical Corporation:
• ADAMA Agricultural Solutions Ltd.
• Marco Polo International Italy S.r.l.
• TP Industrial Holding S.p.A.
China National Chemical Corporation:
• China National Tire & Rubber Company Ltd.
• CNRC International Holding (HK) Ltd.
• CNRC Capital Ltd.
• CNRC Capitale Ltd.
• CNRC International Ltd.
• Fourteen Sundew S.à.r.l.
• Marco Polo International Italy S.r.l.:
• TP Industrial Holding S.p.A.
Chairman of the Board of Directors
Director
Chairman of the Board of Directors
Chairman of the Board of Directors
Director
Director
Director
Director
Director
Chairman of the Board of Directors
Director
Giorgio Luca Bruno
Marco Tronchetti Provera & C. S.p.A.:
• Camfin S.p.A.
• Camfin Industrial S.p.A.
Director
Director
Sole Director
TP Industrial Holding S.p.A.:
• Prometeon Tyre Group S.r.l.
Chief Executive Officer
Chairman of the Board of Directors and Chief Executive Officer
240
Pirelli Annual Report 2018
FIRST AND LAST NAME
COMPANY
OFFICE HELD IN THE COMPANY
SOFINA S.A.
Laura Cioli
Brembo S.p.A.
Director
Director
GEDI Gruppo Editoriale S.p.A.
Chief Executive Officer
Sotheby’s Holding Inc.
Chairman of the Board of Directors
Tom Ford International Inc.
Chairman of the Board of Directors
Domenico De Sole
Ze’ev Goldberg
Advance Publication Inc.
Ermenegildo Zegna S.p.A.
LW 44, Inc.
Compass Partners
DoBank S.p.A.
Internazionale S.p.A.
Pola S.r.l.
Director
Director
Principal
Partners
Director
Director
Vice Chairman of the Board of Directors
Giovanni Lo Storto
Base per Altezza S.r.l.
Director
Luiss Guido Carli:
• L. Campus S.r.l.
• L. Com S.r.l.
• L. Lab S.r.l.
Mercuria Energy Group
Chief Executive Officer
Director
Chief Executive Officer
Tao Haisu
Marisa Pappalardo
Cristina Scocchia
• Mercuria (China) Investment Co. Limited
Director
Canada-China Global Natural Resources Investment Funds
Director
BPER Banca S.p.A.
Finstar S.p.A.
EssilorLuxottica S.A.
• Luxottica S.p.A.
Director
Director
Director
Director
KIKO S.p.A.
Chief Executive Officer
Giovanni Tronchetti Provera
Marco Tronchetti Provera & C. S.p.A.
• Camfin S.p.A.
TP Industrial Holding S.p.A.:
• Prometeon Tyre Group S.r.l.
Fan Xiaohua
Wei Yintao
-
-
Director
Director
Director
Director
-
-
241
Report on corporate governance
SECTION II: LIST OF OFFICES HELD BY STATUTORY AUDITORS IN OTHER COMPANIES AT THE REPORT DATE
FIRST AND LAST NAME
COMPANY
OFFICE HELD IN THE COMPANY
Maire Tecnimont S.p.A.
Chairman of the Board of Statutory Auditors
Francesco Fallacara
Ro. Co. Edil. Romana Costruzioni Edilizie
HIRAFILM S.r.l.
Banca Consulia S.p.A.
Capital Shuttle S.p.A.
Standing Auditor
External Auditor
Alternate Auditor
Alternate Auditor
Fondazione Link Campus University
Chairman of the Board of Statutory Auditors
Mag JLT S.r.l.
Ecosesto S.p.A.
Pirelli Tyre S.p.A.
Standing Auditor
Standing Auditor
Chairman of the Board of Statutory Auditors
Pirelli Industrie Pneumatici S.r.l.
Trans Ferry S.p.A.
Standing Auditor
Alternate Auditor
Pastificio Castiglioni S.p.A.
Chairman of the Board of Statutory Auditors
Elba S.p.A.
Antrim S.p.A.
Alucart S.r.l.
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
Alhof di A. Hofmann S.p.A.
Chairman of the Board of Statutory Auditors
Coster Tecnologie Speciali S.p.A.
Chairman of the Board of Statutory Auditors
Finser S.p.A.
V.I.P. S.p.A.
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
Barry Callebaut Italia S.p.A.
Chairman of the Board of Statutory Auditors
Barry Callebaut Manufactoring Italia S.p.A.
Chairman of the Board of Statutory Auditors
Fabio Artoni
Euro TLX SIM S.p.A.
Dolphin S.r.l.
Chromavis S.p.A.
Falck Energy S.p.A.
VIP Logistics S.p.A.
Emma S.p.A.
Standing Auditor
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
Standing Auditor
Chairman of the Board of Statutory Auditors
Standing Auditor
London Stock Exchange Group Holdings Italia S.p.A.
Standing Auditor
Monte Titoli S.p.A.
Elite S.p.A.
Foodelicious S.r.l.
Cassa di Compensazione e Garanzia S.p.A.
Elite SIM S.p.A.
Gatelab S.r.l.
Tetis S.p.A.
AMFIN HOLDING S.P.A.
Alternate Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Alternate Auditor
Alternate Auditor
Standing Auditor
242
Pirelli Annual Report 2018 FIRST AND LAST NAME
COMPANY
OFFICE HELD IN THE COMPANY
Antonella Carù
Autogrill Advanced Business Service S.p.A.
Autogrill S.p.A.
Pirelli Tyre S.p.A.
Prometeon Tyre Group S.r.l.
TP Industrial Holding S.p.A.
F.C. Internazionale S.p.A.
Inter Media S.p.A.
Inter Brand S.r.l.
Standing Auditor
Standing Auditor
Standing Auditor
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
Mario Buccellati Italia S.r.l.
Chairman of the Board of Statutory Auditors
Buccellati S.p.A.
Restiani S.p.A.
Nordest SGR S.p.A.
Augens SGR S.p.A.
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
and member of the SB
Chairman of the Board of Statutory Auditors
Italian Creation Group S.p.A.
Chairman of the Board of Statutory Auditors
Luca Nicodemi
JMACC S.p.A.
CPC S.r.l.
Dainese S.p.A.
Corneliani S.p.A.
Savills SGR S.p.A.
Corob S.p.A.
Imprima S.p.A. (already Color Wind S.p.A.)
Holding di Piergiorgio Coin S.r.l.
One Audit S.p.A.
Guazzotti S.r.l.
Pillarstone Italy Holding S.p.A.
POC Holding S.p.A.
Wise SGR S.p.A.
Pillarstone Italy S.p.A.
De Fonseca S.p.A.
Fondazione Roche
Chairman of the Board of Statutory Auditors
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Alternate Auditor
Standing Auditor
Alternate Auditor
Alternate Auditor
Director
Sole Auditor
Dompe’ Farmaceutici S.p.A.
Member of the Supervisory Body
DUEMMEI S.R.L.
Standing Auditor
BORMIOLI PHARMA S.r.l.
Chairman of the Board of Statutory Auditors
BORMIOLI PHARMA BIDCO S.P.A.
Chairman of the Board of Statutory Auditors
243
Report on corporate governance FIRST AND LAST NAME
COMPANY
OFFICE HELD IN THE COMPANY
AGB Nielsen Media Research Holding S.p.A.
Chairman of the Board of Statutory Auditors
BTSR International S.p.A.
Fratelli Consolandi S.r.l.
HDP S.p.A.
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
12 Capital Partners SGR S.p.A.
Chairman of the Board of Statutory Auditors
Selecta S.p.A.
Selecta Taas S.p.A.
Quattroduedue S.p.A.
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
Riva & Mariani Group S.p.A.
Chairman of the Board of Statutory Auditors
Tenuta Montemagno Soc. Agricola S.p.A.
Chairman of the Board of Statutory Auditors
Bennet S.p.A.
Bennet Holding S.p.A.
Carcano Antonio S.p.A.
Standing Auditor
Standing Auditor
Standing Auditor
DE’ Longhi Capital Services S.r.l.
Chairman of the Board of Statutory Auditors
DE’ Longhi Appliances S.r.l.
Chairman of the Board of Statutory Auditors
Alberto Villani
EFFE 2005 Gruppo Feltrinelli S.p.A.
FINMEG S.r.l.
Gallerie Commerciali Bennet S.p.A.
INTEK Group S.p.A.
Lambda Stepstone S.r.l.
Meg Property S.p.A.
Over Light S.p.A.
Vetus Mediolanum S.p.A.
San Remo Games S.r.l.
Viator S.p.A. in liquidation
Impresa Luigi Notari S.p.A.
Compagnia Padana per Investimenti S.p.A.
Royal Immobiliare S.r.l.
Calvi S.p.A.
SO.SE.A. S.r.l.
Vianord Engineering Société par action simplifiée
LE ROCCE 85 S.p.A.
Mare Blu 85 S.p.A.
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Chairman of the Board of Statutory Auditors
Sole Auditor
Alternate Auditor
Alternate Auditor
Alternate Auditor
Sole Director
Director
Director
Director
Director
Director
TP Industrial Holding S.p.A.
Standing Auditor
244
Pirelli Annual Report 2018 FIRST AND LAST NAME
COMPANY
OFFICE HELD IN THE COMPANY
Camfin Industrial S.p.A.
Pirelli International Treasury S.p.A.
Pirelli Tyre S.p.A.
TP Industrial Holding S.p.A.
Prometeon Tyre Group S.r.l.
Casa Editrice Universo S.p.A.
Finpol S.p.A.
Prelios Credit Servicing S.p.A.
Prelios Integra S.p.A.
Prelios Valuations & e- services S.p.A.
Alternate Auditor
Alternate Auditor
Alternate Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Alternate Auditor
Prelios SGR S.p.A.
Chairman of the Board of Statutory Auditors
Servizi Amministrativi Real Estate S.p.A.
Chairman of the Board of Statutory Auditors
Elenio Bidoggia
Fratelli Puri Negri S.a.p.A.
Trixia S.r.l.
Riva dei Ronchi S.r.l. in liquidation
M&C Saatchi S.p.A.
Geolidro S.p.A.
Banca UBAE S.p.A.
Armonia SGR S.p.A.
Centrale Immobiliare S.r.l. in liquidation
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Marco Tronchetti Provera & C. S.p.A.
Chairman of the Board of Statutory Auditors
Golfo Aranci S.p.A. in liquidation
Chairman of the Board of Statutory Auditors
Elesa S.p.A.
Manifatture Milano S.p.A.
Prelios Agency S.p.A.
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
Alternate Auditor
C.F.M. CO. FARMACEUTICA MILANESE S.p.A.
Alternate Auditor
Esselte S.r.l.
Alternate Auditor
245
Report on corporate governance
FIRST AND LAST NAME
COMPANY
OFFICE HELD IN THE COMPANY
Tiglio II S.r.l. in liquidation
M.S.M.C. Immobiliare Due S.r.l. in liquidation
Centrale Immobiliare S.r.l. in liquidation
Trixia S.r.l.
Gromis S.r.l. in liquidation
Ganimede Due S.r.l. in liquidation
Lupicaia S.r.l. in liquidation
Iniziative Retail S.r.l. in liquidation
Iniziative Immobiliari S.r.l. in liquidation
Giovanna Oddo
Riva De Ronchi S.r.l. in liquidation
Geolidro S.p.A.
Camfin Industrial S.p.A.
TP Industrial Holding S.p.A.
Prometeon Tyre Group S.r.l.
Manifatture Milano S.p.A.
Marco Tronchetti Provera & C. S.p.A.
Pirelli International Treasury S.p.A.
Liquidator
Liquidator
Liquidator
Chairman of the Board of Directors
Liquidator
Liquidator
Liquidator
Liquidator
Liquidator
Liquidator
Chairman of the Board of Directors
Chairman of the Board of Statutory Auditors
Alternate Auditor
Alternate Auditor
Standing Auditor
Standing Auditor
Standing Auditor
Pirelli Servizi Amministrazione e Tesoreria S.p.A.
Alternate Auditor
Pirelli Tyre S.p.A.
ENAV S.p.A.
Biancamento S.p.A.
Lazio Ambiente S.p.A.
D-Flight S.p.A.
MOF S.c.p.a.
Franca Brusco
Alternate Auditor
Chairman of the Board of Statutory Auditors
Standing Auditor
Chairman of the Board of Statutory Auditors
Chairman of the Board of Statutory Auditors
Standing Auditor
Autorità di Sistema portuale del Mare Adriatico meridionale
Member of the Board of External Auditors
Galleria Borghese
Associazione Italiana per la Riabilitazione e per il Reinserimento
degli invalidi (A.I.R.R.I.)
Missione Futuro
Standing Auditor
External Auditor
External Auditor
246
Pirelli Annual Report 2018 247
Report on corporate governance Pirelli Annual Report 2018
REMUNERATION
REPORT
249
Preamble
This Remuneration Report (“Report”), approved by the Board
of Directors on 26 February 2019, upon a Remuneration
Committee proposal, consists of two sections:
→ Section I: “Policy” for the 2019 financial year (“2019
Policy” or “Policy”) and
→ Section II: “Remuneration Report” for the 2018 financial
year (“2018 Remuneration Report”).
The Report has been drawn up in accordance with Art. 123-
ter of Italian Consolidated Law on Finance and with Art.
84-quater of the Consob Issuers’ Regulations41 on the basis
of Scheme 7-bis in Appendix 3 A of the Issuers’ Regulations.
The European Commission’s recommendations for the
Directors of listed companies have been taken into account
in the drafting of the Report, as well as the recommendations
of the Corporate Governance Code of the listed companies
approved by the Corporate Governance Committee and
promoted by Borsa Italiana S.p.A., ABI, Ania, Assogestioni,
Assonime and Confindustria, as adhered to by Pirelli.
The Report has also been drafted for the purposes
established under Art. 14 of the Pirelli Related-Party
Transactions Procedure.
The 2019 Policy sets out principles and guidelines to which:
→ the Board of Directors abides to determine the
remuneration of the Directors of Pirelli & C. S.p.A.
(“Pirelli & C.”), with particular regard to the Directors
with specific responsibilities, the General Managers and
Executives with strategic responsibilities;
→ Pirelli refers thereto to set the remuneration of Senior
Managers and, more generally, of Executives.
The 2018 Remuneration Report, submitted to the
Shareholders’ Meeting for information purposes, provides
the final remunerations for the 2018 financial year.
In order to facilitate the understanding and the reading of
the Report, please find below a glossary of some of the
recurring terms:
Directors with specific responsibilities: means the
Directors of Pirelli & C. who hold the positions of Chairman
and Executive Vice President and Chief Executive
Officer. Directors with specific responsibilities in other
Pirelli companies, who are also executives of the Group
(except where a decision of the Board of Directors of
Pirelli & C. classifies them as “Executives with strategic
responsibilities”) for the purposes of the Policy are, in
relation to their role, an Executive or Senior Manager.
41 Consob resolution no. 11971 of 14 May 1999
250
Directors with no specific responsibilities: means all the
Directors of Pirelli & C. different from the Directors with
specific responsibilities.
Directors with no specific responsibilities in other Pirelli
companies, who are also executives of the Group (except
where a decision of the Board of Directors of Pirelli & C.
classifies them as “Executives with strategic responsibilities”)
for the purposes of the Policy who are, in relation to their role,
an Executive or Senior Manager.
Annual Total Direct Compensation at Target: means the
sum of the following components, regardless of whether
they are paid by Pirelli or by another company of the Group:
(i) fixed gross annual component of the remuneration;
(ii) annual variable component (MBO) received by the
beneficiary in case of the target objectives are achieved;
(iii) medium-long term variable component constituted by:
a. annual amount of the Long Term Incentive Plan (LTI)
that the beneficiary would receive in case of the
objectives set for multiple years are achieved at target;
b. annual mechanism of deferment payment of
the pro-quota MBO accrued and payment of an
increase of the full accrued MBO (during the year
following the year of accrual of the MBO) in case
of achieving the annual objectives at target.
Remuneration Committee: means the Remuneration
Committee of Pirelli & C..
Board of Directors: means the Board of Directors of
Pirelli & C..
General Manager/s: person/s
indicated by the Board
of Directors of Pirelli & C. as having broad powers in the
management of business sectors. Persons holding the
position of General Manager in other Pirelli companies
(except where a decision of the Board of Directors of
Pirelli & C. classifies them as “Executives with strategic
responsibilities”) for the purposes of the Policy, are, in relation
to their role, an Executive or Senior Manager.
Executives with strategic responsibilities or ESR:
executives, identified by an express decision of the
Board of Directors of Pirelli & C., who have power or the
responsibility for planning and supervising the operations
of the Company or the power to adopt decisions which
may affect the evolution or the future perspective of the
Company or more generally Pirelli.
Executives: means the executives of the Italian Pirelli
companies or the employees of foreign companies of the
Group who hold a position or role comparable to that held
by an Italian executive.
Pirelli Group or Pirelli or Group: means all the companies
included within the scope of consolidation of Pirelli & C.
S.p.A..
Pirelli Annual Report 2018 LTI: means the Long-Term Incentive Plan currently in
force (2018-2020).
GAR: means the fixed gross annual remuneration for
individuals who are employed by a Pirelli Group company.
Management: means all Directors with specific
responsibilities, General Managers, Executives with
and
strategic
Executives.
responsibilities, Senior Managers
MBO: means
the annual variable component of
the remuneration which may be obtained in case of
achievement of certain predetermined objectives.
Retention Plan: means the Retention Plan as explained in
section 9 below.
Senior Managers: means those directly responsible (i) to
Directors with specific responsibilities who are assigned
specific duties, (ii) to General Managers, if the activity
of the Senior Manager has a significantly impact on the
business results.
Company or Pirelli & C.: means Pirelli & C. S.p.A..
Top Management: means all Directors with specific
responsibilities, General Managers and Executives with
strategic responsibilities.
251
Remuneration Report Executive summary
PURPOSES
OPERATING METHODS
BENEFICIARIES
Fixed
Remuneration
Short Term Variable
Remuneration
(MBO)
Long Term Variable
Remuneration
Other institutions
Appreciate the
managerial skills
and professional
backgrounds
and contribution
requested in relation
to the role
Direct to motivate
managerial
resources towards
the achievement of
annual objectives
of the Company,
retaining a strong
alignment to the
sustainability of
the medium-long
term through a
mechanism of
partial deferral
Intends to promote
the creation of value
in a long-term vision
of sustainability and
the achievement
of the objectives of
the Strategy Plan
of the Company,
facilitating the
retention and the
engagement of the
persons
Ensure the
stability of the
organization and
the contribution
to the
implementation of
the Strategic Plan
of the Company.
Protect the
know-how and
to protect the
Company from
the competition.
Is defined considering the characteristics,
liabilities and any eventual powers assigned to the
role, taking into account the market references,
in order to ensure the competitiveness of the
remuneration offer
Is directly linked to the achievement of the
performance objectives assigned to each
beneficiary in accordance with the role.
Furthermore, the accrual of the incentive is
subject to the achievement of a condition of
access identified, generally, in the Net Financial
Position.
The objectives for the year 2019 are the
following:
• EBIT (Group/Region/BU)
• Net Financial Position
• EBT
• Sustainability
• Unit/function objectives (only for Senior
Managers/Executive Region/BU)
A part of the incentive annually accrued, equal
to 25%, is deferred and subject to further
performance conditions
The 2018-2020 LTI Plan: monetary
incentive, subject to the achievement of an
on/off condition linked to the deleveraging
(Net Financial Position/EBITDA adjusted)
subordinate to the achievement of the
following multiannual objectives:
• ROS Group
• Absolute TSR
• Relative TSR
• Ranking Pirelli in the Dow Jones
Sustainability Index (subject to the
achievement of at least one of the
objectives provided above)
There is a threshold (equal to 75% of each
objective) below which no incentive is paid
and a cap maximum amount equal to 2 times
the incentive at targets.
Vesting Period: 3 years
• Retention Plan: extraordinary plan
retention which runs for four years (2017-
2021).
• Non-competition agreements: restriction
for the sector in which the Group operates
and the territorial extension. The breadth
varies in relation to the role covered.
Chairman: €400,000
Executive Vice President and CEO: €2,400,000
General Manager: €750,000
ESR: no more than 50% of the Annual Total Direct
Compensation at Target
Senior Managers and Executives: no more than
60% (Senior Managers) and 75% (Executives) of
the Annual Total Direct Compensation at Target
Chairman: is not included among the beneficiaries
of the Plan.
Executive Vice President and CEO:
• Entry level: 75% of the target incentive
• Target: 125% of the fixed remuneration
• Cap: 200% of the target incentive
General Manager and ESR:
• Entry level: 75% of the target incentive
• Target: 50 - 75% of GAR
• Cap: 200% of the target incentive
Senior Managers and Executives:
• Entry level: 75% of the target incentive
• Target: 20% - 40% of GAR
• Cap: 200% of the target incentive
Chairman: not included among the beneficiaries of
the Plan.
Executive Vice President and CEO:
• Entry level: 75% of the target incentive
• Three-year Target: 250% of the fixed
remuneration
• Cap: 200% of the target incentive
General Manager and ESR:
• Entry level: 75% of the target incentive
• Three-year Target: 167% - 200% of GAR
• Cap: 200% of the target incentive
Senior Managers and Executives:
• Entry level: 75% of the target incentive
• Three-year Target: 50% - 167% of GAR
• Cap: 200% of the target incentive
Chairman: not included among the beneficiaries
of the Retention plan and the non-competition
agreements.
Executive Vice President and CEO: not
included among the beneficiaries of the
Retention plan and the non-competition
agreements.
Retention Plan: exclusively for the General Manager,
ESR and selected Senior Managers/Executives. The
maximum level of retention bonus is 2.3x the Total
Direct compensation at Target 2017
Non-competition agreements: for the General
Manager, the Executives with strategic
responsibilities and Senior Managers and Executives
with professionalism particularly critical. Provides for
payment of a fee relative to the GAR, in relation to the
duration and the extent of the obligation
252
Pirelli Annual Report 2018 Remuneration Policy
for Year 2019
1. PARTIES INVOLVED IN THE DEFINITION
AND IMPLEMENTATION OF THE POLICY
PARTIES INVOLVED IN THE PROCESS
The definition of the Policy is the result of a clear
and transparent process in which the Remuneration
Committee and the Board of Directors play a central role.
In fact, it is adopted and annually approved by the Board of
Directors, upon proposal of the Remuneration Committee.
The Board of Directors submits the Policy to the advisory
vote of the Shareholders’ Meeting.
On the Policy the Board of Statutory Auditors expresses
its opinion, in particular, with regard to the part relating to
the remuneration of Directors with specific responsibilties.
The Remuneration Committee, the Board of Statutory
Auditors and the Board of Directors supervise
its
application. To this end, at least once a year, on the
occasion of the presentation of the Report, the head of
Human Resources & Organization Department reports
to the Remuneration Committee on the application of the
Policy; subsequently, the Chairman of the Remuneration
Committee reports to the Board of Directors.
The 2019 Policy - which was proposed by the Remuneration
Committee, and subsequently approved by the Board of
Directors, after obtaining the favourable opinion of the
Board of Statutory Auditors, on 26 February 2019 - is
submitted to the examination and advisory vote of the
Shareholders’ Meeting.
For completeness, it is reminded that, according to law,
the Board of Directors is entitled to adopt (or, if specified
by
law, to propose to the Shareholders’ Meeting)
incentive mechanisms through the allocation of financial
instruments or options on financial instruments which, if
approved, shall be disclosed to the public at the latest in
the Report (without prejudice to the further transparency
obligations prescribed by the applicable law). At the date
of this Report, the Company has no incentive plans based
on financial instruments42.
SHAREHOLDERS’ MEETING
The Shareholders’ Meeting:
→ at the time of appointment, determines the gross annual
remuneration payable to the members of the Board of
Directors, excluding the remuneration of Directors with
specific responsibilities;
→ at the time of appointment, determines the gross
annual remuneration due to the members of the Board
of Statutory Auditors;
→ expresses advisory vote on the first section of the
Remuneration Report;
→ resolves, upon proposal of the Board of Directors, to
adopt any eventual incentive mechanisms based on
the allocation of financial instruments or options on
financial instruments.
42 It is pointed out that Pirelli adopted an LTI Plan 2018-2020 with objectives linked to the
performance of Pirelli & C. stock (as better illustrated).
253
Remuneration Report BOARD OF DIRECTORS
The Board of Directors:
→ resolves upon the allocation of the total remuneration determined by the Shareholders’ Meeting among the
directors;
→ defines the remuneration policy of Executive Directors, Directors with specific responsibilities, General
Managers and Executives with strategic responsibilities;
→ determines the remuneration of Directors with specific responsibilities in accordance with Art. 2389,
paragraph 3, of the Italian civil code, as well as those of General Managers;
→ defines the performance objectives related to the variable component of the remuneration of Executive
Directors, General Managers and Executives with strategic responsibilities;
→ defines the remuneration of the Manager of the Internal Audit Department upon the proposal of the Audit,
Risks, Sustainability and Corporate Governance Committee.
REMUNERATION COMMITTEE
The Remuneration Committee is appointed by the Board of Directors (who appoints also the Chairman) and
remain in office for the entire duration of the Board of Directors.
At the date of this Report, the Committee is composed by four members, all non-executive directors, the
majority of whom independent, and, in line with the requirements of the Corporate Governance Code, the
Chairman of the Committee is an independent director.
At the date of this Report, the members of the Committee are the following:
REMUNERATION COMMITTEE
Name and Surname
Office
Bai Xinping
Not Executive Director
Laura Cioli
Not Executive Independent Director
Tao Haisu (Chairman)
Not Executive Independent Director
Giovanni Lo Storto
Not Executive Independent Director
The Directors Laura Cioli and Giovanni Lo Storto have been evaluated by the Board of Directors as directors
in possession of adequate accounting and financial experience, as well as knowledge in remuneration policies.
The entire Board of Statutory Auditors is entitled to participate at the meetings of the Remuneration Committee.
The Secretary of the Board of Directors acts as Secretary of the Remuneration Committee.
The Committee has consultative, proactive and supervisory functions aimed to ensure the definition and
application, within the Group, of the remuneration policies aimed to attract, retain and motivate persons in
possession of professional qualities required to pursue the objectives of the Group, on the one hand, and to
254
Pirelli Annual Report 2018 align the interests of the Management with those of the
Shareholders, on the other hand.
In relation to the operation of the Remuneration Committee,
see the Report on corporate governance and share ownership.
In particular, the Remuneration Committee:
→ assists the Board of Directors in the definition of the
Policy, formulating proposals on this subject;
→ periodically evaluates the adequacy, the overall
consistency and the actual application of the Policy,
also on the basis of the information provided by the
managing directors, and formulates proposals to the
Board of Directors on this subject;
→ with reference to the Executive Directors and the other
Directors with specific responsibilities and General
Managers makes proposals or issue opinions to the
Board of Directors:
→ for their remuneration, in line with the Policy;
→ for the identification of performance objectives
related to the variable component;
→ for the definition of any non-competition agreements;
→ for the definition of any agreements regulating the
termination of the relationsiship with the Company,
based also on the principles set out in the Policy;
→ with reference to the Executives with strategic
responsibilities verifies the coherence of their
remuneration with the Policy and expresses its opinion
on the same, even according to the Transactions with
Related Parties Procedure;
→ assists the Board of Directors in examining the
proposals to the Shareholders’ Meeting on the adoption
of compensation plans based on financial instruments;
→ monitors the implementation of the decisions adopted by
the Board of Directors verifying, in particular, the actual
achievement of performance objectives established;
→ examines and submittes to the Board of Directors the
annual report on remuneration which, for the members
of the management and control bodies of the Company,
General Managers and, in aggregate form for the
Executives with strategic responsibilities:
a. provides an adequate representation of each of the
items of the remuneration;
b. analytically illustrates the remuneration paid in
any respect and in any form during the relevant
financial year by the Company and its subsidiaries.
2. PURPOSES AND PRINCIPLES OF THE
REMUNERATION POLICY 2019
The Policy aims to attract, retain and motivate persons
with the professional qualities required to pursue the
objectives of the Company. Pirelli defines and applies a
Policy characterised:
→ for the Top Management and for the Senior Management,
by attractiveness aiming to the third quartile of the
target market comparison (compared to the benchmark
used);
→ for Executive, in line with practice from the markets of
comparison.
The Annual Total Direct Compensation at Target constitutes
the reference for this comparison with the market.
The analysis of the positioning, composition and, more
generally, of the competitiveness of the remuneration of
Directors with specific responsibilities is carried out by
the Remuneration Committee and the Board of Directors
with the support of independent companies specialised
in executive compensation (Willis Towers Watson) on the
basis of methodological approaches permitting to assess
them, although within the typical limits of the benchmark
analysis, the complexity of the roles from an organizational
point of view, the specific powers conferred and the impact
of the individual on the final results of the business.
In particular, in the definition of the panel of reference
annually updated we take into account the different
components, as the sector, geography, specificity of the
business, size of the company.
The sample of companies of reference used for the analysis of
competitiveness and for the review of the remuneration of the
Executive Vice President and Chief Executive Officer of Pirelli
& C. was updated, with the support of Willis Towers Watson,
also taking into consideration the principal recommendations
on pay for performance and it is now composed of 16
companies most comparable to the two panel (“Car & Tire”
and “Large Cap Europe”) used up to last year.
255
Remuneration Report The 16 companies that are part of the panel are:
Burberry Group
BMW
Continental
Daimler
PEER GROUP
Electrolux
FCA
Peugeot
Philips
Richemont
Rolls-Royce
Hermes Intl.
Reckitt Benckiser Group
VolksWagen
Michelin
Renault
Volvo
The structure of the remuneration of the Management, which is defined on the basis of the national and
international benchmarking prepared by companies specialised in the executive compensation (Korn Ferry-
Hay Group), is composed of three main elements:
→ gross annual fixed component (GAR);
→ variable annual component (MBO);
→ variable component of medium/long-term (LTI) intended to reward performance in the period 2018-2020
of Pirelli Group.
The fixed component shall be established on the basis of the significance of the position, professional seniority,
skills required to the individual to act in the role, or on the basis of the liabilities, of the performance achieved
over time, as well as the performance of the package of comparison relating to the position held by the individual.
The variable components (MBO and LTI) are determined - taking account of the reference benchmark for each
figure - in a percentage of the fixed component, growing in relation to the role covered by the beneficiary.
The MBO Plan is extended to the whole Management and is directed to reward performance of the beneficiary
in the short term; except for specific cases, the MBO Plan may be extended to those who become part of the
Group during the year and/or take the position of Executive for internal growth.
The MBO objectives for the Directors with specific responsibilities and to which are delegated specific power,
for the General Managers and the Executives with strategic responsibilities are established by the Board
of Directors (without the participation of the interested persons to the resolution) upon the proposal of the
Remuneration Committee (paragraphs 4 e 5).
Instead, the objectives of the Senior Managers and the Executives are defined by the hierarchical superior, in
agreement with the Human Resources & Organization and with the Planning and Controlling Departments.
For these roles, unlike those of the Top Management, can be provided targets connected to the economic
performance of the unit/department (paragraph 6).
At the end of the year, the Human Resources & Organization Department, with the support of the Planning and
Controlling Department, verifies the level of achievement of the objectives, on the basis of the performance.
In the event of extraordinary transactions affecting the perimeter of the Group and/or in case of significant
changes of the macroeconomic scenario and business, the Remuneration Committee may review the targets
of the MBO Plan, in order to protect the value and purposes of the same, thus ensuring constant alignment
between the company objectives and the objectives underlying the incentive systems recognized to the
Management43.
The accrual of the variable annual component is subject to the achievement of a financial condition of access
(so-called “on/off”), defined in relation to the role covered by the beneficiary.
43 The assessment of the achievement of single objectives will be carried out by the Committee
at the end of the year, offsetting the effects of the decisions adopted by the Company that can
influence the results (both in negative and in positive).
256
Pirelli Annual Report 2018 The Long Term Incentive Plan (LTI) 2018-2020 is aimed at:
→ link the remuneration of the Management with the
medium-long term performance of the Group;
→ promote the creation of value for shareholders;
→ generate an effective retention of the Management, key
variable for the creation of the Company’s Strategic Plan.
The LTI Plan is extended to the whole Management
(without prejudice to specific cases such as, for example,
the Manager of the Internal Audit Department) and may
also be extended to those who during the three-year period
become part of the Management of the Group and/or take,
for internal growth of career, the position of Executive. In
this case, the person shall participate in the Plan for at least
one year and the percentages of incentive are riparametrate
on the number of months of actual participation in the Plan.
In particular, the Plan provides for an incentive (“LTI
Bonus”) subject to the achievement of multiannual
objectives and determined as a percentage of the
gross annual fixed remuneration (GAR) perceived by
the beneficiary at the date on which the participation
of this latter in the Plan was established. This incentive
percentage grows in relation to the role and takes account
of the reference benchmark of each role.
The entire cost of the LTI Plan is included in the economics
of the Business Plan, so that the cost of the same is “self-
financed” by the achievement of results.
The variable remuneration of the Management, of short and
long term, is defined in line with the objectives of the short
and medium/long-term provided by the annual and long-term
Plans, communicated to the market. In particular, the definition
of a mix of objectives, including non-financial objectives, for
the medium/long term variable part, avoids the prevalence
of weight of a single performance objective. Furthermore,
the existence of objectives based on three-year cumulative
economic/financial parameters (and without, therefore, any
finalisation medio tempore) avoids behavior aimed to achieve
short-term objectives, for obtaining the annual incentive.
In this respect, it is highlighted that the process of risk
management is fully integrated in the strategic planning
in order to ensure that the objectives determined for
the achievement of the variable incentive do not expose
Pirelli to managerial behavior not consistent with the
acceptable level of risk (cd. Risk Appetite) defined by the
Board of Directors at the time of approving the Plans.
Part of the variable remuneration accrued as MBO
is deferred to support the continuity of the results
(and, therefore, its payment is subject to “risk”) with a
mechanism for increasing “bonus”.
Furthermore, the Policy, based on the principle
of the pay for performance, is defined in order to
align the interests of the Management with those
of Shareholders, pursuing the primary objective of
creating sustainable value in the medium-long term,
through the creation of an effective and verifiable link
between the remuneration, on the one hand, and the
performance of Pirelli, on the other hand.
It is pointed out that by the fourth quarter of 2019 Pirelli
will launch a new Business Plan for the three-year period
2020-2022 and, therefore, for the Management will be
provided a new long-term incentive plan (LTI) consistent
with the new plan. On that occasion, the Remuneration
Committee will be called to take resolutions on the current
long-term incentive plan.
3. REMUNERATION OF THE BOARD OF DIRECTORS
AND THE BOARD OF STATUTORY AUDITORS
THE BOARD OF DIRECTORS
The Board of Directors is composed by:
(i) Directors with specific responsibilities, to whom may
also be delegated specific powers;
(ii) Directors with no specific responsibilities.
The conferral of powers to Directors only for cases of
urgency does not imply the qualification of the same as
Directors to whom are delegated specific powers.
257
Remuneration Report Pursuant to Art. 2389, paragraph 1, of the Italian civil code, the Shareholders’ Meeting of Pirelli held on 1 August
2017 resolved to recognize in favour of the Board of Directors a gross annual remuneration equal to maximum
euro 2,000,000, to be allocated among its members in accordance with the resolutions adopted by the Board
of Directors on this matter, other than the remuneration established by the Board of Directors for the Directors
with specific responsibilities pursuant to Art. 2389 of the Italian civil code. The gross annual remuneration
established by the Shareholders’ Meeting in euro 2,000,000 has been subsequently allocated by the Board of
Directors as follows44:
REMUNERATION OF DIRECTORS
CORPORATE BODY
POSITION
REMUNERATION
Board of Directors
Audit, Risks, Sustainability and Corporate Governance Committee
Remuneration Committee
Strategies Committee
Appointments and Succession Committee
Related-Party Transactions Committee
Supervisory Body
Director
Chairman
Member
Chairman
Member
Chairman
Member
Chairman
Member
Chairman
Member
Chairman
Member
60,000 Euro
30,000 Euro
25,000 Euro
30,000 Euro
25,000 Euro
50,000 Euro
30,000 Euro
50,000 Euro
30,000 Euro
60,000 Euro
40,000 Euro
60,000 Euro
40,000 Euro
In line with the best practices, the Directors with no specific responsibilities (as defined above) are not entitled
to receive the variable remuneration. Furthermore, the Directors are entitled to obtain the reimbursement of
the expenses incurred for the offices.
In line with best practices, corporate bodies, General Managers, Executives with strategic responsibilities,
Senior Managers and Executives, in the exercise of their functions, are covered by a third party civil liability
policy (so called “D&O”) - in compliance with the provisions established in this matter in the national collective
agreement of labor law and mandate - aimed to hold Pirelli harmless from the costs deriving from any damages,
excluding cases of wilful misconduct and gross negligence.
The Directors with no specific responsibilities are not covered by insurance, welfare or pension different from
the compulsory ones.
THE BOARD OF STATUTORY AUDITORS
The remuneration of the controlling body is determined by the Shareholders’ Meeting in a fixed annual
remuneration. In particular, in the 2018 financial year, on the occasion of the renewal of the Board of Statutory
Auditors, the fixed gross annual remuneration for the Chairman of the Board of Statutory Auditors has been
determined in euro 75,000, and that for the Standing Auditors in euro 50,000.
For the Statutory Auditor appointed as member of the Supervisory Board, the Board of Directors, following its
44 Furthermore, the Board of Directors established an annual gross remuneration of euro 70,000
for the Director responsible for Sustainability issues. This office has been covered by the Director
Giorgio Bruno until 26 February 2019. On 26 February 2019 the office has been assigned to the
Executive Vice President and Chief Executive Officer, without attribution of any remuneration.
258
Pirelli Annual Report 2018 renewal, has established an annual gross remuneration of euro 40,000. Furthermore, the Statutory Auditors
are entitled to obtain the reimbursement of the expenses incurred for the offices.
In line with best practices, corporate bodies, General Managers, Executives with strategic responsibilities,
Senior Managers and Executives, in the exercise of their functions, are covered by a third party civil liability
policy (so called “D&O”)45, aimed to hold harmless Pirelli from the costs deriving from any damages, excluding
cases of wilful misconduct and gross negligence, in compliance with the provisions established in this matter
in the national collective agreement of labor law and mandate.
4. REMUNERATION OF DIRECTORS WITH SPECIFIC RESPONSIBILITIES
The remuneration of Directors with specific responsibilities is proposed by the Remuneration Committee, at
the time of appointment or in the first meeting after the appointment, to the Board of Directors.
CHAIRMAN OF THE BOARD OF DIRECTORS
If the Director is invested with specific responsibilities but has not delegated with specific powers (at the date
of this Report, Chairman Ning Gaoning46), the remuneration is composed only by a fixed annual remuneration;
the Board of Directors determined in euro 400,000 the annual gross remuneration of Chairman Ning Gaoning.
For Directors with specific responsibilities to whom are not delegated specific powers are not provided
insurance, welfare or pension coverage different from the compulsory ones.
EXECUTIVE VICE PRESIDENT AND CHIEF EXECUTIVE OFFICER
The remuneration of Directors with specific responsibilities to whom are also delegated specific powers (this is
the case of the Executive Vice President and Chief Executive Officer Marco Tronchetti Provera47) is composed
by the following elements:
Fixed compensation for all positions held within Pirelli
Not exceeding 1/3 of the Annual Total Direct compensation at Target
Short term incentive plan (MBO)
MBO Deferral
Long term incentive plan (LTI)
End-of-mandate
Benefits are typical of the office and approved by the company practice
Insurance Cover
FIXED REMUNERATION
VARIABLE REMUNERATION
OTHER
COMPONENTS
In relation to the impact of the various components, below the structure of the compensation package of the
Executive Vice President and Chief Executive Officer in case of achievement of the annual objectives of the
MBO 2018, 2019 and 2020 and the three-year objectives of the 2018-2020 LTI Plan (i) to access threshold,
(ii) at target, and (iii) at maximum level.
PAY MIX - EXECUTIVE VICE PRESIDENT AND CEO
Entry level
Target
Maximum
FIXED REMUNERATION
SHORT TERM VARIABLE
REMUNERATION
LONG TERM VARIABLE
REMUNERATION
40,6%
Fixed
59,4%
Variable
32,7%
40,6%
26,7%
31,4%
Fixed
68,6%
Variable
41,1%
31,4%
27,6%
17,1%
Fixed
82,9%
Variable
17,1%
30,1%
52,8%
45 The D&O policy has been approved by the Shareholders’ Meeting held on 15 May 2018.
46 In the period between 1 January 2018 and 30 July 2018 the office has been held by Ren
Jianxin, with an annual gross remuneration equal to euro 400,000.
47 At the date of this Report, the Executive Vice President and Chief Executive Officer Marco
Tronchetti Provera is the only Director with specific responsibilities to whom are also delegated
specific powers.
259
Remuneration Report FIXED REMUNERATION
The fixed annual remuneration of the Executive Vice President and Chief Executive Officer is equal to euro
2,400,00048 (not exceeding one third of the Total Direct Compensation at Target). Such amount has been
determined - in line with the best practices and the recommendations of the Corporate Governance Code – in
order to be sufficient to compensate his performance also in case of the variable remuneration should not be
paid due to failure to achieve the performance objectives.
SHORT TERM VARIABLE REMUNERATION
The Executive Vice President and Chief Executive Officer Marco Tronchetti Provera is beneficiary of the MBO plan.
The objectives at target represent a performance consistent with the corresponding objectives disclosed to
the market.
For each objective is provided an access threshold, to which is associated the recognition of a bonus of 75% of
the incentive achievable at target; it is also provided a maximum cap.
The range of performance and the relevant incentive curve for the economic-financial objectives are defined
in line with the objectives disclosed to the market and, in particular, (i) the objective for the obtainment of the
incentive at “access threshold” is determined with a margin of tolerance with respect to the value disclosed
to the market, (ii) the objective for the achievement of the maximum incentive with objective value more
challenging with respect to the value disclosed to the market.
The on/off condition is determined with a “margin of tolerance” with respect to the objectives disclosed to the market.
The finalisation of the incentive between the access threshold and target and between the target and the
maximum is carried out by linear interpolation.
On the basis of the level of performance achieved, the Executive Vice President and Chief Executive Officer
receives a bonus equal to 125% of the fixed remuneration in the event of achievement of performance at
target, to 75% of the bonus at target in case of achievement of the access threshold and equal to 200% of the
bonus at target in case of maximum performance.
All the objectives provided by the MBO scheme operate independently as shown by the incentive curve below.
Therefore, on the basis of the level of performance achieved, each objective will contribute to the overall payout
according to the weight indicated in the same scheme.
PERFORMANCE/PAYOUT
Payout (% fixed remuneration)
250%
125%
93%
Exemple of curve in case of
achievement of all the objectives
at minimum level (Entry Level),
Target and Maximum.
Minimum
Target
Maximum
Performance
48 The Executive Vice President and Chief Executive Officer receives also the remuneration
provided for the office of Director (euro 60,000), Chairman of the Strategy Committee (euro
50,000) and Chairman of the Appointments and Successions Committee (euro 50,000).
260
Pirelli Annual Report 2018 For 2019, the objectives assigned to the Executive Vice President and Chief Executive Officer are the following:
MBO – EXECUTIVE VICE PRESIDENT AND CEO
OBJECTIVE WEIGHT AT TARGET
Group’s Net Financial Position (no impact IFRS 16)
Access threshold
Group’s EBIT Adjusted
Groups’ Net Financial Position (no impact IFRS 16)
Group’s EBT (no impact IFRS 16)
Sustainability objective – value of the «green performance revenues»
30%
40%
20%
10%
The MBO accrued is paid in the measure of 75%, being the remaining 25% deferred for 12 months and subject
to the achievement of the MBO objectives of the next year. In particular:
→ if, in the next year, the MBO is not accrued, the percentage of MBO of the previous year deferred is definitively
lost;
→ if, in the next year, the MBO is accrued at the access threshold, the quota of MBO of the previous year
deferred is returned;
→ if, in the next year, the MBO is accrued between target level and maximum level, an additional sum between
20% and 40% of the entire MBO accrued in the previous year - in addition to the payment of the quota of the
MBO of the previous year deferred - will be paid (if, in the next year, intermediate results between target and
maximum level are achieved, the increase of the MBO of the previous year is calculated by linear interpolation).
Year T
Year T+1
Year T+2
Year T+3
Year T+4
...
Payment of
75% of the
accrued MBO
Verification of the on/off condition and payment
of the defferral part + eventual appreciation
Payment of
75% of the
accrued MBO
Verification of the on/off condition and payment
of the defferral part + eventual appreciation
Payment of
75% of the
accrued MBO
Verification of the on/off condition and payment
of the defferral part + eventual appreciation
Payment of
75% of the
accrued MBO
261
Remuneration Report LONG TERM VARIABLE REMUNERATION
To the Executive Vice President and Chief Executive Officer is recognized a Long Term Incentive Plan 2018
-2020 linked to the achievement of objectives assigned on a three-year basis:
OBJECTIVES LTI PLAN
OBJECTIVE WEIGHT
AT TARGET
KPI
Deleveraging (Net Financial Position/EBITDA Adjusted ratio)
Access threshold
<2 on 31.12.2020
ROS Group
(ratio of Group’s cumulative EBIT Adjusted of the three-year period and cumulative
turnover of the three-year period)
Absolute TSR
(average value of the share in the last half of 2020 – average value of the share
of the last quarter 2017 + distributed dividends) and (average value of the share
of the last quarter 2017)
Relative TSR vs. selected panel (Michelin, Nokian, Continental)
Ranking Pirelli in the Dow Jones Sustainability Index–ATX Auto Components Sector
(subject to achievement of the threshold level of at least one
of the economic-financial objectives)
30%
40%
20%
In line with the objectives
communicated to the market
+48,8%
Performance equal to the
weighted avarage of the panel
10% Positioning in the highest decile
For each objective is provided an access threshold - to which is associated the payment of an amount equal to
75% of the incentive achievable at target - and a maximum cap.
In particular, in the case of all objectives are achieved at maximum level, the LTI Bonus cannot exceed 2 times
the incentive achievable in case of objectives achieved at target. In case of failure to achieve the access
threshold of any objective, the beneficiary does not accrued any right to be paid.
The range of performance and the relevant incentive curve are defined for each objective and are fixed,
for the economic-financial objectives, at a performance level between the target level and maximum level
more challenging with respect to the threshold level and target level. Therefore, the incentive curve grows
proportionally with the increase of the performance between the threshold level and the target level, and it
grows more than proportionally with the increase of the performance between target level and maximum level.
All the objectives provided by the LTI scheme, except for the sustainability objective, operate independently
as shown by the incentive curve below. Therefore, on the basis of the level of performance achieved, each
objective will contribute to the overall payout according to the weight indicated in the same scheme.
PERFORMANCE/PAYOUT
Payout (% fixed remuneration)
500%
250%
187,5%
Exemple of curve in case of
achievement of all the objectives
at minimum level (Entry Level),
Target and Maximum.
Minimum
Target
Maximum
Performance
262
Pirelli Annual Report 2018 For TSR and ROS objectives, the finalization of the performance, for intermediate results between access threshold
and target value or between the target value and maximum value, will be carried out by linear interpolation.
On the basis of the level of performance achieved, the Executive Vice President and Chief Executive Officer
receives a bonus equal to 250% of the fixed remuneration in the event of performance at target, to 75% of the
bonus at target in case of achievement of the access threshold and equal to 200% of the bonus at target in
case of maximum performance.
In the event of termination of the office of the Executive Vice President and Chief Executive Officer for
expiration of the term of the mandate, if not subsequently re-appointed, also as director, the same will receive
the payment of the pro-quota of the Bonus LTI.
Furthermore, in favour of the Directors with specific responsibilities and to whom are delegated specific powers
not connected to the Company by an employment relationship (at the date of this Report, the Executive Vice
President and Chief Executive Officer Marco Tronchetti Provera), the Board of Directors provided, in line with
the provisions of the law and/or the National Collective Employment Contract in favour of the italian executives
of the Group:
→ an end-of-mandate (T.f.M.), pursuant to Art. 17, paragraph 1, letter c) of T.U.I.R. no. 917/1986, having similar
characteristics to the Employee Severance Indemnity (TFR), provided by Art. 2120 of the Italian civil code,
recognized in favour of the Italian executives of the Group according to the law and including the contributions
to be paid by the employer that would be due to Social Security Institutions or Pension Funds in case of
employment relationship for executives;
→ an insurance policy related to (i) accidents that might involve them in the execution of the mandate; and (ii)
extra-professional accidents, with premiums paid by the Company;
→ an indeminity in case of permanent invalidity and death for occupational diseases;
→ further benefits typical of the office and currently granted by Pirelli to the General Managers, Executives
with strategic responsibilities and/or Senior Managers (company car).
5. GENERAL MANAGER AND EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
On 14 May 2018, the Company’s Board of Directors resolved to established the General Operations Department
and, to that effect, to assign the guide of the Department to Mr. Andrea Casaluci.
At the date of publication of the Policy, the following Executives with strategic responsibilities are in office:
GENERAL MANAGER AND EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
ROLE
NAME
General Manager Operations
Executive Vice President and Chief Financial Officier
Executive Vice President and Chief Planning and Controlling Officer
Strategic Advisor and Executive Vice President Technology and Innovation
Executive Vice President Commercial Replacement, Moto, Velo & Customer Racing and Region Europe
Executive Vice President Technical Operations
Executive Vice President and Chief Human Resources Officer and Organization
Executive Vice President Technology
Andrea Casaluci
Francesco Tanzi
Maurizio Sala
Maurizio Boiocchi
Roberto Righi
Francesco Sala
Davide Sala
Pierluigi De Cancellis
263
Remuneration Report The remuneration of the General Manager and the Executives with strategic responsibilities is composed by
the following elements:
Gross annual fixed component
Not exceeding 50% of the Annual Total Direct Compensation at Target
Short term incentive plan (MBO)
MBO Deferral
Long term incentive plan (LTI)
Retention plan
Non-competition agreement
Benefits typical of the position and approved by the company practice
Supplementary pension plan
Insurance cover
FIXED REMUNERATION
VARIABLE REMUNERATION
OTHER
COMPONENTS
In relation to the impacts of the various components, below the structure of the compensation package of
the General Manager and the Executives with strategic responsibilities in case of achievement of the annual
objectives of the MBO 2018, 2019 and 2020 and the three-year objectives of the 2018-2020 LTI Plan (i) to
access threshold, (ii) at target, and (iii) at maximum level.
PAY MIX - GENERAL MANAGER
GROSS ANNUAL FIXED
REMUNERATION
SHORT TERM VARIABLE
REMUNERATION
LONG TERM VARIABLE
REMUNERATION
48,5%
Fixed
51,5%
Variable
Entry level
Target
Maximum
31,1%
48,5%
20,4%
39%
Fixed
61%
Variable
39,1%
39%
21,9%
22,6%
Fixed
77,4%
Variable
PAY MIX - EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
Entry level
Target
Maximum
GROSS ANNUAL FIXED
REMUNERATION
SHORT TERM VARIABLE
REMUNERATION
LONG TERM VARIABLE
REMUNERATION
55,8%
Fixed
44,2%
Variable
28,5%
55,8%
15,7%
46,4%
Fixed
53,6%
Variable
36,2%
46,4%
17,4%
28,5%
Fixed
71,5%
Variable
22,6%
25,4%
52%
28,5%
21,4%
50,1%
The analysis of the remuneration of the General Manager and Executives with strategic responsibilities, annually
revised and made known in occasion of the Report, is carried out with the support of independent companies
specialized in executive compensation (Korn Ferry-Hay Group). In particular, in the definition of the panel of reference
annually updated various components are considered (sector, geography, dimension, specificity of the business).
For the General Manager and Executives with strategic responsibilities the reference market used to verify
the competitiveness of their remuneration includes over 200 companies of the following European Countries:
Belgium, France, Germany, Italy, Spain, Netherlands, UK.
FIXED REMUNERATION OF THE GENERAL MANAGER AND
EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
The fixed remuneration of the General Manager is determined by the Board of Directors, previous the
obtainment of the favourable opinion of the Remuneration Committee, in compliance with the Policy.
The remuneration of Executives with strategic responsibilities is determined by the Executive Vice President
and Chief Executive Officer, in line with the Policy, not exceeding the 50% of the Annual Total Direct
Compensation at Target.
264
Pirelli Annual Report 2018 The Remuneration Committee verifies the coherence of the remuneration of the aforementioned persons with
the Policy.
On 26 February 2019, the Board of Directors determined a gross annual remuneration equal to euro 750,000
in favour of the General Manager.
SHORT-TERM VARIABLE INCENTIVE
The General Manager and the Executives with strategic responsibilities are beneficiaries of the MBO Plan,
defined on the basis of the same structure, mechanism and objectives provided for the Executive Vice
President and Chief Executive Officer.
In case of performance at target, the following annual incentive (MBO) are recognized:
→ 75% of the GAR for the General Manager;
→ 50%-75% of the GAR for the Executives of the strategic responsibilities.
In case of the achievement of the access threshold, the 75% of the incentive at target is recognized and in case
of maximum performance is recognized the 200% of the incentive at target.
Also for the General Manager and Executives with strategic responsibilities is provided the payment of the
75% of the incentive accrued, being the remaining 25% deferred for 12 months and subject to the achievement
of the MBO objectives for the next year and paid according to the same parameters specified for the Executive
Vice President and Chief Executive Officer.
LONG-TERM VARIABLE INCENTIVE
The General Manager and the Executives with strategic responsibilities are beneficiaries of the long term
incentive plan 2018-2020, defined according to the same structure, mechanism and objectives provided for
the Executive Vice President and Chief Executive Officer.
In case of performance at target, the following three-year period incentive (LTI) are recognized:
→ 200% of the GAR for the General Manager;
→ 167%-200% of the GAR for the Executives of the strategic responsibilities.
In case of the achievement of the access threshold, the 75% of the incentive at target is recognized and in case
of maximum performance is recognized the 200% of the incentive at target.
In the event of termination of the employment relationship before the end of the three-year period, the
beneficiary ceases its participation in the LTI Plan and, consequently, neither the bonus nor a part of this latter
will be paid.
6. SENIOR MANAGERS AND EXECUTIVES
The remuneration of Senior Managers and the Executives is composed by the following elements:
Fixed gross annual component (GAR)
Not exceeding 60% for the Senior Manager and 75% for the Executive
of the Annual Total Direct Compensation at Target
Short term incentive plan (MBO)
MBO Deferral
Long term incentive plan (LTI)
Retention plan and non-competition agreement (only for selected managers)
Benefits typical of the position and approved by the company practice
Supplementary pension plan
Insurance cover
FIXED REMUNERATION
VARIABLE REMUNERATION
OTHER
COMPONENTS
265
Remuneration Report Below the structure of the remuneration of Senior Managers and the Executives (overall intended) with
evidence of the impact of the various components (annualised) on their compensation package in the case
of achievement of the MBO annual objectives for 2018, 2019 and 2020 and of the LTI Plan for the three-year
period 2018-2020 (i) to access threshold, (ii) at target and (iii) at maximum level.
PAY MIX - SENIOR MANAGER
GROSS ANNUAL FIXED
REMUNERATION
SHORT TERM VARIABLE
REMUNERATION
LONG TERM VARIABLE
REMUNERATION
PAY MIX - EXECUTIVE
GROSS ANNUAL FIXED
REMUNERATION
SHORT TERM VARIABLE
REMUNERATION
LONG TERM VARIABLE
REMUNERATION
58,2%
Fixed
41,8%
Variable
78,4%
Fixed
21,6%
Variable
Entry level
Target
Maximum
28,7%
58,2%
13,1%
49,1%
Fixed
50,9%
Variable
36,2%
49,1%
14,7%
31%
Fixed
69%
Variable
Entry level
Target
Maximum
12,8%
8,8%
78,4%
28,9%
Variable
71,1%
Fixed
18,2%
10,7%
71,1%
52,8
Fixed
47,2%
Variable
50,5%
31%
18,5%
31,4%
52,8%
15,8%
The analysis on the remuneration of Senior Managers and Executives is carried out with the support of
independent companies specialized in executive compensation (Korn Ferry- Hay Group). Also the position held
by the single Manager and the Country are taking into account.
For the Manager of the Internal Audit Department, in line with the best practices, the Board of Directors, upon proposal of
the Audit, Risks, Sustainability and Corporate Governance Committee, provided a greater impact of the fixed component
on the variable component. Moreover, the Manager of the Internal Audit Department (and, in general, the managers of the
Internal Audit Department) is not included in the Incentive Plan LTI, but is only the beneficiary of the annual incentive plan
linked to qualitative objectives, the assessment of which is left to Audit, Risks, Sustainability and Corporate Governance
Committee and the Board of Directors, upon proposal of the Director in charge of the internal control system.
SHORT-TERM VARIABLE INCENTIVE
Senior Managers and Executives are beneficiaries of the MBO plan, defined according to the same structure
and mechanisms provided for the Executive Vice President and Chief Executive Officer, General Manager and
Executives with strategic responsibilities.
The incentive is paid to the achievement of the following performance objectives:
MBO – SENIOR/EXECUTIVE
OBJECTIVE WEIGHT AT TARGET
Group’s Net Financial Position (no impact IFRS 16)
Group’s EBIT Adjusted
Groups’ Net Financial Position (no impact IFRS 16)
Group’s EBT (no impact IFRS 16)
Functional objective/s with Group scope
Sustainability objective – value of the «green performance revenues»
266
Access threshold
30%
From 20% to 40%
20%
From 10% to 20%
10%
Pirelli Annual Report 2018 MBO – SENIOR/EXECUTIVE OF REGION/BU
OBJECTIVE WEIGHT AT TARGET
Group’s Net Financial Position (no impact IFRS 16) – BU
Region’s Net Financial Position – Region
DSO – Commercial managers1
EBIT Adjusted of Region/BU/Country
Groups’ Net Financial Position (no impact IFRS 16)
Group’s EBT (no impact IFRS 16)
Functional objective/s to the scope of the Region/BU/Group
Sustainability objective – value of the «green performance revenues»
Access threshold
From 20% to 40%
From 10% to 20%
From 10% to 20%
From 10% to 40%
10%
1) If the on / off condition of the Net Financial Position of Region or DSO is not achieved, the on / off condition of the Group’s Net Financial Position is activated, with a deduction of 25% of the total payout accrued.
On the basis of the level of performance achieved, Senior Managers and Executives receive and incentive between
20% and 40% of the GAR depending on the role covered in the event of performance at target, equal to 75% of the
incentive at target in case of achievement of the access threshold and equal to 200% of the incentive at target in case
of maximum performance.
Also the Senior Managers and the Executives receive the 75% of the incentive accrued, being the remaining
25% deferred for 12 months and subject to the achievement of the MBO objectives of the next year and paid
on the basis of the same parameters provided for the Executive Vice President and Chief Executive Officer,
General Manager and Executives with strategic responsibilities.
LONG-TERM VARIABLE INCENTIVE
Senior Managers and Executives are beneficiaries of the long term incentive plan 2018-2020, defined on the
basis of the same structure, mechanisms and objectives provided for the Executive Vice President and Chief
Executive Officer, the General Manager and the Executives with strategic responsibilities.
On the basis of the level of performance achieved, Senior Managers and Executives receive an incentive
between 50% and 167% of the GAR in the event of performance at target, equal to 75% of the three-year period
incentive at target in case of achievement of the access threshold and equal to 200% of the incentive at target
in case of maximum performance.
In the event of termination of the employment relationship before the end of the three-year period, the
beneficiary ceases its participation in the LTI Plan and, consequently, neither the bonus nor a part of this latter
will be paid49.
7. CLAW BACK CLAUSES
The annual and multiannual incentive plans (MBO and LTI) recognized to the Directors with specific
responsibilities to whom are delegated specific powers, General Managers and Executives with strategic
responsibilities provide for, among others, clawback mechanisms.
In particular, without prejudice of any other measure provided by the law aimed to protect the interests of the
Company, the Company concludes with the aforementioned persons agreements that allow Pirelli to request
the repayment (in whole or in part), by three years from their payment, of the incentives paid to the said persons
that, intentionally or with gross negligence, are liable for fact, as indicated below, related to economic/financial
indicators included in the Annual Financial Report that involve a comparative and subsequent information and
adopted as parameters for the determination of the variable premiums of the said incentive plans:
49 For the Directors with specific responsibilities to whom specific powers are delegated (in
particular, for the Executive Vice President and Chief Executive Officer Tronchetti Provera)
terminating their office for end-of-mandate, in case of the same will not be re-appointed, the
payment of the LTI Bonus pro-quota is provided.
267
Remuneration Report (i) proven and significant errors that cause a non-
compliance with the accounting principles which
Pirelli declares to apply, or
(ii) ascertained fraudulent behavior aimed to obtain a
specific representation of the financial position, of the
economic result or of the cash flows of Pirelli.
In such cases, the indemnity is equal to 2 years of the
gross annual remuneration, meaning the fixed annual
gross remunerations due for the offices held in the Group,
to the average of the annual variable remuneration (MBO)
accrued during the previous three-year period and TFM on
the aforementioned amounts.
8. INDEMNITIES IN CASE OF RESIGNATION,
DISMISSAL OR TERMINATION OF EMPLOYMENT
9. NON-COMPETITION AGREEMENTS
AND RETENTION PLAN
Pirelli Group does not conclude with Directors, General
Managers, Executives with strategic responsibilities,
Senior Managers and Executives, agreements regulating
ex ante the economic aspects relating to the early
termination of the relationship at the initiative of the
Company or the single person (cd. “parachutes”).
The Group can conclude non-competition agreements
with its General Managers, Executives with strategic
responsibilities, Senior Managers and Executives with
professionalism particularly critical, providing for the
payment of a fee referred to the GAR, the duration and
the extent of the restriction resulting from the agreement.
In fact, Pirelli’s intention is to consensually conclude
the agreements for the “closing” of the relationship.
Without prejudice of all the legal and contractual
obligations, the agreements for the termination of
the relationship with Pirelli Group are inspired by the
benchmark of reference, and within the limits defined
by case law and practice of the Country in which the
agreement is concluded.
The Company internally determines the criteria to
which also the other companies of the Group shall be
aligned, for the management of the early termination
of executives employment relationships and/or of the
Directors with specific responsibilities. On the occasion
of the termination of the office and/or termination of
the relationship with an Executive Director or a General
Manager, the Company discloses detailed information
to the market, at the end of the internal processes
leading to the attribution or recognition of indemnities
and/or other benefits.
For the Directors with specific responsibilities to whom
are delegated specific powers, with no employment
contract, Pirelli does not provide the payment of
indemnities or remuneration of extraordinary nature
linked to the end of the mandate. The payment of
a specific indemnity may be recognized, previous
evaluation of the competent corporate bodies, in the
following cases:
→ termination at the initiative of the Company not
supported by just cause;
→ termination at the initiative of the Director for just cause,
in case of, by way of example, the substantial change
of the role or the powers attributed and/or cases of the
cd. “hostile” Tender offer.
The restriction is referred to the sector in which the
Group operates at the time of the conclusion of the
agreement and to the territorial extension. The breadth
varies in relation to the role held at the time of the
execution of the agreement and, in the cases particularly
critical, as in the cases of the General Managers and
Executives with strategic responsibilities, can provides
for a geographical extension covering all major
Countries in which the Group operates.
The Executive Vice President and Chief Executive Officer
has not a non-competition agreement.
the General Manager,
the Executives
Moreover,
with strategic responsibilities, whose activity for the
implementation of the new strategic plans is considered
particularly critical and significant, and selected Senior
Managers/Executives are beneficiary of a medium/long-
term retention plan.
The Retention Plan provides in favour of the General
Manager, the Executives with strategic responsibilities and
the selected Senior Managers/Executives the payment of
a fee compared to the Total Direct Compensation at Target
2017 of up to a maximum of 2.3 times of the same. The
fee is paid in 4 annual installments of a growing amount in
order to achieve the maximum possible effect of retention,
with the payment of the last installment during 2021. The
payment of each installment is subject to the presence of
the managers in the company at the date of each payment.
The Executive Vice President and Chief Executive Officer
do not participate at the Retention Plan.
268
Pirelli Annual Report 2018 10. CHANGES IN REMUNERATION POLICY
FROM THE PREVIOUS FINANCIAL YEAR
The Policy is based on the experience of application and
takes account of regulatory prescriptions adopted by
Consob.
Compared to last year, the Policy has been reviewed
to take into account the establishment of the General
Operations Department and the referral of the delegated
powers by the Director in charge for sustainability issues.
Furthermore, in line with Pirelli’s values, strategies and
business, the Policy has been reviewed in order to link
the payment of the MBO 2019 to the achievement of a
new objective connected to an indicator of Sustainability,
represented by the level of “Green Performance Revenues”.
Furthermore, the mechanism of determination of numerical
objectives compared to the target communicated to the
market has been reviewed.
In order to take into account the principal recommendations
of the Proxy Advisor on pay for performance matters, the
Policy has been updated in relation to the composition of
the sample of companies of reference used for the analysis
of competitiveness and for the review of the remuneration
of the Executive Vice President and Chief Executive Officer.
Finally, the document has a new graphic in order to highlight
the most relevant aspects and facilitate the reading.
269
Remuneration Report 11. OTHER INFORMATION
According to Consob resolution no. Resolution 18049 of 23 December 2011, it is stated that:
→ the Company has not made use of the the assistance of consultancy and/or external experts in drawing up
the Policy 2019;
→ Pirelli has no share-based incentive plans;
→ In the definition of 2019 Policy, Pirelli has not used specific remuneration policies of other companies as
reference. As regards the structure of the remuneration for each figure, the Policy shows the criteria for the
selection of the reference benchmark. Scheme No. 7-bis adopted by Consob with resolution no. Resolution
18049 of 23 December 2011 provides that the Report on Remuneration in the section provided by Art. 123-
ter with reference to the members of the board of directors, general managers and executives with strategic
responsibilities, contains at least the information specified in the aforementioned cheme. Below is a table
with the indication of the information requested and the part of the report in which they are listed:
INFORMATION REQUIRED BY SCHEME 7-BIS
PARAGRAPHS IN WHICH - IN PARTICULAR - THE
INFORMATION REQUESTED ARE CONTAINED
a) the bodies or individuals involved in drawing up and approving the Remuneration Policy,
specifying the respective roles, as well as the bodies or individuals responsible for the
proper implementation of this Policy.
b) any eventual involvement of a Remuneration Committee or other relevant committee,
describing its composition (making a distinction between non-executive and independent
directors), responsibilities and operation modalities;
1. Parties involved in the definition and implementation of the Policy
1. Parties involved in the definition and implementation of the Policy
c) name of any eventual independent experts involved for the drawing up of the
Remuneration Policy;
11. Other information
d) purposes of the Remuneration Policy, underlying principles and any eventual changes
from the policy respect the previous financial year;
2. Purposes and principles of the Remuneration Policy 2019
10. Changes in Remuneration Policy from the previous financial year
e) description of the policies regarding fixed and variable remuneration components,
with particular focus on their relative weight on the overall remuneration and
distinguishing between short and medium-term variable components;
f) policy pursued with regard to non-monetary benefits;
g) with reference to the variable components, a description of the performance objectives
on the basis of which are assigned, distinguishing between the variable components of
the short and medium-long term, and information on the link between changes in results
and changes in remuneration;
h) the criteria used to assess the performance objectives on the basis of which shares,
options, other financial instruments or other variable remuneration components are
allocated;
i) information aimed at demonstrating the consistency of the Policy on remuneration
with the pursuit of the company’s long term interests and risk management policy,
where formalised;
j) the vesting period, any deferred payment systems, stating the deferral periods and
criteria used to determine these periods and any ex-post correction mechanisms;
270
The structure of the remuneration of the different interested persons
is described in paragraphs in which are indicted the different weights
fixed/variable; short-term variable/variable of medium/long-term
2. Purposes and principles of the Remuneration Policy 2019
3. Remuneration of the Board of Directors and the Board of Statutory
Auditors
4. Remuneration of Directors with specific responsibilities
5. General Manager and Executives with strategic responsibilities
6. Senior Managers and Executives
Paragraphs for the individual figures:
3. Remuneration of the Board of Directors and the Board of Statutory
Auditors
4. Remuneration of Directors with specific responsibilities
5. General Manager and Executives with strategic responsibilities
6. Senior Managers and Executives
2. Purposes and principles of the Remuneration Policy 2019
1. Parties involved in the definition and implementation of the Policy
2. Purposes and principles of the Remuneration Policy 2019
As well as for the individual figures
3. Remuneration of the Board of Directors and the Board of Statutory
Auditors
4. Remuneration of Directors with specific responsibilities
5. General Manager and Executives with strategic responsibilities
6. Senior Managers and Executives
Pirelli has no share-based incentive plans.
For the mechanisms of deferral of the variable components
see Paragraph:
2. Purposes and principles of the Remuneration Policy 2019
Pirelli Annual Report 2018 INFORMATION REQUIRED BY SCHEME 7-BIS
PARAGRAPHS IN WHICH - IN PARTICULAR - THE
INFORMATION REQUESTED ARE CONTAINED
k) information on any provision of clauses for maintaining financial instruments in the
portfolio after purchase, stating the retention periods and criteria used to determine
these periods;
Pirelli has no share-based incentive plans
l) the policy regarding payments in the event of resignation from office or termination
of employment, specifying the circumstances in which the right may be exercised and
any link between these payments and the company’s performance;
8.
9.
Remuneration in case of resignation, dismissal or termination
of employment
Non-competition agreements and Retention Plan
m) information on the existence of any insurance, welfare or pension cover other than the
compulsory ones.
n) any remuneration policy applied with regard to: (i) independent directors, (ii)
participation in committees and (iii) performance of specific duties (chairman,
vice chairman, etc.);
4.
5.
6.
3.
Paragraphs for the individual figures:
3.
Remuneration of the Board of Directors and the Board
of Statutory Auditors
Remuneration of Directors with specific responsibilities
General Manager and Executives with strategic responsibilities
Senior Managers and Executives
Remuneration of the Board of Directors and the Board
of Statutory Auditors
o) whether the remuneration policy has been established using the remuneration policies
of other companies as a blueprint and, if so, the criteria used to select these companies
11. Other information
2018 Remuneration report
1. PRINCIPLES
The Report sets out the Policy implemented by Pirelli Group during 2018 financial year with regard to
remuneration and provides information on the final remuneration of the various categories of the persons
involved, without prejudice to the obligations of transparency contained in other applicable legal or regulatory
provisions, highlighting its coherence with the remuneration policy approved last year.
2. THE “TABLE”: REMUNERATION PAID TO MEMBERS OF THE ADMINISTRATIVE AND CONTROLLING
BODIES, GENERAL MANAGERS AND EXECUTIVES WITH STRATEGIC RESPONSIBILITIES.
The following tables contain:
→ by name, the remuneration paid to Directors, Statutory Auditors and the General Manager Operations;
→ in aggregate form, the remuneration paid to Executives with strategic responsibilities50. On 31 December 2018,
in addition to the General Manager Operations Andrea Casaluci, the following persons were Executives with
strategic responsibilities, Maurizio Boiocchi (Strategic Advisor and EVP Technology and Innovation), Roberto
Righi (EVP Commercial Replacement, Moto, Velo & Customer Racing and Region Europe), Francesco Sala (EVP
Technical Operations), Maurizio Sala (EVP and Chief Planning and Controlling Officer), Davide Sala (EVP and
Chief Human Resources & Organization Officer), Francesco Tanzi (EVP and Chief Financial Officer and Manager
responsible for the preparation of the corporate financial documents), Pierluigi De Cancellis (EVP Technology).
