— 2020
ANNUAL REPORT
Pirelli & C. S.p.A. – 2020 Annual Report
CONTENTS
NOTICE OF SHAREHOLDERS’ MEETING ..................................................................................... 4
CORPORATE BODIES ..................................................................................................................... 6
PRESENTATION OF 2020 INTEGRATED ANNUAL REPORT ....................................................... 9
DIRECTORS’ REPORT ON OPERATIONS ................................................................................... 11
MACROECONOMIC AND MARKET SCENARIO.................................................................... 12
SIGNIFICANT EVENTS OF 2020 ............................................................................................ 16
GROUP PERFORMANCE AND RESULTS ............................................................................. 20
RESEARCH AND DEVELOPMENT ACTIVITIES .................................................................... 34
PARENT COMPANY HIGHLIGHTS ........................................................................................ 40
RISK FACTORS AND UNCERTAINTY ................................................................................... 42
OUTLOOK FOR THE FIVE-YEAR PERIOD ............................................................................ 54
SIGNIFICANT EVENTS SUBSEQUENT TO THE END OF THE YEAR ................................. 56
ALTERNATIVE PERFORMANCE INDICATORS .................................................................... 58
OTHER INFORMATION .......................................................................................................... 61
REPORT ON RESPONSIBLE MANAGEMENT OF THE VALUE CHAIN - CONSOLIDATED
NON-FINANCIAL DISCLOSURE PURSUANT TO LEGISLATIVE DECREE OF DECEMBER
30, 2016, N. 254 ............................................................................................................................. 66
METHODOLOGICAL NOTE .................................................................................................... 67
ECONOMIC DIMENSION ........................................................................................................ 85
ENVIRONMENTAL DIMENSION ........................................................................................... 117
SOCIAL DIMENSION ............................................................................................................ 152
REPORT ON THE CORPORATE GOVERNANCE AND SHARE OWNERSHIP OF PIRELLI &
C. S.p.A. PURSUANT TO ARTICLE 123-BIS TUF ....................................................................... 216
GLOSSARY ........................................................................................................................... 217
INTRODUCTION ................................................................................................................... 221
COMPANY PROFILE ............................................................................................................ 221
INFORMATION ON THE OWNERSHIP STRUCTURE ......................................................... 223
COMPLIANCE ....................................................................................................................... 235
BOARD OF DIRECTORS ...................................................................................................... 236
PROCESSING OF CORPORATE INFORMATION ............................................................... 253
BOARD COMMITTEES ......................................................................................................... 254
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Pirelli & C. S.p.A. – 2020 Annual Report
STRATEGIES COMMITTEE .................................................................................................. 256
APPOINTMENTS AND SUCCESSIONS COMMITTEE ........................................................ 257
RELATED-PARTIES TRANSACTIONS COMMITTEE .......................................................... 259
REMUNERATION COMMITTEE ........................................................................................... 260
REMUNERATION OF THE DIRECTORS.............................................................................. 262
AUDIT, RISKS, SUSTAINABILITY AND CORPORATE GOVERNANCE COMMITTEE ....... 262
SYSTEM OF INTERNAL CONTROL AND RISK MANAGEMENT ........................................ 264
INTERESTS OF THE DIRECTORS AND RELATED-PARTIES TRANSACTIONS ............... 270
BOARD OF STATUTORY AUDITORS .................................................................................. 271
OPERATIONS GENERAL MANAGER .................................................................................. 276
INFORMATION FLOWS TO THE DIRECTORS AND STATUTORY AUDITORS ................. 276
RELATIONS WITH SHAREHOLDERS .................................................................................. 277
SHAREHOLDERS’ MEETINGS ............................................................................................. 277
CHANGES SINCE THE END OF THE YEAR........................................................................ 279
THE PIRELLI WEBSITE ........................................................................................................ 279
CONSIDERATIONS ON THE LETTER OF 22 DECEMBER 2020 FROM THE CHAIRMAN
OF THE CORPORATE GOVERNANCE COMMITTEE ......................................................... 280
REPORT ON THE REMUNERATION POLICY AND COMPENSATION PAID ............................ 296
REMUNERATION POLICY FOR THE 2021 FINANCIAL YEAR ........................................... 300
REPORT ON COMPENSATION PAID FOR YEAR 2020 ...................................................... 342
CONSOLIDATED FINANCIAL STATEMENTS ............................................................................. 356
FINANCIAL STATEMENTS ................................................................................................... 357
EXPLANATORY NOTES ....................................................................................................... 362
SCOPE OF CONSOLIDATION .............................................................................................. 472
PIRELLI & C. S.p.A. SEPARATE FINANCIAL STATEMENTS ..................................................... 479
FINANCIAL STATEMENTS ................................................................................................... 480
EXPLANATORY NOTES ....................................................................................................... 485
ANNEXES TO THE EXPLANATORY NOTES ....................................................................... 545
REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE SHAREHOLDERS’
MEETING ............................................................................................................................... 550
RESOLUTIONS ............................................................................................................................ 578
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Pirelli & C. S.p.A. – 2020 Annual Report
PROPOSAL ON THE ALLOCATION OF THE RESULT OF THE FINANCIAL YEAR AND
DISTRIBUTION OF DIVIDENDS ........................................................................................... 579
APPOINTMENT OF A MEMBER OF THE BOARD OF DIRECTORS; RELATED AND
CONSEQUENT RESOLUTIONS ........................................................................................... 581
APPOINTMENT OF THE BOARD OF STATUTORY AUDITORS FOR THE FINANCIAL
YEARS 2021, 2022 AND 2023 AND DETERMINATION OF ITS REMUNERATION;
RELATED AND CONSEQUENT RESOLUTIONS ................................................................. 584
REMUNERATION POLICY AND COMPENSATION PAID; RELATED AND
CONSEQUENT RESOLUTIONS ........................................................................................... 591
THREE-YEAR MONETARY
INCENTIVE PLANS FOR PIRELLI’S GROUP
MANAGEMENT; RELATED AND CONSEQUENT RESOLUTIONS AND CONFERMENT
OF POWERS ......................................................................................................................... 594
CERTIFICATIONS ........................................................................................................................ 601
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 ..................................................... 601
b.
Independent auditors report on the Consolidated Financial Statements ........................ 603
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 ..................................................... 611
d.
Independent auditors report on Separate Financial Statements ..................................... 613
e. GRI Content and Correlation Tables ............................................................................... 621
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 ............ 639
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Pirelli & C. S.p.A. – 2020 Annual Report
Notice of shareholders’ meeting
NOTICE OF SHAREHOLDERS’ MEETING
The persons entitled to vote at the general shareholders’ meeting of Pirelli & C. Società per Azioni
are called to an Ordinary Shareholders’ Meeting in Milan, at the offices of Studio Notarile Marchetti
in Via Agnello no. 18, at 10:00 a.m. on Tuesday, 15 June 2021, in a single call, to discuss and resolve
on the following
1.
Financial statements as at 31 December 2020:
AGENDA
1.1 approval of the financial statements as at 31 December 2020. Presentation of the
consolidated financial statements as at 31 December 2020. Presentation of the Report
on responsible management of the value chain related to 2020 financial year;
1.2 proposal on the allocation of the result of the financial year and distribution of dividends
using also profits set aside in previous years;
related and consequent resolutions.
2.
Appointment of a member of the Board of Directors; related and consequent resolutions.
3.
Appointment of the Board of Statutory Auditors for the financial years 2021, 2022 and 2023
and determination of its remuneration:
3.1 appointment of standing and alternate auditors;
3.2 appointment of the Chairman of the Board of Statutory Auditors;
3.3 determination of the annual remuneration of the Board of Statutory Auditors’ members;
related and consequent resolutions.
4.
Remuneration policy and compensation paid:
4.1 approval of the remuneration policy for 2021 financial year pursuant to art. 123-ter,
paragraph 3-ter of Legislative Decree 24 February 1998 n. 58;
4.2 advisory vote on the report on compensation paid for 2020 financial year pursuant to art.
123-ter, paragraph 6 of Legislative Decree 24 February 1998 n. 58;
related and consequent resolutions.
5.
Three-year monetary incentive plans for Pirelli’s Group management:
5.1 approval of the monetary incentive plan for the three-year period 2021-2023 for Pirelli’s
Group management;
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Notice of shareholders’ meeting
Pirelli & C. S.p.A. – 2020 Annual Report
5.2 adjustment of the objective of cumulative Group Net Cash Flow (before dividends) and
normalization of potential effects on the relative Total Shareholder Return objective
included in the monetary incentive plan for the three-year period 2020-2022 for Pirelli’s
Group management;
related and consequent resolutions and conferment of powers.
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Pirelli & C. S.p.A. – 2020 Annual Report
Corporate bodies
CORPORATE BODIES
Board of Directors1
Chairman
Ning Gaoning
Executive Vice Chairman
and Chief Executive Officer
Marco Tronchetti Provera
Director
Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Director
Independent Director
Director
Yang Xingqiang
Bai Xinping
Paola Boromei
Domenico De Sole
Roberto Diacetti
Fan Xiaohua
Giovanni Lo Storto
Marisa Pappalardo
Tao Haisu
Giovanni Tronchetti Provera
Wei Yintao
Zhang Haitao
Secretary of the Board
Alberto Bastanzio
1 Appointment: June 18, 2020. Expiry: Shareholders’ Meeting convened for the approval of the Financial Statements at December 31,
2022. On August 5, 2020, Angelos Papadimitriou was co-opted by the Board of Directors following the resignation of Carlo Secchi
tendered on July 31, 2020, his term of office expiring at the first Shareholders’ Meeting. Director Angelos Papadimitriou, whose
confirmation was expected to be on the Agenda of the Shareholders’ Meeting convened for March 24, 2021, announced on the same
aforesaid date that he was withdrawing his candidacy and, therefore, the Shareholders’ Meeting was unable to pass any resolution on
the matter; as a consequence, one seat is vacant.
6
Corporate bodies
Pirelli & C. S.p.A. – 2020 Annual Report
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 Committee3
Chairman – Independent Director
Fan Xiaohua
Independent Director
Independent Director
Independent Director
Roberto Diacetti
Giovanni Lo Storto
Marisa Pappalardo
Zhang Haitao
Committee for Related Party Transactions3
Chairman – Independent Director
Marisa Pappalardo
Independent Director
Independent Director
Domenico De Sole
Giovanni Lo Storto
Nominations and Successions Committee3
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.
3 The composition of the Board Committees is in accordance with the resolutions passed by the Board of Directors on August 5, 2020
and March 31, 2021.
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Pirelli & C. S.p.A. – 2020 Annual Report
Corporate bodies
Remuneration Committee3
Chairman - Independent Director
Independent Director
Independent Director
Independent Director
Strategies Committee3
Tao Haisu
Bai Xinping
Paola Boromei
Fan Xiaohua
Marisa Pappalardo
Chairman
Marco Tronchetti Provera
Independent Director
Independent Director
Independent Director
Ning Gaoning
Yang Xingqiang
Bai Xinping
Domenico De Sole
Giovanni Lo Storto
Wei Yintao
Independent Auditing Firm4
PricewaterhouseCoopers S.p.A.
Corporate Financial Reporting Manager5
Francesco Tanzi
The Supervisory Board (as provided for by the Organisational Model 231 adopted by the Company),
is chaired by Prof. Carlo Secchi.
4 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.
5 Appointment: Board of Directors Meeting held on June 22, 2020. Expiry: jointly with the current Board of Directors.
8
Presentation of 2020 integrated Annual Report
Pirelli & C. S.p.A. – 2020 Annual Report
PRESENTATION OF 2020 INTEGRATED ANNUAL REPORT
The Pirelli 2020 integrated Report (Annual Report 2020) 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. Among the
actions to optimise and strengthen the group’s financial structure conducted in 2020, it is worth noting
Pirelli’s subscription of a new €800 million credit line with a 5-year maturity, qualified by an incentive
mechanism linked to product and process environmental sustainability objectives. The 2020 financial
year was impacted by the Covid-19 emergency, which was reflected in a sharp drop in market
demand (-15% in the Car tyre market) and production. Pirelli responded promptly to the profound
change in the global scenario, implementing an action plan aimed at ensuring the safety of its
employees and protecting its profitability and cash generation by containing costs and reshaping its
investment programmes.
In 2020, the management of the business produced an adjusted EBIT6 of €501.2 million (€917.3
million in 2019) with a margin of 11.6% (17.2% in 2019). Internal levers (price/mix, efficiencies and
the cost reduction programme) contributed to limiting the negative impacts arising from
the external scenario (volumes, commodities, Forex and inflation),
increased D&A and other costs.
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 2020 compared to 2019, Pirelli recorded a 6.8%
decrease in absolute water withdrawal, a reduction in absolute energy consumption of 10.5%, and
a reduction in absolute CO2 emissions of around 23%, also due to a fall in production volumes due
to the pandemic. The growth in the consumption of electricity from renewable sources was
noteworthy, reaching 52%7 of the total electricity used by the Group at the global level. Moreover, in
June 2020 Pirelli’s targets for reducing CO2 emissions were validated by the Science Based Targets
initiative (SBTi), which judged them consistent with the actions needed to keep climate warming well
below 2°C. The Covid-19 scenario entailed a reduction in volumes produced, thus impacting factory
efficiency with an increase in the specific energy and water consumption indices, weighted on
6 EBIT reported excluding amortisation of intangible assets related to assets recognised as a result of Business Combination, operating
costs attributable to non-recurring, restructuring and one-off charges, Covid 19 direct costs and charges related to the retention plan
approved by the Board of Directors on 26 February 2018.
7 Figure including both share from direct procurement and national electric grid mix based on IEA data (International Energy Agency).
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Pirelli & C. S.p.A. – 2020 Annual Report
Presentation of 2020 integrated Annual Report
volumes produced, without structurally affecting the improvement curve that the Group has set itself
for the coming years. In addition, 97% of waste was sent to recovery, effectively pursuing the Group’s
“zero waste to landfill” target.
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 2020 totalled €194.6 million (4.5% of sales), of which
€182.5 million was for High Value activities (6.0% of High Value revenues). In turn, Pirelli’s Eco &
Safety Performance products, which combine performance and respect for the environment, at the
end of 2020 represent 58%8 of total car tyre turnover (55.8% in 2019 and 49.8% in 2018). By
restricting the scope of the analysis to High Value products9, the percentage of Eco & Safety
Performance products rises to 63.8%.
The heavy investment in innovation also fuels Pirelli’s intellectual capital, as it has a portfolio of active
patents grouped into more than 790 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 the 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. The investment in “health and safety” was a priority, with an accident
frequency index down 15% compared to 2019 and new programmes introduced to support people’s
psycho-physical wellbeing and with a view to resilience against pandemic impacts.
Pirelli’s social and relational capitals are based on the continuous and transparent dialogue that the
Company maintains with its Stakeholders, as well as on the integration that Pirelli maintains within
the Communities in which it operates. During 2020, the Company placed a significant focus on
supporting Communities in connection with the pandemic emergency.
In methodological terms, in the preparation of the Annual Report 2020 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 Company
Financial Statements and the Consolidated Financial Statements have been prepared on the basis
of the IAS/IFRS international accounting standards.
8 Figure obtained by weighing the value of sales of Eco & Safety Performance tyres on the total value of sales of Group car tyres. Eco
& Safety 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.
9 High Value products are determined by equal or greater than 18 inches and, in addition, include all “Specialties” products (Run Flat,
Self-Sealing, Noise Cancelling System).
10
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2020 Annual Report
DIRECTORS’ REPORT ON OPERATIONS
AT DECEMBER 31, 2020
11
Pirelli & C. S.p.A. – 2020 Annual Report
Directors’ Report on Operations
MACROECONOMIC AND MARKET SCENARIO
Economic overview
Global economic performance for 2020 felt the impacts of the COVID-19 pandemic, with global GDP
falling by -3.6%. Following the collapse in GDP for the second quarter, and the rebound recorded in
the third, any recovery again lost its momentum during the last three months of 2020, due to the
additional wave of contagion that hit Europe and the US in particular.
The European Union suffered one of the sharpest downturns in the international arena, with a
-6.2% drop in gross domestic product for 2020. Amongst the various European economies, the
impacts varied in magnitude depending on the severity of the health crisis, the different measures
introduced to contain the virus, the exposure of the economy to the most affected sectors, the
respective population structures and density, and the fiscal policy responses. GDP in Germany fell
by -5.3%, and in the Netherlands by -3.8% for 2020, but was better than the European average, and
in comparison to the contraction of -8.9% in Italy and -11% in Spain.
The contraction of GDP in the US for 2020 equalled -3.5%, which was more contained due to
extensive income support measures, and fewer restrictions on mobility.
Economic growth, percentage change in GDP
EU
1Q 2020
-2.7
2Q 2020
-13.8
3Q 2020
-4.1
4Q 2020
-4.6
US
China
Brazil
Russia
World
Note: Year-on-year percentage changes. Final data and estimates for Russia and the w orld.
Source: National statistics offices and IHS Markit, March 2021
-9.0
3.6
-10.9
-8.0
-7.6
0.3
-6.4
-0.3
1.7
-2.3
-2.8
5.1
-3.9
-3.4
-1.5
-2.4
6.8
-1.1
-2.7
-0.6
2019
1.6
2.2
6.0
1.4
1.3
2.6
2020
-6.2
-3.5
2.3
-4.1
-3.1
-3.6
Economic activity in China, the first country to be affected by the pandemic, returned to growth as
early as of the second quarter, and recorded a gradual improvement for the following quarters, with
an overall growth rate of +2.3% during the course of 2020.
Despite the recovery in industrial production since the middle of the year, Brazilian economic activity
remained below normal levels. Lastly, Russia was penalised by the virus containment measures and
by the drop in global oil demand, which led to lower crude oil prices and lower production levels.
Exchange rates
The euro/US dollar exchange rate averaged 1.14 for 2020, an appreciation of +2% year-on-year,
+7.2% for the second half-year of 2020, compared to the first half-year, following the announcement
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Directors’ Report on Operations
Pirelli & C. S.p.A. – 2020 Annual Report
of the NextGenerationEU fund (euro 750 billion over six years), in response to the economic and
social damage caused by the pandemic.
Key exchange rates
1Q
2Q
3Q
4Q
Full year average
US$ per euro
Chinese yuan per US$
Brazilian real per US$
Russian rouble per US$
2020
1.10
6.98
4.47
66.39
2019
1.14
6.75
3.77
65.89
2020
1.10
7.08
5.39
72.41
2019
1.12
6.82
3.92
64.53
2020
1.17
6.92
5.38
73.57
2019
1.11
6.99
3.97
64.62
2020
1.19
6.62
5.40
76.19
2019
1.11
7.03
4.12
63.70
2020
1.14
6.90
5.16
72.21
2019
1.12
6.90
3.95
64.66
Note: Average exchange rates for the period. Source: National central banks.
For 2020 the average price for the Chinese yuan depreciated by -2% against the euro, and stood at
6.90 against the US dollar, remaining unchanged from the previous year. The Chinese currency
weakened against the US dollar during the first five months of the year, reaching a peak of 7.13 in
early June, before recovering ground during the second half-year, thanks to the country’s economic
recovery. For the fourth quarter, the yuan averaged 6.62 against the US dollar, an appreciation of
+6% compared to the same period in 2019.
The Brazilian real was weak, penalised by the outflow of capital, with a depreciation of -24% against
the US dollar for 2020, and of -25% against the euro (-24% for the fourth quarter against the US
dollar, -29% against the euro).
The rouble also fell: a depreciation of -10.5% against the US dollar for 2020, and -12% against the
euro (-16% and -22% respectively for the fourth quarter of the year).
Raw materials prices
During 2020, the slowdown in global demand led to a general decline in the prices of the main raw
materials. The average price of Brent crude stood at US$ 43.2 per barrel, down by -32.7% from the
average prices of 2019, due to both the collapse in global demand caused by the pandemic, and the
temporary lack of agreement within OPEC+. The average price of Brent reached US$ 45.2 per barrel
for the fourth quarter of the year, -27.6% compared to the same period of 2019.
The trend for butadiene was similar to that of oil, with an average price of euro 511 per tonne for
2020, down by -38% compared to 2019, -26.6% for the fourth quarter.
The average price of natural rubber was US$ 1,317 per tonne for 2020, down by -6.3% compared to
2019, but with an acceleration during the fourth quarter (a quarterly average of US$ 1,545 per tonne,
+12.7% year-on-year), due to the gradual recovery in demand.
Raw material prices
1Q
Brent (US$ / barrel)
Butadiene (€ / tonne)
Natural rubber TSR20 (US$ / tonne)
Note: Data are averages for the period. Source: IHS Markit, Reuters
1,397
2019
% chg.
63.9 -20.4%
865 -16.0%
-4.3%
2020
50.9
727
1,337
2Q
2019
% chg.
68.3 -51.3%
900 -56.5%
1,514 -26.9%
2020
33.3
392
1,107
3Q
2019
% chg.
62.0 -30.0%
790 -51.7%
-4.8%
1,345
2020
43.4
382
1,281
4Q
Full year average
2020
45.2
543
1,545
2019
% chg.
62.5 -27.6%
740 -26.6%
12.7%
1,371
2020
43.2
511
1,317
2019
% chg.
64.2 -32.7%
824 -38.0%
-6.3%
1,406
13
Pirelli & C. S.p.A. – 2020 Annual Report
Directors’ Report on Operations
Trends in Car Tyre Markets
For 2020, the car tyre market also felt the impact of the COVID-19 emergency, with a drop in global
demand of -15.3%. The Original Equipment channel recorded a decline of -17.6%, consistent with
the trend in car production (-15.7%). The decline for the Replacement channel was more limited (-
14.5%), impacted by the measures adopted by various countries to restrict mobility.
The Car New Premium segment (tyres with a rim diameter ≥18”) was the most resilient segment,
with a decline of -9.5% compared to -16.5% for the Car Standard segment (tyres with a rim diameter
≤17”).
The market trend over the course of the year was varied:
a sharp decline for the first half-year due to the pandemic (an overall demand
of -28.0%; -23.4% for Car New Premium);
a gradual improvement which began in the third quarter (-5.5% for the car market, +2.0% for
Car New Premium) thanks to the recovery in car production, and the easing of mobility
restrictions.
For the fourth quarter of the year, in particular, the drop in volumes was more limited (-0.8%):
Car Tyres ≥18” recorded a +5.3% growth, supported by a recovery in Prestige and Premium
vehicle production (+13.7%, approximately double compared to +5.2% for the third quarter),
in Europe, North America and APAC;
the trend in demand for Car Tyres ≤17” also improved: a -2.0% drop for the fourth quarter
compared to -7.0% for the third quarter, thanks to a recovery in both car production, and
orders from the distribution chain.
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Directors’ Report on Operations
Pirelli & C. S.p.A. – 2020 Annual Report
Trends in Car Tyre Markets
% year-on-year
1Q 2020
2Q 2020
3Q 2020
4Q 2020 2020 Total
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
-20.7
-22.4
-20.0
-11.7
-16.0
-8.5
-22.4
-24.4
-21.7
-35.1
-43.3
-32.0
-34.8
-46.5
-26.2
-35.2
-42.2
-32.9
-5.5
-4.3
-5.9
2.0
0.1
3.3
-7.0
-5.8
-7.3
-0.8
-0.0
-1.0
5.3
9.1
2.5
-2.0
-3.1
-1.6
-15.3
-17.6
-14.5
-9.5
-13.2
-6.9
-16.5
-19.1
-15.6
The trend varied at geographical level:
APAC, which was heavily penalised during the first half-year (-26.6% for the car tyre market),
recovered during the second half-year (-1.5% and +3.9% respectively for the third and fourth
quarters), thanks to the recovery in New Premium demand (+6.0% for the third quarter,
for 2020 equalled
+12.5%
-12.3% (-5.4% for Car New Premium);
fourth quarter). The overall market decline
the
for
in Europe, the effects of the pandemic were concentrated in the second quarter (-40.8% for
the market), following the halt in production during April and May. During the second
half-year, the car tyre market managed to contain its losses (-4.5% for the third quarter,
-4.0% for the fourth quarter), sustained by the recovery of the New Premium market (+2.1%
for the second half-year). For the year as a whole, Europe recorded a market contraction of
-15.6% (-11.6% for Car New Premium);
North America also bore the brunt of the pandemic from the second quarter onwards (the
market down by -40.2%), but with a stronger recovery than Europe for the second half-year
(-2.0%), for both channels (Original Equipment at +1.0%; Replacement at -2.7%). For the
year as a whole, the market fell by -13.1% (-9.8% for Car New Premium);
South America and Russia/Nordics/MEAI, which were the last Regions to be affected by the
COVID-19 emergency, suffered
first
half-year, with the market declining by an average of -35%, closing the year at -24%, thanks
to a recovered performance for the fourth quarter (-6.2% for South America, -4.0% for
Russia/Nordics/MEAI).
restrictions during
the effects of
the
15
Pirelli & C. S.p.A. – 2020 Annual Report
Directors’ Report on Operations
SIGNIFICANT EVENTS OF 2020
In January 2020, Pirelli was recognised as a global leader in the fight against climate change by
being placed on the Climate A-List drawn up by CDP (the former Carbon Disclosure Project). In other
ESG news, Pirelli was also awarded one of the highest accolades in the SAM Sustainability
Yearbook for 2020 published by S&P Global, and was acknowledged as an ESG Leader in the
FTSE4Good Index Series, ranked at the top of the tyres and Consumer Goods sector.
On February 19, 2020 Pirelli presented the 2020-2022 Industrial Plan with a vision to 2025, to the
financial community. On the same date the Board of Directors (“BOD”) approved the adoption of a
new monetary incentive scheme (LTI) intended for all the Group’s management, which is correlated
to the objectives of the plan, and resolved to close early and without any disbursements, - effective
December 31, 2019 - the previous plan adopted in 2018, correlated to the objectives of the 2018-
2020 period. The Board of Directors’ Meeting of April 3, 2020, as part of the COVID-19 containment
measures, reformulated the 2020 targets, and revised the 2020 remuneration policy, taking into
particular account, the cancellation of the short-term incentive scheme for 2020.
Following the COVID-19 emergency, for the first three months of 2020 Pirelli had activated a series
of measures to protect the health of employees and the community, both at Headquarters and in the
manufacturing plants, where production, firstly in China and then in the rest of the world, had
gradually slowed down and subsequently stopped. During the course of the second quarter,
following the restart of business, which had already taken place in China, the other manufacturing
plants of the Group also gradually restarted production, initially at a reduced pace in view of the
decline in demand.
In March Pirelli, thanks also to the support of some of its partners, including Camfin and the Silvio
Tronchetti Provera Foundation, promoted a series of charitable initiatives in Italy and around the
world, to support research and the fight against the Coronavirus.
On March 2, 2020 Pirelli’s Board of Directors approved the 2019 Financial Statements, which closed
with a consolidated net income of euro 457.7 million, and resolved to propose to the Shareholders’
Meeting, the distribution of a dividend of 0.183 euro per share, totalling euro 183 million. On April 3,
2020 the Board of Directors, cancelled the distribution of dividends for the 2019 financial year as
part of the COVID-19 containment measures, thereby amending the previous resolution.
On March 31, 2020 Pirelli announced that it had signed a new euro 800 million credit facility, with
an incentive mechanism linked to the environmental sustainability objectives for product and process
set out in Pirelli’s Industrial Plan, and with a 5-year maturity to be used mainly to repay existing debt.
The Company also extended the maturity date of a euro 200 million credit facility by more than one
year (to September 2021 from June 2020), through early repayment and the simultaneous opening
of a new facility for the same amount, under the same terms and conditions. These transactions
were part of the ongoing measures aimed at optimising and strengthening Pirelli’s financial structure.
On April 3, 2020 Pirelli’s Board of Directors - in addition to the above mentioned resolutions,
activated - in the face of a deteriorated scenario - a series of measures aimed at protecting
16
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2020 Annual Report
profitability and cash generation. In particular, it initiated further cost containment measures, revised
the investment plan so that it was in line with the new market outlook, activated measures for the
optimised management of working capital, and reduced remuneration for Top Management.
On April 29, 2020, following the convocation of the Shareholders’ Meeting held on April 28, 2020,
Pirelli announced the entry into force of the agreements signed on August 1, 2019 - and already
disclosed to the market - between ChemChina, CNRC, Silk Road Fund, Camfin and Marco
Tronchetti Provera & C. S.p.A., concerning their long-term partnership with Pirelli. In addition, on this
occasion, the “Revised Acting-in-Concert Agreement” was signed by the Silk Road Fund Co., Ltd.
and the China National Tyre & Rubber Co., Ltd., which supersedes and replaces the previous
“Acting-in-Concert Agreement” signed between the parties on July 28, 2017, as well as the
“Amendment” to the supplemental Agreement to the contract to invest in Pirelli, signed between the
parties on July 28, 2017. The “Revised Acting-in-Concert Agreement” became effective on
September 29, 2020 following the completion of the partial non-proportional and asymmetrical
de-merger of Marco Polo International Italy Srl in favour of PFQY Srl - a company wholly owned by
the Silk Road Fund - as a result of which, among other things, a stake equal to 9.02% of Pirelli’s
capital was assigned to the latter. Following the aforementioned de-merger, Marco Polo International
Italy Srl, which is controlled by ChemChina/CNRC, holds 37.01% of Pirelli’s capital.
On April 30, 2020 Pirelli announced the restart of activities as of May 4, with a plan, in collaboration
with the University of Milan - L. Sacco Department of Biomedical and Clinical Sciences - directed by
Professor Massimo Galli, aimed at ensuring the maximum protection of employee health and safety
in the workplace. During May and June, following the reopening of factories in March in China, all
the Group’s manufacturing plants were gradually restarted, at a rate proportionate to the trend in
demand. In particular, at the Bollate site - a factory whose focus will be the Velo business - the
process was initiated for the production of masks, exclusively for employees and their families, thus
eliminating the potential risks of any discontinuity in supply by third parties.
On June 18, 2020 the Pirelli Shareholders’ Meeting approved the 2019 Financial Statements and
the allocation of the results. They also appointed the Board of Directors until the approval of the
Financial Statements at December 31, 2022, determining the number of members as 15, the majority
of which are independent, and also confirmed Ning Gaoning as Chairman. On the basis of the two
lists presented, the following were appointed as Pirelli Directors: Ning Gaoning, Marco Tronchetti
Provera, Yang Xingqiang, Bai Xinping, Wei Yintao, Domenico De Sole, Giovanni Tronchetti Provera,
Zhang Haitao, Fan Xiaohua, Marisa Pappalardo, Tao Haisu, Carlo Secchi, Giovanni Lo Storto, Paola
Boromei and Roberto Diacetti. The Shareholders’ Meeting also approved the remuneration policy
for 2020, and expressed its favourable opinion on the Report on remuneration paid during the 2019
financial year.
The Shareholders’ Meeting also approved the adoption of the 2020-2022 three-year monetary Long
Term Incentive Plan (the LTI Plan) for the Management sector of the Pirelli Group, as well as the
“Directors and Officers Liability Insurance”. In the extraordinary session, the Shareholders’ Meeting
also approved some amendments to the Articles of Association, mainly concerning the new
legislation on gender quotas.
17
Pirelli & C. S.p.A. – 2020 Annual Report
Directors’ Report on Operations
On June 22, 2020, the new Board of Directors of Pirelli & C. S.p.A. appointed Marco Tronchetti
Provera as Executive Vice Chairman and Chief Executive Officer (CEO), granting him powers for
the operational management of Pirelli. The Board also proceeded to appoint the members of the
Board Committees, confirming all the previous Committees with their respective instructive,
consultative and propositional tasks. The Board of Directors also confirmed Francesco Tanzi, as
Chief Financial Officer of the Group and Manager responsible for preparing the corporate accounting
records. It also appointed the Supervisory Board, which had expired together with the Board.
On June 22, 2020, Pirelli announced that the Science Based Targets initiative (SBTi) - an
organisation that aims to guide companies in defining their ambitious targets for controlling planet
temperatures – had validated the Company’s targets on reducing CO2 emissions, judging them to
be consistent with the actions needed to keep global warming well below 2°C.
On July 23, 2020, at the proposal of Executive Vice Chairman and CEO, Marco Tronchetti Provera,
Pirelli’s Board of Directors agreed to create the office of General Manager and co-CEO, which
reports directly to him, and appointed Angelos Papadimitriou to this position, effective August 1,
2020. Angelos Papadimitriou was co-opted on August 5, 2020 to replace Carlo Secchi who resigned
from his position as Director, effective as of the same date. Professor Carlo Secchi will continue to
hold the position of Chairman of the Company’s Supervisory Board.
On August 5, 2020, the Board of Directors, in order to take the radical changes in the
macroeconomic scenario into account, instructed the Remuneration Committee to revise the
2020-2022 Long Term Incentive Plan (“LTI Plan”), for the part concerning ‘Net Cash Flow’, and to
align the relative target with the New Guidance disclosed to the market on the occasion of the release
of the data as at June 30, 2020, and with the targets of the Business Plan for the years 2021 and
2022, which will be announced by the end of the first quarter of 2021. This revision will make it
possible to maintain the full alignment of interests between Shareholders and Management in an LTI
plan that upholds the objectives of relative Total Shareholder Return (compared to tier one peers),
and Pirelli’s positioning in selected sustainability indexes at global level.
