— 2019
ANNUAL REPORT
Pirelli & C. S.p.A. – 2019 Annual Report
CONTENTS
CORPORATE BODIES ...................................................................................................................... 5
PRESENTATION OF 2019 INTEGRATED ANNUAL REPORT ........................................................ 8
DIRECTORS’ REPORT ON OPERATIONS .................................................................................... 10
MACROECONOMIC AND MARKET SCENARIO..................................................................... 11
SIGNIFICANT EVENTS OF 2019 ............................................................................................. 14
GROUP PERFORMANCE AND RESULTS .............................................................................. 15
RESEARCH AND DEVELOPMENT ACTIVITIES ..................................................................... 29
PARENT COMPANY HIGHLIGHTS ......................................................................................... 34
RISK FACTORS AND UNCERTAINTY .................................................................................... 36
OUTLOOK FOR THE 2020 - 2022 THREE-YEAR PERIOD ..................................................... 50
SIGNIFICANT EVENTS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR ............... 52
ALTERNATIVE PERFORMANCE INDICATORS ..................................................................... 53
OTHER INFORMATION ........................................................................................................... 58
REPORT ON RESPONSIBLE MANAGEMENT OF THE VALUE CHAIN - CONSOLIDATED
NON-FINANCIAL DISCLOSURE PURSUANT TO LEGISLATIVE DECREE OF DECEMBER
30, 2016, N. 254 .............................................................................................................................. 62
METHODOLOGICAL NOTE ..................................................................................................... 63
ECONOMIC DIMENSION ......................................................................................................... 80
ENVIRONMENTAL DIMENSION ............................................................................................ 111
SOCIAL DIMENSION ............................................................................................................. 144
REPORT ON THE CORPORATE GOVERNANCE AND SHARE OWNERSHIP OF PIRELLI &
C. S.p.A. PURSUANT TO ARTICLE 123-BIS TUF ........................................................................ 203
GLOSSARY ............................................................................................................................ 204
INTRODUCTION .................................................................................................................... 208
COMPANY PROFILE ............................................................................................................. 208
INFORMATION ON THE OWNERSHIP STRUCTURE .......................................................... 210
COMPLIANCE ........................................................................................................................ 218
BOARD OF DIRECTORS ....................................................................................................... 219
PROCESSING OF CORPORATE INFORMATION ................................................................ 234
BOARD COMMITTEES .......................................................................................................... 234
STRATEGIES COMMITTEE ................................................................................................... 236
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Pirelli & C. S.p.A. – 2019 Annual Report
APPOINTMENTS AND SUCCESSION COMMITTEE ............................................................ 237
RELATED-PARTY TRANSACTIONS COMMITTEE............................................................... 238
REMUNERATION COMMITTEE ............................................................................................ 239
REMUNERATION OF THE DIRECTORS............................................................................... 240
AUDIT, RISKS, SUSTAINABILITY AND CORPORATE GOVERNANCE COMMITTEE ........ 240
SYSTEM OF INTERNAL CONTROL AND RISK MANAGEMENT ......................................... 242
INTERESTS OF THE DIRECTORS AND RELATED-PARTY TRANSACTIONS ................... 248
BOARD OF STATUTORY AUDITORS ................................................................................... 248
GENERAL MANAGER OPERATIONS ................................................................................... 252
INFORMATION FLOWS TO THE DIRECTORS AND STATUTORY AUDITORS .................. 252
RELATIONS WITH SHAREHOLDERS ................................................................................... 253
SHAREHOLDERS’ MEETINGS .............................................................................................. 253
CHANGES SINCE THE END OF THE YEAR......................................................................... 255
THE PIRELLI WEBSITE ......................................................................................................... 255
CONSIDERATIONS ON THE LETTER OF 19 DECEMBER 2019 BY THE CHAIRMAN OF
THE CORPORATE GOVERNANCE COMMITTEE ................................................................ 256
REPORT ON THE REMUNERATION POLICY AND COMPENSATION PAID ............................. 271
REMUNERATION POLICY FOR YEAR2020 ......................................................................... 277
REPORT ON COMPENSATION PAID FOR YEAR 2019 ....................................................... 310
CONSOLIDATED FINANCIAL STATEMENTS .............................................................................. 323
FINANCIAL STATEMENTS .................................................................................................... 324
EXPLANATORY NOTES ........................................................................................................ 330
SCOPE OF CONSOLIDATION ............................................................................................... 438
PIRELLI & C. S.p.A. SEPARATE FINANCIAL STATEMENTS ...................................................... 445
FINANCIAL STATEMENTS .................................................................................................... 446
EXPLANATORY NOTES ........................................................................................................ 451
ANNEXES TO THE EXPLANATORY NOTES ........................................................................ 507
REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE SHAREHOLDERS’
MEETING ................................................................................................................................ 513
PROPOSAL FOR THE ALLOCATION OF THE RESULT ............................................................. 532
CERTIFICATIONS ......................................................................................................................... 534
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Pirelli & C. S.p.A. – 2019 Annual Report
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 ...................................................... 534
b.
Independent auditors report on the Consolidated Financial Statements ......................... 536
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 ...................................................... 544
d.
Independent auditors report on Separate Financial Statements ...................................... 546
e. GRI Content Index and Correlation Tables ...................................................................... 552
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 ............. 569
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Pirelli & C. S.p.A. – 2019 Annual Report
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Corporate bodies
Pirelli & C. S.p.A. – 2019 Annual Report
CORPORATE BODIES
Board of Directors1
Chairman
Ning Gaoning
Executive Vice Chairman
and Chief Executive Officer
Marco Tronchetti Provera
Director
Director
Director
Independent Director
Independent Director
Independent Director
Director
Independent Director
Independent Director
Independent Director
Independent Director
Director
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
Independent Director
Wei Yintao
Secretary of the Board
Alberto Bastanzio
1 Appointment: August 1, 2017 effective August 31, 2017. Expiry: 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) and was confirmed as Director and Chairman by the Shareholders’ Meeting held on May 15, 2019.
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Pirelli & C. S.p.A. – 2019 Annual Report
Corporate bodies
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, Risk, Sustainability and Corporate Governance Committee
Chairman – Independent Director
Fan Xiaohua
Independent Director
Independent Director
Independent Director
Laura Cioli
Giovanni Lo Storto
Cristina Scocchia
Committee for Related Party Transactions
Chairman – Independent Director
Domenico De Sole
Independent Director
Independent Director
Marisa Pappalardo
Cristina Scocchia
Nominations and Successions Committee
Chairman
Marco Tronchetti Provera
Ning Gaoning
Bai Xinping
Giovanni Tronchetti Provera
2 Appointment: May 15, 2018. Expiry: Shareholders’ Meeting convened for the approval of the Financial Statements at December 31,
2020.
6
Corporate bodies
Pirelli & C. S.p.A. – 2019 Annual Report
Remuneration Committee
Chairman – Independent Director
Independent Director
Independent Director
Strategies Committee
Tao Haisu
Bai Xinping
Laura Cioli
Giovanni Lo Storto
Chairman
Marco Tronchetti Provera
Independent Director
Independent Director
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 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.
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Pirelli & C. S.p.A. – 2019 Annual Report
Presentation of 2019 integrated annual report
PRESENTATION OF 2019 INTEGRATED ANNUAL REPORT
The Pirelli 2019 integrated Report (Annual Report 2019) 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 capitals and is in turn influenced by the value created by the latter. In 2019 the
business operations generated an adjusted5 EBIT of €917.3 million (€955 million in 2018) with a
margin of 17.2% (18.4% in 2018). Internal levers (price/mix, efficiencies and the cost reduction
programme) have helped to contain the impacts of the external scenario (increased in the cost of
production factors, weak demand and price pressure).
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 in terms of reducing water withdrawal, energy consumption, CO2 emissions
and increasing waste recovery. In this regard, in 2019 compared to 2018, Pirelli recorded a 14.7%
decrease in absolute water withdrawal, a reduction in absolute energy consumption of over 2%, and
a reduction in absolute CO2 emissions of around 2%. In addition, 97% of waste was sent to recovery,
effectively pursuing the Group’s “zero waste to landfill” target.
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 2019 totalled €232.5 million (4.4% of sales), of which
€215.7 million was 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
2019 represent 55.8%6 of total tyre turnover (49.8% in 2018 and 43.5% in 2017). By restricting the
scope of the analysis to High Value products7, the percentage of Green Performance products rises
to 63.3%.
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 car tyres. Green
Performance products identify the car 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.
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).
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Presentation of 2019 integrated annual report
Pirelli & C. S.p.A. – 2019 Annual Report
The heavy investment in innovation also fuels Pirelli’s intellectual capital, as it has a portfolio of active
patents grouped into more than 780 families covering product, process and materials innovations,
as well as a globally recognised brand.
These types of capital evolve thanks to the commitment, competence and dedication of 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 2019 was in line with the previous year with a reduction
of 83% compared to 2009, while investment in training was, for the seventh consecutive year, greater
than 7 average days per employee.
Pirelli’s social and relational capitals are based on the continuous and transparent dialogue that the
Company maintains with its Stakeholders. During 2019, particular importance was given to the
engagement and training of natural rubber suppliers on the contents of the “Pirelli Policy on
Sustainable Natural Rubber Management” and its Implementation Manual, published in 2017 and
2018 respectively, following consultations with relevant stakeholders (including international NGOs,
Pirelli’s main natural rubber suppliers, retailers and farmers in the supply chain, automotive
customers, international multilateral organisations).
In methodological terms, in the preparation of the Annual Report 2019 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.
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Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
DIRECTORS’ REPORT ON OPERATIONS
AT DECEMBER 31, 2019
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Directors’ Report on Operations
Pirelli & C. S.p.A. – 2019 Annual Report
MACROECONOMIC AND MARKET SCENARIO
For 2019, global growth in GDP growth averaged approximately +2.9%, having slowed compared to
+3.6% for 2018, also due to the effect of trade tensions between the US and China, which were
lessened in part as a result of the preliminary agreement on customs duties reached between the
two countries at the end of the year.
In Europe, in particular, economic activity was held back by weakness in the manufacturing sector,
especially in Germany, and by political uncertainty in the United Kingdom, which lessened only at
the end of the year with the elections, and the agreement to define the country’s exit from the EU.
GDP growth in the US equalled +2.3% (+2.9% for 2018), buoyed by the positive performance of the
labour market, and the US Government’s fiscal stimulus package.
Economic overview
Economic growth, percentage change in GDP
EU28
US
China
Brazil
Russia
World
2017
2.7
2.4
6.8
1.3
1.7
3.9
2018
2.0
2.9
6.6
1.3
2.2
3.6
2019
1.4
2.3
6.1
1.1
1.1
2.9
Note: Change in year-on-year percentages. Global growth based on purchasing power parities.
Source: IHS Markit, January 2020.
In China, economic activity was affected by the aforementioned trade tensions with the US, while
the use of any fiscal or monetary stimulus was limited by high levels of private sector debt. Growth
also slowed in Brazil, weighed down by political uncertainty which impacted reforms, and by weak
foreign demand. Russia also suffered a slowdown in private consumption due to a VAT increase in
2019, and weak oil prices.
Exchange rates
During the course of the year, the euro/US dollar exchange rate averaged 1.12, down by -5.2%
compared to 2018. This change reflected the strengthening of the US dollar against the euro and
the main currencies of emerging countries, supported by expectations of falling European interest
rates, the strength of the US economy, and above all, by the search for a safe haven currency by
investors amid trade tensions.
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Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
The Chinese yuan went from an average of 6.62 against the US dollar in 2018, to 6.90 for 2019, with
a depreciation of approximately -4% linked to worsening trade tensions with the US. The Brazilian
real and the Russian rouble also suffered compared to the US dollar during 2019. The real
depreciated by -7.3% against the US dollar, while during the same period the rouble depreciated by
-3.2% against the US dollar.
Key exchange rates
Fourth quarter
Full year average
US$ per euro
Chinese yuan per US$
Brazilian real per US$
Russian rouble per US$
2019
1.11
7.03
4.12
63.70
2018
1.15
6.91
3.80
66.37
2019
1.12
6.90
3.95
64.66
2018
1.18
6.62
3.66
62.60
Note: Average exchange rates for the period. Source: National central banks.
Raw materials’ prices
The slowdown in global demand led to a general drop in the prices of the main energy raw materials
during 2019. The average price of Brent stood at US$ 64.2 per barrel, down by -10.3% compared to
2018, when prices were sustained by the announcement of American sanctions against Iran. In
2019, instead, the increase in supply by non-OPEC countries compensated for both the reduction in
production in Iran, and the limits imposed by OPEC countries on their production, to contain the
surplus of oil on the market.
The trend for Butadiene followed a trend similar to that of oil, with an average price of euro 824 per
tonne for 2019, down by -18.5% compared to 2018.
The price of natural rubber instead, remained relatively stable, with a recovery of +3% compared to
the average price for 2018. On a monthly basis, the prices wavered between euro 1290 and euro
1515 per tonne, below the peak of over euro 2100 per tonne touched on at the beginning of 2017.
Raw m aterial prices
Fourth quarter
Full year
Brent (US$ / barrel)
Butadiene (€ / tonne)
Natural rubber TSR20 (US$ / tonne)
2019
62.5
740
1,371
2018 % change
-8.2%
68.1
1,058
1,266
-30.1%
8.3%
2019
64.2
824
1,406
2018 % change
-10.3%
71.5
1,011
1,365
-18.5%
3.0%
Note: Data are averages for the period. Source: IHS Markit, Reuters.
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Directors’ Report on Operations
Pirelli & C. S.p.A. – 2019 Annual Report
Trend in Car Tyre Markets
For 2019 global tyre sales for 2019 fell by -1.4% particularly for the Original Equipment channel
(-5.9%), due to macroeconomic uncertainties and a slowdown in global vehicle production (-5.9%),
which was particularly accentuated in China at -8.5%, in Europe at -4.2% and North America (-4.0%).
The performance of the Replacement channel was more stable with a growth of +0.4% for the year.
The New Premium segment (tyres with rim diameter ≥18 inches) was the segment with the highest
growth, with +5.9% at global level for 2019, thanks to a good performance by the Replacement
channel (+9.9% for 2019), and the resilience of the Original Equipment market (+0.8% for 2019).
Standard segment sales (tyres with rim diameter ≤17 inches) fell by -2.7%, with Original Equipment
down by -8.0%, particularly in EMEA (-9.1%), APAC (-8.0%), and North America (-9.4%), with the
Replacement channel at -0.9%, with negative results in Russia (-5.4%), South America (-3.3%) and
EMEA (-2.6%).
Trends in Car Tyre Markets
% year-on-year
1Q19
2Q19
3Q19
4Q19
2019
Total Car Tyre Market
Total
Original equipment
Replacement
New Premium Market ≥ 18"
Total
Original equipment
Replacement
Standard Market ≤ 17"
Total
Original equipment
Replacement
Source: Pirelli estimates
-1.6
-6.0
0.4
5.4
-0.4
10.4
-2.8
-7.7
-0.9
-2.0
-8.4
0.7
4.6
-1.1
9.3
-3.2
-10.6
-0.5
-0.1
-3.9
1.2
8.4
4.4
11.2
-1.6
-6.5
-0.1
-1.9
-5.1
-0.6
5.3
0.7
8.9
-3.2
-6.9
-1.9
-1.4
-5.9
0.4
5.9
0.8
9.9
-2.7
-8.0
-0.9
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Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
SIGNIFICANT EVENTS OF 2019
On April 8, 2019, final judgement (res judicata) was passed by the Regional Federal Court of the
1st Region (TRF-1 with registered office in Brasilia, Federal District) which recognised the right of
the Brazilian subsidiary Pirelli Pneus Ltda to exclude the ICMS tax (Imposto Sobre Operações
Relativas à Circulação or state Value Added Tax, for the circulation of goods and the provision of
interstate and inter-municipal transport and communication services) from the base calculation of
PIS and COFINS social security contributions for the 2003-2014 period. Following this ruling, as was
disclosed to the market on April 1, 2019, during the second quarter, a positive impact on the net
income of approximately euro 102 million was recognised in the Income Statement.
On May 13, 2019 Pirelli announced the reorganisation of its production facilities in Brazil in order to
improve its competitiveness in that country, through the creation of a technology hub for High Value
Car, Motorsport and Motorcycle tyres at Campinas, to where the production of Motorcycle tyres
currently produced at Gravataì will be transferred. An investment plan for the modernisation and
conversion of production facilities from Standard to High Value, plus the continuous improvement of
the mix and product quality in the Campinas (Sào Paolo) and Feira de Santana (Bahia)
manufacturing plants. The resources for this reorganisation derive mainly from the signing of the
Patent Box tax agreement which took place in October 2018, and which as was expected at the time,
are destined for the further focusing on High Value production, and to the more rapid reduction of
the Standard segment.
On May 15, 2019, the Pirelli & C. S.p.A. Shareholders’ Meeting - convened as an ordinary session -
approved the 2018 Financial Statements as well as the distribution of a dividend of euro 0.177 per
ordinary share, equal to a dividend amount of euro 177 million. The Shareholders’ Meeting also
confirmed Ning Gaoning - already co-opted by the Board on August 7, 2018 - for the position of
Director and Chairman of the Board of Directors. The appointment of Ning Gaoning, who does not
possess the requisites to qualify as an independent or non-executive Director, will expire together
with the current Board of Directors, at the time of the approval of the financial statements at
December 31, 2019. The Shareholders’ Meeting also expressed its favourable opinion on the
Remuneration Policy.
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Directors’ Report on Operations
Pirelli & C. S.p.A. – 2019 Annual Report
GROUP PERFORMANCE AND RESULTS
In this document, in addition to the financial figures as provided for by the International Financial
Reporting Standards (IFRS), alternative performance indicators derived from the IFRS were 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
analytical description of these indicators.
* * *
This Interim Financial Report at December 31, 2019 has been prepared by applying the new
accounting standard IFRS 16 – Leases, which came into force as of January 1, 2019 (transition
date).
Following the application of this standard, at the transition date, the Group accounted for the
following impacts in relation to lease contracts previously classified as operating:
- a financial liability of euro 494.3 million, equal to the present value of residual future payments
at the transition date, discounted using the incremental borrowing rate applicable at the transition
date for each contract. Financial liabilities at December 31, 2019 equalled euro 483.1 million;
-
rights of use included under assets of euro 491.7 million, 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 transition date. Rights of use at December 31, 2019
amounted to euro 462.6 million.
As of January 1, 2019, lease payments previously included in the EBITDA have been recognised as
a reduction of lease obligations (for the capital portion), and under financial expenses (for the interest
portion). At the same time, the amortisation of the rights of use of lease assets which had initially
been recognised under assets in the Statement of Financial Position in respect of lease obligations,
were recognised in the EBIT.
The Income Statement, Statement of Financial Position and Financial Statement figures at
December 31, 2019 include the impacts deriving from the application of the new standard, while the
comparative data for 2018 have not been restated. With the transition, the Group did in fact adopt
the modified retrospective method, and has recognised the cumulated effects deriving from the first
application at January 1, 2019.
* * *
The tyre sector during 2019, was characterised by weak demand (-1.4% compared to 2018),
particularly for the Original Equipment channel (the market at -5.9%), consistent with the drop in
global car production. In order to guarantee an adequate level of saturation in the manufacturing
plants, and contain inventories, many operators in the sector redirected production originally planned
for the Original Equipment channel, to the Replacement market, with a consequent impact on prices.
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Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
These reductions mainly affected the Standard segment and High Value products with a lower
technological content.
Given this context, Pirelli continued its strategy of focusing on the High Value segment, which is
more resilient (growth in the Car tyre market ≥18’’ was +5.9%), and less exposed to competitive
pressure, and as such consolidating its leadership position, and strengthening its presence on the
market for products which are characterised by a high technological content. For the Standard
Segment, where demand remained weak (the market at -2.7% for 2019), Pirelli continued with the
reduction of exposure to less profitable products, at the same time reducing inventory levels (-23%
in terms of Standard Car inventory volumes), which had increased by the end of 2018 due to the
crisis in the Brazilian economy. The company closed 2019 with an impact of inventories on revenues
equal to 20.5%, compared to 21.7% at the end of 2018.
Pirelli’s results for 2019 were characterised by:
revenues equal to euro 5,323.1 million (a target of ≥5.3 billion), a growth of +2.5% compared
to 2018 (an organic change of +2.2%), thanks to the further strengthening of the High Value
segment, which represented 66.5% of consolidated revenues, (+2.8 percentage points
compared to 63.7% for 2018);
profitability (EBIT margin adjusted) at 17.2%, consistent with the target (>17% ÷ 17.5%).
EBIT adjusted amounted to euro 917.3 million. The contribution of internal levers (price/mix,
efficiencies and cost containment measures) limited the impact of the worsening external
scenario (increase in the cost of production factors, weakness in market demand and pressure
on prices);
total net income equal to euro 457.7 million, a growth of +3.5% compared to euro 442.4 million
for 2018;
solid cash flow generation, with net cash flow before dividends without IFRS 16 equal to euro
332.9 million, consistent with the target of euro 330-350 million, thanks to the efficient
management of investments and working capital. For the fourth quarter, net cash flow before
dividends without IFRS 16 amounted to euro 978.2 million, an improvement of euro 120 million
compared to euro 858.2 million for the fourth quarter of 2018;
reduction in the level of debt. For 2019 the Net Financial Position was equal to euro 3,024.1
million (euro 3,507.2 million including euro 483.1 million derived from the accounting standard
IFRS 16), a reduction compared to euro 3,180.1 million at December 31, 2018. The ratio between
the Net Financial Position and the EBITDA adjusted without start-up costs stood at 2.42x (2.49x
at the end of 2018), consistent with the target (2.42x/2.36x), or 2.59x including the impact of the
accounting standard IFRS16 (a target of 2.59x/2.53x).
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Directors’ Report on Operations
Pirelli & C. S.p.A. – 2019 Annual Report
The Group’s consolidated Financial Statements are summarised as follows:
(in millions of euro)
2019
2018
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
Adjustments: - amortisation of intangible assets included in PPA
- non-recurring, restructuring expenses and other
- income from Brazilian tax credits
EBIT
% of net sales
Net income/(loss) from equity investments
Financial income/(expenses) (°°°)
- of which financial income from Brazilian tax credits
Net income/(loss) before tax
Tax expenses
Tax rate %
Net income/(loss) related to continuing operations
Eanings/(loss) per share related to continuing operations (in euro per share)
Net income/(loss) related to continuing operations adjusted
Net income/(loss) related to discontinued operations
Total net income/(loss)
Net income attributable to owners of the Parent Company
5,323.1
1,350.7
25.4%
1,310.0
24.6%
1,250.0
23.5%
958.6
18.0%
917.3
17.2%
(114.6)
(131.0)
71.0
742.7
14.0%
(11.0)
(109.4)
107.3
622.3
(164.6)
26.5%
457.7
0.44
514.3
-
457.7
438.1
5,194.5
1,279.1
24.6%
1,234.7
23.8%
1,097.4
21.1%
1002.7
19.3%
955.0
18.4%
(114.6)
(137.3)
-
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
(°) Start-up costs refers to contribution to EBITDA and EBIT (amounting to euro 40.7 million (euro 44.4 million in 2018) and euro 41.3
million (euro 47.7 million in 2018)) respectively of the Cyber and Velo activities and costs sustained for the digital transformation of the
Group.
(°°) Adjustments refer to restructuring expenses amounting to euro 97 million (euro 67.5 million in 2018), the benefit derived from
tax credits in Brazil amounting to euro 71 million, expenses relative to the retention plan amounting to euro 6.9 million (euro 13.3
million in 2018) and costs (i) relative to renegotiation of commercial agreements amounting to euro 13.1 million (euro 14.2 million
in 2018) and (ii) not pertinent to normal business operations amounting to euro 14 million (euro 18.3 million in 2018). In 2018
adjustments also included non recurring expenses amounting to euro 24 million.
(°°°) The item includes for 2019, the impacts deriving from the application of the new accounting standard IFRS 16 - Leases to the
amount of euro 104.3 million on EBITDA and euro -24 million on financial expenses.
17
Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
(in millions of euro)
12/31/2019
12/31/2018
Fixed assets related to continuing operations without IFRS 16
Rights of use IFRS 16
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 without IFRS 16
Lease obligations IFRS 16
Net financial (liquidity)/debt position
Equity attributable to owners of the Parent Company
Investments in property, plant and equipment and intangible assets without IFRS16 (Capex)
Increases in Rights of use IFRS16
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)
9,007.2
462.6
9,469.8
1,093.8
649.4
(1,611.5)
131.7
2.5%
81.0
212.7
4.0%
-
9,682.5
4,826.6
1,348.7
3,024.1
483.1
3,507.2
4,724.4
390.5
51.2
232.5
4.4%
215.7
6.1%
31,575
19
9,017.8
n/a
9,017.8
1,128.5
628.0
(1,604.7)
151.8
2.9%
(39.8)
112.0
2.2%
10.7
9,140.5
4,550.9
1,409.5
3,180.1
n/a
3,180.1
4,468.1
463.4
n/a
219.0
4.2%
202.9
6.1%
31,489
19
18
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2019 Annual Report
For a better understanding of the Group’s performance, the following quarterly performance
figures are provided below:
(in millions of euro)
Net sales
EBITDA adjusted without start-up costs
EBITDA adjusted
EBITDA
EBIT adjusted and without start-up costs
EBIT adjusted
yoy
organic yoy *
% of net sales
% of net sales
% of net sales
% of net sales
% of net sales
Adjustments: - amortisation of intangible assets included in PPA
- non-recurring, restructuring expenses and other
- income from Brazilian tax credits
EBIT
% of net sales
* before exchange rate effect and high inflation accounting in Argentina
1 Q
2 Q
3 Q
4 Q
Total year
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
1,313.8
0.3%
1.2%
327.0
24.9%
315.6
24.0%
308.2
23.5%
230.7
17.6%
219.2
16.7%
(28.7)
(7.4)
-
183.1
13.9%
1,310.3
298.0
22.7%
288.1
22.0%
282.4
21.6%
229.4
17.5%
218.4
16.7%
(28.7)
(5.7)
-
184.0
14.0%
1,341.0
1.6%
1.6%
330.5
24.6%
320.5
23.9%
369.7
27.6%
231.7
17.3%
221.3
16.5%
(28.6)
(22.6)
71.8
241.9
18.0%
1,320.0
310.3
23.5%
299.8
22.7%
290.4
22.0%
243.9
18.5%
231.7
17.6%
(28.6)
(9.4)
-
193.7
14.7%
1,381.6
6.7%
4.1%
350.1
25.3%
342.4
24.8%
299.5
21.7%
252.0
18.2%
244.5
17.7%
(28.7)
(42.9)
-
172.9
12.5%
1,294.9
328.0
25.3%
319.8
24.7%
312.2
24.1%
258.8
20.0%
250.0
19.3%
(28.7)
(7.6)
-
213.7
16.5%
1,286.7
1.4%
2.0%
343.1
26.7%
331.5
25.8%
272.6
21.2%
244.2
19.0%
232.3
18.1%
(28.6)
(58.1)
(0.8)
144.8
11.3%
1,269.3
342.8
27.0%
327.0
25.8%
212.4
16.7%
270.6
21.3%
254.9
20.1%
(28.6)
(114.6)
-
111.7
8.8%
5,323.1
2.5%
2.2%
1,350.7
25.4%
1,310.0
24.6%
5,194.5
1,279.1
24.6%
1,234.7
23.8%
1,250.0
1,097.4
23.5%
958.6
18.0%
917.3
17.2%
(114.6)
(131.0)
71.0
742.7
14.0%
21.1%
1,002.7
19.3%
955.0
18.4%
(114.6)
(137.3)
-
703.1
13.5%
Net sales amounted to euro 5,323.1 million and recorded an organic growth of +2.2% compared to
the previous year, or +2.5% including the combined impact of the exchange rate effect and the
adoption of hyper-inflation accounting in Argentina (totalling +0.3%).
High Value revenues amounted to euro 3,539.9 million, and recorded a growth of +6.9% compared
to the corresponding period of 2018 (an organic growth of +5.2% excluding the positive exchange
rate effect of +1.7 percentage points), which accounted for a 66.5% share of the total turnover which
had increased compared to 63.7% for 2018.
(in millions of euro)
2019
% of total
2018
% of total
Change
YoY
Organic change
YoY
High Value
Standard
3,539.9
66.5%
3,309.9
63.7%
6.9%
1,783.2
33.5%
1,884.6
36.3%
-5.4%
Total net sales
5,323.1
100.0%
5,194.5
100.0%
2.5%
5.2%
-3.2%
2.2%
The following table shows the market drivers for net sales performance:
Volume
of which:
- High Value
- Standard
Price/mix
Change on a like-for-like basis
Translation effect/High inflation Argentina
Total change
1Q
-6.5%
4.5%
-16.6%
7.7%
1.2%
-0.9%
0.3%
2Q
-3.5%
3.4%
-11.0%
5.1%
1.6%
-
1.6%
3Q
0.6%
10.2%
-8.8%
3.5%
4.1%
2.6%
6.7%
4Q
1.5%
7.8%
-0.7%
0.5%
2.0%
-0.6%
1.4%
Total year
-2.0%
6.4%
-9.7%
4.2%
2.2%
0.3%
2.5%
19
Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
The trend in sales volumes (-2% for 2019, and +1.5% for the fourth quarter), on the one hand
reflected the increase in High Value volumes (+6.4%), and on the other, the drop in Standard
volumes (-9.7%). During the fourth quarter, overall volumes grew by +1.5% due to a +7.8% growth
in High Value segment sales, and a -0.7% drop in Standard segment sales.
High Value segment volumes increased by +6.4% (+7.8% for the fourth quarter) while Car New
Premium (≥18 inches) volumes increased by +8.0% (market performance at +5.9%), and by +8.7%
for the fourth quarter (market at +5.3%), with an improvement in market share in the main geographic
regions.
For the fourth quarter of 2019 Pirelli recorded a growth in volume of +15.3% for Car tyres ≥18 inches
on the Original Equipment channel due to new supplies in Europe of High Value, high technological
content products which are compliant with the new regulations for the reduction of CO2 emissions,
as well as new contracts in North America and APAC. There was more contained growth for the
Replacement channel (+3.5%), which reflected the unfavourable basis of comparison (+15.6%
growth for the fourth quarter of 2018), and the trend for Winter products which was impacted by mild
winter temperatures. The difference, compared to the 2019 target, was the growth of the High Value
segment by ≥+7.5%, attributable to the weakening demand for Specialties ≤17 inches mainly on the
Original Equipment channel, which was consistent with the fall in Car tyre production, and the more
contained growth for Winter products.
There was a positive price/mix performance (+4.2%) supported by the growing turnover share of the
High Value segment, and by the improvement of the product mix both for the High Value and
Standard segment. The price/mix performance for 2019 reflected the different trends for the
individual components during the year. During the first half-year, price/mix performance (+6.4%)
benefited from higher sales for the Replacement channel (+13.1% for Replacement Car tyres ≥18
inches compared to -3.4% for the Original Equipment channel), and from the sharp reduction in
Standard volumes (-13.9%). Improvement in the price/mix was however more contained during the
second half-year (+2%) and particularly in the fourth quarter (+0.5%) due to, higher Original
Equipment channel sales (+15.3% in volumes for Car tyres ≥18 inches for the fourth quarter
compared to +3.5% for the Replacement channel), and to the more contained reduction of the
Standard segment (-0.7% for the fourth quarter of 2019), which reflected the unfavourable basis of
comparison (-22.6% for the fourth quarter of 2018).
Given the weak market scenario, the competitive pressure on prices persisted particularly for the
Original Equipment channel. The trend in prices for the Replacement channel improved during the
fourth quarter compared to the previous quarter, thanks to price increases in Europe, the US and
Brazil.
The exchange rate effect was slightly positive: during the fourth quarter the impact had been negative
by -0.6%, mainly due to the volatility of emerging market currencies against the euro.
20
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2019 Annual Report
The performance of net sales by geographic region was as follows:
2019
Euro\mln
%
yoy
2018 **
%
Organic
Yoy*
EMEA
North America
APAC
South America
2,288.7
1,101.9
975.1
682.0
43.0% -1.7%
-1.5%
20.7% 9.7%
18.3% 7.9%
12.8% -1.4%
4.2%
6.3%
6.1%
Russia and Nordics
Total
* before exchange rate effect and high inflation accounting in Argentina
** the comparative data for 2018 have been restated in accordance w ith the new repartitions by geographic regions
5.2% 3.7%
100.0% 2.5%
275.4
5,323.1
3.5%
2.2%
44.9%
19.3%
17.4%
13.3%
5.1%
100.0%
EMEA (43% of sales) closed 2019 with a fall in revenues of -1.7%, impacted by the strong drop in
sales for the Standard Segment, consistent with the Company’s strategy to reduce exposure to this
segment. Profitability was positioned in the mid-teens range, and had declined compared to 2018,
impacted by the previously mentioned decline in Standard sales volumes, and the increased
pressure on prices for Standard segment products and for High Value products with lower
technological content.
North America (20.7% of sales) recorded a revenue growth of +9.7% driven by the High Value
segment where Pirelli recorded an increase in market share for the Original Equipment channel
thanks to new contracts. Profitability (EBIT margin adjusted) stood in the twenties range.
APAC (18.3% of sales) which recorded a revenue growth of +7.9% was the geographic region with
the highest profitability (an EBIT margin adjusted in the twenties range).
South America (12.8% of sales) recorded a decline in revenues of -1.4%, of +6.1% net of the
exchange rate effect, with a drop in volumes of -7.4%, as a result of:
the weakness of the market (-3.3% for the total car market);
the continued focus on the mix, with the reduction of sales of less profitable Standard
segment products with lower rim diameters;
the destination of a part of production for export to North America in consideration of the
growing demand for High Value Pirelli products, and the continued growth of the mix recorded
by the Brazilian factories.
The price/mix saw a marked improvement (+13.4% for 2019 compared to the corresponding period
of 2018), thanks to the price increases implemented in Brazil which occurred during the fourth quarter
of 2018, and to the strong improvement in the product mix.
21
Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
Profitability (EBIT margin adjusted) in the low-teens range had improved compared to 2018, due to
the improvement and conversion of the mix. Efficiency measures helped reduce the impact of costs
arising from the under-utilisation of factories.
Russia e Nordics (5.2% of sales) recorded a change in revenues of +3.7% thanks to the
strengthening of the High Value segment and the increased focus on the most profitable segments.
Profitability was at mid-teens level.
EBITDA adjusted without start-up costs for 2019 was equal to euro 1,350.7 million, a growth of
+5.6% compared to euro 1,279.1 million for 2018. It included a benefit of euro 104.3 million derived
from the application - as of January 1, 2019 - of the new accounting standard IFRS 16 which
established a new method of accounting for lease contracts.
The EBIT adjusted without start-up costs equalled euro 958.6 million (euro 1,002.7 million for
2018). The EBIT margin adjusted without start-up costs stood at 18% (19.3% for 2018), impacted by
High Value volumes which accounted for an 84% share of total turnover, which had increased
compared to 83% for 2018.
EBIT adjusted equalled euro 917.3 million (euro 955 million for 2018) with a margin of 17.2% (18.4%
for 2018). Internal levers (price/mix, efficiencies and the costs reduction program) contributed in
containing the impacts of the external scenario (an increase in the cost of production factors,
weakness in market demand and the pressure on prices).
In more detail:
improvement in the price/mix (euro +122.9 million) offset the rise in the price of raw materials
(euro -66.7 million) and the previously mentioned fall in volumes (euro -44.8 million);
efficiencies (euro +70 million, 1.3% of revenues) offset cost inflation (euro -76.6 million);
the cost reduction plan (euro 50 million) contributed in limiting the impact of higher
amortisation and depreciation (euro 25 million), of expenses linked to the development of the
High Value segment (euro 56 million), and costs (approximately euro 20 million) linked to the
temporary increase in the under-utilisation of the Standard capacity in order to reduce
inventories.
22
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2019 Annual Report
(in millions of euro)
1 Q
2 Q
3 Q
4 Q
Total year
2018 EBIT Adjusted
218.4
231.7
250.0
254.9
955.0
- Internal levers:
Volumes
Price/mix
Amortisation, depreciation and other
Efficiencies
- External levers:
Cost of production factors (commodities)
Cost of production factors (labour/energy/others)
Difference from foreign currency translation
Total change
2019 EBIT adjusted
(37.7)
62.7
3.4
16.4
(27.0)
(14.9)
(2.1)
0.8
219.2
(19.2)
37.9
5.3
19.7
(31.5)
(20.0)
(2.6)
(10.4)
221.3
3.0
20.0
(25.5)
20.0
(9.1)
(20.0)
6.1
(5.5)
244.5
9.1
2.3
(27.4)
13.9
0.9
(21.7)
0.3
(22.6)
232.3
(44.8)
122.9
(44.2)
70.0
(66.7)
(76.6)
1.7
(37.7)
917.3
The EBIT equalled euro 742.7 million (euro 703.1 million for 2018) and included:
the amortisation of intangible assets identified during the Purchase Price Allocation (PPA)
of euro 114.6 million (consistent with 2018);
restructuring expenses to the amount of euro 97.0 million relative to the impairment of
property, plant and equipment and other costs for restructuring mainly in Brazil and Italy;
other expenses to the amount of euro 34 million, of which euro 6.9 million were relative to
the retention plan, euro 14.0 million relative to costs not pertinent to operations management
and euro 13.1 euro million relative to the renegotiation of commercial agreements with
customers;
income of euro 71.0 million due to the recognition of tax credits in Brazil, net of the associated
legal expenses.
Income/(loss) from equity investments was negative to the amount of euro 11.0 million compared
to the negative amount of euro 5.0 million for 2018, and includes the pro-rata share of the loss
attributable to the Chinese joint venture Xushen Tyre (Shanghai) Co., Ltd. (euro 7.2 million), the pro-
rata share of the loss attributable to the Indonesian joint venture PT Evoluzione Tyres (euro 2.8
million).
Net financial expenses amounted to euro 109.4 million (euro 196.3 million for 2018) which mainly
reflected:
the positive effect to the amount of euro 107.3 million deriving from the recognition of tax
credits in Brazil;
the negative impact of euro 23.5 million in lease expenses deriving from the application of
the new accounting standard IFRS 16 - Leases.
23
Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
On a like-for-like basis with respect to 2018, net financial expenses which amounted to euro 193.2
million were substantially consistent with the previous year (euro 196.3 million).
The cost of debt year-on-year stood at 2.83% compared to 2.95% for 2018.
The reduction in the cost of debt during the course of 2019 mainly reflected:
a reduction in the cost of the central credit facilities thanks to the partial replacement of
existing debt with new debt at a lower cost, and to the reduction of the interest margin on the
main bank credit facilities following an improvement in the Group’s leverage to which these
margins are indexed;
reduced exposure for the Group to countries with high interest rates, which at December 31,
2019 represented less than 19% of the Group’s gross debt (20.3% at December 2018).
Tax expenses for 2019 amounted to euro 164.6 million against net income before tax of euro 622.3
million, with a tax rate which stood at 26.5%, consistent with the expected tax rate for the 2019
financial year. For 2018 the tax rate had equalled 10.6% in that it had included the benefit of the
subsidised Patent Box tax relief scheme for the 2015 – 2018 financial years, due to the agreement
signed on October 15, 2018 with the Italian Tax Office.
Net income related to continuing operations amounted to euro 457.7 million compared to gains
of euro 448.8 million for 2018. The results for 2019 also benefited from tax credits in Brazil, while the
results for the previous financial year had benefitted from the contribution derived from the
subsidised Patent Box tax relief scheme for the 2015 – 2018 financial years.
Net income related to continuing operations adjusted amounted to euro 514.3 million, compared
to euro 576.3 million for 2018.
The following table shows the calculation for net income related to continuing operations adjusted:
(in millions of euro)
Net income/(loss) related to continuing operations
Amortisation of intangible assets included in PPA
Non-recurring expenses
Restructuring expenses
Costs relative to renegotiation of commercial agreements with customers
Costs not pertinent to normal business operations
Income from Brazilian tax credits
Retention plan
Financial income from Brazilian tax credits
Other net financial income
Tax
Net income/(loss) related to continuing operations adjusted
2019
2018
457.7
114.6
-
97.0
13.1
14.0
(71.0)
6.9
(107.3)
-
(10.7)
514.3
448.8
114.6
24.0
67.5
14.2
18.3
-
13.3
-
2.1
(126.5)
576.3
24
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2019 Annual Report
Net income related to discontinued operations for 2018 included the financial data of some of
the residual Industrial activities in China and Argentina, whose separation was for the most part
completed at the end of the 2018.
Net income attributable to owners of the Parent Company amounted to euro 438.1 million
compared to the positive result of euro 431.6 million for 2018.
Equity went from euro 4,550.9 million at December 31, 2018 to euro 4,826.6 million at December
31, 2019.
Equity attributable to the owners of the Parent Company at December 31, 2019 equalled euro
4,724.4 million compared to euro 4,468.1 million at December 31, 2018.
The change is shown in the table below:
(in millions of euro)
Equity at 12/31/2018
Translation differences
Net income/(loss)
Actuarial gains/(losses) on employee benefits
Dividends approved
High inflation accounting Argentina
Other
Total changes
Equity at 12/31/2019
Group
4,468.1
(10.2)
438.1
(13.1)
(177.0)
27.5
(9.0)
256.3
Non-controlling
interests
82.8
4.3
19.6
-
(9.0)
-
4.5
19.4
Total
4,550.9
(5.9)
457.7
(13.1)
(186.0)
27.5
(4.5)
275.7
4,724.4
102.2
4,826.6
The reconciliation statement for equity attributable to the Parent Company and consolidated equity
attributable to the Shareholders of the Parent Company is shown below:
(in millions of euro)
Share
Capital
Treasury
reserves
Net income
(loss)
Total
Equity of Pirelli & C. S.p.A. at 12/31/2019
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
- intragroup dividends
- others
Consolidated equity of Group at 12/31/2019
1,904.4
-
-
-
-
-
1,904.4
2,402.8
-
4,364.2
(4,647.8)
263.8
(1.1)
2,381.9
273.2
420.5
-
-
(263.8)
8.2
438.1
4,580.4
420.5
4,364.2
(4,647.8)
-
7.1
4,724.4
25
Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
The net financial position was negative to the amount of euro 3,024.1 million (euro 3,507.2 million
excluding lease obligations pursuant to IFRS 16 equal to euro 483.1 million), compared to euro
3,180.1 million at December 31, 2018. It was composed as follows:
(in millions of euro)
12/31/2019
12/31/2018
Current borrowings from banks and other financial institutions without IFRS 16
Current derivative financial instruments
Non-Current borrowings from banks and other financial institutions without IFRS 16
Non-Current derivative financial instruments
Lease obligations IFRS 16
Total gross debt
Cash and cash equivalents
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
Lease obligations IFRS 16
1,341.6
31.7
3,544.5
10.3
483.1
5,411.2
800.1
53.5
3,929.1
13.8
-
4,796.5
(1,609.8)
(1,326.9)
(38.1)
(35.5)
(32.1)
3,695.7
(52.5)
(136.0)
3,507.2
(483.1)
(27.2)
(27.4)
(91.2)
3,323.8
(20.1)
(123.6)
3,180.1
-
Net financial (liquidity) / debt position without IFRS 16
* Pursuant to Consob Notice of July 28, 2006 and in compliance with ESMA/2013/319 Recommendations.
** The amount for "financial receivables and other assets" is reported net of the relative provision for impairment amounting to euro 8.7
million as at December 31, 2019 and euro 6.1 million as at December 31, 2018.
3,024.1
3,180.1
The structure of gross debt which amounted to euro 5,411.2 million, was as follows:
(in millions of euro)
12/31/2019
Use of unsecured financing ("Facilities")
1,994.8
Bond EURIBOR +0,70% - 2018/2020
Bond 1,375% - 2018/2023
Schuldschein
Bilateral long term borrowings
ISP short term borrowing
Other loans
Lease obligations IFRS 16
Total gross debt
199.9
547.8
523.7
722.4
200.0
739.5
483.1
5,411.2
within 1 year
between 1 and 2 between 2 and 3 between 3 and 4 between 4 and 5 more than 5 years
Maturity date
252.1
199.9
-
-
-
200.0
720.8
77.8
1,450.6
26.8%
-
-
-
81.8
-
-
2.6
65.9
150.3
2.8%
1,742.7
-
-
-
-
-
12.4
56.0
1,811.1
33.5%
-
-
547.8
421.9
124.6
-
3.0
47.7
1,145.0
21.1%
-
-
-
-
597.8
-
0.7
40.8
639.3
11.8%
-
-
-
20.0
-
-
-
194.9
214.9
4.0%
At December 31, 2019 the Group had a liquidity margin equal to euro 2,347.9 million composed of
euro 700.0 million in the form of non-utilised committed credit facilities, and euro 1,609.8 million in
cash and cash equivalents, in addition to financial assets at fair value through the Income Statement
to the amount of euro 38.1 million.
26
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2019 Annual Report
The following table shows the reconciliation between the net financial position at December 31, 2018,
not including the effects deriving from the application of IFRS 16, and the net financial position at
December 31, 2019 which includes these effects:
(in millions of euro)
Net financial (liquidity)/debt position 12/31/2018
Net cash flow without IFRS 16
Net financial (liquidity)/debt position 12/31/2019 without
IFRS 16
Lease obligations IFRS 16 at transition date (01/01/2019)
Change in NFP from lease obligations IFRS 16
Net financial (liquidity)/debt position 12/31/2019
3,180.1
(156.0)
3,024.1
494.3
(11.2)
3,507.2
Net cash flow in terms of change in the Net Financial Position was positive to the amount of euro
167.2 million (positive at euro 156.0 million without IFRS 16) and is summarised as follows:
(in millions of euro)
EBIT adjusted
Amortisation and depreciation (excluding PPA amortisation)
Investments in property, plant and equipment and intangible
assets (Capex)
Increases in Rights of use IFRS16
Change in working capital / other
Operating net cash flow
Financial income / (expenses)
Reversal of financial income from tax credits in Brazil
Taxes paid
Cash Out for non-recurring and restructuring expenses / other
Other dividends paid
Differences from foreign currency translation / other
Net cash flow before dividends, extraordinary transactions
and investments
Industrial reorganisation
Disposals/(Acquisition) of investments
Net cash flow before dividends paid by Parent Company
Net cash flow before dividends paid by Parent Company w/o IFRS 16
Dividends paid by Parent Company
Net cash flow (*)
Net cash flow without IFRS 16
1Q
2Q
3Q
4Q
Total
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
219.2
96.5
(78.0)
(3.2)
(836.0)
(601.5)
(48.1)
-
(30.1)
(16.0)
-
-
218.4
69.7
(85.3)
n.a.
(928.8)
(726.0)
(55.2)
-
(31.1)
(38.2)
-
(11.7)
(695.7)
(862.2)
-
(17.2)
(712.9)
(732.9)
-
(712.9)
(732.9)
5.3
136.5
(720.4)
(720.4)
-
(720.4)
(720.4)
221.3
99.1
(89.7)
(14.0)
10.1
226.8
38.1
(99.8)
(45.9)
(17.9)
(8.9)
(19.8)
72.6
-
(0.2)
72.4
67.9
(176.9)
(104.5)
(109.0)
231.7
68.1
(93.9)
n.a.
(68.9)
137.0
(62.8)
-
(36.2)
(11.9)
-
6.4
32.5
(10.3)
0.2
22.4
22.4
-
22.4
22.4
244.5
98.0
(74.6)
(8.5)
(136.8)
122.6
(65.2)
(0.8)
(37.4)
(7.4)
-
(0.2)
250.0
69.8
(117.5)
n.a.
(247.4)
(45.1)
(20.8)
-
(33.8)
(4.6)
(8.4)
(18.7)
232.3
99.1
254.9
72.1
(148.2)
(166.7)
(25.5)
901.9
n.a.
856.9
1,059.6
1,017.2
(34.2)
(6.7)
(28.6)
(10.9)
-
(6.2)
11.6
(131.4)
973.0
-
-
11.6
19.7
-
11.6
19.7
9.6
-
(121.8)
(121.8)
-
(121.8)
(121.8)
-
-
973.0
978.2
-
973.0
978.2
(57.5)
-
(17.9)
(17.3)
-
14.8
939.3
(14.5)
(66.6)
858.2
858.2
-
858.2
858.2
917.3
392.7
(390.5)
(51.2)
(60.8)
807.5
(109.4)
(107.3)
(142.0)
(52.2)
(8.9)
(26.2)
955.0
279.7
(463.4)
n.a.
(388.2)
383.1
(196.3)
-
(119.0)
(72.0)
(8.4)
(9.2)
361.5
(21.8)
-
(17.4)
344.1
332.9
(176.9)
167.2
156.0
(9.9)
70.1
38.4
38.4
-
38.4
38.4
* The item for the year 2019 refers to the change in the Net FinancialPosition calculated by including, as of 01/01/2019, lease obligations recorded due to the application of the new accounting standard IFRS 16 – Leases.
Net cash flow before dividends, extraordinary transactions and investments which was
positive to the amount of euro 361.5 million, had improved by euro 383.3 million compared to 2018
(negative at euro 21.8 million), thanks mainly to the improvement in the management of operating
cash flow.
More specifically, operating net cash flow for 2019 was positive to the amount of euro 807.5 million,
and had improved by euro 424.4 million compared to 2018 (positive at euro 383.1 million), and
reflected:
investments in property, plant & equipment and intangible assets (CapEx) to the amount of
euro 390.5 million (euro 463.4 million for 2018). These investments were primarily aimed at
27
Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
High Value activities, and at the constant improvement of the quality and mix in all
manufacturing plants;
increases in the rights of use IFRS 16 to the amount of euro 51.2 million which derived from
the application of the new accounting standard IFRS 16, and were relative to the new lease
contracts signed during the course of 2019;
effective working capital management with cash absorption equal to a negative euro 60.8
million (negative at euro 388.2 million for 2018), which was an improvement compared to the
previous year, thanks mostly to the normalisation of inventory levels.
In fact, in addition to the recovery measures implemented for trade receivables, through the
realignment of payment terms with the main dealers in Brazil which had temporarily been extended
to the end of 2018 due to the difficult market conditions, measures for the normalisation of inventories
were carried out, which at the end of December 2019 had recorded a -7% reduction in volumes
compared to the end of the previous year, with:
a decline of -23% in Standard products, consistent with the recovery plan announced at the
beginning of the year; and,
a slight in increase of +5% in High Value products, also in order to ensure a better level of
service to the end customer.
Thanks to the measures taken for the containment of inventories for finished products, and to further
measures also taken to reduce inventories for raw materials, by the end of December 2019
inventories levels had reached a percentage share of sales equal to 20.5%, consistent with the year-
end target of 20.5% - 21% of revenues, compared to 21.7% at the end of 2018.
Net cash flow before dividends paid by the Parent Company before the application of the IFRS
16 accounting standard, was positive to the amount of euro 332.9 million (positive at euro 38.4 million
for 2018), and positive to the amount of euro 344.1 million including the impact of IFRS 16. Net cash
flow also included the impact of extraordinary transactions and investments (euro -17.4 million),
mainly attributable to the recapitalisation of the Indonesian joint venture PT Evoluzione Tyres. During
2018, the impact of investments and extraordinary transactions had been positive to the amount of
euro 60.2 million, and was mainly attributable to the disposal of the investment in Mediobanca (euro
+152.8 million), to the acquisition of a 49% stake in the new joint venture in China (euro -65.2 million),
and to the completion of the strengthening of the distribution chain in Brazil (euro -19.9 million).
Net cash flow which included the distribution of dividends by the Parent Company amounting to
euro 176.9 million, was positive at euro 167.2 million compared to euro 38.4 million for 2018.
28
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2019 Annual Report
RESEARCH AND DEVELOPMENT ACTIVITIES
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 innovations - counts over 2,100 personnel (equal to approximately 6.7%
of the Group’s human resources) between its Milan headquarters and the 12 technology centres
located in various geographical regions, which allow for a direct relationship with 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 vehicle manufacturers - for the purposes
of pre-empting 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 2019 totalled euro 232.5 million, (4.4% of sales) of
which euro 215.7 million was destined for High Value activities (6.1% of High Value revenues).
Pirelli also continued to develop their CYBER™ technologies which, thanks to the sensor technology
inside the tyre, contributes in rendering information available, in order to periodically improve the
safety or performance of vehicles. Pirelli was the first company in the world from the tyre sector, to
share information on the 5G network regarding road surfaces as detected by intelligent tyres. A
demonstration took place during the The 5G Path of Vehicle-to-Everything Communication event
organised by the 5GAA - Automotive Association, of which Pirelli is a member. Thanks to the
cooperation between Pirelli, Ericsson, Audi, Tim, Italdesign and KTH, on the test track on the roof of
the Lingotto building, it was demonstrated as to how a vehicle equipped with Pirelli Cyber sensorised
tyres and connected to the 5G network, was able to transmit the aquaplaning risk detected by the
tyres, to another oncoming vehicle, through the use of ultra-wide broadband and the low latency of
5G. In 2019 Pirelli also presented Track Adrenaline in Italy, a product for track day enthusiasts, which
includes a range of P Zero Trofeo R sensorised tyres. Track Adrenaline features true virtual track
engineering which monitors tyre pressure and temperatures in real time, and combines this
information with telemetric data, in order to provide the driver with indications and suggestions on
how to best improve performance on the track.
PRODUCT INNOVATION
In order to develop new products specifically designed to meet the needs and technical specifications
of its customers, Pirelli has established long-lasting relationships with major Prestige and Premium
car manufacturers. The development of products in partnership with these car manufacturers, is
geared towards producing tyres that match the dynamic characteristics and electronics of the
vehicles (the so-called Perfect Fit). Pirelli is the absolute leader in the Prestige segment with a market
share that exceeds 50% for the Original Equipment channel. Pirelli is also the leading supplier to
brands such as Aston Martin, Bentley, Ferrari, Porsche, and Maserati, and is the sole supplier to
Lamborghini, McLaren and Pagani Automobili. For the Premium sector there was further proof of the
special relationship with companies such as Alfa Romeo, Audi, BMW, Mercedes, Jaguar and Land
29
Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
Rover. In 2019 Pirelli was also given an award by the Ford Motor Company, after being chosen from
amongst its best suppliers for its commitment to sustainability, the Brand Pillar of Sustainability World
Excellence Award, which recognises companies that exceed expectations and attain the highest
levels of excellence.
Pirelli’s strong market presence is proven by a portfolio of approximately 3,400 homologations, of
which 2,800 are High Value (82%) and more than 900 are Specialties. Pirelli can count on a portfolio
of over 600 homologations for Run Flat products, a technology which allows you to drive with a
perforated tyre for 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 Alpha Romeo, BMW,
Cadillac, Dodge, Jeep, Mercedes and Mini. Pirelli’s Run Flat technology is available in P Zero,
Cinturato, Scorpion and Scorpion Winter, Winter Sottozero 3 and Winter Sottozero Series II tyres: a
range which is able to satisfy 97% of rim diameters from 18” and upwards. For rim sizes of 18” and
upwards, Pirelli has also established itself as the market leader in the winter segment, where it has
the largest number of marked tyres, which represent 69% of the total market. The complete range
now includes 900 homologated winter tyres. A fundamental part of this strategy are the two new
Pirelli proving grounds. These are located at the Passo del Tonale (Tonale Pass) in Italy, which is
the closest to Pirelli’s R&D Headquarters in Milan, and at Flurheden in Sweden, which offer more
than 20 kilometres of icy and snow covered tracks, and where each season over 100 days of testing
can be carried out, taking in more than 25,000 kilometres using more than 30,000 tyres.
The new studded Ice Zero 2 tyre was introduced on Pirelli’s proving ground in Sweden for high end
vehicles in extreme winter conditions. Compared to its previous generation, traction and braking
have improved, while at the same time Pirelli’s engineers have also managed to reduce rolling noise,
thanks to a new stud arrangement. Dry weather performance has improved as well, thanks to a
reduction in the depth of the tread and of the 3D grooves on the shoulder. The P ZERO WINTER,
the first winter tyre with the driving feel of a summer tyre, was presented at the 2019 Geneva
International Motor Show. It draws both safety and performance on cold asphalt from Pirelli’s vast
experience with winter tyres, while the driving experience which remains unaltered, is drawn directly
from the P Zero. Requests from car manufacturers highlighted the necessity in providing tyres for
high performance cars that can cope with the prodigious power and torque that these vehicles are
capable of generating, even in low grip conditions. The evolution of the P Zero also takes aim at the
growing market for electric sports cars. The Elect marking which identifies tyres created for electric
cars or plug-in hybrids, was presented at Geneva. Pirelli tyres distinguished by the Elect marking
offer multiple advantages for eco-friendly cars, thanks to a specific package of technical solutions.
First and foremost is the low rolling resistance which allows for maximised autonomy for these
vehicles. Then there is the reduction of rolling noise, resulting in quieter car interiors, particularly for
electric cars, where the engine is no longer the primary source of noise, which means that combating
the frequencies produced by the tyres maximises one of the main advantages of the electric drive:
silence. Finally, Pirelli tyres marked Elect offer immediate grip in response to the stresses from the
transmission. Electric motors in fact, deliver maximum available torque from minimum rpm, and
therefore need tyres capable of capable of efficiently gripping the asphalt. Every tyre marked Pirelli
Elect is customised for the vehicle for which it is intended in accordance with the Perfect Fit strategy.
30
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2019 Annual Report
For the Motorcycle sector, Pirelli presented the ANGEL™ GT II, the new tyre that rewrites the
standards for the Sport Touring sector in terms of mileage, wet performance and sportiness
combined with safety. The innovative variable density carcass and the high silica content
compounds, combined with the new tread design which derives from the intermediate racing
solutions developed for the FIM Superbike World Championship, allows for benchmark
performances and maximises the effect of the electronic guidance systems. The Pirelli ANGEL™
GT II won the comparative test for Sport Touring tyres carried out by the Italian magazine
Motociclismo, obtaining the highest possible points attainable in all instrumented tests carried out
both on dry and wet surfaces, and being judged as the tyre with the lowest wear after 7,000
kilometres.
Also in 2019, Pirelli was confirmed as the first and natural choice of the many motorcycle
manufacturers which have chosen Pirelli tyres, including the most powerful naked tyres on the
market, as Original Equipment for their new models arriving in 2020. Seven tyres were chosen to
equip thirty-four new motorcycle models from nine different motorcycle manufacturers: Ducati, MV
Agusta, Aprilia, Kawasaki, Triumph, Indian Motorcycle and the electric Energica Motor Company,
Zero Motorcycles and Tacita.
In the Velo world, after the launch of the P Zero Velo Cinturato, and the Cycl-e tyres, in 2019 Pirelli
entered the MTB (mountain bike) market with its dedicated range, the Scorpion MTB which shifts
the focus from the bike to the ground, offering tyres suitable for any type of road surface,
guaranteeing road holding, handling, speed and grip, independent of climate and weather conditions.
The innovative SmartGRIP Compound, the technological core of the new tyres, was produced in the
same location where the F1 tyre compounds were engineered, guaranteeing rolling resistance as
well as grip in both wet and dry surfaces. Still in 2019, Pirelli expanded the range of the Cinturato™
Velo with a new line of gravel and cyclo-cross tyres, featuring diversified treads, a new compound
and development dedicated to each tyre size. Designed to handle the most demanding off-road
Cross and Gravel bike use, regardless of weather conditions, thanks to the properties of the new
Pirelli SpeedGRIP compound, specially designed for the new line. These tyres were developed,
starting from the formulation applied to Scorpion™ MTB tyres – the SmartGRIP. The new
SpeedGRIP maintains the same polymer matrix with improved rolling efficiency.
NEW MATERIALS
The Group is active in the development of new polymers in order to improve the characteristics of
the 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 grip on the wet, rolling resistance and mileage; bio-materials 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 a low environmental impact and high performance. The Group has entered
into cooperation agreements with various international and national institutions and universities.
31
Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
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 three year duration (2017-2020), focuses on two macro-strands of
research: an area of design for innovative materials and an area for product development and Cyber
development.
PROCESS AND PRODUCTIVITY INNOVATION
In order to allow for the effective management of the diverse ranges of products in the manufacturing
plants, the Group has launched the “Smart Manufacturing” program based on “Big Data Analytics”
techniques, which flank the consolidated Lean Manufacturing programs, in order 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 lots.
COMMITTENT TO MOTORSPORTS
In 2019 Pirelli was chosen by the FIA - International Automobile Federation - as the sole supplier of
tyres for the Mondo Rally Championship for the 2021 to 2024 seasons. Of note, is that Pirelli will
supply all the 4x4 cars that will take part in the qualifying WRC (World Rally Car) championship
races, that is, contenders from the WRC Plus which compete for the ultimate title, to the R5 which
are the protagonists of the WRC2, but also cars competing in various regional and national
championships around the world. For the WRC, Pirelli will supply its range of tyres already used in
the various world rally championships for which it is a supplier. For asphalt surfaces, there is the
P Zero RA with its asymmetrical design, and with different compounds available accordingly to suit
the terrain and climatic conditions. For snow there is the Sottozero Snow with or without studs. For
ice there is the Sottozero Ice J1 expressly designed for the Swedish rally, and for dirt roads there is
the Scorpion K with its reinforced structure and different available compounds which can be chosen
to suit conditions. The FIA’s choice confirms Pirelli’s leading position in competitions which draws
on over 110 years of accumulated racing experience. This new investment in the queen of speciality
road racing, flanks an identical role that Pirelli has played since 2011, as Global Tyre Partner for the
most prestigious of Motorsports on the circuit, Formula 1,where Pirelli has extended its involvement
until 2023. The new agreement foresees the introduction of new 18 inch rim diameter tyres in 2021.
Pirelli’s involvement in the Formula 1® World Championship has allowed it to develop new simulation
models which allow for a further reduction in the time it takes to launch a product onto the market,
and an improvement in the quality of road products, rendering them better performing and compliant
with the highest of requirements. Pirelli is currently involved in over 350 championships across all
32
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2019 Annual Report
five continents. The different programs range from open competitions, in some cases with over 20
manufacturers represented, to the single-brand trophies of global brands such as the Ferrari
Challenge and the Lamborghini Super Trofeo. In order to understand Pirelli’s enormous commitment
to Motorsport, it bears considering that all these events translate into 1,170 races per year all over
the world, and which employ approximately 1,000 people including engineers, track technicians and
other personnel dedicated to Research and Development.
In the European two wheel Championships, where the participation of several tyre producers is
expected, Pirelli on average fits 70% of the motorcycles deployed on the paddock, which confirms
the appreciation demonstrated by motorbike riders around the world for the Pirelli brand. Pirelli has
been chosen by the Dorna WorldSBK Organisation, in agreement with FIM (the International
Motorcycle Federation), for the role of Official Tyre Supplier for all classes of the MOTUL FIM
Superbike World Championship, up to and including the 2023 season. In the cycling field, Pirelli
made its entrance in 2018, signing a partnership with one of the most important teams on the
professional road circuit, the Mitchelton-SCOTT team which in the same year, with Simon Yates,
achieved top ranking in the World Tour. Pirelli’s partnership with the Australian team went ahead for
2019 and led to four stage wins in the Tour de France.
33
Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
PARENT COMPANY HIGHLIGHTS
The table below shows a summary of the main Income Statement and Statement of Financial
Position figures:
(in millions of euro)
Operating Income
Net Financial income/(expenses)
Income from equity investments
Taxes
Net income
Financial assets
Net Equity
Net financial position
12/31/2019
12/31/2018
15.8
(23.7)
268.9
12.2
273.2
4,711.2
4,580.4
1,897.4
5.6
(32.8)
284.9
4.7
262.4
4,641.7
4,492.7
1,913.8
Operating income was positive to the amount of euro 15.8 million, compared to the positive amount
of euro 5.6 million for 2018. The improvement was mainly attributable to the reduction of costs, and
to the higher fees charged to the subsidiaries by Pirelli & C. S.p.A. for services rendered by its central
functions, following the acquisition by the subsidiary Pirelli Tyre S.p.A. of the company branch,
including all staff and business support functions.
The reduction in net financial expenses was mainly attributable to the increase in interest
receivables from loans to Group companies, which resulted as being only partially offset by an
increase in interest payables on the credit facilties granted by third parties. This latter phenomenon
was attributable to the fact that as of November 29, 2019, the entire unsecured credit facility
(“Facilities”) was in the hands of the Parent Company.
Income from equity investments mainly included dividends from Pirelli Tyre S.p.A. which
amounted to euro 250 million (euro 270 million in 2018), and dividends from the Pirelli Group
Reinsurance Company S.A., which amounted to euro 13.3 million (euro 5 million for 2018).
Taxes for 2019 were positive to the amount of euro 12.2 million compared to the positive amount of
euro 4.7 million for 2018.
34
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2019 Annual Report
The following is a summary of the values of the main financial assets:
(in millions of euro)
12/31/2019
12/31/2018
Investments in subsidiaries
- Pirelli Tyre S.p.A.
- Pirelli Ltda
- Pirelli Uk Ltd.
- Pirelli Group Reinsurance Company S.A.
- Pirelli Servizi Amministrazione e Tesoreria S.p.A.
- Pirelli International Treasury S.p.A.
- Other companies
Total equity investments in subsidiaries
Investments in associates and other financial assets at fair value
through other comprehensive income
- Eurostazioni S.p.A. - Roma
- RCS Mediagroup S.p.A. - Milano
- Fin. Priv Srl
- Fondo Comune di Investimento Immobiliare Anastasia
- Istituto Europeo di Oncologia S.r.l.
- Other
Total investments in associates and other financial assets at fair
value through other comprehensive income
Total financial assets
4,528.2
9.7
21.9
6.3
3.2
75.0
3.3
4,647.6
6.3
24.9
20.6
3.9
7.5
0.4
4,523.8
9.7
21.9
6.3
3.2
-
3.4
4,568.3
6.3
28.4
15.6
15.6
7.0
0.5
63.6
4,711.2
73.4
4,641.7
Equity went from euro 4,492.7 million at December 31, 2018 to euro 4,580.4 million at December
31, 2019, as detailed in the following table:
(in millions of euro)
Equity at 12/31/2018
Net income for the financial year
Dividends approved
Other components of comprehensive income
Equity at 12/31/2019
The table below shows the composition of equity:
(in millions of euro)
Share capital
Legal reserve
Share premium reserve
Concentration reserve
Other reserves
IAS Reserve
Retained earnings
Merger Reserves
Net income for the financial year
Total Equity
4,492.7
273.2
(177.0)
(8.5)
4,580.4
12/31/2019
12/31/2018
1,904.4
380.9
630.4
12.5
92.5
(3.2)
266.8
1,022.9
273.2
4,580.4
1,904.4
380.9
630.4
12.4
92.5
5.3
181.5
1,022.9
262.4
4,492.7
35
Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
RISK FACTORS AND UNCERTAINTY
The volatility of the macroeconomic environment, the instability of the financial markets, the
complexity of management processes and continuous legislative and regulatory changes, demands
the capacity to protect and maximise the tangible and intangible sources of value which characterise
the Company’s 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 result in any competitive advantage. These types of risks include
Information Technology, Business Interruption, Legal & Compliance, Health, Safety &
Environment, and Security related risks.
Transversal to the aforementioned 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
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to the aforementioned risks related to corporate social-environmental responsibility and business
ethics, also 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 growth in the world economy to be substantially consistent with what was recorded in
2019. The uncertainty that characterised the macroeconomic outlook over the past year should
decrease - at least in the short term - thanks, among other things, to a relaxation in the trade disputes
between the United States and China, to the ratification by the US Congress of the new trade
agreement between the United States, Canada and Mexico (USMCA), and the results of the
elections in the United Kingdom that have brought greater clarity - at least until the end of 2020 -
regarding Brexit. The highly accommodative monetary policies of the main central banks should
continue to support global demand thanks also to the very contained growth in consumer prices.
These forecasts however are not without risk. The easing of the trade war between the United States
and China could prove to be short-lived as tensions between the two economies is of a systemic
nature. More generally, current monetary easing alone will not be able to sustain demand in the
medium to long term, also due to the structural problems that weigh on the slowdown in global
productivity growth. Further elements of risk could derive from the intensification of Middle Eastern
tensions with possible repercussions on commodity prices.
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 related 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 regimes may prove
unstable in the future. Elements of uncertainty persisted with the growing tensions between China
and the United States and, more generally, on the medium-long term equilibrium of 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.
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Brexit risks
The Group is pro-actively monitoring potential critical issues (and related mitigation plans) in the
event of the failure by the UK and the EU to reach a commercial agreement at the end of the
transitional period (currently established as 31.12.20). These risks are both macroeconomic
(amongst other volatilities such as FX and duties), and operational (mainly linked to possible delays
in the supply of raw materials and/or finished products). Although the most likely scenario continues
to suggest the achievement of a commercial agreement that is acceptable to both parties by 2020,
the fact that the Conservative British Government has inserted a legal clause in the withdrawal
agreement, to not extend the transitional period beyond the end of 2020, has certainly increased
feelings of uncertainty regarding the final outcome of negotiations.
Coronavirus risk (Covid -19)
Pirelli sells its products on a world wide basis in over 160 countries and owns industrial sites located
in different countries, some of which are also significantly affected by the Covid-19 (SARS-CoV-2)
outbreak.
Sensitivity assumptions have been formulated regarding the effects of the spread of Covid-19, and
elaborated on the basis of first estimates. By their nature, these hypotheses contain elements of
uncertainty and are subject to changes, even significant ones, due to the continuous changes in the
scenario and in the context for reference, which could lead to a significant alteration to the normal
dynamics of the market and, more generally, to business operating conditions.
The negative impact currently expected at the level of the EBIT adjusted for the first quarter of 2020,
is expected to be reabsorbed during the course of the year. However should the crisis continue,
Pirelli will take steps to implement further mitigation measures.
Pirelli is following developments in the spread of the Coronavirus with constant contact with national
and international organisations. The Company immediately adopted control and preventative
measures for all their employees across the world, with particular attention to China, where all
expatriate workers returned to their countries of origin with their families.
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 to the 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
behaviours of younger generations (increase in the average age when a driver’s license is obtained,
loss of importance of owning a car, the use of various types of car sharing). Added to these factors
is the increasing spread of information technologies which increasingly encourages the use of e-
commerce and/or telecommuting along with frequent regulatory interventions, both in 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
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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 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 Transforming Urban Mobility project, sponsored by the World Business Council for
Sustainable Development (WBCSD), which has been active since 2019. 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
With the adherence to the Task force on Climate-related Financial Disclosures (TCFD) issued in
September 2018, Pirelli is committed, on a voluntary basis, to the dissemination of transparent
reporting on the risks and opportunities related to climate change. To this end, Pirelli monitors these
elements of uncertainty through sensitivity analyses and risk assessments in order to assess and
quantify the financial impacts (risks and opportunities) associated with Climate Change, with respect
to IPCC (Intergovernmental Panel on Climate Change) climatic scenarios and IEA (International
Energy Agency) transitions in energy. In accordance with what emerged from the last Climate
Change Risk Assessment of the Group, there are no significant risks in relative to the production
processes Pirelli utilises or the markets where Pirelli operates over the short to medium-term period.
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.
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 positioning of the Group and to the competitive 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, and brands that enjoy a significant
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level of international or local notoriety. To date, Pirelli is the only player in the tyre industry entirely
focused on the Consumer market on a global scale, with its single brand positioned in the segment
which interests manufacturers and users 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).
The Group’s policy is to minimise the impact of transaction risk linked to volatility, and for this reason
the Group’s procedures provide that the Operating Units are responsible for collecting all the relevant
information pertaining to positions subject to transaction risk (mainly represented by receivables and
payables in foreign currency). Coverage is then provided in the form of forward contracts which are
entered into where possible with the Group’s Treasury.
The managed positions subject to exchange rate risk are mainly represented by receivables and
payables in foreign currency. The Group’s Treasury is responsible for hedging the resulting net
position for each currency and, in accordance with the established guidelines and restrictions, it 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 either forward buy or sell operations, or optional operations such as risk reversal (for
example, zero cost collars).
Pirelli owns controlling interests in companies that prepare their Financial Statements in currencies
other than the euro which is the currency used to prepare the consolidated Financial Statements.
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This exposes the Group to currency translation risk, due to the conversion into euro of the assets
and liabilities of subsidiaries operating in currencies other than the euro. 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 constituted by one year and three year financial plans and 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 subjected to constant analysis.
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 the 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, 2019 resulted as being completely unused, the Pirelli Group
does use 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 market circumstances, whether to enter into derivative
contracts, typically interest rate swaps and cross currency interest rate swaps, for hedging purposes
for which hedge accounting is activated when the conditions as provided for by IFRS 9 are met.
Price risk associated with financial assets
The Group is exposed to price risk only regarding the volatility of financial assets such as listed and
unlisted stock securities and bonds, which represent 0.7% of the total assets of the Group.
Derivatives are not normally set up to limit the volatility of these assets.
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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 71% acceptance rate at December 2019).
Insurance coverage has been extended to also cover the two year 2019-2020 period. At December
31, 2019, the amount of trade receivables remained essentially consistent with the amount at closing
of the previous 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 that are periodically updated
also due to 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
(which also have a retention effect) designed amongst other things, to fit the risk profiles of the
activities of the business. Finally, specific management policies have been adopted to motivate and
retain talent.
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
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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 the health and safety regulations in force 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 in accordance with a European model of the absolute liability of the
Company, which has also been implemented 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 in legal, fiscal, commercial, trade or labour
law disputes. The Group adopts the necessary measures to prevent and mitigate any consequences
that may result from such proceedings.
Personal data processing risks
In the normal course of Pirelli’s business activities, personal data relating to employees, customers
and suppliers are processed. The processing of the personal data collected by Group’s companies
is subject to the laws and regulations applicable in the countries in which these companies are. The
Group has therefore put in place measures to achieve full compliance with all data protection
regulations in force (and, in particular, with Regulation (EU) 2016/679 (the GDPR or General Data
Protection Regulation) which came into force in May 2018, in this manner mitigating the risk of being
subjected to sanctions. However, changes to applicable legislation, the launch of new products on
the market and, in general, any new initiatives involving the processing of personal data (or changes
to the processing of personal data already carried out) could involve the need to incur significant
costs or oblige the Group to change its modus operandi.
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Risks related to information systems and network infrastructure
The supporting role of ICT (Information and Communication Technology) systems for business
processes, their evolution and development, and for the Group’s operating activities was also
confirmed during the course of 2019 as being fundamental to the achievement 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 Company’s information assets,
through the enhancement of the security systems against unauthorised access, and of the
Company’s data management solutions. 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. Particular attention has been paid to the renewal of
the infrastructural components subject to technological obsolescence, which could entail a greater
risk for breakdowns and incidents which could impact on the Group’s activities. The 2019 initiatives
in particular, which directly or indirectly led to the mitigation of security risks, were as follows:
Move the Bicocca Data Centre
The project has made it possible to identify a new generation and best-in-its-class new data-
centre, which will take the place of the Bicocca data centre (moving to be completed by the
end of 2020), and therefore to move the applications hosted in it, thereby improving:
o Redundancy and Uptime, now guaranteed according to the TIER IV/ RATING 4
FAULT TOLLERANT standards of the new data centre;
o active protection and security, through 24/7 access and monitoring control systems
managed by the provider;
o Control Room and technical and security staff which are present 24/7;
o The guarantee of service, through defined SLAs (Service Level Agreements) and
service management procedures.
In further taking advantage of the move, Pirelli was able to perform a technological refresh of
its TLC (telecommunication) equipment and its hardware infrastructures (intended as storage
and servers), increasing the level of reliability of the infrastructure, and the guarantee of
support and maintenance by the vendor.
Cloud Governance Project
The project made it possible to define a governance model which could be adopted in public
and private cloud environments, with the aim of guaranteeing its correct management both
in terms of security, compliance and costs.
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Especially as regards the safety aspects, the project has allowed Pirelli to define:
o The new account structure, with the segregation of production and development
accounts in order to improve access control, user authorisations and data security;
o The implementation of a single sign-on solution in order to prevent unwanted access;
o The implementation of automated procedures to be used during the creation of new
environments, reducing the probability of human errors that may also result in security
problems.
Software-Defined data centre Project
This project began with the main objective being that of transforming traditional factory data
centres into modern data centres based on hyper-convergent and software based
architectures, leading to an increase in the availability of critical factory business systems,
allowing for a more flexible and dynamic management of the system’s capacities and the
peaks of use.
Software-Defined WAN & Voice Encryption Projects
All the wide area network connectivity between the offices located in the EMEA and APAC
regions and all the internal calls to the group belonging to the EMEA region are now
encrypted.
Pirelli/Prometeon Split API Infrastructure Project
The launch of the project for the physical segregation of the Pirelli /Prometeon API
(Application Programming Interfaces) infrastructure, (basic infrastructure and end-user
services such as e-mail, identity management, software distribution, etc.), with the objective
of making the two environments completely separate also from a physical point of view.
Email protection
o The activation of an advanced cloud-based threat protection service that protects
corporate emails from phishing, ransom ware and fraud attacks (for example, BEC -
Business Email Compromise);
o Staff training (in classrooms and/or through on-line courses) on, how to recognise
malicious emails, on the risks they represent, on the active Company counter-
measures, and instructions on the actions to be taken in case of receiving fraudulent
emails, and to increase staff awareness regarding these issues.
CERT-P (CERT Pirelli)
o Activation of a Computer Emergency Response Team (CERT). The objective is to
improve the Company’s cyber-readiness, or the ability to prevent cyber threats in a
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Directors’ Report on Operations
proactive manner, and avoiding, as far as is possible, any attacks having any
significant impact on employees, assets, services and, in general, on the
competitiveness and reputation of the Company. Among the important aspects of
CERT’s mission, the following (though not exhaustive) can most certainly be listed:
to monitor the occurrences of cyber incidents by contributing to the process of
the continuous improvement of IT security controls and countermeasures;
to analyse any incidents in order to both mitigate their impact and to reduce
and limit future occurrences;
to coordinate the response to cyber incidents by involving both the relevant
internal staff of the Company as well as external counterparties (for example,
national CERTs);
to produce reports for corporate functions and internal management;
to increase internal culture know-how in the management of security incidents
through simulations and exercises.
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 periods which could
be more or less prolonged, with the consequent impact on the operational capabilities and results of
the Group itself. Risk scenarios related to natural or accidental events (fires, floods, earthquakes,
etc.), to wilful misconduct (vandalism, sabotage, etc.), to breakdowns of the auxiliary plants or to
interruptions in 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) and estimates 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 for the prevention of harmful events and for 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 during
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 system of risk management and internal
control, 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
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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 for the preparation of Financial Statements and all other
financial reports are prepared under the responsibility of the Chief Financial Officer, who periodically
attests to (in any case, regarding the Financial Statements/consolidated Financial Statements) their
adequacy and effective application.
In order to enable the attestation by the Chief Financial Officer, the companies and the relevant
processes that feed and generate the data for the Income Statement, the Statement of Financial
Position or the Financial Statements have been mapped out. The identification of the companies that
belong to the Group and the relevant processes is carried out annually on the basis of quantitative
and qualitative criteria. Quantitative criteria consists of the identification of the companies of the
Group which, in accordance to the selected processes, represent an aggregate value which exceeds
a certain threshold of materiality.
Qualitative criteria consists of the examination of processes and the companies which, in the opinion
of the Chief Executive Officer may present potential areas of risk despite not falling within the
aforesaid quantitative parameters.
For each selected process, the risk/control objectives associated with the preparation of the Financial
Statements and any related disclosures, as well as to the effectiveness/efficiency of the internal
control system in general, have been identified.
For each control objective, specific verification procedures have been implemented and specific
responsibilities have been assigned.
A supervisory system has been implemented on the controls carried out by way of a mechanism of
chain attestations. Any problems that emerge within the evaluation process are subject to action
plans whose implementation is then verified in subsequent closings.
There is even the half-yearly issue of a declaration by the Chief Executive Officer and the Chief
Financial Officer of each subsidiary on the reliability and accuracy of the data supplied for the
purposes of preparing the Group’s consolidated Financial Statements. In the lead up to the dates of
the Board of Directors’ Meetings which approve the consolidated data at June 30 and December
31st, the results of the verification procedures are discussed with the Chief Financial Officer of the
Group.
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The Internal Audit Department performs regular audits aimed at verifying the adequacy of the design
and operability of the controls carried out on 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 its impact on
reputation. Reputational risk is understood as a current or prospective risk that might result in a loss
in gains, and affect the propensity to buy due to a negative perception of the Company by one or
more stakeholders. While on the one hand, reputational risk is construed as a possible consequence
of the occurrence of an adverse event related to one of the three aforementioned macro-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. This chosen
methodology has led to the identification of a specific set of reputational risks. This mapping derives
from an analysis of a series of internal and external drivers including: negative events with an impact
on reputation which have occurred in the sector worldwide over the last ten years; interviews with
external Key Opinion Leaders on sector trends, on aspects of mobility and sustainability; interviews
with internal Key Opinion Leaders with particular reference to the analysis of the probability of the
occurrence of the risks identified.
The risk events identified were then subjected to the qualitative-quantitative assessments of a
sample representative of the general public in the three key Pirelli countries, which led to the
definition of the governance and management structures as well as to the preparation of mitigation
and/or crisis management plans. This tool is checked and updated regarding both its content and
the quantification of its impacts on a periodic basis.
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 business 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 regulations 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
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has adopted an ESG (Environmental and Social Governance) risk mitigation strategy also with
regard to its own supply chain, which is periodically audited by specialised third party companies. In
both cases, if instances of non-compliances are found, it is envisaged that a re-compliance plan is
defined and whose implementation is promptly monitored by the auditing body.
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OUTLOOK FOR THE 2020 - 2022 THREE-YEAR PERIOD
Targets 2020-2022 (euro billions)
2019
2020E
2022E
Revenues
Ebit adjusted
5.3
0.9
~5.4
~5.8
~Stable y/y
Ebit margin adjusted
17.2%
18% ÷ 19%
Investments (CapEx)
Net cash flow before dividends
0.39
0.33
~0.3
~0.4
tot. '20-'22
~0.9
vs tot. '17-'19
~1.3
tot. '20-'22
~1.5
Of which
~0.5 in '21
~0.6 in '22
Net financial position* (including IFRS 16)
3.5
~3.3
~2.5
*assuming a dividend policy with a payout equal to 40% of consolidated net earnings
Revenues are expected to grow to approximately euro 5.4 billion in 2020, and approximately euro
5.8 billion for 2022, with an average annual growth rate of approximately +3%. High Value revenues
will account for approximately 73% of total revenues at the end of the plan, compared to the 69%
expected for 2020 (approximately 67% for 2019).
Forecasts for total volumes are for an average annual growth over the time-frame of the plan of
between +1.5% and +2%. For total High Value volumes, an acceleration is expected with an average
annual growth rate of +8%, while the reduction in Standard volumes will continue, for which a -5%
decrease is expected per year.
The price/mix is expected to improve by an average of approximately +3% per year due to:
a slight decrease in the price component;
a positive contribution from the mix.
The negative exchange rate impact is estimated at approximately -2% per year, due to the expected
strengthening of the euro against the US dollar, and the increasing volatility of currencies in emerging
economies.
EBIT adjusted for 2020 is expected to be almost stable compared to 2019. The effect of internal
levers (price / mix, volumes and efficiencies) will offset the impact of the external scenario (inflation
of production costs, raw materials and pressures on prices).
The EBIT margin adjusted is estimated to grow to 18-19% for 2022 compared to 17.2% for 2019.
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The already high technological levels and adjusted capacities of the manufacturing plants are the
basis of the investment plan, which is more contained compared to the previous three years - equal
to euro 900 million between 2020 and 2022 following euro 1.3 billion for 2017 - 2019, thus
contributing in sustaining high cash generation together with the forecast improvement in operating
income, with more contained financial and tax expenses, and the effective management of working
capital.
For the plan time-frame net cash flow before dividends of totalling euro 1.5 billion is forecast, of
which approximately euro 400 million is for 2020, approximately euro 500 million is for 2021, and
approximately euro 600 million is for 2022.
The policy for dividends provides for a confirmed pay out of 40% of consolidated net earnings.
By the end of the plan, the net financial position of the Group, including the impact of the IFRS 16
accounting standard, is expected to decline from euro 3.5 billion for 2019, to approximately euro 3.3
billion for 2020, to approximately euro 2.5 billion for 2022.
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SIGNIFICANT EVENTS SUBSEQUENT TO THE END OF THE YEAR
In January 2020 Pirelli received three important ESG awards. On January 20, the company was
recognised as the global leader in the fight against climate change, which put Pirelli on the Climate
A-List drawn up by the CDP (the former Carbon Disclosure Project), an international non-profit
organisation that deals with collecting, disseminating and promoting information on environmental
issues. On January 31, however, Pirelli won the highest recognition in the SAM Sustainability
Yearbook 2020 published by S&P Global, achieving recognition as the ESG sector Leader in the
FTSE4Good Index Series, which sees Pirelli now ranked at the top of the Tyre and Consumer Goods
sector.
On February 19, 2020 Pirelli presented the 2020 - 2022 Industrial Plan/Vision 2025 to the financial
community. For further details, reference should be made to the section “Outlook for the 2020 – 2022
Three-Year Period”. On the same date, the Board of Directors approved the adoption of a new
monetary incentive plan - the Long Term Incentive (LTI) plan - aimed at all areas of Group
Management (currently approximately 270 participants) correlated to the objectives of the plan. The
New LTI Plan, is as in the past, totally self-financed, in that the relative expenses are included in the
financial data of the Industrial Plan. The New LTI Plan provides for the following objectives:
Total Shareholder Return (TSR) for the Group relative to the Tier 1 panel of peers, with an
overall target of 40% of the LTI monetary incentive;
cash flow for the Group (before dividends) with a target of 40% of the LTI monetary incentive;
the positioning of Pirelli in selected global sustainability indicators, with an overall target of
20% of the LTI monetary incentive.
At the same time, the Board of Directors - with effect as of December 31, 2019 - resolved to close
early, and without any disbursements not even pro-rata, the previous plan adopted in 2018 relative
to the objectives of the 2018-2020 period.
Participants of the New LTI (Long Term Incentive) Plan, amongst others, include the Executive Vice
Chairman and Chief Executive Officer of Pirelli, Marco Tronchetti Provera, the General Manager of
Operations, Andrea Casaluci, and the ESR executives identified through the express decision of the
Board of Directors as “executives with strategic responsibility”. The new LTI Plan is also aimed at
Senior Managers, (including the Director Giovanni Tronchetti Provera, as Senior Manager), and to
the Group’s Executives (managers of Italian companies or employees of foreign Group companies
with a position or role equivalent to that of Executive in Italy).
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ALTERNATIVE PERFORMANCE INDICATORS
This document, in addition to the financial measures 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 the Group’s 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 but which excludes the depreciation and amortisation of property,
plant and equipment and intangible assets. The EBITDA is used to measure the ability to
generate earnings, excluding the impact of investments;
- EBITDA adjusted: is an alternative measure to the EBITDA which excludes non-recurring and
restructuring expenses, the benefit derived from tax credits in Brazil, costs not pertinent to
normal business operations, costs relative to the renegotiation of commercial agreements, and
expenses relative to the retention plan approved by the Board of Directors on February 26, 2018;
- 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 and costs sustained
for the digital transformation of the Group. At December 31, 2018 this measure also included
costs for the conversion of Aeolus brand car products;
- EBITDA adjusted without start-up costs without IFRS 16: is equal to the EBITDA adjusted
without start-up costs but excludes the impact deriving from the application of the new
accounting standard IFRS 16 – Leases;
- EBITDA margin: this is calculated by dividing the EBITDA by revenues from sales and services
(net sales). This measure is used to evaluate operating efficiency, excluding the impacts arising
from investments;
- EBITDA margin adjusted: this is calculated by dividing the EBITDA adjusted by revenues from
sales and services (net sales). This measure is used to evaluate operating efficiency, excluding
the impacts arising from investments, operating costs attributable to non-recurring and
restructuring expenses, the benefit derived from tax credits in Brazil, costs not pertinent to
normal business operations, costs relative to the renegotiation of commercial agreements, and
expenses relative to the retention plan approved by the Board of Directors on February 26, 2018;
- EBITDA margin adjusted without start-up costs: this 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 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
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Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
expenses and net income/(loss) from equity investments. The EBIT is used to measure the
ability to generate earnings, including the impact arising from investments;
- EBIT adjusted: is an alternative measure to the EBIT which excludes the amortisation of
intangible assets relative to assets recognised as a consequence of Business Combinations,
operating costs attributable to non-recurring and restructuring expenses, the benefit derived
from tax credits in Brazil, costs not pertinent to normal business operations, costs relative to the
renegotiation of commercial agreements, and expenses relative to the retention plan approved
by the Board of Directors on February 26, 2018;
- 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 and costs sustained for
the digital transformation of the Group. At December 31, 2018 this measure also included costs
for the conversion of Aeolus brand car products;
- EBIT margin: this is calculated by dividing the EBIT by revenues from sales and services (net
sales). This measure is used to evaluate operating efficiency;
- EBIT margin adjusted: this is calculated by dividing the EBIT adjusted by revenues from sales
and services (net sales). This measure is used to evaluate operating efficiency excluding the
amortisation of intangible assets relative to assets recognised as a consequence of Business
Combinations, operating costs attributable to non-recurring and restructuring expenses, the
benefit derived from tax credits in Brazil, costs not pertinent to normal business operations, costs
relative to the renegotiation of commercial agreements, and expenses relative to the retention
plan approved by the Board of Directors on February 26, 2018;
- EBIT margin adjusted without start-up costs: this is calculated by dividing the EBIT adjusted
without start-up costs by revenues from sales and services (net sales);
- Net income/(loss) related to continuing operations adjusted: this is calculated by excluding
the following items from the net income/(loss) related to continuing operations;
o
o
o
the amortisation of intangible assets relative to assets recognised as a consequence
of Business Combinations, operating costs attributable to non-recurring and
restructuring expenses, the benefit derived from tax credits in Brazil, costs unrelated
to the normal operating management of business, costs relative to the renegotiation
of commercial agreements, and expenses relative to the retention plan approved by
the Board of Directors on February 26, 2018;
non-recurring costs/income recognised under
expenses
financial
income and
financial
non-recurring costs/income recognised as a tax item, as well as the tax impact relative
to the adjustments referred to in the previous points.