Remuneration is reported on an accruals basis and the notes to the tables indicate the office for which the
remuneration is received (for example, where a Director is a member of more than one Board Committee)
and the company - Pirelli & C. or its subsidiaries and/or affiliated companies - that proceed with the relevant
payment (except for the remuneration waived or transferred to the Company).
50 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”.
271
Remuneration Report
The tables
include all those persons who held the
aforementioned positions during all or even only part of 2018
year51. Also the non-monetary benefits, where received, are
identified on an accruals basis, and reported according to
the “taxable income criterion” of the benefit assigned.
In particular, it is highlighted that, as mentioned above:
→ the persons who, during 2018, were Directors of the
Company, accrued/received (on an accruals basis)
remuneration determined in accordance with the
criteria set out in paragraph 3 of the 2019 Policy;
→ the persons who, during 2018, were Directors with
specific responsibilities (Executive Vice President
and Chief Executive Officer and Chairman), accrued/
received (on an accruals basis) remuneration
determined in accordance with the criteria set out in
paragraph 4 of the 2019 Policy;
→ the General Manager Operations of Pirelli & C.
S.p.A., appointed on 14 May 2018, accrued a fixed
remuneration until May 2018 as Executive with strategic
responsibilities. From 1 June 2018, the General Manager
Operations accrued the fixed gross remuneration in
his capacity as General Manager (euro 675,000 per
year)52; the whole 2018 MBO has been accrued by the
General Manager Operations in his capacity as General
Manager. In that capacity the remuneration received/
accrued is coherently determined in accordance with
paragraph 5 of the 2019 Policy;
→ Executives with strategic responsibilities received/
accrued remunerations pertaining to 2018 year in
accordance with the criteria set out in paragraph 5 of
the 2019 Policy;
→ the Standing Auditor who
is also member of
the Supervisory Body received an annual gross
remuneration of euro 40,000 as set out in paragraph 3
of the 2019 Policy; it is reminded that each member of
the Supervisory Body received/accrued remuneration
pertaining to 2018 year, equal to an annual gross amount
of euro 40,000; the Chairman received/accrued an
annual gross remuneration of euro 60,000, as set out
in paragraph 3 of the 2019 Policy;
→ each member of the Board of Statutory Auditors
received/accrued remuneration for 2018 in line
with the resolutions adopted by the Shareholders’
Meeting at the time of their appointment (plus a
gross annual fee of euro 40,000 paid to the Standing
Auditor called to be member of the Supervisory
Body);
→ Senior Managers and Executives received/accrued
remunerations for 2018 year in accordance with the
criteria set out in paragraph 6 of the 2019 Policy.
It is pointed out that, with effect from 31 December
2018, the Company and the Director Giorgio Luca Bruno
concluded a consensual termination of the executive
employment relationship between the Director and the
Company, as detailed in the tables below53.
It is highlighted that for the General Manager Operations,
the Executives with strategic responsibilities and, more
generally, for some of other members of the Group’s
Senior Management, Pirelli introduced non-competition
agreements aimed to protect strategic and operational
know-how. The Executive Vice President and CEO does
not have a non-competition agreement.
51 The tables include also the remuneration accrued by Gustavo Bracco and Luigi Staccoli as
Executives with strategic responsibilities, terminated on May 2018.
52 It is pointed out that, according to 2019 Policy, the annual gross fixed remuneration of the General
Manager Operations is equal to euro 750,000 (paragraph 5 of the Policy).
53 With the consensual termination of his employment, the starting time of the non-competition
agreement (of 2 years) has been postponed to the termination of the current mandate as Director
of Pirelli & C. and, consequently, the Company will pay the corresponding outstanding sum from that
moment. Such outstanding sum is equal to euro 392,000 that will be paid in 8 quarterly instalments.
In light of the Company’s interest in maintaining links with Mr. Bruno, due to his competence, and to
the knowledge of Pirelli Group acquired over the years, the Company concluded a 5 year consultancy
agreement with the firm controlled by Mr Bruno, which provides for an annual gross fee of euro
300,000.
272
Pirelli Annual Report 2018 EXECUTIVE VICE PRESIDENT AND CHIEF EXECUTIVE OFFICER, GENERAL MANAGER AND EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
Objective type
Entry /On off objective
(NFP)
Objective at Target
Objective at maximum
Weight
Result
Incentive%
NFP
euro 3,194.4 millions*
On/off condition
euro 3,180.1 millions
ON condition
Ebit Adjusted
euro 950.5 millions
euro 1,000.5 millions
euro 1,075.5 millions
40%
euro 955.0 millions
77.25% of the bonus at
performance at target
EBT
NFP
euro 545.4 millions**
euro 610.8 millions**
euro 708.9 millions**
20%
euro 501.8 millions
Not achieved
euro 3,194.4 millions*
euro 3,103.4 millions*
euro 2,966.7 millions*
40%
euro 3,180.1 millions
78.93% of the bonus at
performance at target
(*) It is reminded that the on/off condition is established, in line with the provisions of the remuneration policy of 2018, with a tolerance margine respect to the budget value.
Furthermore, in implementation and consistency with the MBO regulation, such NFP value has been adjusted in order to take into account the negative effect for euro 65.2 millions deriving from the purchase of the
shareholding in a new Chinese company in Shenzhou, representing an extraordinary transaction not provided on the occasion of establishment of the objective of the MBO 2018.
In any case, the transaction, as already communicated, does not modify the target provided by the business plan 2017-2020, with particular reference to the NFP (deleveraging). Therefore, its effects will be fully
compensated in the financial year 2019-2020.
In this regard, it is pointed out that the “deleveraging” on 31 December 2020 constitues an “on/off” condition for the LTI Plan 2018-2020, and that the LTI Plan involved an allocation in the financial statements 2018.
(**) In consistency with the previous note, it is pointed out that the EBT objectives have been adjusted in order to take into account the negative effect of the major restructuring costs deriving from the actions
implemented following the obtainment of the advanteges deriving from the Patent Box, as communicated to the market.
Total
100%
62.48% of the bonus at
performance at target
OFFICE
2018 MBO PLAN STRUCTURE
PERFORMANCE SCORE
Executive Vice President and CEO
- At target: 125% of fixed remuneration
62.48
- Access threshold: 75% of the incentive at target
- Cap: 200% of the incentive at target
- Access threshold: 75% of the incentive at target
General Manager Operations
- At target: 75% of the GAR
62.48
Executives with strategic responsibilities
- At target: From 50% to 75% of the GAR
62.48
- Cap: 200% of the incentive at target
- Cap: 200% of the incentive at target
- Access threshold: 75% of the incentive at target
In line with the structure of the variable incentive described in the Policy, only the 75% of the accrued 2018
MBO incentive is paid, while the payment of the remaining 25% is deferred of 12 months and is subject to the
achievement of the MBO objectives for 2019, and in particular:
a)
in the event that no MBO is accrued in 2019, the deferred and accrued quota of the 2018 MBO is
definitively lost;
b)
in the event that the 2019 MBO is accrued at “entry threshold” level, the accrued and deferred 2018
MBO quota shall be paid;
c)
lastly, if the 2019 MBO is accrued at least at target performance level - in addition to payment of the
accrued and deferred 2018 MBO quota - an additional amount shall be paid, equal to a percentage of
the entire accrued 2018 MBO. This percentage would vary from a minimum of 20% (if the 2019 MBO is
accrued at target performance level) to a maximum of 40% (if the 2019 MBO is accrued at maximum
performance level), with linear interpolation between the two extremes.
273
Remuneration Report FIRST AND LAST
NAME
OFFICE
PERIOD
OFFICE HELD
EXPIRY DATE OF OFFICE
FIXED
REMUNERATION
REMUNERATION FOR
MEMBERSHIP OF
COMMITTEES
VARIABLE NON-EQUITY
REMUNERATION
BONUS AND OTHER
INCENTIVES
PROFIT
SHARING
NON-MONETARY
OTHER
BENEFITS
REMUNERATION
TOTAL
FAIR VALUE
OF EQUITY
REMUNERATION
INDEMNITY FOR
END-OF-MANDATE
OR TERMINATION
OF EMPLOYMENT
Marco Tronchetti
Provera
Executive Vice
President and Chief
Executive Officer
Of which is paid by Pirelli & C. S.p.A.
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
Of which is paid by subsidiary and affiliated companies
2.460.000,00
100.000,00
2.230.552,00
0,00
258.300,00
0,00
5.048.852,00
0,00
3.043.936,00
2.460.000,00 (1)
100.000,00 (2)
2.230.552,00 (3)
258.300,00 (4)
Ning Gaoning
Chairman
Of which is paid by Pirelli & C. S.p.A.
07/08/2018 -
31/12/2018
At first shareholders’ meeting
185.260,00
12.082,00
185.260,00 (6)
12.082,00 (7)
Of which is paid by subsidiary and affiliated companies
Ren Jianxin
Chairman
Of which is paid by Pirelli & C. S.p.A.
01/01/2018 -
30/07/2018
Of which is paid by subsidiary and affiliated companies
/
265.918,00
17.342,00
265.918,00 (9)
17.342,00 (10)
Yang Xingqiang
Director
Of which is paid by Pirelli & C. S.p.A.
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
60.000,00
30.000,00
60.000,00 (11)
30.000,00 (12)
0,00
0,00
0,00
197.342,00
0,00
0,00
3.043.936,00 (5)
283.260,00
0,00
0,00
90.000,00
0,00
0,00
Of which is paid by subsidiary and affiliated companies
Bai Xinping
Director
Of which is paid by Pirelli & C. S.p.A.
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
Of which is paid by subsidiary and affiliated companies
60.000,00
85.000,00
0,00
0,00
0,00
0,00
145.000,00
0,00
0,00
60.000,00 (11)
85.000,00 (13)
Giorgio Luca Bruno
Director
Of which is paid by Pirelli & C. S.p.A.
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
660.000,00
30.000,00
0,00
17.683,00
660.000,00
1.367.683,00
0,00
2.992.000,00
660.000,00 (14)
30.000,00 (12)
17.683,00 (15)
660.000,00 (16)
1.367.683,00
2.992.000,00 (17)
Of which is paid by subsidiary and affiliated companies
Laura Cioli
Director
Of which is paid by Pirelli & C. S.p.A.
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
Of which is paid by subsidiary and affiliated companies
Domenico De Sole
Director
Of which is paid by Pirelli & C. S.p.A.
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
Of which is paid by subsidiary and affiliated companies
Fan Xihaoua
Director
Of which is paid by Pirelli & C. S.p.A.
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
Of which is paid by subsidiary and affiliated companies
Ze’ev Goldberg
Director
Of which is paid by Pirelli & C. S.p.A.
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
Of which is paid by subsidiary and affiliated companies
Giovanni Lo Storto
Director
Of which is paid by Pirelli & C. S.p.A.
15/05/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
Of which is paid by subsidiary and affiliated companies
Marisa Pappalardo
Director
Of which is paid by Pirelli & C. S.p.A.
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
Of which is paid by subsidiary and affiliated companies
274
60.000,00
50.000,00
0,00
0,00
0,00
0,00
110.000,00
0,00
0,00
60.000,00 (11)
50.000,00 (18)
60.000,00
90.000,00
0,00
0,00
0,00
0,00
150.000,00
0,00
0,00
60.000,00 (11)
90.000,00 (19)
60.000,00
30.000,00
0,00
0,00
0,00
0,00
90.000,00
0,00
0,00
60.000,00 (11)
30.000,00 (20)
60.000,00
30.000,00
0,00
0,00
0,00
0,00
90.000,00
0,00
0,00
60.000,00 (11)
30.000,00 (12)
37.973,00
31.644,00
0,00
0,00
0,00
0,00
69.617,00
0,00
0,00
37.973,00 (21)
31.644,00 (22)
60.000,00
40.000,00
0,00
0,00
0,00
0,00
100.000,00
0,00
0,00
60.000,00 (11)
40.000,00 (23)
5.048.852,00
0,00
197.342,00 (8)
0,00
283.260,00 (8)
90.000,00 (8)
145.000,00 (8)
0,00
110.000,00
150.000,00
90.000,00
90.000,00
69.617,00
100.000,00
Pirelli Annual Report 2018
Marco Tronchetti
Provera
Executive Vice
President and Chief
Executive Officer
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
Yang Xingqiang
Director
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
Bai Xinping
Director
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
Giorgio Luca Bruno
Director
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
Laura Cioli
Director
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
Domenico De Sole
Director
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
Fan Xihaoua
Director
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
Ze’ev Goldberg
Director
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
Giovanni Lo Storto
Director
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
Marisa Pappalardo
Director
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
FIRST AND LAST
NAME
OFFICE
PERIOD
OFFICE HELD
EXPIRY DATE OF OFFICE
FIXED
REMUNERATION
REMUNERATION FOR
MEMBERSHIP OF
COMMITTEES
VARIABLE NON-EQUITY
REMUNERATION
BONUS AND OTHER
INCENTIVES
PROFIT
SHARING
NON-MONETARY
BENEFITS
OTHER
REMUNERATION
TOTAL
FAIR VALUE
OF EQUITY
REMUNERATION
INDEMNITY FOR
END-OF-MANDATE
OR TERMINATION
OF EMPLOYMENT
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
2.460.000,00
100.000,00
2.230.552,00
0,00
258.300,00
0,00
5.048.852,00
0,00
3.043.936,00
2.460.000,00 (1)
100.000,00 (2)
2.230.552,00 (3)
258.300,00 (4)
Ning Gaoning
Chairman
At first shareholders’ meeting
185.260,00
12.082,00
Ren Jianxin
Chairman
/
265.918,00
17.342,00
07/08/2018 -
31/12/2018
01/01/2018 -
30/07/2018
185.260,00 (6)
12.082,00 (7)
265.918,00 (9)
17.342,00 (10)
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
60.000,00
30.000,00
60.000,00 (11)
30.000,00 (12)
0,00
0,00
0,00
5.048.852,00
0,00
3.043.936,00 (5)
197.342,00
0,00
0,00
197.342,00 (8)
0,00
283.260,00
0,00
0,00
283.260,00 (8)
90.000,00
0,00
0,00
90.000,00 (8)
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
60.000,00
85.000,00
0,00
0,00
0,00
0,00
145.000,00
0,00
0,00
60.000,00 (11)
85.000,00 (13)
145.000,00 (8)
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
660.000,00
30.000,00
0,00
17.683,00
660.000,00
1.367.683,00
0,00
2.992.000,00
660.000,00 (14)
30.000,00 (12)
17.683,00 (15)
660.000,00 (16)
1.367.683,00
2.992.000,00 (17)
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
60.000,00
50.000,00
0,00
0,00
0,00
0,00
110.000,00
0,00
0,00
60.000,00 (11)
50.000,00 (18)
110.000,00
0,00
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
15/05/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
60.000,00
90.000,00
0,00
0,00
0,00
0,00
150.000,00
0,00
0,00
60.000,00 (11)
90.000,00 (19)
150.000,00
60.000,00
30.000,00
0,00
0,00
0,00
0,00
90.000,00
0,00
0,00
60.000,00 (11)
30.000,00 (20)
90.000,00
60.000,00
30.000,00
0,00
0,00
0,00
0,00
90.000,00
0,00
0,00
60.000,00 (11)
30.000,00 (12)
90.000,00
37.973,00
31.644,00
0,00
0,00
0,00
0,00
69.617,00
0,00
0,00
37.973,00 (21)
31.644,00 (22)
69.617,00
60.000,00
40.000,00
0,00
0,00
0,00
0,00
100.000,00
0,00
0,00
60.000,00 (11)
40.000,00 (23)
100.000,00
275
Remuneration Report
FIRST AND LAST
NAME
OFFICE
PERIOD
OFFICE HELD
EXPIRY DATE OF OFFICE
FIXED
REMUNERATION
REMUNERATION FOR
MEMBERSHIP OF
COMMITTEES
VARIABLE NON-EQUITY
REMUNERATION
BONUS AND OTHER
INCENTIVES
PROFIT
SHARING
NON-MONETARY
OTHER
BENEFITS
REMUNERATION
TOTAL
FAIR VALUE
OF EQUITY
REMUNERATION
INDEMNITY FOR
END-OF-MANDATE
OR TERMINATION
OF EMPLOYMENT
Cristina Scocchia
Director
Of which is paid by Pirelli & C. S.p.A.
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
Of which is paid by subsidiary and affiliated companies
Tao Haisu
Director
Of which is paid by Pirelli & C. S.p.A.
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
Of which is paid by subsidiary and affiliated companies
Giovanni Tronchetti
Provera
Director
Of which is paid by Pirelli & C. S.p.A.
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
60.000,00
65.000,00
0,00
0,00
0,00
0,00
125.000,00
0,00
0,00
60.000,00 (11)
65.000,00 (24)
60.000,00
30.000,00
0,00
0,00
0,00
0,00
90.000,00
0,00
0,00
60.000,00 (11)
30.000,00 (25)
169.231,00
30.000,00
16.479,00
0,00
11.784,00
0,00
227.494,00
0,00
0,00
60.000,00 (11)
30.000,00 (27)
Of which is paid by subsidiary and affiliated companies
109.231,00 (26)
16.479,00 (3)
11.784,00 (28)
Wei Yintao
Director
Of which is paid by Pirelli & C. S.p.A.
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
Of which is paid by subsidiary and affiliated companies
Andrea Casaluci
General Manager
Operations
14/05/2018 -
31/12/2018
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
N. 9 Executives with
strategic
responsibilities
(32)
Of which is paid by Pirelli & C. S.p.A.
/
/
Of which is paid by subsidiary and affiliated companies
Francesco Fallacara
Chairman of the Board
of Statutory Auditors
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December
2020 (36)
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
Antonella Carù
Standing Auditor
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December
2020 (36)
60.000,00
30.000,00
0,00
0,00
0,00
0,00
90.000,00
0,00
0,00
60.000,00 (11)
30.000,00 (12)
578.846,00
0,00
279.133,00
0,00
12.369,00
270.625,00
1.140.973,00
0,00
0,00
578.846,00 (29)
279.133,00 (3)
12.369,00 (30)
270.625,00 (31)
1.140.973,00
3.702.853,00
0,00
1.514.037,00
0,00
81.307,00
3.301.500,00
8.599.697,00
0,00
1.868.750,00
919.007,00
2.783.846,00
75.000,00
75.000,00
0,00
0,00
0,00
0,00
0,00
75.000,00
0,00
0,00
237.370,00 (3)
1.276.667,00 (3)
18.790,00 (33)
802.750,00 (34)
1.977.917,00
1.868.750,00 (35)
62.517,00 (33) 2.498.750,00 (34)
6.621.780,00
56.795,00
40.000,00
0,00
0,00
0,00
0,00
96.795,00
0,00
0,00
Of which is paid by Pirelli & C. S.p.A.
50.000,00
40.000,00 (38)
Of which is paid by subsidiary and affiliated companies
6.795,00 (37)
Fabio Artoni
Standing Auditor
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December
2020 (36)
65.192,00
0,00
0,00
0,00
0,00
0,00
65.192,00
0,00
0,00
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
50.000,00
15.192,00 (39)
Luca Nicodemi
Standing Auditor
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December
2020 (36)
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
Alberto Villani
Standing Auditor
01/01/2018 -
31/12/2018
AGM to approve the financial
statements for the year to 31
December 2020 (36)
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
276
56.795,00
0,00
0,00
0,00
0,00
0,00
56.795,00
0,00
0,00
50.000,00
6.795,00 (37)
50.000,00
50.000,00
0,00
0,00
0,00
0,00
0,00
50.000,00
0,00
0,00
125.000,00
90.000,00
90.000,00
137.494,00
90.000,00
75.000,00
90.000,00
6.795,00
50.000,00
15.192,00
50.000,00
6.795,00
50.000,00
0,00
Pirelli Annual Report 2018
Cristina Scocchia
Director
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
Of which is paid by subsidiary and affiliated companies
Tao Haisu
Director
Of which is paid by Pirelli & C. S.p.A.
Giovanni Tronchetti
Provera
Director
Of which is paid by Pirelli & C. S.p.A.
Wei Yintao
Director
Of which is paid by Pirelli & C. S.p.A.
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December 2019
Of which is paid by subsidiary and affiliated companies
Andrea Casaluci
General Manager
Operations
14/05/2018 -
31/12/2018
Of which is paid by Pirelli & C. S.p.A.
N. 9 Executives with
strategic
responsibilities
(32)
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
Francesco Fallacara
Chairman of the Board
of Statutory Auditors
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December
2020 (36)
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
/
/
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December
2020 (36)
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December
2020 (36)
01/01/2018 -
31/12/2018
AGM for approval of the financial
statements as of 31 December
2020 (36)
01/01/2018 -
31/12/2018
AGM to approve the financial
statements for the year to 31
December 2020 (36)
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
Of which is paid by Pirelli & C. S.p.A.
Of which is paid by subsidiary and affiliated companies
919.007,00
2.783.846,00
75.000,00
75.000,00
50.000,00
15.192,00 (39)
50.000,00
6.795,00 (37)
50.000,00
50.000,00
FIRST AND LAST
NAME
OFFICE
PERIOD
OFFICE HELD
EXPIRY DATE OF OFFICE
FIXED
REMUNERATION
REMUNERATION FOR
MEMBERSHIP OF
COMMITTEES
VARIABLE NON-EQUITY
REMUNERATION
BONUS AND OTHER
INCENTIVES
PROFIT
SHARING
NON-MONETARY
BENEFITS
OTHER
REMUNERATION
TOTAL
FAIR VALUE
OF EQUITY
REMUNERATION
INDEMNITY FOR
END-OF-MANDATE
OR TERMINATION
OF EMPLOYMENT
60.000,00
65.000,00
0,00
0,00
0,00
0,00
125.000,00
0,00
0,00
60.000,00 (11)
65.000,00 (24)
125.000,00
60.000,00
30.000,00
0,00
0,00
0,00
0,00
90.000,00
0,00
0,00
60.000,00 (11)
30.000,00 (25)
90.000,00
Of which is paid by subsidiary and affiliated companies
109.231,00 (26)
16.479,00 (3)
11.784,00 (28)
60.000,00 (11)
30.000,00 (27)
90.000,00
137.494,00
169.231,00
30.000,00
16.479,00
0,00
11.784,00
0,00
227.494,00
0,00
0,00
60.000,00
30.000,00
0,00
0,00
0,00
0,00
90.000,00
0,00
0,00
60.000,00 (11)
30.000,00 (12)
90.000,00
578.846,00
0,00
279.133,00
0,00
12.369,00
270.625,00
1.140.973,00
0,00
0,00
Of which is paid by subsidiary and affiliated companies
578.846,00 (29)
279.133,00 (3)
12.369,00 (30)
270.625,00 (31)
1.140.973,00
3.702.853,00
0,00
1.514.037,00
0,00
81.307,00
3.301.500,00
8.599.697,00
0,00
1.868.750,00
0,00
0,00
0,00
0,00
0,00
75.000,00
0,00
0,00
237.370,00 (3)
1.276.667,00 (3)
18.790,00 (33)
802.750,00 (34)
1.977.917,00
1.868.750,00 (35)
62.517,00 (33) 2.498.750,00 (34)
6.621.780,00
75.000,00
Antonella Carù
Standing Auditor
56.795,00
40.000,00
0,00
0,00
0,00
0,00
96.795,00
0,00
0,00
Of which is paid by Pirelli & C. S.p.A.
50.000,00
40.000,00 (38)
Of which is paid by subsidiary and affiliated companies
6.795,00 (37)
90.000,00
6.795,00
Fabio Artoni
Standing Auditor
65.192,00
0,00
0,00
0,00
0,00
0,00
65.192,00
0,00
0,00
50.000,00
15.192,00
Luca Nicodemi
Standing Auditor
56.795,00
0,00
0,00
0,00
0,00
0,00
56.795,00
0,00
0,00
50.000,00
6.795,00
Alberto Villani
Standing Auditor
0,00
0,00
0,00
0,00
0,00
50.000,00
0,00
0,00
50.000,00
0,00
277
Remuneration Report
FIRST AND LAST
NAME
OFFICE
PERIOD
OFFICE HELD
EXPIRY DATE OF OFFICE
FIXED
REMUNERATION
REMUNERATION FOR
MEMBERSHIP OF
COMMITTEES
* * * * *
VARIABLE NON-EQUITY
REMUNERATION
BONUS AND OTHER
INCENTIVES
PROFIT
SHARING
NON-MONETARY
OTHER
BENEFITS
REMUNERATION
TOTAL
FAIR VALUE
OF EQUITY
REMUNERATION
INDEMNITY FOR
END-OF-MANDATE
OR TERMINATION
OF EMPLOYMENT
Total remuneration in Pirelli & C. S.p.A.
5.463.158,00
741.068,00
294.773,00
1.462.750,00
10.429.671,00
4.860.750,00
Total remuneration paid by subsidiaries and affiliated companies
Total
3.500.705,00
8.963.863,00
741.068,00
86.670,00
2.769.375,00
7.791.535,00
381.443,00
4.232.125,00
18.221.206,00
4.860.750,00
2.467.922,00
1.572.279,00
4.040.201,00
The amount includes the quota of 75% of MBO 2018 incentive and 25% of the MBO 2017 incentive paid. The deferred quota of 25% of the 2018 MBO incentive put at opportunity/risk linked to the results of MBO
Following the listing of Pirelli & C. S.p.A., the Executive Vice President and Chief Executive Officer terminated the office of Chairman and Managing Director of Pirelli Tyre S.p.A. on 12 July 2018, on the occasion of
(1) Of which: euro 60,000 as Director of Pirelli & C. S.p.A.; euro 2,400,000 as Executive Vice President and Chief Executive Officer of Pirelli & C. S.p.A.
(2) Of which euro 50,000 as Chairman of the Appointments and Successions Committee of Pirelli & C. S.p.A. and euro 50,000 as Chairman of the Strategies Committee of Pirelli & C. S.p.A.
(3)
2019 is not indicated (see table below for more details).
(4) Of which: euro 252,637 for an insurance policy stipulated in line with the provisions of the Policy, euro 5,663 for the company car.
(5)
the organizational structural review of the Company (with the establishment of the General Operations Department) and the review of the structure of the compensation package of the same. Therefore, Pirelli Tyre paid the
amount accrued at that date, pursuant to Art. 17, paragraph 1, letter c) of T.U.I.R. no. 917/1986, having similar characteristics to the Employee Severance Indemnity (TFR), provided by Art. 2120 of the Italian civil code.
(6) Of which euro 161,096 as Chairman of Pirelli & C. S.p.A., euro 24,164 as Director of Pirelli & C. S.p.A. with effect from 7 August 2018
(7) As a member of the Appointments and Successions Committee of Pirelli & C. S.p.A. from 7 August 2018
(8) Remuneration transferred to employer company
(9) Of which: euro 231,233 as Chairman of the Board of Directors of Pirelli & C. S.p.A. from 1 January 2018 to 30 July 2018 and euro 34,685 as Director of Pirelli & C. S.p.A. from 1 January 2018 to 30 July 2018.
(10) As member of the Appointments and Successions Committee of Pirelli & C. S.p.A. from 1 January 2018 to 30 July 2018
(11) As Director of Pirelli & C. S.p.A.
(12) As member of the Strategies Committee of Pirelli & C. S.p.A.
(13) Of which: euro 25,000 as member of the Remuneration Committee, euro 30,000 as member of the Appointments and Successions Committee, and euro 30,000 as member of the Strategies Committee of Pirelli & C.
S.p.A.
(14) Of which: euro 60,000 as Director of Pirelli & C. S.p.A. and euro 600,000 as a senior manager of Pirelli & C. S.p.A. (until 31 December 2018).
(15) Of which: euro 4,922 for an insurance policy, euro 3,581 for a company car, euro 6,000 for supplementary pension contributions and euro 3,180 for health insurance.
(16) Of which: euro 70,000 as Director responsible for Sustainability issues and euro 30,000 as payment of the quota of the fee provided by the non-competition agreement and euro 560,000 for retention and reward. It is
pointed out that Mr Bruno and Pirelli concluded a consultancy agreement with effect from 1 January 2019 providing for an annual fee of euro 300,000 and a duration of 5 years. The related fees will be reported in the 2019
Report
(17) As remuneration for the termination of employment relationship (Senior Manager) with Pirelli & C. S.p.A.
(18) Of which euro 25,000 as member of the Audit, Risks, Sustainability and Corporate Governance Committee (“ARSCGC”) and euro 25,000 as member of the Remuneration Committee of Pirelli & C. S.p.A.
(19) Of which euro 30,000 as member of the Strategies Committee and euro 60,000 as Chairman of the Related Parties Transactions Committee (“RPT Committee”) of Pirelli & C. S.p.A.
278
Pirelli Annual Report 2018
FIRST AND LAST
NAME
OFFICE
PERIOD
OFFICE HELD
EXPIRY DATE OF OFFICE
FIXED
REMUNERATION
REMUNERATION FOR
MEMBERSHIP OF
COMMITTEES
* * * * *
Total
Total remuneration in Pirelli & C. S.p.A.
5.463.158,00
741.068,00
Total remuneration paid by subsidiaries and affiliated companies
3.500.705,00
8.963.863,00
741.068,00
VARIABLE NON-EQUITY
REMUNERATION
BONUS AND OTHER
INCENTIVES
PROFIT
SHARING
NON-MONETARY
BENEFITS
OTHER
REMUNERATION
TOTAL
FAIR VALUE
OF EQUITY
REMUNERATION
INDEMNITY FOR
END-OF-MANDATE
OR TERMINATION
OF EMPLOYMENT
2.467.922,00
1.572.279,00
4.040.201,00
294.773,00
1.462.750,00
10.429.671,00
4.860.750,00
86.670,00
2.769.375,00
7.791.535,00
381.443,00
4.232.125,00
18.221.206,00
4.860.750,00
(20) As Chairman of the ARSCGC of Pirelli & C. S.p.A.
(21) As Director of Pirelli & C. S.p.A. with effect from 15 May 2018
(22) Of which: euro 15,822 as member of the ARSCGC and euro 15,822 as member of the Remuneration Committee of Pirelli & C. S.p.A. from 15 May 2018
(23) As member of the RPT Committee of Pirelli & C. S.p.A.
(24) Of which: euro 25,000 as member of the ARSCGC and euro 40,000 as member of the RPT Committee of Pirelli & C. S.p.A.
(25) As Chairman of the Remuneration Committee of Pirelli & C. S.p.A.
(26) As executive of Pirelli Tyre S.p.A. for the whole year 2018
(27) As member of the Appointments and Successions Committee of Pirelli & C. S.p.A.
(28) Of which: euro 2,604 for a company car, euro 6,000 for supplementary pension contributions and euro 3,180 for health insurance.
(29) The fixed remuneration includes the quota accrued as Executive with strategic responsibilities until 14 May 2018 and the quota accrued as General Manager Operations.
(30) Of which: euro 3,189 for a company car, euro 6,000 for supplementary pension contributions and euro 3,180 for health insurance.
(31) Of which: euro 220,000 for the Retention Plan and euro 50,625 as payment of the fee provided by non-competition agreement
(32) At 31 December 2018 the following persons were Executives with strategic responsibilities, other than the General Manager Operations: Maurizio Boiocchi, Roberto Righi, Francesco Sala, Maurizio Sala, Davide Sala
(appointed on 14 May 2018), Pier Luigi De Cancellis (appointed on 14 May 2018) and Francesco Tanzi. Gustavo Bracco and Luigi Staccoli were Executives with strategic responsibilities until 14 May 2018 and, therefore, the
remuneration they received is shown. It is pointed out that the remuneration paid to General Manager Andrea Casaluci is not included in this item, as he is separately indicated by name in the table.
(33) The amounts are referred to the company car, supplementary pension contributions and health insurance.
(34) The amounts are referred to payments of the quota of the fee provided by non-competition agreement, a lump-sum bonus, and a retention bonus paid in 2018.
(35) Consequent to the consensual termination of the employment relationship of an Executive with strategic responsibilities of Pirelli & C. S.p.A.
(36) The Board of Statutory Auditors was renewed by the AGM on 15 May 2018; the Chairman and the Standing auditors appointed are the same as in the previous mandate.
(37) As Standing auditor of Pirelli Tyre S.p.A.
(38) As member of the 231 Supervisory Body
(39) As Standing auditor of Pirelli Industrie Pneumatici S.r.l. and Chairman of the Board of Statutory Auditors of Pirelli Tyre S.p.A.
279
Remuneration Report
3. MONETARY INCENTIVE PLANS FOR MEMBERS OF THE BOARD OF DIRECTORS,
GENERAL MANAGERS AND EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
For a description of the monetary incentive plans, see the Remuneration Policy.
Pirelli’s variable incentive scheme prescribes that payment of 25% of any MBO accrued is deferred for 12 months and is subject
to the achievement of the MBO objectives for the following year. In particular:
→ in the event that no MBO accrues in the following year, the deferred MBO quota of the previous year is definitively “lost”;
→ in the event that the MBO accrues in the following year at the level of the access threshold, the MBO quota deferred from the
previous year is returned;
→ in the event that the MBO achieved in the following year is between the target level and the maximum level, then - in addition
to the return of the MBO quota deferred from the previous year - an additional amount is paid, equal to between 20% and
40% of the entire MBO accrued in the previous year (for results earned in the following year that are intermediate between
the target and maximum levels, the increase in the previous year’s MBO bonus is calculated by linear interpolation).
OFFICE
PLAN
PAYABLE/
PAID OUT
DEFERRED
DEFERMENT
PERIOD
NO LONGER
PAYABLE
BONUS FOR THE YEAR
BONUS FOR THE PREVIOUS YEARS
FIRST
AND LAST
NAME
Marco
Tronchetti
Provera
Executive
Vice President
and Chief
Executive
Officer
Giorgio Luca
Bruno
Director
MBO 2018
1.405.709,00
468.570,00
LTI Plan
2018-2020
MBO 2018
LTI Plan
2018-2020
-
-
-
-
-
-
Giovanni
Tronchetti
Provera
Andrea
Casaluci
MBO 2018
11.281,00
3.760,00
Director (1)
LTI Plan
2018-2020
-
-
General
Manager
Operations (2)
Executives with strategic
responsibilities (3)
MBO 2018
237.214,00
79.071,00
LTI Plan
2018-2020
-
-
MBO 2018
939.482,00
313.160,00
LTI Plan
2018-2020
-
-
(I) Remuneration in the
Company preparing the
financial statements
MBO 2018
1.541.595,00
513.865,00
LTI Plan
2018-2020
-
-
(II) Remuneration from
Subsidiary and Affiliated
Companies
MBO 2018
1.052.092,00
350.697,00
LTI Plan
2018-2020
-
-
(III) Total
2.593.687,00
864.562,00
PAYABLE
/PAID OUT
824.843,00
-
-
-
5.198,00
-
41.919,00
-
574.555,00
-
926.328,00
-
520.187,00
-
STILL
DEFERRED
OTHER
BONUSES
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0,00
0,00
560.000,00
0,00
0,00
0,00
220.000,00
0,00
3.036.000,00
0,00
1.300.000,00
0,00
2.516.000,00
0,00
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1.446.515,00
-
3.816.000,00
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) Giovanni Tronchetti Provera is included in the LTI and MBO variable incentive plans as an executive of Pirelli Tyre S.p.A.
(2) General Manager appointed on 14 May 2018.
(3) At 31 December 2018, the following persons were Executives with strategic responsibilities, other than the General Manager Operations: Maurizio Sala, Francesco Tanzi, Maurizio Boiocchi, Roberto Righi, Francesco
Sala, Davide Sala and Pier Luigi De Cancellis. It should be noted that Gustavo Bracco and Luigi Staccoli were Executives with strategic responsibilities from 01 January 2018 until 14 May 2018: they do not accrued any
variable remuneration
280
Pirelli Annual Report 2018
4. TABLE OF EQUITY INVESTMENTS OF THE MEMBERS OF THE ADMINISTRATIVE AND CONTROL
BODIES, GENERAL MANAGERS AND EXECUTIVES WITH STRATEGIC RESPONSIBILITIES.
The table below provides disclosures on any equity investments held in Pirelli & C. and in its subsidiaries, by those who, even for
a fraction of the year, have held the position of:
→ member of the Board of Directors;
→ member of the Board of Statutory Auditors;
→ General Manager;
→ Executive with strategic responsibilities.
In particular, it indicates, for each member of the Board of Directors and Board of Statutory Auditors and General Managers, by
name, and cumulatively for the other Executives with strategic responsibilities, with regard to each company in which shares are
held, the number of shares, by category:
→ held at the end of the prior year;
→ purchased during the reporting year;
→ 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.
It includes all the persons who, during the reporting year, held positions as members of the administrative and control bodies,
General Manager or as Executives with strategic responsibilities, even for a fraction of the year.
1) EQUITY INVESTMENTS OF THE MEMBERS OF THE ADMINISTRATIVE
AND CONTROL BODIES AND GENERAL MANAGERS
FIRST AND LAST NAME
OFFICE
INVESTEE
COMPANY
NO. OF
SHARES
OWNED AT
31.12.2017
NO. OF SHARES
PURCHASED/
SUBSCRIBED
NO. OF
SHARES
SOLD
NO. OF
SHARES
OWNED AT
31.12.2018
Giorgio Luca Bruno
Director
Pirelli & C.
500 (1)
-
-
500 (1)
Marco Tronchetti Provera (2)
Executive Vice President
and CEO
Pirelli & C.
-
114.141.546 (3)
13.618.984 (4)
100.522.562
(1)
(2)
(3)
(4)
shares purchased when the Company was listed on 4 October 2017.
shares held by the indirectly controlled company Camfin S.p.A., which has directly carried out all the operations indicated.
of which no. 113,491,546 shares assigned to Camfin S.p.A. following the effectiveness of the full demerger of Marco Polo International Italy S.p.A.
assigned to MM Tyre S.r.l. following the effectiveness of the partial and non-proportional demerger of Camfin S.p.A. in favour of Manzoni S.r.l.
2) EQUITY INVESTMENTS OF OTHER EXECUTIVES WITH STRATEGIC RESPONSIBILITIES
NUMBER OF EXECUTIVES
WITH STRATEGIC
RESPONSIBILITIES
INVESTEE COMPANY
NO. OF SHARES
OWNED AT
31.12.2017
NO. OF SHARES
PURCHASED/
SUBSCRIBED
NO. OF SHARES
SOLD
NO. OF SHARES
OWNED AT
31.12.2018
-
-
-
-
-
-
281
Remuneration Report Pirelli Annual Report 2018
CONSOLIDATED
FINANCIAL
STATEMENTS
283
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(In thousands of euro)
Note
12/31/2018
of which related
parties (note 45)
12/31/2017
of which related
parties (note 45)
Property, plant and equipment
Intangible assets
Investments in associates and J.V.
Other financial assets
Other financial assets at fair value through other comprehensive income
Other financial assets at fair value through income statement
Deferred tax assets
Other receivables
Tax receivables
Derivative financial instruments
Non-current assets
Inventories
Trade receivables
Other receivables
Securities held for trading
Other financial assets at fair value through income statement
Cash and cash equivalents
Tax receivables
Derivative financial instruments
Current assets
Assets held for sale
Total Assets
10
11
12
13
13
13
14
16
17
28
18
15
16
19
20
17
28
40
3,092,927
5,783,338
72,705
-
68,781
-
74,118
225,707
16,169
20,134
9,353,879
1,128,466
627,968
416,651
-
27,196
1,326,900
41,393
98,567
3,667,141
10,677
13,031,697
Equity attributable to owners of the Group:
21,1
4,468,121
1,904,375
2,132,140
431,606
82,806
72,040
10,766
4,550,927
3,929,079
83,287
138,327
1,081,605
224,312
2,091
16,039
5,474,740
800,145
Share capital
Reserves
Net income (loss)
Equity attributable to non-controlling interests:
21,2
Reserves
Net income (loss)
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
Employee benefit obligations
Tax payables
Derivative financial instruments
Current liabilities
Total Liabilities and Equity
21
24
26
22
14
23
27
28
24
25
26
22
23
27
28
284
2,980,294
5,893,704
17,480
229,519
-
-
111,553
12,576
204,051
12,007
27,318
878
9,464,797
940,668
15,667
652,487
55,418
400,538
62,731
36,482
60
-
33,027
-
1,118,437
35,461
27,770
3,208,388
60,729
12,733,914
4,116,758
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
1,604,677
191,605
1,673,642
436,752
7,436
565,254
33,876
5,475
65,503
59,602
3,006,030
13,031,697
-
45,833
-
48,416
17,910
2,910,223
12,733,914
197,954
16,437
9,895
Pirelli Annual Report 2018 CONSOLIDATED INCOME STATEMENT
(In thousands of euro)
Note
2018
of which related
parties (note 45)
2017
of which related
parties (note 45)
30
31
5,194,471
8,962
5,352,283
10,833
483,205
108,536
628,533
230,618
Revenues from sales and services
Other income
- of which non-recurring events
Changes in inventories of unfinished, semi-finished and finished products
201,416
-
-
140,258
Raw materials and consumables used (net of change in inventories)
(1,818,199)
(12,704)
(1,859,837)
(46,536)
Personnel expenses
- of which non-recurring events
Amortisation, depreciation and impairment
Other costs
32
(1,067,579)
(14,133)
(1,034,647)
(11,004)
(15,410)
(414,523)
(2,578)
(371,457)
(1,858,162)
(290,380)
(2,184,660)
(374,951)
33
34
- of which non-recurring events
(7,798)
(70,076)
Net impairment loss on financial assets
35
(21,273)
(9,000)
Increase in fixed assets for internal work
Operating income (loss)
3,700
703,056
Net income (loss) from equity investments
36
(4,980)
-
3,110
673,583
(6,855)
- share of net income (loss) of associates and j.v.
(11,560)
(11,560)
(8,252)
(8,252)
- gains on equity investments
- losses on equity investments
- dividends
Financial income
Financial expenses
- of which non-recurring events
Net income (loss) before tax
4,007
(1,603)
4,176
5,997
(14,434)
9,834
37
38
139,730
3,120
128,540
35,320
(336,041)
(25)
(491,150)
(41,070)
(2,149)
501,765
(61,244)
304,118
(40,848)
103,881
263,270
Tax
39
(52,964)
- of which non-recurring events
Net income (loss) from continuing operations
60,607
448,801
Net income (loss) from discontinued operations
40
(6,429)
(10,642)
(87,563)
(9,547)
Total net income (loss)
442,372
175,707
Attributable to:
Owners of the parent company
Non-controlling interests
Total earnings/(loss) per share (in euro per share)
41
Earnings/(loss) per share related to continuing operations (in euro per share)
Earnings/(loss) per share related to discontinued operations (in euro per share)
431,606
10,766
0.432
0.438
(0.006)
176,392
(685)
0.206
0.309
(0.103)
285
Consolidated Financial Statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands of euro)
A
Total Net income (loss)
Other components of comprehensive income:
B - Items that may not be reclassified to income statement:
- Net actuarial gains (losses) on employee benefits
- Tax effect
- Fair value adjustment of other financial assets at fair value through other comprehensive income
Total B
C - Items reclassified / that may be reclassified to income statement:
Exchange differences from translation of foreign financial statements
2018
2017
442,372
175,707
28,727
(14,656)
(6,986)
(9,291)
(8,642)
-
13,099
(23,947)
- Gains / (losses) for the period
(78,150)
(166,763)
- (Gains) / losses reclassified to income statement
Fair value adjustment of other financial assets available for sale:
- Gains / (losses) for the period
- (Gains) / losses reclassified to income statement
Fair value adjustment of derivatives designated as cash flow hedges:
- Gains / (losses) for the period
- (Gains) / losses reclassified to income statement
- Tax effect
Cost of hedging:
- Gains / (losses) for the period
- (Gains) / losses reclassified to income statement
- Tax effect
Share of other comprehensive income related to associates and JVs net of tax
Total C
D
Total other comprehensive income (B+C)
A+D
Total comprehensive income (loss)
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
286
-
-
-
80,208
40,486
1,439
107,496
(59,757)
(118,747)
45,265
548
2,983
20,056
(6,798)
(1,446)
-
-
-
(3,221)
(2,915)
(80,262)
(59,054)
(67,163)
(83,001)
375,209
92,706
363,500
93,793
11,709
(1,087)
369,929
101,148
(6,429)
(7,355)
363,500
93,793
Pirelli Annual Report 2018 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AT 12/31/2018
(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 12/31/2017
1,904,375
(220,624)
(70,265)
2,503,272
4,116,758
60,251
4,177,009
Adoption of new accounting standard IFRS 9
- Reclassification from available for sale
financial assets to other financial assets at
FV through income statement
- Change due to impairment of financial
assets at amortised cost
-
-
-
-
(10,554)
10,554
-
-
(1,023)
(1,023)
-
-
-
(1,023 )
Total at 01/01/2018
1,904,375
(220,624)
(80,819)
2,512,803
4,115,735
60,251
4,175,986
Other components of comprehensive
income
Net income (loss)
Total conprehensive income (loss)
Dividend paid
Transactions with non-controlling interests
High inflation Argentina
Other
-
-
-
-
-
-
-
(82,314)
14,208
-
(68,106)
943
(67,163)
-
-
431,606
431,606
10,766
442,372
(82,314)
14,208
431,606
363,500
11,709
375,209
-
(619)
-
-
-
-
-
-
-
(8,366)
(8,366)
(35,726)
(36,345)
19,033
(17,312)
26,242
26,242
-
26,242
(103)
(908)
(1,011)
179
(832)
Total at 12/31/2018
1,904,375
(303,557)
(66,714)
2,934,017
4,468,121
82,806
4,550,927
BREAKDOWN OF IAS RESERVES *
Reserve for fair value
adjustment
of available-for-sale
financial assets
Reserve for fair value
adjustment of financial
assets at fair value
through other
comprehensive income
Reserve
for
cost of
hedging
Reserve
for cash
flow
hedge
Reserve
for
actuarial
gains/
losses
Tax effect
Total IAS
reserves
(In thousands of euro)
Total at 12/31/2017
Adoption of new accounting standard IFRS 9
Total at 01/01/2018
Other components of comprehensive
income
Other changes
Balance at 12/31/2018
19,410
(19,410)
-
-
-
-
-
-
(13,454)
(59,110)
(17,111)
(70,265)
8,856
1,000
(1,000)
-
-
(10,554)
8,856
1,000
(14,454)
(59,110)
(17,111)
(80,819)
(8,642)
13,258
(11,251)
28,727
(7,884)
14,208
(107)
-
-
2
2
(103)
107
14,258
(25,705)
(30,381)
(24,993)
(66,714)
287
Consolidated Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AT 12/31/2017
(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 12/31/2016
1,342,281
(204,778)
(61,629)
2,058,211
3,134,085
140,773
3,274,858
Other components of comprehensive
income
Net income (loss)
Total conprehensive income (loss)
Share capital increase
Annulment of treasury shares
Dividends paid
Disposal of 38% Pirelli Industrial to Cinda fund
Assignment of Pirelli Industrial to Marco Polo
Acquisition of non-controlling interests (Brazil)
Other
-
-
-
558,994
3,100
-
-
-
-
-
(86,153)
3,554
-
(82,599)
(402)
(83,001)
-
-
176,392
176,392
(685)
175,707
(86,153)
3,554
176,392
93,793
(1,087)
92,706
-
-
-
-
-
-
630,381
1,189,375
(3,100)
-
-
-
-
-
1,189,375
-
(7,446)
(7,446)
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
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
-
(318)
(14,492)
(14,656)
(6,308)
3,553
-
-
(602)
(11,441)
(12,043)
171
-
(147)
Balance at 12/31/2017
19,410
(13,454)
(59,110)
(17,111)
(70,265)
288
Pirelli Annual Report 2018
(in thousands of euro)
of which
related parties
(note 45)
2017
304,118
371,457
491,150
(128,540)
(9,834)
8,437
8,252
(135,500)
(109,768)
8,556
(18,969)
(15,639)
-
8,556
17,183
(2,465)
-
-
-
9,834
(398,376)
1,189,375
-
(2,060,304)
218,037
190,000
(280,832)
(12,742)
(946,466)
CONSOLIDATED STATEMENT OF CASH FLOWS
Note
2018
of which
related parties
(note 45)
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
Taxes paid
Change in Inventories
Change in Trade receivables
Change in Trade payables
33
38
37
36
36
36
18
15
25
501,765
414,523
336,041
(139,730)
(4,176)
(2,404)
11,560
(119,042)
(199,919)
(23,388)
47,064
73,644
90,561
104,663
(6,350)
447,385
86,227
Change in Other receivables/Other payables
(151,425)
(29,341)
(39,423)
70,469
Change in Provisions for employee benefit obligations and Other provisions
Other changes
A
Net cash flows provided by / (used in) operating activities
(57,227)
(12,915)
658,326
Investments in property, plant and equipment
10
(458,092)
(102,010)
(41,734)
1,137,634
(470,381)
Disposal of property, plant and equipment/intangible assets
16,223
73,505
61,000
Investments in intangible assets
Acquisition of investments in subsidiaries
Acquisition of minorities
11
(11,640)
-
(49,722)
(31,230)
Repayment of share capital and reserves from associates
-
Disposals (Acquisition) of investments in associates and JV
(65,222)
(65,222)
Disposals (Acquisition) of financial assets
Caçula purchase from Brasilian controlled distribution
-
(1,393)
Dividends/reserves received from associates
2,674
2,674
152,808
4,176
(410,188)
-
4,500
168,952
(31,761)
(168,406)
(8,366)
(35,081)
Disposals (Acquisition) of other non current financial assets at fair value
through income statement - Other financial assets
Dividends received
B
Net cash flows provided by / (used in) investing activities
Increase in equity
Other changes
Change in Financial payables
Change in Financial receivables/Other current financial assets at fair value
through income statement - Assets held for trading
Financial income / (expenses)
Dividends paid
Net cash flows provided by / (used in) financing activities
C
D
E
F
G
H
Total cash flows provided / (used) during the period (A+B+C+D)
Cash and cash equivalents at the beginning of the year
Exchange differences from translation of cash and cash equivalents
Cash and cash equivalents at the end of the period (E+F+G) (°)
(°)
of which:
cash and cash equivalents
bank overdrafts
289
250,158
1,109,640
(55,946)
1,303,852
20
1,326,900
(23,048)
(342,805)
1,523,928
(71,483)
1,109,640
1,118,437
(8,797)
Net cash flows provided by (used in) discontinued operations
37,101
43,530
(135,597)
Consolidated Financial Statements Explanatory Notes
On February 26, 2019 the Board of Directors authorised
the publication of these consolidated Financial Statements.
1. GENERAL INFORMATION
Pirelli & C. S.p.A. is a corporation organised under the laws
of the Republic of Italy.
Founded in 1872, Pirelli & C. S.p.A. is - also by way of its
subsidiaries in Italy and abroad - a Pure Consumer Tyre
Company (which includes tyres for cars, motorcycles and
bicycles) whose particular focus is on the High Value tyre
market, that is, products created to reach the highest levels
of performance, safety, quietness and adherence to the
road surface
The registered Head Office of the Company is located in
Milan, Italy at address Viale Piero e Alberto Pirelli n. 25,
20126 Milan.
As of October 4, 2017 Pirelli & C. S.p.A. has been listed on
the Mercato Telematico Azionario (MTA or screen-based
stock exchange) which is 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.
The audit of the Financial Statements has been entrusted
to PricewaterhouseCoopers S.p.A. pursuant to Legislative
Decree No. 39 of January 27, 2010 and by way of the
execution of the resolution of the Shareholders’ Meeting
on August 1, 2017, which conferred the mandate to the
aforesaid company for each of the nine financial years with
closings at December 31, 2017 to December 31, 2025.
Pirelli & C. S.p.A. is directly controlled by Marco Polo
International Italy S.r.l. a company which was established
as a result of the total non-proportional demerger of Marco
Polo International Italy S.p.A. which took place during
August 2018. Marco Polo International Italy S.r.l. - is in turn
therefore indirectly controlled by China National Chemical
Corporation (“ChemChina”), a state-owned enterprise
(SOE) governed by Chinese law with registered office in
Beijing, and which reports to the Central Government of
the People’s Republic of China.
2. BASIS OF PRESENTATION
FINANCIAL STATEMENTS
The consolidated Financial Statements at December 31,
2018 consist of the Statement of Financial Position, the
Income Statement, the Statement of Comprehensive
Income, the Statement of Changes in Equity, the Statement
of Cash Flows and the Explanatory Notes, which are
accompanied by the Directors’ Report on Operations.
The format adopted for the Statement of Financial
Position provides for the distinction of assets and liabilities
according to whether they are current or non-current.
The Group has opted to present the components of
gains/losses for the financial year in a separate Income
Statement, rather than
include these components
directly in the Statement of Comprehensive Income. The
Income Statement framework adopted provides for the
classification of costs by nature.
The Statement of Comprehensive Income includes the
results for the financial year and, for the homogeneous
categories, income and costs are recognised directly in
equity, in accordance with the IFRS.
The Group has opted for the presentations of tax effects,
as well as the reclassifications to the Income Statement of
gains/losses which were recognised in equity in previous
financial years, directly in the Statement of Comprehensive
Income and not in the Explanatory Notes.
The Statement of Changes in Equity sets forth, in addition
to the total gains/losses of the period, the amounts from
transactions with equity holders and the changes which
occurred during the financial year in the reserves.
In the Statement of Cash Flows, the financial flows derived
from operating activities are presented using the indirect
method, by way of which the gains or losses for the period
have been adjusted by the effects of non-monetary
transactions, by any deferment or accrual of past or future
collections or payments for operating activities, and by any
revenue or cost items connected with the financial flows
arising from any investment or financing activities.
As of the aforesaid starting date of trading on the Stock
Exchange (October 4, 2017), there are no parties that exercise
management and coordination activities on the Company.
DISCONTINUED OPERATIONS
As a result of the assignment which took place in March
2017 by Pirelli & C. S.p.A. to Marco Polo International Holding
290
Pirelli Annual Report 2018 Italy S.p.A., of the TP Industrial Holding S.p.A. shares, the
company into which almost all of Pirelli’s Industrial assets
were merged, in continuity with the 2017 financial year
some residual activities in China and Argentina relative
to the Industrial business, qualified as “discontinued
operations”.
Pursuant to the provisions of IFRS 5, the results for the
financial year for the “discontinued operations” were
reclassified to the Income Statement as a single item,
“net income (loss) related to discontinued operations”. The
separation process for Argentina was completed during
the month of June 2018, while for China separation was
completed at the end of 2018.
SCOPE OF CONSOLIDATION
The scope of consolidation includes the subsidiaries,
associates and agreements for joint control (joint
arrangements).
Subsidiaries are defined as all the companies over which
the Group, at the same time, holds:
→ the power of decision making, or the ability to direct
the relevant activities of the subsidiary, that is activities
that have a significant influence on the results of the
subsidiary;
→ the right to the variable results (positive or negative)
resulting from the investment in the entity;
→ the capacity to use its own power of decision making to
determine the amounts of the results arising from the
investment in the entity.
The Financial Statements of subsidiaries are included
in the consolidated Financial Statements as of the date
when control is assumed until such time as when control
ceases to exist. The equity and the net income (loss) and
attributable to non-controlling interests were separately
reported respectively in the consolidated Statement of
Financial Position and consolidated Income Statement,
and the consolidated statement of Comprehensive Income.
All companies for which the Group can exercise significant
influence as defined by the IAS 28 – Investments in
Associates and Joint Operations, are considered associates.
This influence is legally presumed to exist when the Group
holds a percentage of voting rights of between 20% and
50%, or when - even in the case of a lower share of voting
rights – it has the power to participate in determining
financial and operating policies by virtue of specific
legal relationships, such as, for example, participation in
shareholders’ agreements together with other forms of
significant exercise of governance rights.
Joint arrangements are agreements whereby two or more
parties have joint control under a contract. Joint control is
the shared control of a business, established by agreement
and only exists when decisions relative to that business
require the unanimous consent of all parties who share
control. These agreements may give rise to joint ventures
or joint operations.
A joint venture is an agreement for the joint control of an
entity whereby the parties that have joint control, have
rights to the net assets of said entity. Joint ventures
are distinguished from joint operations in that they are
configured as agreements that give the parties of the
agreement, which have joint control of the initiative, the
rights to individual assets and the obligations for individual
liabilities which are subject to the agreement. In the case of
joint operations, it is mandatory that the assets, liabilities,
costs and revenues subject to the agreement be recognised
in accordance with the applicable accounting standards.
The Group does not currently have any agreements in place
for joint operations.
The main changes in the scope of consolidation are
summarised as follows:
→ Disposal on June 27, 2018 of a 100% stake in the
company TP Trading (Beijing) Co., Ltd;
→ Disposal on August 27, 2018 of a 97.88% stake in the
company Ecosil - Industria Quimica do Brasil Ltda.;
→ Constitution on October 26, 2018 of the company Pirelli
International Treasury S.p.A.;
→ Acquisition on October 31, 2018 of a 100% stake in
the company JMC Pneus Comercio Importação e
Exportação Ltda.;
→ Acquisition on October 9, 2018 of a 49% investment
stake in a Joint Venture which, through the company
Jining Shenzhou Tyre Co., owns a new Consumer tyre
manufacturing plant in China.
291
Consolidated Financial Statements INFORMATION ON SUBSIDIARIES
The consolidated Financial Statements include the assets and liabilities of approximately 96 legal entities. The
following is a list of the significant subsidiaries:
Pirelli Tyre Co. Ltd
Yanzhou (China)
90.00%
10.00%
90.00%
10.00%
Headquarter
12/31/2018
12/31/2017
% group
% non-
controlling
interest
% group
% non-
controlling
interest
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%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Limited Liability Company Pirelli Tyre Russia
Moscow (Russia)
65.00%
35.00%
99.98%
0.02%
The complete list of subsidiaries is contained in the annex “Scope of consolidation - list of companies included
in consolidation using the line by line method”.
Non-controlling interests in the subsidiaries of the Group are not relevant either individually or in aggregate form.
CONSOLIDATION PRINCIPLES
For consolidation purposes, the Financial Statements of the companies included in the scope of consolidation
prepared at the reporting date of the Financial Statements of the Parent Company were adjusted to conform
to the IAS/IFRS standards as applied by the Group.
The Financial Statements expressed in foreign currencies have been translated into Euro at the period-end
exchange rates for the items in the Statement of Financial Position, and at the average exchange rates for the
Income Statement, with the exception of the Financial Statements of companies operating in high-inflation
countries whose Income Statements have been translated at the period-end exchange rates.
The differences arising from the conversion of the initial equity at period-end exchange rates have been
recognised in the reserve for translation differences, together with the difference arising from the translation
of the result for the period at period-end exchange rates instead of the average exchange rate. The reserve for
translation differences was reversed to the Income Statement at the time of the disposal of the company which
generated the reserve.
The criteria for consolidation may be summarised as follows:
→ subsidiaries are consolidated using the line-by-line method on the basis of which:
→ the assets and liabilities, revenues and expenses of the Financial Statements of subsidiaries are assumed
in their entirety, regardless of the percentage of investment held;
292
Pirelli Annual Report 2018 → the carrying amount of investments is eliminated
against the related share of equity;
→ the financial and operating transactions between
companies consolidated on a line-by-line basis,
including dividends distributed within the Group,
are eliminated;
→ non-controlling interests are appropriately reported
under equity, and similarly, the share of gain or loss
attributable to non-controlling interests is shown
separately in the Income Statement;
→ at the time of disposal of the subsidiary and the
consequent loss of control, in determining the gain
or loss arising from the disposal, any goodwill that
can be allocated to the subsidiary is taken into
account;
→ in the case of a shareholding acquired after the
assumption of control, any difference between
the purchase cost and the corresponding share of
equity acquired is recognised in equity; similarly, the
effects deriving from the disposal of non-controlling
interests without loss of control are also recognised
in equity.
→ investments in associates and joint ventures are
accounted for under the equity method, on the basis
of which the carrying amount of the investments is
adjusted by:
→ the investor’s share of the financial results of the
subsidiary realised after the acquisition date;
→ the share of gains and losses are recognised directly
in the equity of the subsidiary, in accordance with the
applicable standards;
→ dividends are distributed by the subsidiary;
→ when the Group’s share in the losses of the associate/
joint venture exceeds the carrying amount of the
investment in the Financial Statements, the carrying
amount of the investment is reset to zero and the
share of any further losses is recognised under
“Provisions for liabilities and charges”, to the extent
to which the Group has a contractual or implicit
obligation to cover the losses;
→ the gains emerging from sales made by subsidiaries
to joint ventures or associates are eliminated in
proportion to the share of ownership held by the
acquiring entity.
3. ADOPTED ACCOUNTING STANDARDS
Pursuant to Regulation No. 1606 issued by the European
Parliament and the European Council in July 2002, the
consolidated Financial Statements of the Pirelli & C. Group
have been prepared in accordance with the International
Financial Reporting Standards (IFRS) in force as issued by
the International Accounting Standards Board (IASB) and
approved by the European Union at December 31, 2018, as
well as the provisions issued in the implementation of Article
9 of Legislative Decree no. 38/2005. The term IFRS signifies
the IFRS international accounting standards in force as issued
by the International Accounting Standards Board (IASB) and
approved by the European Union at December 31, 2018, as
well as all the revised International Accounting Standards
(IAS) and all the interpretations of the International Financial
Reporting Interpretations Committee (IFRIC), formerly the
Standing Interpretations Committee (SIC).
The separate Financial Statements have been prepared
using the historical costs method with the exception of the
following items which have been evaluated at their fair value:
→ derivative financial instruments;
→ securities held for trading (until December 31, 2017);
→ financial assets available for sale (until December 31,
2017);
→ financial assets at
fair value
through other
comprehensive income (as of January 1, 2018);
→ financial assets at fair value through the Income
Statement (as of January 1, 2018).
BUSINESS COMBINATIONS
Corporate acquisitions are accounted for under the
acquisition method.
When a controlling interest in a company is acquired,
goodwill is calculated as the difference between:
→ the fair value of the price plus any non-controlling
interests in the acquired company, measured at fair
value (if this option was chosen for the acquisition
in question) or in proportion to the share of the non-
controlling interest in the net assets of the acquired
company;
→ the fair value of the acquired assets and liabilities.
In cases where the aforesaid difference is negative, the
difference is immediately recognised as income in the
Income Statement.
In the case of the acquisition of control of a company in
which a non-controlling interest is already held (acquisition
in phases - step acquisition), the previously held investment
is measured at fair value, and the effects of this adjustment
is recognised in the Income Statement.
The costs of business combination operations are
recognised in the Income Statement.
Contingent considerations, that is, the obligations of the
acquiring company to transfer additional assets or shares
to the seller in cases where certain future events occur or
specific conditions are fulfilled, are recognised at fair value
at the acquisition date as part of the amount transferred
in exchange for the acquisition itself. Any subsequent
changes in the fair value of these agreements are normally
recognised in the Income Statement.
293
Consolidated Financial Statements INTANGIBLE ASSETS
Intangible assets with definite useful lives are measured at
cost, net of any accumulated amortisation and impairment.
Amortisation is calculated on a straight-line basis and
begins when the asset is available for use or is capable of
operating in the opinion of management, and ceases on
the date when the asset is classified as held for sale or is
de-recognised from the accounts.
Capital gains and capital losses resulting from the
divestment or disposal of an intangible asset are determined
as the difference between the net proceeds from disposal
and the carrying amount of the asset.
GOODWILL
Goodwill is an intangible asset with an indefinite useful
life and is therefore not subject to amortisation. Goodwill
is subjected to evaluation at least on an annual basis in
order to identify any impairment, or whenever there are any
indications of impairment, and as such, it is allocated to the
cash generating units for this purpose. For the purposes of
this verification, 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 sector of business identified pursuant to IFRS
8. The criteria used in the allocation of goodwill coincides
with the sole sector of activity in which the Group operates,
being Consumer Activities, and takes into consideration
the minimum level at which goodwill is monitored, for the
purposes of internal management control.
TRADEMARKS AND LICENSES
Trademarks and licenses for which the conditions for
classification as intangible assets with an indefinite useful
life have not been met, are evaluated at cost, net of the
accumulated amortisation and impairment. This cost is
amortised for the duration of the agreement or the duration
of the useful life of the asset, whichever is shorter. The
trademarks for which the conditions for classification as
intangible assets with an indefinite useful life have been
met, are not systematically amortised but are subjected
to an impairment test at least once a year.
SOFTWARE
Software license costs, including incidental expenses, are
capitalised and recognised in the Financial Statements net
of any amortisation and net of any accumulated impairment.
Software is amortised on the basis of its useful life.
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 the purchase
date and amortised on the basis of their useful life.
TECHNOLOGY
The value of Technology refers mainly to product technology,
process technology as well as product development
technology identified during the Purchase Price Allocation.
It is recognised in the Financial Statements at fair value at
the date of acquisition, and is amortised on the basis of its
useful life.
RESEARCH AND DEVELOPMENT COSTS
Research costs for new products and/or processes are
expensed as they are incurred.
There were no development costs that satisfied the
requisites for capitalisation as provided for by IAS 38.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recognised at their
purchase or production cost, including any directly
attributable incidental expenses.
Any costs incurred subsequent to the acquisition of
goods, plus the cost of replacing any parts or portions
of the assets of this category, are capitalised only if
they increase the future financial benefits inherent to
the asset. All other costs are recognised in the Income
Statement as they are incurred. When the cost of
replacing any parts or portions of the asset is capitalised,
the residual value of the replaced parts is recognised in
the Income Statement.
Property, plant and equipment are recognised at cost, net
of any accumulated depreciation and impairment, except
for land, which is not depreciated but is recognised at cost
net of any accumulated impairment.
Depreciation is accounted for starting from the month in
which the asset is available for use or is potentially capable
of providing the financial benefits associated with it.
Depreciation is charged on a straight-line basis on a monthly
basis at rates that allow for the depreciation of assets until
the end of their useful life or, in the case of disposal, until
the last month of use.
294
Pirelli Annual Report 2018 Depreciation rates were as follows:
Buildings
Plant
Machinery
Equipment
Furniture
Motor vehicles
3% - 10%
7%-20%
5%-20%
10%-33%
10%-33%
10%-25%
It is to be noted that during the 2016 financial year, a Purchase Price Allocation was completed, following the
acquisition of the Pirelli Group by Marco Polo, which resulted in the detection of significant surplus value for the
Group’s productive assets due mainly due 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, 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.
Government grants for property, plant and equipment are recognised as deferred income and accredited to the
Income Statement for the duration of the depreciation of the relevant assets.
Improvements to third-party (leasehold) assets are classified as property, plant and equipment, in keeping with
the nature of the cost incurred. The depreciation period corresponds to the remaining useful life of the asset or
the residual period of the lease agreement, whichever is shorter.
Spare parts of significant value are capitalised and depreciated for the duration of the estimated useful life of
their respective assets.
Any dismantling costs are estimated and added to the cost of the property, plant and equipment with a
corresponding accrual to the provision for liabilities and charges when the conditions for accruing the provision
are met. They are then depreciated for the duration of the remaining useful life of their respective assets.
Assets acquired under finance lease agreements, through which essentially all the risks and rewards of
ownership are transferred to the Group, are recognised as property, plant and equipment at their fair value
or, if lower, at the current value of the minimum lease payments, with a corresponding entry for the relevant
financial payable. The lease payment is separated into two components; as a financial expense which is
recognised in the Income Statement, and as the reimbursement of capital and is recorded as a reduction of
the financial payable.
Leases in which the lessor essentially retains all the risks and rewards associated with the ownership of the
asset are classified as operating leases. Costs associated with an operating lease are recognised as an expense
on a straight-line basis in the Income Statement for the duration of the leasing agreement.
Property, plant and equipment are de-recognised from the Statement of Financial Position at the time of disposal
or permanent retirement from use and, as a consequence no future financial benefits are expected can be
derived from their disposal or use.
Any capital gains or capital losses resulting from the divestment or disposal of property, plant and equipment
are determined as the difference between the net proceeds from disposal and the carrying amount of the asset.
IMPAIRMENT OF ASSETS
PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS Whenever there are specific indicators
of impairment, at least on an annual basis, intangible assets with an indefinite useful life, including goodwill and
295
Consolidated Financial Statements both property, plant and equipment and intangible assets,
are subjected to an impairment test.
The test consists of an estimate of the recoverable amount
for the asset compared to its carrying amount.
The recoverable amount of an asset is either its fair value
less the costs of sale, or its value in use, whichever is higher,
where the latter is the current value of estimated future
financial flows arising from the use of the asset plus those
deriving from its disposal at the end of its useful life, net of
taxes, plus the application of a discount rate, net of taxes,
which reflects the current market assessment of the time
value of money and the risks specific to the asset. It is not
necessary to estimate both amounts in order to verify the
absence of any impairment as it is sufficient that one of the
two configured amounts is higher than the carrying amount.
If the recoverable amount of an asset is lower than the
carrying amount, the latter is reduced and adjusted to the
recoverable amount. This reduction in value constitutes
an impairment which is then recorded in the Income
Statement.
In order to evaluate an impairment, assets are aggregated
at the lowest level at which their independent cash flows
are separately identifiable (cash generating units).
Specifically, goodwill must be allocated to the cash
generating units or group of cash generating units in
compliance with the maximum aggregation limit which
cannot exceed that of the operating segment.
In the presence of indications that any impairment
recognised in previous financial years for property, plant
and equipment or intangible assets other than goodwill, may
no longer exist or may have been reduced, the recoverable
amount is estimated again. If it results as higher than the net
carrying amount, then the net carrying amount is increased
up to, but not exceeding, the recoverable amount.
The restatement of a value must not exceed the
carrying amount that would have been determined (net
of impairment, depreciation or amortisation) had no
impairment been detected in previous financial years.
The restatement of the value of an asset other than goodwill
is recognised in the Income Statement.
An impairment which has been detected for goodwill
cannot be restated in subsequent financial years.
Any loss due to a reduction of value recorded for goodwill
on the interim (half year) Financial Statements cannot be
restated in subsequent financial years.
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
Following the application of the equity method, in the
presence of the indication of an impairment, the value
of investments in associates and joint ventures must be
compared with the recoverable amount (the so-called
impairment test). The recoverable amount corresponds to
the higher amount between the fair value less the costs of
the sale, and the value in use.
For the purposes of impairment testing, the fair value of
an investment in an associate or joint venture with shares
listed on an active market is always equal to its market
value, irrespective of the percentage of ownership. In the
case of investments in unlisted companies, the fair value
is determined using estimates based on the best available
information.
For the purposes of determining the value in use of an
associate or joint venture, an estimate is made of the share
owned of the current value of future cash flows which
are estimated will be generated by the associate or joint
venture, including financial flows deriving from the operating
activities of the associate or joint venture, and the amount
that will be received for the final disposal of the investment
(known as the Discounted Cash Flow – asset side).
When there is evidence that an impairment recognised in
previous financial years may no longer exist or may have
been reduced, the recoverable amount of the investment is
estimated again, and if it is results as higher than the amount
of the investment, then the latter amount is increased up to
and not exceeding the recoverable amount.
The restatement of a value may not exceed the value of
the investment that would have been determined (net
of impairment) had no impairment been recognised in
previous financial years.
The reversal of an impairment loss on investments in
associates and joint ventures is recognised in the Income
Statement.
FINANCIAL ASSETS AVAILABLE FOR SALE
(IAS 39 UNTIL DECEMBER 31, 2017)
This item includes investments in entities other than
subsidiaries, associates and joint ventures, and other
securities not held for trading. These are included in the
Statement of Financial Position under the item “Other
financial assets”.
They are measured at fair value, if this can be reliably
determined.
Gains and losses deriving from changes in fair value are
recognised in a specific equity reserve.