In September 2020 Pirelli was recognised as the only company in the tyre sector to be part of the
United Nations Global Compact Lead. In the same month of September Pirelli, already a founding
member of the UN Global Compact CFO Taskforce for Sustainable Development Goals (SDGs),
was among the signatories of the “CFO Principles on Integrated SDG Investments and Finance”
presented at the 75th UN General Assembly.
On October 28, 2020, the European Court of Justice upheld the previous decisions of the General
Court of the European Union and the European Commission on the merits of the electric cables
market cartel case, which had imposed a pecuniary sanction on Prysmian Cavi e Sistemi S.r.l., a
portion of which (amounting to euro 67,310,000), Pirelli had been held jointly and severally liable
with Prysmian based solely on the application of the principle of so-called parental liability. In this
regard, Pirelli had already deposited a bank guarantee in favour of the EU Commission, to the
amount of euro 33,655,000 (corresponding to 50% of the sanction imposed jointly and severally on
Prysmian and Pirelli) plus interest. This payment by Pirelli, of its portion of the aforementioned
sanction, whose amount had already been accrued to the provision for liabilities and charges, took
18
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2020 Annual Report
place on December 31, 2020. It should be noted that since 2014, a case has been pending before
the Court of Milan, brought by Pirelli seeking an assessment and declaratory judgement of
Prysmian’s obligation to hold Pirelli harmless from any claim related to the cartel, including the
sanction imposed by the EU Commission.
On November 14, 2020 Pirelli was confirmed as the world sustainability leader for the Automobiles
& Components sector in the Dow Jones Sustainability World and Europe Indexes based on a review
of the two indexes conducted annually by S&P Global through SAM. The Company recorded an
overall score of 84 points, against the industry average of 35 points.
On December 15, 2020, Pirelli placed euro 500 million in senior unsecured guaranteed equity-linked
non-interest-bearing bonds, maturing in 2025, which are convertible, subject to approval by the
Shareholders’ Meeting, into Pirelli shares. The bonds were issued at a price equal to 100% of the
nominal value, with a conversion price of euro 6.235 per share (equivalent to a 45% premium on the
transaction’s reference price of euro 4.3). This financing operation allows the Group to optimise its
debt profile by extending its maturities, and to preserve the cash generated by the business, thanks
to the non-interest-bearing nature of the bonds. The proceeds from the bond issue can be used both
for the Group’s general business and for refinancing part of the existing debt. The bonds were
admitted for trading on the Vienna MTF, a multilateral trading facility operated by the Vienna Stock
Exchange. For further details, reference should be made to the section “Significant events
subsequent to the end of the year”.
19
Pirelli & C. S.p.A. – 2020 Annual Report
Directors’ Report on Operations
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 “Alternative Performance Indicators” section for a more analytical
description of these indicators.
* * *
During 2020, the tyre sector was heavily impacted by the COVID-19 emergency, and by the
deterioration of the economic outlook, along with the general decline in consumption and production.
Demand for car tyres recorded a -15.3% decline in volumes, and was particularly severe for the first
half-year (-28.1%), but improved during the course of the second half-year (-3.2%), thanks to the
recovery in demand for Car New Premium (+3.6% for the second half-year, and -9.5% for the year),
which proved to be the most resilient segment.
Pirelli had promptly responded to the profound change in the global scenario by implementing, an
action plan which was communicated to the financial market on April 3, 2020.
This plan made it possible to:
guarantee the health and safety of its employees through the adoption of all necessary
preventive measures;
protect profitability and cash generation through cost containment and the renegotiation of
investment programs;
strengthen the capital structure. For this purpose Pirelli signed a new sustainable bank credit
facility for euro 800 million (5-year maturity), issued an equity-linked bond for euro 500 million
(5-year maturity) and, in general, optimised its financial structure through the extension of
debt maturities;
consolidate its collaboration with the main Premium and Prestige vehicle manufacturers, and
with the sales network, in view of the recovery in demand, while counting on a resilient supply
chain and strengthen Pirelli’s leadership position in the high-end products range.
With regard to the medium-term outlook, as well as to the elements of risk and uncertainty,
reference should be made to the relevant paragraphs in this Report.
Pirelli closed 2020 with results consistent with the year’s targets:
revenues of euro 4,302.1 million, (a target of between euro 4.18 billion and euro 4.23 billion),
were down by -19.2% compared to 2019 (an organic change of -14.1%), with High Value
20
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2020 Annual Report
revenues reaching a 70.4% share of the Group’s revenues (66.5% for 2019), and the
reinforcement of Pirelli’s leadership position in the high-end products range;
EBIT adjusted amounted to euro 501.2 million, with profitability at 11.6% (a target of
~11.5% - 12%). The contribution of efficiencies and cost containment measures (to the amount
of euro 142 million, 3.3% of revenues, euro 270 million in gross benefits), limited the impact of
the external scenario (weakness in market demand, exchange rate volatility, slowdown and
increased cost of production factors);
net income amounted to euro 42.7 million, and net income adjusted amounted to euro 245.5
million, net of one-off, non-recurring and restructuring expenses, COVID-19 direct costs, and the
amortisation of intangible assets included in the PPA;
net cash flow before dividends and convertible bond impact amounted to euro 207.6 million,
which includes the payment of the European Court sanction for the electrical cables cartel for the
amount of euro -33.7 million (a corresponding cash generation target of euro ~190 million); a net
cash flow of euro 248.8 million including the benefit (euro 41.2 million) linked to the accounting
effect of the above mentioned convertible bond issue. In 2020, the low level of investments
(CapEx and financial equity investments), and improved net working capital management,
mitigated the impact of lower operating performance. There was a significant reduction in
inventories over the course of the year, equal to approximately euro 257 million (approximately
euro 154 million excluding the exchange rate effect), mainly due to the decrease in finished
products (approximately 2.6 million less units for Car inventories, and approximately 300
thousand less units for Motorbike inventories, which occurred during the second and third
quarters of the year);
Net Financial Position at December 31, 2020 amounted to a loss of euro 3,258.4 million (euro
3,507.2 million at December 31, 2019), consistent with targets (euro ~3.3 billion);
a liquidity margin equal to euro 3,034.4 million, capable of meeting all financial debt maturities
until the end of the first half-year of 2024, thanks also to the Company’s exclusive right to extend
the bank debt maturing in June 2022 (euro 1,617 million) for a further two years.
Results improved significantly for the last quarter, with:
revenues of euro 1,208.3 million, with an organic change of +1.7%, supported by the trend in
volumes (+1.1%, with High Value at +10.3%), and by the improvement in the price/mix (+0.6%);
EBIT adjusted equalled euro 220.8 million, with a margin of 18.3% (18.1% for the fourth quarter
of 2019), thanks to the contribution of efficiencies and cost containment measures;
net income equalled euro 60.5 million;
21
Pirelli & C. S.p.A. – 2020 Annual Report
Directors’ Report on Operations
net cash flow before dividends amounted to (euro 994.1 million, an improvement compared to
euro 973.0 million for the fourth quarter of 2019), and had benefited from the usual cash
generation from working capital performance, consistent with the historical trend.
Cost Competitiveness Plan and COVID-19 Measures
The cost competitiveness plan (“Cost Competitiveness Plan”) and the measures to counter the
COVID-19 impact (“COVID-19 Measures”), were consistent with the forecasts announced on May
13, 2020: euro 142 million net of inflation and the slowdown (approximately 3% of the 2019 cost
base, or approximately 3.3% of Group’s turnover), and euro 270 million in gross benefits. In
particular:
the Cost Competitiveness Plan which is divided into 4 areas (product cost, manufacturing,
organisation and SG&A), contributed euro 110 million in benefits net of inflation (euro 160
million in gross benefits, euro -50 million due to the impact of inflation);
the COVID-19 Measures plan for cost containment, which comprises short-term measures
for SG&A, marketing and communication, manufacturing and R&D, contributed euro 32
million net of the slowdown in production (euro 110 million in gross benefits; euro -78 million
due to the impact of the slowdown).
For the fourth quarter, in particular, the benefits net of inflation and the slowdown amounted to euro
58 million (euro 71 million in gross benefits). In more detail:
euro 37 million in net benefits deriving from the Cost Competitiveness Plan (euro 51 million
in gross benefits, euro -14 million due to the impact of the inflation);
euro 21 million in net benefits deriving from COVID-19 Measures (euro 20 million in gross
benefits).
22
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2020 Annual Report
The Group’s consolidated Financial Statements can be summarised as follows:
(in millions of euro)
Net sales
EBITDA adjusted (°)
% of net sales
EBITDA (°°)
% 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
- COVID-19 direct costs
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 income/(expenses)
Tax rate %
Net income/(loss)
Eanings/(loss) per share (in euro per share)
Net income/(loss) adjusted
2020
2019
4,302.1
892.6
20.7%
725.1
16.9%
501.2
11.6%
(114.6)
(107.7)
-
(59.8)
219.1
5.1%
(5.3)
(156.4)
-
57.4
(14.7)
25.6%
42.7
0.03
245.5
5,323.1
1,310.0
24.6%
1,250.0
23.5%
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
Net income/(loss) attributable to owners of the Parent Company
438.1
(°) Adjustments refers to one-off, non recurring and restructuring expenses to the amount of euro 99.3 million (euro 124.1 million for
2019), expenses relative to the retention plan approved by the Board of Directors on February 26, 2018 to the amount of euro 8.4
million (euro 6.9 million for 2019), and COVID-19 direct costs to the amount of euro 59.8 million. For 2019 it had also included income
from Brazilian tax credits to the amount of euro 71.0 million.
29.8
(°°) The item includes the impacts deriving from the application of the accounting standard IFRS 16 - Leases, to the amount of euro
+103.9 million on EBITDA (euro +104.3 million for 2019) and euro -22.3 million on financial expenses (euro -24.0 million for 2019).
23
Pirelli & C. S.p.A. – 2020 Annual Report
Directors’ Report on Operations
(in millions of euro)
Fixed assets
Inventories
Trade receivables
Trade payables
Operating net working capital
% of net sales
Other receivables/other payables
Net working capital
% of net sales
Net invested capital
Equity
Provisions
Net financial (liquidity)/debt position
Equity attributable to owners of the Parent Company
Investments in intangible and owned tangible assets (CapEx)
Increases in right of use
Research and development expenses
% of net sales
Research and development expenses - High Value
% of sales High Value
Employees (headcount at end of period)
Industrial sites (number)
12/31/2020
12/31/2019
8,857.1
836.4
597.7
(1,268.0)
166.1
3.9%
(25.6)
140.5
3.3%
8,997.6
4,551.9
1,187.3
3,258.4
4,447.4
140.0
68.5
194.6
4.5%
182.5
6.0%
30,510
19
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
3,507.2
4,724.4
390.5
51.2
232.5
4.4%
215.7
6.1%
31,575
19
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
EBITDA
EBIT adjusted
yoy
organic yoy *
% 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
- COVID-19 direct costs
EBIT
*before exchange rate effect and hyperinflation in Argentina
% of net sales
1 Q
2 Q
3 Q
4 Q
Total year
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
1,313.8
1,051.6
-20.0%
-18.5%
244.2
23.2%
220.2
20.9%
141.1
13.4%
(28.7)
(18.6)
-
(5.4)
88.4
8.4%
315.6
24.0%
308.2
23.5%
219.2
16.7%
(28.7)
(7.4)
-
-
183.1
13.9%
764.8
-43.0%
-38.3%
23.7
3.1%
(18.5)
-2.4%
(74.4)
-9.7%
(28.6)
(21.2)
-
(21.0)
(145.2)
-19.0%
1,341.0
1,381.6
1,277.4
-7.5%
-1.5%
1,208.3
-6.1%
1.7%
1,286.7
320.5
23.9%
369.7
27.6%
221.3
16.5%
(28.6)
(22.6)
71.8
-
241.9
18.0%
309.4
24.2%
276.8
21.7%
213.7
16.7%
(28.7)
(26.4)
-
(6.2)
152.4
11.9%
342.4
24.8%
299.5
21.7%
244.5
17.7%
(28.7)
(42.9)
-
-
172.9
12.5%
315.3
26.1%
246.6
20.4%
220.8
18.3%
(28.6)
(41.5)
-
(27.2)
123.5
10.2%
331.5
25.8%
272.6
21.2%
232.3
18.1%
(28.6)
(58.1)
(0.8)
-
144.8
11.3%
4,302.1
-19.2%
-14.1%
892.6
20.7%
725.1
16.9%
501.2
11.6%
(114.6)
(107.7)
-
(59.8)
219.1
5.1%
5,323.1
1,310.0
24.6%
1,250.0
23.5%
917.3
17.2%
(114.6)
(131.0)
71.0
-
742.7
14.0%
Total net sales amounted to euro 4,302.1 million, and recorded a decline of -19.2%, -14.1%
excluding the combined impact of the exchange rate effect, plus the adoption of hyperinflation
accounting in Argentina (totalling -5.1%).
24
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2020 Annual Report
High Value net sales which amounted to euro 3,029.8 million, represented 70.4% of total revenues
(66.5% for 2019).
(in millions of euro)
2020
% of total
2019
% of total
Change
YoY
Organic change
YoY
High Value
Standard
3,029.8
70.4%
3,539.9
66.5%
-14.4%
-12.3%
1,272.3
29.6%
1,783.2
33.5%
-28.6%
-17.9%
Total net sales
4,302.1
100.0%
5,323.1
100.0%
-19.2%
-14.1%
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
Exchange rate effect /Hyperinflation accounting in Argentina
Total change
2020
2Q
-41.6%
-35.2%
-50.4%
3.3%
-38.3%
-4.7%
-43.0%
3Q
-3.8%
3.9%
-11.9%
2.3%
-1.5%
-6.0%
-7.5%
1Q
-17.2%
-14.2%
-20.2%
-1.3%
-18.5%
-1.5%
-20.0%
4Q
1.1%
10.3%
-7.3%
0.6%
1.7%
-7.8%
-6.1%
Total year
-15.3%
-9.0%
-21.4%
1.2%
-14.1%
-5.1%
-19.2%
The trend in sales volumes for 2020 (-15.3%) was better than expected for both segments (the
November target had been -17% / -18%). The High Value segment recorded a decrease of -9%
(compared to a target of -11%) while the Standard segment suffered a decrease of -21.4%, which
was lower than the -25% target.
During 2020, Car ≥18” volumes declined by -7.8% (the market by -9.5%):
for Original Equipment, Pirelli recorded a decrease in volumes of -6.3%, which was more
contained than that of the market (-13.2%), thanks to the exposure to the Premium and
Prestige segment, and to the diversification of the customer portfolio (new contracts in North
America and APAC as of the second half-year of 2019). There was a marked improvement
in the trend for the fourth quarter which was up by +19.1% (+9.1% for the market), which
benefited from the strong recovery in Premium and Prestige car production (+14%);
for the Replacement channel (Pirelli volumes down by -8.9%, the market down by -6.9%),
the Company gradually improved its performance, which had been particularly impacted
during the first half-year, by the reduction of the main distribution partner inventory levels in
Europe and North America. The performance for the fourth quarter was particularly strong:
+6.5%, compared to +2.5% for the market, with the strengthening of its leadership position
in APAC, the consolidation of its positioning in Europe, and the improvement of sales in North
America.
For the Car ≤17” segment, the decline in volumes during 2020 (-22.6%), was more pronounced
than that of the market (-16.5%), but consistent with the strategy of reducing exposure to less
25
Pirelli & C. S.p.A. – 2020 Annual Report
Directors’ Report on Operations
profitable segments. An exception to this was South America, where Pirelli gained market share for
both channels during the second half-year, with the Replacement channel benefitting also from the
reduction in import flows, and the Original Equipment channel from increased production by the main
vehicle manufacturers that Pirelli serves in the region, in view of the launch of new models in early
2021.
For 2020 the price/mix improved by +1.2% and reflected the different trend between the quarters:
a negative first quarter (-1.3%), with a channel mix that was impacted by the more marked
decline for the Replacement channel, and the temporary drop in the Region mix due to the
sharp drop in demand in China, the first country affected by the pandemic, and a channel
mix that was affected by a more pronounced drop for the Replacement channel, as a result
of inventory reduction measures for the distribution network in Europe and North America;
positive second and third quarters (+3.3% and +2.3% respectively), thanks to the
improvement of the product mix, the Region mix (with the recovery of sales in China starting
from the second quarter), and the channel mix (positive for the second quarter, neutral for
the third quarter in consideration of a more balanced trend between the Original Equipment
and Replacement channels);
for the fourth quarter, the price/mix trend (+0.6%) was impacted by the previously mentioned
growth in volumes for the Original Equipment channel, compared to the Replacement
channel.
A negative exchange rate effect, including hyperinflation in Argentina: -5.1% for 2020 (-7.8% for
the fourth quarter), due to the strong volatility of emerging market currencies (mainly South America
and Russia), and the appreciation of the euro against the main currencies as of the third quarter.
The performance for sales according to Region was as follows, and reflected the Pirelli
organisational structure introduced as of 2020.
Europe and Turkey
North America
APAC
South America
2020
euro\mln
%
yoy
1,757.3
40.9% -17.0%
870.5
866.0
458.6
20.2% -21.0%
20.1% -10.0%
10.7% -32.8%
Organic
Yoy*
-16.2%
-18.2%
-8.0%
-6.9%
Russia, Nordics and MEAI
Total
* before exchange rate effect and hyperinflation in Argentina
** the comparative data for 2019 have been restated in accordance w ith the new repartitions by Regions
100.0% -19.2%
8.1% -24.0%
4,302.1
349.7
-18.9%
-14.2%
2019**
%
39.8%
20.7%
18.1%
12.8%
8.6%
100.0%
EBITDA adjusted for 2020 amounted to euro 892.6 million (-31.9%, compared to euro 1,310.0
million for 2019), and euro 315.3 million for the fourth quarter of 2020, with a margin of 26.1% (25.8%
26
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2020 Annual Report
for the fourth quarter of 2019). The EBITDA adjusted included net indirect industrial costs relative to
the COVID-19 emergency totalling euro 79.3 million, of which euro 78 million were costs relative to
the slowdown, due to the temporary closure of some manufacturing plants, and more generally to
the reduced use of the plants. These indirect costs have been stated net of the benefits of the welfare
safety nets, and net of the benefits deriving from the COVID-19 cost-cutting measures implemented
on the Group’s industrial costs.
EBITDA amounted to euro 725.1 million (compared to euro 1,250.0 million for 2019; euro 246.6
million for the fourth quarter of 2020, compared to euro 272.6 million for the fourth quarter of 2019)
and also includes; direct operating costs linked to the COVID-19 emergency to the amount of euro
59.8 million, mainly consisting of costs incurred for the purchase of protective personnel equipment
(euro 9.8 million), costs relative to semi-finished products which due to the sudden closure cannot
be utilised, in that they are not suitable for production (euro 11.5 million), non-discretionary
sponsorship costs due to cancelled events or the reduced visibility of events (euro 33.3 million) and
donations (euro 2.7 million).
EBIT adjusted amounted to euro 501.2 million (euro 917.3 million for 2019), with an EBIT margin
adjusted of 11.6%, consistent with targets (~11.5% - ~12%). The trend in profitability improved
markedly during the fourth quarter with an EBIT adjusted of euro 220.8 million (euro 232.3 million for
the fourth quarter of 2019) and a margin of 18.3% (18.1% for the fourth quarter of 2019).
Internal levers (price/mix, net efficiencies, and the programme for the reduction of costs linked to the
COVID-19 emergency net of the slowdown), contributed to limit the negative impacts arising from:
the external scenario (volumes, raw materials, Forex and inflation);
increased depreciation and amortisation and other costs.
During the course of 2020, efficiencies measures and the programme for the reduction of costs linked
to the COVID-19 emergency, contributed in containing the impacts of the external scenario (very
weak market demand, slowdown, volatility in exchange rates, and inflation of the cost of production
factors).
In more detail:
the Cost Competitiveness Plan generated structural efficiencies of euro 159.6 million (3.7%
of revenues), which offset inflation (euro -50.0 million), the impact of the exchange rate effect
(euro -60.1 million), and the increase in the cost of raw materials (euro -20.0 million), where
the latter was impacted by the depreciation of the main currencies of countries where the
Group’s production is located (e.g. South America, Romania and Russia). These efficiencies
concerned the cost of the product (optimisation of specifications, and rationalisation of
components), organisation (re-engineering of processes) and SG&A costs (strict control of
overheads);
COVID-19 Measures, generated euro 110.0 million, which offset the impact of the slowdown
(euro -78.0 million). These measures concerned discretionary costs (SG&A), the revision of
27
Pirelli & C. S.p.A. – 2020 Annual Report
Directors’ Report on Operations
marketing and communication activities, the renegotiation of contracts with suppliers, the
prioritisation of R&D investments, and further production efficiencies;
the impact of the price/mix amounted to euro 19.5 million;
lastly, the negative impact of volumes (euro -350.6 million), of amortisation and depreciation
(euro -30 million), and of other expenses (euro -116.5 million, of which euro 55 million was
non-monetary), the latter relative to the transformation/digitisation process, the increase in
the provisions for receivables and inventories and other costs of a non-monetary nature
linked to the reduction in the value of inventories.
(in millions of euro)
2019 EBIT Adjusted
- Internal levers:
Volumes
Price/mix
Amortisation, depreciation and other expenses
Slowdown
COVID-19 cost cutting
Efficiencies
- External levers:
Cost of production factors (commodities)
Cost of production factors (labour/energy/others)
Exchange rate effect
Total change
2020 EBIT Adjusted
1 Q
2 Q
3 Q
4 Q
Total year
219.2
221.3
244.5
232.3
917.3
(95.0)
(14.9)
3.8
(16.4)
32.9
31.2
(3.3)
(15.2)
(1.2)
(78.1)
141.1
(237.2)
21.9
(53.2)
(54.2)
28.8
32.6
(11.5)
(7.6)
(15.3)
(295.7)
(74.4)
(22.4)
14.4
(51.3)
(8.2)
28.6
45.0
(5.0)
(13.5)
(18.4)
(30.8)
4.0
(1.9)
(45.8)
0.8
19.7
50.8
(0.2)
(13.7)
(25.2)
(11.5)
213.7
220.8
(350.6)
19.5
(146.5)
(78.0)
110.0
159.6
(20.0)
(50.0)
(60.1)
(416.1)
501.2
EBIT, which amounted to a positive euro 219.1 million (euro 742.7 million for 2019), included:
the amortisation of intangible assets identified during the Purchase Price Allocation (PPA) to
the amount of euro 114.6 million (consistent with 2019);
one-off, non-recurring, restructuring and other expenses to the amount of euro 107.7 million
(euro 131 million for 2019), mainly relative to structural rationalisation measures, in addition
to value adjustment of some pension funds in the UK as part of the buy-out operation (euro
11.2 million), and the retention plan approved by the Board of Directors on February 26, 2018
to the amount of euro 8.4 million (euro 6.9 million for 2019);
direct costs linked to the COVID-19 emergency to the amount of euro 59.8 million, mainly
relative to costs incurred for the purchase of protective personnel equipment (euro 9.8
million), costs relative to semi-finished products which due to the sudden closure cannot be
utilised in that they are not suitable for production (euro 11.5 million), non-discretionary
sponsorship costs due to cancelled events or the reduced visibility of events (euro 33.3
million), and donations (euro 2.7 million).
Income/(loss) from equity investments amounted to a loss of euro 5.3 million compared to the
loss of euro 11.0 million for 2019. The results for 2020 mainly included the pro-rata share of the loss
28
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2020 Annual Report
attributable to the Chinese joint venture Xushen Tyre (Shanghai) Co., Ltd (euro 4.6 million for 2020,
compared to a loss of euro 7.2 million for 2019).
that
to be noted
financial expenses
Net financial expenses amounted to euro 156.4 million compared to euro 109.4 million for 2019. It
is
impacted by a
non-recurring effect linked to tax credits in Brazil (PIS/COFINS). Net of these effects, financial
expenses for 2019 had amounted to euro 216.7 million. Therefore, in comparing financial expenses
for 2020 with those of the same period of 2019, with the abovementioned adjustment, there emerges
a saving of euro 60.3 million. This reduction mainly reflected:
for 2019 had been positively
the lower impact to the amount of euro 13 million deriving from the application of
hyperinflation accounting in Argentina;
the general reduction in interest rates in the currencies in which the Group operates, which
resulted in a benefit of less interest paid on debt;
a lower incidence of debt denominated in high yield currencies mainly in Brazil and Mexico;
the temporary reduction in the cost of the central credit facilities due to the improvement in
the Group’s financial leverage, and the consequent reduction in the interest margin, from
which the Group benefited up until November 2020.
Consequently, the cost of debt year-on-year shows a reduction from 2.83% at December 31, 2019
to 1.94% at December 31, 2020.
Tax expenses amounted to euro 14.7 million against a pre-tax earnings of euro 57.4 million, with a
tax rate which stood at 25.6%. For 2019, tax expenses had amounted to euro 164.6 million against
pre-tax earnings of euro 622.3 million (tax rate of 26.5%).
Net income/(loss) amounted to a gain of euro 42.7 million, compared to a gain of euro 457.7 million
for the corresponding period of 2019.
Net income/(loss) adjusted amounted to a gain of euro 245.5 million, compared to a gain of euro
514.3 million for 2019. The following table shows the calculations:
(in millions of euro)
Net income/(loss)
Amortisation of intangible assets included in PPA
One-off, non-recurring and restructuring expenses
Income from Brazilian tax credits
COVID-19 direct costs
Retention plan
Financial income from Brazilian tax credits
Tax
Net income/(loss) adjusted
2020
2019
42.7
114.6
99.3
-
59.8
8.4
-
(79.3)
245.5
457.7
114.6
124.1
(71.0)
-
6.9
(107.3)
(10.7)
514.3
29
Pirelli & C. S.p.A. – 2020 Annual Report
Directors’ Report on Operations
Net income attributable to the owners of the Parent Company amounted to euro 29.8 million,
compared to euro 438.1 million for 2019.
Equity went from euro 4,826.6 million at December 31, 2019, to euro 4,551.9 million at December
31, 2020.
Equity attributable to the owners of the Parent Company at December 31, 2020 equalled euro
4,447.4 million, compared to euro 4,724.4 million at December 31, 2019.
The change is shown in the table below:
(in millions of euro)
Equity at 12/31/2019
Translation differences
Net income/(loss)
Convertible bond reserve
Effect of hyperinflation in Argentina
Other
Total changes
Equity at 12/31/2020
Group
4,724.4
(365.9)
29.8
41.2
20.0
(2.1)
(277.0)
4,447.4
Non-controlling
interests
102.2
(10.6)
12.9
-
-
-
2.3
Total
4,826.6
(376.5)
42.7
41.2
20.0
(2.1)
(274.7)
104.5
4,551.9
The impact from differences from foreign currency translation was mainly due to the depreciation of
Brazilian and Mexican currencies.
The reconciliation between equity attributable to the Parent Company and the consolidated
equity attributable to the Shareholders of the Parent Company is reported below:
(in millions of euro)
Share
Capital
Treasury
reserves
Net income/
(loss)
Total
Equity of Pirelli & C. S.p.A. at 12/31/2020
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 the Group at 12/31/2020
1,904.4
-
-
-
-
-
1,904.4
2,702.7
-
4,375.4
(4,647.8)
53.7
29.2
2,513.2
44.0
62.4
-
-
(53.7)
(22.9)
29.8
4,651.1
62.4
4,375.4
(4,647.8)
-
6.3
4,447.4
30
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2020 Annual Report
Net financial position amounted to a loss of euro 3,258.4 million, compared to euro 3,507.2 million
at December 31, 2019. It was composed as follows:
(in millions of euro)
12/31/2020
12/31/2019
Current borrowings from banks and other financial institutions
- of which lease liab ilities
Current derivative financial instruments
883.6
75.4
53.9
1,419.4
77.8
31.7
Non-current borrowings from banks and other financial institutions
4,971.0
3,949.8
- of which lease liab ilities
Non-current derivative financial instruments
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
390.4
87.6
405.3
10.3
5,996.1
5,411.2
(2,275.5)
(1,609.8)
(58.9)
(102.6)
(34.8)
3,524.3
-
(265.9)
3,258.4
(38.1)
(35.5)
(32.1)
3,695.7
(52.5)
(136.0)
3,507.2
* Pursuant to Consob Notice of July 28, 2006 and in compliance with ESMA/2013/319 Recommendations.
** The item “financial receivables and other assets” is reported net of the relative provision for impairment which
amounted to euro 8.5 million at December 31, 2020 (euro 8.7 million at December 31, 2019).
The structure of gross debt which amounted to euro 5,996.1 million, was as follows:
(in millions of euro)
12/31/2020
Use of unsecured financing ("Facilities")
1,617.5
within 1 year
-
Convertible bond
EMTN program bond
Schuldschein
Pirelli & C. bank bilateral borrowings
Sustainable credit facility
Other loans
Lease liabilities IFRS 16
Total gross debt
451.9
549.3
523.3
921.5
794.6
672.2
465.8
5,996.1
-
-
81.9
200.0
-
580.3
75.4
937.6
15.6%
between 1 and 2 between 2 and 3 between 3 and 4 between 4 and 5 more than 5 years
Maturity date
1,617.5
-
-
-
-
-
89.5
63.0
1,770.0
29.5%
-
-
549.3
421.5
124.7
-
2.4
51.8
1,149.7
19.2%
-
-
-
-
596.8
-
-
44.0
640.8
10.7%
-
451.9
-
19.9
-
794.6
-
39.4
1,305.8
21.8%
-
-
-
-
-
-
-
192.2
192.2
3.2%
At December 31, 2020 the Group had a liquidity margin equal to euro 3,034.4 million, composed of
euro 700 million in the form of non-utilised committed credit facilities and euro 2,275.5 million in cash
and cash equivalents, in addition to financial assets at fair value through the Income Statement to
the amount of euro 58.9 million. The liquidity margin of euro 3,034.4 million guarantees coverage for
maturities for borrowings from banks and other financial institutions, until January 2023, thereby
covering two years of maturities. Also, considering the Company’s exclusive right to extend the
31
Pirelli & C. S.p.A. – 2020 Annual Report
Directors’ Report on Operations
maturity of the unsecured “Facilities” loan by a further two years, this coverage would extend until
June 2024.
Net cash flow, in terms of change in the net financial position, was positive to the amount of euro
248.8 million (euro 167.2 million for 2019, euro 344.1 million net of dividends paid by the Parent
Company), and includes the payment of the European Court sanction for the electric cable cartel of
euro -33.7 million, and a benefit of euro 41.2 million due to the classification, of the value of the
conversion option relative to the bond, directly to equity, in accordance with the relevant accounting
standards (a net cash flow of euro 207.6 million for the financial year excluding this benefit). Net
cash flow also reflected lower investments (CapEx and financial investments in equity) and the
careful management of working capital which mitigated the impact of the lower operating
performance.
1Q
2Q
3Q
4Q
Total
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
(in millions of euro)
EBIT adjusted
Amortisation and depreciation (excluding PPA amortisation)
Investments in owned tangible and intangible assets (CapEx)
Increases in right of use
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, restructuring expenses and other
Dividends paid to minorities
Differences from foreign currency translation / other
Net cash flow before dividends, extraordinary transactions
and investments
EU electric cables market cartel sanction
(Acquisition) / Disposals of investments
Net cash flow before dividends paid by the Parent Company
and convertible bond impact
Convertible bond impact
141,1
103,1
(56,6)
(22,9)
(861,2)
(696,5)
(32,5)
-
(31,4)
(20,7)
-
27,6
219,2
96,5
(78,0)
(3,2)
(836,0)
(601,5)
(48,1)
-
(30,1)
(16,0)
-
-
(753,5)
(695,7)
-
-
-
(17,2)
(753,5)
(712,9)
-
-
Net cash flow before dividends paid by the Parent Company
(753,5)
(712,9)
Dividends paid by the Parent Company
Net cash flow
-
-
(753,5)
(712,9)
(74,4)
98,1
(24,8)
(24,1)
131,9
106,7
(40,6)
-
(22,4)
(28,2)
-
(19,5)
(4,0)
-
-
(4,0)
-
(4,0)
-
(4,0)
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
-
72,4
(176,9)
(104,5)
213,7
95,7
(24,7)
(15,2)
(173,0)
96,5
(40,2)
-
(16,2)
(42,4)
-
14,5
12,2
-
-
12,2
-
12,2
-
12,2
244,5
98,0
(74,6)
(8,5)
(136,8)
122,6
(65,2)
(0,8)
(37,4)
(7,4)
-
(0,2)
11,6
-
-
11,6
-
11,6
-
11,6
220,8
94,5
(33,9)
(6,3)
809,5
232,3
99,1
(148,2)
(25,5)
901,9
1.084,6
1.059,6
(43,1)
-
(20,7)
(27,5)
-
(6,7)
(34,2)
(6,7)
(28,6)
(10,9)
-
(6,2)
501,2
391,4
917,3
392,7
(140,0)
(390,5)
(68,5)
(92,8)
591,3
(156,4)
-
(90,7)
(118,8)
-
15,9
(51,2)
(60,8)
807,5
(109,4)
(107,3)
(142,0)
(52,2)
(8,9)
(26,2)
986,6
973,0
241,3
361,5
(33,7)
-
952,9
41,2
994,1
-
994,1
-
-
973,0
-
973,0
-
973,0
(33,7)
-
207,6
41,2
248,8
-
248,8
-
(17,4)
344,1
-
344,1
(176,9)
167,2
More specifically, operating net cash flow for the year 2020 amounted to euro 591.3 million (euro
807.5 million for 2019) and reflected:
investments in intangible and owned tangible assets (CapEx) to the amount of euro 140
million (euro 390.5 million for 2019), that were mainly earmarked for High Value activities,
and the constant improvement of the mix and quality in all factories;
increases in the right of use, by euro 68.5 million, relative to new lease contracts signed
during 2020;
the change in working capital which resulted in a cash absorption of euro -92.8 million. In
particular, the significant reduction in inventories implemented as of the second quarter of
2020, mitigated the negative impact mainly attributable to the reduction in payables
compared to the previous financial year, In particular:
o
inventories closed 2020 with an impact on sales of 19.4%, (20.5% at December 31,
2019), thanks to the strong reduction in inventories (a reduction of approximately 3
32
Directors’ Report on Operations
Pirelli & C. S.p.A. – 2020 Annual Report
million units of finished Car and Motorbike products during the second and third
quarters of 2020);
o
o
trade receivables closed 2020 with an impact on sales of 13.9% (12.2% at December
31, 2019). There was a significant collection over the course of the last quarter,
consistent with the seasonality of the business, of receivables relative to revenues
from winter products in the more seasonal markets such as Europe and Russia;
trade payables accounted for 29.5% of sales (30.3% at December 31, 2019). (30.3%
at December 31, 2019). This figure highlights the significant increase compared to
the close of the third quarter of 2020, and was linked to the recovery of business.