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Directors’ Report on Operations
Pirelli & C. S.p.A. – 2019 Annual Report
-
-
Fixed assets related to continuing operations: this measure is constituted of the sum of the
financial statement items, “Property, plant and equipment”, “Intangible assets”, “Investments in
Associates and Joint Ventures”, “Other financial assets at fair value through other
Comprehensive Income” and “Other financial assets at fair value through the Income
Statement”. Fixed assets related to continuing operations represents non-current assets
included in the net invested capital;
Fixed assets related to continuing operations without IFRS 16: this measure is calculated
by excluding the rights of use detected following the application of the new standard IFRS 16 -
Leases, from fixed assets related to continuing operations;
- Net operating working capital related to continuing operations: this measure is constituted
by the sum of the items, “Inventories”, “Trade receivables” and “Trade payables”;
- Net working capital related to continuing operations: this measure is constituted by the
operating working capital, and other receivables and payables, and the derivative financial
instruments not included in the net financial (liquidity)/debt position. This measure represents
short-term assets and liabilities included in the net invested capital, and is used to measure
short-term financial stability;
- Net invested capital assets held for sale: this measure is constituted by the difference
between “Assets held for sale” and “Liabilities held for sale”;
- 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 held 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 end of the period, excluding “Investments in Associates and Joint
Ventures”, “Other financial assets at fair value through other Comprehensive Income”, “Other
non-current financial assets at fair value through the Income Statement” 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: this is calculated as the ratio between the EBIT adjusted and the average net invested
capital. The ROI is used as to measure the profitability of invested capital;
- Net financial debt: this is calculated pursuant to the CONSOB Communication dated July 28,
2006, and in compliance with ESMA/2013/319 Recommendations. Net financial debt
represents, borrowings from banks and other financial institutions net of cash and cash
55
Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
equivalents, other financial assets at fair value through the Income Statement, current financial
receivables (included in the financial statements under “Other receivables”) and, current
derivative financial instruments included in the net financial (liquidity)/debt position (included in
the financial statements under current assets as “Derivative financial instruments”);
- Net financial (liquidity)/debt position: this measure represents the net financial debt less the
“Non-current financial receivables” (included in the financial statements under “Other
receivables”) and non-current derivative financial instruments included in the net financial
(liquidity)/debt position (included in the financial statements under non-current assets as
“Derivative financial instruments”). Total net financial (liquidity)/debt position is an alternative
measure to net financial debt which includes non-current financial assets;
- Net financial (liquidity)/debt position without IFRS 16: this measure is calculated by
excluding lease obligations detected following the application of the new standard IFRS 16 –
Leases from the net financial (liquidity)/debt position;
- Net financial (liquidity)/debt position without IFRS 16 / EBITDA adjusted without start-up
costs without IFRS 16: this is calculated as the ratio between the net financial (liquidity)/debt
position without IFRS 16 and the EBITDA adjusted without start-up costs without IFRS 16. This
is used to measure the sustainability of the debt;
- Operating net cash flow: is calculated as the change in the net financial position relative to
operations management;
- Net cash flow before dividends and extraordinary transactions/investments: is calculated
by adding the change in the net financial position due to financial and tax management, to the
operating net cash flow;
- Net cash flow before dividends paid by Parent company: is calculated by adding the change
in the net financial position due to extraordinary transactions and the management of
investments, to net cash flow before dividends and extraordinary transactions/investments;
- Net cash flow before dividends without IFRS 16: is calculated by adding the change in the
net financial position due to the implementation of the new accounting standard IFRS 16 -
Leases, to net cash flow before dividends paid by Parent company;
- Net cash flow is calculated by adding the change in the net financial position due to the payment
of dividends by Parent company, to the net cash flow before dividends paid by Parent company;
- Net cash flow without IFRS 16: is calculated by adding the change in the net financial position
due to the implementation of the new accounting standard IFRS 16 - Leases, to net cash flow.
- Capital Expenditures or Investments in property, plant & equipment and intangible assets
(CapEx): this is calculated as the sum of investments (increases) in intangible assets, and
investments (increases) in property, plant and equipment excluding any increases relative to the
rights of use;
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Pirelli & C. S.p.A. – 2019 Annual Report
-
Increases in the Rights of Use IFRS 16: this is calculated as the increases relative to the rights
of use detected during the application of the new standard IFRS 16 – Leases;
- Ratio of investments to depreciation: is calculated by dividing the investments (increases) in
property, plant and equipment with the depreciation for the period. The ratio of investments to
depreciation is used to measure the ability to maintain or restore amounts for property, plant
and equipment.
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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, with the power to address the administration in its entirety, with the competence
for undertaking of the most important financial/strategic decisions, or 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 also endowed with the legal representation of the Company including in the
Company’s legal proceedings, as well as all other powers attributed to the Chairman pursuant to the
Articles of Association.
The Executive Vice Chairman and Chief Executive Officer are exclusively delegated powers for the
ordinary management of the Company and the Group, as well as the power to make proposals
regarding the Industrial Plan and Budgets to the Board of Directors, as well as any resolutions
concerning any strategic industrial partnerships and joint ventures of which Pirelli is a part.
The Board has internally instituted the following Committees with advisory and propositional tasks:
Audit, Risk, Sustainability and Corporate Governance Committee;
Remuneration Committee;
Committee for Related Party Transactions;
Nominations and Successions Committee;
Strategies Committee.
INFORMATION ON THE SHARE CAPITAL AND OWNERSHIP STRUCTURE
The subscribed and paid up share capital at the date of approval of this Financial Report amounted
to euro 1,904,374,935.66 and was represented by 1,000,000,000 registered ordinary shares without
indication of their nominal value.
The shareholder Marco Polo International Italy S.r.l. - pursuant to Article 93 of Legislative Decree
58/1998 - controls the Company with a 45.52% share of the capital, but does not exercise
management and coordination activities.
Updated extracts are available on the Company’s website of the existing agreements between some
of the shareholders, including indirect shareholders, of the Company, which contain the provisions
of the Shareholders’ Agreements relative, amongst other things, to the governance of Pirelli.
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For further details on the governance and ownership structure of the Company reference should be
made to the Report on Corporate Governance and Ownership Structure contained in the 2019
Annual Report, as well as other additional information published in the Governance and Investor
Relations section of the Company’s website (www.pirelli.com).
WAIVER OF THE PUBLICATION OF INFORMATION DOCUMENTS
The Board of Directors, after taking into account the simplification of regulatory requirements
introduced by CONSOB in the Issuer’s Regulation No. 11971/99, resolved to exercise the option to
derogate, pursuant to the provisions of Article 70, paragraph 8, and 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 increases by contributions in kind, acquisitions and
disposals.
FOREIGN SUBSIDIARIES NOT BELONGING TO THE EUROPEAN UNION (EXTRA-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 28, 2017 concerning Market
Regulations.
With reference to data at December 31, 2019, the Extra-EU Companies controlled, directly or
indirectly, by Pirelli & C. S.p.A. which are of relevance pursuant to Article 15 of the Market
Regulations 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 pursuant to the same aforesaid provisions, the Company has specific and appropriate “Group
Operating Regulations” in place which ensures immediate, constant and full compliance with the
provisions of the aforementioned CONSOB Regulation. In particular, the competent corporate
departments ensure the timely and punctual identification and publication of the more significant
Extra-EU Companies, pursuant to the provisions of the Market Regulations, and - with the necessary
and timely cooperation of the companies concerned - ensure the collection of data and information
and the assessment of the circumstances referred to in the aforementioned Article 15, ensuring the
availability of the information and data provided by the subsidiaries in the event of a CONSOB
request. The periodic flow information is also provided for to guarantee to the Board of Statutory
Auditors that the Company is carrying out of the required and appropriate checks. Finally, the
aforesaid Operating Regulations, consistent with regulatory provisions, govern the making of the
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Pirelli & C. S.p.A. – 2019 Annual Report
Directors’ Report on Operations
financial statements available to the public, (that is 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 is declared 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
The Company’s Board of Directors again approved the procedure for Related Party Transactions
(“OPC Procedure”) as part of the new listing process initiated and completed in 2017. Subsequently,
following the renewal of the administrative body and the constitution of the Committee for Related
Party Transactions (“OPC Committee”), the OPC Procedure was approved, without any modification,
and following the unanimous favourable opinion expressed by the members of the OPC Committee,
also by the Board of Directors currently in office. The OPC Procedure can be consulted, together
with other corporate governance procedures, in the section of the website www.pirelli.com dedicated
to Corporate Governance. For more details on the OPC Procedure, reference should be made to
the section “Directors’ Interests and Related Party Transactions” included in the Annual Report on
the Corporate Governance and Ownership Structure contained in the Financial Statements 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 2019 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.
For the purposes of providing complete information, it is to be noted that 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 reshaping and financial effects of the same (attributable in part to the 2019
financial year) reference should be made to the sections of the 2019 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 as 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 2019 Annual Report. 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
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Directors’ Report on Operations
Pirelli & C. S.p.A. – 2019 Annual Report
by conditions consistent with those of the market. Furthermore, their execution is carried out in
compliance with the OPC Procedure.
Furthermore, there were no Related Party Transactions - or changes or developments to the
transactions described in the preceding Financial Statements - that have had a significant impact on
the financial position or results of Group for the 2019 financial year.
EXCEPTIONAL AND/OR UNUSUAL OPERATIONS
Pursuant to CONSOB Notice No. 6064293 of July 28, 2006, it is hereby specified that during the
course of 2019, that no exceptional and/or unusual transactions as defined in the aforesaid Notice
were carried out by the Company.
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 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 lawyer Alberto Bastanzio as the Data
Protection Officer (“DPO”), whose contact details have been duly communicated to the Guarantor
for the Protection of Personal Data July 25, 2018. The DPO can be contacted at, other than at the
registered office of the Company, also through 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.
The Board of Directors
Milan, March 2, 2020
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Pirelli & C. S.p.A. – 2019 Annual Report Report on Responsible Management of the Value Chain
REPORT ON RESPONSIBLE MANAGEMENT OF THE VALUE CHAIN
Consolidated non-financial disclosure pursuant to legislative decree of December 30, 2016,
n.254
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Report on Responsible Management of the Value Chain Pirelli & C. S.p.A. – 2019 Annual Report
METHODOLOGICAL NOTE
This section of the Annual Report 2019, entitled “Report on Responsible Management of the Value
Chain” (hereinafter “the Report”), constitutes the “Consolidated Non-Financial Statement” of the
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 2019 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 (materiality, inclusivity and
responsiveness), and considering the integrated reporting principles contained in the International
Integrated Reporting Council (IIRC).
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 2019 compared to 2018 and 2017,
with respect to the targets set for 2019 from the 2017-2020 Industrial Plan. In this regard, please
note that in February 2020 the Company will be presenting the new Industrial Plan and the related
long-term strategic sustainability targets. The Plan will be published at the same time on the
institutional website www.pirelli.com.
The Report is published annually (the previous Pirelli Annual Report was published in April 2019 with
reference to the year 2018), 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 and reporting of
non-financial information are defined;
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 that
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Pirelli & C. S.p.A. – 2019 Annual Report Report on Responsible Management of the Value Chain
information considered to be of particular relevance since, for example, it falls within the
Group Sustainability Plan targets;
a verification, following a circuling 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 Information (ISAE 3000), 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).
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 investors, 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 2019, before the Independent Auditor’s Report mentioned above,
the following summary Tables are available:
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 2019;
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;
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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 entire value chain. Every operating unit
integrates 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, ISO 45001/OHSAS 18001 for the management of Health
and Safety in the workplace, ISO 14001 for environmental management. The company is also
inspired by the 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 the paragraphs “231 Compliance, Anti-Corruption, Privacy and Antitrust Programmes”, “Our
Customers”, “Our Suppliers”, “Environmental Dimension”, “Industrial Relations” and “Occupational
Health, Safety and Hygiene” of this Report.
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
Statement, 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.
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The organisational structure is thus made up of Institutional Affairs and Sustainability Department
reporting directly to the CEO of the company, which has oversight of the management at a Group
level and proposes plans for sustainable development to the Sustainability Steering Committee. The
Institutional Affairs and Sustainability Department receives support from the Country 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.
SUSTAINABILITY PLANNING AND THE UNITED NATIONS SUSTAINABLE DEVELOPMENT
GOALS
Pirelli’s sustainable development planning aims to make a tangible contribution to the global effort
to achieve the 2030 Sustainable Development Goals (SDGs) presented by the United Nations in
September 2015.
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.
In February 2020, the Company will present the new Industrial Plan and the related long-term
strategic sustainability targets. The Plan will be published at the same time on the institutional
website www.pirelli.com.
During 2019 Pirelli continued to implement the Sustainability Plan 2017-2020 with selected targets
for 2025, published in 2017, fully complementary with the Company’s “High Value” development
strategy. 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 of the Sustainability Plan 2017-2020 with selected targets for
2025 (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:
o 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;
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o motorcycle products (compared to 2009): average reduction in rolling resistance of
10%, improvement of 40% in performance on wet surfaces and 30% in durability;
o 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;
adoption of increasingly 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 Roadmap 2019-2021 relating to the sustainable
management of the natural rubber supply chain.
The Countries where the Group is present with commercial and industrial subsidiaries also have a
Country Sustainability Plan with specific targets identified to align to the Group’s sustainability
targets.
The above mentioned targets are intended to contribute to the achievement of 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;
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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 “Transforming Urban Mobility”;
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 supply chain”, with
reference to the partnership with our suppliers in the implementation of the Roadmap of
Activities at 2021, and “WBCSD”, with reference to the project “Transforming Urban Mobility”
and the Global Platform for Sustainable Natural Rubber.
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.
Please be aware that:
the Pirelli Sustainability Plan 2017-2020 with selected targets for 2025 is published in the
“Sustainability” section of the Company’s website (www.pirelli.com), where the new Industrial
Plan and related long-term strategic sustainability targets that the Company will present in
February 2020 will also be published;
at the end of the 2019 Annual Report, prior to the Independent Auditors’ Report, the Summary
Tables including a correlation table between the Group’s performance/targets and the United
Nations Sustainable Development Goals, on which the aforementioned performance and
targets have an impact.
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;
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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 2019, particular relevance was given to the engagement and training of the Group’s natural
rubber suppliers, in the implementation of the 2019-2021 roadmap of activities defined by the
Company following the consultation with the relevant local and global Stakeholders for the
implementation of the Pirelli Policy on the Sustainable Management of Natural Rubber (for further
information on the sustainable management of natural rubber, see the dedicated paragraph to this
Report).
In the preceding years, several consultation meetings were held for the relevant national and regional
Stakeholders, 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. In 2018 meetings were held in the
United States and the United Kingdom, in 2017 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.
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MATERIALITY ANALYSIS AND MAPPING
The Pirelli materiality matrix was published in 2019, updating the materiality matrix prepared in 2016.
The thorough Stakeholder Engagement activities allowed the observation of the priorities assigned
by the key Stakeholders relating to a panel of sustainability issues critical for the Autoparts sector,
and therefore to compare these expectations with the importance of the same issues for the success
of the business according to the experience and expectations of the Top Management.
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.
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;
international and local NGOs present in the various Countries in which Pirelli has production
activities;
universities that have collaborations with the Group.
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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 Materials8;
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.
8 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.
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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.
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 materiality matrix is a key element for the definition of a sustainable development strategy in the
Group and as such is considered in the definition of the new Industrial Plan and related long-term
strategic targets that the Company will be presenting in February 2020.
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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” Privacy 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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Next, a focus on the Compliance programmes “231”, “Anti-corruption”, “Privacy”, “Antitrust” and on
the “Whistleblowing” policy.
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.
During 2019, the Board of Directors of the Company approved the new version of the Model, updated
taking into account the legislative and jurisprudential innovations and, in particular, in compliance
with Article 2 of Law no. 179/2017, concerning whistleblowing, the management methods of the
internal reporting system and the disciplinary system were modified. In addition, the changes
introduced by Legislative Decree no. 107 of 10 August 2018 and the provisions of Law no. 3 of 9
January 2019, which expanded the catalogue of offences and tightened the penalties applicable to
entities, were also implemented.
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 communicating and implementing the Group Anti-Corruption Programme continued
in 2019 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”.
As part of the anti-corruption programme implementation process, country-specific training courses
have been implemented through e-learning platforms or classroom courses. In addition, during the
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year, a worldwide anti-corruption training course was prepared for the Purchasing Department to
raise awareness of the issue so as to make it easier for employees to identify potential critical
situations and activate the procedures set out in the internal rules.
The activity aimed at analysing the profiles of corruption risk and continued through the assessment
of conformity with local regulations in force in the Countries where the Company is present, the
verification of the adequacy of the corporate oversight and the updating of the risk analysis.
Finally, specific procedures have been formalised on the third party due diligence process through
the verification of the activities, conducted in the main countries, of gathering and verifying
information of an ethical, legal and reputational nature relating to counterparties and aimed at
identifying potential compliance risks in advance. During the year, the certification body performed
periodic audits on the ISO 37001 Anti-Corruption Management System of Pirelli & C., Pirelli Tyre
S.p.A and the Russian and Brazilian entities, reconfirming the validity of the certifications previously
obtained. In 2019, the process of certification of the Spanish company began and will be completed
in early 2020.
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”.
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 2019, on the basis of the reports received
through the whistleblowing reporting channel, 2 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 2019 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.
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Also in 2019, Pirelli supported the activities of Transparency International, to which it 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 2019 the processing activities
carried out by the Group companies based within the European Union and the Russian Federation
were monitored in order to verify their compliance with the EU Regulation 2016/679 and the Russian
Data Protection Act respectively, taking the most appropriate corrective actions where necessary. At
the same time, a project was launched and completed to bring the US companies of the Group into
compliance with the new regulations on the protection of personal data introduced by the California
Consumer Privacy Act. Work also continued on compliance with Brazilian legislation on the
protection of personal data in anticipation of its entry into force. 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.
Throughout 2019 Pirelli continued to implement the Antitrust Programme in the various Countries in
which it operates: 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 2019 Pirelli was not involved in any antitrust proceedings or investigations as participant in anti-
competitive conduct.
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.
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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.
Internal Audit Department has the task of analysing all reports received, even involving corporate
functions felt to be concerned for the activities necessary of verification, in addition to scheduling
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.
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In respect of reports received in the years 2019, 2018 and 2017, below is a summary table and then
a further study of reports from 20199.
2019
2018
Total reports
Of which anonymous
Of which filed closed for
being absolutely generic.
Of which founded
77
29
6
24
70
22
2
25
2017
34
7
1
9
Countries of origin of the
reports ascertained
Brazil, Bulgaria, Dubai,
Greece, Italy, Romania,
and Russia
Brazil, China, Italy,
Romania, Russia, United
States and UK
Brazil, Chile, Spain, United
States and UK
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, product quality
anomalies, discrimination.
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.
Review and process
integration where deemed
fitting, orders by the
functions concerned and
Human Resources
Department.
During the course of 2019 the Whistleblowing procedure was activated 77 times. In particular:
the 77 reports were received from 14 different Countries (Argentina, Brazil, Bulgaria, China,
Dubai, Egypt, Germany, Greece, Italy, Romania, Russia, the United States, South Africa and
the UK);
82% of the reports (63 cases) were forwarded using the email address ethics@pirelli.com
provided, while 18% (14 cases) by sending a letter to management which dealt with informing
Internal Audit Department as per corporate rules;
62% of the reports (48 cases) were signed whereas the remaining 38% (29 cases) were
received in anonymous form;
9 The data reported are related only to the consolidated scope of the Consumer business. Furthermore, with regard to the 6 reports that
were still in progress at the reporting date of the 2018 Annual Report, following the conclusion of the verification activities in 4 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.
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among the signed notifications, 19 were activated by external Stakeholders, of which 13 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 2 cases 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 77 reports received during the 2019 year, at the beginning of 2020, 6 were found to be at the
verification and in-depth investigation stage, whereas 71 were found to have been concluded. In
respect of these latter, specific activities of verification involving, where necessary, the corporate
functions concerned were conducted, and based on the analyses carried out and the documentation
made available during the assessment, it emerged that:
in 47 cases objective corroborating evidence was detected such as to hold the facts
contended in the reports received to be true;
in the remaining 24 cases the substantial truthfulness of the facts attributed was found, in
particular, 2 cases concerned fraud against the Company or third parties, 1 case connected
to discriminatory attitudes, 1 case relating to product quality anomalies and 20 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.
In terms of trends over the last three years, in 2019 there was a slight increase in reports compared
to 2018, a year that showed significant growth compared to 2017. The leap observed between 2017
and 2018 is likely to be linked to the focus placed by the company on strengthening the knowledge
of the Policy by Group employees, particularly during Internal Sustainability Audits. The trend also
confirms the substantial confidence placed in the Company in the management of 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.
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ECONOMIC DIMENSION
SHARING OF ADDED VALUE
The Values and Ethical Code of Pirelli ratify the commitment of the Company to operate to ensure
responsible development over the long term, while being aware the connections and interactions
between economic, social and environmental dimensions. This is to wed the creation of value, the
progress of the company, the attention given to Stakeholders and the 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 €)
2019
2018
2017
Gross Global Added Value
2,315,148
2,177,745
2,079,628
Remuneration of personnel
(1,072,167) 46.3%
(1,067,579) 49.0%
(1,034,647) 49.8%
Remuneration of Public Administration
(164,562)
7.2%
(52,964)
2.4%
(40,848)
2.0%
Remuneration of borrowed capital
(109,480)
4.7%
(196,311)
9.0%
(362,610) 17.4%
Remuneration of risk capital
(177,000)
7.6%
-
0.0%
-
0.0%
Remuneration of the company
(788,044) 34.0%
(857.079) 39.4%
(634,727) 30.5%
Contributions to the external community
(3,895)
0.2%
(3,811)
0.2%
(6,796)
0.3%
The added value created in 2019 recorded an increase of 6.3% compared to 2018. This change is
mainly due to the increase in the remuneration of the Public Administration and risk capital, partially
offset by the reduction in the remuneration of 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 2019 for the external community on the net result
of the Group amounted to 0.9% (0.9% in 2018). The table below shows the expenses incurred in the
last three years, which grew slightly in 2019 compared to 2018 and contracted compared to 2017
due to cost containment activities at Headquarters.
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Report on Responsible Management of the Value Chain Pirelli & C. S.p.A. – 2019 Annual Report
CONTRIBUTION TO THE EXTERNAL COMMUNITY (in thousands €)
Training and research
Social-cultural initiatives
Sports and solidarity
2019
2018
2017
691
823
2,136
2,181
1,068
807
877
4,877
1,042
Total contributions to the external community
3,895
3,811
6,796
For further study of the main initiatives supported by the contributions indicated above and related
model of governance, please refer to the paragraphs in this report devoted to corporate contributions
and initiatives for 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 received by the public administration in 2019 are shown below.
Romania
The fourth and last tranche, amounting to €10 million, of the loan granted in 2009 by the European
Investment Bank (EIB) to Pirelli Tyres Romania S.r.l. for a total of €50 million was repaid in March
2019. The loan was granted for the expansion of the Slatina plant for the production of tyres for cars
and light commercial vehicles. For the sake of completeness, it should be noted that the first tranche,
amounting to €20 million, was repaid in May 2017 and that the second and third tranches, amounting
to €10 million each, were repaid in March and July 2018, respectively. This loan was in addition to a
similar one, received to support 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 of €28.5 million from the Romanian state as an incentive for local investments,
of which €7.6 million in 2019 (the incentives were paid from 2018 onwards).
Italy
No receipts for national or regional contributions were recorded during the 2019 financial year. For
the sake of completeness, Pirelli Tyre S.p.A. obtained incentives from the Lombardy Region in the
form of non-repayable grants of €1.7 million and €2.4 million for the implementation of two R&D
projects on Safety and Smart Manufacturing, of which €0.8 million was collected. During the year,
the company also signed an agreement with MiSE (Ministry of Economic Development) for the
facilitation of three R&D projects up to a total of €6.3 million.
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Mexico
In 2019 Pirelli Neumaticos S.A. de C.V. (Mexico) received a new grant contribution from the
Government of the State of Guanajuato (Mexico) for investments and generation of employment for
a total of €2.4 million entirely collected during the year. The company also received grant
contributions from the Mexican Federal Government for investments and generation of employment
for the ProMéxico project, for a total of €10 million. No further government grants were received
during 2019 (the incentives were paid from 2012).
RELATIONS WITH INVESTORS
In accordance with what is set out in the Values and Ethical Code of the Group, Pirelli engages in
constant dialogue with shareholders, bondholders, institutional and individual investors, and analysts
at the major investment banks via the Investor Relations function and the Group’s Top Management
to promote communication that is equal, transparent, timely and accurate.
Financial Communication activities continued during 2019 with the promotion of meetings with Italian
and foreign analysts and investors. In line with international Best Practices, the “Investors” section
of the Pirelli website is constantly updated with information on strategy, business model, market
performance and positioning with respect to competitors.
The interest of the financial community towards Pirelli is proved by the broad coverage of the stock
by 20 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 in the
“Investors” section on the company’s website and periodically updated.
2019 was a year of high volatility in the main equity markets. Uncertainty over economic growth,
international trade tensions, as well as the progressive decline in global Auto production, impacted
the Auto & Parts sector for much of the year. Pirelli closed 2019 with a market capitalisation of €5.2
billion (average capitalisation in December), down 5%10. This compares with -21%10 for Goodyear, -
1%10 for Continental, +1%10 for Nokian, 0%10 for Bridgestone, +30%10 for Michelin, +15%10 for the
EU Stoxx 600 A&P index.
10 Stock market trend 1 January - 31 December; the value is net of dividend distribution and/or other extraordinary transactions.
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Below is a summary of stock market performance since the beginning of the year:
Pirelli
Continental
EU A&P Index
Nokian
Goodyear
FTSE Mib Index
Michelin
Bridgestone
Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18
Pirelli’s commitment to the creation of sustainable value that characterizes the Company’s
responsible management and its economic, social and environmental performance allows it to be
included in some of the world’s most prestigious sustainability stock market indices, including Dow
Jones Sustainability Index World and Europe and FTSE4Good, both of which have top industry
ratings globally, Euronext Vigeo World 120 and Europe 120, Ethibel Sustainability Index (ESI)
Excellence Europe, ECPI, ISS ESG Rating and MSCI ESG Rating.
With particular reference to the Dow Jones Sustainability indices, in September 2019 Pirelli was
recognised, as in 2018, as world leader in the Auto & Components sector in the Dow Jones
Sustainability Indexes World and Europe, with a score of 85 compared to a sector average of 36. In
addition, in January 2020, Pirelli was the only company in the Auto Components sector worldwide to
be awarded “Gold Class Distinction” in the SAM Sustainability Yearbook 2020 published by S&P
Global; both the Dow Jones Sustainability Index and the Sustainability Yearbook are based on
RobecoSAM’s Corporate Sustainability Assessment, which analyses the ESG performance of over
4,700 listed companies in 61 different sectors.
It should also be noted that, in January 2020, Pirelli was reconfirmed on the Climate A List of the
CDP (Carbon Disclosure Project) and became one of the global leaders in the fight against climate
change. In 2019, more than 8,400 companies reported their greenhouse gas emissions through the
CDP, a non-profit organisation supported by 525 institutional investors, managing assets worth more
than US$3.6 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.
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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 Original Equipment Vehicles, Sport Utility Vehicles (SUVs) and light commercial vehicles
segment, Pirelli can count on a Premium customer market share of around 20% globally and more
than 20% in Europe; in the Prestige segment, which represents the top of the range, Pirelli exceeds
50%.
In the Replacement segment, 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 2019, Pirelli can count on more than
16,500 Loyal Resellers globally, with a particular concentration in Europe, Asia-Pacific and South
America (about 75% of the total points of sale). The degree of affiliation varies according to the
market and the very presence of Pirelli, ranging from a softer loyalty (Fidelity Club), which has as
main objective for Pirelli territorial coverage and for the dealer sales support; to franchise
programmes, in which through the exclusive 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 (318 points of sale worldwide).
Starting in 2016, and in line with Pirelli’s “Prestige” strategy, a new retail concept called P ZERO
WORLDTM was born, with the aim of offering the best services to satisfy the most demanding
consumers. P ZERO WORLDTM offers its customers the entire range of Pirelli products (Car, P
ZEROTM Trofeo®, Pirelli Collection, Moto and Velo) and a series of “customer-oriented” services
such as car valets and courtesy cars, all immersed in an environment that allows you to fully
experience the Pirelli World, being able to touch the most important assets such as F1®, the
Calendar and the partnerships of Pirelli Design. By 2020, the P ZERO WORLDTM Network will identify
approximately 135 stores among Pirelli’s best customers, located in the main countries of the world.
Among these, 5 are already active Flagship Stores (Los Angeles, Munich, Monte Carlo, Dubai and
Melbourne), while the remaining are authorised dealers, with about 90 new openings planned for
2020.
“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.
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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, will lead to an evolution of mobility with a speed that 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.
This is the context in which the Cyber™ project and tyres sensorization, an integral part of Pirelli’s
strategy that makes technological innovation a distinctive and key element in responding to the major
issues that will transform the concept of mobility, which sees a future of independently-driven electric
cars that are shared and connected, through 5G, to the entire road infrastructure.
Pirelli is present in the world of bicycle tyres with several product lines: the line dedicated to road
racing bikes: P ZERO™ Velo and CINTURATO™ Velo, the line dedicated to the off road world of
mountain bikes SCORPIONTM MTB and the Urban CYCL-e™ line.
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 Department, 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;
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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 involves
immediate intervention with respect to the interlocutor.
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 media planning, both in the case of
promotional activities managed centrally and locally with central supervision.
In terms of production of advertising campaigns and media planning, Pirelli uses specific auditing
and certification structures that place the Company at the highest levels in terms of transparency
and traceability in its advertising investment strategies.
The Pirelli Group endorses the IAB (Interactive Advertising Bureau) and is associated with the UPA
(Associated Advertising Users), among other things dedicating ongoing commitment to support the
Advertising Code of Corporate Governance of the association. Through the UPA, Pirelli is a member
of the WFA (World Federation of Advertisers), which commits participating firms to pursue honest,
truthful and fair competition and communication in compliance with the code of conduct and self-
regulation which they adopt. Consumer protection is also guaranteed by the choice of suppliers in
the communication sector (creative agencies, media centres, production companies) that in turn
belong
to business and professional associations governed by 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 20 Motorcycle websites (in 14 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 2019, these websites attracted 7.5 million
unique users, for a total of 9.7 million sessions and 31.8 million page views.
A further digital touchpoint that brings the consumer to the point of sale is represented by the Retail
sites: present in 10 countries, it has intercepted 2.1 million users in 2019 (for a total of 7.1 million
page views) and generated about 106,000 appointment bookings, over 50,000 calls to the dealer,
about 7,000 contact requests via e-mail.
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In 2019, 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 from headquarters, and local-
language edition adapted to 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.
Of particular relevance in terms of communication on product developments is participation in the
main Autoshow events. At the Geneva Motor Show 2019 Pirelli presented the P ZEROTM product
family, unveiling the brand new P ZERO WINTERTM. Also in 2019 Pirelli took part in the most
important Consumer Prestige events, such as the Salon Privé (England) and the Villa d’Este
Elegance Competition and conducted three driving events called the P ZEROTM Experience in Italy,
Germany and Abu Dhabi.
Pirelli continues 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 record in 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 most prestigious
motorsport championships like the GT World Challenge Europe, America and Asia and in particular
Formula 1®, of which Pirelli is the Global Tyre Partner until 2023.
In 2019 Pirelli took part in Eurobike, the main international cycle fair, where it presented the entry
into the Gravel segment with the CINTURATO™ Gravel line.
The training of customers on the product even in 2019 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 15,000 participations by dealers,
belonging to the 24 main markets, in classroom training courses on the Pirelli product, technology
and sale of tyres; 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 order to support the product trainers, Pirelli has developed a library of technical content 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.
During 2019 the use of the new online training site TYRE-CAMPUS™ was consolidated, now
covering 24 markets in 16 different languages. To date, more than 14,000 points of sale are
registered on the new site, with a total of over 18,200 active users. Training on the product is provided
in an engaging and customisable way on the various types of distribution channel, with more paths
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linked to the individual product families. In addition to being involved in a modern and intuitive
environment, users are also involved in the “Product Expert” certification which can be obtained and
downloaded from the site once all the training courses assigned during the year have been
completed.
Pirelli also continues to certify all its dealers who complete the product training successfully. The
certificate is indicated by a “Product Expert” plaque to be displayed 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 2019, 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 2.6 million followers, with a growth of 3%
over the previous year. Also on Twitter, the Pirelli accounts have seen an increase in followers,
reaching more than 302,000 people, over 12% more than in 2018. A very important step forward
was on Instagram, where Pirelli channels reach more than 790,000 followers, an increase, year-on-
year, of 40%. Finally, there are about 22,200 followers of Pirelli on the main online video platform,
YouTube, and over 450,000 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 2019, on the new digital communication platform, Pirelli published 350
articles - on product, motorsport, culture and sustainability - gathering over 6.6 million visits, of which
almost half were attracted through social networks and more than 5 million unique users, an increase
of 17% compared to 2018.
As for the Motorcycle world, the Pirelli and Metzeler brands boast a structured and widespread
presence on the main social networks: the Pirelli brand, as well as on the Facebook channel (with
more than 979,000 fans connected to the Global Page which includes 19 local pages) is on
Instagram with over 145,000 followers and has dedicated profiles on Twitter and YouTube. Worthy
of note is the mobile application DIABLO™ Super Biker, which has been downloaded by more than
615,000 people around 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 24 countries worldwide, is present on
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Facebook with a Global Page that has more than 434,000 fans and includes 17 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 community of motorcyclists:
over 400,000 for Pirelli Moto and over 61,000 for Metzeler.
Pirelli Velo, in turn, speaks with its consumers also through a website dedicated to the world of
cycling. 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 2019 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.
In terms of performance indicators, Pirelli considers Top of Mind, Brand Awareness and Brand
Consideration. With reference to the Target Premium 18” Up represented by Premium car owners
which can mount tyres with rims equal or higher than 18 inches, the analysis carried out in 2019 saw
Pirelli positioned in the Top Three of the main tyre brands: in first place for Top of Mind, and second
place for Brand Awareness and Brand Consideration in the United Kingdom, in first place for Top of
Mind and Brand Awareness and second place for Brand Consideration in Italy, third place for Top of
Mind, Brand Awareness Brand Consideration in Germany and in second place for Brand Awareness
and third for Top of Mind in France. Outside Europe, Pirelli is in first place for all KPIs (Top of Mind,
Brand Awareness and Brand Consideration) in Brazil, second place for all KPIs in Russia, and third
place for Top of Mind and Brand Awareness and second place for Brand Consideration in China.
Product safety, performance and eco-sustainability
Safety and technological solutions to support the environment are essential values of Pirelli’s product
offering and commitment. In 2019, the company once again distinguished itself on the market in the
development of tyres and technologies that are aimed at raising the limits of safety, performance
and environmental protection.
During 2019, Pirelli presented its first tyres with the ELECT marking that distinguishes all Pirelli tyres
developed together with original equipment on electric vehicles. The marking represents the clear
identification of a tyre built through technological solutions and material packages able to enhance
the technical peculiarities of electric vehicles, in particular in terms of:
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;
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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 grip.
In addition to the above, the continuous renewal of the range has made it possible to offer the market
products with lower rolling resistance values, which as a result are more eco-sustainable. Among
the price lists (Pricat Germany) of January 2018 and September 2019, the number of items in class
A and B rolling resistance increased from 150 to 230, showing a growth of over 50%.
In 2019 the commercial offering in North America saw the introduction of two products with an
improvement in both performance and safety: SCORPION All Season Plus II and CINTURATO P7
All Season Plus II. The product has seen significant improvements in performance on wet surfaces,
braking in particular.
Among the products in Pirelli’s portfolio, ICE ZERO 2™ and SCORPION ICE ZERO 2™ are new
generation studded tyres developed for a wide range of cars and SUVs, designed to ensure excellent
performance in extreme winter conditions on snowy and icy roads. Higher levels of safety and driving
control are guaranteed by specific innovations related to tread design and studded technology.
The company’s strength is highlighted even in the most extreme winter conditions. In 2019, two
podium finishes were taken by Pirelli ICE ZERO™ FR, the non-studded product developed for harsh
winters that offers excellent levels of grip and safety even on snowy and icy surfaces. Excellent
positioning also for the WINTER CINTURATO™, a winter product for the European market that
obtained a place on the podium thanks to its high performance in all conditions of use.
Volumes are continually growing of Pirelli PNCS™ tyres, whose innovation is crucial to reducing the
noise inside the passenger compartment generated by tyre rolling 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 Jaguar-Land Rover, Audi, Volvo, Mercedes, Ford, Tesla, Porsche, Bentley,
McLaren, Aston Martin and BMW, but also by end customers who choose to fit Pirelli PNCS™ tyres
in replacement, with a 75% higher volume increase in 2019 than the previous year.
The safety and performance of Pirelli products are finally certified by tests conducted by leading
automotive magazines. In 2019 Pirelli came first in 2 tests with PZERO™, a product for high
performance cars, thanks to its high driving characteristics in dry and wet asphalt conditions.
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
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to the new ISO 9001: 2015 ended in September 2018. In 2019, all the certifications obtained were
verified by third-party bodies and kept active.
IATF 16949:2016: since 1999 the Group has obtained the certification of its Quality Management
System according to the automotive scheme and subsequent evolutions. 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. In 2019, all the certifications obtained were verified by third-party bodies and kept
active.
ISO/IEC 17025: Since 1993 the Materials and 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. In accordance with the rules for transition to ISO/IEC
17025:2017, in 2019 the Pirelli Tyre S.p.A. Laboratory successfully obtained accreditation for the
new version. The labs participate in proficiency tests organised by the International Standard
Organisation, by ETRTO or by international circuits organised by auto manufacturers. Specifically
with 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 2019:
no cases emerged of non-compliance with regulations or voluntary codes concerning
marketing activities, including advertising, promotion and sponsorship;
no significant final penalties were levied and/or paid relating to infringement of laws or
regulations, including those relating to the supply and use of the Group’s products and/or
services;
no cases emerged of non-compliance with regulations or voluntary codes concerning
information and labelling of products/services which have led to the imposition of sanctions
and/or injunctions by the applicable authorities;
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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.
OUR SUPPLIERS
Supply Chain Sustainable Management System
The supply chain management model adopted by Pirelli fully complies with the provisions of the
international guidelines for sustainable procurement ISO 20400 - “Sustainable Procurement
Guidance”, as certified at the beginning of 2018 by a third party (SGS Italia S.p.A.) following an in-
depth evaluation. The analysis confirmed that the requirements of the ISO 20400 standard are fully
met by Pirelli’s procurement model, both in terms of corporate policies and strategies and in terms
of managing the internal processes needed to implement sustainability requirements in purchasing
dynamics, and at a more operational level in the direct management of supplier ethical performance.
The certification of full compliance with ISO20400 is in addition to the certification of compliance
obtained by the Company with the guidelines on social responsibility dictated by ISO 26000.
The Group’s relations with suppliers 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.
The sustainable management of the supply chain is handled in the “Green Sourcing Policy”, the
“Social Responsibility Policy on Occupational Health, Safety and Labour Rights, Environment”, the
“Global Health, Safety and Environment Policy”, the “Global Human Rights Policy”, the “Global
Quality Policy”, the “Product Stewardship Policy”, and in the Group’s “Sustainable Natural Rubber
Policy”. In all the documents cited, with reference to the specific social and environmental issues
discussed from the individual Policies, 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 extend its responsible management in the supply chain as far as possible back to the origin of the
chain.
The Policies mentioned are available to suppliers in their local languages; for the full text in several
languages please see the Sustainability Section on the Pirelli website.
The social, environmental and business ethics responsibilities of a Pirelli supplier are assessed
together with the economic and product or service quality to be supplied, right from the selection as
potential supplier stage.
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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.
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 intensity of
the interactions characterising the specific procedural stages.
During a first phase of scouting, and thus assessment of potential suppliers of goods or services, a
buyer who has been adequately trained is able to gain a first impression of the abidance by the ESG
and product or service requirements by the potential supplier. This makes it possible to eliminate
potential future suppliers that are clearly in possible violation of Pirelli expectations.
Pirelli asks suppliers who gain access to the on-boarding (pre-qualification and qualification) phase
to fill in the questionnaire through which the supplier can view and simultaneously accept Pirelli’s
requests in terms of economic, social, environment and business ethics responsibilities. Among the
questions asked to the potential supplier, for example, the request to certify 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 then continues with further questions aimed at
identifying potential integrity and corruption risks in advance and with the request to attach any
certificates such as ISO 9001. For specific product categories (raw materials), information on loss
prevention is also requested, 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, 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
during 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.
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The non-acceptance of the audit and/or not signing the corrective action plan shall block the
qualification of the supplier.
This is also the context of more than ten years of preventive assessment of new raw materials and
new auxiliary products from the perspective of workers’ health and the environment. This
assessment - conducted centrally - is carried out before the materials in question are used
extensively by the Group’s operating units. The assessments are carried out taking into account not
only the requirements of the more restrictive European regulations on the management of hazardous
substances (for example, the so-called “REACH” and “CLP” Regulations), but also by virtue of the
standards and knowledge available at international level (specific databases, etc.). Also worthy of
mention are the activities of monitoring the producers and suppliers of the raw materials used by the
entire Group (in accordance with the above Regulations), as well as those carried out with regard to
compliance with the requirements of Regulation (EU) 2017/821 on so-called “conflict minerals” (to
which a paragraph is dedicated below).
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.
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:
o not using or supporting the use of child labour and forced labour or any other form of
exploitation;
o ensuring equal opportunity, freedom of association and promotion of the development
of each individual;
o opposing the use of corporal punishment, mental or physical coercion, or verbal
abuse;
o complying with the laws and industry standards concerning working hours and
ensuring that waves are sufficient to cover the basic needs of personnel;
o 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;
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o assess and reduce the environmental impact of its own products and services
throughout their entire life cycle;
o using resources responsibly with the aim of achieving sustainable development in
compliance with the principles of respect for the environment and the rights of future
generations;
o establishing and maintaining the necessary procedures to evaluate and select
suppliers and sub-suppliers on the basis of their commitments to social and
environmental responsibility, 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 2019, 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.
Focus: ESG on-site audit
The Pirelli management model has been characterised by third-party on-site audits since 2009. The
on-site audit is already carried out in the pre-qualification phase for all potential new suppliers and/or
plants of raw materials and high value-added goods that, by their nature, can become development
partners/long-term partners for the Company, to which a large part of the purchase spending is
allocated.
In addition, every year Pirelli conducts an on-site third-party ESG audit campaign at active suppliers’
sites to cover all product and geographic areas of purchase.
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The results of the on-site ESG Audit, together with further assessments made during the supplier’s
on-boarding phase, are integrated into the annual Vendor Rating process, according to which the
supplier is given a rating that sums up their ESG performance, the quality of the supplies, the quality
of the business relationship and the technical-scientific collaboration.
The annual Audit Campaign determines the list of suppliers to be audited based on an approach that
integrates materiality and risk. The Group’s Purchasing and Sustainability Departments define the
Guidelines for Risk Assessment which, carried out by local Purchasing Managers and Sustainability
Managers, will lead to the selection of suppliers to be audited on site. The following basic parameters
are considered in the assessment:
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;
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.
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. 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 to which loss prevention KPIs
have been added since 2019. For natural rubber suppliers, the checklist of verified parameters is
derived from Pirelli’s Policy for the sustainable management of natural rubber, on which a paragraph
is dedicated below.
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Here below, the number of ESG on-site third-party audits performed in the last three years:
Year
2017
2018
2019
Audit Number
8311
8512
9013
In most cases the 2019 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 China, France, Belgium, Netherlands, Germany, Malaysia,
Indonesia and Brazil.
The results of the audits carried out during the 2019 annual campaign show:
44% of suppliers without non-compliance;
a total number of non-conformities found on-site decreased by 4% compared to 2018.
The non-conformities registered in 2019 are substantially linked to the processes of health and safety
management, the use of overtime and the correct implementation of environmental management
systems.
On the basis of audit findings, and where non-conformities are found, the supplier signs off a
corrective action plan suggested by the independent auditor, to be implemented within specific
deadlines. The implementation of the recovery plan is verified by a follow-up activity (documentary
or a new on-site audit) directly followed by the Auditor, who report to Pirelli. The Group Internal Audit
Department verifies the adequacy of supply chain management by the local responsible Functions
(Sustainability and Purchasing).
Materiality of ESG impacts on the supply chain
Social impact (human and labour rights in particular) is evidenced 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.
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
11 of which 14 on potential new suppliers of raw materials.
12 of which 16 on potential new suppliers of raw materials.
13 of which 26 on potential new suppliers of raw materials.
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category of raw materials, in terms of direct emissions and impact on Pirelli’s indirect emissions, 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.
Pirelli mitigates the risks mentioned through the Management Model adopted above 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/farmers,
traders, processors, distribution companies and manufacturing facilities. Pirelli is at the end of the
chain, as a tyre manufacturer that does not own its own plantations 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.
In October 2017, Pirelli issued its “Sustainable 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;
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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 for 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;
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 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 and attended by international NGOs, the main suppliers of natural rubber of Pirelli,
traders and farmers from the supply chain, automotive customers and international multilateral
organisations.
At the same time, Pirelli defined its Action Plan for the three-year period 2019-2021 and detailed its
Action Plan for 2019.
The Policy, the Implementation Manual and the 2019-2021 Action Plan and detailed Action Plan for
2019 are published on the Group website, in the Policy area within the Sustainability section.
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During the course of 2019, Pirelli implemented the activities planned for the Action Plan 2019, with
the support of central and local specialists from Earthworm Foundation.
The first activity envisaged in the 2019 plan concerned the engagement of suppliers on the
sustainable development strategy envisaged in the Pirelli Policy, the Implementation Manual and the
2019-2021 Activity Roadmap, with a view to partnership and collaboration for a common goal. To
this end, Pirelli organised interviews with the management of all suppliers, including a number of
dialogue sessions at the factories. At the end of 2019, the engagement activities carried out covered
100% of the volumes purchased by Pirelli during the year.
A further objective of the 2019 roadmap was the identification, together with suppliers, of the
geographical areas of purchase of the natural rubber supplied. The ability to identify the origin of
natural rubber is in fact crucial for mapping potential risks within the supply chain, both deforestation
and social, and to enable further efforts in terms of traceability. Thanks to the relationship of
collaboration, trust and the necessary respect for confidentiality on competitive details for suppliers,
at the end of the year Pirelli was able to have a map of supply chain areas with information that in
many cases identifies the village of origin of natural rubber. At the same time, together with the
Earthworm Foundation, Pirelli conducted an analysis of potential socio-environmental risks by
geographic area mapped, sharing it with its suppliers so that it could serve as a basis for defining
roadmaps for appropriately targeted activities.
With regard to mapping deforestation risk, the desk activity was supported by an innovative tool that
uses satellite images to identify areas of deforestation in selected areas. At the end of 2019 and
beginning of 2020 the test is underway and the results will be integrated into the risk maps to allow
updates of risk mitigation plans where appropriate.
The main objective of the 2019 plan was also training on the contents of the Pirelli Policy and the
related Implementation Manual for all employees of Pirelli suppliers directly involved in “field”
activities, in the local language and in all countries from which Pirelli sources its supplies. 100% of
natural rubber suppliers participated in six seminars organised by Pirelli in five countries (Indonesia,
Thailand, Malaysia, China and Brazil), which were also attended on various occasions by national
authorities active in the sector. The three-day training sessions were supported by local specialists,
who lowered the topics covered in the Policy on local realities, making the training particularly
effective and appreciated by participants.
In support of what was broadcast during the training days, Pirelli has created a set of infographics
reporting key concepts in the policy, in order to support suppliers in transmitting the knowledge
learned during the training along the supply chain in a simple and effective way.
After the training sessions, the suppliers began to define their own roadmap for implementing the
Pirelli Policy, describing in detail the activities that will make it possible to fill the gaps identified to
date. At the end of 2019, Pirelli received roadmaps covering about 97% of the volumes of natural
rubber purchased in 2019.
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In 2019 Pirelli participated as usual in the “tapping competition” event held in Indonesia by Kirana
Megatara, one of its main suppliers. The event saw the best local “tappers” compete amicably on
the best methods of tapping, an important moment of training and spreading awareness among the
farmers present about the best cultivation and tapping techniques, necessary to obtain a product
that is increasingly pure, free from contamination and therefore distinguished by its high level of
quality, which is necessary to increase productivity and therefore household earnings, and at the
same time to reduce the impact of deforestation. During the event Pirelli held an in-depth dialogue
with those present on natural rubber tree diseases, which have recently begun to have an important
impact on the livelihoods of smallholders (an estimated loss of productivity of around 15%), so that
together we could identify causes and possible solutions. The result is a study that Pirelli will be
publishing in early 2020 on the Pirelli website, in the section dedicated to natural rubber, for anyone
interested.
Also held in 2019 was the scholarship delivery ceremony organised 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.
In 2020 Pirelli will continue on the path of engagement and partnership with its suppliers, focusing
training on specific issues that meet the needs of the supply chain and dedicating it to players
increasingly close to the origin of the chain. Pirelli will support suppliers in the implementation of their
roadmap of activities to implement the Pirelli Policy and will continue to map the socio-environmental
risks of the supply chain, strengthened by increasingly precise traceability and an increasingly close
relationship with the various players involved.
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 rubber supply chain. Pirelli cooperates with national and
international governmental, non-governmental, 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
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producers, processors, automobile manufacturers, and of the fundamental contribution deriving from
the experience of important international NGOs.
The Platform, launched in Singapore in October 2018 with the participation of the first “founding
members”, including Pirelli, is 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.
During 2019 Pirelli actively participated in three working groups launched by the platform, co-chairing
two of them: the “Smallholder Representation Working group” and the “Capacity Building Working
Group”.
The “Smallholder Representation Working Group” aims to identify a geographically diverse
group of farmers capable of effectively representing the interests of smallholders within the
platform and to identify three representatives to sit on the Executive Committee;
The “Capacity Building Working Group” aims to develop a capacity building strategy in favour
of smallholders and industrial plantations, identifying potential sources of financing.
Pirelli also participates in the “Traceability and Transparency Working Group” which aims to identify
an appropriate tool to improve the large-scale traceability, and therefore transparency, of the
complex natural rubber supply chain.
The “Green Sourcing” Policy
Since 2012 Pirelli has had a “Green Sourcing Policy”, with the aim of stimulating and encouraging
environmental awareness throughout the supply chain, as well as encouraging choices that could
reduce the impact on the environment of Pirelli’s procurement of goods and services. The system
for implementing the Green Sourcing Policy, both within Pirelli and in relations with suppliers, 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).
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The Pirelli Green Sourcing Manual defines four areas of Green Sourcing: Materials, Capex, Opex
and Logistics. Interdepartmental working groups, comprised of Purchasing, R&D, Quality, HSE and
Sustainability analysed the Green Sourcing process associated with the purchasing 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.
The Green Sourcing Manual is a unique document that contains:
a general part on Green Sourcing topics;
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.
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.
Pirelli has also 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.
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.
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.
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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 3TG minerals
(Tantalum, Tungsten, Tin, Gold).
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 (3TG) 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 Company and which is equally distributed among most of the tyres produced. To give an
example, a tyre weighing 10 kg contains about 10 mg (milligrams) equivalent of tin, in the extremely
low concentration of 1ppm (one part per million).
With a view to procurement covering only minerals that are “conflict free”, Pirelli has conducted a
comprehensive investigation on its supply chain, in order to have full visibility up to the mines or
foundries in order to identify the existence of any “conflict minerals”. The company 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).
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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 3TG metals. The update of the Cobalt
Reporting Template (CRT) was recently published (30 October 2019) by RMI. Pirelli uses some
Cobalt salts, a type of raw material commonly used in the production of tyres. In 2019, Pirelli
therefore decided to join the “Cobalt Initiative” launched by RMI and to ask its suppliers to fill in the
CRT. The suppliers surveyed cover 100% of the “conflict minerals” risk associated with the use of
raw materials using cobalt in tyres. All suppliers surveyed responded: 80% of these suppliers
excluded that foundries in their supply chain source their cobalt from conflict areas; the remaining
20% gave precise indications of the source of cobalt, listing foundries as required by the procedure,
and no evidence of conflict minerals emerged.
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 impact (materials described in 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 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
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guaranteed a water saving, as well as a reduction of CO2 emissions by more than 75%, saving
respectively about 10,000 m3 of water and about 560 tonnes of CO2.
This innovation provides economic benefits related directly to the material for about €280,000 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 CDP (ex
Carbon Disclosure Project). 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 2019, 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 2019, the set
of emission reduction actions implemented by Pirelli suppliers made it possible to avoid overall the
emission of approximately 71 million tonnes of CO2 equivalent into the atmosphere, combined with
estimated economic savings of US$462 million.
First company among tyre manufacturers to have globally introduced the CDP Supply Chain in its
own supply chain, Pirelli aims to achieve a response rate for suppliers of Raw Materials of 90% in
2020. The response rate recorded in 2019 was 81%, an upward trend compared to previous years
(74% in 2018, 71% in 2017).
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.
During 2019, in line with what was stated in the 2019-2021 Roadmap on the implementation of the
Policy on the sustainable management of natural rubber, Pirelli organized several training sessions
dedicated to the issues covered by the Group Policy. The three-day workshops were held in local
languages and were attended by all the natural rubber suppliers, as well as various national
authorities active in the sector.
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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 2019 Supplier Award was held at Pirelli’s headquarters in Bicocca, in the presence of Pirelli’s
General Manager Operations and Chief Procurement Officer, who awarded prizes to nine suppliers
operating internationally, particularly in Brazil, China, Turkey, Sweden, Italy and France, which had
distinguished themselves for quality, innovation, speed, sustainable performance, global presence
and level of service.
A specific award is dedicated to sustainable performance, recognizing the importance of
“responsibility” strategies that make a real difference by bringing benefits to the entire value chain.
In 2019 the Sustainability award was given to a natural rubber supplier that in recent years has
demonstrated a strong and growing commitment to social and environmental sustainability along the
entire supply chain, through technological innovation and commitment to traceability starting from
the origin of the material.
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, as
well as the number of suppliers, is slightly higher in OECD area14 with respect to non-OECD areas.
76% of suppliers (unchanged from 76% in 2018) 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
Europe
North America
Others
Latin America
Asia
Africa
Others
2019
54.9%
6.7%
5.0%
12.1%
11.9%
0.4%
9.0%
2018
49.9%
5.9%
4.1%
14.8%
14.9%
0.4%
10.0%
2017
49.3%
4.2%
4.7%
15.7%
14.7%
0.4%
11.0%
14 For the complete list of OECD Countries please refer to the official website http://www.oecd.org/about/membersandpartners/.
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NUMBER OF SUPPLIERS BY GEOGRAPHIC AREA
OECD COUNTRIES
NON-OECD COUNTRIES
Europe
North America
Others
2019
47.2%
5.5%
5.4%
2018
54.2%
4.8%
5.2%
2017
55.7%
4.9%
4.4%
Latin America
22.8%
21.7%
25.7%
Asia
Africa
Others
8.4%
0.4%
10.3%
6.3%
0.2%
7.6%
4.9%
0.1%
4.3%
The following table shows the breakdown in percentage of the value of Pirelli Tyre’s purchases by
type. With a weight equal to 47% of the total, the purchasing category which is decidedly more
relevant and significant, as in previous years, is that of raw materials.
VALUE OF PURCHASES BY CATEGORY
Raw Materials
Consumable Materials15
Services16
Capital goods17
2019
47%
7%
37%
9%
2018
46%
5%
36%
13%
2017
46%
5%
36%
13%
With reference to the percentage of Pirelli Tyre’s suppliers by type presented in the table below, it is
noted that suppliers of consumables and services weigh about 93% 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.
15 Indirect materials, auxiliary materials.
16 Energy, logistics services, shared services, ICT, R&D, marketing, trademarks and patents.
17 Machinery, civil works, moulds.
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NUMBER OF SUPPLIERS BY CATEGORY
Raw Materials
Consumable Materials
Services
Capital goods
2019
2%
35%
58%
5%
2018
2%
29%
61%
8%
2017
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 2017-2019. The volume of raw materials utilised
for the production of tyres in 2019 amounted to approximately 840,000 tonnes, of which
approximately 4% derives from recycled materials (in line with the previous year) and 18.3% of
renewable materials18.
MIX OF RAW MATERIALS PURCHASED (VALUE)
2019
13%
26%
12%
22%
17%
10%
2018
13%
27%
10%
23%
17%
10%
2017
15%
29%
9%
21%
16%
10%
Natural Rubber
Synthetic Rubber
Carbon black
Chemicals
Textile
Steel
Targets
2020:
CDP Supply chain: increase in raw material suppliers’ response rate from 81% in 2019 to
90% in 2020;
Natural Rubber supply chain sustainability: implementation of the 2020 plan in line with the
2019-2021 roadmap published in the Sustainability section of the website www.pirelli.com.
In 2020 Pirelli will continue on the path of engagement and partnership with its suppliers,
focusing training on specific issues that meet the needs of the supply chain and dedicating it
to players increasingly close to the origin of the chain. Pirelli will support suppliers in the
implementation of their roadmap of activities to implement the Pirelli Policy and will continue
18 Pirelli aligns itself with the OECD, which defines “Renewable Natural Resources” as natural resources, which, after their exploitation,
can return to their original stock levels through natural growth or regeneration processes.
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to map the socio-environmental risks of the supply chain, with increasingly precise traceability
and an increasingly close relationship with the various players involved.
In February 2020, the Company will present the new Industrial Plan and related long-term strategic
sustainability targets, including those impacting the supply chain. The Plan will be published at the
same time on the institutional website www.pirelli.com, to which reference should be made for details
of future targets.
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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 to its Stakeholders the environmental performance associated with
processes, products and services throughout the entire life cycle, promoting its culture of
environmental protection;
monitor the environmental impacts of its suppliers by requesting them to adopt the same
business model along the supply chain;
support customers and end consumers in understanding the environmental impacts of its
products, informing them of the safest use and disposal methods, facilitating recycling or re-use
where possible;
empower and train its workers in order to extend adequate culture of environmental capital
conservation.
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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 Board19.
In supporting the initiative, Pirelli is committed to the voluntary disclosure of transparent reporting 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, since Pirelli publishes an integrated annual report, the discussion of the four thematic
areas identified by the TCFD recommendations is as follows:
Governance: the issues relating to Climate Change fall within the activities whose Governance
is described in the paragraph “Management Model” of this Report, and in the paragraph “Director
responsible for 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 in the paragraph
“The Pirelli Group Environmental Strategy and Footprint” 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. In addition, Pirelli periodically performs sensitivity analyses and risk
assessments in order to have a constantly updated picture of potential risks and opportunities
linked to Climate Change which are of interest to the business and the related quantification of
potential financial impacts.
Risk management: the Group’s latest Climate Change Risk Assessment examined the possible
financial impacts linked to Climate Change, in terms of medium/long-term risks and opportunities
19 The Task Force on Climate-related Financial Disclosures (TCFD) was established in 2015 by the Financial Stability Board (FSB) - a
body that monitors the global financial system - with the goal of developing a set of recommendations on the reporting of climate
change risks. The aim is to guide and encourage companies to align the information disclosed with investors’ expectations and needs.
In June 2017, the Task Force published 11 recommendations in the areas of governance, strategy, risk management, metrics and
targets.
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according to the IPCC20 climate scenarios (RCP 4.5 and RCP 8.5) and the energy transition (IEA
450). For its conclusions, please 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.
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 AND FOOTPRINT
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 2019.
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 91.3% of total impacts
throughout the entire life cycle of the product, compared to a production phase that has a weight of
only 2.7% of total impacts. As regards the impact of the Water Footprint, the use phase of the product
is the most significant (52.5% of the total impacts), followed by the production phase of raw materials
(34.7% 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 Rule21” for tyres developed by the Tyre Industry Project
Group of the World Business Council for Sustainable Development. The reporting of the emission
20 Intergovernmental Panel on Climate Change.
21 Product Category Rule: Set of rules, requirements and specific guidelines for the development of environmental declarations, for one
or more product categories, defined according to ISO 14025.
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impacts also complies with the 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 “Driver” part) also includes a
breakdown of emissions in the three Scope categories provided by the GHG Protocol.
The central part of the infographic shows the actual quantification, in percentage terms, of the
Carbon Footprint and Water Footprint. These two aspects are summarised by four principal
indicators: Primary Energy Demand (PED), Global Warming Potential (GWP), 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 tons of CO2 equivalent (the greenhouse effect potential of the gas
considered is assessed in relation to CO2, considering a residence time in the atmosphere of 100
years).
The Water Depletion, based on the Swiss model for ecological scarcity, represents the volume of
water used, 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 the alteration of the aquatic
ecosystem with potential effects in terms of biodiversity.
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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 according to the 2017-
2020 Industrial Plan with selected targets to 2025. In this regard, it should be noted that in February
2020 the Company will present the new Industrial Plan and the related strategic long-term
sustainability targets that will see a further evolution of the environmental objectives compared to
those indicated in the infographic. The Plan will be published at the same time on the institutional
website www.pirelli.com.
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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 2017-2020 with selected targets for 2025 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.
It should be noted that in February 2020 the Company will present the new Industrial Plan and the
related strategic long-term sustainability targets that will see a further evolution of the material
objectives. The Plan will be published at the same time on the institutional website www.pirelli.com
for the benefit of all Stakeholders.
In this context, Pirelli’s Research & Development focuses, for example, on:
high-dispersion silica for wet grip, rolling resistance and durability;
new technologies applied to the development of polymers, fillers and plasticisers to improve the
wear rate of tyres;
biomaterials, such as silica from renewable sources, biofillers such as lignin and sepiolite, and
plasticisers/resins of plant origin;
textile reinforcements with fibres from renewable sources;
nanofillers for more stable compounds, lighter structures and highly impermeable liners;
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 and plasticisers/resins 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 biopolymers and new bifunctional chemicals (e.g. serinol-pyrrole for improving
polymer-charge interaction with reduced emission of volatile organic compounds - VOCs).
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
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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, such as sepiolite.
The innovations mentioned provide a water saving and more than 75% of CO2 emissions reduction
compared to the production processes of raw materials replaced
Pirelli Research and Development is also committed to the recovery and use of recycled material,
i.e. secondary raw materials that can be used in the production of new tyres. This activity always
takes place in compliance with the safety of the high-end product that characterises Pirelli’s
production, for which the use of recycled material has limits of substitution in terms of quality and
safety of the final product.
Among the recycled materials, mention should be made of the use of rubber powder and pyrolysis
material recycled from end-of-life tyres (ELTs) in combination with fillers of natural origin that are
ideal for maintaining tyre pressure over time, an element strongly linked to safety.
There is constant research into material efficiency, which makes it possible to reduce the volumes
purchased, as well as the weight of the finished product, with a significant positive environmental
impact throughout the entire life cycle of the material and product.
Research is also continuing 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. The sustainable management of the natural
rubber supply chain, the so-called conflict minerals and the cobalt chain are specifically discussed
in the “Our Suppliers” section of this report.
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 International Standard
ISO 14001 was adopted by Pirelli as a reference in 1997 and, since 2014, all the certificates have
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been issued with international accreditation ANAB (ANSI-ASQ National Accreditation Board:
accrediting entity of the United States).
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), 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 2017-2018-
2019 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.
The amount of finished product used in the calculation of the specific indices indicated below, in
2019 was approximately 753,000 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 2.7% of total greenhouse gas emissions impacts
and for 12.7% of total water-related impacts.
The year 2019 saw a significant decrease of production volumes: the number of tonnes of finished
products fell by around -5% compared to the previous year (value calculated on a like-for-like basis),
mainly due to exogenous factors related to a strong slowdown in the automotive market. This change
in volumes, together with the geographical redistribution of production, had a particular impact on
the specific indices (calculated on tonnes of finished product) relating to energy consumption and
greenhouse gas emissions. On the other hand, the indices relating to specific water withdrawal,
specific waste production and the percentage of waste recovery have improved.
Similar trends in the indicators are also observed with respect to the specific indices weighted on
operating profit (compared to the Adjusted EBIT value).
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It should be noted that the trend of all 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.
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 current Sustainability Plan provides for a reduction of -19% of specific energy consumption by
2020 compared to 2009 values. It should be noted that in February 2020 the Company will present
the new Industrial Plan and the related strategic long-term sustainability targets that will see a further
evolution of the objectives on energy efficiency and use of renewable energy. The Plan will be
published at the same time on the institutional website www.pirelli.com for the benefit of all
Stakeholders.
In the course of 2019, 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;
optimising 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 consumption of each plants is also mapped,
whether dedicated to production or dedicated to the generation of energy carriers in order to:
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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 includes the
introduction of periodic audit mechanisms on energy management and use, as well as possible tariff
incentives. In this regard, there were no critical elements or non-conformities.
The Energy Management System, certified according to the ISO 50001 standard has been adopted
at the Breuberg plant (Germany).
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 2019, 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 define guaranteed levels of both energy savings 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. There were also activities on site to
increase the efficiency of compressed air generation, through high efficiency compressors.
Excellent results were recorded for the reduction of compressed air and steam losses whether on
machinery or on the distribution lines also thanks to the energy audit activities already started, and
progressively extended to all the Group factories, with the help of a single external partner. The
advantage of this choice is the possibility to have similar electric and thermal consumption models
for each plant, to accelerate and optimise benchmarking activities between factories, and to map
accurately the efficiency actions of the various plants. Moreover, the electrical absorption
measurements performed on individual plants are continuing in order to correlate the specific
consumption to production in detail and then 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 2019 was significantly affected by the strong slowdown in the automotive market:
the impact on production volumes fell by about -5% compared to the previous year. Another factor
that conditioned energy performance was the installation of new energy-efficient systems dedicated
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to the abatement of Volatile Organic Compounds (VOCs), which increased electricity and gas
consumption with the same amount of finished product.
These exogenous factors are joined by the optimisation of the production mix towards Premium and
Prestige products, characterised by very high technological and performance content 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 maximise the industrial efficiency, despite the extremely penalising
factors previously described, allowed a slight increase in consumption in the industrial sector, of
approximately 313,101 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 2019 from the previous
year. In terms of absolute consumption (also expressed in GJ), there was a reduction of over -2%
compared to 2018.
The Group’s specific energy index 2019, which includes both the industrial and commercial and
administrative sectors, thus increased by 3.2% compared to 2018. The reduction compared to 2009
is -13.1%.
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.
2017
2018
2019
Absolute consumption
GJ
10,860,266
10,688,588
10,467,443
Specific consumption
GJ/tonFP
GJ/k€
13.40
12.39
13.48
11.19
13.90
11.41
The same 2019 data, weighted in economic terms, show a slight improvement compared to the
previous year.
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The graph below highlights the “Distribution of energy sources” used in Pirelli production process:
among the direct sources, all non-renewable, which account for 32% 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 68% 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 IEA22 database) while for steam, the share generated by renewable sources
corresponds to around 15% of the total.
Management of Greenhouse Gas Emissions and Carbon Action Plan
Pirelli monitors and reports its23 emissions of greenhouse gases through the calculation of CO2-
equivalent (CO2e) – 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”).
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
22 International Energy Agency.
23 GHG inventory perimeter as indicated in paragraph “Scope of Reporting”.
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Suppliers”/“CDP Supply Chain” for further information about the specific activities of the Pirelli
Suppliers. Instead, reference is made to the Group Footprint infographics in the paragraph “The
Pirelli Group Environmental Strategy and Footprint” for the representation of the impacts of Scope 3
of the various phases of the life cycle.
Performance as measured by energy and greenhouse gas emissions is calculated on the basis of
emission factors obtained from the following sources:
IPCC: Guidelines for National Greenhouse Gas Inventories (2006)24;
Within Scope 2 location-based:
o National emission factors25 taken from IEA: CO2 Emissions from Fuel Combustion26;
Within Scope 2 market-based:
o Specific emission factors of suppliers where available;
o Residual-mix emission factors27 taken from RE-DISS AIB (EU)28 and Green-e (US)29;
o Emission factors used in the context of location-based if other sources of data are not
available;
and are reported according to the models proposed by:
GHG Protocol: Corporate Accounting and Reporting Standard;
GHG Protocol Scope 2 Guidance.
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.
24 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).
25 Emission factors expressed in CO2/kWh.
26 2019 Publication with update to the 2017 figure.
27 Emission factors expressed in CO2/kWh.
28 2019 Publication with update to the 2018 figure.
29 2019 Publication with update to the 2017 figure.
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As in the case of energy, Pirelli monitors and accounts for its direct CO2e (Scope 1) and indirect
(Scope 2) by using three principal indicators:
absolute emissions, as measured in tonnes;
specific emissions, as measured in tonnes per tonne of finished product;
specific emissions, as measured in tons per euro of Operating Income.
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.
According to the Guidelines of the GHG Protocol Guide, the level of inventory uncertainty was
evaluated as “Good”.
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. In this regard, it
should be noted that in February 2020 the Company will present the new Industrial Plan and the
related strategic long-term sustainability targets that will see a further evolution of the objectives on
the reduction of CO2 emissions. The Plan will be published at the same time on the institutional
website www.pirelli.com for the benefit of all Stakeholders.
The following charts show the performance of the last three-year period:
The Group’s absolute emissions in 2019 were almost -2% lower than in 2018. The 2019 trend in the
specific energy index and the reduction in volumes produced, on the other hand, caused an increase
in specific emissions (weighed on the tonnes of finished product) of 3.4% compared to 2018. The
performance towards 2009, the year on which the 2020 specific emissions reduction target is based,
remains positive with a reduction of about -11%.
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
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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
2017
2018
2019
Absolute emissions (Scope 1 and Scope 2 location-based)
tonCO2e
829,035
780,998
766,498
Scope 1
Scope 2 (location-based)
Scope 2 (market-based)
Specific emissions (Scope 1 and Scope 2 location-based)
tonCO2e
tonCO2e
tonCO2e
188,777
190,037
192,149
640,258
590,961
574,349
659,501
666,886
636,239
tonCO2e/tonFP
1.023
0.985
1.018
tonCO2e/k€
0.95
0.82
0.84
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.
To support the aim of reducing climate-altering gas emissions, Pirelli has defined a “Carbon Action
Plan” with the aim of making increasing use of 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 2019, the savings in terms of avoided CO2e emissions exceeded 20,000 tonnes (Scope 2);
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the procurement of electrical energy from renewable sources at the plant in Silao (Mexico). In
2019 the agreement continued for the dedicated supply of electricity generated from wind
sources, which in the year allowed the replacement of over 13 GWh of energy from fossil fuels,
for a saving in terms of CO2e emissions of around 6,300 tonnes (Scope 2);
the procurement of electrical energy from renewable sources at the plants in Burton and Carlisle
(UK). In the year 2019 the share of electricity certified from renewable sources exceeded 63
GWh, for an annual savings in terms of CO2e emissions of more than 24,000 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
Raw Materials (Scope 3)
Manufacturing (Scope 1 + 2 + 3)
Distribution (Scope 3)
Customers (Scope 3)
End-of-Life (Scope 3)
Total
103 tonCO2e
103 tonCO2e
103 tonCO2e
103 tonCO2e
103 tonCO2e
103 tonCO2e
2017
2018
201930
2,674.2
2,659.6
2,563.9
1,261.7
1,231.1
1,198.8
91.9
90.0
84.4
41,863.6
40,187.2
40,220.9
2.6
2.5
2.2
45,894.0
44,170.4
44,070.2
In 2019, 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 2018 emitted 900 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 Indonesia, to finance a project for wind energy production 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 2019. The combination of the two
projects has allowed the reduction of a share of about 127% of the emissions generated by company
cars in 2018, thus going well beyond what is required by the policy in view of increasing
environmental responsibility.
30 The 2019 figure includes the emissions generated by the Group’s business air travel and the commuting of employees at the Milan
Headquarters. The value also includes some primary data collected directly from suppliers.
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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.
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 current Sustainability Plan provides for a reduction target of specific withdrawal of water of -66%
by 2020 compared to the 2009 value. In this regard, it should be noted that in February 2020 the
Company will present the new Industrial Plan and related strategic long-term sustainability targets
that will see a further evolution of the objectives on water withdrawal reduction. The Plan will be
published at the same time on the institutional website www.pirelli.com for the benefit of all
Stakeholders.
In 2019, an absolute water withdrawal of about 6.3 million cubic metres was recorded, with a
reduction of around -14.7% compared to 2018. The specific water withdrawal per tonne of finished
product is approximately -10% lower than in 2018 and -70% lower than in 2009, compared with a
target of -66% for 2020.
Thanks to the actions implemented, since 2009 Pirelli has saved around 90 million cubic metres of
water: an amount almost equivalent to the absolute withdrawal of about fifteen 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
m3
m3/tonFP
m3/k€
2017
2018
2019
8,371,000
7,382,000
6,299,000
10.3
9.6
9.3
7.7
8.4
6.9
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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.
TYPE OF WATER SOURCES (m3)
Public water supply system and other sources
Surface water
Internal wells
Total
1,750,000
673,000
3,876,000
6,299,000
61% of the water withdrawn is pumped from wells inside the facilities and authorized by the
competent authorities. Furthermore, Pirelli obtains 11% 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 730 cubic metres. Lastly, about
184,000 cubic metres of water used, equivalent to approximately 2.9% of total withdrawal, are
obtained from the waste water treatment of its production processes.
A total of about 4.6 million cubic metres of domestic and industrial waste water were discharged,
with 53% of this into surface water bodies, but always in quantities that are marginal in relation to
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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: 19 mg/l of BOD5 (Biochemical Oxygen Demand), 41 mg/l of COD (Chemical
Oxygen Demand) and 20 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 2019, 97% of waste sent for recovery was achieved, up by 1% compared to the previous year and
with an increase of 28% compared to 2009, base year of reference. This result made it possible to
confirm the achievement of 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.
There was a significant reduction in specific waste production in 2019, equal to 141 kg per tonne of
finished product and therefore down -7% compared to 2018, and a significant reduction in waste
production in absolute terms, which in 2019 was down more than -11% compared to the previous
year.
Hazardous waste, which fell in absolute terms by -10% compared to the previous year, represents
10% of total production and is sent in its entirety to plants located in the same Country where it is
produced.
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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
ton
kg/tonFP
kg/k€
2017
2018
2019
111,800
120,100
106,000
138
128
151
126
141
116
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
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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 -15% at the end of 2019 compared to 2017 and of -64%
compared to 2009, with emissions of related VOCs slightly lower than total consumption.
Absolute consumption
tonSOLV
Specific consumption
kgSOLV/tonFP
2017
1,125
1.4
2018
841
1.1
2019
883
1.2
Biodiversity
Pirelli pays the utmost attention to ensuring that corporate activities do not interfere with the
biodiversity characteristic of the contexts in which the Company operates. Currently, there are two
Pirelli sites located within protected areas of high biological diversity: the site of Vizzola Ticino (Italy)
and that of Elias Fausto (Brazil), both sites are the locations of tyre test tracks.
The Vizzola site hosting 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 area31 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,
31 Man and Biosphere is a group of biosphere reserves in many countries in the world protected by UNESCO with the aim of promoting
socio-economic development and conservation of ecosystems and biological diversity.
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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.
The site of Elias Fausto (Brazil) is the new Brazilian test track, with an area of 1,588 square
kilometres, and is located in an area with a prevalent cultivation of sugar cane where there are two
streams (Itapocu and Tietê rivers) that provide permanent protection areas. There are 162 species
on the IUCN Red List, of which 1 is classified as ‘vulnerable’ (V), 2 as ‘near-threatened’ (NT), 158
as ‘of minor concern’ (LC) and 1 as ‘missing data’ (DD). In order to maximise environmental
protection in the area, Pirelli manages environmental issues, monitors and implements measures to
conserve fauna and water resources, including the planting of native species and the control of noise
levels in accordance with the environmental impact study carried out prior to the project, according
to which the environmental impact of the activities on the region’s biodiversity is not significant.
Pirelli’s focus on biodiversity is also very high with regard to the supply chain, as in the case of
sustainable management of the natural rubber supply chain based on a no deforestation policy. For
an extensive description of the sustainable management of the natural rubber supply chain, please
refer to “Our suppliers” in this report.
NOx Emissions
NOx emissions derive directly from the energy-generating processes used. In 2019, the index based
on the tons of finished product increased by 2.5% compared to the 2018 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.
In absolute terms, NOX emissions in 2019 fell by -2.8% compared to the previous year.
Absolute emissions
Specific emissions
tonNOX
kgNOX/tonFP
2017
917
1.13
2018
943
1.29
2019
917
1.22
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The following graph shows the 2019 weight of direct and indirect NOX emissions out of total NOX
emissions.
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 2019, direct emissions of SOX, caused by the combustion of diesel and fuel oil, came to 13.7
tonnes (respectively 10.8 tonnes in 2018 and 19.1 tonnes in 2017); the value is estimated based on
EEA - European Environment Agency - emissions standards.
In terms of packaging management, the car tyre is a product generally sold without packaging.
The environmental management systems implemented at the production units have assured
constant and prompt monitoring and intervention regarding potential emergency situations that may
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arise, as well as the reports received from Stakeholders. During 2019, no incidents, complaints or
significant sanctions related to environmental issues were recorded.
Expenses and Investments
In the three-year period 2017-2019, environmental expenditure related to the production process
exceeded Euro 55 million, of which about 34% was allocated in 2019. About 74% of this amount
concerned normal management and administration of factories, while the remaining 26% 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 2019, the Company invested Euro 232.5 million in
research and innovation of its products, with a constant focus on safety performance and reduction
of environmental impacts and, simultaneously, production efficiency.
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 adopted by Pirelli for its products are
objective, 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
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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 2019, the weighted average rolling resistance of CAR products decreased by -18%
compared to the average for 2009.
CAR
MOTORCYCLE
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Green Performance32 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.
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. At the 2019 Geneva Motor Show, Pirelli presented the Elect marking that
distinguishes tyres specifically created for the needs of plug-in electric and hybrid cars. Among the
fastest and most powerful fully electric hypercars equipped by Pirelli is the Rimac C, the most
powerful hypercar ever produced in the world. Already a champion in power (1914 hp and a
maximum torque of 2300 Nm) and acceleration (from 0 to 100 km/h in 1.85 seconds and from 0 to
300 in 11.8), the Rimac C also offers an exceptional range (650 km), thanks to the work of the 4
electrically powered engines, and should debut on the world’s roads by 2020.
32 Green Performance products identify the car 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.
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Evija, the first fully electric Lotus hypercar (target power of 2000 hp), will also be equipped with the
following tyres:
• Pirelli P ZERO™, specially developed to ensure low rolling resistance and improve
performance on the road: fundamental requirements to offer maximum range with a recharge
as well as high precision in the wet;
• Pirelli PZero Trofeo R, to guarantee better performance on the track with optimal
management of the torque supplied by electric motors.
The choice of two possible fitments enhances opposing driving experiences: the first, for use on the
road with respect for the environment; the second, for the track thanks to the ideal characteristics of
electric technology. Evija’s fully electric powertrain was developed by Williams Advanced
Engineering and takes advantage of the experience not only of Formula 1, but also of Formula E.
As far as motorcycle tyres are concerned, for the Sport Touring segment, 2019 saw the introduction
on the market of PIRELLI ANGEL™ GTII, a product line that represents a further evolution in terms
of safety on wet surfaces compared to its predecessor ANGEL™ GT (already recognised as the best
in its category by the specialist press). Internal tests have shown that PIRELLI ANGEL™ GTII is
capable of improving braking distances on wet asphalt by up to 5%, compared to the best competitor
in the segment, as well as guaranteeing excellent handling qualities in favour of a feeling of safety
and controllability.
As far as bicycle tyres are concerned, Pirelli recently 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.
Pirelli has also recently launched the Cycl-e™ range dedicated to traditional electric bicycles, in
urban areas, trekking and tourism.
The range of Pirelli tyres for electric bicycles boasts many 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 products of the highest technology do not stop at tyres. Pirelli continues, in fact, the
development of CYBER™ technologies, based on the introduction of sensors inside the tyre, in order
to obtain from the single point of contact with the road, useful information to increase the safety,
sustainability and performance of vehicles.
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CYBER™ technologies are divided into products dedicated to original equipment (Cyber™ Tyre),
end consumer (Track Adrenaline) and fleet (Cyber™ Fleet). The common denominator of the three
projects, which differ in technology, purpose and market segment, is the constant monitoring of tyre
usage conditions (pressure and temperature) and the dynamic forces acting on them. All this in order
to improve safety and optimise fuel consumption, thereby reducing CO2 emissions attributable to
road transport. In 2017, in fact, 27% of greenhouse gas emissions in Europe came from the transport
sector, an increase of 2.2% compared to 2016 (Source: European Environment Agency
https://www.eea.europa.eu/data-and-maps/indicators/transport-emissions-of-greenhouse-
gases/transport-emissions-of-greenhouse-gases-12).
With Cyber Tyre, Pirelli will provide the car with information about the tyre model, mileage, dynamic
load and, for the first time, potentially dangerous situations on the road surface. On the basis of this
information, the car will be able to adapt its driver assistance systems to significantly improve safety,
comfort and performance levels.
Pirelli is thus projected towards a future in which the tyre communicates with the consumer, with the
vehicle and tomorrow, thanks to the potential of 5G, with the entire road infrastructure, helping to
increase the safety, sustainability and efficiency of public and private transport.
On November 14, 2019 this vision was taken onto the track in Turin at the Lingotto test track where
Pirelli, in partnership with Ericsson, Audi, Tim, Italdesign and KTH, demonstrated the “World-first 5G
enhanced ADAS services” use case. During this demonstration, a vehicle equipped with Cyber Tyre
tyres and connected to the 5G network, was able to transmit the risk of aquaplaning to the incoming
vehicle. In such a reality, therefore, the communication paradigm changes further and the
information, until now transmitted from the tyre to the vehicle, will be transmitted to the entire
ecosystem by activating a “Vehicle to Vehicle” and “Vehicle to Infrastructure” communication.
2019 was also the year of the market debut of Track Adrenaline, a product for track day enthusiasts
that includes a line of P Zero Trofeo R sensor-fitted tyres. Presented at the Geneva Motor Show in
March 2019, Track Adrenaline monitors tyre pressure and temperature in real time and combines
this information with telemetry data to provide the driver with information and tips on how to improve
performance on the track while using tyres more consciously and efficiently to extend tyre life and
save fuel.
In 2019, developments continued on CYBER FLEET™, the fleet tyre monitoring and management
system designed to optimise running costs and increase safety and efficiency in public and private
transport.
The sensor-fitting of tyres is an integral part of Pirelli’s strategy, which makes technological
innovation a distinctive and key element in responding to the major issues that will transform the
concept of mobility, leading us towards a future of self-driven, electric cars, shared and connected,
through 5G, to the entire road infrastructure.
Among the Open Innovation initiatives, it should be highlighted the Joint Labs agreement between
Pirelli and the Politecnico of Milan, established in 2011, aimed at research and training in the tyre
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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 area and the product technology and CYBER™
development area.
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. Recently, experimental
tyre aerodynamic modelling studies have also been launched in the bicycle and automotive sectors.
Tyre and Road Wear Particles
For many years, Pirelli has paid great attention to the theme of “Tyre and Road Wear Particles”
(TRWP), the micrometric particles produced by the combined wear and tear of the road and tyre
during vehicle circulation. The phenomenon of TRWP is complex, since the generation of these
particles is not only linked to the combined wear of the road and tyre, but also substantially to the
characteristics and conditions of use of the vehicle (weight, mass distribution, correct tyre pressure,
etc.), the characteristics of the roads (material and roughness of the roads, being straight or winding,
uphill or downhill, etc.), environmental conditions (dry or humid climate, hot or cold) and driving style
(aggressive or relaxed, at high or moderate speeds, with sharp or progressive braking, etc.).
Scientific studies (see “WBCSD” in this report) conducted so far have not shown significant risks to
human health and the environment: however, the definition and implementation of effective actions
for the mitigation of TRWP generation is strongly linked to the variety and number of causal factors
mentioned above: it should be noted that some of them, such as driving style, road and vehicle
characteristics, have more influence than the tyre considered individually.
The multiple causal factors extrinsic to the tyre and belonging to the sphere of influence of multiple
Stakeholders require a combined action by all actors in order to define and implement the most
effective mitigation actions. The need for a multi-stakeholder commitment led to the creation of the
“European TRWP Platform” launched by ETRMA (see details in the “ETRMA” section of this report),
which saw the participation, in addition to the Tyre Industry, of Road Authorities, Automobile
Manufacturers Association, Automobile Clubs, Waste Water Treatment Sector, Universities and
Research Centres, NGOs, European Institutions and national authorities. The platform will continue
its work in 2020 and, as in 2018 and 2019, will be supported by CSR Europe.
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As far as specific actions on tyres are concerned, Pirelli’s commitment to TRWP is expressed both
through active participation in the most important collaborative projects of the tyre industry on TRWP
(see the “ETRMA” and “WBCSD” sections of this report) and through its own Research and
Development activities on tyre materials and design, aimed at continuously improving tyre wear and,
consequently, minimising the contribution to TRWP. In addition to this, it collaborates with public
authorities and the tyre industry to support the development of standardised methods for measuring
tyre wear, for example within the European Union, where a dedicated activity has begun.
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,
60% of end-of-life tyres (ELTs) are recovered (Source: WBCSD - Global ELT Management – A global
state of knowledge on regulation, management systems, impacts of recovery and technologies),
while in Europe and the United States the recovery stands at 92% (Source: ETRMA 2017) 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 “best practices”, i.e. 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 (secondary raw materials), 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
following our Open Innovation model are continuing, aimed at improving the quality of recovered
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secondary raw materials in terms of affinity with the other raw materials and the other ingredients
present in the compounds.
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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 Department,
which acts in concert with the affected and responsible functions, at central level and in the various
Countries, with reference to both the Internal and External Community.
Pirelli’s commitment on 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 are also 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 employees 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”);
manages its supply chain responsibly and specifically includes respect for human rights in
the selection parameters of its suppliers, the contractual clauses and verifications carried out
by third-party audits. Pirelli also requires its suppliers to implement a similar business model
on their supply chain, including adequate due diligence aimed at certifying that the products
and materials provided to Pirelli are “conflict free” throughout the supply chain. From 2019,
Pirelli has also subscribed to the “Cobalt Initiative” launched by RMI. 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
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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 Company value chain, the respect for human rights and labour rights
assumes particular importance in human resources and supply chain management.
In late 2019, Pirelli updated its analysis of the risk of violation of human rights on its own premises,
in the related value chain (suppliers and customers) and in the local context external to Pirelli, asking
the main Stakeholders to fill out a dedicated survey. With regard to the perception of internal risk at
the Pirelli’s sites and in the relative value chain, the survey was submitted to the function managers
and to the Sustainability Managers of the Group’s sites, while regarding the perception of risk in the
external context the survey was submitted to both the aforementioned Pirelli functions and to local
Non-Governmental Organisations of reference.