When a reduction in fair value has been recognised directly
in equity and there is objective evidence that the asset was
impaired, the losses recognised up to that time in equity are
reversed in the Income Statement.
296
Pirelli Annual Report 2018 A prolonged (meaning more than 12 months) or significant
(meaning more than 50% for securities issued by entities
operating in banking sector and more than one-third for
securities issued by entities operating in other sectors)
reduction in the fair value of equity securities and as
compared with their cost is considered an indicator of
impairment.
Any impairment of a financial asset available for sale
recognised in the Income Statement may be restated in the
Income Statement, with the exception of any impairment
detected for stock securities classified as available for
sale, which instead may not be restated with effect on the
Income Statement.
Financial assets available for sale, whether debt or equity
instruments for which fair value is not available, are
accounted for at cost, reduced by any impairment losses
based on the best market information available at the
reporting date.
The acquisitions and sales of financial assets available for
sale are recorded at the settlement date.
OTHER FINANCIAL ASSETS AT FAIR VALUE
THROUGH OTHER COMPREHENSIVE
INCOME (FVOCI) – IFRS 9 AS OF JANUARY 1, 2018
The equity instruments for which the Group - at the time
of their initial recognition or at transition - exercised the
irrevocable option to present the gains and losses deriving
from the changes in fair value in equity (FVOCI), fall within
this evaluation category. They have been classified as non-
current assets under the item “Other financial assets at fair
value through other comprehensive income”.
They were initially recognised at fair value, including
transaction costs directly attributable to the acquisition.
They were subsequently carried at their fair value, and any
gains and losses deriving from any changes in fair value
were recognised in a specific equity reserve. This reserve
will not be reversed to the Income Statement. In the event of
sale of the financial asset, the amount suspended in equity
is reclassified to retained earnings.
Dividends arising from these financial assets are
recognised in the Income Statement when the right to
collect is established,
OTHER FINANCIAL ASSETS AT FAIR VALUE
THROUGH INCOME STATEMENT
(FVPL) - IFRS 9 AS OF JANUARY 1, 2018;
The items which fall within this evaluation category are:
→ The equity instruments for which the Group - at the time
of the initial recognition or at transition - did not exercise
the irrevocable option to present the gains and losses
deriving from the changes in fair value as equity. These
changes have been classified as non-current assets
under the item “Other financial assets at fair value
through income statement”;
→ The Group’s asset management business model
provides that the sale of debt instruments and the cash
flows associated with the financial asset represent the
payment of the outstanding capital. The items classified
as current assets under item “Other financial assets at
fair value through income statement”;
→ derivatives, with the exception of those designated as
hedging instruments, which have been classified as
“Derivative financial instruments”.
These were initially recognised at fair value. Transaction
costs directly attributable to the acquisition have been
recognised in the Income Statement.
They were subsequently carried at their fair value, and any
gains and losses deriving from any changes in fair value
were recognised in the Income Statement.
INVENTORIES
Inventories are valued either at cost determined under the
FIFO (first in first out) method, or their estimated realisable
value, whichever is lower. The valuation of inventories
includes the direct costs of materials and labour as well
as indirect costs. The impairment provisions for obsolete
and low rotation inventories are calculated by taking their
estimated future use and their realisable value into account.
The realisable value is the estimated selling price, net of all
costs estimated for the completion of the asset including
any sales and distribution costs that will be incurred. The
cost is increased by incremental expenses similarly to that
described with respect to property, plant and equipment.
RECEIVABLES
Receivables 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 collected.
They are subsequently measured at amortised cost, which
is reduced in the case of impairment. Amortised cost is
calculated by using the effective interest rate method,
which is equivalent to the discount rate that, when applied
to future cash flows, renders the present value of such cash
flows equal to the initial fair value.
Receivables in currencies other than the functional
currency of the individual companies are adjusted to the
financial year-end exchange rates and also recorded in the
Income Statement. Receivables are derecognised when
the right to receive cash flows is extinguished, when all the
risks and rewards connected with holding the receivable
essentially have been transferred, or in cases when
the receivable is considered definitively irrecoverable
after all the necessary recovery procedures have been
completed. When the receivable is de-recognised, the
relative provision is also reversed if the receivable had
previously been impaired.
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Consolidated Financial Statements IMPAIRMENT OF RECEIVABLES
(IAS 39 UNTIL DECEMBER 31, 2017)
Impairment losses on receivables are calculated according
to the counter-party default risk, which is determined by
taking the available information on the solvency of the
counter-party, plus their historical data, into consideration.
The carrying amount of receivables is reduced indirectly
by the recognition of a provision. Significant individual
positions that are objectively detected to be partially or
wholly uncollectable are subject to individual impairment.
The amount of the impairment loss takes into account the
estimate of future recoverable flows and the applicable
date of collection, recovery costs and expenses, and
the fair value of guarantees, if any. Any positions that
are not subject to individual impairment are included
in groups with similar characteristics in terms of credit
risk, and are collectively impaired based on percentages
which increase as the expired time period increases.
This collective impairment procedure is also applied to
receivables not yet due. The impairment percentages are
determined on the basis of historical experience as well
as statistical data.
When the conditions that brought about the impairment of
receivables no longer exist, the impairment losses recorded
for previous financial years are are restated as credits to the
Income Statement, up to but not exceeding the amortised
cost that would have been determined had no impairment
loss been recognised.
IMPAIRMENT OF RECEIVABLES
(IFRS 9 AS OF JANUARY 1, 2018)
For trade receivables, the Group applies a simplified
approach, by calculating the expected losses over the life
of receivables from the time of initial recognition. The Group
uses a matrix based on historical experience which is linked
to the ageing of the receivable itself, and which is adjusted
to take specific forecasting factors into account for some
customers.
For financial receivables, the calculation of the impairment
is made with reference expected losses for the next 12
months. These calculations are based on a matrix which
includes the credit ratings of customers provided by
independent assessors. In the event of any significant
increase in credit risk subsequent to the original date of
the receivable, the expected loss is calculated for the entire
life of the receivable. The Group assumes that the credit
risk of a financial instrument has not increased significantly
after initial recognition, if it is determined that the financial
instrument has a low credit risk at the reporting date of the
financial statements.
The Group assesses whether there has been a significant
increase in credit risk when the customer’s credit rating, as
attributed by independent assessors, undergoes a change
that shows an increase in the probability of default.
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The Group considers that a financial asset is in default when
internal or external information indicates that it is unlikely
that the Group will receive the full amount of the expired
contractual amount due (e.g. when the receivables have
been referred to the legal department).
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
subsequently valued at the amortised cost. Amortised cost
is calculated by using the effective interest rate method,
which is equivalent to the discount rate that, when applied
to future cash flows, renders the present value of such cash
flows equal to the initial fair value. Payables in currencies
other than the functional currency of the individual
companies are adjusted to the financial year-end exchange
rates and are also recorded in the Income Statement.
Payables are de-recognised from Financial Statements
when the specific contractual obligation is extinguished.
In the event of a change in a financial liability that does
not entail its cancellation, the gain or loss resulting from
the change is calculated by discounting the change in the
contractual cash flows using the original effective interest
rate, and is immediately recognised in the Income Statement.
FINANCIAL ASSETS AT FAIR VALUE
THROUGH THE INCOME STATEMENT
(IAS 39 UNTIL DECEMBER 31, 2017)
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 which at
the time of their initial recognition were designated at
fair value to the Income Statement, classified as “Other
financial assets”, and derivatives (except those designated
as effective hedging instruments), classified as “Derivative
financial instruments”.
These were carried at fair value with a corresponding entry
in the Income Statement. Additional costs are expensed in
the Income Statement.
The acquisitions and sales of financial assets available for
sale are recorded at the settlement date.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits, postal
deposits, cash and cash equivalents on hand, and other
forms of short-term investment whose original maturity
is three months or less. Current account overdrafts are
recognised as current liabilities under financial payables.
The amounts included in cash and cash equivalents
are recognised at their fair value and any changes are
recognised in the Income Statement.
Pirelli Annual Report 2018 CONTINGENT ASSETS
Any contingent assets, which arise as a result of past
events and whose generation is linked to the occurrence
or otherwise of unpredictable future events, are not
recognised in the Financial Statements, unless revenue is
virtually certain.
PROVISIONS FOR LIABILITIES AND CHARGES
Provisions for liabilities and charges include accruals
for current obligations (legal or implicit) deriving from a
past event, the fulfilment of which will likely require the
necessary use of resources, and whose amounts can be
estimated in a reliable manner.
Changes in estimates are recognised in the Income
Statement for the financial year in which the change occurs.
If the effect of discounting is significant, provisions are
stated at their current value.
A provision for restructuring is recognised only if, in
addition to meeting the requisite conditions for provisions
for liabilities and charges, there exists a detailed formal
restructuring plan so that any third parties involved can
maintain a valid expectation that the restructuring will take
place.
EMPLOYEE BENEFITS
Employee benefits paid after termination of the employment
relationship under defined benefit plans and other long-
term benefits are subject to actuarial measurements.
The liability recognised in the Financial Statements is the
present value of the Group’s obligation, net of the fair value
of any plan assets.
For defined benefit plans, the actuarial gains and losses
deriving from adjustments based on past experience and any
changes in the actuarial assumptions are fully recognised in
equity for the financial year in which they occur.
For other long-term benefits, the actuarial gains and losses
are immediately recognised in the Income Statement.
The provision for employees’ leaving indemnities (TFR) for
Italian companies with at least 50 employees, is considered
a defined benefit plan only for the portions accrued prior
to January 1, 2007 (and not yet paid at the reporting date),
whereas the portions accrued subsequent to that date are
considered a defined contribution plan.
The net interest calculated on net liabilities is classified
under financial expenses.
The costs relative to defined contribution plans are
recognised in the Income Statement as they are incurred.
In the event that the defined benefit assets outweigh the
liabilities, the asset is recognised to the extent that the
financial benefit, in the form of a reimbursement or the
reduction of future contributions is available to the Group,
in accordance with the regulations of the plan itself and
pursuant to the provisions in force in the jurisdiction in
which the plan operates.
In case of the purchase of qualifying insurance policies
through the use of plan assets, any additional contributions
requested by the insurance company are recognised in
equity.
DERIVATIVE FINANCIAL INSTRUMENTS
DESIGNATED AS HEDGING INSTRUMENTS
(IAS 39 UNTIL DECEMBER 31, 2017)
In accordance with the provisions of IAS 39, financial
hedging instruments are accounted for in accordance with
the methods established for hedge accounting only when:
→ at the commencement of hedging there is the formal
designation and documentation of the hedging
relationship between the derivative hedging instrument
and the hedged item;
→ it is expected that hedging will be highly effective
→ its effectiveness can be reliably measured;
→ hedging is highly effective throughout the various
financial reporting periods to which it is designated.
These derivative instruments are measured at fair value.
The following accounting treatments are applied on the
basis of the type of hedge:
→ Fair value hedge – if a derivative financial instrument
is designated as a hedge against exposure to changes
in the fair value of an asset or liability attributable
to a specific risk, the gain or loss resulting from any
subsequent changes in the fair value of the hedging
instrument is recognised in the Income Statement. For
the portion attributable to the hedged risk, the gain or
loss on the hedged item modifies the carrying amount
of that item (basis adjustment), and it too is recognised
in the Income Statement;
→ Cash flow hedge – if a derivative instrument is
designated as a hedge against exposure to the variable
financial flows of an asset or liability recognised in the
Financial Statements, or against a highly probable future
transaction, the effective portion of the change in the fair
value of the hedging instrument is recognised directly
in equity, while the ineffective portion is immediately
recognised in the Income Statement. The amounts
recognised directly in equity are reclassified to the Income
Statement for the financial year in which the hedged item
produced an effect on the Income Statement.
When a hedging instrument reaches maturity or is sold,
terminated, exercised, or no longer meets the conditions to
be designated as a hedging instrument, or if designation is
voluntarily revoked then hedge accounting is discontinued.
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Consolidated Financial Statements The fair value adjustments accumulated in equity remain
suspended in equity until the hedged item manifests an impact
on the Income Statement. Subsequently they are reclassified
to the Income Statement for the financial years during which
the acquired financial asset or the assumed financial liability
manifests an impact on the Income Statement.
When the hedged item is no longer expected to have any
impact on the Income Statement, the fair value adjustments
accumulated in equity are immediately recognised in the
Income Statement.
For the derivative instruments that do not satisfy the
prerequisites established by IAS 39 for adoption of hedge
accounting, please refer to the section “Financial assets at
fair value through the Income Statement”.
The acquisitions and sales of derivative financial
instruments are recorded at the settlement date.
DERIVATIVE FINANCIAL INSTRUMENTS
DESIGNATED AS HEDGING INSTRUMENTS
(IFRS 9 AS OF JANUARY 1, 2018)
In accordance with the provisions of IFRS 9, derivative
financial instruments are accounted for in accordance with
the methods established for hedge accounting only when:
→ the hedged items and the hedging instruments meet
the eligibility requirements;
→ at the beginning of the hedging relationship there
is a formal designation and documentation of the
hedging relationship, of the Group’s objectives in
the management of the risk. and of the strategy for
implementing the hedge;
→ the hedging relationship meets all the following
efficiency requirements:
→ there is a financial relationship between the hedged
item and the hedging instrument;
→ the effect of credit risk is not dominant compared to
any changes associated with the risk hedged;
→ the hedge ratio defined in the hedging relationship is
respected, also by way of any rebalancing measures,
and is consistent with the risk management strategy
adopted by the Group.
These derivative instruments are measured at fair value.
The following accounting treatments are applied on the
basis of the type of hedge:
→ Fair value hedge – if a derivative financial instrument
is designated as a hedge against exposure to changes
in the fair value of an asset or liability attributable to a
specific risk, the gain or loss resulting from subsequent
changes in fair value of the hedging instrument is
recognised in the Income Statement. For the portion
attributable to the hedged risk, the gain or loss on the
hedged item modifies the carrying amount of that asset
or liability (basis adjustment), and it too is recognised
in the Income Statement;
→ Cash flow hedge – if a derivative instrument is
designated as a hedge against exposure to the variable
financial flows of an asset or liability recognised in the
Financial Statements, or against a highly probable future
transaction, the effective portion of the change in the fair
value of the hedging instrument is recognised directly
in equity, while the ineffective portion is immediately
recognised in the Income Statement. The amounts
recognised directly in equity are reclassified to the Income
Statement for the financial year in which the hedged
item produced an effect on the Income Statement.
If the hedge of a highly probable future transaction
subsequently entails the recognition of a non-financial
asset or liability, the amounts that are suspended in
equity are included in the initial value of the non-financial
asset or liability.
When future transactions are hedged through forward
contracts, the Group may designate to hedge accounting;
→ The full fair value (including forward points): the
effective portion of the changes in fair value of the entire
derivative instrument are recognised in equity (cash
flow hedge reserve);
→ The sole spot component (excluding forward points):
the effective portion of changes in fair value relative
to the only spot component is recognised under equity
within the cash flow hedge reserve, while the change in
forward points for the hedged item is recorded in the
cost of hedging reserve, always under equity.
When a hedging instrument reaches maturity or is sold,
terminated early, exercised, or no longer meets the
conditions to be designated as a hedging instrument,
then hedge accounting is discontinued. The fair value
adjustments accumulated in equity (both in the cash flow
hedge reserve and in the cost of hedging reserve) remain
suspended in equity until the hedged item manifests an
impact on the Income Statement. Subsequently, they are
reclassified to the Income Statement for the financial years
during which the acquired financial asset or the assumed
financial liability manifests an impact on the Income
Statement.
When the hedged item is no longer expected to have any
impact on the Income Statement, the fair value adjustments
accumulated in equity (both in the cash flow hedge reserve
and in the cost of hedging reserve) are immediately
recognised in the Income Statement.
For the derivative instruments that do not satisfy the
prerequisites established by IFRS 9 for the adoption of
hedge accounting, reference should be made to the
section “Financial assets at fair value through the Income
Statement”.
300
Pirelli Annual Report 2018 The acquisitions and sales of derivative financial
instruments are recorded at the settlement date.
DETERMINATION OF THE FAIR VALUE
OF FINANCIAL INSTRUMENTS
The fair value of financial instruments traded on an active
market is based on listed market prices at the reporting
date. The listed market price used for financial assets is the
bid price, while for financial liabilities it is the ask price. The
fair value of instruments that are not traded on an active
market is determined by using measurement techniques
with a variety of methods and assumptions that are based
on market conditions at the reporting date.
With regard to taxable temporary differences associated
with investments in subsidiaries, associates and joint
ventures, the related deferred tax liabilities are not
recognised in cases where the investing entity is able to
control the reversal of the temporary differences and it
is probable that it will not occur in the foreseeable future.
Deferred taxes are not discounted.
Deferred tax assets and liabilities are credited or debited
to equity if they refer to items that have been credited or
debited directly in equity during the financial year or during
previous financial years.
The fair value of interest rate swaps is calculated as the
present value of expected future cash flows.
EQUITY
The fair value of forward exchange contracts is determined
by using the forward rate at the reporting date.
INCOME TAXES
Current taxes are determined on the basis of a realistic
forecast of the charges payable under the current tax
regulations of the country.
The Group periodically evaluates the choices made in
determining taxes in reference to situations in which the tax
legislation in force lends itself to interpretation and, if deemed
appropriate, accounts for provisions for risks determined on
the basis of the taxes it expects to pay to the tax authorities.
The interest and penalties accrued on these taxes are
recognised under Income tax in the Income Statement.
Deferred taxes are calculated according to the temporary
differences between the asset and liability amounts in the
Financial Statements and their tax value (full liability method),
and are classified under non-current assets and liabilities.
TREASURY SHARES Treasury shares are deducted from
equity.
If they are sold, reissued or cancelled, the resulting gains
or losses are recognised in equity.
COSTS OF CAPITAL TRANSACTIONS Costs that are
directly attributable to the capital transactions of the
Parent Company are recorded as reductions in equity.
SHARE-BASED PAYMENT TRANSACTIONS
(CASH SETTLED)
The additional monetary benefits (cash settled) granted
to certain Group executives have been recognised under
“Personnel Provisions” (other long-term benefits) with a
corresponding entry for “Personnel Expenses”. This cost
is estimated at fair value and is accounted for over the
duration of the plan according to the degree of maturity of
the vesting condition at the reporting date. The estimate
is reviewed with each financial statement up until the
settlement date.
Deferred tax assets on tax losses carried forward, as well
as on temporary differences, are only recognised when
there is a likelihood of future recovery during the time frame
covered by the forecasts of the business plans.
RECOGNITION OF REVENUES
(IAS 18 UNTIL DECEMBER 31, 2017)
Revenue is measured at the fair value of the amount
received for the sale of products or provision of services.
Deferred tax assets and liabilities are calculated by the
applying tax rates that are expected to be applicable during
the financial year in which the asset will be realised or the
liability settled, based on the tax legislation in force at the
closing of the financial year.
Current and deferred tax assets and liabilities are
compensated when the income taxes are levied by
the same taxation authority and when there is a legally
enforceable right to offset. Deferred tax assets and
liabilities are determined at the tax rates that are expected
to be applicable to taxable income in the respective
jurisdictions in which the Group operates, for the financial
years during which the temporary differences will arise or
be extinguished.
RECOGNITION OF REVENUES
(IFRS 15 AS OF JANUARY 1, 2018)
Revenues are recognised for an amount that reflects the
consideration to which the Group believes it is entitled to
in exchange for the transfer of goods and/or services to
customers. The variable considerations that the Group
deems necessary as payable to direct or indirect customers
are recognised as a reduction to revenues.
PRODUCT SALES (IAS 18 UNTIL DECEMBER 31, 2017)
Revenue from sales of products is recognised when all the
following conditions are met:
→ the significant risks and rewards of ownership of the
goods are transferred to the buyer;
301
Consolidated Financial Statements → the effective control over the goods and the normal
continuing level of activities associated with ownership
have ceased;
→ the value of revenue can be reliably determined;
→ it is likely that the financial benefits deriving from the
sale will be enjoyed by the enterprise;
→ the costs incurred or to be incurred can be reliably
determined.
In cases where the nature and extent of involvement of
the seller are such to cause that the risks and rewards of
ownership are not in fact transferred, then the recognition
date of the revenues is deferred until the date on which the
transfer can be considered to have taken place.
PRODUCT SALES (IFRS 15 AS OF JANUARY 1, 2018)
Revenues from product sales are recognised when the
performance obligations towards customers have been
met. Performance obligations are deemed to have been
met when the control of goods has been transferred to
the customer, i.e., generally when the goods have been
delivered to the customer.
Retrospective discounts are applied to product sales based
on the achievement of the objectives defined within the
framework of commercial agreements. Revenues from
sales are recognised net of these discounts, and in using
this method, are estimated on the basis of historical
experience for the expected value and amounts that are
not expected to be de-recognised.
Sales do not include a financial component, as the
average payment terms applied to customers fall within
the standard commercial terms for the country in which
the sales occur.
PROVISION OF SERVICES
(IAS 18 UNTIL DECEMBER 31, 2017)
Revenue from the provision of services is recognised
only when the results of the transaction can be reliably
estimated, with reference to the state of completion of the
transaction at the reporting date.
FINANCIAL INCOME AND EXPENSES Financial income
and expenses are recognized on an accrual basis.
ROYALTIES Royalties are recognised over time, as provided
for by the content of the relevant agreement, which
provides for the transfer to the customer of the rights of
access to intellectual property. The amounts for royalties
are estimated using the output method, and the royalties
invoiced for each period, directly correlate with the value
transferred to the customer.
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: Basic earnings (losses) per share are
calculated by dividing the income (loss) attributable to the
Group by the weighted average number of outstanding
shares during the financial year excluding treasury shares.
Earnings (losses) per share - diluted: Diluted earnings per
share the income (loss) attributable to the Group by the
weighted average number of outstanding shares during the
financial year excluding treasury shares. For the purposes
of calculating the diluted earnings per share, the weighted
average number of shares outstanding is adjusted based on
the assumption of all the assignees rights for the financial
year which could potentially have a dilutive effect, while
the Group’s net income is adjusted to take into account of
any effects, net of taxes, for the financial year pertinent to
the aforesaid of rights
OPERATING SEGMENTS The operating segment is one
part of the Group that engages in business activities from
which it may earn revenues and incur costs, and whose
operating results are periodically reviewed by the Chief
Executive Officer, in his role as Chief Operating Decision
Maker (CODM) for the purpose of taking decisions on
resources to be allocated to the sector, and the evaluation
of results, for which financial information is available.
The results of a transaction can be reliably estimated only
when all the following conditions have been satisfied:
The business carried out by the Group is identifiable as a
single operating “Consumer Activities” segment.
→ the amount of revenue can be determined reliably;
→ it is likely that the business will enjoy the financial
benefits of the transaction;
→ the stage of completion of the transaction at the
reporting date can be reliably measured;
→ the costs incurred for the transaction and the costs to
be incurred to complete it can be reliably determined.
PROVISION OF SERVICES
(IFRS 15 AS OF JANUARY 1, 2018)
Revenues for services are recognised when the service
rendered has been completed.
FOREIGN CURRENCY TRANSACTIONS
Foreign currency transactions are recorded at the
prevailing exchange rates on the date of the transaction.
Monetary foreign currency assets and liabilities are
translated at the prevailing exchange rates at the
reporting date. Exchange rate differences arising from
the settlement or extinction of monetary items or their
translation at rates, other than those of their initial
recognition at the beginning of the financial year or to
those of previous financial year-end, are recognised in the
separate consolidated Income Statements.
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Pirelli Annual Report 2018 Whenever the conditions set out in IAS 21.15 for the
designation of inter-company monetary items such as Net
Investment in Foreign Operations are met, in accordance with
the provisions of IAS 21.32, the exchange rate differences as
of the date of the designation are recognized directly in the
Consolidated Statement of Comprehensive Income.
ACCOUNTING STANDARDS
FOR HYPER-INFLATIONARY COUNTRIES
Group companies operating in high-inflation countries
recalculate the values for their non-monetary assets and
liabilities in their original individual Financial Statements
to eliminate the distorting effects caused by the loss of
purchasing power of the currency. The inflation rate used
to implement inflation accounting corresponds to the
consumer price index.
Companies, operating in countries where the cumulative
inflation rate over a three-year period approximates or
exceeds 100%, adopt inflation accounting and discontinue
it in the event that the cumulative inflation rate over a three-
year period falls below 100%.
Gains or losses on the net monetary position were
recognised in the Income Statement.
The financial statements of companies prepared in
currencies other than the Euro, operating in high-inflation
countries, have been translated into Euro by applying
the period-end exchange rates to the items of both the
Statement of Financial Position and the Income Statement.
During the course of the third quarter of 2018, the inflation
rate accumulated over the past three years in Argentina
exceeded 100%. This, together with other characteristics
of the country’s economy, has led the Group to adopt, as
of July 1, 2018, the accounting standard IAS 29 - Financial
Reporting in Hyperinflationary Economies for the Argentine
subsidiary Pirelli Neumaticos S.A.I.C.
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 their continuous use.
This occurs if the non-current asset or disposal group is
available for sale under current conditions and the sale is
highly probable, or if a binding program for sale has already
begun, or activities to find a buyer have already commenced
and it is expected that the sale will be completed within one
year following their classification date.
In the consolidated Statement of Financial Position, the non-
current assets held for sale and the current and non-current
assets/liabilities of the disposal group are presented as a
separate item from other assets and liabilities, and their totals
are reflected in current assets and liabilities, respectively.
Non-current assets classified as held for sale and disposal
groups are measured at the lower between carrying amount
and fair value less costs to sell.
Property, plant and equipment and intangible assets
classified as held for sale are not depreciated or amortised.
DISCONTINUED OPERATIONS
A discontinued operation is a component that has been
disposed of or classified as held for sale and represents an
important independent business unit or geographical area
of activity, and pertains to a single, coordinated disposal
programme.
On the consolidated Income Statement for the period, the
Net income (loss) of the discontinued operations, as well
as the gain or loss resulting from fair value measurement
net of the costs of sale or from disposal of the assets or
disposal groups constituting the discontinued operation are
combined in a single item at the end of the Income Statement
separately from the result for continuing operations.
It is to be noted that with regard to transactions between
the Industrial business, which qualifies as a “discontinued
operation” and the other activities of the Pirelli Group
(“continuing business”), for the Income Statement it
was decided to opt for the so called “post disposal”
treatment. In particular, with reference to transactions
of a continuous commercial nature, it was decided to
represent these transactions in the Income Statement data
for the continuing business, and consequently a result was
recorded that takes these components into account, as well
as the recognition of the relative inter-eliminations within
the item “discontinued operations”.
The cash flows for discontinued operations are shown
separately in the Statement of Cash Flows.
The aforesaid information is also presented for the
comparative period.
3.1
ACCOUNTING STANDARDS
AND INTERPRETATIONS APPROVED
AND IN FORCE AS OF JANUARY 1, 2018
In accordance with the IAS 8 - Accounting Policies, Changes
in Accounting Estimates and Errors, the IFRS effective as
of January 1, 2018 are as follows:
→ IFRS 15 - Revenue from Contracts with Customers:
The impacts deriving from the application of this
standard, which replaces the previous IAS 18, are
described in Note 3.3 “Impacts deriving from the
adoption of IFRS 15 and IFRS 9” which includes the
impacts resulting from the first application of each
principle.
→ IFRS 9 – Financial Instruments:
IFRS 9 replaces the previous IAS 39 standard as regards
303
Consolidated Financial Statements the classification and measurement of financial assets
and liabilities, and the impairment of financial assets and
hedge accounting. Refer to Note 3.3 “Impacts deriving
from the adoption of IFRS 15 and IFRS 9” for the impacts
resulting from the first application of this principle.
→ Amendments to IFRS 2 – Share-based payments
and Classification and Measurement of Share-based
Payment Transactions
The aim of these amendments is to clarify the accounting
treatment of certain share-based payments. There were
no impacts on the Group’s Financial Statements arising
from the application of these amendments;
→ IFRIC 22 - Foreign Currency Transactions and Advance
Considerations
The aim of this interpretation is to determine the
exchange rates to be used in the conversion of advance
payments paid or received in foreign currency. In the
presence of paid or received advance payments, the
exchange rate to be used to convert assets, liabilities,
revenues or costs recognised at a later date is the same
used to convert the advance payment. There were no
impacts on the Group’s Financial Statements.
→ Amendments to IAS 40 - Transfers of Investment Property
These changes further clarify the situations in which it is
possible to reclassify a real estate asset from within or
from outside the category of Investment Property. these
changes were not applicable to the Group’s Financial
Statements.
→ Improvements to the IFRS 2014-2016 cycle (issued by
the IASB in December 2016):
The IASB has issued a series of amendments to 3 current
principles, which particularly concern the following
aspects: clarification regarding the scope of application
of IFRS 12 Disclosure of Interests in Other Entities - in
the presence of entities falling within the scope of IFRS
5 - Non-Current Assets Held for Sale and Discontinued
Operations; the evaluation of associates and joint ventures
at fair value in the presence of investment entities in IAS
28 - Investment in Associates; and the elimination of
short-term exemptions for those who adopt the IFRS
for the first time in IFRS 1 - First Time Adoption of the
IFRS. The amendments to IAS 28 and IFRS1 were not
applicable to the Group, while the amendments to IFRS
12 would only have been applicable only in the presence
of entities classified under the scope of IFRS 5. There
were no impacts on the Group’s Financial Statements
arising from the application of these amendments.
→ Amendments to IFRS 4 - Application of IFRS 9 Financial
Instruments with IFRS 4 Insurance Contracts
These changes govern the implementation of the new
standard IFRS 9 - Financial Instruments, if IFRS 4 is
also applicable, which is subject to further amendments.
These changes were not applicable to the Group.
3.2
INTERNATIONAL ACCOUNTING STANDARDS
AND/OR INTERPRETATIONS THAT
HAD BEEN ISSUED BUT HAD NOT YET
ENTERED INTO FORCE DURING 2018
Pursuant to IAS 8 – Accounting Policies, Changes in
Accounting Estimates and Errors - the new standards
and interpretations that had been issued but had not
yet come into force, or had not yet been endorsed by
the European Union at December 31, 2018, and which
were therefore not applicable, along with any expected
impacts on the consolidated Financial Statements.
None of these standards and interpretations were adopted
in advance by the Group.
→ Amendments to IFRS 10 and IAS 28 - Sales or
contributions of Assets between an Investor and its
Associate/Joint Venture
The IASB issued these amendments to eliminate any
inconsistency between IFRS 10 and IAS 28, stating that
if the assets sold/transferred constitute a business as
defined by IFRS 3, the possible gains or losses must
be fully recognised, and any gains or losses recognised
pro-rata only for the pertinent portion.
These amendments, which came into force have been
deferred indefinitely, and have not yet been endorsed
by the European Union. No effects are expected on
the Financial Statements due to the future application
of these amendments since the current accounting
treatment adhered to by the Group is already
compliant.
→ 16 IFRS – Leases
The new leasing standard, which will replace the current
IAS 17, provides a new definition for the term lease, and
introduces a criterion based on the control (right of use)
of an asset in order to distinguish lease contracts from
contracts for the provision of services, by specifying
discriminating factors, such as the identification of the
asset, the right to replace it, the right to substantially
obtain all the financial benefits deriving from the use
of the asset and, lastly, the right to direct the use of the
asset underlying the contract.
For the lessee the standard establishes a single model
for the recognition and evaluation of lease contracts
which provides for the recognition of the asset subject
to a lease, even an operating lease as an equity asset
with a corresponding entry under financial debt, for an
amount equal to the present value of future payments.
The concept of operating leases has disappeared. To
the contrary, this standard does not include significant
amendments for lessors.
This standard, approved by the European Union, will be
applicable as of January 1, 2019. The Group will apply
the new standard as of the date of entry into force.
304
Pirelli Annual Report 2018 The Group has completed the preliminary project for assessing the impacts deriving from the application of the
new standard on the transition date (January 1, 2019). This process was carried out in several phases, including
the complete mapping of the contracts potentially suitable for containing a lease, and the analysis of the same
in order to understand the main clauses relevant to IFRS 16.
The Group availed itself of the practical expedient provided for by the standard which makes it possible to base
itself on the conclusions reached in the past on the basis of IFRIC 4 and IAS 17 regarding the quantification of
the components of operating leases for a specific contract. This practical expedient was applied to all contracts.
The process for the implementation of the standard is in the phases of being completed. It foresees the setting
up of the IT infrastructure for the accounting management of the standard, plus the alignment of administrative
processes and controls to protect the critical areas which the standard impacts. The completion of this process
is expected within the first quarter of 2019.
The Group has chosen to apply the standard retrospectively, recording the effect deriving from the application
of the standard under equity as at January 1, 2019 (modified retrospective method). In particular, the Group will
account for lease contracts previously classified as operating leases as follows:
→ a financial liability, equal to the present value of the future residual payments at the transition date, discounted
using the incremental borrowing rate applicable at the transition date for each contract;
→ a right of use equal to the value of the financial liability at the transition date, net of any accruals and deferrals
relative to the lease and recognised in the Statement of Financial Position at the closing date of these
financial statements.
The following table shows the estimated impacts from the adoption of IFRS 16 at the transition date:
NON CURRENT ASSET
Property, property and equipment
- Leased lands
- Leased buildings
- Leased plant and machinery
- Leased industrial and commercial equipment
- Leased office furniture and IT material
- Leased cars, light vehicles and similar
- Leased heavy goods vehicles, lift trucks, internal transportation vehicles
Total
CURRENT ASSET
Other receivables
Total
NON CURRENT LIABILITIES
Borrowings from banks and other financial institutions
Provision for liabilities and charges
CURRENT LIABILITIES
Borrowings from banks and other financial institutions
Other payables
Total
305
(In millions of euro)
16.3
376.5
38.3
3.6
1.4
20.3
39.6
496.0
(1,6)
494,4
(In millions of euro)
422.0
2.6
74.8
(5.0)
494.4
Consolidated Financial Statements
The value of non-current assets relative to operating lease
contracts was increased due to the balance of prepaid
expenses and accrued income recognised at December
31, 2018 to the amount of euro 1.6 million (included under
item other current payables) and decreased due to the
balance of any accrued expenses and deferred income
recognised at December 31, 2018 to the amount of euro
5.0 million (included under item other current liabilities)
In adopting IFRS 16, the Group decided to avail itself of the
exemption granted by the standard in relation to short-term
leases (contracts with a duration of less than 12 months) for
all asset classes. For these contracts, the introduction of IFRS
16 will not entail the recognition of the financial liability of the
lease and the related right of use. Instead the lease payments
will be recorded in the Income Statement on a straight-line
basis for the duration of the respective contracts.
The Group also intends to avail itself of the exemption
granted by the standard with regard to lease contracts for
which the underlying asset is configured as a low-value asset,
i.e., lease contracts for which the unit value of the underlying
assets is not greater than euro 8 thousand when new.
Contracts for which the exemption was applied fall mainly
within the following categories:
→ computers, telephones and tablets;
→ office and multi-function printers;
→ other electronic devices.
The Group intends to use the practical expedient as
provided for by IFRS 16 with for the separation of non-lease
components for cars. The non-lease components on these
assets will not be separated and accounted for separately
from the lease components, but will be considered together
with the latter in determining the financial liability of the
lease and the relative right of use.
Furthermore, with reference to the rules for transition,
the Group intends to avail itself of the following practical
expedients available in the case of opting for the modified
retrospective method:
→ the classification of contracts that expire within 12
months from the date of transition as a short-term
leases. For these contracts, lease payments will be
recorded in the Income Statement on a linear basis;
→ use of the information present at the transition date for the
determination of the lease term, with particular reference
to the exercise of extension and early closure options.
The transition to IFRS 16 introduces some elements of
professional judgement as well as the use of assumptions
and estimates in relation to the lease term and the definition
of the incremental borrowing rate. The standards are
summarised as follows:
→ the Group has decided not to apply IFRS 16 for contracts
containing a lease that has an intangible asset as an
underlying asset;
→ the contract renewal clauses are considered for the
purposes of determining the duration of the contract
when the Group has the option of exercising them without
the need to obtain the consent of the counterparty and
when their exercise is deemed reasonably certain. In the
case of clauses which provide for multiple renewals that
can be exercised unilaterally by the Group, only the first
extension period has been considered;
→ the automatic renewal clauses in which both parties
have the right to terminate the contract have not
been considered for the purposes of determining the
duration of the contract, as the ability to extend the
duration of the same is not under the unilateral control
of the Group and the penalties to which the lessor
could be exposed to is not significant. However, in the
event that the lessor is exposed to a significant penalty,
the Group includes a renewal option in determining
the duration of the contract. This assessment is also
carried out considering the degree of customisation
of the asset subject to leasing: if the customisation
is high, the lessor may incur a significant penalty if
opposing the renewal;
→ early termination clauses in contracts: these clauses
are not considered in determining the duration of the
contract if they can only be exercised by the lessor
or by both parties. If they are unilaterally exercised
by the Group, specific assessments are contractually
conducted (for example, the Group is already
negotiating a new contract or has already given notice
to the lessor);
→ incremental borrowing rate: the Group decided to use
the incremental borrowing rate as the discount rate to
discount lease contract payments. This rate consists of
the risk free rate of the country in which the contract is
negotiated and is based on the duration of the contract.
It is then adjusted on the basis of the Group’s credit
spread and local credit spread.
Reconciliation of the commitments for minimum future
payments due for non-cancellable operating leases
The following table provides reconciliation between the
306
Pirelli Annual Report 2018 future commitments of lease contracts, which are disclosed in paragraph 10, and the expected impact from
the adoption of the IFRS 16 as of January 1, 2019:
Minimum future payments due for non-cancellable operating leases 12/31/2018 (IAS 17)
Effects of extension option excercize
Short term contracts at 1/1/2019
Low value asset contracts
Service component
Finance lease liabilities at 31/12/2018
Discounting effects
Finance liabilities for lease contracts at 1/1/2019 (IFRS 16)
(In million of euro)
517.9
155.8
(9.2)
(12.1)
0.4
0.2
(156.1)
496.9
→ IFRIC 23 – Accounting for uncertainties in Income Taxes
This interpretation clarifies the criteria to be applied for the recognition and measurement of current and
deferred tax assets/pre-paid tax in the event of uncertainty regarding tax treatments, i.e. situations in which it
is not certain that a specific treatment will be accepted by the tax authorities (e.g. the deductibility of certain
costs or the exemption of certain income), but also uncertainty regarding the determination of taxable
income, the tax bases for assets and liabilities, tax losses and the tax rates to be applied.
The accounting treatment depends on the likelihood on whether the tax authorities will accept the tax
treatment or not. In cases where it is not likely that the tax authority is will accept the uncertain tax treatment,
the uncertainty is recognised by recording additional tax liabilities or by the application of a higher tax rate.
This interpretation, approved by the European Union will be applicable as of January 1, 2019. No impacts on
the Group financial statements are foreseen.
→ Amendments to IFRS 9 - Financial Instruments: prepayment features with negative compensation and
amendments to financial liabilities
These amendments are with regard to the following:
→ financial assets (financial receivables and debt securities) which, in the presence of certain characteristics,
can be measured at the amortised cost, whereas previously they had to be measured at fair value and
recorded in the Income Statement;
→ accounting treatment in the presence of changes to the financial liabilities which do not lead to their
elimination from the Financial Statements. In such situations, any gain or loss calculated as the difference
between the contractual cash flows of the original liability and the modified cash flows, with both discounted
at the original effective interest rate, must be recognised in the Income Statement.
These amendments, which will come into force as of January 1, 2019, have not yet been approved by the
European Union. With regard to the change relating to financial assets, assessments are under-way to verify
their applicability to the Group; the change in the accounting treatment of financial liabilities in the event of
changes which do not lead to their accounting elimination is applicable to the Group but had no impact as the
Group already applies this accounting treatment.
→ Amendments to IAS 28 - Investments in Associates and Joint Ventures: Long-term interests in associates
and joint ventures.
These amendments have clarified that, in the event that investments in associates and joint ventures are
not evaluated using the equity method (IAS 28) they must be evaluated in accordance with the provisions
of IFRS 9.
307
Consolidated Financial Statements
This amendment, approved by the European Union,
became applicable as of January 1, 2019. There were
no impacts on the Group’s Financial Statements in
that investments in associates and joint ventures are
evaluated using the equity method.
→ Improvements to IFRS 2015-2017 (issued by the IASB
in December 2017).
The IASB issued a series of changes to 4 principles in
force, including, in particular, to the following aspects:
→ IFRS 3 - Business combinations: the attainment of control
of a business that is classified as a joint operation must
be accounted for as a business combination in phases,
and the previously held investment must be re-measured
at fair value at the date of acquisition of control.
→ IFRS 11 – Joint arrangements: in the case of the
attainment of the joint control of a business which
is classified as a joint operation, the previously held
investment must be re-measured at fair value.
→ IAS 12 - Income taxes: the accounting treatment of
the tax effects of dividends on financial instruments
classified as equity must follow that of the transactions
or events which generated the distributable dividend.
→ IAS 23 – Borrowing costs: in the event that the specific
financing relating to a qualifying asset is still in place
at the time when the asset is ready for use or sale, the
same becomes part of general generic financing.
These amendments, which will come into force as of
January 1, 2019, have not yet been approved by the
European Union. Any impacts on the Group’s Financial
Statements are however currently being analysed.
→ Amendments to IAS 19 - Employee Benefits
These amendments require that:
→ any reductions in the surplus of a plan are recognised
in the Income Statement, even if the surplus had not
been recognised in the Income Statement as a result
of the asset ceiling.
These amendments, which will come into force as of
January 1, 2019, have not yet been approved by the
European Union. Any impacts on the Group’s Financial
Statements are however currently being analysed.
→ Amendments to IFRS 3 Business Combinations
These amendments have introduced a new definition for
the term “business”, as the current one is too complex
resulting in too many transactions qualifying as a
business combination.
These amendments, which will come into force as of
January 1, 2020, have not yet been approved by the
European Union. No impacts on the Group financial
statements are foreseen.
→ Amendments to IAS 1 - Presentation of Financial
Statements, and IAS 8 - Accounting Policies, Changes
in Accounting Estimates and Errors
In addition to clarifying the concept of materiality, these
amendments focus on the definition of a coherent and
unique concept of materiality amongst the various
accounting standards and incorporate the guidelines
included in IAS 1 for intangible assets.
These amendments, which will come into force as of
January 1, 2020, have not yet been approved by the
European Union. No impacts on the Group financial
statements are foreseen.
3.3
IMPACTS DERIVING FROM THE ADOP-
TION OF IFRS 15 AND IFRS 9
→ the cost for the current service and the net interest for
the period following a modification and/or reduction of
the plan are determined using updated assumptions;
The table below shows the effects on the Statement of
Financial Position at opening on January 1, 2018 following
the first application of IFRS 15 and IFRS 9:
308
Pirelli Annual Report 2018 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(In thousands of euro)
Note
12/31/2017
IFRS 15
1st adoption
IFRS 9
1st adoption
01/01/2018
2,980,294
5,893,704
17,480
229,519
-
-
111,553
204,051
27,318
878
2,980,294
5,893,704
17,480
-
(229,519)
80,492
80,492
149,027
149,027
517
112,070
(633)
203,418
27,318
878
9,464,797
-
(116)
9,464,681
Property, plant and equipment
Intangible assets
Investments in associates and J.V.
Other financial assets
Other financial assets at fair value through other comprehensive income
Other financial assets at fair value through income statement
Deferred tax assets
Other receivables
Tax receivables
Derivative financial instruments
Non-current assets
Inventories
Trade receivables
Other receivables
Securities held for trading
Other financial assets at fair value through income statement
Cash and cash equivalents
Tax receivables
Derivative financial instruments
Current assets
Assets held for sale
Total Assets
10
11
12
13
13
13
14
16
17
28
18
15
16
19
20
17
28
40
940,668
652,487
400,538
33,027
-
1,118,437
35,461
27,770
3,208,388
60,729
12,733,914
Equity attributable to owners of the Group:
21,1
4,116,758
-Share capital
-Reserves
-Net income (loss) for the period
Equity attributable to non-controlling interests:
21,2
-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
Employee benefit obligations
Tax payables
Current assets
Current liabilities
Total Liabilities and Equity
21
24
26
22
14
23
27
28
24
25
26
22
23
27
28
309
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
1,673,642
565,254
45,833
-
48,416
17,910
2,910,223
12,733,914
940,668
652,487
(907)
399,631
(33,027)
-
33,027
33,027
1,118,437
35,461
27,770
(907)
3,207,481
60,729
(1,023)
12,732,891
(1,023)
4,115,735
1,904,375
(1,023)
2,034,968
-
176,392
60,251
60,936
(685)
(1,023)
4,175,986
3,897,089
74,435
127,124
1,216,635
274,037
2,399
54,963
-
5,646,682
559,168
1,673,642
565,254
45,833
-
48,416
17,910
-
2,910,223
(1,023)
12,732,891
-
-
-
-
-
-
-
-
Consolidated Financial Statements IFRS 15 - REVENUE FROM CONTRACTS WITH CUSTOMERS: As a result of the application of this new
accounting standard, which replaces the previous IAS 18, some amounts previously accounted for under costs
and mainly related to variable considerations payable to indirect customers, and mainly linked to the achievement
of sales targets, have been recorded as a reduction to revenues or other revenues, with insignificant impact. The
restatement of these amounts did not alter the equity of the Group at the date of transition which was January
1, 2018. The comparable data for the 2017 financial year was not subjected to restatement in that the Group
has opted for the application of the modified retrospective method during the transition.
The restatement of the Income Statement is presented below in accordance with the previous IAS 18 standard:
(In thousands of euro)
IAS 18
2018
Reclassifications
IFRS 15
Revenues from sales and services
5,233,402
(38,931)
5,194,471
Other income
495,018
(11,813)
483,205
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
201,416
(1,818,199)
(1,067,579)
(414,523)
-
-
-
-
201,416
(1,818,199)
(1,067,579)
(414,523)
Other costs
(1,908,906)
50,744
(1,858,162)
Net impairment loss on financial assets
Increase in fixed assets for internal work
Operating income (loss)
(21,273)
3,700
703,056
-
-
-
(21,273)
3,700
703,056
IFRS 15 had no impact on the methods used for recognising revenues.
The Group availed itself of the practical expedient provided for by IFRS 15 regarding performance obligations
not fulfilled at the end of the financial year, as these performance obligations relate to contracts whose duration
does not exceed one year.
IFRS 9 – FINANCIAL INSTRUMENTS IFRS 9 was applied retrospectively. The date of first application was
January 1, 2018. The comparable data for 2017 was not subjected to restatement.
→ Classification and measurement:
At January 1, 2018, based on the assessment of the applicable business model and the contractual conditions
of the cash flows associated with the assets, the financial assets were classified in the categories as provided
for by IFRS 9. The equity instruments which at December 31, 2017 were classified as financial assets available
for sale, (AFS) were designated as financial assets at fair value through other comprehensive income (FVOCI)
in that they do not fall under the core business of the Group. The sole exception being the investment in
Mediobanca S.p.A., which instead has been classified as financial assets whose changes in fair value have
been recognised in the Income Statement (FVPL), as it was expected to be sold in the short term. The equity
investment in Mediobanca S.p.A. was sold in the first days of January 2018 and the positive change in fair
value to the amount of euro 3,780 thousand euro was recorded in the Income Statement under the item
“Gains on equity investments” (Refer to Note 36.2).
The financial assets that at December 31, 2017 were classified as securities held for trading were classified
as financial assets at fair value through the Income Statement (FVPL).
310
Pirelli Annual Report 2018
The following table summarises the reclassifications made:
Other non
current financial
assets at FV
through income
statement
Other current financial
assets at FV through
income statement
(Securities held for
trading at 2017)
Other financial assets at FV
through other comprehensive
income (available for sale
financial assets 2017)
(In thousands of euro)
Financial assets
at amortised
cost (gross trade
receivables and gross
other receivables)
Total at 12/31/2017
-
33,027
229,519
1,526,549
Reclassification from available for sale
financial assets to other financial assets
at FV through income statement
Total at 01/01/2018
149,027
149,027
-
33,027
(149,027)
80,492
-
1,526,549
→ Impairment of financial assets
The Group has analysed the impacts of the new impairment model of the IFRS 9 based on the losses expected
from trade and financial receivables.
For trade receivables, the Group has applied the simplified approach permitted by the standard, according
to which expected losses are calculated over the entire life of the receivables. The Group has used a matrix
based on historical experience which is linked to the ageing of the receivable itself, and which is adjusted to
take into account the specific factors of some customers. There were no impacts on the Group’s equity at
the transition date due to the application of the new impairment model to trade receivables.
For financial receivables, considered to be of a low credit risk, the calculation of the impairment was made
with reference to the losses expected in the following 12 months, and was based on a matrix which included
the ratings of customers provided by independent market operators.
The application of the new model for expected losses to financial receivables entailed the recognition of a
loss on the transition date - net of the deferred tax effect - equal to euro 1,023 thousand and recognised as
a reduction of the equity, in accordance with the rules of transition established by IFRS 9.
→ Hedge accounting: The Group adopted the new rules for hedge accounting as provided for by IFRS 9
prospectively as of January 1, 2018. The hedging relationships in place at December 31, 2017 satisfied the
conditions provided for by IFRS 9 for the continued adoption of hedge accounting. It should be noted that,
based on the provisions of IFRS 9, the cash flow hedge reserve for cash flow hedges outstanding at December
31, 2017 has been partly reclassified to a new reserve for the cost of hedging under equity to the amount of
euro 1,000 thousand. The reclassification relates to the change in the fair value of the cross currency basis
spread which, not being hedge accounting, is separated and recorded in a separate equity reserve, while the
cash flow hedge reserve only includes changes in fair value in hedge accounting.
The impacts on the individual components of the Group’s equity deriving from the first application of IFRS 9 are
summarised in the following table:
Reserve for fair
value adjustment
of available for sale
financial assets
Reserve for fair value
adjustment of financial assets
at fair value through other
comprehensive income
Reserve
for cash
flow
hedge
Reserve
for
cost of
hedging
Other
reserves
/ retained
earnings
(In thousands of euro)
Total at 12/31/2017
Reclassification from available for sale financial assets to other
financial assets at FV through income statement (Mediobanca)
Reclassification from available for sale financial assets to other
financial assets at FV through other comprehensive income
Impairment of financial assets
Reclassification for hedge accounting
Total at 01/01/2018
19,410
(10,554)
(8,856)
-
-
-
311
-
(13,454)
- 2,503,272
-
8,856
-
-
-
-
-
-
-
-
10,554
-
(1,023)
(1,000)
1,000
-
8,856
(14,454)
1,000 2,512,803
Consolidated Financial Statements
It is to be noted that the fair value adjustment reserve for
the financial assets available for sale at December 31,
2017 (positive to the amount of euro 19,410 thousand) was
reclassified to a new reserve under equity for the investments
designated as financial assets at their fair value recognised
under other items of the Comprehensive Income Statement,
while investments, whose changes at fair value were
recognised in the Income Statement, have been reclassified
to retained earnings. These reserves are not reversed to the
Income Statement if the investment is disposed of;
4. FINANCIAL RISK MANAGEMENT POLICIES
The Group is exposed to financial risks which are principally
associated with foreign exchange rates, with fluctuations
in interest rates, with the price of financial assets held as
investments, with the ability of customers to meet their
obligations to the Group (credit risk), and with the procurement
of financial resources on the market (liquidity risk).
Financial risk management is an integral part of the
Group’s business management and is performed centrally
in accordance with the guidelines issued by the Finance
Department as part of risk management strategies
which are more generally defined by the Managerial Risk
Committee.
4.1
TYPES OF FINANCIAL RISKS
EXCHANGE RATE RISK The geographical distribution
of Group production and commercial activities entails
exposure to exchange rate risks such as transaction risk
and translation risk.
a) Transaction risk
This risk is generated by the commercial and financial
transactions of the individual companies which are executed
in currencies other than the functional currency of the
Company. Exchange rate fluctuations between the time
when the commercial or financial relationship is established
and the time when the transaction is completed (collection
or payment) may generate exchange rate gains or losses.
The Group aims to minimise the impact of transaction
risk related to exchange rate volatility. In order to achieve
this objective, the Group’s procedures provide that the
Operating Units are responsible for the collection of all
information inherent to positions subject to transaction
risk, whose coverage is then provided in the form of forward
contracts which are entered into with the Group Treasury.
The positions subject to managed exchange rate risk are
mainly represented by receivables and payables in foreign
currency.
The Group Treasury is responsible for hedging the resulting
net position for each currency and, in accordance with the
established guidelines and predetermined restrictions, it in
turn closes all risk positions by trading derivative hedging
contracts on the market which typically take the form of
forward contracts.
For such contracts, the Group did not consider it necessary
to avail itself of the option for hedge accounting as provided
for by IFRS 9, 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
aforementioned option.
Furthermore, as part of the annual and three-year planning
process, the Group makes exchange rate forecasts by
using the best information available on the market. The
fluctuation in exchange rates between the time when the
forecast is made and the time when the commercial or
financial transaction occurs represents the transaction
risk for future transactions.
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 IFRS 9, 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 policies to hedge this exposure.
Total consolidated equity at December 31, 2018 stood at
47.8% (compared to approximately 57.1% at December
31, 2017). The most important currencies for the Group
other than the Euro were the Brazilian Real (10.7%; 8.8%
at December 31, 2017), the Turkish Lira (0.5%; 0.7%; at
December 31, 2017), the Chinese Renminbi (12.2%,
12.8% at December 31, 2017), the Romanian Leu (8.5%;
9.0% at December 31, 2017), the Pound Sterling (3.9%,
3.4% at December 31, 2017), the US Dollar (3.8%; 3.3%
at December 31, 2017) the Mexican Peso (7.4%, 2.5% at
December 31, 2017) and the Russian Rouble (1.6%; 1.0% at
December 31, 2017).
312
Pirelli Annual Report 2018 The effects on consolidated equity which derive from a hypothetical appreciation/depreciation of the above
listed currencies against the Euro, all other conditions being equal, were as follows:
Brazilian Real
Turkish Lira
Chinese Renminbi
Romanian Leu
Russian Rouble
British Pound
Argentinian Pesos
US Dollar
Mexican Pesos
Appreciation of 10%
Depreciation of 10%
12/31/2018
12/31/2017
12/31/2018
12/31/2017
(In thousands of euro)
54,258
2,543
61,628
43,204
8,308
19,481
8,779
19,036
37,594
40,903
3,420
59,309
41,610
4,868
15,681
-
15,168
11,648
(44,393)
(2,080)
(50,423)
(35,349)
(6,797)
(15,939)
(7,183)
(15,575)
(30,759)
(33,466)
(2,798)
(48,526)
(34,045)
(3,983)
(12,830)
-
(12,411)
(9,530)
Total on consolidated equity
254,831
192,607
(208,498)
(157,589)
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 market interest rates.
The Group assesses, on the basis of the market circumstances, whether to enter into derivative contracts for hedging
interest rate risk, for which hedge accounting is activated when the conditions set forth in the IFRS 9 are met.
The table below shows the effects on the net income (loss) results from an increase or decrease of 0.5% in the
level of interest rates of all currencies to which the Group is exposed – all other conditions being equal:
Impact on Net income (loss)
(13,039)
(12,513)
13,039
12,513
+0.50%
-0.50%
12/31/2018
12/31/2017
12/31/2018
12/31/2017
(In thousands of euro)
The effects on the Group’s equity deriving from changes in the LIBOR and EURIBOR rates calculated on the
interest rate hedging instruments outstanding at December 31 2018 are described in Note 28 - “Derivatives”.
PRICE RISK ASSOCIATED WITH FINANCIAL ASSETS The Group’s exposure to price risk is limited to the
volatility of financial assets such as listed and unlisted equities and bonds, which constituted approximately 0.7%
of the total consolidated assets at December 31, 2018 (2.1% at December 31, 2017). These assets were classified
as other financial assets at fair value through other comprehensive income and other financial assets at fair
value through income statement (assets available for sale and securities held for trading at December 31, 2017).
No derivatives were put in place to either cover or limit the volatility risk for these assets.
Other financial assets at fair value through other comprehensive income are represented by listed securities
amounted to euro 28,448 thousand (euro 179,204 thousand included in the item financial assets available for
sale at December 31, 2017) and those represented by securities indirectly associated with listed securities (Fin.
Priv. S.r.l.) amounted to euro 15,604 thousand, (euro 19,908 thousand at December 31, 2017). These financial
assets constituted 45.9% of the total financial assets subject to price risk (75.8% at December 31, 2017). 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 1,422 thousand (a positive change of euro 8,960
313
Consolidated Financial Statements
thousand at December 31, 2017) while a negative change of -5% in the prices of the aforesaid listed equities,
all other conditions being equal, would result in a negative change to the Group’s equity of euro 1,422 thousand
(a negative change of euro 8,960 thousand to the Group’s equity at December 31, 2017).
CREDIT RISK Credit risk represents the Group’s exposure to potential losses resulting from the non-fulfilment
of the commercial and financial obligations undertaken by counterparties. In order to limit this risk, Pirelli has
implemented procedures to evaluate customer potential and financial creditworthiness, to monitor expected
collection flows and to take credit recovery action if and when necessary. The aim of these procedures is to
define customer credit limits, whereby in the event that those limits are exceeded, the rule to withhold further
supplies is activated. In some cases customers are asked to provide guarantees, mainly bank guarantees issued
by parties of the highest credit or personal standing. Less frequently, mortgage guarantees may be requested.
Other instruments used for commercial credit risk management is the taking out of insurance policies. As
of January 2012, the company signed a master agreement which expired in December 2018, with a leading
insurance company for worldwide coverage for credit risk mainly related to sales on the Replacement channel
(with an approximate 75% acceptance rate at December 2018).
Insurance coverage was extended to also cover the two year 2019 - 2020 period. At December 31, 2018, the
amount of trade receivables remained essentially consistent with that at closing for the previous financial year.
Instead, for the management of its temporary cash surpluses or for trading in derivative instruments, the Group
operates only with highly rated financial counterparties.
Pirelli does not hold public debt instruments from any European country, and constantly monitors its net credit
exposure to the banking system, and does not show significant concentrations of credit risk.
LIQUIDITY RISK Liquidity risk represents the risk that the Company’s available financial resources may be
insufficient to meet its financial and commercial obligations pursuant to the contractual terms and conditions.
The principal instruments used by the Group to manage liquidity risk are comprised of its one and three year
financial plans, and its treasury plans. These allow for the complete and correct detection and measurement of
incoming and outgoing cash flows. The differences between the plans and the final data are constantly analysed.
The Group has implemented a centralised system for the management of collections and payments in compliance
with various local currency and tax regulations. Banking relationships are negotiated and managed centrally,
in order to ensure coverage for short and medium-term financial needs at the lowest possible cost. Even the
procurement of medium and long-term resources on the capital market is optimised through centralised
management.
The prudent management of the aforesaid risk requires the maintenance of an adequate level of cash or cash
equivalents and/or highly liquid short-term financial instruments, the availability of funds obtainable through
an adequate amount of committed lines of credit and/or the use of the capital market, and the diversification
of products and deadlines in order to seize the best opportunities available.
At December 31, 2018 the Group had, in addition to cash and other current financial assets at fair value through
income statement to the amount of euro 1,354,096 thousand (euro 1,151,464 thousand at December 31, 2017),
unused credit facilities to the amount of euro 700,000 thousand (euro 700,000 thousand at December 31, 2017)
maturing in the second quarter of 2022.
Maturities for financial liabilities at December 31, 2018 were composed as follows:
within 1 year
1 to 2 years
2 to 5 years
over 5 years
Total
Trade payables
Other payables
Financial instruments
Borrowings from banks and other financial institutions
1,604,677
436,752
63,043
892,924
-
5,122
-
18,797
(20,871)
(55,247)
1,324,611
2,867,664
Total
2,997,396
1,308,862
2,831,214
-
1,604,677
59,368
(66)
21,029
80,331
520,039
(13,141)
5,106,228
7,217,803
(In thousands of euro)
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Pirelli Annual Report 2018
Maturities for financial liabilities at December 31, 2017 were composed as follows:
within 1 year
1 to 2 years
2 to 5 years
over 5 years
Total
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
51,786
-
-
639,689
72,873
4,848,046
Total
2,900,049
738,202
3,544,213
51,786
7,234,250
(In thousands of euro)
5. INFORMATION ON FAIR VALUE
FAIR VALUE MEASUREMENT
5.1
In relation to financial instruments measured at fair value, the following table shows the classification of these
instruments on the basis of the hierarchy of levels pursuant to IFRS 13, which reflects the significance of the
inputs used in determining the fair value. The levels are defined as follows:
→ level 1 – unadjusted prices quoted on an active market for assets or liabilities subject to evaluation;
→ level 2 – inputs different from the aforesaid prices quoted at the preceding level, which are observable on
the market either directly (as in the case of prices) or indirectly (because they are derived from prices);
→ level 3 – inputs that are not based on observable market data.
The following table shows assets and liabilities measured at fair value at December 31, 2018, subdivided into
the three levels as defined above:
FINANCIAL ASSETS:
Financial assets carried at fair value through Income Statement:
Other current financial assets at fair value through income statement
Current derivative financial instruments
Non current derivative financial instruments
Hedging instruments:
Current derivative financial instruments
Non current derivative financial instruments
Other financial assets at fair value through other comprehensive income
Securities and shares
Investment funds
TOTAL ASSETS
FINANCIAL LIABILITIES:
Financial liabilities carried at fair value through Income Statement:
Current derivative financial instruments
Hedging instruments:
Current derivative financial instruments
Non current derivative financial instruments
TOTAL LIABILITIES
Note
Carrying amount
at 12/31/2018
Level 1
Level 2
Level 3
(In thousands of euro)
19
28
28
28
28
27,196
77,650
-
20,917
20,134
-
-
-
-
-
27,196
77,650
-
20,917
20,134
-
-
-
-
-
53,207
28,448
15,604
9,155
15,574
-
13
68,781
28,448
15,574
31,178
214,678
28,448
177,075
(59,602)
-
(16,039)
(75,641)
-
-
-
-
(59,602)
-
(16,039)
(75,641)
28
28
28
315
-
9,155
9,155
-
-
-
Consolidated Financial Statements
The following table shows assets and liabilities carried at fair value at December 31, 2017, subdivided into the
three levels as defined above:
(In thousands of euro)
Note Carrying amount at 12/31/2017
Level 1
Level 2
Level 3
FINANCIAL ASSETS:
Financial assets carried at fair value through Income Statement:
Securities held for trading
Current derivative financial instruments
Hedging derivative instruments:
Non-current derivative financial instruments
Financial assets available-for-sale:
Securities and shares
Investment funds
TOTAL ASSETS
FINANCIAL LIABILITIES:
Financial liabilities carried at fair value through Income Statement:
Current derivative financial instruments
Hedging derivative instruments:
Non-current derivative financial instruments
TOTAL LIABILITIES
28
28
13
28
28
33,027
27,770
878
-
-
-
33,027
27,770
878
-
-
-
214,250
179,204
15,269
-
19,908
15,269
229,519
179,204
35,177
291,194
179,204
96,852
15,138
15,138
15,138
(17,910)
(54,963)
(72,873)
-
-
-
(17,910)
(54,963)
(72,873)
-
-
-
The following table shows the changes in the financial assets that occurred in level 3 during the course of 2018:
Opening balance
Translation differences
Disposals
Fair value adjustments through other comprehensive income
Other changes
Closing balance
(In thousands of euro)
12/31/2018
15,138
1
(2,835)
(3,188)
39
9,155
These financial assets are mainly represented by equity investments in the European Institute of Oncology (euro
6,961 thousand), and Tlcom I LP (euro 184 thousand).
The item decreases mainly refer to the liquidation of the investment in Emittenti Titoli.
The fair value adjustments under other items of the comprehensive Income Statement amounted to a loss
of euro 3,188 thousand, and refers mainly to the adjustment of the investment in Pirelli de Venezuela C.A. up to
the date of disposal completed on September 7, 2018 (euro 2,610 thousand).
During the course of the 2018 financial year there were no transfers from level 1 to level 2 or vice versa, nor
from level 3 to other levels and vice versa.
The fair value of financial instruments traded on active markets is based on the price quotations published at
the reporting date of the Financial Statements. These instruments, included in level 1, primarily comprise equity
investments classified as financial assets at fair value through other comprehensive income.
The fair value of financial instruments not traded on active markets (e.g. derivatives) is determined by the use of evaluation
316
Pirelli Annual Report 2018
techniques widely used in the financial sector, which maximise the utilisation of observable and available market data:
→ Market prices for similar instruments;
→ the fair value of interest rate swaps is calculated by discounting estimated future cash flows based on
observable yield curves;
→ the fair value of foreign exchange derivatives (forward contracts) is determined by using the forward exchange
rate at the reporting date of the Financial Statements.
→ The fair value of the cross currency interest rate swaps is calculated by discounting the estimated future
cash flows based on the observable yield curves and converting them into Euro using the exchange rate at
the reporting date of the Financial Statements;
→ The fair value of natural rubber futures is determined by using the forward exchange rate at the reporting
date of the Financial Statements.
CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES
5.2
The table below shows the carrying amounts for each class of financial assets and liabilities as identified by IFRS 9.
FINANCIAL ASSETS
Financial assets at fair value through income statement
Securities held for trading
Other financial assets at fair value through income statement
Current derivative financial instruments
Financial assets at amortized cost
Other non-current receivables
Current trade receivables
Other current receivables
Cash and cash equivalents
Financial assets available-for-sale
Other financial assets
Financial assets at fair value through other comprehensive income
Other financial assets
Financial hedging derivative instruments
Current derivative financial instruments
Non-current derivative financial instruments
TOTAL FINANCIAL ASSETS
FINANCIAL LIABILITIES
Financial liabilities carried at fair value through income statement
Current derivative financial 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 derivative instruments
Non-current derivative financial instruments
TOTAL FINANCIAL LIABILITIES
317
(In thousands of euro)
Note
Carrying amount
at 12/31/2018
Carrying amount
at 12/31/2017
19
28
16
15
16
20
13
28
28
28
24
26
24
25
26
28
-
33,027
27,196
77,650
104,846
225,707
627,968
416,651
-
27,770
60,797
204,051
652,487
400,538
1,326,900
1,118,437
2,597,226
2,375,513
-
229,519
68,781
20,917
20,134
41,051
-
-
878
878
2,811,904
2,666,707
59,602
17,910
3,929,079
3,897,089
83,287
800,145
74,435
559,168
1,604,677
1,673,642
436,752
565,254
6,853,940
6,769,588
16,039
54,963
6,929,581
6,842,4621
Consolidated Financial Statements
6. CAPITAL MANAGEMENT POLICY
The Company’s objective is to maximise the return on
net invested capital while maintaining the capacity to
operate over time, in order to ensure adequate returns for
its shareholders and benefits for other stakeholders, and
also providing for the 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 to manage its
capital is the ROI (which is calculated as the percentage
ratio between the EBIT adjusted and the average net
invested capital (which does not include investments in
associated companies and Joint Ventures, “Other financial
assets at fair value through other comprehensive income”
and “Other non-current financial assets at fair value
through the Income Statement” (“other financial assets”
refers to the comparative data at December 31, 2017) and
the intangible assets relative to assets recognised as a
consequence of Business Combinations.
The ROI for the financial year 2018 equalled 30% compared
to an ROI of 28% for the previous financial year.
7. ESTIMATES AND ASSUMPTIONS
The preparation of the consolidated Financial Statements
entails the necessity of management making estimates
and assumptions which, under certain circumstances are
based on difficult and subjective evaluations and estimates
based on historical experience, as well as assumptions that
are from time to time considered reasonable and realistic
in light of the circumstances. It is possible that the actual
results could therefore differ from these estimates. The
estimates and assumptions are reviewed periodically and
the effects of any changes made to them are reflected in
the Income Statement for the period in which the estimate
is revised. If such estimates and assumptions, based on
the best valuation available at the time, should differ from
actual circumstances, they are modified accordingly for the
period in which the change of circumstances occurred. The
estimates and assumptions refer mainly to assessments of
the recoverability of goodwill and other intangible assets
with an indefinite useful life, to the definition of the useful
lives of the intangible assets as well as of property, plant
and equipment, to the recoverability of receivables, to
the determination of taxes (current and deferred), to the
evaluation of pension schemes and other post-employment
benefits and to the recognition/valuation of the provisions
for liabilities and charges.
GOODWILL
In accordance with the accounting standards adopted for
the preparation of the Financial Statements, goodwill is
tested annually in order to ascertain the existence of any
impairment to be recognised in the Income Statement. In
particular, the test involves the allocation of goodwill to
the cash generating units (which for the group coincide
with the business sector or the Consumer Activities) and
the subsequent determination of the relative recoverable
amount, 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, impairment
is recognised for the goodwill allocated to them.
The configuration of the value used to determine the
recoverable amount for Consumer Activities at December
31, 2018 was the fair value determined using the stock
market capitalisation of the Parent Company at the date
of the impairment test (December 31, 2018), where the
stock market capitalisation was calculated on the number
of outstanding shares without taking any control premium
into consideration, and adjusted upwardly or downwardly
according to the fair value of the financial statement items
not included in the carrying amount of the Consumer
Activities, mainly the net financial position.
The impairment test at December 31, 2018 did not show
any impairment, as the fair value of the Consumer Activities
was significantly higher than the carrying amount.
PIRELLI BRAND (INTANGIBLE ASSET
WITH AN INDEFINITE USEFUL LIFE)
The Pirelli Brand is intangible fixed asset with an indefinite
useful life are 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 at December 31, 2018 was performed
using the assistance of an independent third-party
professional.
The configuration of the recoverable amount for impairment
testing purposes at December 31, 2018 was 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).
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
impairment emerged.
PROPERTY, PLANT AND EQUIPMENT
In accordance with the accounting standards, property,
plant and equipment and intangible assets are tested in
order to ascertain whether there has been any impairment
when there are indicators that signal that difficulties
are to be expected for the recovery of their relative net
318
Pirelli Annual Report 2018 carrying amount through their use. The verification of
the existence of the aforesaid impairment indicators
requires that the Directors make subjective judgements
based on the information available from both internal and
external sources as well as on historical experience. Also
if it is determined that a potential impairment may have
been generated, the impairment is calculated using the
appropriate assessment techniques.
The correct identification of indicators of a potential
impairment, as well as the estimates used to determine
the impairment, depend on a subjective evaluation as well
as on factors that may change over time and influence the
valuations and estimates made by management.
INCOME TAXES (CURRENT AND DEFERRED)
Income taxes (current and deferred) are determined in
each country in which the Group operates according to
a prudent interpretation of the tax regulations in force.
This process sometimes involves complex estimates in
determining taxable income and temporary deductible and
taxable differences between carrying amounts and tax
amounts. In particular, deferred tax assets are recognised
to the extent that it is probable that future taxable income
will be available against which they can be recovered. The
assessment of the recoverability of deferred tax assets,
recorded in relation both to tax losses that may be used in
subsequent financial years, and to temporary deductible
differences, takes into account the estimate of future
taxable income and is based on prudent tax planning.
PENSION FUNDS
The companies of the Group have in place, pension plans,
health insurance plans and other defined benefit plans
for their employees, primarily in the United Kingdom
and the United States. These funds have been closed to
new contributions and therefore the actuarial risk relates
only to the previous deficit. Management uses different
actuarial assumptions to calculate the liabilities and assets
servicing these pension plans. The actuarial assumptions
of a financial nature are concerned with the discount
rate, the rate of inflation and the trend in medical costs.
The actuarial assumptions of a demographic nature are
essentially concerned with mortality rates. The Group has
identified discount rates which it has deemed are balanced,
given their context.