Net cash flow for the fourth quarter of 2020 amounted to euro 994.1 million. This figure
highlighted:
EBIT adjusted (euro 220.8 million), which had improved compared to the third quarter of 2020
(euro 213.7 million), confirming the recovery of business;
investments (euro -33.9 million) which were lower compared to 2019 levels, (euro -148.2
million);
a trend in working capital (euro 809.5 million) that indicated significant cash generation, in
keeping with the historical trend;
a decrease in taxes paid (euro -20.7 million, compared to euro -28.6 million for the fourth
quarter of 2019), which partially offset the higher cash-out relative to restructuring and other
expenses (euro -27.5 million, compared to euro -10.9 million for the fourth quarter of 2019).
33
Pirelli & C. S.p.A. – 2020 Annual Report
Directors’ Report on Operations
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 approximately 2,100 personnel (equal to
approximately 7% of the Group’s human resources), between the Milan headquarters and the 12
technology centres located all over the world, allowing a direct relationship with markets and end
users, and with the main vehicle manufacturers whose R&D centres and factories are located in the
same geographical areas. Pirelli’s model for research and development, implemented in accordance
with the Open Innovation model, is carried out through a number of collaborations with partners who
are external to the Group - such as suppliers, universities and the same said vehicle manufacturers
- for the purposes of pre-empting technological innovations for the sector, to direct research and
development activities, and to respond to and also steer towards the needs of the end consumer.
Research and development expenses for the 2020 financial year totalled euro 194.6 million,
(4.5% of sales), of which euro 182.5 million was destined for High Value activities (6% of High
Value revenues).
Pirelli continued to develop its CYBER™ technologies which, thanks to the sensors inside the tyre,
and the fact that the tyre is the only element of the car capable of ‘sensing’ the conditions of the
surface on which it is being driven, will contribute in delivering essential information to improve
vehicle performance and driving safety. Pirelli was the first company in the world in the tyre sector
to share information on the 5G network about road surfaces detected by sensorised or ‘smart’ tyres,
and to identify situations that potentially compromise driving safety such as aquaplanes.
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
vehicle 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. 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 the sole supplier for Lamborghini, McLaren and Pagani
Automobili. In this regard, in 2020 Pirelli developed a new P Zero Trofeo R for the fastest McLaren
supercar ever, the 765LT, which minimises lap times on the track and ensures maximum safety on
the road. Instead for the Premium segment, the special relationship with companies such as Alfa
Romeo, Audi, BMW, Mercedes, Jaguar, Land Rover and Ford continued. Specifically, in 2020, Pirelli
completed the development of the custom-made Scorpion ATR tyre for the latest version of the Ford
F-150, which is part of the F-Series, the best-selling vehicle in the United States. For over twenty
years, Pirelli and Ford have been working together to develop tyres specifically designed for the
American company’s model range.
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Pirelli & C. S.p.A. – 2020 Annual Report
The new generation of Pirelli Cinturato P7, launched in 2020, further enhances the qualities that are
most important to drivers today: safety and efficiency. Pirelli, through its intense Research &
Development activities, has created a product of a high technological level, capable of overcoming
the compromises that until now have been typical of tyres. Thanks to the technologies created for
the new Cinturato P7, it has been possible to reconcile requirements that are usually divergent, such
as performance on wet surfaces and rolling resistance, thereby reaching a new level of technology
and performance that will satisfy both drivers and manufacturers. In addition, the new P7 can also
carry the new “Elect” marking, which distinguishes Pirelli tyres designed specifically for electric or
plug-in hybrid cars, which are distinguished by their immediate grip, needed to respond to the specific
torque delivery of electric motors, lower rolling resistance to maximise battery autonomy, and noise
reduction to ensure the comfort benefits of electric propulsion. Finally, the Cinturato P7 can be fitted
with Run Flat and Seal Inside technologies, which make it possible to drive even after a puncture,
the former supporting the weight of the car even when the tyre is flat, thanks to its reinforced sidewall,
and the latter thanks to a mastic that self-seals punctures up to 4 mm in diameter. The new P7
debuted with already more than 70 homologations to its credit. Each of these homologations required
a dedicated process and development, in synergy with the car makers. In particular, in the “marked”
versions for vehicles with rim diameters greater than 17”, the Cinturato P7 immediately added 23
new versions to the more than 100 versions of its predecessor, demonstrating that it is the most
chosen tyre in its category by Premium car manufacturers. One point of note in the development
work, concerned the tread’s ability to ‘dialogue’ with electronic driver assistance systems, such as
the latest ADAS - Advanced Driver Assistance Systems. In the case of ABS, for example, for the
same car and tyre size, a tread optimised for operating in synergy with the car’s electronics, can
reduce braking distance. Tests carried out at a speed of 100 km/h showed that the new Cinturato
P7, on average, requires up to 4 metres less braking distance, equal to a reduction of 7-10%. The
development of the tyre, in collaboration with vehicle manufacturers, through tyre virtualisation
models, makes it possible to calibrate the electronic driving assistance systems in the best possible
way: as in the case of lane-keeping systems which, when combined with an ‘unknown’ tyre, might
require continuous trajectory corrections, since they cannot predict the behaviour of the tyre itself.
On the other hand, if the same car is fitted with the Cinturato P7, with the vehicle manufacturer’s
marking - which was developed to equip the specific vehicle - such corrections are not required,
because the system can predict its reactions while driving.
In February 2020, Pirelli inaugurated the new static simulator at its Research & Development centre
in Milan. The aim of the simulator is to optimise the development and testing phases of new tyres
and reducing the time required, and reinforcing the collaboration with carmakers through a greater
interaction between Pirelli’s tyre modelling, and that of its partner vehicle manufacturers. With this
technology, in fact, the average time for developing new tyres, both road and motorsport, is reduced
by approximately 30%, thanks to the use of virtual prototypes for the various car models: thanks to
these simulations, design parameters can be quickly modified during their development, and the
exchange of digital information between Pirelli and the vehicle manufacturers becomes
instantaneous. Compared to more traditional design methods, the virtual model of the car received
from the vehicle manufacturer, can be installed on this simulator or reproduced in-house. In addition,
joint design and development activities can also be carried out on the vehicle manufacturer’s
simulator, enabling the simulator to be perfectly in synch with the development times of vehicle
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Pirelli & C. S.p.A. – 2020 Annual Report
Directors’ Report on Operations
manufacturers, who are producing new models with increasing frequency. The work performed on
the static simulator is integrated with the design of the dynamic simulator, which also reproduces
lateral and longitudinal acceleration. It is installed at the Milan Polytechnic, a university with which
Pirelli has had a long-standing strategic partnership, and thanks to which additional tests will be
performed in addition to those currently performed at the Pirelli research centre in Milan.
In August, Pirelli inaugurated the “Circuito Panamericano” in Brazil, the largest vehicle testing
complex in all of Latin America. Located in the city of Elias Fausto, in the state of São Paulo, the
new facility occupies an area of 1.65 million square metres. The various circuits and tracks - covering
a total of more than 22 km - reflect the cutting-edge technological innovation that characterises
Pirelli’s support for the development of car, SUV and motorbike tyres, and the development of
vehicles by manufacturers throughout the American continent.
In the motorbike sector, Pirelli remains the first and natural choice for many motorbike manufacturers
who have selected Pirelli tyres as Original Equipment. Pirelli DIABLO™ Supercorsa SP has received
yet another acknowledgement of its leadership position in the road racing tyre segment. It was
chosen by Honda as Original Equipment for the new CBR1000RR-R Fireblade and CBR1000RR-R
Fireblade SP, (the Tokyo-based company’s most eagerly awaited new products for the year 2020),
and also by Ducati as Original Equipment for the upgrade of the Panigale V4 model 2020, the most
powerful and technologically advanced series-production Ducati ever, with tyres specifically
developed to best manage the extremely high level of performance achieved, also due to the
considerable aerodynamic load of the wing-like contours that profoundly distinguish the motorbike’s
aggressive design. The new Ducati Multistrada V4, on the other hand, which represents an important
evolutionary step in the maxi-enduro motorbike sector, will be sold with SCORPION™ Trail II Original
Equipment tyres, and is also homologated for SCORPION™ Rally STR and SCORPION™ Rally,
which are more suitable for off-road use. The Pirelli DIABLO ROSSO™ III was chosen as Original
Equipment for the new hypernaked Kawasaki Z H2, the only naked with a supercharged motor
currently on the market.
In the Velo world, to further complete the Scorpion™ MTB range, Pirelli has added SCORPION™
XC RC, a very high performance, 100% race tyre, developed for and with the TREK PIRELLI team
and dedicated to Cross-Country racers.
Pirelli has also launched the Scorpion E-MTB, a new family of products dedicated to electric
mountain bikes. Robust, durable and aggressive, the new tyres guarantee maximum performance
to withstand the hard workloads of the latest generation of e-motorbikes. The SmartGRIP+
compound, which is enhanced by lignin, offers high performance and is environmentally friendly.
Finally, Pirelli presented the P ZERO™ RACE TLR, the tubeless road tyre dedicated to maximum
performance and professional competition. Developed in collaboration with two World Tour teams,
the Mitchelton-SCOTT of reigning World Road Champion Annemiek van Vleuten, and the Trek-
Segafredo of reigning World Champion Mads Pedersen, and Vincenzo Nibali, it represents the
spearhead of the range of tyres dedicated to racing bikes. These new tubeless-ready Pirelli tyres
are made with SmartEVO, an innovative compound evolved from the original SmartNET, which uses
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Pirelli & C. S.p.A. – 2020 Annual Report
three different polymers, each of which delivers a specific performance, ensuring a perfect balance
of opposing characteristics.
For further details on the elements of product sustainability, reference should be made to the section
of the Annual Report entitled “Report on Responsible Value Chain Management”, which constitutes
the Company’s consolidated non-financial statement pursuant to Legislative Decree no. 254/2016.
NEW MATERIALS
The Group is active in the development of new polymers to improve the characteristics of tyres in
terms of rolling resistance, performance at low temperatures, 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 improved 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 low environmental impact and high performance. The Group has entered
into cooperation agreements with various international and national institutions and universities.
These agreements – which include numerous research projects, for example, with the University of
Milano-Bicocca, as part of the Consortium for Advanced Materials Research (CORIMAV) - allow for
the development of innovative materials and solutions, which are essential for the production of tyres
with low 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 increasingly safe and
sustainable mobility. The most recent phase of the agreement, with a three year duration (2017-
2020), focuses on two macro-strands of research: the area of innovative materials design, and the
area for product and Cyber development.
For further details on the new materials and related sustainability characteristics, reference should
be made to the section of the Annual Report entitled “Report on Responsible Value Chain
Management”, which constitutes the Company’s consolidated non-financial statement pursuant to
Legislative Decree no. 254/2016.
PROCESS AND PRODUCTIVITY INNOVATION
As part of an ambitious programme of investment in the digital transformation of all major business
processes, in order to allow for the effective management of the diverse ranges of products in the
factories, the Group has launched the Smart Manufacturing program based on Big Data analytics
techniques which flank the consolidated Lean Manufacturing programs, 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. “Smart
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Pirelli & C. S.p.A. – 2020 Annual Report
Directors’ Report on Operations
Manufacturing” stems from the fourth industrial revolution (“Industry 4.0”), and involves the digital
and integrated management of factory processes.
To achieve a secure and reliable level of connectivity from the “Shopfloor” to the “Data Platform”,
Pirelli has therefore decided to launch an Industrial Internet of Things (IIoT) platform. Through “Edge
Computing Capabilities”, the IIoT platform will allow industrial efficiencies to be pursued in an agile
manner. With the realisation of this project, the Pirelli factory will complete its transformation from a
traditional factory to a fully integrated, connected and fully “Smart Manufacturing” oriented digital
factory.
For further details on performance and sustainability targets in processes, reference should be made
to the section of the Annual Report entitled “Report on Responsible Value Chain Management”,
which constitutes the Company’s consolidated non-financial statement pursuant to Legislative
Decree no. 254/2016.
COMMITMENT 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. The FIA’s choice is a confirmation of Pirelli’s leadership in
competitive motorsports, thanks to the experience gained in over 110 years of racing. This new
investment in the WRC, the speciality queen of road racing, flanks an identical role that Pirelli has
played since 2011 as Global Tyre Partner in the most prestigious of Motorsports on the circuit,
Formula 1®, where Pirelli has extended its involvement until 2023. The new agreement foresees for
the introduction of new 18” rim tyres. 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 now
engaged in approximately 350 championships across all five continents. In the European two-wheel
championships, in which more than one tyre manufacturer participates, Pirelli equips an average of
70% of the motorcycles deployed on the paddock, which confirms the appreciation demonstrated by
motorcycle riders around the world for the Pirelli brand. Pirelli has been chosen by the Dorna
WorldSBK Organisation, in agreement with the 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. Pirelli has attained the remarkable figure of 74 world titles in
motocross, confirming its dominance even in the final championship classifications where it has
occupied with its riders, the first three positions in the MXGP class, with three different
manufacturers, and the first seven in MX2. In the field of cycling, 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
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Directors’ Report on Operations
Pirelli & C. S.p.A. – 2020 Annual Report
World Tour. Pirelli’s partnership with the Australian team was confirmed for 2019 (with four stage
wins at the Tour de France), and for 2020, for both the men’s and women’s teams. Pirelli has also
accelerated its strategy of increasing its involvement in professional cycling, by announcing a
partnership with the prestigious Trek-Segafredo World Tour team, owned by reigning UCI World
Champion, Mads Pedersen. Lastly, after a season as technical partner, Pirelli has become co-title
sponsor of the TREK PIRELLI mountain bike team. The team, directed by former professional cyclist
Marco Trentin, is one of the most important and renowned on the international MTB Cross Country
scene.
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Pirelli & C. S.p.A. – 2020 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
12/31/2020
12/31/2019
9.1
(36.4)
39.7
31.6
44.0
4,681.1
4,651.1
1,891.0
15.8
(23.7)
268.9
12.2
273.2
4,711.2
4,580.4
1,897.4
Operating income of the Parent company amounted to euro 9.1 million, compared to the amount
of euro 15.8 million for 2019.
The balance for net financial income/expenses was negative to the amount of euro 36.4 million
compared to euro 23.7 million for the previous year. This worsening was mainly attributable to the
decrease in interests receivables from loans to companies of the Group.
Net income from equity investments amounted to euro 39.7 million compared to euro 268.9 million
for the previous financial year. The decrease was essentially attributable to less dividends being
distributed by the subsidiary Pirelli Tyre S.p.A. (euro 50 million for 2020 compared to euro 250 million
for 2019) which, in consideration of the pandemic, resolved to allocate a large part of the earnings
for the financial year, towards strengthening its own capital. The results for 2020 also include the
impairment of the investment in the subsidiary Pirelli UK Ltd. equal which equalled euro 14 million.
Taxes for 2020 were positive to the amount of euro 31.6 million compared to the positive amount of
euro 12.2 million for 2019.
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Directors’ Report on Operations
Pirelli & C. S.p.A. – 2020 Annual Report
The following is a summary of the values of the main financial assets:
(in millions of euro)
12/31/2020
12/31/2019
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 S.r.l.
- 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
4,528.2
9.7
7.9
6.3
3.2
75.0
3.4
4,633.7
6.3
14.0
15.9
2.8
7.9
0.5
47.4
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
63.6
Total financial assets
4,681.1
4,711.2
Equity went from euro 4,580.4 million at December 31, 2019 to euro 4,651.1 million at December
31, 2020, as detailed below:
(in millions of euro)
Equity at 12/31/2019
Net income/(loss) for the financial year
Dividends approved
Convertible bond reserve
Other components of comprehensive income
Equity at 12/31/2020
The table below shows the composition of equity:
(in millions of euro)
Share capital
Legal reserve
Share premium reserve
Concentration reserve
Other reserve
IAS reserve
Retained earnings reserve
Merger reserve
Net income/(loss) for the financial year
Total Equity
4,580.4
44.0
-
41.2
(14.5)
4,651.1
12/31/2020
12/31/2019
1,904.4
380.9
630.4
12.5
133.7
(17.7)
540.0
1,022.9
44.0
4,651.1
1,904.4
380.9
630.4
12.5
92.5
(3.2)
266.8
1,022.9
273.2
4,580.4
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Pirelli & C. S.p.A. – 2020 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 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. Pirelli’s Risk Model systematically assesses three categories of risks:
1. External risks
Risks whose occurrence is outside the Company’s sphere of influence. 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 that are typical for the business, whose proper management is a source of
competitive advantage, or alternatively can cause the failure to achieve economic and
financial objectives.This category includes risks linked to markets, to product innovation and
development, to human resources, to production processes, to financial risks, and risks
connected to mergers and acquisitions.
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 amongst
others, Information Technology, Business Interruption, Legal & Compliance, Health, Safety
& Environment, and Security related risks.
In cross reference to the aforesaid risks are corporate social responsibility risks, environmental
and business ethics risks. These are risks associated with the non-compliance with local and
international regulations, best practices and corporate policies regarding the respect for human and
labour rights, and environmental and business ethics, and can be generated by the organisation
either as part of the relative value chain, or as part of the supply chain.
EXTERNAL RISKS
Pirelli expects moderate growth in the global economy during 2021, concentrated mainly during the
third and fourth quarters, thanks to the greater diffusion of effective medical solutions for the current
COVID-19 pandemic. The current restrictions on personal mobility, as well as possible tensions
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Directors’ Report on Operations
Pirelli & C. S.p.A. – 2020 Annual Report
associated with rising levels of both public and private debt, will continue to have a negative impact
on consumer and business confidence, at least until the end of the first quarter of the year. The
subsequent gradual return to normality will have a beneficial effect on the level of household savings,
which will free-up purchasing power during the second half of the year. The timing of the recovery
will differ considerably between regions. China is expected to experience sustained growth as early
as the first-half year of 2021, while several European economies will require until 2023 or 2024 to
return to stable pre-crisis levels.
However, these forecasts are not without risk. The change in the political environment in the US may
not result in a significant easing of trade tensions between the US and China, while the Eurozone is
likely to face a sharp rise in unemployment due to the end of subsidies and redundancy freezes.
With regard to emerging markets, the risk of a delay in the mass supply of anti-COVID-19 vaccines
remains significant, with negative repercussions on economic resilience.
Country risk
Where appropriate, Pirelli adopts a local-for-local strategy, creating a productive presence in rapidly
developing countries in order to respond to the local demand with competitive industrial and logistical
costs. This strategy is aimed at increasing the competitiveness of the Group, as well as allowing the
Group to overcome potential protectionist measures (customs barriers or other measures such as
technical prerequisites, product certification, and administrative costs relative to import procedures,
etc.). In context of this strategy, Pirelli operates in countries (Argentina, Brazil, Mexico and Russia)
where the general economic and political situation and tax regimes may prove unstable in future.
Uncertainty also persists regarding the future relationship 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
(political,
operating conditions. The Group constantly monitors
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 production capacity
of some factories, production may be re-allocated amongst the Group’s manufacturing plants.
the evolution of
risks
Brexit risks
The Group constantly monitors potentially critical issues (and related mitigation plans) concerning
the new trade agreement between the UK and the EU, which officially came into force on January 1,
2021. These risks are both of a mainly operational nature in the short-term (related to possible delays
in the supply of raw materials and/or finished products), and of a structural nature in the medium to
long-term. To date, in fact, defining what the impact might be is complicated (in terms of potential
extra costs/regulatory barriers) for the automotive and auto-parts sector, both on the UK domestic
market and in terms of exports to the European Union.
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Pirelli & C. S.p.A. – 2020 Annual Report
Directors’ Report on Operations
Coronavirus risk (COVID -19)
Pirelli sells its products on a world-wide basis in over 160 countries and owns manufacturing sites
located in different countries, some of which are also significantly affected by the COVID-19 (SARS-
CoV-2) outbreak. Although there is broad consensus on the gradual improvement of the global health
outlook in the short to medium-term, this assumption contains elements of uncertainty, some of them
significant, mainly related to the availability of vaccines on a large scale. If these risks were to persist
during the year, they could lead to an alteration in normal market dynamics and, more generally, in
business operating conditions.
In terms of operational risks, Pirelli monitors, amongst other things, potential risk events relative to
both supply chain resilience, and the massive use of new technological devices linked to remote
working.
Lastly, the Group is following developments in the spread of the Coronavirus with constant contact
with national and international organisations. The Company has promptly adopted control and
prevention measures for all employees worldwide.
Risks related to changes in demand in the long-term
Mobility is undergoing an unprecedented evolution due to technological changes (electrification of
propulsion, driving automation and digital connectivity), cultural changes (increase in the average
age for obtaining a driving licence, loss of importance of owning a car, etc.) and regulatory changes,
often aimed at limiting the presence of polluting vehicles in and around metropolitan areas. In
addition to all this, during the course of 2020, there was the health emergency linked to the spread
of COVID-19, which led, among other things, to a forced and sudden reduction in mobility, and to
the massive adoption of digital technologies aimed at remotely managing many activities that used
to be carried out almost exclusively in person. To date, it has not been easy to predict the long-term
trends of this phenomenon, and therefore the potential impact on the tyre sector. On the one hand,
certain types of mobility - such as daily commuting over limited distances - will be strongly impacted,
while on the other, a possible reduction in the use of public transport, together with a move to
peripheral areas - even distant from the workplace - could lead to an increase in “miles driven”. Pirelli
constantly monitors these trends, both by analysing studies and data available at global and local
level, and by participating in webinars and national and international conferences on the subject.
The Group is also active on specific projects together with other major players in global mobility,
such as the Transforming Urban Mobility project, promoted by the World Business Council for
Sustainable Development (WBCSD), active since 2019.
Risks related to climate change
Having joined the Task Force on Climate-related Financial Disclosures (TCFD) in September 2018,
Pirelli applies all the recommendations made in June 2017 by the TCFD and is committed, on a
voluntary basis, to the dissemination of transparent reporting on climate change-related risks and
opportunities. To this end, Pirelli monitors these elements of uncertainty through sensitivity analyses
and risk assessments to assess and quantify the financial impacts (risks and opportunities) related
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Directors’ Report on Operations
Pirelli & C. S.p.A. – 2020 Annual Report
to climate change, compared to the IPCC (Intergovernmental Panel on Climate Change) climate and
IEA (International Energy Agency) energy transition scenarios. In accordance with the findings of
the most recent Climate Change Risk Assessment of the Group, in the short to medium-term there
are no significant risks relative to production processes or to the markets in which Pirelli operates.
On the other hand, as regards a medium to long-term scenario, the tyre sector could be subject to a
number of risks both of a physical nature (extreme weather events with potential impacts on the
continuity of production at the plants), as well as of a regulatory nature (possible effects on operating
costs). On the other hand, there were opportunities for growth in the sales of Pirelli Eco & Safety
Performance products, which are tyres with a lower environmental impact during their relative life
cycle. For a full discussion of the eleven TCFD recommendations, reference should be made to the
section “Joining the Task Force on Climate-related Financial Disclosures (TCFD)” in this Report.
Risks related to price trends and the availability of raw materials
Natural rubber, synthetic rubber and oil-related raw materials (particularly chemicals and carbon
black) will continue to represent 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 historical volatility and/or the best information available on the market (e.g. forward prices).
On the basis of the different scenarios, the sales price increases and/or the different internal cost
efficiency recovery measures (use of alternative raw materials, reduction of product weight,
improvement of the process quality and reduction in waste levels), necessary to guarantee the
expected profitability levels 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, with brands that enjoy a significant
level of international or local renown. To date, Pirelli is the only player in the tyre industry which
focuses solely on the Consumer market on a global scale, with its single brand positioned in the
segment of interest for 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 to long-term, have an impact on its income, equity and financial situation. High barriers to
entry - both technological and productive - provide structural mitigation to the potential intensification
of the competitive arena in the Group’s core market sector. To this can be added the uniqueness of
the Pirelli’s strategy which is based - 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.
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Pirelli & C. S.p.A. – 2020 Annual Report
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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.
Transactional exchange rate risk is generated by transactions of a commercial and financial nature
carried out in individual companies in currencies other than the functional currency, due to
fluctuations in exchange rates between the time when the commercial/financial relationship
originates and the time when the transaction is settled (collection/payment).
The Group’s policy is to minimise the impact of transactional exchange rate 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 transactional exchange rate
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
positions for each currency and, in accordance with pre-established guidelines and constraints, it in
turn closes out all risk positions by trading hedging derivative 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 transactional exchange rate risk on future transactions. From time
to time the Group assesses the opportunity to carry out hedging transactions on future transactions,
for which it typically uses both forward buy or sell transactions, and optional risk-reversal structures
(e.g., zero cost collars).
Pirelli owns controlling interests in companies that prepare their Financial Statements in currencies
other than the euro, which is the currency used to prepare the consolidated Financial Statements.
This exposes the Group to translational exchange rate 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 translational exchange rate 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.
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The Group has implemented a centralised system for the management of collection and payment
cash flows in compliance with various local currency and tax regulations. Banking relationships are
negotiated and managed centrally, in order to ensure hedging 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
of euro 700 million, which at December 31, 2020 resulted as being completely unused, the Pirelli
Group has resorted to the capital market to diversify both products and maturities, in order to seize
the best opportunities available from time to time.
Interest rate risk
Interest rate risk is represented by the exposure to variability in the fair value or future cash flows, of
financial assets or liabilities, due to changes in market interest rates. The Group assesses, based
on market conditions, 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 provided 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.
Credit risk
Credit risk represents the Group’s exposure to potential losses resulting from the non-fulfilment of
the commercial and financial obligations undertaken by counterparties. As regards these commercial
counterparties, in order to limit this risk, Pirelli has implemented procedures to evaluate customer
potential and financial creditworthiness, and to monitor expected collection flows, and to take credit
recovery action if and when necessary. The aim of these procedures is to define customer credit
limits, whereby in the event that those limits are exceeded, the rule to withhold further supplies is
activated. In some cases customers are asked to provide guarantees, mainly bank guarantees
issued by parties of the highest credit or personal standing. Less frequently, mortgage guarantees
may be requested. Other instruments used for commercial credit risk management is the taking out
of insurance policies. A master agreement has been in place, which was recently renewed for the
2021-2022 two-year period, with a leading insurance company for worldwide coverage for credit risk,
mainly relative to sales on the Replacement channel (the coverage ratio at December 31, 2020 was
equal to 72% (Pirelli Group)). However, as regard the financial counterparties for the management
of its temporary cash surpluses or for trading in derivative instruments, the Group deals only with
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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 have
any 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
the Group expects to have to continue to make investments and/or incur costs that may be
significant.
Employee health and safety risks
The Pirelli Group, in carrying out its activities, incurs expenses and costs for the actions necessary
to ensure full compliance with the obligations provided for by the regulations regarding health and
safety in the workplace. Particularly in Italy the law relating to health and safety at work (Legislative
Decree No. 81/08) and subsequent amendments (Legislative Decree no. 106/09), have introduced
new obligations that have impacted on the management of activities at Pirelli sites, and on the
models for allocating liabilities. Failure to comply with 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 231/01).
Defective product risk
Like 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
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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
present. The Group has therefore implemented measures to achieve full compliance with all data
protection regulations in force (while still maintaining the legislative framework of reference which
was introduced by Regulation (EU) 2016/679, the so-called “General Data Protection Regulation” or
“GDPR”, which came into force in May 2018), in this way mitigating the risk of proceedings before
regulatory authorities and/or privacy litigation. Nevertheless, changes to applicable legislation, the
launch of new products onto 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.
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 2020, 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 security systems against unauthorised access,
and of the Company’s data management solutions. This work continued in order 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, and which could impact on the Group’s activities. In
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particular, the 2020 initiatives that directly or indirectly led to the mitigation of security risks were the
following:
The “Move Datacenter Bicocca” project was completed.
With this project the old Bicocca Data Centre was closed and a Tier 4 Gold Data Centre was
opened, with best in class availability, service and security levels;
The “Cloud Governance” project
This project made it possible to consolidate a governance model that could be adopted in
public and private cloud environments, the aim of ensuring that they are properly managed
in terms of security, compliance and costs. 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.
On the cost side, Pirelli has implemented reservation solutions and optimised server start-up times,
thereby minimising expenditure.
Software-Defined data centre Project
The “Software Defined Datacenter” project continued, with the objective of transforming
traditional factory datacentres into modern datacentres based on hyperconverged and
software defined architectures, increasing the flexibility and speed required in the
development and deployment of business-critical services and applications. This
transformation, which during the year affected the Silao, Voronezh, Slatina and Feira plants,
will affect all Pirelli plants over the next two years.
Software-Defined WAN Project
The SD WAN project is almost complete, with 52 out of 55 sites implemented. With it Pirelli
has achieved:
o greater total WAN bandwidth than before and the elimination of the concept of backup;
o
the optimised use of links, through the selection of the most appropriate link at that
moment, enabling direct internet access;
o
the enabled shifting of workloads to cloud to minimise overloads;
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o
improved network agility through automation and Zero Touch Provisioning;
o a changed operations model from reactive to proactive, improving traffic visibility;
o
improved user experience with more consistent connectivity.
Pirelli/Prometeon Split API Infrastructure Project
infrastructure and end-user services such as e-mail,
The project for the physical segregation of the API (Application Programming Interfaces)
infrastructure (basic
identity
management, software distribution, etc.) between Pirelli and Prometeon, has been
completed, with the aim of making the two environments completely separate also from a
physical point of view, as a result of the migration of all users which already began at the
beginning of 2021. The segregation project, in its entirety (applications, security, etc.) will be
definitively completed during 2022.
Operational support activities and Cyber Security for Prometeon according to contractual
provisions.
A Cyber Security Assessment, was carried out based on the NIST standard, through which
the technological, organisational and process level of Cyber Security was evaluated.
Following the Assessment, a new three-year Strategic Roadmap was drawn up, containing
initiatives such as the enhancement of the internal central team in Milan, the relocation of the
SOC to Europe, the modernisation of the SOC & CERT services, the improvement of
processes such as Security Risk Management, the introduction of structured Training
worldwide to the entire population, and many technological projects ranging from internal
Intrusion Detection systems, especially in factory OT environments, to the renewal of the
Data Classifier, to name but a few.
Cyber Security training campaigns focused on Ransomware and a triptych of White Phishing
tests were carried out to test the average level of corporate awareness in recognising
malicious emails.
CERT-P (CERT Pirelli)
The Computer Emergency Response Team (CERT) is in the process of evolving to cope with
the ever-growing and changing cyber security risk scenario. The objective is to improve the
Company’s cyber-readiness, or the ability to prevent cyber threats in a 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.
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
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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). Pirelli’s supply chain
is also regularly evaluated for potential risks.
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
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 financial reporting process is carried out through the appropriate administrative and
accounting procedures, 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, in the annual/consolidated Financial Statements) their adequacy and effective
application.
In order to enable the attestation by the Chief Financial Officer, the companies and the relevant
processes that feed and generate the data for the Income Statement, the Statement of Financial
Position or the Financial Statements have been mapped. The identification of 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 consist 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 consist 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.
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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, regular verification measures have been scheduled, and have been
assigned specific functions. 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.
Moreover, a half-yearly declaration has also been scheduled from the Chief Executive Officer and
the Chief Financial Officer for 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 31, the results of the verification procedures are discussed with the Chief Financial Officer
of the Group.
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.
CORPORATE SOCIAL-ENVIRONMENTAL RESPONSIBILITY RISK
Risks relative to corporate social and environmental responsibility, and business ethics
Risk management in 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
related to the Company, at Pirelli affiliates or in dealings with them, such as those related to 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 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-compliance are
found, a remediation plan is provided for, whose implementation is regularly monitored by the
auditing body.
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OUTLOOK FOR THE FIVE-YEAR PERIOD
Target 2021-2022|2025 (euro billions)
2020
2021E
2022E
2025E
Revenues
4.3
~4.7 ÷ ~4.8
~5.1 ÷ ~5.3
~5.7 ÷ ~6.2
Ebit margin adjusted
11.6%
>14% ÷ ~15%
>16% ÷ ~17%
>19% ÷ ~20%
Investments (CapEx)
(% of net sales)
0.14
(3.3%)
~0.33
(~7%)
~0.38 ÷ ~0.4
(~7.5%)
~1.2 ÷ ~1.3
cum 23-25
(~7.5% avg)
Net cash flow
0.21
~0.30 ÷ ~0.34
~0.42 ÷ ~0.46
before dividends and convertible bond impact
~1.7 ÷ ~1.9
cum 23-25
Net financial position*
NFP/Ebitda Adj.