The survey asked for an indication of the current and potential (referring to the next 5-10 years)
perceived risk value on a scale from 1 to 4 (1 = low risk, 2 = medium-low risk, 3 = medium-high risk
and 4 = high risk) for each of the 20 indicated human rights, deriving from the Universal Convention
of the Human Rights of the United Nations and the ILO Declaration on the Fundamental Principles
and Rights of Labour.
With reference to the internal situation at Pirelli’s sites, the consolidation of the feedback received
revealed not significant risks; the average values recorded are, in fact, less than 1.12 for current
risks and less than 1.15 for medium-long-term risks. A similar situation is recorded with reference to
the Group’s value chain, whose average values recorded do not exceed 1.18 for current risks and
1.29 for potential risks.
The consolidation of the feedback received from Non-Governmental Organisations, with reference
to the risk perceived in the local context external to Pirelli, showed, on average, low or medium-low
risks; the average values recorded are, in fact, less than 1.74 for current risks, while they reach 1.98
for medium-long-term risks. The value of 1.98 corresponds to the risk of violation of the right to fair
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justice, which coincides, moreover, with the risk perceived as increasing the most in the coming
years.
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INTERNAL COMMUNITY
PIRELLI EMPLOYEES AROUND THE WORLD
The total Pirelli workforce as at 31 December 2019 - expressed in Full Time Equivalent and including
agency workers - stood at 31,575 resources (vs. 31,489 in 2018 and 30,189 in 2017), recording a
net growth of 86 employees compared to the previous year.
BREAKDOWN OF WORKFORCE33 BY CATEGORY
EXECUTIVES
CADRE
WHITE COLLARS BLUE COLLARS
TOTAL
2019
2018
2017
271
288
283
1,893
1,945
1,856
4,617
4,643
4,630
24,794
24,612
23,420
31,575
31,489
30,189
BREAKDOWN OF WORKFORCE33 BY GEOGRAPHICAL AREA34 AND GENDER
2019
2018
2017
Male
Female
Total
Male
Female
Total Male
Female Total
EMEA
11,345
1,813
13,158
11,225
1,783
13,008
10,554
1,608
12,162
NORTH AMERICA
2,758
SOUTH AMERICA
APAC
7,288
3,288
RUSSIA & NORDICS
2,373
507
677
855
673
3,265
2,497
7,964
7,577
4,143
3,254
3,046
2,384
503
693
870
703
3,000
2,120
499
2,619
8,270
7,168
671
7,839
4,124
3,347
823
4,170
3,088
2,626
774
3,399
TOTAL
27,051
4,524
31,575
26,937
4,552
31,489
25,814
4,375
30,189
33 These data include agency workers, corresponding to 0.1% of total workforce in 2017 and 2018 and to 0.2% in 2019.
34 EMEA: Austria, Belgium, Czech Rep., France, Germany, Greece, Hungary, Italy, Netherlands, Poland, Romania, Saudi Arabia,
Slovakia, South Africa, Spain, Switzerland, Turkey, UAE, United Kingdom. North America: Canada, Mexico, United States. South
America: Argentina, Brazil, Chile, Colombia. Asia Pacific: Australia, China, India, Japan, Singapore, South Korea, Taiwan. Russia &
Nordics: Russia, Sweden.
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BREAKDOWN OF WORKFORCE35 BY GEOGRAPHICAL AREA36 AND CONTRACT
EMEA
NORTH AMERICA
SOUTH AMERICA
APAC
RUSSIA & NORDICS
TOTAL
EMEA
NORTH AMERICA
SOUTH AMERICA
APAC
RUSSIA & NORDICS
TOTAL
EMEA
NORTH AMERICA
SOUTH AMERICA
APAC
RUSSIA & NORDICS
2019
Permanent
Temporary
Agency
12,571
3,237
7,779
4,140
2,947
30,674
565
0
185
3
98
851
22
28
0
0
0
50
2018
Permanent
Temporary
Agency
12,410
2,987
8,099
4,118
3,028
30,642
572
0
171
6
56
805
26
13
0
0
3
42
2017
Permanent
Temporary
Agency
11,298
2,599
7,469
4,146
3,253
848
0
370
24
142
16
20
1
0
4
41
Total
13,158
3,265
7,964
4,143
3,045
31,575
Total
13,008
3,000
8,270
4,124
3,088
31,489
Total
12,162
2,619
7,839
4,170
3,399
30,189
TOTAL
28,764
1,384
35 These data include agency workers, corresponding to 0.1% of total workforce in 2017 and 2018 and to 0.2% in 2019.
36 EMEA: Austria, Belgium, Czech Rep., France, Germany, Greece, Hungary, Italy, Netherlands, Poland, Romania, Saudi Arabia,
Slovakia, South Africa, Spain, Switzerland, Turkey, UAE, United Kingdom. North America: Canada, Mexico, United States. South
America: Argentina, Brazil, Chile, Colombia. Asia Pacific: Australia, China, India, Japan, Singapore, South Korea, Taiwan. Russia &
Nordics: Russia, Sweden.
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PERCENTAGE OF EMPLOYEES BY CATEGORY, GENDER AND AGE
2019
Executives
Cadre
White collars
Blue collars
Total
M
F
tot
M
F
tot
M
F
tot
M
F
tot
M
F
tot
<30
0%
0%
0%
3%
4%
3%
22% 30% 25% 26% 24% 26% 24% 24% 24%
30 - 50 55% 69%
57% 66% 75% 68% 64% 56% 61% 62% 70% 63% 63% 66% 63%
>50
45% 31%
43% 31% 21% 29% 14% 14% 14% 12%
6%
11% 13% 11% 13%
2018
Executives
Cadre
White collars
Blue collars
Total
M
F
tot
M
F
tot
M
F
tot
M
F
tot
M
F
tot
<30
0%
0%
0%
3%
3%
3%
24% 33% 27% 29% 27% 28% 26% 27% 26%
30 - 50 48% 66%
50% 64% 74% 67% 60% 53% 58% 59% 66% 60% 60% 62% 60%
>50
52% 34%
50% 33% 23% 30% 16% 14% 15% 12%
7%
12% 14% 11% 14%
2017
Executives
Cadre
White collars
Blue collars
Total
M
F
tot
M
F
tot
M
F
tot
M
F
tot
M
F
tot
<30
0%
0%
0%
3%
3%
3%
24% 32% 27% 31% 31% 31% 28% 29% 28%
30 - 50 50% 66%
51% 66% 77% 68% 61% 54% 58% 57% 61% 57% 58% 60% 58%
>50
50% 34%
49% 31% 20% 29% 15% 14% 15% 12%
8%
12% 14% 11% 14%
EMPLOYEES WITH PART TIME CONTRACT BY GENDER
2019
2018
2017
Male
Female
TOTAL
Male
Female
TOTAL
Male
Female
TOTAL
157
205
362
137
183
320
174
186
360
Employee flows by geographic area37, 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
37 EMEA: Austria, Belgium, Czech Rep., France, Germany, Greece, Hungary, Italy, Netherlands, Poland, Romania, Saudi Arabia,
Slovakia, South Africa, Spain, Switzerland, Turkey, UAE, United Kingdom. North America: Canada, Mexico, United States. South
America: Argentina, Brazil, Chile, Colombia. Asia Pacific: Australia, China, India, Japan, Singapore, South Korea, Taiwan. Russia &
Nordics: Russia, Sweden.
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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.
2019 FLOWS: ABSOLUTE VALUES AND RATES
INCOMING
OUTGOING
<30
30 - 50 >50
M
F
Total
<30
30 - 50
>50
M
F
Total
906
659
79
1,466
178
1,644
699
557
256
1,332
180
1,512
35%
8%
3%
13%
10%
13%
27%
7%
10%
12%
10%
12%
982
406
26
1,252
162
1,414
750
377
27
1,001
153
1,154
57%
29%
25%
46%
32%
44%
44%
27%
26%
37%
30%
36%
199
212
12
349
74
423
271
425
91
715
72
787
14%
4%
2%
5%
11%
5%
19%
7%
12%
10%
11%
10%
294
303
4
522
79
601
235
268
12
433
82
515
26%
10%
5%
16%
9%
15%
21%
9%
16%
13%
10%
12%
157
114
6
215
62
277
149
157
68
284
90
374
22%
6%
1%
9%
9%
9%
21%
9%
14%
12%
14%
13%
2,538 1,694
127
3,804
555
4,359 2,104 1,784
454
3,765
577
4,342
33%
9%
3%
14%
12%
14%
28%
9%
11%
14%
13%
14%
EMEA
NORTH
AMERICA
SOUTH
AMERICA
APAC
RUSSIA &
NORDICS
TOTAL
2018 FLOWS: ABSOLUTE VALUES AND RATES
INCOMING
OUTGOING
<30
30 - 50 >50
M
F
Total
<30
30 - 50
>50
M
F
Total
1,366
992
112
2,109 361 2,470
701
661
264
1,455
171
1,626
51%
13%
4%
19%
20% 19%
26%
9%
9%
13%
10%
13%
1,221
598
29
1,684 200 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%
339
297
8
478
166
644
328
318
6
550
102
652
24%
11%
9%
15%
19% 16%
23%
12%
7%
17%
12%
16%
219
112
27
300
59
359
233
256
193
551
132
683
27%
7%
5%
13%
8%
12%
29%
15%
35%
23%
19%
22%
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%
EMEA
NORTH
AMERICA
SOUTH
AMERICA
APAC
RUSSIA &
NORDICS
TOTAL
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2017 FLOWS: ABSOLUTE VALUES AND RATES
INCOMING
OUTGOING
<30
30 - 50 >50
M
F
Total
<30
30 - 50
>50
M
F
Total
1,010
661
88
1,520 239 1,759
444
506
222
994
178
1,172
43%
9%
3%
14%
15% 14%
19%
7%
8%
9%
11%
10%
934
420
17
1,044 327 1,371
555
243
11
655
154
809
63%
41%
20%
50%
65% 53%
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%
21%
13%
17%
15%
22%
15%
296
164
5
391
74
465
497
628
11
931
205
1,136
17%
7%
7%
12%
9%
11%
28%
27%
15%
28%
25%
27%
266
187
38
356
135
491
197
348
209
531
223
754
28%
10%
6%
13%
17% 14%
20%
19%
32%
20%
29%
22%
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%
20%
17%
EMEA
NORTH
AMERICA
SOUTH
AMERICA
APAC
RUSSIA &
NORDICS
TOTAL
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 slightly positive occupational
balance compared to 2018.
At Pirelli there are 45 young people older than 14 and under 18 years old (20 in Germany, 12 in
Switzerland, 10 in Brazil, 2 in Sweden and 1 in the UK), 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”, the “Equal Opportunities Statement” and the
“Global Human Rights” Policy.
The training course on Diversity has been part of the Group’s training offering for years.
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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 2019) 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: 78% of Senior Managers work in their country of
origin, where Senior Managers are those reporting directly to the Executive Vice Chairman and CEO,
and Region CEOs and Executives with strategic responsibilities 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: 56% of active Senior Managers in 2019 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 2019 57 new inter-group expatriates were recorded,
compared with 66 postings in 2018 and 54 in 2017. Approximately one third of the new postings
were destined for the main industrial countries, such as Germany, Mexico and Romania. At year-
end 2019, the expatriate population totalled 170 persons (vs. 190 in 2018 and 195 in 2017),
belonging to 16 nationalities and who moved to 25 different Countries on five continents, of which
12% women. 46% 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 “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 2019, 1 report was
ascertained relating to a case that could be linked to discriminatory attitudes, on which the Company
took action with specific actions aimed at removing the causes of the complaints and 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 “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
2017-2019, the data show a substantial stability, with a percentage of women in the total population,
which stands at 14.3%. The percentage of women in relation to managerial positions (executives +
cadres) rose from 22% in 2018 to 22.4% in 2019, with growth recorded within the population of
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cadres, an important element since the category constitutes a growth area and a landing place for
future executive positions.
WOMEN’S INCIDENCE ON THE TOTAL WORKFORCE38 BY CATEGORY
YEAR
EXECUTIVES
CADRES
EXEC + CADRES
(= Tot Manager)
WHITE COLLARS BLUE COLLARS
TOTAL
2019
2018
2017
10.7%
24.1%
10.1%
23.8%
10.3%
23.3%
22.4%
22.0%
21.6%
33.8%
34.2%
33.6%
10.0%
10.0%
10.1%
14.3%
14.5%
14.5%
Analysing the breakdown by gender in terms of employment contract, the table below shows that
also in 2019, a substantial balance was maintained between men and women.
WORKFORCE38 BY GENDER AND BY TYPE OF CONTRACT
2019
2018
2017
Male
Female
Total
Male Female Total
Male
Female
Total
PERMANENT
97.3%
96.6%
97.1%
97.5% 96.4% 97.3% 95.2%
95.7%
95.3%
TEMPORARY
2.6%
3.1%
2.7%
2.4%
3.5%
2.6%
4.7%
4.1%
4.6%
AGENCY
0.1%
0.3%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
In 2019 the number of parental leaves used by Pirelli employees corresponds to 311 for women and
792 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 2019, out of the total number of workers
who have ended parental leave, 67% of women and 95% of men have returned to the Company.
Also, during 2019, one year after the maternity and paternity event (which occurred in 2018), 75%
of women and 84% of men are still employed at the Company. It should 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 in the analysis at the end of 2019 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
38 These data include agency workers, corresponding to 0.1% of total workforce in 2017 and 2018 and to 0.2% in 2019.
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the “grade” (i.e. the weight attributed to each position on the basis of various factors) and the
significance of each cluster. 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 3% in favour of women, compared with 8% in 2018 and 3% in 2017 also in favour of
women; for the cadre category it is equal to 2% in favour of men, compared with 3% in 2018 and 1%
in 2017 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 3% in favour of women for the category of employees
(compared to 2% in 2018 and 3% in 2017 in favour of women); and 4% in favour of men for
the category of cadres (compared to 2% in 2018 in favour of men and 1% in 2017 in favour
of women);
Romania, where for the category of employees there is 4% in favour of men (consistent with
2018 and to the equal pay of 2017) and for the category of cadre there is 9% in favour of men
as against 4% in favour of women in 2018;
Brazil, where for the category of employees there is a 3% in favour of men (compared to 1%
in favour of women in 2018 and 1% in favour of men in 2017) and for the category of cadres
there is 4% in favour of men (compared to equal pay in 2018 and 1% in favour of men in
2017);
Germany, which showed an average pay gap between men and women of around 1% in
favour of men for the category of employees (2% in 2018 and 1% in 2017 in favour of men)
and 9% also in favour of men for the category of cadres (compared to 7% in 2018 and 6% in
2017).
With reference to the population of managers, of which women represent 10.7%, there is an average
pay gap of 5% in favour of women (in 2018 it was 3% and in 2017 it was 11% 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 and UK. For each country the pay gap between men and
women has been calculated. The average, weighted by the number of employees, showed a 2%
difference in favour of men. Some examples:
China presents a difference between average men’s salary and average women’s salary
around 7% in favour of men, compared to 9% in 2018 and 2017 and due to the organisational
roles currently in favour of the male population;
Brazil has a pay gap of 2% in favour of men compared to 6% in favour of women in 2018;
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in Italy there is a gap of 2% in favour of men, compared to 4% in 2018 and 2017, both in
favour of men;
in Romania there is a gap of 2% in favour of women, compared to substantial pay equity in
2018 and a gap of 2% in 2017 in favour of women.
With regard to the standard salary of new hires during their first year of work at Pirelli, this is greater
than the minimum levels 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
1.7% of total employees in 2019 (an increase of 0.3 pp from the figure for 2018 and 2017) 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.
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With reference to the “age” factor of the company population, subdivided by professional category,
it is homogeneous between genders, as can be seen from the table below.
AVERAGE EMPLOYEE AGE BY CATEGORY AND GENDER
2019
Female
Male
Total
Female
Male
Total
Female
Male
Total
Executives
Cadres
White collars Blue collars Group Average
48
50
49
43
45
45
2018
37
38
38
36
37
37
37
38
38
Executives
Cadres
White collars Blue collars Group Average
49
50
50
44
45
45
2017
37
38
38
36
37
37
37
38
38
Executives
Cadres
White collars Blue collars Group Average
48
50
50
43
45
44
37
38
38
36
37
37
37
37
37
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The following table represents the average seniority of service per professional category and gender:
also in 2019, there were no significant differences between men and women.
AVERAGE EMPLOYEE SENIORITY OF SERVICE BY CATEGORY AND GENDER
2019
Female
Male
Total
Female
Male
Total
Female
Male
Total
Executives
Cadres
White collars
Blue collars
Group Average
14
16
16
14
15
15
2018
9
9
9
7
9
9
8
10
9
Executives
Cadres
White collars
Blue collars
Group Average
13
16
15
13
15
14
2017
8
9
9
6
9
9
8
9
9
Executives
Cadres
White collars
Blue collars
Group Average
13
15
15
13
15
15
9
9
9
7
9
9
8
9
9
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;
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;
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
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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 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, supervised from central
level. Once again in 2019, and in accordance with market best practices, the impact of the (short-
term and medium-term) variable component on the total remuneration for each Group manager
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 (STI/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 2019, in addition to the objectives already present in the MBO, a new
sustainability objective was introduced, linked to the value of the Group’s “Green Performance
Revenues39“.
In 2014, some changes and improvements were made to the annual incentive system (STI/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.
For 2020, an amendment is proposed regarding the rules for the disbursement of the additional
amount, which will see continuity in the 25% deferral of the accrued annual incentive, with the
possibility of repayment/doubling the deferred portion, depending on the level of achievement of the
MBO in the following year.
In early 2018, following the return to the stock exchange in October 2017, 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
39 Green Performance products identify the car 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.
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international best practices, includes a Sustainability objective common to all Group Management.
At the end of 2019, its early closure is being considered, in light of the presentation of the new multi-
year Strategic Plan that will be presented by the Company in February 2020 and which will include
new objectives for the Management; it is planned to launch a long-term cash incentive plan in line
with market best practices, based on a rolling mechanism (a new three-year incentive plan is
proposed every year), without an ON/OFF condition of access and with some objectives of which, in
general, at least one market-based, one business-based and one of sustainability.
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 termination of employment;
clawback clauses for Top 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 2019, 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 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.
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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.
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
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 priorities and focus of the
performance;
the assessment model is based on two dimensions: the “what” (results) and the “how” (key
behaviours);
key behaviours are the same for the entire company population and are considered essential
to the achievement of the company’s strategic objectives, namely- Accountability, Teamwork
and collaboration, Forward thinking, Agility, Cross-functional approach, Initiative and drives.
The first performance assessment under this new model was carried out in 2019. As with the launch
of the new process in 2018, training sessions for managers focused on the evaluation and feedback
process.
The Performance Management process involves all staff worldwide (executives, cadres and white
collar employees) and in 2019 saw a redemption rate (i.e., completed 2018 assessments compared
to the total of planned assessments) of 99.9%; in particular, the redemption rate for women was
99.88%, compared to 99.95% for men.
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The percentages of completion by level are shown below:
Executives
Cadres
White collars
99.3%
100%
99.9%
In support of the quality of the Performance assessments, 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.
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).
During 2018, an analysis and redesign of the entire Global Talent Development process was carried
out. 2019 saw the implementation of the new process through a mapping of the talent population
and a first wave of assessment of the managerial skills of this population. It was then possible to
activate specific and dedicated action plans to support the development path of the talents involved
in the assessments.
The first mapping performed in 2019 allowed to identify a talent population of about 400 people
(about 6% of the white collar population) with an average company seniority of 7 years and a strong
international and multicultural connotation, with talent from as many as 25 nationalities. The 2019
assessment program covered about 25% of this population, other waves are expected in the coming
years to involve the rest of the population.
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.
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Also in 2019, Pirelli was called in various international locations to illustrate its Training Model,
recognized as benchmark of quality and robustness, already awarded in 2015/16 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 four “pillars” on which Training@Pirelli is based are the Professional Academy, the School of
Management, Global Activities and Local Education. The first three 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 to the entire corporate population with the aim of providing
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.
There are ten Pirelli 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
environmental efficiency of the process, health and safety, sustainable management of the supply
chain, risk management and 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.
Pirelli Professional Academy trainers are also certified through a standard process in all countries
and are periodically updated on their ability to transmit know-how and skills effectively.
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
2019, globally, the Professional Academies offered 205 courses; the training offer was delivered not
only through traditional classrooms but also, and increasingly, through digital methods such as
webinars, online courses and virtual classrooms.
Among the programmes provided in 2019 was the Value Based Management training programme,
which involved, both in the presence and in virtual and remote mode, about 150 managers
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representing different company functions, with the aim of strengthening their economic-financial
skills with a focus on long-term value creation. In support of the gradual transformation of work
processes in factories, of particular importance is the High Value Competencies programme
launched in 2019 with the aim of measuring the level of basic and more analytical-digital skills
possessed by factory staff. To support increasingly aware and compliant management of business
processes and market requirements, two fundamental training campaigns were conducted in 2019:
for all colleagues involved in accounting processes, the “Internal Control Principles” training
campaign was provided, while the “Product Liability” training campaign was organised for the
functions involved in the processes of product development, production and marketing. Finally, in
2019, a work project was launched with the aim of increasingly enriching the digital offering of the
Professional Academies’ training content over the three-year period 2020-2022.
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.
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 and the “Warming Up learning platform” dedicated to all recent
graduates.
Among the programmes conducted in 2019, the following are of particular note:
the programme to support the performance evaluation and feedback phase, which involved
more than 800 managers in the various countries where Pirelli is present;
the Developing Managerial Excellence programme which, as occurs every year, involved
new managers and underwent a major redesign to reflect the company’s business model and
strategic priorities.
More than 6,800 training days were provided within the School of Management during 2019.
The participation in the Warming Up@Pirelli training course, dedicated to the new graduates in the
entire group and lasting two years, involved about 250 young colleagues in training activities at
various Pirelli offices.
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Global Activities
Within Global Activities are available all training campaigns launched globally and designed to
promote awareness of corporate guidelines while respecting local diversity. Topics such as GDPR,
Security and Diversity are the primary focus of these training activities.
In 2019, an important awareness-raising programme on Cyber Security issues was launched
worldwide, aimed at preventing phishing risks and introducing the company’s Digital Signature. The
course provided, which can be used entirely online, was made available in 10 languages to reach
the largest number of colleagues in the corporate email user world.
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. The seminars
cover areas of expertise ranging from the improvement of interpersonal skills to stress management,
from the development of IT, language and regulatory skills 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.
Focus: Training on Sustainability and Corporate Governance
Also in 2019, 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.
In 2019 Pirelli also dedicated a professional training session to the Group’s Sustainability Managers
and the colleagues who support them locally in data collection activities for the preparation of the
Annual Report; aimed at deepening on all activities (local and central) related to the preparation of
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the Group’s Non-Financial Statement, the training covered the reporting standards used, the data
collection systems and the control systems implemented.
Pirelli training performance
In 2019 the total training provided was approximately 7.5 days of average training per capita. This
number reflects, on the one hand, Pirelli’s continuing desire to invest in training and, on the other
hand, the consolidation of training in newly established plants (such as Mexico and Romania), which
until the previous year had seen massive inflows and consequent incoming role training activities.
Following is the subdivision of average training days by gender and by professional category40:
GROUP
WOMEN
6.49
MEN
7.67
7.48
EXECUTIVES
CADRES & WHITE COLLARS
BLUE COLLARS
2.49
3.84
8.51
The high level of training is confirmed for both genders, with 1 day more for men to be correlated
with the clear prevalence of the male gender in the working population which has thus affected the
gender distribution.
87% of employees (taking into account the average workforce for the year) participated in at least
one training activity during the year.
40 Data at Group level and by category calculated with average headcount for 2019; data by gender calculated with actual headcount as
at 31/12/2019.
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The investments made for the different categories 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.
On a global level, the Professional Academies cover the most significant portion (56%) 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 particular,
with regard to the training of white collars, Quality, Manufacturing, R&D and Digital Academy
represent over 70% of the total training.
The issues of Health, Safety and Environment maintained a significant share also in 2019, confirming
their relative weight equal to 9% of the total training provided at Group level.
Consistent with the great digital transformation processes undertaken by the company, the training
processes are 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.
LISTENING: GROUP OPINION SURVEY
Pirelli uses the “My Voice” climate survey as a tool for actively listening to its employees around the
world, on the basis of which it has set up group and local improvement plans.
The management of the global “My Voice” questionnaire is entrusted to a third party and the results
are provided to Pirelli in aggregate form in order to fully guarantee the anonymity of the respondents.
The 2018 edition of My Voice used the Sustainable Engagement Model, showing how challenging
the work environment is for workers, and whether people’s engagement is sustainable over time.
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 that enables
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.
The frequency of the global survey is every two years in order to ensure adequate time to define,
implement and consolidate comprehensive action plans by Country/Function/Business Unit,
responding to the needs arising from the survey results.
During 2019 Pirelli worked on defining and implementing the action plans resulting from the global
survey conducted in the second half of 2018, the results of which were consolidated and released
internally to employees between late 2018 and early 2019. Implementation of the action plans will
continue to be completed in 2020, while the next My Voice survey is scheduled for 2021.
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With reference to the results of the latest My Voice survey, which was administered to all Pirelli
employees worldwide online, the global participation rate was over 80% (81% global rate, 82% for
management and office workers and 80% for blue-collar workers). The overall result for Pirelli
employees globally was 75% “Sustainable Engagement”: on a scale of 1 to 5, responses to the 6
Sustainable Engagement questions were therefore positive for 3 out of 4 colleagues worldwide.
The survey also confirmed Pirelli as a company attentive to the inclusion of diversity, with a result
that is well above the market benchmarks. In addition, the sense of belonging and the pride of
working for Pirelli are confirmed among the highest indices, together with the sense of responsibility
(accountability) of their results. Pirelli is above the benchmark average (manufacturing companies)
as well as the relative satisfaction in the area of professional development.
The areas to be monitored to ensure lasting engagement over time related to the level of information
regarding company results, to “how much” the working environment allows expression of their ideas
on innovation, to a sense of actualisation among personnel and their “energy level”.
WELFARE AND INITIATIVES FOR THE INTERNAL COMMUNITY
For years, Pirelli has had the organisational figure of the “Group Welfare Manager”, who is entrusted
with the supervision of welfare activities, jointly with the many central and local functions concerned,
including Health and Safety at Work, Industrial Relations and Sustainability Managers.
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:
health and wellbeing (e.g. health care, information and awareness-raising campaigns);
family support (e.g. scholarships, summer camps for employees’ children, inter-company
crèche);
free time (e.g. open days, sporting and cultural activities, online portals of products and
services with significant employee deals and discounts);
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.
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As an example, some of the welfare activities activated 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 around
299,000 in 2019.
Many Pirelli offices have activated Smart Working projects, 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. Smart Working is in fact active in the Headquarters in Milan Bicocca, which
represents the Group’s largest headquarters in terms of Staff employees, in the USA (New York,
Rome, Southfield, Los Angeles and the sales force in the field), in the Sao Paulo headquarters in
Brazil and in Paris and Craiova (Romania). In 2019, the feasibility analysis of the project for the
Moscow and German sites was also conducted. In Milan Bicocca alone, 14,858 smart working days
were carried out by workers in 2019.
To support work-life balance, and in particular family support, the large population of Bicocca counts
on the support of the company concierge service (which includes services such as laundry, tailoring,
shoemaking, postal and administrative services), on the Project “Bambini in Bicocca”, which
guarantees a care and entertainment service for the children of employees of school age (6-10
years) during school closures, and from 2019 also on the “Family Care” listening and orientation
desk, designed to support those who are engaged in caring for a dependent relative or those who
are facing moments of family transition.
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 and are also open to the local community; consider the
initiative in Brazil “Fantastica Fábrica de Pneu”, “Una aventura en familia” in Argentina, the “Social
Leisure Internal Event” in Mexico or the now traditional Diversity day in Germany.
There were many prevention and awareness campaigns 2019 for a healthy lifestyle, including the
“Nutrition workshop” conducted in Romania, the innovative “Snack car” in Brazil and the “Snack
Saludable” in Argentina, all aimed at promoting a healthy diet, including in the office.
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.
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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.
Industrial Relations also have an active role in the Group’s commitment in terms of health and safety,
with an equally active participation on the part of the unions and workers. In fact, 78% of the Group’s
employees are covered by representative bodies that periodically, with the Company, monitor and
address current topics as well as 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 2019, the Industrial Relations activities achieved significant negotiating results. Collective
agreements were renewed, without any conflict, in Argentina and Mexico.
In May 2019 the Company announced the reorganisation of its production structure in Brazil, which
will accelerate the focus on High Value products and improve the competitiveness of its
manufacturing sites in the country, taking into account the difficult economic scenario. The
reorganisation includes, in particular, the expansion of the Campinas factory, which is currently only
active in the production of Car tyres, through the transfer of Motorcycle tyre production from the
Gravataí plant, which will be completed by mid-2021. This reorganisation will allow the creation of
an industrial hub serving the Latin American markets, which will be dedicated to the production of
Car, Motorcycle and Motorsport tyres, with a growing focus on High Value and the hiring of 300
people. At the same time, an agreement was reached with the trade unions in Gravataí, with a shared
plan to reduce the social impacts for the approximately 900 people employed there.
In June 2019, the company announced the reorganisation of production in Italy and specifically
assigned the new mission to the Bollate plant, which will focus from 2021 on Bicycle production to
replace Car production. An agreement was discussed and signed with the trade unions on the tools
to manage the change of mission of the plant and the organic structure.
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
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with the IT tools they need to perform their duties and a connection to the corporate Intranet system,
for the real-time communication of official Company press releases.
Compliance with statutory and contractual obligations governing overtime,
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, the “Equal Opportunities
Statement” and the “Health, Safety and Environment” Policy. All the aforementioned Policies are
public and have been communicated in the local language to employees. 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.
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. 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.
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Focus: Internal audits
Year
Countries
2014
Italy, United Kingdom and China
2015
Mexico, Russia (Voronezh plant) and United Kingdom
2016
Germany, Russia (Kirov plant) and United Kingdom (follow-up)
2017
Argentina, Brazil (Campinas and Feira de Santana plants), Mexico, Romania and USA
2018
France, China (Yanzhou plant)
2019
China (Jiaozuo plant), Russia (Voronezh plant) and Singapore
The non-conformities emerged as a result of the audits performed in 2019 were subject of the action plans agreed
between the local managers and central management, and will be subject to follow-ups in 2020 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 2019, 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 2019 it stood at 78% (vs. 77% in
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2018). This figure is associated with the historical, regulatory and cultural differences between each
country. Collective agreements to be renewed in 2019 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.
The Group also maintains various supplemental Company medical benefit plans at its affiliates
according to local requirements. These healthcare schemes vary from country to country in terms of
allocation levels and the types of coverage provided. The plans are managed by insurance
companies or funds created ad hoc, in which the Company participates by paying a fixed amount as
is done in Italy, or an insurance premium as is done in Brazil and the United States. For the
economic-equity measurement of the above benefits, reference is made to the Consolidated
Financial Statements, notes “Employee funds” and “Personnel Costs”.
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
Management model and system
Pirelli’s approach to responsible management of occupational health, safety and hygiene is based
on the principles and commitments expressed in “The Values and Ethical Code” of the Group, in the
“Health, Safety and Environment Policy” in the “Global Human Rights Policy” and in the “Quality
Policy”, in accordance with the Sustainability Model envisaged by the Global Compact of the United
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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 for early 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;
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.
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At all of its production sites, Pirelli adopts an occupational health and safety management system
structured and certified according to Standard ISO45001/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 language” that
guarantees sharing, alignment and effective management in the Group. In 2019, four production
sites migrated to ISO 45001 certification. During 2020, all other production units are expected to
migrate to ISO 45001.
In 2019, the 11th edition of the Pirelli Health, Safety and Environment Global Meeting was held. The
annual meeting took place at the Pirelli production site in Kirov, Russia. 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 and discussing the future vision and the roles and responsibilities of health and safety
professionals.
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.
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 2016-2019 to all production
sites of the Group. A specific Steering Committee, chaired by the Operations General Manager,
monitors the progress of the programme. Pirelli has also implemented internal tools to support the
Excellence in Safety Programme, aimed at supporting the processes implemented and the results
obtained.
The most important areas of intervention of the “Excellence in Safety” Programme are in fact related
to the improvement of the governance of safety, the clarity of the tasks and roles, empowering of all
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 appropriate and
stimulating, in which workers feel valued and all the risks are effectively prevented and countered.
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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 9% of the total training provided by Pirelli in 2019 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.
The HSE-DM system collects all the information related to accidents and to the particular situations
that occurred in factories, fitting 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 2017-2019 and cover the same
scope of the Group’s consolidation.
The 2020 target in the Sustainability Plan 2017-2020 is for a reduction in the Frequency Index of
87% compared to 2009. Please note that in February 2020 the Company will be presenting the new
long-term Industrial Plan and related strategic sustainability targets. The updated targets will be
published on Pirelli’s website for the benefit of all stakeholders.
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In 2019, Pirelli registered an accident Frequency Index (FI) of 0.26, in line with the figure from 2018,
with a reduction of 83% compared to 2009. The most representative injuries concern events involving
contusions, cuts and fractures of the upper limbs.
For 2019, 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 = 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
EMEA
North America
South America
Russia & Nordics
Asia Pacific
2018
2019
0.28
0.35
0.20
0.16
0.31
0.35
0.03
0.15
0.02
0.02
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The injury Severity Index (SI) in the Group in 2019 was 0.12, in line with the 2018 figure.
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 2019 Severity Index by geographical area:
SEVERITY INDEX
EMEA
North America
South America
Russia & Nordics
Asia Pacific
2018
2019
0.09
0.14
0.17
0.07
0.11
0.19
0.03
0.12
0.01
0.01
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 2019.
COMMUTING ACCIDENTS
2017
108
2018
121
2019
119
COMMUTING ACCIDENTS
EMEA North America
South America
Russia & Nordics Asia Pacific
2018
2019
17
37
42
43
49
39
0
0
0
0
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Within the production process there were no activities with a high risk or high incidence of
occupational diseases.
The Frequency Index for occupational diseases in 2019 stands at 0.05.
FI = number of occupational illnesses/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 2019:
FI OCCUPATIONAL DISEASES EMEA North America South America Russia & Nordics Asia Pacific
2018
2019
0.03
0.02
0.00
0.00
0.10
0.14
0.00
0.00
0.00
0.00
With regard to accidents of agency workers, the following tables show the number of accidents
recorded in the last three years and the distribution of the accident frequency index of 2019 by gender
and, subsequently, by geographical area:
ACCIDENTS OF AGENCY WORKERS
Number
FI agency workers - Men
FI agency workers - Women
2017
3
1.19
0.00
2018
8
1.02
0.00
2019
5
0.55
0.44
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ACCIDENTS OF AGENCY
WORKERS
EMEA North America
South America
Russia & Nordics
Asia Pacific
2018
2019
8
3
FI agency workers 2018
16.38
FI agency workers 2019
6.00
0
2
0.00
4.80
0
0
0.00
0.00
0
0
0.00
0.00
0
0
0.00
0.00
The Accident Frequency Index for employees of suppliers operating at the Group’s production sites41
shows a declining trend over the three-year period, standing at 0.13 in 2019. Below are the data for
the last three years and the distribution by geographical area of the cases in 2019.
IF CONTRACTORS
2017
0.19
2018
0.18
2019
0.13
IF CONTRACTORS
EMEA
North America
South America
Russia & Nordics
Asia Pacific
2018
2019
0.04
0.19
0.11
0.09
0.28
0.08
0.35
0.10
0.00
0.00
Below are the figures relating to fatal accidents recorded in the last three years with reference to
Pirelli employees and employees of suppliers operating at Group production sites.
FATAL ACCIDENTS
Pirelli employees
Contractors
2017
2018
2019
1
0
0
0
1
0
In the last three years, no fatalities have been recorded among the contractors working at Pirelli’s
production sites. A far as Pirelli’s employees are concerned, 2 events have been recorded, one in
2017, of an employee of the Brazilian equity of Campneus and one in 2019 of an employee working
in the Russian plant of Kirov.
41 The figure covers all the Group’s production sites, with the exception of the Izmit site for the relative non-significant dimensions.
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Focus: towards the “Zero Accident Objective”
15 Pirelli manufacturing plants were named “sites of excellence” in 2019, since no employees were injured there during
the year:
Unit
Industrial sites
Plants
Fitting unit
Jiaozuo, Breuberg MIRS, CMP, Burton MIRS
Camacari, Sorocaba, Hurlingham, Goiana, Didcot, Ibirite
Logistics - TLM
TLM Campinas, TLM Barueri, TLM St André
Other
St André HQ, Elias Fausto
Health and safety investments
In the three-year period 2017-2019, investments in health and safety by the Group exceeded €42
million, of which over €15 million was invested in 2019.
The investments made targeted improvements on machines and plants 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.).
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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.
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 its interests
through a strategy based on a clear perception of the industrial targets and the development of the
business. Among the various instruments of “economic diplomacy”, in addition to the promotion of
bilateral initiatives, Pirelli is active in certain Business Councils, including the China Business Forum
(BFIC), in which it held the chairmanship from December 2015 to December 2018 and of which it
continues to be a member, the Council for Relations between Italy and the United States, the Italy
Mexico Business Forum and the Italy Thailand Business Forum.
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 2019 with institutional representatives in Italy and
abroad. In this context, a series of bilateral meetings were held, aimed at deepening the Group’s
industrial and commercial issues with significant institutional impacts. These included meetings with
several representatives of the EU, ex-NAFTA, APAC and CSI blocs.
In China, the Group is committed to enhancing relations with local institutional interlocutors,
particularly in areas where it is present with industrial sites, such as the Shandong Province and the
Henan Province. During 2019 Pirelli maintained a dialogue with the main local institutions on multiple
areas of interest, especially research and development projects with a view to improving the quality
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and efficiency of the tyre industry in Shandong, with particular regard to safety and environmental
dynamics.
In the United States, Pirelli is present with industrial and commercial activities, and carries out
institutional relations by monitoring legislative and regulatory developments with impacts on the
production, import and distribution of tyres in the territory. Pirelli is a member of the following trade
associations: United States Tire Manufacturers Association, Original Equipment Suppliers
Association, Organization for International Investment and participates in the main working groups.
Also in Brazil, Pirelli continued to celebrate the country’s strong links with Italy, promoting, among
others, meetings with institutional representatives at federal and central level. Pirelli also maintains
relations with local institutions and associations 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 urban mobility, 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. Relations with the United Kingdom were particularly
important in 2019; on the occasion of the 50th anniversary of the Carlisle plant, in April HRH the
Prince of Wales visited the Carlisle plant - one of the two Pirelli plants in the United Kingdom - in the
presence of top management.
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 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, including throughout 2019. The
Group also participated in the 23rd edition of the St. Petersburg International Economic Forum and
supported the 12th Euro-Asian Forum held in Verona. Finally, Pirelli participated in the Russian-Italian
Civil Society Dialogue Forum in Rome, organised in the margins of the visit of the President of the
Russian Federation to Italy.
Relations with the European Institutions are focused on consolidating relations with the Stakeholders
of reference, also considering the start of the new European institutional cycle in 2019, on monitoring
of legislation and on the constant activity of representing the Group in associations. The ongoing
dialogue and discussion with representatives of the European Commission, the Council and the
European Parliament covers a wide range of topics of corporate interest including industrial policy,
research and innovation, energy and environmental policies, transport and mobility, technical
regulations, the domestic market and international trade. Of particular interest is the Green Deal, the
European plan on the new sustainable growth strategy launched by the European Commission in
December. In 2019, in the legislative field, activity focused specifically on regulatory developments
relating to mobility and road safety issues as well as technical regulations with particular reference
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to the revision of the Regulation on tyre labelling and general motor vehicle safety. In the various
stages of drafting and defining European legislation, Pirelli represents the Group’s interests among
its European Stakeholders. Pirelli is enrolled in the European Transparency Register, which was
established 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. The Group’s relations with the Directorate General for
internationalisation policies and the promotion of exchanges of the Ministry of Economic
Development.
Of particular note during the year was the visit by the Chairman of the Board who visited the
company’s Research & Development Centre and Headquarters. During the visit, a memorandum of
understanding was also signed between the Ministry of Justice’s Department of Penitentiary
Administration and Pirelli aimed at promoting work for inmates through a training programme to
create skills that can be utilised in the world of work.
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 presence; the promotion and
strengthening of 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. During the year, Pirelli also supported various initiatives to
raise awareness of road safety issues and to promote culture.
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.
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Since December 2019 Pirelli has also been on the Board of the Global Compact Network Italia.
In 2019, the Global Compact 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 participates to two 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; during 2019, the working table worked on the
“Decent Work Toolkit for Sustainable Procurement”, a tool whose objective is to train the
company’s representatives working in the Purchasing area to support them in integrating
sustainability into their daily decision-making processes.
“Financial Innovation for the SDGs”: in September 2018 the working group presented its first
publication “SDGs Bonds & Corporate Finance - A Roadmap to Mainstream Investments”;
to this, several other publications on the subject were added during 2019. In December 2019
the platform launched the “CFO Taskforce for the SDGs”, which Pirelli joined as a Founding
Member. The Taskforce is a collaborative platform that brings together leaders from different
sectors and aims to develop innovative strategies for mobilizing finance towards sustainable
development.
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 2019, 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.
During 2019 ETRMA, in order to present and guide the work of the new European Commission and
European Parliament, developed the Policy Paper 2020-2030 Keep Moving, which reiterates the
need for a balanced regulatory approach on tyre performance, an assessment of the interaction
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between tyre and vehicle to avoid conflicting regulations, and legislative initiatives guided by robust
science-based evidence and proven technological feasibility.
Since 2018, Pirelli has been part of the Connected & Autonomous Driving (CAD) working group, set
up by ETRMA to respond to new technological challenges concerning the mobility sector
(connectivity, autonomous driving, cyber security, etc.) and their impact on the tyre, with a particular
focus on how data is managed and exchanged between the various players in the system.
Moreover, ETRMA continued its heavy involvement in the implementation of the European
Innovation Partnership on Raw Materials, with the aim of ensuring fair and unrestricted access to
key raw materials for the sector.
The association continues to work alongside the European Commission in defining policies on the
Circular Economy for the sector and continues successfully to promote sustainable practices of
producer responsibility for the management of tyres at the end of their life, thanks to which Europe
maintains a recovery rate of over 90%, through strong collaboration with the various management
consortia present in European countries. ETRMA’s (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 (TRWP), micrometric particles produced by the combined
road and tyre wear during vehicle circulation, and health, e.g. granulated filler material obtained from
end-of-life tyres for sports fields. With regard to TRWP, ETRMA in 2018, with the support of CSR
Europe, launched the “European TRWP Platform”, a multi-stakeholder initiative aimed at sharing
scientific knowledge and involving relevant Sectors and Organisations, in order to identify a holistic
and balanced approach for the definition of possible actions for the mitigation of TRWP impacts. In
2019, the “European TRWP Platform” concluded its work with the publication of the State of
Knowledge (“Scientific Report on Tyre and Road Wear Particles, TRWP, in the aquatic environment”)
and the possible mitigation actions that can be taken by the various stakeholders regarding TRWP
(“The Way Forward Report”). The activities of the platform will continue in 2020 in order to continue
the dialogue between the various stakeholders and to support the implementation of pilot mitigation
projects. In 2019, ETRMA also set up a micro-site (https://www.tyreandroadwear.com/) aimed at
providing information on TRWPs to the general public and the need for a holistic multi-stakeholder
approach to understanding root causes and defining/implementing mitigation actions for TRWP.
A section in the Environmental Dimension chapter of this Report is also dedicated to TRWP, to which
reference should be made for further details.
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
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development. In particular, Pirelli endorses two projects: Tire Industry Project and Transforming
Urban Mobility).
The Tire Industry Project (TIP), whose members account for approximately 65% of global production
capacity of tyres, was founded in 2005 with the aim of meeting and anticipating the challenges related
to the potential impacts on health and the environment of tyres throughout their life cycle. The project
extends its evaluation activities to raw materials, TRWP (with research activities that have seen the
completion of monitoring the impact of TRWP on air quality in the city of New Delhi, India) and
nanomaterials. On the latter issue, in collaboration with the OECD (Organisation for Economic
Cooperation and Development), TIP has developed a sector-specific guide containing best practices
of reference for the 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 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 “Environmental Key Performance Indicators for Tire Manufacturing 2009-2018” 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 2019, 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 December
2019, the report “Global ELT Management - A global state of knowledge on regulation, management
systems, impacts of recovery and technologies” was published, a document that presents the current
state of end-of-life tyre management in 45 countries, together with an analysis of regulations,
management systems and recovery methods.
Important international stakeholders and TIP launched in October 2018 the “Global Platform for
Sustainable Natural Rubber” (GPSNR), a voluntary multi-stakeholder platform aimed at promoting a
more sustainable management of the natural rubber value chain, both in socioeconomic and
environmental aspects. The first general meeting of the platform was held in March 2019. Pirelli is a
founding member and actively contributes to the platform’s activities by co-chairing two of the
working groups: the first dedicated to the representation of small landowners within the platform and
the second dedicated to capacity building activities at plantation level. At the end of 2019 more than
50 stakeholders joined the platform. Platform members include manufacturers, processors and
traders, tyre manufacturers/buyers, car manufacturers, financial institutions and civil society.
As part of the WBCSD Projects, Pirelli also participates in the “Transforming Urban Mobility” (TUM)
and “Future of Work” projects.
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TUM aims to promote and accelerate the transition to safe, universally accessible and
environmentally friendly urban mobility. Thanks to the analysis of new trends and available
technological evolutions, the project proposes to the cities with which it interfaces, the most suitable
solutions for each specific context among the best practices available worldwide. International
companies from the automotive, autoparts, transportation, oil & gas, information and communication
technology sectors will participate in the working table.
The Future of Work project brings together a group of companies from different sectors and has as
its objectives the analysis of macro-trends that will affect the world of work in the medium-long term,
and the development of scalable business solutions to address the challenges that will arise.
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.
During 2019 IRSG signed a Memorandum of Understanding with the Global Platform for Sustainable
Natural Rubber (GPSNR), whose aim is to develop and consolidate cooperation between the two
organisations. The MoU is fundamental in ensuring effectiveness in achieving the common
objectives of the two organisations with regard to the sustainable production and consumption of
natural rubber.
EU-OSHA – European Occupational Safety and Health Agency
In 2019, for the eleventh 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. Among the campaigns the
Company has joined during the last few years, it’s worth mentioning the 2016-2017 campaign
“Healthy Workplaces for all Ages”, dedicated to the importance of a sustainable workplace, which is
able to guarantee employees’ lifelong health and safety, and the 2014-2015 campaign “Healthy
Workplaces Manage Stress”, focused on the topic of stress and psycho-social risks on the
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workplace, and whose main objective was to encourage employers, managers, employees and their
representatives to collaborate to manage these risks.
CSR Europe
Since 2010, Pirelli has been a member of the Board of CSR Europe, a network of companies in
Europe that are leaders in the area of corporate social responsibility. Its members include more than
39 multinational companies and 41 national partner organisations from 33 European countries.
Since 2016 Pirelli has been supported by CSR Europe in the organization and moderation of its
Stakeholder Dialogue Stakeholders, which the Company holds at the local Affiliate level or
internationally at Headquarters.
In this regard, reference should be made to the Stakeholder consultations held in Romania, Mexico,
Germany, Turkey, Russia, Argentina, the United Kingdom and the United States. CSR Europe
moderated the two multi-stakeholder consultations held by Pirelli for the definition of the Company’s
Sustainable Natural Rubber Management Policy, the related Implementation Manual and the 2019-
2021 Activity Roadmap, published on the Pirelli website. For more information on Pirelli’s sustainable
management of natural rubber, please refer to the dedicated section in the “Our Suppliers” chapter
of this Report.
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 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.
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.
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Also in 2014, the Company signed the Trillion Tonne Communiqué, the document that requires
global emissions over the next 30 years to remain below the trillion tonnes of greenhouse gases in
order to avoid a rise in average global temperature higher than 2°C.
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 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 “Sustainability Planning and the United Nations 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
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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 a fundamental element
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 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.
In 2019 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 the dissemination of the culture of road safety. 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.
Also at Group level, as part of its collaboration with the WBCSD (World Business Council for
Sustainable Development), Pirelli participated in the new Transforming Urban Mobility project, which
explores the major trends in mobility (electric, shared and autonomous) to offer cities that interface
with more sustainable, safer, cleaner and more efficient solutions. For further details on Pirelli’s
involvement in this project, please refer to the “WBCSD” section of this Report.
There are numerous road safety initiatives implemented in the countries where the Group operates.
In Italy, in 2019, the partnership with the Traffic Police was strengthened, both through joint training
activities aimed at raising awareness of road safety issues, aimed primarily at young people in
schools, whether through local events dedicated to road safety, or through specific courses on tyres
provided to the Traffic Police or directly by Pirelli, as in the case of the Piedmont Traffic Police at the
Turin Police Headquarters, or, within Assogomma, as part of the Safe Summer (“Estate in
Sicurezza”) activities.
Knowledge of the tyre and its role in road safety is also the theme of the training programme that
Pirelli holds annually at the Don Orione technical high school in Fano.
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In the United States and Canada, a “Tire Safety Week” was organised, a series of initiatives on safe
driving that also involved other tyre manufacturers. In the United States, Pirelli also made a donation
to the “Together for Safer Roads” consortium. In the United Kingdom the “Tyre Safety Month” was
organised, contributing to road safety education. In Argentina, through the “STC2000 va a la
Escuela” project, Pirelli sponsored several workshops on road safety, participating in more than 50
events at the country’s schools. In Mexico, in collaboration with a local television channel, road safety
messages have been developed and broadcast in Guanajuato State since 2018. Also in Mexico,
Pirelli sponsored an automobile museum, lending different types of tyres for the exhibition.
Multiple initiatives in favour of road safety education on two wheels. Pirelli Moto in 2019 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, Enduro Republic, Motorace People, 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.
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 Universities in the world including the Polytechnic University of Milan, the
Polytechnic University of Turin and the Bicocca University of Milan in Italy, the University of Craiova,
the University of Pitesti 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
Würzburg, Aschaffenburg and Darmstadt, the DHBW of Mannheim and the Vocational School of
Michelstadt, Germany, to name a few.
In China, Pirelli sponsored 36 scholarships for Science and Technology students of the University of
Qingdao. In Greece, Pirelli donated computer monitors to a school. In several countries, the
company opened its doors to groups of students to introduce them to manufacturing for educational
purposes. In the UK, Pirelli invited automotive students to the factory during the month dedicated to
tyre safety.
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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’s degree 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 2019 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 36
short-term interns and 14 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. Pirelli worked with Impact Hub Istanbul on this important challenge,
involving 567 high school students in 19 cities in Turkey this year. The students, who joined 97
teams, tackled problems identified by them and applied creative solutions. They received dedicated
online training over a six-week period, and 33 teams then sent projects for the competition. Eight
teams from eight different schools were selected by the jury as finalists. Subsequently, a mobile
innovation lab called “Mobile Maker” dedicated one week to each school. With the help of the lab,
students built prototypes, submitting their models to the jury for the final competition. The prize for
the winning team is a trip to Italy to get to know the Pirelli factory. Among the problems identified by
the students in 2019: waste water, posture problems, urban pollution, street animal feed and polluting
waste in the ocean.
In Spain Pirelli donated space to host a student workshop, where students designed to build a single-
seater racing car, and a motorcycle, to compete in the international race “Formula Student” against
almost 500 teams from all over the world. The Spanish team found a formidable competitor: also in
Turkey, Pirelli sponsored a team, in this case the Technical University of Istanbul, the first Turkish
team to compete in the Formula Student with a self-guided electric car.
In Italy, during 2019, 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
three 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 the United States, Pirelli supported the local Chamber of Commerce in
developing the skills required by the industrial fabric in the local area.
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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 two main
objectives:
educating natural rubber farmers by teaching the correct procedures for rubber extraction
enabling the protection of natural resources (maximising productivity and maintaining and
extending the life of trees).
giving scholarships to the children of natural rubber growers, to allow them to go to school
and buy school books.
165 families participated in the programme in 2019.
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 2019, 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
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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 the United
Kingdom, Pirelli sponsored various charity fundraising events.
In Kirov, Russia, Pirelli sponsored the “Pirelli Cup” in ice hockey, involving several teams of boys
(120 participants).
In Brazil, Pirelli supported football, volleyball, judo and karting programmes 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 the Santa Clara Convent Foundation, which manages programmes
that provide food for needy families, and a warehouse for the storage of food for the poor.
In Moscow, Pirelli contributed to the “Chance” project that provides private lessons to orphans, and
an important activity undertaken by Pirelli for the Kirov community is the support of the
Verkhovondanka orphanage with 124 children, with visits by Pirelli staff and collections of food,
shoes and toys.
In Voronezh, also in Russia, Pirelli helped to build a children’s playground in Rostovkiy park. The
construction of the park began in 2018 with a multifunctional sports area, again with the support of
Pirelli. Pirelli employees in Voronezh also helped the shelter for local animals by assisting dogs and
cats with hygiene, medicines and food.
In China, Pirelli supported 90 orphaned and/or impoverished children in Yanzhou. In Turkey, Pirelli
participated in a conference on volunteering with donations to two associations. In Australia, Pirelli
has partnered with Variety Child, a non-profit organisation, through volunteer work and financial
support. In Japan Pirelli made a donation to a charity auction for “Runway for Hope” for orphans and
refugees.
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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. Pirelli Mexico, together with the Centro de Innovacion
Aplicada en Tecnologias Competitivas, has created a prosthesis for Ivan Davila, Inter Campus
instructor. Ivan had lost a leg and an arm in an electrical accident at the age of nine. Now Ivan is
also a semi-professional football player in Mexico.
In the UK, Pirelli supported a philanthropic trip to Ghana and various charitable initiatives. In
Romania, Pirelli supported a centre for abused children with a financial donation.
In Germany, Pirelli has sponsored an association for the training of service dogs for the disabled,
and has provided donations for a school, the outdoor sports area, and support for the local
community. Pirelli also supported the expansion of a shelter for women and children who are victims
of domestic violence. Also in Germany, employees raised funds to support four other initiatives for
children.
In Brazil Pirelli supported various social solidarity activities: Associacao Imaculada Coracao de Maria
Educandario, an educational activity for children run by Italian nuns; Aprender Brincando, an after-
school project with activities for children; Servico de Convivencia Meninos and Meninas, also an
important after-school activity; Creche Escadinha do Tempo, a nursery school, and Projeto Guri, an
important musical activity for children and young people.
At the end of June 2019 in the Irkutsk region of Russia, near Lake Baikal, there was a very severe
flood, with more than 1,000 people in need of medical assistance. A natural emergency was declared
and Pirelli participated in the fundraising for the victims.
At the beginning of the year 2020 while a significant part of Australia was burning, Pirelli wanted to
do its part with donations to the Red Cross also in collaboration with some customers.
SDGs – Reference Targets:
1, on the eradication of poverty in all its forms;
2, related to the elimination of hunger in the world;
11, dedicated to the development of cities and social environments that are inclusive, safe and sustainable.
Health
Pirelli considers contributing to improving the health services of the communities where it operates
to be important. Since 2008, Pirelli Tyres Romania, in collaboration with the Niguarda Hospital in
Milan, has supported the professional training of medical and nursing professionals and the donation
of medical equipment and devices to Slatina Hospital. Over 290 professionals were trained in this
programme, and specifically in oncology, paediatric care and emergency care. Pirelli Tyres Romania
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has also provided dental treatment to around 400 children in Slatina through the project Overland
for Smile. In addition, Pirelli employees in Romania made a collection of books to supply to the
hospital.
In many countries Pirelli promotes a healthy and active lifestyle with various projects, both among
its employees and in the local community.
In several countries, Pirelli makes donations to scientific research and supports voluntary projects
by employees to raise funds for research. In the Netherlands, Pirelli sponsored the “Friends of
Sophia”, projects for children at the Rotterdam hospital and in Belgium, the company held a
fundraising event in favour of activities for sick children. In the UK donations were made for brain
cancer research. Employees of Pirelli Turkey ran a marathon run by raising funds for Down’s
syndrome, and a group of volunteers raised funds for cerebral palsy.
In Spain, Pirelli participated in the “Somos Uno” Solidarity Day, raising funds for biomedical research
into childhood diseases and Alzheimer’s. In Brazil Pirelli is a supporter of the Pequeno Principe
Children’s Hospital.
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. The Rome, Georgia office in the USA obtained the “Green Seal Green Office Partner”
certification.
In Romania, more than 250 Pirelli employees participated in “World Cleanup Day”, while in
Voronezh, Russia, employees collected batteries for recycling and cleaned the park near the Pirelli
factory during “City Cleaning Day”. In September 2019 in Kirov, with Pirelli’s participation, the “Clean
Games” were held, competitions to collect and sort rubbish. In collaboration with the University of
Vyatka, 270 garbage bags weighing more than a tonne were collected.
In Mexico, Pirelli continued to sponsor a reforestation project with the State of Guanajuato on 40
hectares of land, with benefits from the project also for groundwater, involving employees. Pirelli also
coordinated a “llantaton” (or “tyreathon”), i.e., the collection of at least 15,000 end-of-life tyres, which
were then used as fuel for cement factories.
In Turkey, in order to award 19 “champions” (employees recognised for excellent projects), a
donation was made to the World Wildlife Fund for the adoption of tigers.
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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 2019. 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 Sao Paulo, in 2019
Pirelli sponsored the Museum of Modern Art, one of the most important museums in Latin America,
and an immersive exhibition on the life and works of Leonardo Da Vinci. Pirelli also sponsored the
Instituto Inhotim in Brumadinho, also in Brazil, an important collection of contemporary art along with
a collection of rare plants from all continents. Finally, Pirelli sponsored the Festival de Inverno de
Capos do Jordao, an important seasonal festival in Brazil.
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 Voronezh in Russia, 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. Also at the Multimedia Art Museum,
Pirelli supported the exhibition “Orizzonti d’Italia” by Massimo Sestini. Pirelli has also contributed to
the support of the solidarity project “Chance” by sponsoring an exhibition with holographic images
that trace two scenarios of life for an orphan boy: one positive, in which the boy is supported and
manages to build a dignified life, the other negative, showing the public the difference that an action
of solidarity can make. The motto is: “Give a chance by taking a step”.
In Turkey, Pirelli took an interest in the topic of women, speaking at a conference on women in
Turkey, and making a donation to the Foundation for the Support of Women’s Work, with a
recognition of Pirelli’s women employees.
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
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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, as well as in collaboration with other
cultural institutions.
Among the numerous activities launched again in 2019 aimed at enhancing the company’s assets
and consequently its brand, we would like to highlight:
Editorial project: “Industrial Humanism. An anthology of thoughts, words, images and innovations”
(Mondadori, June 2019, Italian and English edition), dedicated to the experience of the Pirelli
Magazine, published between 1948 and 1972, one of the main meeting places between scientific
and humanistic culture, a venue for innovative and inclusive debate. The project has also developed
in the digital field with the implementation of the dedicated site rivistapirelli.org. In June 2019 the
book was previewed in the Auditorium of Pirelli Headquarters to the employees’ community (150
people), and then at the Franco Parenti Theatre in Milan to about 500 people. The evening was
attended by guests such as singer Ornella Vanoni, writer Gian Arturo Ferrari and actress Anna
Ammirati, who interpreted readings from the magazine. The event in the theatre was characterised
by an exhibition of materials from the Historical Archives, including blow-ups of the 131 covers of the
Pirelli Magazine. Communication of the project and the event reached over 330,000 users through
the Foundation’s social media channels; about 20 press releases were made. The book was also
presented at the “Il Libro Possibile” Festival in Polignano a Mare, at Bookcity Milano at the Bocconi
University and the Corriere della Sera Foundation, and at the Technology Festival at the Politecnico
di Torino.
Educational and training projects for students and teachers:
Educational workshops for schools (Pirelli Educational Foundation): about 2,250 primary and
secondary school students and about 240 teachers involved in education and training. The
Pirelli Foundation also participated in: the National Geographic Festival of Science at the
Auditorium Parco della Musica in Rome, with an exhibition on the evolution and technology
of tyres; the “Viaggiare...ma sul sicuro” project, in collaboration with the Italian State Police,
at the Wow-Spazio del Fumetto. These latter training activities have seen the overall
participation of about 4,900 young people;
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Reading promotion event “Let’s team up with books” within #ioleggoperchè 2019. The
meeting, organised in collaboration with FC Internazionale Milano, was held inside the Pirelli
Headquarters and was attended by about 250 students and teachers as well as journalists
and Pirelli employees. The students were able to discuss the theme of “teamwork” and the
importance of reading with personalities from the world of sport and culture such as the
footballers Javier Zanetti and Regina Baresi, the journalist Luigi Garlando, the Milanese
councillor Laura Galimberti and Mario Isola, Pirelli’s Head of Formula 1 and Car Racing;
Event on art and technology “Our Bach. La fabbrica tra musica e scienza” promoted during
the 18th Corporate Culture Week, with the participation of Pirelli engineers and maestro
Salvatore Accardo, accompanied by the Italian Chamber Orchestra. The event involved 290
students and teachers;
University: lessons and guided visits to about 270 students coming from the main Italian and
foreign universities (particularly UCSC Catholic University of the Sacred Heart, University of
Milan-Bicocca, LIUC University, IUAD, IULM, NABA, Salesian Paul VI University College of
Milan, Linköping University, Delft UniversityInstitute of Technology in Carlow - Ireland).
Digital communication: activation of the new Fondazione Pirelli website with the launch of the virtual
tour “Fondazione Pirelli Experience” and a chatbot, a software with artificial intelligence for direct
site-user interaction. The site was visited a total of about 66,500 times (+23% vs. 2018). The social
accounts of Fondazione Facebook, Instagram and Twitter reached 10,708 followers (+14% vs 2018)
and about 600 items of social content were produced (including about 90 videos).
Brand enhancement projects to support the Business Units:
Archive researches, Pirelli plants and offices settings in Italy and abroad, loans of materials
for fairs and events, product brochures: about 50 requests (e.g. Blancapain GT Series
Europe; Concorso di Eleganza Villa D’Este, Como; P Zero Experience Italy, Mugello; Salon
Privé, UK; Luftgekuhlt 6, Los Angeles; setting of Carlisle plant, UK; Circuito Panamericano,
Brazil);
guided tours and events in the Pirelli Foundation (about 1,850 guests, including the
institutional visit of Prime Minister Giuseppe Conte).
Projects to enhance the historical heritage in the eyes of the external community:
Research and loans of materials: 84 requests divided between exhibitions in collaboration
with other cultural institutions (e.g. Fondazione Matera-Basilicata 2019 and Fondazione De
Vecchi, Milan), documentaries and interviews (e.g. for Discovery Channel and Sky),
publications (e.g. “Prendersi cura dell’Italia bene comune”, for the 125th anniversary
celebrations of the Italian Touring Club);
initiatives to promote corporate culture at the Pirelli Foundation and Pirelli Headquarters (600
visitors): Museocity (focus on sustainability - 250 participants); Milano Digital Week (focus on
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Pirelli’s Digital Transformation with biketour of the Bicocca area - 90 participants); Milano
Photo Week (focus on the claim “Power is nothing without control” - 85 participants); Archivi
Aperti Fotografici (photo-biketour with focus on the transformation of the Bicocca area - 40
participants); 17th Corporate Culture Week promoted by Museimpresa, with the creation of
an exhibition in collaboration with Kartell Museo.
Works on the Historical Archive and heritage digital management:
Corporate In-House Organ: 5,228 articles catalogued and 6,177 pages digitalised and
published online from the magazine “Noticias Pirelli” and processing of other collections in
the Historical Archives (photographic, iconographic and audiovisual collections; Corporate
section and Research and Development section);
preparation and development of the Digital Asset Management platform on OpentText
software for the document management of images, videos and documents and for the long-
term preservation of digital materials.
Initiatives for the internal community:
Management of Pirelli’s corporate libraries in Milan Bicocca and Bollate: in 2019, the library
holdings reached about 8,000 catalogue titles; more than 3,300 loans, over 4,100 movements
(loans and extensions) and over 600 users were registered. The Biblionews newsletter with
periodical updates on books and libraries reaches about 400 subscribers;
“Words Together” (“Parole insieme”): a programme of meetings with guests linked to the
publishing world, such as the writers Gianni Biondillo, Marco Malvaldi and Giuseppe Lupo
and the publisher Eugenia Dubini of NN Editore (over 130 participants);
“Christmas at the Pirelli Foundation” (“Natale in Fondazione Pirelli”): decoration of the
Foundation’s spaces with historical advertising and documents on winter products and
festivities (about 250 participants)
During 2019, a total of more than 12,250 people took part in the Foundation’s activities, projects,
guided tours and exhibitions - both at the Foundation’s headquarters and at the institutions with
which the Foundation collaborated.
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
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capable og maintaining a dialogue with the unique features of the space. The 2019 artistic
programme, curated by Artistic Director Vicente Todolí, curator Roberta Tenconi and the Assistant
Curators Lucia Aspesi and Fiammeta Griccioli, presented artists of great international profile,
alternating exhibitions of very successful names with exhibitions of emerging artists. The programme
managed to attract an Italian and international audience composed of art experts, representatives of
the most important museums, trade journalists and the general press, as well as an equally large
number of enthusiasts, families and students. During the year there was a total attendance of about
177,000 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:
Leonor Antunes, “the Last Days in Galliate” (until 13 January 2019);
Mario Merz, “Igloos” (until 24 February 2019);
Giorgio Andreotta Calò, “CITTÀDIMILANO” (14 February - 21 July 2019);
Sheela Gowda, “Remains” (4 April-15 September 2019);
Daniel Steegmann Mangrané, “A Leaf-Shaped Animal Draws The Hand” (from 12 September
2019);
Cerith Wyn Evans, “...the Illuminating Gas” (from 31 October 2019).
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.
On 13 March 2019 Pirelli HangarBicoccaTM won the 2018 Global Fine Art Award in the “Best
Impressionist and Modern” category for personal exhibitions. The award - which is part of the Global
Fine Art Awards programme established to map the best curated art, culture and design exhibitions
in museums, galleries, fairs, biennials and public installations worldwide - was given to Pirelli
HangarBicoccaTM for the exhibition “Lucio Fontana: Ambienti/Environments”, presented in Milan from
21 September 2017 to 25 February 2018.
On 29 May 2019, Dr. Marco Tronchetti Provera was awarded the Rosa Camuna Award of the
Lombardy Region as President of Pirelli HangarBicoccaTM.
In 2019, the Public Programme 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 12 cultural events (daytime and/or evening) that involved about 3,300
participants in activities related to current exhibitions, including the summer event Against Method
by Mark Fell at the “Remains” exhibition, which was attended by around 1,100 visitors.
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In 2016 Pirelli HangarBicoccaTM launched the Membership programme with the aim of creating a
community that shares a passion for contemporary art. In 2019, Membership reached approximately
407 active members. In 2019 specific agreements were signed for Members, for the cultural events
hosted by Milano Musica and Terraforma.
In 2019 there were 10 activities dedicated to Members, of which: 4 preview visits to exhibitions, 3
curatorial visits, 2 Family Labs reserved for Member Families and 1 in the specific Palazzo Grassi-
Punta della Dogana, Venice). 11 dedicated newsletters. Among the benefits, it was 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.
Kids activities, dedicated to children between 4 and 14 years old, saw the participation of about 1,820
children and teenagers, in line with the figures from preceding years. The number of participants
who took part in the School activities was over 8,100 pupils, while visits by Italian and foreign
students and university teachers (including Master’s courses) involved 1,545 people.
The Educational Department continued the activity of guided tours proposing activities in both Italian
and foreign languages in addition to the “Art on Sunday” format, which involves cultural mediators in
Sunday lessons on art history related to exhibitions and Bike Tours to discover the Bicocca area.
The guided tours were attended by about 3,400 visitors. The Educational Department also
collaborated with the Italian artist Alice Ronchi for the 2019 Summer Campus.
With a view to enhancing Anselm Kiefer’s I Sette Palazzi Celesti 2004-2015, the collaboration with
the Milano Musica Festival continued with a weekend of concerts in October 2019. In the same
month, the permanent installation was the setting for the musical event Positive Feedback in
collaboration with Threes Productions (Festival Terraforma).
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REPORT ON THE CORPORATE GOVERNANCE
AND SHARE OWNERSHIP OF PIRELLI & C. S.P.A.
PURSUANT TO ART. 123-BIS OF THE CONSOLIDATED LAW ON FINANCE (TUF)
(TRADITIONAL MODEL OF ADMINISTRATION AND CONTROL)
(REPORT APPROVED BY THE BOARD OF DIRECTORS OF PIRELLI & C. S.P.A. ON 2 MARCH 2020 IN
RELATION TO THE YEAR ENDED ON 31 DECEMBER 2019. THE REPORT IS ALSO AVAILABLE ON THE
WEBSITE WWW.PIRELLI.COM)
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GLOSSARY
Annual General Meeting: the shareholders’ meeting called to approve the financial statements as
of 31 December 2019.
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-Monza Brianza-Lodi Companies Register number 00795290154.
ChemChina: China National Chemical Corporation Limited, 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 currently in
force 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 2 March 2020, 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..
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 of
the 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. (now Tacticum Investments S.A.), a company
established under Luxembourg law, with registered offices at 51 Boulevard Grand Duchesse
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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, at via G. Carducci 32, Tax Code, VAT and Milan-Monza Brianza-Lodi
Companies Register number 10449980969, removed from the Companies Register following
liquidation 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-Monza Brianza-Lodi
Companies Register number 09052130961; the company was terminated when the Marco Polo
demerger took place.
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-Monza Brianza-
Lodi Companies Register number 11963760159.
Shareholders’ Agreement: the 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 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-Monza Brianza-Lodi Companies Register
number 00860340157.
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, Milan-Monza Brianza-Lodi 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.
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Report: this report on corporate governance and the ownership structure prepared 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 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 APS.
Remuneration Report: the report prepared pursuant to art. 123-ter TUF.
Renewal of the Shareholders’ Agreement: the agreement entered into on 1 August 2019 by
ChemChina, CNRC, SPV HK1, SPVHK2, SPV LUX, MPI Italy, SRF, MTP&C and Camfin to renew
the Shareholders’ Agreement. The provisions contained in the Shareholders’ Agreement Renewal
are effective as of the date of publication of the notice of call issued for the Pirelli shareholders’
meeting for the approval of the Company’s financial statements at 31 December 2019 and will expire
after 3 years from said date. The essential content of the Shareholders’ Agreement Renewal, to
which reference is made for further information, is available on the Website (www.pirelli.com).
Marco Polo Demerger: non-proportional total demerger of Marco Polo into beneficiaries MPI Italy,
Camfin and LTI Italy, resolved by the meeting of the shareholders 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 formed 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 formed 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).
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Articles: the Articles of Association of Pirelli & C., available on the Website.
TUF: Legislative decree 58 of 24 February 1998, as subsequently amended (the Consolidated Law
on Finance).
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INTRODUCTION
The 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
Company42.
Pirelli is aware that an efficient system of corporate governance is an essential element for achieving
the objective of sustainable value creation43.
1.
COMPANY PROFILE
Pirelli, with its approximately 31,600 employees and annual sales of over Euro 5.3 billion in 2019,
ranks among the principal global manufacturers of tyres and supplier of ancillary services, 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.
specifically, New Premium, Specialities and Super Specialities 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 volume terms, and in the radial segment of the
Replacement market for motorcycle tyres. Pirelli is also the leader in Europe, China and Brazil, in
the Replacement market for New Premium car tyres and Premium motorcycle tyres.
For a profile of the issuer see also the Company’s website.
1.1 MODEL OF CORPORATE GOVERNANCE
Pirelli adopts the traditional governance and control system. The following diagram summarises the
Company’s current governance structure.
42 Resolution of agreement adopted by the Board of Directors, effective as of 31 August 2017.
43 To that end, the Articles of Association state (Article 3.3): “Pirelli’s corporate government will be characterised by the international best
practice.”
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The legal audit of the accounts is entrusted to PricewaterhouseCoopers S.p.A., an external auditing
firm included in the register of accounting auditors.
1.2
DIVERSITY POLICIES
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.
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.
On 14 February 2019, following approval from the Audit, Risks, Sustainability and Corporate
Governance Committee and the Appointments and Successions Committee, the Board of Directors
adopted a statement on diversity and independence (Diversity and Independence Statement) in
relation to the composition of the Board of Directors and the Board of Statutory Auditors. The
Company recommends that these values be respected when its own corporate bodies are being
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.
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In addition to the administration management and control bodies, the value of diversity characterises
the entire business organisation, according to the procedures and terms outlined in the NFD Report
included in the Company’s annual financial statements, which should be referred to for more
information.
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 as at the Report Date pursuant to art. 120
of the TUF, or from other information available to the Company, the major direct and indirect
shareholdings of Pirelli capital are indicated in Table 1, attached to this Report.
2.3 MANAGEMENT AND COORDINATION ACTIVITIES
At the meeting of 31 August 2017, the Board of Directors acknowledged the termination of direction
and coordination activities under Article 2497 et seqq. of the Civil Code by Marco Polo, effective as
of the First Trading Day, without prejudice to CNRC’s right to include Pirelli within its own
consolidation perimeter for accounting purposes. 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 activities and therefore, by way of example:
- Pirelli conducts relations with customers and suppliers in full autonomy without any external
interference;
- Pirelli independently prepares the strategic, industrial, financial and/or budget plans of the
Company or the Group;
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- Pirelli is not subject to any group regulations;
- no organisational-functional link exists between Pirelli on the one hand and Marco Polo and the
companies that control it on the other hand;
- 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 Marco Polo, CNRC and/or ChemChina;
- Marco Polo, CNRC and/or ChemChina do not centralise treasury management activities or other
financial support or coordination functions;
- Marco Polo, CNRC and/or ChemChina do not issue directives or instructions – and in any case
do not coordinate initiatives – concerning the financial and borrowing decisions of Pirelli;
- 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.;
- Marco Polo, CNRC and/or ChemChina do not make any crucial decisions regarding the operating
strategies of Pirelli or formulate group strategic guidelines.
The Board of Directors periodically reiterated the aforementioned assessments (also in relation to
MPI Italy), confirming the absence of any entity exercising direction and coordination activities over
Pirelli most recently at the meeting of 2 March 2020.
Conversely, Pirelli exercises direction and coordination activity on numerous subsidiaries, having
made the communications required by art. 2497-bis of the Civil Code.
2.4
RESTRICTIONS ON THE TRANSFER OF SECURITIES: SECURITIES THAT CARRY
SPECIAL RIGHTS; EMPLOYEE SHARE OWNERSHIP: THE MECHANISM FOR
EXERCISING VOTING RIGHTS; RESTRICTIONS ON VOTING RIGHTS
The Articles do not impose any restrictions on the transferability of the shares issued by the
Company.
No securities have been issued that carry special rights of control.
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.
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In the event of significant changes to the market capitalisation of the issuer’s shares or to the
composition of its share ownership structure, the Corporate Governance Code recommends that the
board of directors assess the appropriateness of proposing, to the shareholders’ meeting, changes
to the articles of association in relation to the percentages required for the exercise of shares and
the prerogatives provided to protect the minorities. In 2019, this did not occur, since the conditions
provided for by the Corporate Governance Code were not met.
2.5
SHAREHOLDERS’ AGREEMENTS
For more information on the provisions contained in the shareholders’ agreements referred to herein,
please refer to the relevant extracts available on the Website, published pursuant to Article 130 of
the Issuers’ Regulation.
2.5.1 THE SHAREHOLDERS’ AGREEMENT AND THE SHAREHOLDERS’ AGREEMENT
RENEWAL
On 28 July 2017 ChemChina, CNRC, SRF, SPV HK 1, SPV HK 2, SPV Lux, Camfin, LTI and MTP&C
signed the Shareholders’ Agreement that governs 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 with the assignment of, inter alia, the Pirelli shares held by it
to the shareholders of Marco Polo. As a result of the Marco Polo Demerger (which took place on 8
August 2018), LTI is no longer party to the Shareholders’ Agreement in relation to the agreements
pertaining to Pirelli.
According to the 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 Day. As a general principle, the Shareholders’
Agreement recognises that, in line with the provisions of the previous agreements, the aim of the
governance structure is to preserve the entrepreneurial culture of Pirelli leveraging the long-term
maintenance of its management and must be inspired by international best practice among listed
companies. For this reason, the Shareholders Agreement provides that the task of managing Pirelli
is the prerogative of the current top management, with a fundamental role for 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 expiry of the Shareholders’ Agreement (see
below), ensuring continuity in Pirelli’s business culture. All 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.
The provisions provided in the Shareholders’ Agreement, as detailed above, are valid and effective,
by virtue and as a consequence of the provisions of the Shareholders’ Agreement Renewal, up until
the date of publication of the notice of call issued for the Pirelli shareholders’ meeting for the approval
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of the Company’s financial statements at 31 December 2019. The provisions provided under the
Shareholders’ Agreement Renewal will be applicable as of the aforementioned date.
On 1 August 2019 ChemChina, CNRC, SPV HK1, SPV HK2, SPV LUX, MPI Italy, SRF, MTP&C and
Camfin entered into the Shareholders’ Agreement Renewal. In particular, the parties assessed the
opportunity to renew the Shareholders’ Agreement – as of the date of publication of the notice of call
issued for the Pirelli shareholders’ meeting for the approval of the Company’s financial statements
at 31 December 2019 and for an additional period of three years starting from that date in order to
(i) reaffirm the stability of the partnership between ChemChina/CNRC, SRF and Camfin/ MTP&C, in
continuity and coherence with the governance principles already expressed in the Shareholders’
Agreement and in any case with the aim of creating value for Pirelli and all of its shareholders; (ii)
confirm the role of ChemChina and Camfin/MTP&C as stable shareholders of Pirelli with the latter
maintaining the shareholding currently held in Pirelli at a level of more than 10% of the share capital
for the entire duration of the Shareholders’ Agreement Renewal; (iii) confirm the central role played
by Marco Tronchetti Provera, in his capacity as the Company’s Executive Vice Chairman and Chief
Executive Officer, (a) in his guidance of Pirelli’s top management, ensuring the continuity of Pirelli’s
managerial culture and (b) in the appointment of his successor, with the implementation of the
succession procedure that will have to be completed by the end of October 2022 and, therefore, a
few months before the renewal of Pirelli’s Board of Directors, scheduled for spring 2023.
With regard to the renewal of the Board of Directors – which will take place at the Annual General
Meeting – it will be composed of 15 members with a majority of independent Directors. The CNRC
and MTP&C shareholders have, by virtue of the Shareholders’ Agreement Renewal, agreed to
specify a number of members in proportion to shares held and therefore (i) 9 directors (4 of which
are to be independent) will be appointed by CNRC, (ii) 3 directors (1 of which is to be independent)
will be appointed by MTP&C and (iii) 3 independent directors will be appointed by the minority
shareholders.
2.5.2 SRF CONTRACT
On 5 June 2015, SRF, CNRC and ChemChina signed an “Investment Contract” (the “SRF
Contract”) regarding the 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 SFR Contract (the “Supplemental Agreement”) pursuant to
which, as soon as possible upon completion of the Marco Polo Demerger, SPV Lux, inter alia,
assigns to CNRC and SRF or to companies they 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 are 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 contains a number of Pirelli shares and an amount of
cash respectively higher and lower than the number and amounts that CNRC would have obtained
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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, held directly or indirectly, may be no less than
36.5% of the share capital of the Issuer (the “SPV Lux Allocation”).
In the context of the Marco Polo Demerger, on 7 August 2018, the aforementioned parties to the
SFR Contract signed a further supplemental agreement (the “Second Supplemental Agreement”)
that regulates some aspects of the corporate governance of MPI Italy. The SFR 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 capital of Pirelli.
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. on the other hand, 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 should
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
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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
shareholders 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 investment
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 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
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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 concluded 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.
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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 in which 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 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.
2.6.8 BILATERAL LOAN WITH MEDIOBANCA
On 1 August 2019, the Board of Directors approved the stipulation by Pirelli of a two-year variable
rate loan of Euro 125 million with Mediobanca – Banca di Credito Finanziario S.p.A. (the “Loan”).
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The loan agreement signed on 2 August 2019 provides, inter alia, that Pirelli must repay the Loan
early should certain events occur, including changes in the control structure of Pirelli.
In particular, the change of control clause may only be activated in case any 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 the sake of clarity, the loan contract provides 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, directly
or indirectly, individually or in concert with one or more subjects, to designate the CEO of Pirelli.
* * *
For the sake of completeness, it should be specified that, in addition to the foregoing, as is common
in the commercial and financial context, some companies belonging to the Pirelli group have entered
into contracts containing a change of control clause relating only to the shareholding that, directly or
indirectly, Pirelli holds in them.
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 of the TUF.
2.8 MANDATE TO INCREASE SHARE CAPITAL AND AUTHORISATIONS TO PURCHASE
OWN SHARES
With regard to the financial year ended 31 December 2019, the Directors were not granted with
mandates to increase share capital for payment in one or more tranches, 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.
3.
COMPLIANCE
Pirelli adheres to the Corporate Governance Code, available to the public on the website of the
Corporate Governance Committee, at the following link https://www.borsaitaliana.it/comitato-
corporate-governance/homepage/homepage.en.htm.
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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.
The new edition of the Corporate Governance Code was published on 31 January 2020, and will
become applicable as of the 2021 financial year, with information to be provided in the Report on
Corporate Governance to be published in 2022.
The Report has been essentially prepared using the Borsa Italiana format.
On the Report Date, Pirelli is not subject to any non-Italian laws that might influence the corporate
governance structure of the Company.
4.
BOARD OF DIRECTORS
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.
4.1.1 APPOINTMENT AND REPLACEMENT44
Pursuant to art. 10 of the Articles, the Company is managed by a Board of Directors composed 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 slates presented by the shareholders, in which
the candidates must each be listed with a sequence number.
The slates 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 the Board members. 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.
44 This paragraph contains the information required by art. 123-bis, para. 1, letter l) of 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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Each shareholder may present or contribute to the presentation of just one slate and each candidate
may be included in just one slate, subject otherwise to becoming ineligible.
Shareholders are only entitled to present slates 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 the applicable regulations, with the
obligation to evidence their ownership of the number of shares needed for the presentation of slates
by the deadline envisaged for the publication of such slates by the Company.
Each slate 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, slates containing three or more
candidates must include a number of candidates of different gender that at least satisfies the
minimum required by the law and/or regulations in force at the time, as specified in the notice of call
issued for the Shareholders’ Meeting45. Any changes arising prior to the actual date of the
Shareholders’ Meeting must be promptly notified to the Company on a timely basis.
Any slates 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 slate.
The Board of Directors is appointed as follows:
a)
four-fifths of the directors to be elected are drawn from the slate that obtains the majority of the
votes expressed by the shareholders, rounded down to the nearest whole number in the case
of a fractional number;
b)
the remaining directors are drawn from the other slates, using the quota method described in
the Articles.
Should several candidates obtain the same quota, the candidate elected will be drawn from the slate
that has not yet elected a director or that has elected the minor number of directors.
If none of those slates has elected a director yet or all of them have elected the same number of
directors, the candidate elected will be drawn from the slate that obtains the largest number of votes.
45 For the sake of completeness, it should be noted that this clause is currently being adapted to the new legislation on gender quotas in
the composition of corporate bodies and that the related proposal will be submitted to the Annual General Meeting. For more
information, see the Directors’ Report to the Shareholders’ Meeting, which illustrates the proposed changes to the Articles and will be
made available to the public on the Website according to law.
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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 slate is presented, all the directors will be elected from that slate.
Should application of the slate voting mechanism not ensure the minimum number of directors
belonging to the less represented gender set out by applicable law, the candidate belonging to the
most represented gender and elected, indicated in the slate 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 slate pursuant to the sequential order of presentation and so on, for each
slate (solely for slates that contain three or more candidates) until the minimum number of directors
belonging to the less represented gender has been obtained. 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
candidates belonging to the less represented gender.
Should application of the slate voting mechanism not obtain the minimum number of independent
directors envisaged by applicable law, the non-independent candidate elected indicated with the
highest progressive number in the slate that obtained the largest number of votes shall be replaced
by the first independent candidate not already elected from that slate following the sequential order
of presentation, and so on for each slate until the minimum number of independent directors has
been obtained, in all cases in compliance with the applicable law and/or regulations governing
gender balance in force at the time.
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.
For the appointment of directors who, for any reason, were not appointed in accordance with the
slate 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.
Should one or more directors cease to hold office during the financial year, they shall be replaced
pursuant to art. 2386 of the Civil Code, without prejudice in any event to comply with the legal and/or
regulatory provisions in force at the time on gender balance and the independence of the directors.
4.1.2 SUCCESSION PLANS
As provided under the Shareholders’ Agreement and the Shareholders’ Agreement Renewal, 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.
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On 26 July 2019, the Board of Directors of Pirelli detailed the procedure for the succession of Marco
Tronchetti Provera in relation to the position that he currently holds. In particular, Pirelli’s Executive
Vice Chairman and Chief Executive Officer will continue and complete the procedure for identifying
his successor by 31 October 2022 in order to allow for a smooth transition. If: (i) Marco Tronchetti
Provera does not specify a candidate to the Appointments and Successions Committee or (ii) Marco
Tronchetti Provera is for any reason unable to complete the aforementioned activities and the
member appointed by MTP&C to the Appointments and Successions Committee, as specified by
MTP&C, does not specify a candidate to the Appointments and Successions Committee, the
foregoing provisions will cease to be effective and, as a result, CNRC may freely choose and propose
its own successor candidate and include that candidate on the list for the appointment of Pirelli’s
new Board of Directors.
Following the completion of the succession procedure referred to above and the identification of the
candidate, CNRC (and MTP&C to the extent possible) must (i) ensure that Pirelli’s shareholders’
meeting for the approval of the financial statements at 31 December 2022 and for the appointment
of the new Board of Directors takes place before the end of the third year following publication of the
notice of call issued for the Pirelli shareholders’ meeting for the approval of the Company’s financial
statements at 31 December 2019, (ii) include the proposed candidate on the list for appointment of
Pirelli’s new Board of Directors and (iii) ensure, to the extent possible, that the non-independent
directors vote at the first board meeting – to be held by the aforementioned deadline – for the
proposed candidate as Pirelli’s new Chief Executive Officer.
4.2
COMPOSITION
The Board of Directors in charge at the Report Date (the term of which will end on the date of the
Annual General Meeting) 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 IPO.
Furthermore, following the resignation of Ren Jianxin from the office of Chairman of the Board of
Directors and Director of the Company (by virtue of 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 also to appoint him Chairman of the Board of Directors. On 15 May
2019 the Shareholders’ Meeting confirmed Ning Gaoning in his office as Director and Chairman of
the Board of Directors46.
46 The ordinary shareholders’ meeting held on 15 May 2019 approved the appointment of Ning Gaoning with a percentage of
approximately 87% of the share capital represented at the meeting.
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In light of the above, the Board of Directors is composed of 15 members. In particular:
-
-
-
-
-
the Chairman Ning Gaoning was appointed to replace Ren Jianxin, previously appointed by
designation of CNRC.
the Directors Yang Xingqiang, Bai Xinping, Ze’ev Goldberg, Tao Haisu, Marisa Pappalardo,
Fan Xiaohua and Wei Yintao were designated by CNRC;
the Directors Marco Tronchetti Provera, Giovanni Tronchetti Provera, Giorgio Luca Bruno and
Laura Cioli were designated by MTP&C;
the Directors Domenico De Sole and Cristina Scocchia were appointed by Marco Polo on a
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;
the Director Giovanni Lo Storto was designated by a group of asset management companies
and institutional investors.
At the Report Date, approximately 26.7% of Board members were female and the remaining 73.3%
were male. Further, about 67% of directors are over 50 years of age and the remaining, about 33%,
are between 36 and 50 years of age. The average age of the members of the Board is approximately
56 years of age and the average age of the female members is approximately 52 years of age. The
Directors’ average time in office is about 4 years47.
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 (i) 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), in addition to (ii) the average length of the
meeting, (iii) the average percentage of attendance and (iv) the number of meetings of the Board of
Directors and each Committee during the Year.
47 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.
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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. 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 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,
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.
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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.