PROVISIONS FOR LIABILITIES AND CHARGES
In view of legal risks and tax risks related to indirect taxes,
provisions for the risk of unfavourable outcomes have
been recognised. The value of provisions recognised in the
Financial Statements relative to these risks represent the
best estimate to date made by management for legal and
tax issues regarding a vast range of issues that are subject to
the jurisdiction of several countries. This estimate entails the
adoption of assumptions which depend on factors that may
change over time and which could therefore have a significant
impact on the current estimates made by management in
preparing the consolidated Financial Statements.
8. BUSINESS COMBINATIONS
ACQUISITION CAÇULA (BRAZIL)
During the last quarter of 2018, Pirelli Comercial de Pneus
Brasil Ltda, a Brazilian company which is 85% controlled
by Pirelli Tyre S.p.A., and 15% controlled by Pirelli Latam
Participaçoes Ltda., acquired 100% of the capital of JMC
Pneus Comércio Importação and Exportação Ltda., which
owns 34 points of sale in the state of São Paulo, for the
preliminary consideration of euro 9,676 thousand subject
to a post-closing price adjustment. With this operation,
Pirelli intends to complete the strengthening its distribution
chain in Brazil, particularly in the São Paulo area.
The temporary fair value of the net assets acquired were
estimated as equal to the carrying amount for equity and
was negative to the amount of euro 1,645 thousand.
The process of allocating the price paid at fair value of the
assets acquired for the business combination (Purchase
Price Allocation - PPA), in accordance with the provisions
of accounting principle IFRS 3 (Business combinations)
has not yet been completed. The consequent determination
of the goodwill deriving from the acquisition is therefore
to be considered provisional and will be completed, in
accordance with the provisions of the standard, within
twelve months of the acquisition date.
The difference, at the transaction date, between the
consideration, reduced on the basis of the preliminary
results of the price adjustment procedure (euro 8,362
thousand) and the provisional fair value of the net assets
acquired (negative at euro 1,645 thousand), was equal to
euro 10,007 thousand, was recorded as goodwill under the
item “intangible fixed assets”.
9. OPERATING SEGMENTS
IFRS 8 - Operating segments, defines an operating segment
as a component:
→ which involves entrepreneurial activities which generate
revenues and costs;
→ whose operating income is periodically reviewed by the
Chief Executive Officer, in his role as Chief Operating
Decision Maker (CODM);
→ for which separate income, financial position, and equity
data is available.
For the purposes of IFRS 8, the activities performed by the
Consumer Activities are identifiable as a single operating
segment.
319
Consolidated Financial Statements Revenues from sales and services according to geographical area were as follows:
Europe
Russia and CIS
NAFTA
South America
Asia\Pacific (APAC)
Middle East\Africa\India (MEAI)
Total
(in thousands of euro)
2018
2017
2,234,169
2,237,962
167,004
159,590
1,004,027
983,859
691,874
915,677
890,248
806,247
207,149
248,948
5,194,471
5,352,283
Non-current assets by geographic area which are allocated on the basis of the country where the assets are
located, were as follows.
Europe
Russia & CSI
NAFTA
Central and South America
Asia/Pacific (APAC)
Middle Est/Africa/India (MEAI)
(in thousands of euro)
12/31/2018
12/31/2017
5,407,113
60.92%
5,504,482
62.03%
171,456
445,894
466,441
495,760
2,739
1.93%
5.02%
5.25%
5.59%
0.03%
192,382
373,950
435,488
487,560
2,773
2.17%
4.21%
4.91%
5.49%
0.03%
Non-current unallocated assets
1,886,862
21.26%
1,877,363
21.16%
Total
8,876,265
100.00%
8,873,998
100.00%
The allocated non-current assets reported in the preceding table consist of property, plant and equipment and
intangible assets, excluding goodwill. The unallocated non-current assets relate to goodwill.
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Pirelli Annual Report 2018
10. PROPERTY, PLANT AND EQUIPMENT
The composition and changes were as follows:
Gross Value
12/31/2018
Accumulated
Depreciation
Net Value
Gross Value
(in thousands of euro)
12/31/2017
Accumulated
Depreciation
Net Value
Land
Buildings
189,026
-
189,026
201,216
-
201,216
797,796
(100,549)
697,247
747,693
(81,256)
666,437
Plant and machinery
2,390,323
(484,851)
1,905,472
2,161,265
(340,307)
1,820,958
Industrial and trade equipment
436,827
(194,585)
242,242
376,568
(139,295)
237,273
Other assets
Total
107,028
(48,088)
58,940
100,972
(46,562)
54,410
3,921,000
(828,073)
3,092,927
3,587,714
(607,420)
2,980,294
(in thousands of euro)
NET VALUE
12/31/2017
Change
in scope
High
Inflation
Argentina
Translation
differ.
Increases Decreases Depreciation Devaluation
Recl./
Other
12/31/2018
Land
201,216
(9,890)
2,872
(8,707)
-
(3,250)
-
Buildings
666,437
(787)
5,316
(16,882)
67,338
(774)
(29,320)
-
-
6,785
189,026
5,919
697,247
Plant and machinery
1,820,958
Industrial and trade
equipment
Other assets
237,273
54,410
-
-
-
14,395
(38,949)
305,140
(2,931)
(157,998)
(14,560)
(20,583)
1,905,472
669
(9,925)
56,899
(4,628)
(68,501)
(406)
30,861
242,242
1,389
(3,469)
22,424
(308)
(13,265)
(3)
(2,238)
58,940
Total
2,980,294
(10,677)
24,641
(77,932)
451,801
(11,891)
(269,084)
(14,969)
20,744 3,092,927
(in thousands of euro)
NET VALUE
12/31/2016
Change
in scope
Assets held
for sale
Translation
differ.
Increases Decreases Depreciation
Reclass/
Other
12/31/2017
Land
326,216
(111,043)
Buildings
730,541
(92,196)
-
-
(14,806)
545
-
-
304
201,216
(42,348)
61,071
(1,319)
(25,414)
36,102
666,437
Plant and machinery
2,147,501
(293,363)
(55,879)
(103,156)
336,637
(6,859)
(147,769)
(56,154)
1,820,958
Industrial and trade
equipment
300,907
(60,558)
Other assets
51,470
(6,139)
-
-
(14,492)
48,183
(4,034)
(66,077)
33,344
237,273
(3,768)
23,945
(292)
(11,413)
608
54,410
Total
3,556,635
(563,299)
(55,879)
(178,570)
470,381
(12,504)
(250,673)
14,204
2,980,294
321
Consolidated Financial Statements
The item effect of inflation in Argentina refers to the revaluation of the assets held by the Argentine company
for the 2018 financial year as a result of the application of the accounting standard IAS 29 - Financial Reporting
in Hyperinflationary Economies.
The item increases, totalling euro 451,801 thousand, were primarily aimed at increasing the capacity of the High
Value segment in Europe and the NAFTA area, the strategic reconversion of the capacity of the Standard segment
into High-Value in Brazil, and to the continuous improvement of the quality and mix in all manufacturing plants.
The ratio of investments to amortisations for the 2018 financial year was equal to 1.68, (1.88 for the 2017 financial year).
The item impairment mainly includes the write-off on plants and machinery in Brazil amounting euro to 12,000
thousand and attributable to the actions already launched for the rationalisation of the structures of the Standard
business.
The item reclassifications/other mainly includes the purchase of some of the residual assets from the Prometeon
Group relative to the Consumer business relative to the 2018 financial year.
Property, plant and equipment in progress at December 31, 2018, included in the single fixed asset categories
amounted to euro 227,302 thousand (euro 227,509 thousand at December 31, 2017). The main projects are
concentrated in Germany, China, Mexico, Romania and Brazil.
At December 31, 2017, the change in scope column itemised the value of goodwill and other intangible assets
attributable to the Prometeon Group, and which were transferred following the assignment 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 TP Industrial Holding S.p.A. shares, the company into which Pirelli’s Industrial
assets had been merged.
It should 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 to a total value of euro 342 thousand.
The value of the buildings and other assets for which the Company had entered into a financial leasing agreement,
was included in the respective categories of property, plant, and equipment.
The changes which occurred were composed as follows:
Leased buldings
Other leased assets
Leased plant and machinery
Cost
327
1,916
176
12/31/2018
Accumulated
Depreciation
Net value
Cost
12/31/2017
Accumulated
Depreciation
Net value
(in thousands of euro)
(327)
(1,788)
(62)
-
128
114
330
(330)
2,286
(2,001)
266
(107)
-
285
159
444
Total
2,419
(2,177)
242
2,882
(2,438)
Payables for financial leases were included in financial payables. (Refer to Note 24).
The total minimum future payments due for non-cancellable operating lease contracts amounted to euro 517,853
thousand, of which:
→ euro 92,416 thousand were due within one year;
→ euro 308,806 thousand were due between one and five years;
→ euro 116,631 thousand were due in beyond five years.
322
Pirelli Annual Report 2018
11. INTANGIBLE ASSETS
The composition and changes were as follows.
12/31/2017
Translation
differences
Effect of business
combination
Increase Amortisation
Impairment
Other
12/31/2018
(In thousands of euro)
Concessions/licenses/
trademarks - finite life
67,797
Pirelli Brand - indefinite life
2,270,000
(811)
-
-
-
Goodwill
1,877,363
(508)
10,007
Customer relationships
377,242
Technology
Software applications
Other intangible assets
1,276,017
20,744
4,541
87
-
(118)
270
-
-
-
-
979
(4,827)
-
-
(34,533)
-
-
-
-
-
-
-
-
237
63,375
-
-
-
-
2,270,000
1,886,862
342,796
1,199,167
(76,850)
(5,250)
10,330
(7,816)
331
(1,194)
-
(0)
451
18,333
(464)
2,805
TOTAL
5,893,704
(1,080)
10,007
11,640
(125,220)
(5,250)
224
5,783,338
12/31/2016
Change
in scope
Translation
differences
Increase Amortisation Reclassif. Other
12/31/2017
(In thousands of euro)
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
Customer relationship
431,595
(22,417)
(136)
2,635
(34,435)
Technology
1,347,867
-
-
-
(71,850)
Software applications
17,527
(4,128)
(152)
13,473
(7,210)
1,059
175
20,744
Other intangible assets
7,117
-
(416)
2,502
(2,141)
(1,813)
(708)
4,541
TOTAL
6,496,889
(500,445)
(1,210)
18,969
(120,196)
-
(303)
5,893,704
Intangible assets were 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 in the consolidated Financial Statements following the merger by incorporation
of the Parent company Marco Polo Industrial Holding S.p.A. into Pirelli, which took place during the same 2016
financial year. The net carrying amounts at December 31, 2018 mainly refer to:
→ the Pirelli Brand (indefinite useful life) for an amount equal to euro 2,270,000 thousand. It should be noted that
the evaluation of the useful life of brands is based on a series of factors including the competitive environment,
market share, history of the brand, life cycles of the underlying product, operational plans and the macroeconomic
environment of the countries in which the related products are sold. In particular, the useful life of the Pirelli
Brand was assessed indefinitely on the basis of its history of over one hundred years of success (established in
1872) and the intention and ability of the Group to continue investing in order to support and maintain the brand;
→ the Metzeler Brand (useful life of 20 years) equal to euro 55,833 thousand was included under the item
“Concessions, licenses and brands with a finite useful life;”
→ Customer relationships (useful life of 10-20 years) equal to euro 340,333 million, which mainly includes the
value of commercial relationships both in the Original Equipment channel and in the Replacement channel;
→ Technology which includes the value of both product and process technologies as well the value of the
323
-
-
-
-
-
-
-
-
2,270,000
1,877,363
377,242
1,276,017
Consolidated Financial Statements
In-Process R&D (being formed at the time of the
acquisition of the Group in 2015) for an amount equal
to euro 1,114,167 thousand and euro 85,000 thousand
respectively. The useful life of the product and process
Technology was determined to be 20 years, while the
useful life for In-Process R&D was 10 years;
→ goodwill to the amount of euro 1,886,862 thousand,
of which euro 1,877,363 thousand was recorded at the
time of acquisition of the Group in September 2015.
The residual portion refers to the goodwill provisionally
determined as part of the acquisition of the company
JMC Pneus Comercio Importação e Exportação Ltda.,
which took place during the fourth quarter of 2018.
Reference should be made to Note 8 for further details:
At December 31, 2017, in the change in scope column
shows the value of goodwill and other intangible assets
attributable to the Prometeon Group and which were
transferred following the assignment 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., the
company into which Pirelli’s Industrial assets were merged.
IMPAIRMENT TESTING OF GOODWILL Pursuant to IAS
36, goodwill is not subject to amortisation but is tested
for any annually or more frequently, if specific events or
circumstances arise that may indicate an impairment
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 of its operating assets, including the
operating assets owned and goodwill.
Goodwill, amounting to euro 1,877,363 thousand, was
allocated to the CGU group “Consumer Activities”, which
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.
The recoverable amount is defined as the higher amount
between its value in use (current value of the expected
results) and the fair value less the costs of disposal
(equivalent value net of sales costs).
The value configuration used to determine the recoverable
value of the Consumer Activities at December 31, 2018
is the fair value which is determined using on the stock
market capitalisation of the Parent Company at the date
of the impairment test (December 31, 2018), where the
stock market capitalisation is calculated on the number of
outstanding shares, without taking any control premium into
consideration, be it adjusted either upwardly or downwardly
of the fair value recorded in the Financial Statement items
which have not been included in the carrying amount of
the Consumer Activities, mainly the net financial position.
The impairment test at December 31, 2018 did not show
any impairment, as the fair value of the Consumer Activities
was significantly higher than the carrying amount.
The difference between the recoverable amount and the
carrying amount of the group of CGUs relative to the
Consumer Activities resulted in a zero balance due to a
potential contraction of 20.8% of the stock market price
of the ordinary shares of Pirelli & C. S.p.A.
THE IMPAIRMENT TESTING OF THE PIRELLI BRAND
(INTANGIBLE FIXED ASSET WITH AN 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 an impairment.
The impairment test as at December 31, 2018 was carried out
with the assistance of an independent third party professional.
The configuration for the recoverable amount for the
purposes of impairment testing at December 31, 2018
was 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 consensus forecasts by equity analysts with respect
to the forecast revenues for the period 2019-2020 in
that they were more prudent than the projections made
by management;
→ an 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 Tyre sector and was equal to an average
royalty rate of 5.01%. With reference to the contribution
in terms of royalties from the Prometeon Tyre Group, the
royalty rates used were those provided for by the license
agreement subject to the reshaping of the contract as
approved by the Board of Directors on February 14, 2019;
→ a discount rate of 8.38%, 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.
324
Pirelli Annual Report 2018 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 impairment emerged.
A sensitivity analysis was also carried out in relation to the Key Assumptions used in the valuation of the royalty
rate (for the 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 downward change in the royalty rates for the Consumer evaluation units of 50 basis points and the
simultaneous zeroing of the balance for royalties from the license agreement with Prometeon Tyre Group;
→ an upward change in the discount rate of150 basis points;
→ a downward change in the g growth rate of 150 basis points.
12. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
Changes in investments in associates and joint ventures were as follows:
12/31/2018
12/31/2017
Associates
JV
Total
Associates
JV
Total
(In thousands of euro)
Opening balance
12,529
4,951
17,480
32,446
14,564
47,010
Decreases
Increases
Distribution of dividends
Impairment
Share of net income (loss)
Share of other components
recognised in Equity
Reclassification to provision
for future risks and expenses
Reclassifications and other
Closing balance
-
-
(2,674)
(874)
(274)
-
-
(288)
8,419
INVESTMENTS IN ASSOCIATES
12.1
The item was composed as follows:
-
-
(10,410)
65,222
65,222
1,496
-
-
(2,674)
(8,556)
(874)
(754)
1,361
(11,286)
(11,560)
(3,221)
(3,221)
(2,915)
8,620
-
8,620
(288)
-
(139)
-
-
-
-
(10,410)
1,496
(8,556)
(754)
(9,613)
(8,252)
-
-
-
(2,915)
-
(139)
64,286
72,705
12,529
4,951
17,480
12/31/2017
Distrib. of dividends
and reserves
Impairment
Share of net
income (loss)
Reclass. and
other
12/31/2018
Eurostazioni S.p.A.
Fenice S.r.l.
Focus Investments S.p.A.
Other Group companies
6,271
2,477
1,352
2,429
-
(2,474)
-
(4)
-
(870)
(200)
-
Total associates
12,529
(2,674)
(874)
124
-
(482)
84
(274)
-
1
-
(289)
(288)
6,395
0
(0)
2,024
8,419
(In thousands of euro)
325
Consolidated Financial Statements
As regards the investment in Fenice S.r.l., the company was put into liquidation following the sale of the
investment in Prelios S.p.A. on December 28, 2017, to Lavaredo S.p.A., a newly established company
designated by the Burlington fund, the counterparty to the transaction. The liquidation was completed in
July 2018.
The item distribution of dividends and reserves mainly refers to the distribution of reserves and dividends
implemented by Fenice S.r.l., to the amount of euro 2,474 thousand.
The item impairment mainly refers to the investment in the RCS MediaGroup S.p.A. This impairment became
necessary in order to align the carrying amount after applying the equity method to its fair value, following the
emergence of impairment indicators in 2018.
The share of net income (loss) (negative at euro 274 thousand) mainly refers to the loss recorded by Focus
Investments S.p.A. equal to euro 482 thousand.
The investments in associated companies which were evaluated using the equity method were not relevant in
terms of the impact on the total consolidated assets, either individually or in aggregate form.
INVESTMENTS IN JOINT VENTURES
12.2
The item was composed as follows:
31/12/2017
Increases
Share of net
income (loss)
Share of other
components
recognised in Equity
Reclassification to
provision for future
risks and expenses
31/12/2018
PT Evoluzione Tyres
4,951
-
(10,350)
(3,221)
8,620
-
Xushen Tyre (Shanghai) Co, Ltd
-
65,222
(936)
-
-
64,286
Total joint ventures
4,951
65,222
(11,286)
(3,221)
8,620
64,286
(In thousands of euro)
The Group holds:
→ an investment of 60% (ownership unchanged from the previous financial year) in PT Evoluzione Tyres, an
entity which operates in Indonesia and is active in tyre production. Even though the company is 60% owned,
as a result of the contractual agreements between shareholders, it falls under the definition of a joint venture
in that the governance regulations explicitly require unanimous consensus for significant business decisions.
The investment was evaluated using the equity method.
→ a 49% stake in the company Xushen Tyre (Shangai) Co., Ltd, a joint venture which, through the company
Jining Shenzhou Tyre Co., owns a Consumer tyre manufacturing plant in China. The purchase was finalised
on October 9, 2018 for an amount equal to euro 65,222 thousand. The investment was evaluated using the
equity method. The new plant will provide the necessary production flexibility for the High Value segment,
taking into account the evolution of the Chinese market, the expected developments in the electric car
segment and the increasing share of homologations obtained in the Original Equipment segment in China,
Japan and Korea.
The share of net income (loss) of euro 11,286 thousand refers to the pro-rata loss of PT Evoluzione Tyres to
the amount of euro 10,350 thousand for 2018, and to the pro-rata loss for euro 936 thousand related to the
fourth quarter of 2018 of the joint venture Xushen Tyre (Shanghai) Co, Ltd., a new High Value plant currently
undergoing a ramp-up phase. The Group has reclassified the portion of the result recognised as a result of
the application of the equity method which exceeds the value of the investment into a specific provision for
risks and charges.
It should be noted that the negative result of the investment in PT Evoluzione Tyres was considered representative
of an impairment indicator, and therefore the investment was subjected to an impairment test, with the aim of
comparing the value of the net investment in the associated company (including the value of financial receivables
326
Pirelli Annual Report 2018
due from the associated company totalling euro 18.7 million), following the application of the equity method,
with the recoverable value of the same, represented by the equity value. The equity value of the investment at
December 31, 2018 was higher than the carrying amount of the same and therefore no further impairment was
recorded.
The investments in Joint Ventures were not relevant in terms of the impact on the total consolidated assets.
13. OTHER FINANCIAL ASSETS - OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH
COMPREHENSIVE INCOME - OTHER NON-CURRENT FINANCIAL ASSETS AT FAIR VALUE
THROUGH THE INCOME STATEMENT
OTHER FINANCIAL ASSETS
Following the entry into force on January 1, 2018 of IFRS 9, the other financial assets, consisting of financial
assets available for sale amounting to euro 229,519 thousand at December 31, 2017, were designated as financial
assets at fair value through other comprehensive income (FVOCI) to the amount of 80,492 thousand, and as
financial assets whose changes in fair value were recognised in the Income Statement (FVPL) to the amount
of euro 149,027 thousand euro.
Total other financial assets at 12/31/2017 (IAS 39)
Reclassification to other financial assets at FV through other comprehensive income (FVOCI)
Reclassification to other financial assets at FV through income statement (FVPL)
Total other financial assets at 1/1/2018 (IFRS 9)
(In thousands of euro)
229,519
(80,492)
(149,027)
-
OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER
COMPREHENSIVE INCOME (FVOCI)
The changes in other financial assets at fair value through other comprehensive income amounted to euro
68,781 thousand at December 31, 2018, were as follows:
Opening balance other financial assets at FV through other comprehensive income FVOCI (IFRS 9) at 01/01/2018
Translation differences
Decreases
FV adjustment through other comprehensive income
Other
Closing balance 12/31/2018
(In thousands of euro)
80,492
(9)
(2,858)
(8,319)
(525)
68,781
327
Consolidated Financial Statements
The composition of the item according to individual securities is as follows:
Listed securities:
RCS Mediagroup S.p.A.
Other companies
Total listed securities
Unlisted 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
(In thousands of euro)
12/31/2018
12/31/2017
28,448
30,177
-
-
28,448
30,177
15,604
19,908
15,574
15,269
6,961
6,599
12
184
-
-
-
1,998
12
186
2,748
601
2,610
2,382
40,333
50,315
Total other financial assets at FV through other comprehensive income
68,781
80,492
The item decreases mainly refer to the liquidation of the investment in Emittenti Titoli.
The fair value adjustments under other items of the comprehensive Income Statement amounted to a loss
of euro 8,319 thousand, and refers mainly to the RCS MediaGroup S.p.A. (euro 1,729 thousand), Fin. Priv (euro
4,304 thousand) and Pirelli de Venezuela C.A. (euro 2,610 thousand).
The fair value of listed securities corresponds to the stock market price at December 31, 2018. The fair value of
unlisted securities was determined by making estimates on the basis of the best information available.
OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH INCOME STATEMENT
The changes in the other financial assets at fair value through income statement and recorded in the 2018
Income Statement were as follows:
Opening balance other financial assets at FV through income statement FVPL (IFRS 9) at 01/01/2018
FV adjustment through income statement
Decreases
Closing balance 12/31/2018
(In thousands of euro)
149,027
3,780
(152,807)
-
328
Pirelli Annual Report 2018
The initial value of other non-current financial assets at fair value through the Income statement refers to the
investment in Mediobanca S.p.A, which was disposed of during January 2018.
14. DEFERRED TAX ASSETS AND PROVISION FOR DEFERRED TAX LIABILITIES
Their composition is as follows:
Deferred tax assets
Provision for deferred tax liabilities
Total
(In thousands of euro)
12/31/2018
12/31/2017
74,118
111,553
(1,081,605)
(1,216,635)
(1,007,487)
(1,105,082)
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 recognized 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 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.
The gross amounts for compensations carried out were as follows:
Deferred tax assets
- of which within 12 months
- of which beyond 12 months
Provision for deferred tax liabilities
- of which within 12 months
- of which beyond 12 months
Total
(In thousands of euro)
12/31/2018
12/31/2017
304,872
288,944
126,864
75,345
178,008
213,599
(1,312,359)
(1,394,026)
(3,361)
(37,569)
(1,308,998)
(1,356,457)
(1,007,487)
(1,105,082)
329
Consolidated 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:
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
Other
Total
Provision for deferred tax liabilities:
Property, plant and equipment and intangible assets
Other
Total
(In thousands of euro)
12/31/2018
12/31/2017
48,478
61,428
21,070
70,429
27,727
395
75,345
64,277
72,359
27,357
51,159
23,541
951
49,300
304,872
288,944
(1,259,704)
(1,313,032)
(52,655)
(80,994)
(1,312,359)
(1,394,026)
The item “other” refers mainly to deferred tax assets and mainly includes deferred tax assets recorded on excess
of interest paybles not deducted, and on the ACE benefit (Allowance for Corporate Equity).
At December 31, 2018 the value of deferred tax assets not recognised on temporary differences amounted to
euro 7,867 thousand, while those related to tax losses amounted to euro 44,243 thousand.
The value of the tax losses reallocated according to maturities, for which deferred tax assets were not recognised,
were as follows:
Year of maturity
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
without maturity date
Total
(In thousands of euro)
12/31/2018
12/31/2017
-
4,660
1,712
3,051
2,647
5,970
8,517
2,726
4,708
3,648
512
6,082
4,666
1,711
3,047
2,646
5,969
8,530
2,728
4,708
3,648
-
152,105
143,308
190,256
187,043
330
Pirelli Annual Report 2018
Of the total tax losses with no expiration, the amount euro 56,944 thousand mainly refers to losses attributable
to the English subsidiary Pirelli UK Ltd for which sufficient taxable income was not expected in order to justify
the recoverability thereof.
The tax effect of gains and losses recognised directly in equity was positive to the amount of euro 7,884 thousand
(negative to the amount of euro 6,308 thousand for 2017) and are shown in the Statement of Comprehensive
Income. These changes were mainly due to tax effects connected to actuarial gains/losses on employee benefits
and to the fair value adjustment of derivatives in cash flow hedging.
15. TRADE RECEIVABLES
Trade receivables were analysed as follows:
12/31/2018
12/31/2017
Total
Non-current
Current
Total
Non-current
Current
(In thousands of euro)
Trade receivables
Provision for bad debts
Total
685,090
(57,122)
627,968
-
-
-
685,090
919,573
(57,122)
(267,086)
627,968
652,487
-
-
-
919,573
(267,086)
652,487
The gross value of trade receivables amounted to euro 685,090 thousand (euro 919,573 thousand at December
31, 2017) of which euro 148,663 thousand was for receivables which were past due (expired) at the reporting date
(euro 382,196 thousand at December 31, 2017). The decrease in expired receivables was mainly attributable to
the write-off of receivables due from the Venezuelan company Pirelli de Venezuela C.A. which was sold during
2018.
Receivables which were past due and not yet due were valuated according to the Group’s policy described in
the section on the adopted accounting standards.
The item impaired receivables includes 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.
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)
12/31/2018
12/31/2017
267,086
286,627
-
(2,777)
16,548
(21,865)
18,978
17,659
(245,335)
(12,453)
(156)
(106)
57,122
267,086
331
Consolidated Financial Statements
Accruals to the provision for bad debts are recognised in the Income Statement as “Impairment of net financial
assets” (Refer to Note 33).
The decreases in the provision for bad debts was mainly due to the write-off of the receivables due from Pirelli
de Venezuela C.A., a company sold to third parties during the course of the financial year.
The carrying amount for trade receivables is considered to approximate their fair value.
16. OTHER RECEIVABLES
Other receivables were analysed as follows:
12/31/2018
12/31/2017
Total
Non-current
Current
Total
Non-current
Current
(In thousands of euro)
Financial receivables
156,952
124,048
32,904
131,096
94,585
36,511
Trade accruals and deferrals
32,837
8,907
23,930
34,548
Receivables from employees
6,625
1,059
5,566
6,974
1,513
1,225
33,035
5,749
Receivables from social security
and welfare institutions
Receivables from tax authorities
not related to income taxes
2,537
-
2,537
5,535
-
5,535
306,253
42,021
264,232
247,015
13,521
233,494
Other receivables
152,477
50,173
102,304
181,808
93,207
88,601
Provision for bad debts
(15,323)
(501)
(14,822)
(2,387)
-
(2,387)
Total
642,358
225,707
416,651
604,589
204,051
400,538
657,681
226,208
431,473
606,976
204,051
402,925
The item non-current financial receivables (euro 124,048 thousand) refers mainly to euro 60,995 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 euro 18,222 thousand in sums deposited during the financial year into escrow
accounts in favour of the pension funds of Pirelli UK Ltd and Pirelli UK Tyres Ltd, to euro 13,768 thousand in
contributions paid in cash at the time of signing an association in participation contract, to euro 12,576 thousand
as the non-current portion of loans disbursed to the Indonesian Joint Venture PT Evoluzione Tyres, and to euro
918 thousand relative to the non-current portion of insurance premiums paid in advance during the financial
year for the issuance of guarantees in favour of the same pension funds.
The item current financial receivables (euro 32,904 thousand) refers to euro 3,682 thousand for the short-term
portion of insurance premiums paid in advance for the issuance of guarantees in favour of the same pension
funds, to euro 6,114 thousand for the short-term portion of loans disbursed to the Indonesian joint venture PT
Evoluzione Tyres, and to euro 9,600 thousand accrued on derivative cross currency interest swaps relative to
the unsecured syndicated Facilities loan granted to Pirelli International Plc.
The provision for other receivable and financial receivables (euro 15,323 thousand) mainly includes euro 6,085
thousand relative to the impairment of financial receivables following the application of the new impairment
model introduced by IFRS 9, and is based on expected losses, and euro 9,238 thousand euros mainly for other
impaired receivables due for royalties from the Aeolus Tyre Co., Ltd. consequent to the extraordinary reshaping
of the technology license agreement with the Aeolus Group.
The item receivables from tax authorities not related to income taxes (euro 306.253 thousand) is mainly
comprised of receivables for IVA (value added tax) and other indirect taxes. The increase at December 31,
332
Pirelli Annual Report 2018
2017 was mainly attributable to an increase in indirect tax receivables in Brazil. It should be noted that the item
receivables from tax authorities at December 31, 2018 includes a receivable from the Brazilian tax authorities
for the PIS/COFINS tax totalling euro 23,121 thousand, which was recognised following the obtainment of
favourable rulings by the Federal Regional Court which recognised the right to deduct the state tax on goods
and services (ICMS) on the basis of the calculation of social contributions PIS (Programa de Integracao Social)
and COFINS (Contribucao para Financiamento de Seguridade Social). In more detail:
→ euro 4,900 thousand (of which euro 1,346 thousand is relative to the total nominal value of the receivable
and euro 3,553 thousand is relative to accrued interest) refers to the years from 1992 to 2002 for which
the ruling in favour of the Group was passed for sentencing in December 2018.
→ euro 18,222 thousand refers to receivables for the financial years from 2003 to 2014. For these years, even
though the judgment has not the force of res judicata as of December 31, 2018, also on the basis of an opinion
by an independent expert, the portion of this receivable was recorded in the Financial Statements which at
the closing of the financial year met the conditions of virtual certainty required by the accounting standards.
The item other non-current receivables (euro 50,173 thousand) mainly refers to amounts deposited as
guarantees for legal and tax disputes involving the Brazilian business units (euro 44,739 thousand), to receivables
pledged as guarantees in Pirelli’s favour which may be exercised in the event of contingent liabilities arising in
relation to the acquisition of the company Campneus Lider de Pneumaticos Ltda (Brazil) for euro 2,281 thousand.
The item other current receivables (euro 102,304 thousand) mainly includes advances to suppliers amounting
to euro 38,877 thousand, receivables from the disposal of real estate property not used for industrial operations
in Brazil amounting to euro 2,253 thousand, and receivables from associates amounting to euro 10,582 thousand
mainly refers to the sale of materials and moulds and receivables relative to the Prometeon group for the amount
of euro 14,343 thousand.
For other current and non-current receivables the carrying amount is considered to approximate their fair value.
17. TAX RECEIVABLES
The item tax receivables refers to income taxes which amounted to euro 57.562 thousand (of which euro
16.169 thousand was non-current) compared to euro 62.779 thousand at December 31, 2017 (of which euro
27,318 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 receivables from previous financial years recorded by
the Brazilian and Argentine companies.
18. INVENTORIES
Inventories were analysed as follows:
Raw and auxiliary materials and consumables
Sundry materials
Work in progress and semi-finished products
Finished products
Advances to suppliers
Total
333
(In thousands of euro)
12/31/2018
12/31/2017
155,205
147,645
6,492
5,197
55,608
48,782
910,447
737,558
714
1,486
1,128,466
940,668
Consolidated Financial Statements
The restatement of the value of inventories recognised
net of impairments amounted to euro 21,497 thousand
(impairments for euro 7,486 thousand at December 31, 2017).
Inventories were not subject to any guarantee pledges.
19. OTHER FINANCIAL ASSETS AT FAIR VALUE
THROUGH INCOME STATEMENT - CURRENT
exchange differences from the translation of foreign financial
statements (negative to the amount of euro 82,314 thousand
euro) and to transactions with minority shareholders
(negative to the amount of euro 36,345 thousand).
The subscribed and paid up share capital at December
31, 2018 amounted to euro 1,904,375 thousand and was
represented by 1,000,000,000 registered ordinary shares
without indication of their nominal value.
Other financial assets at fair value through income statement
amounted to euro 27,196 thousand at December 31, 2018.
21.2
ATTRIBUTABLE TO NON-CONTROLLING
INTERESTS
It should be noted that following the entry into force of
IFRS 9 on January 1, 2018, financial assets which at
December 31, 2017 were classified as securities held for
trading amounted to euro 33,027 thousand, were classified
as other financial assets at fair value through income
statement (FVPL).
The fair value of unlisted securities was determined by making
estimates on the basis of the best information available.
Changes in fair values for the financial year were recognised
in the Income Statement as “Financial expenses” (refer to
Note 38).
20. CASH AND CASH EQUIVALENTS
Cash and cash equivalents went from euro 1,118,437
thousand at December 31, 2017 to euro 1,326,900
thousand at December 31, 2018.
These were concentrated in the finance companies of the
Group and in companies that generate liquidity and use it
locally. These were essentially invested on the short-term
maturity deposits market through leading banking counter-
parties at interest rates consistent with the prevailing
market conditions.
For the purposes of the cash flow statement, the balance
of cash and cash equivalents was recorded net of current
accounts payable for euro 23,048 thousand at December 31,
2018 (euro 8,797 thousand at December 31, 2017).
21. EQUITY
ATTRIBUTABLE TO PARENT COMPANY
21.1
Equity attributable to parent company went from euro
4,116,758 thousand at December 31, 2017 to euro 4,468,121
thousand at December 31, 2018. The increase was mainly
due to the net income for the financial year (positive at euro
431,606 thousand), to actuarial gains on pension funds
(positive at euro 28,727 thousand) and to the effect of high
inflation in Argentina (positive at euro 26,242 thousand)
of euro) which were offset by reductions due to foreign
334
Equity attributable to non-controlling interests went
from euro 60,251 thousand at December 31, 2017 to euro
82,806 thousand at December 31, 2018. The increase was
mainly due to the net effect of transactions with minority
shareholders as described in Note 21.3.
21.3
MAIN TRANSACTIONS WITH MINORITY
SHAREHOLDERS
During June 2018, the separation of the Group’s residual
industrial assets held in the subsidiary in Argentina was
completed. The operation was structured according to the
following methods:
→ On June 28, 2018 the Group acquired the minority interest
(of 28.5%) held in Pirelli Neumaticos S.A.I.C. from the
Prometeon Tyre Group S.r.l. for the amount of euro 31.2
million, increasing its shareholding from 71.5% to 100%.
The carrying amount of the minority interest acquired was
negative at approximately euro 6.1 million. The difference
between the price paid and the net equity acquired was
equal to euro 37.3 million, and since it refers to a transaction
with minorities, it was recognised as a reduction to the net
equity attributable to the Parent Company.
→ On June 29, 2018, the subsidiary Pirelli Neumaticos
S.A.I.C. transferred the assets of the Industrial
Business, to the company, the Prometeon Tyre Group
de Argentina S.A, which is part of the Prometeon Group,
for a an amount of approximately euro 27 million. The
transaction generated a capital gain of approximately
euro 21 million (approximately euro 15 million net of
the tax effect) which was recognised as an increase
to the Group’s equity in continuity with the accounting
adopted at the time of the assignment of the industrial
business, due to the fact that the operation came about
through subjects under common control.
Both transactions took place on the basis of values
determined by a third and independent professional.
During May 2018, the increase of the reserved capital of
Pirelli Tyre Russia was finalised, amounting to approximately
euro 14 million, signed by some of the minority shareholders
for a total of 35% of the company’s share capital. The
transaction generated a negative impact on the Group’s
equity of approximately euro 12 million, given the differential
between the carrying amount of the equity acquired from the
Pirelli Annual Report 2018
minorities and the value of the contribution made, inclusive of the additional transaction costs. It should also be
noted that as part of this reorganisation, an option for acquisition was provided for concerning the entire investment
of the minority shareholder Panaland, equal to 10% of the Pirelli Tyre Russia capital. This option provides for a
crossover Call and Put system: the call option can be exercised by E-Volution Tyre B.V. (EVO - a company 100%
owned by Pirelli Tyre S.p.A.) during the period between January 1 and June 30, 2020, while the put option will be
exercised by Panaland, subject to the non-exercise of the call option by EVO, during the period between July 1
and December 31, 2020. Against this option a financial liability was recorded for a total of euro 4.2 million with a
simultaneous reduction in the equity attributed to non-controlling interests. The impact of the transaction on the
equity of non-controlling interests was positive to a total amount of euro 13.1 million.
22. PROVISIONS FOR LIABILITIES AND CHARGES
The changes that occurred during the financial year are shown below:
PROVISION FOR LIABILITIES AND CHARGES - NON-CURRENT PORTION
(In thousands of euro)
Opening balance
Translation differences
Increases
Uses
Reversals
Other
Closing balance 12/31/2018
127,124
(1,657)
27,560
(10,554)
(4,203)
57
138,327
The non-current portion mainly refers to provisions made by the subsidiaries Pirelli Pneus Ltda, with headquarters
in Brazil, for tax and legal disputes (euro 20,075 thousand) and for labour lawsuits (euro 11,930 thousand), and to
provisions made by the parent company Pirelli & C. S.p.A. for tax disputes (euro 1,141 thousand), for commercial
risks, remediation of disused areas and labour disputes (euro 3,160 thousand), and for occupational diseases
litigation (euro 14,576 thousand), to a provisions for liabilities and charges recorded for the investment in the
Joint Venture PT Evoluzione Tyres (euro 8,620 thousand) for the surplus between the proportion of the loss for
the period and the value of the investment and by a provision attributable to the rationalisation of the structures
relative to the Standard business launched during the course of 2018 for euro 13,000 thousand.
The item also includes contingent liabilities (whose outlay is not considered likely) which were identified during
the Purchase Price Allocation following the acquisition of the Pirelli Group by Marco Polo Industrial Holding
S.p.A. and the subsequent reverse merger, attributable to the decision taken by the European Commission -
which was subsequently confirmed by the ruling of the General Court of the European Union on July 12, 2018,
against which on September 21, 2018 Pirelli & C. S.p.A. (Pirelli) filed an appeal to the Court of Justice of the
European Union of the decision made following the antitrust investigation regarding the energy cable business,
which foresaw sanctions against Prysmian Cavi e Sistemi S.r.l. (Prysmian) of approximately euro 104 million, of
which a part (euro 67 million), Pirelli, despite having been found to not have been involved in the alleged cartel,
was held as being jointly liable with Prysmian S.p.A., based solely on the application of the principle of so-called
parental liability, in that during part of the period of the alleged infringement, Prysmian S.p.A. was a subsidiary of
Pirelli & C. S.p.A. The provisioned amount is equal to euro 33.5 million which corresponds to the amount of the
first-call bank guarantee issued by Pirelli - similar to what was carried out by Prysmian - for the benefit of the
Commission (and at the request of the latter) for an amount equal to 50% of the aforementioned euro 67 million.
The item increases mainly refers to provisions for the labour disputes of the subsidiary Pirelli Pneus Ltda., to
provisions for the remediation of disused areas, to provisions for the surplus between the pro-rata share of loss for the
period and the value of the investment in the Joint Venture PT Evoluzione Tyres, and to provisions the aforementioned
335
Consolidated Financial Statements rationalisation measures taken for the structures relative to the Standard business which began in 2018.
The item uses were for costs incurred mainly due to the labour disputes of the subsidiaries Pirelli Pneus Ltda
(Brazil), and for settling pending litigations against Pirelli Tyre S.p.A. and Pirelli C. S.p.A. for disputes relating to
occupational diseases and for the remediation of disused areas.
The reversals of surplus provisions are mainly linked to adjustments to the provisions for tax risks.
PROVISION FOR LIABILITIES AND CHARGES - CURRENT PORTION
(In thousands of euro)
Opening balance
Translation differences
Increases
Uses
Reversals
Reclassification
Closing balance 12/31/2018
45,833
157
10,306
(4,800)
(6,597)
(11,023)
33,876
The current portion mainly includes provisions for, product claims and warranties (euro 10,839 thousand), for
the remediation of disused areas (euro 4,700 thousand), for insurance risks (euro 2,911 thousand), and work
place accidents relative to the English subsidiary (euro 3,343 thousand).
The item increases mainly refers to provisions for product claims and product warranty, insurance risks, tax
risks and work place accidents.
The item uses was mainly attributable to the use of the products warranty provision through claims received
from the various units of the Group, and use of the work place accidents provision.
The reversals of surplus provisions mostly concerned adjustments to the provisions for claims, for the remediation
of environmental areas, for risks related to workplace safety in factories, and for insurance risks.
23. EMPLOYEE BENEFIT OBLIGATIONS
PENSION FUNDS – NON-CURRENT PORTION
The item is composed as follows:
Pension funds:
- funded
- unfunded
Employee leaving indemnities (TFR - Italian companies)
Healthcare plans
Other benefits
Total
336
(In thousands of euro)
12/31/2018
12/31/2017
51,143
86,639
32,175
17,126
37,229
92,144
91,035
33,083
18,885
38,890
224,312
274,037
Pirelli Annual Report 2018
Pension funds
The following table shows the composition of pension funds at December 31, 2018.
Germany
Sweden
Total
unfunded
pension funds
USA
UK
Other
countries
Total funded
pension funds
12/31/2018
(In thousands of euro)
-
-
-
-
-
-
118,489
1,053,985
34,612
1,207,086
(95,169)
(1,030,587)
(30,187)
(1,155,943)
Funded funds
Present value of funded liabilities
Fair value of plan assets
Unfunded funds
Present value of unfunded liabilities
83,455
3,184
86,639
-
-
-
-
Net liabilities recognised
83,455
3,184
86,639
23,320
23,398
4,425
51,143
The following table shows the composition of pension funds at December 31, 2017.
Germany
Sweden
Total
unfunded
pension funds
USA
UK
Other
countries
Total funded
pension funds
12/31/2017
(In thousands of euro)
-
-
-
-
-
-
132,483
1,137,456
36,067
1,306,006
(111,813)
(1,071,079)
(30,970)
(1,213,862)
Funded funds
Present value of funded liabilities
Fair value of plan assets
Unfunded funds
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
The characteristics of the main pension funds in place at December 31, 2018 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 pension. The plan was closed in October 1982. Consequently the participants to this
plan are employees whose employment had begun prior to that date;
→ USA: a funded defined benefit plan based on the last salary. This fund guaranteed a pension in addition
to the state pension and was administered by a Trust. The plan was closed in 2001 and frozen in 2003
for employees who then transferred to a defined contribution scheme. All participants to this plan have
since retired;
→ UK: a funded defined benefit plan based on the last salary. 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 sold in 2005, and was already frozen
at the date of the disposal;
337
Consolidated Financial Statements
→ Sweden: a defined benefits plan (ITP2), which is closed to new participants. The only participants are retired
employees and the recipients of deferred pensions.
Changes for the 2018 financial year in the net liabilities of defined benefits (refers to funded and non-funded
pension funds) were as follows:
Opening balance at January 1, 2018
1,397,042
(1,213,863)
183,179
Translation difference
(1,839)
2,841
1,002
Present value
of gross liabilities
Fair value
of plan assets
Total net liabilities
(In thousands of euro)
Movements through income statement:
- current service cost
- cost of services rendered for previous years
- 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
1,622
14,319
-
-
34,248
(30,780)
1,622
14,319
3,468
50,189
(30,780)
19,409
(14,988)
(66,749)
8,252
-
-
-
(14,988)
(66,749)
8,252
- return on plan assets, net of interest income
-
46,349
46,349
Employer contributions
Employee contributions
Benefits paid
Settlements
Other
(73,485)
46,349
(27,136)
-
528
(33,710)
(33,710)
(528)
-
(78,167)
72,119
(6,048)
-
-
-
(544)
1,630
1,086
Closing balance at December 31, 2018
1,293,724
(1,155,942)
137,782
338
Pirelli Annual Report 2018
Changes for the 2017 financial year in the net liabilities of defined benefits (refers to funded and non-funded
pension funds) were as follows:
Opening balance at January 1, 2017
1,554,516
(1,311,365)
243,151
Translation difference
(63,468)
56,428
(7,040)
(In thousands of euro)
Valore attuale
passività lorda
Fair value delle
attività a servizio
del piano
Totale passività
netta
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
1,538
(5,559)
(1,375)
-
-
-
40,590
(35,554)
35,194
(35,554)
237
25,746
(7,940)
-
-
-
- return on plan assets, net of interest income
-
(3,277)
1,538
(5,559)
(1,375)
5,036
(360)
237
25,746
(7,940)
(3,277)
Employer contributions
Additonal employer contributions - Buy in
Employee contributions
Incentivised exit from benefits fund
Benefits paid
Other
18,043
(3,277)
14,766
-
-
(43,690)
(43,690)
(18,674)
(18,674)
250
(250)
(77,085)
77,085
-
-
(69,404)
63,254
(6,150)
(1,004)
2,180
1,176
Closing balance at December 31, 2017
1,397,042
(1,213,863)
183,179
The past services costs at December 31, 2018 (euro 14,319 thousand) mainly includes the provision on the
estimated impacts on pension obligations deriving from the need to recalculate them in order to equalise some
of the differences in treatment with reference to the minimum guaranteed pension (GMP equalisation) that
emerged in the UK pension sector following the High Court ruling of October 26, 2018 in the case concerning
the Lloyds Banking Group.
Both the past and current services costs are included in the item “Personnel expenses” (Refer to Note 32), and
the net interests payable are included in the item “Financial expenses” (Refer to Note 38).
339
Consolidated Financial Statements
The composition of funded pension fund assets was as follows:
12/31/2018
31/12/2017
listed
unlisted
total
%
listed
unlisted
total
%
(In thousand of euro)
Shares
Bonds
Insurance policies
Deposits
54,391
76,181
84,567
355,410
-
-
-
-
54,391
4.7%
66,421
76,181
6.6%
73,535
-
-
66,421
5.5%
73,535
84,567
7.3%
87,717
6,040
93,757
6.1%
7.7%
355,410
30.7%
339,083
-
339,083
27.9%
Balanced funds
6,665
559,360
566,025
49.0%
16,813
596,829
613,642
50.6%
Real Estate
Derivatives
Other
Total
2,558
-
2,558
0.2%
1,258
-
1,258
0.1%
3,267
(739)
2,529
0.2%
879
4,120
4,999
0.4%
14,186
95
14,282
1.2%
21,168
-
21,168
1.7%
597,226
558,717
1,155,943
100,0%
606,874
606,989
1,213,863
100.0%
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 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 consequent increase in imbalances. However, this
risk is mitigated by diversifying investments into numerous investment classes, through different investment
managers, through different investment styles and with exposures to multiple factors which are not perfectly
correlated to each other. Moreover, the investments are continuously revised in response to market conditions,
and adjusted in order to maintain the overall risk at acceptable levels;
→ changes in 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;
→ life expectancy: the increase in life expectancy entails an increase in the value of a plan’s liabilities. The UK
plans were completed during the course of 2016, a process which allowed them to be, through the so-called
longevity swaps, stipulated with a pool of 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 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 represents the value of assets - through the use of debt instruments such as government
bonds and derivatives;
→ the management of exchange rate risk which aims at covering at least 70% of the exposure to foreign
currencies held in the portfolio through the use of forward contracts.
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Pirelli Annual Report 2018
Furthermore, during the course of 2016, following the increase in financial leverage resulting from the merger
of Pirelli & C. S.p.A. with Marco Polo Industrial Holding S.p.A. and the impact deriving from the covenants of
the Group, an agreement (the Pension Framework Agreement) was entered into from within the refinancing
process with the UK pension funds, through which, a package of measures (entered into with a pool of insurance
companies, the so called Credit Support Guarantees, comprising of limited payments by way of restricted
deposits into escrow accounts, and the definition of an accelerated contributions plan limited to a period of
extraordinary leverage) was put in place to guarantee the “synthetic” restoration of these covenants to levels
which existed prior to the acquisition of the Pirelli Group by Marco Polo Industrial Holding S.p.A., for the purposes
of continuing the work of the gradual settlement of the relative deficits previously imposed.
In the United Kingdom, the funding arrangements and funding policies are revised every three years. The next
funding evaluation is expected in 2020. In the United States funding evaluations are carried out on an annual basis.
The contributions which are expected to be paid into the unfunded pension funds during the 2019 financial year
amounts to euro 5,851 thousand, while for funded pension funds the amount expected is euro 32,032 thousand.
EMPLOYEES’ LEAVING INDEMNITIES (TFR)
Changes for the financial year for the employees’ leaving indemnities provision were as follows:
Opening balance
Industrial assignment
Movements through Income Statement:
- current service cost
- interest expense
Remeasurements recognized in equity:
- actuarial (gains)/losses arising from changes in demographic assumptions
- actuarial (gains)/losses arising from changes in financial assumptions
- experience (gains)/losses
Indemnities/advanced payments
Other
Closing balance
(In thousands of euro)
12/31/2018
12/31/2017
33,083
-
62
536
6
291
-
(1,030)
(773)
38,194
(1,949)
302
552
(488)
581
(2,510)
(1,083)
(516)
32,175
33,083
The current cost for services rendered by employees is included in the item “Personnel expenses” (Refer to
Note 32) while interest payables are included in the item “Financial expenses” (Refer to Note 38).
HEALTHCARE PLANS
This item refers exclusively to the healthcare plan in place in the United States.
Liabilities recognised in the Financial Statements at 12/31/2018
Liabilities recognised in the Financial Statements at 12/31/2017
341
(In thousands of euro)
USA
17,126
18,885
Consolidated Financial Statements
The following changes occurred during the period:
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)
12/31/2018
12/31/2017
18,885
20,761
814
(2,553)
4
614
(993)
(183)
(957)
4
749
691
0
347
(1,058)
(1,114)
17,126
18,885
The cost for the service is included in the item “Personnel expenses” (Refer to Note 32), and net interests payable
is included in “Financial expenses” (Refer to Note 38).
The contributions which are expected to be paid into the healthcare plan during the 2019 financial year amount
to euro 1,432 thousand.
ADDITIONAL INFORMATION REGARDING POST-EMPLOYMENT BENEFITS
Net actuarial losses accrued during the 2018 financial year and recognised directly in equity amounted to euro
28,727 thousand.
The main actuarial assumptions used at December 31, 2018 were as follows:
Italy
Germany
Netherlands
Sweden
UK
USA
Switzerland
Discount rate
Inflation rate
1.50%
1.50%
1.70%
2.30%
2.05%
2.90%
4.20%
0.85%
1.50%
1.60%
2.00%
3.13%
N/A
1.00%
The main actuarial assumptions used at December 31, 2017 were as follows:
Italy
Germany
Netherlands
Sweden
UK
USA
Switzerland
Discount rate
Inflation rate
1.60%
1.50%
1.60%
1.50%
2.15%
2.25%
2.50%
3.50%
0.70%
1.60%
1.75%
3.10%
N/A
1.00%
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Pirelli Annual Report 2018
The following table presents an analysis of the payment deadlines relative to post-employment benefits:
within 1 year
1 to 2 years
3 to 5 years
over 5 years
Total
(In thousands of euro)
Pension funds
67,511
67,983
207,434
355,412
698,340
Employees’ leaving indemnities (TFR)
Healthcare plan
Total
2,404
1,431
2,429
1,431
6,991
10,406
22,230
4,202
6,360
13,424
71,346
71,843
218,627
372,178
733,993
The weighted average duration of bonds for post-employment benefits was equal to 14.57 years (15.29 years
at December 31, 2017).
The sensitivity analysis for the relevant actuarial assumptions at the end of the financial year was as follows:
Impact on post employment benefits
Change in assumptions
Increase in assumptions
Decrease in assumptions
(in %)
Discount rate
0.25%
riduzione del
3.46%
aumento del
Inflation rate (only UK plans)
0.25%
aumento del
2.06%
riduzione del
At the end of 2017 the situation was as follows:
3.67%
2.36%
(in %)
Impact on post employment benefits
Change in assumptions
Increase in assumptions
Decrease in assumptions
Discount rate
0.25%
riduzione del
3.61%
aumento del
Inflation rate (only UK plans)
0.25%
aumento del
2.46%
riduzione del
3.83%
2.23%
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 the central hypothesis for the same rates, rather than comparing
them to an alternative set of hypotheses.
The sensitivity analysis on the liabilities related to post-employment benefits is based on the same methodology
used to calculate the liability recognised in the Financial Statements.
343
Consolidated 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)
12/31/2018
12/31/2017
2,018
18,433
10,786
5,992
-
19,262
12,974
6,654
37,229
38,890
The item Long Term Incentives Plan includes the amount allocated for the 2018-2020 three-year Long Term
Incentives Plan, aimed at the entire management sector and which correlates with the 2018-2020 objectives
contained in the 2017-2020 Industrial Plan.
EMPLOYEE BENEFIT OBLIGATIONS - CURRENT PORTION The item employee benefit obligations which
amounted to euro 5,475 thousand refers to the portion of the second instalment of the retention plan which is
pertinent at December 31, 2018, and which will be liquidated during the first half-year of 2019. The plan was
approved by the Pirelli Board of Directors on February 26, 2018, and is intended for Managers with strategic
responsibilities and a select number of senior Managers and Executives whose contribution in the implementation
of the Strategic Plan is considered particularly significant.
24. BORROWINGS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS
Borrowings from banks and other financial institution were as follows:
12/31/2018
12/31/2017
Total
Non-current
Current
Total
Non-current
Current
(In thousands of euro)
Bonds
1,269,514
1,269,514
-
596,280
596,280
-
Borrowings from banks
3,412,940
2,654,914
758,026
3,787,428
3,298,717
488,711
Borrowings from other financial institutions
17,048
393
16,655
50,267
Financial leasing payables
Accrued financial expenses and deferred
financial income
Other financial payables
213
21,711
7,798
10
28
4,220
203
428
21,683
3,578
18,175
3,679
1,176
324
30
562
49,091
104
18,145
3,117
Total
4,729,224
3,929,079
800,145
4,456,257
3,897,089
559,168
The item bonds refers to:
→ an unrated public bond loan for a total nominal amount of euro 753 million of which euro 553 million, (originally
for euro 600 million and partially repurchased for a total amount of euro 47 million during the last quarter
of the year) placed on January 22, 2018 with a fixed coupon of 1.375% and an original maturity of 5 years,
plus a second bond loans issued on March 15, 2018 for a nominal amount of euro 200 million at a floating
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Pirelli Annual Report 2018
rate, with original maturity of 2.5 years. Both loans, placed with international institutional investors, were
issued as part of the EMTN (Euro Medium Term Note) program approved by the Board of Directors at the
end of 2017, signed on January 10, 2018 and updated on December 19, 2018. A previous bond placed by
Pirelli International Plc on November 2014 for the nominal amount of euro 600 million, with a fixed coupon
of 1.75% and with original maturity in November 2019, was repaid in advance on March 20, 2018 The early
repayment, which will cover the entire loan, and which responds to the objective announced for the constant
optimisation of the Group’s financial structure, will take place through the exercise of the “Make Whole Issuer
Call” which is provided for by the current Terms and Conditions of the loan, and has entailed the recording
of the relative expenses (Refer to Note 38 “Financial expenses”);
→ the floating rate “Schuldschein” loan for a total nominal value of euro 525 million on July 26, 2018, The loan,
signed by primary market operators, consists of one tranche for the amount of euro 82 million with 3 year
maturity, another for euro 423 million with a 5 year maturity, and another for euro 20 million with a 7 year
maturity.
The carrying amount for bonds was determined to be as follows:
Nominal value
Transaction costs
Bond discount
Amortisation of effective interest rate
Total
(In thousands of euro)
12/31/2018
12/31/2017
1,278,000
600,000
(7,683)
(2,988)
2,185
(6,176)
(3,012)
5,468
1,269,514
596,280
The item borrowings from banks, which amounted to euro 3,412,940 thousand, mainly refers to:
→ use of the secured Facilities loan granted to Pirelli & C. S.p.A. and Pirelli International Plc for the amount
of euro 2,643,905 thousand. The nominal refinanced total subscribed to on June 27, 2017, (with a closing
date of June 29, 2017) amounted to euro 3.4 billion (the net amount of repayments made since the date of
signing - the original amount of the credit facility granted was euro 4.2 billion). The loan was subjected to
repricing (reduction to the interest rates to be paid on the loan) in January 2018, entailing the recognition of
a benefit in the Income Statement relative to the re-measurement of the debt (Refer to Note 38 “Financial
expenses”). The loan had an original maturity of three and five years and was entirely classified under non-
current borrowings from banks. On November 29, 2018 the loan was modified to include the right for the Pirelli
Group to extend, at its own discretion, the expiry of the individual lines of the loan to up to 2 years with respect
to their original contractual maturity of 3 and 5 years. Lastly, it should be noted that on November 29, 2018
all the credit facilities originally granted to Pirelli International Plc were transferred to the Parent company
Pirelli & C. S.p.A. and therefore at December 31, 2018 the entire credit line is held by the Parent Company;
→ euro 426,134 thousand relative to loans disbursed in Brazil by local banking institutions of which euro 6,508
thousand has been classified under non-current borrowings from banks;
→ euro 200,000 thousand relative to the loan disbursed by Intesa Sanpaolo to Pirelli & C. S.p.A. at a fixed rate
and maturing in January 2019, has been classified under non-current borrowings from banks; It should be
noted that in July 2018 the maturity of the loan was extended until July 19, 2019;
→ 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 residual amount of euro 10,000 thousand were fully classified under current
borrowings from banks;
→ euro 54,187 thousand refers in particular to certain loans classified as current borrowings from banks
granted to the Mexican subsidiaries;
→ euro 12,630 thousand representing the loan granted to the subsidiary Pirelli Tyre (Jiaozuo) Co., Ltd (China),
classified as current borrowings from banks;
→ euro 11,612 thousand representing the loans granted to the subsidiary Pirelli Otomobil Lastikleri (Turkey)
and classified as current borrowings from the banks;
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Consolidated Financial Statements
→ the use of credit facilities at local level in Russia, (euro 22,268 thousand), Argentina (euro 6,485 thousand), Japan
(euro 6,357 thousand) and Sweden (euro 4,511 thousand) classified entirely as current borrowings from banks.
At December 31, 2018, the Group had a liquidity margin equal to euro 2,054.1 million composed of euro 700.0
million in the form of non-utilised committed credit facilities, and of euro 1,326.9 million in cash, in addition to
financial assets at fair value recognised in the Income Statement to the amount of euro 27.2 million.
The change in the total borrowings from banks and other financial institutions was follows:
Borrowings from banks and other financial institutions at December 31, 2017
Bond issuance (EMTN program)
Bond buy-back (EMTN program)
Bond issuance (Schuldschein)
Drawdowns of unsecured financing (Facilities)
Reimbursements of unsecured financing (Facilities)
Intesa financing
Reimbursement of BEI borrowing
Flows from local financing facilities of subsidiaries
Amortized cost for the period
Translation differences and other movements for the period
Borrowings from banks and other financial institutions at December 31, 2018
(In thousands of euro)
4,456,257
797,012
(645,172)
525,000
1,035,786
(1,737,501)
200,000
(20,000)
26,415
(15,479)
106,906
4,729,224
The change in total borrowings from banks and other financial institutions for the previous financial year is
shown below:
Borrowings from banks and other financial institutions 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)
Reimbursement of BEI borrowing
Net cash flow from Industrial assignment
Amortized cost for the period
Translation differences and other movements for the period
Borrowings from banks and other financial institutions at December 31, 2017
(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
Accrued financial expenses and deferred financial income (euro 21,711 thousand) mainly refers to the accrual
of interest on loans from banks to the amount of euro 12,387 thousand (euro 16,784 thousand at December
31, 2017), and to the accrued interest matured on bonds to the amount of euro 9,269 thousand (euro 1,237
thousand at December 31, 2017).
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Pirelli Annual Report 2018
Current and non-current financial payables backed by secured guarantees (pledges and mortgages) totalled
euro 342 thousand (euro 676 thousand at December 31, 2017).
The carrying amount for current financial payables is considered to approximate their fair value. The table below
compares the fair value of non-current financial payables with their carrying amount:
Bonds
Borrowings from banks
Other financial payables
Total
(In thousands of euro)
12/31/2018
12/31/2017
Carrying amount
Fair value
Carrying amount
Fair value
1,269,514
1,252,468
596,280
613,998
2,654,914
2,697,096
3,298,717
3,355,453
4,651
4,651
2,092
2,092
3,929,079
3,954,215
3,897,089
3,971,543
The unrated public bond issued by Pirelli & C. S.p.A. is listed and its relative fair value measured on the basis of prices
at financial year-end. It has therefore been classified in level 1 of the hierarchy, as provided for by IFRS 13 – Fair
Value Measurement. The fair value of the “Schuldschein” loan and of current borrowings from bank was calculated
by discounting each expected borrowings cash flow at the market swap rate for the currency and at the maturity
date, increased by the Group’s creditworthiness for debt instruments similar by nature and technical characteristics,
which therefore places it at level 2 of the hierarchy as 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, 2018 and December 31, 2017 was as follows:
EUR
USD (US Dollar)
MXN (Mexican Peso)
RUR (Russian ruble)
TRY (Turkish Lira)
CNY (Chinese renmimbi)
BRL (Brasilian Real)
Other Currencies
Total
(In thousands of euro)
12/31/2018
12/31/2017
2,403,626
2,270,509
2,184,842
1,968,909
54,187
32,738
13,433
12,829
9,887
17,682
51,528
9,059
31,004
166
105,471
19,611
4,729,224
4,456,257
At December 31, 2018 there are derivative hedging instruments for interest rates and exchange rates on floating
rate debts in foreign currency.
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 date of the renegotiation of the same (resetting) was subdivided as follows:
→ a floating rate payable to the amount of euro 3,929,394 thousand, whose interest rate is subject to
renegotiation within the first six months of 2018;
→ a fixed rate payable to the amount of euro 799,830 thousand, whose interest rate is not subject to renegotiation
until the natural maturity of the debt to which it refers (euro 248,715 thousand) due in the following 12 months
347
Consolidated Financial Statements
and euro 551,115 thousand euro due in over 12 months.
The cost of debt on an annual basis stood at 3.37%, (2.95% including repricing impacts), compared to 5.36%
at December 31, 2017.
The reduction in the cost of debt during the course of the 2018 financial year mainly reflects:
→ lower interest by approximately euro 84.9 million, due mainly to the lower cost of the main bank credit facility
signed in June 2017, compared to the previous bank loan, as well as the reduction of debt thanks also to
the share capital increase by Marco Polo for approximately euro 1.2 billion which took place in June 2017;
→ the favourable comparison between the not-yet-amortised wash down of fees included for 2017 of euro 61.2
million, and to the amount of euro 3.6 million for 2018, respectively relative to the old bank loan which was repaid
in advance in June 2017, and to the bond placed by Pirelli International Plc (for the amount of euro 600 million,
with a fixed coupon of 1.75% and original maturity in November 2019) which was repaid early in March 2018;
→ the almost neutral balance between the positive effect deriving from the repricing of the Group’s main bank
credit facility in January 2018, and the expenses arising from the early extinction in March 2018 of the
bond placed by Pirelli International Plc (for the amount of euro 600 million with a fixed coupon of 1.75% and
original maturity in November 2019) carried out through the exercise of the so-called make-whole option;
→ to lower interest on local credit facilities as a mix of interest rate cuts and increased indebtedness in countries
with a high interest rate.
With regard to the existence of financial covenants, it is to be noted that Group’s main bank credit facility
(“Facilities”) granted to Pirelli & C. S.p.A. and Pirelli International Plc (currently usable only by, and in its entirety
by Pirelli & C.) and the financing of the “Schuldschein” loan, require compliance with a maximum ratio (“Total Net
Leverage”) between net indebtedness and the gross operating margin as reported in the consolidated Financial
Statements of Pirelli & C. S.p.A.
For both of the above loans, the failure to comply with the financial covenant is identified as a default event which is
exercised in accordance with the terms of the relative contract only if requested by a number of the lending banks
which represent at least 66 2/3% of the total commitment, and brings about the early repayment (either partial
or total) of the loan with the simultaneous cancellation of the related commitment, while for the Schuldschein
loan, it may be individually exercised in accordance with the terms of the relative contract, by each lending bank
and involves the early repayment of the loan only for the portion due to the bank that has exercised this remedy.
This parameter had been complied with at December 31, 2018. Also in the case of the Schuldschein loan, any
failure to comply with the financial covenant is identified as an event of default but, unlike that which happens
in the case of bank financing, qualified majorities are not required for the early repayment request, each lender
being able to proceed independently for its share.
The Facilities and Schuldschein loans provide for a Negative Pledge clause whose terms and conditions are
consistent with the market standards for this type of credit facility.
The other outstanding financial payables at December 31, 2018 did not contain financial covenants.
25. TRADE PAYABLES
Trade payables were composed as follows:
Trade payables
Bill and notes payable
Total
(In thousands of euro)
12/31/2018
12/31/2017
Total
Non-current
Current
Total
Non-current
Current
1,567,718
36,959
1,604,677
-
-
-
1,567,718
1,634,950
36,959
38,692
1,604,677
1,673,642
-
-
-
1,634,950
38,692
1,673,642
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Pirelli Annual Report 2018
The carrying amount of trade payables is considered to approximate their fair value.
26. OTHER PAYABLES
Other payables were as follows:
12/31/2018
12/31/2017
Total
Non-current
Current
Total
Non-current
Current
(In thousands of euro)
Accrued expenses and deferred income
84,338
53,233
31,105
75,787
43,995
31,792
Tax payables not related to income taxes
93,200
6,171
87,029
120,100
5,730
114,370
Payables to employees
98,167
220
97,947
115,835
817
115,018
Payables to social security and welfare intitutions
68,576
21,894
46,682
71,058
21,332
49,726
Dividends payable
Contract liabilities
Other payables
Total
350
4,147
-
-
350
4,147
338
-
-
-
338
-
171,261
1,769
169,492
256,571
2,561
254,010
520,039
83,287
436,752
639,689
74,435
565,254
The item non-current accrued expenses and deferred trade income refers to euro 49,291 thousand in capital
contributions received for investments in Mexico and Romania, whose benefits are recognised in the Income
Statement in proportion to the costs for which the contribution was disbursed, and to euro 2,640 thousand in
costs for trade initiatives in Brazil.
The item current accrued expenses and deferred trade income includes euro 7,034 thousand for various trade
initiatives realised in Germany and Brazil, euro 8,805 thousand in government grants and incentives received
mainly in Italy and Romania, and euro 1,442 thousand for costs related to insurance coverage in some European
countries and in Argentina.
The item tax payables for taxes not related to income is mainly comprised of payables for IVA (value added
tax) and other indirect taxes, withholding tax for employees and taxes not related to income.
The item current payables to employees mainly includes amounts accrued during the period but not yet paid.
The item liabilities from contracts with customers refers to advanced payments from customers for which
the performance obligation has not yet been completed, in line with the provisions of IFRS 15. At December 31,
2017 these amounts were included under “other current payables”.
The item other current payables (euro 169,492 thousand) mainly includes:
→ euro 106,668 thousand for the purchase of property, plant and equipment (euro 105,431 thousand at
December 31, 2017);
→ euro 14,813 thousand in withholding taxes on income (euro 14,872 thousand at December 31, 2017);
→ euro 6,932 thousand in payables to companies in the Prometeon group particularly in Brazil and China;
→ euro 6,674 thousand in payables to representatives, agents, professionals and consultants. The item at
December 31, 2017 included euro 21,111 thousand for costs incurred in relation to the IPO process;
→ euro 6,585 thousand relative to the purchase of 34 points of sale in São Paulo by the Brazilian subsidiary Pirelli
Comercial de Pneus Ltda Brasil (Refer to Note 8 - Business Combinations). The amount refers to the preliminary
consideration for the transaction, net of the amount already paid at December 31, 2018 (euro 1,393 thousand);
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Consolidated Financial Statements
→ euro 2,976 thousand in payables to Directors, Auditors and supervisory bodies;
→ euro 2,566 thousand for debts relating to customs duties, import and transport costs;
The reduction compared to December 31, 2017 was mainly due to the payment to the minority shareholder
Distribudora Automotiva S.A. of the residual debt at the closing of the previous financial year to the amount of
euro 18,589 thousand for the purchase of a 36% stake in the subsidiary Comercial and Importadora de Pneus
Ltda, a group company that owns a network of points of sale in Brazil, and to pay debts relative to costs incurred
for the IPO process.
27. TAX PAYABLES
Tax payables were for the most part related to national and regional income taxes in different countries and
amounted to euro 67,594 thousand (of which euro 2,091 thousand was for non-current liabilities), compared
to euro 50,815 thousand at December 31, 2017 (of which euro 2,399 thousand was for non-current liabilities).
Tax payables include management’s valuations on any uncertainty effects on income tax treatment. Income
tax payables include the evaluation of management with reference to the effects of any uncertainty on the
treatment of income taxes.
28. DERIVATIVE FINANCIAL INSTRUMENTS
The item includes the fair value of derivative instruments. It is composed as follows:
12/31/2018
12/31/2017
Non current
assets
Current
assets
Non current
liabilities
Current
liabilities
Non current
assets
Current
assets
Non current
liabilities
Current
liabilities
(In thousands of euro)
Without adoption of hedge
accounting
Exchange rate derivatives -
commercial positions
Exchange rate derivatives -
included in net financial position
Hedge accounting adopted
- cash flow hedge:
-
-
7,321
70,329
-
-
(6,092)
(53,510)
-
-
6,357
21,413
Interest rate derivatives
-
-
(4,726)
Other derivatives
20,134
20,917
(11,313)
-
-
878
-
-
-
-
-
-
(54,963)
(6,662)
(11,248)
-
-
- Total derivatives included
in net financial position
20,134
91,245
(13,738)
(53,510)
-
21,413
(54,963)
(11,248)
20,134
98,567
(16,039)
(59,602)
878
27,770
(54,963)
(17,910)
350
Pirelli Annual Report 2018
The composition of the items by type of derivative instrument is as follows:
(In thousands of euro)
12/31/2018
12/31/2017
Current assets
Forward foreign exchange contracts - fair value recognised in the Income Statement
Cross currency interest rate swaps - cash flow edge
77,650
20,917
27,770
-
Total current assets
98,567
27,770
Non current assets
Cross currency interest rate swaps - cash flow hedge
Interest rate swap - cash flow hedge
20,134
-
Total non current assets
20,134
Forward foreign exchange contracts - fair value recognised in the Income Statement
Total current liabilities
(59,602)
Totale passività correnti
(59,602)
-
878
878
(17,910)
(17,910)
Non current liabilities
Interest rate swaps - cash flow hedge
Cross currency interest rate swaps - cash flow hedge
(4,726)
(11,313)
-
(54,963)
Total non current liabilities
(16,039)
(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.