3.3
3.65x
~3.0
~2.7x
~2.75 ÷ ~2.65
~2x
~1.6 ÷ ~1.4
~1x
ROIC
post taxes
10.4%
~16%
~19%
~25%
*assuming a dividend policy with a payout equal to about 50% of consolidated net earnings of 2021-2022 and equal to about 40% of 2023-2024
For the 2-year period 2021-2022, the company foresees growth in sales of between ~800 million
euro and ~1 billion euro, with group revenues at the end of 2022 of between ~5.1 and ~5.3 billion
euro. The commercial program will enable the capture of opportunities linked to the market’s
recovery and the focus on the segments with the highest growth (Car ≥19’’) and greatest
technological content (Specialty and EV).
Profitability is expected to see progressive improvement, with an adjusted Ebit margin of between
>16% and ~17% at the end of 2022, thanks to the effectiveness of internal levers: volumes, price/mix
and net efficiencies. The benefits deriving from “Phase 2” of the Competitiveness plan presented in
February of 2020 are confirmed, with net efficiencies in the 2-year period 2021-2022 expected to
total ~170 million euro.
The accumulated net cash flow before dividends for the 2-year period 2021-2022 is expected at
between ~700 and ~800 million euro, supported mainly by the improved operating performance.
At the end of 2022 the Net Financial Position will be between ~2.75 and ~2.65 billion euro, equal
to ~2 times Adjusted Ebitda (~3.3 billion euro at end 2020, equal to 3.7 times Adjusted Ebitda).
For the 3-year period 2023-2025 (second phase of the plan), Pirelli expects revenue growth of
between ~600 million and ~900 million euro, with group sales at the end of 2025 of between ~5.7
and ~6.2 billion euro, with a more balanced contribution between growth in volumes and price/mix.
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Profitability (adjusted Ebit margin) is expected at between ~19% and ~20% in 2025, supported by
the above mentioned growth in volumes, improvement in the price/mix and the contribution of “Phase
3” of the Competitiveness program, the net benefits of which in the 3-year period are estimated at
between ~70 and ~100 million euro.
The accumulated net cash flow in the period 2023-2025 is seen at between ~1.7 and ~1.9 billion
euro, supported by:
the improvement of operational management, deriving from the above mentioned programs
lower outlays for restructurings and organizational rationalizations, compared with the 2-year
period 2021-2022, whose programs will end by 2022.
At the end of 2025 the Net Financial Position will be between ~1.6 and ~1.4 billion euro, equal to
about 1 times Adjusted Ebitda.
Based on the outlook for cash generation for the period 2020-2025, the dividend policy approved
by the Board of Directors foresees a payout of about 50% of the consolidated net result for 2021 and
2022, and a payout of about 40% of consolidated net profit in 2023 and 2024.
The solid cash profile will enable the guarantee of a Return on Invested Capital (ROIC), net of the
fiscal impact, improving along the Plan’s entire horizon: ~16% in 2021 (10.4% in 2020), ~19% in
2022, ~25% in 2025.
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SIGNIFICANT EVENTS SUBSEQUENT TO THE END OF THE YEAR
During January and February 2021, Pirelli repaid some of its maturing debt in advance, which had
been scheduled for 2021 and 2022 to the total amount of euro 838 million. In particular, a tranche of
the “Schuldschein” loan, to the amount of euro 82 million with original maturity on July 31, 2021 was
repaid, plus a portion of the unsecured (“Facilities”) loan to the amount of euro 756 million with
original maturity in 2022, was repaid. These repayments, for which part of the liquidity raised in 2020
was used, made it possible to reduce financial expenses, thereby optimising the financial structure
of the debt.
On February 25, 2021 Pirelli communicated the terms of the termination of the employment
relationship, effective February 28, 2021, with
the General Manager, co-CEO Angelos
Papadimitriou, already announced to the market on January 20, 2021.
In accordance with the current Remuneration Policy of the Pirelli Group, the Board of Directors
granted to Mr. Papadimitriou, in addition to the amounts due by way of compensation and other legal
benefits accrued up to the date of his termination: (i) 10 months’ gross annual remuneration as a
redundancy incentive, equal to the value of what would have been the compensation in lieu of notice,
based on conventional seniority recognised at the time of recruitment as an executive, to be paid by
April 20, 2021; (ii) euro 100,000 gross by way of a general novative settlement, to be paid once the
termination has been defined in accordance with the existing labour law procedures, by April 20,
2021, as well as the maintenance until December 31, 2021 of certain non-monetary benefits granted
at the time of recruitment as an executive. As provided for at the time of his recruitment, subordinate
to the suspensory condition of the approval of the 2021 Remuneration Policy by the Shareholders’
Meeting, Mr. Papadimitriou will be bound, for the two years following his termination of office as
Director, to a non-compete agreement, valid for the main countries in which Pirelli operates, in
exchange for a consideration, for each year, equal to 100% of his gross annual remuneration, to be
paid in 8 deferred quarterly instalments starting from July 1, 2021. The non-compete agreement
includes a non-solicit clause as well as penalties in the event of any breach of the obligations
pursuant to the non-compete agreement.
On March 24, 2021, in order to provide support for the execution of the Industrial Plan, the Executive
Vice Chairman and CEO, Marco Tronchetti Provera, decided to propose the appointment of Giorgio
Luca Bruno to the office of Deputy-CEO, which reports directly to him.
This proposal - shared with the Chairman of the Board of Directors, Ning Gaoning, and the
Nominations and Successions Committee, whose Directors were informed - aims also at
strengthening the management team in view of the future succession path in-line with the Procedure
already adopted by the Company, and provides that the Deputy-CEO may also contribute to the
development of internal management. The Executive Vice Chairman and CEO will therefore propose
on March 31, to the Board of Directors, to invite the Shareholders’ Meeting scheduled for June 15,
2021, to appoint Giorgio Luca Bruno as a Director, and will also propose that once appointed as a
Director, he assumes the role of Deputy-CEO.
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Following the proposal, Angelos Papadimitriou renounced his candidacy for Director. Therefore, the
Shareholders’ Meeting, which met on the same date with, amongst other things, his reappointment
on the Agenda, decided to postpone the appointment of a new Director until June 15, which the
Board of Directors will nominate in the person of Giorgio Luca Bruno. Angelos Papadimitriou, who
had previously been co-opted, has therefore ceased to be a Director. The Shareholders’ Meeting,
also approved, during an extraordinary session, the convertibility of the “euro 500 million Senior
Unsecured Guaranteed Equity-linked Bonds due 2025”, issued on December 22, 2020, as well as
approved a divisible share capital increase, with the exclusion of option rights, to service the
conversion of the aforementioned bond, for a total counter-value, including any share premium, of
euro 500 million. On the basis of the initial conversion ratio of the Bond Loan of euro 6.235 this
increase will correspond to the issue of a maximum of 80,192,461 Pirelli & C. ordinary shares
(notwithstanding that the maximum number of Pirelli & C. ordinary shares could increase on the
basis of the effective conversion ratio applicable from time to time).
On March 31, 2021, the Board of Directors approved the 2021-2022|2025 Industrial Plan, which was
presented to the financial community on the same date. For further information, reference should be
made to the section “Outlook for the five-year period” in this document.
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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 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 impacts deriving from investments;
- EBITDA adjusted: is an alternative measure to the EBITDA which excludes non-recurring,
restructuring and one-off expenses, COVID-19 direct costs and expenses relative to the
retention plan approved by the Board of Directors on February 26, 2018;
- EBITDA margin: is calculated by dividing the EBITDA by revenues from sales and services (net
sales). This measure is used to evaluate operating efficiency, excluding impacts deriving from
investments;
- EBIT margin adjusted: 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 deriving from investments, operating costs attributable to non-recurring, restructuring
and one-off expenses, COVID-19 direct costs and expenses relative to the retention plan
approved by the Board of Directors on February 26, 2018;
- EBIT: is an intermediate measure which is derived from the net income/(loss) but which
excludes taxes, financial income, financial expenses and net income/(loss) from equity
investments. The EBIT is used to measure the ability to generate earnings, including the impacts
deriving 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, restructuring and one-off expenses, COVID-19
direct costs and expenses relative to the retention plan approved by the Board of Directors on
February 26, 2018;
- EBIT margin: 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: 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, restructuring and one-off expenses,
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COVID-19 direct costs, and expenses relative to the retention plan approved by the Board of
Directors on February 26, 2018;
- Net income/(loss) adjusted: is calculated by excluding the following items from the net
income/(loss):
o
the amortisation of intangible assets relative to assets recognised as a consequence of
Business Combinations, operating costs attributable to non-recurring, restructuring and
one-off expenses, COVID-19 direct costs and expenses relative to the retention plan
approved by the Board of Directors on February 26, 2018;
o non-recurring expenses/income recognised under financial income and expenses;
o non-recurring expenses/income recognised under taxes, as well as the tax impact relative
to the adjustments referred to in the previous points.
-
Fixed assets: 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 non-current financial assets at fair value through the Income Statement”. Fixed assets
represent the non-current assets included in the net invested capital;
- Operating net working capital: this measure is constituted by the sum of “Inventory”, “Trade
receivables” and “Trade payables”;
- Net working capital: this measure is constituted by the operating net working capital, by other
receivables and payables, and by the derivative financial instruments not included in the net
financial 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: this measure is constituted by the sum of (i) fixed assets, and (ii) net
working capital. Net invested capital is used to represent the investment of financial resources;
- Provisions: this measure is constituted by the sum of “Provisions for liabilities and charges
(current and non-current)”, “Other non current assets”, “Provisions for employee benefit
obligations (current and non-current)”, “deferred tax liabilities” and “deferred tax assets”. The
item provisions represents the total amount of net liabilities due to obligations of a probable but
uncertain nature;
- Net financial debt: 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 equivalents, other current financial
assets at fair value through the Income Statement, current financial receivables (included in the
Financial Statements under the item “Other receivables”), and current derivative financial instruments
included in the net financial position (included in the Financial Statements under current assets,
current liabilities and non-current liabilities, as “Derivative financial instruments”);
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- Net financial 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 position (included in the
Financial Statements under non-current assets as “Derivative financial instruments”). Total net
financial position is an alternative measure to net financial debt which includes non-current
financial assets;
- Operating net cash flow: is calculated as the change in the net financial position relative to
operations;
- 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 the Parent company and convertible bond impact:
is calculated by adding the change in the net financial position due to extraordinary transactions
and the management of investments, to the net cash flow before dividends and extraordinary
transactions/investments;
- Net cash flow before dividends paid by the Parent company: is calculated by adding the
impact on the net financial position due to the recognition of the convertible bond, to the net
cash flow before dividends paid by the Parent company and convertible bond impact;
- Net cash flow: is calculated by adding the change in the net financial position due to the
payment of dividends by the Parent company, to the net cash flow before dividends paid by the
Parent company;
-
-
Investments in intangible and owned tangible 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 right of use;
Increases in the right of use: is calculated as the increases in the right of use relative to lease
contracts;
- Ratio of investments to depreciation: this is calculated by dividing the investments
(increases) in owned tangible assets 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;
- ROIC: calculated as the ratio between adjusted EBIT net of tax effect and 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 profit or loss”, intangible fixed assets relating to assets acquired as
a result of a business combination and deferred tax liabilities relating to the latter. The ROIC is
used as an indicator of the return on invested capital.
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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, and the competence
to undertake 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 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.
On December 14, 2020, the Board of Directors passed a resolution for the placement of the “euro
500 million Senior Unsecured Guaranteed Equity-linked Bonds due 2025” maturing on December
22, 2025, which is reserved for qualified investors. The relevant placement was launched on
December 14, 2020 and closed the following day, with pricing defined on December 15, 2020.
Subsequently, on March 24, 2021, the Company’s Shareholders’ Meeting approved:
the convertibility of the aforementioned bond issue;
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the proposal for an increase in the share capital in cash, by payment and on a divisable basis,
with the exclusion of option rights, for a maximum nominal amount, including any share
premium, of euro 500,000,000 to be released in one or more tranches through the issue of
up to 80,192,461 ordinary shares, (notwithstanding that the maximum number of Pirelli & C.
ordinary shares may increase on the basis of the effective conversion ratio applicable from
time to time), of the Company, having the same characteristics as the outstanding ordinary
shares reserved exclusively and irrevocably to service the conversion of the bond loan.
The shareholder Marco Polo International Italy S.r.l. - pursuant to Article 93 of Legislative Decree
58/1998 - controls the Company with a 37% 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.
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 2020
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 through contributions in kind, acquisitions and
disposals.
FOREIGN SUBSIDIARIES NOT BELONGING TO THE EUROPEAN UNION
COMPANIES)
(NON-EU
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.
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With reference to data at December 31, 2020, 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. (Brazil); Pirelli Tire LLC
(USA); Pirelli Tyre Co., Ltd. (China); Pirelli Otomobil Lastikleri A.S. (Turkey); Pirelli Neumaticos
S.A.I.C. (Argentina); Pirelli Neumaticos S.A. de C.V. (Mexico); Pirelli Neumaticos de Mexico S.A. de
C.V. (Mexico); Pirelli Tyre (Suisse) SA (Switzerland).
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 of information is also provided to guarantee to the Board of Statutory
Auditors, that the Company is carrying out the required and appropriate checks. Finally, the aforesaid
Operating Regulations, consistent with regulatory provisions, govern the making of the 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 hereby declared that the Company has fully complied 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
(“RPT Procedure”), as part of the new listing process initiated and completed during the 2017
financial year. Subsequently, following the renewal of the administrative body and the constitution of
the Committee for Related Party Transactions (“RPT Committee”), the RPT Procedure was
approved, without any modification, following the unanimous favourable opinion expressed by the
members of the RPT Committee, and also by the Board of Directors currently in office. On the
occasion of the periodic review of the internal procedure on related party transactions, the Board of
Directors - subject to the unanimous opinion of the Committee for Related Party Transactions -
confirmed the Procedure for Related Party Transactions without amendments, which had last been
approved on November 6, 2017, reserving the right to carry out a subsequent review of the same in
the light of the amendments to the CONSOB Regulation that will be adopted by the supervisory body
in the implementation of the amendments to the European Shareholders’ Rights Directive II. The
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RPT 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
RPT 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 2020 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.
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 2020 Annual Report. Transactions with related parties are neither
unusual nor exceptional, but are part of the ordinary course of business for the companies of the
Group, and carried out in the interests of the individual companies. Such transactions, when not
carried out under standard conditions, or dictated to by specific regulatory conditions, are in any case
governed by conditions consistent with those of the market. Furthermore, they are carried out in
accordance with the RPT Procedure.
Also, there were no Related Party Transactions - or amendments or developments to the
transactions described in the preceding Report - that have had a significant impact on the financial
position, or on the results of the Group, for the first-half of the 2020 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 the 2020 financial year, 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 departments, all the activities necessary to meet
the new requisites of the law, including, amongst others, the preparation of the registry of data
processing operations. The Company has also appointed a Data Protection Officer (“DPO”) in the
person of lawyer Alberto Bastanzio, whose contact details were duly communicated to the Guarantor
for the Protection of Personal Data on July 25, 2018. The DPO can be contacted, other than at the
registered office of the Company, also at the following e-mail address: dpo_pirelli@pirelli.com. The
activities carried out by the DPO during the relevant reporting period are described in detail in the
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“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 31, 2021
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Pirelli & C. S.p.A. – 2020 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. – 2020 Annual Report
METHODOLOGICAL NOTE
This section of the Annual Report 2020, 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 2020 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, 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 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 2020 compared to 2019 and 2018,
with respect to the targets set in the 2020-2022 Industrial Plan, 2025 Vision. In this regard, please
note that in March 2021 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, published annually, (the previous Pirelli Annual Report was published in March 2020
with reference to the year 2019), 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. – 2020 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 circling activity, of all the non-financial data reported in the Report;
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 (Greenhouse Gas) emissions were also specifically analysed,
including for the purposes of the disclosure process to the CDP (formerly the Carbon Disclosure
Project).
The Report is structured into four main areas:
an introductory section related to the sustainable management model adopted by the
Company, Materiality Matrix, 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 2020, 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 2020;
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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Report on Responsible Management of the Value Chain Pirelli & C. S.p.A. – 2020 Annual Report
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
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 and ISO 37001 on anti-
corruption measures. 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.
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 a Sustainability and Future Mobility Department
reporting directly to the Co-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
Sustainability and Future Mobility 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 (SDGs)
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.
In methodological terms, 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 March 2021, 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.
During 2020 Pirelli continued to implement the Sustainability Plan 2020-2022 with 2025 and 2030
Vision, published in February 2020, fully complementary with the Company’s Industrial Plan. The
Plan’s targets have been defined in alignment with the materiality of the Company’s socio-
environmental impacts and in support of the United Nations 2030 Sustainable Development Goals,
as further discussed below.
The targets and related performance of the Plan (for details see the related sections in this Report)
foresee in summary the following:
At raw material level, for new product lines:
by 2025: renewable materials > 40%, recycled materials > 3%, fossil-based materials < 40%;
by 2030: renewable materials > 60%, recycled materials > 7%, fossil-based materials < 30%;
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With reference to the evolution of performance on the total product range:
in 2022:
o car products (compared to 2015): average reduction in rolling resistance by 10%,
improvement of 7% in wet grip, reduction in tread wear rate by 12% and noise
reduction by 4%;
o motorcycle products (compared to 2015): 15% average reduction in rolling resistance,
improvement of 21% in wet grip and 4% improvement in mileage;
o velo products (compared to 2017 - the year Pirelli Velo was launched): average
reduction of 25% in rolling resistance, improvement of 10% in wet grip and 5%
improvement in braking performance;
in 2025:
o car products (compared to 2015): average reduction in rolling resistance of 14%,
improvement of 9% in wet grip, reduction in tread wear rate by 18% and noise
reduction by 4%;
o Motorcycle products (compared to 2015): average reduction in rolling resistance of
20%, improvement of 25% in wet grip and 13% improvement in mileage;
o Velo products (compared to 2017 - the year Pirelli Velo was launched): average
reduction of 25% in rolling resistance, improvement of 15% in wet grip and 10%
improvement in braking performance;
growth in Eco & Safety Performance tyres revenues with a 2022 target of > 71% of total car
turnover and > 78% of High Value products only10;
In terms of environmental efficiency of production processes:
with reference to CO2 emissions, by 2025 it is planned to achieve 100% renewable electrical
energy at Group level, as well as a 25% reduction in absolute CO2 emissions compared to
2015 (Science Based Target approved by SBTi); by 2030 it is planned to achieve Carbon
Neutrality (emissions from electrical and thermal energy);
with regard to resource efficiency, the following are also planned by 2025: reductions of 10%
in specific energy consumption (compared to 2019) and 43% in specific water withdrawal
(compared to 2015), as well as achieving 98% of waste sent for recovery (zero waste to
landfill);
10 High Value products are determined by rim sizes equal to or greater than 18 inches and, in addition, include all “Specialties” products
(RUN FLAT™, SEAL INSIDE™, PNCS™).
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Regarding the sustainability of the supply chain:
reduction of CO2 emissions from raw material suppliers by 8.6% by 2025 compared to 2018
(Science Based Target approved by SBTi);
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 Pirelli Roadmap 2019-2021 relating to the sustainable management of
the natural rubber supply chain.
In the Plan, a central role is dedicated to human capital, the heart of the Company and of its ability
to achieve the set objectives. The culture of safety in the workplace will continue to support the Zero
Accidents objective, with an expected accident frequency index of ≤ 0.15 by 2022 and ≤ 0.1 by 2025.
The plan focuses on increasingly innovative human capital management. New marketing recruitment
solutions for STEM (Science, Technology, Engineering, Mathematics) talents will be accompanied
by experimentation with increasingly smart working methods and training in new digital skills, in an
inclusive working environment capable of meeting the challenges of the future in an agile manner.
ESG objectives, which are an integral part of the short- and long-term incentive plans (with a weight
of 20% of the LTI bonus), will be an enabler of positive tension towards achieving the Group’s
objectives.
To support achievement of Group targets, all Pirelli commercial and industrial subsidiaries around
the world have a Country Sustainability Plan.
As noted above, the Plan targets defined in alignment with the materiality of the Company’s socio-
environmental impacts affect the following SDGs in particular:
3 - Health and Well-being;
4 - Quality Education;
6 - Clean Water and Sanitation;
7 - Affordable and Clean Energy;
9 - Industry, Innovation and Infrastructure;
11 - Sustainable Cities and Communities;
12 - Responsible Consumption and Production;
13 - Climate Action
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Please be aware that:
the Pirelli Sustainability Plan 2020-2022 with 2025 and 2030 vision is published in the
“Sustainability” section of the Company’s website (www.pirelli.com), where the new Industrial
Plan and related long-term sustainability strategic targets that the Company will present in
March 2021 will also be published;
at the end of the 2020 Annual Report, prior to the Independent Auditors’ Report, there are
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 Pirelli way of doing business is based on customer satisfaction;
employees, who make up the wealth of knowledge and driving force of the Group;
shareholders, investors and the financial community;
suppliers, with which it shares a responsible approach to business;
competitors, because improved customer service and market position depend on fair
competition;
the environment, institutions, government and non-government bodies;
the communities of the various Countries where the Group operates on a stable basis, while
being aware of its 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 analysed in detail in order to manage
relations with them effectively in accordance with the AA1000 Model adopted by the Company and
with a view to creating lasting, 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.
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During 2020, due to the Covid-19 state of health emergency, engagement and dialogue activities
with stakeholders that could be carried out through digital channels continued, while engagement
activities that, in order to express maximum effectiveness, should have been held on site and in
person were postponed. In particular, with reference to the engagement and training activities
planned for the Group’s natural rubber suppliers, it was decided to redirect available resources to
activities in support of local communities impacted by the pandemic, through projects selected by
Pirelli and discussed with its suppliers. The commitment with respect to natural rubber suppliers is
part of the 2019-2021 roadmap of activities, defined by the Company following consultations with
local and global stakeholders that took place during 2018 and 2019 (for more details on the
sustainable management of natural rubber, please refer to the dedicated paragraph within this
Report).
In the preceding years, on the other hand, several consultation meetings were held for the relevant
national and regional stakeholders, this 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.
Meetings were held in the United States and the United Kingdom, in Russia and Argentina, 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, influencing the materiality matrix and the development strategy set out in the Sustainability
Plan.
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 topics critical for the Auto parts 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.
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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, 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.
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;
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Product Quality and Safety;
Product Environmental Sustainability (impacts of the product on the environment: energy
efficiency, mileage, weight reduction etc.);
Renewable Materials11;
Responsible Use of Natural Resources (energy and water efficiency, waste for recovery);
Climate Change and Greenhouse Gas Emissions Management;
End of Life Tyre Recovery and Recycling;
Legal & Regulatory Compliance;
Business Ethics and Integrity;
Corporate Governance;
Financial Health;
Road Safety Initiatives.
The priorities expressed by Pirelli and its 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 Industrial Plan and related long-term strategic
targets that the Company presented in February 2020.
11 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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Report on Responsible Management of the Value Chain Pirelli & C. S.p.A. – 2020 Annual Report
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;
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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;
“Pirelli Intellectual Property” (or IPR) Policy;
“Pirelli Social Media” 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.
Next, a focus on the Compliance programmes “231”, “Anti-corruption”, “Privacy”, “Antitrust” and on
the “Whistleblowing” policy.
Programmes 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 2020, the Board of Directors of the Company approved the new version of the Model, updated
in light of the offences provided for in the new Article 25-sexiesdecies, introduced by Law no.
157/2019 and Legislative Decree 75/2020, implementing the Financial Interest Protection Directive
(PIF).
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Furthermore, in view of the declaration of a public health emergency, the direct and indirect risks
deriving from the spread of the contagion and the related impact on the internal control schemes of
the Organisational Model were assessed. Also in this context, specific periodical monitoring
information flows were introduced to the Supervisory Board concerning the Company’s management
of the Coronavirus emergency.
During the year, training and communication activities on the current Organisational Model were
completed for the entire population of the Group’s Italian companies.
In addition, the process of communicating and implementing the Group Anti-Corruption Programme
continued in the main Countries in which Pirelli operates. The Programme, available in twenty-two
different languages on 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, 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, mandatory country-specific
training courses have been made available through an e-learning platform. In addition, a Group-wide
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 analysis 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 previously obtained certifications. In 2020, the Spanish subsidiary
also obtained ISO 37001 certification.
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Referring to the contributions made to the External Community, Pirelli has for many years adopted
internal procedures defining the roles and responsibilities of the involved functions, and the
operational process of planning, achieving monitoring and control of results of the initiatives
supported. Pirelli procedure specifies that it may not promote initiatives 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. “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 2020, 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 2020 the implementation of the Functional Segregation model
continued (so-called Segregation of Duties), aimed at strengthening the system of internal controls
and preventing the committing of fraud.
Also in 2020, Pirelli supported the activities of Transparency International, to which it subscribes as
supporter in educational area projects 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 personal data protection, during 2020 the processing activities carried out by the
Group companies based within the European Union, the Russian Federation and Turkey were
monitored in order to verify their compliance with the EU Regulation 2016/679, the Russian Data
Protection Act and the Turkish Data Protection Act, taking appropriate corrective actions where
necessary. At the same time, a project was launched to implement a personal data protection
management model for all countries in the APAC region, due to the different legislative changes. In
addition, activities continued to adapt the new Brazilian legislation on personal data protection in
anticipation of its entry into force on 18 September 2020. Finally, during 2020, Pirelli was not involved
in any proceedings, investigations or inspections by data protection authorities, either within the
European Union or within elsewhere.
On the subject of Antitrust and 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 Company
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and at the same time, market development. In this context, Pirelli constantly updates the Group’s
Antitrust Programme in line with international best practices.
Throughout 2020 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 to facilitate the management of antitrust issues in the daily conduct of business activities
or relationships with other operators.
In 2020 Pirelli was not involved in any antitrust proceedings or investigations as participant in anti-
competitive conduct.
For the sake of completeness, it should be noted that the proceeding before the EU Court of Justice
was concluded in 2020. The previous decisions of the EU General Court and the EU Commission
were confirmed, which, with regard to the investigation into the cartel in the electric cables market,
had in 2014 ordered Prysmian Cavi e Sistemi S.r.l, jointly and severally with Pirelli (in its capacity as
parent company of Prysmian Cavi e Sistemi S.r.l., although it was not directly involved in the cartel
activities), to pay a fine of €67,310,000 plus interest. On 31 December 2020, Pirelli paid its share
(equal to 50% of the fine) to the European Commission.
Focus: Reporting Procedure - Whistleblowing Policy
The Group Reporting Procedure, or Whistleblowing Policy supports the Group’ internal compliance
and control systems. It is aimed at both employees and external stakeholders; it is internally
accessible through intranet and company bulletin boards in the local language and externally through
Pirelli website.
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 and all that is dealt with in the above-mentioned Group Policies,
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 being reiterated in the text of the different Group
policies published on the Company’s website.
Reports may be made also in an anonymous form and protection of utmost confidentiality is at all
times restated, as too is zero tolerance in respect of acts of reprisal of any kind against whoever
makes a report or is the subject of the report.
Reports may concern directors, auditors, management, employees of the Company and, in general,
anyone operating in Italy or abroad for Pirelli or engaging in business relations with the Group,
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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.
In respect of reports received in the years 2020, 2019 and 2018, below is a summary table, followed
by an in-depth analysis of those pertaining to 202012.
12 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 2019 Annual Report, following the conclusion of the verification activities in 5 cases
no objective evidence was found to consider the facts alleged to be true, while in 1 case 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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2020
2019
2018
Total reports
Of which anonymous
Of which filed closed for
being absolutely generic
Of which founded
50
17
2
17
77
29
7
25
70
22
2
25
Countries of origin of the
reports ascertained
Brazil, and UK
Brazil, Bulgaria, Dubai,
Greece, Italy, Romania,
and Russia
Brazil, China, Italy,
Romania, Russia, United
States and UK
Matter alleged in the reports
ascertained
Outcome
investigated
of
cases
Violation of the Code of
Ethics and/or company
procedures, fraud against
the Company or third
parties, employee claims,
discrimination.
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.
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 integration of
processes where deemed
fitting, decisions by the
functions concerned and
the Human Resources
Department.
During the course of 2020 the Whistleblowing procedure was activated 50 times. In particular:
the 50 reports were received from 12 different Countries (Argentina, Brazil, South Korea,
Egypt, India, Italy, Mexico, Russia, the United States, Turkey, the UK and Hungary);
76% of the reports (38 cases) were forwarded using the email address ethics@pirelli.com
provided, while 24% (12 cases) by sending a letter to management which dealt with informing
Internal Audit Department as per corporate rules;
66% of the reports (33 cases) were signed whereas the remaining 34% (17 cases) were
received in anonymous form;
among the signed notifications, 8 were activated by external Stakeholders, of which 6 were
related to breaches of the Code of Ethics and/or company procedures, 1 case attributable to
a report on product quality and 1 case relating to discrimination. 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 50 reports received during the 2020 year, at the beginning of 2021, 11 were found to be at
the verification and in-depth investigation stage, whereas 39 were found to have been concluded.
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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 22 cases objective corroborating evidence was detected such as to hold the facts
contended in the reports received to be true;
in the remaining 17 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 an employee claim and 13 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 2020 there was on the one hand a slight fall in reports
compared to 2019, likely to be linked to the period of the Covid-19 health emergency, and a slight
increase in the number of signed reports, further confirming the substantial trust 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 Value Added
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 of 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 €)
2020
2019
2018
Gross Global Added Value
1,674,788
2,315,148
2,177,745
Remuneration of personnel
(949,678) 56.7%
(1,072,167) 46.3%
(1,067,579) 49.0%
Remuneration of Public Administration
(14,693)
0.9%
(164,562)
7.2%
(52,964)
2.4%
Remuneration of borrowed capital
(156,502)
9.3%
(109,480)
4.7%
(196,311)
9.0%
Remuneration of risk capital
0.0%
(177,000)
7.6%
-
0.0%
Remuneration of the company
(548,726) 32.8%
(788,044) 34.0%
(857,079) 39.4%
Contributions to the external community
(5,189)
0.3%
(3,895)
0.2%
(3,811)
0.2%
The added value created in 2020 is 28% lower than in 2019. This change is mainly due to the impact
of the Covid-19 emergency and the resulting deterioration in the economic outlook. Trends in the
items determining gross global added value, as shown above, are set out in the Directors’ Report
and Consolidated Financial Statements and related explanatory notes section 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 2020 for the external community on the net result
of the Group amounted to 12.2% (0.9% in 2019). The increase in this ratio compared to the previous
year is due to the increase in the absolute value of the contributions made during the year to the
external community in response to the Covid-19 emergency, which in turn were weighed on a
reduced Group net result compared to the previous year.
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The table below shows the expenses incurred in the last three years:
CONTRIBUTIONS TO THE EXTERNAL COMMUNITY (in thousands €)
Training and research
Social-cultural initiatives
Sports and solidarity
Of which Covid-19 donations
2020
2019
2018
738
691
823
1,441
2,136
2,181
1,068
807
3,010
2,745
Total contributions to the external community
5,189
3,895
3,811
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 2020 are shown below.
Romania
The Company 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 €6.9 million in 2020 (the incentives
were paid from 2018 onwards).
Italy
The Company 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 Research and
Development projects on Safety and Smart Manufacturing, of which €1.7 million and nearly €1 million
were collected respectively. With reference to the agreement signed with the MiSE (Ministry of
Economic Development) in the previous year for the facilitation of three Research and Development
projects up to a maximum of €6.3 million in the aggregate, in the current year the Company
completed the approval process with the presentation of the final facilitation applications and for the
subsequent preliminary assessments by the competent body.
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Mexico
As from the 2012 financial year, Pirelli Neumaticos S.A. de C.V. (Mexico) has received grant
contributions from the Mexican Federal Government for investments and generation of employment
for the ProMéxico project, for a total of €10 million. The final balance of €0.4 million was received in
2020.
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,
promote communication that is equal, transparent, timely and accurate.
During 2020, Pirelli intensified its dialogue with the financial market. On 19 February, in Milan, it
presented the 2020-22 Industrial Plan, which was attended by leading Italian and foreign analysts
and investors. Following the Covid-19 emergency, communication activities continued through digital
channels using the website, videos and conference calls. From the outset, the company provided
full visibility on the impacts of the pandemic, and on the actions taken to protect employees. Pirelli
was the first company in the Auto & Parts sector to update its market outlook and targets for the
current year, despite the uncertain and volatile scenario.
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 main indices, including FTSE ALL World, FTSE MIB, MSCI Italia and FTSE Italian
Brands.
The evaluation (Target Price) and the analysts’ estimates (Consensus) are published in the
“Investors” section on the company’s website and periodically updated, based on publications and
model updates by analysts covering the stock.
As a result of the health crisis, equity markets were characterised by unusual volatility in 2020, with
the stock market trend being driven by news flow related to the Covid-19 emergency and
monetary/fiscal policy interventions to counteract the real economy effects of the ongoing pandemic.
The main cyclical sectors, including Auto & Parts, were among the worst hit on the stock market.