Also during the Year, induction sessions were arranged, also with the support of the top
management, aimed at providing an explanation of the main characteristics of the activities of Pirelli
and its Group and (including through the work of the committees) the reference legislative and
regulatory framework and the specific procedures and rules adopted by the Company.
The specific initiatives undertaken during the the Year include the induction activities for (i)
commercial distribution, product diversification, internal organisation and key technologies, on the
one hand, and (ii) an overview of the “Pirelli Calendar” and the relative backstage perspective and
of the Velo (bike) business, on the other hand. In this context, Directors had the opportunity to have
direct debate with the Company’s key managers (who as a rule normally attend the meetings of the
Board of Directors and the committees).
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,
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exercises all the widest powers of management, except for those reserved by law or the Articles to
the Shareholders’ Meeting.
4.5.1 OPERATION OF THE BOARD OF DIRECTORS
Meetings of the Board of Directors are called by the Chairman or his deputy and held at the registered
offices, or in any another location specified in the notice of call, 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 office at the Report Date met seven times. The average
duration of each meeting was 53 minutes, with attendance by around 88% of the Directors and 95%
of the Independent Directors. The Independent Directors were able to have informal meetings in the
terms illustrated in the preceding paragraph.
For the 2019 financial year and for the current year, Pirelli disclosed a calendar of the main corporate
events to the market48 (also available on the Website). For the 2020 financial year, the Board is
scheduled to meet at least 6 times (at the Date of the Report two meetings had already been held).
The Directors and Statutory Auditors received the documentation and information deemed
necessary in order to be properly informed for the discussion of the items submitted to them for
consideration with a reasonable and appropriate advance 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 was 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 of the Italian Corporate Governance Committee.
Taking account of the international composition of the Board of Directors, with the presence of
different nationalities, it is also the Company’s practice to proceed to send 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
Committees, participants are able to use a simultaneous translation of interventions made in the
three aforementioned languages.
48 As a rule this happens in November/December.
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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 is resolved by 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 operation and the
operation of its Committees (board performance evaluation) for the 2019 financial year. For the
purposes of the assessment process, the Board – in line with what was done in the previous financial
year – 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 individual
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.
The analysis of the results of the aforementioned board performance evaluation provided by
SpencerStuart highlights a broadly positive situation. In fact, a very high level of overall appreciation
was reported, in line with the previous financial year. In particular, the Directors expressed full
satisfaction and appreciation of 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 both Italian and international best practice. With reference to the
operation of the Board and the Committees in 2019, the areas of excellence that had already
emerged during the previous financial year’s self-assessment activities had been confirmed overall.
The areas for which the most appreciation was reported are outlined below:
the possibility to have a constructive dialogue and discussion at the Board meetings;
the detailed, transparent and qualified reporting activity by the management to the Board of
Directors;
the effectiveness of the role played by the Board of Directors in relation to internal control;
the clarity and completeness of the supporting documentation circulated for each board
meetings sufficiently in advance;
the effectiveness of the support provided by the Secretary of the Board;
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high quality of the minuting of the board meetings, which are confirmed as accurate and
complete with respect to the progress of the meetings;
the open, constructive and transparent relationship between the Board of Directors and the
Company’s management;
the effective structure of the committees;
the well-diversified composition of the Board of Directors (with executive directors, non-
executive directors and independent directors).
The Directors expressed particular appreciation for (i) 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 and (ii) the authoritativeness and commitment in the work
performed on the board by the Executive Vice Chairman and CEO.
From the analysis, some indications also emerged on how to further improve the operation of the
Board, which in particular include the continuation and development of opportunities for informal
meetings of the directors, in order to encourage reciprocal knowledge and further strengthen
personal relationships and the spirit of the group.
Finally, it should be noted that – in line with what happened in the previous financial year – this Year
the Audit, Risks, Sustainability and Corporate Governance Committee also played a guiding role in
the board performance evaluation and shared preliminarily the results, subsequently submitted to
the Board of Directors at the meeting of 2 March 2020.
4.5.2 MATTERS FOR THE BOD
In accordance with the Articles, the Shareholders’ Meeting requires a qualified majority (i.g.
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 be approved (as an internal restriction of the power granted
to the Chief Executive Office on that date) by the Board of Directors of the Company:
(i)
obtaining or granting loans for a total value higher than Euro 200 million and with a duration of
more than 12 months;
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(ii)
issuing financial instruments to be listed on European or non-European regulated markets or
multilateral trading systems for a countervalue higher than Euro 100 million and/or their
delisting;
(iii) giving guarantees in favour of or in the interests of third parties for amounts higher than Euro
100 million;
(iv) 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);
(v)
purchasing or selling equity investments in subsidiaries and affiliates for amounts higher than
Euro 150 million and that involve entering into (or exiting from) geographical and/or commodity
markets;
(vi) purchasing or selling equity investments other than those described in point (v) above for
amounts higher than Euro 250 million;
(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;
(ix) carrying out transactions of greater significance with related parties, meaning those satisfying
the conditions envisaged in Annex 1 to the “Procedure for Related-Party Transactions”
approved by the Board of Directors of the Company;
(x)
defining the Company’s remuneration policy;
(xi) 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, para. 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 internal control system, including the appointment of a Director
responsible for overseeing the internal control system, 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, as amended from time to time;
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(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 party,
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 positively assessed 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 received from delegated bodies and comparing periodically, at least every quarter, the
results obtained with those planned.
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 the Pirelli Group, with
reference to both Pirelli and any other company (including unlisted foreign companies) subject
to direction 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 matters indicated in section 4.5.2 are
exceeded; or
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(ii) for the matters listed from (i) to (ix) in section 4.5.2 above, 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 section 4.5.2 above, they were not included, listed
or envisaged in the business plan or the annual budget; and
b)
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 the annual 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 proposal of the Executive Vice Chairman and Chief Executive Officer, the
related resolution must be motivated and, in all cases, take into account the best interests of the
Company.
The Chief Executive Officer ordinarily reports on the activity carried out during board meetings.
In light of the above, Executive Vice Chairman and Chief Executive Officer Marco Tronchetti Provera
is identified as executive director.
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 qualify as Key Managers of
the Company, 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 classified as executive director.49
It should also be noted that the office of Chairman of the Board of Directors is not classified as
executive, taking account of the governance structure, the powers conferred on the Executive Vice
Chairman and Chief Executive Officer, and the circumstance that the Chairman himself is not
49 For the sake of completeness, it should be noted that Giovanni Tronchetti Provera is a senior manager of the Company.
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granted with management powers and that he plays no specific role in the elaboration of business
strategies.
4.7
INDEPENDENT DIRECTORS
At the date of the Report, eight of the fifteen members of the Board of Directors - and hence over
50% - 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 on at least 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 account not only of
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 Corporate Governance Code - was most recently carried out during the board
meeting on 2 March 2020.
In making its assessments, the Board did not derogate from any of the criteria prescribed by the
Corporate Governance Code50.
At the same time as 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 powers system and the share ownership structure, and the provisions
on this subject contained in the Corporate Governance Code, the Board of Directors decided to not
appoint a lead independent director.
The independent and non-executive directors contribute to the Board and committee discussions,
bringing their specific skills, and, given their number, have a decisive weight in the decision-making
process of the Board of Directors and the committees in which they take part.
50 In particular, none of the independent Directors can be classified as a “relevant members”.
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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”, meaning 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 required by the laws and/or regulations in force at the time,51 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
51 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.
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Governance Committee, the Remuneration Committee and the Related-Party Transactions
Committee.
6.1
OPERATION OF COMMITTEES
The Committees are appointed by the Board of Directors and remain in office for the entire mandate
of the Board, holding meetings 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 Secretary of each Committee is the Secretary of the Board.
The meetings of the Committee shall be convened by notice sent to the participants by its Chairman
or by the Secretary of the Committee by the Chairman.
The documentation is 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 corporate book. The Chairman of each committee informs the
Board of Directors about the outcome of the meetings held.
Committee 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 Chief Financial Officer, the Corporate Vice President Internal
Audit, the Head of Sustainability and the Head of Finance & Risks Management attend the meetings
of the Audit, Risks, Sustainability and Corporate Governance Committee.
Committees - which may make use of external advisors in carrying out their functions - are granted
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 company departments in the
performance of their tasks, with support from the Secretary to the Board of Directors for this purpose.
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The entire Board of Statutory Auditors is entitled to participate in the activities of the Audit, Risks,
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.
Further information about the number of meetings 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.
7.
STRATEGIES COMMITTEE
At the Report Date, the Strategies Committee is composed 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 has consultative and advisory functions in the definition of strategic
guidelines and for the identification and definition of the terms and conditions of the individual
operations 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;
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-
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.
It is required the Strategies Committee to be the recipient of a specific and continuous flow of
information from the Chief Executive Officer, assisted by the Secretary of the Company’s Board of
Directors for such purposes.
8.
APPOINTMENTS AND SUCCESSIONS COMMITTEE
At the Report Date, 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; in addition, committee membership takes account of the fact that the Shareholders’
Agreement has established a structured procedure for identifying the successor to Marco Tronchetti
Provera as the Chief Executive Officer of Pirelli (see section 4.1.2).
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;
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-
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 co-opted) for the position of Chief Executive Officer;
upon 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.
9.
RELATED-PARTY TRANSACTIONS COMMITTEE
At the Report Date, the Related-Party Transactions Committee is composed of 3 independent
directors: Domenico De Sole (Chairman), Marisa Pappalardo and Cristina Scocchia.
The Related-Party Transactions Committee has consultative and advisory functions in relation to
related-party transactions in the terms laid down in the current regulations and the Procedure for
Related-Party Transactions (see section 14).
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10.
REMUNERATION COMMITTEE
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 application within the Group of remuneration policies that, on the one hand, attract,
motivate and retain human resources with the professional qualities required to pursue profitably the
objectives of the Group 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 holding special offices, 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 key managers, checks the consistency of their remuneration with the general
policy for remuneration and expresses an opinion on it;
-
assists the Board of Directors in the examination of proposals to the Shareholders’ Meeting for
the adoption of remuneration plans based on financial instruments;
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- monitors the application of the decisions adopted by the Board, checking in particular the
effective achievement of the established performance objectives;
-
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 key managers: (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.
It should be noted that directors who are members of the Remuneration Committee must not attend
the meetings of the Committee held to make recommendations to the Board about their own
remuneration.
11.
REMUNERATION OF THE DIRECTORS
The remuneration system for 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
via an effective and verifiable link between remuneration, on the one hand, and individual and Group
performance on the other hand.
Information about the 2020 remuneration policy and the report on remuneration paid in 2019 can be
found in the Remuneration Report prepared pursuant to art. 123-ter of the 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. It should be noted that said document also includes the
information required by Article 123-bis, paragraph 1, letter i) of the TUF.
12.
AUDIT, RISK, SUSTAINABILITY AND CORPORATE GOVERNANCE COMMITTEE
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At the Report Date, the Audit, Risks, Sustainability and Corporate Governance Committee is
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;
assesses, together with the administrative managers of the Company and the manager
responsible for the preparation of 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;
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-
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 the request of the Board, 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 with
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.
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A more complete description of Pirelli’s internal control system can be found in the management
report. Additionally, 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 tasked with supervising the functioning of the system of internal control
and risk management and implementing the related guidelines formulated by the Board of Directors,
with support from 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;
authorises execution of the guidelines formulated by the Board of Directors, supervising the
design, implementation and management of the internal control and risk management system
and constantly monitoring its adequacy and effectiveness;
ensures that this system is compliant with any changes in operating conditions and 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
-
reports promptly 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 action.
13.2
INTERNAL AUDIT DEPARTMENT
The Company has established an Internal Audit Department, directed by Maurizio Bonzi, which has
been attributed responsibilities essentially consistent with those set out in the Corporate Governance
Code.
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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;
prepares periodic reports on its assessment of the suitability of the internal control and risk
management system. These reports are sent, at least once every quarter, to the Board of
Statutory Auditors, the Audit, Risks, Sustainability and Corporate Governance Committee, and
the Director responsible for 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 for adequate support to the Supervisory Bodies established pursuant to art. 6 of
Legislative Decree no. 231/2001;
provides for advice and support to the relevant Company departments – without exercising any
decision-making or authorisation responsibilities – regarding inter alia: (i) the reliability of their
systems for safeguarding corporate assets; (ii) the adequacy of their procedures for recording,
controlling and reporting administrative activities; (iii) the assignment of engagements to the
external auditor and to other firms in its network.
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.
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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.
13.4 SYSTEM OF RISK MANAGEMENT AND CONTROL OVER FINANCIAL INFORMATION
Pirelli has implemented a specific and structured risk management and internal control system
supported by a dedicated IT software, in relation to control over the process to prepare the separate
and consolidated half-yearly and annual financial reports. 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
– with support from the Compliance Department – periodically (and in any case, 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 selected
processes, that exceeds a predetermined threshold of materiality.
Qualitative criteria include the review of those processes and of those companies that, as determined
after much discussion 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
effectiveness/efficiency of the internal control system in general.
related disclosures, as well as with
financial statements and
regard
the
to
Detailed verification work has been planned, and specific responsibilities have been defined for each
control objective.
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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 results of the verification work are shared with the Chief Financial Officer of each
company of the Group.
The Internal Audit Department periodically verifies 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 TOPICS
On 26 February 2019, having acknowledged the renounce to the proxies on sustainability by Director
Bruno, the Board of Directors appointed the Executive Vice Chairman and Chief Executive Officer
Marco Tronchetti Provera as the Director responsible for sustainability. In that role, he is responsible
for supervising sustainability topics 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 Legislative
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”).
Model 231 – periodically updated by the Company in light of legislative developments – includes: (a)
a general part covering topics relating, inter alia, to the applicability and application of Legislative
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.
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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 from Model 231 is available on the Website.
13.7 EXTERNAL AUDITOR
The firm appointed to undertake the external audit of the accounts of the Company is
PricewaterhouseCoopers S.p.A. (the “External Auditing Firm”), with registered and administrative
offices in Milan, at via Monte Rosa 91, recorded on the Register of External Auditors pursuant to
Articles 6 et seq. of Italian Legislative Decree no. 39/2010.
The Ordinary Shareholders’ Meeting held on 1 August 2017 confirmed the appointment to perform
the external audit of the accounts (originally made for three financial years on 27 April 2017),
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 articles 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 details of the fees paid to the External Auditing Firm are reported in the Explanatory Note on the
financial statements.
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 of the 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
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an expert in administration, finance and control matters and satisfies the integrity requirements
established for the directors.
The Chief Reporting Officer puts suitable administrative and accounting procedures in place for the
preparation of the separate and consolidated financial statements, as well as of all other financial
communications.
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.
The office of the manager responsible for the preparation of the corporate financial documents
expires together with the Board of Directors that appointed him.
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.
The full text of the RPT Procedure is available on the Website. Periodically and at least every three
years, the 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.
Every six months, a report on the application of the RPT Procedure, drawn up by the Compliance
Department, is submitted to the Related-Party Transactions Committee and subsequently to the
Board of Directors. The analyses carried out to date have shown due compliance with and the correct
application of the aforementioned procedure in all cases falling within its scope of application.
15.
BOARD OF STATUTORY AUDITORS
15.1 APPOINTMENT, REPLACEMENT AND DURATION IN OFFICE
At the Report Date, the Board of Statutory Auditors is composed of five standing auditors and three
alternate auditors who satisfy current legislative and regulatory requirements; in this regard the
activities indicated in the corporate purpose, with particular reference to companies or entities
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operating in the financial, industrial, banking, insurance and real estate fields and services in general,
are qualified as subjects and sectors of activity closely related to those of the company.
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 to 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, without prejudice to any extension in the
cases envisaged by the applicable legislation. 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 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 concerning
gender balance, slates - considering both sections - that contain three or more candidates must
include candidates of different gender both in the section of the slate for standing auditors the section
for alternate auditors52.
52 For the sake of completeness, it should be noted that this clause is currently being adapted to the new legislation on gender quotas in
the composition of corporate bodies and that the related proposal will be submitted to the Annual General Meeting. For more
information, see the Directors’ Report to the Shareholders’ Meeting, which illustrates the proposed changes to the Articles and will be
made available to the public on the Website according to law.
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Each party entitled to vote may only vote for one slate. The members of the Board of Statutory
Auditors are elected as follows:
1)
2)
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);
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); should several slates
obtain the same number of votes, a new vote limited to just those slates is held by all those
entitled to vote that are present at 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 regulations in force at the time, the candidate belonging to the most
represented gender and elected, indicated with the highest sequential number of each section from
the slate that obtained the largest number of votes, will be replaced by the candidate belonging to
the less represented gender not already elected from the same section of that slate, according 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 those 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 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, following the order of that slate,
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 regulations
in force; 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 supplementing 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 regulations in force; 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 - from 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 guaranteeing representation for 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
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regulations in force. The principle guaranteeing representation for 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 named in the respective sections of the slate are elected
as standing auditors and alternate auditors; the person named first on the above slate becomes the
Chairman of the Board of Statutory Auditors.
For the appointment of statutory auditors who, for any reason, were not appointed in accordance
with the above procedure, 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 regulations in force. Outgoing Statutory Auditors may be re-elected.
15.2 COMPOSITION
The Board of Statutory Auditors in office at the Report Date was appointed by the ordinary
Shareholders’ Meeting held on 15 May 2018 and is composed 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 for the year
ending on 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.
All the Statutory Auditors can be qualified as independent on the basis of the criteria specified for
Directors 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 annually carried out.
During the Year, the Board of Statutory Auditors of Pirelli met 12 times, with each meeting having
an average duration of about 1 hour and 30 minutes.
At the Report Date, approximately 38% of the eight members of the Board of Statutory Auditors (five
standing auditors and three alternate auditors), were female (the percentage is 20% of the standing
Auditors only). Furthermore, the average age of the members of the Board of Statutory Auditors is
approximately 54 years of age (the average age of the standing auditors only is 55). The 80% of the
standing auditors were between 55 and 59 years of age, while the remaining standing Auditor was
46.
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During the course of the Year, the Board of Statutory Auditors, like the Board of Directors, has again
carried out the process for assessing its performance, with assistance from the independent
consulting firm SpencerStuart, in line with what was done in the previous year and in compliance
with the code of conduct for listed companies published by the Italian national association of
chartered accountants and auditors. That self-assessment process, like the process in place for the
Board of Directors, is carried out through individual interviews, with questions about the suitability,
size, composition and operation of the Board of Statutory Auditors itself, in order to verify suitability,
fairness and effectiveness in its operation. Positive outcomes of the Board of Statutory Auditors’ self-
assessment process are included in the Statutory Auditors’ report at 31 December 2019.
Table 3, attached herein, provides for the significant information about each member of the Board of
Statutory Auditors in office at the Report Date.
16.
GENERAL MANAGER OPERATIONS
It should be noted that the General Manager Operations role was established in May 2018 and is
entrusted to Andrea Casaluci.
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 sources of information needed for the efficient performance of its
supervisory role.
The flow of information to the directors and statutory auditors is ensured, preferably, by the
transmission of documents on a timely basis and, in any case, with sufficient frequency to ensure
compliance with the disclosure requirements, and in accordance with deadlines consistent with the
timetables set for each board meeting. These documents may be supplemented by explanations
provided in the context of the board meetings, or at specific informal meetings organised to examine
topics of interest relating to the management of the company.
When 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.
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It is required that the Strategies Committee be the recipient of a specific and continuous flow of
information from the Chief Executive Officer, assisted by the Secretary of the Company’s Board of
Directors for such purposes.
18.
RELATIONS WITH SHAREHOLDERS
Pirelli attributes strategic importance to Financial Reporting. In accordance with the Group’s Values
and Code of Ethics, Pirelli maintains constant dialogue with Shareholders, Bondholders, Institutional
and Individual Investors and Analysts from major investment banks through the Investor Relations
department and the Group’s Top Management in order to promote fair, transparent, timely and
accurate reporting.
In line with international best practice, the “Investors” section of the Website is constantly updated
with content of interest to the financial market, including: strategy (“Equity Story”), economic-financial
data on previous 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.
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 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).
Parties entitled to vote may be represented by proxy, given in accordance with the procedures
envisaged by law and the regulations in force.
The notice of call may also limit to one of the above methods the specific procedure usable in relation
to the Shareholders’ Meeting called by that notice.
For each meeting, the Company designates one or more persons to which those entitled to vote may
grant proxy, with voting instructions for all or just some of the items on the agenda. The proxy does
not apply to items for which no voting instructions were given. The persons designated to receive
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proxies for the Shareholders’ 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, no later than 180 days from the end of the financial year.
In the situations envisaged by law and in accordance with the related procedures, the directors must
call a Shareholders’ 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 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.
In the cases, in the manner and with the timing envisaged 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 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 intermediary with
reference to its accounting records, 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 by the end of the
third trading day prior to the date fixed for the Shareholders’ Meeting, or by any different deadline
established by the applicable regulations. Shareholders are still entitled 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,
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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 is not necessary when the minutes of the Shareholders’ Meeting are
taken 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
Shareholders’ 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; directs 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 checking 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
Shareholders’ Meetings must be taken by a Notary designated by the Chairman of the Shareholders’
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 objective 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
255
Pirelli & C. S.p.A. – 2019 Annual Report
Report on corporate governance
account of the results of assessments by independent agencies - most recently in August 2019 - 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 19 DECEMBER 2019 BY THE CHAIRMAN OF
THE CORPORATE GOVERNANCE COMMITTEE
With a letter of 19 December 2019 (the “Chairman’s Letter”), in the context of the usual monitoring
of the application of the provisions of the Corporate Governance Code, the Chairman of the
Corporate Governance Committee of Borsa Italiana has provided listed companies with a further
four recommendations (the “Committee Recommendations for 2020”) listed below:
1. include the sustainability of business activities in the definition of the remuneration strategies and
policy, also on the basis of an analysis of the importance of factors that could affect the creation
of value in the long term;
2. ensure, including in any board meeting regulation, an adequate management of the information
flow to the board of directors, and ensure that confidentiality requirements are protected without
compromising the completeness, usability and timeliness of reporting;
3. (i) apply more rigorously the independence requirements defined in the Corporate Governance
Code, while inviting the control bodies to monitor the correct application thereof, (ii) having
reiterated the exceptional nature and the necessary individual justification for derogation from
the aforementioned criteria, pay more attention to the assessment of the significance of the
relationships subject to assessment, and (iii) to that end, define ex ante the quantitative and/or
qualitative criteria to be used for assessing the significance of the relationships subject to
examination (criteria which should concern the overall position – not simply the purely economic
benefit – of the director whose independence is subject to assessment);
4. together with the committees responsible for remuneration, verify that the remuneration paid to
non-executive directors and members of the control bodies are in line with the competence,
professionalism and commitment required of their roles, also taking account of comparative
analyses with other companies of similar sizes (including foreign companies) operating in the
relevant sector.
The Committee’s Recommendations for 2020 were brought to the attention of (i) the Audit, Risks,
Sustainability and Corporate Governance Committee and the Board of Statutory Auditors on 17
February 2020, and (ii) the Board of Directors on 2 March 2020.
The Company considers it appropriate to provide the following summary of the considerations
formulated by the Board of Directors on the aforementioned Committee’s Recommendations for
2020.
256
Report on corporate governance
Pirelli & C. S.p.A. – 2019 Annual Report
It is deemed that the systems of corporate governance rules adopted by Pirelli is already in line with
the foregoing recommendations, for the reasons outlined below:
-
the Board of Directors plays a central role in the defining of sustainability policies and strategies,
at the proposal of the Executive Vice Chairman and Chief Executive Officer. In addition, the
Company’s remuneration policy has for some time been establishing sustainability targets on the
basis of the variable components of remuneration (for more details in this regard, see the
Remuneration Report);
- pre-board reporting (of a continuous nature or relating to specific topics) during 2019 also took
place – as shown by the results of the self-assessment survey conducted by the Board – in
compliance with an advance that was deemed consistent (cf. section 4.5.1) with quality standards
that are in line with international best practice and broad guarantees as to the confidentiality and
traceability of the information and documents sent to Directors and Statutory Auditors;
- during the board’s current term in office, there were no exceptions to the rigorous application of
the independence requirements provided for by the Corporate Governance Code and legislation,
as also demonstrated by the checks carried out by the control body on the criteria adopted by
the Board to assess the ongoing fulfilment of the independence requirements for directors;
-
the setting of the remuneration packages for non-executive directors and members of the control
body is also deemed to be adequate, taking account of the specific skills, professionalism and
commitment required for the role. This assessment is also confirmed by the analyses conducted
by the Company in relation to comparable companies on a national and international basis.
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 Chairman’s Letter
insofar as the Committee’s Recommendations for 2020 were already adequately implemented some
time ago.
257
Pirelli & C. S.p.A. – 2019 Annual Report
Report on corporate governance
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Pirelli & C. S.p.A. – 2019 Annual Report
Report on corporate governance
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270
Report on the remuneration policy and compensation paid Pirelli & C. S.p.A. – 2019 Annual Report
REPORT ON THE REMUNERATION POLICY AND COMPENSATION PAID
PREAMBLE
This Report on the remuneration policy and the compensation paid (the “Report” or the
“Remuneration Report”), approved by the Board of Directors on 2 March 2020, upon the proposal
of the Remuneration Committee, is structured into two sections:
- Section I: “Remuneration Policy” for FY 2020 (the “2020 Policy” or the “Policy”) and
- Section II: “Report on Compensation Paid” in FY 2019 (the “2019 Compensation Report” or the
“Compensation Report”).
The Report has been drawn up in accordance with Art. 123-ter of the Consolidated Law on Finance
(“TUF”), as amended and supplemented by Art. 3 of Italian Legislative Decree no. 49 of 10 May 2019
(the “Decree”)57, with Art. 84-quater of the Issuers’ Regulation (Consob Resolution no. 11971 of 14
May 1999) as well as on the basis of Scheme 7-bis of Annex 3 A of the Issuers’ Regulation,
introduced by Consob with resolution no. 18049 of 23 December 201158.
In its drafting, due consideration was given to the European Commission recommendations on the
remuneration of directors of listed companies, as well as to the recommendations on remuneration
given in the current Corporate Governance Code59 for listed companies, approved by the Corporate
Governance Committee and promoted by Borsa Italiana S.p.A., ABI, Ania, Assogestioni, Assonime
and Confindustria, to which Pirelli adhered.
The Report is also been drafted for the purposes established under Art. 14 of the Pirelli related party
transactions procedure.
The 2020 Policy defines principles and guidelines:
- with which the Board of Directors complies in defining the remuneration of the directors of Pirelli
& C. S.p.A. (“Pirelli & C.”), in particular Directors holding specific offices, General Managers and
KM;
-
to which Pirelli & C. refers in defining the remuneration of Senior Managers and, more generally,
of Executives;
57 The Decree incorporates into the Italian legal system, Directive (EU) 2017/828, the “Shareholders Right II Directive”, which amends
Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement.
58 As at the date of approval of the Report, Consob has not adopted the amendments to the Issuers’ Regulation and to Scheme 7-bis of
the related Annex 3A, in regard to: (i) the information to be included in the first section of the report and the characteristics of the
remuneration policy, which, according to the provisions of Art. 123-ter, paragraph 7 of the TUF, is to be adopted in compliance with
Article 9-bis of Directive 2007/36/EC and in compliance with the provisions of paragraph 3 of Recommendation 2004/913/EC and
paragraph 5 of Recommendation 2009/385/EC; (ii) the information to be included in the second section of the report, which will be
adopted in compliance with the provisions of Article 9-ter of Directive 2007/36/EC.
59 The current Corporate Governance Code was approved in July 2018. The new Code of Corporate Governance will apply from the first
year starting after 31 December 2020.
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Pirelli & C. S.p.A. – 2019 Annual Report Report on the remuneration policy and compensation paid
Additionally, without prejudice to the provisions set forth under Art. 2402 of the Italian Civil Code, the
Policy explains the criteria for the remuneration of the members of the controlling body.
The 2019 Compensation Report, submitted for a consultative vote to the Shareholders’ Meeting,
sets out the final total remuneration for FY 2019.
In order to facilitate the understanding and reading of the Report, please find below a glossary
defining some recurring terms:
Directors holding specific offices: mean the directors of Pirelli & C. holding the office of Chairman,
Executive Vice Chairman and Chief Executive Officer. The Directors holding specific offices in other
Group companies, who are also managers, are, for the purpose of the Policy, Executives or Senior
Managers, depending on the role held and, unless otherwise resolved by the Board of Directors of
Pirelli & C. which classifies them as KM.
Directors holding no specific offices: mean all the directors of Pirelli & C. who are not Directors
holding specific offices. Directors not holding specific offices in other Group companies, who are also
managers, are, for the purpose of the Policy, Executives or Senior Managers, depending on the role
held and unless otherwise resolved by the Board of Directors of Pirelli & C., which classifies them
as KM.
Annual Total Direct Compensation on-Target: means the total sum of the following components,
regardless of whether they were disbursed by Pirelli & C. or by another Group company:
(i) gross annual base salary of the remuneration;
(ii) annual variable short-term incentive STI (MBO), if objectives are achieved at target level;
(iii) medium/long-term variable component comprising:
a. annual value of the long-term incentive (LTI) plan if multi-year objectives are achieved at
target level;
b. pro-quota value of the STI (MBO) accrued and deferred, to be paid if the next year’s STI
(MBO) is achieved;
c. an additional value of equal amount of the pro-quota of the STI (MBO) accrued and
deferred, to be paid if the next year’s STI (MBO) is achieved, at least at target level.
Shareholders’ Meeting: means the meeting of the shareholders of Pirelli & C..
Remuneration Committee: means the Pirelli & C. Remuneration Committee.
Board of Directors: indicates the Board of Directors of Pirelli & C. S.p.A..
General Manager(s): the persons identified by the Pirelli & C. Board of Directors to be assigned
broad powers of business segment management. The subjects holding the office of General
272
Report on the remuneration policy and compensation paid Pirelli & C. S.p.A. – 2019 Annual Report
Manager in other Group companies are, for the purpose of the Policy, Executives or Senior
Managers, depending on the role held and unless otherwise resolved by the Board of Directors of
Pirelli & C., which classifies them as KM.
KM: managers, identified by the Pirelli & C. Board of Directors in accordance with the procedure
adopted by Board resolution of 26 July 2019, having the power or responsibility for planning,
managing and controlling the Company’s activities or the power to make decisions that can impact
its evolution or future prospects and, more generally, of Pirelli Group. In accordance with the
procedure, the employees holding the following positions must be classified as KM: (i) General
Manager; (ii) Executive Vice President; (iii) Manager responsible for the preparation of financial and
corporate documents; (iv) the Company Secretary and Corporate Affairs Officer.
Executives: managers of the Italian companies or employees of the Group’s foreign companies with
a position or role that is comparable to that of an Italian manager.
The Pirelli Group or Pirelli or the Group: means all the companies included in the Pirelli & C.
consolidation scope.
LTI Plan (2018-2020): means the 2018-2020 Long-Term Incentive plan approved by the Board of
Directors on 26 February 2018 and by the Shareholders’ Meeting on 14 May 2018.
LTI Plan (2020-2022): means the Long-Term Incentive plan for the three-year period 2020-2022
approved by the Board of Directors on 19 February 2020 and subject to the approval of the
Shareholders’ Meeting scheduled for 18 June 2020, in support of the achievement of the new
objectives set by the 2020-2022 Strategic Plan.
Management: means all Directors holding specific offices, General Managers, KM, Senior
Managers and Executives.
Retention Plan: means the Retention Plan explained in section 9 below, approved by the Board of
Directors on 26 February 2018.
2020-2022 Strategic Plan or Strategic Plan: means the business plan approved by the Pirelli & C.
Board of Directors on 19 February 2020.
GAS: means the gross annual base salary of the remuneration for those employed by a Pirelli Group
company.
Senior Managers: means the persons directly responsible, except where they are KM (i) to Directors
holding specific offices granted with specific duties; (ii) to General Managers, where the work of the
Senior Manager significantly impacts business results.
The Company or Pirelli & C.: means Pirelli & C. S.p.A..
STI (MBO): means the annual variable component of remuneration that can be achieved if the
predefined corporate objectives are achieved, as more fully described in sections 4, 5 and 6 below.
273
Pirelli & C. S.p.A. – 2019 Annual Report Report on the remuneration policy and compensation paid
Top Management: means all Directors holding specific offices, General Managers and KM.
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Report on the remuneration policy and compensation paid Pirelli & C. S.p.A. – 2019 Annual Report
EXECUTIVE SUMMARY
Aims
How it operates
Beneficiaries
Fixed
Remuneration
reward managerial and
To
professional competence and
experience, and the contribution
made to the role.
It is defined in relation to the
characteristics, responsibilities and
powers, if any, assigned to the role,
taking account of
the market
references, in order to ensure their
competitiveness.
Chairman: €400,000
Executive Vice Chairman and CEO:
€2,400,000
General Manager: €750,000
KM: no more than 50% of Annual Total
Direct Compensation on-Target
Senior Manager and Executive: no more
than 60% (Senior Manager) and 75%
(Executive) of the Annual Total Direct
Compensation on-Target
Annual variable
remuneration
STI (MBO)
To motivate managers
to
achieve the Company’s annual
objectives, maintaining strong
the business
alignment with
strategy and
the Company’s
interests and medium-long term
sustainability, including through
a partial deferral mechanism.
Directly linked to the achievement of
performance objectives, assigned to
each beneficiary in coherence with
the role they cover:
Chairman: not one of the beneficiaries of
the plan.
Executive Vice Chairman and CEO:
EBIT (Group/Region/BU)
Net Cash Flow (Group/Region)
Group Net Income
Entry level: 93.75% of fixed remuneration
(75% of the target)
Target: 125% of fixed remuneration
Cap: 250% of fixed remuneration
A sustainability objective
General Manager:
Unit/department objectives (for
and
Managers
Senior
Executives)
In addition to an on-off condition
(which determines access to the
plan),
represented by a cash
indicator (typically Net Cash Flow).
There will be an entry level for each
objective, equal to 75% of the target
premium, below which the related
pro-quota of the incentive is not
accrued.
There is also a maximum cap to the
incentive that can be achieved (if all
maximum performance objectives
are achieved), equal to twice the
incentive that can be achieved at
target performance.
Finally, 25% of the incentive accrued
is deferred and its payment, together
with any increase, is subject to the
achievement of the following year’s
STI (MBO) objectives.
Entry level: 56.25% of the GAS (75% of
the target)
Target: 75% of the GAS
Cap: 150% of the GAS
KM:
Entry level: 37.5% of the GAS (75% of
the target)
Target: 50% of the GAS
Cap: 100% of the GAS
Senior Managers and Executives:
Entry level: from a minimum of 15% to a
maximum of 30% of the GAS (75% of the
target)
Target: from a minimum of 20% to a
maximum of 40% of the GAS
Cap: from a minimum of 40% to a
maximum of 80% of the GAS
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Medium/long
term
remuneration
(LTI)
variable
To promote the creation of value
that is sustainable in the long-
term and achievement of the
objectives
the Company’s
Strategic Plan, while also
promoting
management
engagement and retention.
in
2020-2022 LTI Plan: a monetary
to
incentive
the
subject
following
achievement of
independent
term
objectives:
the
long
Cumulative Group Net Cash
Chairman: not one of the beneficiaries of the
plan.
Executive Vice Chairman and CEO:
Entry level: 157.5% of fixed remuneration
(75% of the target)
Flow (before dividends)
Three-year
target: 210% of
fixed
Relative TSR versus a panel of
peers
(TIER1: Continental,
Michelin, Nokian, Goodyear
and Bridgestone)
a third objective linked to two
Sustainability indicators: Dow
Jones Sustainability World
Index ATX Auto Component
sector and CDP Ranking.
There will be an entry level for
each objective, equal to 75% of
the target premium, below which
the related pro-quota of
the
incentive is not accrued.
incentive
if
There is also a maximum cap to
that can be
the
all maximum
achieved,
are
performance
achieved.
objectives
Vesting: 3 years
Rolling plan
remuneration
Cap: 600% of fixed remuneration
General Manager:
Entry level: 135% of the GAS (75% of the
target)
Three-year target: 180% of the GAS
Cap: 480% of the GAS
KM:
Entry level: 112.5% of the GAS (75% of
the target)
Three-year target: 150% of the GAS
Cap: 390% of the GAS
Senior Managers and Executives:
Entry level: from a minimum of 33.75% to
a maximum of 112.5% of the GAS (75%
of the target)
Three-year target: from a minimum of
45% to a maximum of 150% of the GAS
Cap: from a minimum of 120% to a
maximum of 390% of the GAS
Retention Plan: extraordinary
four-year retention plan (2017-
2021).
Chairman: not one of the beneficiaries of the
Retention Plan or of the non-competition
agreements.
Non-competition agreements:
constraint regarding the market
the Group
sector
operates and
territorial
coverage. The extent varies
according to the role covered.
in which
the
Executive Vice Chairman and CEO: not one
of the beneficiaries of the Retention Plan or of
the non-competition agreements.
Retention Plan: only
for
the General
Manager, KM
and
selected Senior
maximum
Managers/Executives.
The
retention bonus provided is 2.3 times the 2017
Total Direct Compensation on-Target.
for
the
Non-competition agreements:
the KM and Senior
General Manager,
Managers
with
and
professionalism particularly critical. They
provides for the payment of a fee proportional
to GAS, in relation to the duration and extent
of the constraints imposed.
Executives
Other tools
To assure organisational stability
and the contribution made to the
implementation of the Company’s
Strategic Plan.
To safeguard company know-
how
from
competitors.
protect
and
it
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REMUNERATION POLICY FOR THE 2020 FINANCIAL YEAR
1.
PARTIES INVOLVED IN THE PROCESS OF POLICY ADOPTION AND IMPLEMENTATION
Parties in the process
The definition of the Policy and any amendments made thereto are the result of a clear and
transparent process in which the Remuneration Committee and the Board of Directors play a central
role. It is, in fact, annually adopted and approved by the Board of Directors– based on a proposal by
the Remuneration Committee – and then the Board submits it to the Shareholders’ Meeting for a
vote.
The Board of Statutory Auditors issues its opinion on the Policy, in particular on the part regarding
the remuneration of Directors holding specific offices.
The Remuneration Committee, the Board of Statutory Auditors and the Board of Directors supervise
the application thereof. To that end, at least once per year, when the Compensation Report is
submitted, the Head of the Human Resources & Organisation Department reports on the
implementation of the Policy to the Remuneration Committee, the Chairman of which reports it to
the Board of Directors.
For the sake of completeness, please note that, in accordance with current legislation, the Board of
Directors is entitled to adopt (or, if provided by law, to propose to the Shareholders’ Meeting)
incentive mechanisms for company collaborators, employees or representatives through the
attribution of financial instruments or options on financial instruments, which, if approved, shall be
disclosed to the public by the legal deadline (without prejudice to any further transparency
requirements provided by the applicable law). At the date of this Report, the Company has no
incentive plans based on financial instruments in place60.
Shareholders’ Meeting
The Shareholders’ Meeting:
- at the time of appointment, determines the gross annual remuneration to be paid to the members
of the Board of Directors, except for the remuneration of Directors holding specific offices;
- at the time of appointment, determines the gross annual remuneration to be paid to the member
of the Board of Statutory Auditors;
60 Please note that on 19 February 2020 the Board of Directors approved the early closure of the 2018-2020 LTI Plan that had two
objectives linked to the share performance and simultaneously approved the adoption of a new LTI plan linked to the objectives set
out in the 2020-2022 Strategic Plan, which will be submitted for the approval of the Shareholders’ Meeting in the part where it
establishes that the incentive shall also be determined on the basis of a target relative total shareholder return, calculated as the
performance of the Pirelli share in respect of a panel of selected peers from the Tyre sector. For a more extensive description, reference
is made to paragraphs 2, 4, 5 and 6 below.
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- approve the section 1 of the Remuneration Report;
- expresses a consultative vote on section 2 of the Remuneration Report;
-
resolves, based on a proposal by the Board of Directors, upon any incentive mechanisms based
on the attribution of financial instruments or options on financial instruments.
Board of Directors
The Board of Directors resolves upon:
-
-
-
-
-
the breakdown of the total remuneration defined for directors by the Shareholders’ Meeting;
the remuneration policy for executive directors, Directors holding specific offices, General
Managers and KM;
the remuneration of Directors holding specific offices in accordance with Art. 2389, paragraph 3
of the Italian Civil Code, as well as the remuneration of General Managers;
the performance objectives related to the variable part of the remuneration of executive directors,
General Managers and KM;
the remuneration of the Head of the Internal Audit department upon a proposal by the Audit,
Risks, Sustainability and Corporate Governance Committee.
Remuneration Committee
The Remuneration Committee is appointed by the Board of Directors (which also appoints the
Chairman thereof) and remains in office for the entire duration of the mandate granted to the Board
of Directors.
At the date of this Report, the Committee is composed of four members, all non-executive and the
majority of whom are independent. Additionally, in line with the provisions of the current Corporate
Governance Code, the Chairman of the Committee is an independent director.
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At the date of this Report, the Committee members are the following:
Directors Laura Cioli and Giovanni Lo Storto were considered by the Board of Directors as having
sufficient experience in accounting, financials and remuneration policies matters.
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 the Secretary of the Remuneration Committee.
The Committee has advisory and supervisory functions and makes recommendations to ensure the
definition and application within the Group of remuneration policies that, on the one hand, attract,
motivate and retain human resources with the professional qualities required to pursue profitably the
Group objectives and, on the other hand, are capable of aligning the interests of Management with
those of the shareholders, taking into account the objectives set by the company strategy and the
pursuit of the Company’s long-term sustainability and interests.
In particular, the Remuneration Committee:
assists the Board of Directors to define the Policy, making recommendations in this regard;
assesses periodically the adequacy, overall consistency and concrete application of the Policy,
making reference in this last regard to the information provided by the managing directors and
makes recommendations to the Board of Directors on this matter;
with regard to the executive directors, other Directors holding specific offices and General
Managers, it makes recommendations or expresses opinions to the Board:
o
o
about their remuneration, in compliance with the Policy;
about setting performance objectives linked to the variable part of that remuneration;
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Pirelli & C. S.p.A. – 2019 Annual Report Report on the remuneration policy and compensation paid
o
o
about the definition of any non-competition agreements;
about the definition of any agreements for the termination of working relationships, having
regard to the principles established in the Policy;
verifies the compliance of the remuneration of the executive directors, the other Directors
holding specific offices, the General Managers and the KM with the Remuneration Policy and
expresses an opinion on this, also in accordance with the related party transaction procedure;
assists the Board of Directors in the examination of proposals to the Shareholders’ Meeting for
the adoption of remuneration plans based on financial instruments;
monitors the application of the decisions adopted by the Board of Directors, checking in
particular the effective achievement of the established performance objectives;
examines and submits to the Board of Directors the Compensation Report, which, for the
members of the management and controlling bodies, the General Managers and in aggregate
form for the KM:
a. provides adequate information about each component of their remuneration;
b. explains in detail the remuneration paid during the relevant financial year, for whatever
reason and in any form, by the Company and its subsidiaries and/or affiliates;
assesses the existence of exceptional circumstances that allow for a derogation to the Policy.
In exceptional circumstances, derogations to the Policy are approved in accordance with the
procedures adopted by the Company for related party transactions in implementation of the
applicable current Consob regulation in force at the time.
In relation to the operation of the Remuneration Committee, see the Report on the Corporate
Governance and Share Ownership of Pirelli & C. S.p.A..
In compliance with the related party transactions procedures adopted by the Company in compliance
with the Consob Regulation pursuant to resolution no. 17221 of 12 March 2010 (as subsequently
amended), the Company may adopt any decisions derogating or implementing the Policy within the
limits required or in any case permitted by applicable provisions of law or regulation in force at the
time.
As better explained under section 10 below, the Company provides for information on any
derogations made to the Policy in exceptional circumstances, in accordance with the terms and
conditions set out by provisions of applicable law and regulation in force at the time.
Amongst the measures aimed at avoiding or managing conflicts of interest, it should be noted that,
in compliance with the Corporate Governance Code, no member of the Board of Directors shall
attend meetings of the Remuneration Committee held to make proposals to the Board of Directors
about their own remuneration. More specifically, Directors holding specific offices granted with
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specific duties shall not attend the meetings of the Remuneration Committee during which proposals
to the Board of Directors in regard to their own remuneration are formulated.
2.
PURPOSES AND PRINCIPLES OF THE 2020 REMUNERATION POLICY
The Policy contributes to pursue the business strategy. It aims to attract, motivate and retain human
resources in possession of the professional qualities required to pursue the business objectives.
Through the multi-year variable components, it aims to achieve long-term interests, encouraging the
achievement of strategic objectives and sustainable growth of the Company as well as bringing the
interests of the Management in line with those of the shareholders.
In particular, the Policy contributes to the business strategy, to the pursuit of the Company’s long-
term interests and sustainability also through the provision of a medium/long-term variable
remuneration mechanism for the Executive Vice Chairman and CEO, the General Manager, the KM,
the Senior Managers and Executives, as better explained in sections 4, 5 and 6 below (2018-2020
and 2020-2022 LTI Plans).
The Policy, indeed, is inspired by the principle of “pay for performance”, taking into account, as
explained further hereto, that (i) the plans’ incentive targets, at the “access threshold” level are set
consistently with the objectives disclosed to the market, with no “discounts” whatsoever; and (ii) for
the 2020-2022 LTI Plan, the setting of objectives relating to total shareholders’ return and Cumulative
Group Net Cash Flow (again set, as entry-level objective, at the value equal to the value set in 2020-
2022 Strategic Plan, with no “discount”) allows for the perfect alignment of the interests of the
management team with the long-term interests of shareholders.
The Policy has been prepared taking into account the policies of the previous years and the
regulatory provisions adopted by Consob in its resolution no. 18049 of 23 December 2011 (which
introduced Scheme 7-bis of Annex 3A to the Issuers’ Regulation)61, the early closure of the 2018-
2020 LTI Plan and the adoption of the 2020-2022 LTI Plan.
The Policy is annual and has been defined taking into account the remuneration, compensation mix
and working conditions of the Company’s employees. In this regard, it is Pirelli’s standard practice
to set employee remuneration according to reference market benchmarks for each professional
figure, seeking to achieve a different level of appeal depending on the company role and skills.
In particular, Pirelli defines and applies a Policy as regards the first appointment:
-
for the Chairman, referring to the market median “Non-Executive Directors in Italy” of Korn Ferry
for the year in which said first appointment is occurred;
61 See above, note 58.
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Pirelli & C. S.p.A. – 2019 Annual Report Report on the remuneration policy and compensation paid
-
for the rest of the Top Management and the Senior Managers, characterised by outstanding
characteristics of attractiveness targeting the third quartile of the comparison market (compared
to the benchmarks used);
-
for Executives, targeting the median of the different comparative markets.
The Annual Total Direct Compensation on-Target is the benchmark for market comparison.
The analysis of the positioning, composition and more generally the competitiveness of the
remuneration of Directors holding specific offices is carried out by the Remuneration Committee and
the Board of Directors with the assistance of independent companies specialised in executive
compensation, on the basis of methodological approaches that allow the full assessment, although
within the typical limits of benchmark analyses, of the complexity of their positions from an
organisational point of view, any specific duties granted thereto and the individual’s impact on the
final business results.
In regard to the comparative market, in the definition of the panel of reference companies updated
annually by the Remuneration Committee, various components are taken into account such as
business sector, geography, specific features and size of the company.
The reference sample of companies used to analyse the competitiveness and possible review of the
remuneration of the Chairman of Pirelli & C. has been established with the assistance of Korn Ferry
and consists of MIB40 companies.
The sample of reference companies used for the competitiveness analysis and any potential review
of the remuneration of the Executive Vice Chairman and Chief Executive Officer of Pirelli & C. has
been updated with the assistance of Willis Towers Watson, also taking account of the main
recommendations on pay for performance, and is now composed of the 16 companies shown in the
table below (as the benchmark taken as reference last year).
Finally, the remuneration structure for the General Manager, the KM, Senior Managers and
Executives is defined on the basis of the national and international benchmarks prepared by Korn
Ferry and shared with the Remuneration Committee.
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Management remuneration has three main elements:
- gross annual base salary (GAS);
- annual variable component STI (MBO);
- medium/long term variable component (LTI).
The base salary is established on the basis of the complexity of the position, professional seniority,
the skills required to perform in the role, performance over time, and the trend in the comparison
remuneration market related to the position held by the individual.
The STI (MBO) and LTI variable components are established - taking into account the benchmarks
for each beneficiary - as a percentage of base salary which increases according to the position held
by the beneficiary.
The STI (MBO) is extended to all the Management, and intends to reward the beneficiaries short
term performance; except for specific cases, it can be extended to managers who have joined the
Group during the year.
The STI (MBO) objectives for Directors holding specific offices granted with specific duties, for
General Managers and for KM are established by the Board of Directors upon a proposal of the
Remuneration Committee (see sections 4 and 5).
The STI (MBO) objectives of the Senior Managers and Executives - which reflect the same structure
as those of the Directors holding specific offices granted with specific duties, the General Managers
and the KM - are, instead, defined by the hierarchical manager in accordance with the Human
Resources & Organisation and Planning and Controlling Departments and provide, amongst others,
also objectives
relevant business
unit/geography/department (see section 6).
the economic performance of
linked
the
to
At the end of the year and based on the finalised performance figures, the Department of Human
Resources & Organization, with the assistance of the Planning and Controlling Department,
proceeds to check the level to which the objectives have been achieved, on which basis then the
Board of Directors resolves, after the consideration of the Remuneration Committee, on the entity of
the variable compensation to be paid.
In the event of extraordinary transactions affecting the scope of the Group and/or major changes in
the macroeconomic and business scenario, the Remuneration Committee may adjust the targets in
the STI (MBO) plan, in order to protect the plan’s value and purposes, thus ensuring that the
objectives of the Company and the objectives of the Management incentive systems are constantly
aligned.
The achievement of the individual objectives will be assessed by the Remuneration Committee,
neutralising the effects of any extraordinary decisions that could have affected the results (either
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positively or negatively). The Board of Directors resolves upon the proposed review, after obtaining
the opinion of the Remuneration Committee.
Part of the variable remuneration accrued as STI (MBO) is deferred in support of the continuity of
results over time. Indeed, the 75% of any STI (MBO) accrued is paid, since the remaining 25% is
deferred for 12 months and subject to achievement of the STI (MBO) objectives of the next year.
More specifically (see graph below):
-
-
in the event that no STI (MBO) is accrued in the next year, the deferred STI (MBO) quota of the
previous year is definitively “lost”;
in the event that the STI (MBO) accrued in the next year is below target level, the STI (MBO)
quota deferred from the previous year is paid;
in the event that the STI (MBO) accrued in the next year is equal to or higher than target level, the
STI (MBO) quota deferred from the previous year is paid, together with an additional amount equal
to the quota deferred (increase).
Year T
Year T+1
Year T+2
Year T+3
Year T+4
…
Disbursement of
75% of the MBO
accrued
Verification of the access condition and
disbursement of deferred share 25% + any
increase 25%
Disbursement of
75% of the MBO
accrued
Verification of the access condition and disbursement of
deferred share 25% + any increase 25%
Disbursement of
75% of the MBO
accrued
Verification of the access
condition and disbursement of
deferred share 25% + any increase
25%
Disbursement of
75% of the MBO
accrued
For completeness, it is pointed out that, in the context of the actions in response to the Covid-19
health emergency, the Board of Directors on 3 April 2020 acknowledged and shared the willingness
of the entire members of the board of directors to renounce part of their compensation and, in
particular (i) the willingness of Vice Chairman and CEO to renounce, for three months, the 50% of
his gross fixed annual compensation for the positions of Vice Chairman, CEO and board member,
as well as for the position of Chairman of the board committees; (ii) the willingness of the members
of the board to renounce, for the second quarter of the financial year, to the 50% of the compensation
for the positions of board member and member of the board committees.
During the same meeting, the Board of Directors acknowledged the willingness of the leadership
team (composed of KM and some Senior Managers, as better defined in the Remuneration Report)
to renounce the 20% of their gross fixed annual compensation for a period of three months.
Finally, always during the meeting held on 3 April 2020, following the favourable opinion, as far as
necessary, by the board committees and the Board of Statutory Auditors, the Board of Directors
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resolved – subject to the approval of the 2020 Policy and the consultative vote of the Compensation
Report to the Shareholders’ Meeting - to early cancel without any disbursement the 2020 STI (MBO)
and, consequently (i) to liquidate, in the first quarter of 2021, to the 2019 STI (MBO) beneficiaries
the 25% of the 2019 STI (MBO) premium accrued and initially subject to the the achievement of the
2020 STI (MBO) objectives, conditioning the payment to the maintenance of the employment/director
relationship between the beneficiary and the Company on such date (excepts for the “good leavers”
who will receive this component in any case), and (ii) to cancel the opportunity to increase the 2020
STI (MBO).
The LTI plan is assigned to the Top Management and extended, except for specific cases, to all
Management. It is also assigned to those who, during the three-year period, join the Group and/or
take over, due to internal career growth, the position of Executive. In this case, their inclusion is
subject to the participation to the plan for at least one full financial year and the incentive percentages
are scaled to the number of months of effective participation to the plan.
In light of the launch of the Strategic Plan for the period 2020-2022, the Pirelli & C. Board of Directors
resolved, on the one hand, to early close the 2018-2020 LTI Plan, with effect from 31 December
2019 (with no payment, not even pro-quota, of the three-year incentive) and, on the other hand, to
introduce a new 2020-2022 LTI Plan linked to the objectives of the Strategic Plan approved on 19
February 2020, which will be subject to the approval of the Shareholders’ Meeting, in the part where
it is provided that the incentive shall be determined on the basis of a total shareholder return
objective.
The medium/long term incentive plan (LTI) 2020-2022 is intended to:
link Management remuneration with the medium-long term performance of the Group;
promote the creation of shareholder value;
generate an effective Management retention effect, a key variable for the delivery of the
Company’s strategic plan.
Additionally, starting from the 2020-2022 LTI Plan, the Company introduced a “rolling” type
mechanism, in order to: (i) guarantee a high flexibility, making it possible, for each new three-year
cycle, to update performance indicators to the evolution of the market and business and, therefore,
to the Company’s strategic plan; (ii) create a recurring element of the remuneration policy
considering that each year it is provided for the launch of a new cycle of the LTI plan.
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Pirelli & C. S.p.A. – 2019 Annual Report Report on the remuneration policy and compensation paid
Below is an example diagram showing how the rolling mechanism works:
The 2020-2022 LTI Plan assigns each beneficiary an incentive opportunity (the “LTI Bonus”), equal
to a percentage of the gross annual fixed component (GAS) in place as at the date on which
participation to the plan is established. This incentive percentage increases in relation to the position
held and takes into account the benchmarks for each role.
The full cost of the 2020-2022 LTI Plan is included in the economics of the 2020-2022 Strategic Plan,
so its cost is “self-funded” by achievement of the expected results.
The risk governance process is fully integrated into the strategic planning process in order to ensure
that the objectives envisaged for achieving the variable incentive do not expose Pirelli to managerial
behaviour not in line with an acceptable level of risk (“risk appetite”) as defined by the Board of
Directors on the occasion of the approval of the plans.
In case of extraordinary transactions which affect the Group perimeter and / or deep changes in the
macroeconomic and business scenario, the Company reserves the right to propose to the
Remuneration Committee:
a possible adjustment of the target (both positive and negative) covered by the 2020-2022 LTI
Plan, in order to protect the value and purposes of the LTI Plan itself, ensuring the constant
alignment between the Company’s objectives and the objectives of the Management incentive
systems;
to review the parameters covered by the 2020-2022 LTI Plan;
to early close the 2020-2022 LTI Plan.
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3.
REMUNERATION OF THE BOARD OF DIRECTORS AND THE BOARD OF STATUTORY
AUDITORS
The Board of Directors
Within the Board of Directors, a distinction can be made between:
(i) Directors holding specific offices whom may be granted with further specific duties;
(ii) Directors holding no specific offices.
The granting of powers to directors only in case of emergency does not qualify them as directors
granted with specific duties.
At the time of the appointment of the Board of Directors, the Pirelli Shareholders’ Meeting resolves
the total annual remuneration of the Board of Directors in accordance with Art. 2389, paragraph 1 of
the Italian Civil Code - to be allocated to its members in compliance with the resolutions in this regard
adopted by the Board - excluding the remuneration to be assigned by the Board to Directors holding
specific offices, pursuant to Art. 2389 of the Italian Civil Code.
More specifically, on 1 August 2017, the Pirelli Shareholders’ Meeting resolved to establish, for the
years 2017, 2018, 2019 and until termination of the office with the approval of the financial
statements as at 31 December 2019, a maximum of euro 2 million as the total annual remuneration
of the Board of Directors in accordance with Art. 2389, paragraph 1 of the Italian Civil Code,
excluding the remuneration to be assigned by the Board to Directors holding specific offices,
pursuant to Art. 2389 of the Italian Civil Code.
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Pirelli & C. S.p.A. – 2019 Annual Report Report on the remuneration policy and compensation paid
The total gross annual remuneration established by the Shareholders’ Meeting was allocated by the
Board of Directors as follows:
With reference to the compensation provided in the table above, please refer to Paragraph 2 above
related to the renounces made by the directors in the context of the actions resolved by the Board
of Directors on 3 April 2020 in response to Covid-19 health emergency.
In line with best practice, Directors holding no specific offices (as defined above) do not receive a
variable part of their remuneration. Expenses incurred for official reasons are also reimbursed to the
directors.
In any case, the compensation granted to non-executive directors is determined in such an amount
as to guarantee adequacy in terms of the skill, professionalism and effort required by their office.
The Shareholders’ Meeting that will be convened to approve the financial statements as at 31
December 2019 will also be called to resolve upon the renewal of the current Board of Directors,
which will be expiring due to the end of the mandate. The Shareholders’ Meeting will therefore be
called to resolve on the total annual remuneration of the Board of Directors in accordance with Art.
2389, paragraph 1 of the Italian Civil Code, as well as the compensation to be assigned by the Board
to Directors holding specific offices, pursuant to Art. 2389 of the Italian Civil Code and, thereafter,
the Board of Directors shall resolve on its allocation.
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The Board of Directors, resolving the said allocation, shall take into account the effort required for
the attendance of directors to the single board committees, on the basis of the previous mandate.
Except in case the Shareholders’ Meeting resolves otherwise, an allocation of the said remuneration
providing the attribution of (i) a remuneration equal at a maximum to +25% vs the directors’
remuneration attributed for the previous mandate and (ii) for the members of the board committees
a +25% vs the remuneration for the office held, is compliant with the Policy. If new committees should
be established, the maximum limit is that of the highest remuneration provided for the corresponding
office in other committees.
Again in line with best practices, corporate bodies, General Managers, KM, Senior Managers and
Executives, in the exercise of their functions, are covered by a third party civil liability policy (“D&O”).
Such policy, as a consequence to the provisions established on the matter by the applicable national
collective bargaining agreement and rules governing mandates, this policy aims to indemnify Pirelli
from any expenses deriving from the related compensation, excluding cases of wilful misconduct or
gross negligence.
No insurance coverage, whether for social security or pensions, other than the obligatory coverage,
is provided for Directors holding specific offices.
The Board of Statutory Auditors
The remuneration of the members of the controlling body is determined by the Shareholders’ Meeting
as an annual fixed rate that is adequate in terms of the skills, professionalism and effort required by
the office.
At the end of their mandate, the Board of Statutory Auditors drafts a specific report setting out the
activities carried out, specifying the number of meetings and average length of the meetings, as well
as the time taken by each activity carried out and the professional resources used. This report will
then be sent to the Company in order to allow shareholders and the candidate auditors to assess
the adequacy of the proposed remuneration.
In particular, in the 2018 financial year, upon the renewal of the Board of Statutory Auditors, the
gross annual base remuneration of its Chairman was set at euro 75,000 for the years 2018, 2019,
2020 and until termination of office with the approval of the financial statements as at 31 December
2020. The remuneration of the other Standing auditors was set at euro 50,000.
Remuneration in favour of the members of the Board of Statutory Auditors equal at maximum to
+25% vs the remuneration attributed for the previous mandate, is compliant with the Policy.
For the Standing auditor called to be part of the Supervisory Body, following its renewal, the Board
of Directors established for the years 2018, 2019, 2020 and until termination of office with the
approval of the financial statements as at 31 December 2020, a gross annual remuneration of euro
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40,000. Expenses incurred for official reasons are also reimbursed to the members of the Board of
Statutory Auditors.
In line with best practices, a D&O insurance policy is provided to cover the third party liability of the
corporate bodies, including the members of said controlling bodies.
4.
REMUNERATION OF DIRECTORS HOLDING SPECIFIC OFFICES
The remuneration of Directors holding specific offices is proposed by the Remuneration Committee
to the Board of Directors when they are appointed, or at the first useful meeting thereafter.
Chairman of the Board of Directors
If a Director has been appointed to a specific office or offices, but no specific duties have been
granted to them (at the date of this Report, this applies to Chairman Ning Gaoning) the remuneration
consists solely of a fixed gross annual component, as well as the compensation for the office of
director and any participation in committees.
At the time of appointment, the Board of Directors determines the remuneration for the Chairman of
the Board of Directors, considering the remuneration assigned during the previous mandate (if the
same holder of the office) and the market benchmark (if a different person).
A Chairman’s compensation equal at maximum to +10% of the remuneration assigned during the
previous mandate (if the same holder) or with respect to the market benchmark - median - (if a
different person), is considered compliant with the Policy.
The Chairman Ning Gaoning has a compensation for the office of a gross annual euro 400,000. With
reference to this compensation, please refer to paragraph 2 above, related to the renounces made
by the directors in the context of the actions resolved by the Board of Directors on 3 April 2020 in
response to Covid-19 health emergency.
For those Directors holding specific offices to whom no specific duties have been granted, no social
security or pension cover is provided other than the obligatory schemes.
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Executive Vice Chairman and CEO
The remuneration of Directors holding specific offices also granted with specific duties (as is the
case for the Executive Vice Chairman and Chief Executive Officer Marco Tronchetti Provera) is
composed of the following elements:
Directors holding specific offices also granted with specific duties62, shall also receive the
compensation for the office of director and for any participation in committees63.
With reference to the incidence of the various components, the structure of the compensation
package of the current Executive Vice Chairman and Chief Executive Officer in the event of
achieving the annual STI (MBO) objectives and the three-year objectives of the 2020-2022 LTI Plan
(i) at the “entry threshold”, (ii) on-target and (iii) at the maximum level are set out below.
62 As at the date of this Report, the Executive Vice Chairman and Chief Executive Officer Marco Tronchetti Provera is the only Director
appointed to a specific office also granted with specific duties.
63 The Executive Vice Chairman and Chief Executive Officer receives also the compensation provided for the offices of director (euro
60,000), Chairman of the Strategies Committee (euro 50,000) and Appointments and Successions Committee (euro 50,000).
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Fixed Remuneration
The gross annual base salary for the office of Executive Vice Chairman and Chief Executive Officer
is determined at the time of appointment, taking into account the compensation granted during the
previous mandate (if the same holder of the office) and the market benchmark (if a different person),
so as to be sufficient to remunerate the work undertaken if the variable component should not be
paid due to non-achievement of the performance objectives set.
The gross annual fixed component attributed to the Executive Vice Chairman and Chief Executive
Officer is euro 2,400,000 (no more than a third of the Total Direct Compensation on-Target). With
reference to this compensation, please refer to paragraph 2 above, related to the renounces made
by the directors in the context of the actions resolved by the Board of Directors on 3 April 2020 in
response to Covid-19 health emergency.
The assignment of a gross annual base salary or a review of such, which, considering the annual
and medium/long-term incentive percentages, determines an Annual Total Direct Compensation on-
Target equal at maximum to + 5% of the value assigned during the previous mandate (if the same
holder of the office) or with respect to the market benchmark - third quartile (if the office is held by a
different person) - is compliant with the Policy.
Annual variable remuneration - STI (MBO)
The Executive Vice Chairman and Chief Executive Officer is beneficiary of a STI (MBO) equal to a
percentage of the fixed remuneration determined at the time of appointment and thereafter at the
launch of the single annual plans.
The attribution of a STI (MBO) incentive percentage no higher than the previous mandate, is
considered compliant with the Policy.
The objectives underlying the STI (MBO) plan represent a performance that is consistent with the
corresponding objectives disclosed to the market, in particular the objectives for obtaining the
incentive at “access threshold” are set as equal to the value disclosed to the market.
For each objective there is an “access threshold”, to which is associated payment of a pro-quota
bonus that is 75% of the pro-quota achievable on target; there is also a maximum (cap) on the
amount of the bonus that can be achieved.
The on/off condition is set as equal to the value disclosed to the market.
The finalisation of the performance for intermediate results between the “access threshold” and
target and between the target value and maximum value is carried out by linear interpolation.
Depending on the level of performance achieved, the Executive Vice Chairman and Chief Executive
Officer will receive a bonus of 125% of fixed remuneration for on-target performance, 93.75% of fixed
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remuneration (75% of the on-target bonus) in case of achievement of the “access threshold”, and
250% of fixed remuneration (200% of the on-target bonus) in case of performance at maximum level.
All the objectives provided by the STI (MBO) scheme shall apply independently, once achieved the
on/off condition objective, according to the incentive curve shown below. Therefore, on the basis of
the level of performance achieved, each objective will contribute to the overall payout, according to
the weight shown in the scheme.
Example curve if all objectives are
achieved at entry level, on-target
and maximum.
For 2020, the objectives originally assigned to the Executive Vice Chairman and Chief Executive
Officer in the context of 2020 STI (MBO) were the following. In this respect, please refer to paragraph
2 above related to the early closure of the 2020 STI (MBO) in the context of the actions resolved by
the Board of Directors on 3 April 2020 in response to Covid-19 health emergency.
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Medium-long term variable remuneration
Also in order to contribute to the business strategy, the pursuit of the Company’s long-term interests
and its sustainability, the Executive Vice Chairman and CEO is beneficiary of the 2020-2022 Long
Term Monetary Incentive plan linked to the achievement of the objectives of the Strategic Plan set
out hereto.
The objectives underlying the 2020-2022 LTI Plan represent a performance consistent with the
corresponding objectives disclosed to the market, in particular the objectives for obtaining the
incentive at “access threshold” are set as equal to the value disclosed to the market (net of
sustainability objectives), or consistent with said objectives.
There is an “access threshold” for each objective – to which payment of 75% of the pro-quota of the
bonus achievable on-target is associated – and a maximum (cap) on the pro-quota amount of the
bonus that can be achieved.
The performance range for the economic-financial objectives is defined as the more challenging of
the target and maximum level with respect to that envisaged between the “access threshold” and
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target. In order to offer incentive to achieving results above target, the incentive curve is fixed in such
a way that the incentive opportunities grow significantly faster between the target and the maximum
levels than in the range between the “access threshold” and the target level (see graph below). All
the objectives provided by the LTI scheme shall apply independently, according to the incentive
curve shown below. Therefore, on the basis of the level of performance achieved, each objective will
contribute to the overall payout, according to the weight shown in the scheme.
Example curve if all objectives are
achieved at entry level, on-target and
maximum.
For the TSR and cumulative Group Net Cash Flow objectives, for intermediate results falling between
the “access threshold” and target value, or between the target value and the maximum value,
performance will be calculated by linear interpolation, rather than the sustainability objectives, which
are calculated only in three steps: entry level, target and maximum, without considering intermediate
performance.
Depending on the level of performance achieved, the Executive Vice Chairman and Chief Executive
Officer will receive a three-year bonus of 210% of fixed remuneration for on-target performance,
157.5% of fixed remuneration in case of achievement of the “access threshold” (75% of the on-target
bonus), and 600% of the fixed remuneration (cap) in case of maximum performance.
If he ceases to hold office due to the end of his mandate or due to the termination of the entire Board
of Directors, and is not subsequently appointed even as a director, the LTI Bonus is to be paid pro-
quota.
In addition, the Board of Directors provided in favour of Directors holding specific offices granted with
specific duties, not related to the Company with an executive employment relationship (on the date
of this Report, the Executive Vice Chairman and Chief Executive Officer Marco Tronchetti Provera),
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in line with the treatment guaranteed pursuant to the law and/or national collective employment
agreement for the Group’s Italian executives:
-
-
-
-
-
an Office Termination Payment (T.F.M.) in accordance with Art. 17, paragraph 1, letter c) of the
T.U.I.R. No. 917/1986 (Italian consolidated law on income tax), having characteristics similar to
those of the Severance Indemnity Payment (TFR) in accordance with Art. 2120 of the Italian
Civil Code paid in accordance with the law to Italian executives in the Pirelli Group, including
employer contributions that would be due to social security Institutions or Funds in the event of
an executive employment relationship;
an insurance policy related to (i) personal injuries that might be suffered during the execution of
their mandate, and (ii) accidents unrelated to the office held, with premiums payable by the
Company;
a policy to cover treatment for permanent disability as a result of illness;
a policy for death from any cause;
further benefits typical of the role held, as resolved by the Board of Directors in addition to those
currently paid within the Pirelli Group to the General Manager, the KM, the Senior Managers
and the Executives (company car).
5.
GENERAL MANAGER AND KM
The remuneration of the General Manager (at the date of publication of the Policy the General
Manager Operations Andrea Casaluci) and the KM has composed as follows:
Regarding the incidence of the various components, the structure of the compensation package of
the General Manager and the KM in the event of achieving the annual STI (MBO) objectives and the
three-year objectives of the 2020-2022 LTI Plan (i) at the “entry threshold”, (ii) on-target and (iii) at
the maximum level are set out below.
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The analysis of the remuneration of the General Manager and the KM, reviewed once a year and
disclosed in the Compensation Report, is carried out with the support of an independent company
specialised in executive compensation (Korn Ferry). The method used is “Job Grading”, which
compares the roles on the basis of three different components (know-how, problem solving and
accountability), whereby the weighting of each role is determined within the organisation.
For the General Manager and the KM, the market benchmark used to verify the competitiveness of
the related remuneration includes approximately 400 listed European companies included on the
FTE500 list - which includes the 500 highest cap European companies.
Fixed remuneration of the General Manager and KM
The fixed remuneration of the General Manager is determined at the time of appointment by the
Board of Directors, based on an opinion of the Remuneration Committee, in compliance with the
Policy.
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The remuneration of KM is determined by the Executive Vice Chairman and Chief Executive Officer,
in compliance with the Policy.
The Remuneration Committee assesses the compliance of the remuneration of the aforementioned
subjects with the Policy.
With reference to the fixed remuneration of the General Manager and KM, please refer to paragraph
2 above related to the renounces made by the leadership team in the context of the actions resolved
by the Board of Directors on 3 April 2020 in response to Covid-19 health emergency.
In the event of the appointment of a General Manager or the hiring/qualification of a new KM, the
Remuneration Committee defines the grade and benchmark of reference on the basis of their role
and responsibilities. Fixed remuneration that, considering the annual and medium/long-term
incentive percentages, determines an Annual Total Direct Compensation on-Target equal at
maximum to + 10% of the market benchmark (third quartile), is compliant with the Policy.
The proposed determinations and revisions of the fixed remuneration are carried out taking into
account the purpose of the Policy to attract, retain and motivate key resources to achieve the
Company’s objectives. A review that, considering the annual and medium/long-term incentive
percentages, determines an Annual Total Direct Compensation on-Target equal at maximum to +
10% of the market benchmark (third quartile), is compliant with the Policy.
Annual variable incentive STI (MBO)
The General Manager and KM are beneficiaries of the STI (MBO) plan, defined according to the
same structure, mechanisms and objectives provided for the Executive Vice Chairman and Chief
Executive Officer.
With reference to 2020 STI (MBO) Plan, please refer to paragraph 2 above related to the early
closure of the same in the context of the actions resolved by the Board of Directors on 3 April 2020
in response to Covid-19 health emergency.
In the event of performance at target, an annual incentive STI (MBO) is recognised equal to:
-
-
75% of the GAS for the General Manager;
50% of the GAS for the KM.
In the event of “access threshold” performance, the bonus opportunity is equal to 56.25% of the GAS
for the General Manager and 37.5% of the GAS for the KM (75% of on-target bonus), whilst in the
event of maximum performance, it is equal to 150% of the GAS for the General Manager and 100%
of the GAS for the KM (200% of on-target bonus).
In addition, for the General Manager and the KM, the 75% of the accrued bonus is paid, and the
remaining 25% is deferred for 12 months and payable upon the achievement of the STI (MBO)
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objectives of the next year, according to the same parameters specified for the Executive Vice
Chairman and Chief Executive Officer.
Medium-long term variable incentive
Also in order to contribute to the business strategy, the pursuit of the Company’s long-term interests
and its sustainability, the General Manager and the KM benefit of the 2020-2022 Long Term
Incentive plan defined according to the same structure, mechanisms and objectives provided for the
Executive Vice Chairman and CEO.
In the event of performance at target, a three-year (LTI) incentive is recognised equal to:
-
-
180% of the GAS for the General Manager;
150% of the GAS for the KM.
In the event of “access threshold” performance, the bonus opportunity is equal to 135% of the GAS
for the General Manager and 112.5% of the GAS for the KM (75% of on-target bonus), whilst in the
event of maximum performance, it is equal to 480% of the GAS for the General Manager and 390%
of the GAS for the KM.
In the event of termination of the employment relationship for any reason before the end of the three-
year period, the General Manager and KM will no longer participate to the LTI plan and no award
nor pro-quota award will be paid.
6.
SENIOR MANAGERS AND EXECUTIVES
The remuneration of Senior Managers and Executives consists of the following elements:
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The remuneration structure for Senior Managers and Executives (as a whole) with evidence of the
incidence of the various parts of their compensation packages, in the event that they achieve the
annual STI (MBO) objectives and the three-year objectives of the 2020-2022 LTI Plan (i) at the
“access threshold”, (ii) on-target and (iii) at the maximum level are set out below.
Also, the analysis of the remuneration of the Executives and Senior Managers is carried out with the
support of an independent company specialised in executive compensation (Korn Ferry) with the
same methodology as described previously in regard to the General Manager and the KM.
In favour of the Head of the Internal Audit Department, it should be noted that, in line with best
practice, the Board of Directors, upon a proposal by the Audit, Risks, Sustainability and Corporate
Governance Committee, provided a higher incidence of base salary than the variable part. Moreover,
the Head of the Internal Audit Department (and in general the managers of that Department) is not
included in the LTI incentive plan, but is only a beneficiary of the annual STI (MBO) incentive plan
related to mainly qualitative objectives, the assessment of which falls to the Audit, Risks,
Sustainability and Corporate Governance Committee and to the Board of Directors, upon a proposal
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by the director responsible for supervising the functioning of the internal control system (or the
person with the same responsibilities).
With reference to the renounces to the fixed remuneration made by the Senior Managers belonging
to the leadership team in the context of the actions resolved by the Board of Directors on 3 April
2020 in response to Covid-19 health emergency, please refer to paragraph 2 above.
Annual variable incentive STI (MBO)
Senior Managers and Executives are beneficiaries of the STI (MBO) plan, defined according to the
same structure and the same mechanisms as for the Executive Vice Chairman and Chief Executive
Officer, the General Manager and the KM.
For 2020, the objectives originally assigned to the Senior Managers and were the following. In this
respect, please refer to paragraph 2 above related to the early closure of the 2020 STI (MBO) in the
context of the actions resolved by the Board of Directors on 3 April 2020 in response to Covid-19
health emergency.
According to the performance level achieved, the Senior Managers and Executives are beneficiaries
of:
a bonus ranging between 20% and 40% of the GAS, depending on the role held if the on-target
performance is achieved;
a bonus ranging between 15% and 30% of the GAS, depending on the role held if the “access-
threshold” performance is achieved (75% of the on-target bonus);
a bonus ranging between 40% and 80% of the GAS, depending on the role held if the maximum
performance is achieved (200% of the on-target bonus).
Also for Senior Managers and Executives, the 75% of the accrued bonus is paid, and the remaining
25% is deferred for 12 months and payable upon the achievement of the STI (MBO) objectives of
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the next year, paid according to the same parameters specified for the Executive Vice Chairman and
Chief Executive Officer, the General Manager and the KM.
Medium-long term variable incentive
Also in order to contribute to the business strategy, the pursuit of the Company’s long-term interests
and its sustainability, the Senior Managers and Executives benefit of the 2020-2022 Long Term
Incentive plan defined according to the same structure, mechanisms and objectives provided for the
Executive Vice Chairman and CEO, the General Manager and KM.
According to the performance level achieved, the Senior Managers and Executives are beneficiaries
of:
a three-year bonus ranging between 45% and 150% of the GAS, depending on the role held if
the on-target performance is achieved;
a three-year bonus ranging between 33.75% and 112.5% of the GAS, depending on the role
held if the “access-threshold” performance is achieved (75% of the on-target bonus);
a three-year bonus ranging between 120% and 390% of the GAS, depending on the role held if
the maximum performance is achieved.
In the event of termination of the employment relationship for any reason before the end of the three-
year period, the beneficiary will no longer participate to the LTI plan and no award nor pro-quota
award will be paid.
7.
“CLAWBACK” CLAUSES
The annual STI (MBO) and multi-year (LTI) incentive plans for Directors holding specific offices
granted with specific duties, General Managers and KM provide for inter alia clawback mechanisms.
In particular, without prejudice to the possibility of any other action provided by the law aimed to
protect the interests of the Company, the Company executes agreements with the aforementioned
persons that enable Pirelli to claim back (in whole or in part), within three years of the payment
thereof, incentives paid to the said persons who, due to wilful misconduct or gross negligence, are
liable for (or are accomplices to) the facts, as indicated below, related to economic and financial
indicators included in the Annual Financial Report that involve subsequent comparative information
adopted as parameters for the determination of the variable awards in the aforementioned incentive
plans:
(i) proven significant errors causing a non-compliance with the accounting standards applied by
Pirelli, or
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(ii) proven fraudulent conduct aimed at obtaining a specific representation of Pirelli’s financial and
equity situation, economic result or cash flow.
8.
INDEMNITIES IN THE EVENT OF RESIGNATION, DISMISSAL OR TERMINATION OF
EMPLOYMENT
It is policy of Pirelli Group not to enter into agreements with directors, General Managers, KM, Senior
Managers or Executives regulating ex ante the economic aspects related to any early termination of
relationship at the initiative of the Company or the single person (“parachutes”).
Pirelli aims to consensually conclude the agreements for the closing of the relationship. Without
prejudice to any legal and/or contractual obligations, agreements to end relationship with the Pirelli
Group are inspired by the benchmarks in the matter and are within the limits laid down in case law
and by the practices in the country in which the agreement was signed.
The Company sets its internal criteria, which the other Group companies also comply with, for the
handling of agreements for the early termination of relationship with executives and/or Directors
holding specific offices. If an executive director or General Manager should cease to hold office
and/or their employment be terminated, the Company will, upon completion of the internal processes
that lead to the attribution or award of indemnities and/or other benefits, provide detailed information
on the issue, by means of a press release disclosed to the market.
With regard to Directors holding specific offices granted with specific duties and who are not bound
by executive employment relationships, Pirelli does not pay compensation or extra bonuses in
relation to the end of their mandate. Specific compensation may be paid subject to assessment by
the competent corporate bodies, in the following cases:
-
-
termination by the Company not supported by just cause;
termination by the director for just cause, in case of, by way of example, substantial changes of
the role or granted duties and/or in case of a so-called “hostile” takeover bid.
In such cases, the indemnity amounts is equal to 2 years of gross annual salary, meaning the sum
of (i) the gross annual base salary due for the office held in the Group, (ii) the average of the annual
variable remuneration (STI (MBO)) accrued in the previous three years and (iii) T.F.M. on the
aforementioned amounts.
As concerns the General Manager and the KM, the agreements for the consensual termination of
the contract of employment are submitted to the Remuneration Committee, which assesses their
compliance with the Policy and authorises its negotiation by setting the maximum amounts that can
be paid.
The closure amounts are determined with reference to the applicable category national collective
bargaining agreements. In particular, as concerns the General Manager and the KM, reference is
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made to the contract for Industry managers in Italy and the incentive to take voluntary redundancy
is determined with reference to the number of months that can be considered by the notice and the
supplementary indemnity in the event of arbitration board, according to the years of seniority of
service in the employee’s Group. Below is an explanatory table:
No. months
Arbitration Panel
Years of seniority
Notice
Min
Max
more than 15 years 12
up to 15 years
10
up to 10 years
up to 6 years
up to 2 years
8
6
6
18
12
8
4
4
24
18
12
8
4
After examination, assessment and approval by the competent Committee, the following elements
may be also recognised to the General Manager and the KM:
- an additional amount by way of general and novative transaction, within the limits of the low
thresholds established for related party transactions;
- a period of paid leave or equivalent substitute indemnity, between the stipulation of the exit
agreement and the effective date of termination of employment.
Finally, a consultancy (or collaboration) agreement may be stipulated between the same subject and
a Group company, which is previously arranged in terms of duration after the termination of the
employment contract and subject, also in this case, to the assessment and approval of the competent
Committee.
9.
NON-COMPETITION AGREEMENTS AND RETENTION PLAN
The Group enters into non-competition agreements providing for a payment of a fee to General
Managers, KM and, Senior Managers and Executives with professionalism particularly critical,
referred to the GAS, in relation to the duration and extent of the constraints arising from the
agreement.
The constraints refer to the market sector in which the Group was operating when the agreement
was made and to territorial size. The extention of the constraints varies according to the position
held when the agreement is completed and, in some highly critical cases, as for General Managers
and KM, can be extended to a wider geographical area covering the main countries where the Group
operates.
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The Executive Vice Chairman and Chief Executive Officer is not subject to a non-competition
agreement.
In case of General Managers and KM, the non-competition agreement has the following
characteristics:
the list of competitors: companies operating in the tyre sector and, according to the role held,
identification of more specific clusters;
geography: all the main countries in which the Pirelli Group operates;
the duration of the non-competition agreement: 24 months starting from the termination of
employment contract;
the amount: 60% of the GAS for each year of the duration of the clause following a potential
redundancy, less any portion disbursed during the contract of employment, equal to 10% of the
GAS per year of clause validity (usually 5 years).
There is also a medium- long term Retention Plan for the General Manager, the KM and selected
Senior Managers/Executives, whose contribution in implementing the strategic plans is considered
particularly critical and significant.
For the General Manager, the KM and some selected Senior Managers/Executives, the Retention
Plan provides for the recognition of a maximum amount equal to 2.3 times the Total Direct
Compensation on-Target of each at the time of inclusion in the plan (2017). It is paid in four annual
instalments of increasing amounts to obtain the maximum retention effect, with the payment of the
final instalment planned for 2021. The payment of each instalment is subject to the continuation of
the employment of the manager at the Group on the date of each payment.
The Executive Vice Chairman and Chief Executive Officer do not participate to the Retention Plan.
10.
EXCEPTIONAL CIRCUMSTANCES THAT ALLOW FOR A DEROGATION TO THE POLICY
In exceptional circumstances, a temporary derogation can be made to the fixed or variable
remuneration criteria provided by the Policy. The term “exceptional circumstances” is used to mean
the situations in which the derogation from the Policy is required in order to pursue the Company’s
sustainability and long-term interests as a whole or to ensure it is able to stay on the market.
The Remuneration Committee assesses the existence of exceptional circumstances that allow for a
derogation to the Policy. In exceptional circumstances, derogations to the Policy are approved in
compliance with the procedures adopted by the Company for related party transactions, in
implementation of the applicable Consob regulation in force at the time.
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The Company provides for information about any derogations to the Policy applied in exceptional
circumstances, in accordance with the terms and conditions of applicable law and regulations in
force at the time.
11.
POLICY CHANGES SINCE THE LAST FINANCIAL YEAR
The Policy has been drafted on the basis of practical experience and takes into account the
regulatory requirements adopted by Consob, pursuant to Art. 123-ter of the TUF, as amended and
supplemented by Art. 3 of the Decree and Art. 84-quater of the Issuers’ Regulation, as well as on
the basis of Scheme 7-bis of Annex 3A to the Issuers’ Regulation, introduced by Consob with
resolution no. 18049 of 23 December 201164.
In respect to last year, the Policy takes into account the adoption of a new LTI plan for the three-
year period 2020-2022 in support of the new 2020-2022 Strategic Plan and the consequent early
closure of the LTI plan for the three-year period 2018-2020 (without any payment, not even on a pro-
quota basis, of the three-year bonus).
For over-achievement incentives, in the Policy, with respect to last year:
the percentages of STI (MBO) incentive have been changed with respect to KM, uniforming
them;
the percentages of LTI incentives have been changed, reducing those relating to on-target
performance and increasing, more than proportionally, those relating to maximum performance,
in order to incentive the over-achievement;
in the LTI Plan the values of the objectives disclosed to the market represent “access threshold”
performance, rather than on-target performance.
Additionally, the Policy, with respect to last year, takes into account the revised function of the
deferral mechanism of 25% of the STI (MBO) accrued.
Finally, the Policy acknowledges the actions adopted regarding the remuneration matters by the
Board of Directors on 3 April 2020 in response to Covid-19 health emergency.
64 See above, note 58.
306
Report on the remuneration policy and compensation paid Pirelli & C. S.p.A. – 2019 Annual Report
12.
OTHER INFORMATION
In accordance with Consob Resolution No. 18049 of 23 December 2011, it should be noted that:
-
in drawing up the 2020 Policy, the Company was assisted by:
a) Willis Towers Watson for the identification of the sample of benchmark companies used
to analyse competitiveness and to review the remuneration of the Executive Vice Chairman
and CEO, as well as to generally review the Policy;
b) Korn Ferry for the preparation of national and international benchmarks used to define the
remuneration structure of the Chairman, the General Manager, the KM, the Senior Managers
and the Executives.
- Pirelli has no shareholder incentive plans in place;
-
in defining the 2020 Policy, Pirelli has not used the specific remuneration policies of other
companies as a benchmark. The Policy has been drafted on the basis of scheme no. 7-bis
adopted by Consob and in force as at the date on which the Policy was approved. This scheme
establishes that the section of the Report provided for by Art. 123-ter with reference to members
of the administrative bodies, General Managers and KM, shall contain at least the information
set out in the scheme referred to above. A table with an indication of the information required
and the sections of the Report in which the said information is reported follows below:
Information required by scheme 7-bis
a) bodies or persons involved in the preparation and approval of
the Remuneration Policy, specifying their respective roles and
the bodies or persons responsible for the proper implementation
of the Policy.
b) any intervention of a Remuneration Committee or other
committee competent in the matter, setting out the membership
thereof
(with a distinction between non-executive and
independent directors), competencies and operating methods;
Sections in which – in particular – the information
required is reported
1. Parties
involved
in
the process of policy
definition and implementation
1. Parties
involved
in
the process of policy
definition and implementation
c) the names of any independent experts who have assisted in
the preparation of the Remuneration Policy;
12. Other information
d) the purposes of the Remuneration Policy, the principles on
which it is based and any changes to the policy on remuneration
from the previous financial year;
2. Purposes and Principles of
the 2020
Remuneration Policy
11. Policy changes since the previous financial year.
307
Pirelli & C. S.p.A. – 2019 Annual Report Report on the remuneration policy and compensation paid
e) a description of the policies on the fixed and variable parts of
remuneration, with a particular focus on indicating the relative
weighting in terms of overall salary and with a distinction between
short-term and medium-/long-term variable parts;
f) the policy followed in terms of non-monetary benefits;
g) with reference to the variable parts, a description of the
performance objectives according to which they are assigned,
with a distinction between short-term and medium-/long-term
variable parts, and information on the link between the variation
of the results and the variation of remuneration;
h) the criteria used for the assessment of the performance
objectives on which the assignment of shares, options, other
financial instruments or other variable parts of remuneration are
based;
i) information aimed at demonstrating the consistency of the
Remuneration Policy with the long-term pursuit of the interests of
the company and with the risk management policy, where
formalised;
The structure of the remuneration of the various
persons is set out in the sections in which an
indication is given of the various fixed/variable
weightings; short-term variable/medium-/long-term
variable
2. Purposes and Principles of
the 2020
Remuneration Policy
3. Remuneration of the Board of Directors and the
Board of Statutory Auditors
4. Remuneration of Directors holding specific
offices
5. General Manager and KM
6. Senior Managers and Executives
Sections for individuals
3. Remuneration of the Board of Directors and the
Board of Statutory Auditors
4. Remuneration of Directors holding specific
offices
5. General Manager and KM
6. Senior Managers and Executives
2. Purposes and Principles of
the 2020
Remuneration Policy
1. Parties
involved
in
the process of policy
definition and implementation
2. Purposes and Principles of
the 2020
Remuneration Policy
And for individuals
3. Remuneration of the Board of Directors and the
Board of Statutory Auditors
4. Remuneration of Directors holding specific
offices
5. General Manager and KM
6. Senior Managers and Executives
j) the terms of rights accrual (“vesting period”), any deferred
payment systems, with an indication of the deferral period and
the criteria used to determine these periods, and, where
applicable, the retrospective correction mechanisms;
Pirelli has no shareholder incentive plans in place.