DERIVATIVE FINANCIAL INSTRUMENTS IN HEDGE ACCOUNTING The value of interest rate derivatives
recorded under current assets to the amount of euro 4,726 thousand refers to the fair value of 9 forward start
interest rate swaps.
Derivative
Hedged element
Notional amount
(Euro million)
Start date
Maturity
IRS forward start
Forecast transaction
250
June 2019
June 2022
receive fix / pay floating
IRS forward start
Term loan in USD + CCIRS
100
October 2019
June 2022
receive fix / pay floating
IRS forward start
Schuldschein
180
July 2020
July 2023
receive fix / pay floating
IRS forward start
Schuldschein
20
July 2020
July 2025
receive fix / pay floating
Total
550
For these derivatives, hedge accounting of the cash flow hedge type was adopted,. Items subjected to hedge
accounting are:
→ any future transaction represented by interest flows on a floating rate financial liability that is considered
highly probable;
→ the combination of a USD floating rate liability and a CCIRS or cross-currency interest rate swap (Basis Swap);
351
Consolidated Financial Statements
→ the Schuldschein loan (Refer to Note 24).
A change of +0.5% in the EURIBOR curve, all other conditions being equal, would result in a positive change
of euro 7,859 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 8,223 thousand in the equity of the Group
The value of other derivatives, recognised among non-current assets to the amount of euro 20,134 thousand,
between current assets to the amount of euro 20,917 thousand and among non-current liabilities to the amount
of euro 11,313 thousand, refers to the fair value measurement of 11 cross currency interest rate swaps with the
following characteristics:
Derivative
Notional amount
(USD million)
Notional amount
(USD million)
Start date
Maturity
CCIRS
CCIRS
CCIRS
1,079
922
July 2017
July 2019
pay floating EURIBOR / receive floating LIBOR USD
284
682
243
July 2017
June 2020
pay floating EURIBOR / receive floating LIBOR USD
582
July 2017
June 2022
pay floating EURIBOR / receive floating LIBOR USD
2,045
1,747
CCIRS forward start
Total
1,079
3,124
920
July 2019
June 2022
pay fix EUR / receive floating LIBOR USD
2,667
The objective of these derivatives, for which hedge accounting of the cash flow hedge type was adopted, is to
hedge the Group 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 USD floating rate liability.
The positive change in the fair value for the period to the amount of euro 133,155 thousand was suspended
in equity (a cash flow hedge reserve of euro 113,098 thousand and a cost of hedging reserve of euro 20,056
thousand), while euro 80,868 thousand was reversed to the Income Statement under the item “Valuation at fair
value of foreign currency derivatives”.(Refer to Note 37 - “Financial income”) to offset the unrealised exchange
rate losses recorded on the hedged liability, while euro 47,975 thousand was reversed to the item “Financial
expenses” (Refer to Note 38) thereby correcting the financial expenses recognised on the hedged liability.
The change in fair value for the period for IRS (interest rate swaps), negative at euro 5,604 thousand, has been
entirely suspended in equity.
A parallel change of +0.5% in the EURIBOR and LIBOR curves, all other conditions being equal, would result in a
positive change of euro 11,555 thousand in the equity of the Group, while a change of -0.5% in the same curves, all
other conditions being equal, would result in a negative change of euro 11,851 thousand in the equity of the Group
Hedging relationships relative to IRS (interest rate swap) and CCIRS (cross-currency interest rate swaps / basic
swaps) are considered effective in advance if the following conditions are met:
→ there is a financial relationship between the hedging instrument and the hedged item, in that the characteristics
of the hedging instrument (the nominal interest rate, the reset of the interest rate and frequency of the
liquidation of interest) are substantially consistent with those of the hedged item As a consequence, any
changes in the fair value of the hedging instrument regularly offsets that of the hedged item;
→ the effect of credit risk is not predominant within the hedging relationship. Based on the Group’s operating
policy, derivatives are traded only financial counter-parties with a high credit standing, while the credit quality
of the existing derivatives portfolio is constantly monitored;
→ the designated hedge ratio is aligned with that used for financial risk management and is equal to 100% (1:1).
The ineffectiveness of the hedging relationship is calculated at each reporting date using the Dollar Offset method
which provides for the comparison of any changes in the “fair value risk adjusted” for the hedging instrument
(with the exception of those attributable to the currency basis spread) with any changes in the fair value in the
352
Pirelli Annual Report 2018 risk free rate of the hedged item, through the identification
of a hypothetical derivative with the same characteristics
of the underlying financial liability.
The depreciation rates applied were as follows:
→ the application of credit risk adjustments only to the
hedging instrument but not to the hedged item;
→ the hedged element incorporates a floor that is not
reflected in the hedging instrument;
→ the misalignment between the actual contractual
conditions of the future transaction and those of the
hedging instrument.
At December 31, 2018, no ineffectiveness was detected
for the aforesaid hedging relationships.
29. COMMITMENTS AND RISKS
COMMITMENTS FOR THE PURCHASE
OF PROPERTY, PLANT AND EQUIPMENT
The commitments to purchase property, plant and
equipment amounted to euro 140,702 thousand and refer
mainly to subsidiary companies in Romania, Brazil, Russia,
UK 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 2,158 thousand.
OTHER RISKS
Action filed against Prysmian before the Court of Milan
and the High Court of Justice deriving from the antitrust
court case concerning the energy cable business.
In November 2014, Pirelli & C. S.p.A. (Pirelli) commenced
legal action before the Court of Milan in order to obtain an
assessment and the declaration by Prysmian Cavi e Sistemi
S.r.l. to hold Pirelli harmless from any claim regarding the
alleged anti-competitive agreement for the energy cables
sector, including the penalty imposed by the European
Commission and confirmed by the decision of the General
Court of the European Union on July 12, 2018, referred to
in Note 22 “Provisions for liabilities and charges” - against
which, on September 21, 2018, Pirelli filed an appeal before
the Court of Justice of the European Union. Judgement was
suspended by the Court of Milan pending the final ruling by
the Community Courts. In November, 2015, Prysmian S.p.A.
notified Pirelli of proceedings for the recovery of damages
before the High Court of Justice against Prysmian and other
parties to the aforementioned alleged anti-competitive
agreement brought by National Grid and Scottish Power,
companies who claim to have been injured by the alleged
unlawful agreement. Specifically, Prysmian S.p.A. submitted
a plea to obtain from Pirelli and Goldman Sachs, based on
the role played by the parent companies, at the time of the
cartel, to hold it harmless in respect of any obligations to
pay any damages claims (to date unquantified) by National
Grid and Scottish Power. Due to the aforementioned pending
legal action before the Court of Milan Pirelli challenged the
lack of jurisdiction of the High Court of Justice claiming that,
that any decision on the merits should be assigned to the
Court previously referred to. In April 2016, the High Court of
Justice upheld a procedural understanding between Pirelli
and Prysmian S.p.A and consequently suspended the English
judgement until judgement is passed for sentencing for the
already pending Italian proceedings. Pirelli, on the basis
of accurate legal analyses provided by external counsel,
maintained that it was not involved in the alleged irregularities
of its former subsidiary and that the full and final liability
for any breach must be borne exclusively by the company
directly involved. As a consequence of the foregoing, the risk
assessment of Prysmian S.p.A.’s petition regarding the legal
action brought by National Grid & Scottish Power is such as
to not require the allocation of any specific provision in the
annual Financial Statements at December 31, 2018.
TAX DISPUTES IN BRAZIL The subsidiary Pirelli Pneus is
involved in tax disputes and litigations described as follows.
DISPUTES CONCERNING THE ICMS TAX RECEIVABLES
ASSIGNED BY THE STATE OF SANTA CATARINA With
reference to the dispute concerning the ICMS tax receivables
(Imposto Sobre Operações Relativas à Circulação or state
value added tax) assigned by the State of Santa Catarina,
Pirelli Pneus Ltda received notices of assessment which
disavowed the ICMS tax receivables. The claim was motioned
by the State of São Paulo, according to which Pirelli Pneus
benefited from the ICMS tax credits assigned by the State
of Santa Catarina, but which were deemed to have been
unlawful from the start in that they were assigned by the latter
in violation of the Brazilian Constitution, in the absence of a
previous agreement between the various States. The dispute
has been presented before the competent administrative
and tax commissions and, despite the first decisions not
being favourable to Pirelli Pneus, the Group maintains that it
has a good chance of winning in following court proceedings.
This assessment was based on the orientation in favour
of the tax payer whose legal position is strengthening, in
particular, as with another case under consideration by
the Brazilian Supreme Court, who will have to express its
legal position through a sentence which will set a binding
precedence, on the impossibility for a Federal State to
penalise the tax payer for the use of credits granted by law
by another Federal State, even if that law did not observe
constitutional rules. According to a previous case before
the Supreme Court, this dispute should be managed by the
Federal States, and without unduly penalising the tax payer.
In addition to the aforesaid, 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
353
Consolidated Financial Statements the aforementioned States may, on a voluntary basis, sign
an agreement (a so-called “convênio”) which given certain
conditions is able to validate the incentives which up to
now have been considered illegitimate, and therefore also
extinguish the related sanctions imposed by the Brazilian
tax authorities. To date there are still some implementative
aspects that need to be defined before this new provision
can be applied to the case in question, however there is a
clear indication of the commitment by the Brazilian States
to put an end to these forms of contestation and to prevent
new ones in the future.
The risk is estimated at approximately euro 146 million,
inclusive of taxes, interests and penalties.
The risk of losing has not been assessed as probable and,
therefore, no provision has been made in the Financial
Statements for this dispute.
LITIGATION CONCERNING THE
IPI TAX RATE
APPLICABLE TO CERTAIN TYPES OF TYRES The
subsidiary Pirelli Pneus is involved in a tax disputes
with the Brazilian tax authorities concerning the IPI tax
rate (Imposto sobre Produtos Industrializados or tax on
industrialised products) with particular reference to the tax
rate applicable to the production and importation of tyres
for the Sport Utility Vehicle (SUV), vans and other industrial
transportation vehicles (such as, for example, trucks).
According to statements by the Brazilian tax authorities in the
tax assessment notices issued during the course of 2015 and
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
applied by Pirelli Pneus, as is provided for the production and
importation of tyres for heavy industrial use vehicles. To date,
the dispute is pending before the competent administrative
and tax commissions and, despite a first unfavourable
decision regarding the assessment for the 2015 fiscal period,
the Group maintains that it has a good chance of winning.
This position is also supported by an appraisal prepared by a
Brazilian government institution (the INT - National Institute
of Technology) specifically commissioned by Pirelli Pneus,
and who concluded their analysis by equating, in light of their
similar characteristics, the tyres discussed with those used
for heavy industrial vehicles.
The risk is estimated at approximately euro 37 million,
inclusive of tax, interests and penalties.
The risk of losing has not been assessed as probable and,
therefore, no provision has been made in the Financial
Statements for this dispute.
DISPUTES CONCERNING TRANSFER PRICING WITH
RESPECT TO CERTAIN INTRA-GROUP TRANSACTIONS
Pirelli Pneus is involved in a dispute with the Brazilian
tax authorities concerning corporate income tax (IRPJ -
Imposto de Renda Pessoa Jurídica) and social contribution
tax on net profits (CSLL - Contribuição Social sobre o Lucro
Líquido) payable by the company for the fiscal periods of
2008, 2011 and 2012 with reference to the application
of the so-called transfer pricing regulations for import
dealings with related parties.
Based on the assessment notices sent to the company
during 2013, 2015 and 2016, the Brazilian tax authorities are
mainly contesting the incorrect application by the company
of the methodology provided for by the administrative
practice in force at that time (IN - Instrução Normativa
243 or Instructions for Regulation) for the evaluation
of transfer prices applied to the importation of goods
from related parties. To date, the claim motioned by the
company is pending before the competent administrative-
tax tribunals. Even though the administrative ruling issued
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
to the provisions of the legislation in force for the time being,
which should prevail over the aforementioned administrative
practice (IN 243) of the Brazilian tax authorities.
The risk is estimated at approximately euro 18 million,
inclusive of tax, interests and penalties.
The risk of losing has not been assessed as probable and,
therefore, no provision has been made in the Financial
Statements for this dispute.
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, (Imposto sobre Produtos Industrializados
or tax on industrialised products) also with reference to
the sale of components to companies operating in the
automotive sector. According to the Brazilian tax authority’s
claim as stated in a notice of assessment issued in 2013,
Pirelli Pneus should not benefit, as regards its secondary
office established in the city of Ibiritè in the Federal State of
Minas Gerais, from the IPI tax rate exemption as provided
for by law in the case of sales of certain components to
companies operating in the automotive sector.
The Group maintains that it has well founded reasons to
object to the tax administration’s claim. In particular, both the
legislation applicable to this case regarding the IPI tax rate
and the precedences in case law for similar cases appear to
support this position. The risk is estimated at approximately
euro 20 million, inclusive of tax, interests and penalties.
The risk of losing has not been assessed as probable and,
therefore, no provision has been made in the Financial
Statements for this dispute.
OTHER PIRELLI PNEUS DISPUTES Pirelli Pneus is involved in
three other tax disputes concerning federal taxes and excises
354
Pirelli Annual Report 2018 (such as the IPI tax rate- Imposto sobre Produtos Industrializados or tax on industrialised products, the PIS - Programa
de Integração Social or social contribution tax, and the COFINS tax - Contribuição Social para o Financiamento da
Seguridade Social or tax on Social Security Financing) as well as the ICMS (Imposto Sobre Operações Relativas
à Circulação or state value added tax). In particular, Pirelli Pneus is involved in certain administrative and judicial
proceedings aimed at ensuring that their own reasons prevail over those of the tax authorities, with reference to:
(i) the so called “Operação Vulcano” (the federal investigation into fraud in Brazilian foreign trade) with regard
to the exportation of goods to Paraguay in which case, according to the Brazilian tax authorities, Pirelli
Pneus should not benefit from the provision for tax exemption - approximately euro 9 million inclusive of
taxes, interests and penalties;
(ii) the so called “Desenvolve” relative to a fiscal incentive which is recognised by the Federal State of Bahia but
which, as claimed by the Brazilian tax authorities was incorrectly calculated by Pirelli Pneus - approximately
euro 9 million inclusive of taxes, penalties and interest;
(iii) a dispute relative to import customs costs for natural rubber which, in the opinion of the Brazilian tax
authorities, was underestimated by not taking into account the value of the intra-group royalties paid -
approximately euro 10 million inclusive of taxes, penalties and interest.
For all three of the aforementioned disputes, also on the basis of the results of the first levels of judgement, the
risk of losing has not been assessed as probable and, therefore, no provision has been made in the Financial
Statements for these disputes.
30. REVENUES FROM SALES AND SERVICES
Revenues from sales and services were as follows:
Revenues from sales of goods
Revenues from services
Total
These revenues refer to contracts with customers.
31. OTHER INCOME
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
Recoveries and reimbursements
Government grants
Other income
Total
355
(In thousands of euro)
2018
2017
5,049,040
5,202,962
145,431
149,321
5,194,471
5,352,283
(In thousands of euro)
2018
2017
91,343
183,762
7,848
5,465
95,785
14,515
84,487
223,542
223,482
1,865
3,759
59,871
8,596
107,418
483,205
628,533
Consolidated Financial Statements
The item other income from the Prometeon Group mainly includes sales of raw materials, semi-finished
products and finished products for the amount of euro 27,695 thousand, royalties recorded from the trademark
license agreement to the amount of euro18,080 thousand, royalties recorded from the know-how license contract
to the amount of euro 10,000 thousand, and services rendered for the amount of euro 20,600 thousand. The
decrease recorded compared to the previous financial year was mainly attributable to the fact that raw materials
are no longer supplied to the Prometeon Group by the British subsidiary Pirelli International Plc. (euro 112,521
thousand at December 31, 2017). Refer also to Note 45 – “Related party transactions”.
The item sales of industrial products mainly refers to revenues and income generated by the sale of tyres for
trucks and agricultural vehicles, mainly purchased by the Prometeon Group, which are sold by way of a distribution
network controlled by the Pirelli Group.
The item recoveries and reimbursements includes, in particular:
→ reimbursements of taxes and duties totalling euro 35,940 thousand, of which euro 32,183 thousand received
in Brazil, and euro 19,568 thousand attributable to the benefit recorded following the attainment of favourable
rulings by the Federal Regional Courts of Brasilia and São Paulo which recognised the right to deduct the state
tax on goods and services (ICMS) on the basis of the calculation the social contributions PIS (Programa de
Integracao Social) and COFINS (Contribucao para Financiamento de Seguridade Social). Reference should
be made to Note 16 - “Other receivables” for further details.
→ tax refunds totalling euro 4,695 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 in the United Kingdom for a total of euro 5,940
thousand;
→ income from the sale of tyres for testing and the recovery of transport expenses incurred in Germany for
euro 1,962 thousand;
The item other includes income from sporting activities amounting to euro 33,754 thousand.
32. PERSONNEL EXPENSES
The item is composed as follows:
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
356
(In thousands of euro)
2018
2017
796,874
167,011
19,087
22,698
13,831
4,247
3,007
787,798
181,660
17,177
21,689
(5,928)
3,748
2,994
40,824
25,509
1,067,579
1,034,647
Pirelli Annual Report 2018
The item other costs includes this includes the portion of the retention plan that was approved by the Board of
Directors on February 26, 2018 intended for Managers with strategic responsibilities and a selected number of
senior Managers and Executives whose contribution to the implementation of the Strategic Plan is considered
particularly significant.
The item personnel expenses for 2018 includes non-recurring events for a total of euro 15,410 thousand (1.4%
of the total) attributable to on the estimated impacts on pension obligations deriving from the need to recalculate
them in order to equalise some of the differences in treatment with reference to the minimum guaranteed
pension (GMP equalisation) that emerged in the UK pension sector following the High Court ruling of October
26, 2018 in the case concerning the Lloyds Banking Group.
33. DEPRECIATION, AMORTISATION AND IMPAIRMENTS
The item is composed as follows:
Amortisation
Depreciation
Impairment of property, plant and equipment and intangible assets
Total
(In thousands of euro)
2018
2017
125,220
120,196
269,084
250,673
20,219
588
414,523
371,457
The item impairments mainly refers to property, plant and equipment consistent with the reduction of the
Standard capacity.
357
Consolidated Financial Statements
34. OTHER COSTS
The item is subdivided as follows:
Selling costs
Purchases of goods for resale
Purchases of natural rubber for Prometeon Group
Fluids and energy
Advertising
Consultants
Maintenance
Warehouse operating costs
Lease, rental and lease installments
Outsourcing
Travel expenses
IT expenses
Key managers compensations
Other provisions
Duty stamps, duties and local taxes
Canteen
Bad debts (*)
Insurance
Cleaning expenses
Waste disposal
Security expenses
Telephone expenses
Other
Total
(In thousands of euro)
2018
2017
310,687
306,108
434,201
478,745
-
106,331
161,180
159,830
231,981
286,178
43,872
56,656
51,394
70,225
56,112
70,381
125,359
121,984
38,572
73,643
52,847
57,461
34,844
33,547
8,229
9,610
37,867
33,063
29,031
36,422
17,043
-
30,319
14,788
7,160
9,150
9,723
18,101
17,659
30,937
15,892
18,302
10,773
11,098
139,690
175,827
1,858,162
2,184,660
(*) According to the new accounting principle IFRS 9, applicable from January 1, 2018, bad debts are recognised in net impairment loss on financial assets (note 35)
The item other costs for 2018 includes non-recurring events for a total of euro 7,798 thousand (0.5% of the
total) mainly refers to costs for consultancy services in the as part of non-recurring transactions as well as costs
incurred as a result of extraordinary events. For the 2017 financial year, the amount of euro 70,076 thousand
(3.2% of the total) refers mainly to costs incurred for the IPO process.
358
Pirelli Annual Report 2018
35. NET IMPAIRMENT LOSS ON FINANCIAL ASSETS
The item, negative at euro 21,273 thousand, mainly includes:
→ the net impairment of trade receivables to the amount of euro 12,019 thousand. At December 31, 2017, the
net impairment of trade receivables amounted to euro 8,797 thousand and was included in the item “Other
costs” (Refer to Note 34);
→ the impairment of other trade receivables to the amount of euro 9,254 thousand (Refer to Note 16 “Other
receivables”).
36. NET INCOME (LOSS) FROM EQUITY INVESTMENTS
36.1
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 11,560 thousand, and refers mainly to investments in the joint
venture PT Evoluzione Tyres in Indonesia (negative at euro 10,350 thousand - negative at euro 9,613 thousand for 2017).
For further details reference should be made to preceding Note 12 “Investments in Associates and Joint Ventures”.
GAINS ON EQUITY INVESTMENTS
36.2
This item mainly refers to the positive impact to the amount of euro 3,780 thousand relative to the investment in
Mediobanca S.p.A. classified under “Other financial assets at fair value through the Income Statement” (Note
13) sold on January 1, 2018.
LOSSES ON EQUITY INVESTMENTS
36.3
For 2018 the item amounted to euro 1,603 thousand, and mainly refers to the impairment of the investment in
Focus Investments S.p.A., classified under investments in associated companies (Refer to Note 12 “Investments
in associates and joint ventures”). For 2017 the item included the impairment of the investment in Pirelli de
Venezuela C.A. (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-Compagnia Area Italiana S.p.A (euro 781 thousand).
DIVIDENDS
36.4
This item amounted to euro 4,176 thousand and mainly includes dividends received from Equinox Two S.C.A.
to the amount of euro 1,508 thousand (euro 3,049 thousand for 2017), and from Fin. Priv. S.r.l. to the amount of
euro 957 thousand (euro 757 thousand for 2017). This item also includes dividends received from Mediobanca
S.p.A. to the amount of euro 5,829 thousand.
37. FINANCIAL INCOME
The item is composed as follows:
Interest
Hyperinflation impact
Other financial income
Net gains on exchange rates
Fair value measurement of currency derivatives
Total
359
(In thousands of euro)
2018
2017
17,176
8,536
9,627
-
104,391
17,098
-
9,285
102,157
-
139,730
128,540
Consolidated Financial Statements
The item interest mainly includes euro 4,758 thousand for interest on fixed income securities, euro 3,095
thousand for interest receivables due from financial institutions, and euro 4,190 thousand for interest on financial
receivables, and interest on the loan disbursed by Pirelli International Plc and Pirelli Tyre S.p.A. to PT Evoluzione
Tyres for euro 1,834 thousand.
The item effects of high inflation refers to the effect on monetary items deriving from the application of IAS 29
- Hyperinflation by the subsidiary company in Argentina. Reference should be made to Note 43 for more details.
The item other financial income mainly includes euro 7,610 thousand of interest accrued on tax receivables
and on guarantee deposits paid by Brazilian subsidiaries to guarantee legal and tax disputes, and euro 1,828
thousand in capital gains generated on the partial acquisition of the unrated bond loan which was completed
on December 19, 2018 for a total amount of euro 47 million.
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 of the consolidated
Financial Statements. The valuation at fair value is composed of two elements: the interest component which
is tied to the interest rate spread between the currencies which are subject to the individual hedges, equal
to a net cost of euro 55,276 thousand, and the exchange rate component at a net cost of euro 159,667
thousand. In comparing the net losses on exchange rates, which totalled euro 192,437 thousand, recorded
on receivables and payables in the currencies of the individual companies which is other than the functional
currency, and included in financial expenses (Refer to Note 38), with valuation at fair value of the exchange
rate component of the derivatives used for hedging exchange rates, which amounted to a net income of euro
159,667 thousand, when taking into account the impact of high inflation in Argentina, there results a negative
imbalance of euro 24,234 thousand mainly. The imbalance was due to the euro 11,944 thousand in loss on
translations carried out in Argentina, where during the periods of maximum impairment (the Argentine peso
was devalued by approximately 90% during the financial year) hedging activity would have been difficult and
at costs which would have been disadvantageous.
38. 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
Fair value measurement of exchange rate derivatives
Valuation at fair value of other derivatives
(In thousands of euro)
2018
2017
103,975
255,096
20,522
13,183
192,437
5,446
-
478
29,587
9,250
-
7,295
189,922
-
Total
336,041
491,150
The item interest which amounted to a total euro 103,975 thousand includes euro 87,704 thousand relative
to the unsecured credit facility (“Facilities”) granted to Pirelli & C. S.p.A. and Pirelli International Plc (held by
the Parent company as of November 29, 2019) signed on June 27, 2017 as well as the positive effect of euro
29,750 thousand (euro 20,101 thousand net of the amortised portion) due to the repricing of the same banking
facilities which occurred in January 2018 and which entailed a re-measurement of the relative debt. At December
360
Pirelli Annual Report 2018
2017, the item included euro 154,322 thousand relative to the new secured Senior Facilities financing granted
to Pirelli & C. S.p.A. and Pirelli International Plc for the nominal amount of euro 5,280,746 thousand and repaid
in advance on June 29, 2017, of which euro 61,244 thousand related to the consequent reversal to the Income
Statement of the portion of costs not amortised at the closing date.
The item also includes:
→ euro 47,930 thousand euro for net interest income on Cross Currency Interest Rate Swaps to offset he flow
of financial expenses, of the part subscribed to in US Dollars, of the bank credit facility referred to in the
previous point. For more details, refer to details in Note 28 “Derivative financial instruments”.
→ euro 37,268 thousand in financial expenses relative to bonds, of which euro 10,256 thousand refers to
unrated bonds and euro 2,329 thousand refers to the Schuldschein loan, both issued by Pirelli & C. S.p.A. The
item also includes euro 18,690 thousand in expenses arising from the early extinction of the bond placed by
Pirelli International Plc (for the amount of euro 600 million, with a fixed coupon of 1.75%, and with original
maturity in November 2019) carried out through the exercise of the so-called make-whole option, and the
consequent reversal to the Income Statement of the portion of costs not amortised at the closing date to
the amount of euro 3,557 thousand;
The item commissions includes in particular euro 7,550 thousand in costs relative to transactions for the
assignment of receivables using the no recourse (pro-soluto) clause mainly in LatAm, Italy and Germany, and
euro 12,871 thousand relative to expenses for guarantees and other bank commissions.
The item net losses on exchange rates which amounted to euro 192,437 thousand (gains amounted to euro 2,678,070
thousand and losses amounted to euro 2,870,507 thousand) refers to the adjustment at period-end exchange rates
to items expressed in currencies other than the functional currency and still outstanding at the reporting date of the
consolidated Financial Statements, and to the net losses realised on items closed during the course of the period.
The item other financial expenses includes non-recurring events for to the total amount of euro 2,149 thousand
(0.6% of the total) relative to:
→ expenses arising from the early extinction of the bond placed by Pirelli International Plc (for the amount of
euro 600 million, with a fixed coupon of 1.75%, with original maturity in November 2019) and the consequent
reversal to the Income Statement of the portion of costs not amortised at the extinction date (euro 3,557
thousand), plus additional financial expenses consequent to the exercise of the so-called make-whole option
(euro 18,690 thousand);
→ the positive impact of euro 29,750 thousand (euro 20,101 thousand net of the related amortised portion)
due to the repricing of the unsecured banking facility (“Facilities”) which took place in January 2018;
During 2017 the amount euro 61,244 thousand (12.5% of the total) refers to the early closure of secured funding
(“Senior Facilities”) as described in the item “interest”.
39. TAXES
Taxes were composed as follows:
Current taxes
Deferred taxes
Total
(In thousands of euro)
2018
2017
156,104
162,382
(103,140)
(121,534)
52,964
40,848
Tax expenses for 2018 amounted to euro 52,964 thousand against pre-tax earnings of euro 501,765 thousand
361
Consolidated Financial Statements
with a tax rate which attested itself at 10.6%. The tax rate for 2018 positively benefitted from the concessions
deriving from the application of the Patent Box tax relief scheme to the amount of euro 89 million by way of the
preliminary agreement signed by Pirelli Tyre S.p.A. on October 15, 2018 with the Italian Tax Office.
The item includes non-recurring events for a positive amount of euro 60,607 thousand mainly attributable to
the benefit derived from the Patent Box for the 2015 - 2017 period (euro 103,881 thousand for non-recurring
events recorded for 2017). Refer to note 44 – “Non recurring events”.
The reconciliation between theoretical and effective taxes is as follows:
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
- Taxes not related to income and not recoverable
- Other
C) Effective taxes
Theoretical tax rate (B/A)
Effective tax rate (C/A)
(In migliaia di euro)
2018
501,763
125,441
(101,346)
10,415
21,294
(2,840)
52,964
25,0%
10.6%
Tax incentives mainly refer to the benefit deriving from the Patent Box of a total of euro 89 million euros, of which euro
54 million euro was relative to the 2015 - 2017 three-year period, and euro 35 million as the estimated benefit for 2018.
The Group’s theoretical tax burden is calculated by taking into account the nominal tax rates of the countries
where the Group’s principal companies operate, as shown below:
Europe
Italy
Germany
Romania
Great Britain
Turkey
Russia
NAFTA
USA
Mexico
Central and South America
Argentina
Brazil
Asia / Pacific
China
362
2018
27.90%
30.00%
16.00%
19.00%
22.00%
20.00%
25.00%
30.00%
30.00%
34.00%
25.00%
Pirelli Annual Report 2018
The share of taxes paid by geographical area is as follows:
→ 56% Europe;
→ 21% APAC;
→ 12% NAFTA;
→ 6% LatAm;
→ 5% Russia and MEAI.
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 2018, to
income taxes paid during the course of 2018 but relative to previous financial years (e.g. income tax balances
relative to 2017) or to payments relative to tax assessments for previous financial years. 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.
40. ASSETS AND LIABILITIES AVAILABLE FOR SALE AND DISCONTINUED OPERATIONS
As a result of the assignment in March 2017 by Pirelli & C. S.p.A. to the Parent company Marco Polo International
Holding Italy S.p.A., of the TP Industrial Holding S.p.A. shares, the company into which almost all of Pirelli’s
Industrial assets had been merged, in continuity with the 2017 financial year some residual activities in China
and Argentina relative to the Industrial business, qualified as “discontinued operations”. The table below shows
the financial figures for 2018 classified in the Income Statement, in accordance with IFRS 5, as the single item
“net income (loss) from discontinued operations”. The separation process for Argentina was completed during
the month of June 2018, while for China it was completed during the fourth quarter of 2018. The comparative
data refers to the results of the first quarter for the Industrial business as well as for the twelve months for the
residual activities sold during 2018.
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) from discontinued operations
Reversal of reserve on foreign currency translation
Total net income (loss) from discontinued operations
363
(In thousands of euro)
2018
2017
12
232,801
16,674
156,187
-
-
49,550
(184,027)
(2,527)
(71,558)
(87)
(18,772)
(25,161)
(161,863)
-
(11,089)
2,737
(365)
46
2,364
1,670
(10,200)
(8,717)
(6,166)
2,288
(1,189)
(6,429)
(7,355)
-
(80,208)
(6,429)
(87,563)
Consolidated Financial Statements
The value of “assets available for sale” (euro 10,677 thousand) was mainly attributable to the value of the assets,
represented exclusively by land and buildings owned by the subsidiary Joint Stock Company, the R&D Training
Center for New Technologies & Materials (ATOM) sold on February 13, 2019.
41. EARNINGS/(LOSSES) PER SHARE
Earnings/(losses) per share are determined 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)
2018
2017
Net income attributable to the Parent Company related to continuing operations
438,035
263,955
Weighted average number of ordinary shares outstanding (in thousands)
1,000,000
853,232
Earnings/(loss) per share related to continuing operations (in euro per share)
0.438
0.309
Net income attributable to the Parent Company related to discontinued operations
(6,429)
(87,563)
Weighted average number of ordinary shares outstanding (in thousands)
1,000,000
853,232
Earnings/(loss) per share related to discontinued operations (in euro per share)
(0.006)
(0.103)
It should be noted that the earnings/(loss) per basic and diluted share coincide as there are no potential issue
shares with dilutive effects on the results.
42. DIVIDENDS PER SHARE
In 2018, Pirelli & C. S.p.A did not distribute any dividends to its shareholders.
43. HYPERINFLATION
In accordance with Group accounting policies regarding the criteria for introducing/ending inflation accounting,
the subsidiary Pirelli Neumaticos SAIC has adopted inflation accounting since the preparation of the consolidated
Financial Statements at December 31, 2018. It is the only Group company operating in a high-inflation country.
The price index used for this purpose was the national consumer price index (CPI) published by the National
Institute for Statistics and Census (INDEC).
For the financial statements at December 31, 2018 the official inflation index was used estimated at 48%.
The losses on the net monetary position were recognised in the Income Statement as “Financial expenses”
(Refer to Note 38) for an amount of euro 8,536 thousand.
364
Pirelli Annual Report 2018
44. NON-RECURRING EVENTS
Pursuant to CONSOB Notification No. DEM / 6064293 of July 28, 2006, information is provided below on the
impact on the Group’s income, financial position and equity, of the non-recurring events and operations:
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)
4,550.9
(23.2)
(2.1)
60.6
35.3
4,515.6
442.4
(342.8)
(23.2)
(2.1)
60.6
35.3
407.1
(49.7)
(18.7)
1.9
(66.5)
(276.3)
The impact on the individual items of the consolidated Income Statement was as follows:
Personnel expenses :
- Retention Plan
- UK Pension fund adjustment
- Other
Other costs:
- Industrial Reorganization
- IPO costs
- Other
Impact on operating income
Financial expenses:
(millions of euro)
2018
2017
-
(14.4)
(1.0)
-
(0.8)
(7.8)
(2.6)
-
-
(2.1)
(61.9)
(6.1)
(24.0)
(72.6)
- Refinancing impact June 2017 transaction costs
-
(61.2)
- "Make Whole Issuer Call" fee for the anticipated buy back of bond issued by Pirelli International Plc
and relating fee wash down
- Net repricing impact on unsecured loan ("Facilities")
Impact on net income (loss) before tax
Tax:
- Recognition of deferred tax assets of italian companies and operating income adjustments and financial expenses
Impact on net income (loss) from continuing operations
Impact on net income (loss)
(22.3)
20.1
(26.2)
60.6
34.4
34.4
-
(133.8)
103.9
(30.0)
(30.0)
365
Consolidated Financial Statements
The impact of non-recurring events on the operating income (loss) for the 2018 financial year amounted to
a total of euro 24 million and differs from the value reported in the Directors’ Report on Operations for “non-
recurring and restructuring expenses” (euro 91.5 million), in that it did not include restructuring expenses which
amounted to a total of euro 67.5 million.
45. RELATED-PARTY TRANSACTIONS
Related party transactions, including inter-group transactions, are neither exceptional nor unusual, but are
part of the ordinary course of business for companies of the Group. Such transactions, when not concluded
under standard conditions or dictated by specific regulatory conditions, are in any case governed by conditions
consistent with those of the market and carried out in compliance with the provisions of the Procedure for
Related Party Transactions which the Company has adopted.
The 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.
STATEMENT OF FINANCIAL POSITION
(In millions of euro)
12/31/2018
of which
related parties
% incidence
12/31/2017
of which
related parties
% incidence
Non current assets
Other receivables
Current assets
Trade receivables
Other receivables
Income tax receivables
Current liabilities
Trade payables
Other payables
Income tax payables
225.7
12.6
5.57%
204.1
12.0
5.88%
628.0
416.7
41.4
15.7
55.4
-
2.49%
13.30%
-
652.5
400.5
35.5
62.7
36.5
0.1
9.61%
9.11%
0.2%
1,604.7
191.6
11.94%
1,673.6
198.0
11.83%
436.8
65.5
7.4
-
1.70%
-
565.3
48.4
16.4
9.9
2.91%
20.44%
INCOME STATEMENT
(In millions of euro)
Revenue from sales and services
5,194.5
9.0
0.17%
5,352.3
10.8
0.20%
Other income
483.2
108.5
22.46%
628.5
230.6
36.69%
2018
of which
related parties
% incidence
2017
of which
related parties
% incidence
Raw materials and consumables used
Personnel expenses
Other costs
Net impairment loss of financial assets
Financial income
Financial expenses
Net income (loss) from equity investments
Net income (loss) from discontinued
operations
2.50%
1.06%
17.16%
0.00%
(1,818.2)
(1,067.6)
(12.7)
(14.1)
0.70%
1.32%
(1,859.8)
(1,034.6)
(46.5)
(11.0)
(1,858.2)
(290.4)
15.63%
(2,184.7)
(375.0)
(21.3)
139.7
(336.0)
(5.0)
(6.4)
(9.0)
42.31%
-
-
2.23%
128.5
35.3
27.48%
-
n,s,
n,s,
(491.2)
(6.9)
(87.6)
(41.1)
(8.3)
(9.5)
8.4%
n.s.
n.s.
3.1
-
(11.6)
(10.6)
366
Pirelli Annual Report 2018 CASH FLOW
(in millions of euro)
2018
of which
related parties
% incidence
2017
of which
related parties
% incidence
Net cash flows operating activities:
Trade receivables
Trade payables
(23.4)
104.7
47.1
(6.3)
Other receivables/payables
(151.4)
(29.3)
Net cash flows investing activities:
N.A.
N.A.
N.A.
Acquisition of minorities
(49.7)
(31.2)
N.A.
Disposal of property, plant and equipment
Dividends received from associates
Disposals (Acquisition) of investments
in associates and JV
Repayment of share capital and reserves
from associates
Net cash flows financing activities:
Change in Financial receivables/Other current
financial assets at fair value through income
statement - Assets held for trading
Net cash flows provided by (used in)
discontinued operations
16.2
2.7
2.7
(65.2)
(65.2)
-
(31.8)
-
-
N.A.
N.A.
-
-
73.6
447.4
(39.4)
-
73.5
-
17.2
8.6
90.6
86.2
70.5
N.A.
N.A.
N.A.
-
-
61.0
N.A.
-
-
8.6
-
-
N.A.
N.A.
-
37.1
43.5
N.A.
-
-
218.0
190.0
The effects of the related party transactions, contained in the Income Statement and the Statement of Financial
Position on the consolidated data for Pirelli & C. Group were as follows:
TRANSACTIONS WITH ASSOCIATES AND JOINT VENTURES
STATEMENT OF FINANCIAL POSITION
Other non current receivables
Trade receivables
Other current receivables
Trade payables
Other current payables
INCOME STATEMENT
Revenues from sales and services
Other income
Other costs
Financial income
Financial expenses
367
(in millions of euro)
12/31/2018
12/31/2017
12.6
3.6
32.2
23.1
0.1
12.0
1.8
14.8
24.0
0.4
(in milioni di euro)
2018
2017
6.2
2.1
42.7
1.2
-
-
2.4
37.3
0.9
0.1
Consolidated Financial Statements CASH FLOW
Net cash flows provided by / (used in) investing activities
(in millions of euro)
2018
2017
(62.5)
8.6
TRANSACTIONS – STATEMENT OF FINANCIAL POSITION
The item other non-current receivables refers to a loan granted by Pirelli Tyre S.p.A. to the Indonesian Joint
Venture PT Evoluzione Tyres.
The item trade receivables includes receivables for services rendered to PT Evoluzione Tyres to the amount of
euro 2.1 million and to the Joint Stock Company, the Kirov Tyre Plant to the amount of euro 0.6 million.
The item other current receivables mainly refers to receivables for advances from Pirelli Tyre S.p.A. to PT
Evoluzione Tyres to the amount of euro 15 million for the supply of motorcycle products and the sale of materials
and moulds to the Joint Stock Company, the Kirov Tyre Plant to the amount of euro 6.7 million, to receivables
for the recovery of costs sustained by Pirelli Tyre Co. towards Jining Shenzhou Tyres Co., Ltd to the amount of
euro 1.8 million, and to the loan granted by Pirelli International Plc to PT Evoluzione Tyres for euro 6.1 million.
The item trade payables mainly refers to the debt for the purchase of energy from Industriekraftwerk Breuberg
GmbH and trade payables towards the Joint Stock Company, the Kirov Tyre Plant.
TRANSACTIONS - INCOME STATEMENT
The item revenues from sales and services mainly refers to royalties charged to PT Evoluzione Tyres to the
amount of euro 1.6 million, and sales of materials and services to the Joint Stock Company, the Kirov Tyre Plant
for the amount of euro 4.4 million.
This item other costs mainly refers to acquisition costs for the purchase of energy and machine hire from
Industriekraftwerk Breuberg GmbH to the amount of euro 21.7 million, and costs for the acquisition of products
from PT Evoluzione Tyres to the amount of euro 19.8 million.
The item financial income refers to interest on the loan granted by Pirelli International Plc and Pirelli Tyre S.p.A.
to PT Evoluzione Tyres.
TRANSACTIONS WITH OTHER RELATED PARTIES
The transactions detailed below mainly refer to business relations with the Aeolus Tyre Co., Ltd. and to transactions
with the Prometeon Group, both of which are subject to the control of the direct parent company or indirect
parent companies.
STATEMENT OF FINANCIAL POSITION
(in millions of euro)
Trade receivables
Other current receivables
Current tax receivables
Trade payables
Other current payables
Current tax payables
12/31/2018
12/31/2017
12.0
23.2
-
61.0
21.7
0.1
168.5
174.0
7.4
-
16.1
9.9
368
Pirelli Annual Report 2018 INCOME STATEMENT
Revenues from sales and services
Other income
Raw materials and consumables used
Other costs
Financial income
Financial expenses
Net impairment loss on financial assets
Other income from discontinued operations
Other costs from discontinued operations
(in millions of euro)
2018
2017
2.7
106.4
12.7
239.4
9.0
1.9
-
7.8
18.5
8.4
230.6
46.5
328.0
-
34.4
41.0
-
-
With reference to transactions with the Prometeon Group, comparative income amounts refer to the entire 2017 even though the Prometeon Group became a related party as of March 15, 2017 (date of assignment by Pirelli
& C. S.p.A. of TP Industrial Holding S.p.A. shares to Marco Polo International Holding Italy S.p.A.).
CASH FLOW
Change in trade receivables
Change in trade payables
Change in Other receivables/Other payables
Net cash flows provided by / (used in) investing activities
Net cash flows provided by / (used in) financing activities
Net cash flows provided by (used in) discontinued operations
(in millions of euro)
2018
2017
47.1
(6.3)
(29.3)
(31.2)
-
43.5
90.6
86.2
70.5
61.0
190.0
-
TRANSACTIONS – STATEMENT OF FINANCIAL POSITION
The item trade receivables mainly refers to receivables from companies of the Prometeon Group to the amount
of euro 12 million.
The item other current receivables mainly refers to receivables for royalties from the Aeolus Tyre Co. Ltd. to the
amount of euro 6 million (these receivables are shown net of the relative provision for bad debts Group equal to
euro 9 million attributable to the extraordinary reshaping of the technology license agreement granted to the
Aeolus Tyre Co., and trade receivables to the amount of euro 14.3 million from companies of the Prometeon Group.
The item trade payables almost exclusively refers to payables to companies of the Prometeon Group to the
amount of euro 163.8 million.
The item other current payables mainly refers to other current payables to companies of the Prometeon Group
to the amount of euro 6.9 million.
TRANSACTIONS - INCOME STATEMENT
The item revenues from sales and services mainly refers the sale of goods and services rendered by Pirelli
Pneus Ltda to Pirelli de Venezuela C.A. for the amount of euro 2.4 million, The amount, unchanged as compared
to September 30, 2018, refers to the revenues recognised as of January 1, 2018 until September 7, 2018, the
date on which the sale of the Venezuelan company was completed.
369
Consolidated Financial Statements The item other income at December 31, 2018 includes
recognised royalties from Aeolus Tyre Co. Ltd. in respect
of the license agreement stipulated in 2016 to the amount
of euro 15 million. The item also includes income from
companies of the Prometeon Group mainly relative to:
→ the sale of raw materials by Pirelli Pneus Ltda for the
amount of euro 17.5 million;
→ royalties recorded in respect the license contract for
the use of the Pirelli trademark to the amount of euro
18.1 million;
→ the sale of finished and semi-finished products for the
total amount of euro 10.2 million of which euro 5.4
million was carried out by Pirelli Tyres (Suisse) S.A.,
and sales by other Group companies to the amount of
euro 4.8 million;
→ the Long Term Service Agreement to the amount of euro
12.2 million, of which euro 5.4 million to Pirelli Sistemi
Informativi S.r.l., euro 1.4 million to Pirelli Pneus Ltda, and
euro 5,4 million to other Group companies;
→ logistic services for a total amount of euro 8.4 million of
which euro 6.9 million carried out by the Brazilian company
Total Logistic Management Serviços del Logistica Ltda;
→ the licence agreement for know-how charged by Pirelli
Tyre S.p.A. for the amount of euro 10 million;
→ other for a total amount of euro 14.2 million.
The decrease in other financial income compared to the
corresponding period of the previous financial year was
mainly attributable to the fact that raw materials are no
longer supplied to the Prometeon Group by the British
subsidiary Pirelli International Plc. (euro 112.521 thousand
at December 31, 2017).
The item raw and consumable materials used mainly
refers to costs payable to companies of the Prometeon
Group for the purchase of direct materials/consumables/
compounds for a total amount of euro 12.7 million of which
euro 9.7 million carried out by the Turkish company Pirelli
Otomobil Latikleri A.S.
The item other costs includes contributions to the Hangar
Bicocca Foundation and the Pirelli Foundation to the
amount of euro 0.8 million and costs payable to companies
of the Prometeon Group mainly for:
→ the purchase of truck products for a total amount of
euro 126.2 million of which euro 113.1 million was carried
out by the Brazilian company Comercial e Importadora
de Pneus Ltda. for the Brazilian sales network, of which
euro 4.4 million carried out by the German company
Driver Reifen und KFZ-Technik GmbH, and purchases
by other companies of the Pirelli Group to the amount
of euro 8.7 million;
→ the purchase of Car/Motorcycle and semi-finished
products for a total amount of euro 79.5 million of which
euro 75 million carried out by the Turkish company
Pirelli Otomobil Latikleri A.S. in respect of the Off-Take
contract, and euro 4.4 million on the part of Pirelli Pneus
Ltda for the purchase of inner tubes for tyres;
→ Costs to the amount of euro 12.2 million sustained by
Pirelli Pneus Ltda for the transformation of raw materials
following Toll manufacturing contract activities;
→ Reimbursement of costs sustained by Pirelli Pneus Ltda
for euro 7.3 million;
→ other for a total amount of euro 9.7 million.
The item net Impairment loss on financial assets refers
to the impairment equal to euro 9 million attributable to
the extraordinary reshaping of the technology license
agreement granted to the Aeolus Tyre Co. Ltd.
The item other income from discontinued operations
refers to the sale of industrial products on the part of the
Chinese subsidiary Pirelli Tyre Co. for the amount of euro
2.6 million and the recharging of the costs of TP Trading
Beijing Co. Ltd. to the amount of euro 0.5 million, and to
the amount of euro 4.3 million by the subsidiary Pirelli
Neumaticos S.A.I.C. to the Prometeon Group.
The item other costs from discontinued operations mainly
refers to costs for the purchase of industrial products from
the Prometeon Group.
BENEFITS FOR KEY MANAGERS OF THE COMPANY
At December 31, 2018 the remuneration payable to key
managers totalled euro 22,362 thousand (euro 20,614
thousand for 2017). The portion relative to employee
benefits was recognised in the Income Statement under
“Personnel expenses” to the amount of euro 14,133
thousand (euro 11,004 thousand for 2017), and under the
item “Other Costs” in the Income Statement to the amount
of euro 8,229 thousand (euro 9,610 thousand for 2017).
46. SIGNIFICANT EVENTS SUBSEQUENT
TO THE END OF THE YEAR
No significant events occurred since the end of the year.
47. OTHER INFORMATION
RESEARCH AND DEVELOPMENT EXPENSES
Research expenses for the 2018 financial year amounted
to euro 219 million and represented 4.2% of sales.
370
Pirelli Annual Report 2018 REMUNERATION FOR DIRECTORS AND AUDITORS
The compensation paid to the Directors and Auditors was as follows:
Directors
Statutory Auditors
Total
(In thousands of euro)
2018
2017
6,910
315
7,225
7,554
296
7,850
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
2018
2017
6,737
23,786
1,015
31,538
6,611
22,412
1,621
30,644
REMUNERATION FOR INDEPENDENT AUDITORS
Pursuant to the applicable laws, the total fees for the 2018 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
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
PricewaterhouseCoopers S.p.A.
Subsidiaries
71
611
Network PricewaterhouseCoopers
Subsidiaries
1,428
2,110
66%
Independent certification services (1) PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
PricewaterhouseCoopers S.p.A.
Subsidiaries
Network PricewaterhouseCoopers
Subsidiaries
Services other than auditing
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
PricewaterhouseCoopers S.p.A.
Subsidiaries
Network PricewaterhouseCoopers
Subsidiaries
Total
220
240
72
46
195
293
532
17%
534
17%
3,176
100%
(1) the item “independent certification services” includes amounts paid for other services that envisage the issuance of an auditor’s report as well as amounts paid for the so called certification services since they create
synergies with the auditing services.
371
Consolidated Financial Statements
DISCLOSURE REQUESTED BY LAW NO.124/2017 ART.1 PARAGRAPHS 125-129
During the financial year 2018 Pirelli Tyre S.p.A. received from the M.I.U.R. - Ministry of Education, University
and Research - a subsidised loan of euro 5.305 thousand with a 5-year duration e annual interest rate of 0.50%,
as an incentive for the development of an R&D project for the development of innovative materials in the tyre
construction process.
Furthermore, Pirelli Tyre S.p.A. obtained a non-repayable grant from the Lombardy Region totalling euro 2.462
thousand, as incentives for an R&D project on Smart Manufacturing issues, of which euro 847 thousand was
collected during the year.
UNUSUAL AND/OR EXCEPTIONAL TRANSACTIONS
Pursuant to CONSOB Notice No. 6064293 of July 28, 2006, it is hereby specified that during the course of
the 2018 financial year that no exceptional and/or unusual transactions as defined in the aforesaid Notice were
carried out by the Company.
EXCHANGE RATES
The main exchange rates used for consolidation were as follows:
Period-end exchanges rates
Average exchange rates
12/31/2018
12/31/2017
Change in %
2018
2017
Change in %
(local currency vs euro)
6.50%
7.26%
4.43%
2.17%
4.58%
3.62%
3.91%
4.33%
6.32%
3.83%
U.S. Dollar
Taiwan Dollar
Swiss Franc
Egyptian Pound
Turkish Lira (new)
Argentinian Peso
Mexican Peso
Swedish Krona
Australian Dollar
Canadian Dollar
10.2548
9.8438
4.18%
10.2600
9.6339
1.6220
1.5346
5.70%
1.5798
1.4729
1.5605
1.5039
3.76%
1.5295
1.4646
Singaporean Dollar
1.5591
1.6024
(2.70%)
1.5926
1.5587
1.1450
1.1993
(4.53%)
1.1812
1.1295
34.9786
35.6588
(1.91%)
35.6178
34.3737
1.1269
1.1702
(3.70%)
1.1550
1.1115
20.5806
21.3245
(3.49%)
21.1035
20.2283
New Romanian Leu
4.6639
4.6597
0.09%
4.6535
4.5676
1.88%
6.0280
4.5155
33.50%
5.6655
4.1174
37.60%
43.1665
22.3658
93.00%
43.1665
18.7185
130.61%
22.5170
23.6250
(4.69%)
22.7260
21.3756
South African Rand
16.4594
14.8054
11.17%
15.6192
15.0433
Brazilian Real
Chinese Renminbi
Russian Ruble
British Pound
Japanese Yen
4.4390
3.9693
11.83%
4.3084
3.6094
19.37%
7.8584
7.8365
0.28%
7.8167
7.6269
2.49%
79.6581
68.8668
15.67%
73.9444
65.8497
12.29%
0.8945
0.8872
0.82%
0.8847
0.8766
125.8500
135.0100
(6.78%)
130.3778
126.6909
0.92%
2.91%
372
Pirelli Annual Report 2018
NET FINANCIAL POSITION
(Alternative performance indicators not provided for by the accounting standards)
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
Other financial assets at fair value through income statement
Current financial receivables and other assets**
Current derivative financial instruments (assets)
Net financial debt *
Non-current derivative financial instruments (assets)
Non-current financial receivables and other assets**
Note
12/31/2018
of which
related
parties
12/31/2017
of which
related
parties
(In thousands of euro)
24
28
24
28
800,145
53,510
559,168
11,248
3,929,079
3,897,089
13,738
54,963
4,796,472
4,522,468
20
(1,326,900)
(1,118,437)
-
(33,027)
(27,196)
-
(27,320)
(6,154)
(36,511)
(5,837)
(91,245)
(21,413)
3,323,811
3,313,080
(20,134)
-
(123,547)
(12,576)
(94,585)
(12,007)
19
16
28
28
16
Total net financial (liquidity)/debt position
3,180,130
3,218,495
* Pursuant to Consob Notice of July 28, 2006 and in compliance with ESMA/2013/319 Recommendations
** The amount of “financial receivables and other assets” is reported net of the relative impairment amounting to euro 6,085 thousand.
373
Consolidated Financial Statements
SCOPE OF CONSOLIDATION
COMPANIES CONSOLIDATED LINE-BY-LINE
Company
Europe
Austria
Pirelli GmbH
Belgium
Business
Headquarter
Currency
Share Capital
% holding
Held by
Tyre
Wien
Euro
726,728
100.00% Pirelli Tyre (Suisse) SA
Pirelli Tyres Belux S.A.
Tyre
Bruxelles
Euro
700,000
100.00% Pirelli Tyre (Suisse) SA
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
Driver Handelssysteme GmbH
Pirelli Deutschland GmbH
Pirelli Personal Service GmbH
PK Grundstuecksverwaltungs GmbH
Driver Reifen und KFZ-Technik GmbH
(ex Pneumobil Reifen und KFZ-Technik GmbH)
Greece
Elastika Pirelli C.S.A.
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Breuberg /
Odenwald
Breuberg /
Odenwald
Breuberg /
Odenwald
Breuberg /
Odenwald
Hoechst /
Odenwald
Breuberg /
Odenwald
Elliniko-
Argyroupoli
Euro
Euro
Euro
Euro
Euro
Euro
7,694,943
100.00% Pirelli Tyre S.p.A.
26,000
100.00%
23,959,100
100.00%
25,000
100.00%
26,000
100.00%
259,225
100.00%
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
Euro
11,630,000
99.90% Pirelli Tyre S.p.A.
0.10% Pirelli Tyre (Suisse) SA
Pirelli Hellas S.A. (in liquidation)
Tyre
Athens
$ Usa
22,050,000
79.86% Pirelli Tyre S.p.A.
The Experts in Wheels - Driver Hellas C.S.A.
Tyre
Elliniko-
Argyroupoli
Euro
100,000
72.80% Elastika Pirelli C.S.A.
374
Pirelli Annual Report 2018 Business
Headquarter
Currency
Share Capital
% holding
Held by
COMPANIES CONSOLIDATED LINE-BY-LINE
Company
Italy
Driver Italia S.p.A.
Driver Servizi Retail S.p.A.
HB Servizi S.r.l.
Maristel S.r.l.
Tyre
Tyre
Milan
Milan
Services
Milan
Services
Milan
Pirelli Industrie Pneumatici S.r.l.
Pirelli International Treasury S.p.A.
Tyre
Tyre
Settimo
Torinese (To)
Milan
Pirelli Servizi Amministrazione e Tesoreria S.p.A.
Services
Milan
Pirelli Sistemi Informativi S.r.l.
Pirelli Tyre S.p.A.
Information
Systems
Tyre
Milan
Milan
Poliambulatorio Bicocca S.r.l.
Services
Milan
Euro
Euro
Euro
Euro
Euro
Euro
Euro
Euro
Euro
Euro
350,000
71.21% Pirelli Tyre S.p.A.
120,000
100.00% Pirelli Tyre S.p.A.
10,000
100.00% Pirelli & C. S.p.A.
50,000
100.00% Pirelli & C. S.p.A.
40,000,000
100.00% Pirelli Tyre S.p.A.
50,000
70.00% Pirelli Tyre S.p.A.
30.00% Pirelli & C. S.p.A.
2,047,000
100.00% Pirelli & C. S.p.A.
1,010,000
100.00% Pirelli & C. S.p.A.
558,154,000
100.00% Pirelli & C. S.p.A.
10,000
100.00% Pirelli Tyre S.p.A.
Servizi Aziendali Pirelli S.C.p.A.
Services
Milan
Euro
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.
0.95%
Pirelli Servizi
Amministrazione
e Tesoreria S.p.A.
0.95%
Pirelli Sistemi
Informativi S.r.l.
0.95% HB Servizi S.r.l.
The Netherlands
E-VOLUTION Tyre B.V.
Pirelli China Tyre N.V.
Pirelli Tyres Nederland B.V.
Poland
Driver Polska Sp. z o.o.
Pirelli Polska Sp. z o.o.
Tyre
Tyre
Tyre
Tyre
Tyre
Rotterdam
Euro
170,140,000
100.00% Pirelli Tyre S.p.A.
Rotterdam
Euro
38,045,000
100.00% Pirelli Tyre S.p.A.
Rotterdam
Euro
18,152
100.00% Pirelli Tyre (Suisse) SA
Warsaw
Pol. Zloty
100,000
64.50% Pirelli Polska Sp. z o.o.
Warsaw
Pol. Zloty
625,771
100.00% Pirelli Tyre S.p.A.
375
Consolidated Financial Statements COMPANIES CONSOLIDATED LINE-BY-LINE
Company
United Kingdom
CTC 2008 Ltd
Pirelli Cif Trustees Ltd
Business
Headquarter
Currency
Share Capital % holding
Held by
Tyre
Financial
Burton on
Trent
Burton on
Trent
British Pound
100,000
100.00% Pirelli UK Tyres Ltd
British Pound
4
25.00%
Pirelli General Executive
Pension Trustees LTD
25.00%
Pirelli General & Overseas
Pension Trustees LTD
25.00%
Pirelli Tyres Executive
Pension Trustees LTD
25.00%
Pirelli Tyres Pension
Trustees LTD
Pirelli International plc
Financial
Pirelli Motorsport Services Ltd
Tyre
Pirelli General Executive Pension Trustees Ltd
Financial
Pirelli General & Overseas Pension Trustees Ltd
Financial
Pirelli Tyres Executive Pension Trustees Ltd
Financial
Pirelli Tyres Ltd
Tyre
Pirelli Tyres Pension Trustees Ltd
Financial
Pirelli UK Ltd
Pirelli UK Tyres Ltd
Slovakia
Financial
Tyre
Burton
on Trent
Burton
on Trent
Burton
on Trent
Burton
on Trent
Burton
on Trent
Burton
on Trent
Burton
on Trent
Burton
on Trent
Burton
on Trent
Euro
250,000,000
100.00% Pirelli Tyre S.p.A.
British Pound
1
100.00% Pirelli Tyre S.p.A.
British Pound
1
100.00% Pirelli UK Ltd
British Pound
1
100.00% Pirelli UK Ltd
British Pound
1
100.00% Pirelli Tyres Ltd
British Pound
16,000,000
100.00% Pirelli UK Tyres Ltd
British Pound
1
100.00% Pirelli Tyres Ltd
British Pound
163,991,278
100.00% Pirelli & C, S.p.A.
British Pound
85,000,000
100.00% Pirelli Tyre S.p.A.
Pirelli Slovakia S.R.O.
Tyre
Bratislava
Euro
6,639
100.00% Pirelli Tyre S.p.A.
Romania
Pirelli & C, Eco Technology RO S.r.l.
Sustainable
mobility
Slatina
Rom. Leu
20,002,000
100.00% Pirelli Tyre S.p.A.
Pirelli Tyres Romania S.r.l.
Tyre
Slatina
Rom. Leu
853,912,300
100.00% Pirelli Tyre S.p.A.
Russia
Closed Joint Stock Company "Voronezh
Tyre Plant"
Joint Stock Company "Scientific institute
of medical polymers"
Joint Stock Company "R&D Training Center
of New Technologies & Materials "ATOM"
Tyre
Tyre
Tyre
Voronezh
Russian Rouble
1,520,000,000
Moscow
Russian Rouble
7,392,000
Moscow
Russian Rouble
312,411,000
100.00%
Limited Liability Company
Pirelli Tyre Russia
100.00%
Limited Liability Company
Pirelli Tyre Russia
100.00%
Limited Liability Company
Pirelli Tyre Russia
Limited Liability Company Pirelli Tyre Services
Tyre
Moscow
Russian Rouble
54,685,259
95.00% Pirelli Tyre (Suisse) SA
Limited Liability Company "AMTEL-Russian
Tyres" (in liquidazione)
Limited Liability Company "Industrial
Complex "Kirov Tyre"
Tyre
Tyre
Limited Liability Company Pirelli Tyre Russia
Tyre
Moscow
Moscow
Moscow
Russian
Rouble
Russian
Rouble
Russian
Rouble
5.00% Pirelli Tyre S.p.A.
10,000
100.00%
348,423,221
100.00%
Limited Liability Company
Pirelli Tyre Russia
Limited Liability Company
Pirelli Tyre Russia
6,153,846
65.00% E-VOLUTION Tyre B,V,
376
Pirelli Annual Report 2018
COMPANIES CONSOLIDATED LINE-BY-LINE
Company
Spain
Business
Headquarter
Currency
Share Capital
% holding
Held by
Euro Driver Car S.L.
Tyre
Valencia
Euro
960,000
58.44%
Pirelli Neumaticos S.A.
- Sociedad Unipersonal
0.31%
Omnia Motor S.A. -
Sociedad Unipersonal
Omnia Motor S.A. - Sociedad Unipersonal
Tyre
Valencia
Euro
1,502,530
100.00%
Pirelli Neumaticos S.A.
- Sociedad Unipersonal
Pirelli Neumaticos S.A. - Sociedad Unipersonal Tyre
Valencia
Euro
25,075,907
100.00% Pirelli Tyre S,p,A,
Tyre & Fleet S.L. - Sociedad Unipersonal
Tyre
Valencia
Euro
20,000
100.00%
Pirelli Neumaticos S.A.
- Sociedad Unipersonal
Sweden
Dackia Aktiebolag
Inter Wheel Sweden Aktiebolag
Pirelli Tyre Nordic Aktiebolag
Switzerland
Tyre
Tyre
Taby
Karlstad
Tyre
Bromma
Pirelli Group Reinsurance Company SA
Reinsurance
Basel
Pirelli Tyre (Suisse) SA
Tyre
Basel
Turkey
Pirelli Lastikleri Dis Ticaret A.S.
Pirelli Otomobil Lastikleri A.S.
Tyre
Tyre
Istanbul
Istanbul
Hungary
Pirelli Hungary Tyre Trading and Services Ltd
Tyre
Budapest
Swed.
Krona
Swed.
Krona
Swed.
Krona
Swiss
Franc
Swiss
Franc
Turkey
Lira
Turkey
Lira
Hun.
Forint
31,000,000
100.00% Pirelli Tyre S,p,A,
1,000,000
100.00% Dackia Aktiebolag
950,000
100.00% Pirelli Tyre S.p.A.
3,000,000
100.00% Pirelli & C. S.p.A.
1,000,000
100.00% Pirelli Tyre S.p.A.
50,000,000
100.00%
Pirelli Otomobil
Lastikleri A.S.
85,000,000
100.00% Pirelli Tyre S.p.A.
3,000,000
100.00% Pirelli Tyre S.p.A.
North America
Canada
Pirelli Tire Inc.
U.S.A.
Pirelli North America Inc.
Pirelli Tire LLC
Prestige Stores LLC
Tyre
Tyre
Tyre
Tyre
St-Laurent
(Quebec)
New York
(New York)
Rome
(Georgia)
Wilmington
(Delaware)
Can. $
6,000,000
100.00% Pirelli Tyre (Suisse) SA
US $
US $
US $
10
100.00% Pirelli Tyre S.p.A.
1
100.00%
Pirelli North America
Inc.
10
100.00% Pirelli Tire LLC
377
Consolidated Financial Statements Pirelli Comercial
de Pneus Brasil Ltda
Comercial e Importadora
de Pneus Ltda
Comercial e Importadora
de Pneus Ltda
COMPANIES CONSOLIDATED LINE-BY-LINE
Company
Business
Headquarter
Currency
Share Capital
% holding
Held by
Central/South America
Argentina
Pirelli Neumaticos S.A.I.C.
Tyre
Buenos Aires
Arg. Peso
2,948,055,176
99.83% Pirelli Tyre S.p.A.
TP Industrial Tyres S.A. (liquidation)
Tyre
Buenos Aires
Arg. Peso
100,000
95.00% Pirelli Tyre S.p.A.
5.00% Pirelli Pneus Ltda
0.17% Pirelli Pneus Ltda
Brazil
Comercial e Importadora de Pneus Ltda.
Tyre
Sao Paulo
Bra. Real
101,427,384
100.00%
CPA - Comercial e Importadora de Pneus Ltda.
Tyre
Sao Paulo
Bra. Real
200,000
100.00%
JMC Pneus Comercio Importação
e Exportação Ltda.
Pirelli Comercial de Pneus Brasil Ltda.
Tyre
Tyre
Sao Paulo
Bra. Real
1,271,694
100.00%
Sao Paulo
Bra. Real
509,328,303
85.00% Pirelli Tyre S.p.A.
15.00%
Pirelli Latam
Participaçoes Ltda
Pirelli Latam Participaçoes Ltda.
Tyre
Sao Paulo
Bra. Real
247,519,052
100.00% Pirelli Tyre S.p.A.
Pirelli Ltda.
Pirelli Pneus Ltda.
Financial
Santo Andrè
Bra. Real
14,000,000
100.00% Pirelli & C. S.p.A.
Tyre
Santo Andrè
Bra. Real
1,132,178,494
85.00% Pirelli Tyre S.p.A.
Comércio e Importação Multimarcas de Pneus Ltda. Tyre
Sao Paulo
Bra. Real
3,691,500
85.00% Pirelli Tyre S.p.A.
15.00%
Pirelli Latam
Participaçoes Ltda
C.P.Complexo Automotivo de Testes. Eventos
e Entretenimento Ltda, (ex RF Centro
de Testes de Produtos Automotivos Ltda.)
TLM - Total Logistic Management Serviços
de Logistica Ltda.
Tyre
Tyre
Chile
15.00%
Pirelli Latam
Participaçoes Ltda
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
0.01% Pirelli Ltda
Pirelli Neumaticos Chile Ltda
Tyre
Santiago
Chile Peso
1,918,450,809
85.25%
Pirelli Comercial
de Pneus Brasil Ltda
14.73%
Pirelli Latam
Participaçoes Ltda
0.02% Pirelli Ltda
Colombia
Pirelli Tyre Colombia S.A.S.
Tyre
Santa Fe De
Bogota
Chile Peso
222,522,000
85.00%
Pirelli Comercial
de Pneus Brasil Ltda
15.00%
Pirelli Latam
Participaçoes Ltda
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
8,080,816,500
99.76% Pirelli Tyre S.p.A.
0.24%
Pirelli Latam
Participaçoes Ltda
Pirelli Servicios S.A. de C.V.
Tyre
Silao
Mex. Peso
50,000
99.00% Pirelli Tyre S.p.A.
1.00% Pirelli North America Inc.
378
Pirelli Annual Report 2018 COMPANIES CONSOLIDATED LINE-BY-LINE
Company
Africa
Egypt
Business
Headquarter
Currency
Share Capital
% holding
Held by
Pirelli Egypt Tyre Trading S.A.E.
Tyre
Pirelli Egypt Consumer Tyre Distribution S.A.E. Tyre
Giza
Giza
Egy. Pound
84,250,000
100.00% Pirelli Tyre S.p.A.
Egy. Pound
89,000,000
99.89%
Pirelli Egypt Tyre
Trading S.A.E.
0.06% Pirelli Tyre S.p.A.
0.06% Pirelli Tyre (Suisse) SA
South Africa
Pirelli Tyre (Pty) Ltd
Tyre
Centurion
S.A. Rand
1
100.00% Pirelli Tyre (Suisse) SA
Oceania
Australia
Pirelli Tyres Australia Pty Ltd
Tyre
Sydney
Aus. $
150,000
100.00% Pirelli Tyre (Suisse) SA
New Zealand
Pirelli Tyres (NZ) Ltd
Tyre
Auckland
N.Z. $
100
100.00%
Pirelli Tyres Australia
Pty Ltd
Asia
China
Pirelli Taiwan Co. Ltd
Pirelli Trading (Beijing) Co., Ltd.
Pirelli Tyre (Jiaozuo) Co., Ltd.
Pirelli Tyre Co., Ltd
Pirelli Tyre Trading (Shanghai) Co., Ltd
Tyre
Tyre
Tyre
Tyre
Tyre
New Taipei
City
N.T. $
10,000,000
100.00% Pirelli Tyre (Suisse) SA
Beijing
Ch. Renminbi
4,200,000
100.00% Pirelli Tyre S.p.A.
Jiaozuo
Ch. Renminbi
350,000,000
80.00% Pirelli Tyre S.p.A.
Yanzhou
Ch. Renminbi
1,721,150,000
90.00% Pirelli China Tyre N.V.
Shanghai
US $
700,000
100.00% Pirelli China Tyre N.V.
20.00% Aeolus Tyre Co., Ltd
Yanzhou HIXIH Ecotech Environment Co., Ltd
Sustainable
mobility
Yanzhou
Ch. Renminbi
130,000,000
100.00% Pirelli Tyre Co. Ltd
Korea
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% Pirelli Tyre (Suisse) SA
379
Consolidated Financial Statements INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
Company
Europe
Germany
Business
Headquarter
Currency
Share Capital % holding
Held by
Industriekraftwerk Breuberg GmbH
Cogeneration
Hoechst /
Odenwald
Euro
1,533,876
26.00% Pirelli Deutschland GmbH
Greece
Eco Elastika S.A.
Tyre
Athens
Euro
60,000
20.00% Elastika Pirelli C.S.A.
Italy
Consorzio per la Ricerca di Materiali Avanzati
(CORIMAV)
Financial
Milan
Eurostazioni S.p.A.
Financial
Rome
Focus Investments S.p.A.
Financial
Milan
Slovakia
Euro
Euro
Euro
103,500
100.00% Pirelli & C. S.p.A.
160,000,000
32.71% Pirelli & C. S.p.A.
183,333
8.33%
Pirelli & C. S.p.A.
(25% of the voting share capital)
ELT Management Company Slovakia S.R.O.
Tyre
Bratislava
Euro
132,000
20.00% Pirelli Slovakia S.R.O.
Romania
S.C. Eco Anvelope S.A.
Tyre
Bucarest
Rom. Leu
160,000
20.00% S.C. Pirelli Tyres Romania S.r.l.
Russia
Joint Stock Company "Kirov Tyre Plant"
Tyre
Kirov
Russian
Rouble
5,665,418
20.00%
Limited Liability Company
Pirelli Tyre Russia
Spain
Signus Ecovalor S.L.
Tyre
Madrid
Euro
200,000
20.00%
Pirelli Neumaticos S.A. -
Sociedad Unipersonal
Asia
China
Xushen Tyre (Shanghai) Co, Ltd
Jining Shenzhou Tyre Co, Ltd
Tyre
Tyre
Shanghai
Ch. Renminbi
1,050,000,000
49.00% Pirelli Tyre S.p.A.
Jining City
Ch. Renminbi
1,050,000,000
100.00%
Xushen Tyre (Shanghai)
Co. Ltd
Indonesia
PT Evoluzione Tyres
Tyre
Subang
US $
68,000,000
60.00% Pirelli Tyre S.p.A.
380
Pirelli Annual Report 2018 381
Consolidated Financial Statements Pirelli Annual Report 2018
PIRELLI& C.S.p.A.