Pirelli ended 2020 with a market capitalisation of €4.45 billion (average December capitalisation),
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Pirelli & C. S.p.A. – 2020 Annual Report Report on Responsible Management of the Value Chain
down -14%13. This compares with -29%13 for Goodyear, -14%13 for Bridgestone, -2%13 for Michelin,
+9%13 for Continental, +19%13 for Nokian, and +4%13 for the EU Stoxx 600 A&P index.
Below is a summary of stock market performance since the beginning of the year:
Pirelli
Michelin
Goodyear
Nokian
Continental
Bridgestone
1-Jan
29-Jan
26-Feb
25-Mar
22-Apr
20-May
17-Jun
15-Jul
12-Aug
9-Sep
7-Oct
4-Nov
2-Dec
30-Dec
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, Ethibel Sustainability Index (ESI) Excellence Europe, ECPI, ISS ESG Rating and
MSCI ESG Rating.
With particular reference to the Dow Jones Sustainability indices, in November 2020 Pirelli was
recognised, as in 2019, as world leader in the Auto & Components sector in the Dow Jones
Sustainability Indexes World and Europe, with a score of 84 compared to a sector average of 35. In
addition, in February 2021, Pirelli was the only company in the Auto Components sector worldwide
to be awarded “Gold Class Distinction” in the Sustainability Yearbook 2021 published by S&P Global;
both the Dow Jones Sustainability Index and the Sustainability Yearbook are based on S&P Global’s
Annual Corporate Sustainability Assessment, which analyses the ESG performance of over 7,000
listed companies in 61 different sectors.
It should also be noted that, in December 2020, Pirelli was reconfirmed on the Climate A List of the
CDP (formerly Carbon Disclosure Project) and became one of the global leaders in the fight against
climate change. In 2020, more than 9,600 companies reported their greenhouse gas emissions
through the CDP, a non-profit organisation supported by more than 515 institutional investors,
managing assets worth more than US$106 trillion.
13 Stock market trend 1 January - 31 December; the value is net of dividend distribution and/or other extraordinary transactions.
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For more information reference is made to the Investors section of Pirelli website, which offers a
comprehensive and constantly updated source of information on matters of interest to shareholders
and the financial community.
OUR CUSTOMERS
Pirelli is the only global tyre manufacturer entirely dedicated to the Consumer market, which includes
tyres for cars, motorcycles and bicycles.
The company is focused on the High Value market and is committed to developing innovative tyres
and Specialties and Superspecialties for a broad product portfolio. Sales channels include:
Original Equipment, addressed directly to the world’s leading car manufacturers;
Replacement, for the replacement of tyres on vehicles already in circulation.
In the 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 ranks at 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 2020, Pirelli can count on around
17,000 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), whose main
objective for Pirelli is territorial coverage and for the dealer sales support; to franchise programmes,
in which through the exclusivity 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 (304 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 2021, 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,
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5 are already active Flagship Stores (Los Angeles, Munich, Monte Carlo, Dubai and Melbourne),
while the remaining are authorised dealers, with about 50 new openings planned for 2021.
“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.
Customer focus
Customer focus is a central element of the Group “Values” and “Ethical Code” and the Quality Policy
and Product Stewardship Policy of Pirelli. These documents outline the company positioning and are
therefore communicated to all employees in the local language and are available in many languages
on the Pirelli website.
Among the essential elements of the Pirelli approach, the following are highlighted:
consideration of the impact of its actions and behaviour on the customer;
exploitation of every opportunity offered by doing business to satisfy the customer’s needs;
anticipation of customer needs;
safety, reliability, high performance of products and services offered, in accordance with local
regulations and more developed national and international standards applicable, as well as
excellence of production systems and processes;
information to customers and end users to guarantee an adequate understanding of the
environmental impacts and safety features of Pirelli products, as well as of the safest ways
of using the product.
Pirelli also adopted a clear procedure to grant a feedback to any customer claim, which 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.
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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), online
represents for Pirelli 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 2020, these websites attracted
7.9 million unique users, for a total of 10.3 million sessions and 33 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 1.8 million users in 2020 (for a total of almost 9
million page views) and generated about 120,700 appointment bookings, 72,000 calls to the dealer,
more than 5,000 contact requests via e-mail.
In 2020 Pirelli continued to inform its customers through a Direct Email Marketing (DEM) programme
whose main objective is to provide an additional tool for communication, training and ongoing contact
with the trade. The DEMs aim to inform trade customers of the main new products, the Company
and the courses available to become Pirelli Product Experts.
During 2020, due to the health emergency, almost all the major events that usually populate the
automotive world, and which have always been the main focus of Pirelli’s activities (Autoshows,
Concours d’Elegance, rallies, etc.), were cancelled. It was possible, however, to participate as a
partner in the 2020 edition of the Salon Privè, held under the aegis of a very strict anti-Covid protocol,
and to give life to two events of the P Zero™ Experience, one in Abu Dhabi and one at the Red Bull
Ring, which hosted a total of 256 owners of supercars.
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 and IIHF World Ice Hockey Championship.
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Customer training on the product was also intense in 2020 in all markets, despite the shift to virtual
delivery due to the spread of the Covid-19 pandemic. During the year, almost 15,000 participations
of dealers, belonging to the 28 main markets, in online training courses on the Pirelli product,
technology and tyre sales were recorded.
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 2020 there was an increase in the use of the online training site TYRE CAMPUS™, which
now covers 28 markets in 17 different languages. To date, more than 14,000 points of sale are
registered on the new site, with a total of over 15,200 active users. Training on the product is provided
in an engaging and customisable way on the various types of distribution channel, with more paths
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 160 employees, performing
business operations in IT support and order management (inbound), telemarketing and
teleselling (outbound).
In 2020, the major social media channels of Pirelli have seen an increase in the fan base. Pirelli’s
presence on Facebook has stabilised at over 2.6 million followers. On Twitter, the Pirelli accounts
have seen an increase in followers, reaching more than 344,000 people, over 14% more than in
2019. An important step forward was on Instagram, where the Pirelli channels reach 864,000
followers, an increase, year-on-year, of more than 9%. Finally, there are about 24,000 followers of
Pirelli on the main online video platform, YouTube, and over 510,000 followers on LinkedIn.
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As for www.pirelli.com, Pirelli’s digital magazine, 369 articles were published in 2020 - 70% of which
related to product and motorsport issues and 30% to the dimensions of the brand and company -
attracting over 4 million visits (55% of which were attracted through social networks) and more than
3 million unique users.
As for the Motorcycle world, Pirelli and Metzeler brands boast a structured and widespread presence
on the main social networks: Pirelli brand, as well as on the Facebook channel (with more than
988,000 fans connected to the Global Page which includes 18 local pages) is on Instagram with over
154,000 followers and has dedicated profiles on Twitter and YouTube. Significant for the business
is the mobile application DIABLO™ Super Biker, which has been downloaded by more than 690,000
people around the world and which was completely renewed and improved in 2020 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 Facebook with a
Global Page that has more than 437,000 fans and includes 16 local pages in as many Countries. As
with 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 Pirelli products by the registered community of motorcyclists: nearly 450,000 for PIRELLI Moto
and over 65,000 for Metzeler.
Pirelli Velo, in turn, speaks with its consumers also through a website dedicated to the world of
cycling. Immediately active in Instagram, Pirelli Velo bases its communication on digital activation in
line with the propensities of its target consumer.
Also in 2020 direct customer listening activities were carried out both through the Brand Tracking
survey in Pirelli’s Top Market (Italy, Germany, United Kingdom, China and United States) 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 2020 saw
Pirelli positioned among the main tyre brands: in second place for Top of Mind, Brand Awareness
and Brand Consideration in the United Kingdom, in first place for Top of Mind and Brand Awareness
and second place for Brand Consideration in Italy, third place for Top of Mind and Brand Awareness,
and fourth place for Brand Consideration in Germany. Outside Europe, Pirelli is in fifth place for all
KPIs in the USA; and in fourth place for Brand Consideration, but seventh place for Top of Mind and
fifth place for Brand Awareness in China.
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Product safety, performance and eco-sustainability
Safety and technological solutions in support of the environment are essential values of Pirelli’s
product offering and commitment. In 2020 the Company confirmed its continued focus on the
development and marketing of tyres and technologies that aim to increase safety and enhance the
potential of cars in tandem with attention to the environment.
For Pirelli, 2020 marked the launch of the new generation of the CINTURATO P7™, one of the
Company’s flagship products that has always been synonymous with reliability and safety, which
has won awards from consumers and top carmakers. The CINTURATO P7™ was presented with
about 50 Premium homologations to its credit on the main reference manufacturers (BMW,
Mercedes, Volvo, Jaguar, Alfa) as a result of a clear message regarding safety (reduction in braking
distance of up to 4 metres) and attention to the environment (reduction in fuel consumption of up to
4% and a 1 dB reduction in noise emissions).
The pursuit of all-round safety in terms of total mobility (the cohesion between 3PMSF and SEAL
INSIDETM) is also confirmed by the growth in 2020 sales with SEAL INSIDE™ technology, thanks to
investments in original equipment and the product USP of CINTURATO™ All Season Plus, whose
range in 2020 benefited from an 18” Up size package that supported the increase in sales (+186%
vs 2019 of Cinturato AllSeason+ with ≥18” siping).
Finally, the safety and performance of Pirelli products are certified by tests carried out by leading
automotive magazines. Pirelli achieved 7 podiums in Europe/Nordics in 2020, including three for
Nordics tyres (two with the latest-generation Icezero 2 studded tread and one with ICEZERO FR
tread). The P ZERO™ finished on the podium in the EVO test with best in class in Wet Grip
(outstanding in wet). The new CINTURATO P7™ took second place in Quattroruote. Tire Rack also
tested the CINTURATO P7™ ALL SEASON PLUS II and declared it the winner in “Category-leading
comfort and responsive feel on the road”.
Attention to the evolution of mobility and the environment is also expressed in the ELECT™ tyre
range, which distinguishes all tyres developed specifically, together with car manufacturers, for
electric vehicles. The marking represents the clear identification of a tyre built through technological
solutions and material packages capable of enhancing the technical features of electric cars, 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;
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.
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Pirelli’s growing role in the electric segment and strategic development partner is also made even
clearer by the achievement of about 70 homologations from 13 different carmakers.
Particularly suitable for electric vehicles, but not only, is the PNCS™ technology, a crucial innovation
for reducing noise inside the passenger compartment generated by tyre rolling as a result of stress
between the road surface and the tread pattern. The benefits have been recognised by car
manufacturers such as Jaguar-Land Rover, Audi, Volvo, Mercedes, Ford, Tesla, Porsche, Bentley,
McLaren, Aston Martin and BMW, with over 250 homologations. PNCS™ technology not only
increased its impact on overall sales but also demonstrated its potential and interest on the part of
OEMs and end users during 2020, even during a year strongly characterised by the global
macroeconomic context, maintaining sales to the original equipment channel unchanged compared
to 2019 and showing growth in the replacement channel (+48%).
High Value approach to future mobility
Pirelli carefully monitors the evolution of mobility and its main trends such as digitalisation,
electrification, shared mobility and driving automation, elements that were already present before
the health emergency and that are expected to evolve strongly in the coming years. The health
emergency has indeed highlighted the importance of personal health and safety, and a recovery is
expected to be oriented towards greater sustainability for people and the planet, in which
technologies can play a fundamental role in making the mobility of the future safer, more accessible,
more efficient and with less environmental impact.
The mobility of the future cannot ignore digitalisation, and in this area Pirelli is present with the
Cyber™ project and tyre sensor-fitting, an integral part of the Group’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 self-driving cars, electric cars, shared cars
and cars connected via 5G to the entire road infrastructure.
In fact, experimentation activities related to 5G connectivity and the enabling of V2V and V2X
communication continue, where the tyre plays a fundamental role in recognising and communicating
potentially dangerous situations related to road surface conditions. This trial, promoted by the Italian
Ministry of Economic Development and led by Vodafone, sees Pirelli as the project’s industrial
partner with its Cyber Tyre technology, a key player in important use cases of future 5G connected
mobility, with significant spin-offs in terms of transport safety, efficiency and sustainability.
In 2021, the development of Cyber Tyre technology will see the market launch of the first car with
tyres natively integrated with the vehicle’s electronic systems. This integration project, which has
taken several years and involved the R&D teams of Pirelli and McLaren, opens the way to new
developments and innovations. The new McLaren Artura with Cyber Tyre technology as standard,
is equipped with an advanced tyre monitoring system that can check tyre conditions in real time and
provide timely indications to increase safety and performance, both on the road and on the track.
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The mobility of the future, in fact, will be characterised by an increasingly marked polarisation: on
the one hand its service dimension, on the other the passion of those who, on the road or on the
track, will continue to drive a car for the sheer pleasure of being behind the wheel. With these people
in mind, Pirelli Track Adrenaline™ was created, an advanced telemetry and sensor-fitted tyre
monitoring system for amateur drivers. Introduced in Italy in the summer of 2019, in 2020 Pirelli
Track Adrenaline™ was introduced in Belgium, Germany, the UK, Austria and the United Arab
Emirates. In Belgium, a partnership has also been launched with an international organiser of track
events, with the aim of shifting the focus from pure speed, to the acquisition of increasingly refined
driving skills.
In terms of fleets and reducing their management costs, Pirelli is pursuing the Cyber Fleet project, a
system based on tyre sensors and constant monitoring of pressure and temperature parameters.
Through a tyre management portal, Cyber Fleet makes it possible to predict and schedule
maintenance operations, reducing the risk of breakdowns, as well as providing important KPIs on
fuel consumption and CO2 emissions. In 2020, Cyber Fleet technology was integrated into the
platforms of a number of important fleet suppliers who wanted to enrich their offerings with the tyre
management system developed by Pirelli.
The mobility of the future also partly consists of a return to the past, where bicycles, now electrified,
play an important role, especially in urban mobility. This is why, since 2017, Pirelli has returned to
the world of bicycle tyres (consider that the first Pirelli tyre at the end of the 1800s was a bicycle tyre)
where it is present with several product lines: P ZERO™ for high-performance racing bikes and a
user devoted to maximum performance, CINTURATO™ for Endurance and Gravel bikes, where the
more playful component of exploration and sporting activity understood as wellness and lifestyle
becomes preponderant over pure performance, the line dedicated to the off-road world of Mountain
Bike SCORPION™ with all its variants, from Cross Country to E-MTB, and finally the Urban CYCL-
e™ tyre line, ideal for all city and non-pedal commuting situations.
Pirelli has also dedicated itself to micro-mobility projects such as CYCL-e around™ which, through
pedal-assisted bicycles, promotes a comfortable and sustainable mobility style on holiday and in
daily life. It is a turnkey e-bike rental service for private communities, mainly hotels and companies.
In 2020, activities in hotels were consolidated and experimentation in the corporate sector began
with two tests involving the Fatebenefratelli Sacco hospital (pro bono) and Pirelli’s headquarters.
Last but not least, collaboration with a school with a strong technological vocation, I.I.S. Volta in
Pescara, as part of the Future Class project.
Quality and product certification
ISO 9001: since 1970, the Group has had its own Quality Management System introduced gradually
at all its plants and, since 1993, Pirelli has obtained certification of its quality system under the ISO
9001 standard. The transition process of its plants and the Headquarters to certification according
to the new ISO 9001: 2015 ended in September 2018. In 2019, all the certifications obtained were
verified by third-party bodies and kept active. In 2020, following the pandemic situation related to
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Covid-19, the IAF (International Association Forum) admitted the possibility of implementing remote
audits and extending the validity of expiring certificates. Pirelli has guaranteed the implementation
of remote and field recertification and surveillance audits, where possible, in accordance with IAF
rules and in compliance with the rules for the preservation of personnel health, established by the
country and the company itself. The audits required for the subsidiaries in Argentina, Turkey and
Germany have been postponed until January 2021.
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. In 2020, due to the pandemic situation, the International Automotive Task Force allowed
remote audits starting on October 30, 2020. In this case as well, Pirelli guaranteed the
implementation of surveillance and recertification audits in the field, and then remotely, in
accordance with IATF rules and in compliance with the rules for the preservation of personnel health,
established by the country of origin and by the Company itself. At the end of the annual audit cycle
of the plants and Headquarters, the surveillance or recertification audits postponed to January 2021
relate to the subsidiaries in Argentina, Turkey and Germany.
ISO/IEC 17025: since 1993 the Materials and Experimentation Laboratory of 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 Pirelli Tyre S.p.A. Laboratory successfully obtained accreditation for the new
version. In 2020, the laboratory carried out its annual remote surveillance audit as required by the
Accreditation Body Accredia.
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 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 Pirelli production sites.
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In 2020, some Type Approval Authorities (e.g. for the China, Uruguay, and Nigeria markets) carried
out remote audits to verify production compliance.
Compliance
Also in 2020:
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, with the exception of the sanction upheld by the EU Court of Justice, already
mentioned in the Compliance-Antitrust section;
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;
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 ISO 20400 is in addition to the certification of compliance
obtained by the Company with the guidelines on social responsibility dictated by ISO 26000.
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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 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.
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
on-site 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
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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. 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
granted 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.
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 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 with regard to compliance with the requirements of Regulation (EU) 2017/821 (as modified
by Regulation (EU) 2020/1588) 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.
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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;
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).
For some categories of suppliers, the clauses are also supplemented by additional requirements
aimed at regulating specific areas such as the existence of an adequate management model for
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conflict minerals and cobalt, and compliance with Pirelli’s Policy on the sustainable management of
natural rubber.
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 2020, among the signed reports, three were sent by Suppliers. It remains objectively impossible
to confirm that the total number of reports from suppliers corresponds only to three 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
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.
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 Pirelli subsidiaries’ 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;
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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 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 KPIs relating to loss
prevention 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.
In 2020, following the evolution of the Covid-19 scenario, the third-party auditors used by Pirelli
developed and introduced a new methodology, in accordance with ISO/IEC 17021-1: 2015 (and
related guidance), IAF MD4: 2018, IAF MD 5: 2019 and IAF ID 12: 2015 standards, which made it
possible to guarantee the continuity of auditing activities through a remote and, where possible,
hybrid approach (combination of remote and on-site audits).
Here below, the number of ESG third-party audits performed in the last three years:
Year
2018
2019
2020
Audit Number
8514
9015
7116
14 of which 16 on potential new suppliers of raw materials.
15 of which 26 on potential new suppliers of raw materials.
16 of which 6 on potential new suppliers of raw materials.
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In most cases the 2020 audits involved suppliers of Pirelli operating in Countries where the company
is present at an industrial level, i.e. Argentina, Brazil, China, France, Germany, Indonesia, Italy,
Mexico, United Kingdom, Romania, Russia, United States, Turkey and Taiwan. Or suppliers in
Countries from which Pirelli buys raw materials, such as China, South Korea, Mexico, Netherlands,
Malaysia, Indonesia, Russia, Thailand and Brazil.
The results of the audits carried out during the 2020 annual campaign show:
46% of suppliers without non-compliance;
a total number of non-conformities found decreased by 41% compared to 2019.
The non-conformities registered in 2020 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 directly followed
by the Auditor, who report to Pirelli.
The Group Internal Audit Department verifies the adequacy of the management and oversight of the
ESG Audit on suppliers 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 Pirelli Product (which is specified in the “Environmental Dimension”
chapter of this report), the environmental impacts of the supply chain are found prevalently in the
category of raw materials, in terms of direct emissions and impact on 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 Pirelli product. With reference to the water footprint along the life cycle of
Pirelli products, impacts are prevalent in the processing of natural rubber, a material on which
particular attention is also paid in terms of preventing the risk of deforestation and protecting
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.
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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;
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;
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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 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.
The Policy, the Implementation Manual and the 2019-2021 Action Plan and are published on the
Group website, in the Policy area within the Sustainability section.
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; in particular, the activities
covered the following: the organisation of meetings with the management of supplier companies,
including some in-factory dialogue sessions; the identification of the geographical areas from which
rubber is purchased, a fundamental activity for mapping potential risks within the supply chain; an
analysis of potential socio-environmental risks for the mapped geographical areas, which was shared
with suppliers; training of suppliers on the contents of the Policy and related Implementation Manual
through six seminars organised in the five countries from which Pirelli obtains its supplies; definition
of a roadmap by suppliers detailing the activities to be implemented to fill the gaps identified.
In 2020 the international health emergency situation led to the suspension of those activities planned
for the period that, in order to achieve the expected level of effectiveness, would have had to be held
on site with the actors in the supply chain (processors, traders, farmers). The resources allocated
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for these activities were then redirected and used to purchase almost 3,000 food packages donated
to farmers affected by the pandemic.
Although the health situation significantly affected the activities in which an on-site presence was
planned, through remote activities Pirelli was able to continue with the engagement of the supply
chain aimed at improving traceability and risk mapping. Cooperation also continued with the aim of
perfecting the plan of activities defined with them between 2019 and 2020; in fact, it should be noted
that, at the beginning of 2020, 100% of natural rubber suppliers shared with Pirelli the activities
aimed at implementing Pirelli Policy. The roadmap was defined after training sessions in which all
suppliers participated in 3 days of training organised in local languages in 5 different areas of the
globe. The suppliers’ implementation plans were drawn up on the basis of the mapping of Pirelli
supply chain risks, an analysis completed by specialised consultants during 2019.
In early 2020, Pirelli also published a study17 on natural rubber tree diseases, diseases that have
begun to have a major impact on the livelihoods of farmers (an estimated loss of productivity of
around 15% in Indonesia18). The study, the result of an in-depth dialogue between farmers and
specialists in the sector sponsored by Pirelli and held in late 2019, identifies the causes of the
phenomenon and gathers possible solutions, with the intention of putting this wealth of information
on the table.
Although it was not possible to organise the historic “tapping competition” in 2020, a major training
event that the Group has been organising in Indonesia since 2014, the Group and its supplier Kirana
Megatara confirmed the awarding of scholarships to the children of local producers, in the belief that
the future sustainability of the natural rubber business absolutely cannot ignore the adequate training
and development of the new generations, and their right to study. A total of 65 scholarships were
awarded.
In 2021 Pirelli will continue on the path of engagement and partnership activities with its suppliers,
focusing training on specific topics that meet the needs of the supply chain and dedicating it to
players increasingly close to the origin of the chain. Pirelli will also continue to support suppliers in
the implementation of their roadmap of activities and will continue to map the socio-environmental
risks of the entire 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
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
17 https://psi-dotcom-prd.s3-eu-west-1.amazonaws.com/corporate/Drill_Down_Study_Report_08.04.2020_final.pdf
18 Jakarta Post,
July
thousands
https://www.thejakartapost.com/news/2019/07/25/plant-disease-threatens-thousands-of-hectares-ofrubber-plantations.html.
plantations
« Plant
threatens
hectares
disease
rubber
of
»,
of
2019,
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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 Pirelli played a proactive role in the creation of the Global
Platform for Sustainable Natural Rubber - GPSNR, together with tyre manufacturers which are also
part of the Tyre Industry Project Group, within the World Business Council for Sustainable
Development. The development of the Platform benefited from the contribution, ideas and
suggestions of the main categories of Stakeholders involved in the value chain, such as rubber
producers, processors, automobile manufacturers, and of the fundamental contribution deriving from
the experience of important international NGOs.
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 was held in March 2019.
During 2020 Pirelli actively participated in three working groups launched by the platform,
specifically:
The “Smallholder Representation Working Group”, which Pirelli co-chairs, has identified a
geographically diverse group of farmers capable of effectively representing the interests of
smallholders within the platform and identified three representatives to sit on the Executive
Committee. Work continues to support the smallholder community on the platform, with the
aim of extending the geographical presence covered and achieving the new targets set;
The “Capacity Building Working Group”, which Pirelli co-chairs, in 2020 has continued its
activities aimed at developing 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. During 2020, the group focused
on mapping the traceability systems offered by the market, with a specific focus on those
already used in the world of natural rubber. The work will continue in 2021, with the aim of
defining the general characteristics that the traceability tool must have in order to meet the
level of transparency required by the GPSNR platform.
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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.
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 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 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, 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.
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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.
In turn, the European Institutions in May 2017 approved the 2017/821 Regulation (subsequently
amended by Regulation (EU) 2020/1588) 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 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.
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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).
The suppliers polled cover 100% of the “conflict minerals” risk tied to Group products. 100% 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. Among the various uses of Cobalt is
its use 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 (Responsible Minerals
Initiative) 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. 100% of 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 defined in the “Cobalt Initiative”, and no evidence of
conflict minerals emerged.
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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
guaranteed a water saving, as well as a reduction of CO2 emissions by more than 75%, saving
respectively about 23,000 m3 of water and about 370 tonnes of CO2.
These innovations provide economic benefits related directly to the material for about €165,000 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 2020, 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 2020, the set
of emission reduction actions implemented by Pirelli suppliers made it possible to avoid overall the
emission of more than 58 million tonnes of CO2 equivalent into the atmosphere, combined with
estimated economic savings of US$1.74 billion.
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
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2021. The response rate recorded in 2020 was 84%, an upward trend compared to previous years
(81% in 2019, 74% in 2018).
Training of suppliers on sustainability matters
Since 2012, Pirelli has been providing training on environmental, social and business ethics issues
to its suppliers, identifying each year the applicable pool of participants based on strategic issues,
spending value and operations by suppliers in Countries considered at risk.
In 2020, given the evolution of the Covid-19 scenario, the Group had to put on standby the activities
planned in the 2019-2021 Roadmap on the implementation of the Policy on Sustainable Natural
Rubber Management; the resources that had been planned to support this activity were redirected
to projects supporting vulnerable local communities affected by the crisis.
Supplier Award
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.
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.
Due to the evolution of the Covid-19 scenario, the Supplier Award 2020 has been put on hold and
postponed to 2021.
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 area19 with respect to non-OECD areas.
79% of suppliers (slightly up from 76% in 2019) 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.
19 For the complete list of OECD Countries please refer to the official website http://www.oecd.org/about/membersandpartners/.
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VALUE OF PURCHASES BY GEOGRAPHIC AREA
OECD COUNTRIES
NON-OECD COUNTRIES
Europe
North America
Others
Latin America
Asia
Africa
Others
NUMBER OF SUPPLIERS BY GEOGRAPHIC AREA
2020
49.1%
8.0%
4.6%
12.1%
17.3%
0.5%
8.4%
2020
55.2%
4.8%
4.5%
2019
54.9%
6.7%
5.0%
12.1%
11.9%
0.4%
9.0%
2019
47.2%
5.5%
5.4%
2018
49.9%
5.9%
4.1%
14.8%
14.9%
0.4%
10.0%
2018
54.2%
4.8%
5.2%
Europe
North America
Others
Latin America
19.7%
22.8%
21.7%
Asia
Africa
Others
6.9%
0.2%
8.7%
8.4%
0.4%
10.3%
6.3%
0.2%
7.6%
OECD COUNTRIES
NON-OECD COUNTRIES
The following table shows the breakdown in percentage of the value of Pirelli Tyre’s purchases by
type. With a weight equal to 49% 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 Materials20
Services21
Capital goods22
2020
49%
8%
40%
3%
2019
47%
7%
37%
9%
2018
46%
5%
36%
13%
20 Indirect materials, auxiliary materials.
21 Energy, logistics services, shared services, ICT, R&D, marketing, trademarks and patents.
22 Machinery, civil works, moulds.
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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 95% of total number of suppliers,
despite the weight on the total value of purchases is lower compared, for example, to that of raw
material purchases which, on the other hand, show a substantial concentration on a few operators.
NUMBER OF SUPPLIERS BY CATEGORY
Raw Materials
Consumable Materials
Services
Capital goods
2020
2%
36%
59%
3%
2019
2%
35%
58%
5%
2018
2%
29%
61%
8%
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 2018-2020. The volume of raw materials utilised
for the production of tyres in 2020 amounted to approximately 704,000 tonnes, of which
approximately 4% derives from recycled materials (in line with the previous year) and 19% of
renewable materials23.
MIX OF RAW MATERIALS PURCHASED (VALUE)
2020
13%
26%
10%
23%
18%
10%
2019
13%
26%
12%
22%
17%
10%
2018
13%
27%
10%
23%
17%
10%
Natural Rubber
Synthetic Rubber
Carbon black
Chemicals
Textile
Steel
Targets
CDP Supply Chain: increase in raw material suppliers’ response rate from 84% in 2020 to
90% in 2021;
Natural Rubber supply chain sustainability: implementation of the 2019-2021 roadmap
published in the Sustainability section of the website www.pirelli.com. In 2021, 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
23 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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increasingly close to the origin of the chain. Pirelli will support suppliers in the implementation
of their roadmap of activities to implement Pirelli Policy and will continue to map the socio-
environmental risks of the supply chain, with increasingly precise traceability and an
increasingly close relationship with the various players involved;
Reduction of CO2 emissions from raw material suppliers by 8.6% by 2025 compared to 2018
(Science Based Target approved by SBTi).
In March 2021, 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
Pirelli Group considers environmental protection as a fundamental value in the exercise and
development of its activities.
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”.
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 Group Policies “Health, Safety and
Environment”, “Product Stewardship”, “Quality”, “Social Responsibility for Occupational Health,
Safety and Rights, and Environment”, “Green Sourcing”, 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 pirelli.com website,
available to the external community.
Joining the Taskforce on Climate-Related Financial Disclosure (TCFD)
In September 2018, Pirelli formally joined the Task Force on Climate-Related Financial Disclosures
(TCFD) set up by the Financial Stability Board24.
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. To
this end, Pirelli publishes this information publicly both in this report and through the CDP Climate
Change programme, where, once again in 2020, it has been confirmed as one of the leaders included
in the A-List.
Since Pirelli publishes an integrated annual report, the four topics and the eleven recommendations
identified by the TCFD are reported as follows.
GOVERNANCE: (concerning climate-related risks and opportunities).
The matters 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.
a) Board of Directors’ oversight
Pirelli Board of Directors, supported in its activities by the Control, Risk, Sustainability and Corporate
Governance Committee, approves both the sustainable management objectives and targets
integrated into the Industrial Plan and Pirelli Annual Report, including the Consolidated Non-
Financial Statement. A Director in charge of Sustainability is also appointed with the task of
overseeing sustainability topics related to the Company’s operations and its interaction with all
Stakeholders, and implementing the guidelines defined by the Board of Directors.
b) Management’s role
The strategic development of Group Sustainability is entrusted to the Sustainability Steering
Committee, a body chaired by the CEO and composed of the Company’s Top Management
24 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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representing all organisational and functional responsibilities, which meets on an ordinary basis at
least once a year. The organisational structure thus consists of a Sustainability Department,
reporting directly to the CEO, which oversees management at Group level and proposes sustainable
development plans to the Sustainability Steering Committee. The Sustainability Department is
supported by Country Sustainability Managers (a role covered by the Country CEOs) to oversee
activities covering all Group affiliates.
STRATEGY (actual and potential impacts of climate-related risks and opportunities on business,
strategy and financial planning).
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 the paragraph “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 with respect to
transition scenarios towards a low-carbon economy and climate scenarios25, 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 any potential financial impacts. For further
details, see the section “Risks related to Climate Change” in the “Directors’ Report on Operations”
of this report, and Pirelli’s public responses to the CDP Climate Change questionnaire26.
a) Climate-related risks and opportunities (over the short, medium and long term)
In line with the results of the last Group Climate Change Risk Assessment, in the short-medium term
(up to 5 years) there are no significant risks relating to production processes or to the markets in
which Pirelli operates. On the other hand, regarding a medium-long term scenario (up to 30 years),
the tyre sector could be subject to a series of risks, both physical (extreme weather events with
potential impacts on plant production continuity) and regulatory (possible effects on operational
costs). On the other hand, there are opportunities for growth in sales of Pirelli Eco & Safety
Performance products, which identify tyres characterised by a lower environmental impact
throughout their life cycle.
b) Impacts of climate-related risks and opportunities
As discussed in the section “Risks related to Climate Change” in the “Directors’ Report on
Operations” of this report, to which reference should be made, in relation to internal metrics of
potential financial impact, no risks with a significant impact in the short to medium term were
identified in relation to production processes or the markets in which Pirelli operates.
25 The latest Group Climate Change Risk Assessment considered the analysis of IPCC climate scenarios (RCP 4.5 and RCP 8.5) and
IEA energy transition scenario (IEA 450).
26 https://www.cdp.net/en/responses
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c) Resilience of the strategy
The results of the scenario analyses carried out as part of the Climate Change Risk Assessment,
described above, were assessed for the definition of ambitious climate-related targets within the
High Value sustainable development strategy to 2022, 2025 and 2030, published in the current
Industrial Plan. At process level, the targets for reducing energy consumption and absolute CO2
emissions, the use of 100% electricity from renewable sources by 2025 and Group carbon neutrality
by 2030 are highlighted. In particular, the targets for reducing absolute CO2 emissions were
developed in accordance with the guidelines of the Science Based Targets initiative (SBTi), which
validated them in June 2020, judging them to be consistent with the actions needed to keep global
warming “well below 2°C”, as recommended by the Paris Agreement. At product level, among the
several Eco & Safety performance targets, in terms of impact on the climate, it has to be mentioned
the 2025 objective of reducing the average rolling resistance of car products by 14% compared to
the 2015 value. The business strategy based on development of the Eco & Safety Performance
product line27 is designed to give Pirelli a competitive advantage over its competitors in the face of
growing market demand for low-emission goods and services. Following the positive trend that has
seen revenues from Eco & Safety Performance tyres grow from 5% in 2009 to 58% in 2020, Pirelli
has set the goal of achieving a 71% share by 2022.