With regard to the deferral mechanisms for the
variable monetary parts, see Section:
2. Purposes and Principles of
the 2020
k) information on any provision of clauses for the maintenance in
the portfolio of financial instruments after the purchase thereof,
with an indication of the maintenance periods and the criteria
used to determine these periods;
Remuneration Policy
Pirelli has no shareholder incentive plans in place
308
Report on the remuneration policy and compensation paid Pirelli & C. S.p.A. – 2019 Annual Report
l) the policy on payments to be made in the event of severance
of employment or termination of the working relationship,
specifying which circumstances determine the occurrence of the
right and any link between these payments and company
performance;
8.
Indemnities in the event of resignation, dismissal
or termination of employment
9. Non-competition agreements and Retention
Plan
m) information on whether there is any insurance coverage,
whether for social security or pensions, other than the obligatory
coverage;
Sections for individuals
3. Remuneration of the Board of Directors and the
Board of Statutory Auditors
n) any remuneration policy followed with reference to: (i)
independent Directors; (ii) committee attendance; and (iii) the
performance of specific tasks (Chairman, Vice Chairman, etc.);
4. Remuneration of Directors holding specific
offices
5. General Manager and KM
6. Senior Managers and Executives
3. Remuneration of the Board of Directors and the
Board of Statutory Auditors
o) whether the remuneration policy has been defined using the
remuneration policies of other companies as a benchmark, and if
so, the criteria used to select these companies
12. Other information
309
Pirelli & C. S.p.A. – 2019 Annual Report Report on the remuneration policy and compensation paid
REPORT ON COMPENSATION PAID DURING THE YEAR 2019
1. REPRESENTATION OF REMUNERATION ITEMS
The Report on Compensation Paid during the 2019 financial year (“2019 Compensation Report”)
sets out the Policy implemented by Pirelli Group during 2019 with regard to remuneration and
provides for information on the final remuneration of the various categories of persons involved,
without prejudice to the transparency obligations contained in other applicable legal or regulatory
provisions, highlighting its coherence with the remuneration policy approved last year (“2019
Policy”).
The external auditor verifies that the directors have prepared the Report on Compensation Paid. The
Shareholders’ Meeting resolves on the Report on Compensation Paid, with a consultative vote.
1.1 TOTAL REMUNERATION
Management remuneration paid in 2019 contributed to the Company’s long-term results, thanks to
the variable components (both short and medium/long-term) represented by the STI (MBO) plan and
the deferral mechanism of part of the STI (MBO) incentive accrued.
With reference to these variable components of remuneration, the table below summarises the
performance objectives for 2019 and the resulting incentive value accrued.
Executive Vice President and Chief Executive Officer, General Manager and Executives with strategic responsibilities
Objectives
On off (NFP)/
Entry level objective
Target objective
Max. objective
Weight
Result
% incentive
Group NFP (w/o IFRS16)
euro 3,077.7 million
on/off condition
euro 3,024.1 million
ON
Group adjusted EBIT
euro 975.1 million
euro 1,050 million
euro 1,098.5 million
Group EBT*
euro 621.1 million
euro 707.4 million
euro 767.3 million
Group NFP (w/o IFRS16)
euro 3,077.7 million
euro 2,960.1 million
euro 2,868.9 million
Green Performance Revenues on total portfolio
50%
52%
55%
30%
20%
40%
10%
euro 917.3 million
Not achieved
euro 437.1 million
Not achieved
euro 3,024.1 million
34.56% of bonus at on-target performance
55,8%
20% of bonus at on-target performance
* In implementation of and in line with the STI 2019 Regulation, the Group EBT result has been rectified, in respect of the value of euro 646.3 million, to take into account the positive effect (for euro 209.2 million)
deriving from the non business-related Brazilian PIS/COFINS assets, of which 71.0 million were also rectified in adjusted EBIT
Total
54.56% of bonus at on-target performance
310
Report on the remuneration policy and compensation paid Pirelli & C. S.p.A. – 2019 Annual Report
Role
2019 STI (MBO) plan structure
Performance score
Executive Vice Chairman and
CEO
Access threshold: 75% of the incentive at target
-
At target: 125% of fixed remuneration
-
- Cap: 200% of the incentive at target
General Manager Operations
Access threshold: 75% of the incentive at target
At target: 75% of the GAS (gross annual salary)
-
-
- Cap: 200% of the incentive at target
54.56
54.56
KM
Access threshold: 75% of the incentive at target
At target: from 50% to 75% of the GAS (gross annual salary)
-
-
- Cap: 200% of the incentive at target
54.56
In line with the variable incentive structure described in 2019 Policy, only 75% of the accrued 2019
STI (MBO) incentive is paid, while the payment of the remaining 25% is deferred for 12 months and
is subject to the achievement of the STI (MBO) objectives for 2020, as defined in 2020 Policy.
During the meeting held on 3 April 2020, following the favourable opinion, as far as necessary, by
the board committees and the Board of Statutory Auditors, the Board of Directors resolved – subject
to the approval of the 2020 Policy and the consultative vote of the Compensation Report to the
Shareholders’ Meeting - to early cancel without any disbursement the 2020 STI (MBO) and,
consequently (i) to liquidate, in the first quarter of 2021, to the 2019 STI (MBO) beneficiaries the 25%
of the 2019 STI (MBO) premium accrued and initially subject to the the achievement of the 2020 STI
(MBO) objectives, conditioning the payment to the maintenance of the employment/director
relationship between the beneficiary and the Company on such date (except for the “good leavers”
who will receive this component in any case), and (ii) to cancel the opportunity to increase the 2020
STI (MBO).
For completeness, it is pointed out that, in the context of the actions in response to the Covid-19
health emergency, the Board of Directors on 3 April 2020 acknowledged and shared the willingness
of the entire members of the board of directors to renounce part of their compensation and, in
particular (i) the willingness of Vice Chairman and CEO to renounce, for three months, the 50% of
his gross fixed annual compensation for the positions of Vice Chairman, CEO and board member,
as well as for the position of Chairman of the board committees; (ii) the willingness of the members
of the board to renounce, for the second quarter of the financial year, to the 50% of the compensation
for the positions of board member and member of the board committees.
During the same meeting, the Board of Directors acknowledged the willingness of the leadership
team (composed of KM and some Senior Managers, as better defined above) to renounce the 20%
of their gross fixed annual compensation for a period of three months.
It is reminded that the 2019 STI (MBO) has been achieved and, therefore, 25% of the 2018 STI
(MBO) will be paid in accordance with its regulation.
311
Pirelli & C. S.p.A. – 2019 Annual Report Report on the remuneration policy and compensation paid
1.2 COMPENSATION IN THE EVENT OF TERMINATION OF OFFICE AND/OR TERMINATION
OF EMPLOYMENT RELATIONSHIP DURING THE 2019 FINANCIAL YEAR
It is pointed out that during the year 2019, and precisely on 16 December 2019, the Company and a
KM, in accordance with 2019 Policy, executed an agreement for the consensual termination of the
employment relationship, which provided the recognition of a paid leave with dispensation from work
until 31 March 2020.
For completeness, it is also pointed out that during the year, due to a change in the role and related
responsibilities, the Board of Directors assessed that a KM could no longer be qualified as such
without this implied the recognition of any indemnity in favour of such manager.
1.3 DEROGATION TO THE 2019 POLICY
It is pointed out that there were no cases of derogation to the 2019 Policy for directors (including
Directors holding no specific offices), the General Manager, KM and members of the Board of
Statutory Auditors.
1.4 “CLAWBACK” CLAUSES
It is pointed out that the conditions for the application of ex-post return mechanisms of the variable
component (claw back clause), provided by the annual STI (MBO) and multi-year (LTI) incentive
plans, did not occur during the year.
2. THE “TABLE”: REMUNERATION PAID TO MEMBERS OF THE ADMINISTRATIVE AND
CONTROLLING BODIES, GENERAL MANAGERS AND KM.
The following tables set out:
- by name, the remuneration paid to directors, Statutory Auditors and the General Manager
Operations;
312
Report on the remuneration policy and compensation paid Pirelli & C. S.p.A. – 2019 Annual Report
-
in aggregate form, the remuneration paid to the KM65. On 31 December 2019, in addition to the
General Manager Operations (Andrea Casaluci), no. 6 persons were identified as KM.
Remuneration is reported on an accrual 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).
The tables include all those persons who held the aforementioned offices during all or even only part
of the 2019 year. Non-monetary benefits, where received, are also identified on an accrual 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 2019, were directors of the Company, accrued/received (on an accrual
basis) remuneration established in accordance with the criteria set out in section 3 of the 2019
Policy;
the persons who, during 2019, were Directors holding specific offices (Executive Vice Chairman
and Chief Executive Officer and Chairman), accrued/received (on an accruals basis)
remuneration established in accordance with the criteria set out in section 4 of the 2019 Policy;
the General Manager Operations accrued/perceived (on an accrual basis) a compensation
established according to the criteria set out in section 5 of the 2019 Policy;
- KM received/accrued remuneration pertaining to the 2019 year in accordance with the criteria
set out in section 5 of the 2019 Policy;
- each member of the Board of Statutory Auditors received/accrued remuneration for the 2019
financial year in line with the resolutions adopted by the Shareholders’ Meeting at the time of
their appointment, in accordance with the criteria set out in section 3 of the 2019 Policy;
- each member of the Supervisory Body received/accrued remuneration pertaining to 2019 year,
equal to an annual gross remuneration of euro 40,000 and the Chairman received/accrued an
annual gross remuneration of euro 60,000, according to the criteria set out in section 3 of the
2019 Policy;
65 Letter b) of Section II of Schedule 7-bis of Annex 3 A of the so-called “Issuers’ Regulations” provides that the so-called Report on
Compensation paid is structured into two parts:
a) the remuneration of members of the administrative and controlling bodies and the General Managers;
b) the remuneration of any other key managers who have received, in the reporting year, an overall remuneration (obtained by adding
their salary and any remuneration based on financial instruments) that exceeded the highest overall remuneration attributed to the
persons indicated under point a).
For key managers other than those indicated under point b) information are provided at aggregate level in special tables, indicating
the number of persons to whom it refers in place of names”.
313
Pirelli & C. S.p.A. – 2019 Annual Report Report on the remuneration policy and compensation paid
- Senior Managers and Executives received/accrued remunerations for 2019 year in accordance
with the criteria set out in section 6 of the 2019 Policy.
It is highlighted that for the General Manager Operations, the KM and, more generally, for selected
Senior Managers and Executives, Pirelli introduced the non-competition agreements aimed to
protect strategic and operational know-how. The Executive Vice Chairman and CEO does not have
a non-competition agreement.
314
Report on the remuneration policy and compensation paid Pirelli & C. S.p.A. – 2019 Annual Report
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Pirelli & C. S.p.A. – 2019 Annual Report Report on the remuneration policy and compensation paid
3. MONETARY INCENTIVE PLANS FOR MEMBERS OF THE BOARD OF DIRECTORS,
GENERAL MANAGERS AND KM
For a description of the monetary incentive plans, see the Remuneration Policy.
Pirelli’s variable incentive scheme prescribes that payment of 25% of any STI (MBO) accrued be deferred for 12 months and
subject to achievement of the STI (MBO) objectives for the next year. The aforementioned deferral/increase mechanism has
been amended by the Remuneration Policy for FY 2020. The figures given in the table below reflect the mechanism in place
until 2019, described in detail in the Remuneration Policy for FY 2019.
During the meeting held on 3 April 2020, following the favourable opinion, as far as necessary, by the board committees and
the Board of Statutory Auditors, the Board of Directors resolved – subject to the approval of the 2020 Policy and the
consultative vote of the Compensation Report to the Shareholders’ Meeting - to early cancel without any disbursement the
2020 STI (MBO) and, consequently (i) to liquidate, in the first quarter of 2021, to the 2019 STI (MBO) beneficiaries the 25% of
the 2019 STI (MBO) premium accrued and initially subject to the the achievement of the 2020 STI (MBO) objectives,
conditioning the payment to the maintenance of the employment/director relationship between the beneficiary and the
Company on such date (except for the “good leavers” who will receive this component in any case), and (ii) to cancel the
opportunity to increase the 2020 STI (MBO).
First and
last name
Office
Plan
Bonus for the year
Payable/
Paid out
Deferred
Deferment
period
Marco
Tronchetti
Provera
Executive
Vice
Chairman
and CEO
Giovanni
Tronchetti
Provera
Director
(1)
Andrea
Casaluci
General
Manager
Operations
Key Managers
(2)
(I) Remuneration in the
Company that has prepared
the financial statements
(II) Remuneration from
Subsidiary and Affiliated
Companies
1.227.551,00 409.184,00
-
13.840,00
4.613,00
-
-
230.166,00
76.722,00
-
-
884.294,00
294.765,00
-
-
1.631.064,00 543.688,00
-
-
724.787,00
241.596,00
-
MBO
2019
LTI
Plan
2018-
2020
MBO
2019
LTI
Plan
2018-
2020
MBO
2019
LTI
Plan
2018-
2020
MBO
2019
LTI
Plan
2018-
2020
MBO
2019
LTI
Plan
2018-
2020
MBO
2019
LTI
Plan
2018-
2020
-
-
-
-
-
-
-
-
-
-
Bonus for the previous years
Payable
Still
deferred
No
longer
payable
/Paid out
468.570,00
-
3.760,00
-
79.071,00
-
337.439,00
-
614.292,00
-
274.548,00
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Other
bonuses
0,00
0,00
0,00
0,00
275.000,00
0,00
3.687.500,00
0,00
1.650.000,00
-
2.312.500,00
-
3.962.500,00
(1) Giovanni Tronchetti Provera is included in the STI (MBO) and LTI variable incentive plans as a senior manager of Pirelli Tyre S.p.A.
2.355.851,00 785.284,00
888.840,00
(III) Total
-
-
-
(2) At 31.12. 2019 no. 6 persons were key managers. The table shows also the variable remuneration STI (MBO) of no. 2 key managers
holding this role only for a part of the year. It is pointed out that the variable remuneration STI (MBO) paid to General Manager Andrea
Casaluci is not included in this item, as he is indicated separately in the table.
320
Report on the remuneration policy and compensation paid Pirelli & C. S.p.A. – 2019 Annual Report
4. TABLE OF EQUITY INVESTMENTS OF THE MEMBERS OF THE ADMINISTRATIVE AND
CONTROL BODIES, GENERAL MANAGERS AND KM.
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;
- KM.
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 key managers, 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 KM, 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
31.12.2018
No. of shares
purchased/
underwritten
No. of
shares
sold
No. of shares
owned at
31.12.2019
Marco Tronchetti Provera* Director Pirelli & C.
100.522.562
436.837
Giorgio Luca Bruno
Director Pirelli & C.
500***
-
-
-
100.959.399**
500***
* Shares held by the indirect subsidiary Camfin S.p.A.
** Please note that in FY 2019 Camfin S.p.A. took out financial instruments with major financial institutions with maturity in September
2022 called “Call Spread” with an underlying 48.9 million Pirelli & C. S.p.A. shares, equal to 4.89% of the relative share capital.
*** Shares purchased when the Company was listed on 4 October 2017.
321
Pirelli & C. S.p.A. – 2019 Annual Report Report on the remuneration policy and compensation paid
2) Equity investments of other KM
Number of Key
Managers
Investee
company
No. of shares
owned at
31.12.2018
No. of shares
purchased/
underwritten
No. of
shares
sold
No. of shares
owned at
31.12.2019
-
-
-
-
-
-
322
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2019
323
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in thousands of euro)
Note
12/31/2019
12/31/2018
of which
related
parties
(note 44)
5,617
9,823
45,154
17,386
2,267
171,909
4,840
3,649,809
5,680,175
80,846
58,967
81,188
342,397
9,140
52,515
9,955,037
1,093,754
649,394
451,858
38,119
1,609,821
41,494
37,148
3,921,588
-
13,876,625
4,724,449
1,904,375
2,381,940
438,134
102,182
82,619
19,563
4,826,631
3,949,836
90,571
120,469
1,058,760
203,003
12,555
10,327
5,445,521
1,419,403
1,611,488
402,757
43,528
4,104
81,766
41,427
3,604,473
13,876,625
of which
related
parties
(note 44)
12,576
15,667
55,418
-
-
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
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
1,604,677
191,605
436,752
7,436
33,876
5,475
65,503
59,602
3,006,030
13,031,697
Property, plant and equipment
Intangible assets
Investments in associates and j.v.
Other financial assets at fair value through other comprehensive income
Deferred tax assets
Other receivables
Tax receivables
Derivative financial instruments
Non-current assets
Inventories
Trade receivables
Other receivables
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
Equity attributable to the owners of the Parent Company:
Share capital
Reserves
Net income / (loss)
Equity attributable to non-controlling interests:
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
9
10
11
12
13
15
16
27
17
14
15
18
19
16
27
39
20.1
20.2
20
23
25
21
13
22
26
27
23
24
25
21
22
26
27
324
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
CONSOLIDATED INCOME STATEMENT (in thousands of euro)
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
- of which non-recurring events
Amortisation, depreciation and impairment
Other costs
- of which non-recurring events
Net impairment loss on financial assets
Increase in fixed assets for internal works
Operating income / (loss)
Net income (loss) from equity investments
- share of net income (loss) of associates and j.v.
- gains on equity investments
- losses on equity investments
- dividends
Financial income
Financial expenses
- of which non-recurring events
Net income / (loss) before tax
Taxes
- of which non-recurring events
Net income / (loss) from continuing operations
Net income / (loss) from discontinued operations
Total net income / (loss)
Attributable to:
Owners of the Parent Company
Non-controlling interests
Total earnings / (loss) per share (in euro per share)
Earnings / (loss) per share related to continuing operations (in euro per share)
Earnings / (loss) per share related to discontinued operations (in euro per share)
Note
2019
2018
of which
related parties
(note 44)
of which
related parties
(note 44)
29
30
31
32
33
34
35
36
37
38
39
40
19,305
74,783
(4,096)
(14,498)
(278,155)
-
(9,678)
1,160
(1,049)
-
5,323,054
486,307
5,584
(1,741,249)
(1,072,167)
-
(527,818)
(1,713,404)
-
(22,266)
4,703
742,744
(11,006)
(9,678)
1,684
(8,538)
5,526
128,761
(238,240)
-
622,259
(164,562)
-
457,697
-
457,697
438,134
19,563
0.438
0.438
-
5,194,471
483,205
201,416
(1,818,199)
(1,067,579)
(15,410)
(414,523)
(1,858,162)
(7,798)
(21,273)
3,700
703,056
(4,980)
(11,560)
4,007
(1,603)
4,176
58,862
(255,173)
(2,149)
501,765
(52,964)
60,607
448,801
(6,429)
442,372
431,606
10,766
0.432
0.438
(0.006)
8,962
108,536
(12,704)
(14,133)
(290,380)
(9,000)
(11,560)
3,120
(25)
(10,642)
325
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in thousands of euro)
Note
2019
2018
A
Total Net income / (loss)
457,697 442,372
Other components of comprehensive income:
B - Items that may not be reclassified to income statement:
- Remeasurement of employee benefits
- Tax effect
- Fair value adjustment of other financial assets at fair value through other
comprehensive income
Total B
22 (13,100) 28,727
(1,365) (6,986)
12 (366) (8,642)
13,099
(14,831)
C - Items reclassified / that may be reclassified to income statement:
Exchange differences from translation of foreign financial statements
- Gains / (losses) for the period
- (Gains) / losses reclassified to income statement
20 (3,247) (78,150)
35 (1,567) -
Fair value adjustment of derivatives designated as cash flow hedges:
- Gains / (losses) for the period
- (Gains) / losses reclassified to income statement
- Tax effect
27 73,439 107,496
27 (79,060) (118,747)
1,989 548
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 j.v. net of tax
Total C
27 2,828 20,056
27 (7,189) (6,798)
546 (1,446)
11 (1,176) (3,221)
(13,437) (80,262)
D
Total other comprehensive income (B+C)
(28,268) (67,163)
A+D
Total comprehensive income / (loss) for the financial year
429,429 375,209
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
405,610
23,819
363,500
11,709
405,610
-
405,610
369,929
(6,429)
363,500
326
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AT 12/31/2019
(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
Total
Non-
controlling
interests
Total at 12/31/2018
1,904,375
(303,557)
(66,714)
2,934,017
4,468,121
82,806
4,550,927
Other components of comprehensive income
Net income / (loss)
Total comprehensive income / (loss)
Dividends approved
Transactions with non-controlling interests
Effects of High inflation accounting in Argentina
Other
Total at 12/31/2019
(in thousands of euro)
-
-
-
-
-
-
-
(10,248)
(22,276)
-
-
(10,248)
(22,276)
-
-
-
-
-
-
-
(434)
-
438,134
438,134
(177,000)
-
27,514
638
(32,524)
438,134
405,610
(177,000)
-
27,514
204
4,256
19,563
23,819
(28,268)
457,697
429,429
(8,969)
(185,969)
4,200
-
326
4,200
27,514
530
1,904,375
(313,805)
(89,424)
3,223,303
4,724,449
102,182
4,826,631
Breakdown of IAS reserves *
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
Remeasurement
of employee
benefits
Tax effect
Total IAS
reserves
Total at 12/31/2018
Other components of comprehensive income
Other changes
Total at 12/31/2019
107
(366)
31
(228)
14,258
(4,360)
-
(25,705)
(5,621)
-
(30,381)
(24,993)
(13,100)
1,171
(465)
-
(66,714)
(22,276)
(434)
9,898
(31,326)
(43,946)
(23,822)
(89,424)
327
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AT 12/31/2018
(In thousands of euro)
Attributable to the Parent Company
Total
Share Capital
Translation
reserve
Total IAS
Reserves *
Other
reserves/
retained
earnings
Total attributable
to the Parent
Company
Non-
controlling
interests
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)
Dividends paid
Transactions with non-controlling interests
Effects of High inflation accountig Argentina
Other
Total at 12/31/2018
-
-
-
-
-
-
-
(82,314)
14,208
-
-
-
(82,314)
14,208
-
(619)
-
-
-
-
-
(103)
431,606
431,606
-
(35,726)
26,242
(908)
(68,106)
431,606
363,500
-
(36,345)
26,242
(1,011)
943
(67,163)
10,766
11,709
(8,366)
19,033
-
179
442,372
375,209
(8,366)
(17,312)
26,242
(832)
1,904,375
(303,557)
(66,714)
2,934,017
4,468,121
82,806
4,550,927
(In thousands of euro)
Breakdown of IAS reserves *
Reserve for cost of
hedging
Reserve for
cash flow
hedge
Remeasurement
of employee
benefits
Tax effect
Total 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
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)
-
-
-
-
-
8,856
8,856
(8,642)
(107)
107
-
1,000
1,000
13,258
-
(13,454)
(1,000)
(14,454)
(11,251)
-
(59,110)
(17,111)
-
-
(70,265)
(10,554)
(59,110)
(17,111)
(80,819)
28,727
(7,884)
14,208
2
2
(103)
14,258
(25,705)
(30,381)
(24,993)
(66,714)
328
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands of euro)
Note
2019
of which related
parties (note 44)
32
37
36
35
35
35
17
14
24
9
10
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
Reversal of accruals and other
Taxes paid
Change in Inventories
Change in Trade receivables
Change in Trade payables
Change in Other receivables / Other payables
Uses of Provisions for employee benefit obligations and Other provisions
A Net cash flow provided by / (used in) operating activities
Investments in property, plant and equipment
Change in payables for investments in property, plant and equipment
Disposal of property, plant and equipment/intangible assets
Investments in intangible assets
Disposals (Acquisition) of investments in subsidiaries
Acquisition of non-controlling interests
Dividends/reserves received from associates
Disposals (Acquisition) of investments in associates and j.v.
Quota reimbursment of other non-current financial assets at fair value through other
Comprehensive Income
Purchase of Caçula controlled distribution network in Brasil
Disposals (Acquisition) of other non current financial assets at fair value through
income statement
Dividends received
B Net cash flow provided by / (used in) investing activities
Other changes
Change in Financial payables
Change in Financial receivables / Other current financial assets at fair value through
income statement
Financial income / (expenses)
Dividends paid
Repayment of principal and payment of interest for lease obligations
C Net cash flow provided by / (used in) financing activities
D Net cash flow provided by / (used in) discontinued operations
E Total cash flow provided / (used) during the period (A+B+C+D)
F Cash and cash equivalents at the beginning of the financial year
G Exchange rate differences from translation of cash and cash equivalents
H Cash and cash equivalents at the end of the period (E+F+G) (°)
(°)
of which:
cash and cash equivalents
bank overdrafts
19
622,259
527,818
238,240
(128,761)
(5,526)
6,854
9,678
37,509
(141,985)
28,300
(44,637)
18,815
(79,606)
(66,255)
1,022,703
(369,699)
3,764
7,662
(20,812)
10,700
-
-
(8,925)
9,430
-
-
5,526
(362,354)
83,116
(55,135)
(85,537)
(185,768)
(101,157)
(344,481)
-
315,868
1,303,852
(19,092)
1,600,628
1,609,822
(9,194)
5,844
(19,695)
28,048
(8,925)
(13,420)
(1,921)
2018
501,765
414,523
255,173
(58,862)
(4,176)
(2,404)
11,560
(12,915)
(119,042)
(199,919)
(23,388)
104,663
(151,425)
(57,227)
658,326
(451,801)
(6,291)
16,223
(11,640)
-
(49,722)
2,674
(65,222)
-
(1,393)
152,808
4,176
(410,188)
4,500
168,952
(31,761)
(168,406)
(8,366)
-
(35,081)
37,101
250,158
1,109,640
(55,946)
1,303,852
1,326,900
(23,048)
of which related
parties (note 44)
47,064
(6,350)
(29,341)
(31,230)
2,674
(65,222)
43,530
329
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
EXPLANATORY NOTES
1.
GENERAL INFORMATION
Pirelli & C. S.p.A. is a corporation organised under the laws of the Republic of Italy.
Founded in 1872, 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 Viale Piero e Alberto Pirelli
n. 25.
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 pursuant to the resolution of the
Shareholders’ Meeting of August 1, 2017 which conferred the mandate to the aforesaid company for
each of the nine financial years with closings from December 31, 2017 to December 31, 2025.
Pirelli & C. S.p.A. is directly controlled by Marco Polo International Italy S.r.l. which in turn is indirectly
controlled by the 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.
As of the starting date of trading on the Stock Exchange (October 4, 2017), there are no subjects
that exercise management and coordination activities on the Company.
On March 2, 2020 the Board of Directors authorised the publication of these Consolidated Financial
Statements.
2.
BASIS OF PRESENTATION
Financial Statements
The Consolidated Financial Statements at December 31, 2019 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 Flow 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.
330
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
The Group has opted to present the components of gains/losses for the financial year in a separate
Income Statement, rather
the Statement of
Comprehensive Income. The Income Statement format adopted provides for the classification of
costs by nature.
these components directly
include
than
in
The Statement of Comprehensive Income includes the results for the financial year, and for
homogeneous categories, income and expenses that 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 includes, in addition to the total comprehensive income of the
period, the amounts from transactions with equity holders and the changes which occurred during
the period in 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 are 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 activity.
Scope of Consolidation
The scope of consolidation includes the subsidiaries, associates and joint arrangements.
Subsidiaries are defined as all the companies over which the Group, contemporarily holds:
-
-
-
the power of decision making, or the capacity to direct the relevant activities, 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 utilise its decision-making power to determine the amounts of 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 when control ceases to exist. The share of equity,
and the share of the results, attributable to non-controlling interests are separately reported
respectively in the Consolidated Statement of Financial Position, the Consolidated Income
Statement, and the Consolidated Statement of Comprehensive Income.
331
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
All companies for which the Group can exercise significant influence as defined by IAS 28 –
Investments in Associates and Joint Ventures, are considered associates. This influence is legally
presumed to exist when the Group holds a percentage of voting rights of between 20% and 50%, or
when - even in the case of a lower share of voting rights – it has the power to participate in
determining financial and operating policies by virtue of specific legal relationships, such as, for
example, the 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 activity, established by agreement which exists only
when decisions relative to the activity require the unanimous consent of all parties who share control.
These agreements may give rise to joint ventures or joint operations.
A joint venture is an agreement for the joint control of an entity whereby the parties that have joint
control, have rights to the net assets of the said entity. Joint ventures are distinguished from joint
operations which instead are configured as agreements which give the parties of the agreement,
which have joint control of the initiative, the rights to the individual assets and the obligations of the
individual liabilities relative 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 February 13, 2019 of a 100% stake in the company the Atom Research Training
Centre for New Technologies and Materials;
- acquisition on July 23, 2019 of a 66.20% stake in the company Neumaticos Arco Iris, S.A. -
Sociedad Unipersonal;
- disposal on December 2, 2019 of a 100% stake in the company Inter Wheel Sweden
Aktiebolag.
332
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Information on Subsidiaries
The Consolidated Financial Statements include the assets and liabilities of 92 legal entities. The
following is a list of the significant subsidiaries:
Headquarter
12/31/2019
12/31/2018
Pirelli Tyre Co. Ltd
Pirelli Deutschland GmbH
Pirelli Tyre S.p.A.
Pirelli Industrie Pneumatici S.r.l.
Pirelli International Treasury S.p.A.
Pirelli Neumaticos S.A. de C.V.
Pirelli International plc
Pirelli Pneus Ltda
Pirelli Comercial de Pneus Brasil Ltda
Pirelli UK Tyres Ltd
Pirelli Tire LLC
S.C. Pirelli Tyres Romania S.r.l
Limited Liability Company Pirelli Tyre Russia
Yanzhou (China)
Breuberg/Odenwald (Germany)
Milano (Italy)
Settimo Torinese (Italy)
Milano (Italy)
Silao (Mexico)
Burton on Trent (United Kingdom)
Santo Andrè (Brazil)
Sao Paulo (Brazil)
Burton on Trent (United Kingdom)
Rome (USA)
Slatina (Romania)
Moscow (Russia)
% non-
controlling
interests
10.00%
35.00%
% group
90.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
65.00%
% non-
controlling
interests
10.00%
35.00%
% group
90.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
65.00%
The complete list of subsidiaries is contained in the attachment “Scope of Consolidation - list of
companies included in Consolidation using the line-by-line method”.
Non-controlling interests in the subsidiaries of the Group are not relevant, either individually or in
aggregate form.
Consolidation Principles
For consolidation purposes, the Financial Statements of the companies included in the scope of
consolidation, prepared at the reporting date of the Financial Statements of the Parent Company,
have been appropriately adjusted to render them consistent with 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 are
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 is reversed to the Income Statement at the time of the
disposal of the company which generated the reserve.
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Consolidated Financial Statements
The criteria for consolidation can be summarised as follows:
subsidiaries are consolidated using the line-by-line method according to which:
-
-
-
the assets and liabilities, costs and revenues of the Financial Statements of subsidiaries are
assumed in their entirety, regardless of the size of the investment held;
the carrying amount of investments is de-recognised against the relative equity shares;
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 represented in the appropriate items under equity, and similarly,
the share of gains or losses 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 gains or losses arising from the disposal, any goodwill that can be allocated to the
subsidiary is taken into account;
-
in the case of an investment share acquired after the assumption of control, any difference
between the purchase cost and the corresponding portion 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 evaluated using the equity method, on the basis
of which, the carrying amount of the investments is adjusted by:
-
-
the investor’s pertinent share of the financial results of the subsidiary realised after the
acquisition date;
the pertinent share of gains and losses recognised directly in the equity of the subsidiary, in
accordance with the applicable standards;
- dividends paid by the subsidiary;
- when the Group’s pertinent 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 is contractually or implicitly
obligated 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.
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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, 2019, 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, 2019, 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 Consolidated 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;
- other financial assets at fair value through other Comprehensive Income;
- other financial assets at fair value through the Income Statement.
Business Combinations
Corporate acquisitions are accounted for using 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 paid 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 of the net assets of the acquired company;
-
the fair value of the assets acquired and the liabilities assumed.
In cases where the aforesaid difference is negative, the difference is immediately recognised in the
Income Statement under income.
In the case of the acquisition of the control of a company in which a non-controlling interest is already
held (step acquisition), the previously held investment is measured at fair value, and the effects of
this adjustment are recognised the Income Statement.
The costs of business combination operations are recognised in the Income Statement.
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Contingent considerations, that is, the obligations of the acquiring company to transfer additional
assets or shares to the seller in cases certain future events occur or specific conditions are fulfilled,
are recognised at fair value at the date of acquisition as part of the amount transferred in exchange
for the acquisition itself. Any subsequent changes in the fair value of these agreements are normally
recognised in the Income Statement.
Intangible Assets
Intangible assets with finite useful lives are valuated at cost, net of any accumulated amortisation
and impairment.
Amortisation is calculated on a straight-line basis and begins when the asset becomes available for
use or capable of operating in the manner intended by 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 deriving 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 subject to evaluation, aimed at identifying any impairment losses, at least
annually or whenever there are indicators of impairment. For the purposes of this verification,
goodwill is allocated to the cash generating units (CGUs), or groups of units, in compliance with the
maximum aggregation, which cannot exceed the restriction set for that sector of activity 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 whichever period is shorter between the duration of the
contract or the useful life of the asset. The trademarks for which the conditions for classification as
intangible assets with an indefinite useful life have been met, are not systematically amortised, and
are subjected to an impairment test at least once a year.
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Software
Software license costs, including incidental expenses, are capitalised and recognised in the
Statement of Financial Position 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 Statement of Financial Position 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, and process technology, as well as
product development technology identified during the Purchase Price Allocation. Technology is
recognised in the Statement of Financial Position 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 cost or production cost, including
any directly attributable incidental expenses.
Any costs incurred subsequent to the acquisition of the assets, plus the cost of replacing any parts
or portions of the assets of this category, are capitalised only if they increase the future economic
benefits inherent to the actual 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, except
for land which is not depreciated but which is recognised at cost net of any accumulated impairment.
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Consolidated Financial Statements
Depreciation is accounted for starting from the month in which the asset is available for use, or is
potentially capable of providing the economic 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.
Depreciation rates were as follows:
Buildings
Plant
Machinery
Equipment
Furniture
Motor vehicles
3% - 10%
7%-20%
5%-20%
10%-33%
10%-33%
10%-25%
Of note, is that that during the 2016 financial year a Purchase Price Allocation was completed,
following the acquisition of the Pirelli Group by Marco Polo Industrial Holding S.p.A, which resulted
in the detection of a 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 the acquisition of control by Marco Polo Industrial Holding S.p.A., on the basis of their new
remaining useful lives determined at the time of the evaluation.
Government capital grants relative to 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.
Leasehold improvements are classified as property, plant and equipment, consistent with the nature
of the cost incurred. The depreciation period corresponds to whichever is shorter between the
remaining useful life of the asset, or the residual term of the lease agreement.
Replacement parts of significant value are capitalised and depreciated for the duration of the
estimated useful life of their respective assets.
Any decommissioning costs are estimated and added to the cost of the property, plant and
equipment, as a counter entry to the provision for liabilities and charges, if the requirements for
setting up a provision for liabilities and charges are met. They are then depreciated for the duration
of the remaining useful life of the respective asset.
Property, plant and equipment are derecognised from the Statement of Financial Position at the time
of disposal or their permanent retirement from use and, as a consequence, no future economic
benefits can be expected to be derived from their disposal or use.
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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.
Leasing contracts (IAS 17 until December 31, 2018)
Any property, plant and equipment acquired through finance lease agreements, through which
essentially all the risks and rewards of ownership are transferred to the Group, are accounted for as
property, plant and equipment at their fair value or, if lower, at the present value of the minimum
lease payments, with a counter entry in the financial liabilities. The cost of the lease payment is
separated into two components: a financial expense which is recognised in the Income Statement,
and the reimbursement of capital which is recorded as a reduction of the financial liability.
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.
Leases – Right of Use (IFRS 16 as of January 1, 2019)
As of the date on which the assets which are the subject of a lease contract become available for
use by the Group, lease contracts are accounted for as a right of use under non-current assets with
a counter entry under financial liabilities.
The cost of lease payments is separated into two components: a financial expense which is
recognised in the Income Statement for the duration of the contract, and a reimbursement of capital
which is recorded as a reduction of the financial liability. The right of use is amortised on a monthly
basis at constant rates, for whichever period is shorter, between the useful life of the asset and the
duration of the contract.
Rights of use and financial liabilities are initially valuated at the present value of future lease
payments.
The present value of financial liabilities for lease contracts includes the following payments:
-
-
-
fixed payments;
variable payments based on an index or rate;
the exercise price of a purchase option, in the event that the exercise of the option is
considered reasonably certain;
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Consolidated Financial Statements
-
the payment of penalties for the termination of the contract, if the exercise of the option to
terminate the contract is considered reasonably certain;
- optional payments subsequent to the non-cancellable period, if the extension of the contract
beyond the non-cancellable period is considered reasonably certain.
Future payments are discounted using the incremental borrowing rate. 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.
The rights of use are valuated at cost, and composed of the following elements:
-
initial amount of the financial liability;
- payments made before the start of the contract net of the leasing incentives received;
- directly attributable incidental expenses;
- estimated costs for decommisioning or restatement.
Lease payments associated with the following types of lease contracts are recorded in the Income
Statement on a linear basis for the duration of the respective contracts:
-
-
-
contracts with a duration of less than twelve months for all asset classes;
lease contracts for which the underlying asset is configured as a low-value asset, that is, the
unitary value of the underlying assets is not greater than euro 8 thousand when new;
contracts for which the payment for the right of use of the underlying asset varies in
accordance with any changes in the facts or circumstances (not related to sales
performances), which are not foreseeable at the starting date.
Low-value contracts are mainly relative to the following categories of assets:
-
computers, telephones and tablets;
- office and multi-function printers;
- other electronic devices.
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Impairment of assets
Property, plant and equipment, intangible assets and right-of-use assets
Whenever there are specific indicators of impairment, and at least on an annual basis for intangible
assets with an indefinite useful life including goodwill, property, plant and equipment, intangible
assets and rights-of-use 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 property, plant and equipment and intangible assets is whichever is
higher between its fair value less the costs to sell, or its value-in-use, where the latter is the present
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 and 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.
For rights-of-use assets, value in use is the present value of the estimated future cash flows
generated by the rights- of-use asset for the period of the lease term and of the cash outflow to
replace the rights- of-use asset at the end of the lease term (for example, the purchase cost of an
asset to replace the leased asset).
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 restriction, which cannot be exceeded, for 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 or rights-o-use assets, may no longer
exist or may have been reduced, the recoverable amount for the asset is estimated again, and if it
results higher than the net carrying amount, then the net carrying amount is increased up to, but not
exceeding, the recoverable amount.
The restatement of a value must not exceed the carrying amount that would have been determined
(net of impairment, depreciation or amortisation) had no impairment been recorded in previous
financial years.
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Consolidated Financial Statements
The restatement of the value of an asset other than goodwill is recognised in the Income Statement.
Any impairment which has been recorded for goodwill cannot be reversed in subsequent financial
years.
Any loss due to the impairment of any goodwill recorded in the interim (half year) Financial
Statements cannot be reversed in the Income Statement of the following full financial year.
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 to sell, 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 by 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 its share of the present value of the present value of future cash flows that are estimated to
be generated by the associate or joint venture, including the cash flows deriving from the operating
activities of the associate or joint venture, and the consideration deriving from the final disposal of
the investment (the so-called Discounted Cash Flow – asset side criteria).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 results higher than
the amount of the investment, then the latter amount is increased up to and not exceeding the
recoverable amount.
The reinstatement 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 reinstatement of the value of investments in associates and joint ventures is recognised in the
Income Statement.
Other financial assets at fair value through Other Comprehensive Income (FVOCI)
The equity instruments for which the Group - at the time of the initial recognition or at transition -
exercised the irrevocable option to present gains and losses deriving from the changes in fair value
in equity (FVOCI), fall under this evaluation category, as these are financial assets that do not belong
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to the Group’s usual activity. They have been classified as non-current assets under the item “Other
financial assets at fair value through Other Comprehensive Income”.
They are initially recognised at fair value, including transaction costs directly attributable to the
acquisition.
They are subsequently measured at fair value, and any gains and losses deriving from any changes
in fair value are recognised in a specific equity reserve. This reserve is not reversed to the Income
Statement; in the event of the disposal of the financial asset, the amount suspended in equity is
reclassified to retained earnings.
Dividends deriving from these financial assets are recognised in the Income Statement when the
right to collect is established.
Other financial assets at fair value through the Income Statement (FVPL)
The items which fall under this evaluation category are:
equity instruments for which the Group - at the time of their initial recognition or at transition
- did not exercise the irrevocable option to present gains and losses deriving from the
changes in fair value in equity. They are classified as non-current assets under the item
“Other financial assets at Fair Value through the Income Statement”;
debt instruments for which the Group’s business model is “hold to sell” and the cash flows
associated with the financial asset represent the payment of the outstanding capital. They
are classified as current assets under item “Other financial assets at Fair Value through the
Income Statement”;
derivative financial instruments, with the exception of those designated as hedging
instruments.
These are initially recognised at fair value. Transaction costs directly attributable to the acquisition
are recognised in the Income Statement.
They are subsequently valuated at fair value, and any gains or losses deriving from any changes in
their fair value are 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 slow
moving inventories are calculated by taking their estimated future use and their realisable value into
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account. Their 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 agreed
consideration 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
using the effective interest rate method, which is equivalent to the discount rate that, when applied
to future cash flows, makes the present value of these flows equal to the initial fair value.
Receivables in currencies other than the functional currency of the individual companies are adjusted
to the year-end exchange rates with a counter entry in the Income Statement. Receivables are de-
recognised when the right to receive cash flows is extinguished, when all the risks and rewards
connected with holding the receivable have essentially been transferred, or in cases when the
receivable is considered definitively irrecoverable after all the necessary recovery procedures have
been completed. At the same time that the receivable is de-recognised, the relative provision is also
reversed, if the receivable had previously been impaired.
Impairment of receivables
For trade receivables, the Group applies a simplified approach, by calculating the expected losses
over the entire life of receivables from the moment of initial recognition. The Group uses a matrix
based on historical experience which is tied to the ageing of the receivable itself, and which is
adjusted to take forecasting factors into account which are specific to some customers.
For financial receivables, the calculation of the impairment is made with reference to expected losses
for the next twelve 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 its initial recognition, if it is determined that the financial instrument has
a low credit risk at the reporting date of the Statement of Financial Position.
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 improbable that the Group will receive the entire contractual amount due (for example, when
receivables are to the the legal department).
Payables
Payables are initially recognised at fair value, which normally corresponds to the agreed
consideration or to the present value of the amount that will be paid. They are subsequently valued
at amortised cost. Amortised cost is calculated using the effective interest rate method, which is
equivalent to the discount rate that, when applied to future cash flows, makes the present value of
these flows equal to the initial fair value.
Payables in currencies other than the functional currency of the individual companies are adjusted
to the year-end exchange rates with a counter entry in the Income Statement. Payables are de-
recognised from the Statement of Financial Position when the specific contractual obligation is
extinguished. In the event of a change in a financial liability that does not results in its de-recognition,
the gain or loss resulting from the change is calculated by discounting the change in contractual cash
flows using the original effective interest rate, and is immediately recognised in the Income
Statement.
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 classified under financial payables as current liabilities. The amounts
included in cash and cash equivalents are recognised at fair value and the related changes are
recognised in the Income Statement.
Contingent assets
Any contingent assets, which arise as a result of past events and whose realisation is linked to the
occurrence or non-occurrence of unforeseeable future events, are not recognised in the Statement
of Financial Position, unless the realisation of revenue is virtually certain.
Provisions for liabilities and charges
Provisions for liabilities and charges include provisions for current obligations (legal or implicit)
arising from a past event, the fulfilment of which is likely to require the use of resources, and whose
amounts can be reliably estimated.
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Consolidated Financial Statements
Changes in estimates are recognised in the Income Statement for the year in which the change
occurred.
If the effect of discounting is significant, provisions are presented at their present value.
A provision for restructuring is recognised only if, in addition to meeting the conditions for the
provisions for liabilities and charges, there is a detailed formal restructuring plan so that third parties
affected have a valid expectation that the restructuring will be implemented.
Employee Benefits
Employee benefits paid after the termination of the employment relationship (defined benefit plans)
and other long-term benefits are subject to actuarial evaluations. The liability recognised in the
Statement of Financial Position 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 from 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 matured 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.
Costs related to defined contribution plans are recognised in the Income Statement as they are
incurred.
In the event that the plan assets of defined benefits outweigh the liabilities, the asset is recognised
to the extent that the financial benefit, in the form of a reimbursement or a reduction in 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 the 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.
Insurance policies are recognised in the Statement of Financial Position as plan assets and are
evaluated on the same basis as the liabilities to which they refer.
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Derivative financial instruments designated as hedging instruments
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 the formal designation and
documentation of the hedging relationship, and of the Group’s risk management objectives
and strategy in carrying out the hedge;
-
the hedging relationship meets all the following effectiveness requirements:
o
o
o
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
hedged risk;
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.
Derivative financial 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 any changes in the fair value of an asset or liability attributable to a specific risk, the gain or
loss deriving 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 asset or liability (basis adjustment),
and it is also recognised in the Income Statement;
- Cash flow hedge – if a derivative instrument is designated as a hedge against exposure to the
variability in cash flows of an asset or liability recognised in the Statement of Financial POsition,
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
recycled to the Income Statement of the year in which the hedged item affects the Income
Statement.
If the hedge of a highly probable future transaction subsequently results in 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.
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When future transactions are hedged through forward contracts, the Group may designate in hedge
accounting;
-
-
the full fair value (including forward points): the effective portion of the changes in fair
value of the entire derivative instrument is recognised in equity (cash flow hedge reserve);
the single spot component (excluding forward points): the effective portion of the changes
in fair value reated to the spot component, is recognised in equity under the cash flow
hedge reserve, while the change in forward points for the hedged item is recorded under
the cost of hedging reserve, always in 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. 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 affects the
Income Statement. Subsequently they are recycled to the Income Statement in the year in which the
acquired financial asset or the assumed financial liability affects 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 recycledto the Income Statement.
For the derivative instruments that do not satisfy the conditions required 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”.
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 listed on an active market is based on market prices at the
reporting date. The market price used for financial assets is the bid price, while for financial liabilities
it is the ask price. The fair value of instruments not listed on an active market is determined by using
evaluation techniques based on a series of methods and assumptions which are tied to market
conditions at the reporting date.
The fair value of interest rate swaps is calculated as the present value of expected future cash flows.
The fair value of forward exchange contracts is determined by using the forward exchange rate at
the reporting date.
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The fair value of cross currency interest rate swaps is calculated by discounting estimated future
cash flows based on observable yield curves and converted in euro by using the forward exchange
rate at the reporting date.
Income taxes
Current taxes are determined on the basis of a realistic forecast of the tax expenses to be paid in
application of the current tax regulations in force in the country.
The Group periodically assesses the choices made when determining taxes with reference to
situations where current tax legislation lends itself to interpretation, and if deemed appropriate,
adjusts its exposure to the tax authorities on the basis of the taxes it expects to pay. Any 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 which exist between the asset
and liability amounts in the Statement of Financial position and their tax value (global allocation
method), and are classified under non-current assets and liabilities.
Deferred tax assets on tax losses carried forward, as well as on temporary differences, are only
recognised when there is a likelihood of future recovery during the time frame covered by the
forecasts of the business plans.
Deferred tax assets and liabilities are calculated by the applying tax rates that are expected to be
applicable in the year in which the asset will be realised or the liability settled, based on the tax
legislation in force at the closing date of the current year.
Current and deferred tax assets and liabilities are offset when income taxes are applied by the same
tax authority and when there is a legal 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 years during which the temporary differences will
arise or be extinguished.
With regard to temporary taxable differences associated with investments in subsidiaries, associates
and joint ventures, the related deferred tax liabilities are not recognised when the investing entity is
able to control the reversal of the temporary differences and it is likely 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 year or during previous years.
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Equity
Treasury shares
Treasury shares are classified as a reduction of shareholders’ equity.
If they are sold, reissued or cancelled, the resulting gains or losses are recognised in equity.
Costs of capital transactions
Costs directly attributable to capital transactions of the Parent Company are recoded as a reduction
of shareholders’ equity.
Share-based payment transactions (cash settled)
The additional cash settled benefits granted to certain Group executives are recognised under
“Employee Benefit Obligations” (other long-term benefits) with a counter entry under “Personnel
costs”. The cost is estimated at fair value and is recognised over the duration of the plan according
to the the vesting condition at the reporting date. The estimate is reviewed at each reporting date
until the settlement date.
Revenue Recognition
Revenues are recognised at an amount that reflects the consideration to which the Group believes
it is entitled in exchange for the transfer of goods and/or services to its customers. The variable
considerations that the Group believes it should pay to direct or indirect customers are recognised
as a reduction in revenues.
Product sales
Revenues from product sales are recognised when the performance obligations towards customers
have been satisfied. Performance obligations are deemed to be met when the control of goods has
been transferred to the customer, that is, generally when goods are delivered to the customer.
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If the products are ready to be delivered, but delivery is postponed to a future date, revenues are
recognised only if control of the products has been transferred to the customer. Control is considered
to have been transferred to the customer when the following conditions are met;
the reasons for delivering at a future date are real (for example: the customer has requested
delivery at a future date in writing);
the products in the warehouse are separately identified as being as being the property of the
customer;
the products are ready to be physically delivered to the customer;
the Group does not have the possibility to use the product or to deliver it to other customers.
Retrospective discounts are applied to product sales based on the achievement of the targets
defined in trade agreements. Revenues from sales are recognised net of these discounts, and
estimated on the basis of historical experience using the expected value method and for amounts
which are not expected to be reversed. Sales do not include a financial component, as the average
payment terms applied to customers are the standard commercial terms for the reference country
where sales occur.
Provision of services
Revenues for services are recognised when the service rendered has been completed or based on
the stage of completion of the service at the reporting date.
Financial income and expenses
Financial income and expenses are recognised on an accrual basis.
Royalties
Royalties are recognised over time on an accrual basis, according to the content of the relevant
agreement, which provides for the transfer of the rights to access to intellectual property to the
customer. The amounts for royalties are estimated using the output method. Royalties invoiced in
each period are directly related to the value transferred to the customer.
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Dividends
Dividends are recognised when the right to collect is established, which normally corresponds to a
the Shareholders’ resolution to distribute 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 ordinary
shares during the financial year excluding treasury shares.
Earnings (losses) per share - diluted: Diluted earnings per share are calculated by dividing the
income (loss) attributable to the Group by the weighted average number of outstanding ordinary
shares during the financial year, excluding treasury shares. For the purposes of calculating the
diluted earnings per share, the weighted average number of outstanding shares is adjusted by
assuming the exercise of all the rights of the assignees for the financial year which could potentially
have a dilutive effect, while the Group’s net income (loss) is adjusted to take into account any effects,
net of taxes, of the exercise of these rights.
Operating segments
An 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 made available.
The business carried out by the Group is identifiable as a single operating “Consumer Activities”
sector.
Foreign currency transactions
Foreign currency transactions are recorded at the prevailing exchange rates on the date of the
transaction. Monetary assets and liabilities in foreign currencies are translated at the prevailing
exchange rates at the reporting date. Exchange rate differences arising from the settlement of
monetary items or their translation at rates other than those of their initial recognition at the beginning
of the financial year, or different to those at the end of the previous financial, are recognised in the
separate Consolidated Income Statement.
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Whenever the conditions provided for by IAS 21.15 for the designation of inter-company monetary
items such as “Net Investment in Foreign Operations” are met, in accordance with the guidance of
IAS 21.32, the differences in exchange rate as of the date of the designation are recognised 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 the non-monetary
assets and liabilities present in their original individual Financial Statements in order 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 are recognised in the Income Statement.
The Financial Statements of companies prepared in currencies other than the euro which operate in
high-inflation countries, are 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, 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 disposal groups
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 in its present condition and the sale is highly
probable, or if a binding schedule for the 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
assets/liabilities (current and non-current) of the disposal group are presented under a separate item
from other assets and liabilities, and totalled respectively in current assets and liabilities.
Non-current assets classified as held for sale and disposal groups are evaluated as the lesser
amount between the carrying amount and the fair value net of sales costs.
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Consolidated Financial Statements
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 has been classified as held
for sale, and represents an important independent branch of activity or geographical area of activity
forming part of a single coordinated disposal program.
In the Consolidated Income Statement for the period, the net income (loss) from discontinued
operations, as well as the gain or loss resulting from their fair value valuation net of sales costs, or
from the disposal of the assets or disposal groups which constitute the discontinued operations, are
combined in a single item at the end of the Income Statement separately from the results for
continuing operations.
It is to be noted that in 2018 with regard to transactions between the Industrial business, which
qualified as a “discontinued operation”, and the remaining activities of the Pirelli Group (“continuing
business”), the so called “post disposal” treatment was opted for the Income Statement. Particularly
for transactions of a continuous commercial nature, it was decided to represent these transactions
in the Income Statement data for “continuing business”, consequently revealing a result that takes
these components into account, and to record the relative intereliminations within the item
“discontinued operations”. The cash flows for discontinued operations are shown separately in the
Statement of Cash Flow.
3.1
Accounting standards and interpretations approved and in force as of January 1, 2019
Pursuant to IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors, the IFRS
standards in force as of January 1, 2019 were as follows:
16 IFRS – Leases
The impacts deriving from the first application of this standard, which replaces the previous IAS
17, are described in Note 3.3 - “Impacts deriving from the adoption of IFRS 16 - Leases”.
IFRIC 23 – Uncertainty over Income Tax Treatments
This interpretation clarifies the criteria to be applied for the recognition and measurement of
current taxes and deferred tax assets / liabilities in the event of uncertainty regarding tax
treatments, i.e., situations where 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, tax bases for assets and
liabilities, tax losses and tax rates to be applied.
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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 probable that the tax authority will accept the
uncertain tax treatment, the uncertainty is recognised by recording additional tax liabilities or
even by the application of a higher tax rate.
There were no impacts on the Group’s Financial Statements due to the application of this
interpretation, with the exception of the reclassification of euro 9,187 thousand, from non-current
provisions for liabilities and charges, to non-current tax payables, as the uncertainty recognised
in previous years was related to a tax position recorded under tax payables.
Amendments
to
IFRS 9 - Financial
Instruments: prepayment
features with negative
compensation and amendments to financial liabilities.
These amendments concern 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 through the Income Statement;
the accounting treatment of financial liabilities in the presence of any changes which do not
result in their derecognition from the Statement of Financial Position. In such situations, any
gain or loss calculated as the difference between the contractual cash flows of the original
liability and any change in cash flows, both discounted using the original effective interest
rate, must be recognised in the Income Statement.
The amendment related to financial assets was not applicable to the Group. The amendment
related to the accounting treatment of financial liabilities 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 the provisions of IFRS 9, including those relative to
impairment, also apply to the financial instruments which represent long-term interests in an
associated company or a joint venture, which in essence form part of the net investment in the
associated company or joint venture (the so-called long-term interest).
There were no impacts on the Financial Statements of the Group due to the amendments made
to the standard in force.
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Consolidated Financial Statements
Improvements to the IFRS 2015-2017 cycle (issued by the IASB in December 2017).
The IASB has issued a series of amendments to four standards in force, which particularly
concern 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 does not
have 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 a specific loan relative 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 generic loans.
There were no impacts on the Group due to the amendments to the standards in force.
Amendments to IAS 19 - Employee Benefits
These amendments require that:
-
the current service cost and the net interest for the period following a change and/or
reduction of the plan are determined using updated assumptions;
- any reductions in the surpluses 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.
There were no impacts on the Group due to the amendments made.
3.2
International Accounting Standards and/or interpretations issued but not yet effective
in 2019
Pursuant to IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors - the new
standards and interpretations that were issued but were not yet effective, or had not yet been
endorsed by the European Union at December 31, 2019, and which are therefore not applicable,
along with any expected impacts on the Consolidated Financial Statements, are described below.
None of these standards and interpretations were early adopted by the Group.
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Amendments to IFRS 3 - Business Combinations
These changes have introduced a new definition for the term “business”, according to which, for
an acquisition to qualify as a business combination, it must include inputs and processes which
contribute substantially in obtaining an output. The definition of output has been amended in a
restrictive sense, in that it precisely specifies that any cost savings and other financial benefits
are to be excluded as outputs. This amendment will result in multiple acquisitions qualifying as
asset acquisitions instead of as business acquisitions.
These amendments, effective on January 1, 2020 have not yet been endorsed 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 of transactions, these amendments focus on
the definition of a concept of materiality which is coherent and unique amongst the various
accounting standards, and also incorporate the guidelines included in IAS 1 on information that
is not material.
These amendments which were approved by the European Union, came into force on January
1, 2020. No impacts on the Group’s Financial Statements are foreseen. Their impacts on
disclosures are currently being evaluated.
Amendments to IFRS 9, IAS 39 and IFRS 7: Reform of interbank offered rates (IBOR reform)
These changes concern the impacts on the Financial Statements deriving from the replacement
of the current benchmark interest rates with alternative interest rates. In the presence of any
hedging relationships impacted by the uncertainty of any benchmark rate reform, these changes
make it possible to not carry out the evaluations required by IFRS 9 in the presence of any
changes in rates. These amendments, which were endorsed by the European Union, are
effective January 1, 2020. The impact on the Group’s Financial Statements is currently being
evaluated as regards the rate component of cross-currency interest rate swaps.
3.3
Impacts deriving from the adoption of IFRS 16 - Leases
Following the application of this standard, at the transition date (January 1, 2019), the Group
accounted for lease contracts previously classified as operating leases as:
-
a financial liability equal to the present value of residual future lease payments at the transition
date, discounted using for each contract the incremental borrowing rate applicable at the
transition date. The weighted average incremental borrowing rate applied to the lease liabilities
at January 1, 2019 was 5.03%.
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-
a right of use equal to the value of the lease liability at the transition date, net of any deferred
rent asset or liability related to the lease and recognised in the Statement of Financial Position
at the date of transition.
The following table shows the impacts due to the adoption of IFRS 16 at the transition date:
(in millions of euro)
NON CURRENT ASSET
Property, property and equipment
- Right of use lands
- Right of use bulldings
- Right of use plant and machinery
- Right of use other assets
Total
CURRENT ASSET
Other receivables
Total
(in millions of euro)
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
01/01/2019
16.2
376.1
35.8
63.6
491.7
(1.0)
490.7
420.7
2.5
73.6
(6.1)
490.7
The Group has chosen to apply the standard retrospectively, recording the cumulative effect deriving
from the application of the standard in equity at January 1, 2019 (modified retrospective approach).
The comparative data for the 2018 financial year were not restated.
With reference to transition rules, the Group used the following practical expedients, available when
opting for the modified retrospective approach:
-
contracts with an expiry date within twelve months from the date of transition are
classified as a short-term leases. For these contracts, lease payments are be recorded
in the Income Statement on a straight-line basis;
- with reference to the separation of non-lease components for vehicles, the Group has
decided not to separate them and not to account for them separately from the lease
components. This component has been considered together with the lease component
in determining the lease liability and the related right of use;
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- 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 termination options.
The Group has also used the practical expedient provided for by the standard on first-time adoption,
which makes it possible to rely on the conclusions reached in the past on the basis of IFRIC 4 and
IAS 17 regarding the quantification of the operating lease components for a specific contract. This
practical expedient has been applied to all contracts.
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 main ones are summarised below:
-
-
the Group has decided not to apply IFRS 16 for contracts containing a lease that has an
intangible asset as underlying asset;
contract renewal clauses are considered for the purposes of determining the duration of the
lease contract, when the Group has the option to exercise these clauses without the need to
obtain the consent of the other party, and when their exercise is considered reasonably
certain. In the case of clauses which provide for multiple renewal periods that can be
exercised unilaterally by the Group, only the first extension period was considered;
- automatic renewal clauses in contracts, in which both parties have the right to terminate the
contract, were not considered for the purposes of determining the duration of the contract,
as the ability to extend its duration is not under the unilateral control of the Group, and the
penalty 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 the
determination of the duration of the contract. This assessment is also carried out considering
the degree of customization of the leased asset. If customization is high, the lessor could
incur a significant penalty if he opposes the renewal;
- early termination clauses in contracts are not considered in determining the duration of the
contract if they can be exercised only by the lessor or by both parties. In cases where they
can be unilaterally exercised by the Group, specific assessments are made contract by
contract (for example, the Group is already negotiating a new contract or has already given
notice to the lessor).
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Consolidated Financial Statements
The following table shows the reconciliation between minimum future lease payments, as provided
for by the previous IAS 17, and the lease liabilities at January 1, 2019 deriving from the adoption of
IFRS 16:
(in millions of euro)
Minimum future payments due for non-cancellable operating leases 12/31/2018 (IAS 17)
Effects of extension option excercise
Short term contracts with residual duration at 1/1/2019 of less than 12 months
Low value asset contracts
Service component
Financial lease liabilities at 31/12/2018
Discounting effects
Other
Financial liabilities for lease contracts at 1/1/2019 (IFRS 16)
517.9
155.8
(9.2)
(12.1)
0.4
0.2
(146.3)
(12.4)
494.3
4.
FINANCIAL RISK MANAGEMENT POLICIES
The Group is exposed to financial risks which are principally associated with foreign exchange rates
trends, with fluctuations in interest rates, with the price of financial assets held in portfolio, with the
ability of Pirelli’s customers to meet their obligations to the Group (credit risk), and in 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
the risk management strategies defined at a more general level 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. Fluctuations in the
exchange rate 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.
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The Group aims to minimise the impact of transaction risks tied 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 hedging is
then provided in the form of forward contracts which are entered into with the Group Treasury.
The positions subject to exchange rate risk managed are mainly represented by receivables and
payables in foreign currencies.The Group Treasury is responsible for hedging the resulting net
position for each currency and, in accordance with the established guidelines and predetermined
restrictions, closes in turn 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, as 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 making use of the aforementioned option.
Of note is that, as part of the annual and three-year planning process, the Group formulates
exchange rate forecasts for these time horizons based on the best information available on the
market. Fluctuations in the exchange rate 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 evaluates the opportunity to carry out hedging transactions 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 main exposures to translation risk are constantly monitored, however it is not currently deemed
necessary to adopt specific policies to hedge this exposure.
At December 31, 2019 approximately 37.9% of the total consolidated equity was expressed in euro
(47.8% at December 31, 2018). The most important currencies for the Group other than the euro
were the Brazilian real (14.7%; 10.7% at December 31, 2018), the Turkish lira (0.5%; 0.5%; at
December 31, 2018), the Chinese renminbi (12.5%, 12.2% at December 31, 2018), the Romanian
leu (11.3%; 8.5% at December 31, 2018), the pound sterling (3.8%, 3.9% at December 31, 2018),
the US dollar (3.6%; 3.8% at December 31, 2018) the Mexican peso (10.1%, 7.4% at December 31,
2018), and the Russian rouble (2.1%; 1.6% at December 31, 2018).
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Consolidated Financial Statements
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:
(in thousands of euro)
Brazilian Real
Turkish Lira
Chinese Yuan
Romanian Leu
Russian Rouble
British Pound
Argentinian Pesos
US Dollar
Mexican Pesos
Total on consolidated equity
Interest rate risk
Appreciation of 10%
12/31/2019
79,039
2,794
67,007
60,763
11,329
20,475
9,737
19,453
54,371
324,968
12/31/2018
54,258
2,543
61,628
43,204
8,308
19,481
8,779
19,036
37,594
254,831
Depreciation of 10%
12/31/2019
(64,668)
(2,286)
(54,824)
(49,715)
(9,269)
(16,752)
(7,966)
(15,916)
(44,486)
(265,882)
12/31/2018
(44,393)
(2,080)
(50,423)
(35,349)
(6,797)
(15,939)
(7,183)
(15,575)
(30,759)
(208,498)
Interest rate risk is represented by exposure to the variability of the fair value, or of the future cash
flows, of the financial assets or liabilities due to changes in the market interest rates.
Based on market circumstances, the Group assesses, 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) resulting from an increase or decrease
of 0.50% in the level of interest rates of all currencies to which the Group is exposed – all other
conditions being equal:
(in thousands of euro)
Impact on Net income / (loss)
+0,50%
-0,50%
12/31/2019
(7,949)
12/31/2018
(13,039)
12/31/2019
7,949
12/31/2018
13,039
The effects on the Group’s equity resulting from changes in the LIBOR and EURIBOR rates
calculated on the interest rate hedging instruments outstanding at December 31, 2019 are described
in Note 27 - “Derivative Instruments”.
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, 2019 (0.7% at December 31, 2018). These assets were classified as other financial
assets at fair value through other Comprehensive Income, and other financial assets at fair value
through the Income Statement.
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No derivatives were put in place to limit the volatility risk for these assets.
Other financial assets at fair value through other Comprehensive Income represented by listed
securities amounted to euro 24,893 thousand (euro 28,448 thousand at December 31, 2018) and
those represented by securities indirectly associated with listed equity securities (Fin. Priv. S.r.l.)
amounted to euro 20,565 thousand, (euro 15,604 thousand at December 31, 2018). These financial
assets constituted 45.7% of the total financial assets subject to price risk (45.9% at December 31,
2018). 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 1,245 thousand (a
positive change of euro 1,422 thousand at December 31, 2018) 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 1,245 thousand (a negative change of euro 1,422 thousand to
the Group’s equity at December 31, 2018).
Credit risk
implemented procedures
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,
financial
Pirelli has
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.
the customer’s potential and
to evaluate
Other instruments used for commercial credit risk management is the taking out of insurance
policies. Effective as of January 2012, the company had signed a master agreement which expired
in December 2018, with a leading insurance company for worldwide coverage of credit risk, mainly
relative to sales on the Replacement channel (with an approximate 71% acceptance rate at
December 2019). Insurance coverage was extended to also cover the two year 2019 - 2020 period.
At December 31, 2019, the amount of trade receivables remained essentially consistent with that at
the closing of the previous financial year.
On the other end, as regard the financial counterparties for the management of its temporary cash
surpluses or for trading in derivative instruments, the Group deals only with entities with a high credit
standing. 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.
Expected credit losses on trade receivables are calculated on the entire life of the receivables,
starting from the moment of initial recognition, using a matrix based on historical experience which
is tied to the ageing of the receivable itself, and which is adjusted to take forecasting factors into
account which are specific to some customers, as well as the presence of any collateral securities
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Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
and other credit risk mitigation instruments. At December 31, 2019 the maximum exposure to credit
risk, calculated without considering the presence of any collateral securities and other credit risk
mitigation instruments, equalled approximately 72,761 thousand.
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 contractual terms and conditions.
The principal instruments used by the Group to manage liquidity risk are annual and three year
financial plans, and treasury plans. These allow for the complete and correct recording and
measurement of cash inflows and outflows. Deviations between the plans and final data are the
subject of constant analysis.
The Group has implemented a centralised system for managing collections and payments flows in
compliance with the various local currency and tax regulations. Banking relationships are negotiated
and managed centrally, in order to ensure that short and medium-term financial needs are covered
at the lowest possible cost. The raising of medium / long-term resources on the capital market is also
optimised through centralised management.Prudent risk management as described above requires
maintaining an adequate level of cash or cash equivalents and/or highly liquid short-term securities,
the availability of funds that can be obtained through an adequate amount of committed credit
facilities and/or the possibility of using the capital market, and the diversification of products and
maturities in order to seize the best available opportunities.At December 31, 2019 the Group had, in
addition to cash and other financial assets at fair value through the Income Statement to the amount
of euro 1,647,940 thousand (euro 1,354,096 thousand at December 31, 2018), unused credit
facilities to the amount of euro 700,000 thousand (euro 700,000 thousand at December 31, 2018)
maturing in the second quarter of 2022.
Maturities for financial liabilities at December 31, 2019 can be summarised as follows:
(in thousands of euro)
Trade payables
Other payables
Derivative financial instruments
within 1 year
1 to 2 years
2 to 5 years
over 5 years
Total
1,611,488
-
-
-
1,611,488
402,757
2,378
4,811
4,021
26,142
59,618
493,328
4,656
139
11,194
Borrowings from banks and other financial institutions
of which financial leasing liabilities
1,278,759
102,595
229,189
87,227
2,989,547
188,597
285,457
265,017
4,782,952
643,436
3,295,382
238,021
3,020,345
345,214
6,898,962
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Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Maturities for financial liabilities at December 31, 2018 can be summarised as follows:
(in thousands of euro)
Trade payables
Other payables
within 1 year
1 to 2 years
2 to 5 years
over 5 years
Total
1,604,677
-
-
-
1,604,677
436,752
5,122
18,797
59,368
520,039
Derivative financial instruments
63,043
(20,871)
(55,247)
(66)
(13,141)
Borrowings from banks and other financial institutions
892,924
1,324,611
2,867,664
21,029
5,106,228
2,997,396
1,308,862
2,831,214
80,331
7,217,803
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 provided for by IFRS 13, which reflects
the significance of the inputs used in determining 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 other than the quoted prices referred to in the previous point, 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.
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Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
The following table shows assets and liabilities measured at fair value at December 31, 2019,
divided into the three levels defined above:
(in thousands of euro)
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
Derivative 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
Derivative hedging instruments:
Non current derivative financial instruments
TOTAL LIABILITIES
Note
Carrying
amount at
12/31/2019
Level 1
Level 2
Level 3
18
27
27
27
12
27
27
38,119
26,962
10,186
52,515
55,020
3,947
58,967
186,749
-
-
-
-
24,893
-
24,893
24,893
38,119
26,962
10,186
52,515
20,565
3,947
24,512
152,294
(41,427)
-
(41,427)
(10,327)
(51,754)
-
(10,327)
(51,754)
-
-
-
-
9,562
-
9,562
9,562
-
-
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Pirelli & C. S.p.A. – 2019 Annual Report
The following table shows assets and liabilities that were measured at fair value at December
31, 2018, divided into the three levels defined above:
(in thousands of euro)
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
Derivative 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
Derivative hedging instruments:
Non current derivative financial instruments
TOTAL LIABILITIES
Note
Carrying
amount at
12/31/2018
Level 1
Level 2
Level 3
18
27
27
27
12
27
27
27,196
77,650
20,917
20,134
53,207
15,574
68,781
214,678
-
-
-
-
28,448
-
28,448
28,448
27,196
77,650
20,917
20,134
15,604
15,574
31,178
177,075
(59,602)
-
(59,602)
(16,039)
(75,641)
-
(16,039)
(75,641)
-
-
-
-
9,155
-
9,155
9,155
-
-
The following table shows changes in the financial assets classified in level 3 that occurred
during the course of 2019:
(in thousands of euro)
Opening balance 01/01/2019
Translation differences
Increases
Decreases
Fair value adjustments through other comprehensive income
Other changes
Closing balance 12/31/2019
9,155
10
86
(56)
424
(57)
9,562
These financial assets are mainly represented by equity investments in the European Institute of
Oncology (euro 7,465 thousand), and Tlcom I LP (euro 195 thousand).
The fair value adjustments through other Comprehensive Income equalled a positive net value
of euro 424 thousand, and mainly refers to the fair value adjustment of the investment in the
European Institute of Oncology.
During the course of 2019 there were no transfers from level 1 to level 2 or vice versa, nor from level
3 to other levels and vice versa.
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Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
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 of 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 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 observable yield curves and converting them into euro using the
exchange rate at the reporting date of the Financial Statements;
the fair value of any natural rubber futures is determined by using the closing price of the contract
at the reporting date of the Financial Statements.
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Pirelli & C. S.p.A. – 2019 Annual Report
5.2
Categories of financial assets and liabilities
The table below shows the carrying amounts for each class of financial assets and liabilities as
identified by IFRS 9.
(in thousands of euro)
FINANCIAL ASSETS
Financial assets at fair value through income statement
Other financial assets at fair value through income statement
Current derivative financial instruments
Financial assets at amortised cost
Other non-current receivables
Current trade receivables
Other current receivables
Cash and cash equivalents
Financial assets at fair value through other comprehensive income (FVOCI)
Other financial assets at fair value through Other Comprehensive Income
Financial hedging derivative instruments
Current derivative financial instruments
Non-current financial derivative 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 (excl. lease
obligations)
Other non-current payables
Current borrowings from banks and other financial institutions (excl. lease
obligations)
Current trade payables
Other current payables
Lease payables
Non-current ease payables
Current lease payables
Derivative financial hedging instruments
Non-current derivative financial instruments
TOTAL FINANCIAL LIABILITIES
Note
Carrying
amount at
12/31/2019
Carrying
amount at
12/31/2018
18
27
15
14
15
19
12
27
27
27
23
25
23
24
25
23
27
38,119
26,962
65,081
342,397
649,394
451,858
27,196
77,650
104,846
225,707
627,968
416,651
1,609,821
1,326,900
3,053,470
2,597,226
58,967
68,781
10,186
52,515
62,701
20,917
20,134
41,051
3,240,219
2,811,904
41,427
59,602
3,544,461
3,929,069
90,571
83,287
1,341,606
799,942
1,611,488
1,604,677
402,757
436,752
6,990,883
6,853,727
405,375
77,797
483,172
10
203
213
10,327
16,039
7,525,809
6,929,581
369
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
6.
CAPITAL MANAGEMENT POLICY
The Company’s objective is to maximise the return on net invested capital while maintaining its ability
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 R.O.I. (which is calculated as the
percentage ratio between the EBIT adjusted and the average net invested capital, which does not
include “Investments in associates 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” and intangible assets related to assets recognised as a consequence of
Business Combinations.
The R.O.I. for the 2019 financial year was equal to 24% and includes the impact deriving from the
application of the accounting standard IFRS 16 – Leases. Excluding the impact of new accounting
standard, R.O.I. was equal to 27%, compared to 30% for 2018.
7.
ESTIMATES AND ASSUMPTIONS
The preparation of the consolidated Financial Statements requires Management to make estimates
and assumptions which, under certain circumstances are based on difficult and subjective
evaluations and estimates based on historical experience, and 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 consequentially
modified for the period in which the change of circumstances occurred. The estimates and
assumptions refer mainly to the assessments of the recoverability of goodwill and other intangible
assets with an indefinite useful life, to the definition of the useful lives of property, plant and
equipment and intangible assets, 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 loss to
be recognised in the Income Statement. In particular, testing involves the allocation of goodwill to
the cash generating units (which for the Group coincide with the business sector that is the Consumer
370
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Pirelli & C. S.p.A. – 2019 Annual Report
Activities), and the subsequent determination of the relative recoverable amount, being the higher
amount between either the fair value or the value in use.
If the recoverable amount proves to be lower than the carrying amount of the cash generating units,
the goodwill allocated to them is impaired.
With reference to the impacts derived from the adoption of the new accounting standard IFRS 16 -
Leases, the carrying amount of the cash generating units includes the value of the rights of use
belonging to the CGUs themselves. In determining the present value of future flows, any flows
related to the repayment of lease obligations are excluded, as they represent flows deriving from
financing activities. Consequently, the value of lease obligations is excluded from the carrying
amount of the CGU at the date of the impairment test.
The configuration of the value used to determine the recoverable amount for Consumer Activities at
December 31, 2019, is that of the value in use which corresponds to the present value of the future
cash flows which are expected to be associated with the group of CGUs, using a rate which reflects
the specific risks of the individual CGU at the valuation date.
The key assumptions used by Management were the estimates for future increases in sales, in
operating cash flows, in the growth rates of operating cash flows beyond explicit forecast period for
terminal value estimation purposes, in the weighted average cost of capital (discount rate). The
expected cash flows cover a time-frame of three years (2020 - 2022) and refer to the consensus
forecasts on the prospective revenues and EBITDA adjusted for the three-year period 2020 - 2022
made by equity analysts and issued after presentation of the 2020 - 2022 Industrial Plan, as these
forecasts are more prudent than the Plan approved by the Board of Directors and presented to the
financial community on February 19, 2020.
The impairment test at December 31, 2019 did not show any impairment loss, as the fair value of
Consumer Activities was significantly higher than the carrying amount.
Pirelli Brand (intangible asset with an indefinite useful life)
The Pirelli Brand is an intangible asset with an indefinite useful life 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 at December 31, 2019 was performed using the assistance of an independent
third-party professional.
The configuration of the recoverable amount for impairment testing purposes at December 31, 2019
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).
371
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
Property, plant and equipment excluding the rights of use
In accordance with the relevant accounting standards fixed assets are tested, in order to ascertain
whether there has been any impairment when there are indicators that difficulties are to be expected
for the recovery of their relative net 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 suitable evaluation techniques.
The correct identification of the 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 which influence the valuations and estimates made by Management.
Rights of use and lease obligations
As regards the estimates and assumptions used for the determination of lease obligations and the
rights of use, reference should be made to paragraph 3.3 “Impacts deriving from the adoption of
IFRS 16 - Leases”.
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.
As regards the situations in which the tax legislation in force lends itself to interpretation, if the Group
considers it probable (more than 50%), that the tax authority will accept the tax treatment adopted,
the net income (loss) before tax is determined in accordance with the tax treatment applied in the
tax return, otherwise the effect of any uncertainty is reflected in the determination of the net income
(loss) before tax. The probability refers to the fact that the tax authority will not accept the tax
treatment adopted, and not to the probability of the assessment.
372
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
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
plans have been closed to new participants, and therefore the actuarial risk refers only to the
previous deficit. Management uses different actuarial assumptions to calculate liabilities and plan
assets. The actuarial assumptions of financial nature concern the discount rate, the inflation rate 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 considered balanced,
given the context.
Provisions for liabilities and charges
In view of the legal and tax risks related to indirect taxes, provisions for the risk of unfavourable
outcomes have been recognised. The value of provisions recognised in the Statement of Financial
Position related to these risks represents the best estimate at the date made by Management in
relation to legal and tax issues regarding a wide range of issues that are subject to the jurisdiction of
various 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.
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 in a
single operating sector.
For 2019 Pirelli adopted a new organisational model at regional level, composed of five regions
instead of six.
In addition to APAC, North America (previously called NAFTA) and South America, two new macro
geographic regions were created:
EMEA which includes Europe, the Middle East and Africa. The Gulf countries fall under this
region, that is, markets with increasing exposure to the High Value segment;
373
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
Russia and Nordics, which are markets with high similarities. The objective is to create a
productive and commercial synergy, particularly for Winter products.
The comparative data for 2018 have been restated to adapt them to the new breakdown by
geographical regions.
Revenues from sales and services by geographical regions are shown below:
(in thousands of euro)
EMEA
North America
Asia / Pacific (APAC)
South America
Russia & Nordics
Total
2019
2018
2,288,680
1,101,890
975,095
681,995
275,394
5,323,054
2,329,150
1,004,027
903,815
691,874
265,605
5,194,471
Non-current assets by geographical regions, allocated on the basis of the country where the
assets are located, are shown below.
(in thousands of euro )
12/31/2019
12/31/2018
EMEA
Russia & Nordics
North America
South America
Asia / Pacific (APAC)
Non-current unallocated assets
Total
5,701,439
239,080
468,610
510,318
523,549
1,886,988
9,329,984
61.12%
2.56%
5.02%
5.47%
5.61%
20.22%
100.00%
5,408,690
172,618
445,894
466,441
495,760
1,886,862
8,876,265
60.94%
1.94%
5.02%
5.25%
5.59%
21.26%
100.00%
The non-current allocated assets reported in the table above consist of property, plant and
equipment and intangible assets, excluding goodwill. The non-current unallocated assets are
related to goodwill.
9.
PROPERTY, PLANT AND EQUIPMENT
They are composed as follows:
(in thousands of euro)
Net Value
- Tangible assets
- Rights of use
374
12/31/2019
3.649.809
3.187.190
462.619
12/31/2018
3.092.927
3.092.685
242
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
9.1 – Tangible assets
The composition and changes are as follows:
NET VALUE
(in thousands of euro)
12/31/2018
High Inflation
Argentina
Translation
differ.
Increases Decreases Depreciation Devaluation Recl./Other
12/31/2019
Land
Buildings
Plant and machinery
Industrial and trade equipment
Other assets
Total
189,026
697,247
1,905,358
242,242
58,812
3,092,685
1,220
4,069
8,267
930
3,915
18,401
(618)
7,855
8,279
4,155
16
47,572
235,989
-
(1,322)
(5,778)
-
(30,961)
-
(73)
(172,445)
(17,333)
77,096
(1,871)
(76,903)
(1,074)
(1,150)
9,026
(987)
(11,736)
(76)
18,521
369,699
(9,958)
(292,045)
(18,556)
(227)
1,521
3,533
1,901
1,715
8,443
189,417
725,908
1,965,870
246,476
59,519
3,187,190
NET VALUE
(in thousands of euro)
12/31/2017
Assets held
for sale
High Inflation
Argentina
Translation
differ.
Increases
Decreases Depreciation Devaluation Recl./Other
12/31/2018
Land
Buildings
Plant and machinery
Industrial and trade equipment
Other assets
Total
201,216
666,437
1,820,799
237,273
54,125
(9,890)
(787)
-
-
-
2,979,850
(10,677)
2,872
5,316
14,395
669
1,389
24,641
(8,707)
(16,882)
(38,949)
(9,925)
(3,469)
-
67,338
305,140
56,899
22,424
(3,250)
(774)
-
(29,320)
-
-
6,785
5,919
189,026
697,247
(2,931)
(157,998)
(14,560)
(20,538)
1,905,358
(4,628)
(68,501)
(308)
(13,265)
(406)
(3)
30,861
242,242
(2,081)
58,812
(77,932)
451,801
(11,891)
(269,084)
(14,969)
20,946
3,092,685
The item high inflation in Argentina refers to the revaluation of the assets held by the Argentinian
company as a consequence of the application of the accounting standard IAS 29 - Financial
Reporting in Hyper-inflationary Economies.
Increases, totalling euro 369,699 thousand, were primarily aimed at increasing the capacity of the
High Value segment, and to the continuous improvement in the mix and quality in all manufacturing
plants.
The ratio of investments to depreciation for 2019 was equal to 1.27 (1.68 for the year 2018).
The item devaluation refers to the impairment of property, plant and equipment mainly due to
restructuring plans in Brazil and Italy.
Property, plant and equipment in progress at December 31, 2019, included in the individual
categories of fixed assets, amounted to euro 217,620 thousand (euro 227,302 thousand at
December 31, 2018).
It should be noted that, as part of the financing stipulated in Brazil, the companies of the Group have
pledged their own plants and machinery as guarantees to a total value of euro 1,165 thousand.
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Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
9.2 - Rights of use
The value of the assets for which the Group has entered into lease agreements was composed as
follows:
(in thousands of euro)
Right of use land
Right of use buildings
Right of use plant and machinery
Right of use other assets
Total
12/31/2019
12/31/2018
15,323
355,939
30,689
60,668
462,619
-
-
114
128
242
The figures at December 31, 2018 were relative to financial lease contracts pursuant to IAS 17.
The rights of use for buildings mainly refers to contracts related to offices, warehouses and points of
sale.
The rights of use for other assets mainly refers to contracts related to motor vehicles and transport
equipment. These contracts also include the service component (non-lease component).
Lease contracts are negotiated on an individual basis and include a wide variety of terms and
conditions.
Increases in the rights of use during the 2019 financial year amounted to euro 51,235 thousand.
At December 31, 2019 depreciation of the rights of use recognised in the Income Statement and
included under the item “Amortisation, depreciation and impairment” - (Note 32) was composed as
follows:
(in thousands of euro)
Land
Building
Plant e machinery
Other assets
Total depreciation of right of use
2019
1,130
60,613
7,789
19,947
89,479
For interest on lease obligations, reference should be made to Note 37 - “Financial expenses”.
Information on the costs for lease contracts with duration of less than twelve months, lease contracts
for low value assets, and lease contracts with variable lease payments, reference should be made
to Note 33 - “Other costs”.
376
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
10.
INTANGIBLE ASSETS
The composition and changes were as follows:
(in thousands of euro)
12/31/2018
Translation
differences
Increase
Decrease
Amortisation
Other
12/31/2019
Concessions / licenses / trademarks - finite
life
Pirelli Brand - indefinite life
Goodwill
Customer relationships
Technology
Software applications
Patents and design patent rights
Other intangible assets
Total
63,375
2,270,000
1,886,862
342,796
1,199,167
18,333
-
2,805
5,783,338
741
-
(204)
332
-
(32)
-
128
965
441
-
-
-
-
8,670
4,726
6,975
20,812
-
-
-
-
-
(15)
-
-
(15)
(5,274)
-
-
(34,543)
(76,850)
(8,092)
(236)
(828)
(125,823)
551
-
330
-
-
107
-
(90)
898
59,834
2,270,000
1,886,988
308,585
1,122,317
18,971
4,490
8,990
5,680,175
(in thousands of euro)
12/31/2017 Translation
differences
Effect of business
combination
Increase Decrease
Amortisation Impairment
Other
12/31/2018
Concessions / licenses / trademarks -
finite life
Pirelli Brand - indefinite life
Goodwill
Customer relationships
Technology
Software applications
Other intangible assets
TOTAL
67,797
2,270,000
1,877,363
377,242
1,276,017
20,744
4,541
(811)
-
(508)
87
-
(118)
270
-
-
10,007
-
-
-
-
979
-
-
-
-
10,330
331
5,893,704
(1,080)
10,007
11,640
-
-
-
-
-
(8)
(679)
(687)
(4,827)
-
-
(34,533)
(76,850)
(7,816)
(1,194)
-
-
-
-
-
(5,250)
(0)
(125,220)
(5,250)
237
63,375
-
-
-
-
451
(464)
224
2,270,000
1,886,862
342,796
1,199,167
18,333
2,805
5,783,338
Intangible assets were composed as follows:
the Pirelli Brand (indefinite useful life) 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, operating
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 as indefinite 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 52,483 thousand included under the
item “Concessions, licenses and brands with a finite useful life;”
Customer relationships (useful life of 10 - 20 years) which mainly includes the value of
commercial relationships both for the Original Equipment channel and the Replacement channel;
Technology which includes the value of both product and process technologies as well the value
of the In-Process R&D (being formed at the time of the acquisition of the Group in 2015 by Marco
Polo Industrial Holding S.p.A.) amounted to euro 1,047,317 thousand and euro 75,000 thousand
respectively. The useful life of 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 1,886,988 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
377
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
to the goodwill provisionally determined as part of the acquisition of the company JMC Pneus
Comercio Importação e Exportação Ltda which occurred in 2018.
Impairment testing of Goodwill
Pursuant to IAS 36, goodwill is not subject to amortisation, but is tested for impairment annually or
more frequently, if specific events or circumstances arise that may suggest 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.
Goodwill, amounting to euro 1,886,988 thousand, was allocated to the group of CGUs, the
“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 impairment test consists of comparing the recoverable amount of the Cash Generating Unit
(CGU) (or of the set of CGUs) to which the goodwill is allocated and its carrying amount, including
its operating assets and goodwill.
The recoverable amount is defined as the higher amount between its value in use (present value of
the expected cash flows) and the fair value less costs of disposal (market value net of costs for
disposal).
The value configuration used to determine the recoverable amount for Consumer Activities at
December 31, 2019, is that of the value in use which corresponds to the present value of the future
cash flows expected to be associated with the group of CGUs, using a rate which reflects the risks
specific to the group of CGUs at the measurement date. The key assumptions used by Management
were the estimates for future increases in sales, in operating cash flows, in the growth rates of
operating cash flows beyond explicit forecast period for terminal value estimation purposes, in the
weighted average cost of capital (discount rate). The expected cash flows cover a time-frame of
three years (2020 - 2022) and refer to the consensus forecasts on the prospective revenues and
EBITDA adjusted for the three-year period 2020 - 2022 period made by equity analysts and issued
after presentation of the 2020 - 2022 Industrial Plan, as these forecasts are more prudent than the
Plan approved by the Board of Directors and presented to the financial community on February 19,
2020; for the 2020 – 2022, period the average annual revenue growth rate is 2.8%, while the average
EBITDA margin is 25.1%.
The impairment test at December 31, 2019 was performed using the assistance of an independent
third-party professional.
378
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Also considered were the hypothetical cash flows deriving from the disposal of the CGUs at the end
of the explicit period (assumed to be equal to the present value of the perpetual income from cash
flows generated during the final year of the forecast).