SEPARATE FINANCIAL
STATEMENTS
ATDECEMBER 31, 2018
383
STATEMENT OF FINANCIAL POSITION
in euro
Note
12/31/2018
Of which related
parties (Note 38)
12/31/2017
Of which related
parties (Note 38)
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Investments in associates
Other financial assets
Other financial assets at fair value through other
comprehensive income
Other receivables
Derivative financial instruments
Non-current assets
Trade receivables
Other receivables
Cash and cash equivalents
Tax receivables
Derivative financial instruments
Current assets
Total assets
Shareholders’ equity:
- Share capital
- Other reserves
- Retained earnings reserve
- Net income (loss) for the year
Total shareholders’ equity
Borrowings from banks and other financial institutions
Other payables
Provisions for liabilities and charges
Provision for deferred tax liabilities
Employee benefit obligations
Derivative financial instruments
Non-current liabilities
Borrowings from banks and other financial institutions
Trade payables
Other payables
Provisions for liabilities and charges
Employee benefit obligations
Tax payables
Derivative financial instruments
Current liabilities
Total Liabilities and Equity
8
9
10
11
12
12
13
17
14
13
15
16
17
18
19
23
20
24
21
17
19
22
23
20
21
25
17
36,626,844
2,273,663,830
4,568,324,362
6,374,501
-
66,999,913
41,335,010
2,274,121,987
4,568,309,362
10,204,402
224,593,085
-
600,543,719
600,000,000
14,819,551
19,402,654
19,402,654
-
7,571,935,823
7,133,383,397
35,365,570
32,352,151
52,045,402
43,721,766
1,548,690,528
1,524,041,518
45,164,222
13,972,980
101,764,103
1,749,490
49,745,832
48,490,491
110,632,072
104,054,274
3,749,194
3,749,194
94,846
94,846
1,739,315,227
9,311,251,050
1,904,374,936
2,144,425,954
181,511,751
262,362,043
4,492,674,684
3,921,508,709
211,511
40,530,891
527,806,343
2,210,239
209,686,032
7,343,069,429
1,904,374,936
2,163,146,083
-
170,850,918
4,238,371,937
2,331,646,999
211,511
45,677,712
554,828,134
2,071,744
10,565,158
10,565,158
29,715,928
29,715,928
4,502,832,851
2,964,152,028
222,503,724
6,591
16,856,013
9,411,654
19,380,689
2,986,850
29,694,193
4,819,768
48,351,164
26,177,691
75,212,817
27,491,367
1,815,160
1,964,819
-
-
16,436,159
16,207,276
18,636,545
18,407,661
5,291,800
5,291,800
145,896
145,896
315,743,515
9,311,251,050
140,545,464
7,343,069,429
384
Pirelli Annual Report 2018 INCOME STATEMENT
in euro
Note
2018
Of which related
parties (Note 38)
2017
Of which related
parties (Note 38)
Revenues from sales and services
Other income
Raw materials and consumables used
Personnel expenses
- of which non recurring events
Amortisation, depreciation and impairment
Other costs
- of which non recurring events
Net impairment loss on financial assets
Operating income (loss)
26
27
28
29
37
30
31
37
32
38,718,521
37,363,694
42,084,384
41,349,034
112,178,568
102,183,610
105,778,332
99,323,081
(210,126)
(183,120)
(34,130,338)
(2,185,521)
(26,709,830)
(4,779,614)
-
(3,983,656)
(1,691,015)
(4,899,942)
(105,044,273)
(20,168,662)
(167,059,757)
(18,618,209)
Net income (loss) from equity investments
33
284,943,288
- gains on equity investments
4,006,808
2,752,299
2,564,250
- losses on equity investments
(3,580,191)
(3,580,191)
(13,833,292)
(11,479,999)
284,516,671
283,549,189
215,496,848
208,870,744
60,818,832
59,276,892
116,744,745
10,680,847
(93,669,719)
(6,519,324)
(240,118,416)
(103,275,015)
(9,964,795)
(21,977,000)
(41,966,793)
(62,390,073)
-
(50,989,933)
204,415,855
30,052,251
140,798,667
96,107,664
170,850,918
(1,025,850)
(1,930,360)
5,598,336
257,690,737
4,671,306
2,677,575
- dividends
Financial income
Financial expenses
- of which non recurring events
Net income (loss) before taxes
Taxes
- of which non recurring events
34
35
37
36
37
Total net income (loss) for the year
262,362,043
385
Separate Financial Statement STATEMENT OF COMPREHENSIVE INCOME
in euro
A - Net income (loss)
262,362,043
170,850,918
2018
2017
Other components of comprehensive income:
B - Items that will not be reclassified to income statement:
- Net actuarial gains (losses) on employee benefits
- Tax effect
(8,269)
1,985
- Fair value adjustment of other financial assets at fair value through other comprehensive income
(5,709,065)
17,555
-
-
Total B
(5,715,349)
17,555
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
54,928,567
(7,117,489)
- (Gains) / losses reclassified to income statement
(64,453,722)
(270,006)
- Tax effect
Cost of hedging:
- 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:
- Gains / (losses) arising from adjustment to fair value
- (Gains) / losses reclassified to income statement
2,286,037
1,708,197
10,481,543
(4,040,529)
(1,545,843)
-
-
-
-
-
40,486,365
1,439,103
Total C
(2,343,947)
36,246,170
B+C Total other components of comprehensive income
(8,059,296)
36,263,725
A+B+C Total comprehensive income (loss) for the year
254,302,747
207,114,643
386
Pirelli Annual Report 2018 STATEMENT OF CHANGES IN EQUITY (CONTINUED)
in euro
Share
Capital
Legal
Reserve
Surplus
Reserve
Concentra-
tion
Reserve
Other
Reserves
IAS
Reserves (*)
Merger
Reserve
Reserve from
results carried
forward
Net result
of the year
Total
Total at
12/31/2016
Board
resolution of 6
March, 2017
Reserve
distribution
assignment TP
Industrial
- Retained
earnings
Annulment
treasury shares
Share capital
increase
Board
resolution of
August 1, 2017
Other
items of the
comprehensive
income
statement
Result for the
year
Total
comprehensive
income/(loss)
for the year
Total at
12/31/2017
Adoption of
new accounting
standard
IFRS 9
- Reclassifi-
cation from
available for
sale financial
assets to
other financial
assets at FV
through
income
statement
Total at
1/1/2018
Result carried
forward s per
resolution of
May 15, 2018
Other
items of the
comprehensive
income
statement
Result for the
year
Total
comprehensive
income/(loss)
for the year
Other changes
Total at
12/31/2018
1,342,280,641
152,113,517
-
116,962,590
-
-
-
-
-
3,099,893
558,994,402
-
630,380,599
-
111,798,881
-
-
-
-
-
-
-
-
-
-
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)
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
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
-
-
-
-
-
(10,554,761)
-
10,554,761
-
-
-
1,904,374,936 380,874,988 630,380,599
12,466,897
92,534,791
13,406,332 1,022,927,715
10,554,761
170,850,918 4,238,371,937
170,850,918 (170,850,918)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(8,059,296)
-
-
-
(8,059,296)
-
(106,073)
-
-
-
-
-
-
(8,059,296)
- 262,362,043
262,362,043
- 262,362,043
254,302,747
106,073
-
-
1,904,374,936 380,874,988 630,380,599
12,466,897
92,534,791
5,240,963 1,022,927,715
181,511,752 262,362,043 4,492,674,684
387
Separate Financial Statement STATEMENT OF CHANGES IN EQUITY
in euro
BREAKDOWN OF IAS RESERVES *
Reserve for fair
Value adjustment
of available-for-sale
financial assets
Reserve for fair value
adjustment
of financial assets
at fair value through
other comprehensive
income
Reserve
for actuarial
gains/losses
Reserve
for cost
of hedging
Cash flow
hedge
reserve
Tax effect
TOTAL
Balance at 12/31/2016
(14,583,100)
Other components of
comprehensive income
41,925,468
Balance at 12/31/2017
27,342,368
-
-
-
2,010,462
-
270,006
-
(12,302,632)
17,555
-
(7,387,495)
1,708,197
36,263,725
2,028,017
-
(7,117,489)
1,708,197
23,961,093
Adoption of new accounting
standard IFRS 9
Balance at 1/1/2018
Other components of
comprehensive income
Other changes
Balance at 12/31/2018
(27,342,368)
16,787,607
-
394,804
(394,804)
-
(10,554,761)
-
-
-
-
16,787,607
2,028,017
394,804
(7,512,293)
1,708,197
13,406,332
(5,709,064)
(8,269)
6,441,013
(9,525,155)
742,179
(8,059,296)
(106,073)
-
-
-
-
(106,073)
10,972,470
2,019,748
6,835,817
(17,037,448)
2,450,376
5,240,963
388
Pirelli Annual Report 2018 CASH FLOW STATEMENT
in euro
2018
Of which related
parties (Note 38)
2017
Of which related
parties (Note 38)
Result before taxes
257,690,737
Reversal depreciation, amortization and write-downs
3,983,656
30,052,251
4,899,942
Reversal financial expenses
Reversal financial income
93,669,719
6,519,324
240,118,416
103,275,015
(60,818,832)
(59,276,892)
(116,744,745)
(10,680,847)
Reversal result from investments
(284,943,288)
(283,549,189)
(204,415,855)
(199,954,995)
Taxes paid
Change in trade receivables
Change in trade payables
-
-
16,679,832
11,369,615
9,646,590
13,193,646
(10,594,441)
(1,832,918)
(2,731,044)
3,237,898
Change in other receivables/other payables
(9,800,604)
(3,428,000)
22,708,000
12,585,217
Change in tax receivables/tax payables
42,775,429
42,775,429
22,393,548
36,366,068
Change in personnel provisions and other provisions
(1,228,347)
(Gains)/losses from sales of tangible and intangible assets
(575,786)
A Net cash generated/(used) by operating activities
46,838,075
Investments in tangible assets
Disinvestments of property, plant & equipment
Investments in intangible assets
Disinvestments of intangible assets
(1,384)
3,000,000
(1,024,267)
-
(2,165,575)
11,240
3,772,768
(338,274)
26,639
(1,550,850)
750,000
Investments in shareholdings in subsidiaries
(15,000)
(15,000)
(9,705,361)
(9,705,361)
Disinvestments of shareholdings in subsidiaries
Investments in other financial assets
Disinvestments of other financial assets
-
-
-
Disinvestments of other financial assets non corrent at fair value
through other comprehensive income
Disinvestments /(Investments) in other financial assets
non current at fair value through other comprehensive income
109,254
152,807,660
7,938
7,938
(2,459,092)
2,365
-
-
Disinvestments of shareholdings in associated companies
249,710
249,710
17,209,724
17,209,724
Dividends received
284,516,671
283,549,189
215,496,848
208,870,744
B Net cash generated/(used) by investment activities
439,642,644
Change in share capital
-
219,439,937
1,189,375,000
Change in financial receivables
(2,103,421,000)
(2,103,912,000)
629,710,507
629,710,507
Interest income and other financial income
15,820,233
15,820,233
1,817,000
Change in financial payables
1,744,063,616
(9,000,000)
(1,884,066,984)
9,000,000
Interest expense and other financial expenses
(42,928,955)
2,233,556
(160,104,080)
(53,865,315)
C Net cash generated/(used) by financing activities
(386,466,106)
(223,268,557)
D Total net cash generated/(used) in the year (A+B+C)
100,014,613
E Cash and cash equivalents at the beginning of the year
1,749,490
F Cash and cash equivalents at the end of the year (D+E)
101,764,103
(55,851)
1,805,342
1,749,490
389
Separate Financial Statement 390
Pirelli Annual Report 2018 Explanatory Notes
1. GENERAL INFORMATION
Pirelli & C. S.p.A. (hereinafter also Pirelli, the “Company” or
the “Parent Company”) is a corporation organised under
the laws of the Republic of Italy.
Founded in 1872, it is a holding company that manages,
coordinates and funds the activities of subsidiaries
(hereinafter Pirelli Group).
The registered office of the Company is in Viale Piero e
Alberto Pirelli 25 – Milan.
As from October 4, 2017, Pirelli & C. S.p.A. shares are
now traded on the Mercato Telematico Azionario (MTA
Telematic Stock Market), managed by Borsa Italiana
S.p.A..
Following the total non-proportional demerger of Marco
Polo International Italy S.p.A., which took place in August
2018, Pirelli & C. S.p.A. is directly controlled by Marco
Polo International Italy S.r.l., newly established company
indirectly controlled by China National Chemical
Corporation (“ChemChina”), a “state-owned enterprise”
(SOE) under Chinese law, with registered office in Beijing,
referring to the Central Government of the People’s
Republic of China.
Marco Polo International Italy S.r.l. controls the Company
with 45.52% of the capital and does not exercise
management and coordination activities.
On February 26, 2019, the Board of Directors authorised
publication of these Annual Financial Statements
(“Annual Financial Statements or Separate Financial
Statements”).
SIGNIFICANT EVENTS 2018
On January 11, 2018, Pirelli sold, through an operation
reserved to qualified investors in Italy and institutional
investors abroad, the entire investment held directly in
Mediobanca S.p.A. - corresponding to about 1.8% of the
relative share capital - with total net income of Euro 152.8
million.
On January 22, 2018, under the EMTN program
approved at the end of 2017, Pirelli & C. S.p.A. placed a
bond at international institutional investors for a nominal
amount of Euro 600 million with a five-year term at
fixed rate. The effective yield at maturity is 1.479% and
the securities were listed on the Luxembourg Stock
Exchange. Furthermore, during the first weeks of
January, Pirelli undertook an operation to change the
economic conditions of the Group’s main banking line
391
- involving a total notional amount of Euro 4.2 billion,
including a revolving line of Euro 700 million - which
allowed reducing the interest margin applied by 30 basis
points.
On March 15, 2018, Pirelli & C. S.p.A. placed a “Floating
Rate Note” bond with a value of Euro 200 million with
maturity in September 2020. The variable rate bond issue
- intended exclusively for institutional investors - allowed
the repayment of the existing debt for an equal amount,
further optimising the company’s financial structure by
reducing the cost of debt.
On July 26, 2018, Pirelli & C. S.p.A. concluded a
“Schuldschein” loan for a total of Euro 525 million. The
loan, guaranteed by Pirelli Tyre S.p.A. and entered into by
leading market operators, consists of a tranche of Euro
82 million with maturity in 3 years, a tranche of Euro 423
million with maturity in 5 years and a tranche of Euro 20
million with maturity in 7 years. The transaction allowed
repayment of part of the existing debt, further optimizing
the structure and costs.
On August 7, 2018, the Board of Directors of Pirelli - with
reference to the bond referred to as “Pirelli & C. S.p.A. Euro
600,000,000 1.375 per cent. Guaranteed Notes due 25
January 2023” (ISIN: XS1757843146) issued by Pirelli &
C. S.p.A. as part of the EMTN programme of Euro 2 billion
and listed on the Luxembourg Stock Exchange - resolved
to proceed with the purchase of said bonds for a total
nominal value of a maximum of Euro 150 million. As part
of this resolution, on October 30, 2018, Pirelli conferred
a mandate to Goldman Sachs International to proceed
with the partial repurchase of the bond for a maximum
nominal amount of Euro 50 million. At the end of the partial
repurchase program that was completed on December
19, 2018, bonds were repurchased and annulled for a
nominal value of Euro 47 million at an average price of
96.110% and, consequently, the total nominal value of
bonds outstanding as of December 31, 2018 is equal to
Euro 553 million.
2. BASIS FOR PREPARATION
The 2018 financial statements represent the separate
financial statements of the Parent Company Pirelli & C.
S.p.A..
These Financial Statements have been prepared on a
going concern assumption since the Directors have
verified the absence of financial, operational or other
types of indicators that could indicate critical issues
regarding the ability of the Company to meet
its
obligations in the foreseeable future and in particular in
the next 12 months. The description of 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 Notes.
Separate Financial Statement In application of Legislative Decree of February 28, 2005,
no. 38, “Exercise of the options provided for by article
5 of regulation (EC) no. 1606/2002 on international
accounting standards”, issuers are required to prepare
not only the consolidated financial statements but also
the financial statements of the Company in compliance
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).
include all
IFRS
International Financial Reporting
Standards, International Accounting Standards (IAS), all
interpretations of the International Financial Reporting
Interpretations Committee (IFRIC), formerly the Standing
Interpretations Committee (SIC).
The financial statements have been prepared under the
conventional historical cost basis, except for the following
items which have been measured at fair value:
→ derivate financial instruments;
→ financial assets available for sale (until December 31,
2017);
→ financial assets at
fair value
through other
comprehensive income (as January 1, 2018);
statements where applicable, except in relation to the
assessment of investments in subsidiaries and associate
companies and dividends, as indicated below.
INVESTMENTS IN SUBSIDIARIES
AND ASSOCIATED COMPANIES
Investments in subsidiaries and associates are recognised
at cost, net of any impairment losses.
In the presence of specific impairment indicators, the
value of investments in subsidiaries and associates,
determined based on the historical cost basis, is tested
for impairment.
The indicators are as follows:
→ The book value of the investment in the separate financial
statements exceeds the book value of the investee’s net
assets (inclusive of any associates goodwill) expressed
in the consolidated financial statements;
→ The dividend distributed by the investee exceeds the
total undistributed profits of the same investee;
→ The operating result achieved by the investee company
is significantly lower than the amount envisaged in the
management plan, if this indicator can be considered
significant for the reference company;
→ financial assets at fair value through income statement
→ There are expectations of significantly decreasing
(as January 1, 2018).
FINANCIAL STATEMENTS
The separate Financial Statements at December 31, 2018
consist of the Statement of Financial Position, the Income
Statement, the Statement of Comprehensive Income, the
Statement of Changes in Equity, the Statement of Cash
Flows and the Explanatory Notes, and are accompanied
by the Directors’ Report on Operations.
The Company has chosen to represent the Income
Statement by nature of expense, assets and liabilities
in the Statement of Financial Position are divided into
current and non-current and the Cash Flow Statement
has been prepared using the indirect method.
It shall also be noted that the Group has applied the
provisions of Consob Resolution no. 15519 of July 27,
2006 in regard to the formats of financial statements and
Consob Notice no. 6064293 of July 28, 2006 in regard to
corporate disclosure.
All amounts included in the Notes, unless otherwise
specified, are in thousands of Euro.
3. ACCOUNTING STANDARDS
The accounting standards used in the preparation of
separate financial statements are the same as those used
for the purposes of preparing the consolidated financial
operating results for future years;
→ Existence of changes in the technological, market,
economic or regulatory environment in which the
investee operates that may generate significant
negative economic effects on the company’s results.
The impairment test consists of comparing the book
value and the recoverable value of the investment.
If the recoverable amount of an investment is lower
than the carrying amount, the latter is reduced to the
recoverable amount. This reduction constitutes an
impairment loss recognised in the Income Statement.
The recoverable amount of an investment is identified as
the greater of fair value and value in use. The value in use
of an investment is the present value of future cash flows
expected to originate from a cash-generating investment.
The value in use reflects the effects of factors that may
be entity specific, factors that may not be applicable to
any entity.
If the reason for impairment ceases to exist, the carrying
amount of the investment is recognised in the Income
Statement, up to the original cost.
DIVIDENDS
Dividend income is recognised in the Income Statement
when the right to receive payment is established, which
normally corresponds to the resolution approved by the
Shareholders’ Meeting for the distribution of dividends.
392
Pirelli Annual Report 2018 3.1
ACCOUNTING STANDARDS
AND INTERPRETATIONS ENDORSED
AND IN FORCE FROM JANUARY 1, 2018
In accordance with IAS 8 “Accounting standards, changes
in accounting estimates and errors”, the IFRS effective
from January 1, 2018 are indicated below:
→ IFRS 15 - Revenues from contracts with customers
The impacts deriving from the application of this
standard, which replaces the previous IAS 18, are
described in Note 3.3 “Impacts deriving from the
adoption of IFRS 15 and IFRS 9” for the impacts
resulting from the first application of this standard.
→ IFRS 9 – Financial Instruments
IFRS 9 replaces the previous IAS 39 standard regarding
the classification and measurement of financial assets
and liabilities, the impairment of financial assets and
hedge accounting. See Note 3.3 “Impacts deriving
from the adoption of IFRS 15 and IFRS 9” for the
impacts resulting from the first application of this
standard.
→ Amendments to IFRS 2 - Share-based payments and
Classification and measurement of transactions with
share-based payment
The objective of these amendments is to clarify the
accounting treatment of some types of share-based
payments. Application of these amendments will not
have any impact on the separate financial statements.
→ IFRIC 22 - Transactions in Foreign Currency and
Advances
The objective of this interpretation is to establish
the exchange rate to be used in the conversion of
advances in foreign currency, paid or received. In the
presence of advances paid or received, the exchange
rate to be used to convert assets, liabilities, revenues
or costs recognised at a subsequent time is the same
used to convert the advance. There are no impacts on
the separate financial statements.
→ Amendments to IAS 40 - Transfers of property
investments
These amendments further clarify the situations in
which it is possible to reclassify a property asset within
or outside the category of property investments. These
amendments do not apply to the separate financial
statements.
→ Improvements to IFRS – 2014-2016 cycle (issued by
the IASB in December 2016).
The IASB has issued a series of amendments to
3 current standards, which concern, in particular,
the following aspects: clarification on the scope of
application of IFRS 12 – Supplementary information
relating to interests in other entities - in the presence
of re-entrant entities within the scope of application
in
IAS 28 –
Investment
of IFRS 5 – Non-current assets held for sale and
discontinued operations; valuation of associates
or joint ventures at fair value in the presence of
investment entities
in
associated companies; elimination of short-term
exemptions for those adopting IFRS for the first
time in IFRS 1 – First-time adoption of IFRS. The
amendments to IAS 28 and IFRS 1 are not applicable
to the Company, while the amendments to IFRS
12 are applicable only in the presence of entities
classified under IFRS 5. There are no impacts on the
separate financial statements due to application of
these amendments.
→ Amendments to IFRS 4 - Application of IFRS 9 Financial
instruments in case of application of IFRS 4 Insurance
contracts.
implementation
These amendments govern the
of the new standard IFRS 9 Financial instruments,
in case IFRS 4, still subject to further changes, is
applicable. These amendments are not applicable to
the Company.
3.2
INTERNATIONAL ACCOUNTING STANDARDS
AND/OR INTERPRETATIONS ISSUED
BUT NOT YET IN FORCE
Pursuant to IAS 8 “Accounting standards, changes in
accounting estimates and errors”, the following are
the new Standards or Interpretations that have been
issued but have not yet come into force or have not yet
been endorsed by the European Union at December
31, 2018, and which are therefore not applicable, and
the foreseeable impacts on the Separate Financial
Statements.
None of these standards and interpretations have been
adopted in advance.
→ Amendments to IFRS 10 and IAS 28 – Sale or transfer
of assets from an investing company to an associate
or joint venture
The IASB issued said amendments to eliminate an
inconsistency between IFRS 10 and IAS 28, stating
that
if the assets sold/transferred constitute a
business as defined by IFRS 3; the possible gain or
loss must be recognised fully and any gain or loss shall
be recognised only for the related portion.
These amendments, the entry into force of which
was deferred to an indefinite time, have not yet
been endorsed by the European Union. No impacts
are expected on the Financial Statements deriving
from the future application of these amendments
as the current accounting treatment followed by the
Company is already compliant.
→ IFRS 16 – Leases
The new
lease standard, which will replace the
current IAS 17, provides a new definition of lease and
393
Separate Financial Statement introduces a criterion based on control (right of use)
of an asset to distinguish lease contracts from service
provision contracts, identifying as discriminants: the
identification of the asset, the right to replace the same,
the right to obtain substantially all of the economic
benefits arising from the use of the asset and lastly,
the right to direct the use of the asset underlying the
contract.
The standard establishes for the lessee a single model
of recognition and evaluation of lease contracts that
provides for the recognition of the asset subject to
a lease, also operating, in balance sheet asset with a
financial payable as balancing entry, for an amount
equal to the current value of the future payments. The
concept of operating leasing is no longer included. By
contrast, the Standard does not include significant
changes for lessors.
Said standard, endorsed by the European Union, is
applicable from January 1, 2019. The Company will
apply the new standard starting from the date of entry
into force.
The Company completed the preliminary assessment
project of potential
impacts deriving from the
application of the new standard on the transition
date (January 1, 2019). This process was in several
phases, including the complete mapping of contracts
potentially suitable for containing a lease and the
analysis of the same in order to understand the main
clauses relevant to IFRS 16.
The Company referred to the practical expedient
it
provided for by the standard, which makes
possible to refer to the conclusions reached in the
past on the basis of IFRIC 4 and IAS 17 regarding
the quantification of operating leases for a specific
contract. This practical expedient was applied to all
contracts.
The process of implementation of the standard is
being completed, which provides for the setting
up of the IT infrastructure aimed at accounting
management of the standard and the alignment of
administrative processes and controls to oversee
critical areas concerned with the standard. This
process is expected to be completed within the first
quarter of 2019.
The Company has chosen to apply the standard
retrospectively, with recognition of the cumulative
effect deriving from the application of the standard
in shareholders’ equity at January 1, 2019 (modified
retrospective method). In particular, the Company will
recognise, for lease contracts previously classified as
operational:
→ a financial liability, equal to the present value of
the future residual payments at the transition date,
discounted using the incremental borrowing rate
applicable at the transition date for each contract;
→ a right of use equal to the value of the financial
liability at the transition date, net of any accrued
and deferred assets/liabilities related to the lease
and recorded in the balance sheet at the closing date
of these financial statements.
394
Pirelli Annual Report 2018 The following table shows the impacts estimated from the adoption of IFRS 16 at the transition date:
NON-CURRENT ASSETS
Tangible assets
- Right of use assets - buildings
- Right of use assets - car, light vehicles
Total
CURRENT ASSETS
Other receivables
Total assets
NON-CURRENT LIABILITIES
Borrowings from banks and other financial institutions
CURRENT LIABILITIES
Borrowings from banks and other financial institutions
Other payables
Total liabilities
in thousands of euro
33,470
1,944
35,415
(127)
35,228
in thousands of euro
36,389
2,015
(3,116)
35,288
The value of non-current assets relating to operating lease contracts was increased for the balance of accrued/
deferred assets recognised at December 31, 2018 for an amount equal to Euro 127 thousand (included under
the item other current receivables) and decreased for the balance of accrued liabilities recognised at December
31, 2018 for an amount equal to Euro 3,116 thousand (included under the item other current payables).
In adopting IFRS 16, the Company decided to avail itself of the exemption granted by the standard in relation
to short-term leases (contracts with a duration of less than 12 months) for all asset classes. For such contracts
the introduction of IFRS 16 will not entail the recognition of the financial liability of the lease and the related
right of use, but the lease payments will be recorded in the income statement on a linear basis for the duration
of the respective contracts.
The Company also intends to avail itself of the exemption granted by the standard with regard to lease contracts
for which the underlying asset is configured as a low-value asset, i.e. lease contracts for which the unit value of
the underlying assets is not greater than Euro 8 thousand when new. Contracts for which the exemption was
applied fall mainly within the following categories:
→ computers, telephones and tablets;
→ office and multifunction printers;
→ other electronic devices.
395
Separate Financial Statement
For these contracts, the introduction of IFRS 16 will not
entail the recognition of the financial liability of the lease
and the related right of use. However, the lease payments
will be recognised in the income statement on a straight-
line basis for the duration of the respective contracts.
The Company intends to use the practical expedient
envisaged by IFRS 16 with regard to the separation
of non-lease components for vehicles. The non-lease
components on these assets will not be separated and
accounted separately from the lease components, but
will be considered together with the latter in determining
the financial liability of the lease and the related right of
use.
Furthermore, with reference to the transition rules,
the Company intends to avail itself of the following
practical expedients available if choosing the modified
retrospective transition method:
→ classification of contracts that expire within 12 months
from the date of transition as a short-term lease. For
these contracts, lease payments will be recognised in
the income statement on a straight-line basis;
→ use of the information present on the transition date
for the determination of the lease term, with particular
reference to the exercise of extension and early closure
options.
The transition to IFRS 16 introduces some elements of
professional opinion and the use of assumptions and
estimates in relation to the lease term, to the definition
of the increase in the borrowing rate. The main ones are
summarised below:
→ the Company has decided not to apply IFRS 16 for
contracts containing a lease that have an intangible
asset as an underlying asset;
→ contract renewal clauses are considered for the
purposes of determining the duration of the contract
when the Company has the option of exercising
them without the need to obtain the consent of the
counterparty and their exercise is deemed reasonably
certain. In the case of clauses providing for multiple
renewals that can be exercised unilaterally by the
Company, only the first extension period has been
considered;
→ automatic renewal clauses in which both parties have
the right to terminate the contract are not considered
for the purposes of determining the duration of the
contract, as the ability to extend the duration of
the same is not under the unilateral control of the
Company and the penalty to which the lessor could
be exposed is not significant. However, in the event
that the lessor is exposed to a significant penalty, the
Company includes the renewal option in determining
the duration of the contract. This assessment is also
carried out considering the degree of customisation
of the asset subject to leasing: if the customisation
is high, the lessor may incur a significant penalty if
opposing renewal;
→ early termination clauses of contracts: these clauses
are not considered in determining the duration of the
contract if they can only be exercised by the lessor or
by both parties. If they can be unilaterally exercised
by the Company, specific assessments are made
contract by contract (for example, the Company is
already negotiating a new contract or has already given
termination notice to the lessor);
→ incremental borrowing rate: the Company decided to
use the incremental borrowing rate as discount rate to
discount lease contract payments. This rate consists of
the free risk rate of the country in which the contract is
negotiated and based on the duration of the contract.
It is then adjusted according to the Company’s credit
spread and the local credit spread.
396
Pirelli Annual Report 2018 RECONCILIATION WITH COMMITMENTS FOR FUTURE MINIMUM PAYMENTS
DUE FOR NON-CANCELLABLE OPERATING LEASES
In order to facilitate the understanding of the impacts arising from the first application of the standard, the
following table provides a reconciliation between future commitments relating to lease contracts, which is
referred to in paragraph 8, and the impact expected from the adoption of IFRS 16 as of January 1, 2019:
Future minimum lease payments for operating leases at 12/31/2018 (IAS 17)
Short term leases
Leases of low value assets
Discounting
Financial liabilities for leases contracts at 1/1/2019 (IFRS 16)
in thousands of euro
47,796
(136)
(127)
(11,144)
36,389
→ IFRIC 23 – Uncertainty on the treatment of income taxes
This interpretation clarifies the criteria to be applied for the recognition and measurement of current and
deferred tax liabilities/assets in the event of uncertainty regarding the tax treatment, i.e. situations in which
it is not certain that a specific treatment will be accepted by the tax authorities (ex. deductibility some costs
or exemption of some income), but also uncertainty regarding the determination of taxable income, the tax
base of assets and liabilities, tax losses and rates to be applied.
The accounting treatment depends on the probability of whether tax authorities will accept the tax
treatment or not. In the event it is not probable that the tax authority accept the uncertain tax treatment,
uncertainty is recorded by recognising an additional tax liability or by applying a higher rate.
Said interpretation, endorsed by the European Union, is applicable from January 1, 2019. No significant
impacts are expected on the Financial Statements of the Company.
→ Amendments to IFRS 9 – Financial Instruments: prepayment features with negative compensation and
amendments to financial liabilities
Said amendments concern the following:
→ o financial assets (financial receivables and debt securities) which, in the presence of certain characteristics,
can be measured at amortised cost, whereas previously they had to be measured at fair value recorded
in the income statement;
→ o accounting treatment in the presence of changes to financial liabilities that do not lead to derecognition
from the financial statements: in such situations, a profit or loss calculated as the difference between
the contractual cash flows of the original liability and the changed cash flows must be recorded in the
income statement, both discounted at the original effective interest rate.
These amendments, which will come into force on January 1, 2019, have not yet been endorsed by the
European Union. With regard to the change relating to financial assets, assessments are underway to verify
their applicability to the Group and to the Company; the change in the accounting treatment of financial
liabilities in the event of changes that do not lead to derecognition is applicable to the Company and has no
impact as the Company already applies this accounting treatment.
→ Amendments to IAS 28 – Investments in associates and joint ventures: long-term interests in associates
and joint ventures
These amendments clarified that, if investments in associates and joint ventures are not valued using the
equity method (IAS 28), they must be valued in accordance with the provisions of IFRS 9.
These amendments, which will come into force on January 1, 2019, have not yet been endorsed by the
European Union. No impacts are expected on the Financial Statements of the Company.
397
Separate Financial Statement
→ “Improvements” to IFRS 2015-2017 (issued by the IASB
in December 2017).
The IASB issued a series of amendments to 4
standards in force in particular regarding the following
aspects:
→ IFRS 3 – business combinations: obtaining control
of a business that is classified as a joint operation
must be accounted for as a business combination in
phases and the investment previously held must be
remeasured at fair value on the date of acquisition.
→ IFRS 11 – Joint arrangements: in the case of
obtaining joint control over a business that is
classified as a joint operation, the investment
previously held does not have to be remeasured
at fair value.
→ IAS 12 – taxes: the accounting treatment
of the tax effects of dividends on financial
instruments classified as equity must follow that
of the transactions or events that generated the
distributable dividend.
→ IAS 23 – financial expenses: if a specific loan relating
to a qualifying asset is still outstanding at the time
the asset is ready for use or sale, it becomes part of
the generic loans.
These amendments, which will come into force on
January 1, 2019, have not yet been endorsed by
the European Union. Any impacts on the financial
statements of the Group and the Company are
currently being analysed.
→ Amendments to IAS 19 – Employee benefits
Said amendments require that:
→ the cost for the current service and the net interest
for the period following a modification and/or
reduction of the plan are determined using updated
assumptions;
→ any reductions in the surplus of a plan are recognised
in the income statement, even if the surplus had not
been recognised in the income statement due to the
asset ceiling.
These amendments, which will come into force on
January 1, 2019, have not yet been endorsed by the
European Union.
→ Amendments to IFRS 3 – Business Combinations
These amendments introduced a new definition of
business, as the current one is too complex with
the result that too many transactions qualified as a
business combination.
These amendments, which will come into force on
January 1, 2020, have not yet been endorsed by the
European Union.
→ Amendments to IAS 1 – Presentation of Financial
Statements and to IAS 8 – Accounting standards,
Changes in accounting estimates and errors
In addition to clarifying the concept of materiality,
these amendments focus on the definition of a
coherent and unique concept of materiality among
the various accounting standards and incorporate the
guidelines included in IAS 1 on intangible information.
These amendments, which will come into force on
January 1, 2020, have not yet been endorsed by the
European Union.
398
Pirelli Annual Report 2018 IMPACTS DERIVING FROM THE ADOPTION OF IFRS 15 AND IFRS 9
3.3
The table below shows the effects on the opening balance sheet at January 1, 2018 following the first application
of IFRS 15 and IFRS 9:
STATEMENT OF FINANCIAL POSITION
in thousands of euro
Note
12/31/2017
IFRS 15
1st adoption
IFRS 9
1st adoption
1/1/2018
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Investments in associates
Other financial assets
Other financial assets at fair value through other comprehensive income
Other financial assets at fair value through income statement
Other receivables
Non-current assets
Trade receivables
Other receivables
Cash and cash equivalents
Tax creditis
Derivative financial instruments
Current assets
Total Assets
Equity attributable to owners of the Group:
- Share capital
- 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
Derivative financial instruments
Non-current liabilities
8
9
10
11
12
12
12
13
14
13
15
16
17
18
19
23
20
24
21
17
399
41,335
2,274,122
4,568,309
10,204
224,593
-
-
14,820
41,335
2,274,122
4,568,309
10,204
(224,593)
-
75,566
75,566
149,027
149,027
14,820
7,133,383
-
-
7,133,383
52,046
45,164
1,749
110,632
95
209,686
7,343,069
4,238,372
1,904,375
2,163,146
170,851
4,238,372
2,331,647
212
45,677
554,828
2,072
29,716
-
-
-
-
52,046
45,164
1,749
110,632
95
209,686
7,343,069
-
4,238,372
1,904,375
2,163,146
170,851
-
-
-
-
4,238,372
2,331,647
212
45,677
554,828
2,072
29,716
2,964,152
-
-
2,964,152
Separate Financial Statement Borrowings from banks and other financial institutions
Trade payables
Other payables
Tax payables
Derivative financial instruments
Current liabilities
Total Liabilities and Equity
Note
12/31/2017
IFRS 15
1st adoption
IFRS 9
1st adoption
1/1/2018
19
22
23
25
17
16,856
29,694
75,213
18,636
146
140,545
7,343,069
16,856
29,694
75,213
18,636
146
-
-
-
-
140,545
7,343,069
IFRS 15 IFRS 15 had no impact on the methods for recognising revenues and the reporting of said revenues.
Consequently, there were no impacts on the Company’s shareholders’ equity at the transition date.
IFRS 9 - FINANCIAL INSTRUMENTS IFRS 9 has been applied retrospectively and the date of first application
coincides with January 1, 2018. The comparable data for 2017 was not subject to restatement.
→ Classification and measurement
At January 1, 2018, based on the assessment of the applicable business model and the contractual conditions
of the cash flows associated with the assets, financial assets were classified in the categories envisaged by
IFRS 9. Equity instruments that at December 31, 2017 were classified as available for sale financial assets
(AFS) were designated as financial assets at fair value recorded in the other components of the comprehensive
income statement (FVOCI), as they do not belong to the Company’s core operations. The sole exception
concerns the investment in Mediobanca S.p.A., which has instead been classified in financial assets for which
fair value changes are recognised through profit or loss (FVPL). The investment in Mediobanca S.p.A. was sold
in the first days of January 2018 and the positive fair value change of Euro 3,780 thousand was recognised in
the income statement under the item “Gains on equity investments” (Note 33.1).
The following table summarises the reclassifications made:
Other non current financial
assets at FV through
income statement
Other financial assets
at FV through other
comprehensive income
(available for sale
financial assets 2017)
Financial assets at amortised
cost (gross trade receivables
and gross other receivables)
-
224,593
116,235
in thousands of euro
149,027
149,027
(149,027)
-
75,566
116,235
Total at 12/31/2017
Reclassification from available
for sale financial assets to other
financial assets at FV through
income statement
Total at 01/01/2018
→ Impairment of financial assets
The Company analysed the impacts of the new impairment model of IFRS 9 based on expected losses in
relation to trade and financial receivables.
For trade receivables, the Company has applied the simplified approach permitted by the standard,
according to which expected losses are calculated over the life of receivables and has used a matrix based
on historical experience and related to credit aging, adjusted to take account of specific factors to some
creditors. There are no impacts on Company assets at the transition date due to the application of the new
impairment model to trade receivables.
400
Pirelli Annual Report 2018
→ Hedge accounting: the Company has adopted the new rules for hedge accounting required by IFRS 9
prospectively starting from January 1, 2018. Hedging relations outstanding at December 31, 2017 met the
conditions required by IFRS 9 to continue adopting hedge accounting. It should be noted that, based on the
provisions of IFRS 9, the cash flow hedge reserve relating to cash flow hedges outstanding at December
31, 2017 was partly reclassified to a new reserve for cost of hedging in equity for an amount equal to Euro
394 thousand. The reclassification relates to the change in the fair value of the cross currency basis spread
which, not being hedge accounting, is separated and recorded in a separate equity reserve, while the cash
flow hedge reserve only includes changes in fair value in hedge accounting.
The impacts on the individual components of Company equity deriving from the first application of IFRS 9 are
summarised in the following table:
Reserve for
fair value
adjustment
of available for sale
financial assets
Reserve for fair
value adjustment
of financial assets
at fair value
through other
comprehensive
income
27,342
(10,554)
-
-
(16,788)
16,788
-
-
-
-
-
16,788
in thousands of euro
Reserve for cash
flow hedge
Reserve for cost
of hedging
Other reserves /
retained earnings
(7,117)
-
-
-
(394)
(7,511)
-
-
-
-
394
394
92,535
10,554
-
-
-
103,089
Total at 12/31/2017
Reclassification from available for sale
financial assets to other financial assets
at FV through income statement
(Mediobanca)
Reclassification from available
for sale financial assets to other
financial assets at FV through other
comprehensive income
Impairment of financial assets
Reclassification for hedge accounting
Total at 01/01/2018
It should be noted that the fair value adjustment reserve for available for sale financial assets at December
31, 2017 (positive for Euro 27,342 thousand) was reclassified to a new reserve in equity for investments
designated as assets at fair value recorded in the other components of the comprehensive income statement,
while it was reclassified in retained earnings for investments for which the changes in fair value are recognised
in the income statement. These reserves will not be reversed to the income statement if the investments are
sold.
4. FINANCIAL RISK MANAGEMENT POLICY
The measurement and management of the financial risks of Pirelli & C. S.p.A. are consistent with as defined by
the Group policies.
The Pirelli Group is exposed to financial risks. These are principally associated with foreign exchange rates,
fluctuations in interest rates, the price of financial assets held as investments, the ability of customers to meet
their obligations to the Group (credit risk), and raising funds on the market (liquidity risk).
Financial risk management is an integral part of Group business management and is handled directly by the
headquarters in accordance with guidelines issued by the Finance Department on the basis of general risk
management strategies defined by the Managerial Risk Committee.
401
Separate Financial Statement
The main financial risk categories to which the Company is exposed are shown below:
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 when the transaction is completed (collection or payment) may generate foreign exchange gains or losses.
The Group’s objective is to minimise the effects on the Income Statement of foreign exchange rate risk related
to volatility. To achieve this objective, Group procedures make the Operating Units responsible for collecting
complete information about the assets and liabilities that are subject to transaction exchange rate risk. This
risk is hedged with forward contracts made with the Group Treasury.
The items subject to exchange rate risk are mainly represented by receivables and payables denominated in
foreign currency.
The Group Treasury is responsible for hedging the net position for each currency and, in accordance with
established guidelines and restrictions, it closes all risk positions by trading derivative contracts on the market,
which typically take the form of forward contracts.
The Group has decided not to opt for hedge accounting pursuant to IFRS 9, insofar as the representation of
the economic and financial effects of the hedging strategy on foreign exchange rate risk is still substantially
guaranteed even without adopting such option.
Furthermore, it shall be noted that as part of the annual and three-year planning process, exchange rate
forecasts are made using the best information available on the market. The fluctuation in exchange rates
between the time when the forecast is made and the time when the commercial or financial transaction occurs
represents the exchange rate risk on future transactions.
From time to time, the Group assesses the need to engage in hedging transactions on future transactions for
which it typically uses both forward and optional purchase or sale transactions such as risk reversal (ex. zero
cost collar).
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 IFRS 9 are fulfilled.
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.
The Group assesses based on market circumstances whether to enter into derivative contracts, typically
interest rate swaps, to hedge for which hedge accounting is activated when the conditions set out in IFRS 9
are fulfilled.
At December 31, 2018, the Company had a negative net financial position, with all financial payables at variable
rates.
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, respectively in a net negative and positive impact on the Income Statement of Euro
7,110 thousand.
Impact on the net result
(7,110)
(8,920)
7,110
8,920
in thousands of euro
+0.50%
-0.50%
2018
2017
2018
2017
402
Pirelli Annual Report 2018
The effects on the Company shareholders’ equity resulting
from changes in the LIBOR and EURIBOR rates calculated
on the interest rate hedging instruments outstanding at
December 31, 2018 are described in note 17 “Derivative
financial instruments”.
credit recovery action
if necessary. The Company
operates only with highly rated financial counterparties
for the management of its temporary cash surpluses
and constantly monitors
individual
counterparties.
its exposure to
PRICE RISK ASSOCIATED WITH
FINANCIAL ASSETS
The company is exposed to price risk, which is limited to
the volatility of financial assets such as listed and unlisted
stocks and bonds; these assets are classified as financial
assets at fair value recognised as other components of
the comprehensive income statement.
Derivatives hedges are not set up to limit the volatility of
these assets.
FINANCIAL ASSETS MEASURED AT FAIR VALUE
THROUGH THE INCOME STATEMENT
Financial assets at fair value recognised as other
components of the comprehensive income statement
consist of listed securities amounted to Euro 28,448
thousand (Euro 30,177 thousand at December 31, 2017)
and those represented by securities indirectly associated
with listed shares (Fin. Priv. S.r.l.) amounted to Euro 15,604
thousand (Euro 19,908 thousand at December 31, 2017);
these financial assets represent 66% of total financial
assets subject to price risk; a +5% price change in the
above listed securities, other things being equal, would
result in a positive change of Euro 1,422 thousand of the
Company’s shareholders’ equity (positive for Euro 8,960
thousand at December 31, 2017), while a -5% change of
these listed securities, other things being equal, would
result in a negative change of Euro 1,422 thousand of
the Company’s shareholders’ equity (at December 31,
2017, negative for Euro 8,960 thousand of the Company’s
shareholders’ equity).
CREDIT RISK
Credit risk represents the Company’s exposure to
contingent losses resulting from default by commercial
and financial counterparties. The Company’s exposure
for commercial obligations is mainly towards Group
companies, for financial obligations totally towards Group
companies.
To limit the risk for commercial obligations towards third
parties, the Company has implemented procedures to
evaluate its customers’ potential and financial solidity,
for the monitoring of expected cash flows and taking
The Company does not hold public debt instruments from
any European country, and constantly monitors its net
credit exposure to the banking system.
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.
The principal instruments used by the Group to manage
liquidity risk are comprised by its annual and three-year
financial and cash-pooling plans. These allow complete
and fair detection and measurement of incoming and
outgoing cash flows. The differences between plans and
actual data are constantly analysed.
The Group has implemented a centralised cash pooling
system for the management of collection and payment
flows in compliance with various local currency and tax
laws. Banking relationships are negotiated and managed
centrally, in order to ensure coverage of short and
medium-term financial needs at the lowest possible cost.
The procurement of medium and long-term resources on
the capital market is also streamlined through centralised
management.
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 the availability of funds through an
adequate amount of committed credit facilities and/or
recourse to the capital market, while diversifying the
products and their maturities to seize the best available
opportunities.
At December 31, 2018, the Company had, aside from
cash equal to Euro 101,764 thousand (Euro 1,749
thousand at December 31, 2017), unused credit lines
equal to Euro 700,000 thousand (Euro 100,000
thousand at December 31, 2017) maturing in the second
quarter of 2022, due to the transfer of all the Facilities
that included an RCF line not used at the transfer date
equal to 600,000 thousand.
403
Separate Financial Statement The maturities of financial liabilities at December 31, 2018 may be broken down as follows:
12/31/2018
in thousands of euro
up to 1 year
from 1 to 2 years
from 2 to 5 years
over 5 years
Total 12/31/2017
Payables to banks and other lenders
295,729
1,316,688
2,859,928
21,029
4,493,374
Trade payables
Other payables
19,381
48,351
-
-
-
-
-
-
19,381
48,351
Derivative financial instruments
(19,608)
(24,403)
(37,148)
(62)
(81,221)
Total
343,853
1,292,285
2,822,780
20,967
4,479,885
The maturities of financial liabilities at December 31, 2017 could be broken down as follows:
12/31/2017
in thousands of euro
up to 1 year
from 1 to 2 years
from 2 to 5 years
over 5 years
Total 12/31/2017
Payables to banks and other lenders
57,667
53,314
2,447,334
Trade payables
Other payables
29,694
75,213
-
212
-
-
Derivative financial instruments
146
3,638
26,077
Total
162,720
57,164
2,473,411
-
-
-
-
-
2,558,315
29,694
75,425
29,861
2,693,295
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
used in determining the fair value. The levels are as follows:
→ level 1 – unadjusted quotations recorded on an active market for assets or liabilities subject to valuation;
→ level 2 – inputs different from the quoted prices referred to at the preceding level, which are observable
on the market either directly (as in the case of prices) or indirectly (because they are derived from prices);
→ level 3 – inputs that are not based on observable market data.
404
Pirelli Annual Report 2018
The following table shows assets measured at fair value as at December 31, 2018, divided into the three levels
defined above:
FINANCIAL ASSETS
Other financial assets at fair value through income statement
Non current derivative financial instruments
Current derivative financial instruments
Other financial assets at fair value through other comprehensive income
Equities and shares
Investment funds
Derivative hedging instruments
Non current derivative financial instruments
Current derivative financial instruments
Nota
12/31/2018
Level 1
Level 2
Level 3
in thousands of euro
17
17
12
12
17
17
-
325
-
-
-
325
-
-
51,425
28,449
15,604
7,372
15,575
19,403
3,424
-
-
-
15,575
19,403
3,424
-
-
-
TOTAL ASSETS
90,152
28,449
54,331
7,372
FINANCIAL LIABILITIES
Financial liabilities at fair value through profit or loss
Current derivative financial instruments
17
(44)
Derivative hedging instruments
Non current derivative financial instruments
Current derivative financial instruments
TOTAL LIABILITIES
17
17
(5,248)
(10,565)
(15,857)
-
-
-
-
(44)
(5,248)
(10,565)
(15,857)
-
-
-
-
405
Separate Financial Statement
At December 31, 2017, the breakdown was as follows:
Nota
12/31/2017
Level 1
Level 2
Level 3
in thousands of euro
FINANCIAL ASSETS
Available-for-sale financial assets:
Other financial assets
Equities and shares
Investment funds
Derivative hedging instruments
12
12
209,323
179,204
19,909
10,210
15,270
-
-
15,270
95
-
-
Current derivative financial instruments
17
95
TOTAL ASSETS
224,688
179,204
35,274
10,210
FINANCIAL LIABILITIES
Financial liabilities at fair value through profit or loss
Current derivative financial instruments
17
(146)
Derivative hedging instruments
Non current derivative financial instruments
TOTAL LIABILITIES
17
(29,716)
(29,862)
-
-
-
(146)
(29,716)
(29,862)
-
-
-
The following table shows the changes of financial assets that occurred in level 3:
Opening balance
Increases
Decreases
Reclassification
Transfer from level 2 to level 3
Impairment
Fair value adjustments through other comprehensive income
in thousands of euro
12/31/2018
12/31/2017
10,210
7,248
-
781
(2,857)
-
-
-
19
-
-
2,730
(912)
363
Closing balance
7,372
10,210
These financial assets mainly consist of the equity investment in Istituto Europeo di Oncologia (European
Institute of Oncology) (Euro 6,961 thousand).
406
Pirelli Annual Report 2018
Decreases mainly refer to the liquidation of the investment in Emittenti Titoli S.p.A..
In the year ended December 31, 2018, there were no transfers from level 1 to level 2 and vice versa, nor from
level 3 to other levels and vice versa.
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 financial assets at fair value
through other comprehensive income.
The fair value of financial instruments not traded on active markets (e.g. derivatives) is measured by means
of techniques that 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.
CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES
5.2
The following are the carrying amounts for each class of financial asset and liability identified by IFRS 9:
in thousands of euro
Note
12/31/2018
12/31/2017
17
13
14
13
15
12
12
17
17
325
-
600,544
14,820
35,366
52,045
1,548,690
45,164
101,764
1,749
-
224,593
67,000
3,424
19,403
-
95
-
2,376,516
338,466
FINANCIAL ASSETS
Financial assets at fair value through profit or loss
Derivative financial instruments
Financial assets at amortized cost
Other non-current receivables
Current trade receivabels
Other current receivables
Cash
Available-for-sale financial assets
Other financial assets
Financial assets at fair value through other comprehensive income
Derivative hedging instruments
Current derivative financial instruments
Non current derivative financial instruments
Total financial assets
407
Separate Financial Statement
FINANCIAL LIABILITIES
Financial liabilities at fair value through profit or loss
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
Current derivative financial instruments
Non current derivative financial instruments
Total financial liabilities
Note
12/31/2018
12/31/2017
17
19
19
22
23
23
17
17
44
146
3,921,509
2,331,647
222,504
16,856
19,380
29,694
212
212
48,351
75,213
5,248
-
10,565
29,716
4,227,813
2,483,484
6. CAPITAL MANAGEMENT POLICY
The Company’s objective is to maximise the return on net invested capital while maintaining the ability to
operate over time, ensuring adequate returns for its shareholders and benefits for the other stakeholders,
with progressive deleverage of the financial structure in the short/medium term.
In order to achieve these objectives, as well as pursuing satisfactory earnings results and generating cash
flows, the Company may adjust its policy regarding dividends and the configuration of the Company’s capital.
7. ESTIMATES AND ASSUMPTIONS
The preparation of the Financial Statements requires Directors to apply accounting standards and
methodologies which, under certain circumstances, are based on subjective assessments and estimates that
are based on historical experience and assumptions that are considered reasonable and realistic from time
to time depending on the circumstances. The final results of the items of the financial statements for which
said estimates and assumptions were used may differ from those in the financial statements that show the
effects of the occurrence of the event subject of the estimate due to the uncertainty that characterizes the
assumptions and conditions on which the estimates are based.
Below is a brief description of the accounting standards that, 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 financial information.
PIRELLI BRAND (INTANGIBLE ASSET WITH AN INDEFINITE USEFUL LIFE)
The Pirelli Brand is intangible fixed asset with an indefinite useful life are 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 at December 31, 2018 was performed using the assistance of an independent third-party
professional.
408
Pirelli Annual Report 2018 The configuration of the recoverable amount for
impairment testing purposes at December 31, 2018
was 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).
proper identification of elements indicating the existence
of a potential impairment loss, and the estimates for
calculating the amount of such losses, depend on factors
that may vary over time, affecting the assessments and
estimates made by Directors.
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
impairment emerged.
INVESTMENTS IN SUBSIDIARIES Investments are
assessed to establish whether there was a decrease
in value, if there are indications that it will be difficult to
recover their net accounting value 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 that a potential
impairment may be generated, the Company calculates
this loss using appropriate measurement techniques. The
PROVISIONS FOR RISKS AND CHARGES Provisions
are set aside against contingent legal and fiscal liabilities
related to indirect tax, representing the risk of negative
outcome. The value of the provisions recorded in the
financial statements relating to these risks represents
the best estimate at the date made by the directors. Such
an estimate entails making assumptions that depend
on factors that may change over time and which could
therefore have a material impact with respect to the current
estimates made by Directors for the preparation of the
Company’s Financial Statements.
TAXES Significant elements of estimation are necessary
in defining the forecasts of current taxes for the year and
deferred tax assets and liabilities.
409
Separate Financial Statement 8. PROPERTY, PLANT AND EQUIPMENT
The items in question and the related changes are detailed as follows:
Land
Buildings
Plant and
machinery
Industrial and
commercial
equipment
Other
assets
Assets in progress
and advances
Total
in thousands of euro
Net value as of December 31, 2016
9,021
28,306
880
17
4,722
475
43,421
Increases
Decreases
Reclassification
Depreciation
-
-
-
-
332
(112)
475
-
-
-
-
-
-
118
(37)
-
-
-
450
(149)
(475)
-
(1,705)
(219)
(5)
(458)
At 31 December 2017
9,021
27,296
661
12
4,345
Of which:
- Historical cost
9,021
55,639
4,686
985
14,693
- Accumulated depreciation
-
(28,343)
(4,025)
(973)
(10,348)
Net value as of December 31, 2017
9,021
27,296
661
12
4,345
Increases
Decreases
Reclassification
Depreciation
-
-
(2,437)
(53)
-
-
-
-
-
-
-
-
-
1
-
-
(1,708)
(208)
(3)
(300)
At 31 December 2018
6,584
25,535
453
9
4,046
Of which:
- Historical cost
6,584
48,974
3,628
942
14,430
- Accumulated depreciation
-
(23,439)
(3,175)
(933)
(10,384)
Net value as of December 31, 2018
6,584
25,535
453
9
4,046
-
-
-
-
-
-
-
-
-
-
-
-
-
(2,387)
41,335
85,024
(43,689)
41,335
1
(2,490)
-
(2,219)
36,627
74,558
(37,931)
36,627
No investments were made in 2018.
The decreases for the year refer to the sale of a piece of land in Milan, against which a gain of Euro 563
thousand was realised.
The total of the future minimum payments due for non-cancellable operating leases amount to Euro 47,796
thousand, of which:
→ Euro 3,465 thousand within one year;
→ Euro 31,049 thousand between one and five years;
→ Euro 13,200 thousand over 5 years.
410
Pirelli Annual Report 2018
9. INTANGIBLE ASSETS
The items in question and the related changes are detailed as follows:
Brand
Software
Licenses
Other assets
Assets in progress
and advances
Total
in thousands of euro
At 31 December 2016
2,270,000
1,078
Increases
Decreases
Amortisation
-
-
-
At 31 December 2017
2,270,000
Increases
Decreases
Reclassification
Amortisation
-
-
-
-
At 31 December 2018
2,270,000
311
-
(387)
1,002
224
-
-
(393)
833
4,007
1,084
750
156
-
(750)
2,275,835
1,551
(750)
(2,127)
2,964
1,081
-
156
(1,370)
2,831
-
(2,514)
156
2,274,122
-
-
(156)
-
-
1,305
-
-
(1,763)
2,273,664
The item Trademark refers to the value of the Pirelli Brand (asset with indefinite useful life) for Euro 2,270,000
thousand, which originated following the allocation of the merger deficit, generated as a result of the
incorporation of the parent company Marco Polo International Holding Italy S.p.A. in 2016. The allocation of the
deficit was made consistently with the consolidated financial statements as a result of the completion of the
Purchase Price Allocation.
The valuation of the useful life of the brands is based on a series of factors including the competitive environment,
market share, history of the brand, life cycles of the underlying product, operational plans and macroeconomic
environment of the countries in which the related products are sold. In particular, the useful life of the Pirelli
Brand was assessed as indefinite based on its history of over one hundred years of success (created in 1872)
and the intention and ability of the Group to continue investing to support and maintain the brand.
The increases in the year mainly include charges for the purchase of software applications (Euro 746 thousand),
licenses (Euro 224 thousand), systems for personnel management (Euro 256 thousand) and treasury (Euro
79 thousand).
No impairment was carried out during the 2018 financial year.
THE IMPAIRMENT TESTING OF THE PIRELLI BRAND (INTANGIBLE FIXED ASSET WITH AN 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 an impairment.
The impairment test as at December 31, 2018 was carried out with the assistance of an independent third
party professionals.
411
Separate Financial Statement
The configuration for the recoverable amount for the
purposes of impairment testing at December 31, 2018
was 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:
→ 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.
→ the consensus forecasts by equity analysts with respect
to the forecast revenues for the period 2019-2020 in
that they were more prudent than the projections made
by management;
→ an 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 Tyre sector and
was equal to an average royalty rate of 5.01%. With
reference to the contribution in terms of royalties from
the Prometeon Tyre Group, the royalty rates used were
those provided for by the license agreement subject to
the reshaping of the contract as approved by the Board
of Directors on February 14, 2019;
→ a discount rate of 8.38%, which included a premium
determined on the basis of the risk of the specific 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
impairment emerged.
A sensitivity analysis was also carried out in relation to the
Key Assumptions used in the valuation of the royalty rate
(for the 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 downward change in the royalty rates for the Consumer
evaluation units of 50 basis points and the simultaneous
zero balance for royalties from the license agreement
with Prometeon Tyre Group;
→ an upward change in the discount rate of150 basis
points;
→ a downward change in the g growth rate of 150 basis
points.
412
Pirelli Annual Report 2018 10. INVESTMENTS IN SUBSIDIARIES
At December 31, 2018, this item amounted to Euro 4,568,324 thousand (Euro 4,568,309 thousand at
December 31, 2017) and the 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.
Pirelli International Treasury S.p.A.
Total
Below are the changes during the year:
Opening balance
Increases
Impairment
Decreases
Reclassification from provision for risks and charges
in thousands of euro
12/31/2018
12/31/2017
230
1,315
-
6,346
9,666
3,238
1,655
230
1,315
2,095
6,346
9,666
3,238
1,655
4,523,887
4,521,792
21,871
21,871
101
15
101
-
4,568,324
4,568,309
in thousands of euro
12/31/2018
12/31/2017
4,568,309
4,930,701
15
-
-
-
9,707
(2,262)
(364,360)
(5,477)
Closing balance
4,568,324
4,568,309
The increases refer for Euro 15 thousand to the subscription of 30 percent of the share capital of Pirelli
International Treasury S.p.A., established on October 25, 2018; the residual 70 per cent was subscripted by the
subsidiary Pirelli Tyre S.p.A..
In April 2018 the Company Pirelli & C. Ambiente S.r.l. was merged by incorporation into the subsidiary Pirelli
Tyre S.p.A..
The company checks the recognised 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 associated
companies For investments in subsidiaries, no impairment indicators were identified and therefore no
impairment tests were necessary.
Further details are set out in the Annexes to the explanatory notes.
413
Separate Financial Statement
11. INVESTMENTS IN ASSOCIATES
At December 31, 2018, this item amounted to Euro 6,375 thousand (Euro 10,204 thousand at December 31,
2017) and the breakdown is as follows:
Consorzio per le Ricerche sui Materiali Avanzati (CORIMAV)
Eurostazioni S.p.A. - Roma
Fenice S.r.l.
Focus Investments S.p.A.
Total
The breakdown of changes is indicated below:
Opening balance
Increases
Decreases
Impairment
Closing balance
in thousands of euro
12/31/2018
12/31/2017
104
6,271
-
-
104
6,271
2,477
1,352
6,375
10,204
in thousands of euro
12/31/2018
12/31/2017
10,204
33,078
-
(249)
(3,580)
6,375
-
(13,655)
(9,219)
10,204
The write-downs refer:
→ for Euro 2,229 thousand to the investment in Fenice S.r.l. which, following the sale of the investment of Prelios
S.p.A. on December 28, 2017 to Lavaredo S.p.A., a newly established joint-stock company designated by the
Burlington fund counterparty in the transaction was placed in liquidation; the liquidation was concluded in
July 2018 with the distribution of as resulting from the allocation plan of Euro 249 thousand;
→ for Euro 1,351 thousand is attributable to the adjustment of the carrying amount to the fair value, including
the liquidation preference.
Further details are set out in the Annexes to the explanatory notes.
12. OTHER FINANCIAL ASSETS – OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER
COMPREHENSIVE INCOME – OTHER FINANCIAL ASSET AT FAIR VALUE THROUGH PROFIT OR LOSS –
NON CURRENT PORTION
OTHER FINANCIAL ASSETS
Following the entry into force on January 1, 2018 of IFRS 9, other financial assets, consisting of financial
assets available for sale and equal to Euro 224,593 thousand at December 31, 2017, have been designated
as financial assets at fair value recorded in the other components of the comprehensive income statement
(FVOCI) for Euro 75,566 thousand and as financial assets for which fair value changes are through profit or
loss (FVPL) for Euro 149,027 thousand.
414
Pirelli Annual Report 2018
Total financial assets at fair value (IAS 39) at 12/31/2017
Reclassification to other financial assets at fair value through other comprehensive income
Reclassification to other financial assets at fair value through income statement
Total financial assets at fair value (IFRS 9) at 01/01/2018
in thousands of euro
224,593
(75,566)
(149,027)
-
OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (FVOCI)
Other financial assets at fair value recorded in the other components of the comprehensive income statement
amount to Euro 67,000 thousand at December 31, 2018.
The breakdown of the item for each security is as follows:
Listed securities
RCS Mediagroup S.p.A. - Milano
Unlisted securities
Fin. Priv Srl
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.
Other financial assets at fair value in through other components of comprehensive income (FVOCI)
at 01/01/2018
Decreases
Adjustment to fair value recognized in other components of comprehensive income
Total
in thousands of euro
12/31/2018
01/01/2018
28,449
30,177
15,604
15,575
6,961
-
411
19,908
15,270
6,599
2,748
864
67,000
75,566
in thousands of euro
75,566
(2,863)
(5,703)
67,000
415
Separate Financial Statement
Decreases mainly refer to the liquidation of the investment in Emittenti Titoli S.p.A..
The fair value adjustments in other components of the comprehensive income statement mainly refer to
the investment in Fin.Priv. S.r.l. (negative for Euro 4,305 thousand), in RCS Mediagroup S.p.A. (negative for
Euro 1,729 thousand), in Genextra (negative for 442 thousand), in Fondo Comune di investimento Anastasia
(positive for Euro 305 thousand) and in Istituto Europeo di Oncologia (positive for Euro 362 thousand).
For listed securities, the fair value corresponds to the Stock Exchange listing at December 31, 2018. For
unlisted securities and real estate funds, the fair value was estimated according to available information.
Further details are set out in the Annexes to the explanatory notes.
OTHER FINANCIAL ASSETS AT FAIR VALUE
THROUGH PROFIT OR LOSS (FVPL) – NON CURRENT PORTION
The changes in the fair value of other financial assets at fair value recorded in the income statement in the year
are shown below:
Other financial assets at fair value through other comprehensive income (IFRS 9) at 01/01/2018
Fair value through income statement
Disposal
Closing balance
in thousands of euro
149,027
3,780
(152,807)
-
The initial value of other non-current financial assets at fair value recorded in the income statement refers to
the investment in Mediobanca S.p.A. sold in January 2018.
13. OTHER RECEIVABLES
The breakdown of other receivables is as follows:
12/31/2018
12/31/2017
Total
Non-current
Current
Total
Non-current
Current
in thousands of euro
Other receivables from subsidiaries
3,921
-
3,921
2,040
Financial receivables from subsidiaries
2,112,705
600,000
1,512,705
8,793
-
-
2,040
8,793
Guarantee deposits
Other receivables from third parties
Receivables from tax authorities for taxes not related
to income
Financial accrued interest income
Financial prepaid expenses
221
2,221
21,976
7,415
776
221
323
-
-
-
-
712
712
-
1,898
18,604
14,108
4,496
21,976
26,224
7,415
3,122
776
489
-
-
-
26,224
3,122
489
Total
2,149,235
600,544
1,548,691
59,984
14,820
45,164
416
Pirelli Annual Report 2018
Financial receivables from subsidiaries mainly include the loan granted to Pirelli Tyre S.p.A. for a total amount
of Euro 1,540 million, of which a current portion of Euro 940 million and a non-current portion of Euro 600
million, entered into on January 31, 2018 and maturing on January 31, 2020 and the receivable for interest
accrued and not yet paid for Euro 4,329 thousand.
Financial receivables also include receivables with Pirelli International Plc related to the interest-bearing
current account, settled at market rates, for Euro 561,399 thousand (at December 31, 2017 equal to Euro
4,082 thousand) and related to the charge-back of guarantee commissions for Euro 3,259 thousand.
For the purpose of applying the IFRS 9 accounting standard for intercompany loans, the analysis carried out
take into account qualitative, quantitative, historical and prospective information, to determine the credit risk of
an intragroup loan as of 31 December 2018. As a consequence, using a probability of default of an investment
grade loan, the company management has concluded that any write-down required by the standard would be
not-material.
Receivables from the tax authorities for taxes not related to income for Euro 21,976 thousand mainly refer
to receivables for VAT.
Accrued financial assets refer to portions of interest accrued but not yet collected on cross currency
interest swap derivative contracts related to the unsecured syndicated financing “Facilities” granted to
Pirelli & C. S.p.A..
Deferred financial assets relate mainly to the commissions on the revolving and term loan credit line.
The book value of financial receivables and other receivables approximates their fair value.
14. TRADE RECEIVABLES
Trade receivables amount to Euro 35,366 thousand compared to Euro 52,045 thousand of the previous year
and the breakdown is as follows:
Receivables from subsidiaries
Receivables from associates
Receivables from other companies
Total receivables - gross amount
Provision for bad debt
Total
in thousands of euro
12/31/2018
12/31/2017
32,229
42,159
3
6,105
38,336
(2,970)
35,366
3
14,088
56,250
(4,205)
52,045
417
Separate Financial Statement
Below is the breakdown of trade receivables based on the currency in which they are expressed:
EUR
USD (Dollar USA)
RUB (Ruble Russia)
Other currencies
Total
12/31/2018
% of total trade
receivables
12/31/2017
% of total trade
receivables
in thousands of euro
34,180
89%
48,139
2,083
2,039
33
38,336
6%
4%
-
2,381
5,699
31
56,250
86%
4%
10%
-
Receivables from subsidiaries at December 31, 2018 mainly include the amounts that Pirelli & C. S.p.A. charges
for services rendered through Corporate functions. The aforementioned receivables are due within the financial
year and do not show overdue balances significant amount.
Receivables from other companies of Euro 6,105 thousand (Euro 14,088 thousand at December 31, 2017),
shown gross of the bad debt provision of Euro 2,970 thousand, are past due for Euro 2,119 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.
The change in the provision for bad debts is shown below:
Opening balance
Accruals
Utilisations/reversals
Closing balance
in thousands of euro
12/31/2018
12/31/2017
4,205
2,962
(4,197)
2,970
4,059
275
(129)
4,205
Accruals to the provision for bad debts are recognised in the Income Statement as “Impairment of financial
assets” (Note 32).
For trade receivables, the carrying amount is considered to approximate the applicable fair value.
15. CASH AND CASH EQUIVALENTS
At December 31, 2018, they amount to Euro 101,764 thousand, against Euro 1,749 thousand at December 31,
2017 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
418
Pirelli Annual Report 2018
are represented by leading national and international banking institutions.
It is believed that the value of cash and cash equivalents is in line with their fair value.
16. TAX RECEIVABLES
At December 31, 2018, they amount to Euro 49,746 thousand (Euro 110,632 thousand at December 31, 2017).
The amount mainly includes:
→ receivables from Group companies participating in the tax consolidation for Euro 48,489 thousand (Euro
104,054 thousand at December 31, 2017). The decrease compared to the previous year substantially depends
on the lower contribution of the positive taxable result by the subsidiary Pirelli Tyre S.p.A., deriving from the
Patent Box benefit;
→ receivables for IRAP advances paid for Euro 925 thousand, unchanged compared to the previous year.
17. DERIVATIVE FINANCIAL INSTRUMENTS
The item includes the fair value of derivative instruments. The breakdown is as follows:
12/31/2018
12/31/2017
Non Current
Assets
Current
Assets
Non Current
Liabilities
Current
Liabilities
Non Current
Assets
Current
Assets
Non Current
Liabilities
Current
Liabilities
in thousands of euro
-
325
-
(44)
-
95
-
(146)
Without adoption of hedge
accounting
Forex instruments - trade
positions
In hedge accounting
- cash flow hedge:
Derivatives for interest rate
-
-
(2,824)
-
Other derivatives instruments
19,403
3,424
(7,741)
(5,248)
Total
19,403
3,749
(10,565)
(5,292)
-
-
-
-
-
-
(29,716)
-
-
95
(29,716)
(146)
The above derivatives are fully stipulated with the Group’s treasury company, Pirelli International PLC.
DERIVATIVE FINANCIAL INSTRUMENTS NOT IN HEDGE ACCOUNTING
The value of exchange rate 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.
DERIVATIVE FINANCIAL INSTRUMENTS IN HEDGE ACCOUNTING
The value of derivatives on interest rates, recorded as non-current liabilities for Euro 2,824 thousand, refers
to the fair value measurement of 4 interest rate swaps forward start contracts with a notional of Euro 550
million and that exchange fixed rate against variable EURIBOR to hedge both future transactions and liabilities
already recognised in the financial statements.
419
Separate Financial Statement
Instrument
Underlying item
Notional
(in thousands of euro)
Start date
Deadline
IRS forward start
Forecast transaction
250,000
June 2019
June 2022
receive fix / pay floating
IRS forward start
Term loan
100,000
October 2019
June 2022
receive fix / pay floating
IRS forward start
Schuldschein
180,000
July 2020
July 2023
receive fix / pay floating
IRS forward start
Schuldschein
20,000
July 2020
July 2025
receive fix / pay floating
Total
550,000
in thousands of euro
The change in fair value of IRS for the period, negative for Euro 2,824 thousand, was entirely suspended in
equity for Euro 2,810 thousand.