RISK MANAGEMENT: (identification, assessment and management of the climate-related risks).
a) Identification and assessment processes
The process adopted by Pirelli to identify and assess the possible financial impacts, in terms of risks
and opportunities, related to Climate Change is based on the Group Climate Change Risk
Assessment, which is periodically updated by the Sustainability Department in collaboration with
Enterprise Risk Management and other corporate functions. The analysis assesses the evolution of
any physical, regulatory, technological, reputational and market risks that may affect the company,
with respect to transition scenarios towards a low-carbon economy and climate scenarios with short,
medium and long-term time horizons. For the conclusions of the analysis, see the section “Risks
related to Climate Change” in the “Directors’ Report on Operations” of this report, and Pirelli’s public
responses to the CDP Climate Change 2020 questionnaire28.
b) Management processes
The most relevant risks identified through the Climate Change Risk Assessment are assessed and
classified against internal metrics of potential financial impact: for each risk or opportunity that has
been recognised as material, a risk mitigation plan is prepared or an internal discussion is opened
to capture the maximum benefit from the opportunity.
27 Eco & Safety Performance products identify the car tyres that Pirelli produces throughout the world that fall exclusively into classes A,
B, C of rolling resistance and wet grip according to the labelling parameters set by European regulations.
28 https://www.cdp.net/en/responses.
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c) Integration into overall risk management
The process for identifying, assessing and managing risks related to Climate Change is fully
integrated into Pirelli’s risk management model, as described in detail in the “Risk Factors and
Uncertainty” section included in the “Directors’ Report on Operations” of this report.
METRICS AND TARGETS: (metrics and targets used to assess and manage risks and opportunities
related to Climate Change, where the information is material).
a) Metrics
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).
b) GHG emissions
Pirelli monitors and reports its direct (Scope 1) and indirect (Scope 2 and Scope 3) greenhouse gas
emissions as described in the paragraph “Management of Greenhouse Gas emissions and carbon
action plan” in this report.
c) Targets
Pirelli reports its environmental and product targets that are most closely linked to Climate Change,
in the present chapter “Environmental Dimension” and in the “Sustainability Planning and the United
Nations Sustainable Development Goals (SDGs)” and “Our Suppliers” (“Target” section) paragraphs
of this report.
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 Pirelli approach to environmental management and the specific long-term
targets defined by the Sustainability Plan, whose performance is reported in the present report. Pirelli
Group’s Carbon and Water Footprint are updated to 2020 and for both there is a decrease in absolute
terms of about 19% compared to the previous year.
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
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throughout the entire life cycle of the product, compared to a production phase that has a weight of
only 2.6% of total impacts. As regards the impact of the Water Footprint, the use phase of the product
is the most significant (51% of the total impacts), followed by the production phase of raw materials
(35.7% 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 targets 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 Rule29” for tyres developed by the Tyre Industry Project
Group of the World Business Council for Sustainable Development. The reporting of the emission
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 14067 and ISO
14046 standards. 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.
29 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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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.
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 current
Industrial Plan. In this regard, it should be noted that in March 2021 the Company will present the
new Industrial Plan and the related strategic long-term sustainability targets that 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 “Eco & Safety” tyres which are increasingly sustainable and which guarantee lower
environmental impacts throughout their life cycle while ensuring greater driving safety.
In terms of raw materials, for the new product lines, the current Sustainability Plan envisages an
increasing use of materials from renewable and recycled sources, with the aim of using more than
40% renewable materials by 2025 (more than 60% by 2030), more than 3% recycled materials (more
than 7% by 2030) and reducing the use of fossil-derived raw materials to less than 40% (less than
30% by 2030).
It should be noted that in March 2021 the Company will present the new Industrial Plan and the
related long-term strategic sustainability targets, which 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 mileage;
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, silicas, plasticisers and 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 from
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rice husks used as feedstocks, contributing to the industrial application of a circular economy model
concerning waste materials. The combustion of the carbon part of the husk also allows a reduction
of more than 90% of the amount of CO2 emitted per kilogram of silica, compared to the conventional
process that instead exploits fossil energy sources.
During 2020, silica from rice husks was approved and use in normal production began, with the aim
of a volume scale-up to 15% of total silica consumption in 2022. 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. Still with a view to
the circular economy, it should be noted that, in collaboration with the Bicocca University, Pirelli has
filed a patent application for the use of lignin in tyres. Lignin, a low environmental impact additive of
natural origin derived from the waste from the cellulose production process, is already used in a
compound for Velo products. 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 constantly monitors the growing opportunities for the use (in
increasing proportions) of materials from recycling. The development of innovative technologies for
the production of materials from recycled end-of-life tyres (ELTs), such as powder obtained by fine
grinding the tyre or carbon black obtained from tyre pyrolysis, allows them to be used in increasing
quantities without compromising performance or safety, unlike the technologies of the past.
Some materials used in compound formulations (such as synthetic polymers, carbon-black and
synthetic oils) can in turn be produced by feeding the synthesis process with certain quotas of
feedstock from recycling (recycled polystyrene, oil from pyrolysis of ELTs): Pirelli works with partners
aimed at developing, validating and applying these technologies in new materials.
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 paragraph
“Our Suppliers” (R&D Partnership section) of this Annual Report.
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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
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 2018-2019-
2020 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
2020 was over 615,000 tonnes.
Environmental performances indices trend
In terms of materiality of environmental impacts (Carbon and Water Footprint) of the tyre along the
entire life cycle, the production phase accounts for 2.6% of total greenhouse gas emissions impacts
and for 13.3% of total water-related impacts.
The year 2020 saw a significant decrease in production volumes: the number of tonnes of finished
product fell by 18% compared to the previous year (value calculated on a like-for-like basis), mainly
due to exogenous factors connected with the Covid-19 pandemic emergency, which affected
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production continuity and caused a sharp 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, water
withdrawal and waste production. On the other hand, the increase in the share of electricity from
renewable sources used by Pirelli favoured an improvement in the index relating to specific
greenhouse gas emissions, while the percentage of waste recovery remained stable.
All the equivalent specific indicators weighted on the operating result (compared to the Adjusted
EBIT value) were impacted, while all the indices calculated in absolute terms of energy consumption,
water consumption, waste production and greenhouse gas emissions decreased compared to the
previous year.
It should be noted that the trend of all the above indicators is substantially influenced 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 10% reduction in specific energy consumption by 2025
compared to 2019 values. It should be noted that, in March 2021, the Company will present the new
Industrial Plan and the related strategic long-term sustainability targets, which will be published at
the same time on the institutional website www.pirelli.com for the benefit of all Stakeholders.
In the course of 2020, 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;
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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:
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 2020, the installation of LED lighting systems continued at production sites to
replace less efficient traditional 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 to improve the efficiency
of both compressed air generation, using high-efficiency compressors, and energy flows, with a
particular focus on cold management, starting with pilot initiatives in individual plants that will then
be extended to all production units.
The activities to reduce compressed air and steam losses continued with excellent results, whether
on machinery, generators and users, or on distribution lines. In spite of the suspension of the energy
audit activities already started due to Covid-19, using company tools that allowed greater remote
coordination, it was still possible to optimise the benchmarking activities between the different plants
and accurately map the efficiency improvement actions of the various operating units. Moreover, the
electrical absorption measurements performed on individual plants are continuing, in order to
correlate specific consumption to production in greater detail, so as to optimise their operating
conditions.
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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.
Energy efficiency in 2020 was significantly affected by the effects of the Covid-19 pandemic on
production continuity and by the sharp slowdown in the automotive market: the impact on production
volumes was about 18% lower than in the previous year.
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.
The application of energy management with a view to maximising industrial efficiency, implementing
improvement and plant freezing logics (particularly during periods of lockdown of production plants
due to Covid-19 restrictions), has resulted in savings of approximately 841,702 GJ in absolute terms.
This value was estimated for each factory on the basis of production volumes in the reporting year
and the change in efficiencies achieved in 2020 compared to the previous year.
The Group’s specific energy index in 2020 showed an increase of 9.5% compared to 2019 (the year
in which the reduction target to 2025 is also based) against, as mentioned, a much more significant
percentage decrease in terms of production volumes. In terms of absolute consumption, on the other
hand, there was an overall reduction of 10.5% compared to 2019.
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.
2018
2019
2020
Absolute consumption
GJ
10,688,588
10,467,443
9,373,179
Specific consumption
GJ/tonFP
GJ/k€
13.48
11.19
13.90
11.41
15.22
18.70
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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 52%30 derives from renewable sources while
for steam, the share generated by renewable sources corresponds to around 14% of the total.
The current Sustainability Plan envisages achieving 100% of electricity from renewable sources used
on a group-wide basis by 2025.
Management of Greenhouse Gas Emissions and Carbon Action Plan
Pirelli monitors and reports its31 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
30 Figure including both share from direct procurement and national electric grid mix based on IEA data (International Energy Agency).
31 GHG inventory perimeter as indicated in paragraph “Scope of Reporting”.
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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” and current reference for
Pirelli’s targets).
With regard to “other indirect emissions” attributable to Pirelli Value Chain activities, or Scope 3
emissions, in addition to the information reported in this section, please refer to the paragraph “Our
Suppliers” (“CDP Supply Chain” section) for further information about the specific activities of Pirelli
Suppliers. Instead, reference is made to the Group Footprint infographics in the paragraph “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)32;
Within Scope 2 location-based:
o National emission factors33 taken from IEA: CO2 Emissions from Fuel Combustion34;
Within Scope 2 market-based:
o Specific emission factors of suppliers where available;
o Residual-mix emission factors35 taken from RE-DISS AIB (EU)36 and Green-e (US)37;
o Emission factors used in the context of location-based if other sources of data are not
available;
32 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).
33 Emission factors expressed in CO2/kWh.
34 2020 Publication with update to the 2018 figure.
35 Emission factors expressed in CO2/kWh.
36 2020 Publication with update to the 2019 figure.
37 2020 Publication with update to the 2018 figure.
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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.
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 current Sustainability Plan envisages a 25% reduction in the group’s absolute CO2 emissions
(scope 1 and scope 2 market based) by 2025 compared to 2015 values and an 8.6% reduction in
absolute CO2 emissions related to the purchase of raw materials (scope 3) by 2025 compared to
2018 values. Both targets were validated in June 2020 by the Science Based Targets initiative
(SBTi), which judged them to be consistent with the actions needed to keep global warming “well
below 2°C”, as recommended by the Paris Agreement.
In addition, Pirelli has set the goal of using 100% electricity from renewable sources by 2025 and
achieving group carbon neutrality by 2030.
Please note that in March 2021 the Company will present the new Industrial Plan and related long-
term strategic sustainability targets, which will be published at the same time on the institutional
website www.pirelli.com for the benefit of all Stakeholders.
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The following charts show the performance of the last three-year period:
In 2020, the Group’s absolute emissions were almost 23% lower than in 2019 and 31% lower than
in 2015, the year in which the target (approved by the Science Based Targets initiative) to reduce
absolute emissions to 2025 is based. Performance was positively affected by the reduction in
production volumes due to the Covid-19 pandemic emergency.
Specific CO2 emissions (weighted on tonnes of finished product) also decreased by 5.7% in 2020
compared to the 2019 figure, supported by the implementation of new initiatives in the field of
renewables which, as already mentioned, allowed the share of electricity from renewable sources
used by the group to increase to over 52%38 of the total compared to 41% in 2019.
The portion of indirect emissions generated by the low-carbon projects implemented in Silao
(Mexico), Carlisle and Burton (UK), Slatina (Romania), Settimo Torinese (Italy), Campinas and
Gravataì (Brazil) - described below - was reported as prescribed by the Guidelines of the GHG
Protocol, respectively for the procurement of electrical energy from renewable sources and steam
from biomass.
38 Figure including both share from direct procurement and national electric grid mix based on IEA data (International Energy Agency).
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The following table reports absolute and specific emissions distinguishing between market-based
(target reference) and location-based methodology for Scope 2.
GHG EMISSIONS ACCORDING TO SCOPE
2018
2019
2020
Absolute emissions (Scope 1 and Scope 2 market-based)
tonCO2e
856,923
828,388
638,730
Scope 1
Scope 2 (market-based)
Scope 2 (location-based)
Specific emissions (Scope 1 and Scope 2 market-based)
tonCO2e
tonCO2e
tonCO2e
190,037
192,149
168,158
666,886
636,239
470,572
590,961
574,349
508,390
tonCO2e/tonFP
1.080
1.100
1.037
tonCO2e/k€
0.90
0.90
1.27
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 2020, the savings in terms of avoided CO2e emissions exceeded 18,000 tonnes (Scope 2);
the procurement of electrical energy from renewable sources at the plant in Silao (Mexico). In
2020 the agreement continued for the dedicated supply of electricity generated from wind
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sources, which in the year allowed the replacement of 8.4 GWh of energy from fossil fuels, for a
saving in terms of CO2e emissions of around 3,800 tonnes (Scope 2);
the supply of electricity from renewable sources at the Slatina plant (Romania). In 2020, the
share of electricity certified from renewable sources exceeded 200 GWh, resulting in annual
savings in terms of CO2e emissions of more than 60,000 tonnes (Scope 2)
the procurement of electrical energy from renewable sources at the plants in Burton and Carlisle
(UK). In 2020 the share of electricity certified from renewable sources exceeded 50 GWh, for an
annual savings in terms of CO2e emissions of more than 17,500 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
2018
201939
2020
2,659.6
2,563.9
2,077.1
1,231.1
1,198.8
940.0
90.0
84.4
71.5
40,187.2
40,220.9
32,576.8
2.5
2.2
1.9
44,170.4
44,070.2
35,667.3
With regard to absolute CO2 emissions related to the purchase of raw materials, for which, as already
mentioned, the Scope 3 target approved by the Science Based Targets initiative is set, there was a
reduction of 19% in 2020 compared to 2019 and almost 22% compared to 2018, the year in which
the 2025 reduction target is based.
In 2020, Pirelli continued in the compensation project of CO2 emissions produced the previous year
by its fleet of company cars, through the purchase and retiring of carbon credits belonging to the
VCS standard (Verified Carbon Standard). Direct issuance of 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 corporate fleet emitted 784
tonnes of CO2 in 2019. In order to offset this impact on the climate, Pirelli supported two sustainable
forest management projects: an international one, carried out in Brazil, for the financing of activities
under the REDD programme (Reducing emissions from deforestation and forest degradation) and
an Italian one, carried out in the forest areas of Ziano di Fiemme (TN), as part of the initiative
“Restoring Forests Destroyed by Storm VAIA”. The activities financed with Pirelli’s contribution were
carried out in 2020. The combination of the two projects made it possible to reduce about 160% of
39 As from 2019, the value includes emissions generated by the Group’s business air travel and commuting by employees at the Milan
headquarters. The value also includes some primary data collected directly from suppliers.
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the emissions generated by company cars in 2019, thus going well beyond what is required by the
policy in view of increasing environmental responsibility.
Water Management
Pirelli monitors the Water Footprint along the life cycle of the product (as extensively explained earlier
in this chapter), and in terms of materiality, the production phase of the tyres is the third most
influential, after the phases of use of the product and production of raw materials.
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 the Aqueduct Water Risks Atlas of the World Resources Institute) and
dedicated action plans.
In addition, the management of water resources, of relations with relevant stakeholders (local
communities, authorities, etc.) and the related potential impacts of the local context in which the
production plants are located, is ensured by the environmental management systems implemented
and certified in each production unit. Environmental management and its continuous improvement
are also driven by the mapping of the main stakeholders, their interests and expectations.
The current Sustainability Plan envisages a target to reduce specific water withdrawal by 43% by
2025 compared to the 2015 value. It should be noted that in March 2021 the Company will present
the new Industrial Plan and the related long-term strategic sustainability targets, which will be
published at the same time on the institutional website www.pirelli.com for the benefit of all
Stakeholders.
In 2020, the absolute withdrawal amounted to approximately 5.9 million cubic metres, a reduction of
6.8% compared to 2019. This reduction was mainly due to the reduction in production volumes
following the Covid-19 pandemic, to which specific actions were added to limit the consequences of
the reduction in production activity at industrial sites as much as possible. The specific levy, as
weighed on the tons of finished product, was particularly impacted by the reduction in production
volumes, standing at 9.5 cubic metres, an increase of about 14% compared to the previous year’s
value. Even considering the exceptionality of 2020, the index still shows a reduction of more than
25% compared to 2015, the base year for the 2025 reduction target.
In absolute terms and thanks to the actions implemented, since 2015 Pirelli has saved a total of more
than 11 million cubic metres of water: an amount equivalent to the absolute withdrawal of about two
years by the entire Group.
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To give an overall view of performance in terms of water withdrawal over the last three years, 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€
2018
2019
2020
7,382,453
6,299,468
5,871,790
9.3
7.7
8.4
6.9
9.5
11.7
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.
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65% of the water withdrawn is pumped from wells inside the plants and authorised by the competent
authorities. In addition, Pirelli obtains 10% of its needs from surface water, taking care to ensure that
this withdrawal is marginal in relation to the volume of the affected water bodies (always less than
5%). As for water from aqueducts or third-party sources, 55% is drawn from groundwater, while the
remainder comes from surface water. The volume of water withdrawn from water stress areas40 is
about 50% of the total, while the volume of water pumped from water bodies located in protected
areas is marginal at 120 cubic metres. In addition, about 176,000 cubic metres of water used,
equivalent to about 3% of the total withdrawal, are obtained from the treatment of waste water from
its production processes.
A total of about 4.4 million cubic metres of domestic and industrial waste water were discharged,
with 58% of this into surface water bodies, but always in quantities that are marginal in relation to
the volume of the receiving bodies (always less than 5%) and without significantly impacting
biodiversity. The remaining amount was discharged into sewer networks.
Before being discharged into the final recipient, industrial waste water – adequately treated as
necessary – is periodically subjected to analytical tests that certify substantial compliance with locally
applicable statutory limits.
In particular, as regards the quality of industrial effluents of the production facilities, indicative
average values are: 11 mg/l of BOD5 (Biochemical Oxygen Demand), 30 mg/l of COD (Chemical
Oxygen Demand) and 12 mg/l of Total Suspended Solids. It should also be noted that Pirelli does
not use substances classified as “Substances of Very High Concern” as defined by EU Regulation
no. 1907/2006, the so-called “REACh Regulation”.
SUMMARY
Water Type
Surface water
WITHDRAWAL
from
Wells
Third parties
DISCHARGE
to
Total
Surface water
Third parties
Total
CONSUMPTION Total
Total
Water stress areas
Overall volume (m3)
Freshwater volume
(m3)
Overall volume (m3)
Freshwater volume
(m3)
614,497
3,803,375
1,453,918
5,871,790
2,575,423
1,869,131
4,444,554
1,427,236
614,497
3,738,894
1,261,867
5,615,258
2,563,037
921,756
3,484,793
2,130,465
559,057
1,409,597
882,987
2,851,651
0
1,412,708
1,412,708
1,438,943
559,067
1,409,597
882,987
2,851,651
0
512,163
512,163
2,339,488
40 Water stress areas: this includes all areas with a water stress level equal to or greater than high according to the WRI Aqueduct
classification (Aqueduct Water Risk Atlas wri.org), as of 25 January 2021.
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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.
Also in the case of waste, the effect of the pandemic crisis on the specific production index weighted
on tonnes of finished product is evident, with a 10% increase in 2020 compared to the previous year.
At the same time, there is a significant improvement in the absolute index, with an overall reduction
in waste produced of 10% compared to the 2019 figure.
Despite this unfavourable context, the countermeasures taken have made it possible to confirm a
percentage of waste sent for recovery of 97%, in line with the current Sustainability Plan, which
envisages sending 98% of the waste produced for recovery by 2025, with a “Zero Waste to Landfill”
vision.
And in line with the “Zero Waste to Landfill” Vision, the Turkish Izmit plant deserves a mention. At
the end of 2020, it obtained “Zero Waste” government certification as 100% of its waste is sent for
recovery and its management meets the criteria set out in the “Zero Waste Regulation” defined by
the Turkish Ministry of the Environment and Town Planning.
Hazardous waste accounts for 8% (compared to 10% in both 2019 and 2018) of total production and
is totally sent for treatment in facilities located in the same country where it is generated.
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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€
2018
2019
2020
120,096
105,977
95,470
151
126
141
116
155
190
Other Environmental Aspects
Solvents
Solvents are used as ingredients in processing, mainly to reactivate vulcanised rubber, during the
fabrication and finishing of tyres. Pirelli is committed to the progressive reduction of these
substances, both by optimising their use, and by spreading solvent-free technologies for operations
that may be performed even without their use. In 2020, the value of specific solvent consumption
stabilised at 1.1 kg per tonne of tyres produced, a reduction of 5% compared to 2019, and in line
with the 2018 figure, with emission of related VOCs slightly lower than total consumption.
Absolute consumption
tonSOLV
Specific consumption
kgSOLV/tonFP
2018
841
1.1
2019
883
1.2
2020
686
1.1
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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. Both are not
production sites but test fields for testing tyres.
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 area41 of UNESCO, characterised by the presence of 23
species included in the IUCN Red List (International Union for the Conservation of Nature) of which:
17 are classified as “of least concern (LC)”, 1 as “near threatened (NT)”, 3 as “vulnerable (V)”, 1 as
“endangered (EN)” and one as “Critically Endangered (CR)”.
To ensure the utmost protection of the natural environment in which the Vizzola test track is located,
Pirelli has implemented an ISO 14001 certified Environmental Management System in accordance
with the “Parco del Ticino”. Environmental impact on biodiversity in the area are not significant;
however, several interventions were carried out, both directly by the Company and by the Park
Authority, to mitigate and improve the interactions of Pirelli’s activities with the natural environment,
as stipulated in the agreement signed in 2001. In 2016, a campaign to monitor air quality was also
carried out, which highlighted the substantial negligence of the impacts of the activity compared to
the context in which the test field is inserted.
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
41 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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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 2020, the index based
on the tons of finished product fell by 0.8% compared to the 2019 figure, mainly due to a change of
the mix of the energy consumed, which in particular saw an increase in the share of renewables, 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 2020 fell by nearly 19% compared to the previous year and by
21% compared to 2018.
Absolute emissions
Specific emissions
tonNOX
kgNOX/tonFP
2018
943
1.29
2019
917
1.22
2020
743
1.21
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The following graph shows the 2020 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 2020, direct emissions of SOX, caused by the combustion of diesel and fuel oil, came to 10.7
tonnes (respectively 13.7 tonnes in 2019 and 10.8 tonnes in 2018); 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 assured constant and
prompt monitoring and intervention regarding potential emergency situations that may arise, as well
as the reports received from Stakeholders. During 2020, no incidents, complaints or significant
sanctions related to environmental issues were recorded.
It is worth mentioning that in 2020 the Chinese production site in Yanzhou obtained the ‘class A’
certification (the most efficient) in terms of atmospheric emissions, awarded by the local government.
Thanks to this classification, which confirms the high level of commitment to the management and
containment of atmospheric emissions, the site will no longer be subject to production restrictions
that are required by local regulations during periods of high atmospheric pollution.
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Expenses and Investments
In the three-year period 2018-2020, environmental expenditure related to the production process
exceeded €63 million, of which about 33% was allocated in 2020. About 73% of this amount
concerned normal management and administration of factories, while the remaining 27% 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 2020, the Company invested € 194.6 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: eco & safety 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;
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 reducing the average weighted
rolling resistance of its passenger car tyres of 14% by 2025, compared to the 2015 average: at the
end of 2020, the reduction is 9% compared to the 2015 average.
For an overview of product performance targets, please refer to the section “Sustainability planning
and the UN Sustainable Development Goals” in this report.
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Eco & Safety Performance42 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.
In 2020, Pirelli launched the new CINTURATO™ P7™. Starting with the previous generation,
presented in 2009, and since then the type approval leader, the CINTURATO™ P7™ has undergone
continuous updates thanks to the work in close contact between Pirelli and the major premium car
manufacturers, which have led to further enhancement of the qualities that are most important to
drivers today: safety and efficiency. Intense work on Research & Development has resulted in a
high-tech product that overcomes some of the typical tyre compromises such as performance in the
wet and rolling resistance. Compared to its predecessor, the new CINTURATO™ P7™ improves
performance in both dry and wet driving, in aquaplaning and, in particular, in braking where at 100
km/h it reduces the vehicle stop by 4 metres. Innovation has also involved increasing the level of
acoustic comfort (with less noise produced when rolling) and plastic comfort (thanks to its improved
capacity to absorb asphalt bumps). Mileage is also increased by 6%, reducing the frequency of tyre
replacement. Also in the area of efficiency, rolling resistance on average has improved by one class
in European labelling (-12%), reducing the car’s fuel consumption by 4% (measured in the WLTP
cycle) and CO₂ emissions.
In terms of the materials used, the new CINTURATO™ P7™ is also full of innovations. The specially
developed tread compound is enriched with silica and specific resins to increase grip, and with
functionalised polymers that are capable of varying their behaviour according to the operating
temperature of the tyre, offering an optimal experience in all driving conditions. In addition, thanks to
greater mechanical resistance, the new compound has a reduced abrasion rate, with benefits in
terms of durability for the benefit of efficiency and savings for motorists, and less use of materials,
with a reduction in tyre weight and benefits in terms of rolling resistance and a more conscientious
use of resources.
In 2020 Pirelli achieved excellent results in the development of products with low rolling resistance,
even on products suitable for off-road use, with the creation, at the request of Land Rover for its new
Defender, of a new version of Scorpion Zero All Season tyres in rolling resistance class A, tested for
off-road and wet grass applications.
42 Eco & Safety Performance products identify the car tyres that Pirelli produces throughout the world that fall exclusively into classes A,
B, C of rolling resistance and wet grip according to the labelling parameters set by European regulations.
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Even in the area of high-performance cars, attention to the environment has become a discriminating
element with the challenge of reducing rolling resistance while maintaining the level of performance
expected for this segment. At the 2019 Geneva Motor Show, Pirelli presented the Elect marking that
distinguishes tyres specifically created for the needs of electric and plug-in hybrid cars. Low rolling
resistance to increase autonomy, low tyre rolling noise to ensure optimum comfort, immediate grip
for transmission stresses at the start and a structure suitable for supporting the weight of the battery-
powered vehicle. These are the main features of Pirelli Elect tyres, developed by Pirelli in
collaboration with leading carmakers to meet the specific technological requirements of electric and
plug-in hybrid vehicles. For the Porsche Taycan, Pirelli has developed a dedicated P Zero tyre
marked Elect, which guarantees maximum performance for the vehicle and, for the winter season,
tyres with Elect technology on the Winter Sottozero 3, Scorpion Winter and P Zero Winter lines.
Rivian, a US start-up specialising in electric vehicles, has also chosen the Pirelli Scorpion range
marked Elect to tyre its R1T pick-up and R1S electric SUV. To this end, Pirelli has produced new
versions of the Scorpion Verde All Season, Scorpion Zero All Season and Scorpion All Terrain tyres
(the Pirelli range dedicated to SUVs and pick-ups).
As far as motorcycle tyres are concerned, for the Enduro On segment, development of the
METZELER TOURANCE NEXT 2 was completed in 2020 and it will be available on the market from
2021. Compared to its predecessor TOURANCE NEXT, the main features of the new product are a
wider tread pattern, specially designed to increase wet braking and to lower rolling resistance. For
the Supersport segment, in 2020 Pirelli developed the new Diablo Rosso IV, also available on the
market from 2021, which improves on the behaviour of its predecessor Diablo Rosso III on both wet
and dry surfaces and guarantees performance retention even when worn, thus extending the life of
the tyre for even the most performance-conscious users.
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, along with the Cinturato™
GRAVEL range, the SCORPION™ MTB range and the PZero™ Race TLR range.
The compound of the SCORPION™ MTB range, which also includes a line dedicated to E-MTBs,
contains lignin (Pirelli Patent Pending), a low environmental impact additive of natural origin derived
from the waste products of the cellulose production process. The addition of lignin further improves
the mechanical properties of the rubber, promoting better resistance to tearing, as required for use
on powerful modern E-MTBs. This improved performance is achieved without compromising the
unique characteristics of the original SmartGRIP Compound, starting with the chemical grip and its
durability. The result is superior grip in all terrain conditions, from dry to wet, and consistent and
predictable tyre performance throughout its life cycle, despite the increased stresses to which E-
MTB tyres are subjected.
In 2020, thanks to the experience gained in the car sector, Pirelli has developed the winter tyre
CYCL-e WT, suitable for urban bikes and e-bikes, thus favouring the safe use and driving pleasure
of the bicycle in all the seasons. The tyres of the Cycl-e™ line have been developed and
manufactured using a compound that contains the powder recovered from end-of-life car tyres: the
powders are selected, re-generated and re-used in the polymer matrix. In addition, special attention
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has been paid to maximising the use of natural rubber, a raw material from a renewable source, in
the compounds.
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.
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 (including 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.
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.
The new Cinturato P7 will also be the subject of experimentation by Pirelli’s CYBER™ department,
the company that was the first to connect the tyre to the 5G network, a technology that is currently
being tested and will be used in smart cities in the near future. Pirelli is the first company in the world
in the tyre sector to share information on the road surface detected by smart tyres on the 5G network,
the tyre being the only element of the car capable of “feeling” the ground on which it is travelling and
detecting potentially dangerous situations such as aquaplanes. Soon, communications infrastructure
with 5G technology will be able to collect information from tyres, relaying it to other vehicles to
increase the level of road safety. In this way, the tyre enters a broader communication paradigm
involving the entire road transport ecosystem, actively contributing to the development of solutions
and services for future mobility and autonomous driving systems.
In addition, Pirelli CYBER™ technology, based on sensors and remote monitoring of tyre pressure
and temperature, has been integrated into Infogestweb’s Golia (Gestionale Organizzazione Lavoro
Imprese e Autotrasporto) portal and is available for all commercial transport vehicles. Thanks to this
integration with Golia, the only fleet management platform in Europe dedicated to the complete
management of tachograph data, fleet managers can remotely monitor the driving, working and rest
times of professional drivers, fleet operating data and tyre use and maintenance conditions.
Among the Open Innovation initiatives, we should highlight the Joint Labs agreement between Pirelli
and the Politecnico of Milan, established in 2011, aimed at research and training in the tyre sector,
in particular through the development of innovative materials and technologies for sustainable and
increasingly safe mobility. The new phase of the three-year agreement (2017-2020) focuses on two
research macro-areas: the innovative materials area and the product technology and CYBER™
development area.
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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 2021 and, as in 2019 and 2020, will be supported by CSR Europe.
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
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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 2018 - 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 91% (Source: ETRMA
2020, data from 2018) and 76% (source: USTMA - 2019 US Scrap Tyre Management Summary).
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 groups 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 (WBCSD “A framework for effective management systems” in 2008
and “Managing End-of-Life Tires” in 2010), 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 (such as “secondary raw materials”) or energy. In the recovery of material, the
reclaimed rubber is already reused by Pirelli in the compounds for new tyres, thus contributing to the
reduction of the related environmental impact. In order to increase this recovery rate, research
activities following our Open Innovation model are continuing, aimed at improving the quality of
recovered secondary raw materials in terms of affinity with the other raw materials and the other
ingredients present in our ultra-high performance compounds, as well as in the search for innovative
recovery solutions.
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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, multicultural, 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 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 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; This is the context in which the Group CEO will sign the “CEO Guide on Human Rights”
promoted by the WBCSD in 2019 (see the “WBCSD” section of this Report);
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.
Between late 2019 and early 2020, 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 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
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for medium-long-term risks. The value of 1.98 corresponds to the risk of violation of the right to fair
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 2020 - expressed in Full Time Equivalent and including
agency workers - stood at 30,510 employees (vs. 31,575 in 2019 and 31,489 in 2018), recording a
net decrease of 1,065 employees compared to the previous year.
The following tables43, with reference to the last three years, detail the composition of the workforce
by category, geographical area, gender, type of contract, and the flow of employees by geographical
area44, gender and age bracket.
To complete the information on the trend of the workforce during the year, please refer to the
paragraph “Industrial Relations” in this Report.
Additional quantitative information with specific reference to the issue of diversity is provided in the
“Diversity Management” section of this Report.
BREAKDOWN OF WORKFORCE45 BY CATEGORY
EXECUTIVES
CADRE
WHITE COLLARS BLUE COLLARS
TOTAL
2020
2019
2018
257
271
288
1,752
1,893
1,945
4,060
4,617
4,643
24,441
24,794
24,612
30,510
31,575
31,489
43 Staff numbers are expressed in Full Time Equivalent; while respecting the totals, partial values entered in the table may be subject to
rounding.
44 Europe: Austria, Belgium, France, Germany, Greece, Italy, Netherlands, Poland, Czech Republic, United Kingdom, Romania, Slovakia,
Spain, Switzerland, Turkey, Hungary. North America: Canada, Mexico, United States. South America: Argentina, Brazil, Chile,
Colombia. Asia Pacific: Australia, China, Korea, Japan, Singapore, Taiwan. Russia, Nordics & MEAI: Saudi Arabia, Egypt, India,
Russia, South Africa, Sweden, UAE.