The discount rate, defined as the Weighted Average Cost of Capital (WACC) net of taxes, which was
applied to the prospective cash flows equalled 6.48%, while the operating cash flows growth rate,
for the purposes of terminal value estimation (g) equalled zero. Capitalization rate of operating cash
flows (WACC – g) is hence equal to 6.48%.
On the basis of the results of the tests carried out, no impairment loss emerged.
The recoverable amount is higher compared to the carrying amount of the Consumer Activities
(18.2%); for the value in use to be equal to the carrying amount change in key parameters should
be the following:
an increase in the discount rate by 112 basis points;
a decrease in the growth rate “g” beyond the explicit forecasted period by 129 basis points;
a decrease in the EBITDA margin adjusted by 252 basis points.
For the purposes of providing complete information, it should be noted that the share price at
December 31, 2019 (euro 5.14 per share) was in any case higher than the carrying amount for Group
equity (euro 4.72 per share).
Impairment testing of the Pirelli Brand (intangible fixed asset with an indefinite useful life):
The Pirelli Brand, valued 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 suggest an
impairment.
The impairment test at December 31, 2019 was carried out with the assistance of an independent
third-party professional.
The configuration of the recoverable amount for impairment testing purposes at December 31, 2019
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 was based on:
-
the consensus forecasts of equity analysts for the prospective revenues for the 2020 -
2022 period, as these forecasts are more prudent than the 2020 - 2022 Industrial Plan,
where the revenue growth rate for the 2020-2022 period is 2.8%;
379
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
- a valuation criterion by sum of parts which also takes into account the contribution of
royalties from the Prometeon Tyre Group for the use of the Pirelli trademark in relation to
the Industrial segment;
-
the royalty rates 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 related to the main brands of the listed companies of the Tyre
sector, and was equal to an average royalty rate of 4.46%. With reference to the
contribution in terms of royalties from the Prometeon Tyre Group, the royalties used were
those planned;
- a discount rate of 8.00% which included a premium compared to WACC determined on
the basis of the risk level 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 which the market participant
could benefit in the abstract if it were to acquire the asset separately as a result of the
possibility to amortize it for tax purposes.
For the purposes of impairment testing, the recoverable amount of the Pirelli Brand cum TAB was
compared with the respective carrying amount (cum TAB) and no impairment loss emerged.
For the fair value to be equal to the carrying amount of the Pirelli Brand, change in key parameters
should be the following:
a decrease in the royalty rates for the Consumer valuation units by 53 basis points, and the
simultaneous zeroing of the balance for royalties from the license agreement with Prometeon
Tyre Group;
an increase in the discount rate by 96 basis points;
a decrease in the g growth rate of 128 basis points.
380
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
11.
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
Changes in investments in associates and joint ventures were as follows:
(in thousands of euro)
12/31/2019
12/31/2018
Opening balance
Increases
Distribution of dividends
Impairment
Share of net income / (loss)
Share of other components recognised in Equity
Use of provision for future risks and expenses
Other
Closing balance
Associates
j.v.
Total
Associates
j.v.
Total
8,419
-
(200)
-
249
-
-
235
8,703
64,286
27,580
-
-
(9,927)
(1,176)
(8,620)
-
72,143
72,705
27,580
(200)
-
(9,678)
(1,176)
(8,620)
235
80,846
12,529
4,951
-
65,222
(2,674)
(874)
(274)
-
-
(288)
8,419
-
-
(11,286)
(3,221)
8,620
-
64,286
17,480
65,222
(2,674)
(874)
(11,560)
(3,221)
8,620
(288)
72,705
11.1
Investments in associates
The item was composed as follows:
(in thousands of euro)
12/31/2018
Distrib. of
dividends and
reserves
Share of net
income (loss)
Other
12/31/2019
Eurostazioni S.p.A.
Joint Stock Company Kirov Tyre Plant
Other Group companies
Total associates
6,395
1,185
839
8,419
-
-
(200)
(200)
-
55
194
249
-
177
58
235
6,395
1,417
891
8,703
The investments in associated companies evaluated using the equity method were not relevant in
terms of the impact on the total consolidated assets, either individually or in aggregate form.
11.2
Investments in joint ventures
The details of the item were as follows:
(in thousands of euro)
12/31/2018 Increases
Share of net income
(loss)
Share of other
components
recognised in Equity
Use of provision for
liabilities and charges
12/31/2019
PT Evoluzione Tyres
Xushen Tyre (Shanghai) Co, Ltd
Total joint ventures
-
64,286
64,286
27,580
-
27,580
(2,769)
(7,158)
(9,927)
(1,176)
-
(1,176)
(8,620)
-
(8,620)
15,015
57,128
72,143
The Group holds:
-
an investment of 63.04% (ownership was 60% at December 31, 2018) in PT Evoluzione Tyres,
an entity which operates in Indonesia and is active in the production of tyres for motorcycles.
Even though the company is 63.04% owned, as a result of contractual agreements between
381
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
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 is
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., Ltd. owns a Consumer tyre manufacturing plant in
China. The new plant provides 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 for the Original
Equipment channel in China, Japan and Korea. The investment is evaluated using the equity
method.
The item increases refer to the effects of the recapitalisation of the Indonesian joint venture which
was completed during the first half-year through the conversion, by Pirelli Tyre S.p.A., of the Group’s
outstanding loans at December 31, 2018 of euro18,655 thousand, and a further capital payment of
euro 8,925 thousand.
The share of net income (loss) which was negative to the amount of euro 9,927 thousand, refers
to euro 7,158 thousand, pro-rata share of the loss for 2019 attributable to the joint venture Xushen
Tyre (Shanghai) Co., Ltd., and to euro 2,769 thousand attributable to the joint venture PT Evoluzione
Tyres.
The item use of the provision for liabilities and charges mainly refers to the provision recorded
in 2018 for the joint venture PT Evoluzione Tyres, concerning the surplus between the pro-rata share
of the loss for the period, and the value of the investment which was used following the
recapitalisation of the company during the first half-year of 2019 (Refer to Note 21 - Provisions for
liabilities and charges).
The investments in joint ventures were not relevant in terms of their impact on the total consolidated
assets.
382
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
12. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE
INCOME
The changes in other financial assets at fair value through other Comprehensive Income amounted
to euro 58,967 thousand at December 31, 2019 (euro 68,781 thousand at December 31, 2018), and
were as follows:
(in thousands of euro)
Opening balance at 01/01/2019
Translation differences
Increases
Decreases
FV adjustment through other comprehensive income
Other
Closing balance 12/31/2019
68,781
10
86
(9,486)
(366)
(58)
58,967
The composition of the item according to the individual securities is as follows:
(in thousands of euro)
RCS Mediagroup S.p.A.
Total listed securities
Fin. Priv. S.r.l.
Fondo Anastasia
Istituto Europeo di Oncologia S.r.l.
Euroqube
Tlcom I LP
Other companies
Total unlisted securities
12/31/2019
12/31/2018
24,892
24,892
20,565
3,947
7,465
10
195
1,893
34,075
28,449
28,449
15,604
15,575
6,961
12
184
1,996
40,332
Total other financial assets at FV through Other comprehensive
income
58,967 68,781
The item decreases refers mainly to the partial quotas repayment for the Fondo Comune di
Investimento Immobiliare Anastasia (Anastasia Real Estate Investment Fund) to the amount of euro
9,430 thousand.
The fair value adjustments through other Comprehensive Income which equalled a negative
net value of euro 366 thousand, mainly refer to Fin. Priv. S.r.l. (positive at euro 4,961 thousand), to
the European Oncological Institute (positive at euro 504 thousand), which was offset by RCS
MediaGroup S.p.A. (negative at euro 3,556 thousand), and by the Fondo Comune di investimento
Anastasia (Anastasia Real Estate Investment Fund), (negative at euro 2,197 thousand).
383
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
For listed securities, their fair value corresponded to the stock market price at December 31, 2019.
The fair value of unlisted securities was determined by using estimates based on the best available
information.
13.
DEFERRED TAX ASSETS AND PROVISION FOR DEFERRED TAX LIABILITIES
Their composition is as follows:
(in thousands of euro)
Deferred tax assets
Provision for deferred tax liabilities
Total
12/31/2019
81,188
(1,058,760)
(977,572)
12/31/2018
74,118
(1,081,605)
(1,007,487)
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, and the deferred taxes refer to the same
legal entity and the same taxation authority.
The provision for deferred tax liabilities mainly refers to the tax effect recognised on the value of
the assets identified during the course of the 2016 financial year, following the completion of the
allocation of the price paid by Marco Polo Industrial Holding S.p.A. for the acquisition of the Pirelli
Group at fair value of the Pirelli assets and liabilities acquired (Purchase Price Allocation or PPA),
and recorded in the Consolidated Financial Statements following the merger by incorporation of the
Parent company, Marco Polo Industrial Holding S.p.A. into Pirelli, which took place during the course
of the same 2016 financial year.
Their composition, gross of the offsets carried out was as follows:
(in thousands of euro)
Deferred tax assets
- of which within 12 months
- of which more than 12 months
Provision for deferred tax liabilities
- of which within 12 months
- of which more than 12 months
Total
12/31/2019
351,373
159,911
191,462
(1,328,945)
(5,935)
(1,323,010)
(977,572)
12/31/2018
304,872
126,864
178,008
(1,312,359)
(3,361)
(1,308,998)
(1,007,487)
384
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
The tax effect of temporary differences and of tax losses carried forward which make up the item is
shown in the following table:
(in thousands of euro)
Deferred tax assets:
Provisions for liabilities and charges
Property, plant and equipment
Leasing (UFRS 16)
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:
Intangible assets
Tangible assets
Other
Total
12/31/2019
12/31/2018
62,633
6,763
1,511
66,389
40,452
43,338
29,307
2,210
98,770
351,373
(1,055,683)
(193,202)
(80,060)
(1,328,945)
48,478
-
-
61,428
50,003
70,429
27,727
395
46,412
304,872
(1,083,896)
(175,808)
(52,655)
(1,312,359)
The item “Other” in deferred tax assets mainly includes deferred tax assets recognised on surpluses
of interest charges not deducted, and on the ACE benefit (Allowance for Corporate Equity).
At December 31, 2019 the value of deferred tax assets not recognised on tax losses equalled euro
76,218 thousand, while those relative to temporary differences equalled euro 38,423 thousand. This
latter item mainly includes deferred tax assets not recognised on interest charges.
The value of tax losses according to their maturity, against which deferred tax assets are not
recognised, are as follows:
(in thousands of euro)
Year of maturity
12/31/2019
12/31/2018
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Without maturity date
Total
-
1,713
3,040
2,552
5,493
1,280
1,893
5,122
3,648
512
675
291,683
317,611
4,660
2,406
3,039
2,551
5,490
1,280
1,818
5,114
3,648
512
-
284,476
314,994
385
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
Of the total tax losses with no expiration date, euro 145,880 thousand refers to losses attributable to
subsidiaries in the UK, Spain, Chile and Netherlands, for which no future taxable income was
expected that could justify their recoverability, and euro 125,199 thousand in tax losses attributable
to Pirelli & C. S.p.A., which derived from the company Marco Polo Industrial Holding S.p.A. as a
result of the reverse merger in 2016.
The tax effect of gains and losses recognised directly in equity was positive to the amount of euro
1,170 thousand (negative to the amount of euro 7,884 thousand for 2018) and is 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.
14.
TRADE RECEIVABLES
Trade receivables were analysed as follows:
(in thousands of euro)
Trade receivables
Provision for bad debts
Total
Total
715,361
(65,967)
649,394
12/31/2019
Non-current Current
-
-
-
715,361
(65,967)
649,394
Total
685,090
(57,122)
627,968
12/31/2018
Non-current Current
-
-
-
685,090
(57,122)
627,968
The gross value of trade receivables amounted to euro 715,361 thousand (euro 685,090 thousand
at December 31, 2018) of which euro 76,404 thousand was for receivables which were past due
(expired) at the reporting date (euro 148,663 thousand at December 31, 2018). Receivables which
were past due at December 31, 2019 benefited from better collection procedures, implemented
during the last quarter of the financial year.
Receivables which were past due and not yet due were evaluated in accordance to the Group’s
policy described in the section on adopted accounting standards.
Impairment losses on receivables include both significant individual positions subject to individual
impairment, and positions with similar credit risk characteristics which were grouped together and
impaired on a collective basis.
386
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
The changes in the provision for bad debts were as follows:
(in thousands of euro)
Opening balance
Translation differences
Accruals
Decreases
Reversals
Other
Closing balance
12/31/2019
12/31/2018
57,122
612
30,251
(14,433)
(8,016)
431
65,967
267,086
16,548
18,978
(237,124)
(8,211)
(155)
57,122
Accruals to the provision for bad debts are recognised in the Income Statement under “Net
impairment loss on financial assets” - (Refer to Note 34).
The carrying amount for trade receivables is considered to approximate their fair value.
For the fully impaired trade receivables which were subject to legal action, it is estimated that an
amount not exceeding 10% of their gross value could be recovered.
15.
OTHER RECEIVABLES
Other receivables were analysed as follows:
(in thousands of euro)
Financial receivables
Trade accruals and deferrals
Receivables from employees
Receivables from social security and welfare
institutions
Receivables from tax authorities not related to
income taxes
Other receivables
Provision for bad debts
Total
12/31/2019
Total Non-current
140,324
15,803
899
180,150
46,399
7,513
Current
39,826
30,596
6,614
12/31/2018
Total Non-current
124,048
8,907
1,059
156,952
32,837
6,625
Current
32,904
23,930
5,566
2,136
-
2,136
2,537
-
2,537
458,921
108,080
803,199
(8,944)
794,255
150,513
39,186
346,725
(4,328)
342,397
308,408
68,894
456,474
(4,616)
451,858
306,253
152,477
657,681
(15,323)
642,358
42,021
50,173
226,208
(501)
225,707
264,232
102,304
431,473
(14,822)
416,651
The item non-current financial receivables (euro 140,324 thousand) refers mainly to, euro 77,656
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 19,158 thousand in sums
deposited into escrow accounts in favour of the pension funds of Pirelli UK Ltd. and Pirelli UK Tyres
Ltd. to euro 14,075 thousand in contributions paid in cash at the time of signing an association in
participation contract, to euro 5,584 thousand in loans disbursed in favour of the Indonesian joint
venture PT Evoluzione Tyres.
The item current financial receivables (euro 39,826 thousand) refers to, euro 26,131 thousand for
the short-term portion of loans disbursed to the joint venture Jining Shenzhou Tyre Co., Ltd. and to
387
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
euro 6,843 thousand accrued on derivative cross currency interest swap contracts relative to the
unsecured syndicated “Facilities” loan granted to Pirelli International Treasury S.p.A., and to euro
965 thousand for the short-term portion of insurance premiums paid in advance for the issue of
guarantees in favour of the same pension funds.
The provision for other receivables and financial receivables (euro 8,944 thousand) mainly
includes euro 8,651 thousand relative to the impairment of financial receivables.
The item receivables from tax authorities not related to income taxes (euro 458.921 thousand)
is mainly comprised of receivables for IVA (value added tax) and other indirect taxes. The increase
compared to December 31, 2018 (equalled euro 152,668 thousand) and was mainly attributable to
a receivable from the Brazilian tax authorities totalling euro 162,101 thousand, which was recognised
following the attainment of a favourable verdict, no longer subject to appeal, which was formally
passed into final judgement (res judicata) by the Federal Regional Court, with registered offices in
Brasilia and San Paolo, which recognised the right to exclude the ICMS tax (Imposto Sobre
Operações Relativas à Circulação or state Value Added Tax, for the circulation of goods and the
provision of interstate and inter-municipal transport and communication services) from the base
calculation of PIS (Programa de Integracao Social) and COFINS (Contribucao para Financiamento
de Seguridade Social) social security contributions for the 1992-2017 period.
The item other non-current receivables (euro 39,186 thousand) mainly refers to amounts
deposited as guarantees for legal and tax disputes involving the Brazilian business units (euro
35,356 thousand), and receivables pledged as guarantees to the amount of euro 2,397 thousand 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), which was subsequently
merged into the company Comercial and Importadora de Pneus Ltda.
The item other current receivables (euro 68,894 thousand) mainly includes advances to suppliers
amounting to euro 25,480 thousand, receivables from related parties and associates to the amount
of euro 18,677 thousand, of which euro 4,244 thousand was for the sale of materials and moulds
and receivables from the Prometeon Group, and receivables for the disposal of unused real estate
property for industrial operations in Brazil amounting to euro 2,207 thousand.
For other current and non-current receivables the carrying amount is considered to approximate their
fair value.
16.
TAX RECEIVABLES
The item tax receivables refers to income taxes which amounted to euro 50.634 thousand (of which
euro 9,140 thousand was non-current) compared to euro 57.562 thousand at December 31, 2018
(of which euro 16,169 thousand was non-current). In more detail, it mainly refers to receivables for
388
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
advance payments on taxes for the financial year, and to income tax receivables from previous
financial years recorded by the Brazilian and Chinese companies.
17.
INVENTORIES
The following is an inventories analysis:
(in thousands of euro)
12/31/2019
12/31/2018
Raw and auxiliary materials and consumables
Sundry materials
Work in progress and semi-finished products
Finished products
Advances to suppliers
Total
121,048
7,915
58,183
905,713
895
1,093,754
155,205
6,492
55,608
910,447
714
1,128,466
The reinstatement of the value of inventories, which was recognised net of impairments, amounted
to euro 7,502 thousand (restatement of euro 21,497 thousand for 2018).
Inventories were not subject to any guarantee pledges.
18.
OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH THE INCOME STATEMENT -
CURRENT
Current other financial assets at Fair Value through the Income Statement amounted to euro 38,119
thousand at December 31, 2019 compared to euro 27,196 thousand at December 31, 2018.
The fair value of unlisted securities was determined by using estimates based on the best available
information.
Changes in fair value for the period were recognised in the Income Statement as “Financial
expenses” - (Refer to Note 37).
19.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents went from euro 1,326,900 thousand at December 31, 2018 to euro
1,609,821 thousand at December 31, 2019.
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.
389
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
For the Statement of Cash Flows, the balance of cash and cash equivalents was recorded net of
bank overdrafts, to the amount of euro 9,194 thousand at December 31, 2019 (euro 23,048 thousand
at December 31, 2018).
20.
EQUITY
20.1 Attributable to the Parent Company
Equity attributable to the Parent company went from euro 4,468,121 thousand at December 31,
2018 to euro 4,724,449 thousand at December 31, 2019.
The subscribed and paid up share capital at December 31, 2019 amounted to euro 1,904,375
thousand and was represented by 1,000,000,000 registered ordinary shares without indication of
their nominal value.
Translation reserve, arising from the translation into euro of the financial statements of subsidiaries
prepared in a functional currency other than the euro, was negative by euro 313,805 thousand at
December 31, 2019. The changes occurred during the financial year include a negative change of
euro 8,681 thousand, relating to exchange rate differences on the translation of the financial
statements of foreign subsidiaries, associates and joint ventures and a negative change of euro
1,567 thousand relating to the reversal to the Income Statement of cumulated translation reserve up
to the date of disposal of the Joint Stock Company “R&D Training Center of New Technologies &
Materials “ATOM”.
IAS reserves increased from a negative amount of euro 66,714 thousand at December 31, 2018 to
a negative value of euro 89,424 thousand at December 31, 2019 mainly due to remeasurement of
employee benefits (negative for euro 13,100 thousand). Reserves mainly include cumulative
remeasurement of employee benefits negative for euro 43,946 thousand and cash flow hedge
reserve for euro 31,326 thousand.
Other reserves / retained earnings increased from euro 2,034,917 thousand at December 31, 2018
to 3,323,303 thousand at December 31, 2019, mainly due to the effect of net income for the year
(positive for euro 438,134 thousand) and effect of hyper-inflation accounting in Argentina (positive
for euro 27,514 thousand) offset by reductions due to dividends approved for distribution to
shareholders (euro 177,000 thousand).
390
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
20.2 Attributable to non-controlling interests
Equity attributable to non-controlling interests went from euro 82,806 thousand at December 31,
2018 to euro 102,182 thousand at December 31, 2019. The increase was mainly due to the result
for the financial year of euro 19,563 thousand.
21.
PROVISIONS FOR LIABILITIES AND CHARGES
The changes that occurred during the period are shown below:
PROVISION FOR LIABILITIES AND CHARGES - NON-
CURRENT PORTION (in thousands of euro)
12/31/2018
Translation
differences
Increases
Uses
Reversals
Labour disputes
Provision for tax risks not related to income taxes
Provision for environmental risks
Provision for restructuring and reorganisation
Provision for other risks
Total
13,111
32,046
1,922
13,000
78,248
138,327
(342)
(17)
-
(385)
(331)
(1,075)
6,633
238
500
13,566
8,182
29,119
(3,766)
-
(1,847)
-
(11,673)
(17,286)
(2,511)
(17,062)
-
-
(8,255)
(27,828)
Reclass./
Other
395
(9,186)
2,000
-
3,511
(3,280)
First time
adoption
IFRS 16
-
-
-
-
2,492
2,492
12/31/2019
13,520
6,019
2,575
26,181
72,174
120,469
The item increases refers mainly to provisions for labour disputes mainly for the Brazilian subsidiary,
to rationalisation measures in Italy to the amount of euro 11,218 thousand, and provisions for
commercial risks and supply contracts mainly in Italy to the amount of euro 10,326 thousand.
The item uses of other risks, was mainly attributable to the provision for liabilities and charges
recorded for 2018 for the investment in the joint venture PT Evoluzione Tyres relative to the surplus
between the pro-rata share of the loss for the period and the value of the investment used following
recapitalisation which was completed during the first half-year of 2019, and to litigations regarding
occupational diseases.
The item reversals of tax risks refers mainly to the release of provisions originally recorded for
disputes on taxes not related to income of the subsidiary Pirelli Pneus Ltda, while the reversals of
other risks were mainly attributable to amounts for disputes the for which the risk of loss is not
considered as probable.
The item reclassifications mainly refers to the reclassification of tax provisions for income tax,
implemented by Italian companies, to tax payables following the application of IFRIC 23 - Uncertainty
over Income Tax Treatments. Under other risks, mainly of note were the reclassifications of the
provision for the reinstatement of leased assets by the subsidiary Pirelli UK Tyres Ltd., from current
to non-current.
The item other risks includes a provision of euro 33.5 million attributable to the decision taken by
the European Commission – and subsequently confirmed by the verdict of the Court of the European
Union on July 12, 2018, against which on September 21, 2018, Pirelli & C. S.p.A. (Pirelli) filed an
appeal in the Court of Justice of the European Union following the antitrust investigation initiated in
relation to the alleged restrictive conduct of the competition in the European energy cable market.
The decision provides for sanctions against Prysmian Cavi e Sistemi S.r.l. (“Prysmian”) for having
been directly involved in the alleged cartel, a part of which (euro 67 million) Pirelli, despite having
391
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
been found to not have been involved in the alleged cartel, was held as being jointly liable with
Prysmian, based solely on the application of the principle of so-called parental liability, in that during
part of the period of the alleged infringement, the share capital of Prysmian S.p.A. was held, either
directly or indirectly by Pirelli. The provisioned amount of euro 33.5 million corresponds to the amount
of the first demand 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 sanction imposed jointly and severally on Pirelli and Prysmian to the amount of euro
67 million.
PROVISION FOR LIABILITIES AND CHARGES -
CURRENT PORTION (in thousands of euro)
12/31/2018
Translation
differences
Increases
Uses
Reversals
Labour disputes
Provision for tax risks not related to income taxes
Provision for environmental risks
Provision for restructuring and reorganisation
Provision for claims and warranties
Provision for other risks
Total
373
1,116
4,700
-
10,767
16,920
33,876
(21)
149
-
(349)
170
351
300
166
774
283
13,940
1,383
7,339
23,885
-
-
(318)
-
(1,562)
(719)
(2,599)
(206)
-
-
-
(532)
(3,908)
(4,646)
Reclass./
Other
-
-
(2,000)
-
0
(5,288)
(7,288)
First time
adoption
IFRS 16
-
-
-
-
-
-
-
12/31/2019
312
2,039
2,665
13,591
10,226
14,695
43,528
The item increases mainly refers to the provisions for insurance risks and accidents at work of the
English subsidiary, and rationalisation measures carried out for the subsidiary Pirelli Pneus Ltda,
which began during 2018 relative to the Standard business.
The reversals of surplus provisions mostly refers to adjustments to the provisions for accidents at
work and insurance risks.
The item reclassifications refers mainly to the provision for the reinstatement of the leased assets
of the subsidiary Pirelli UK Tyres Ltd., from current to non-current.
22. EMPLOYEE BENEFIT OBLIGATIONS
Pension funds – non-current portion
The item is composed as follows
(in thousands of euro)
12/31/2019
12/31/2018
Pension funds:
- funded
- unfunded
Employee leaving indemnities (TFR - Italian companies)
Healthcare plans
Other benefits
Total
26,235
89,690
32,680
17,825
36,573
203,003
51,143
86,639
32,175
17,126
37,229
224,312
392
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Pension funds
The following table shows the composition of pension funds at December 31, 2019.
(in thousands of euro)
Germany
Sweden
Total unfunded
pension funds
12/31/2019
USA
UK
Other
countries
Total funded
pension funds
Funded funds
Present value of funded liabilities
Fair value of plan assets
Unfunded funds
Present value of unfunded liabilities
Net liabilities recognised in the Financial
Statements
124,619
1,181,736
32,957
(102,720) (1,183,006)
(27,351)
1,339,312
(1,313,077)
86,477
86,477
3,213
3,213
89,690
89,690
21,899
(1,270)
5,606
26,235
The following table shows the composition of pension funds at December 31, 2018.
(in thousands of euro)
Funded funds
Present value of funded liabilities
Fair value of plan assets
Unfunded funds
Present value of unfunded liabilities
Net liabilities recognised in the Financial
Statements
83,455
83,455
3,184
3,184
Germany
Sweden
Total unfunded
pension funds
USA
UK
Other
countries
Total funded
pension funds
12/31/2018
118,489
1,053,985
34,612
(95,169) (1,030,587)
(30,187)
1,207,086
(1,155,943)
86,639
86,639
23,320
23,398
4,425
51,143
The characteristics of the main pension funds in place at December 31, 2019 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 guaranteed a pension in addition
to the state pension and was administered internally by a Trust. These 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., and included the employees in the
Cables and Systems sector which was sold in 2005, and was already frozen at the date of the
disposal. At the end of October 2017, three of the smaller UK pension funds - Pirelli General
Executive Pension and Life Assurance Fund, Pirelli Tyres Limited Executive Retirement Benefits
Scheme, and Pirelli General Overseas Retirement Benefits Scheme, entered into so-called “buy-
in” contracts which consist of the purchase of insurance policies (so-called “bulk annuities”);
393
Pirelli & C. S.p.A. – 2019 Annual Report
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 2019 financial year in the net liabilities of defined benefits (for both funded
and non-funded pension funds) were as follows:
(in thousands of euro)
Opening balance at January 1, 2019
Translation difference
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
- return on plan assets, net of interest income
Employer contributions
Employee contributions
Benefits paid
Other
Closing balance at December 31, 2019
Present value
of gross
liabilities
Fair value of
plan assets
Total net
liabilities
1,293,724
59,815
(1,155,942)
(58,817)
137,782
998
1,606
128
37,166
38,900
(13,585)
130,635
(6,002)
-
111,048
-
534
(74,274)
(745)
1,429,002
-
-
(34,399)
(34,399)
-
-
-
(101,172)
(101,172)
(32,469)
(534)
68,352
1,904
(1,313,077)
1,606
128
2,767
4,501
(13,585)
130,635
(6,002)
(101,172)
9,876
(32,469)
-
(5,922)
1,159
115,925
Changes for the 2018 financial year in the net liabilities of defined benefits (for both funded
and unfunded pension funds) were as follows:
(in thousands of euro)
Opening balance at January 1, 2018
Translation difference
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
- return on plan assets, net of interest income
Employer contributions
Employee contributions
Benefits paid
Other
Closing balance at December 31, 2018
394
Present value
of gross
liabilities
Fair value of
plan assets
Total net
liabilities
1,397,042
(1,839)
(1,213,863)
2,841
1,622
14,319
34,248
50,189
(14,988)
(66,749)
8,252
-
(73,485)
-
-
(30,780)
(30,780)
-
-
-
46,349
46,349
-
528
(78,167)
(544)
1,293,724
(33,710)
(528)
72,119
1,630
(1,155,942)
183,179
1,002
1,622
14,319
3,468
19,409
(14,988)
(66,749)
8,252
46,349
(27,136)
(33,710)
-
(6,048)
1,086
137,782
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Costs for current and past services rendered by employees are included in the item “Personnel
expenses” - (Refer to Note 31) while interest payables are included in the item “Financial expenses”
- (Refer to Note 37).
The following table shows the composition of funded pension fund assets:
(in thousand of euro)
Shares
Bonds
Insurance policies
Deposits
Balanced funds
Real Estate
Derivatives
Other
Total
12/31/2019
12/31/2018
listed
55,412
80,590
83,838
307,900
unlisted
314,342
79,834
-
8,213
(2,546) 237,017
3,867 57,447
-
68,385
-
18,778
765,238
547,839
total
369,754
160,424
83,838
316,113
234,471
61,314
68,385
18,778
1,313,077
-
-
-
listed
unlisted
%
28.2%
54,391
12.2%
76,181
84,567
6.4%
-
24.1% 355,410
17.9% 6,665 559,360
4.7% 2,558 -
5.2% 3,267 (739)
95
14,187
1.3%
558,716
100% 597,226
total
54,391
76,181
84,567
355,410
566,025
2,558
2,528
14,282
1,155,942
%
4.7%
6.6%
7.3%
30.8%
49.0%
0.2%
0.2%
1.2%
100%
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 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 hedged 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
395
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
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). In addition, the buy in operation implemented in 2017 and the consequent
stipulation of the policies on a collective basis (one for each of the three pension funds of the buy in)
and not on an individual basis (for each member of the funds), which perfectly replicate the financial
profiles of the respective liabilities, has allowed the Group to be relieved of all the aforementioned
risks.
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.
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 unfunded pension funds during the 2020
financial year amount to euro 5,709 thousand, while for funded pension funds the amount expected
is euro 44,026 thousand.
396
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Employees’ leaving indemnities (TFR)
Changes for the year for the employees’ leaving indemnities provision were as follows:
(in thousands of euro)
Opening balance
Movements through Income Statement:
- current service cost
- interest expense
Remeasurements recognized in equity:
- actuarial (gains) / losses arising from changes in demographic assumptions
- actuarial (gains) / losses arising from changes in financial assumptions
Indemnities/advanced payments
Other
Closing balance
12/31/2019
12/31/2018
32,175
33,083
22 62
498 536
- 6
1,443 291
(1,364) (1,030)
(94) (773)
32,175
32,680
The current cost for services rendered by employees is included in the item “Personnel expenses” -
(Refer to Note 31) while interest payables are included in the item “Financial expenses” - (Refer to
Note 37).
Healthcare plans
This item refers exclusively to the healthcare plan in place in the United States.
(in thousands of euro)
Liabilities recognised in the Financial Statements at 12/31/2019
Liabilities recognised in the Financial Statements at 12/31/2018
The following changes occurred during the period:
USA
17,825
17,126
(in thousands of euro)
12/31/2019
12/31/2018
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
17,126
328
2
682
1,834
(329)
(775)
(1,043)
17,825
18,885
814
4
614
(993)
(183)
(957)
(1,058)
17,126
The cost for services rendered by employees is included in the item “Personnel expenses” - (Refer
to Note 31) while interest payables are included in the item “Financial expenses” - (Refer to Note
37).
397
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
The contributions which are expected to be paid into the healthcare plan during the 2020 financial
year amount to euro 1,431 thousand.
Additional information regarding post-employment benefits
Net actuarial losses accrued during 2019 which were recognised directly in equity amounted to euro
13,100 thousand.
The main actuarial assumptions used at December 31, 2019 were as follows:
Italy
Germany
Sweden
UK
USA
Switzerland
Discount rate
Inflation rate
0.70%
1.00%
0.90%
1.50%
1.10%
1.70%
2.10%
2.90%
3.00%
N/A
0.25%
0.75%
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%
1.50%
2.30%
1.60%
2.05%
2.00%
2.90%
3.13%
4.20%
N/A
0.85%
1.00%
The following table presents an analysis of the payment deadlines relative to post-employment
benefits:
(in thousands of euro)
within 1 year
1 to 2 years
3 to 5 years over 5 years
Total
Pension funds
Employees' leaving indemnities (TFR)
Healthcare plans
Total
70,343
2,429
1,431
74,203
70,813
2,622
1,423
74,858
214,827
7,435
4,148
226,410
369,111
8,972
6,119
384,202
725,094
21,458
13,121
759,673
The weighted average term for bonds for post-employment benefits equalled 15.04 years (14.57
years at December 31, 2018).
A sensitivity analysis for the relevant actuarial assumptions at the end of the financial year was as
follows:
(in %)
Impact on post employment benefits
Increase in assumptions Decrease in assumptions
Change in
assumptions
Discount rate
Inflation rate (only UK plans)
0.25% decrease of
0.25% increase of
3.53%
2.62%
increase of
decrease of
3.82%
2.14%
398
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
At the end of 2018 the situation was as follows:
(in %)
Impact on post employment benefits
Increase in assumptions Decrease in assumptions
Change in
assumptions
Discount rate
Inflation rate (only UK plans)
0.25% decrease of
0.25% increase of
3.46%
2.06%
increase of
decrease of
3.67%
2.36%
The sole purpose of the analysis outlined above was to estimate the changes in liability as a result
of changes in the discount rates and inflation rates in the UK, applying the central hypothesis on the
rates themselves, rather than referring to an alternative set of hypotheses.
The sensitivity analysis on the liabilities related to post-employment benefits is based on the same
methodology used to calculate the liability recognised in the Financial Statements.
Other long-term benefits
The composition of other benefits is as follows:
(in thousands of euro)
Long-term incentive plans
Jubilee awards
Leaving indemnities
Other long-term benefits
Total
12/31/2019
12/31/2018
-
19,513
12,154
4,906
36,573
2,018
18,433
10,786
5,992
37,229
On December 31, 2018 the item “Long Term Incentives Plan” included 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. As part of
the presentation of 2020 - 2022 Industrial Plan on February 19, 2020, the Board of Directors
approved the adoption of a new monetary incentive plan - the Long Term Incentive (LTI) plan - aimed
at the areas of Group management (currently around 270 participants) - which is closely correlated
with the objectives of the plan. At the same time, the Board of Directors - effective as of December
31, 2019 - resolved to close early, and without any disbursement not even pro-rata, the previous
plan adopted in 2018 which correlated the objectives of the 2018-2020 period.
Employee benefit obligations - current portion
The item employee benefit obligations, which amounted to euro 4,104 thousand, refers to the
relevant share at December 31, 2019 of the third instalment of the retention plan, which will be
liquidated during the first half-year of 2020. The plan was approved by the Pirelli Board of Directors
399
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
on February 26, 2018 and is aimed at Managers with strategic responsibilities, and at a select
number of senior Managers and Executives.
23. BORROWINGS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS
Borrowings from banks and other financial institution were as follows:
(in thousands of euro)
Bonds
Borrowings from banks
Borrowings from other financial institutions
Lease obligations
Accrued financial expenses and deferred
financial income
Other financial payables
Total Borrowings from banks and other
financial institutions
The item bonds refers to:
Total
1,271,392
3,532,377
56,384
483,172
21,459
4,455
12/31/2019
Non-current Current
1,071,475
2,472,056
0
405,375
199,917
1,060,321
56,384
77,797
Total
1,269,514
3,412,940
17,048
213
12/31/2018
Non-current Current
1,269,514
2,654,914
393
10
-
758,026
16,655
203
(0)
21,459
21,711
28
21,683
930
3,525
7,798
4,220
3,578
5,369,239
3,949,836
1,419,403
4,729,224
3,929,079
800,145
- an unrated public bond loan for the total nominal amount of euro 753 million of which euro
553 million, (originally for euro 600 million which was partially repurchased for the total
amount of euro 47 million during the last quarter of 2018) placed on January 22, 2018 with a
fixed coupon of 1.375% with an original maturity of 5 years, plus a second security issued on
March 15, 2018 for the nominal amount of euro 200 million at a floating rate, with an 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;
-
the floating rate “Schuldschein” loan for the total nominal value of euro 525 million placed on
July 26, 2018. The loan, signed by primary market operators, consists of one tranche for the
amount of euro 82 million with a 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:
(in thousands of euro)
Nominal value
Transaction costs
Bond discount
Amortisation of effective interest rate
Total
400
12/31/2019
12/31/2018
1,278,000
(7,683)
(2,988)
4,063
1,271,392
1,278,000
(7,683)
(2,988)
2,185
1,269,514
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
The item borrowings from banks, which amounted to euro 3,532,377 thousand, mainly refers to:
use of unsecured financing (“Facilities”) granted to Pirelli & C. S.p.A. for the amount of euro
1,994,801 thousand, of which euro 252,095 thousand was classified under current borrowings
from banks. The nominal amount of the refinancing operation signed on June 27, 2017, (with a
closing date of June 29, 2017) equalled euro 2.7 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).
On November 29, 2018 the loan was amended to include the right of the Pirelli Group to extend,
at its own discretion, the expiry of the individual credit facilities of the financing to up to 2 years
with respect to their original contractual maturity of 3 and 5 years;
euro 921,473 thousand relative to three bilateral loans disbursed to Pirelli & C. S.p.A. by leading
financial institutions, consisting of a nominal euro 600 million with a 5 year maturity (“Bilateral
600”), euro 125 million with a 4 year maturity at a floating rate (“Bilateral 125”), and euro 200
million whose maturity date has been extended to June 2020 (original maturity in July 2019) at
a fixed rate (“Bilateral 200”), classified under current borrowings from banks;
euro 485,031 thousand relative to loans disbursed in Brazil by international and local banking
institutions of which euro 4,605 thousand has been classified under non-current borrowings from
banks;
euro 42,790 thousand representing the loan granted to the subsidiary Pirelli Tyre (Jiaozuo) Co.,
Ltd. (China), classified as current borrowings from banks;
euro 12,781 thousand representing the loans granted to the subsidiary Pirelli Otomobil Lastikleri
(Turkey) by local banks;
bank loans and the use of credit facilities at local level in Russia, (euro 61,807 thousand), and in
Japan (euro 8,201 thousand) classified entirely as current borrowings from banks.
At December 31, 2019 the Group had a liquidity margin equal to euro 2,347.9 million composed of
euro 700.0 million in the form of non-utilised committed credit facilities, and euro 1,609.8 million in
cash and cash equivalents, in addition to financial assets at fair value through the Income Statement
to the amount of euro 38.1 million.
The item lease obligations represents the financial liabilities relative to the application of the IFRS
16 accounting standard as of January 1, 2019. Undiscounted future payments for lease contracts for
which the exercise of extension options are not considered to be reasonably certain amounted to
euro 52,124 thousand at December 31, 2019, and were not included in this item.
Accrued financial expenses and deferred financial income (euro 21,459 thousand) mainly refers
to the accrual of interest on borrowings from banks to the amount of euro 11,731 thousand (euro
12,387 thousand at December 31, 2018), and to the accrued interest matured on bonds to the
amount of euro 9,082 thousand (euro 9,269 thousand at December 31, 2018).
401
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
The change in the total borrowings from banks and other financial institutions was follows:
(in thousands of euro)
Borrowings from banks and other financial institutions at December 31, 2018
Drawdowns of unsecured financing (Facilities)
Repayments of unsecured financing (Facilities)
New bilateral borrowings
Repayment European Investment Bank (EIB) loan
Financial flows for the local credit facilties of Group companies
Amortised cost for the period
Translation differences and other movements for the period
Borrowings from banks and other financial institutions at December 31, 2019 w/o IFRS 16
IFRS 16 first time adoption impact
Increase in lease obligations
Remeasurement and early termination
Repayment of principal forlease obligations
Translation differences and other movements for the period
Borrowings from banks and other financial institutions at December 31, 2019
4,729,224
395,931
(1,097,498)
720,900
(10,000)
40,778
(15,734)
122,466
4,886,067
494,292
50,529
15,139
(77,678)
890
5,369,239
The change in total borrowings from banks and other financial institutions for the previous financial
year is shown below:
(in thousands of euro)
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)
Repayments of unsecured financing (Facilities)
Intesa financing
Repayment European Investment Bank (EIB) loan
Financial flows for the local credit facilties of Group companies
Amortised cost for the period
Translation differences and other movements for the period
Borrowings from banks and other financial institutions at December 31, 2018
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
Current and non-current financial payables backed by secured guarantees (pledges and mortgages)
totalled euro 96 thousand (euro 342 thousand at December 31, 2018).
For current financial payables, it is considered that their carrying amount approximates their relative
fair value. For non-current financial payables, their fair value is shown below, compared with their
carrying amount:
12/31/2019
12/31/2018
Carrying amount
1,071,475
Fair value Carrying amount
1,269,514
1,084,830
2,472,056
406,305
3,949,836
2,500,469
406,306
3,991,604
2,654,914
4,651
3,929,079
3,954,215
Fair value
1,252,468
2,697,096
4,651
(in thousands of euro)
Bonds
Borrowings from banks
Other financial payables
Total non-current financial payables
402
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
The unrated public bonds issued by Pirelli & C. S.p.A. are listed, and their relative fair value has
been measured on the basis of year-end prices. It has therefore been classified in level 1 of the
hierarchy provided for by IFRS 13 – Fair Value Measurement. The fair value of the “Schuldschein”
loan and of current borrowings from banks, was calculated by discounting each expected debt cash
flow at the market swap rate for the currency and the maturity date, increased by the Group’s credit
rating for other debt instruments similar by nature and technical characteristics, which therefore
placed 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 was as follows:
(in thousands of euro)
EUR
USD (US Dollar)
CNY (Chinese Yuan)
RUR (Russian ruble)
BRL (Brasilian Real)
SEK (Swedish krona)
RON (Romanian leu)
GBP (British pound)
TRY (Turkish Lira)
JPY (Japanese yen)
MXN (Mexican Peso)
Other Currencies
Total
12/31/2019
12/31/2018
2,772,361
2,303,523
66,284
64,939
52,480
29,926
28,263
19,482
16,075
10,147
1,684
4,075
5,369,239
2,403,626
2,184,842
12,829
32,738
9,887
4,511
5
106
13,433
6,357
54,187
6,703
4,729,224
At December 31, 2019 there were derivative hedging instruments for interest rates and exchange
rates in place for debts at floating rates 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) is subdivided as
follows:
a floating rate payable to the amount of euro 2,521,850 thousand, whose interest rate is
subject to renegotiation within the first six months of 2020;
a fixed rate payable to the amount of euro 2,847,353 thousand, whose interest rate is not
subject to renegotiation until the natural maturity of the debt to which it refers (euro 335,346
thousand with maturity in the following twelve months and euro 2,512,107 thousand euro with
maturity after twelve months).
The cost of debt year-on-year stood at 2.83% compared to 2.95% at December 31, 2018.
403
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
The reduction in the cost of debt during the course of 2019 mainly reflected:
the reduction of the cost of the central credit facilities thanks to the partial replacement of
existing debt with new debt at a lower cost, and to the reduction of the interest margin on the
main credit facilities following the improvement of the Group’s leverage to which these
margins are indexed;
lower exposure for the Group, by more than 1.5%, to countries with high interest rates, which
at December 31, 2019 represented less than 19% of the Group’s gross debt;
With regard to the existence of financial covenants, it is to be noted that (i) the Group’s main bank
credit facility (“Facility”) granted to Pirelli & C. S.p.A. and Pirelli International Plc (up to now usable
solely and in its entirety by Pirelli & C) and, (ii) the financing of the “Schuldschein” loan, (iii) the
bilateral 600 million euro credit facility granted to Pirelli & C. during the course of the first quarter of
2019 (“Bilateral 600”), and (iv) the bilateral euro 125 million credit facility granted to Pirelli & C. during
the course of the third quarter of 2019 (“Bilateral 125”), 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 all of the loans indicated above, any failure to comply with the financial covenant is identified as
a default event.
Specifically, a default event of can be exercised in accordance with the terms of the relative contract
(i) as part of the Facility 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 (partial or total) of the loan
with the simultaneous cancellation of the relative commitment; (ii) as part of the Schuldschein loan,
individually and independently by each lending bank for their share and involves the early repayment
of the loan only for that share; and (iii) within both the Bilateral 600 and the Bilateral 125, by the only
bank that has granted each of the aforementioned loans, resulting in the early repayment for the
entire amount disbursed.
Of note is that this parameter had been complied with at December 31, 2019.
The Facility, the Schuldschein loan and the Bilateral 600 also provide for Negative Pledge clauses
whose terms are consistent with market standards for each of the aforementioned types of credit
facilities.
The other outstanding financial payables at December 31, 2019 did not contain financial covenants.
404
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
24. TRADE PAYABLES
Trade payables were composed as follows:
(in thousands of euro)
Trade payables
Bill and notes payable
Total Trade payables
Total
1,546,714
64,774
1,611,488
12/31/2019
Non-current Current
-
-
-
1,546,714
64,774
1,611,488
Total
1,567,718
36,959
1,604,677
12/31/2018
Non-current Current
-
-
-
1,567,718
36,959
1,604,677
For trade payables, it is considered that their carrying amount approximates their relative fair value.
25. OTHER PAYABLES
Other payables were as follows:
(in thousands of euro)
Accrued expenses and deferred income
Tax payables not related to income taxes
Payables to employees
Payables to social security and welfare intitutions
Dividends payable
Contract liabilities
Other payables
Total Other payables
Total
83,268
86,252
91,426
67,404
270
4,754
159,954
493,328
12/31/2019
Non-current Current
57,684
7,002
62
24,131
-
-
1,692
90,571
25,584
79,250
91,364
43,273
270
4,754
158,262
402,757
Total
84,338
93,200
98,167
68,576
350
4,147
171,261
520,039
12/31/2018
Non-current Current
53,233
6,171
220
21,894
-
-
1,769
83,287
31,105
87,029
97,947
46,682
350
4,147
169,492
436,752
The item non-current accrued expenses and deferred trade income refers to euro 50,159
thousand in capital contributions received for investments realised 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 7,502 thousand in costs for trade initiatives in Brazil.
The item current accrued expenses and deferred trade income includes euro 6,031 thousand for
various trade initiatives realised in Germany and Brazil, euro 8,084 thousand in government grants
and tax incentives received mainly in Italy and Romania, and euro 1,872 thousand for insurance
costs coverage in some European countries.
The item tax payables for taxes not related to income is mainly comprised of IVA payables (value
added tax) and other indirect taxes, withholding tax for employees and other taxes not related to
income.
The item current payables to employees mainly includes amounts accrued 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, pursuant to the provisions of IFRS
15.
405
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
The item other current payables (euro 158.262 thousand) mainly includes:
euro 109,634 thousand for the purchase of property, plant and equipment (euro 106,668
thousand at December 31, 2018);
euro 9,114 thousand in payables to representatives, agents, professionals and consultants;
euro 6,129 thousand in withholding taxes on income;
euro 5,227 thousand for debts relative to customs duties, import and transport costs;
euro 3,482 thousand in payables to companies of the Prometeon group particularly in Brazil and
China;
euro 3,183 thousand in payables to Directors, Auditors and supervisory bodies;
euro 1,380 thousand relative to the purchase of 34 points of sale in São Paulo (Brazil) by the
Brazilian subsidiary Pirelli Comercial de Pneus Brasil Ltda. The amount refers to the
consideration for the transaction, net of the amount already paid at December 31, 2019.
26. TAX PAYABLES
Tax payables were for the most part related to national and regional income taxes in different
countries and amounted to euro 94,321 thousand (of which euro 12,555 thousand was for non-
current liabilities), compared to euro 67,594 thousand at December 31, 2018 (of which euro 2,091
thousand was for non-current liabilities). Income tax payables include Management evaluations with
reference to any effects of uncertainty on the treatment of income taxes.
27. DERIVATIVE FINANCIAL INSTRUMENTS
The item includes the fair value measurement of derivative instruments. It is composed as follows:
(in thousands of euro)
12/31/2019
12/31/2018
Non current
assets
Current assets Non current
liabilities
Current
liabilities
Non current
assets
Current assets Non current
Current liabilities
liabilities
Without adoption of hedge accounting
Exchange rate derivatives - commercial positions
Exchange rate derivatives - included in net financial position
-
-
5,058
21,904
-
-
(9,724)
(31,703)
Hedge accounting adopted
- cash flow hedge:
Interest rate derivatives
Other derivatives
481
52,034
52,515
-
(10,327)
10,186
37,148
-
(10,327)
(41,427)
20,134
20,134
-
-
-
7,321
70,329
-
-
(6,092)
(53,510)
-
20,917
98,567
(4,726)
(11,313)
(16,039)
-
-
(59,602)
- Total derivatives included in net financial position
52,515
32,090
(10,327)
(31,703)
20,134
91,245
(13,738)
(53,510)
406
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
The composition of the items by type of derivative instrument is as follows:
(in thousands of euro)
Current assets
12/31/2019
12/31/2018
Forward foreign exchange contracts - fair value recognised in the Income Statement
Cross currency interest rate swaps - cash flow edge
Total current assets
Non current assets
Interest rate swaps - cash flow hedge
Cross currency interest rate swaps - cash flow hedge
Total non current assets
26,962
10,186
37,148
481
52,034
52,515
77,650
20,917
98,567
-
20,134
20,134
Current liabilities
Forward foreign exchange contracts - fair value recognised in the Income Statement
Total current liabilities
(41,427)
(41,427)
(59,602)
(59,602)
Non current liabilities
Interest rate swaps - cash flow hedge
Cross currency interest rate swaps - cash flow hedge
Total non current liabilities
(10,327)
(10,327)
-
(4,726)
(11,313)
(16,039)
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 for the period. These were
hedge operations for the commercial and financial transactions of the Group for which the hedge
accounting option had not been adopted. Their fair value was determined by using the forward
exchange rate at the reporting date.
Derivative financial instruments with the adoption of hedge accounting
The value of interest rate derivatives recognised under current assets to the amount of euro 481
thousand, and under non-current liabilities to the amount of euro 10,327 thousand, refers to the fair
value measurement of 9 cross currency interest rate swaps.
Derivative
Hedged element
Notional amount
(Euro million)
Start date
Maturity
IRS
IRS
IRS
IRS forward start
IRS forward start
Term loan in EUR
Term loan in EUR
Term loan in USD + CCIRS
Schuldschein
Schuldschein
Total
250
63
100
180
20
613
June 2019
August 2019
October 2019
July 2020
July 2020
June 2022
August 2023
June 2022
July 2023
July 2025
receive floating / pay fix
receive floating / pay fix
receive floating / pay fix
receive floating / pay fix
receive floating / pay fix
407
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
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 variable rate financial liability which
is considered highly probable;
-
the combination of a USD floating rate liability and a CCIRS or cross-currency interest rate
swap (Basis Swap);
-
the Schuldschein loan - (Refer to Note 23).
The change in the fair value for the period which was negative to the amount of euro 6,074 thousand
was entirely suspended in equity, while euro 954 thousand was reversed to the Income Statement
under the item “Financial expenses” - (Refer to Note 37), correcting the financial expenses
recognised on the hedged liability.
A change of +0.5% in the EURIBOR curve, all other conditions being equal, would result in a positive
change of euro 7,905 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 7,135 thousand in
the equity of the Group
The value of other derivatives, recognised under non-current assets to the amount of euro 52,034
thousand and under non-current assets to the amount of euro 10,186 thousand, refers to the fair
value measurement of 11 cross currency interest rate swaps with the following characteristics:
Derivative
Notional amount Notional amount Start date Maturity
(USD million)
(Euro million)
CCIRS
CCIRS
CCIRS
Total
284
682
1,079
2,045
243
582
920
1,744
July 2017 June 2020 pay floating EURIBOR / receive floating LIBOR USD
July 2017 June 2022 pay floating EURIBOR / receive floating LIBOR USD
July 2019 June 2022 pay fix EUR / receive floating LIBOR USD
The objective of these derivatives, for which hedge accounting of the cash flow hedge type was
adopted, was to hedge the Group against the risk of cash flow fluctuations associated with changes
in the LIBOR rate, and changes in the US$/euro exchange rate generated by a liability in US$ at a
floating rate.
The positive change in the fair value for the period was suspended in equity to the amount of euro
83,342 thousand (a cash flow hedge reserve of euro 79,513 thousand and a cost of hedging reserve
of euro 2,829 thousand), while euro 36,864 thousand was reversed to the Income Statement under
the item “net gains on exchange rates”, (Refer to Note 36 - “Financial income”) to offset the
unrealised exchange rate losses recorded on the hedged liability, and euro 50,338 thousand which
was reversed to the item “Financial expenses” - (Refer to Note 37), correcting the financial expenses
recognised on the hedged liability.
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 11,054 thousand in the equity of the Group, while a change
408
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
of -0.5% in the same curves, all other conditions being equal, would result in a negative change of
euro 11,253 thousand in the equity of the Group.
Hedging relationships relative to any IRS (interest rate swap) and CCIRS (cross-currency interest
rate swap - Basis Swap) are considered prospectively effective as 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 with financial counter-parties with a high credit
standing, and the credit quality of the outstanding 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 risk adjusted fair value of
the hedging instrument (with the exception of those attributable to the currency basis spread), with
any changes in the risk free fair value of the hedged item, through the identification of a hypothetical
derivative with the same characteristics of the underlying financial liability. Possible causes of
ineffectiveness were as follows:
-
-
-
the application of credit risk adjustments 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;
the misalignment between the effective contractual conditions of the future transaction and those
of the hedging instrument.
At December 31, 2019, no ineffectiveness was identified with reference to the aforementioned
hedging relationships.
409
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
28. COMMITMENTS AND RISKS
COMMITMENTS FOR THE PURCHASE OF PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
The commitments to purchase property, plant and equipment and intangible assets amounted
respectively to euro 92,242 thousand and euro 4.753 thousand and refer mainly to subsidiary
companies in Italy, Romania, Brazil, Russia, UK and Mexico.
LEASING CONTRACT COMMITMENTS
At December 31, 2019, the total of undiscounted future payments for lease contracts not yet in force,
and against which no financial payable was recognised, was equal to euro 34,005 thousand and
mainly refers to lease contracts for warehouses and offices.
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
Pending the decision of the EU Community proceedings referred to in Note 21 - “Provisions for Risks
and Charges”, in November 2014, Pirelli & C. S.p.A. (“Pirelli”) commenced legal action before the
Court of Milan in order to obtain an examination and declaratory judgement of the obligation of
Prysmian Cavi e Sistemi S.r.l. to hold Pirelli harmless from any claim relative to 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 21, against which, on September 21, 2018, Pirelli filed an appeal before
the Court of Justice of the European Union.
Prysmian also filed an appearance in the proceedings requesting, that Pirelli’s claims be dismissed,
as well as to be held harmless by Pirelli in relation to the consequences deriving from the Decision
of the European Commission or otherwise in any way connected to it. Proceedings were suspended
pending the final ruling by the EU Community Courts.
On the basis of an accurate legal analyses provided by external counsel, Pirelli maintained that it
was not involved in the commission of the alleged irregularities, and maintains that the full and final
liability for any violation must be borne exclusively by the company directly involved.
410
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
In October 2019 Pirelli took further action before the Court of Milan against Prysmian Cavi e Sistemi
S.r.l. and Prysmian S.p.A. requesting an assessment and judgement for the obligation of Prysmian
Cavi e Sistemi S.r.l. to indemnify and hold Pirelli harmless against all charges, expenses, costs
and/or damage consequent to claims by private and/or public third parties (including authorities other
than the European Commission) relative, connected and/or consequential to the facts which were
subject to the Decision of the European Commission, as well as the consequent order that Prysmian
Cavi e Sistemi S.r.l. reimburse any charge, expense, costs or damage incurred or suffered by Pirelli.
Pirelli also requested the examination of Prysmian Cavi e Sistemi S.r.l.’s and Prysmian S.p.A.’s
liabilities in relation the illegal conduct connected to the aforementioned alleged anti-competitive
agreement, carried out by the same, and, consequently, an order to pay all damage incurred and
currently being incurred by Pirelli.
Pirelli also requested the examination and declaratory judgement of the joint liability of Prysmian
S.p.A. in relation to the amounts that will be paid both due to these new proceedings and those
brought in November 2014, which will not be paid by Prysmian Cavi e Sistemi S.r.l.
Other disputes related to the European Commission Decision
In November, 2015, Prysmian S.p.A. notified Pirelli of a summons for proceedings for the recovery
of damages brought before the London High Court of Justice against Prysmian S.p.A. and other
defendants named in the European Commission decision of April 2, 2014, by National Grid and
Scottish Power, companies who claim to have been injured by the alleged unlawful agreement.
Specifically, Prysmian S.p.A. has 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 compensation obligations (to date unquantified) by National Grid and
Scottish Power. Due to the aforementioned pending legal action before the Court of Milan, Pirelli has
challenged the lack of jurisdiction of the London High Court of Justice claiming that, that any decision
on the merits must be referred to the previous Court of appeal. In April 2016, the High Court of
Justice, in proceedings between Pirelli and Prysmian S.p.A. suspended the English proceedings
until judgement became final, which would define the Italian proceedings already pending.
In April 2019, Terna S.p.A. - National Electricity Grid (“Terna”) jointly and severally sued Pirelli, three
Prysmian Group companies and another defendant named in the aforementioned European
Commission Decision, in order to obtain compensation for the damage allegedly suffered as a
consequence of the alleged anti-competitive conduct, currently quantified by the plaintiff as euro
199.9 million.
Finally, in April 2019, the Electricity & Water Authority of Bahrain, GCC Interconnection Authority,
Kuwait Ministry of Electricity and Water and Oman Electricity Transmission Company, served a
summons against Pirelli, some of the Prysmian Group companies and other defendants named in
the aforementioned European Commission Decision, agreeing both jointly and severally, to obtain
compensation for the damage allegedly suffered as a consequence of the alleged anti-competitive
411
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
conduct. This proceeding was brought before the Court of Amsterdam. At present, the plaintiffs have
not yet quantified the damage allegedly suffered.
On the basis of accurate legal analyses provided by external counsel, Pirelli, not being involved in
the commission of the alleged irregularities of its former subsidiary, maintains that the full and final
liability for any violation must be borne exclusively by the company directly involved. As a
consequence of the aforesaid, the assessment of the risk relative to the disputes described above
is considered as to not require the allocation of any specific provision in the Consolidated Financial
Statements at December 31, 2019, even with the initial status of proceedings having been taken into
consideration.
Tax disputes in Brazil
The subsidiary Pirelli Pneus is involved in tax disputes and litigations. The most relevant are
described below:
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 is 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 erga omnes, 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 was designed to put an end to the dispute between various states in Brazil.
This legislation validates the incentives, which to date were considered illegitimate, and therefore
also extinguishes the relative sanctions imposed by the Brazilian tax authorities. The implementative
aspects of this new provision have to date been defined by the Brazilian States, and therefore last
December 2019, Pirelli Pneus also filed a petition for amnesty regarding the dispute in question. This
petition does not interrupt the ongoing litigation in court, which can therefore continue in case the
amnesty petition should have a negative outcome.
412
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
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 Sports
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 also
in light of the recent judgement in favour of Pirelli Pneus, 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, who concluded their analysis by equating the tyres discussed, in light of their similar
characteristics, 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 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) which also refers to the particular case of 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 particular 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 precedence
413
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
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.
Dispute concerning the tax impact deriving from the so called “Plano Verão” (Government
stabilisation plan)
Pirelli Pneus is involved in dispute over taxes with the Brazilian tax authorities, which, in the opinion
of the Company - for the period between 1989 and 1994 - were collected by the Brazilian tax
administration in amounts that exceeded what was actually due following the so called “Plano
Verão”, the economic measure introduced by the then Brazilian government, to control the
phenomenon of hyperinflation that was affecting the country through price freezes. However, the
difference between the real and indexed inflation had the effect of creating significant distortions in
the Financial Statements of companies and, last but not least, the amount of taxes paid by the same.
Pirelli Pneus made use of the real inflation rate for its own Financial Statements valuations, and, at
the same time, began administrative legal proceedings aimed at asserting its reasons for the correct
amount of taxes owed. In the course of the aforementioned proceedings, Pirelli Pneus first adhered
to an amnesty for the tax disputes in order to define the dispute in question and, only subsequently,
on the basis of a ruling with binding effectiveness towards everyone by the Brazilian Supreme Court,
requested the annulment of the effects of the amnesty, to which it had previously adhered.
The risk is estimated at between euro 17 and 31 million, inclusive of tax, interests and penalties.
Also on the basis of the recent jurisprudence on cases similar to that of Pirelli Pneus, the Group
revised the assessment of the risk of losing, which at December 31, 2019 is no longer considered
as probable. In light of this, during the 2019 financial year, a provision in the Financial Statements of
approximately euro 17 million, previously set aside due to the uncertainty regarding the possibility
that the competent judicial courts would express themselves in favour of cancelling the effects of the
tax amnesty, was completely released.
Other Pirelli Pneus disputes
Pirelli Pneus is involved in two other relevant tax disputes concerning federal taxes and excises
(such as the IPI tax rate, the PIS and COFINS tax) as well as the ICMS 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 “Desenvolve” litigation relative to a fiscal incentive recognised by the
Federal State of Bahia, but which is claimed by the Brazilian tax authorities to have
414
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
been incorrectly calculated by Pirelli Pneus - approximately euro 9 million inclusive of
taxes, penalties and interest;
(ii)
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 two of the aforementioned disputes, also on the basis of the results of the first incidences of
proceedings, the risk of losing has not been assessed as probable and, therefore, no provision has
been made in the Financial Statements for these disputes.
29.
REVENUES FROM SALES AND SERVICES
Revenues from sales and services were as follows:
(in thousands of euro)
Revenues from sales of goods
Revenues from services
Total
2019
2018
5,174,701
148,353
5,323,054
5,049,040
145,431
5,194,471
30.
OTHER INCOME
The item is composed as follows:
(in thousands of euro)
Other income from Prometeon Group
Sales of Industrial products
Gains on disposal of property, plant and equipment
Rent income
Income from sublease of rights of use assets
Recoveries and reimbursements
Government grants
Other income
Total
2019
2018
60,922
158,709
1,298
3,780
1,662
164,475
13,343
82,118
486,307
91,343
183,762
7,848
5,465
-
95,785
14,515
84,487
483,205
The item other income from the Prometeon Group includes the sale of raw materials, semi-
finished and finished products for the amount of euro 18,688 thousand, royalties recorded from the
trademark license agreement to the amount of euro 10,423 thousand, royalties recorded from the
know-how license contract to the amount of euro 16,326 thousand, and services rendered for the
amount of euro 15,485 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
415
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
by the British subsidiary Pirelli International Plc. Reference should also be made to Note 44 –
“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, purchased mainly from the Prometeon Group, and which
are sold by the distribution network controlled by the Pirelli Group.
The item recoveries and reimbursements includes, in particular:
refunds of taxes and duties for a total of euro 110,681 thousand, received mainly from the
Brazilian subsidiary. The item includes euro 73,938 thousand derived from the benefit
recorded following the attainment of a favourable verdict by the Federal Regional Court, with
registered office in in Brasilia, which recognised the right to exclude the ICMS tax (Imposto
Sobre Operações Relativas à Circulação or state Value Added Tax for the circulation of
goods and the provision of interstate and inter-municipal transport and communication
services) from the base calculation of PIS (Programa de Integracao Social) and COFINS
(Contribucao para Financiamento de Seguridade Social) social security contributions for the
2003-2014 period. Reference should be made to Note 15 - “Other Receivables” for further
details.
tax refunds totalling euro 17,852 thousand deriving from tax incentives obtained mainly in the
state of Bahia, Brazil for commercial exports;
proceeds from the sale of tyres and scrap materials carried out in the United Kingdom for a
total of euro 5,814 thousand;
income from the sale of tyres for testing and the recovery of transport expenses incurred in
Germany to the amount of euro 1,838 thousand.
The item other includes income from sporting activities amounting to euro 34,953 thousand.
31.
PERSONNEL EXPENSES
The item is composed as follows:
(in thousands of euro)
2019
2018
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
416
822,647
167,184
16,888
23,583
1,627
3,622
5,290
31,326
1,072,167
796,874
167,011
19,087
22,698
13,831
4,247
3,007
40,824
1,067,579
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
The item other costs includes the portion of the retention plan that was approved by the Pirelli Board
of Directors on February 26, 2018.
The item personnel expenses for 2018 had included non-recurring events for a total of euro
15,410 thousand (1.4% of the total) attributable to provisions for the estimated impacts on pension
obligations deriving from the need to recalculate them, in order to rectify some of the disparities in
the treatments of Guaranteed Minimum Pension (GMP equalisation) amounts, that emerged for UK
pensions following the High Court ruling of October 36, 2018 in the case concerning the Lloyds
Banking Group.
32.
AMORTISATION, DEPRECIATION AND IMPAIRMENT
The item is composed as follows:
(in thousands of euro)
Amortisation
Depreciation (excl. Depreciation of right of use)
Depreciation of right of use
Impairment of property, plant and equipment and intangible assets
Total
2019
2018
125,823
292,045
89,479
20,471
527,818
125,220
269,084
-
20,219
414,523
The item impairments mainly refers to property, plant and equipment due to the rationalisation plan
carried out in Italy and Brazil, consistent with the reduction of the Standard capacity.
417
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
33.
OTHER COSTS
The item is subdivided as follows:
(in thousands of euro)
Selling costs
Purchases of goods for resale
Fluids and energy
Advertising
Consultants
Maintenance
Warehouse operating costs
Leases and rentals
Outsourcing
Travel expenses
IT expenses
Key managers compensations
Other provisions
Duty stamps, duties and local taxes
Canteen
Insurance
Cleaning expenses
Waste disposal
Security expenses
Telephone expenses
Other
Total
2019
2018
320,189
367,365
181,650
214,919
48,522
50,494
71,226
36,905
34,944
37,311
34,537
7,235
41,785
27,507
16,091
31,476
14,836
7,558
9,714
8,744
150,396
1,713,404
310,687
434,201
161,180
231,981
43,872
51,394
70,225
125,359
38,572
52,847
34,844
8,229
37,867
29,031
17,043
30,319
14,788
7,160
9,150
9,723
139,690
1,858,162
The item leases, rentals and lease instalments includes costs relative to the application of the new
accounting standard IFRS16, in particular:
euro 23,555 thousand for lease contracts with duration of less than twelve months;
euro 7,394 thousand for lease contracts for low unit value assets;
euro 5,956 thousand for lease contracts with variable payments.
In 2018 the item included costs relating to operating leases recorded in accordance with IAS 17 -
Leases replaced from 1 January 2019 by the new accounting standard IFRS 16 - Leases.
The item other also includes labour provided by third parties to the amount of euro 31,083 thousand,
and expenses for technological tests to the amount of euro 20,190 thousand.
The item other costs for 2018 had included non-recurring events for a total of euro 8,639
thousand (0.5% of the total) and mainly relative to costs for consultancy services as part of non-
recurring transactions, as well as costs incurred as a result of extraordinary events.
418
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
34.
NET IMPAIRMENT OF FINANCIAL ASSETS
The item, which was negative euro 22,266 thousand compared to euro 21,273 thousand for 2018,
mainly includes the net impairment of trade receivables to the amount of euro 22,235 thousand (euro
12,019 thousand at December 2018).
35.
NET INCOME (LOSS) FROM EQUITY INVESTMENTS
35.1 Share of net income (loss) from equity investments in associates and joint ventures.
The share of net income (loss) from equity investments in associates and joint ventures evaluated
using the equity method amounted to a negative euro 9,678 thousand and refers mainly to
investments in the joint venture Xushen Tyre (Shanghai) Co., Ltd. which recorded a loss of euro
7,158 thousand, and in the joint venture PT Evoluzione Tyres in Indonesia which recorded a loss of
euro 2,769 thousand (a loss euro 10,350 thousand for 2018).
For further details reference should be made to preceding Note 11 - “Investments in Associates and
Joint Ventures”.
35.2 Gains on equity investments
The amount euro 1,684 thousand mainly refers to the reversal to the Income Statement of the foreign
currency translation reserve, accumulated up until the date of disposal of the Joint Stock Company,
the Atom Research Training Centre for New Technologies and Materials, of euro 1,567 thousand.
For 2018 this item had mainly referred to the positive impact 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” sold on January 11, 2018.
35.3 Losses on equity investments
For 2019 the item amounted to euro 8,538 thousand, and referred to the disposal of the investment
in Inter Wheel Sweden Aktiebolag.
For 2018 the item had amounted to euro 1,603 thousand, and mainly referred to the impairment of
the investment in Focus Investments S.p.A..
419
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
35.4 Dividends
For 2019 this item amounted to euro 5,526 thousand and mainly included dividends received from
the RCS Mediagroup S.p.A. (euro 1,482 thousand), from the Fondo Comune di investimento
immobiliare Anastasia (Anastasia Real Estate Investment Fund) (euro 2,434 thousand), from Fin.
Priv. S.r.l. (euro 957 thousand) and from Genextra S.p.A. (euro 178 thousand).
For 2018 this item had 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, and from Fin. Priv. S.r.l. to the
amount of euro 957 thousand.
36.
FINANCIAL INCOME
The item is composed as follows:
(in thousands of euro)
Interest
Net interest income on Brazilian tax credits
Hyperinflation impact
Other financial income
Net gains on exchange rates
Fair value measurement of currency derivatives
Fair value measurement of other derivatives
Total
2019
13,774
107,302
-
5,141
2,461
-
83
128,761
2018
17,176
-
8,536
9,627
-
23,523
-
58,862
The item interest includes euro 5,384 thousand for interest on fixed income securities, and euro
3,095 thousand for interest income due from financial institutions.
The item net interest on tax credits in Brazil refers to the interest matured on receivables from the
Brazilian tax authorities recorded following the attainment of a favourable judgement by the Federal
Regional Court, with registered offices in Brasilia and San Paolo, which recognised the right to
deduct the state tax on goods and services (ICMS) from the base calculation of PIS (Programa de
Integracao Social) and COFINS (Contribucao para Financiamento de Seguridade Social) social
security contributions. Reference should be made to Note 15 - “Other receivables” for further details.
The item other financial income mainly includes interest matured on tax credits and on security
deposits provided by the Brazilian subsidiaries as a guarantee for legal and tax disputes.
The item net gains on exchange rates which amounted to euro 2,461 thousand (gains amounted
to euro 2,174,212 thousand and losses amounted to euro 2,171,151 thousand) refers to the
adjustment of period-end exchange rates for 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.
420
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
37.
FINANCIAL EXPENSES
The item is composed as follows:
(in thousands of euro)
Interests
Commissions
High inflation effect
Other financial expenses
Interest expenses on lease obligations
Net losses on exchange rates
Net interest costs on employee benefit obligations
Fair value measurement of exchange rate derivatives
Fair value measurements of other derivatives
Total
2019
107,166
20,298
19,995
9,303
23,480
-
4,612
53,386
-
238,240
2018
103,975
20,522
-
13,183
111,569
5,446
-
478
255,173
Interest which totalled euro 107,166 thousand included:
euro 98,639 thousand for bank credit facilities held by Pirelli & C. S.p.A.;
euro 15,213 thousand in financial expenses relative to bond loans, of which euro 9,869 thousand
refers to unrated bonds, and euro 5,344 thousand relative to the Schuldschein loan, both issued
by Pirelli & C. S.p.A.
euro 52,169 thousand for net interest on Cross Currency Interest Rate Swaps and Interest Rate
Swaps to rectify the flow of financial expenses, credit facilities and bond loans referred to in the
previous points. For further details reference should be made to Note 27 - “Derivative financial
instruments”.
euro 34,740 thousand in financial expenses relative to bank finance for foreign affiliates.
The item commissions includes, in particular, euro 7,459 thousand in costs for the assignment of
receivables with a non-recourse clause mainly in LatAm, Italy and Germany, and euro 12,839
thousand relative to expenses for sureties and other bank commissions.
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 Pirelli Neumaticos SAIC. Reference should be
made to Note 42 for more details.
The item valuation at fair value of exchange rate derivatives refers to the purchase/sale of the
forward currency contracts to hedge commercial and financial transactions, in accordance with the
Group’s policy for the management of exchange rate risk. For transactions still open at the end of
the financial year, the fair value was determined by applying 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 differential between the
currencies which are subject to the individual hedges, equal to a net cost of euro 48,191 thousand,
and the exchange rate component equal to a net cost of euro 31,895 thousand.
421
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
For 2019 the exchange rate component of the fair value measurement of the cross currency interest
rate swaps, for which hedge accounting of the cash flow hedge type was adopted, was positive to
the amount of euro 36,864 thousand, and was reclassified under the item net gains on exchange
rates, to offset unrealised exchange losses recorded on the hedged liability. To ensure comparability
with the previous financial year, the exchange rate component for 2018, positive to the amount of
euro 80,868 thousand, was reclassified to reduce net losses on exchange rates in order to offset
unrealised currency exchange losses recorded for 2018 on the hedged liability.
Net of the aforementioned reclassification, in comparing the net gains on exchange rates, which
totalled euro 2,461 thousand recorded for receivables and payables in currencies other than the
functional currency of the various subsidiaries, with the fair value valuation of the exchange rate
component of the exchange rate hedge derivative, equal to a net loss of euro 5,056 thousand, there
results a negative imbalance of euro 2,595 thousand, which indicates that the management of
exchange rate risk is basically in balance.
For 2018 financial expenses had included non-recurring events to the amount of euro 2,149
thousand (0.8% 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% and original maturity date in November
2019), which resulted in the 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 relative amortised
portion) due to the repricing of the unsecured credit facility (“Facilities”) which took place in
January 2018.
38.
TAXES
Taxes were composed as follows:
(in thousands of euro)
Current taxes
Deferred taxes
Total
2019
198,460
(33,898)
164,562
2018
156,104
(103,140)
52,964
Tax expenses for 2019 amounted to euro 164,562 thousand against pre-tax earnings of euro
622.259 thousand. The tax rate which stood at 26.5% was consistent with the expected tax rate for
the 2019 financial year.
For 2018 taxes had included non-recurring expenses and was positive to the amount of euro
60,607 thousand, attributable to the benefit derived from the application of the subsidised tax relief
scheme, the so called Patent Box, relative to the 2015 – 2018 period due to the preliminary
422
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
agreement signed by Pirelli Tyre S.p.A. on October 15, 2018 with the Agenzia delle Entrate (Italian
Tax Office). The tax rate for the 2018 financial year had stood at 10.6%.
The reconciliation between theoretical and effective taxes is as follows:
(in thousands of euro)
2019
A) Net income / (loss) before taxes
B) Theoretical taxes
Main causes for changes between estimated and effective taxes:
Tax incentives
Non-deductible costs
Witholding taxes not recoverable
Other
C) Effective taxes
Theoretical tax rate (B/A)
Effective tax rate (C/A)
622,259
172,424
(38,787)
8,924
15,895
6,106
164,562
28%
26%
The difference between the nominal and effective tax rates of the Group was mainly due to tax
incentives, net of non-deductible costs which were considered irrecoverable. The tax incentives
mainly refer to the benefit estimated for 2019 derived from the subsidised tax relief scheme in Italy,
the so called Patent Box.
The difference between the Group theoretical tax of 2019 and 2018 is mainly due to a different
composition of profit before tax generated by subsidiaries operating in countries with different
nominal tax rates. The main 2019 effect refers to the increase of profit before tax generated in Brazil
on which a nominal tax rate of 34% applies.
The Group’s theoretical tax burden is calculated by taking into account the nominal tax rates of the
countries where the Group’s main companies operate, as shown below:
EMEA
Italy
Germany
Romania
Great Britain
Turkey
Russia and Nordics
Russia
North America
USA
Mexico
South America
Argentina
Brazil
APAC
China
2019
27.90%
30.00%
16.00%
19.00%
22.00%
20.00%
25.00%
30.00%
30.00%
34.00%
25.00%
423
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
The share of taxes paid according to geographical area during the course of the financial year, equal
to euro 141,985 thousand, was follows:
- 41% APAC;
- 35% Europe;
14% LatAm;
- 7% NAFTA;
- 3% Russia, Nordics 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 2019, to income taxes paid during the course of 2019 but relative to previous financial years
(e.g. income tax balances relative to 2018) or to payments relative to tax assessments for previous
financial years. Taxes paid also include withholding taxes incurred on cross-border payments such
as dividends, interest and royalties which have been reported in the tax residence jurisdictions of the
recipient.
39. ASSETS AND LIABILITIES HELD FOR SALE AND DISCONTINUED OPERATIONS
For 2018 the item included the last residual activities in China and Argentina relative to the Industrial
business, which as a result of the assignment by Pirelli & C. S.p.A. of the TP Industrial Holding S.p.A.
shares in 2017 to the Parent company Marco Polo International Holding Italy S.p.A. were classified
as “discontinued operations”.
40.
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.
424
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
(in thousands of euro)
Net income attributable to the Parent Company related to continuing
operations
Weighted average number of ordinary shares outstanding (in thousands)
Earnings / (loss) per share related to continuing operations (in euro per
share)
Net income attributable to the Parent Company related to discontinued
operations
Weighted average number of ordinary shares outstanding (in thousands)
Earnings / (loss) per share related to discontinued operations (in euro
per share)
2019
2018
438,134
438,035
1,000,000
1,000,000
0.438
0.438
-
(6,429)
1,000,000
1,000,000
-
(0.006)
It should be noted that the earnings/(loss) per basic and diluted share coincide as there are no
potential issues of shares with dilutive effects on the results.
41.
DIVIDENDS PER SHARE
Based on the results of 2018, during the course of 2019, Pirelli & C. S.p.A. distributed a dividend of
euro 0.177 to its shareholders for each of the 1.000.000.000 ordinary shares for a total amount of
euro 177.000 thousand.
42.
HYPERINFLATION
Based on the provisions of the accounting standards of the Group, with regard to the criteria for
entering/exiting inflation accounting, the subsidiary Pirelli Neumaticos SAIC has adopted inflation
accounting since July 1, 2018, and 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 Consolidated Financial Statements at December 31, 2019 the official inflation index of 54.3%
was used.
Losses on the net monetary position were recognised in the Income Statement as “Financial
expenses” (Refer to Note 37) to the amount of euro 19,995 thousand.
43.
NON-RECURRING EVENTS
Pursuant to CONSOB Notification No. DEM/6064293 of July 28, 2006, there were no non-recurring
events recorded during the 2019 financial year.
425
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
For the 2018 financial year, the impact of non-recurring events on the operating income had
amounted to expenses totalling euro 24 million, while the impact on the net income had been positive
to the amount of euro 34.4 million.
44. 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, the Income
Statement and the Statement of Cash Flows which include the related party transactions and their
relative impact.
426
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
STATEMENT OF FINANCIAL POSITION
(in millions of euro)
Total
reported at
12/31/2019
of which
related
parties
% incidence
Total
reported at
12/31/2018
of which
related
parties
% incidence
Non current assets
Other receivables
Current assets
Trade receivables
Other receivables
Non-current liabilities
Borrowings from banks and other financial institutions
Current liabilities
Borrowings from banks and other financial institutions
Trade payables
Other payables
INCOME STATEMENT
(in millions of euro)
Revenue from sales and services
Other income
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
CASH FLOW (in millions of euro)
342.4
649.4
451.9
3,949.8
1,419.4
1,611.5
402.8
5.6
9.8
45.2
17.4
2.2
171.9
4.8
1.6%
1.5%
10.0%
225.7
628.0
416.7
0.4%
3,929.1
0.2%
10.7%
1.2%
800.1
1,604.7
436.8
12.6
15.7
55.4
-
-
191.6
7.4
5.6%
2.5%
13.3%
n.a.
n.a.
11.9%
1.7%
2019
of which
related
parties
2018
% incidence
of which
related
parties
% incidence
5,323.1
486.3
(1,741.2)
(1,072.2)
(1,713.4)
(22.3)
128.8
(238.2)
(11.0)
-
19.3
74.8
(4.1)
(14.5)
(278.2)
-
1.2
(1.0)
(9.7)
-
0.4%
15.4%
0.2%
1.4%
16.2%
n.a.
0.9%
0.4%
n.a.
n.a.
5,194.5
483.2
(1,818.2)
(1,067.6)
(1,858.2)
(21.3)
58.9
(255.2)
(5.0)
(6.4)
9.0
108.5
(12.7)
(14.1)
(290.4)
(9.0)
3.1
(0.0)
(11.6)
(10.6)
0.2%
22.5%
0.7%
1.3%
15.6%
42.3%
5.3%
0.0%
n.a.
n.a.
2019
of which
related
parties
% incidence
2018
of which
related
parties
% incidence
Net cash flows operating activities:
Trade receivables
Trade payables
Other receivables/payables
Net cash flows investing activities:
Acquisition of non-controlling interests
Dividends received from associates
Disposals (Acquisition) of investments in associates and JV
Net cash flows financing activities:
Change in Financial receivables/Other current financial assets at fair value
through income statement
Repayment of principal and payment of interest for lease obligations
Net cash flows provided by (used in) discontinued operations
(44.6)
18.8
(79.6)
-
-
(8.9)
(55.1)
(101.2)
-
5.8
(19.7)
28.0
-
-
(8.9)
(13.4)
(1.9)
-
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
(23.4)
104.7
(151.4)
(49.7)
2.7
(65.2)
(31.8)
-
37.1
47.1
(6.4)
(29.3)
(31.2)
2.7
(65.2)
-
-
43.5
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
427
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
Related party transactions on the consolidated data for Pirelli & C. Group were as follows:
TRANSACTIONS WITH ASSOCIATES AND JOINT VENTURES
STATEMENT OF FINANCIAL POSITION
(in millions of euro)
Other non current receivables
of which financial
Trade receivables
Other current receivables
of which financial
Borrowings from banks and other financial institutions non-current
Borrowings from banks and other financial institutions current
Trade payables
Other current payables
INCOME STATEMENT
(in millions of euro)
Revenues from sales and services
Other income
Raw materials and consumables (net of change in inventory)
Other costs
Financial income
Financial expenses
Net income/loss from equity investments
CASH FLOW
(in millions of euro)
Change in Trade receivables
Change in Trade payables
Change in Other receivables/Other payables
Net cash flows provided by / (used in) investing activities
Change in financial receivables / Other financial assets at fair value
through Income Statement
Repayment of principal and payment of interest for lease obligations
12/31/2019
5.6
5.6
3.4
40.7
26.5
15.4
1.6
36.2
0.0
12/31/2018
12.6
12.6
3.6
32.2
6.2
-
-
23.1
0.1
2019
19.0
6.8
0.4
85.4
1.0
0.6
9.7
2019
0.2
13.1
11.9
(8.9)
(13.4)
(1.6)
2018
6.2
2.1
-
42.7
1.2
-
11.6
2018
-
-
-
2.5
-
-
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 mainly by Pirelli Tyre Co.,
Ltd. to the Chinese joint venture Jining Shenzhou Tyre Co., Ltd.
428
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
The item other current receivables mainly refers to:
receivables for the sale of materials and moulds to the Joint Stock Company “Kirov Tyre
Plant” to the amount of euro 8.4 million, and from Jining Shenzhou Tyre Co., Ltd. to the
amount of euro 2.7 million;
receivables from PT Evoluzione Tyres for the recovery of costs sustained by Pirelli Tyre
S.p.A. to the amount of euro 2.7 million.
The financial portion refers to a loan granted by Pirelli Tyre Co., Ltd. to Jining Shenzhou Tyre Co.,
Ltd. for euro 26.1 million.
The item non-current borrowings from banks and other financial institutions refers to payables
for machine hire by the company Pirelli Deutschland GMBH from the company Industriekraftwerk
Breuberg Gmbh.
The item current borrowings from banks and other financial institutions refers to the short-term
portion of the aforementioned debt.
The item trade payables mainly refers to payables for the purchase of energy from
Industriekraftwerk Breuberg GmbH and trade payables towards the Jining Shenzhou Tyre Co., Ltd.
Transactions - Income statement
The item revenues from sales and services mainly refers to sales of materials and services to the
Jining Shenzhou Tyre Co., Ltd. to the amount of euro 11 million, and to the Joint Stock Company
“Kirov Tyre Plant” to the amount of euro 3.8 million, as well as royalties charged to PT Evoluzione
Tyres and to Jining Shenzhou Tyre Co., Ltd. for a total of euro 2.6 million.
The item other income refers mainly to the recharging for labour costs.
The item other costs mainly refers to the cost for the purchase of motorcycle products from PT
Evoluzione Tyres to the amount of euro 36.6 million, costs for the purchase of tyres from Jining
Shenzhou Tyre Co., Ltd. to the amount of euro 26.5 million and costs for the purchase of energy and
machine hire from Industriekraftwerk Breuberg GmbH to the amount of euro 21 million.
The item financial income refers to interest on the loans disbursed to the two joint ventures.
The item financial expenses refers to interest relative to machine hire.
429
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
TRANSACTIONS WITH OTHER RELATED PARTIES
The transactions detailed below refer mainly to transactions 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 of Pirelli & C. S.p.A.
STATEMENT OF FINANCIAL POSITION
(in millions of euro)
Trade receivables
Other current receivables
Borrowings from banks and other financial institutions non-current
Borrowings from banks and other financial institutions current
Trade payables
Other current payables
INCOME STATEMENT
(in millions of euro)
Revenues from sales and services
Other income
Raw materials and consumables (net of change in inventory)
Other costs
Net impairment loss on financial assets
Financial income
Financial expenses
Other income from discontinued operations
Other costs from discontinued operations
CASH FLOW
(in millions di euro)
Change in trade receivables
Change in trade payables
Change in Other receivables/Other payables
Net cash flows provided by / (used in) investing activities
Repayment of principal and payment of interest for lease obligations
Net cash flows for discontinued operations
12/31/2019
6.4
4.4
2.0
0.6
135.7
4.8
12/31/2018
12.0
23.2
-
-
168.5
7.4
2019
0.3
68.0
3.7
185.5
-
0.1
0.4
-
-
2019
5.6
(32.8)
16.2
-
(0.3)
-
2018
2.7
106.4
12.7
239.4
9.0
1.9
0.0
7.8
18.5
2018
47.1
(6.3)
(29.3)
(31.2)
-
43.5
Transactions – Statement of Financial Position
The item trade receivables refers to receivables from companies of the Prometeon Group.
The item other current receivables refers to receivables from companies of the Prometeon Group
to the amount of euro 4.2 million, and receivables for royalties from the Aeolus Tyre Co., Ltd. to the
amount of euro 0.2 million
The item non-current borrowings from banks and other financial institutions refers to payables
of the company Pirelli Otomobil Lastikleri A.S. for machine hire from the Prometeon company Turkey
430
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Endüstriyel ve Ticari Lastikler A.S. to the amount of euro 1.4 million, and the payables of Pirelli Pneus
Ltda to TP Industrial de Pneus Brasil Ltda to the amount of euro 0.6 million.
The item current borrowings from banks and other financial institutions refers to the short-term
portion of the previously mentioned debt.
The item trade payables almost exclusively refers to payables to companies of the Prometeon
Group to the amount of euro 134.8 million.
The item other current payables mainly refers to other current payables to companies of the
Prometeon Group to the amount of euro 4.2 million.
Transactions - Income statement
The item other income includes royalties recognised from Aeolus Tyre Co., Ltd. in respect of the
license agreement stipulated in 2016 for euro 7 million per year, which was subjected to the
renegotiation of some of the terms and conditions in February 2019. The item also includes income
from companies of the Prometeon Group mainly relative to:
-
-
-
-
-
royalties recorded in respect of the license contract for the use of the Pirelli trademark to the
amount of euro 16.3 million;
the sale of raw materials, finished and semi-finished products for the total amount of euro 18.7
million of which euro 15.1 million was carried out by Pirelli Pneus Ltda;
the Long-Term Service Agreement to the amount of euro 8.4 million of which euro 3.7 million
was earned by Pirelli Sistemi Informativi S.r.l., and euro 1.1 million by Pirelli Pneus Ltda;
logistics services for a total amount of euro 2.1 million of which euro 0.7 million was 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. to the amount of euro 10.4
million.
The decrease in other income compared to the same period of the previous financial year was mainly
attributable to the renegotiation of the license agreement with the Aeolus Tyre Co., Ltd. and to the
fact that raw materials are no longer supplied to the Prometeon Group by the British subsidiary Pirelli
International Plc.
The item raw and consumable materials used refers to costs payable to companies of the
Prometeon Group for the purchase of direct materials/consumables/compounds, of which euro 2.2
million was carried out by the Turkish company Pirelli Otomobil Latikleri A.S., and euro 1.3 million
by the Brazilian company Pirelli Pneus Ltda. The decrease for this item compared to 2018 was mainly
attributable to a reorganisation within the purchasing process.