A +0.5% change in the EURIBOR curve, other things being equal, would result in a positive change of Euro
8,152 thousand in the Group’s shareholders’ equity, while a -0.5% change in the same curve would result in a
negative change of Euro 8,527 thousand in the Group’s shareholders’ equity.
The value of other derivatives, recognised as non-current assets for Euro 19,403 thousand, current asset
for Euro 3,424 thousand, non-current liabilities for Euro 7,741 thousand and current liabilities for 5,248
thousand, refers to the fair value measurement of 6 cross currency interest rate swaps with the following
characteristics:
in thousands of USD
Instrument
Notional
Start date
Deadline
Description
CCIRS
CCIRS
CCIRS
CCIRS
170,422
July 2017
July 2019
pay floating EURIBOR / receive floating LIBOR
284,037
July 2017
June 2020
pay floating EURIBOR / receive floating LIBOR
681,690
July 2017
June 2022
pay floating EURIBOR / receive floating LIBOR
908,920
November 2018
July 2019
pay floating EURIBOR / receive floating LIBOR
2,045,069
CCIRS forward start
170,422
July 2019
June 2022
pay fix EURIBOR / receive floating LIBOR
CCIRS forward start
908,920
July 2019
June 2022
pay fix EURIBOR / receive floating LIBOR
1,079,342
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 2,045,069 thousand, equivalent to Euro 1,786,072 thousand (see note 19 Payables to banks
and other lenders).
The positive change in fair value for the period was suspended in equity for Euro 68,220 thousand (cash
flow hedge reserve for Euro 57,739 thousand and cost of hedging reserve for Euro 10,482 thousand), while
Euro 39,973 thousand was reversed to the income statement in the item “net profits on derivatives” (Note
34 “Financial income”) to offset unrealised exchange rate losses recorded on liabilities hedged and Euro
28,523 thousand was instead reversed in the item “Financial expenses” (Note 35) correcting the financial
expenses recorded on the liability hedged.
420
Pirelli Annual Report 2018
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
12,412 thousand and a negative net impact of Euro
12,730 thousand on the shareholders’ equity of the
Company.
Hedging relationships relating to IRS and CCIRS are
considered effective prospectively as the following
conditions are met:
→ there is an economic relationship between the hedging
instrument and the hedged item, as the characteristics
of the hedging instrument (nominal interest rate, reset
of the interest rate and frequency of the payment of
interest) are substantially in line with those of the
hedged item. As a consequence, changes in the fair
value of the hedging instrument regularly offset those
of the hedged item;
→ the effect of credit risk is not predominant within the
hedging relationship: based on the Group’s operating
rules, derivatives are traded only with high standing
banking counterparties and the credit quality of the
existing derivatives portfolio is constantly monitored;
→ the designated hedge ratio is in line with the one used
for financial risk management and is 100% (1:1).
ineffectiveness of the hedging relationship
The
is
calculated at each reporting date with the Dollar Offset
method, which provides for the comparison of changes in
the fair value risk adjusted of the hedging instrument (with
the exception of those attributable to the spread referring
to the currency basis) with changes in the fair value risk
free of the hedged item, through the identification of a
hypothetical derivative with the same characteristics of
the underlying financial liability.
Possible causes of ineffectiveness are as follows:
→ application of adjustment for credit risk only to the
hedging instrument but not to the hedged item;
→ the hedged item incorporates a floor that is not reflected
in the hedging instrument;
→ misalignment between the actual contractual conditions
of the future transaction and those of the hedging
instrument.
At December 31, 2018, no
ineffectiveness was
recognised with reference to the aforementioned hedging
relationships.
18. SHAREHOLDERS’ EQUITY
Equity amounts to Euro 4,492,675 thousand (Euro
4,238,372 thousand at December 31, 2017).
The statement of changes in equity is shown in the main
financial statements.
Equity went from Euro 4,238,372 thousand at December
31, 2017 to Euro 4,492,675 thousand at December
31, 2018. The positive change is essentially due to
the net result for the year (positive for Euro 262,362
thousand), offset by the adjustment to the fair value of
derivatives designated as cash flow hedges (negative
for 3,084 thousand) and to the adjustment to the fair
value of financial assets at fair value recognised as other
components of the comprehensive income statement
(negative for Euro 5,709 thousand).
SHARE CAPITAL
The share capital at December 31, 2018, fully subscribed
and paid-in, amounts to Euro 1,904,374,935.66 divided
into 1,000,000,000 ordinary shares without nominal value
and unchanged compared to December 31, 2017.
LEGAL RESERVE
At December 31, 2018, the legal reserve amounted to Euro
380,875 thousand, unchanged compared to December
31, 2017.
SHARE PREMIUM RESERVE
At December 31, 2018, the share premium reserve
amounted to Euro 630,381 thousand and unchanged
compared to December 31, 2017.
CONCENTRATION RESERVE
At December 31, 2018, the concentration reserve
amounted to Euro 12,467 thousand and unchanged
compared to December 31, 2017.
OTHER RESERVES
At December 31, 2018, other reserves amounted to Euro
92,535 thousand and unchanged compared to December
31, 2017.
IAS RESERVE
At December 31, 2018, the IAS reserves amounted to Euro
5,241 thousand and refer to the reserve for the fair value
adjustment recognised in the comprehensive income
statement (positive for Euro 10,972 thousand), to the
actuarial gains/losses reserve (positive for Euro 2,020
thousand), the cash flow hedge reserve and the cost of
hedging reserve, net of the tax effect (negative for Euro
7,751 thousand).
MERGER RESERVE
At December 31, 2018, the merger reserve amounted
to Euro 1,022,928 thousand, unchanged compared to
December 31, 2017. The reserve was generated following
the merger by incorporation of Marco Polo International
Holding S.p.A. in Pirelli & C. S.p.A. in 2016.
421
Separate Financial Statement RETAINED EARNINGS
The reserve from results carried forward amounts to Euro 181,512 thousand compared to a zero value at
December 31, 2017. The increase is mainly attributable to the result for the previous year for Euro 170,851
thousand, which has been carried forward and to the classification to retained earnings for Euro 10,554
thousand of the fair value adjustment reserve for available for sale financial assets at December 31, 2017, for
investments for which the changes in fair value are recognised in the income statement.
In accordance with the provisions of article 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:
Equity items
Share capital
Surplus reserve
Legal reserve
Other reserves
- Concentration reserve
- 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
Amount
Possible use
Available portion
Summary of reserves uses in the last
3 previous years
in thousands of euro
1,904,375
630,381
380,875
12,467
92,535
5,241
1,022,928
181,512
4,230,314
-
A, B, C
630,381
B
380,875
A, B, C
A, B
-
A, B, C
A, B, C
12,467
92,535
-
1,022,928
181,512
2,320,698
473,410
1,847,288
-
-
-
-
-
-
175,912
188,439
364,351
19. BORROWINGS FROM BANKS AND OTHER FINANCIAL INSTITUTION
The breakdown of the item borrowings from banks and other financial institutions is as follows:
12/31/2018
12/31/2017
Total
Not currents
Currents
Total
Not currents
Currents
in thousands of euro
Bonds
1,269,514
1,269,514
-
-
-
Borrowings from banks
2,851,995
2,651,995
200,000
2,331,086
2,331,086
-
-
11,460
5,396
2,949
19,555
-
-
2,949
12,021
19,555
5,396
561
-
4,144,013
3,921,509
222,504
2,348,503
2,331,647
16,856
422
Other financial payables
Accrued liabilities
Total
Pirelli Annual Report 2018
The item bonds refers to:
→ unrated public bonds, for a total nominal amount of Euro 753 million of which Euro 553 million (originally
Euro 600 million partially repurchased for a total amount of Euro 47 million during the last quarter of the
year) placed on January 22, 2018 with a fixed coupon of 1.375% and with an original maturity of 5 years and
a second security issued on March 15, 2018 for a nominal amount of Euro 200 million at variable rate with
an original maturity of 2.5 years. Both loans, placed with international institutional investors, were issued
under the EMTN program approved by the Board of Directors at the end of 2017, entered into on January
10, 2018 and updated on December 19, 2018.
→ “Schuldschein” loan at variable rate entered into for a total of Euro 525 million on July 26, 2018. The loan,
guaranteed by Pirelli Tyre S.p.A. and entered into by leading market operators, consists of a tranche of Euro
82 million with maturity in 3 years, a tranche of Euro 423 million with maturity in 5 years and a tranche of
Euro 20 million with maturity in 7 years.
The carrying amount of the item bonds was determined as follows:
Nominal value
Transaction costs
Bond discount
Amortisation of effective interest rate
Total
in thousands of euro
12/31/2018
1,278,000
(7,683)
(2,988)
2,185
1,269,514
Borrowings from banks mainly refers to:
→ use of the unsecured loan (“Facilities”) granted to Pirelli & C. S.p.A. and Pirelli International Plc for Euro
2,651,994 thousand. The contractual amount of the refinancing operation, signed on June 27, 2017 (with
closing on June 29, 2017), is equal to Euro 3.4 billion (net of reimbursements made from the signing date
– original amount of lines granted equal to Euro 4.2 billion). The loan was repriced in January 2018 with the
recognition of a benefit in the income statement related to the debt remeasurement (see Note 35 “Financial
expenses”). The loan had an original maturity of three and five years and is entirely classified as non-current
payables to banks. On November 29, 2018, the loan was modified to include the right of the Pirelli Group
to extend the maturity of the individual lines of the loan up to 2 years at its discretion with respect to their
original contractual maturity of 3 and 5 years. Lastly, it is noted that also on November 29, 2018 was the
conclusion of the transfer to Pirelli & C. S.p.A. of all the lines of the loan granted to Pirelli International Plc
and therefore at December 31, 2018, the entire financing line is held by the Parent Company;
→ Euro 200,000 thousand relating to the loan granted by Intesa Sanpaolo to Pirelli & C. S.p.A. at a fixed rate
and maturing in January 2019, classified as current payables to banks. It should be noted that in July 2018,
the maturity of the loan was extended until July 19, 2019.
The item other financial payables includes the payable to shareholders for Euro 2,460 thousand following the
squeeze out operation. The decrease compared to the previous year is due to the closure of the payable of Euro
9,000 thousand to the subsidiary Pirelli International Plc.
The item accrued liabilities essentially refers to interest that has accrued on the term loans but has not yet
been paid (Euro 10,144 thousand) and to interest accrued on bonds for Euro 9,269 thousand.
423
Separate Financial Statement
Below are the changes in payables to banks:
Borrowings from banks at December 31, 2017
Reimbursements of secured loan (Senior Facilities)
Transfer of loan from Pirelli International Plc
Additional financing from Intesa
Amortisation of bank/financial expenses (including repricing)
Translation differences
Borrowings from banks at December 31, 2018
Below is the change in total borrowing from banks for to the previous year:
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)
Amortisation of bank/financial expenses
Translation differences
Borrowings from banks at December 31, 2017
in thousands of euro
2,331,086
(700,000)
986,965
200,000
(6,590)
40,533
2,851,994
in thousands of euro
4,267,340
249,108
(4,509,537)
2,879,641
(499,450)
57,265
(113,281)
2,331,086
For current financial payables, it is maintained that the book value is approximately the fair value. The table
below compares the fair value of non-current financial payables with their book value:
Bonds
Borrowings from banks
Other financial payables
in thousands of euro
12/31/2018
12/31/2017
Carrying amount
Fair value
Carrying amount
Fair value
1,269,514
1,252,468
-
-
2,651,995
2,686,087
2,331,086
2,364,230
-
-
561
561
Total borrowings from banks and other financial
institutions - non current
3,921,509
3,938,555
2,331,647
2,364,791
424
Pirelli Annual Report 2018
The unrated public bonds issued by Pirelli & C. S.p.A. are listed on an active market and the related fair value was
measured with reference to its prices at the end of the year. Therefore, it is classified in level 1 of the hierarchy
required by IFRS 13 – Fair Value Measurement. The fair value of the “Schuldschein” loan and payables to banks
was calculated by discounting each debtor cash flow expected at the market swap rate for the currency and
at the reference maturity date, increased by the Group credit rating for similar debt instruments by nature and
technical characteristics and is therefore classified as level 2 in the hierarchy required by IFRS 13 – Fair Value
Measurement.
The distribution of payables to banks and other lenders by currency of origin of the payable at December 31,
2018 and December 31, 2017 is as follows:
EUR
USD (Dollar USA)
Total
in thousands of euro
12/31/2018
12/31/2017
2,368,434
1,403,382
1,775,578
945,121
4,144,012
2,348,503
At December 31, 2018, there are hedging derivatives for interest rate and exchange rate on payables at variable
rate in foreign currency.
With reference to the presence of financial covenants, it should be noted that the main bank financing of
the Group (“Facilities”) granted to Pirelli & C. S.p.A. and Pirelli International Plc (currently entirely held by the
Parent Company) and the “Schuldschein” loan require 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..
As part of the bank financing, failure to comply with the financial covenant is identified as an event of default
which, if exercised according to the contract terms by a number of lending banks representing at least 66 2/3%
percent of the total commitment, would result in early repayment (partial or total) of the loan with simultaneous
cancellation of the related commitment. This parameter was fully satisfied at December 31, 2018.
Also in the case of the Schuldschein loan, failure to comply with the financial covenant is identified as an event
of default. However, unlike as occurs in the case of the bank financing, qualified majorities are not required for
the early repayment request as each lender may proceed independently for the relative portion.
The Facilities and the “Schuldschein” loan envisage a Negative Pledge clause the terms of which are in line with
the market standards for this type of credit facility.
The other outstanding financial payables at December 31, 2018 do not contain financial covenants.
425
Separate Financial Statement
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, determined in
accordance with the provisions of Consob communication DEM/6064293 of July 28, 2006 and in compliance
with the ESMA/2013/319 Recommendations.
Note
12/31/2018
Of which related
parties (note 38)
12/31/2017
Of which related
parties (note 38)
in thousands of euro
Current borrowings from banks and other financial
institutions
Non-current borrowings from banks and other financial
institutions
Current derivative financial instruments (liabilities)
Non-current derivative financial instruments (liabilities)
Total gross debt
Cash and cash equivalents
Current financial receivables and other assets
Derivative financial instruments - assets
Net financial debt *
Non-current financial receivables and other assets
Derivative financial instruments
19
19
17
17
15
13
17
13
17
222,504
3,921,509
5,248
10,252
4,159,513
(101,764)
7
-
5,248
10,252
16,856
2,331,647
9,001
-
29,716
29,716
-
2,378,219
-
(1,749)
(1,520,896)
(1,520,120)
(12,404)
(11,915)
(3,424)
(3,424)
-
2,533,429
2,364,066
(600,221)
(600,000)
(19,403)
(19,403)
(712)
-
-
-
-
Total net financial (liquidity)/debt position
1,913,805
2,363,354
* Pursuant to Consob Notice of July 28, 2006 and in compliance with CESR recommendation of February 10, 2005 “Recommendations for the consistent implementation of the European Commission regulation on
Prospectuses”.
20. PROVISIONS FOR LIABILITIES AND CHARGES
The following is a detail of changes of the item in question:
12/31/2018
12/31/2017
Total
Non-current
Current
Total
Non-current
Current
in thousands of euro
Opening balance
45,678
45,678
-
51,427
45,950
5,477
-
-
-
-
5,000
3,497
1,503
3,656
3,656
(4,082)
(4,082)
(4,562)
(4,562)
-
-
(530)
(530)
(8,875)
(3,398)
(5,477)
312
-
312
-
-
42,346
40,531
1,815
45,678
45,678
-
-
426
Increases
Reversals
Uses
Reclassification
Closing balance
Pirelli Annual Report 2018
Provisions for risks and charges refer for Euro 33,500
thousand to contingent liabilities (whose outlay is not
considered probable) identified in the Purchase Price
Allocation following the acquisition of the Pirelli Group by
Marco Polo Industrial Holding S.p.A. and the subsequent
reverse merger in Pirelli & C. S.p.A.; they refer to the decision
taken by the European Commission – and subsequently
confirmed by the sentence of the Tribunal of the European
Union of July 12, 2018 – at the conclusion of the antitrust
investigation initiated with respect to the business of
energy cables, which provides for a fine for Prysmian Cavi
e Sistemi S.r.l. (“Prysmian”) of about Euro 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
respond jointly with Prysmian exclusively in application of
the so-called “parental liability” principle, because, during
part of the period of the alleged infringement, Prysmian
was controlled by Pirelli. The amount set aside corresponds
to the amount of the first demand bank guarantee issued
by Pirelli - similar to as was carried out by Prysmian - for
the benefit of the Commission (and at the request of the
latter) for an amount equal to 50% of the aforementioned
Euro 67 million.
The non-current portion also mainly includes provisions
for labour disputes (Euro 3,586 thousand), reclamation of
abandoned areas (Euro 1,922 thousand) and legal and tax
disputes (Euro 1,523 thousand).
Increases mainly refer to provisions for environmental
reclamation and labour disputes.
Uses are mainly attributable to the closure of pending
disputes
to occupational diseases and
relating
reclamation of abandoned areas.
Reversals of excess funds are mainly related to the
adjustment of provisions for tax risks.
21. EMPLOYEE BENEFIT OBLIGATIONS
Personnel provisions amount to Euro 4,175 thousand
(Euro 2,072 thousand at December 31, 2017). This item
includes provision for severance pay which amounts to
Euro 1,077 thousand (Euro 1,385 thousand at December
31, 2017) and other employee benefits of Euro 3,098
thousand (Euro 687 thousand at December 31, 2017).
to
the previous year
increase compared
is
The
attributable for Euro 1,964 thousand to the portion
accrued at December 31, 2018 of the second instalment
of the retention plan, assessed in accordance with the
accounting standard IAS 19 – Employee Benefits – which
will be liquidated in the first half of 2019. The plan was
approved by the Board of Directors on February 26, 2018
and is intended for Key Managers and a selected number
of Senior Managers and Executives whose contribution
for the implementation of the Strategic Plan is considered
particularly significant.
Personnel provisions also include the portion pertaining
to the 2018-2020 three-year monetary incentive plan
(LTI Plan) for Group management, approved by the
Board of Directors on February 26, 2018. This incentive
plan is monetary (cash settled), as it does not provide
for the allocation of shares or options on shares or other
securities but exclusively a cash incentive, partly linked to
the performance of the ordinary share of Pirelli & C. S.p.A.
427
Separate Financial Statement EMPLOYEE SEVERANCE INDEMNITY (TFR)
The changes in the year 2018 for the employee severance indemnity are the following:
Opening balance
Movements through income statement
Actuarial (gains)/losses recognized in equity
Indemnities, advance payments, relocations, payment to funds
Closing balance
in thousands of euro
12/31/2018
12/31/2017
1,385
934
8
(1,250)
1,077
1,248
1,136
17
(1,016)
1,385
The amounts recognised in the income statement are included in the item “Personnel Costs” (note 29).
Net actuarial gains accrued in 2018, recognised directly in equity, amount to Euro 8 thousand and are essentially
related to the change in the economic parameters of reference (discount rate and inflation rate).
In accordance with national legislation, the amount due to each employee accrues based on the service provided
and is paid when the employee leaves the company. The treatment due to the termination of the employment
relationship is calculated based on its duration and the taxable remuneration of each employee. The liability,
annually revalued on the basis of the official cost of living and statutory interest rate, is not associated with
any accrual condition or period, nor with any financial funding obligation; therefore, there is no activity at the
service of the fund.
The discipline was supplemented by Legislative Decree no. 252/2005 and by Law no. 296/2006 (Finanziaria
2007) which, for companies 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 companies, the revaluations of
the amounts outstanding at the option dates are still accounted for under staff severance indemnities 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, 2018 are as follows:
Discount rate
Inflation rate
The principal actuarial assumptions used at December 31, 2017 were as follows:
Discount rate
Inflation rate
428
2018
2017
1.5%
1.5%
1.6%
1.5%
Pirelli Annual Report 2018
Hired employees at December 31, 2018 amount to 151 units (141 units at December 31, 2017).
In other conditions being equal, a hypothetical change of 0.25% in the discount rate would result in a decrease
in liabilities equal to 1.82%, in the case of an increase (1.78% at December 31, 2017), and an increase in liabilities
of 1.83%, in the case of a decrease (1.84% at December 31, 2017).
22. TRADE PAYABLES
The breakdown of trade payables is as follows:
Payables to subsidiaries
Payables to associates
Payables to other companies
Total
in thousands of euro
12/31/2018
12/31/2017
2,392
60
16,929
19,381
4,755
64
24,875
29,694
The carrying amount of trade payables is considered to approximate their fair value.
23. OTHER PAYABLES
The breakdown of other payables is as follows:
Payables to subsidiaries
Payables to social security and welfare institutions
Payables to employees
Other payables
Accrued liabilities
Deferred income
Total
in thousands of euro
12/31/2018
12/31/2017
Total
Non-current
Current
Total
Non-current
Current
25,944
1,905
8,275
-
-
-
25,944
27,491
1,905
3,067
8,275
8,303
-
-
-
27,491
3,067
8,303
9,088
211
8,877
35,377
211
35,166
3,343
7
-
-
3,343
1,177
7
8
-
-
1,177
8
48,562
211
48,351
75,423
211
75,212
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 to employees refer to contributions for fees to be paid to employees.
429
Separate Financial Statement
The item Other payables includes payables for fees to be paid to directors and 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.
24. PROVISION FOR DEFERRED TAX LIABILITIES
The deferred tax provision amounted to Euro 527,807 thousand at December 31, 2018 (Euro 554,828
thousand at December 31, 2017).
The breakdown of deferred tax provisions gross of the offsets made is as follows:
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
12/31/2018
12/31/2017
113,005
55,649
57,356
85,983
52,964
33,019
(640,811)
(640,811)
-
-
(640,811)
(640,811)
(527,806)
(554,828)
430
Pirelli Annual Report 2018
The tax effect of temporary differences and of tax losses carried forward which make up the item is shown in
the following table:
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 Pirelli
Exchange differences not realised
Total provision for deferred tax liabilities
Total
25. TAX PAYABLES
in thousands of euro
12/31/2018
12/31/2017
1,897
65
864
713
50,339
43,498
13,180
2,448
2,103
422
189
1,009
35,421
30,913
14,218
1,708
113,005
85,983
(633,330)
(633,330)
(7,481)
(7,481)
(640,811)
(640,811)
(527,806)
(554,828)
These amounted to Euro 16,436 thousand (Euro 18,636 thousand at December 31, 2017) and mainly include
payables for withholding taxes incurred abroad (WHT), transferred from subsidiaries that adhere to the tax
consolidation by the Company.
431
Separate Financial Statement
INCOME STATEMENT
26. REVENUES FROM SALES AND SERVICES
Revenues from sales and services amount to Euro 38,719 thousand for 2018 compared to Euro 42,084
thousand in 2017 and the breakdown is as follows:
Sales of services to subsidiaries
Sales of services to other companies
Total
in thousands of euro
2018
2017
37,054
40,070
1,665
2,014
38,719
42,084
Revenues from subsidiaries refer to services provided through Corporate functions.
27. OTHER INCOME
Other income amounts to Euro 112,179 thousand (Euro 105,778 thousand in 2017) and the breakdown is as
follows:
Other income from subsidiaries
Other revenues from third parties
Total
in thousands of euro
2018
2017
102,110
10,069
112,179
98,903
6,875
105,778
Other income from subsidiaries mainly include royalties paid by Group companies for the use of the brand
(Euro 69,562 thousand in 2018 compared to Euro 71,897 thousand in 2017). They also include other revenues
deriving from the charge-back of costs to Group companies and revenues for sub-leases and related accessory
charges.
Other revenues from other companies mainly include royalties paid by other companies for the use of the
Pirelli brand (Euro 1,409 thousand in 2018 compared to Euro 2,221 thousand in 2017) and the gain of Euro 575
thousand deriving from the sale of the land located in Milan.
432
Pirelli Annual Report 2018
28. RAW MATERIALS & CONSUMABLES USED
They amount to Euro 210 thousand in 2018 (Euro 183 thousand in 2017) and include purchases of advertising
material, fuels and various materials.
29. PERSONNEL COSTS
Personnel costs amount to Euro 34,130 thousand (Euro 26,710 thousand in 2017) and the breakdown is as
follows:
in thousands of euro
2018
2017
23,744
4,982
973
241
4,190
19,969
5,129
1,027
232
353
34,130
26,710
in thousands of euro
2018
2017
1,764
2,220
3,984
2,514
2,386
4,900
Wages and salaries
Social security and welfare contributions
Employee leaving indemnities (TFR)
Retirement and similar obbligations
Other costs
Total
The average staff headcount is the following:
→ Executives 39
→ Employees 109
→ Workers
3
30. AMORTISATION, DEPRECIATION AND IMPAIRMENTS
The breakdown is as follows:
Amortisation - intangible assets
Depreciation - property, plant and equipment
Total
433
Separate Financial Statement
31. OTHER COSTS
The breakdown of other costs is the following:
Services rendered by subsidiaries
Advertising
Consultancy and collaboration services
Accruals to provisions (net of reversals)
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
Patents and trademarks expenses
Cleaning and property ordinary maintenance expenses
Property maintenance
Bank charges for IPO
Other
Total
in thousands of euro
2018
2017
10,840
31,243
8,551
(786)
671
11,119
8,449
2,251
16,032
33,249
11,863
3,931
4,434
10,653
2,515
1,484
10,854
10,662
2,551
1,332
2,634
3,056
845
689
2,124
163
8,458
2,946
1,483
2,863
3,796
719
1,381
901
44,274
13,874
105,044
167,060
Other costs include non-recurring costs for an amount of Euro 1,025 thousand and refer mainly to the queue of
costs related to the listing project occurred in 2017. The reduction of other costs compared to 2017 is mainly
attributable to advisors and fee costs related to the IPO incurred in 2017 for Euro 62,390 thousand.
32. NET IMPAIRMENT LOSS ON FINANCIAL ASSETS
The item, negative for Euro 1,930 thousand, mainly includes the net impairment of trade receivables.
At December 31, 2017, the net write-down of trade receivables amounted to Euro 275 thousand and was
included in the item “Other costs” (Note 31).
434
Pirelli Annual Report 2018
33. NET INCOME(LOSS) FROM EQUITY INVESTMENTS
33.1 GAINS ON EQUITY INVESTMENTS
They amount to Euro 4,007 thousand in 2018 (Euro 2,752 thousand in 2017) and the breakdown is as
follows:
- Capital gain on disposal of investment in Prelios S.p.A.
- Fair value adjustment of investment in Mediobanca S.p.A.
- Other gains on equity investments
Total
in thousands of euro
2018
2017
-
3,780
227
4,007
2,564
-
188
2,752
For further details, reference is made to Note 11 – Investments in associated companies.
The item mainly refers to the positive impact of Euro 3,780 thousand related to the investment in Mediobanca
S.p.A., classified as “Other financial assets at fair value through profit or loss” (Note 12) and sold on January 11,
2018.
33.2 LOSSES ON EQUITY INVESTMENTS
They amount to Euro 3,580 thousand (Euro 13,833 thousand in 2017) and the breakdown is as follows:
Impairment losses on equity investments in subsidiaries:
- Pirelli & C. Ambiente S.r.l.
- Hb Servizi S.r.l.
Impairment losses on equity investments in associates:
- Prelios S.p.A.
- Focus Investments S.p.A.
- Fenice S.r.l.
Impairment losses on other financial assets:
- Alitalia S.p.A.- Compagnia Aerea Italiana S.p.A.
- Movincom Servizi S.p.A.
- Emittente Titoli S.p.A.
- Others
Total
in thousands of euro
2018
2017
-
-
-
1.,351
2,229
-
-
-
-
1,128
1,134
-
2,648
6,570
781
120
1,441
11
3,580
13,833
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).
435
Separate Financial Statement
33.3 DIVIDENDS
They amount to Euro 284,517 thousand in 2018 compared to Euro 215,497 thousand in 2017and the breakdown
is as follows:
From subsidiaries:
- Pirelli Tyre S.p.A. - Italy
- Pirelli Group Reinsurance Company SA - Switzerland
- Pirelli Servizi Amministrazione e Tesoreria S.p.A. - Italia
- Pirelli Sistemi Informativi S.r.l. - Italy
From associates:
- 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
Total
34. FINANCIAL INCOME
The breakdown is as follows:
Interests
Other financial income
Net gains on derivatives
Net gains on exchange rates
Total
in thousands of euro
2018
2017
270,000
200,000
5,025
500
5,800
2,225
-
-
10
957
-
-
-
300
8,556
15
5,829
10
757
30
284,517
215,497
in thousands of euro
2018
2017
15,419
5,108
40,292
-
60,819
1,686
4,744
-
110,315
116,745
Interest mainly refers to interest accrued on loans granted in 2018 to the subsidiary Pirelli Tyre S.p.A.
The item other financial income mainly includes Euro 3,259 thousand of guarantee fees charged to other
Group companies and Euro 1,828 thousand relating to the gain realised on the early partial repayment of the
unrated bond completed on December 19, 2018 for a total amount of Euro 47 million.
436
Pirelli Annual Report 2018
Net profits on derivatives refer to forward purchases/sales of foreign currencies to hedge the financial
payables in foreign currency of the Company, in accordance with the Group foreign exchange risk
management policy. For transactions outstanding at the end of the period, the fair value is determined
using the forward exchange rate at the reporting date. The fair value assessment includes two elements:
the interest component linked to the interest rate spread between the currencies subject to the individual
hedges, a net cost of Euro 365 thousand, and the exchange rate component, a net revenue of Euro 40,657
thousand.
Comparing net foreign exchange losses, equal to Euro 40,841 thousand, with the exchange rate component
of net profits on derivatives (equal to Euro 40,657 thousand), the impact is almost nil.
35. FINANCIAL EXPENSES
The breakdown is as follows:
Interests
Commissions
Net interest on the personal provision
Net losses on exchange rates
Net losses on derivative financial instruments
Total
in thousands of euro
2018
2017
51,416
136,839
1,228
185
40,841
1,147
24
-
-
102,108
93,670
240,118
Interest and other financial expenses for a total of Euro 51,416 thousand mainly include:
→ Euro 56,760 thousand of financial expenses for the unsecured financing line (“Facilities”) granted to Pirelli
& C. S.p.A. and Pirelli International Plc (as of November 29, 2018, held entirely by the Parent Company)
entered into on June 27, 2017;
→ Euro 12,585 thousand of financial expenses related to bonds, of which Euro 10,256 thousand related to
unrated bonds and Euro 2,329 thousand related to the “Schuldschein” loan, both issued by Pirelli & C. S.p.A.;
→ Euro 21,977 thousand of indemnity paid to Pirelli International Plc for costs incurred for early closing of
the bond (from Euro 600 million, 1.75% coupon and original maturity in November 2019), which took place
through the exercise of the so-called make-whole option.
The components above are partially offset by:
→ Euro 28,523 thousand for net interest income on Cross Currency Interest Rate Swaps to adjust the flow of
interest expense on the liability hedged;
→ Euro 12,012 thousand of positive effect deriving from the repricing of the unsecured financing line (“Facilities”)
in January 2018 and which entailed a re-measurement of the related debt.
At December 31, 2017, the item “interest and other financial expenses” included Euro 41,967 thousand of wash
down of the fees not yet amortised relating to the bank loan, repaid in advance in June 2017.
Net exchange rate losses of Euro 40,841 thousand refer to the adjustment to the exchange rate at the end of
the year of the items expressed in the currency other than the functional one still in effect at the closing date
of the Financial Statements and the net losses on items closed during the year.
437
Separate Financial Statement
Financial expenses include non-recurring events for a total negative impact of Euro 9,964 thousand, which
include Euro 21,977 thousand related to the indemnity paid to Pirelli International Plc for costs incurred for
early closing of the bond, net of gains for Euro 12,012 thousand (already net of the relative amortised portion)
relating to the repricing of the unsecured bank line (“Facilities”) in January 2018.
36. TAXES
The breakdown of taxes is as follows:
Current taxes
Deferred taxes
Total
in thousands of euro
2018
2017
21,608
(64,005)
(26,279)
(76,794)
(4,671)
(140,799)
Current taxes for the year 2018 mainly include a negative effect of expenses deriving from tax consolidation
relating to previous years (Euro 53,836 thousand), essentially due to the reduction in the taxable income of
the subsidiary Pirelli Tyre thanks to the benefit deriving from the application of the Patent Box facilitated tax
regime, offset by a positive effect mainly deriving from income from tax consolidation for the year 2018 (Euro
32,363 thousand).
Deferred tax assets include the recognition of deferred tax assets on previous tax losses, on the ACE benefit
and excess non-deducted interest expense, which was partially used during the year.
The significant change in the tax burden compared to the previous year is mainly due to the recognition in 2017
of deferred tax assets on previous tax losses, excess non-deducted interest expense, ACE benefit and other
temporary differences.
438
Pirelli Annual Report 2018
The table below shows the reconciliation of the effective tax rate with the theoretical rate of the Parent
Company:
A) Profit/(loss) before taxes
B) Theoretical taxes
Main causes that give rise to changes between theoretical and effective taxes,
Tax incentives
Dividends and gains from investments not subject to taxation
Non-deductible costs
Uses losses previous years not activated
Deferred tax assets on previous tax losses and other temporary differences
Taxes relating to previous years
C) Effective taxes
Theoretical tax rate (B/A)
Effective tax rate (C/A)
in thousands of euro
2018
2017
257,691
30,052
61,846
7,212
(3,482)
(7,864)
(65,571)
(49,897)
2,209
19,837
-
-
(37,648)
(80,552)
327
8,112
(4,671)
(140,799)
24%
-1.8%
24%
-468.5%
TAX CONSOLIDATION
It shall be noted that starting from 2004, the Company exercised the option for consolidated taxation as
consolidator, pursuant to article 117 and following of the TUIR, with regulation of relations arising from adhesion
to consolidation through a special Regulation, which involves a common procedure for the application of laws
and regulations.
Said regulation was updated in subsequent years as a result of amendments made within the companies
participating in the agreement and the related shareholding structure, as well as in light of the corrective and
supplementary interventions of the relevant legislation.
The above amendments particularly concerned the remuneration of the tax losses used by the companies
adhering to 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.
439
Separate Financial Statement
37. NON-RECURRING EXPENSES AND INCOME
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 8,312 thousand in 2018 and net expenses of Euro 9,940 thousand in 2017:
Personnel costs:
- Retention Plan
Other costs:
- IPO costs
- Other
Impact on operating result
Financial expenses:
in thousands of euro
2018
2017
-
(1,691)
(841)
(184)
(62,390)
-
(1,025)
(64,081)
- Refinancing impact June 2017 transaction costs
-
(41,967)
- Indemnification to Pirelli Internation Plc against costs incurred for early repayment of the bond
- Impact of reprincing of unsecured debt ("Facilities")
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
(21,977)
12,012
-
-
(10,990)
(106,048)
-
2,678
80,552
15,556
(8,312)
(9,940)
38. TRANSACTIONS WITH RELATED PARTIES
Transactions between Pirelli & C. S.p.A. and the subsidiaries mainly concern:
→ services (technical, organisational, general) provided by the headquarters to subsidiaries;
→ royalties for the use of patents for Group companies benefiting from them.
All the transactions listed above are part of the ordinary management of relations between the Parent Company
and its subsidiaries.
Transactions with related parties also included the fees paid to Directors and Key Managers.
440
Pirelli Annual Report 2018
The statement below shows a summary of the Statement of Financial Position and the Income Statement that
include transactions with related parties and their impact.
12/31/2018
Of which
related parties
% share
12/31/2017
Of which
related parties
% share
in thousands of euro
BALANCE SHEET
Non current assets
Other receivables
600,544
600,000
99.9%
Derivative financial instruments
19,403
19,403
100%
-
-
-
-
0.0%
0.0%
Current assets
Trade receivables
Other receivables
Tax receivables
35,366
32,352
91.5%
52,045
43,722
84.0%
1,548,691
1,524,042
98.4%
45,164
13,973
30.9%
49,746
48,490
97.5%
110,632
104,054
94.1%
100%
Derivative financial instruments
3,749
3,749
100%
95
95
Non-current liabilities
Derivative financial instruments
10,565
10,565
100%
29,716
29,716
100%
Current liabilities
Payables to banks and other financial lenders
222,504
7
0.0%
16,856
9,412
55.8%
Trade payables
Other payables
Tax payables
19,381
2,987
15.4%
29,694
4,820
16.2%
48,351
26,178
54.1%
75,213
27,491
36.6%
16,436
16,207
98.6%
18,637
18,408
98.8%
Derivative financial instruments
5,292
5,292
100%
146
146
100%
2018
Of which
related parties
% share
2017
Of which
related parties
% share
in thousands of euro
INCOME STATEMENT
Revenues from sales and services
38,719
37,364
96.5%
42,084
41,349
Other income
112,179
102,184
91.1%
105,778
99,323
Personnel expenses
(34,130)
(2,186)
0.0%
(26,710)
(4,780)
Other costs
(105,044)
(20,169)
19.2%
(167,060)
(18,618)
Income on equity investments
-
-
0,0%
2,752
2,564
Losses on equity investments
(3,580)
(3,580)
100%
(13,833)
(11,480)
Dividends
Financial income
284,517
283,549
99.7%
215,496
208,871
60,819
59,277
97.5%
116,745
10,681
98.3%
93.9%
17.9%
11.1%
93.2%
83.0%
96.9%
9.1%
Financial expenses
(93,670)
(6,519)
7.0%
(240,118)
(103,275)
43.0%
441
Separate Financial Statement
TRANSACTIONS WITH RELATED PARTIES
The tables below shows the main equity transactions with related parties for the years ended December 31,
2018 and December 31, 2017.
Trade receivables
Other current receivables
Other non current receivables
Tax receivables
Derivative financial instruments (current assets)
Derivative financial instruments (non current assets)
Payables to banks and other lenders (current liabilities)
Trade payables
Other payables
Tax payables
Derivative financial instruments (current liabilities)
Derivative financial instruments (non-current liabilities)
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)
Derivative financial instruments (non-current liabilities)
Subsidiaries
Associates
Other related
parties
Total 31
December 2018
in thousands of euro
32,229
1,524,042
600,000
48,490
3,749
19,403
7
3
-
-
-
-
-
-
2,393
60
25,944
16,207
5,292
10,565
-
-
-
-
120
32,352
-
-
-
-
-
-
535
234
-
-
-
1,524,042
600,000
48,490
3,749
19,403
7
2,987
26,178
16,207
5,292
10,565
in thousands of euro
Subsidiaries
Associates
Other related
parties
Total 31
December 2017
42,159
13,973
104,054
95
9,412
4,755
26,814
8,513
146
29,716
3
-
-
-
-
64
-
-
-
-
1,560
43,722
-
-
-
-
-
13,973
104,054
95
9,412
4,820
677
27,491
9,895
18,408
-
-
146
29,716
Trade receivables amounted to Euro 32,352 thousand (Euro 43,722 thousand at December 31, 2017) and
mainly refer to receivables for services/provisions provided to Group companies (Euro 29,354 thousand from
Pirelli Tyre S.p.A., Euro 2,163 thousand from Limited Liability Company Pirelli Tyre Russia, Euro 400 thousand
from Pirelli Tyre Trading (Shanghai) Co. Ltd., Euro 163 thousand from Pirelli International Plc).
442
Pirelli Annual Report 2018
Other current receivables amounted to Euro 1,524,042
thousand (Euro 13,973 thousand at December 31, 2017)
and mainly refer: for Euro 944,329 thousand to the loan
granted to Pirelli Tyre S.p.A.; for Euro 561,400 thousand to
the intra-group current account with Pirelli International
Plc; for Euro 3,259 thousand to guarantee fees charged
to Pirelli International Plc; for Euro 7,415 thousand to
the interest accrual accrued on CCIRS stipulated with
Pirelli International Plc; for Euro 3,310 thousand to VAT
receivables transferred to the consolidation (Euro 2,695
thousand from Pirelli Industrie Pneumatici S.r.l., Euro 227
thousand from Pirelli Sistemi Informativi S.r.l., Euro 224
thousand from Pirelli Servizi Amministrazione e Tesoreria
S.p.A., Euro 101 thousand from HB Servizi S.r.l., Euro 63
thousand from Servizi Aziendali Pirelli S.C.p.A.).
Other non-current receivables amount to Euro 600,000
thousand (zero amount at December 31, 2017) and refer
to the loan granted to Pirelli Tyre S.p.A. with maturity
January 31, 2020.
Tax receivables amounted to Euro 48,490 thousand
(Euro 104,054 thousand at December 31, 2017) and refer
to receivables from Group companies that adhere to tax
consolidation (mainly Euro 46,102 thousand from Pirelli
Tyre S.p.A., Euro 2,313 thousand from Pirelli Industrie
Pneumatici S.r.l.)
Derivative financial instruments (current assets) for
Euro 3,749 thousand (Euro 95 thousand at December
31, 2017) refer to hedging transactions with Pirelli
International Plc. The most significant amount refers for
Euro 3,424 thousand to the fair value measurement of
the Cross Currency Interest Rate Swap.
Derivative financial instruments (non-current assets)
for Euro 19,403 thousand (zero amount at December
31, 2017) refer to the hedging transaction of the Cross
Currency Interest Rate Swap with Pirelli International Plc.
Payables to banks and other lenders (current) amounted
to Euro 7 thousand (Euro 9,412 thousand at December 31,
2017) and refer to guarantee fees to Pirelli International Plc.
Trade payables amounted to Euro 2,987 thousand (Euro
4,820 thousand at December 31, 2017) and mainly refer
to payables for the provision of services. The main ones
are: Euro 1,525 thousand to HB Servizi S.r.l., Euro 617
thousand to Pirelli Tyre S.p.A..
The amount recorded under other related parties for Euro
535 thousand refers to the current relationship with TP
Trading (Beijing) Co. Ltd.
Other payables amounted to Euro 26,178 thousand (Euro
27,491 thousand at December 31, 2017) and mainly refer
to payables with Group companies that adhere to the VAT
consolidation. The main ones are: Euro 25,128 thousand to
Pirelli Tyre S.p.A., Euro 115 thousand to Driver Italia S.p.A.
Tax payables amounted to Euro 16,207 thousand (Euro
18,408 thousand at December 31, 2017) and refer to
payables to subsidiaries that adhere to tax consolidation
(Euro 16,126 thousand Pirelli Tyre S.p.A., Euro 81 thousand
Driver Italia S.p.A.).
The amount of Euro 5,292 thousand (Euro 146
thousand at December 31, 2017) of derivative financial
instruments – current liabilities refers to the hedging
transaction with Pirelli International Plc and is mainly
represented for Euro 5,248 thousand by the fair value
measurement of the Cross Currency Interest Rate Swap.
The amount of Euro 10,565 thousand (Euro 29,716
thousand at December 31, 2017) of derivative financial
instruments (non-current liabilities) refers to the fair
value measurement of the Cross Currency Interest Rate
Swap (Euro 7,741 thousand) and IRS (Euro 2,511 thousand)
with Pirelli International Plc.
443
Separate Financial Statement TRANSACTIONS WITH RELATED PARTIES
The tables below show the main financial transactions with related parties for the years 2018 and 2017.
Revenues from sales and services
Other income
Personnel expenses
Other costs
Losses from investments
Dividends
Financial income
Financial expenses
in thousands of euro
Subsidiaries
Associates
Other related
parties
Total 2018
37,054
102,110
-
310
37,364
74
102,184
(2,186)
(2,186)
-
-
(10,579)
(261)
(9,328)
(20,168)
-
(3,580)
281,325
2,224
59,277
(6,519)
-
-
-
-
-
-
(3,580)
283,549
59,277
(6,519)
in thousands of euro
Revenues from sales and services
40,070
1,279
41,349
Subsidiaries
Associates
Other related
parties
Total 2017
Other income
Personnel expenses
Other costs
Gains on equity investments
Losses from investments
Dividends
Financial income
Financial expenses
98,903
384
36
99,323
-
-
(4,780)
(4,780)
(15,773)
(259)
(2,586)
(18,618)
-
2,564
(2,262)
(9,218)
200,300
8,571
10,681
(103,275)
-
-
-
-
-
-
-
2,564
(11,480)
208,871
10,681
(103,275)
Revenues from sales and services amounted to Euro 37,364 thousand in 2018 (Euro 41,349 thousand in
2017) and mainly refer to service contracts. The main transactions with subsidiaries are: Euro 36,139 thousand
- Pirelli Tyre S.p.A., Euro 301 thousand - Pirelli Sistemi Informativi S.r.l., Euro 270 thousand - HB Servizi S.r.l..
Transactions with other related parties refer for Euro 310 thousand to the service/provisions contract with
Prometeon Tyre Group S.r.l..
Other income of Euro 102,184 thousand in 2018 (Euro 99,323 thousand in 2078) mainly refers to: royalties
(Euro 67,388 thousand with Pirelli Tyre S.p.A., Euro 2,164 thousand with Limited Liability Company Pirelli
Tyre Russia); other recoveries (Euro 25,674 thousand from Pirelli Tyre S.p.A., Euro 548 thousand from Pirelli
International Plc, Euro 237 thousand from Pirelli Sistemi Informativi S.r.l., Euro 78 thousand from Pirelli
Servizi Amministrazione e Tesoreria S.p.A.); lease contracts (Euro 5,572 thousand with Pirelli Tyre S.p.A., Euro
231 thousand with Pirelli Servizi Amministrazione e Tesoreria S.p.A., Euro 170 thousand with Pirelli Sistemi
Informativi S.r.l.).
444
Pirelli Annual Report 2018
The amount recorded under related parties for Euro 74
thousand mainly refers to service contracts with Camfin
S.p.A. (Euro 30 thousand) and with Marco Tronchetti
Provera & C. S.p.A. (Euro 25 thousand).
The item labour costs includes the emoluments related
to key managers.
Other costs for Euro 20,169 thousand in 2018 (Euro
18,618 thousand in 2017) mainly refer to expenses for
services and miscellaneous costs (Euro 5,000 thousand
HB Servizi S.r.l., Euro 3,178 thousand Pirelli Sistemi
Informativi S.r.l., Euro 1,082 thousand Pirelli Servizi
Amministrazione e Tesoreria S.p.A., Euro 559 thousand
Pirelli Tyre S.p.A., Euro 345 thousand Servizi Aziendali
Pirelli S.C.p.a.).
In the item associates, the amount shown refers to
relations with the Consortium for Research on Advanced
Materials – Corimav.
The item other related parties includes transactions with
TP Trading (Beijing) Co. Ltd. for Euro 1,099 thousand, and
the remuneration of directors and key managers for Euro
8,229 thousand.
Losses from investments for Euro 3,580 thousand in 2018
(Euro 11,480 thousand in 2017) refer to the write-downs of
the investments in Fenice S.r.l. for Euro 2,229 thousand
and Focus Investments S.p.A. for Euro 1,351 thousand. For
further details, reference is made to note 33.
Dividends for Euro 283,549 thousand in 2018 (Euro
208,871 thousand in 2017) refer to dividends collected
during the year (Euro 270,000 thousand from Pirelli
Tyre S.p.A., Euro 5,800 thousand from Pirelli Sistemi
Informativi S.r.l., Euro 5,025 thousand from Pirelli Group
Reinsurance Company SA and Euro 500 thousand from
Pirelli Servizi Amministrazione and Tesoreria S.p.A.).
The amount recorded in the item associates mainly refers
to the dividends distributed by Fenice S.r.l. (Euro 2,224
thousand).
Financial income for Euro 59,277 thousand in 2018
(Euro 10,681 thousand in 2017) refers for Euro 40,292 to
net profits on derivatives made with Pirelli International
Plc, Euro 3,259 thousand to the charge-back of fees to
Pirelli International Plc and for Euro 15,406 thousand for
interest income on loans to Pirelli Tyre S.p.A..
Financial expenses of Euro 6,519 thousand in 2018 (Euro
103,275 thousand in 2017) mainly refer to Euro 21,977
thousand for the indemnity paid to Pirelli International
Plc for costs incurred for the early termination of the
loan offset for Euro 28,523 thousands from net interest
income on Cross Currency Interest Rate Swap.
BENEFITS FOR KEY MANAGERS
At December 31, 2018, remuneration payable to key
managers amounted to Euro 10,415 thousand. The portion
relating to employee benefits was recognised in the
Income Statement item “personnel costs” for Euro 2,186
thousand and for Euro 8,229 thousand in the Income
Statement item “other costs”.
39. OTHER INFORMATION
REMUNERATION OF DIRECTORS
AND STATUTORY AUDITORS
The fees due to Directors of Pirelli & C. S.p.A. amounted
to Euro 4,440 thousand in 2018 and Euro 2,133 thousand
in 2017. The fees due to the Statutory Auditors for the
function performed at Pirelli & C. S.p.A. amounted to Euro
275 thousand in 2018 (Euro 296 thousand in 2017).
445
Separate Financial Statement AUDITORS’ FEES
Pursuant to applicable regulation, the following table shows the fees pertaining to 2018 for the auditing
activities and other services rendered by the Auditing Company PricewaterhouseCoopers S.p.A. and by the
companies of the PricewaterhouseCoopers network:
Company that provided
the service
Company that received
the service
Partial fees
Total fees
in thousands of euro
Independent auditing services
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
Independent certification services (1)
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
Services other than auditing
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
71
220
46
(1) the item “independent certification services” includes amounts paid for other services that envisage the issuance of an auditor’s report as well as amounts paid for the so called certification services since they create
synergies with the auditing services.
337
INFORMATION REQUIRED BY THE LAW N.124/2017 ART.1 – PARAGRAPHS 125-129
There is no information to be highlighted pursuant to the law in question referring to Pirelli & C. S.p.A. for the
financial year 2018.
Any information referring to the subsidiaries of Pirelli & C. S.p.A. they are included in the consolidated
financial statements.
40. ATYPICAL AND/OR UNUSUAL TRANSACTIONS
Pursuant to Consob Communication no. 6064293 of July 28, 2006, the Company certifies that no atypical
and/or unusual transactions as defined in said Communication were carried out in 2018.
41. SIGNIFICANT EVENTS SUBSEQUENT TO THE END OF THE YEAR
Effective January 1, 2019 was the sale by the subsidiary Pirelli Tyre to the parent company Pirelli & C. S.p.A. of
the business unit consisting of all the staff and business support functions related to Human Resources, Health
and Safety, Security, Planning and Controlling, CFO, Legal Affairs, Digital, Communication. This operation is
part of a large project for the reorganization of activities within the Group.
446
Pirelli Annual Report 2018
ANNEXES TO THE EXPLANATORY NOTES
MOVEMENTS OF INVESTMENTS IN SUBSIDIARIES FROM 12/31/2017 TO 12/31/2018
in thousands of euro
12/31/2017
Changes
12/31/2018
Number
of shares
Carrying
amount (€/
thousands)
% of total
investments
Of
which
direct
Number
of shares
(€/
thousand)
Number
of shares
Carrying
amount (€/
thousands)
% of total
investments
Of
which
direct
INVESTMENTS IN
SUBSIDIARIES
ITALY
Unlisted:
Pirelli Servizi Amministrazioni
e Tesoreria S.p.A.
2,047,000
3,237
100
100
Maristel S.r.l. - Milan
1,020,000
1,315
100
100
-
-
Pirelli International Treasury SpA
-
-
-
-
15,000
Pirelli Sistemi Informativi S.r.l. -
Milan
1 quota
1,655
100
100
Pirelli & C. Ambiente S.r.l.
1 quota
2,095
100
100
Pirelli Tyre S.p.A. - Milan
558,154,000
4,521,792
100
100
Servizi Aziendali Pirelli
S.C.p.A. - Milan
HB Servizi Srl
Total investments in Italian
subsidiaries
94,978
1 quota
101
230
100
91.3
100
100
4,530,427
-
-
-
-
-
-
-
15
-
2,047,000
3,237
100
100
1,020,000
1,315
100
100
15,000
15
100
30
1 quota
1,655
100
100
(2,096)
-
-
-
-
2,096 558,154,000 4,523,888
100
100
-
-
15
94,978
101
100
91.3
1 quota
230
100
100
4,530,442
12/31/2017
Changes
12/31/2018
Number
of shares
Carrying
amount (€/
thousands)
% of total
investments
Of
which
direct
Number
of shares
(€/
thousand)
Number
of shares
Carrying
amount (€/
thousands)
% of total
investments
Of
which
direct
FOREIGN COMPANIES
Brazil
Pirelli Ltda - Sao Paulo
14,000,000
9,666
100
100
T3 Brasil Industrial de Pneus
Agricol
Pirelli Latam Participações Ltda.
Pirelli Pneus Ltda
Pirelli Comercial de Pneus Brasil
Ltda.
France
-
1
1
1
Pirelli Solutions France Sarl -
Villepinte
1 quota
UK
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100
Pirelli UK ltd. - London - ordinary
163,991,278
21,871
100
100
-
-
-
-
-
-
-
-
-
-
-
-
-
14,000,000
9,666
100
100
-
1
1
1
1 quota
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100
-
163,991,278
21,871
100
100
Switzerland
Pirelli Group Reinsurance
Company S.A.
Total investments
in foreign subsidiaries
Total investments
in subsidiaries
800,000
6,346
100
100
(500,000)
37,883
4,568,309
447
-
-
15
300,000
6,346
100
100
37,883
4,568,324
Separate Financial Statement
MOVEMENTS OF INVESTMENTS IN ASSOCIATES FROM 12/31/2017 TO 12/31/2018
in thousands of euro
12/31/2017
Changes
12/31/2018
Number
of shares
Carrying
amount (€/
thousands)
% of total
investments
Of
which
direct
Number
of
shares
(€/
thousand)
Number
of shares
Carrying
amount (€/
thousands)
% of total
investments
Of
which
direct
INVESTMENTS IN
ASSOCIATES
ITALY
Unlisted:
Fenice Srl - in liquidazione
1 quota
2,478
69.9
69.9
Consorzio per le Ricerche sui
Materiali Avanzati
(CORIMAV)
1 quota
104
100
100
Eurostazioni S.p.A. - Roma
52,333,333
6,271
32.7
32.7
Focus Investments S.p.A.
111,111
1,352
8.3
8.3
-
-
-
-
(2,478)
-
-
-
-
-
1 quota
104
100
100
- 52,333,333
6,271
32.7
32.7
(1,352.)
111,111
-
8.3
8.3
Total unlisted companies
Total investments
in associates - Italy
Total investments
in associates
10,204
10,204
10,204
(3,830)
(3,830)
(3,830)
6,375
6,375
6,375
MOVEMENTS OF OTHER FINANCIAL ASSETS AT FAIR VALUE
THROUGH INCOME FROM 01/01/2018 TO 12/31/2018
in thousands of euro
1/1/2018
Changes
12/31/2018
Number
of shares
Carrying
amount (€/
thousands)
% of total
investments
Of
which
direct
Number
of shares
(€/
thousand)
Number
of shares
Carrying
amount (€/
thousands)
% of total
investments
Of
which
direct
INVESTMENTS IN
OTHER COMPANIES
ITALIAN LISTED
COMPANIES
Mediobanca S.p.A. - Milan
15,753,367
149,027
1.8
1.8
(15,753,367)
(149,027)
-
Total other Italian listed
companies
Total other listed
companies
149,027
149,027
(149,027)
(149,027)
-
-
-
-
-
448
Pirelli Annual Report 2018 MOVEMENTS OF OTHER FINANCIAL ASSETS AT FAIR VALUE
THROUGH OTHER COMPREHENSIVE INCOME FROM 01/01/2018 TO 12/31/2018 (CONTINUED)
in thousands of euro
1/1/2018
Changes
12/31/2018
Number
of shares
Carrying
amount (€/
thousands)
% of total
investments
Of
which
direct
Number
of shares
(€/
thousand)
Number
of shares
Carrying
amount (€/
thousands)
% of total
investments
Of
which
direct
INVESTMENTS IN OTHER
COMPANIES
ITALIAN LISTED COMPANIES
RCS Mediagroup S.p.A. - Milan
24,694,918
30,177
4.7
4.7
-
(1,729)
24,694,918
28,449
4.7
4.7
Total other Italian listed companies
Total other listed companies
30,177
30,177
(1,729)
(1,729)
28,449
28,449
1/1/2018
Changes
12/31/2018
Number
of shares
Carrying
amount (€/
thousands)
% of total
investments
Of
which
direct
Number
of shares
(€/
thousand)
Number
of shares
Carrying
amount (€/
thousands)
% of total
investments
Of
which
direct
ITALIAN UNLISTED COMPANIES
Aree Urbane S.r.l. (in liquidation) -
Milan
C.I.R.A. - Centro Italiano di Ricerche
Aerospaziali S.c.p.A. - Capua (CE)
1 quota
30
Alitalia Compagnia Aerea Italiana
S.p.A. - Rome
1,162,098,622
CEFRIEL - Società Consortile
a Responsabilità limitata
Consorzio DIXIT (in liquidation) -
Milan
MIP Politecnico di Milano -
Graduate School of Business società
consortile per azioni già Consorzio
per L’Innovazione nella Gestione
di Azienda -Mip - (Master
Imprese Politecnico) Milan
1 quota
1 quota
12,000
Consorzio Milano Ricerche - Milan
1 quota
Società Generale per la Progettazione
Consulenze e Partecipazioni
(ex Italconsult ) S.p.A. - Rome
1,100
-
-
-
-
-
-
-
-
-
-
0.1
0.1
1.7
1.5
4.9
4.9
14.3
14.3
3.1
3.1
9.0
9.0
3.7
3.7
-
-
-
-
-
-
-
-
-
-
1 quota
30
- 1,162,098,622
-
-
-
-
-
1 quota
1 quota
12,000
1 quota
1,100
229,000
2,748
2.8
2.8
(229,000)
(2.748)
-
55,805,625
-
0.4
0.4
- 55,805,625
Fin. Priv. S.r.l. - Milan
1 quota
19,909
14.3
14.3
-
-
-
-
-
-
-
-
-
-
-
-
0.1
0.1
1.4
1.4
4.9
4.9
14.3
14.3
2.9
2.9
9.0
9.0
3.7
3.7
-
-
0.4
0.4
1 quota
6,599
6.1
6.1
959,429
245
3.3
3.3
750,000
1
1 quota
-
6
-
4.6
4.6
(750,000)
5.9
5.9
(1)
4.4
4.4
-
-
-
-
-
-
-
(4.305)
1 quota
15,604
14.3
14.3
362
1 quota
6,961
6.1
6.1
13
959,429
258
3.3
3.3
-
(6)
-
-
-
-
(17)
1 quota
(442)
592,450
-
-
-
70
39
-
-
-
-
-
-
0.6
0.6
0.6
0.6
Emittenti Titoli S.p.A.
in liquidazione - Milano
F.C. Internazionale Milano S.p.A. -
Milan
Istituto Europeo di Oncologia S.r.l.
- Milan
Nomisma - Società di Studi
Economici S.p.A. - Bologna
Redaelli Sidas S.p.A. (in liquidation)
- Milan
Consorzio Movincom scrl
Movincom Servizi S.p.A.
Tiglio I S.r.l. - Milan
1 quota
87
0.6
0.6
Genextra S.p.A.
592,450
481
0.6
0.6
Total other Italian unlisted
companies
30,075
(7.142)
22,932
449
Separate Financial Statement MOVEMENTS OF OTHER FINANCIAL ASSETS AT FAIR VALUE
THROUGH OTHER COMPREHENSIVE INCOME FROM 01/01/2018 TO 12/31/2018
in thousands of euro
01/01/2018
Changes
12/31/2018
Number
of shares
Carrying
amount (€/
thousands)
% of total
investments
Of
which
direct
Number
of shares
(€/
thousand)
Number
of shares
Carrying
amount (€/
thousands)
% of total
investments
Of
which
direct
FOREIGN COMPANIES
Libia
Libyan-Italian Joint Company -
ordinary shares B
Belgium
300
32
1.0
1.0
Euroqube S.A. (in liquidation)
67,570
13
17.8
17.8
U.S.A.
Gws Photonics Inc - Wilmington
- private shares B
1,724,138
Gws Photonics Inc - Wilmington
- private shares C
194,248
UK
Eca International
100
-
-
-
-
-
-
-
2.8
2.8
Total other foreign companies
45
-
-
-
-
-
-
300
32
1.0
1.0
-
67,570
13
17.8
17.8
-
1,724,138
-
194,248
100
-
-
-
-
-
45
-
-
-
-
2.8
2.8
OTHER PORTFOLIO
SECURITIES
Fondo Comune di Investimento
Immobiliare - Anastasia
53 quote
15,270
-
-
-
305
53 quote
15,575
-
-
Total other portfolio securities
15,270
305
15,575
TOTAL OTHER FINANCIAL
ASSETS AT FAIR VALUE
THROUGH OTHER
COMPREHENSIVE INCOME
75,566
(8,566)
67,000
450
Pirelli Annual Report 2018
LIST OF INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES
(PURSUANT TO ART. 2427 OF THE CIVIL CODE)
Legal
address
Carrying
amount
Share %
Share
capital
Attributable
equity
in thousands of euro
Attributable
net income
(loss)
INVESTMENTS IN SUBSIDIARIES - ITALY
Pirelli Servizi Amministrazione e Tesoreria S.p.A.
Maristel S.p.A.
Pirelli Sistemi Informativi S.r.l.
Milan
Milan
Milan
3,238
100%
2,047
3,386
1,315
100%
50
2,009
1,655
100%
1,010
2,587
211
(30)
356
Pirelli Tyre S.p.A.
Milan
4,523,887
100%
558,154
1,593,714
417,251
Servizi Aziendali Pirelli S.c.p.a.
HB Servizi S.r.l.
Pirelli International Treasury S.p.A.
Milan
Milan
Milan
101
230
15
91.3%
100%
30%
104
10
50
283
309
15
22
216
-
Total investments in subsidiaries - Italy
4,530,441
INVESTMENTS IN FOREIGN SUBSIDIARIES
Switzerland
Pirelli Group Reinsurance Company S.A.
Lugano
6,346
100%
2,662
22,010
6,592
Brasil
Pirelli Ltda
UK
Pirelli UK Ltd.
Sao Paulo
9,666
100%
3,154
1,706
286
London
21,871
100%
183,326
18,581
(6,305)
Total investments in foreign subsidiaries
Total investments in subsidiaries
INVESTMENTS IN ASSOCIATES - ITALY
37,883
4,568,324
Consortium for the Reserach into Advanced Materials
(CORIMAV)
Milan
104
100%
104
104
Eurostazioni S.p.A. **
Focus Investments S.r.l.
Total investments in associates - Italy
Total investments in associates
* Data not yet available
** balance sheet at July 31, 2018
Rome
6,271
32.7%
16,000
6,394
Milan
-
8.3%
*
*
6,375
6,375
-
129
*
451
Separate Financial Statement
REPORT OF THE BOARD OF STATUTORY
AUDITORS TO THE SHAREHOLDERS'
MEETING
Dear Shareholders,
pursuant to art. 153 of Legislative Decree 58/1998 ("TUF") and the applicable provisions of the Italian Civil
Code, the Board of Statutory Auditors (which also operates as internal control and audit committee), is called
on to report to the Shareholders' Meeting convened to approve the financial statements on the supervisory
activity carried out and any omissions or misconduct which it might have identified. The Board of Statutory
Auditors may also make proposals regarding the financial statements and their approval and other matters
under its responsibility.
During the year the Board of Statutory Auditors carried out its supervisory activities as required by the law
in force, taking account of the standards of conduct for the Boards of Statutory Auditors of listed companies
recommended in the document by the Consiglio Nazionale dei Dottori Commercialisti e degli Esperti
Contabili (the Italian national association of chartered accountants and auditors) last updated in April 2018,
and of the Consob provisions on company controls and the activity of the Boards of Statutory Auditors and
its Corporate Governance Code for listed companies, to which Pirelli & C. S.p.A. (hereinafter also “Pirelli”
or the “Company”) has adhered.
As well as through the attendance of all or some of the Statutory Auditors at meetings of the Board of
Directors and its committees, this also took place through the constant exchange of information between the
Board of Statutory Auditors and the relevant administrative, audit and compliance departments, and with the
Supervisory Body created pursuant to Legislative Decree no. 231 of 8 June 2001, as well as with the
members of the boards of statutory auditors of the principal subsidiaries and with the firm appointed as
external auditor.
APPOINTMENT AND COMPOSITION OF THE BOARD OF STATUTORY AUDITORS
The Board of Statutory Auditors in office at the date of this report was appointed by the Shareholders'
Meeting held on 15 May 2018. This Meeting confirmed the appointment of all the standing members of the
Board of Statutory Auditors whose mandates were due to expire, and hence the Board itself can state that it
worked seamlessly throughout the whole of 2018.
In particular, the Board of Statutory Auditors is made up of Standing Auditors Francesco Fallacara
1
452
Pirelli Annual Report 2018
(Chairman), Fabio Artoni, Antonella Carù, Luca Nicodemi and Alberto Villani, and Alternate Auditors
Franca Brusco and Elenio Bidoggia.
Pursuant to article 148, subsection 3 of the TUF, and the provisions of the Corporate Governance Code for
listed companies, with which Pirelli has resolved to adhere, the Board of Statutory Auditors checked that its
serving members retained, on 31 December 2018, the requirements of independence they had been
ascertained to possess at the time of their appointment (see paragraph below on the considerations regarding
the size and operation of the control body).
COMMENTS ON THE 2018 FINANCIAL STATEMENTS AND ON TRANSACTIONS OF
MAJOR IMPORTANCE CARRIED OUT DURING THE YEAR
It should be noted that Pirelli's Financial Statements have been drawn up based on the IAS/IFRS
international accounting standards issued by the International Accounting Standards Board (IASB) and
endorsed by the European Union, in force on 31 December 2018 and in accordance with the instructions
issued in implementation of article 9 of Legislative Decree 38/2005. The Financial Statements also include
the notice required by law 124/2017 (art. 1, subsections 125-129).
The principal risks and uncertainties are summarised in the Directors' Report on Operations, and there is a
section on the outlook for the coming year.
The Company's Financial Statements are made up of the Statement of Financial Position, Income Statement,
Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows and
Explanatory Notes.
The Financial Statements are accompanied by the Directors' Report on Operations, and include the Report on
the Corporate Governance and Structure of Share Ownership – prepared pursuant to Article 123-bis of the
TUF – as well as the Report on responsible management of the value chain (consolidated non-financial
declaration pursuant to Legislative Decree No. 254, of 30 December 2016), drawn up by the Company in
accordance with the Sustainability Reporting Standards of the Global Reporting Initiative (GRI) -
Comprehensive option - and the principles of inclusiveness, materiality and compliance with the AA1000
Standard.
Pirelli’s 2018 Separate Financial Statements and Consolidated Financial Statements include statements of
compliance by the CEO and by the Manager responsible for the preparation of the corporate financial
documents, as required by prevailing legislation.
As a result of the assignment of the shares of TP Industrial Holding S.p.A, the company that held almost all
of Pirelli's industrial assets, to controlling shareholder Marco Polo International Holding Italy S.p.A., in
March 2017, in continuity with the 2017 financial year, some of the residual assets of the Industrial business
in China and Argentina qualify as “discontinued operations”. The year's results of these discontinued
operations are classified in the Income Statement as a single item “net income (loss) related to discontinued
2
453
Separate Financial Statement
operations". The process of separation was completed in the month of June 2018 with reference to Argentina,
and in the fourth quarter of 2018 with reference to China.
Pirelli's 2018 Consolidated Financial Statements present the following summary data:
Revenues
Operating income (EBIT)
Adjusted EBIT before startup costs
Total consolidated net income (including divested assets)
€ 5,194.5 million
€ 703.1 million
€ 1,002.7 million
€ 442.4 million
The consolidated net financial (liquidity)/debt position was negative to the amount of euro 3,180.1 million
(euro 3,218.5 million at 31 December 2017).
Parent company Pirelli closed the financial year with positive net income to the amount of euro 262.4 million
(euro 170.8 million in 2017).
Transactions of major importance are accounted for in detail in the Directors' Report on Operations, and in
the financial statements. The following transactions, in particular, should be noted:
- on 11 January 2018 Pirelli disposed of its entire direct holding in Mediobanca S.p.A. - corresponding to
approximately 1.8% of the bank's share capital - in an operation reserved to qualified investors in Italy
and institutional investors abroad - generating income of euro 152.8 million in total;
- on 22 January 2018, after the adoption of the Euro Medium Term Note (EMTN) programme approved
by the Board of Directors on 21 December 2017, Pirelli placed a 5 year fixed rate bond for a nominal
amount of euro 600 million with international institutional investors. The effective yield on maturity is
1.479% and the bonds were listed on the Luxembourg stock exchange;
- on 15 March 2018 Pirelli placed a "Floating Rate Note" for euro 200 million, with maturity September
2020. The floating rate bond issue - for institutional investors only - allowed the company to repay the
same amount of its existing debt, further optimising financial structure by reducing the cost of debt;
- on 20 March 2018 subsidiary Pirelli International PLC reimbursed early the euro 600 million bond with
maturity in November 2019. The reimbursement was at the price of euro 1,031.15 as make-whole amount
for each euro 1,000 bond, plus euro 5.85 for interest accrued to the date of repayment;
- on 14 May 2018, the Board of Directors of Pirelli approved a development of the organisational structure,
intended to consolidate implementation of the integrated business model, proposed by Executive Vice
President and CEO Marco Tronchetti Provera;
- on 15 May 2018, the Pirelli Shareholders' Meeting approved the financial statements for the year to 31
December 2017 (as approved by the BoD on 26 February 2018) and the increase in the number of
members of the Board of Directors to 15, and - at the proposal of a group of institutional investors -
appointed Giovanni Lo Storto as the new director. Mr Lo Storto became a member of the Audit, Risks,
3
454
Pirelli Annual Report 2018
Sustainability and Corporate Governance Committee and the Remuneration Committee. Mr Lo Storto
declared that he possessed the requirements to qualify as an independent director pursuant to the
Consolidated Law on Finance and the Corporate Governance Code for listed companies. With his
appointment, a majority of the members of the Board of Directors of Pirelli (8 out of 15 members) are
independent. The Shareholders' Meeting also appointed the new Board of Statutory Auditors for the
financial years 2018-2020, using the slate voting system. The Shareholders' Meeting also authorised the
Board of Directors to stipulate a new D&O (Directors & Officers Liability Insurance) insurance policy,
expressed its approval of the Remuneration Policy and approved - for the part linked to Total Shareholder
Return - the adoption of the three year monetary incentive plan 2018-2020 (the "LTI Plan"), destined for
all the management and linked to the 2018/2020 targets contained in the 2017/2020 business plan;
- on 22 June 2018, the Board of Directors of Pirelli postponed the expiry (from 31 January to 31 December
2019) and extended the size of the preceding board authorisation on bonds from euro 1 billion to 1.8
billion, euro 800 million of which placed in the first quarter of 2018;
- on 26 July 2018, Pirelli concluded a “Schuldschein” loan for a total of euro 525 million (approved by the
Board of Directors on 22 June 2018). The loan, guaranteed by Pirelli Tyre S.p.A. and underwritten by
primary market operators, is composed of a tranche of euro 82 million due in 3 years, a tranche of euro
423 million due in 5 years and a tranche of 20 million euros due in 7 years. The transaction allowed the
Company to repay existing debt, further optimising its debt structure and costs;
- on 7 August 2018, the Board of Directors of Pirelli - with reference to the Pirelli & C. S.p.A. euro
600,000,000 1.375 percent Guaranteed Notes due 25 January 2023" (ISIN: XS1757843146) issued by
Pirelli under the euro 2 billion EMTN programme and listed on the Luxembourg stock exchange -
resolved to proceed with the partial buyback of these bonds. At the end of the partial buyback
programme, the Company announced on 19 December 2018 that - through a primary intermediary - it
had bought back and at the same time cancelled bonds for a nominal value of euro 47 million;
- on 7 August 2018, the Board of Directors of Pirelli, at the proposal of the Executive Vice President and
CEO, Marco Tronchetti Provera, proceeded to co-opt Ning Gaoning and appoint him Chairman of the
Board of Directors, to replace Ren Jianxin, who resigned on 30 July 2018. The Board qualified Ning
Gaoning - who declared that he was not in possession of the requirements of independence pursuant to the
TUF and the Corporate Governance Code - as a non-executive director, and he was assigned legal
representation of the Company pursuant to the bylaws. The Board also appointed the new director a
member of the Appointments and Successions Committee;
- on 7 September 2018 Pirelli announced that it had sold its Car factory in Guacara, in Venezuela, together
with all the assets the company owns in that country. The transaction, which follows the accounting
deconsolidation that was carried out in 31 December 2015, had no financial effects on the group;
- on 9 October 2018, Pirelli Tyre S.p.A. completed the acquisition of a 49% stake in the Joint Venture that,
4
455
Separate Financial Statement
through Jining Shenzhou Tyre Co., owns a new Consumer tyre manufacturing plant in China. The
investment totalled around euro 65 million. Pirelli Tyre S.p.A. will have the right - which it can exercise
in the period from 1 January 2021 to 31 December 2025 - to increase its stake to up to 70%;
- on 15 October 2018 Pirelli signed the prior agreement with the Italian Revenues Agency for access to the
Patent Box tax concession, with reference to tax years 2015-2019. The tax benefit for the three-year
period from 2015-2017 is approximately euro 54 million, plus the estimated benefit of euro 35 million for
2018. At the proposal of the CEO, the Board of Directors allocated the resources from the Patent Box to
cost cutting actions to be implemented in 2019 to continue to support a double-digit reduction in exposure
on the Standard segment and the High Value strategy;
- on 18 December 2018 Pirelli announced that - together with subsidiary Pirelli Tyre S.p.A. - it had been
admitted to the Collaborative Compliance regime. This is a new way of interacting with the Italian
Revenues Agency based on a transparent relationship that will further increase certainty on major tax
issues. The admission came at the end of the positive assessment by the Italian Revenues Agency of the
company's Tax Control Framework, the system to detect, manage, control and mitigate tax risk.