45 These data include agency workers, corresponding to 0.1% of total workforce in 2018, 0.2% in 2019 and 0.6% in 2020.
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BREAKDOWN OF WORKFORCE46 BY GEOGRAPHICAL AREA47 AND GENDER
2020
2019
2018
Male
Female
Total
Male Female
Total
Male
Female
Total
EUROPE
10,951
1,774
12,725
11,295
1,803
13,098
11,178
1,773
12,951
NORTH AMERICA
2,752
480
3,232
2,758
507
3,265
2,497
503
3,000
SOUTH AMERICA
7,293
647
7,940
7,288
677
7,964
7,577
693
8,270
APAC
3,093
834
3,927
3,280
854
4,134
3,247
868
4,115
RUSSIA, NORDICS & MEAI
2,110
576
2,686
2,431
684
3,115
2,438
715
3,154
TOTAL
26,199
4,311
30,510
27,051
4,524
31,575
26,937
4,552
31,489
46 These data include agency workers, corresponding to 0.1% of total workforce in 2018, 0.2% in 2019 and 0.6% in 2020.
47 Europe: Austria, Belgium, France, Germany, Greece, Italy, Netherlands, Poland, Czech Rep United Kingdom, Romania, Slovakia,
Spain, Switzerland, Turkey, Hungary. North America: Canada, Mexico, United States. South America: Argentina, Brazil, Chile,
Colombia. Asia Pacific: Australia, China, India, Japan, Singapore, South Korea, Taiwan. Russia, Nordics & MEAI: Saudi Arabia, Egypt,
India, Russia, South Africa, Sweden, UAE.
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Report on Responsible Management of the Value Chain Pirelli & C. S.p.A. – 2020 Annual Report
BREAKDOWN OF WORKFORCE48 BY GEOGRAPHICAL AREA49 AND CONTRACT
2020
Permanent
Temporary
Agency
EUROPE
NORTH AMERICA
SOUTH AMERICA
APAC
RUSSIA, NORDICS & MEAI
TOTAL
11,923
3,024
7,750
3,923
2,562
29,362
795
1
54
4
124
978
7
27
136
0
0
170
EUROPE
NORTH AMERICA
SOUTH AMERICA
APAC
RUSSIA, NORDICS & MEAI
TOTAL
EUROPE
NORTH AMERICA
SOUTH AMERICA
APAC
RUSSIA, NORDICS & MEAI
TOTAL
2019
Permanent
Temporary
Agency
12,513
3,237
7,779
4,131
3,014
30,674
565
0
185
3
98
851
20
28
0
0
2
50
2018
Permanent
Temporary
Agency
12,365
2,987
8,099
4,109
3,028
30,642
561
0
171
6
68
805
26
13
0
0
3
42
Total
12,725
3,232
7,940
3,927
2,686
30,510
Total
13,098
3,265
7,964
4,134
3,115
31,575
Total
12,951
3,000
8,270
4,115
3,154
31,489
48 These data include agency workers, corresponding to 0.1% of total workforce in 2018, 0.2% in 2019 and 0.6% in 2020.
49 Europe: Austria, Belgium, France, Germany, Greece, Italy, Netherlands, Poland, Czech Republic, United Kingdom, Romania, Slovakia,
Spain, Switzerland, Turkey, Hungary. North America: Canada, Mexico, United States. South America: Argentina, Brazil, Chile,
Colombia. Asia Pacific: Australia, China, Korea, Japan, Singapore, Taiwan. Russia, Nordics & MEAI: Saudi Arabia, Egypt, India,
Russia, South Africa, Sweden, UAE. South America: Argentina, Brazil, Chile, Colombia. Asia Pacific: Australia, China, Korea, Japan,
India, Singapore, Taiwan. Russia, Nordics: & MEAI: Saudi Arabia, Egypt, India, Russia, South Africa, Sweden, UAE.
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Pirelli & C. S.p.A. – 2020 Annual Report Report on Responsible Management of the Value Chain
PERCENTAGE OF EMPLOYEES BY CATEGORY, GENDER AND AGE
2020
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%
2%
2%
2%
20% 29% 23% 23% 19% 23% 21% 20% 21%
30 - 50 50% 59% 51% 63% 73% 66% 63% 56% 61% 63% 73% 64% 63% 68% 63%
>50
50% 41% 49% 35% 25% 32% 17% 15% 16% 14%
8%
13% 16% 12% 15%
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%
EMPLOYEES WITH PART TIME CONTRACT BY GENDER
2020
2019
2018
Male
Female
TOTAL
Male
Female
TOTAL
Male
Female
TOTAL
120
154
274
157
205
362
137
183
320
Employee flows by geographic area50, gender and age
The following data refer to incoming/outgoing employees. The entry and exit rates are calculated by
comparing the number of entries and exits of each category to the total number of employees
belonging to that category as of 31 December. The disposals and acquisitions of companies or
business units, and changes in work schedules from full-time to part-time are not considered.
50 Europe: Austria, Belgium,., France, Germany, Greece, Italy, Netherlands, Poland, Czech Rep United Kingdom, Romania, Slovakia,
Spain, Switzerland, Turkey, Hungary. North America: Canada, Mexico, United States. South America: Argentina, Brazil, Chile,
Colombia. Asia Pacific: Australia, China, India, Japan, Singapore, South Korea, Taiwan. Russia, Nordics & MEAI: Saudi Arabia, Egypt,
India, Russia, South Africa, Sweden, UAE.
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Report on Responsible Management of the Value Chain Pirelli & C. S.p.A. – 2020 Annual Report
2020 FLOWS: ABSOLUTE VALUES AND RATES
INCOMING
OUTGOING
<30 30 - 50 >50
M
F
Total
<30 30 - 50
>50
M
F
Total
678
437
42
1,018
139
1,157
471
430
289
1,067
123
1,190
29%
6%
1%
9%
8%
9%
20%
6%
10%
10%
7%
9%
548
324
36
838
70
908
542
360
20
824
98
922
36%
22%
21%
31%
15%
28%
35%
24%
12%
30%
21%
29%
392
291
7
603
87
690
348
427
109
759
125
884
30%
5%
1%
8%
13%
9%
27%
8%
12%
11%
19%
11%
45
43
2
59
31
90
109
142
11
221
41
262
6%
1%
2%
2%
4%
2%
15%
5%
13%
7%
5%
7%
79
87
6
122
50
172
141
290
168
446
153
599
15%
5%
1%
6%
9%
7%
26%
18%
38%
22%
27%
23%
1,742 1,182
93
2,640
376
3,017 1,611
1,649
597
3,317
540
3,858
27%
6%
2%
10%
9%
10%
25%
9%
13%
13%
13%
13%
EUROPE
NORTH
AMERICA
SOUTH
AMERICA
APAC
RUSSIA,
NORDICS & MEAI
TOTAL
2019 FLOWS: ABSOLUTE VALUES AND RATES
INCOMING
OUTGOING
<30
30 - 50 >50
M
F
Total
<30
30 - 50
>50
M
F
Total
904
656
78
1,460 178 1,638
698
553
254
1,328
177
1,505
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%
159
117
7
221
62
283
150
161
70
288
93
381
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%
EUROPE
NORTH
AMERICA
SOUTH
AMERICA
APAC
RUSSIA,
NORDICS & MEAI
TOTAL
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Pirelli & C. S.p.A. – 2020 Annual Report Report on Responsible Management of the Value Chain
2018 FLOWS: ABSOLUTE VALUES AND RATES
INCOMING
OUTGOING
<30
30 - 50 >50
M
F
Total
<30
30 - 50
>50
M
F
Total
1,362
968
111
2,083 358 2,441
700
659
263
1,452
170
1,622
51%
13%
4%
19% 20% 19%
26%
9%
9%
13%
10%
13%
1.221
598
29
1,648 200 1,848
969
473
20
1,255
207
1,462
76%
47%
27%
66% 40% 62%
60%
37%
19%
50%
42%
49%
565
1,249
196
1,810 200 2,010
414
900
231
1,360
185
1,545
32%
22%
24%
24% 29% 24%
24%
16%
28%
18%
27%
19%
339
296
8
477
166
643
328
318
6
550
102
652
24%
11%
9%
15% 19% 16%
23%
12%
7%
17%
12%
16%
223
137
28
327
62
389
234
258
194
554
133
687
27%
8%
5%
13%
9%
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%
EUROPE
NORTH
AMERICA
SOUTH
AMERICA
APAC
RUSSIA,
NORDICS & MEAI
TOTAL
At Pirelli there are 42 young people older than 15 and under 18 - before birthday - years old (15 in
Germany, 9 in Switzerland, 3 in the UK,12 in Brazil, 1 in China and 2 in Sweden), each for training
and integration plans, in harmony with local laws.
Diversity management
Pirelli is characterised by a multinational context where individuals manifest a great diversity, whose
conscious management simultaneously creates a competitive advantage for the Company and a
shared social value. Pirelli’s commitment to compliance with equal opportunities and the
enhancement of diversity in the workplace is expressed in the main Group Sustainability documents:
the “Ethical Code” approved by the Board of Directors, the “Social Responsibility Policy for
Occupational Health, Safety and Rights, Environment”, the “Equal Opportunities Statement” and the
“Global Human Rights” Policy.
The Policies are the subject of training on Pirelli Sustainable Management Model through the
“Plunga” onboarding course.
Internationality and multiculturalism are the distinguishing features of the Group: Pirelli operates in
160 countries on five continents and 89.5% of its employees (as of 31 December 2020) work outside
of Italy.
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Report on Responsible Management of the Value Chain Pirelli & C. S.p.A. – 2020 Annual Report
Awareness of the cultural differences that create the identity of the Company entails displaying the
utmost confidence in management of local origin: 80% of Senior Managers work in their country of
origin, where Senior Managers are those reporting directly to the Executive Vice Chairman and CEO,
and Region CEOs and Executives with strategic responsibilities as at 31 December 2020. In order
to develop the innovative and managerial potential inherent in multiculturalism and in dealings with
different professional environments, the Company promotes the growth of its managers through
international mobility: 53% of active Senior Managers in 2020 have in fact experienced at least one
inter-company assignment during their professional experience within Pirelli Group.
Compared to the total number of employees, there were 15 new intragroup expatriates in 2020,
compared to 57 new postings in 2019 and 66 departures in 2018; this decrease is mainly attributable
to the health emergency faced by all global economies. Approximately a third of new postings were
to major industrial countries such as Germany and China. The total expatriate population at year-
end 2020 came to 114 (vs 170 in 2019 and 190 in 2018), belonging to 13 nationalities and moving
to 22 different countries on five continents, of which 11% are women. 43% 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 latest survey was conducted in 2018 throughout the Group and recorded
particularly positive results regarding the perception of respect for and management of Diversity,
which has been confirmed as a distinctive feature of Pirelli’s corporate culture.
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 and the external
stakeholders can anonymously report any suspected violation. In 2020, 1 report was ascertained
relating to a case that could be linked to discriminatory attitudes, on which the Company took action
with the adoption of appropriate actions by the functions in question and the Human Resources
Department. 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
2018-2020, the data show a substantial stability, with a percentage of women in the total population,
which stands at 14.1%. The percentage of women grew in relation to managerial positions
(executives + cadres), going from 22.4% in 2019 to 24% in 2020.
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WOMEN’S INCIDENCE ON THE TOTAL WORKFORCE51 BY CATEGORY
YEAR
EXECUTIVES
CADRES
EXEC + CADRES
(= Tot Manager)
WHITE COLLARS BLUE COLLARS
TOTAL
2020
2019
2018
10.5%
26.0%
10.7%
24.1%
10.1%
23.8%
24.0%
22.4%
22.0%
33.0%
33.8%
34.2%
10.2%
10.0%
10.0%
14.1%
14.3%
14.5%
Analysing the breakdown by gender in terms of employment contract, the table below shows that
also in 2020, a substantial balance was maintained between men and women.
WORKFORCE52 BY GENDER AND BY TYPE OF CONTRACT
2020
2019
2018
Male
Female
Total
Male Female Total
Male
Female
Total
PERMANENT
96.1%
97.0%
96.2%
97.3% 96.6% 97.1% 97.5%
96.4%
97.3%
TEMPORARY
3.3%
2.8%
3.2%
2.6%
3.1%
2.7%
2.4%
3.5%
2.6%
AGENCY
0.6%
0.2%
0.6%
0.1%
0.3%
0.2%
0.1%
0.1%
0.1%
In 2020 the number of parental leaves used by Pirelli employees corresponds to 169 for women and
741 for men.
With reference to the post-maternity/paternity return rate, Pirelli figure for the total workforce in all
the countries where the company is present shows that, in 2020, out of the total number of workers
who have ended parental leave, 85% of women and 90% of men have returned to the Company.
Also, during 2020, one year after the maternity and paternity event (which occurred in 2019), 80%
of women and 87% 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 2020 were Brazil, China,
Germany, Italy, Romania, Mexico, Argentina, USA, Russia, France, Spain, UK and Turkey,
representing over 3/4 of the total workforce subject to the remuneration policy (executives, cadres
and employees). At a methodological level, it should be noted that the pay gaps between men and
women were calculated for each Country and at the same weight of positions held, on the base of
the “grade” (i.e. the weight attributed to each position on the basis of various factors) 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
51 These data include agency workers, corresponding to 0.1% of total workforce in 2018, 0.2% in 2019 and 0.6% in 2020.
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Report on Responsible Management of the Value Chain Pirelli & C. S.p.A. – 2020 Annual Report
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, in line with 2019, compared with 8% in 2018 also in favour of
women; for the cadre category there is a substantial pay gap, which is compared with 2% in favour
of men recorded in 2019 and with 3% in 2018, also in favour of men. A few examples:
Italy, which has a difference between average remuneration for men and average
remuneration for women of around 3% in favour of women for the category of employees
(consistent with 2019 and compared to 2% in 2018 in favour of women); and 1% in favour of
men for the category of cadres (compared to 4% in 2019 and 2% in 2018 in favour of men);
Romania, where for the category of employees there is 4% in favour of men (consistent with
2019 and 2018) and for the category of cadre it is 8% in favour of men (as against 9% in
favour of men in 2019 and 4% in favour of women in 2018);
Brazil, where there is substantial pay parity between men and women in the category of
white-collar employees (compared to 3% in favour of men in 2019 and 1% in favour of women
in 2018) and 3% in favour of men in the cadre category (compared to 4% in favour of men in
2019 and substantial pay parity in 2018);
Germany, which shows a difference between average male and average female
remuneration of 2% in favour of men for the category of white-collar employees (compared
to 1% in 2019 and 2% in 2018 also in favour of men) and 2% in favour of men for the category
of managers (compared to 9% in 2019 and 7% in 2018 also in favour of men).
With reference to the population of managers, of which women represent 10.7%, there is an average
pay gap of 6% in favour of women (in 2019 it was 5% and in 2018 it was around 3% 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 of
10% in favour of men, compared to 7% in 2019 and 9% in 2018, always in favour of men,
due to the organisational roles currently filled by men;
Brazil has a pay gap of 4% in favour of men compared to 2% in favour of men in 2019 and
6% in favour of women in 2018;
in Italy there is a gap of 2% in favour of men, consistent with 2019, compared to 4% in 2018,
in favour of men;
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Pirelli & C. S.p.A. – 2020 Annual Report Report on Responsible Management of the Value Chain
in Romania there is a gap of 2% in favour of women, consistent with 2019, compared to
substantial pay equity in 2018.
With regard to the standard salary of new hires during their first year of work, this is shown to be
greater than the minimum levels prescribed by different 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
1.9% of total employees in 2020 (an increase of 0.2 pp from the figure for 2019 and 0.5 pp from the
figure for 2018) have some form of disability, net of the following considerations: the percentage
measurement of disabled employees in the multinational context of the company clashes with the
objective difficulty of measuring their number, both because in many countries where the Group is
present, there are no specific laws or regulations promoting their employment and therefore
disabilities are not automatically detected, and because in many countries this information is deemed
confidential and protected by privacy laws; it is therefore likely that the actual percentage of disabled
persons working at Pirelli could be higher than the above figure.
With reference to the “age” factor of the company population, subdivided by professional category,
it is homogeneous between genders, as can be seen from the table below.
AVERAGE EMPLOYEE AGE BY CATEGORY AND GENDER
2020
Executives
Cadres
White collars Blue collars Group Average
50
51
50
44
46
45
2019
38
39
39
37
38
38
38
39
39
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
37
38
38
36
37
37
37
38
38
Female
Male
Total
Female
Male
Total
Female
Male
Total
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Report on Responsible Management of the Value Chain Pirelli & C. S.p.A. – 2020 Annual Report
The following table represents the average seniority of service per professional category and gender:
also in 2020, there were no significant differences between men and women.
AVERAGE EMPLOYEE SENIORITY OF SERVICE BY CATEGORY AND GENDER
2020
Female
Male
Total
Female
Male
Total
Female
Male
Total
Executives
Cadres
White collars
Blue collars
Group Average
16
17
17
14
15
15
2019
9
10
10
7
10
10
9
10
10
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
15
8
9
9
6
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).
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Remuneration and 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.
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, although supervised from
central level.
Management in general is covered by the Annual Incentive Plan (STI), linked to the achievement of
annual economic-financial objectives for the Group and/or Business Unit and/or Region and/or
function, to which a sustainability objective is added, which from 2019 is linked to the value of the
Group’s “Green Performance Revenues52” (from 2021 renamed “Eco & Safety Performance
Revenues”) with a weight of 10% of the total. In line with market best practices, the incidence of the
variable component (short- and medium-term) on the total remuneration of each Group Manager is
very high, signifying a close correlation between remuneration and performance.
The Annual Incentive Plan (STI) provides for a deferred payment to the following year of a part (25%)
of the annual incentive accrued, subject to the achievement of the following year’s STI targets. The
portion to be repaid is equal to the amount set aside, if the following year’s objectives are achieved
between entry level and target, or double the amount set aside, if these objectives are achieved at
target level or above.
52 Eco & Safety 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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During 2020, in response to the Covid-19 pandemic, the Company approved the cancellation of the
short-term incentive (STI) for the year, expecting in any event to pay out 25% of the 2019 STI set
aside in the first quarter of 2021.
Since 2018, following the return to the stock exchange in October 2017, all Group Executives, in line
with the variable compensation mechanisms adopted at international level, have been eligible for a
multi-year Incentive Plan (LTI), which is totally self-financed as the related charges are included in
the Industrial Plan economic data. In 2020, a Long-Term Cash Incentive Plan was launched in line
with market best practices, based on a rolling mechanism (a new three-year Incentive Plan will
therefore be proposed each year), without an ON/OFF access condition and with some targets, of
which, in general, at least one is market-based, one is business-based and one is sustainability-
based. The 2020-2022 Plan provides for two sustainability targets: positioning in the Dow Jones
Sustainability Index World and in the CDP Climate Change index, both with a weight of 10% of the
total. The launch of a new three-year 2021-2023 Incentive Plan, with the same characteristics as
listed above, has been confirmed.
For updates and details on the Remuneration Policy and related sustainability indicators, refer to the
Governance section of 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, numerous events, projects and meetings were organised in 2020, where the
Company promoted its own Employer Branding initiatives. These activities are carried out also
thanks to the network of contacts and partnerships with 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, University of Turin and the University of Milan-
Bicocca. The latter Universities are located close to 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, which in 2020 were held virtually.
Among the channels of Employer Branding used by Pirelli, the web plays an important role: on
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.
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Development
Performance Management
Through the Performance Management (PM) process, Pirelli defines 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 manager and the
employee, from the phase of sharing individual objectives to that of evaluating the results achieved
and the behaviours expressed.
The model currently in use was redesigned in 2018 to ensure the process was aligned with the
business strategy. 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 drive.
the entire process is managed within a platform accessible from all company devices.
As usual, in 2020, the process was accompanied by digital training resources focused on the
evaluation and feedback process.
The Performance Management process involves all staff worldwide (executives, cadres and white
collar employees) and in 2020 saw a redemption rate (i.e., completed 2019 assessments compared
to the total eligible people) of 100% (with the redemption rate of 100% both for women and men).
The percentages of completion by level are shown below:
Executives
Cadres
White collars
100%
100%
100%
In support of the quality of the Performance assessments, 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
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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).
Completing the first mapping exercise started in 2019, the population identification activity described
above continued in 2020. The current population of talent and critical know-how is around 600
people. As far as talent is concerned, the average seniority of the company is 7 years. The strong
international character, represented by 22 nationalities, is also confirmed.
Training
All Pirelli affiliates have adopted the Learning@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.
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 as well as the training needs arising from the socio-economic context.
In 2020, in the face of the global pandemic, a large part of the training activities focused on Health
& Safety issues, in order to ensure that employees are properly informed about prevention and to
guarantee a safe return to the workplace. For more information see “Health, Safety and Hygiene at
Work”.
Despite the major digital transformation that in 2020 also involved the world of training, Pirelli training
model confirmed the solidity of its structure, divided into four main pillars: 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 fully managed and
implemented in the individual Countries to meet the specific local needs.
Professional Academies
Pirelli Professional Academies cater to the entire corporate population with the aim of providing
continuous technical-professional training, encourage cross-functional collaboration, ensure the
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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
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. 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.
Each year the Professional Academies meet with both top management and local training contacts,
with the objectives of strategic alignment, sharing of results achieved and definition of training
priorities to be focused on in the following months.
Among the shared priorities for 2020 (already in the pre-Covid era) was the digitalisation of training,
which saw a natural and inevitable acceleration during the year due to the pandemic context, leading
all the Professional Academies to expand their training offerings, supplementing the traditional
training delivered in 2020 in virtual mode with a portfolio of online courses to be used in
“asynchronous” mode and at the times chosen by the end user.
The expansion of the digital training offering was possible thanks to what had already been defined
and launched in 2019, the year in which the central Learning team defined a strategy for the gradual
digitalisation of training by following two main paths. The first involves the acquisition of already
available digital content, typically on cross-cutting and generalist topics, from specialist providers;
the second consists of the in-house creation of e-learning courses on highly specialised Pirelli
content, which is often less well covered at peripheral level. This two-pronged strategy has made it
possible to create a digital library in a short period of time, the content of which can be accessed at
any time by all colleagues with access to the Learning Lab platform, which has been redesigned and
updated to accommodate the new online content. Among the online courses created internally, we
can mention, as examples, “ABC Tyre”, “Understanding Manufacturing Control” and “Industrial
Engineering”.
At the same time as they expanded their digital training offerings, in 2020 the Professional
Academies continued to organise “live” courses in virtual mode, thus ensuring the possibility of
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interacting with participants, guiding their understanding and learning, and managing to reach a
higher number of colleagues globally more quickly. In this regard, mention should be made of the
important effort made by the Manufacturing and Quality Academies which, immediately after the start
of the health emergency and the contextual slowdown in production, managed to involve over 600
colleagues for about 10 hours of training per person over a period of two months, through a series
of webinars on topics considered fundamental for the professional updating of the target figures.
To support the Professional Academy internal trainers, the HR Academy also renewed its training
offer in 2020, providing various opportunities to update on how to conduct effective and engaging
online training sessions. Globally, 245 internal trainers were involved.
Pirelli School of Management
The School of Management (SoM) is the training structure dedicated to the development of the
management culture within Pirelli and its target audience covers 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 training model provides for a training offering
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 section “Insights & Updates”, a collection of articles and videos
published in the bi-monthly newsletter of the same name aimed at all managers on the LearningLab
international platform and the “Warming Up learning platform” dedicated to all recent graduates.
The School of Management’s training offering was also significantly expanded in 2020 with carefully
selected online digital content for each of the six Key Behaviours, with the aim of providing Pirelli
colleagues with opportunities to increase their awareness of how they can apply the key behaviours
in the work context. In parallel with the expanded online training offer, as with the Professional
Academies, we continued to organize virtual classes on managerial and employee management
topics.
As part of the School of Management’s offer, the traditional “Plunga” onboarding course was
converted to digital format for all new hires in the Pirelli Group in 2020, thus reaching a high number
of participants and redesigning the course from scratch, which now includes - among the new
features - a substantial section of online content to be used before the classroom.
Pirelli School of Management courses accounted for 14% of total employee training.
During 2020, the entire WarmingUp@Pirelli training course, dedicated to new graduates from across
the entire Group and lasting two years, was fully digitalised to ensure those involved could safely
follow the Covid-19 pandemic. The first digital delivery targeted a population of around 120
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employees. It is planned to extend the training programme in its fully digital format to all countries in
2021.
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 Privacy,
Digitalisation and Information Security are the primary focus of these training activities.
In the early months of 2020 Pirelli concluded the activities of the Digital Workplace project in all the
Group’s Italian companies. The project then saw, starting in March 2020, a strong acceleration
towards the other countries where the Group is present: by making the tools of the Office 365 suite
available to all employees globally, a roll-out originally planned for 2021 was completed in a few
weeks. This initiative enabled many colleagues around the world to continue their activities by
working remotely during the Covid-19 pandemic. The virtual basic training sessions dedicated to
countries (excluding Italy), with participation on a voluntary basis, reached around 900 people. The
specialised training sessions, dedicated to the population of change “accelerators” (employees
selected to promote the new digital tools within their departments), reached around 250 people. Over
3,400 unique users visited the training resources page dedicated to the initiative.
In the last months of 2020, a major awareness-raising campaign on Information Security issues was
launched. The first focus was on phishing, one of the main cyber threats to businesses in terms of
prevalence and danger. The supporting training activity included virtual sessions aimed at helping
people understand the phenomenon of phishing and sharing behavioural guidelines and processes
for mitigating the related risks. The initiative reached over 1000 employees in Italy. An extension of
the initiative to other Group countries is planned for the first part of 2021.
In view of the new prevailing work styles and methods, in the digital space of the Learning Lab
dedicated to Global Activities since March 2020, particular attention has been paid to supporting
colleagues in working remotely, making available various training resources in the section entitled
“Tips For Effective Remote Working”.
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 also an important tool for covering content related to the implementation of new
regulations or agreements.
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With regard to the Local Education Italia offer, in 2020 it was decided to include a new training course
entitled “Smart Living: training to deal with change and uncertainty” with the aim of supporting
colleagues in the delicate transition phase that characterised 2020, providing valuable moments of
self-awareness, reflection and training on how to deal with change. Final objective: learning to face
life’s moments of uncertainty with a positive mind-set capable of transforming critical situations into
opportunities.
Focus: Training on Sustainability and Corporate Governance
Also in 2020, training continued on 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 (including in the
new virtual version) 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.
In line with previous years, training activities dedicated to the Sustainability Managers of Group
affiliates continued; the sessions, held in digital mode, were valuable opportunities for discussion on
numerous emerging sustainability topics.
Moreover, in 2020 all colleagues in the Purchasing department were involved in a training campaign
on the principles of anti-corruption to be adopted in the workplace, thanks to the online course
created ad hoc for Pirelli entitled “Procurement Anticorruption: Principles & Behaviours”.
Pirelli training performance
Total training provided in 2020 was 5.1 average training days per capita. This figure reflects the
centrality of training in Pirelli’s culture, as well as its commitment to continuous investment even in
emergency and difficult situations, as was the case in 2020. The production slow down has justifiably
caused a partial reduction of plants in presence training activities, although safety and professional
upgrades training were fully maintained. Additionally, the reduction of the average training days per
capita could be linked to the new digital training methods, which by their very nature are designed
with content organized in micro-modular units and with shorter duration. The countries with the
highest training investment include Mexico, China and Romania, which are particularly driven by
production needs and the introduction of new employees.
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Average Training Days per capita
8.1
7.5
5.1
2018
2019
2020
Following is the subdivision of average training days by gender and by professional category53:
GROUP
WOMEN
3.75
MEN
5.37
5.1
EXECUTIVES
CADRES & WHITE COLLARS
BLUE COLLARS
0.9
2.54
5.75
The high level of training is confirmed for both genders, with around 1.5 days more for men to be
correlated with the clear prevalence of the male gender in the working population, an aspect which
has thus affected the gender distribution. 81% of employees (taking into account the average
workforce for the year) participated in at least one training activity during the year.
The investments made for the various categories of the company population (blue-collar workers,
middle management and white-collar workers, and executives) are in line with those of previous
years and balanced in proportion to the overall training strategies: the strong focus on manufacturing
improvement processes (Manufacturing and Quality) in addition to the usual attention to health and
safety issues, which are particularly relevant in 2020, determine the largest investments on the blue-
collar worker population.
On a global level, net of the specific training needs of each country, the Professional Academies
cover the most significant portion (25%) of the training activities on the total non-worker population,
and this relates to, among other things, training and the continuous updating of technical skills linked
to innovation processes, which are strategic for the company. In particular, with regard to employee
53 Data at Group level and by category calculated with average headcount for 2020; data by gender calculated with actual headcount as
at 31/12/2020.
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training, in 2020 reskilling campaigns in the areas of Quality, Manufacturing and Sales were
particularly important.
Health, Safety and Environment topics understandably gained in importance, constituting 15% of the
total training provided at Group level (6 percentage points more than in 2019).
In line with the major digital transformation processes underway in the company, training processes
have also been progressively involved in digitalising content relating to both basic skills and
innovation, so as to allow it to be used more widely, quickly and in a more engaging way. In 2020,
49% of employee training activities were carried out in virtual mode, both synchronously and
asynchronously.
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 engaging 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 enablement, and is based on the thesis that employee engagement is sustainable
over time when the work environment enables individual performance by providing the resources
necessary to do their job well, when it promotes individual well-being and the ability to “go beyond”
their work, and when it strengthens people’s alignment with the Company’s goals. The higher the
Sustainable Engagement score, the more likely it is that people’s engagement will be sustained.
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”.
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During 2019-2020, Pirelli worked on defining and implementing the action plans resulting from the
global survey conducted in 2018.
In addition, during 2020, characterised by the Covid-19 health emergency at the global level, the
company’s main effort was to keep its employees engaged through the use of customised corporate
welfare proposals, to respond to the specific needs that emerged during this difficult period with new
services to support the individual. First and foremost, remote work was extended to the various
countries in which Pirelli operates (for positions compatible with this work method) and new rules
were implemented to safeguard workers’ health in the workplace. New welfare services were also
introduced, delivered virtually, such as online edutainment programmes for employees’ children,
support for remote care givers, and virtual sessions on both traditional and digital wellbeing.
The trend already started in recent years of offering a broad and customisable corporate welfare,
suitable for finding the best solutions to cover all people’s new needs, has therefore been further
consolidated in 2020, characterising this area as a predominant lever of engagement with workers
and a tool to help them adapt constructively and effectively to a constantly changing scenario.
Structured listening activities will be activated again as soon as the emergency situation linked to
Covid-19 is overcome and a “new normal” scenario is consolidated, in respect of which the new
survey will be able to provide interesting insights and ideas for improvement with respect to the new
way of working and living in the company.
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.
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,
specific initiatives to improve the wellbeing of employees);
family support (e.g. scholarships, summer camps for employees’ children, inter-company
crèche);
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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.
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. Outpatient clinics
at Group sites were closed for long periods of time due to the global pandemic. In some countries,
including Italy, the Outpatient Clinic remained active for first aid activities and for serological
screening and administration of Covid-19 tests.
In addition to what has just been described, in 2020 the company put in place specific strategies to
support people, ensuring both the continuity of individual and company performance and personal
motivation and engagement. The lines of action to support work and reconciliation can be
summarised in three main levers:
“Safety first”: in line with our ongoing focus on health protection and safety, specific actions
have been implemented, such as making all workplaces safe, delivering masks to people’s
homes - where they are constrained by the generalised lockdown - when hard to find,
providing periodic screening through serological tests and rapid swabs free of charge, and
supporting the rapid performance of molecular swabs in critical or urgent situations;
Remote working: remote working was extended to all employees, who were quickly provided
with the appropriate digital equipment to enable them to work effectively from a remote
location. Not only: the immediate introduction of remote working was accompanied by
support and training actions, in digital mode, to facilitate the adoption of new digital skills and
work abilities necessary in the face of the almost total virtualisation of professional relations
and work performance (see the reference in the Training - Global Activities section);
Wellbeing: the Company has launched actions to support the psychological and physical
wellbeing of employees, whose lives and work activities have been revolutionised by the
global health emergency.
In particular, on this last front, the following are worth mentioning, among others:
the programmes launched in Italy, where digital courses were offered to support mental
wellbeing (e.g. on positive thinking or with guided mindfulness courses) as well as to support
physical wellbeing (e.g. yoga, stretching, Pilates courses). In addition, during the lockdown
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months when schools are closed, edutainment weeks were organised for employees’
children, with educational programmes that complemented those at school and aimed at
alleviating parents’ worries about care (the “Pirelli Smart Kids” project);
the large-scale information and prevention education campaigns launched in Brazil, together
with employee listening sessions on wellness issues, which resulted in targeted action plans;
the pandemic period further confirmed the value of wellbeing as a qualifying constituent
element of the relationship between people and the company, and as a generator, like other
factors, of motivation and engagement, in addition to being a strategic lever for attracting and
retaining people.
Industrial relations
The Industrial Relations policy adopted by the Group is based on respect for constructive dialogue,
fairness and roles. Relations and negotiations with trade unions are managed locally by each affiliate
in accordance with the laws, national and/or company-level collective bargaining agreements, and
the prevailing customs and practices in each country.
At this local level, these activities are supported by the central departments, which coordinate the
activities and ensure that the aforementioned principles are observed throughout the Group.
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, 79% 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.
During 2020, the Company continued with the process of organisational rationalisation at the Bollate
production site and the transfer of production from Gravatai to the Campinas plant, as per the Plan
communicated in 2019.
In addition, during the year, the Company worked at an international level to rebalance the level of
employment, aligning it to the volume requirements resulting from the drop in the market relating to
the Covid-19 pandemic. This organisational rationalisation action was managed in agreement with
the trade unions, using natural turnover and the use of tools to minimise social impact, in full
compliance with local legislation, collective contracts in force and trade union agreements.