431
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
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 100.3 million of which euro 83.9
million was carried out by the Brazilian company Comercial e Importadora de Pneus Ltda. for
the Brazilian sales network, and euro 4.3 million was carried out by the German company
Driver Reifen und KFZ-Technik GmbH.
the purchase of Car/Motorcycle and semi-finished products for a total amount of euro 57.6
million (of which euro 52.6 million was carried out by the Turkish company Pirelli Otomobil
Lastikleri A.S.) in respect of the Off-Take contract, and euro 3.7 million on the part of Pirelli
Pneus Ltda for the purchase of inner tubes for tyres;
costs to the amount of euro 10.7 million incurred by Pirelli Pneus Ltda for services for the
transformation of raw materials as a result of activities pertinent to the Toll manufacturing
contract.
The item financial income refers to interest between Pirelli Tyre (Suisse) SA and the Prometeon
Group.
The item financial expenses refers to interest relative to machine hire between Pirelli Otomobil
Lastikleri A.S. and the Prometeon Group.
BENEFITS FOR KEY MANAGERS OF THE COMPANY
At December 31, 2019 the compensation to which key managers with strategic responsibilities were
entitled to totalled euro 21,732 thousand (euro 22,362 thousand for 2018). The portion relative to
employee benefits was recognised in the Income Statement under “Personnel expenses” to the
amount of euro 14,498 thousand (euro 14,133 thousand for 2018), and under the item “Other Costs”
in the Income Statement to the amount of euro 7,235 thousand (euro 8,229 thousand for 2018). The
remuneration also includes euro 1,535 thousand for employee leaving indemnity (TFR) and
retirement benefits (euro 1,625 thousand for 2018), and short-term benefits for euro 6,970 thousand
(euro 8,641 thousand for 2018).
45.
SIGNIFICANT EVENTS SUBSEQUENT TO THE END OF THE YEAR
In early 2020, the Covid-19 (SARS-CoV-2) virus spread, initially in the People’s Republic of China
and later in other countries, including Italy.
Pirelli sells its products on a world wide basis in over 160 countries and owns industrial sites located
in different countries, some of which are also significantly affected by the Covid-19 outbreak.
432
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Sensitivity assumptions have been formulated regarding the effects of the spread of Covid-19, and
elaborated on the basis of first estimates. By their nature, these hypotheses contain elements of
uncertainty and are subject to changes, even significant ones, due to the continuous changes in the
scenario and in the context for reference, which could lead to a significant alteration to the normal
dynamics of the market and, more generally, to business operating conditions.
The negative impact currently expected at the level of the EBIT adjusted for the first quarter of 2020,
is expected to be reabsorbed during the course of the year. However should the crisis continue,
Pirelli will take steps to implement further mitigation measures.
Pirelli is following developments in the spread of the Coronavirus with constant contact with national
and international organisations. The Company immediately adopted control and preventative
measures for all their employees across the world, with particular attention to China, where all
expatriate workers returned to their countries of origin with their families.
In January 2020 Pirelli received three important ESG awards. On January 20, the company was
recognised as the global leader in the fight against climate change, which put Pirelli on the Climate
A-List drawn up by the CDP (the former Carbon Disclosure Project), an international non-profit
organisation that deals with collecting, disseminating and promoting information on environmental
issues. On January 31, however, Pirelli won the highest recognition in the SAM Sustainability
Yearbook 2020 published by S&P Global, achieving recognition as the ESG sector Leader in the
FTSE4Good Index Series, which sees Pirelli now ranked at the top of the Tyre and Consumer Goods
sector.
On February 19, 2020 Pirelli presented the 2020 - 2022 Industrial Plan/Vision 2025 to the financial
community. For further details, reference should be made to the section “Outlook for the 2020 – 2022
Three-Year Period” of the Directors’ report on operations. On the same date, the Board of Directors
approved the adoption of a new monetary incentive plan - the Long Term Incentive (LTI) plan - aimed
at all areas of Group Management (currently approximately 270 participants) - correlated to the
objectives of the plan. The New LTI Plan, is as in the past, totally self-financed, in that the relative
expenses are included in the financial data of the Industrial Plan. The New LTI Plan provides for the
following objectives:
Total Shareholder Return (TSR) for the Group relative to the Tier 1 panel of peers, with an
overall target of 40% of the LTI monetary incentive;
cash flow for the Group (before dividends) with a target of 40% of the LTI monetary incentive;
the positioning of Pirelli in selected global sustainability indicators, with an overall target of
20% of the LTI monetary incentive.
At the same time, the Board of Directors - effective as of December 31, 2019 - resolved to close
early, and without any disbursements not even pro-rata, the previous plan adopted in 2018 relative
to the objectives of the 2018-2020 period.
433
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
Participants of the New LTI (Long Term Incentive) Plan, amongst others, include the Executive Vice
Chairman and Chief Executive Officer of Pirelli, Marco Tronchetti Provera, the General Manager of
Operations, Andrea Casaluci, and the ESR executives identified through the express decision of the
Board of Directors as “executives with strategic responsibility”. The new LTI Plan is also aimed at
Senior Managers, (including the Director Giovanni Tronchetti Provera, as Senior Manager), and to
the Group’s Executives (managers of Italian companies or employees of foreign Group companies
with a position or role equivalent to that of Executive in Italy).
46.
OTHER INFORMATION
Research and Development expenses
Research & Development expenses for 2019 amounted to euro 232.5 million and represented 4.4%
of sales, and mainly included expenses destined for High Value activities (euro 215.7 million equal
to 6.1% of High Value revenues).
Remuneration for Directors and Auditors
The compensation paid to the Directors and Auditors was as follows:
(in thousands of euro)
Directors
Statutory Auditors
Total
2019
6,020
315
6,335
2018
6,920
315
7,235
Employees- average headcounts
The average headcounts for employees, sub-divided by category, for the companies included in the
scope of consolidation were as follows:
Executives and white collar staff
Blue collar staff
Temporary workers
Total
2019
2018
6,755
23,920
993
31,668
6,737
23,786
1,015
31,538
434
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Remuneration for Independent Auditors
Pursuant to the applicable laws, the total fees for the 2019 financial year for auditing services and
for services other than auditing, 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
Network PricewaterhouseCoopers Subsidiaries
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
71
894
1,632
277
354
3
-
-
55
2,597
79%
634
19%
55
3,286
2%
100%
(1) the item "independent certification services" includes amounts paid for other services that envisage the issuance of an auditor's report as w ell as amounts paid for the so called certification services since they
create synergies w ith the auditing services.
Information required by Law No.124 / 2017 art. 1 paragraphs 125-129
During the 2019 financial year no collections for national or regional contributions were recorded.
For the purposes of providing complete information, it should be noted that during the previous
financial year, Pirelli Tyre S.p.A. received from M.I.U.R. - – Ministero dell’Istruzione, dell’Università
e della Ricerca (Ministry of Education, University and Research) - a subsidised loan of euro 5,305
thousand with a duration of 5 years, and with an interest rate of 0.50% per annum, granted as an
incentive for an R&D project for the development of innovative materials for the tyre manufacturing
process.
Pirelli Tyre S.p.A. also obtained in 2018 a non-refundable grant from the Lombardy Region for a total
of euro 2,462 thousand, as incentive for a Smart Manufacturing R&D project for which euro 847
thousand were collected during the previous 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 2019 financial year that no exceptional and/or unusual transactions as defined in the
aforesaid Notice were carried out by the Company.
435
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
Exchange rates
The main exchange rates used for consolidation were as follows:
(local currency vs euro)
Period-end exchanges rates
Average exchange rates
Change in
%
12/31/2019
12/31/2018
10.4489
10.2548
Change
in %
1.89%
(1.39%)
(6.45%)
(3.08%)
(1.89%)
(3.68%)
(3.68%)
1.6220
1.5605
1.5591
1.1450
34.9786
1.1269
20.5806
(12.08%)
6.0280
4.6639
43.1665
22.5170
16.4594
4.4390
7.8584
10.33%
2.47%
55.86%
(5.98%)
(4.14%)
2.06%
(0.27%)
79.6581
(12.95%)
0.8945
(4.89%)
(3.11%)
1.5995
1.4598
1.5111
1.1234
33.6919
1.0854
18.0936
6.6506
4.7793
67.2804
21.1707
15.7773
4.5305
7.8371
69.3406
0.8508
2019
10.5907
1.6109
1.4855
1.5273
1.1195
34.5990
1.1125
18.8758
6.3512
4.7451
67.2804
21.5622
16.1757
4.4169
7.7226
72.3888
0.8778
2018
10.2600
1.5798
1.5295
1.5926
1.1812
35.6178
1.1550
3.22%
1.97%
(2.88%)
(4.10%)
(5.23%)
(2.86%)
(3.68%)
21.1035
(10.56%)
5.6655
4.6535
43.1665
22.7260
15.6192
4.3084
7.8167
73.9444
0.8847
12.10%
1.97%
55.86%
(5.12%)
3.56%
2.52%
(1.20%)
(2.10%)
(0.78%)
(6.42%)
121.9400
125.8500
122.0058
130.3778
Swedish Krona
Australian Dollar
Canadian Dollar
Singaporean Dollar
U.S. Dollar
Taiwan Dollar
Swiss Franc
Egyptian Pound
Turkish Lira (new)
New Romanian Leu
Argentinian Peso
Mexican Peso
South African Rand
Brazilian Real
Chinese Renminbi
Russian Ruble
British Pound
Japanese Yen
436
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
NET FINANCIAL POSITION
(Alternative performance indicators not provided for by the accounting standards)
(in thousands of euro)
Note
12/31/2019
12/31/2018
Current borrowings from banks and other financial institutions without IFRS 16
Current derivative financial instruments (liabilities)
Non-current borrowings from banks and other financial institutions without IFRS 16
Non current derivative financial instruments (liabilities)
Lease obligations IFRS 16
Total gross debt
Cash and cash equivalents
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**
Total net financial (liquidity) / debt position
Lease obligations IFRS 16
Net financial (liquidity) / debt position without IFRS 16
23
27
23
27
19
18
15
27
27
15
15
of which
related parties
(note 44)
of which
related parties
(note 44)
1,341,607
31,703
3,544,461
10,327
483,172
5,411,270
(1,609,821)
(38,119)
(35,503)
(32,090)
3,695,737
(52,515)
(135,996)
3,507,227
(483,172)
3,024,055
2,267
-
17,386
-
-
-
-
-
(26,486)
-
-
-
(5,617)
-
-
800,145
53,510
3,929,079
13,738
-
4,796,472
(1,326,900)
(27,196)
(27,320)
(91,245)
3,323,811
(20,134)
(123,547)
3,180,130
-
3,180,130
-
-
-
-
-
-
-
-
(6,154)
-
-
-
(12,576)
-
-
* Pursuant to Consob Notice of July 28, 2006 and in compliance with ESMA/2013/319 Recommendations
** The amount for "financial receivables and other assets" is reported net of the relative provision for impairment amounting to euro 8,651 thousand as at December 31, 2019 and euro
6.085 thousand as at Dcember 31, 2018.
437
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
SCOPE OF CONSOLIDATION
Companies consolidated line-by-line
Company
Business Headquarter
Currency Share Capital % holding
Held by
Europe
Austria
Pirelli GmbH
Belgium
Tyre
Wien
Euro 726,728
100.00%
Pirelli Tyre (Suisse) SA
Pirelli Tyres Belux S.A.
Tyre
Brussels
Euro 700,000
100.00%
Pirelli Tyre (Suisse) SA
France
Pneus Pirelli S.A.S.
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-
Greece
Elastika Pirelli C.S.A.
Breuberg /
Odenwald
Breuberg /
Odenwald
Breuberg /
Odenwald
Breuberg /
Odenwald
Hoechst /
Odenwald
Breuberg /
Odenwald
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Elliniko-
Argyroupoli
Tyre
Euro 7,694,943
100.00%
Euro 26,000
100.00%
Euro 23,959,100
100.00%
Euro 25,000
100.00%
Euro 26,000
100.00%
Euro 259,225
100.00%
Pirelli Tyre S.p.A.
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)
The Experts in Wheels - Driver Hellas
C. S.A.
Tyre
Tyre
Athens
Elliniko-
Argyroupoli
US $ 22,050,000
79.86%
Pirelli Tyre S.p.A.
Euro 100,000
72.80%
Elastika Pirelli C.S.A.
438
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Company
Italy
Driver Italia S.p.A.
Driver Servizi Retail S.p.A.
HB Servizi S.r.l.
Maristel s.r.l.
Pirelli Industrie Pneumatici S.r.l.
Pirelli International Treasury S.p.A.
Pirelli Servizi Amministrazione e
Tesoreria S.p.A.
Pirelli Sistemi Informativi S.r.l.
Information Systems
Pirelli Tyre S.p.A.
Poliambulatorio Bicocca S.r.l.
Servizi Aziendali Pirelli S.C.p.A.
Tyre
Services
Services
Business Headquarter
Currency Share Capital % holding
Held by
Tyre
Tyre
Services
Services
Tyre
Tyre
Services
Milan
Milan
Milan
Milan
Settimo
Torinese (To)
Euro 350,000
71.21%
Pirelli Tyre S.p.A.
Euro 120,000
100.00%
Pirelli Tyre S.p.A.
Euro 10,000
100.00%
Pirelli & C. S.p.A.
Euro 50,000
100.00%
Pirelli & C. S.p.A.
Euro
40,000,000
100.00%
Pirelli Tyre S.p.A.
Milano
Euro
125,000,000
70.00%
Pirelli Tyre S.p.A.
30.00%
Pirelli & C. S.p.A.
Milan
Milan
Milan
Milan
Milan
Euro 2,047,000
100.00%
Pirelli & C. S.p.A.
Euro 1,010,000
100.00%
Pirelli & C. S.p.A.
Euro 558,154,000
100.00%
Pirelli & C. S.p.A.
Euro 10,000
100.00%
Pirelli Tyre S.p.A.
Euro 104,000
90.35%
Pirelli & C. S.p.A.
2.95%
Pirelli Tyre S.p.A.
0.95%
Poliambulatorio Bicocca S.r.l.
0.98% Pirelli International Treasury S.p.A.
0.95%
0.98%
0.95%
Driver Italia S.p.A.
Pirelli Industrie Pneumatici S.r.l.
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.
Tyre
Rotterdam
Euro 170,140,000
100.00%
Pirelli Tyre S.p.A.
Pirelli China Tyre N.V.
Tyre
Rotterdam
Euro 38,045,000
100.00%
Pirelli Tyre S.p.A.
Pirelli Tyres Nederland B.V.
Tyre
Rotterdam
Euro 18,152
100.00%
Pirelli Tyre (Suisse) SA
Poland
Driver Polska Sp. z o.o.
Tyre
Warsaw
Pol. Zloty 100,000
63.50%
Pirelli Polska Sp. z o.o.
Pirelli Polska Sp. z o.o.
Tyre
Warsaw
Pol. Zloty 625,771
100.00%
Pirelli Tyre S.p.A.
439
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
Company
Business Headquarter
Currency Share Capital % holding
Held by
United Kingdom
CTC 2008 Ltd
Pirelli Cif Trustees Ltd
Pirelli International Limited (ex Pirelli
International plc)
Pirelli Motorsport Services Ltd
Pirelli General Executive Pension
Trustees Ltd
Pirelli General & Overseas Pension
Trustees Ltd
Pirelli Tyres Executive Pension
Trustees Ltd
Pirelli Tyres Ltd
Pirelli Tyres Pension Trustees Ltd
Pirelli UK Ltd
Pirelli UK Tyres Ltd
Slovakia
Tyre
Financial
Burton on
Trent
Burton on
Trent
British Pound 100,000
100.00%
British Pound 4
25.00%
25.00%
25.00%
Pirelli UK Tyres Ltd
Pirelli General Executive Pension
Trustees LTD
Pirelli General & Overseas Pension
Trustees LTD
Pirelli Tyres Executive Pension
Trustees LTD
Financial
Tyre
Financial
Financial
Financial
Tyre
Financial
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
25.00% Pirelli Tyres Pension Trustees LTD
Euro 250,000,000
100.00%
Pirelli Tyre S.p.A.
British Pound 1
100.00%
British Pound 1
100.00%
British Pound 1
100.00%
Pirelli UK Ltd
Pirelli UK Ltd
Pirelli UK Ltd
British Pound 1
100.00%
Pirelli Tyres Ltd
British Pound 16,000,000
100.00%
Pirelli UK Tyres Ltd
British Pound 1
100.00%
Pirelli Tyres Ltd
British Pound 163,991,278
100.00%
Pirelli & C. S.p.A.
British Pound 85,000,000
100.00%
Pirelli Tyre S.p.A.
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 1,612,612,300
100.00%
Pirelli Tyre S.p.A.
Russia
Closed Joint Stock Company
"Voronezh Tyre Plant"
Joint Stock Company "Scientific
institute of medical polymers"
Limited Liability Company Pirelli Tyre
Services
Limited Liability Company "Industrial
Complex "Kirov Tyre"
Limited Liability Company Pirelli Tyre
Russia
Tyre
Voronezh Russian Rouble 1,520,000,000
100.00%
Tyre
Moscow Russian Rouble 7,392,000
100.00%
Limited Liability Company Pirelli
Tyre Russia
Limited Liability Company Pirelli
Tyre Russia
Tyre
Moscow Russian Rouble 54,685,259
95.00%
Pirelli Tyre (Suisse) SA
Tyre
Kirov Russian Rouble 348,423,221
100.00%
5.00%
Pirelli Tyre S.p.A.
Limited Liability Company Pirelli
Tyre Russia
Tyre
Moscow Russian Rouble 6,153,846
65.00%
E-VOLUTION Tyre B.V.
440
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Company
Spain
Business Headquarter
Currency Share Capital % holding
Held by
Euro Driver Car S.L.
Tyre
Valencia
Euro 960,000
58.44%
Neumaticos Arco Iris, S.A. - Sociedad
Unipersonal
Omnia Motor S.A. - Sociedad
Unipersonal
Pirelli Neumaticos S.A. - Sociedad
Unipersonal
Tyre & Fleet S.L. - Sociedad
Unipersonal
Sweden
0.31%
Tyre
Barcellona
Euro 302,303
66.20%
Tyre
Valencia
Euro 1,502,530
100.00%
Tyre
Valencia
Euro 25,075,907
100.00%
Tyre
Valencia
Euro 20,000
100.00%
Pirelli Neumaticos S.A. - Sociedad
Unipersonal
Omnia Motor S.A. - Sociedad
Unipersonal
Pirelli Neumaticos S.A. - Sociedad
Unipersonal
Pirelli Neumaticos S.A. - Sociedad
Unipersonal
Pirelli Tyre S.p.A.
Pirelli Neumaticos S.A. - Sociedad
Unipersonal
Dackia Aktiebolag
Tyre
Taby
Swed. Krona 31,000,000
100.00%
Pirelli Tyre S.p.A.
Pirelli Tyre Nordic Aktiebolag
Tyre
Bromma
Swed. Krona 950,000
100.00%
Pirelli Tyre S.p.A.
Switzerland
Driver (Suisse) SA
Pirelli Group Reinsurance Company
SA
Tyre
Bioggio
Swiss Franc 100,000
100.00%
Pirelli Tyre (Suisse) SA
Reinsurance
Basel
Swiss Franc 3,000,000
100.00%
Pirelli & C. S.p.A.
Pirelli Tyre (Suisse) SA
Tyre
Basel
Swiss Franc 1,000,000
100.00%
Pirelli Tyre S.p.A.
Turkey
Pirelli Lastikleri Dis Ticaret A.S.
Tyre
Istanbul
Turkey Lira 50,000,000
100.00%
Pirelli Otomobil Lastikleri A.S.
Pirelli Otomobil Lastikleri A.S.
Tyre
Istanbul
Turkey Lira 85,000,000
100.00%
Pirelli Tyre S.p.A.
Hungary
Pirelli Hungary Tyre Trading and
Services Ltd
North America
Canada
Pirelli Tire Inc.
U.S.A.
Pirelli North America Inc.
Pirelli Tire LLC
Prestige Stores LLC
Tyre
Budapest
Hun. Forint 3,000,000
100.00%
Pirelli Tyre S.p.A.
St-Laurent
(Quebec)
Tyre
New York
(New York)
Rome
(Georgia)
Wilmington
(Delaware)
Tyre
Tyre
Tyre
Can. $ 6,000,000
100.00%
Pirelli Tyre (Suisse) SA
US $ 10
100.00%
Pirelli Tyre S.p.A.
US $ 1
100.00%
Pirelli North America Inc.
US $ 10
100.00%
Pirelli Tire LLC
441
Pirelli & C. S.p.A. – 2019 Annual Report
Consolidated Financial Statements
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.
0.17%
Pirelli Pneus Ltda
Brazil
Comercial e Importadora de Pneus
Ltda.
CPA - Comercial e Importadora de
Pneus Ltda.
Pirelli Comercial de Pneus Brasil
Ltda.
Tyre
Sao Paulo
Bra. Real 380,718,453
100.00%
Tyre
Sao Paulo
Bra. Real 200,000
100.00%
Pirelli Comercial de Pneus Brasil
Ltda
Comercial e Importadora de Pneus
Ltda
Tyre
Sao Paulo
Bra. Real 1,149,296,303
85.00%
Pirelli Tyre S.p.A.
15.00%
Pirelli Latam Participaçoes Ltda
Pirelli Latam Participaçoes Ltda.
Tyre
Sao Paulo
Bra. Real 343,514,252
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
15.00%
Pirelli Latam Participaçoes Ltda
C.P.Complexo Automotivo de Testes,
Eventos e Entretenimento Ltda.
TLM - Total Logistic Management
Serviços de Logistica Ltda.
Elias Fausto
(Sao Paulo)
Tyre
Bra. Real
6,812,000
100.00%
Pirelli Pneus Ltda
Tyre Santo Andrè
Bra. Real 3,074,417
99.99%
Pirelli Pneus Ltda
0.01%
Pirelli Ltda
Chile
Pirelli Neumaticos Chile Ltda
Tyre
Santiago Chile Peso/000 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
Bogota Col. Peso/000 1,863,222,000
85.00%
Santa Fe De
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 335,691,500
100.00%
Pirelli Tyre S.p.A.
Pirelli Neumaticos S.A. de C.V.
Tyre
Silao
Mex. Peso 10,614,387,348
99.82%
Pirelli Tyre S.p.A.
0.18%
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.
442
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Company
Business Headquarter
Currency Share Capital % holding
Held by
Africa
Egypt
Pirelli Egypt Tyre Trading S.A.E.
Pirelli Egypt Consumer Tyre
Distribution S.A.E.
Tyre
Tyre
Giza
Egy. Pound 84,250,000
100.00%
Pirelli Tyre S.p.A.
Giza
Egy. Pound 89,000,000
99.89%
Pirelli Egypt Tyre Trading S.A.E.
0.06%
0.06%
Pirelli Tyre S.p.A.
Pirelli Tyre (Suisse) SA
Tyre
Gauteng
2090
S.A. Rand 1
100.00%
Pirelli Tyre (Suisse) SA
South Africa
Pirelli Tyre (Pty) Ltd
Oceania
Australia
Pirelli Tyres Australia Pty Ltd
Tyre
Sydney
Aus. $ 150,000
100.00%
Pirelli Tyre (Suisse) SA
Asia
China
Pirelli Taiwan Co. Ltd
Pirelli Trading (Beijing) Co., Ltd.
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.
Pirelli Tyre (Jiaozuo) Co., Ltd.
Tyre
Jiaozuo Ch. Renminbi 350,000,000
80.00%
Pirelli Tyre S.p.A.
Pirelli Tyre Co., Ltd
Pirelli Tyre Trading (Shanghai) Co.,
Ltd
Yanzhou HIXIH Ecotech Environment
Co., Ltd
Korea
Pirelli Korea Ltd
Japan
Tyre
Yanzhou Ch. Renminbi 2,071,150,000
90.00%
Pirelli China Tyre N.V.
Tyre
Shanghai
US $ 700,000
100.00%
Pirelli China Tyre N.V.
Sustainable mobility
Yanzhou Ch. Renminbi 130,000,000
100.00%
Pirelli Tyre Co. Ltd
Tyre
Seoul
Korean Won 100,000,000
100.00%
Pirelli Asia Pte Ltd
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
443
Pirelli & C. S.p.A. – 2019 Annual Report
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.
Italy
Tyre
Athens
Euro 60,000
20.00%
Elastika Pirelli C.S.A.
Consorzio per la Ricerca di Materiali
Avanzati (CORIMAV)
Financial
Milan
Euro
103,500
100.00%
Pirelli & C. S.p.A.
Eurostazioni S.p.A.
Financial
Rome
Euro
160,000,000
32.71%
Focus Investments S.p.A.
Financial
Milan
Euro
183,333
8.33%
Pirelli & C. S.p.A.
Pirelli & C. S.p.A. (25% of the voting
share capital)
Slovakia
Centrum Utylizacji Opon Organizacja
Odzysku S.A.
Slovakia
ELT Management Company Slovakia
S.R.O.
Romania
Tyre
Warsaw
Pln 1,008,000.00
20.00%
Pirelli Polska Sp. z o.o.
Tyre
Bratislava
Euro 132,000.00
20.00%
Pirelli Slovakia S.R.O.
S.C. Eco Anvelope S.A.
Tyre
Bucarest
Rom. Leu
160,000
20.00%
S.C. Pirelli Tyres Romania S.r.l.
Russia
Joint Stock Company "Kirov Tyre Plant"
Tyre
Kirov Russian Rouble 5,665,418.00
20.00%
Spain
Signus Ecovalor S.L.
Tyre
Madrid
Euro
200,000
20.00%
Limited Liability Company Pirelli
Tyre Russia
Pirelli Neumaticos S.A. - Sociedad
Unipersonal
Asia
China
Xushen Tyre (Shanghai) Co, Ltd
Tyre
Shanghai Ch. Renminbi
1,050,000,000
49.00%
Pirelli Tyre S.p.A.
Jining Shenzhou Tyre Co, Ltd
Tyre
Jining City Ch. Renminbi
1,050,000,000
100.00%
Xushen Tyre (Shanghai) Co, Ltd
Indonesia
PT Evoluzione Tyres
Tyre
Subang
Rupees 1,313,238,780,000
63.04%
Pirelli Tyre S.p.A.
444
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
SEPARATE FINANCIAL STATEMENTS
AT DECEMBER 31, 2019
445
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
STATEMENT OF FINANCIAL POSITION
(in euro)
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Investments in associates
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 of 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
Note
12/31/2019 of which related parties
12/31/2018 of which related parties
(Note 39)
(Note 39)
8
9
10
11
12
13
17
14
13
15
16
17
18
19
23
20
24
21
17
19
22
23
20
21
25
17
67,368,466
2,275,363,639
4,647,665,638
6,374,501
57,202,933
619,605
30,268,648
7,084,863,430
36,626,844
2,273,663,830
4,568,324,362
6,374,501
66,999,913
600,543,719
19,402,654
7,571,935,823
30,268,648
600,000,000
19,402,654
23,774,954
21,725,022
35,365,570
32,352,151
2,347,951,637
2,327,043,431
1,548,690,528
1,524,041,518
1,754,093
31,743,542
10,154,148
2,415,378,374
9,500,241,804
1,904,374,936
2,135,985,619
266,842,318
273,241,811
4,580,444,684
3,577,172,974
211,511
40,330,854
538,902,124
4,276,571
9,588,636
4,170,482,670
678,288,912
19,262,363
32,107,042
-
2,034,344
17,616,705
5,084
749,314,450
9,500,241,804
29,829,632
10,154,148
9,588,636
252,124
4,770,882
11,894,924
17,387,827
5,084
101,764,103
49,745,832
3,749,194
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
10,565,158
4,502,832,851
222,503,724
19,380,689
48,351,164
1,815,160
1,964,819
16,436,159
5,291,800
315,743,515
9,311,251,050
48,490,491
3,749,194
10,565,158
6,591
2,986,850
26,177,691
16,207,276
5,291,800
446
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
INCOME STATEMENT
(in euro)
Note
2019
of which related parties
(Note 39)
2018
of which related parties
(Note 39)
Revenues from sales and services
Other income
Raw materials and consumables used
Personnel expenses
Amortisation, depreciation and impairment
Other costs
- of which non recurring events
Net impairment loss on financial assets
Operating income (loss)
Net income (loss) from equity investments
- gains on equity investments
- losses on equity investments
- dividends
Financial income
Financial expenses
- of which non recurring events
Net income (loss) before taxes
Taxes
- of which non recurring events
Total net income of the year
27
28
29
30
31
32
38
33
34
35
36
38
37
38
51,992,302
110,179,851
(225,458)
(48,228,505)
(8,253,996)
(89,518,450)
-
(96,923)
15,848,821
268,905,541
2,065
-
268,903,476
40,274,216
(64,024,611)
-
261,003,967
12,237,844
-
273,241,811
50,822,605
106,726,066
(5,571,006)
(22,315,223)
2,065
263,841,647
39,705,871
51,506,753
38,718,521
112,178,568
(210,126)
(34,130,338)
(3,983,656)
(105,044,273)
(1,025,850)
(1,930,360)
5,598,336
284,943,288
4,006,808
(3,580,191)
284,516,671
20,526,846
(53,377,733)
(9,964,795)
257,690,737
4,671,306
2,677,575
262,362,043
37,363,694
102,183,610
(2,185,521)
(20,168,662)
(3,580,191)
283,549,189
18,666,309
(6,837,931)
(21,977,000)
447
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
STATEMENT OF COMPREHENSIVE INCOME
(in euro)
A - Net income of the year
Other components of comprehensive income:
B - Items that may not be reclassified to income statement:
- Remeasurement of employee benefits
- Tax effect
- Fair value adjustment of other financial assets at fair value through other comprehensive income
C - Items reclassified / that may be reclassified to income statement:
Fair value adjustment of derivatives designated as cash flow hedge:
- 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
D - Total other components of comprehensive income (B+C)
A+D Total comprehensive income / (loss) for the financial year
Total B
Total C
Note
2019
2018
273,241,811
262,362,043
21
12
17
17
17
17
(95,957)
21,120
(366,374)
(441,211)
(8,269)
1,985
(5,709,065)
(5,715,349)
69,841,426
54,928,567
(78,130,940)
(64,453,722)
1,989,483
2,286,037
5,350,715
10,481,543
(7,627,777)
(4,040,529)
546,495
(1,545,843)
(8,030,598)
(2,343,947)
(8,471,809)
(8,059,296)
264,770,002
254,302,747
448
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
STATEMENT OF CHANGES IN EQUITY
(in euro)
Share
Legal
Capital
Reserve
Surplus Concentration
Reserve
Reserve
Other
IAS Reserves *
Merger
Reserve
Net result
Total
reserves
Reserve
from results
of the year
carried forward
Total at 12/31/2017
1,904,374,936
380,874,988
630,380,599
12,466,897
92,534,791
23,961,091 1,022,927,715
-
170,850,918 4,238,371,937
Adoption of new accounting standard IFRS 9
- Reclassification from available for sale financial assets to other
financial assets at FV through income statement
Total at 01/01/2018
-
-
-
-
-
(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
Result carried forward as per resolution of May 15, 2018
Other components of comprehensive income
Result for the year
Total comprehensive income/(loss) for the year
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
170,850,918 (170,850,918)
(8,059,296)
-
(8,059,296)
-
-
-
-
-
(8,059,296)
-
262,362,043
262,362,043
-
262,362,043
254,302,747
Other changes
Total at 12/31/2018
Dividend distribution
Result carried forward as per resolution of May 15, 2019
Other components of comprehensive income
Result for the year
Total comprehensive income/(loss) for the year
Other changes
Total at 12/31/2019
(in euro)
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
262,362,041 4,492,674,684
(106,073)
106,073
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(8,471,809)
-
(8,471,809)
31,475
-
-
-
-
-
-
(177,000,000)
(177,000,000)
85,362,041
(85,362,041)
-
-
-
(8,471,809)
-
273,241,811
273,241,811
-
273,241,811
264,770,002
(31,475)
-
-
1,904,374,936
380,874,988
630,380,599
12,466,897
92,534,791
(3,199,371) 1,022,927,715
266,842,318
273,241,811 4,580,444,684
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
Remeasurement for
employee benefit
Reserve for cost of
hedging
Cash flow hedge
reserve
Tax effect
TOTAL
Breakdown of IAS Reserves *
Balance at 12/31/2017
Adoption of new accounting standard IFRS 9
Balance at 1/1/2018
Other components of comprehensive income
Other changes
Balance at 12/31/2018
Other components of comprehensive income
Other changes
Balance at 12/31/2019
27,342,368
(27,342,368)
-
-
-
-
-
-
-
-
2,028,017
-
(7,117,489)
1,708,197
23,961,093
16,787,607
16,787,607
(5,709,064)
(106,073)
10,972,470
(366,374)
31,475
-
2,028,017
394,804
394,804
(394,804)
-
(10,554,761)
(7,512,293)
1,708,197
13,406,332
(8,269)
6,441,013
(9,525,155)
742,179
(8,059,296)
-
-
-
-
(106,073)
2,019,748
6,835,817
(17,037,448)
2,450,376
5,240,963
(95,957)
(2,277,062)
(8,289,514)
2,557,098
(8,471,809)
-
-
-
-
31,475
10,637,571
1,923,791
4,558,755
(25,326,962)
5,007,474
(3,199,371)
449
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
CASH FLOW STATEMENT
(in Euro)
Net income (loss) before taxes
Reversals of amortisation, depreciation, impairment losses
Reversal of net accruals
Reversal of Financial expenses
Reversal of Financial income
Reversal of Dividends
Reversal of Gains/losses from sales of tangible and intangible assets
Taxes paid
Change in Trade receivables
Change in Trade payables
Change in Other receivables/Other payables
Change in Tax receivables/Tax payables
Change in Provisions for employee benefit obligations and Other provisions
A
Net cash flows provided by/(used in) operating activities
Investments in property, plant and equipment
Disposal of property, plant and equipment
Investments in intangible assets
Acquisition of investments in subsidiaries
Disposals /(Acquisition) in other non current financial assets at fair value through other comprehensive
income
Reimbursement of other non current financial assets at fair value through other comprehensive income
Disposals in other non current financial assets at fair value through other comprehensive income
Repayment of share capital and reserves from associates
Dividends received
B
Net cash generated/(used) by investment activities
Change in Financial receivables
Financial income
Change in Financial payables
Dividends paid
Financial expenses
Cash outflow for lease obligations
C
Net cash generated/(used) by financing activities
31
32
36
35
34
32
14
22
8
8
9
10
12
13
35
19
34
36
19
Note
2019
of which related
parties (Note 39)
2018
of which related
parties (Note 39)
261,003,967
8,253,996
2,623,933
257,690,737
3,983,656
5,479,360
64,024,611
(51,506,753)
53,377,733
6,837,931
(40,274,216)
(39,705,871)
(20,526,846)
(18,666,309)
(268,905,541)
(263,841,647)
(284,943,288)
(283,549,189)
1,909
-
11,505,912
(3,070,023)
10,627,130
(1,784,032)
(11,739,252)
(12,915,767)
(575,786)
-
14,749,472
11,369,615
(10,594,441)
(10,015,951)
(1,832,918)
(3,428,000)
45,961,314
42,775,429
42,775,429
(4,562,000)
46,838,075
(1,384)
3,000,000
(1,024,267)
(15,000)
109,254
(15,000)
45,327,218
(5,111,200)
63,641,315
(165,500)
21,000
(1,554,334)
-
9,431,000
-
-
268,270,519
200,119,416
(75,883,269)
(75,883,269)
152,807,660
249,710
249,710
263,841,647
284,516,671
283,549,189
439,642,644
(204,828,000)
(204,802,000)
(2,103,421,000)
(2,103,912,000)
43,889,329
20,374,734
(177,000,000)
43,840,121
15,820,233
15,820,233
1,744,063,616
(9,000,000)
-
(43,508,386)
52,134,229
(42,928,955)
2,233,556
(2,698,417)
(363,770,741)
-
(386,466,106)
D
Total net cash generated/(used) in the year (A+B+C)
(100,010,010)
100,014,613
E
Cash and cash equivalents at the beginning of the year
101,764,103
1,749,490
F
Cash and cash equivalents at the end of the year (D+E)
1,754,093
101,764,103
450
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
EXPLANATORY NOTES
1. GENERAL INFORMATION
Pirelli & C. S.p.A. (hereinafter also 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.
Pirelli & C. S.p.A. is directly controlled by Marco Polo International Italy S.r.l., a 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.
There are no entities that exercise management and coordination activities over the Company.
On March 2, 2020, the Board of Directors authorised publication of these Annual Financial
Statements (“Annual Financial Statements or Separate Financial Statements”).
Significant Events 2019
Acquisition of business unit from the subsidiary Pirelli Tyre S.p.A.
Effective January 1, 2019 was the disposal by the subsidiary Pirelli Tyre S.p.A. 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. The above operation was part of a large project for the
reorganisation of activities within the Group. The difference between the amount of the fee and the
book value of the business unit acquired, equal to Euro 4.4 million, was considered as a contribution
in favor of the subsidiary and consequently recorded as an increase in the value of the investment
in the subsidiary.
Approval of the Annual Financial Statements at December 31 and dividend distribution
On May 15, 2019, the Pirelli & C. S.p.A. Shareholders’ Meeting approved the financial statements
for 2018 and approved the distribution of a dividend of Euro 0.177 per ordinary share equal to total
451
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
dividends of Euro 177 million. The dividend will be paid as from May 22, 2019, with ex dividend date
on May 20, 2019 (record date May 21, 2019).
2.
BASIS OF PRESENTATION
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 in Chapter 6 Capital
management policy of these Notes.
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).
IFRS include all 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 historical cost basis, except for the following
items that are measured at fair value:
- derivative financial instruments;
- other financial assets at fair value recorded in the other components of the comprehensive
income statement;
- other financial assets at fair value through the income statement.
Financial Statements
The separate Financial Statements at December 31, 2019 consist of the Statement of Financial
Position, the Income Statement, the Statement of Comprehensive Income, the Statement of
Changes in Equity, the Statement of Cash Flows and the Explanatory Notes, and are accompanied
by the Directors’ Report on Operations.
The format adopted for the Statement of Financial Position classifies assets and liabilities as current
and non-current.
452
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
The Company has opted to present the components of profit/loss for the year in a separate Income
Statement, rather than include these components directly in the Statement of Comprehensive
Income. The Income Statement adopted classifies costs by nature.
The Statement of Comprehensive Income includes the result for the year and, for homogeneous
categories, the revenues and costs which, in accordance with IFRSs, are recognised directly in
equity.
The Company opted for the presentation of the tax effects and reclassifications to the income
statement of profits/losses recognised in equity in previous years directly in the Statement of
Comprehensive Income and not in the Notes.
The Statement of Changes in Equity includes, in addition to the total gains/losses of the period, the
amounts from transactions with equity holders and the changes in reserves during the year.
In the Statement of Cash Flows, the cash flows deriving from operating activities are presented using
the indirect method, according to which the profit or loss for the period is adjusted by the effects of
non-monetary items, by any deferment or accrual of past or future operating receipts or payments,
and by any revenue or cost items connected with the cash flows arising from investing activities or
financing activities.
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.
In order to provide greater clarity and comparability of the financial statement items, the amount of
the corresponding items of the previous year were adjusted where necessary.
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 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 associates
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.
453
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
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 comprehensive income of the
investee of the year whom dividend refers;
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;
there are expectations of significantly decreasing 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 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.
454
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
3.1
Accounting standards and interpretations endorsed and in force from January 1, 2019
In accordance with IAS 8 “Accounting standards, changes in accounting estimates and errors”, the
IFRS effective from January 1, 2019 are indicated below:
IFRS 16 – Leases
The impacts deriving from the first application of this standard, which replaces the previous IAS
17, are described in Note 3.3 “Impacts deriving from the adoption of IFRS 16 – Leases”.
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.
Accounting treatment depends on whether the tax authorities are likely to accept the tax
treatment or not. In the event that it is not probable that the tax authority will accept the uncertain
tax treatment, the uncertainty is recorded by recognising an additional tax liability or by applying
a higher rate. There are no impacts 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:
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 recognised in the income statement;
accounting treatment of financial liabilities in the presence of changes 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 recognised in the income statement, both discounted at the original
effective interest rate.
The change relating to financial assets is not applicable to the Company; the change relating the
accounting treatment of financial liabilities is applicable to the Company and has no impact as
the Company already applies this accounting treatment.
455
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Separate Financial Statements
Amendments to IAS 28 – Investments in associates and joint ventures: long-term interests in
associates and joint ventures
These amendments clarified that the provisions of IFRS, including those on impairment, also
apply to financial instruments representing long-term interests in an associated company or joint
venture, which, in substance, form part of the net investment in the associated company or joint
venture (long-term interest).There are no impacts on the Financial Statements of the Company
due to the amendment made to the standard in force.
“Improvements” to IFRS 2015-2017 (issued by the IASB in December 2017).
The IASB issued a series of amendments to four 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 of control.
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.
There are no impacts on the Company due to the amendments made to the standards in force.
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.
There are no impacts on the Company due to the amendments made.
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Pirelli & C. S.p.A. – 2019 Annual Report
3.2
International accounting standards and/or interpretations issued but not yet in force
in 2019
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, 2019, 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 3 – Business Combinations
These amendments introduced a new definition of business, according to which for an
acquisition to qualify as a business combination, it must include input and processes that
contribute substantially to obtaining an output. The definition of output is modified in a
restrictive sense, and it is specified that cost savings and other economic benefits are to be
excluded as output. This amendment will result in multiple acquisitions qualifying as asset
acquisitions rather than business acquisitions.
These amendments, which will come into force on January 1, 2020, have not yet been
endorsed by the European Union. No impacts are expected on the Financial Statements of
the Company.
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 of transactions, 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 insignificant
information.
Said amendments have been endorsed by the European Union and will be applicable from
January 1, 2020. No impacts are expected on the Financial Statements of the Company. The
impacts on disclosure are being evaluated.
Amendments to IFRS 9, IAS 39 and IFRS 7: Reference interest rate reform (IBOR reform)
These amendments concern the impacts on the financial statements deriving from the
replacement of the current reference interest rates (benchmark) with alternative interest
rates: in the presence of hedging relationships affected by the uncertainty of the reform of
the reference rates, these amendments do not allow the valuations required by IFRS 9 and
IAS 39 in the presence of changes in rates. These amendments, endorsed by the European
Union, will come into force on January 1, 2020. The impact on the Group Financial
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Separate Financial Statements
Statements is currently being evaluated as regards the rate component of the cross-currency
interest rate swaps.
3.3
Impacts deriving from the adoption of IFRS 16 – Leases
Following the application of the standard, the Company recognised, at the transition date (January
1, 2019), in relation to the lease contracts previously classified as operating:
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; The weighted average marginal loan rate applied to financial liabilities for leasing as of
January 1, 2019 was 3.85%.
right of use equal to the value of the financial liability at the transition date, net of any
advanced/deferred payment of lease rent and recorded in the balance sheet at the transition
date.
The following table shows the impacts due to the adoption of IFRS 16 at the transition date:
(in thousand of euro)
NON CURRENT ASSET
Property, plant and equipment
-Leased buildings
-Leased other assets
Total
CURRENT ASSETS
Other receivables
Total assets
(in thousand of euro)
NON CURRENT LIABILITIES
Borrowings from banks and other financial istitutions
CURRENT LIABILITIES
Borrowings from banks and other financial istitutions
Other payables
Total liabilities
01/01/2019
32,475
1,786
34,261
(127)
34,134
36,144
1,106
(3,116)
34,134
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). The comparable data for 2018 was not subjected to restatement.
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With reference to the transition rules, the Company referred to the following practical expedients
available in the case of opting for the modified retrospective method:
classification of contracts that expire within 12 months from the transition date as a short-term
lease. For these contracts, lease payments will be recognised in the income statement on a
linear basis;
with reference to the separation of non-lease components for cars, the Company decided not to
separate them and not to account for them separately from the lease components. This
component was considered together with the lease component to determine the financial liability
of the lease and the related right of use;
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 Company also referred to the practical expedient provided for by the standard for first
application, 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 transition to IFRS 16 introduces some elements of professional opinion as well as the use of
assumptions and estimates in relation to the lease term and the definition of the incremental
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;
the 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 when their exercise is deemed reasonably certain. In the case
of clauses which provide for multiple renewals that can be exercised unilaterally by the
Company, 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 Company 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 Company considers the inclusion of 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 Company, specific assessments are contractually conducted (for
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Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
example, the Company is already negotiating a new contract or has already given notice to the
lessor).
The following table provides reconciliation between the future commitments of lease contracts as
envisaged by the previous IAS 17 and the financial liabilities for leases at January 1, 2019 deriving
from the adoption of IFRS 16:
(in thousand of euro)
Minimum future payments due for non-cancellable operating leases 12/31/2018
Short term contracts at 1/1/2019
Low value asset contracts
Disconting effects
Other
Finance liabilitites for lease contracts at 1/1/2019 (IFRS 16)
47,796
(136)
(127)
(9,056)
(1,227)
37,250
The adoption of the new IFRS 16 standard has not led to changes in the accounting treatment of
active sub-lease contracts.
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.
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
460
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
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 trade 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). Hedge accounting in accordance with IFRS 9 is used when the
conditions are met.
With reference to foreign currency loans, 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.
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 505 thousand.
(in thousands of euro)
+0,50%
-0,50%
12/31/2019
12/31/2018
12/31/2019
12/31/2018
Impact on Net income (loss)
505
(2,768)
(505)
2,768
461
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
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,
2019 are described in Note 17 “Derivative financial instruments”.
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 statement of comprehensive income.
Derivatives hedges are not set up to limit the volatility of these assets.
Financial assets at fair value recognised as other components of the statement of comprehensive
income consist of listed securities amounted to Euro 24,892 thousand (Euro 28,449 thousand at
December 31, 2018) and those represented by securities indirectly associated with listed shares
(Fin. Priv. S.r.l.) amounted to Euro 20,565 thousand (Euro 15,604 thousand at December 31, 2018);
these financial assets represent 79% 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 1,245 thousand of the Company’s shareholders’ equity (positive for Euro 1,422 thousand at
December 31, 2018), while a -5% negative change of these listed securities, other things being
equal, would result in a negative change of Euro 1,245 thousand of the Company’s shareholders’
equity (negative for Euro 1,422 thousand at December 31, 2018).
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 and financial obligations is mainly 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 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 its exposure to individual counterparties.
The Company does not hold public debt instruments from any European country, and constantly
monitors its net credit exposure to the banking system.
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Pirelli & C. S.p.A. – 2019 Annual Report
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, 2019, the Company had, aside from cash equal to Euro 1,754 thousand (Euro
101,764 thousand at December 31, 2018), unused credit facilities equal to Euro 700,000 thousand
(Euro 700,000 thousand at December 31, 2018) maturing Q2 2022.
The maturities of financial liabilities at December 31, 2019 may be broken down as follows:
(in thousands of euro)
Payables to banks and other lenders
of which lease liabilities:
Trade payables
Other payables
Derivative financial instruments
Total
up to 1 year
from 1 to 2
years
729,738
4,143
19,262
33,383
1,650
784,033
152,065
5,448
-
-
3,354
155,419
12/31/2019
from 2 to 5
years
3,557,415
14,497
-
-
4,008
3,561,423
over 5 years
Total
42,221
21,880
-
-
142
42,363
4,481,439
45,968
19,262
33,383
9,154
4,543,238
The maturities of financial liabilities at December 31, 2018 may be broken down as follows:
(in thousands of euro)
Payables to banks and other lenders
Trade payables
Other payables
Derivative financial instruments
Total
up to 1 year
295,729
19,381
48,351
(19,608)
343,853
from 1 to 2
years
1,316,688
-
-
(24,403)
1,292,285
12/31/2018
from 2 to 5
years
2,859,928
-
-
(37,148)
2,822,780
over 5 years
Total
21,029
-
-
(62)
20,967
4,493,374
19,381
48,351
(81,221)
4,479,885
463
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
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 following levels are defined:
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.
The following table shows assets measured at fair value at December 31, 2019, divided into the
three levels defined above:
(in thousands of euro)
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
TOTAL ASSETS
FINANCIAL LIABILITIES
Financial liabilities at fair value through profit or loss
Current derivative financial instruments
Derivative hedging instruments
Non current derivative financial instruments
Current derivative financial instruments
TOTAL LIABILITIES
Note
12/31/2019
Level 1
Level 2
Level 3
17
17
12
12
17
17
17
17
17
-
11
53,256
3,947
30,269
10,143
97,626
(5)
-
(9,589)
(9,594)
-
-
24,892
-
-
-
24,892
-
-
-
-
-
11
20,565
3,947
30,269
10,143
64,935
(5)
-
(9,589)
(9,594)
-
-
7,799
-
-
-
7,799
-
-
-
-
At December 31, 2018, the breakdown was as follows:
(in thousands of euro)
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
TOTAL ASSETS
FINANCIAL LIABILITIES
Financial liabilities at fair value through profit or loss
Current derivative financial instruments
Derivative hedging instruments
Non current derivative financial instruments
Current derivative financial instruments
TOTAL LIABILITIES
Note
12/31/2018
Level 1
Level 2
Level 3
17
17
12
12
17
17
17
17
17
-
325
51,425
15,575
19,403
3,424
90,152
(44)
(5,248)
(10,565)
(15,857)
-
-
28,449
-
-
-
28,449
-
-
-
-
-
325
15,604
15,575
19,403
3,424
54,331
(44)
(5,248)
(10,565)
(15,857)
-
-
7,372
-
-
-
7,372
-
-
-
-
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Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
The following table shows the changes of financial assets that occurred in level 3:
(in thousands of euro)
Opening balance
Decreases
Fair value adjustments through other comprehensive income
Closing balance
12/31/2019
7,372
-
427
7,799
12/31/2018
10,210
(2,857)
19
7,372
These financial assets mainly consist of the equity investment in Istituto Europeo di Oncologia
(European Institute of Oncology) (Euro 7,465 thousand).
In the year ended December 31, 2019, 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 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 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 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.
465
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Separate Financial Statements
5.2
Categories of financial assets and liabilities
The following are the carrying amounts for each class of financial asset and liability identified by
IFRS 9:
(in thousands of euro)
FINANCIAL ASSETS
Financial assets at fair value through income statement
Non-current derivative financial instruments
Financial assets at amortized cost
Other non-current receivables
Current trade receivabels
Other current receivables
Cash and cash equivalents
Financial assets at fair value through other comprehensive income
Derivative hedging instruments
Current derivative financial instruments
Non-current derivative financial instruments
Total financial assets
FINANCIAL LIABILITIES
Financial liabilities at fair value through income statement
Current derivative financial instruments
Financial liabilities at amortized cost
Non-current borrowings from banks and other financial institutions (excl. Lease payables)
Current borrowings from banks and other financial institutions (excl. Lease payables)
Current trade payables
Other non-current payables
Other current payables
Lease payables
Non-current lease payables
Current lease payables
Derivative hedging instruments
Current derivative financial instruments
Non current derivative financial instruments
Total financial liabilities
Note
12/31/2019
12/31/2018
17
13
14
13
15
12
17
17
17
19
19
22
23
23
19
19
17
17
11
325
620
23,775
2,347,952
1,754
57,203
10,143
30,269
2,471,727
600,544
35,366
1,548,690
101,764
67,000
3,424
19,403
2,376,516
5
44
3,541,694
675,542
19,262
212
32,107
35,479
2,747
-
9,589
4,316,637
3,921,509
222,504
19,380
212
48,351
-
-
5,248
10,565
4,227,813
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
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
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Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
due to the uncertainty that characterises 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 assets with indefinite useful life)
The Pirelli Brand is an intangible asset with indefinite useful life not subject to amortization, but,
pursuant to IAS 36, to impairment test annually or more frequently, if specific events or
circumstances occur which may lead to the presumption of impairment.
The impairment test at December 31, 2019 was performed using the assistance of an independent
third-party professional.
The recoverable value configuration for the purposes of the impairment test at December 31, 2019
is the Fair Value, calculated on the basis of the income approach (Level 3 of the hierarchy of IFRS
13 – Fair Value measurement)
Rights of use and lease payables
With regard to the estimates and assumptions used for the determination of lease payables and
rights of use, reference is be made to paragraph 3.3 “Impacts deriving from the adoption of IFRS 16
– Leases”.
Investments in subsidiaries
Investments are assessed to establish whether there was a decrease in value, to be recognised with
a write-down, 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 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.
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Separate Financial Statements
Provisions for risks and charges
In view of the legal and tax risks related to indirect taxes, provisions for the risk of unfavourable
outcomes have been recognised. 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.
8.
PROPERTY, PLANT AND EQUIPMENT
The breakdown of these items is as follows:
(in thousands of euro)
Net Value
- Tangible assets
- Rights of use
8.1
Real estate
12/31/2019
12/31/2018
67,368
34,878
32,490
36,627
36,627
-
The breakdown and changes of these items are as follows:
(in thousands of euro)
12/31/2019
12/31/2018
Land
Buildings
Plant and machinery
Industrial and trade equipment
Other assets
Assets under construction
TOTAL
Gross Value Accumulated
Depreciation
Net Value Gross Value Accumulated
Depreciation
Net Value
6,584
48,974
3,627
942
14,397
165
74,689
-
(24,934)
(3,380)
(936)
(10,560)
-
(39,811)
6,584
24,040
247
6
3,836
165
34,878
6,584
48,974
3,627
942
14,430
-
-
(23,439)
(3,175)
(933)
(10,384)
-
6,584
25,535
453
9
4,046
-
74,557
(37,931)
36,627
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Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
NET VALUE
(in thousands of euro)
12/31/2018
Increases
Business
combination
Decreases Depreciation
Devaluation
12/31/2019
Land
Buildings
Plant and machinery
Industrial and trade equipment
Other assets
Assets under construction
Total
NET VALUE
(in thousands of euro)
Land
Buildings
Plant and machinery
Industrial and trade equipment
Other assets
Assets under construction
Total
6,584
25,535
453
9
4,046
-
36,627
-
-
-
-
-
165
165
-
-
-
-
(21)
-
(21)
-
(1,495)
(206)
(3)
(203)
-
(1,907)
15
15
-
-
-
-
-
-
-
6,584
24,040
247
6
3,836
165
34,878
12/31/2017
Increases
Business
combination
Decreases Depreciation
Devaluation
12/31/2018
9,021
27,296
661
12
4,345
-
41,335
-
-
-
-
1
-
1
-
-
-
-
-
-
-
(2,437)
(53)
-
-
-
-
(2,490)
-
(1,708)
(208)
(3)
(300)
-
(2,219)
-
-
-
-
-
-
-
6,584
25,535
453
9
4,046
-
36,627
The item other assets increased during the year, totalling Euro 15 thousand following the acquisition
of the business unit from the subsidiary Pirelli Tyre S.p.A. The item mainly refers to hardware.
The decreases for the year refer to the disposal of operating equipment.
Property, plant and equipment in progress at December 31, 2019 amounted to Euro 166 thousand.
Financial expenses on tangible assets were not capitalised.
8.2
Rights of use
The net value of the assets for which the Company has stipulated a lease contract is as follows:
(in thousands of euro)
Rights of use Buildings
Rights of use Other assets
Net value
12/31/2019
01/01/2019
30,327
2,163
32,490
32,475
1,786
34,261
At December 31, 2018, there were no financial lease contracts recognised based on IAS 17. For the
impacts recorded following the adoption of IFRS 16 at January 1, 2019, refer to the information in
note 3.3 “Impacts deriving from the adoption of IFRS 16 – Leases”.
Increases in rights of use in 2019 amounted to Euro 1,277 thousand.
469
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
At December 31, 2019, amortisation of user rights recognised in the income statement and included
in the item depreciation, amortisation and impairments are as follows:
(in thousands of euro)
Buildings
Other assets
Total depreciation of right of use
2019
3,234
789
4,023
For interest expense recognised in connection with lease contracts, refer to the information in Note
36 “Financial expenses”.
For information on costs for lease contracts with a duration of less than twelve months, lease
contracts for low unit value goods and lease contracts with variable fees, refer to note 32 “Other
costs”.
For information on lease payables, refer to note 19 “Borrowings from banks and other lenders”.
9.
INTANGIBLE ASSETS
The items in question and the related changes are detailed as follows:
(In thousands of euro)
12/31/2018 Increase
Pirelli Brand - indefinite life
Software licenses
Other intangible assets
TOTAL
2,270,000
833
2,831
2,273,664
-
-
2,111
2,111
(In thousands of euro)
12/31/2017 Increase
Business
combination
1,912
1,912
Business
combination
Decrease Amortisation
Reclassification
Impairment
12/31/2019
-
-
-
-
-
(344)
(1,979)
(2,323)
-
-
-
-
-
-
2,270,000
489
4,875
-
-
2,275,364
Decrease Amortisation
Reclassification
Impairment
12/31/2018
Pirelli Brand - indefinite life
Software licenses
Other intangible assets
Assets under construction
TOTAL
2,270,000
1,002
2,964
156
2,274,122
-
224
1,081
-
1,305
-
-
-
-
-
-
-
-
-
-
-
(393)
(1,370)
-
(1,763)
-
-
156
(156)
-
-
-
-
-
-
2,270,000
833
2,831
-
2,273,664
The Pirelli Brand (asset with indefinite useful life) for Euro 2,270,000 thousand, originated following
the allocation of the merger deficit, generated following 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
470
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
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
1,701 thousand), systems for personnel management (Euro 367 thousand) and treasury (Euro 43
thousand).
Other intangible assets also include the increase during the year of Euro 1,912 thousand deriving
from the transfer of software applications from the subsidiary Pirelli Tyre S.p.A. following the
acquisition of the business unit.
No impairment was carried out in 2019.
Impairment test of the Pirelli Brand (asset with indefinite useful life)
The Pirelli Brand, amounting to Euro 2,270,000 thousand, is an intangible asset with indefinite useful
life and therefore not subject to amortisation. However, pursuant to IAS 36, it is subject to impairment
annually or more frequently, if specific events or circumstances occur that may lead to the
presumption of impairment.
The impairment test at December 31, 2019 was performed using the assistance of an independent
third-party professional.
The recoverable value configuration for the purposes of the impairment test at December 31, 2019
is the fair Value, calculated on the basis of the income approach (Level 3 of the hierarchy of IFRS
13 – Fair Value measurement) and is based on:
-
consensus forecasts of equity analysts with respect to forecast revenues for the periods
2020 - 2022 as more conservative than the 2020-2022 Industrial Plan; the revenue growth
rate for 2020 – 2022 is 2.8%;
- an evaluation criterion for the sum of parts that also considers the contribution in terms
of royalties from the Prometeon Tyre Group for the use of the Pirelli brand in the Industrial
segment;
-
royalty rate applied to the revenues of the Consumer High Value and Consumer Standard
valuation units taken 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 equal to an average royalty rate of 4.46%; with reference to the contribution in terms
of royalties from the Prometeon Tyre Group, use was made of the royalties envisaged;
- a discount rate of 8.00%, which includes a premium in relation to wacc determined on the
basis of the risk of the specific asset;
- growth rate g in the terminal value assumed to be zero;
471
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
-
the TAB (Tax Amortisation Benefit), that is the tax benefit which the market participant
could benefit in the abstractif it were to acquire the asset separately as a result of the
possibility to amortize it for tax purposes.
For the purposes of impairment testing, the recoverable amount of the Pirelli Brand cum TAB was
compared with the respective carrying amount (cum TAB) and no impairment loss emerged.
For the fair value to be equal to the carrying amount, change in key parameters should be the
following:
a decrease in the royalty rates for the Consumer valuation units by 53 basis points, and the
simultaneous zeroing of the balance for royalties from the license agreement with Prometeon
Tyre Group;
an increase in the discount rate by 96 basis points;
a decrease in the g growth rate of 128 basis points.
10.
INVESTMENTS IN SUBSIDIARIES
At December 31, 2019, this item amounted to Euro 4,647,666 thousand (Euro 4,568,324 thousand
at December 31, 2018) and the breakdown is as follows:
(in thousands of euro)
HB Servizi S.r.l.
Maristel S.p.A.
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.
Pirelli International Treasury S.p.A.
Servizi Aziendali Pirelli S.C.p.A.
Total investments in subsidiaries
Below are the changes during the year:
(in thousands of euro)
Opening balance
Increases
Closing balance
12/31/2019
230
1,315
6,346
9,666
3,238
1,655
4,528,245
21,871
75,000
100
4,647,666
12/31/2018
230
1,315
6,346
9,666
3,238
1,655
4,523,887
21,871
15
101
4,568,324
12/31/2019
4,568,324
79,342
4,647,666
12/31/2018
4,568,309
15
4,568,324
The increases refer for Euro 74,985 thousand to the capital increase in favor of the subsidiary Pirelli
International Treasury S.p.A. and for Euro 4,358 thousand to the acquisition from the subsidiary
Pirelli Tyre S.p.A. of the business unit consisting of all staff and business support activities related
to Human Resources, Health and Safety, Security, Planning and Controlling, CFO, Legal Affairs,
472
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Digital, Communication. The difference between the amount of the fee and the book value of the
business unit acquired, equal to Euro 4,4 million, was considered as a contribution in favor of the
subsidiary and consequently recorded as an increase in the value of the investment in the
subsidiary..
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 associates. Following the verification of the indicators, the company on which it was
necessary to carry out the test was Pirelli Ltda. The test did not determine the need for any
impairment.
Further details are set out in the Annexes to the Explanatory Notes.
11.
INVESTMENTS IN ASSOCIATED COMPANIES
At December 31, 2019, this item amounted to Euro 6,375 thousand (Euro 6,375 thousand at
December 31, 2018) and the breakdown is as follows:
(in thousands of euro)
Consorzio per le Ricerche sui Materiali Avanzati (CORIMAV)
Eurostazioni S.p.A. - Roma
Total investment in associates
12/31/2019
104
6,271
6,375
12/31/2018
104
6,271
6,375
The breakdown of changes is indicated below:
(in thousands of euro)
Opening balance
Increases
Decreases
Impairment
Closing balance
12/31/2019
6,375
-
-
-
6,375
12/31/2018
10,204
-
(249)
(3,580)
6,375
No changes occurred during the year.
Further details are set out in the Annexes to the Explanatory Notes.
12. OTHER FINANCIAL ASSETS AT FAIR VALUE RECOGNISED
IN THE OTHER
COMPONENTS OF THE STATEMENT OF COMPREHENSIVE INCOME (FVOCI)
Other financial assets at fair value recognised in the other components of the statement of
comprehensive income amounted to Euro 57,203 thousand at December 31, 2019 (Euro 67,000
thousand at December 31, 2018).
473
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
The breakdown of the item for each security is as follows:
(in thousands of euro)
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.
Other companies
Total financial assets at fair value through other comprehensive income
12/31/2019
12/31/2018
24,892
28,449
20,565
3,947
7,465
334
57,203
15,604
15,575
6,961
411
67,000
The changes in the year are shown below:
(in thousand of euro)
Opening balance
Decreases
Adjustment to fair value recognised in other comprehensive income
Closing balance
67,000
(9,431)
(366)
57,203
The decreases refer to the partial redemption of units for Euro 9,431 thousand received from Fondo
Comune di Investimento Immobiliare - Anastasia in August 2019.
The fair value adjustments in the other components of the statement of comprehensive
income mainly refer to the investments in Fin.Priv. S.r.l. (positive for Euro 4,961 thousand), in Istituto
Europeo di Oncologia (positive for Euro 504 thousand), in RCS Mediagroup S.p.A. (negative for Euro
3,557 thousand), in Fondo Comune di investimento Anastasia (negative for Euro 2,198 thousand)
and in Genextra (negative for Euro 13 thousand).
For listed securities, the fair value corresponds to the Stock Exchange listing at December 31, 2019.
For unlisted securities and real estate funds, the fair value was estimated according to available
information.
13. OTHER RECEIVABLES
The breakdown of other receivables is as follows:
(in thousands of euro)
Other receivables from subsidiaries
Financial receivables from subsidiaries
Guarantee deposits
Other receivables from third parties
Receivables from tax authorities for taxes not related to income
Financial accrued interest income
Financial prepaid expenses
Total other receivables
Total
2,554
2,317,507
268
11,212
9,368
6,982
681
2,348,572
12/31/2019
Non-current
-
-
268
352
-
-
-
620
Current
2,554
2,317,507
-
10,860
9,368
6,982
681
2,347,952
Total
3,921
2,112,705
221
2,221
21,976
7,415
776
2,149,235
12/31/2018
Non-current
-
600,000
221
323
-
-
-
600,544
Current
3,921
1,512,705
-
1,898
21,976
7,415
776
1,548,691
Financial receivables from subsidiaries mainly include the loan granted to Pirelli Tyre S.p.A. for
a total amount of Euro 2,030 million, entirely related to a current portion maturing January 2020
474
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
reimbursed at the expiry date and the receivable for interest accrued and not yet paid for Euro 3,453
thousand.
Financial receivables also include transactions with Pirelli International Treasury S.p.A. relating to
the interest-bearing current account, regulated at market rates for Euro 284,051 thousand (at
December 31, 2018 equal to Euro 561,399 thousand with Pirelli International Plc).
For the purposes of applying accounting standard IFRS 9 in relation to loans to Group companies,
the management has made an estimate of the expected credit losses for the 12 months subsequent
to the financial statement date. The analysis takes into account qualitative, quantitative, historical
and prospective information, to determine whether the intra-group loan has a credit risk at December
31, 2019. Using a probability of default of an investment grade loan and considering the asset
refundable grade and the historical solvency of the Companies, the management of the company
concluded that any impairment required by the standard would result in an insignificant amount.
Receivables from the tax authorities for taxes not related to income for Euro 9,368 thousand
mainly refer to receivables for VAT, which decreased compared to the previous year.
Financial accrued interest income 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.
Prepaid financial expenses 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 amounted to Euro 23,775 thousand compared to Euro 35,366 thousand of the
previous year and the breakdown is as follows:
(in thousands of euro)
Receivables from subsidiaries
Receivables from associates
Receivables from other companies
Total receivables - gross amount
Provision for bad debt
Total receivables
12/31/2019
21,486
3
2,906
24,395
(620)
23,775
12/31/2018
32,229
3
6,104
38,336
(2,970)
35,366
475
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
Below is the breakdown of trade receivables based on the currency in which they are expressed:
(in thousands of euro)
EUR
USD (Dollar USA)
RUB (Ruble Russia)
CHF
Other currencies
Total
% of total trade
receivables
% of total trade
receivables
12/31/2019
12/31/2018
20,657
-
619
3,119
-
24,395
85%
-
2%
13%
-
34,180
2,083
2,039
-
34
38,336
89%
6%
5%
-
-
Receivables from subsidiaries at December 31, 2019 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 2,906 thousand (Euro 6,104 thousand at December
31, 2018), gross of the bad debt provision of Euro 620 thousand, are past due for Euro 2,028
thousand.
Overdue receivables and receivables due have been valued in accordance with the Group policies
described in the paragraph relating to credit risk management in the “Financial risk management
policy”.
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:
(in thousands of euro)
Opening balance
Accruals
Utilizations/reversals
Closing balance
12/31/2019
2,970
96
(2,446)
620
12/31/2018
4,205
1,930
(3,165)
2,970
Accruals to the provision for bad debts are recognised in the income statement as “Impairment of
financial assets” (Note 33).
For trade receivables, the carrying amount is considered to approximate the applicable fair value.
15. CASH AND CASH EQUIVALENTS
At December 31, 2019, they amounted to Euro 1,754 thousand, against Euro 101,764 thousand at
December 31, 2018 and refer to balances of bank accounts in Euro repayable on demand.
476
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
The credit risk associated with cash and cash equivalents is to be considered limited because the
counterparties are represented by leading national and international banking institutions.
It is believed that the value of cash and cash equivalents is in line with their fair value.
16. TAX RECEIVABLES
At December 31, 2019, they amounted to Euro 31,744 thousand (Euro 49,746 thousand at
December 31, 2018).
The amount mainly includes:
receivables from Group companies participating in the tax consolidation for Euro 29,828
thousand (Euro 48,489 thousand at December 31, 2018). 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.;
receivables for IRAP advances paid for Euro 925 thousand, unchanged compared to the
previous year.
17. FINANCIAL INSTRUMENTS
The item includes the fair value of derivative instruments. The breakdown is as follows:
(in thousands of euro)
12/31/2019
12/31/2018
Non Current Current Assets Non Current
Assets
Liabilities
Current
Liabilities
Non Current Current Assets Non Current
Assets
Liabilities
Current
Liabilities
-
11
-
(5)
-
325
-
(44)
Total derivative instruments
30,269
10,154
(9,589)
(5)
19,403
449
29,820
-
10,143
(8,735)
(854)
-
-
-
19,403
-
3,424
3,749
(2,824)
(7,741)
-
(5,248)
(10,565)
(5,292)
Without adoption of hedge accounting
Forex instruments - trade positions
In hedge accounting
- cash flow hedge:
Derivatives for interest rate
Other derivatives instruments
The above derivatives are intercompany derivatives stipulated mainly with the Group’s treasury
company, Pirelli International Treasury S.p.A.
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.
477
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
Derivative financial instruments in hedge accounting
The value of derivatives on interest rates, recorded as current assets for Euro 449 thousand and
non-current liabilities for Euro 8,735 thousand, refers to the fair value measurement of 2 interest rate
swaps forward start contracts and 3 interest rate swaps contracts with the following characteristics:
Instrument
Description
Notional
(in thousands of euro)
Start date
Deadline
IRS
IRS
IRS
IRS forward start
IRS forward start
Term loan in Eur
Term loan in Eur
Term loan in USD + CCIRS
Schuldschein
Schuldschein
Total
250,000
62,500
100,000
180,000
20,000
612,500
June 2019
August 2019
October 2019
July 2020
July 2020
June 2022
August 2023
June 2022
July 2023
July 2025
receive fix / pay floating
receive fix / pay floating
receive fix / pay floating
receive fix / pay floating
receive fix / pay floating
For these derivatives, hedge accounting of the cash flow hedge type was adopted. Items subjected
to hedge accounting are:
- a 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);
-
the “Schuldschein” loan (see Note 19).
The change in fair value for the year for IRS (interest rate swaps), negative at Euro 6,047 thousand,
has been entirely suspended in equity, while in the Income Statement, Euro 572 thousand was
reversed to the item “financial expenses” (Note 36), correcting the financial expenses recognised on
the liability hedged.
A +0.5% change in the EURIBOR curve, other things being equal, would result in a positive change
of Euro 8,095 thousand in the Company’s shareholders’ equity, while a -0.5% change in the same
curve would result in a negative change of Euro 7,883 thousand in the Company’s shareholders’
equity.
The value of other derivatives, recognised as non-current asset for Euro 29,820 thousand, current
assets for Euro 10,143 thousand and non-current liabilities for Euro 854 thousand, refers to the fair
value measurement of 4 cross currency interest rate swaps with the following characteristics:
Instrument
Notional
(in thousands of USD)
Start date
Deadline
Description
CCIRS
CCIRS
CCIRS
CCIRS
284,037
681,690
170,422
908,920
2,045,069
July 2017
July 2017
July 2019
July 2019
June 2020
June 2022
June 2022
June 2022
pay floating EURIBOR / receive floating LIBOR
pay floating EURIBOR / receive floating LIBOR
pay fix EURIBOR / receive floating LIBOR
pay fix EURIBOR / receive floating LIBOR
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
478
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
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 1,824,419
thousand (see Note 19 “Borrowings from banks and other lenders”).
The positive change in fair value for the year was suspended in equity for Euro 81,239 thousand
(cash flow hedge reserve for Euro 75,888 thousand and cost of hedging reserve for Euro 5,351
thousand), while Euro 34,309 thousand was reversed to the income statement to offset unrealised
exchange rate losses recognised on liabilities hedged and Euro 52,022 thousand was instead
reversed in the item “financial expenses” (Note 36) correcting the financial expenses recognised on
the liability hedged.
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 10,854 thousand and a negative
net impact of Euro 11,050 thousand on the shareholders’ equity of the Company.
18.
SHAREHOLDERS’ EQUITY
Equity amounted to Euro 4,580,445 thousand (Euro 4,492,675 thousand at December 31, 2018).
The statement of changes in equity is shown in the main financial statements.
Equity went from Euro 4,492,675 thousand at December 31, 2018 to Euro 4,580,445 thousand at
December 31, 2019. The positive change is essentially due to the net result for the year (positive for
Euro 273,242 thousand), offset by the dividend distribution of Euro 177,000 thousand, by the
adjustment to the fair value of derivatives designated as cash flow hedges (negative for Euro 8,031
thousand) and to the adjustment to the fair value of financial assets at fair value recognised as other
components of the statement of comprehensive income (negative for Euro 366 thousand).
Share capital
The share capital at December 31, 2019, fully subscribed and paid-in, amounted to Euro
1,904,374,935.66 divided into 1,000,000,000 ordinary shares without nominal value and unchanged
compared to December 31, 2018.
Legal reserve
At December 31, 2019, the legal reserve amounted to Euro 380,875 thousand, unchanged compared
to December 31, 2018, having already reached the limit set by art. 2430 Civil Code.
479
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
Share premium reserve
At December 31, 2019, the share premium reserve amounted to Euro 630,381 thousand and
unchanged compared to December 31, 2018.
Concentration reserves
At December 31, 2019, concentration reserves amounted to Euro 12,467 thousand and unchanged
compared to December 31, 2018.
Other reserves
At December 31, 2019, other reserves amounted to Euro 92,535 thousand and unchanged
compared to December 31, 2018.
IAS reserve
At December 31, 2019, the IAS reserves were negative for a value of Euro 3,199 thousand and refer
to the reserve for the fair value adjustment of financial assets at fair value recognised in the statement
of comprehensive income (positive for Euro 10,638 thousand), to the reserve for the remeasurement
of employee benefit obligations (positive for Euro 1,923 thousand) and the cash flow hedge reserve
and the cost of hedging reserve, net of the tax effect (negative for Euro 15,760 thousand).
Merger reserve
At December 31, 2019, the merger reserve amounted to Euro 1,022,928 thousand, unchanged
compared to December 31, 2018. The reserve was generated following the merger by incorporation
of Marco Polo International Holding Italy S.p.A. in Pirelli & C. S.p.A. in 2016.
Reserve from results carried forward
The reserve from results carried forward amounted to Euro 266,842 thousand compared to a
181,512 at December 31, 2018. The increase is attributable to the residual result carried forward
from the previous year.
480
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
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.
(in thousands of euro)
Share capital
Surplus reserve
Legal reserve
Other reserves
- Concentration reserve
- Other Reserves
- IAS Reserves
- Merger Reserve
Retained earnings
Total
Non distributable
Residual quota available
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
1,904,375
630,381
380,875
12,467
92,535
(3,199)
1,022,928
266,842
4,307,204
A, B, C
B
A, B, C
A, B
-
A, B, C
A, B, C
630,381
380,875
12,467
92,535
-
1,022,928
266,842
2,406,028
473,410
1,932,618
-
-
-
-
-
-
175,912
188,439
364,351
19.
BORROWINGS FROM BANKS AND OTHER LENDERS
The breakdown of the item borrowings from banks and other lenders is as follows:
(in thousands of euro)
Bonds
Borrowings from banks
Lease payables
Other financial payables
Accrued liabilities
Total borrowings from banks & other
financial institutions
The item bonds refers to:
Total
1,271,393
2,921,413
38,226
4,222
20,208
12/31/2019
Not currents
1,071,476
2,469,318
35,479
900
-
Currents
199,917
452,095
2,747
3,322
20,208
Total
1,269,514
2,851,995
-
2,949
19,555
12/31/2018
Not currents Currents
1,269,514
2,651,995
-
-
-
-
200,000
-
2,949
19,555
4,255,462
3,577,173
678,289
4,144,013
3,921,509
222,504
- unrated public bonds 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 2018) placed on January 22, 2018 with a fixed coupon of 1.375%
and an original 5-year maturity, plus a second bond loans issued on March 15, 2018 for a
nominal amount of Euro 200 million at a floating rate, with original 2.5-year maturity. 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;
-
the floating rate “Schuldschein” loan for a total nominal value of Euro 525 million placed on
July 26, 2018. The loan, and entered into by leading market operators, consists of a tranche
of Euro 82 million with 3-year maturity, a tranche of Euro 423 million with 5-year maturity and
a tranche of Euro 20 million with 7-year maturity.
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The carrying amount of bonds was determined as follows:
(in thousands of euro)
12/31/2019
12/31/2018
Nominal value
Transaction costs
Bond discount
Amortisation of effective interest rate
Total
1,278,000
1,278,000
(7,683)
(2,988)
4,063
(7,683)
(2,988)
2,185
1,271,392
1,269,514
The change in the item bonds refers to the amortised cost for the year.
The item borrowings from banks, which amounted to Euro 2,921,413 thousand, mainly refers to:
use of the unsecured loan (Facilities) granted to Pirelli & C. S.p.A. for Euro 1,999,940 thousand,
of which Euro 252,095 classified under current borrowings from banks. The nominal refinanced
total subscribed to on June 27, 2017, (with a closing date of June 29, 2017) amounted to Euro
2.7 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). 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 3-year and 5-year maturity;
Euro 921,473 thousand relating to two bilateral loans disbursed in favor of Pirelli & C. S.p.A. by
leading banking institutes, of which nominal Euro 600 million with 5-year maturity (“Bilaterale
600”), Euro 125 million with 4-year maturity at floating rate (“Bilaterale 125”) and Euro 200 million
with maturity extended to June 2020 (original maturity July 2019) at fixed rate (“Bilaterale 200”),
classified under current borrowings from banks;
Below are the changes in borrowings from banks:
(in thousands of euro)
Borrowings from banks at December 31, 2018
Repayments of unsecured financing (Facilities)
New bilateral borrowings
Amortized cost for the period
Translation differences
Borrowings from banks at December 31, 2019
2,851,995
(700,000)
720,900
14,182
34,336
2,921,413
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Pirelli & C. S.p.A. – 2019 Annual Report
The change in total borrowings from banks for the previous year is shown below:
(in thousands of euro)
Borrowings from banks at December 31, 2017
Repayments of unsecured financing (Facilities)
Transfer of loan from Pirelli International Plc
Intesa financing
Amortized cost for the period
Translation differences
Borrowings from banks at December 31, 2018
2,331,086
(700,000)
986,965
200,000
(6,590)
40,534
2,851,995
Lease payables represent financial liabilities relating to the application of IFRS 16 starting from
January 1, 2019.
Below are the changes in lease liabilities:
(in thousands of euro)
IFRS 16 first time adoption impact
Increase of lease obligations
Remeasurement and early termination
Cash outflow for lease obligations - principal amount
Lease payables as at 12/31/2019 (IFRS 16)
37,250
1,277
972
(1,273)
38,226
Non-discounted future payments for lease contracts for which the exercise of extension options is
not considered reasonably certain amounted to Euro 13,596 thousand at December 31, 2019 and
are not included in this item.
The item other financial payables includes for Euro 2,423 thousand the payable to shareholders
following the squeeze out operation and for Euro 1,800 thousand the short-term portion of the upfront
fee on the “Bilaterale 600” loan, of which Euro 900 thousand short-term and Euro 900 thousand non-
current.
The item accrued liabilities essentially refers to interest that has accrued on the term loans but has
not yet been paid (Euro 10,866 thousand) and to interest accrued on bonds for Euro 9,082 thousand.
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:
(in thousands of euro)
Bonds
Borrowings from banks
Lease payables
Other financial payables
12/31/2019
12/31/2018
Carrying amount
1,071,476
2,469,318
35,479
900
Fair value Carrying amount
1,269,514
1,084,830
2,651,995
2,492,591
-
35,479
-
900
Fair value
1,252,468
2,686,087
-
-
Total borrowings from banks and other financial institutions - non current
3,577,173
3,613,800
3,921,509
3,938,555
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 year-end. 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 borrowings from banks
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Separate Financial Statements
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 borrowings from banks and other lenders by currency of origin of the payable at
December 31, 2019 and December 31, 2018 is as follows:
(in thousands of euro)
EUR
USD (Dollar USA)
Total
12/31/2019
2,439,408
1,816,054
4,255,462
12/31/2018
2,368,434
1,775,579
4,144,013
At December 31, 2019, there are hedging derivatives for interest rate and exchange rate on payables
at variable rate in foreign currency.
The Company’s exposure to changes in interest rates on financial payables, both in terms of the
type of interest rate and in terms of their renegotiation date (resetting), is divided into:
variable rate payables for Euro 1,908,335 thousand, the interest rate of which is subject to
renegotiation within the first six months of 2020;
fixed rate payables for Euro 2,303,520 thousand, the interest rate of which is not subject to
renegotiation until the natural maturity of the reference debt (Euro 200,000 thousand with
maturity in the next 12 months and Euro 2,103,520 thousand with maturity beyond 12
months).
With regard to the existence of financial covenants, it is noted that (i) Group’s main bank credit facility
(Facility) granted to Pirelli & C. S.p.A. and Pirelli International Plc (currently usable only by, and in
its entirety by Pirelli & C.), (ii) the “Schuldschein” loan (iii) the bilateral line of Euro 600 million granted
to Pirelli & C. in the first quarter of 2019 (“Bilaterale 600”) and (iv) the bilateral line of Euro 125 million
granted to Pirelli & C. in the third quarter of 2019 (“Bilaterale 125”) 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.
In all the loans indicated above, failure to comply with the financial covenant is identified as an event
of default.
Specifically, this event of default may be exercised in accordance with the terms of the relevant
contract (i) as part of the Facility only if requested by a number of lending banks that represents at
least 66 2/3% of the total commitment and involves early repayment (partial or total) of the loan with
simultaneous cancellation of the relative commitment; (ii) as part of the Schuldschein loan,
individually and autonomously by each lending bank for its share and entails the early repayment of
the loan only for that share; and (iii) as part of both Bilaterale 600 and Bilaterale 125, by the only
bank that granted each of the above loans, leading to early repayment for the entire amount
disbursed.
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It is noted that at December 31, 2019, this parameter is respected.
The Facility, the “Schuldschein” loan and Bilaterale 600 also provide for Negative Pledge clauses,
the terms of which are in line with market standards for each of the aforementioned types of credit
facilities.
The other outstanding financial payables at December 31, 2019 did not contain financial covenants.
NET FINANCIAL POSITION
(Alternative performance indicator not required by IFRS accounting standards)
The table below shows the breakdown of the net financial position and net financial debt at December
31, 2019 and December 31, 2018, determined in accordance with the provisions of Consob
communication DEM/6064293 of July 28, 2006 and in compliance with the ESMA/2013/319
Recommendations.
(in thousands of euro)
Note
12/31/2019
of which related
parties (note 39)
12/31/2018
of which related
parties (note 39)
Current borrowings from banks and other financial institutions without IFRS 16
Current derivative financial instruments (liabilities)
Non-current borrowings from banks and other financial institutions without IFRS 16
Non-current derivative financial instruments (liabilities)
Current lease obligations IFRS 16
Non-current lease obligations IFRS 16
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
Total net financial (liquidity)/debt position
Lease obligations IFRS 16
Total net financial (liquidity)/debt position without IFRS 16
19
17
19
17
19
19
15
13
17
13
17
19
-
-
-
9,589
-
-
-
(2,324,489)
(10,143)
-
(30,269)
675,542
-
3,541,694
9,589
35,479
2,747
4,265,051
(1,754)
(2,325,160)
(10,154)
1,927,983
(268)
(30,269)
1,897,446
(38,226)
1,859,220
222,504
5,248
3,921,509
10,252
-
-
4,159,513
(101,764)
(1,520,896)
(3,424)
2,533,429
(600,221)
(19,403)
1,913,805
-
1,913,805
7
5,248
-
10,252
-
-
-
(1,520,120)
(3,424)
(600,000)
(19,403)
* 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".
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Separate Financial Statements
20.
PROVISIONS FOR LIABILITIES AND CHARGES
The following is a detail of changes of the item in question:
(in thousands of euro)
12/31/2018 Increases Uses Reversals Riclassification Other 12/31/2019
Provision for employees controversies
Provision for tax risks
Provision for environmental risks
Provision for other risks
3,586
1,141
1,922
1,197
(1,178)
(1,608)
-
-
500
(1,795)
-
-
-
-
-
-
-
-
1,997
1,141
627
33,882
1,208
-
(382)
1,631
227
36,566
Provision for liabilities and charges - non current portion
40,531 2,905 (2,973) (1,990) 1,631 227 40,331
Provision for other risks
1,815
-
(173)
(11)
(1,631)
-
-
Provision for liabilities and charges - current portion
1,815
- (173) (11) (1,631)
-
-
Closing balance 12/31/2019
42,346
2,905
(3,146)
(2,001)
-
227
40,331
Increases mainly refer to provisions for environmental reclamation and labour disputes.
Uses are mainly attributable to the closure of pending disputes relating to occupational diseases and
reclamation of abandoned areas.
Reversals of excess funds are mainly related to the adjustment of provisions for labour disputes and
remediation of disused areas.
The item other risks includes the Euro 33.5 million provision referable to the decision taken by the
European Commission – subsequently confirmed by the sentence of the European Union Court of
July 12, 2018, against which on September 21, 2018, Pirelli & C. S.p.A. (Pirelli) filed an appeal before
the Court of Justice of the European Union – at the conclusion of the antitrust investigation started
in relation to allegedly restricting competition in the European energy cable market. This decision
provides for a sanction against Prysmian Cavi e Sistemi S.r.l. (Prysmian) as directly involved in the
alleged cartel, of which a part (Euro 67 million), Pirelli, despite having been found to not have been
involved in said cartel, was held as being jointly liable with Prysmian, based solely on the application
of the principle of parental liability, in that during part of the period of the alleged infringement, the
capital of Prysmian was directly or indirectly held by Pirelli. The amount set aside of Euro 33.5 million
corresponds for 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 joint penalty to Pirelli and Prysmian of Euro 67 million.
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Pirelli & C. S.p.A. – 2019 Annual Report
21.
PERSONNEL PROVISIONS
Personnel provisions amounted to Euro 6,311 thousand (Euro 4,175 thousand at December 31,
2018 and the breakdown is as follows:
(in thousands of euro)
Employee leaving indemnities (TFR)
Other benefits
Total employees' benefit obligation
Total
2,672
3,639
6,311
12/31/2019
Non current
2,672
1,605
Current
-
2,034
4,277
2,034
Total
1,077
3,098
4,175
12/31/2018
Non current Current
1,077
1,133
2,210
-
1,965
1,965
The increase compared to the previous year is mainly due to the increase in severance pay and
seniority bonuses following the acquisition of the business unit of the subsidiary Pirelli Tyre S.p.A.
consisting of all the staff and business support activities related to Human Resources, Health and
Safety, Security, Planning and Controlling, CFO, Legal Affairs, Digital, Communication.
Employee leaving indemnity (TFR)
The changes in the year 2019 for the employee leaving indemnity (TFR) are the following:
(in thousands of euro)
Opening balance
Movements through income statement:
- current service cost
- interest expense
Remeasurements recognised in equity:
-actuarial (gains) or losses arising from changes in financial assumption
-Increase related to business combination
Indemnities, advance payments, relocations, payment to funds
Total employees' leaving indemnities (TFR)
12/31/2019
1,077
12/31/2018
1,385
1,800
23
96
1,411
(1,735)
2,672
934
9
8
-
(1,259)
1,077
The amounts recognised in the income statement are included in the item “Personnel Costs” (Note
30).
Net actuarial gains accrued in 2019, recognised directly in equity, amounted to Euro 96 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 provision.
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
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Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
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 main actuarial assumptions used at December 31, 2019 are as follows:
2019
Discount rate
Inflation rate
0.7%
1.0%
The main actuarial assumptions used at December 31, 2018 were as follows:
2018
Discount rate
Inflation rate
1.5%
1.5%
Hired employees at December 31, 2019 amounted to 353 units (151 units at December 31, 2018).
The increase is essentially due to the acquisition by the Company of the business unit of the
subsidiary Pirelli Tyre S.p.A. consisting of all the staff and business support activities related to
Human Resources, Health and Safety, Security, Planning and Controlling, CFO, Legal Affairs,
Digital, Communication.
In other conditions being equal, a hypothetical change of 0.25% in the discount rate would result in
a decrease in liabilities equal to 1.84%, in the case of an increase (1.80% at December 31, 2018),
and an increase in liabilities of 1.88%, in the case of a decrease (1.83% at December 31, 2018).