UNUSUAL OR EXCEPTIONAL TRANSACTIONS
Significant transactions in 2018 are detailed in the Directors' Report on Operations. We are unaware of any
atypical or unusual transactions, as defined by Consob in notice DEM/6064293 of 28 July 2006.
INTRAGROUP OR RELATED PARTY TRANSACTIONS
Pursuant to article 2391-bis of the Italian Civil Code and Consob resolution 17221 of 12 March 2010,
containing the “Regulations on Related Party Transactions”, subsequently amended by Consob Resolution
17389 of 23 June 2010, the Board of Directors of Pirelli, on 31 August 2017, unanimously approved the
“Procedure for Related-Party Transactions” with effect from 4 October 2017, when listing of the Company’s
ordinary shares started on the Mercato Telematico Azionario (the screen-based "Main Market") organised
and managed by Borsa Italiana S.p.A.
In line with the information set out in the listing prospectus, on 6 November 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 aforementioned Regulations with a specific
resolution passed by the Board of Directors) unanimously confirmed the text of the “Procedure for Related-
Party Transactions” approved before listing.
It should be noted that, pursuant to article 4, subsection 6 of the aforementioned Regulations, the Procedure
adopted by the Company (i) is coherent with the principles contained in said Regulations, and (ii) is
published on the Company's website www.pirelli.com).
During the 2018 financial year there were both intra-group and third party related-party transactions.
5
456
Pirelli Annual Report 2018
The intra-group transactions, the effects of which are shown in the financial statements, were found to be of
an ordinary nature, since they essentially consist of the reciprocal provision of administrative, financial and
organisational services. They were regulated applying normal conditions determined using standard
parameters that reflect the actual use made of the services and were carried out in the interests of the
Company, since they were aimed at rationalising the use of the Group's resources.
The non-intragroup related-party transactions that we reviewed were also of an ordinary nature (since they
were part of normal business operations or related financial activities) and/or concluded at market or
standard equivalent terms and were in the interest of the Company. These transactions were reported to us
periodically by the Company.
We attended the meetings of the Related-Party Transactions Committee during which the Committee
expressed a favourable opinion of some related party transactions of "lesser importance", after having
considered the interest of the Company in the completion of the transaction and the expediency and
substantial correctness of their conditions.
Regarding such transactions, we have always expressed the view that they were in the interests of the
Company.
The Board of Directors attended the meetings of the Related-Party Transactions Committee, and on 14
February 2019, attended the meeting of the Company's Board of Directors that, for all intents and purposes,
approved the redrafting of some of the terms of the licence agreements with Prometeon Tyre Group S.r.l. and
Aeolus Tyre Co. Ltd (companies with the same parent company as the Company), the effects of which -
including in the 2018 results and in the preliminary results announced to the market - had been previously
communicated to the market when the draft 2018 consolidated results were announced. It should be noted
that, to ensure maximum transparency to the market, the Company prudentially decided to voluntarily
publish an Information Document for these transactions, drafted pursuant to art. 5 of the Regulations on
Related Party Transactions approved by Consob with resolution 17221 of 12 March 2010 (as subsequently
amended) and to art. 18 of the Procedure for Related-Party Transactions adopted by the Company. The
Information Document was published on 20 February 2019.
We have monitored compliance with the Procedure for Related-Party Transactions adopted by the Company
and the correctness of the process followed by the Board and the competent Committee for the qualification
of related parties and have nothing to report.
The transactions with related parties are detailed in the notes to the Company's separate and consolidated
financial statements, including information on the consequent effects on the Income Statement and the
Statement of Financial Position. The Statutory Auditors deem the information on transactions with related
parties provided in the financial statements to be adequate.
6
457
Separate Financial Statement
IMPAIRMENT TEST PROCEDURE
It should be noted that, as suggested in the joint Banca d’Italia/Consob/ISVAP document of 3 March 2010,
the Board of Directors, independently, and before the formal approval of the financial statements by the
Board of Directors (which occurred at the meeting on 26 February 2019), resolved that the impairment test
procedure complied with the prescriptions of international accounting standard IAS 36, after said procedure
had been approved by the Audit, Risks, Sustainability and Corporate Governance Committee and the Board
of Statutory Auditors.
Specifically, the Company carried out an impairment test on the goodwill allocated to the group of Consumer
cash generating units and to the Pirelli brand.
Information on the assessment process conducted with the assistance of a highly qualified expert, and on its
outcomes, is provided in the explanatory notes to the financial statements.
The Statutory Auditors consider the procedure adopted by the Company to be adequate.
SUPERVISORY ACTIVITY PURSUANT TO LEGISLATI|VE DECREE 39/2010 - EXTERNAL
AUDITOR
The Board of Statutory Auditors, in collaboration with the Audit, Risks, Sustainability and Corporate
Governance Committee and pursuant to changes to the regulations introduced by Legislative Decree
135/2016, supervised:
×
×
×
×
×
the financial reporting process;
the effectiveness of the internal control, internal audit and risk management systems;
the external audit of the annual and consolidated accounts;
the independence of the external auditor, in particular with regard to the provision of non-auditing
services;
the results of the external audit with specific reference to the additional report pursuant to article 11 of
European regulation 537/2014.
***
SUPERVISING THE FINANCIAL REPORTING PROCESS
The Board of Statutory Auditors, having verified that there are adequate rules and processes governing the
process of "formulating" and "disseminating" financial information, considers that the financial reporting
information process is adequate, and believes that there are no issues to raise with the Shareholders’ Meeting
in this regard.
In addition to the annual and half-year reports, the Company voluntarily publishes the additional periodic
financial information specified in art. 82-ter of Consob Regulation 11971/99 ("interim reports on
7
458
Pirelli Annual Report 2018
operations") for the periods that end on 31 March and 30 September each year.
SUPERVISING THE NON-FINANCIAL REPORTING PROCESS
The Board of Statutory Auditors monitored compliance with the provisions contained in legislative decree
254/2016 with reference to the declaration of a non-financial nature (the "NFD"), also verifying that there
are adequate rules and processes governing the process of "formulating" and "disseminating" non-financial
information, and considers that the non-financial reporting information process is adequate, and believes that
there are no issues to raise with the Shareholders’ Meeting in this regard.
In particular, the Board of Statutory Auditors acknowledged that the Company has adopted a structured
system to monitor the content of the NFD which includes: (i) a dedicated operating rule to ensure adequate
reporting of information of a non-financial nature; (ii) a control system to ensure greater assurance that the
principal non-financial information is reported correctly; (iii) checks of the data of a non-financial nature in
the NFD, after appropriate highlighting and verification; (iv) signature of a letter of attestation by the senior
management on the non-financial data included in the paragraphs on this subject in the financial statements.
The Company did not avail itself of its right pursuant to art. 3, subsection 8 of legislative decree 254/2016 to
omit information concerning imminent developments and transactions being negotiated.
With reference to the issue of the protection of personal data, the Board of Statutory Auditors acknowledges
that the Pirelli group has put in place the activities needed to ensure that the company complies with the new
provisions introduced by EU Regulation 2016/279. In particular, in the European Group companies,
activities to attribute roles and responsibilities in the company organisation, formalisation of internal rules,
and updating of the documents required by the law were completed over the course of 2018.
SUPERVISING THE EFFECTIVENESS OF THE INTERNAL CONTROL, INTERNAL
AUDIT AND RISK MANAGEMENT SYSTEMS, AND THE EXTERNAL AUDIT OF THE
ANNUAL SEPARATE AND CONSOLIDATED FINANCIAL STATEMENTS
The Board of Statutory Auditors, together with the Audit, Risks, Sustainability and Corporate Governance
Committee met with the Head of Internal Audit once every quarter. At those meetings, information was
provided on the results of the audits designed to ascertain the adequacy and operational effectiveness of the
Internal Control System, compliance with the laws and the business procedures and processes, as well as on
the implementation of the related improvement plans. The Board also received the Audit Plan for the
financial year, its final results and the risk analysis, expressing a favourable opinion of their approval by the
Board, where requested. During the meetings it was also constantly updated about the application of the
"Whistleblowing" procedure in the Pirelli Group.
Furthermore, every six months it received the reports of the Audit, Risks, Sustainability and Corporate
8
459
Separate Financial Statement
Governance Committee and the Supervisory Body on the activities they had undertaken.
The Board of Statutory Auditors also took note of the report made by the Manager responsible for the
preparation of the corporate financial documents who, when the draft financial statements were being
approved, 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 Manager Responsible had reported that he had participated in the internal flows
of information for accounting purposes and had approved all corporate procedures which impacted the
Company’s profitability, financial position and/or assets and liabilities.
Accordingly, the Board of Statutory Auditors expresses a positive opinion of the adequacy of the internal
control and risk governance system as a whole, and has no issues to raise with the Shareholders’ Meeting in
this regard.
The Board of Statutory Auditors also met with the external auditor at least once every quarter. No
fundamental issues or significant shortcomings in the internal control system related to the financial
reporting process arose in these meetings, also with regard to the provisions set out in article 19, subsection 3
of legislative decree 39/2010.
In particular, it should be noted that the Board of Statutory Auditors found that the controls specified in Law
262/2005 on the financial statements as at 31 December 2018 evidenced that the administrative-accounting
procedures had been applied correctly. The prescribed controls on the application of the control framework
for the NFD evidenced that the internal procedures had also been applied correctly.
The Board of Statutory Auditors considered that no "significant shortcomings" in the internal control system
for the financial reporting process and the NFD emerged in the letter of recommendations to the management
drafted by the external auditor.
The
firm appointed
to undertake
the external audit of
the accounts of
the Company
is
PricewaterhouseCoopers S.p.A. ("PWC"). The appointment as external auditor of the accounts was made by
the Shareholders' Meeting, on the reasoned proposal of the control body, in its meeting on 1 August 2017, for
the nine year period 2017/2025, pursuant to the applicable provisions for listed companies (the appointment
was effective from 4 October 2017, the date Pirelli's shares were admitted to trading). PWC was also
appointed as external auditor of the accounts of the principal Pirelli Group companies in Italy and abroad.
Pursuant to art. 14 of legislative decree 39/2010 and art. 10 of Regulation EU 537/3014, PWC issued its
Reports on the separate and consolidated financial statements as at 31 December 2018 on 3 April 2019. On
the same date, the auditing firm issued its Additional report for the internal control and audit committee,
drafted pursuant to art. 11 of Regulation EU 537/3014. On the same date, 3 April 2019, PWC issued its
Report on the consolidated non-financial declaration pursuant to art. 3, subsection 10 of legislative decree
254/2016.
9
460
Pirelli Annual Report 2018
The texts of the aforementioned reports - drafted in accordance with the applicable legal provisions - do not
contain any elements to bring to the attention of the Shareholders' Meeting.
SUPERVISING THE
INDEPENDENCE OF THE EXTERNAL AUDITOR,
IN
PARTICULAR WITH REGARD TO THE PROVISION OF NON-AUDITING SERVICES
The Board of Statutory Auditors monitored the independence of the external auditor and in particular
received periodic evidence of non-audit work assigned to PWC, also by virtue of specific regulatory
provisions.
Regarding the independence of the external auditor, a structured procedure has been issued at Group level. In
line with the provisions of legislative decree 39/2010, this sets out that no Pirelli Group company may
assign tasks other than the external audit of the accounts, to companies that are members of the network of
the appointed external auditor without the prior express authorisation of the Board of Statutory Auditors,
which, with the assistance of the Chief Financial Officer and Board Secretary, has the responsibility of
checking that the proposed assignment is not of a type listed among those not permitted by art. 5 of
Regulation EU 537/2014, and that in any event, given its characteristics, said assignment has no impact on
the independence of the external auditor.
In a letter dated 3 April 2019, PWC confirmed its independence pursuant to art. 6, paragraph 2) of
Regulation EU 537/2014 and paragraph 17, letter a) of International Audit Standard (IAS) 260.
During the 2018 financial year, PWC and its network carried out the activities summarised below for the
Group. These activities were the object of assignments approved by the Board of Statutory Auditors where
they do not relate to tasks assigned before the Company was listed:
The Board of Statutory Auditors considers the fees mentioned above to be adequate to the size, complexity
and characteristics of the work carried out, and also considers that the non-audit assignments (and their fees)
10
461
Separate Financial Statement
are not such as to have an impact on the independence of the external auditor.
In this latter regard, it should be noted that the Board of Directors, after having obtained the assessment of
the Audit, Risks, Sustainability and Corporate Governance Committee, was in agreement with the Statutory
Auditors' opinion.
ORGANISATIONAL STRUCTURE
The Board of Statutory Auditors considered the Company's organisational structure to be adequate for the
needs of the Company and appropriate to ensure that the principles of correct administration are respected.
The Report on corporate governance and the share ownership structure describes in detail the types of
powers conferred on the Executive Vice President and Chief Executive Officer Marco Tronchetti Provera
and indicates the matters reserved to the competence of the Board of Directors of Pirelli & C.
The Board of Statutory Audits deemed the organisational structure to be adequate, also after the creation of
the General Manager Operations role, assigned to Andrea Casaluci, approved by the Board of Directors in its
meeting on 14 May 2018.
It should be noted that on 26 February 2019 the Board of Directors confirmed its preceding assessments
regarding the absence of a subject that exercises direction and coordination of the Company pursuant to art.
2497 of the Italian Civil Code, without prejudice to the right of the parent company to include Pirelli within
its own consolidation perimeter for accounting purposes.
REMUNERATION OF THE DIRECTORS, GENERAL MANAGER AND KEY MANAGERS
WITH STRATEGIC RESPONSIBILITIES
During the year, the Board of Statutory Auditors has expressed the opinions required by law regarding
proposals for the remuneration of directors holding special offices, expressing the opinions prescribed in
article 2389 of the Italian Civil Code.
In particular, the Board of Statutory Auditors, in the meeting of the Board of Directors on 26 February 2018,
expressed a favourable opinion of the proposal to remodulate the remuneration of the Executive Vice
President and Chief Executive Officer.
In the same meeting, the Board of Statutory Auditors further expressed favourable opinions: (i) of the 2017
variable incentive paid to the Head of Internal Audit, (ii) of the achievement of the targets set for the
preceding LTI Plan, (iii) of the consequent launch of the 2018-2020 LTI Plan, (iv) of the award of the 2017
MBO incentives and the 2018 MBO Plan. The part of the 2018-2020 LTI Plan linked to Total Shareholder
Return was approved by the Shareholders' Meeting on 15 May 2018.
During the meeting of the Board of Directors on 14 May 2018, the Board of Statutory Auditors expressed a
favourable opinion of the remuneration awarded to the "new" General Manager Operations (revised on 26
February 2019) and the Key Managers with strategic responsibilities appointed on that date.
11
462
Pirelli Annual Report 2018
In the meeting of the Board of Directors on 26 February 2019, the Board of Statutory Auditors expressed its
positive assessment of the structure of the 2019 MBO which, among the targets set to obtain the variable
annual component for the 2019 financial year, includes a new target (on Sustainability) with a weight of 10%
at target, consisting of green revenues on the whole range, with a mechanism to set the targets for the MBO
plan that is more challenging than the targets disclosed to the market.
For more details, see the annual Remuneration Report.
FURTHER ACTIVITIES OF THE BOARD OF STATUTORY AUDUTORS AND
INFORMATION REQUIRED BY CONSOB
In exercising its duties, the Board of Statutory Auditors, as prescribed in article 149 of the TUF, monitored:
×
×
×
×
observance of the law and the deed of incorporation;
compliance with the principles of correct administration;
the adequacy, for those aspects within its remit, of the organisational structure of the Company, the
internal control system and the administrative-accounting system, and of the reliability of the latter to
correctly represent operations;
how the corporate governance rules contained in the codes of behaviour which the Company, in a notice
to the public, declares that it complies with are actually implemented. In this respect, it should be noted
that, pursuant to article 123-bis of the TUF, the Company has, for the 2018 financial year, drafted its
annual Report on corporate governance and the structure of share ownership which provides
information on (i) the corporate governance practices actually applied by the Company, over and above
the obligations specified in the legal or regulatory provisions, (ii) the principal features of the risk and
internal control systems that exist in relation to the financial reporting process, including the consolidate
financial reports, (iii) how the Shareholders' Meeting functions, including its principal powers and
shareholders' rights and how they are exercised, (iv) the composition and operation of the administration
and control bodies and their committees, and the other information specified in article 123-bis of the
TUF;
×
the adequacy of the instructions imparted by the Company to its subsidiaries pursuant to article 114,
subsection 2 of legislative decree 58/1998, having ascertained that the Company is able to promptly and
regularly fulfil the disclosure obligations set out in law and in the EU regulations, as prescribed in the
aforementioned article, also by collecting information from the heads of the organisational departments,
and periodic meetings with the external auditor, to exchange relevant data and information. In this
regard, we have no particular comments to make.
It should also be noted that the Directors' Report on Operations includes a paragraph containing a description
of the principal features of the internal control and risk management system in relation to the financial
12
463
Separate Financial Statement
reporting process, including the reporting of consolidated financial information.
The Board of Statutory Auditors notes:
×
×
×
that the Directors' Report on Operations complies with the current laws, reflecting the resolutions made
by the administrative body and the results in the financial statements, and contains adequate information
on operations during the year and on intra-group transactions. The section containing the report on
transactions with related parties has been included in the explanatory notes to the financial statements,
in compliance with the IFRS standards;
that the explanatory notes comply with the current standards, indicating the criteria used in determining
the balance sheet items and in the value adjustments, and that the separate and consolidated financial
statements of the Company appear to have been drafted in accordance with the structure and
frameworks imposed by the current standards. In application of Consob's provisions, the effects of
relations with related parties on the Company's profitability, financial position, assets and liabilities and
cash flows;
that Directors and/or Senior Managers of the Parent Company are members of the Boards of Directors
of the principal subsidiary companies to guarantee coordinated direction and an adequate flow of
information, also supported by suitable accounting information.
It should also be noted that the Board of Statutory Auditors:
×
received information from the Directors at least once every quarter concerning their activity and the
transactions carried out by the Company having the greatest impact on its strategy, earnings, financial
position and equity, and that it received this information in compliance with the specific procedure
approved by the Board of Directors. The Board of Statutory Auditors can give reasonable assurance
that the resolved and executed transactions comply with the law and the Articles of Association, 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 the company's assets;
received from the Supervisory Body, of which 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 external auditor in order to exchange important data
and information for the performance of its duties, as prescribed in article 150, subsection 3 of the TUF.
In this regard, it should be noted that 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 subsections 1
and 2 of article 151 of the TUF);
during the 2018 financial year, issued opinions pursuant to article 2386 of the Italian Civil Code, on the
×
×
×
×
13
464
Pirelli Annual Report 2018
occasion of the appointment of Ning Gaoning as a Director by co-option (Mr Gaoning was then
appointed Chairman of the Board of Directors) on 7 August 2018.
During the 2018 financial year the Board of Statutory Auditors did not receive any complaints.
The Board of Statutory Auditors acknowledges that it received a complaint pursuant to art. 2408 of the
Italian Civil Code from shareholder Mr Marco Bava, who asked the Statutory Auditors to ascertain whether
each shareholder, even if a "minority" shareholder, could submit the names of candidates for the appointment
of a new Director, an item on the agenda of the Shareholders' Meeting called for 15 May 2018.
The Company - in agreement with the Board of Statutory Auditors - ensured that the shareholder received
the documentation on the "Appointment of a Director" item on the agenda of the aforementioned
shareholders' meeting that had previously been made available to the public pursuant to law, which indicated
that not only was it possible for any shareholder to do so, but that the Board had decided to put the proposal
that a new Director be appointed to the shareholders' meeting solely for the purpose of enabling the
"minority" shareholders to appoint their representative on the Board.
Based on the investigation it carried out, and taking account of the above, the Board of Statutory Auditors
decided that the complaint received was without merit.
With regard to the external auditor, the Board of Statutory Auditors noted that PricewaterhouseCoopers
S.p.A.:
×
×
×
×
×
issued
its
report pursuant
to article 14 of
legislative decree 39/2010 and article 10
of Regulation EU 537/201 on 3 April 2019. This containing its unqualified opinion stating that the
separate and consolidated financial statements provide a truthful and accurate representation of the
equity and financial position of Pirelli and of the Group as at 31 December 2018, and of the economic
results and cash flow for the financial year that closed on that date, in compliance with applicable
accounting standards, and provided evidence of key aspects of their audit;
issued a coherence opinion indicating that the Report on Operations accompanying the separate and
consolidated financial statements as at 31 December 2018, and some specific information contained in
the Report on Corporate Governance and the Structure of Share Ownership, as laid down in article 123-
bis, subsection 4 of the TUF have been drafted in compliance with current legislation;
as regards possible significant errors in the Report on Operations, stated that, based on the knowledge
and understanding of the company and its market that it had acquired in the course of the audit activities,
it had no matters to raise;
confirmed the Company’s statement regarding the fact that no other assignments have been given to
persons or entities with on-going relationships with the external auditor itself;
on 3 April 2019, provided the Board of Statutory Auditors with the Additional Report referred to in
14
465
Separate Financial Statement
×
×
article 11 of regulation EU 537/2014, indicating that there were no significant shortcomings in the
internal control system in relation to the financial reporting process that needed to be brought to the
attention of persons responsible for “governance” activities;
on 3 April 2019, pursuant to article 3,subsection 10 of legislative decree 254/2016, issued the Report on
the responsible management of the value chain (consolidated non-financial declaration pursuant to
legislative decree No. 254, of 30 December 2016), concluding that no elements had come to PWC's
attention that led it to believe that the group's NFD for the year to 31 December 2018 had not been drawn
up, in all significant aspects, in accordance with the requirements set out in legislative decree 254/2016
and the GRI Standards;
annexed to the Additional Report, the external auditor provided the Board of Statutory Auditors,
pursuant to article 6 of regulation EU 537/2014, with a statement from which no situations emerge that
could compromise the independence of the external auditor (for more details concerning the provision of
non-auditing services, see the paragraph entitled "supervising the independence of the external auditor,
in particular with regard to the provision of non-auditing services" in this report).
The Board of Statutory Auditors also took note of the Transparency Report drafted by the external 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 noted that:
×
the current Board of Directors - the mandate of which expires with the Shareholders' Meeting called to
approve the financial statements for the year to 31 December 2019 - is composed of 15 Directors, 14 of
whom qualified as non-executive directors and, of these, 8 deemed to possess the requirements of
independence specified in the Corporate Governance Code and the TUF. During 2018, it met 6 times.
At the date of this report:
×
×
×
×
×
the Audit, Risks, Sustainability and Corporate Governance Committee is composed of four Directors,
all independent. During 2018, it met 5 times;
the Remuneration Committee is composed of four Directors, a majority of whom independent (the
Chairman is an independent Director). During 2018, it met 3 times;
the Related-Party Transactions Committee is composed of three Directors, all independent. During
2018, it met 10 times;
the Appointments and Successions Committee is composed of four Directors, one of whom is the
executive Director. It did not meet during 2018;
the Strategies Committee is composed of seven Directors, of whom two are independent. It did not meet
during 2018.
The Board of Statutory Auditors has always attended the meetings of the Board of Directors and the board
committees, also in its capacity as internal control and audit committee pursuant to art. 19 of legislative
15
466
Pirelli Annual Report 2018 decree 39/2010.
The Board of Statutory Auditors also attended the ordinary Shareholders' Meeting that in 2018 was held on
15 May.
The percentage attendance figures of the single members of the Board of Statutory Auditors at the meetings
of the above bodies are provided in the report on corporate governance and the share ownership structure.
Finally, the Statutory Auditors acknowledge:
×
×
×
×
×
that they have monitored fulfilment of the requirements linked to the "Market Abuse" and "Investor
Protection" regulations on the subject of corporate information and internal dealing, with particular
reference to the handling of inside information and the procedure for the dissemination of press releases
and information to the public;
that they ascertained, upon their appointment and most recently in their meeting on 26 February 2019,
as recommended by the Borsa Italiana Corporate Governance Code, that members possess the same
independence requirements - where applicable - as those requested for the directors in the
aforementioned Code;
that they have found that the criteria and procedures to ascertain the independence requirements adopted
by the Board of Directors to annually check the independence of its members are correctly applied, and
have no comments to make on this point;
that they have determined that the Director's report on the Company's financial statements describes the
principle risks and uncertainties to which the Company is exposed;
that, with reference to the provisions of article 15 of Consob Regulation 20249 of 28 December 2017
concerning market discipline, they have ascertained that the organisation of the company and the
procedures adopted enable Pirelli to ensure that the companies it controls and which are constituted in
and regulated by the laws of States that are not members of the European Union subject to respecting
the aforementioned Consob provisions, have administrative-accounting systems appropriate to regularly
provide the senior management and external auditor of the Company with the information on its
profitability, financial position and assets and liabilities needed to draw up the consolidated financial
statements.
During the course of its supervisory activities, and on the basis of the information obtained from the external
auditor, no omissions, misconduct, irregularities or significant facts were found which are worthy of being
reported or mentioned in this report.
The activities described above, conducted both collectively and individually, have been documented in the
minutes of the 12 meetings of the Board of Statutory Auditors held during 2018 both before and after its
renewal.
16
467
Separate Financial Statement
SELF-ASSESSMENT OF THE BOARD OF STATUTORY AUDITORS
During 2018 the Board of Statutory Auditors started, for the first time - as recommended by the rules of
behaviour for listed companies issued by the Italian national association of chartered accountants and
auditors - a self-assessment process, carried out with the assistance of independent consulting firm
SpencerStuart.
This self-assessment was carried out through individual interviews, with questions on the suitability, size,
composition and operation of the Board of Statutory Auditors, so as to attest that the body is operating
correctly and effectively and has an adequate composition.
The Board of Statutory Auditors can report that the self-assessment provided a broadly positive picture of the
composition and operation of the control body. In particular, the Board of Statutory Auditors considered that
its current size, of 5 standing members, introduced before listing on the stock exchange, is perfectly adequate
for the effective execution of the tasks the Statutory Auditors are required to undertake in a company of
Pirelli's size.
Furthermore, the Board of Statutory Auditors particularly appreciated the Induction and training activities
organised by the Company for Directors and Statutory Auditors and hopes that such activities - which
provide further opportunities for the different corporate bodies to meet and exchange knowledge - might also
continue in the current year.
PROPOSALS TO THE SHAREHOLDERS' MEETING
FINANCIAL STATEMENTS AT 31 DECEMBER 2018
The Board of Statutory Auditors expresses its favourable opinion on the approval of the Financial Statements
at 31 December 2018 and has no objections to raise regarding the proposal made for the allocation of the
profits.
GROUP REMUNERATION POLICY
We inform you that the Board of Statutory Auditors has expressed a favourable opinion on the 2019
Remuneration Policy submitted for consultation to the Shareholders’ Meeting called on 15 May 2019.
OTHER ISSUES SUBMITTED TO THE SHAREHOLDERS’ MEETING FOR APPROVAL
Regarding the other issues submitted to you for approval (the appointment of a director and of the Chairman
of the Board of Directors), the Statutory Auditors have no comment to make.
Pursuant to article 144-quinquiesdecies of the Issuer Regulations, duly approved by Consob with
****
17
468
Pirelli Annual Report 2018
resolution 11971/99, as subsequently amended and supplemented, the list of offices 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).
It should be noted that article 144-quaterdecies (Consob reporting obligations) establishes that a person who
is a member of the supervisory body of just one issuer is not subject to the reporting obligations prescribed in
this article, and therefore, in this case, they do not appear in the lists published by Consob.
The Company lists the main positions held by the members of the Board of Statutory Auditors in its Report
on Corporate Governance and the Structure of Share Ownership.
The Board of Statutory Auditors here acknowledges that all its members were in full compliance of the
aforementioned regulatory provisions laid down by Consob governing the “maximum number of positions to
be held”.
ssMilan, 3 April 2019
Mr Francesco Fallacara
Mr Fabio Artoni
Ms Antonella Carù
Mr Luca Nicodemi
Mr Alberto Villani
18
469
Separate Financial Statement
Pirelli Annual Report 2018
RESOLUTIONS
471
PROPOSAL FOR APPROVAL OF THE
FINANCIAL STATEMENTS AND
ALLOCATION OF THE RESULT FOR THE YEAR
APPOINTMENT OF A MEMBER OF THE
BOARD OF DIRECTORS AND THE
CHAIRMAN OF THE BOARD OF DIRECTORS
Dear Shareholders,
Dear Shareholders,
The year ended December 31, 2018 closed with a profit of
Euro 262,362,043.00.
Considering that following the shareholders’ meeting
resolutions adopted
legal reserve was
in 2017, the
completed and reached the limit established by article
2430 of the Civil Code, the Board of Directors proposes
the distribution of a dividend, gross of withholding taxes,
of Euro 0.177 for each of the 1,000,000,000 outstanding
ordinary shares and the carry-forward of the remaining
profit of Euro 85,362,043.
The abovementioned proposal is in line with the dividend
policy adopted by the Company in context of the Initial
Public Offering, which, starting from the approval of
the financial statements as at and for the year ended
December 31, 2018, provides for a distribution of, on
average, 40% of consolidated net income over the period
2017-2020.
If you agree with our proposal, we request that you adopt
the following
RESOLUTIONS
“The Shareholders’ Meeting,
→ having examined the annual report at December 31,
2018;
→ having acknowledged the Statutory Auditors’ Report;
→ having acknowledged the report of the Independent
Auditors;
RESOLVED
a) to approve the Company’s financial statements for
the year ended December 31, 2018, as presented by
the Board of Directors as a whole, in the individual
entries and with the proposed provisions, showing a
profit of Euro 262,362,043.00;
b) to distribute to shareholders a dividend, gross of
withholding taxes, of Euro 0.177 for each of the
1,000,000,000 outstanding ordinary shares, for a
total of Euro 177,000,000.00;
c) to carry forward the remaining profit of Euro
85,362,043.00;
d) to authorise the Directors to allocate to profits carried
forward the balance of the rounding that may be
determined at the time of payment of the dividend.
The dividend for the year 2018 will be paid as from May
22, 2019, with ex dividend date on May 20, 2019 (record
date May 21, 2019).”
→ On 30 July 2018, the Chairman of the Board of Directors
Ren Jianxin resigned from all the positions he held on
the Board of Directors of the Company based on his
announced resignations from the position of Chairman
of China National Chemical Corporation – the company
that indirectly controls Pirelli & C. S.p.A.– due to reaching
the age limit;
→ on 07 August 2018, the Board of Directors, upon a
proposal by the Executive Vice Chairman and Chief
Executive Officer Marco Tronchetti Provera, decided,
in accordance with Art. 2386 of the Italian Civil Code,
with the approval of the Board of Statutory Auditors,
upon the nomination for co-optation as a member of the
Board of Directors of Ning Gaoning and his subsequent
nomination as Chairman of the Board of Directors, to
replace Ren Jianxin.
requirements
Ning Gaoning – who stated he does not fulfil the
independence
in accordance with
Legislative Decree 58/1998 (“Consolidated Finance Act”)
and the Italian Stock Exchange Self-governance Code
in his position as, inter alia, Chairman of China National
Chemical Corporation – has been qualified by the Board
of Directors as a non-executive director and has been
tasked with the legal representation of the Company in
accordance with the Articles of Association54.
The Board of Directors also appointed Ning Gaoning as a
member of the Appointments and Succession Committee,
also to replace Ren Jianxin.
In co-opting the new Director, the Board of Directors
in particular took into account: (i) the professional and
skills profile of Ning Gaoning; (ii) the number of positions
held thereby in other companies or entities; and (iii)
the fact that the current membership of the Board of
Directors of Pirelli & C. S.p.A. (“Pirelli”or the“Company”)
complies with the current regulations concerning gender
balance and the presence of the independent Directors
on the Board55.
In accordance with Art. 2386, paragraph 1 of the Italian
Civil Code, the Chairmanship and Directorship of Ning
Gaoning expire at this Shareholders’ Meeting, which was
therefore called upon to decide upon the confirmation
of the co-opted Director (or the appointment of a new
member of the Board of Directors) and the appointment
54 Art. 13.1 of the Articles of Association provides as follows: “The representation of the Company to
third parties and to the Courts falls separately to the Chairman of the Board of Directors and, within the
limits to the powers granted thereto by the Board of Directors, to the Chief Executive Officer (Art. 11.5
of the Articles of Association provides that powers for the ordinary management of the Company are
granted to the Chief Executive Officer).
55 For further details, please see the Report on Corporate Governance and Ownership Structure
contained in the 2018 financial statements dossier, available on the Company website at www.pirelli.com.
472
Pirelli Annual Report 2018 BOARD OF DIRECTORS DECISION PROPOSALS
Given the above, the Board of Directors wishes to propose
to you the following decisions:
A) to confirm as fifteen the number of members of
the Board of Directors of Pirelli & C. S.p.A. and to
confirm the appointment as member of the Board
of Directors of Mr Ning Gaoning, born in Binzhou
(People’s Republic of China) on 09 November
1958, who will remain in office until the date of
the Shareholder’s Meeting called upon to approve
the Company financial statements closed on 31
December 2019,
and, if the Shareholders’ Meeting approves the proposal
referred to in point A) above
B) to appoint the member of the Board of Directors
Ning Gaoning as Chairman of the Board of Directors
of Pirelli & C. S.p.A..
Shareholders are informed that the Meeting will be called
upon to rule on the decision proposals referred to in points
A) and B) above in separate votes.
The updated curriculum vitae of Director Ning Gaoning is
available on the Company website at www.pirelli.com.
* * *
of the Chairman of the Board of Directors56.
In that regard, it was noted that the Ordinary Shareholders’
Meeting, held on 01 August 2017, as part of the Company’s
re-flotation on the Stock Exchange (the “IPO”), passed the
renewal of the Pirelli Board of Directors, determining the
number of members at fourteen and setting the mandate
thereof at three financial years, which will expire at the
meeting called upon to approve the Company financial
statements as at 31 December 201957. During the
aforementioned Shareholders’ Meeting of 01 August 2017,
the controlling shareholder of the Company undertook to
ensure that after flotation on the Stock Exchange, the
“minorities” would have been able to appoint another
independent Director. As a result, on 15 May 2018, at
the first useful opportunity, the Shareholders’ Meeting
approved the increase in the number of members of
the Board of Directors to 15 and appointed as another
independent Director Mr Giovanni Lo Storto58.
The current membership of the Board of Directors reflects
what represented during the IPO process and the current
Shareholders’ Agreements59, in accordance with which
the Pirelli Board of Directors is expected to consist of 15
members, 8 of whom are independent60.
It should be noted that, for the purposes of adopting the
decisions of the Shareholders’ Meeting, the statutory
procedure of the list vote does not apply, as there is no full
renewal of the Board of Directors. Therefore, as provided for
in Art. 10 of the Articles of Association, for the appointment
of Directors not appointed for any reason in accordance with
the list vote procedure, the Shareholders’ Meeting makes a
decision with a legal majority.
It is also recalled that:
→ each member of the Board of Directors is paid a gross
annual salary for the position of €60,000, in addition
to any further salary set by the Board of Directors in
accordance with Art. 2389, paragraph 3 of the Italian
Civil Code or in the event of participation in Board
Committees61;
→ the term of the new Director will expire at the same
time as those currently in office, therefore on the date
of the Shareholders’ Meeting called upon the approve
the Company financial statements as at 31 December
2019.
56 Art. 2380-bis, paragraph 5 of the Italian Civil Code provides as follows: “The Board of Directors
shall choose a Chairman from the members thereof should the Chairman not be appointed
by the Shareholders’ Meeting”.
57 The appointment takes effect as of 31 August 2018.
58 The Company Articles of Association (Article 10.1) provides as follows: “The company
is administered by a Board of Directors consisting of up to fifteen members who shall remain
in office for three financial years and may be re-elected.”
59 The Shareholders’ Agreement can be accessed at the following Company web address:
https://corporate.pirelli.com/corporate/it-it/governance/patti.
60 As at the date of this Report, the Pirelli Board of Directors consists of the following fifteen Directors:
Ning Gaoning (Chairman), Marco Tronchetti Provera (Executive Vice Chairman and Chief Executive
Officer), Yang Xingqiang, Bai Xinping, Giorgio Luca Bruno, Laura Cioli (independent), Domenico De
Sole (independent), Ze’ev Goldberg, Tao Haisu (independent), Marisa Pappalardo (independent),
Cristina Scocchia (independent), Giovanni Tronchetti Provera, Fan Xiaohua (independent), Wei Yintao
(independent) and Giovanni Lo Storto (independent).
61 See: Remuneration Report for the 2018 financial year contained in the 2018 Annual Report.
473
Resolutions
II. Section 2, on behalf of the members of the governing
and audit bodies, for the Operations General Manager,
and, in aggregated form, for Executives with strategic
responsibilities explains:
a.
b.
the items making up the remuneration, including
payments to be made in the event of severance
of employment or termination of the working
relationship;
the salary paid in the 2018 financial year for
any reason and in any form by the Company
and its subsidiaries and affiliates, indicating any
components of the said salary that refer to work
carried out in financial years prior to the year in
question, and also highlighting the salaries to be
paid in one or more subsequent financial years
for work carried out in the year in question, which
may indicate an estimated value for components
that cannot be objectively quantified during the
year in question.
As provided for by the Consolidated Finance Act, we
request that you express your advisory vote on the part of
the remuneration report referred to in section 1.
CONSULTATION ON THE PIRELLI
GROUP REMUNERATION POLICY
Dear Shareholders,
In accordance with Art. 123-ter. paragraphs 3 and 6 of
the Consolidated Finance Act (“TUF”), we have called
upon you to submit to your advisory vote section 1 of the
Remuneration Report, explaining the Remuneration Policy
on the members of the governing bodies, the General
Managers and Executives with strategic responsibilities
to which Pirelli refers for the definition of the remuneration
of the Senior Managers and Executives of Pirelli.
The Policy submitted to your vote has been drafted on the
basis of last year’s Policy and relevant practical experience
and takes into account the regulatory provisions adopted
by Consob, as well the 2018 adoption of a new Long-Term
Incentive Cash Plan for the period 2018-2020 (“LTI Plan”)
– as approved by last year’s Shareholders’ Meeting, which,
inter alia, provided that part of the incentive be determined
on the basis of Total Shareholder Return objectives
calculated as Pirelli performance and with respect to an
index consisting of selected “peers” in the Tyre sector – to
support the new 2017-2020 Industrial Plan, disclosed to
the market upon the flotation on 04 October 2017.
As provided for in Art. 123-ter of the TUF, the Remuneration
Report submitted for your vote is divided into two distinct
sections:
I. Section 1 explains:
a.
b.
the Policy for the remuneration of the Directors,
General Managers and Executives with strategic
responsibilities, to which Pirelli also refers to
define the remuneration of Senior Managers and
Executives;
the procedures used to adopt and implement the
said Policy.
474
Pirelli Annual Report 2018 475
Resolutions Pirelli Annual Report 2018
CERTIFICATIONS
477
478
Pirelli Annual Report 2018 479
Separate Financial Statement 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 2018
480
Pirelli Annual Report 2018
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 (the
Pirelli group), which comprise the statement of financial position as of 31 December 2018, 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 2018, 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
38/2005.
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.
481
Separate Financial Statement
Key Audit Matters
How our audit addressed the key
audit matter
Recoverability of brands with indefinite
useful life and goodwill
Note 10 “Intangible assets”
As of 31 December 2018 the indefinite-lived
intangible assets Pirelli brand and goodwill
amount to € 2,270 million and € 1,886 million,
respectively.
We have performed an understanding and
evaluation of the internal controls in place
over the impairment testing of brand and
goodwill.
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.
•
•
•
•
Considering the magnitude of the carrying
amounts and the subjective judgment in some of
the assumptions used for the calculation of the
fair values, the impairment test of the carrying
amounts of Pirelli brand and goodwill
represented a key matter in the audit of the
consolidated financial statements.
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 carrying
amounts of assets and liabilities
directly attributable to the Consumer
segment;
testing the mathematical accuracy of
the calculation model used.
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 tested the accuracy and
completeness of the disclosure presented in
the notes to the consolidated financial
statements.
3 of 8
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Pirelli Annual Report 2018
Key Audit Matters
Revenue recognition
Note 3 “ Adopted Accounting Standards”
Taking into account the adoption of the new
accounting standard IFRS15 – “Revenue from
contracts with customers” and considering the
magnitude and the high volume of sales
transactions carried out through a global
distribution network, different sales channels and
logistic platforms, revenue recognition
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 identified
using the requirements of the new
accounting standard IFRS15, we have
performed an understanding and
evaluation of the internal controls over the
revenue recognition and a validation of
relevant controls.
We have tested the proper recognition of
revenue through testing samples of sales
transactions, obtaining appropriate
supporting evidence with specific attention
to key contractual terms that regulate the
various performance obligations.
We have performed confirmation
procedures over accounts receivable
balances with the objective of validating
trade receivables balances recorded in the
consolidated accounts.
We have tested samples of sales returns
transactions, credit notes and year-end
accruals.
We have tested the accuracy and
completeness of the disclosure presented in
the notes to the consolidated financial
statements.
4 of 8
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Separate Financial Statement
Effects of the Patent Box tax benefit over
the income tax provision
Note 39 “Taxes”
The net result of the group for the year 2018 has
been favourably affected by lower income taxes for
the introduction of the tax benefit mechanism for
patents, technology, designs and brands, named
“Patent Box”.
The tax benefit was agreed with the Italian tax
authority by the subsidiary Pirelli Tyre SpA on 15
October 2018. The benefit recorded in the 2018
consolidated accounts amounts to € 89 million, of
which € 54 million relating to fiscal years 2015 to
2017.
Considering the magnitude of the impact in the
2018 consolidated accounts and the level of
complexity regarding the calculation of the tax
benefit, the Patent Box represented a key matter
in the audit of the consolidated financial
statements.
We have performed an understanding and
evaluation of the internal controls in place
over the calculation of the Patent Box tax
benefit.
We have analysed, with the support of PwC
tax experts, the agreement with the Italian
tax authority and the coherence between
the agreement and the methodology used
for the calculation the tax benefit recorded
in the 2018 consolidated financial
statements.
We have tested the mathematical accuracy
of the calculation model used and tested,
on a sample basis, the information used
with the supporting documentation.
We have tested the accuracy and
completeness of the disclosure presented in
the notes to the consolidated financial
statements.
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
38/2005 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.
5 of 8
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Pirelli Annual Report 2018
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.
6 of 8
485
Separate Financial Statement
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.
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 in accordance with 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 39/2010 and Article 123-bis, paragraph 4, of Legislative Decree 58/1998
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 2018, 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 58/1998, with the consolidated financial statements of the Pirelli group as of 31
December 2018 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 2018 and are prepared in compliance with
the law.
7 of 8
486
Pirelli Annual Report 2018
With reference to the statement referred to in article 14, paragraph 2, letter e), of Legislative Decree
39/2010, 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 254/2016
Management of Pirelli & C SpA is responsible for the preparation of the non-financial disclosure in
accordance with Legislative Decree 254/2016. We have verified that the non-financial disclosure was
approved by the board of directors.
In accordance with article 3, paragraph 10, of Legislative Decree 254/2016, the non-financial
disclosure is subject to separate audit reporting by our firm.
Milan, 3 April 2019
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
8 of 8
487
Separate Financial Statement
488
Pirelli Annual Report 2018 489
Separate Financial Statement 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 2018
490
Pirelli Annual Report 2018
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 2018, 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 2018, 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
38/2005.
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.
491
Separate Financial Statement
OPINION BILANCIO DI ESERCIZIO
Key Audit Matters
How our audit addressed the key
audit matter
Recoverability of brands with indefinite
useful life
Note 9 “Intangible assets”.
As of 31 December 2018 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.
We have performed an understanding and
evaluation of the internal controls in place
over the impairment testing of the Pirelli
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, the impairment test 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.
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 38/2005 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.
2 of 5
492
Pirelli Annual Report 2018
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.
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
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;
3 of 5
493
Separate Financial Statement
•
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 in accordance with 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 39/2010 and Article 123-bis, paragraph 4, of Legislative Decree 58/1998
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 2018, 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 58/1998, with the separate financial statements of the Company as of 31 December
4 of 5
494
Pirelli Annual Report 2018
2018 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 2018 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
39/2010, 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, 3 April 2019
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
5 of 5
495
Separate Financial Statement
GRI CONTENT INDEX
GRI
STANDARD
DISCLOSURE
PAGE NUMBER, URL
OMISSION
MATERIAL TOPIC
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
102-5 Ownership and legal form
102-6 Markets served
102-7 Scale of the organization
102-8 Information on employees and other workers
102-9 Supply chain
102-10 Significant changes to the organization and its supply chain
GRI 102:
GENERAL
DISCLOSURES
2016
102-11 Precautionary Principle or approach
102-12 External initiatives
102-13 Membership of associations
102-14 Statement from senior decision-maker
102-15 Key impacts, risks, and opportunities
102-16 Values, principles, standards, and norms of behavior
200
201-202
Corporate website
(www.pirelli.com) area
about/Pirelli in brief and
area about/what we do
200
374-379
Corporate website
(www.pirelli.com)
area investors/
reports and results/
presentations and
webcast/ Company
Presentation (March
2019)
202-203, 235
120
Corporate website
(www.pirelli.com) area
about/Pirelli in brief
77, 143, 160, 203
162, 165-166
133-135
108, 133-135, 160,
163-164
94-100
108-109
185-188
6-8, 10-13
94-100
113-114, 125, 136, 164,
172, 178
Corporate website
(www.pirelli.com), area
sustainability/main
sustainability policies
102-17 Mechanisms for advice and concerns about ethics
115-117
102-18 Governance structure
102-19 Delegating authority
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
102-23 Chair of the highest governance body
202, 209, 214-216,
218-226, 228
109, 225-226, 228
109
109, 111, 130
211-212, 220-226,
228, 236-237, 240-
241
211-212
102-24 Nominating and selecting the highest governance body
202-203, 209-210
Business Ethics
& Integrity
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance,
Community
Engagement
Corporate
Governance
Corporate
Governance
Corporate
Governance
496
Pirelli Annual Report 2018 GRI
STANDARD
DISCLOSURE
PAGE NUMBER, URL
OMISSION
MATERIAL TOPIC
102-25 Conflicts of interest
102-26 Role of highest governance body in setting purpose,
values, and strategy
102-27 Collective knowledge of highest governance body
102-28 Evaluating the highest governance body’s performance
102-29 Identifying and managing economic, environmental,
and social impacts
229-230
109, 225-226, 228
214
215-216
225-226
102-30 Effectiveness of risk management processes
94-100, 225-226
102-31 Review of economic, environmental, and social topics
219, 225-226
102-32 Highest governance body’s role in sustainability reporting
109, 225-226
102-33 Communicating critical concerns
226
102-34 Nature and total number of critical concerns
102-35 Remuneration policies
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
GRI 102:
GENERAL
DISCLOSURES
2016
102-40 List of stakeholder groups
102-41 Collective bargaining agreements
102-42 Identifying and selecting stakeholders
102-43 Approach to stakeholder engagement
102-44 Key topics and concerns raised
Confidentiality
Contraints
Confidentiality
Contraints
Confidentiality
Contraints
253-271
253-255
253-255
111-113
176
111
111
111-113
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
102-45 Entities included in the consolidated financial statements
108, 143, 374-379
102-46 Defining report content and topic Boundaries
108-109, 496-502
102-47 List of material topics
102-48 Restatements of information
111-113
108
102-49 Changes in reporting
111-113, 496-502
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
108
108
108
109
108
496-502
507-511
497
Certifications GRI
STANDARD
GRI 201:
ECONOMIC
PERFORMANCE
2016
DISCLOSURE
PAGE NUMBER, URL
OMISSION
MATERIAL TOPIC
GRI 103: Management Approach 2016
96, 118-119, 136-137,
177-178
201-1 Direct economic value generated and distributed
118
Financial Health
201-2 Financial implications and other risks and opportunities
due to climate change
96, 136-137
Financial Health
Financial Health
Financial Health
201-3 Defined benefit plan obligations and other retirement plans
177-178, 336-344,
356-357
201-4 Financial assistance received from government
GRI 103: Management Approach 2016
GRI 202:
MARKET 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 103: Management Approach 2016
119
165, 167
167
165
185, 188
GRI 203:
INDIRECT
ECONOMIC
IMPACTS
2016
GRI 204:
PROCUREMENT
PRACTICES
2016
GRI 205:
ANTI-
CORRUPTION
2016
GRI 206:
ANTI-
COMPETITIVE
BEHAVIOR
2016
203-1 Infrastructure investments and services supported
118-119, 188-196
Community
Engagement
203-2 Significant indirect economic impacts
118-119, 185-196
GRI 103: Management Approach 2016
204-1 Proportion of spending on local suppliers
134
134
GRI 103: Management Approach 2016
114-115, 126-127
205-1 Operations assessed for risks related to corruption
114-115
205-2 Communication and training about anti-corruption
policies and procedures
114-115, 126-127, 214
205-3 Confirmed incidents of corruption and actions taken
GRI 103: Management Approach 2016
206-1 Legal actions for anti-competitive behavior, anti-trust,
and monopoly practices
115
114-115
115
GRI 103: Management Approach 2016
113-114, 135, 150, 158
Information
Unavailable: % of
employees trained
on anti-corruption
currently not
disclosed by
category and
region
Business Ethics
& Integrity
Business Ethics
& Integrity
Business Ethics
& Integrity
Business Ethics
& Integrity
GRI 301:
MATERIALS
2016
301-1 Materials used by weight or volume
301-2 Recycled input materials used
Confidentiality
Constraints
Renewable
Materials
135
135
301-3 Reclaimed products and their packaging materials
150, 158
End of Life Tyre
Recovery and
Recycling
498
Pirelli Annual Report 2018 DISCLOSURE
PAGE NUMBER, URL
OMISSION
MATERIAL TOPIC
GRI
STANDARD
GRI 302:
ENERGY
2016
GRI 303:
WATER
2016
GRI 103: Management Approach 2016
302-1 Energy consumption within the organization
302-2 Energy consumption outside of the organization
302-3 Energy intensity
302-4 Reduction of energy consumption
98, 136-141, 143-144,
154
144-145
137-141
144-145
144
302-5 Reductions in energy requirements of products and services
154-156
GRI 103: Management Approach 2016
98, 136-141, 148-149
303-1 Water withdrawal by source
303-2 Water sources significantly affected by withdrawal of water
303-3 Water recycled and reused
149-150
150
150
GRI 103: Management Approach 2016
136, 138-141, 152
GRI 304:
BIODIVERSITY
2016
304-1 Operational sites owned, leased, managed in, or adjacent
to, protected areas and areas of high biodiversity value outside
protected areas
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
GRI 103: Management Approach 2016
305-1 Direct (Scope 1) GHG emissions
305-2 Energy indirect (Scope 2) GHG emissions
152
152
148, 152
152
96, 98, 136-141, 146,
148
145-147
145-148
GRI 305:
EMISSIONS
2016
305-3 Other indirect (Scope 3) GHG emissions
133, 136-141, 146, 148
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
145-147
145-148
153
152-153
GRI 103: Management Approach 2016
98, 136-141, 148-150
GRI 306:
EFFLUENTS
AND WASTE 2016
306-1 Water discharge by quality and destination
306-2 Waste by type and disposal method
306-3 Significant spills
306-4 Transport of hazardous waste
GRI 307:
ENVIRONMENTAL
COMPLIANCE
2016
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
150
150-151
153
150-151
150
98, 136
153
499
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
Climate Change
& GHG Emissions
Management
Climate Change
& GHG Emissions
Management
Climate Change
& GHG Emissions
Management
Climate Change
& GHG Emissions
Management
Climate Change
& GHG Emissions
Management
Legal & Regulatory
Compliance
Certifications DISCLOSURE
PAGE NUMBER, URL
OMISSION
MATERIAL TOPIC
GRI 103: Management Approach 2016
100, 113-114, 126-127
GRI
STANDARD
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
GRI 103: Management Approach 2016
401-1 New employee hires and employee turnover
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
126-128
128-129
97-98, 162-164, 166,
177-178
162-164
177-178
166
GRI 402:
LABOR/
MANAGEMENT
RELATIONS
2016
GRI 403:
OCCUPATIONAL
HEALTH AND
SAFETY
2016
GRI 404:
TRAINING
AND
EDUCATION
2016
GRI 405:
DIVERSITY
AND EQUAL
OPPORTUNITY
2016
GRI 406:
NON-
DISCRIMINATION
2016
GRI 407:
FREEDOM OF
ASSOCIATION
AND
COLLECTIVE
BARGAINING
2016
GRI 408:
CHILD
LABOR
2016
GRI 103: Management Approach 2016
98, 113-114, 175-176
402-1 Minimum notice periods regarding operational changes
175-176
GRI 103: Management Approach 2016
98, 178-179
403-1 Workers representation in formal joint management–worker
health and safety committees
403-2 Types of injury and rates of injury, occupational diseases, lost
days, and absenteeism, and number of work-related fatalities
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
Confidentiality
Contraints:
abstentee rate not
disclosed publicly
179
179-183
181
176, 179
GRI 103: Management Approach 2016
97-98, 170-171
404-1 Average hours of training per year per employee
404-2 Programs for upgrading employee skills and transition
assistance programs
404-3 Percentage of employees receiving regular performance and
career development reviews
173
171-172
170-171
GRI 103: Management Approach 2016
405-1 Diversity of governance bodies and employees
164-165, 203
160-161, 165-166, 203,
211-212
405-2 Ratio of basic salary and remuneration of women to men
GRI 103: Management Approach 2016
406-1 Incidents of discrimination and corrective actions taken
166-167
164-165
165
GRI 103: Management Approach 2016
98, 100, 126-127, 159-
160, 175-176
407-1 Operations and suppliers in which the right to freedom of
association and collective bargaining may be at risk
127-129, 159-160,
176-177
GRI 103: Management Approach 2016
98, 100, 126-127, 159-
160, 175-176
408-1 Operations and suppliers at significant risk for incidents of
child labor
127-129, 159-160,
176-177
500
Responsible
Procurement
Responsible
Procurement
Employees
Well-Being
& Work-life
Balance
Labour Relations
Management
Occupational
Health&Safety,
Labour Relations
Management
Occupational
Health&Safety
Occupational
Health&Safety
Occupational
Health&Safety
Training
& Development
Training
& Development
Training
& Development
Diversity & Equal
Opportunities
Diversity & Equal
Opportunities,
Human Rights
Diversity & Equal
Opportunities,
Human Rights
Labour Relations
Management,
Human Rights,
Responsible
Procurement
Human Rights,
Responsible
Procurement
Pirelli Annual Report 2018 GRI
STANDARD
GRI 409:
FORCED OR
COMPULSORY
LABOR
2016
GRI 410:
SECURITY
PRACTICES
2016
GRI 411:
RIGHTS OF
INDIGENOUS
PEOPLES
2016
GRI 412:
HUMAN
RIGHTS
ASSESSMENT
2016
GRI 413:
LOCAL
COMMUNITIES
2016
GRI 414:
SUPPLIER
SOCIAL
ASSESSMENT
2016
GRI 415:
PUBLIC
POLICY
2016
GRI 416:
CUSTOMER
HEALTH
AND SAFETY
2016
DISCLOSURE
PAGE NUMBER, URL
OMISSION
MATERIAL TOPIC
GRI 103: Management Approach 2016
98, 100, 126-127, 159-
160, 175-176
409-1 Operations and suppliers at significant risk for incidents of
forced or compulsory labor
127-129, 159-160,
176-177
GRI 103: Management Approach 2016
159-160
Human Rights,
Responsible
Procurement
410-1 Security personnel trained in human rights policies or
procedures
Information
Unavailable: % of
security personnel
trained on human
rights currently
not available
GRI 103: Management Approach 2016
411-1 Incidents of violations involving rights of indigenous peoples
159-160
115-117
Human Rights
GRI 103: Management Approach 2016
100, 159-160
412-1 Operations that have been subject to human rights reviews or
impact assessments
159-160, 176-177
Human Rights
412-2 Employee training on human rights policies or procedures
159-160
412-3 Significant investment agreements and contracts that include
human rights clauses or that underwent human rights screening
GRI 103: Management Approach 2016
125-127
159-160
413-1 Operations with local community engagement, impact
assessments, and development programs
111, 159-160
413-2 Operations with significant actual and potential negative
impacts on local communities
159-160
GRI 103: Management Approach 2016
100, 113-114, 126-127
414-1 New suppliers that were screened using social criteria
126-129
414-2 Negative social impacts in the supply chain and actions taken
127-129
GRI 103: Management Approach 2016
415-1 Political contributions
119
119
Information
Unavailable:
number of hours
of training on
human rights and
% of employees
trained currently
unavailable
Information
Unavailable:
information
currently
unavailable
Information
Unavailable:
information
currently
unavailable
Human Rights
Community
Engagement
Community
Engagement
Responsible
Procurement
Responsible
Procurement
GRI 103: Management Approach 2016
98, 113-114
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
126
125
Product Quality &
Safety
Legal & Regulatory
Compliance
501
Certifications DISCLOSURE
PAGE NUMBER, URL
OMISSION
MATERIAL TOPIC
GRI
STANDARD
GRI 417:
MARKETING AND
LABELING 2016
GRI 418:
CUSTOMER
PRIVACY
2016
GRI 419:
SOCIOECONOMIC
COMPLIANCE
2016
GRI 103: Management Approach 2016
154-158
417-1 Requirements for product and service information and labeling
124, 154-158
417-2 Incidents of non-compliance concerning product and service
information and labeling
417-3 Incidents of non-compliance concerning marketing
communications
GRI 103: Management Approach 2016
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
125
125
113-114
125
113-114
125
Legal & Regulatory
Compliance
Legal & Regulatory
Compliance
Legal & Regulatory
Compliance
Business Ethics &
Integrity,
Legal & Regulatory
Compliance
174-175, 179
121-124
124-125
154-158
188-189
OTHER MATERIAL TOPICS IDENTIFIED
(not covered or partially covered by the GRI Standards)
Material Topic
Page Number
Employees Well-Being & Work-life Balance
Customer Satisfaction
Product Quality & Safety
Product Environmental Sustainability
Road Safety Initiatives
502
Pirelli Annual Report 2018 UNGC PRINCIPLES SUMMARY TABLE
AREAS OF THE
GLOBAL COMPACT
GLOBAL COMPACT
PRINCIPLES
DIRECTLY RELEVANT
GRI INDICATORS
INDIRECTLY RELEVANT
GRI INDICATORS
HUMAN RIGHTS
Principle 1 - Business
should promote and
respect internationally
proclaimed human rights in
their respective spheres of
influence
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 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
Disclosure 413: Local Communities
Disclosure 402: Labour/Management Relations
Disclosure 403: Occupational Health and Safety
Disclosure 407: Freedom of Association and
Collective Bargaining
Disclosure 410: Security Practices
Disclosure 102-11: Precautionary Principle
or Approach
Disclosure 102-41: Collective Bargaining
Agreements
Disclosure 409: Forced or Compulsory Labor
Disclosure 410: Security Practices
Disclosure 412: Human Rights Assessment
Disclosure 408: Child Labor
Disclosure 410: Security Practices
Disclosure 412: Human Rights Assessment
LABOUR
STANDARDS
Principle 3 - Businesses
should uphold the freedom
of association of workers
and recognise the right to
collective bargaining
Principle 4 - Business should
uphold the elimination of
all forms of forced and
compulsory labour
Principle 5 - Business
should uphold the effective
elimination of child
labour
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
Principle 7 - Businesses
should support a
precautionary approach to
environmental challenges
Disclosure 102-11: Precautionary Principle
or Approach
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
Disclosure 308: Supplier Environmental
Assessment
Disclosure 103-2: Grievance Mechanism
Disclosure 301: Materials
Disclosure 302: Energy
Disclosure 303: Water
Disclosure 305: Emissions
ENVIRONMENT
Principle 8 - Business should
undertake initiatives
to promote greater
environmental responsibility
Principle 9 - Businesses
should encourage the
development and diffusion
of environmentally friendly
technologies
Principle 10 - Businesses
should work against
corruption in all its forms,
including extortion and
bribery
ANTI-CORRUPTION
Disclosure 202: Market Presence
Disclosure 401: Employment
Disclosure 412: Human Rights Assessment
Disclosure 414: Supplier Social Assessment
Disclosure 102-41: Collective Bargaining
Agreements
Disclosure 301: Materials
Disclosure 302: Energy
Disclosure 303: Water
Disclosure 304: Biodiversity
Disclosure 305: Emissions
Disclosure 306: Effluents and Waste
Disclosure 307: Environmental Compliance
Disclosure 201: Economic Performance
Disclosure 205: Anti-Corruption
Disclosure 419: Socioeconomic Compliance
Disclosure 102-16: Values, Principles, Standards,
and Norms of Behavior
Disclosure 102-17: Mechanism for Advice
and Concerned about Ethics
Disclosure 205: Anti-Corruption
Disclosure 419: Socioeconomic Compliance
Disclosure 102-16: Values, Principles, Standards,
and Norms of Behavior
Disclosure 102-17: Mechanism for Advice and
Concerned about Ethics
503
Certifications SDGS SUMMARY TABLE
SUSTAINABLE DEVELOPMENT GOALS
(SDGS)
PARAGRAPHS DESCRIBING THE GROUP’S ACTIVITIES IN SUPPORT
OF THE SDGS AND RELEVANT TARGETS
1 - NO POVERTY
Company Initiatives for the External Community (Solidarity p. 191-192)
2 - ZERO HUNGER
Company Initiatives for the External Community (Solidarity p. 191-192)
3 - GOOD HEALTH AND WELL-BEING
4 - QUALITY EDUCATION
Welfare and Initiatives for the Internal Community (pp. 174-175)
Occupational Health, Safety and Hygiene (pp. 178-183)
Company Initiatives for the External Community (Road Safety pp. 188-189, Sport and Social Responsibility p.
191, Health pp. 192-193)
Target:
→ Accident Frequency Index: -87% by 2020 compared to 2009
Training (pp. 171-173)
Company Initiatives for the External Community (Training pp. 190-191, Culture and Social Value pp. 193-194)
Target:
→ Training: investment in employee training of at least an average of 7 man days
5 - GENDER EQUALITY
Diversity Management (pp. 164-168)
6 - CLEAN WATER AND SANITATION
7 - AFFORDABLE AND CLEAN ENERGY
Water Management (pp. 148-150)
Target:
→ Specific withdrawal of water -66% by 2020 compared to 2009
Joining the Task Force on Climate-Related Financial Disclosures (TCFD) (pp. 136-137)
Energy Management (pp. 143-145)
Management of Greenhouse Gas Emissions and Carbon Action Plan (pp. 145-148)
Target:
→ Specific Energy Consumption: -19% by 2020 compared to 2009
8 - DECENT WORK AND
ECONOMIC GROWTH
Our Suppliers (pp. 125-135)
Internal Community (pp. 160-183)
9 - INDUSTRY, INNOVATION
AND INFRASTRUCTURE
Company Initiatives for the External Community (Training pp. 190-191)
Target:
→ 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. 164-168)
11 - SUSTAINABLE CITIES
AND COMMUNITIES
12 - RESPONSIBLE CONSUMPTION
AND PRODUCTION
Principal International Commitments for Sustainability (WBCSD pp. 186-187)
Company Initiatives for the External Community (Road Safety pp. 188-189, Solidarity pp. 191-192)
Targets:
→ Improvement of product performances in 2020:
→ 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)
Joining the Task Force on Climate-Related Financial Disclosures (TCFD) (pp. 136-137)
Energy Management (pp. 143-145)
Management of Greenhouse Gas Emissions and Carbon Action Plan (pp. 143-145)
Water Management (pp. 148-150)
Waste Management (pp. 150-151)
Company Initiatives for the External Community (Training pp. 190-191)
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
504
Pirelli Annual Report 2018 SUSTAINABLE DEVELOPMENT GOALS
(SDGS)
PARAGRAPHS DESCRIBING THE GROUP’S ACTIVITIES IN SUPPORT
OF THE SDGS AND RELEVANT TARGETS
13 - CLIMATE ACTION
CDP Supply Chain (p. 133)
Joining the Task Force on Climate-Related Financial Disclosures (TCFD) (pp. 136-137)
Management of Greenhouse Gas Emissions and Carbon Action Plan (pp. 143-145)
Main International Commitments for Sustainability (International Commitments against Climate Change pp.
187-188)
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)
14 - LIFE BELOW WATER
Water Management (pp. 148-150)
15- LIFE ON LAND
16- PEACE, JUSTICE AND STRONG
INSTITUTIONS
17 - PARTNERSHIPS FOR THE GOALS
Sustainability of the Natural Rubber Supply Chain (pp. 129-131)
Company Initiatives for the External Community (Training pp. 190-191)
Programs of Compliance 231, Anti-corruption, Privacy and Antitrust (pp. 114-115)
Sustainability of the Natural Rubber Supply Chain (pp. 129-131)
Main International Commitments for Sustainability (pp. 185-188)
Company Initiatives for the External Community (pp. 188-194)
505
Certifications CORRELATION TABLE WITH TOPICS LISTED IN ART. 2, D. LGS 254/2016
TOPICS FROM D. LGS 254/2016
REFERENCE PARAGRAPH
PAGE NUMBER
Use of Energy Resources (from
renewables and non-renewables)
→ Risks Related To Environmental Issues
→ Energy Management
ENVIRONMENTAL
ASPECTS
Use of Water Resources
Greenhouse Gas Emissions
and Air-Polluting Emissions
Health and Safety
Training and Development
Welfare
SOCIAL ASPECTS
Dialogue with Employees
Actions for Gender Equality
Respect for Human Rights:
Measures Taken and Prevention
GOVERNANCE
ASPECTS
Fight against Active and Passive
Corruption
→ Risks Related To Environmental Issues
→ Water Management
→ Risks Related To Climate Change
→ Joining the Task Force on Climate-Related
Financial Disclosures (TCFD)
→ Management of Greenhouse Gas Emissions
and Carbon Action Plan
→ Solvents
→ NOx Emissions
→ Other Emissions and Environmental Aspects
→ Employee Health and Safety Risks
→ Occupational Health, Safety and Hygiene
→ Risks associated with Human Resources
→ Development
→ Training
→ Welfare and Initiatives for the Internal
Community
→ Litigation Risks
→ Listening: Group Opinion Survey
→ Industrial Relations
→ Diversity Management
→ Sustainability and Diversity Policy
→ Risks relative to Corporate Social and
Environmental Responsibility, Business Ethics,
and Third-Party Audits
→ Human Rights Governance
→ Diversity Management
→ Risks relative to Corporate Social and
Environmental Responsibility, Business Ethics,
and Third-Party Audits
→ Programs of Compliance 231, Anti-corruption,
Privacy and Antitrust
98, 143-145
98, 148-150
96, 136-137, 145-148, 152-153
98, 178-183
97-98, 170-173
174-175
98, 174-178
164-168, 203
100, 159-160, 164-168
100, 114-115
506
Pirelli Annual Report 2018 PIRELLI & C SPA
INDEPENDENT AUDITOR’S REPORT ON THE CONSOLIDATED
NON-FINANCIAL DISCLOSURE IN ACCORDANCE WITH ARTICLE 3,
PARAGRAPH 10 OF LEGISLATIVE DECREE 254/2016
AND WITH ARTICLE 5 OF CONSOB REGULATION 20267 ADOPTED
BY RESOLUTION OF JANUARY 2018
FOR THE YEAR ENDED 31 DECEMBER 2018
507
Certifications
Independent auditor’s report on the consolidated non-
financial disclosure
In accordance with article 3, paragraph 10 of Legislative Decree 254/2016 and with article 5 of Consob
Regulation 20267 adopted by resolution of January 2018
To the board of directors of Pirelli & C SpA
In accordance with article 3, paragraph 10 of the Legislative Decree 254/2016 (the Decree) and with
article 5 of CONSOB Regulation 20267/2018, 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 (Pirelli group) as of and for the year ended 31 December 2018,
prepared in accordance with article 4 of the Decree and included in section Report on Responsible
Management of the Value Chain of the annual report 2018 of Pirelli group, approved by the board of
directors of Pirelli & C SpA on 26 February 2019 (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 articles 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 or faced by the group.
The board of statutory auditors is responsible for overseeing, in accordance with the law, the
compliance with the Decree.
508
Pirelli Annual Report 2018
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 (reasonable assurance
engagement) 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;
comparison of the financial information reported in the NFD with the information reported in
the group consolidated financial statements;
understanding of the following matters:
o
business and organisational model of the group, with reference to the management of
the matters specified by article 3 of the Decree;
2 of 4
509
Certifications
o
o
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 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 other audit procedures as described under point 6.
below;
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 Pirelli Neumaticos SA de CV, Pirelli Pneus Ltda and Pirelli Tyre SpA 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 UNI ISO26000 principles, among which: governance,
human rights, relationship and work conditions, and environment.
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 proper
consolidation of the information;
b)
-
for the industrial sites located in Silao (Mexico) and Feira de Santana (Brazil), 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.
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510
Pirelli Annual Report 2018
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 2018 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.
Milan, 3 April 2019
Signed by
Paolo Caccini
(Partner)
Signed by
Paolo Bersani
(Authorized signatory)
This report has been translated into English from the Italian original solely for the convenience of
international readers
4 of 4
511
Certifications
Pirelli Annual Report 2018
PIRELLI
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Pirelli Annual Report 2018
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FINANCIAL RESULTS AND DOCUMENTS ARCHIVE
https://corporate.pirelli.com/corporate/en-ww/archive/investors/financialresults-and-documents