Other employee benefits
The breakdown of other benefits is as follows:
(in thousands of euro)
Long-term incentive plans
Jubilee awards
Other benefits
Total
Total
-
1,605
2,034
12/31/2019
Non current
- - 411 411
722
12/31/2018
Non current
-
Current
1,605
Total
-
2,034
-
722
1,965
Current
-
-
1,965
3,639
1,605 2,034 3,098 1,133 1,965
At December 31, 2018, the item Long-term incentive plans included the amount allocated for the
three-year monetary incentive plan Long-term incentive 2018-2020 for Group management and
related to the 2018-2020 objectives contained in the 2017-2020 Industrial Plan. At the presentation
of the 2020-2022 Industrial Plan on February 19, 2020, the Board of Directors approved the adoption
of a new monetary incentive plan - Long-term incentive (LTI) - intended for all Group management
(to date approximately 270 participants) - related to the objectives of the plan. At the same time, the
BoD - with effect from December 31, 2019 - resolved to close early and without any disbursement,
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Pirelli & C. S.p.A. – 2019 Annual Report
not even pro-quota, the previous plan adopted in 2018 and related to the objectives of the 2018-
2020 period.
Other benefits for Euro 2,034 thousand refer to the portion of the third installment of the retention
plan at December 31, 2019 that will be paid during the first half of 2020. The plan was approved by
the Board of Directors on February 26, 2018, and is intended for Executives with strategic and tax
responsibilities (to a selected number of senior Managers and Executives whose contribution for the
implementation of the Strategic Plan is considered particularly significant.
22. TRADE PAYABLES
The breakdown of trade payables is as follows:
(in thousands of euro)
Payables to subsidiaries
Payables to associates
Payables to other companies
Total trade payables
12/31/2019
4,562
102
14,598
19,262
12/31/2018
2,392
60
16,929
19,381
The carrying amount of trade payables is considered to approximate their fair value.
23.
OTHER PAYABLES
The breakdown of other payables is as follows:
(in thousands of euro)
Total
12/31/2019
Non-current
Current
Total
12/31/2018
Non-current
Current
Payables to subsidiaries
Payables to social security and welfare institutions
Payables to employees
Other payables
Accrued liabilities
Deferred income
Total other payable
11,515
3,193
7,213
9,593
271
533
32,318
-
-
-
211
-
-
211
11,515
3,193
7,213
9,382
271
533
32,107
25,944
1,905
8,275
9,088
3,343
7
48,562
-
-
-
211
-
-
211
25,944
1,905
8,275
8,877
3,343
7
48,351
Payables to subsidiaries mainly refer to receivables related to VAT consolidation.
Payables to pension and social security institutions mainly consist of 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 the remuneration to be paid to employees.
Other payables include liabilities for compensation to be paid to directors and auditors, for
withholding taxes on income from self-employed and employed work.
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For other current payables it is considered that the carrying value approximates their fair value.
24.
DEFERRED TAX PROVISIONS
The deferred tax provision amounted to Euro 538,902 thousand at December 31, 2019 (Euro
527,807 thousand at December 31, 2018).
The breakdown of the deferred tax provision gross of offsetting is as follows:
(in thousands of euro)
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
12/31/2019
101,909
64,051
37,859
(640,811)
(1,842)
(638,969)
(538,902)
12/31/2018
113,005
55,649
57,356
(640,811)
-
(640,811)
(527,806)
The tax effect of temporary differences and of tax losses carried forward which make up the item is
shown in the following table:
(in thousands of euro)
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
12/31/2019
12/31/2018
665
65
1,484
120
24,080
54,501
16,010
4,984
101,909
(633,330)
(7,481)
(640,811)
(538,902)
1,897
65
864
713
50,339
43,498
13,180
2,448
113,005
(633,330)
(7,481)
(640,811)
(527,806)
At December 31, 2019, the amount of unrecognised deferred tax assets relating to unlimited
carryforward tax losses was equal to Euro 30,048 thousand (Euro 31,335 thousand at December
31, 2018), while those relating to temporary differences was equal to Euro 25,856 thousand
(unchanged compared to December 31, 2018).
490
Separate Financial Statements
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25.
TAX PAYABLES
These amounted to Euro 17,617 thousand (Euro 16,436 thousand at December 31, 2018) and
mainly include payables to subsidiaries that adhere to the tax consolidation, which arose following
the transfer of withholding taxes incurred abroad (WHT).
26.
COMMITMENTS AND RISKS
COMMITMENTS FOR LEASE CONTRACTS
At December 31, 2019, the total of future undiscounted payments for lease contracts not yet in force
and for which no financial payable was recognized amounted to Euro 14,400 thousand, mainly
referring to office lease contracts.
Disputes against Prysmian before the Court of Milan.
Pending the decision of the Community proceeding pursuant to Note 20 “Provision for liabilities and
charges”, 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 –
against which, on September 21, 2018, Pirelli filed an appeal before the Court of Justice of the
European Union.
Prysmian appeared in the aforementioned judgment, requesting the rejection of Pirelli’s claims, and
to be indemnified by Pirelli in relation to the consequences deriving from or related to the Decision
of the European Commission. The judgment was suspended pending a final ruling of the EU judges.
On the basis of accurate analyses provided by external counsel, Pirelli believes that the full and final
liability for any breach must be borne exclusively by the company directly involved, since it was not
involved in committing the alleged irregularities.
In October 2019, Pirelli took further action before the Court of Milan against Prysmian Cavi e Sistemi
S.r.l. and Prysmian S.p.A. requesting the assessment and declaration of the obligation of Prysmian
Cavi e Sistemi S.r.l. to indemnify and release it from any charge, expense, cost and/or damage
resulting from claims of private and/or public third parties (including authorities other than the
European Commission) relating, connected and/or consequential to the facts covered by the
Decision of the European Commission, as well as the consequent conviction of Prysmian Cavi e
Sistemi S.r.l. to reimburse any charge, expense, cost or damage incurred or suffered by Pirelli.
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Separate Financial Statements
On this occasion, Pirelli also requested to ascertain the liability of Prysmian Cavi e Sistemi S.r.l. and
Prysmian S.p.A. in relation to certain illegal conduct connected to the aforementioned alleged anti-
competitive agreement, carried out by the same and, as a result, the conviction to compensation for
all damages suffered and being suffered by Pirelli.
Lastly, Pirelli requested the ascertainment and declaration of the joint liability of Prysmian S.p.A. in
relation to the amounts that will be paid both in this new judgment and in the one in November 2014
and that will not be settled by Prysmian Cavi e Sistemi S.r.l.
Other disputes in relation to the European Commission Decision
In November 2015, Prysmian S.p.A. notified Pirelli of proceedings for the recovery of damages
before the High Court of Justice of London against Prysmian and other recipients of the European
Commission Decision of April 2, 2014 by National Grid and Scottish Power, companies that claim to
have been injured by the alleged cartel. Specifically, Prysmian S.p.A. submitted a plea to obtain from
Pirelli and Goldman Sachs, based on the role of parent companies during the period 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 of London 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, at the request of Pirelli and Prysmian S.p.A., suspended the
proceedings until the final passing of judgment that will define the Italian judgment already pending.
In April 2019, Terna S.p.A. – Rete Elettrica Nazionale (Terna) summoned Pirelli, three Prysmian
Group companies and another recipient of the aforementioned European Commission Decision,
before the Court of Milan, to obtain compensation for the damage allegedly suffered as a result of
the alleged anti-competitive conduct, quantified by the plaintiff at Euro 199.9 million.
Lastly, also in April 2019, the Electricity and Water Authority of Bahrain, the GCC Interconnection
Authority, the Kuwait Ministry of Electricity and Water and the Oman Electricity Transmission
Company, served a summons against Pirelli, some Prysmian Group companies and others
recipients of the aforementioned European Commission Decision, jointly agreeing with each other
to obtain compensation for the damage allegedly suffered as a result of the alleged anti-competitive
conduct. The proceeding was brought before the Court of Amsterdam. At present, the plaintiffs have
not yet quantified the damage allegedly suffered.
On the basis of accurate legal analyses provided by external counsel, Pirelli believes that the full
and final liability for any breach must be borne exclusively by the company directly involved, since it
was not involved in committing the alleged irregularities. In consequence of the above, the risk
assessment related to the disputes described above is such as not to have to request the allocation
of any specific provision in the Financial Statements at December 31, 2019, also considering their
initial status.
492
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
INCOME STATEMENT
27.
REVENUES FROM SALES AND SERVICES
Revenues from sales and services amounted to Euro 51,992 thousand for 2019 compared to Euro
38,719 thousand in 2018 and the breakdown is as follows:
(in thousands of euro)
Sales of services to subsidiaries
Sales of services to other companies
Total revenues from sales and services
2019
50,108
1,884
51,992
2018
37,054
1,665
38,719
Revenues from subsidiaries refer to services provided by the central functions.
28.
OTHER REVENUES
Other revenues amounted to Euro 110,180 thousand in 2019 (Euro 112,179 thousand in 2018) and
the breakdown is as follows:
(in thousands of euro)
Other income from subsidiaries
Other revenues from third parties
Other income from other companies
2019
106,613
3,567
110,180
2018
102,110
10,069
112,179
Other revenues from subsidiaries mainly include royalties paid by Group companies for the use of
the brand (Euro 71,730 thousand in 2019 compared to Euro 69,562 thousand in 2018). 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 1,645 thousand in 2019 compared to Euro 1,409 thousand in 2018).
29.
RAW MATERIALS & SUPPLIES USED
They amounted to Euro 225 thousand in 2019 (Euro 210 thousand in 2018) and include purchases
of advertising material, fuels and various materials.
493
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
30.
PERSONNEL COSTS
Personnel costs amounted to Euro 48,229 thousand (Euro 34,130 thousand in 2018) and the
breakdown is as follows:
(in thousands of euro)
Wages and salaries
Social security and welfare contributions
Employee leaving indemnities
Retirement and similar obbligations
Other costs
Total
2019
33,886
8,568
1,933
533
3,309
48,229
2018
23,744
4,982
973
241
4,190
34,130
The increase compared to the previous year is mainly attributable to the acquisition of the business
unit of the subsidiary Pirelli Tyre S.p.A., consisting of all staff and business support activities relating
to Human Resources, Health and Safety, Security, Planning and Controlling, CFO, Legal Affairs,
Digital, Communication.
The average staff headcount is the following:
Executives
Employees
Workers
80
270
7
31. DEPRECIATION, AMORTISATION AND IMPAIRMENTS
The breakdown of the item is as follows:
(in thousands of euro)
Amortisation - intangible assets
Depreciation - property, plant and equipment (excl. Depreciation of Right of Use)
Depreciation of right of use
Total depreciation, amortisation and impairments
2019
2,324
1,907
4,023
8,254
2018
1,764
2,220
-
3,984
The increase in the item “depreciation, amortisation and impairments” is mainly due to the adoption
of IFRS 16 starting from January 1, 2019.
494
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
32.
OTHER COSTS
The breakdown of other costs is the following:
(in thousands of euro)
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
Short term leasing contract
Low value leasing contract
Variable leasing contract
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 other costs
* 2019 figures include IFRS 16 impact.
2019
38,625
11,204
77
835
4,013
7,086
2,418
980
208
14
-
6,327
1,351
2,474
2,594
1,198
750
683
-
8,681
89,518
2018
36,243
10,101
(786)
671
11,119
8,449
2,251
-
-
-
10,854
5,729
1,332
2,861
3,056
845
689
2,220
163
9,247
105,044
The decrease in the item leases and rentals is mainly attributable to the application of IFRS 16 in
2019.
33.
NET IMPAIRMENT OF FINANCIAL ASSETS
The item, negative for Euro 97 thousand, mainly includes the net impairment of trade receivables.
At December 31, 2018, the net write-down of trade receivables amounted to Euro 1,930 thousand.
34.
RESULT FROM EQUITY INVESTMENTS
34.1. Profits from investments
They amounted to Euro 2 thousand in 2019 (Euro 4,007 thousand in 2018) and the breakdown is as
follows:
(in thousands of euro)
Fair value adjustment of investment in Mediobanca S.p.A.
Other gains on equity investments
Total
2019
-
2
2
2018
3,780
227
4,007
495
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
The item relating to 2019 refers to the disposal of 1,014 Servizi Aziendali Pirelli S.c.p.A.shares to
Pirelli International Treasury S.p.A. The decrease compared to the previous year refers to the
positive impact of Euro 3,780 thousand relating to the investment in Mediobanca S.p.A., disposed of
on January 11, 2018.
34.2. Losses from investments
There were no losses from investments in 2019 (Euro 3,580 thousand in 2018).
In 2018, the value, equal to Euro 3,580 thousand, referred for Euro 1,351 thousand to the impairment
of the investment in Focus Investments S.p.A. and for Euro 2,229 thousand to the impairment of the
investment in Fenice S.r.l.
34.3 Dividends
They amounted to Euro 268,903 thousand in 2019 compared to Euro 284,517 thousand in 2018 and
the breakdown is as follows:
(in thousands of euro)
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
From other financial assets:
- RCS S.p.A. - Italy
- ECA Ltd - United the Kingdom
- Fin. Priv. S.r.l. - Italy
- Genextra S.p.A. - Italy
- Fondo Anastasia - Italy
Total
35.
FINANCIAL INCOME
The breakdown of the item is as follows:
(in thousands of euro)
Interest
Other financial income
Net gains on exchange rates
Total financial income
496
2019
2018
250,000
13,342
200
300
-
1,482
10
957
178
2,434
268,903
2019
39,723
32
519
40,274
270,000
5,025
500
5,800
2,225
-
10
957
-
-
284,517
2018
15,419
5,108
-
20,527
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Interest mainly refers to interest accrued on loans granted in 2019 to the subsidiary Pirelli Tyre
S.p.A.
Net exchange rate gains of Euro 519 thousand refer to the adjustment to the year-end exchange
rate 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 profits on items closed during the year.
36.
FINANCIAL EXPENSES
The breakdown of the item is as follows
(in thousands of euro)
Interest
Commissions
Interest expenses on lease liability
Net interest on employee benefit obligations
Net losses on exchange rates
Net losses on derivative financial instruments
Total financial expenses
2019
59,712
2,736
1,421
36
-
120
64,025
2018
51,416
1,228
-
25
308
401
53,378
Interest and other financial expenses for a total of Euro 59,712 thousand mainly include:
Euro 95,689 thousand for the bank loan lines held by Pirelli & C. S.p.A.;
Euro 15,212 thousand of financial expenses related to bonds, of which Euro 9,869 thousand
related to unrated bonds and Euro 5,343 thousand related to the “Schuldschein” loan, both
issued by Pirelli & C. S.p.A.;
net of Euro 51,517 thousand for net interest income on the Cross Currency Interest Rate Swap
and Interest Rate Swaps to adjust the flow of interest expense of the bank lines and bonds
referred to in the previous points.
For further details, refer to as reported in Note 25 “Derivative financial instruments”;
Net expenses on derivatives refer to forward purchases/sales of foreign currencies to hedge the
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 year, the fair value is determined
using the forward exchange rate at the reporting date. For 2019 the exchange rate component of the
fair value measurement of the cross currency interest rate swaps, for which hedge accounting of the
cash flow hedge type was adopted, was positive to the amount of euro 34,399 thousand, and was
reclassified under the item net gains on exchange rates, to offset unrealised exchange losses
recorded on the hedged liability. To ensure comparability with the previous financial year, the
exchange rate component for 2018, positive to the amount of euro 40,292 thousand, was reclassified
497
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
to reduce net losses on exchange rates in order to offset unrealised currency exchange losses
recorded for 2018 on the hedged liability.
37.
TAXES
The breakdown of taxes is as follows:
(in thousands of euro)
Current taxes
Deferred taxes
Total income taxes
2019
(26,120)
13,882
(12,238)
2018
21,608
(26,279)
(4,671)
Current taxes for the year 2019 recorded a positive effect of Euro 26,120 thousand compared to a
negative effect of Euro 21,608 thousand in the previous year and mainly include income from tax
consolidation. The change compared to the previous year is attributable to the fact that current taxes
for 2018 recorded a negative effect of expenses deriving from tax consolidation relating to previous
years, 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.
Deferred tax assets include the use of deferred tax assets on past tax losses, partially offset by the
recognition of deferred tax assets on the ACE benefit.
The table below shows the reconciliation of the effective tax rate with the theoretical rate of the
Parent Company:
(in thousands of euro)
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)
2019
261,004
62,641
(5,736)
(60,755)
1,305
(1,007)
(8,686)
-
(12,238)
24%
-4.7%
2018
257,691
61,846
(3,482)
(65,571)
2,209
-
-
327
(4,671)
24%
-1.8%
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.
498
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
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.
38. NON-RECURRING EXPENSES AND INCOME
Pursuant to Consob Communication no. DEM / 6064293 of July 28, 2006, no non-recurring events
were recognised in 2019.
With regard to 2018, the impact of non-recurring events on the operating result was equal to a total
of Euro 1,025 thousand in expenses, while the impact on the net result was negative for Euro 8,312
thousand.
39.
TRANSACTIONS WITH RELATED PARTIES
Transactions between Pirelli & C. S.p.A. and the subsidiaries mainly concern:
services (technical, organizational, 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.
499
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
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:
(in thousands of euro)
BALANCE SHEET
Non current assets
Other receivables
Derivative financial instruments
Current assets
Trade receivables
Other receivables
Tax receivables
Derivative financial instruments
Non-current liabilities
Derivative financial instruments
Current liabilities
Payables to banks and other financial lenders
Trade payables
Other payables
Tax payables
Derivative financial instruments
(in thousands of euro)
INCOME STATEMENT
Revenues from sales and services
Other income
Personnel expenses
Other costs
Income on equity investments
Losses on equity investments
Dividends
Financial income
Financial expenses
12/31/2019
of which
related
parties
% share
12/31/2018
% share
of which
related
parties
620
30,269
-
30,269
23,775
2,347,952
31,744
10,154
21,725
2,327,043
29,830
10,154
0.0%
100%
91.4%
99.1%
94.0%
100%
600,544
19,403
600,000
19,403
99.9%
100.0%
35,366
1,548,691
49,746
3,749
32,352
1,524,042
48,490
3,749
91.5%
98.4%
97.5%
100%
9,589
9,589
100%
10,565
10,565
100%
678,289
19,262
32,107
17,617
5
252
4,771
11,895
17,388
5
0.0%
24.8%
37.0%
98.7%
100%
222,504
19,381
48,351
16,436
5,292
7
2,987
26,178
16,207
5,292
0.0%
15.4%
54.1%
98.6%
100%
2019
of which
related
parties
% share
2018
of which
related
parties
% share
51,992
110,180
(48,229)
(89,518)
2
-
268,903
40,274
(64,025)
50,823
106,726
(5,571)
(22,315)
2
-
263,842
39,706
51,507
97.8%
96.9%
11.6%
24.9%
100.0%
0.0%
98.1%
98.6%
-80.4%
38,719
112,179
(34,130)
(105,044)
-
(3,580)
284,517
20,527
(53,378)
37,364
102,184
(2,186)
(20,169)
-
(3,580)
283,549
18,666
(6,838)
96.5%
91.1%
6.4%
19.2%
0.0%
100.0%
99.7%
90.9%
12.8%
Transactions with related parties
The tables below shows the main equity transactions with related parties for the years ended
December 31, 2019 and December 31, 2018.
(in thousands of euro)
Subsidiaries
Associates
Other
related parties
Total
31 December 2019
Trade receivables
Other 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)
21,486
2,327,043
29,830
10,154
30,269
252
4,562
11,698
17,388
5
9,589
3
-
-
-
-
-
102
-
-
-
-
236
-
-
-
-
-
107
197
-
-
-
21,725
2,327,043
29,830
10,154
30,269
252
4,771
11,895
17,388
5
9,589
500
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
(in thousands of euro)
Subsidiaries
Associates
Other
related parties
Total
31 December 2018
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)
32,229
1,524,042
600,000
48,490
3,749
19,403
7
2,393
25,944
16,207
5,292
10,565
3
-
-
-
-
-
-
-
60
-
-
-
120
-
-
-
-
-
-
535
234
-
-
-
32,352
1,524,042
600,000
48,490
3,749
19,403
7
2,987
26,178
16,207
5,292
10,565
Trade receivables amounted to Euro 21,725 thousand (Euro 32,352 thousand at December 31,
2018) and mainly refer to receivables for services/provisions provided to Group companies (Euro
15,175 thousand from Pirelli Tyre S.p.A., Euro 3,084 thousand from Pirelli Group Reinsurance
Company SA, Euro 1,088 thousand from Limited Liability Company Pirelli Tyre Russia, Euro 596
thousand from Pirelli Tyre Co. Ltd., Euro 400 thousand from Pirelli Tyre Trading (Shanghai Co. Ltd.,
Euro 321 thousand from Pirelli Tire LLC).
Other related parties mainly include trade relations with the Prometeon group for Euro 234 thousand.
Other current receivables amounted to Euro 2,327,043 thousand (Euro 1,524,042 thousand at
December 31, 2018) and mainly refer for Euro 2,033,454 thousand to the loans including interest
accruals granted to Pirelli Tyre S.p.A., Euro 284,050 thousand to the intra-group current account
with Pirelli International Treasury S.p.A., Euro 6,982 thousand to the accrued asset towards Pirelli
International Treasury S.p.A. on the hedging transactions of the Cross Currency Interest Rate Swap
in place at December 31, 2019, Euro 2,524 thousand to the VAT receivables transferred to the
consolidation (Euro 1,999 thousand from Pirelli Industrie Pneumatici S.r.l., Euro 320 thousand from
Pirelli Sistemi Informativi S.r.l., Euro 170 thousand from Pirelli Servizi Amministrazione e Tesoreria
S.p.A., Euro 35 thousand from Servizi Aziendali Pirelli S.C.p.A.).
Tax receivables amounted to Euro 29,830 thousand (Euro 48,490 thousand at December 31, 2018)
and refer to receivables from Group companies that adhere to tax consolidation (mainly Euro 23,458
thousand from Pirelli Tyre S.p.A., Euro 3,579 thousand from Pirelli Industrie Pneumatici S.r.l., Euro
2,529 thousand from Pirelli International Treasury S.p.A.).
Derivative financial instruments (current assets) for Euro 10,154 thousand (Euro 3,749 thousand
at December 31, 2018) refer to hedging transactions with Pirelli International Treasury S.p.A.
The amount mainly refers for Euro 10,143 thousand to the fair value measurement of the cross
currency interest rate swap.
Derivative financial instruments (non-current assets) refer for Euro 29,820 thousand (zero amount
at December 31, 2018) refer to the hedging transaction of the cross currency interest rate swap with
Pirelli International Treasury S.p.A. and for Euro 449 thousand the interest rate swap hedging
transaction carried out with Pirelli International Treasury S.p.A..
501
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
Borrowings from banks and other lenders (current) amounted to Euro 252 thousand (Euro 7
thousand at December 31, 2018) and mainly refer to the accrued liability to Pirelli International
Treasury S.p.A. on the hedging transactions of the existing interest rate swap at December 31, 2019.
Trade payables amounted to Euro 4,771 thousand (Euro 2,987 thousand at December 31, 2018)
and mainly refer to payables for the provision of services. These payables mainly refer for Euro 2,842
thousand to Pirelli Tyre S.p.A., Euro 1,250 thousand to HB Servizi S.r.l.
Trade payables to associated companies refer to Consorzio per la Ricerca di Materiali Avanzati
(Consortium for the Research of Advanced Materials CORIMAV) while those to other related parties
refer to the existing relationship with TP Trading (Beijing) Co. Ltd..
Other payables amounted to Euro 11,895 thousand (Euro 26,178 thousand at December 31, 2018)
and mainly refer to payables with Group companies that adhere to the VAT consolidation. The main
ones are: Euro 11,126 thousand to Pirelli Tyre S.p.A., Euro 124 thousand to HB Servizi S.r.l.
Tax payables amounted to Euro 17,388 thousand (Euro 16,207 thousand at December 31, 2018)
and refer to payables to subsidiaries that adhere to tax consolidation (Euro 15,945 thousand Pirelli
Tyre S.p.A., Euro 1,362 thousand Pirelli International Treasury S.p.A.).
The amount of Euro 5 thousand (Euro 5,292 thousand at December 31, 2018) of derivative
financial instruments (current liabilities) refers to hedging transactions with Pirelli International
Treasury S.p.A.
The amount of Euro 9,589 thousand (Euro 10,565 thousand at December 31, 2018) of derivative
financial instruments (non-current liabilities) refers to the fair value measurement of the Cross
Currency Interest Rate Swap (Euro 854 thousand) and IRS (Euro 8,735 thousand) with Pirelli
International Treasury S.p.A.
Transactions with related parties
The tables below show the main financial transactions with related parties for the years 2019 and
2018.
(in thousands of euro)
Revenues from sales and services
Other income
Personnel expenses
Other costs
Dividends
Financial income
Financial expenses
Subsidiaries
Associates
Other
related parties
50,108
106,613
-
(14,399)
263,842
39,706
51,507
-
-
-
(270)
-
-
-
715
113
(5,571)
(7,646)
-
-
-
Total
2019
50,823
106,726
(5,571)
(22,315)
263,842
39,706
51,507
502
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
(in thousands of euro)
Revenues from sales and services
Other income
Personnel expenses
Other costs
Losses from investments
Dividends
Financial income
Financial expenses
Subsidiaries
Associates
Other
related parties
37,054
102,110
-
(10,579)
-
281,325
18,666
(6,838)
-
-
-
(261)
(3,580)
2,224
-
-
310
74
(2,186)
(9,328)
-
-
-
-
Total
2018
37,364
102,184
(2,186)
(20,168)
(3,580)
283,549
18,666
(6,838)
Revenues from sales and services amounted to Euro 50,823 thousand in 2019 (Euro 37,364
thousand in 2018) and mainly refer to service contracts. The main transactions with subsidiaries are:
Euro 48,630 thousand with Pirelli Tyre S.p.A., Euro 388 thousand with Pirelli Sistemi Informativi
S.r.l., Euro 375 thousand with Pirelli Servizi Amministrazione e Tesoreria S.p.A. Transactions with
other related parties refer to the service/provisions contract with Prometeon Tyre Group S.r.l.
Other income for Euro 106,726 thousand in 2019 (Euro 102,184 thousand in 2017) mainly refer to:
royalties (Euro 69,323 thousand with Pirelli Tyre S.p.A., Euro 2,500 thousand with Limited Liability
Company Pirelli Tyre Russia); other recoveries (Euro 25,901 thousand from Pirelli Tyre S.p.A., Euro
3,084 thousand from Pirelli Group Reinsurance Company SA, Euro 903 thousand from Pirelli Tire
LLC, Euro 596 thousand from Pirelli Tyre Co.Ltd.); lease contracts (Euro 2,305 thousand with Pirelli
Tyre S.p.A., Euro 309 thousand with Pirelli Servizi Amministrazione e Tesoreria S.p.A., Euro 398
thousand from Pirelli Sistemi Informativi S.r.l.).
The amount recognised under related parties for Euro 113 thousand mainly refers to service
contracts with Prometeon Tyre Group S.r.l. - O.U. Holding (Euro 87 thousand) and Marco Tronchetti
Provera & C. S.p.A. (Euro 20 thousand).
The item personnel expenses includes the emoluments related to key managers.
Other costs for Euro 22,315 thousand in 2019 (Euro 20,168 thousand in 2018) mainly refer to
charges for services and miscellaneous costs (Euro 5,000 thousand HB Servizi S.r.l., Euro 3,587
thousand Pirelli Sistemi Informativi S.r.l., Euro 3,445 thousand Pirelli Tyre S.p.A., Euro 1,210
thousand Pirelli Servizi Amministrazione e Tesoreria S.p.A., Euro 422 thousand Pirelli Trading
(Beijing) Co. Ltd).
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 111
thousand, and the remuneration of directors and key managers for Euro 7,234 thousand.
Dividends for Euro 263,842 thousand in 2019 (Euro 283,549 thousand in 2018) refer to dividends
collected during the year (Euro 250,000 thousand from Pirelli Tyre S.p.A., Euro 300 thousand from
Pirelli Sistemi Informativi S.r.l., Euro 13,342 thousand from Pirelli Group Reinsurance Company SA
and Euro 200 thousand from Pirelli Servizi Amministrazione e Tesoreria S.p.A.).
503
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
Financial income for Euro 39,706 thousand in 2019 (Euro 18,666 thousand in 2018) mainly refers
to interest income on receivables from Pirelli Tyre S.p.A. (Euro 39,695 thousand).
Financial expense were positive for Euro 51,507 thousand in 2019 (negative for Euro 6,838
thousand in 2018) and mainly refers to net interest income on Cross Currency Interest Rate Swap.
Benefits to Key Managers
At December 31, 2019, remuneration payable to key managers amounted to Euro 12,806 thousand.
The portion relating to employee benefits was recognized in the Income Statement item “personnel
costs” for Euro 5,571 thousand. The difference, equal to Euro 7,235 thousand and mainly related to
directors’ fees, is recognized in the Income Statement item “other costs”. Benefit include Euro 1,332
thousand related to Employee leaving indemnities (Euro 1,398 thousands at December 31,2018)
and short term benefit for Euro 3,919 thousands (Euro 4,115 thousands at December 31,2018).
40. OTHER INFORMATION
Directors’ and auditors’ fees
The fees due to Directors of Pirelli & C. S.p.A. amounted to Euro 4,420 thousand in 2019 and Euro
4,440 thousand in 2018. The fees due to the Statutory Auditors for the function performed at Pirelli
& C. S.p.A. amounted to Euro 275 thousand in 2019 (Euro 275 thousand in 2018).
Independent auditors’ fees
Pursuant to applicable regulations, the following table shows the fees pertaining to 2019 for the
auditing activities and other services rendered by the Auditing Company PricewaterhouseCoopers
S.p.A.:
(In thousands of euro)
Company that provided the
service
Company that received the
service
Partial fees
Total fees
Independent auditing services
Independent certification services (1)
PricewaterhouseCoopers S.p.A.
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
Pirelli & C. S.p.A.
Services other than auditing
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
71
277
-
348
(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.
504
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Information required by Law no. 124/2017 art. 1 paragraphs 125-129
There is no information to be highlighted pursuant to the legislation in question referring to Pirelli &
C. S.p.A. for the year 2019.
Any information relating to the companies controlled by Pirelli & C. S.p.A. are included in the
consolidated financial statements.
41
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 2019.
42.
SIGNIFICANT EVENTS SUBSEQUENT TO THE END OF THE YEAR
In early 2020, the Covid-19 (SARS-CoV-2) virus spread, initially in the People’s Republic of China
and later in other countries, including Italy.
Pirelli sells its products on a world wide basis in over 160 countries and owns industrial sites located
in different countries, some of which are also significantly affected by the Covid-19 outbreak.
Sensitivity assumptions have been formulated regarding the effects of the spread of Covid-19, and
elaborated on the basis of first estimates. By their nature, these hypotheses contain elements of
uncertainty and are subject to changes, even significant ones, due to the continuous changes in the
scenario and in the context for reference, which could lead to a significant alteration to the normal
dynamics of the market and, more generally, to business operating conditions.
The negative impact currently expected at the level of the EBIT adjusted for the first quarter of 2020,
is expected to be reabsorbed during the course of the year. However should the crisis continue,
Pirelli will take steps to implement further mitigation measures.
Pirelli is following developments in the spread of the Coronavirus with constant contact with national
and international organisations. The Company immediately adopted control and preventative
measures for all their employees across the world, with particular attention to China, where all
expatriate workers returned to their countries of origin with their families.
On February 19, 2020, Pirelli presented the 2020-2022 Industrial Plan with vision 2025 to the
financial community. For further details, refer the section of the Directors’ Report “Foreseeable
evolution in the three-year period 2020-2022”. On the same date, the Board of Directors approved
the adoption of a new monetary incentive plan - Long Term Incentive (LTI) - intended for all Group
management (currently around 270 participants) - related to the objectives of the plan. The New LTI
505
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
Plan, as in the past, is also fully self-financed, as the related expenses are included in the economic
data of the Industrial Plan. The New LTI Plan foresees the following objectives:
Group Total Shareholder Return (TSR) relating to the Tier 1 peers panel, with an overall
target weight of 40% of the LTI bonus;
Group Cash Flow (before dividends), with target weight of 40% of the LTI bonus;
Positioning of Pirelli in selected global sustainability indicators, with a target weight of 20%
of the LTI bonus.
At the same time, the Board of Directors - with effect from December 31, 2019 - resolved to close
early and without any disbursement, even pro-quota, the previous plan adopted in 2018 and related
to the objectives of the 2018-2020 period.
Amongst others, the Executive Vice President and CEO of Pirelli & C. Marco Tronchetti Provera, the
General Manager of Operations Andrea Casaluci and the managers qualified by the Board as
“executives with strategic responsibility” participate in the New LTI Plan. The New LTI Plan is also
aimed at Senior Managers (including the Director Giovanni Tronchetti Provera, as Senior Manager)
and Group Executives (executives of Italian companies or employees of foreign Group companies
with positions or roles equivalent to an Italian executive).
506
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
— ANNEXES TO THE NOTES
507
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
MOVEMENTS OF INVESTMENTS IN SUBSIDIARIES FROM 12/31/2018 TO 12/31/2019
12/31/2018
Carrying
amount
(€/thousand)
Number
of shares
CHANGES
12/31/2019
Carrying
% of total of which
direct
investments
Number
of shares
(€/thousand)
Number
of shares
amount % of total of which
direct
(€/thousand) vestments
INVESTMENTS IN SUBSIDIARIES
ITALY
Unlisted:
Pirelli Servizi Amministrazioni e Tesoreria S.p.A.
Maristel S.p.A. - Milan
Pirelli International Treasury SpA
Pirelli Sistemi Informativi S.r.l. - Milan
2,047,000
1,020,000
15,000
1 share
3,237
1,315
15
1,655
Pirelli Tyre S.p.A. - Milan
558,154,000
4,523,888
100
100
100
100
100
100
100
100
100
30
100
100
90
100
-
-
-
-
2,047,000
1,020,000
22,500
74,985
37,500
-
-
(1,014)
-
-
1 share
4,357
558,154,000
4,528,245
(1)
-
93,964
1 share
100
230
79,341
4,609,783
3,237
1,315
75,000
1,655
100
100
100
100
100
100
100
100
100
30
100
100
90
100
CHANGES
12/31/2019
Carrying
% of total of which
direct
investments
Number
of shares
(€/thousand)
Number
of shares
amount % of total of which
direct
(€/thousand) vestments
94,978
1 share
101
230
4,530,442
12/31/2018
Carrying
amount
(€/thousand)
Number
of shares
13,999,991
9,666
100
100
1
1
0
0
-
-
-
-
163,991,278
21,871.1
100
100
300,000
6,345.8
100
100
-
-
-
-
-
37,883
4,568,324
-
-
-
13,999,991
9,666
100
100
1
1
0
0
-
-
-
-
-
163,991,278
21,871.1
100
100
-
-
79,341
300,000
6,345.8
100
100
37,883
4,647,666
Servizi Aziendali Pirelli S.C.p.A. - Milan
HB Servizi Srl
Total investments in Italian subsidiaries
FOREIGN COMPANIES
Brazil
Pirelli Ltda - Sao Paulo
Prometeon Tyre Group Industria Brasile Ltda
Pirelli Latam Participações Ltda.
UK
Pirelli UK ltd. - London - ordinary
Switzerland
Pirelli Group Reinsurance Company S.A.
Total investments in foreign subsidiaries
Total investments in subsidiaries
508
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
MOVEMENTS OF INVESTMENTS IN ASSOCIATES FROM 12/31/2018 TO 12/31/2019
INVESTMENTS IN ASSOCIATES
ITALY
Unlisted:
Consorzio per le Ricerche sui Materiali Avanzati (CORIMAV)
Eurostazioni S.p.A. - Roma
Focus Investments S.p.A.
Total unlisted companies
Total investments in associates - Italy
Total investments in associates
12/31/2018
Carrying
amount
(€/thousand)
Number
of shares
CHANGES
12/31/2019
% of total of which
direct
investments
Number
of shares
(€/thousand)
Number
of shares
Carrying
amount % of total of which
direct
(€/thousand) vestments
100
32.7
8.3
100
32.7
8.3
-
-
-
1 share
52,333,333
111,111
104
6,271
-
6,375
6,375
6,375
-
-
-
-
-
-
1 share
104
100
100
52,333,333
6,271
32.7
32.7
111,111
-
8.3
8.3
6,375
6,375
6,375
509
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
MOVEMENTS OF OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPRENSIVE INCOME FROM 12/31/2018 TO 12/31/2019 (CONTINUE)
12/31/2018
Carrying
amount
(€/thousand)
Number
of shares
% of total of which
direct
investments
Changes
Number
of shares
(€/thousand)
Number
of shares
12/31/2019
Carrying
amount % of total
(€/thousand) investments
of which
direct
INVESTMENTS IN OTHER COMPANIES
ITALIAN LISTED COMPANIES
RCS Mediagroup S.p.A. - Milan
24,694,918
Total other Italian listed companies
Total other listed companies
28,449
28,449
28,449
4.7
4.7
-
(3,556)
24,694,918
24,892
4.7
4.7
(3,556)
(3,556)
24,892
24,892
12/31/2018
Changes
12/31/2019
-
Number
Carrying
amount
(€/thousand)
-
-
% of total of which
Number
of shares
(€/thousand)
Number
of shares
Carrying
-
amount % of total
-
of which
(€/thousand)
ITALIAN UNLISTED COMPANIES
Aree Urbane S.r.l. (in liquidation) - Milan
C.I.R.A. - Centro Italiano di Ricerche Aerospaziali S.c.p.A. - Capua (CE)
1 share
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
Consorzio Milano Ricerche - Milan
Societa' Generale per la Progettazione
Consulenze e Partecipazioni ( ex Italconsult ) S.p.A. - Rome
1 share
1 share
12,000
1 share
1,100
F.C. Internazionale Milano S.p.A. - Milan
55,805,625
-
-
-
-
-
-
-
-
-
0.3
0.3
0.1
1.4
0.1
1.4
4.9
4.9
14.3
14.3
2.9
9.0
3.7
0.4
2.9
9.0
3.7
0.4
Fin. Priv. S.r.l. - Milan
Istituto Europeo di Oncologia S.r.l. - Milan
Nomisma - Società di Studi Economici S.p.A. - Bologna
Tiglio I S.r.l. - Milan
Genextra S.p.A.
Total other Italian unlisted companies
1 share
1 share
959,429
1 share
592,450
15,604
14.3
14.3
6,961
258
70
39
22,932
6.1
3.3
6.1
3.3
0.6
0.6
0.6
0.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 share
30
1,162,098,622
1 share
1 share
12,000
1 share
1,100
55,805,625
-
-
-
-
-
-
-
-
-
0
0.1
1.4
4.9
0.3
0.1
1.4
4.9
14.3
14.3
2.9
9.0
3.7
0.4
2.9
9.0
3.7
0.4
4,961
1 share
20,565
14.3
14.3
504
1 share
959,429
1 share
592,450
22
(54)
(13)
5,420
7,465
280
16
26
28,352
6.1
3.3
0.6
0.6
6.1
3.3
0.6
0.6
510
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
MOVEMENTS OF OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPRENSIVE INCOME FROM 12/31/2018 TO 12/31/2019
FOREIGN COMPANIES
Libia
Libyan-Italian Joint Company - ordinary shares B
Belgium
Euroqube S.A. (in liquidation)
UK
Eca International
Total other foreign companies
OTHER PORTFOLIO SECURITIES
Number
of shares
300
67,570
100
Fondo Comune di Investimento Immobiliare - Anastasia
53 share
TOTAL AVAILABLE-FOR-SALE FINANCIAL ASSETS
TOTAL FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER
COMPRENSIVE INCOME
12/31/2018
Carrying
amount
(€/thousand)
Changes
12/31/2019
% of total of which
direct
investments
Number
of shares
(€/thousand)
Number
of shares
Carrying
amount
% of total
(€/thousand) investments
of which
direct
32
13
-
45
15,575
15,575
67,000
1.0
1.0
18.0
18.0
2.8
2.8
-
-
-
(32)
300
(2)
67,570
-
(33)
100
-
-
-
(11,628)
53 share
(11,628)
1.0
1.0
18.0
18.0
2.8
2.8
-
-
-
12
-
12
3,947
3,947
(9,797)
57,203
511
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
LIST OF INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES (PURSUANT TO ART. 2427 OF THE CIVIL CODE)
(in thousand of euro)
INVESTMENTS IN SUBSIDIARIES - ITALY
Pirelli Servizi Amministrazioni e Tesoreria S.p.A.
Maristel S.p.A.
Pirelli Sistemi Informativi S.r.l.
Pirelli Tyre S.p.A.
Servizi Aziendali Pirelli S.c.p.a.
HB Servizi S.r.l
Pirelli International Treasury S.p.A.
Total investments in subsidiaries - Italy
INVESTMENTS IN FOREIGN SUBSIDIARIES
Switzerland
Legal address
Carrying
amount
Share % Share capital Attributable
equity
Attributable
net income
(loss)
Milan
Milan
Milan
Milan
Milan
Milan
Milan
3,237
1,315
1,655
4,528,245
100
230
75,000
4,609,783
100%
100%
100%
100%
91.3%
100%
30%
2,047
50
1,010
3,344
3,430
2,631
159
1,421
344
558,154
1,708,524
364,810
104
10
329
246
46
(63)
125,000
77,628
2,628
Pirelli Group Reinsurance Company S.A.
Lugano
6,346
100%
2,764
11,100
2,291
Brasil
Pirelli Ltda
UK
Sao Paulo
9,666
100%
3,090
1,894
(258)
Pirelli UK Ltd.
Total investments in foreign subsidiaries
Total investments in subsidiaries
INVESTMENTS IN ASSOCIATES - ITALY
London
Consortium for the Reserach into Advanced Materials (CORIMAV) Milan
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, 2019
Rome
Milan
21,871
37,883
4,647,666
104
6,271
-
6,375
6,375
100%
192,749
15,921
(693)
100%
32.7%
8.3%
104
16,000
*
104
6,398
*
-
112
*
512
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE
SHAREHOLDERS’ MEETING
Dear Shareholders,
The Board of Statutory Auditors (which, pursuant to legislative decree 39/2010, also acts as the
Internal Control and Audit Committee), pursuant to Article 153 of legislative decree 58/1998 (“TUF”)
and the applicable provisions of the Italian Civil Code, is called on to report to the Shareholders’
Meeting, convened to approve the financial statements, on the supervisory activities carried out
during the financial year and on any omissions and misconduct it might have detected. The Board
of Statutory Auditors may also make proposals regarding the financial statements and their approval
and other matters under its responsibility.
First, it should be noted that the Board of Statutory Auditors, as of the date of drafting and publication
of this Report of the Board of Statutory Auditors to the Shareholders’ Meeting (“Report”), has
received constant updates on the actions to monitor the situation and the social, economic and
financial effects for the Group and Pirelli & C. S.p.A. (“Pirelli & C.” or the “Company”) deriving from
the spread of the Covid-19 virus (“Coronavirus”) since January 2020. The considerations made are
set out in a specific paragraph in this Report.
During the year, the Board of Statutory Auditors has carried out its supervisory activities as required
by the law in force, taking account of the provisions of European Regulation 537/2014, the standards
of conduct for the Boards of Statutory Auditors of listed companies recommended in the document
issued 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 the
Consob provisions on company controls and the activities of the board of statutory auditors and the
indications contained in the current Corporate Governance Code for listed companies, to which Pirelli
& C. 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.
513
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
The Board of Statutory Auditors is composed by Standing Auditors Francesco Fallacara (Chairman),
Fabio Artoni, Antonella Carù, Luca Nicodemi and Alberto Villani, and Alternate Auditors Elenio
Bidoggia, Franca Brusco and Giovanna Oddo.
Pursuant to article 148, paragraph 3, of the TUF, and the provisions of the Corporate Governance
Code for listed companies, to which Pirelli & C. has resolved to adhere, the Board of Statutory
Auditors verified that as of 31 December 2019 its members had retained the requirements of
independence they had been ascertained to possess at the time of their appointment (see section
“Self-assessment process for the Board of Statutory Auditors”).
COMMENTS ON THE 2019 FINANCIAL STATEMENTS AND ON TRANSACTIONS OF MAJOR
IMPORTANCE CARRIED OUT DURING THE YEAR
It should be noted that Company’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 2019 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, paragraphs125-129).
Also during the 2019 financial year, the Board of Statutory Auditors was continuously updated about
the process of implementing accounting standard IFRS 16 and held discussions with the Revenue
Agency about it signing up to the Cooperative Compliance Regime.
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 composed by 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 share ownership of Pirelli & C. – prepared pursuant to
Article 123-bis of the TUF – as well as the Report on responsible management of the value chain
(consolidated non-financial disclosure 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. The financial statements also include the Remuneration
Report, composed by the 2020 Remuneration Policy and the Report on Compensation Paid for year
2019.
The 2019 separate financial statements and consolidated financial statements of Pirelli & C. 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.
514
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Pirelli’s 2019 consolidated financial statements present the following summary data:
Revenues
Operating income (EBIT)
Adjusted EBIT
Consolidated net profit
5,323.1 million euro
742.7 million euro
€917.3 million
€ 457.7 million euro
The consolidated net financial position was negative by 3,024.1 million euro (3,507.2 million euro
including 483.1 million euro deriving from accounting standard IFRS 16) with respect to 3,180.1 at
the end of 2018.
Parent company Pirelli & C. closed the financial year with positive net income to the amount of 273.2
million euro (262.4 million euro in 2018).
Events of major importance are accounted for in detail in the Directors’ Report on Operations, and
in the financial statements. The following events, in particular, should be noted:
- on 8 April 2019 the Federal Regional Court of the first region (T.R.F.-1 based in Brasilia) passed
a ruling that recognised the right of the Brazilian subsidiary Pirelli Pneus Ltda. to exclude the
ICMS tax (State tax on transactions relating to the circulation of goods and the provision of
services for interstate and intercity transport and communication) from the basis for calculating
the PIS and COFINS social security contributions for the 2003-2014 period. Following this ruling,
as announced to the market on 1 April 2019, in the second quarter a positive impact on the net
result of around 102 million euro was recognised in the income statement;
- on 13 May 2019 Pirelli announced the reorganisation of its production in Brazil to improve
competitiveness in the country through the creation of a hub for High Value Car, Motorcycle and
Motorsport tyres in Campinas where the production of motorcycle tyres now carried out in
Gravataì will be transferred. There is an investment plan for the modernisation and reconversion
of the production plants from Standard to High Value and the continuous improvement of the mix
and quality of the factories in Campinas (San Paolo) and Feira de Santana (Bahia). The resources
for the reorganisation mainly derive from the Patent Box tax agreement signed in October 2018
which, as anticipated at the time, were assigned to focus further on the High Value segment and
a more rapid reduction of the Standard segment.
SIGNIFICANT EVENTS THAT OCCURRED AFTER THE CLOSURE OF THE FINANCIAL YEAR
The most significant events that occurred after the closure of the financial year are detailed in the
Directors’ Report on Operations, and in the financial statements.
515
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
Note, in particular, that on 19 February 2020 Pirelli & C. presented the 2020-2022 Business Plan
with a vision through to 2025 to the financial community. On the same date the Board of Directors
approved the adoption of a new monetary incentive plan - Long Term Incentive (“LTI Plan”) -
intended for the whole management of the Group (at present around 270 participants) – and at the
same time resolved on the early closure - effective as of 31 December 2019 - with no disbursement,
not even pro-quota, of the previous plan adopted in 2018 and linked to the objectives of the 2018-
2020 period.
The Board of Statutory Auditors also points out that, as indicated by the directors during the drafting
of the financial statements, some instability factors that should not be underestimated have recently
arisen resulting from the spread of the Coronavirus which, in the early months of 2020, initially struck
the People’s Republic of China and then spread to other countries, including Italy.
The Company has implemented actions to mitigate the risk of contagion at the production sites and
its offices. With regard to this matter, the Directors’ Report on Operations reports the following: “Pirelli
sells its products globally in over 160 countries and has industrial sites located in different countries,
some of which have been considerably affected by Covid-19 (SARS-CoV-2).
Sensitivity analyses linked to the effects of the spread of Covid-19 prepared on the basis of
hypotheses and preliminary estimates have been carried out. The nature of these hypotheses means
that they contain elements of uncertainty and are subject to variations, even significant ones, due to
the ongoing changing scenario and reference context which could also lead to a significant alteration
of the normal market dynamics and, more generally, the business operating conditions.
The negative impact currently expected in terms of Adjusted EBIT in the first quarter of 2020 is
expected to be reabsorbed during the year. Should the crisis drag on, Pirelli will implement additional
mitigation measures.
Pirelli is following the developments of the spread of the Coronavirus and is in constant contact with
national and international organisations. The company has immediately adopted control and
prevention measures for all its staff throughout the world, with particular attention in China where all
the expatriate workers have returned to their country of origin with their families.”
The effects of the Coronavirus, based on the provisions of international accounting standard IAS 10
“Events after the Reporting period”, should be considered as within the scope of non-adjusting
events.
For such events, the aforementioned accounting standard states that an entity must indicate the
following for each non-adjusting events category:
1) the nature of the event;
2) an estimate of its financial effects or an indication that this estimate cannot be made on the
date on which the draft financial statements were prepared (IAS 10.21).
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This information is provided in the Directors’ Report on Operations at 31 December 2019 (Risk and
Uncertainty Factors paragraph) and in the explanatory notes of the consolidated financial statements
(“note 45 – Significant events occurring after financial year end”).
UNUSUAL OR EXCEPTIONAL TRANSACTIONS
We are unaware of any atypical or unusual transactions, as defined by Consob in Decision
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 & C., 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 & C., 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, paragraph 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 2019 financial year there were both intragroup and non-intragroup related-party
transactions.
The intragroup transactions, the effects of which are reported in the financial statements, are ordinary
in that they are essentially made up of the reciprocal provision of services (technical, organisational,
general) provided by the headquarters to the subsidiaries and charging royalties for the use of
patents to the Group companies that benefit from them. 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
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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 Statutory Auditors attended the meetings of the Related Party Transactions Committee
and, on 14 February 2019, attended the meeting of the Company’s Board of Directors which
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 - included in the 2018 results and in the consolidated forecast data announced to
the market on 14 February 2019 - had already been communicated to the market when the draft
2018 consolidated preliminary 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 article 5 of the Regulations on Related Party
Transactions approved by Consob with resolution 17221 of 12 March 2010 (as subsequently
amended) and to article 18 of the Procedure for Related-Party Transactions adopted by the
Company. The Information Document was published on 20 February 2019. On this occasion, the
activities within the purview of the Board of Statutory Auditors were supported by a respected
independent expert.
The effects of the aforementioned transactions for the 2019 financial year are fully reflected in the
financial statements.
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 of Statutory Auditors 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.
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 2 March 2020), resolved
that the impairment test procedure complied with the prescriptions of international accounting
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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 Business 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 Board of Statutory Auditors considered the procedure adopted by the Company adequate and
the relative information comprehensive.
SUPERVISORY ACTIVITY PURSUANT TO LEGISLATIVE 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 “formulation” and “dissemination” of 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 article 82-ter of Consob Regulation 11971/99 (“interim
reports on operations”) for the periods that end on 31 March and 30 September each year.
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Separate Financial Statements
SUPERVISING THE NON-FINANCIAL REPORTING PROCESS
The Board of Statutory Auditors has monitored compliance with the provisions contained in
legislative decree 254/2016 with reference to the non-financial declaration (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 article 3, paragraph 8, of legislative decree
254/2016 to omit information concerning imminent developments and transactions being negotiated.
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 of Directors 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 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
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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,
paragraph 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 2019 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 Company’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 article 14 of legislative decree 39/2010 and article 10 of Regulation EU 537/3014, PWC
issued its Reports on the separate and consolidated financial statements as at 31 December 2019
on 20 March 2020. On the same date, the auditing firm issued its Additional report for the internal
control and audit committee, drafted pursuant to article 11 of Regulation EU 537/3014. On the same
date, 20 March 2020, PWC issued its Report on the consolidated non-financial declaration pursuant
to article 3, paragraph 10 of legislative decree 254/2016.
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.
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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 article 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 20 March 2020, 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 2019 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:
EXTERNAL AUDITOR FEES 2019
(thousands of euros)
Auditing
Entity supplying the service
Beneficiary
Partial fees
Total fees
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
PricewaterhouseCoopers S.p.A.
Subsidiary company
Network PricewaterhouseCoopers Subsidiary company
Certification services (1)
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
PricewaterhouseCoopers S.p.A.
Subsidiary company
Network PricewaterhouseCoopers Subsidiary company
Non-audit services
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
PricewaterhouseCoopers S.p.A.
Subsidiary company
Network PricewaterhouseCoopers Subsidiary company
71
894
1.632
277
354
3
-
-
55
2,597
79%
634
19%
55
3,286
2%
100%
(1) the “Certification services “ item indicates amounts paid for other services which entail issuing an audit report as well as amounts paid for so-called certification services
insofar as synergic with the external auditing of the accounts.
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) 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.
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We would like to remind you that pursuant to Regulation EU no. 537/2014 of 16 April 2014, as of 1
January 2020 the Board of Statutory Auditors of Public-Interest Entities (PIE), as the Internal Control
and Audit Committee, is required to monitor the assignments other than auditing attributed to the
external auditor in order to comply with the limit of 70% of the average fees paid in the last three
financial years for the external audit. The Company has confirmed to the Board of Statutory Auditors
that it has launched a procedure to comply with the aforementioned standard.
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 of Pirelli & C. describes in detail the
types of powers conferred on the Executive Vice Chairman and Chief Executive Officer Marco
Tronchetti Provera and indicates the matters reserved to the competence of the Board of Directors
of Pirelli & C..
It should be noted that on 2 March 2020 the Board of Directors confirmed its preceding assessments
regarding the absence of a subject that exercises direction and coordination of the Company
pursuant to article 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, pursuant to the
provisions of article 2389 of the Italian Civil Code.
In particular, the Board of Statutory Auditors, at the Board of Directors meeting on 26 February 2019,
expressed its positive assessment of: (i) the 2018 variable incentive paid to the Internal Audit Director
and the structure of the variable incentive of the Head of the Internal Audit Department for the 2019
financial year, (ii) payment of the 2018 MBO incentives and the 2019 MBO Plan, (iii) the review of
the non-compete agreements signed with the General Manager of Operations and Managers with
strategic responsibilities, (iv) the review of the remuneration of the General Manager of Operations,
(v) the approval of the Remuneration Report (composed by the Remuneration Policy for the 2019
financial year and the 2018 Report), as well as the Directors’ Report to the Shareholders’ Meeting.
At the Board of Directors meeting of 14 May 2019, the Board of Statutory Auditors expressed its
favourable opinion, subject to appointment by the ordinary Shareholders’ Meeting called for 15 May
2019 of Ning Gaoning as Director and Chairman of the Board of Directors of the Company, of the
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Pirelli & C. S.p.A. – 2019 Annual Report
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proposal to appoint Ning Gaoning as a member of the Appointments and Successions Committee
and, in line with the resolution of the Board of Directors passed on 31 August 2017, to attribute him
(i) a gross annual fee of 60 thousand euro for the office of Board Director; (ii) a gross annual fee of
400 thousand euro for the office of Chairman of the Board of Directors; and (iii) a gross annual fee
of 30 thousand euro for the office of member of the Appointments and Successions Committee.
At the meeting of the Board of Directors on 19 February 2020, the Board of Statutory Auditors
expressed its favourable opinion of (i) payment of the 2019 STI (MBO) incentives on the basis of the
preliminary data (later confirmed during approval of the final results at the Board of Directors meeting
of 2 March 2020) and the 2020 STI (MBO) Plan; (ii) the closure of the 2018-2020 LTI Plan with no
disbursement, not even pro-quota, and the launch of the new 2020-2022 LTI Plan to support the
2020-2022 Strategic Plan (with the inclusion of a new sustainability objective – with 10% weighting
– relating to Pirelli’s rating in the CDP index).
At the Board of Directors’ meeting of 2 March 2020 the Board of Statutory Auditors expressed its
favourable opinion, in addition to the above, of the approval of the Remuneration Report (composed
by the 2020 Remuneration Policy and the Report on Compensation Paid in 2019), as well as the
relative Directors’ Reports to the Shareholders’ Meeting on compensation.
For more details see the Report on the Remuneration Policy and on Compensation Paid.
FURTHER ACTIVITIES OF THE BOARD OF STATUTORY AUDITORS 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, also for the
2019 financial year, drafted its annual Report on corporate governance and the share
ownership of Pirelli & C. 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’
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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, paragraph 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 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;
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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,
paragraph 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
paragraphs 1 and 2 of article 151 of the TUF);
received the annual report from the Company’s Data Protection Officer which showed the
Company is fully compliant with privacy legislation.
During the 2019 financial year the Board of Statutory Auditors did not receive any complaints or
reports pursuant to article 2408 of the Italian Civil Code.
regard
With
to
PricewaterhouseCoopers S.p.A.:
the external auditor,
the Board of Statutory Auditors noted
that
issued its report pursuant to article 14 of legislative decree 39/2010 and article 10 of Regulation
EU 537/201 on 20 March 2020. 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 2019, 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 Directors’ Report on Operations accompanying
the separate and consolidated financial statements as at 31 December 2019, and some
specific information contained in the Report on corporate governance and the share ownership
of Pirelli & C., as laid down in article 123-bis, paragraph 4, of the TUF have been drafted in
compliance with current legislation;
as regards possible significant errors in the Directors’ 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 20 March 2020, provided the Board of Statutory Auditors with the Additional Report referred
to in 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;
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Pirelli & C. S.p.A. – 2019 Annual Report
on 20 March 2020, pursuant to article 3, paragraph 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 2019 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 section 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 2019, it met 7 times.
At the date of this report:
the Audit, Risk, Sustainability and Corporate Governance Committee is composed of four
Directors, all independent. During 2019, it met 5 times;
the Remuneration Committee is composed of four Directors, a majority of whom independent
(the Chairman is an independent Director). During 2019, it met 4 times;
the Related-Party Transactions Committee is composed of three Directors, all independent.
During 2019 it met 12 times;
the Appointments and Successions Committee is composed of four Directors, one of whom is
the executive Director. It did not meet during 2019;
the Strategies Committee is composed of seven Directors, of whom two are independent.
During 2019 it met once.
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 article 19
of legislative decree 39/2010.
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The Board of Statutory Auditors also attended the ordinary Shareholders’ Meeting that in 2019 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 of Pirelli & C..
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 periodically ascertained, upon their appointment and most recently in their meeting
on 21 February 2020, 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. On 31 December 2019,
the subsidiaries set up in and regulated by the laws of States that are not members of the
European Union and deemed to have significant importance under article 15 of Consob Market
Regulation are: Comercial e Importadora de Pneus Ltda (Brazil), Limited Liability Company
Pirelli Tyre Russia (Russia), Pirelli Comercial de Pneus Brasil Ltda (Brazil), Pirelli Neumaticos
s.a. De c.v. (Mexico), Pirelli Neumaticos S.a.i.c. (Argentina), Pirelli Pneus Ltda (Brazil), Pirelli
Otomobil Lastikleri a.s. (Turkey), Pirelli Tire Llc (United States) and Pirelli Tyre co. Ltd (China).
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.
528
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual 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 2019.
SELF-ASSESSMENT OF THE BOARD OF STATUTORY AUDITORS
In 2019, the Board of Statutory Auditors – in continuity with the previous financial year and as
recommended by the rules of conduct for listed companies issued by the Italian national association
of chartered accountants and auditors – conducted a self-assessment with the assistance of the
independent consulting firm Spencer Stuart.
This self-assessment was carried out through individual interviews, based on a questionnaire
containing questions on the suitability, size, composition and operation of the Board of Statutory
Auditors in order to attest that the body is operating correctly and effectively and that its composition
is adequate.
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 2019
The Board of Statutory Auditors expresses its favourable opinion on the approval of the Financial
Statements at 31 December 2019 and has no objections to raise regarding the proposal made for
the allocation of the profits.
REMUNERATION REPORT
Please note that the Board of Statutory Auditors expressed a favourable opinion of the Remuneration
Policy for the 2020 financial year subject to the binding vote of the Shareholders’ Meeting and the
529
Pirelli & C. S.p.A. – 2019 Annual Report
Separate Financial Statements
Report on Compensation Paid in the 2019 financial year subject to the advisory vote of the
Shareholders’ Meeting.
LTI INCENTIVE PLAN
Please note that the Board of Statutory Auditors expressed a favourable opinion of the 2020-2022
Long-Term Incentive Plan, within the scope of its remit.
OTHER ISSUES SUBMITTED TO THE SHAREHOLDERS’ MEETING FOR APPROVAL
Regarding the other issues submitted to you for approval (appointment of the Board of Directors,
“Directors and Officers Liability Insurance” Policy and bylaw amendments), the Board of Statutory
Auditors has no comments to make.
****
Pursuant to article 144-quinquiesdecies of the Issuer’s Regulation, duly approved by Consob with
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 of the Issuer’s Regulation (Consob reporting
obligations) establishes that a person who is a member of the controlling body of just one issuer is
not subject to the reporting obligations provided by the said article, and therefore, in that 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 Share Ownership of Pirelli & C..
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”.
Milan, 20 March 2020
Mr Francesco Fallacara
530
Separate Financial Statements
Pirelli & C. S.p.A. – 2019 Annual Report
Mr Fabio Artoni
Ms Antonella Carù
Mr Luca Nicodemi
Mr Alberto Villani
531
Pirelli & C. S.p.A. – 2019 Annual Report
Resolutions
Please note:
The following “proposal for approval of the financial statements and allocation of the result for the
year” takes into account the updates approved by the Board of Directors during the meeting held on
April 3, 2020 vis-à-vis the previous proposal approved by the Board of Directors during the meeting
held on March 2, 202066.
PROPOSAL FOR APPROVAL OF THE FINANCIAL STATEMENTS AND
ALLOCATION OF THE RESULT FOR THE YEAR
Dear Shareholders,
The year ended December 31, 2019 closed with a profit of Euro 273,241,811.00.
Considering that following the shareholders’ meeting resolutions adopted in 2017, the legal reserve
was completed and reached the limit established by article 2430 of the Civil Code and the
deterioration of the global economic growth outlook because of the Covid-19 health emergency, the
Board of Directors proposes the carry-forward of the entire profit of the year.
The Board of Directors will evaluate the possible calling of a shareholders’ meeting, to be held in the
second half of the year, to propose the eventual distribution, should cash generation exceed the new
target approved by the Board of Directors and communicated to the market on April 3, 2020, and/or
the economic scenario allow greater visibility on the total impacts of the Covid-19 emergency.
If you agree with our proposal, we request that you adopt the following
“The Shareholders’ Meeting,
RESOLUTIONS
having examined the annual report at December 31, 2019;
having seen the Statutory Auditors’ Report;
having acknowledged the report of the Independent Auditors;
66 On March 2, 2020, the Board of Directors proposed to the Shareholders’ Meeting to distribute a dividend of € 0.183 for each of the
1,000,000,000 outstanding shares and to carry forward the residual profit of € 90,241,811.00. This proposal was modified by the Board
of Directors on April 3, 2020 as indicated above.
532
Resolutions
Pirelli & C. S.p.A. – 2019 Annual Report
RESOLVED
a)
to approve the Company’s financial statements for the year ended December 31, 2019, as
presented by the Board of Directors as a whole, in the individual entries and with the proposed
provisions, showing a profit of Euro 273,241,811.00;
b)
to carry forward the entire profit of the year of Euro 273,241,811.00.
533
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
534
Certifications
Pirelli & C. S.p.A. – 2019 Annual Report
included in the scope of consolidation, together with a description of the principal risks and
uncertainties to which they are exposed.
March 2, 2020
The Executive Vice Chairman and The Corporate Financial
Chief Executive Officer Reporting Manager
(Marco Tronchetti Provera)
(Francesco Tanzi)
535
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
536
Certifications
Pirelli & C. S.p.A. – 2019 Annual Report
537
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
538
Certifications
Pirelli & C. S.p.A. – 2019 Annual Report
539
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
540
Certifications
Pirelli & C. S.p.A. – 2019 Annual Report
541
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
542
Certifications
Pirelli & C. S.p.A. – 2019 Annual Report
543
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
544
Certifications
Pirelli & C. S.p.A. – 2019 Annual Report
3.2. The report on operations includes a reliable analysis of the performance and results of
operations, and of the situation of the reporting entity, together with a description of the
principal risks and uncertainties to which it is exposed.
March 2, 2020
The Executive Vice Chairman and The Corporate Financial
Chief Executive Officer Reporting Manager
(Marco Tronchetti Provera)
(Francesco Tanzi)
545
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
546
Certifications
Pirelli & C. S.p.A. – 2019 Annual Report
547
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
548
Certifications
Pirelli & C. S.p.A. – 2019 Annual Report
549
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
550
Certifications
Pirelli & C. S.p.A. – 2019 Annual Report
551
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
GRI CONTENT INDEX
GRI
Standard
Disclosure
Page Number,
URL
Omission
Material Topic
101: Foundation 2016
102-1 Name of the organization
205
102-2 Activities, brands, products, and
services
208, corporate
website
(www.pirelli.com)
section about
102-3 Location of headquarters
205
102-4 Location of operations
438-443,
corporate website
(www.pirelli.com)
section about
102-5 Ownership and legal form
205, 210, 258
102-6 Markets served
84, corporate
website
(www.pirelli.com)
section about
102-7 Scale of the organization
16, 120, 147, 210
102-8 Information on employees and
other workers
148-149, 153
102-9 Supply chain
107-109
102-10 Significant changes to the
organization and its supply chain
107-109, 147,
149-151
102-11 Precautionary Principle or
approach
102-12 External initiatives
36-49
63, 65, 112-113,
183-184
102-13 Membership of associations
183-189
102-14 Statement from senior decision-
maker
102-15 Key impacts, risks, and
opportunities
102-16 Values, principles, standards,
and norms of behavior
Corporate website
(www.pirelli.com)
section
sustainability/
Pirelli’s model
36-49
73-76, 92, 111,
151, 164-165,
172-173,
corporate website
:
2
0
1
I
R
G
6
1
0
2
s
e
r
u
s
o
l
c
s
i
D
l
a
r
e
n
e
G
552
Certifications
Pirelli & C. S.p.A. – 2019 Annual Report
(www.pirelli.com)
section
sustainability/main
sustainability
policies
76-79
208-209, 219-
221, 226-231,
234-242, 246
65-66, 240-242,
246
65-66
65, 68-69, 98-101
222-225, 234-
242, 246, 259-
260, 262-264
222-225
102-17 Mechanisms for advice and
concerns about ethics
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
102-24 Nominating and selecting the
highest governance body
208-209, 219-221
102-25 Conflicts of interest
248
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
102-30 Effectiveness of risk
management processes
102-31 Review of economic,
environmental, and social topics
65-66, 240-242,
246
226
228-229
240-242
36-49, 240-242
235-236, 240-242
102-32 Highest governance body’s role
in sustainability reporting
65-66, 240-242
102-33 Communicating critical concerns
240-242
102-34 Nature and total number of
critical concerns
Confidentiality
Constraints
Business Ethics
& Integrity
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance,
Community
Engagement
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
553
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Confidentiality
Constraints
Confidentiality
Constraints
102-35 Remuneration policies
277-309
102-36 Process for determining
remuneration
102-37 Stakeholders’ involvement in
remuneration
277-281
277-281
102-38 Annual total compensation ratio
102-39 Percentage increase in annual
total compensation ratio
102-40 List of stakeholder groups
68-72
102-41 Collective bargaining
agreements
102-42 Identifying and selecting
stakeholders
102-43 Approach to stakeholder
engagement
168-169
68-69
68-69
102-44 Key topics and concerns raised
68-72
102-45 Entities included in the
consolidated financial statements
63, 120, 438-443
102-46 Defining report content and topic
Boundaries
63, 552-561
102-47 List of material topics
70-72
102-48 Restatements of information
63
102-49 Changes in reporting
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
63, 70-72, 552-
561
63
63
63
65
63
102-55 GRI content index
102-56 External assurance
552-561
569-573
554
Certifications
Pirelli & C. S.p.A. – 2019 Annual Report
:
1
0
2
I
R
G
6
1
0
2
e
c
n
a
m
r
o
f
r
e
P
c
m
o
n
o
c
E
i
:
2
0
2
I
R
G
t
e
k
r
a
M
GRI 103: Management Approach 2016
201-1 Direct economic value generated
and distributed
201-2 Financial implications and other
risks and opportunities due to climate
change
39, 80-82, 112-
113, 172
80
Financial Health
39, 112-113
Financial Health
201-3 Defined benefit plan obligations
and other retirement plans
172, 392-400,
416-417
Financial Health
201-4 Financial assistance received
from government
81-82
Financial Health
GRI 103: Management Approach 2016
151-155
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
155
152
:
3
0
2
I
R
G
c
i
m
o
n
o
c
E
t
c
e
r
i
d
n
I
6
1
0
2
s
t
c
a
p
m
I
GRI 103: Management Approach 2016
80-81, 189-202
203-1 Infrastructure investments and
services supported
203-2 Significant indirect economic
impacts
80-81, 189-202
80-81, 189-202
:
4
0
2
I
R
G
e
m
e
r
u
c
o
r
P
s
e
c
i
t
c
a
r
P
t
n
GRI 103: Management Approach 2016
6
1
0
2
204-1 Proportion of spending on local
suppliers
107
107
GRI 103: Management Approach 2016
74-76, 93-95
Community
Engagement
:
5
0
2
I
R
G
6
1
0
2
n
o
i
t
p
u
r
r
o
c
-
i
t
n
A
205-1 Operations assessed for risks
related to corruption
76-79
Business Ethics
& Integrity
205-2 Communication and training
about anti-corruption policies and
procedures
73-76, 93-95, 226
Information
Unavailable: % of
employees
trained on anti-
corruption
currently not
disclosed by
category and
region
Business Ethics
& Integrity
205-3 Confirmed incidents of corruption
and actions taken
74-79
Business Ethics
& Integrity
:
6
0
2
I
R
G
-
i
t
n
A
e
v
i
t
i
t
e
p
m
o
c
6
1
0
2
r
o
i
v
a
h
e
B
GRI 103: Management Approach 2016
74-76
206-1 Legal actions for anti-competitive
behavior, anti-trust, and monopoly
practices
76
Business Ethics
& Integrity
555
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
Renewable
Materials
End of Life Tyre
Recovery and
Recycling
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
GRI 103: Management Approach 2016
301-1 Materials used by weight or
volume
73-74, 109, 131,
135
109
301-2 Recycled input materials used
109, 118-119
301-3 Reclaimed products and their
packaging materials
131, 135, 142-143
GRI 103: Management Approach 2016
121-124
302-1 Energy consumption within the
organization
121, 123-124
302-2 Energy consumption outside of
the organization
116-117
302-3 Energy intensity
121, 123-124
302-4 Reduction of energy consumption
123-124
302-5 Reductions in energy
requirements of products and services
136-137
GRI 103: Management Approach 2016
42-43, 111-112,
113-117, 129-131
303-1 Water withdrawal by source
129-130
303-2 Water sources significantly
affected by withdrawal of water
303-3 Water recycled and reused
130
130
GRI 103: Management Approach 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
98-101, 111-112,
114, 119, 133-134
133-134
130-131, 133-134
304-3 Habitats protected or restored
128, 133-134
304-4 IUCN Red List species and
national conservation list species with
habitats in areas affected by operations
133
:
1
0
3
I
R
G
l
6
1
0
2
s
a
i
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e
t
a
M
:
2
0
3
I
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G
6
1
0
2
y
g
r
e
n
E
:
3
0
3
I
R
G
6
1
0
2
r
e
t
a
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:
4
0
3
I
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6
1
0
2
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s
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v
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o
B
i
556
Certifications
Pirelli & C. S.p.A. – 2019 Annual Report
GRI 103: Management Approach 2016
39, 42-43, 111-
117, 124-128
305-1 Direct (Scope 1) GHG emissions
120, 124-127
305-2 Energy indirect (Scope 2) GHG
emissions
120, 124-127
305-3 Other indirect (Scope 3) GHG
emissions
106, 116-117,
124-125, 128
305-4 GHG emissions intensity
124-128
:
5
0
3
I
R
G
6
1
0
2
s
n
o
s
s
m
E
i
i
305-5 Reduction of GHG emissions
124, 126-128
305-6 Emissions of ozone-depleting
substances (ODS)
305-7 Nitrogen oxides (NOX), sulfur
oxides (SOX), and other significant air
emissions
GRI 103: Management Approach 2016
306-1 Water discharge by quality and
destination
306-2 Waste by type and disposal
method
306-3 Significant spills
135
133-136
42-43, 111-112,
113-117, 129-132
130-131
131-132
136
306-4 Transport of hazardous waste
131-132
:
6
0
3
I
R
G
6
1
0
2
e
t
s
a
W
d
n
a
s
t
n
e
u
l
f
f
E
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
130-131
42-43, 111-112,
136
122, 125, 136
:
7
0
3
I
R
G
a
t
n
e
m
n
o
r
i
v
n
E
e
c
n
a
i
l
p
m
o
C
l
6
1
0
2
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
557
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
:
8
0
3
I
R
G
r
e
i
l
p
p
u
S
l
a
t
n
e
m
n
o
r
i
v
n
E
6
1
0
2
t
n
e
m
s
s
e
s
s
A
GRI 103: Management Approach 2016
308-1 New suppliers that were screened
using environmental criteria
48-49, 73-74, 92-
95
93-94, 95-97
308-2 Negative environmental impacts
in the supply chain and actions taken
95-97
GRI 103: Management Approach 2016
401-1 New employee hires and
employee turnover
401-2 Benefits provided to full-time
employees that are not provided to
temporary or part-time employees
401-3 Parental leave
42, 149-151, 153,
172
149-151
172
153
GRI 103: Management Approach 2016
43, 73-74, 168-
171
:
1
0
4
I
R
G
6
1
0
2
t
n
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m
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:
2
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R
t
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e
6
1
0
2
Responsible
Procurement
Responsible
Procurement
Employees Well-
Being & Work-life
Balance
402-1 Minimum notice periods regarding
operational changes
168-169
Labour Relations
Management
6
1
0
2
y
t
e
f
a
S
d
n
a
h
t
l
a
e
H
l
a
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a
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O
6
1
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d
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n
i
a
r
T
i
:
3
0
4
I
R
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:
4
0
4
I
R
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GRI 103: Management Approach 2016
43, 172-174
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
174
175-180
178
169, 174
GRI 103: Management Approach 2016
42, 160-166
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
165-166
160-165
160-161
Confidentiality
Constraints:
absentee rate not
disclosed publicly
Occupational
Health&Safety,
Labour Relations
Management
Occupational
Health&Safety
Occupational
Health&Safety
Occupational
Health&Safety
Training &
Development
Training &
Development
Training &
Development
558
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Pirelli & C. S.p.A. – 2019 Annual Report
Diversity & Equal
Opportunities
Diversity & Equal
Opportunities,
Human Rights
Diversity & Equal
Opportunities,
Human Rights
Labour Relations
Management,
Human Rights,
Responsible
Procurement
Human Rights,
Responsible
Procurement
Human Rights,
Responsible
Procurement
:
5
0
4
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6
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p
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O
GRI 103: Management Approach 2016
151-153, 209-210
405-1 Diversity of governance bodies
and employees
149, 153, 209-
210, 223-224
405-2 Ratio of basic salary and
remuneration of women to men
153-155
:
6
0
4
I
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GRI 103: Management Approach 2016
151-152
6
1
0
2
406-1 Incidents of discrimination and
corrective actions taken
78-79, 152
:
7
0
4
I
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GRI 103: Management Approach 2016
6
1
0
2
g
n
n
a
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r
a
B
407-1 Operations and suppliers in which
the right to freedom of association and
collective bargaining may be at risk
i
GRI 103: Management Approach 2016
43, 48-49, 93-95,
144-145, 168-171
93-98, 144-145,
170-171
48-49, 93-95,
144-145, 170-171
:
8
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6
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408-1 Operations and suppliers at
significant risk for incidents of child labor
93-98, 144-145,
170-171
GRI 103: Management Approach 2016
409-1 Operations and suppliers at
significant risk for incidents of forced or
compulsory labor
48-49, 93-95,
144-145, 170-171
93-98, 144-145,
170-171
GRI 103: Management Approach 2016
144-145
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
144-145
411-1 Incidents of violations involving
rights of indigenous peoples
78-79
Human Rights
559
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
GRI 103: Management Approach 2016
48-49, 144-145
412-1 Operations that have been
subject to human rights reviews or
impact assessments
144-145, 170-171
Human Rights
412-2 Employee training on human
rights policies or procedures
144-145
Information
Unavailable:
number of hours
of training on
human rights and
% of employees
trained currently
unavailable
412-3 Significant investment
agreements and contracts that include
human rights clauses or that underwent
human rights screening
92-95
Human Rights
GRI 103: Management Approach 2016
144-145
413-1 Operations with local community
engagement, impact assessments, and
development programs
68-69, 144-146
413-2 Operations with significant actual
and potential negative impacts on local
communities
144-146
GRI 103: Management Approach 2016
48-49, 73-74, 93-
95
414-1 New suppliers that were screened
using social criteria
414-2 Negative social impacts in the
supply chain and actions taken
93-98
95-98
GRI 103: Management Approach 2016
81-82
415-1 Political contributions
81-82
GRI 103: Management Approach 2016
73-74
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
94
91-92
Information
Unavailable:
information
currently
unavailable
Information
Unavailable:
information
currently
unavailable
Community
Engagement
Community
Engagement
Responsible
Procurement
Responsible
Procurement
Product Quality &
Safety
Legal &
Regulatory
Compliance
6
1
0
2
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560
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Pirelli & C. S.p.A. – 2019 Annual Report
:
7
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4
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GRI 103: Management Approach 2016
136-138
417-1 Requirements for product and
service information and labeling
417-2 Incidents of non-compliance
concerning product and service
information and labeling
417-3 Incidents of non-compliance
concerning marketing communications
136-138
91-92
91-92
GRI 103: Management Approach 2016
73-74
418-1 Substantiated complaints
concerning breaches of customer
privacy and losses of customer data
91-92
GRI 103: Management Approach 2016
73-74
419-1 Non-compliance with laws and
regulations in the social and economic
area
91-92
OTHER MATERIAL TOPICS IDENTIFIED
(not covered or partially covered by the GRI Standards)
Material Topic
Page Number
Employees Well-Being & Work-life Balance
167-168, 174-175
Customer Satisfaction
Product Quality & Safety
83-90
90-91
Product Environmental Sustainability
136-141, 142-143
Road Safety Initiatives
189-191
Legal &
Regulatory
Compliance
Legal &
Regulatory
Compliance
Legal &
Regulatory
Compliance
Business Ethics
& Integrity,
Legal &
Regulatory
Compliance
561
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
UNGC PRINCIPLES SUMMARY TABLE
Areas of the
Global Compact
Global Compact
Principles
Directly Relevant
GRI Indicators
Indirectly Relevant
GRI Indicators
Principle 1 – Business
should promote and
respect internationally
proclaimed human
rights in their respective
spheres of influence.
Human Rights
Disclosure 407: Freedom of
Association and Collective
Bargaining
Disclosure 408: Child Labor
Disclosure 409: Forced or
Compulsory Labor
Disclosure 410: Security Practices
Disclosure 411: Rights of Indigenous
Peoples
Disclosure 413: Local
Communities
Disclosure 412: Human Rights
Assessment
Disclosure 414: Supplier Social
Assessment
Disclosure 103-2: Grievance
Mechanism
Principle 2 – Business
should ensure that they
are not, albeit indirectly,
complicit in human
rights abuses.
Disclosure 410: Security Practices
Disclosure 412: Human Rights
Assessment
Disclosure 414: Supplier Social
Assessment
Principle 3 –
Businesses should
uphold the freedom of
association of workers
and recognise the right
to collective bargaining.
Labour Standards
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
Principle 4 – Business
should uphold the
elimination of all forms
of forced and
compulsory labour.
Disclosure 409: Forced or
Compulsory Labor
Disclosure 410: Security Practices
Disclosure 412: Human Rights
Assessment
562
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Pirelli & C. S.p.A. – 2019 Annual Report
Areas of the
Global Compact
Global Compact
Principles
Directly Relevant
GRI Indicators
Indirectly Relevant
GRI Indicators
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 408: Child Labor
Disclosure 410: Security Practices
Disclosure 412: Human Rights
Assessment
Disclosure 401: Employment
Disclosure 404: Training and
Education
Disclosure 202: Market Presence
Disclosure 401: Employment
Disclosure 405: Diversity and Equal
Opportunity
Disclosure 412: Human Rights
Assessment
Disclosure 406: Non-Discrimination
Disclosure 410: Security Practices
Disclosure 102-8: Information on
Employees and other Workers
Disclosure 414: Supplier Social
Assessment
Disclosure 102-41: Collective
Bargaining Agreements
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
Environment
Principle 8 – Business
should
undertake initiatives to
promote
greater environmental
responsibility.
Disclosure 301: Materials
Disclosure 302: Energy
Disclosure 303: Water
Disclosure 304: Biodiversity
Disclosure 305: Emissions
Disclosure 306: Effluents and Waste
Disclosure 201: Economic
Performance
Disclosure 307: Environmental
Compliance
Disclosure 308: Supplier
Environmental Assessment
Disclosure 103-2: Grievance
Mechanism
563
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
Areas of the
Global Compact
Global Compact
Principles
Directly Relevant
GRI Indicators
Indirectly Relevant
GRI Indicators
Principle 9 –
Businesses should
encourage the
development and
diffusion of
environmentally friendly
technologies.
Disclosure 301: Materials
Disclosure 302: Energy
Disclosure 303: Water
Disclosure 305: Emissions
Anti-Corruption
Principle 10 –
Businesses should work
against corruption in all
its forms,
including extortion and
bribery.
Disclosure 205: Anti-Corruption
Disclosure 205: Anti-Corruption
Disclosure 419: Socioeconomic
Compliance
Disclosure 419: Socioeconomic
Compliance
Disclosure 102-16: Values,
Principles, Standards, and Norms of
Behavior
Disclosure 102-16: Values,
Principles, Standards, and Norms
of Behavior
Disclosure 102-17: Mechanism for
Advice and Concerned about Ethics
Disclosure 102-17: Mechanism for
Advice and Concerned about
Ethics
564
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Pirelli & C. S.p.A. – 2019 Annual Report
SDGS SUMMARY TABLE
Sustainable Development
Goals (SDGs)
Paragraphs describing the Group’s activities in support of the SDGs and
relevant targets (from Sustainability Plan 2017-2020 with selected target to 2025)
1 - No Poverty
Company Initiatives for the External Community (Solidarity pp. 194-195)
2 - Zero Hunger
Company Initiatives for the External Community (Solidarity pp. 194-195)
Welfare and Initiatives for the Internal Community (pp. 167-168)
Occupational Health, Safety and Hygiene (pp. 172-180)
3 - Good Health and Well-
being
Company Initiatives for the External Community (Road Safety pp. 189-191, Sport and
Social Responsibility pp. 193-194, Health pp. 195-196)
Target:
Accident Frequency Index: -87% by 2020 compared to 2009
Training (pp. 161-166)
Company Initiatives for the External Community (Training pp. 191-193, Culture and
Social Value pp. 197-198)
4 - Quality Education
Target:
Training: investment in employee training of at least an average of 7 man days
5 - Gender Equality
Diversity Management (pp. 151-158)
Water Management (pp.129-131)
6 - Clean Water and
Sanitation
Target:
Specific withdrawal of water -66% by 2020 compared to 2009
Joining the Task Force on Climate-Related Financial Disclosures (TCFD) (pp. 112-
113)
Energy Management (pp. 121-124)
7 - Affordable and Clean
Energy
Management of Greenhouse Gas Emissions and Carbon Action Plan (pp. 124-128)
Targets:
Specific Energy Consumption: -19% by 2020 compared to 2009
8 - Decent Work and
Economic Growth
Our Suppliers (pp. 92-110)
Internal Community (pp. 147-180)
565
Pirelli & C. S.p.A. – 2019 Annual Report
Certifications
Company Initiatives for the External Community (Training pp. 191-193)
9 - Industry, Innovation
and Infrastructure
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. 151-158)
Main International Commitments for Sustainability (WBCSD pp. 185-187)
Company Initiatives for the External Community (Road Safety pp. 189-191, Solidarity
pp. 194-195)
11 - Sustainable Cities
and Communities
Improvement of product performances in 2020:
Target:
o Car products: -20% average rolling resistance, +15% on wet surfaces, -
15% noise (vs 2009)
o Moto products: -10% average rolling resistance, +40% performance on
wet surfaces, +30% for mileage (vs 2009)
o Velo: +5% braking performance, +10% wet surfaces (vs 2017)
Joining the Task Force on Climate-Related Financial Disclosures (TCFD) (pp. 112-
113)
Energy Management (pp. 121-124)
Management of Greenhouse Gas Emissions and Carbon Action Plan (pp. 124-128)
Water Management (pp. 129-131)
Waste Management (pp. 131-132)
12 - Responsible
Consumption and
Production
Company Initiatives for the External Community (Environmental Initiatives pp. 196-
197)
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
566
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Pirelli & C. S.p.A. – 2019 Annual Report
CDP Supply Chain (p. 106)
Joining the Task Force on Climate-Related Financial Disclosures (TCFD) (pp. 112-
113)
Management of Greenhouse Gas Emissions and Carbon Action Plan (pp. 124-128)
Main International Commitments for Sustainability (International Commitments against
Climate Change pp. 188-189)
Targets:
13 - Climate Action
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:
o Car products: -20% average rolling resistance, +15% performance on
wet surfaces, -15% noise (vs 2009)
o Moto products: -10% average rolling resistance, +40% performance on
wet surfaces, +30% for mileage (vs 2009)
o Velo: +5% braking performance, +10% wet surfaces (vs 2017)
14 - Life below Water
Water Management (pp. 129-131)
15- Life on Land
16- Peace, Justice and
Strong Institutions
17 - Partnerships for the
Goals
Sustainability of the Natural Rubber Supply Chain (pp. 98-102)
Company Initiatives for the External Community (Environmental Initiatives pp. 196-
197)
Programs of Compliance 231, Anti-corruption, Privacy and Antitrust (pp. 74-76)
Sustainability of the Natural Rubber Supply Chain (pp. 98-102)
Main International Commitments for Sustainability (WBCSD pp. 185-187)
Company Initiatives for the External Community (Road Safety pp. 189-191)
Please note that in February 2020 the Company will be presenting the new Industrial Plan and the
related long-term strategic sustainability targets. Contextually, the Plan will be published on the
institutional website www.pirelli.com.
567
Pirelli & C. S.p.A. – 2019 Annual Report
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
Use of Water Resources
Risks Related To Environmental Issues
Water Management
Risks Related To Climate Change
Joining the Task Force on Climate-Related
Financial Disclosures (TCFD)
42-43, 121-124
42-43, 129-131
Greenhouse Gas Emissions and
Air-Polluting Emissions
Management Of Greenhouse Gas Emissions
and Carbon Action Plan
39, 112-113,
124-128, 132-
136
Health and Safety
Solvents
NOx Emissions
Other Emissions and Environmental Aspects
Employee Health and Safety Risks
Occupational Health, Safety and Hygiene
Risks associated with Human Resources
43, 172-180
Training and Development
Development
42, 160-166
Training
Welfare and Initiatives for the Internal
167-168
Welfare
Dialogue with Employees
Community
Litigation Risks
Listening: Group Opinion Survey
43, 166-172
Industrial Relations
Actions for Gender Equality
Diversity Management
Diversity Policies
Respect for Human Rights:
Measures Taken and Prevention
Risks relative to Corporate Social and
Environmental Responsibility, Business Ethics,
and Third-Party Audits
Human Rights Governance
Diversity Management
151-158, 209-
210
48-49, 144-146,
151-158
Fight against Active and
Passive Corruption
Risks relative to Corporate Social and
Environmental Responsibility, Business Ethics,
and Third-Party Audits
Programs of Compliance 231, Anti-corruption,
Privacy and Antitrust
48-49, 74-76
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Certifications
570
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Pirelli & C. S.p.A. – 2019 Annual Report
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PIRELLI & C. Società per Azioni (Joint Stock Company)
Milan Office, Viale Piero e Alberto Pirelli n. 25
Share Capital Euro 1,904,347,935.66 fully paid in
Register of Companies of Milan No. 00860340157
REA (Economic Administrative Index) No. 1055