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Even at a time of criticality generated by market conditions in the various countries, the Company
proceeded to renew the collective agreements expiring in Italy, Romania, Brazil, Argentina and
Mexico, without any conflict.
European Works Council (EWC)
Pirelli European Works Council (EWC), formed in 1998, holds its ordinary meeting once a year after
presentation of the Group Annual Financial Report, where it is informed about the operating
performance, operating and financial forecasts, investments made and planned, research progress
and other matters concerning the Group.
The agreement establishing the EWC provides for the possibility of holding other extraordinary
meetings to fulfil the information requirements of delegates, in light of transnational events
concerning significant changes to the corporate structure: opening, restructuring or closing of
premises, important and widespread changes in work organisation. EWC delegates are provided
with the IT tools they need to perform their duties and a connection to the corporate Intranet system,
for the real-time communication of official Company press releases.
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 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.
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
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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, Safety and Environment; Industrial Relations, and Compliance.
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
2020
Remote monitoring of action plans agreed in the preceding audits
During 2020, no specific on-site audits were carried out due to the ongoing pandemic emergency, hence the
impossibility of travelling for on-site verification activities. However, the level of implementation of the action plans
shared in the previous audits was monitored remotely by requesting specific self-declarations from the relevant
managers. It should be noted that in none of the audits carried out in previous years were violations of the ILO Core
Labour Standards found, with specific reference to forced labour, child labour, freedom of association and bargaining,
and non-discrimination.
Labour and social security lawsuits
In 2020, 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,
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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 50% of Pirelli employees are members of a trade union. As
to the percentage of workers covered by collective agreement, in 2020 it stood at 79% (vs. 78% in
2019 and 77% in 2018). This figure is associated with the historical, regulatory and cultural
differences between each country. Collective agreements to be renewed in 2020 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
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economic-equity measurement of the above benefits, reference is made to the Consolidated
Financial Statements, notes “Employee funds” and “Personnel Costs” within this Annual Report.
The social benefits recognised by Pirelli in favour of employees (including life insurance,
invalidity/disability insurance and additional parental leave) are generally granted to 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
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;
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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 Pirelli website, which should be consulted for full
display of the content.
At all of its production sites, Pirelli voluntarily adopts an occupational health and safety management
system structured and certified according to Standard ISO 45001/OHSAS 18001:2007. All
certificates are issued with ANAB international accreditation (ANSI-ASQ National Accreditation
Board - US accrediting body). The occupational safety management system, applied without
exclusion to all processes and activities at each production site, 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. The development and
continuous improvement of the management system is carried out both centrally and locally by the
internal Health & Safety functions with the involvement of all relevant functions. Improvement is
based on the continuous application of cycles of action planning, programme implementation,
verification of results and, based on these, implementation of improvement.
At local level, in each individual production unit, from the perspective of involvement and
participation, 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.
In 2020, eight production sites made the transition from OHSAS 18001:2007 certification to ISO
45001; for the remaining sites, due to the pandemic context, the transition was planned for 2021.
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In 2020, the coverage of the safety management system (certified according to ISO 45001/OHSAS
18001:2007) and subject to internal and third-party audits is as follows:
COVERAGE OF THE MANAGEMENT SYSTEM
Employees
Agency workers
Contractors
Number of workers covered by the management
system
the
Percentage
management system our of total number of workers
of workers
covered
by
24,127
80%
167
98%
n.d.54
100%55
Safety culture
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 over time to a sharp decline in injury rates.
To support 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 and has gradually been extended to all the Group’s
production sites. Each site sets up a Central Safety Committee made up of the heads of the functions
and of which the Plant Manager is the coordinator. This Committee, which meets at least quarterly,
directs the actions of the local Excellence in Safety programme and governs its progress. In a co-
ordinated manner, various thematic sub-committees are also set up, which carry out continuous work
in relation to the characteristic themes of the site.
In addition, internal tools were implemented to support the Excellence in Safety programme, aimed
at supporting the effectiveness of the processes applied and the results obtained.
With regard to the most important areas of intervention of the “Excellence in Safety” Programme,
these 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 involved and valued in safety
management. Thanks to information, communication and training actions, everyone is encouraged
to report any anomaly and/or unsafe condition in order to promote participation in continuous
improvement and the removal of any potential cause of an accident. All reports, as well as real or
54 Figure not available.
55 This value is possible because the hours worked by employees of contractors at Pirelli sites refer exclusively to sites with a certified
safety management system. Contractors working in offices are excluded from the calculation because their number is negligible
compared to contractors working at production sites.
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potential accidents, are managed according to specific procedures aimed at analysing the causes
and defining corrective and risk mitigation actions, involving all functions.
The dissemination and sharing of the Safety Culture is also supported by the regular newsletters like
the Safety Bulletin, and the sharing of significant events through the traditional channels of internal
communication.
Risk prevention, protection and management
Specific procedures for managing all risk issues are developed in accordance with international
standards and reference norms that are applied and translated at each site, integrating compliance
with local regulations. The procedures, also developed with the collaboration of the relevant
functions, systematically define the requirements for risk analysis, risk management methods and
design requirements to ensure that hazards are reduced at source. The risk analysis activity leads
to the definition of risk reduction programmes and actions pursued at each site and kept under control
by specific site committees. In addition, processes of preventive analysis and release on new
projects are applied in order to ensure risk management in all phases of development and
implementation of new machines and plants. These approaches make it possible to implement risk
elimination and reduction logics in priority to the mitigation and containment strategies implemented.
The procedures are reviewed and updated in the event of regulatory changes, technological or
process changes and following the analysis of incidents.
Risk management related to commercial supplies of raw materials, services and equipment is
governed by safety and acceptability requirements included in the general conditions of supply. All
chemical substances and products used are subject to prior HSE assessment (see section “ESG
elements in the purchasing process” of this Report) and all equipment is subject to conformity
analysis and risk assessment before being put into production. Safety management in supplier
activities on sites is regulated by procedures specifying coordination requirements, prior risk analysis
and work authorisation.
The year 2020, characterised by the Covid-19 pandemic, saw a particular focus of Health & Safety
activities on managing prevention measures, protecting the health of personnel and ensuring safety
conditions at all Pirelli sites. To manage the risk of Covid-19 infection, risk analysis procedures and
action plans were developed to ensure the health of workers and safe and secure work
environments.
All Pirelli production sites are served by occupational medicine facilities that employees can access
freely and which are managed by specialised medical and/or paramedical personnel with
independent management (guaranteeing privacy) of the doctor-patient relationship. These services
operate in coordination with the safety management functions and with company management to
provide the necessary support for general risk prevention actions and guarantee the necessary
health surveillance to protect workers. These services do not only focus on occupational medicine
but also offer health care to all staff in compliance with local regulations. As for 2020, they focused
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on supporting employees in the particular pandemic context due to Covid-19, providing medical
support and assistance (also outside the workplace) in health cases that occurred and with particular
attention to employees with particular physical frailties.
Safety training
Around 15% of the total training provided by Pirelli in 2020 concerned occupational health and safety
issues. Each site designs, plans and delivers safety training on the specific risks present, the
particular need to update and comply with regulatory obligations, trends in accident indicators and
the evolution of site activities and processes. The characteristic themes of this training concern
general safety concepts including obligations, responsibilities and protection concepts, the treatment
of all work-related risks present at the site, safety operating procedures, golden rules, emergency
procedures, the Excellence in Safety programme mentioned above and the application of its
operating tools, accident notification and management procedures, and safety procedures and
standards for managing emergencies from Covid-19.
In addition to safety training offered locally at every Pirelli location (illustrated previously in the
paragraph dedicated to Training), there are 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 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 information on accidents and special situations that occurred in
factories, fitting units, sales centres, and warehouses managed directly by Pirelli, including the
various categories of workers (agency workers and contractors operating at Pirelli sites). All sites
have access to information on the most significant accidents or near misses through the receipt of
Safety Alerts by the HSE-DM system, so that an internal analysis can be conducted to verify whether
similar conditions exist and, if necessary, to implement appropriate corrective action.
The performances reported below are for the three-year period 2018-2020 and cover the same
scope of the Group’s consolidation.
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In February 2020 Pirelli presented its 2020-2022 Industrial Plan with Vision 2025 indicating, for 2022,
an accident frequency index ≤ 0.15 for 100,000 worked hours (or IF ≤ 1.50 for 1,000,000 worked
hours 56) and for 2025 an accident frequency index ≤ 0.10 for 100,000 hours worked (or IF ≤ 1.00 for
1,000,000 worked hours).
In 2020, Pirelli registered an accident Frequency Index (FI) of 0.22, when referring to 100,000
worked hours, or 2.24 if referred to 1,000,000 worked hours. The most representative accidents are
those involving contusions, cuts, fractures and sprains.
The accident frequency index for accidents involving an absence from work of more than 6 months
in 2020 is 0.10 for Pirelli employees (based on 1,000,000 worked hours) and zero for temporary
workers.
In the mapping of all hazards and on the basis of the accident trend, the main hazard identified as
potentially at risk of accidents with serious consequences relates to the mechanical risk, which was
the main contributor to the accidents that occurred in 2020. Actions are constantly underway to
reduce the mechanical risk at source, through investment in machinery safety, and to manage
residual risks by defining safety operating procedures and continuous staff training.
For 2020, in line 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 1,000,000
56 In accordance with the new GRI reporting standards, the frequency index and the resulting target value is reported with reference to
1,000,000 hours worked.
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The following table summarises the distribution of the Frequency Index by geographical area:
FREQUENCY INDEX
Europe North America South America Russia, Nordics & MEAI Asia Pacific
2018
2019
2020
4.71
3.34
3.18
2.04
1.65
2.04
3.10
3.46
2.69
0.34
1.47
1.31
0.21
0.22
0.11
FI = number of injuries/number of hours effectively worked x 1,000,000
The injury Severity Index (SI) in the Group in 2020 was 0.15, with a slight increase over the previous
year and affected by a reduction in hours worked due to the global situation resulting from the Covid-
19 pandemic.
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 Severity Index by geographical area:
SEVERITY INDEX
Europe North America
South America
Russia, Nordics & MEAI
Asia Pacific
2018
2019
2020
0.18
0.13
0.20
0.16
0.07
0.11
0.11
0.19
0.20
0.03
0.11
0.09
0.01
0.01
0.00
SI = number of days of absence, starting from the first day after the accident/number of hours effectively worked x 1,000
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.
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COMMUTING ACCIDENTS
2018
119
2019
117
2020
52
COMMUTING ACCIDENTS Europe North America South America
2018
2019
2020
28
35
15
42
43
3
49
39
34
Russia, Nordics &
MEAI
Asia
Pacific
0
0
0
0
0
0
There are no activities with a high incidence of occupational diseases. The hazards identified as a
potential source of occupational disease determined on the basis of risk assessments conducted
concern the manual handling of loads, exposure to noise and the handling of chemicals. The main
types of occupational diseases recorded in Pirelli employees relate to musculoskeletal disorders and
hearing loss. There are no known cases of death due to occupational diseases in the last three
years, nor are there any cases of occupational diseases recorded in contractors.
The Frequency Index for occupational diseases in 2020 stands at 0.69.
FI = number of occupational illnesses/number of hours effectively worked x 100,000,000
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The following table summarises the distribution by geographical area of the Frequency Index for
occupational diseases:
FI OCCUPATIONAL DISEASES Europe North America South America
2018
2019
2020
0.31
0.22
0.26
0
0
0
1.01
1.45
2.23
Russia, Nordics &
MEAI
Asia
Pacific
0
0
0
0
0
0.11
Continuous improvement programmes are aimed, with reference to the sources of occupational
disease, at increasing the ability to identify ergonomic risk and consequent technological
improvement, favouring where possible automation and design integrated with the ergonomic
requirements of machines. These actions aimed at reducing the risk at source are in any case
complemented by training and organisational measures to encourage safety and prevention
behaviour.
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 202057 by
gender and, subsequently, by geographical area:
ACCIDENTS OF AGENCY WORKERS
Number
FI agency workers - Men
FI agency workers - Women
2018
8
10.16
0.00
2019
5
5.46
4.38
2020
3
2.96
0.00
FI = number of occupational illnesses/number of hours effectively worked x 100,000,000
ACCIDENTS OF AGENCY
WORKERS
Europe
North
America
South
America
Russia, Nordics &
MEAI
Asia
Pacific
2018
2019
2020
8
3
0
0
2
2
FI agency workers 2018
163.76
0.00
FI agency workers 2019
59.98
FI agency workers 2020
0
48.00
46.70
0
0
1
0.00
0.00
1.11
FI = number of occupational illnesses/number of hours effectively worked x 100,000,000
0
0
0
0.00
0.00
0.00
0
0
0
0.00
0.00
0.00
57 Calculated per 1,000,000 hours worked.
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The Accident Frequency Index for employees of suppliers operating at the Group’s production sites58
stands at 1.30 in 2020. Below are the data for the last three years and the distribution by geographical
area of the cases.
FI CONTRACTORS
2018
1.77
2019
1.28
2020
1.30
FI = number of injuries/number of hours effectively worked x 1,000,000
FI CONTRACTORS
Europe North America
South America
Russia, Nordics & MEAI
Asia Pacific
2018
2019
2020
0.91
1.95
1.77
1.11
0.93
1.58
2.75
0.82
1.67
3.50
1.04
0.00
0.00
0.00
0.00
Below are the figures relating to fatal accidents recorded in the last three years with reference to
Pirelli employees, agency workers and employees of suppliers operating at Group production sites.
FATAL ACCIDENTS
Pirelli employees
Agency workers
Contractors
2018
2019
2020
0
0
0
1
0
0
0
0
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, one event was recorded in 2019,
involving an employee working in the Russian plant of Kirov.
58 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”
18 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
Logistics - TLM
Jiaozuo, Bollate, Burton MIRS, Slatina Motorsport
Camacari, Sorocaba, Hurlingham, Goiana, Didcot, Ibirite, Sao Jose dos
Pinhais
TLM Barueri, TLM Santo Andre, TLM Cabreuva, TLM Feira de
Santana, TLM Gravatai
Other
St. Andrè HQ, Elias Fausto HQ
Health and safety investments
In the three-year period 2018-2020, investments in health and safety by the Group exceeded €37
million, of which over €4.7 million was invested in 2020.
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).
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EXTERNAL COMMUNITY
Insitutional relations for Pirelli Group
Pirelli’s institutional relations 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 Ethical Code, the Institutional Relations -
Corporate Lobbying Policy and the Group Anti-Corruption Compliance Programme (documents
published on 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.
The goal of the Institutional Affairs Department is to create corporate value through the management
of structured relations with reference stakeholders in all 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 Affairs 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 own values
and 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 Forums, including the Italo-
Russian Committee for Economic Cooperation (CIIR), of which it has held the Co-Chairmanship
since 2020, the China Business Forum (BFIC), 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 2020 with institutional representatives in Italy and
abroad. In a context marked by the Covid-19 health emergency, a series of bilateral meetings were
held, both virtual and in-person where possible, aimed at deepening the Group’s industrial and
commercial issues with significant institutional impacts. These included meetings with several
representatives of the EU, USMCA, 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 2020 Pirelli maintained a dialogue with the main local institutions on multiple
areas of interest, especially with a view to improving the quality and efficiency of the tyre industry in
Shandong, with particular regard to safety and environmental dynamics. In the wake of the Covid-
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19 health emergency, the Group committed itself immediately and in liaison with local institutions,
with the primary objective of protecting the health of its employees and the community in which it
operates. During 2020, Pirelli also strengthened its dialogue with major local institutions on multiple
areas of interest, particularly on sustainability issues, thus contributing to the recognition of the Pirelli
plant in Yanzhou as a “National Green Factory” by China’s Ministry of Industry and Information
Technology. Also in 2020, the Yanzhou factory was certified as a Level A enterprise, which relieves
the factory from having to suspend and limit production in the event of highly polluting weather
conditions, ensuring that the factory can take measures to reduce polluting emissions independently.
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 (USTMA), Original Equipment Suppliers
Association (OESA), American Sustainable Business Council (ASBC), Public Affairs Council, and
Automotive Industry Action Group (AIAG). Within these associations Pirelli is active in promoting
strategies consistent with Group sustainability policies, particularly commitments against climate
change and in favour of social responsibility in the supply chain. In particular, Pirelli sits on the
USTMA Sustainability Task Force, the AIAG Corporate Responsibility Steering Committee, the CSR
Network of the Public Affairs Council and the SASB Standards Advisory Group. Consistent with
Group policies, it does not participate in any political action committees in the United States and
more generally does not contribute to election campaigns. Pirelli undertakes to check from time to
time that the sustainability positions of the associations of which it is a member are consistent with
Group positions.
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. In these states, a series of initiatives are also
developed to raise awareness on issues such as urban mobility, road safety, the protection of the
territory and social and cultural promotion. In the wake of the Covid-19 health emergency, Pirelli
made an immediate commitment, in conjunction with local institutions, to the primary objective of
protecting the health of its employees and the communities in which it operates. In Brazil, Pirelli is
associated with and holds the chairmanship of the Board of ANIP (National Association of the Tyre
Industry) with the objective of developing its identity and promoting the interests of the sector in
institutional dealings with local governments. The Group is also associated with Reciclanip, which is
active in the management of end-of-life tyres. Pirelli has recently taken up the vice-presidency of the
Italian-Brazilian Chamber of Commerce, Industry and Agriculture (ITALCAM).
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, also in view of the Trade and Cooperation Agreement between the United Kingdom and
the European Union signed in December 2020.
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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 2020, Pirelli was appointed Co-Chairman of the
Italian-Russian Business Committee (CIIR) for Economic Cooperation. Pirelli then participated in the
restricted version of the CIRCEIF held in Moscow.
Relations with European institutions are focused on consolidating relations with institutional
counterparts and stakeholders of reference, monitoring legislation and constantly 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 interest to
the company. In 2020, the activity focused on regulatory and policy developments relating to
industrial policy, research and innovation, energy and environmental policies, the circular economy,
transport and mobility, technical regulations, the internal market and consumers, international trade
and bilateral agreements. Of particular interest was the implementation of policies related to the
Green Deal, the European plan on the new strategy for sustainable growth launched by the
European Commission at the end of 2019, and, in the legislative sphere, the finalisation of the
revision of the Regulation on tyre labelling. The monitoring activity also covered the initiatives taken
at European and country level to combat the pandemic crisis and for European recovery, as well as
the negotiations on the new long-term budget of the European Union. In the various stages of drafting
and defining European legislation, Pirelli represents the Group’s interests among its European
Stakeholders. Pirelli is listed on the European Transparency Register, 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 at central and local level. 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 Italian
Presidency, the Presidency of the Council, the Ministry of Economic Development, the Ministry of
Economics and Finance and the Regions of Lombardy and Piedmont.
In 2020, at the beginning of the pandemic, in the moment of emergency caused by the shortage of
medical equipment and devices, Pirelli intervened to support the Lombardy regional health system
with a donation of 65 devices for assisted ventilation in intensive care, 5,000 suits for medical use
and 20,000 masks. Italian employees also made a direct contribution by donating the equivalent of
more than 7,000 working hours to the Sacco hospital in Milan through the project “Insieme per l’Italia,
insieme per la ricerca”. This donation, doubled by the Company, led to a total donation of €440,000.
During the year, as part of the State Visit of the President of the Federal Republic of Germany to
Italy, Pirelli hosted the President of the Italian Republic and the German President, as well as other
high-level officials from the State and the diplomatic network of Italy and Germany, at Pirelli
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HangarBicoccaTM, where they took part in the Study Panel “La Rinascita al tempo del Covid”
(“Resurgence in the Time of Covid”).
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.
Since December 2019 Pirelli has also been on the Board of the Global Compact Network Italia.
In 2020, 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 Chain”“: in December 2018 Pirelli and the other participating
companies signed the “Commitment to Action”, publicly committing themselves to the
sustainable management of their supply chains; as a result of the activities carried out by
the working group in 2019, in February 2020 the digital platform “Decent Work Toolkit for
Sustainable Procurement” was published, a tool aimed at supporting companies in
integrating sustainability into the procurement process; during 2020 the group worked on
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several publications including the “Leadership Brief Navigating Multi-tiered Supply Chains”
and “Family-Friendly Workplaces”.
“Sustainable Finance”: 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. In September 2020, the taskforce published the “CFO Principles on Integrated
SDG investments and finance”, which aim to support the alignment of finance and
investment practices with the SDGs through the implementation of best practices.
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.
Once again in 2020 Pirelli was recognised - the only one in the tyre sector worldwide - as part of the
United Nations Global Compact Lead, which brings together the companies which have been
identified as most committed at the global level to implementing the Ten Principles of the United
Nations Global Compact as well as advancing global sustainability goals.
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 2020, 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 2020 and in the face of the Covid-19 emergency, ETRMA developed a position paper calling
for a “policy response” to the European institutions “that both ensures a successful post-Covid-19
recovery and drives the European Green Deal targets”. This action plan consisting of 25 key actions
for a forward-looking restart of the sector and the economy at large, listing tangible policy
recommendations for a successful emergence from the Covid-19 crisis, was proposed and issued
jointly by the four associations representing the automotive sector, equipment and tyre suppliers,
vehicle manufacturers, dealers and garages (ACEA, CECRA, CLEPA and ETRMA). The aim of this
plan is to contribute to a policy response to Covid-19 that ensures public health, minimises the impact
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on the economy and keeps the focus on the overarching goals of our time: a digital, inclusive and
carbon neutral society.
In 2020, with the support of Pirelli, the Connected & Autonomous Driving (CAD) group continued its
intense work to respond to the new technological challenges affecting the mobility sector
(connectivity, autonomous driving, cyber security, etc.) and their impact on tyres, with a particular
focus on the methods for managing and exchanging data between the various players in the system.
The association ETRMA continues to work alongside the European Commission in defining policies
on the Circular Economy with an impact on 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 in fact continue to be an international benchmark.
ETRMA maintains a proactive role in the development of cognitive studies regarding environmental
issues, e.g. Tyre Road Wear Particles (TRWPs), micrometric particles produced by combined road
and tyre wear during vehicle circulation, and health issues, e.g. granulated filler material obtained
from end-of-life tyres for sports fields. With regard to TRWPs, ETRMA launched in 2018, with the
support of CSR Europe, the “European TRWP Platform”, a multi-stakeholder initiative aimed at
sharing scientific knowledge and engaging relevant Sectors and Organisations to define possible
actions to mitigate the impacts of TRWPs. In 2019, the “European TRWP Platform” published the
State of Knowledge (“Scientific Report on Tyre and Road Wear Particles, TRWP, in the aquatic
environment”) and possible mitigation actions that can be taken by the various stakeholders about
TRWPs (“The Way Forward Report”). A micro-site was also created59 to provide information on
TRWPs to the general public from root causes to the definition/implementation of mitigation actions,
highlighting the multi-stakeholder nature of the phenomenon. The platform’s activities continued in
2020 both in terms of dialogue between the various stakeholders and to support the implementation
of pilot mitigation projects. During the year, a database of scientific studies related to TRWP
generation and mitigation was also created and continuously fed with data by Platform members.
Finally, the activities and results of the European TRWP Platform were presented in May 2020 at
the OECD Workshop on “Microplastics from Tyre Wear: Knowledge, Mitigation Measures, and Policy
Options”, where the need for joint action by all stakeholders impacting the phenomenon was recalled.
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
59 https://www.tyreandroadwear.com/.
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over 30 countries that have made a voluntary commitment to link economic growth to sustainable
development. In particular, Pirelli endorses three projects: Tire Industry Project, Transforming Urban
Mobility and Future of Work.
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 guide60 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.
TIP’s collaboration with the OECD on the topic of nanomaterials has therefore continued through
active support of the preparation of the guide “Moving Towards a Safe(r) Innovation Approach (SIA)
for More Sustainable Nanomaterials and Nano-enabled Products”61 (published on 22 December
2020). The new guide has, among other aims, that of helping the industry - not only the tyre industry
- to implement a “Safe(r) Innovation Approach for nanomaterials and nano-enabled products”, as
well as including issues related to regulatory and “governance” strategies. TIP contributed with a
specific annex (Annex 1) describing the case-study of the Tyre Industry, approaching the topic in
line with the previous OECD sector specification on tyres and nanotechnologies, and sharing the
experience of TIP research according to a whole life cycle approach.
During 2020, 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-
2019” which presents the environmental performance related to CO2 emissions, energy
consumption, water withdrawal and ISO 14001 certification of the environmental management
systems of the factories where the members of TIP produce the tyres.
Also in 2020, TIP has continued its activities aimed at 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. These activities represent the natural consequence of the analysis presented in 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.
60 http://www.oecd.org/chemicalsafety/nanosafety/nanotechnology-and-tyres-9789264209152-en.htm.
61 www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=env/jm/mono(2020)36/REV1&doclanguage=en.
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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. Platform members include
manufacturers, processors and traders, tyre manufacturers/buyers, car manufacturers, financial
institutions and civil society.
The Transforming Urban Mobility project, which brings together international companies from the
automotive, auto parts, transportation, oil&gas, information and communication technology sectors,
aims to promote and accelerate the transition to safe, universally accessible and environmentally
friendly urban mobility. The project is divided into workstreams to analyse in detail the new trends of
future mobility such as electrification, data sharing and mobility sharing, and proposes guidelines for
the transition to a more sustainable mobility through the use of new technologies. Worthy of mention
are the publications “EV adoption guide”, aimed at companies, and the “Emerging Principles for
Datasharing”, aimed at all players in the new mobility. Project members also interface with cities to
discuss the most suitable and concrete solutions for each context. Finally, during 2020, TUM has
initiated a valuable collaboration with the ITF (International Transport Forum), with the aim of
publishing a guideline document on sustainable mobility to be shared with the European institutions
during 2021.
The Future of Work Project brings together leading companies from different sectors to combine
their respective insights, innovations and influences to create strategies, business models and
develop scalable business solutions to address the challenges that characterise the future of work,
i.e. rapid technological change, socio-economic polarisation, changing workforce expectations. The
aim is to pursue an equitable, diverse, inclusive and empowering future of work, with the interests of
people at its core. For more information on the project and to access the documentation developed
to date, please visit the “Future of Work” section of the WBCSD website.
Among the WBCSD initiatives supported in recent years is the signing by the Group CEO of the
“CEO Guide on Human Rights”, published in 2019 with the aim of promoting respect for human rights
by companies and their suppliers and business partners.
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
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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. In 2020, in cooperation with leading research institutes, IRSG organised the three-
day workshop “Climate Change and Rubber Economy”, which discussed the impacts of climate
change on the world of natural rubber. The workshop highlighted a number of climate change
mitigation and adaptation initiatives to protect the communities operating in the sector, as well as the
importance of dialogue between countries to achieve them.
EU-OSHA – European Occupational Safety and Health Agency
In 2020, for the twelfth consecutive year, Pirelli continued its activity as an official partner of the
European Agency for Safety and Health at Work (EU-OSHA), which tackles a different issue every
two years. In particular, in 2020 Pirelli adhered to the 2020-2022 campaign “Healthy Workplaces
Lighten the Load” dedicated to raising awareness of ergonomic risks in the workplace and the
prevention of related musculoskeletal disorders.
The campaigns in which the Company has participated in recent years include the 2018-2019
“Healthy Workplaces Manage Dangerous Substances” campaign aimed at raising awareness of the
risks posed by hazardous substances in the workplace, the 2016-2017 “Healthy Workplaces for all
Ages” campaign dedicated to the importance of a sustainable working environment that ensures the
health and safety of employees throughout their lives, and the 2014-2015 “Healthy Workplaces
Manage Stress” campaign, focused on the issue of stress and psycho-social risks in the workplace,
the main aim of which was to encourage employers, managers and workers and their representatives
to work together 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
31 multinational companies and 45 national partner organisations from 31 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
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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 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.
Moreover, in early 2020, Pirelli expressed its commitment to the Science Based Target initiative
(SBTi) for the definition of targets on the reduction of absolute CO2 emissions that are in line with the
level that science is demanding to keep climate warming well below 2°C, as recommended by the
Paris Agreement. In June 2020, the new targets for reducing absolute CO2 emissions set by Pirelli
for its production processes and supply chain were validated by SBTi, which judged them to be
consistent with the actions needed to keep the increase in the planet’s temperature well below 2
degrees.
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.
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 “2° Challenge Communiqué” (2011), the “Cancún Communiqué” (2010),
the “Copenhagen Communiqué” as well as the “Bali Communiqué” (2007), the first document for the
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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”.
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 Eco & Safety Performance strategy
that inspires the Group’s industrial and commercial choices. Pirelli’s commitment to road safety takes
the form of numerous training and awareness-raising activities, but above all it translates into
research and the ongoing application of innovative technological solutions for sustainable transport.
Pirelli’s commitment to road safety passes first and foremost through the product: the tyre is in fact
the only part of the vehicle that interfaces directly with the road and as such is a fundamental element
of road safety. Road safety has always been a cornerstone of the Pirelli brand. “POWER IS
NOTHING WITHOUT CONTROL™” is 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™
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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 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 2020 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 “Transforming Urban Mobility” project, which
explores the major trends in mobility (electric, shared and autonomous) to offer cities that interface
with more sustainable and thus 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 2020, the partnership with the University of Milan Bicocca and some neighbouring
companies was strengthened on the subject of smart mobility in general and safety in particular. Also
in this area, a project was proposed during the summer to the municipality of Milan and neighbouring
municipalities in the Bicocca area which, through a series of interventions on the local road system
with cycle lanes and 30 km/h zones, would promote road safety for the most at-risk road users, such
as cyclists and pedestrians, and thus road safety for all. With a view to promoting road safety culture,
cooperation with the Italian Traffic Police was also maintained; however, due to the ongoing health
emergency, the planned initiatives were postponed and rescheduled for 2021.
In the United States and Canada, “Tire Safety Week” was organised, a series of initiatives on safe
driving that also involved other tyre manufacturers. In the United Kingdom Pirelli made a donation to
TyreSafe, an organisation dedicated to spreading education about proper tyre maintenance and the
danger posed by defective or illegal tyres.
Also in 2020, despite the numerous limitations on events caused by the health situation, Pirelli
continued with various initiatives to promote road safety education on two wheels. In particular, the
commitment focused on collaboration with driving schools to develop practical and safe experience
on and off the road. The various initiatives include partnerships with the Enduro Republic, Motorace
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People, Ducati Riding Experience, Honda True Adventure Off-Road Academy and Ride Out
Experience, organised in collaboration with KTM.
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.
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.
The company supports educational and didactic initiatives that can give disadvantaged young people
the tools to improve their condition; it contributes to scholarships and research projects, firmly
believing in education as the key to individual growth and to the economic growth of a country.
In China, Pirelli sponsored 42 scholarships for science and technology students at the University of
Qingdao. In Turkey, Pirelli donated laptop computers to students as a prize for completing the
curriculum, and technical material for a robotics competition. In several countries the company has
opened its doors to groups of students to introduce them to manufacturing for educational purposes.
In particular, in Kirov, Russia, Pirelli invited 28 students to the factory to view production processes
and teach them the importance of safety in the workplace and the use of personal protective
equipment.
In Romania the partnerships with the Universities of Craiova and Pitesti and the Polytechnic
University of Bucharest concern the recognition of scholarships and they also continued during the
pandemic period. During 2020, Pirelli also hosted 42 mechanics and 42 electronics students from a
dual school and supported the online classes of 100 children at the Coteana primary school in the
Olt region, providing them with tablets and tools they needed to participate in online classes during
the period of the health emergency.
In Argentina, Pirelli also helped high school students with tools and suggestions for their entry into
the world of work, focusing on preparing CVs and job interviews.
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.
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In Italy, during 2020, there was continuation of the Alternanza Scuola Lavoro project (now called
PCTO), launched in 2017 and governed by the 2015 “Good School” law. The project, designed on a
three-year basis, involves three classes from chemical and technological high schools 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.
In 2020, Pirelli continued its collaboration with natural rubber supplier Kirana Megatara in Indonesia,
donating scholarships to the children of natural rubber farmers to enable them to go to school and
buy school books. The scholarships covered 65 children.
In 2020, due to the health emergency, Pirelli had to suspend its rubber tapping competition, which it
had been organising for several years in Indonesia with the aim of teaching natural rubber farmers
how to extract rubber correctly in order to protect natural resources. Instead, Pirelli and Kirana
Megatara distributed essential foodstuffs to about 2740 farmers, part of the Group’s supply chain,
and their families.
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 30
countries around the world with the support of 300 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.
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 130 children
from the area. In 2020, the coaches ran the programme remotely because of the pandemic. In 2014,
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Pirelli and Inter launched an Inter Campus project together in Voronezh, Russia, involving three local
orphanages with about 100 children.
In Brazil, Pirelli supported football, judo and karting programmes. In particular, the karting world
championship held in 2020 saw around 3,000 participants, while judo lessons were held online due
to the pandemic, involving around 500 children.
Solidarity
Pirelli’s responsible approach of involvement and inclusion is reflected in social solidarity activities
around the world. The pandemic has severely affected not only the health of millions of people
around the world, but also the economy. Pirelli, like many other companies, has tried to help, not
only by providing personal protective equipment and fans, but also by distributing food and other
basic necessities.
In Spain, the Company supports the Santa Clara Convent Foundation, which manages programmes
that provide food to needy families. Pirelli has made a warehouse available for the storage of food
for the poor.
In Moscow, Pirelli contributed to the “Chance” project, which provides private lessons to some 600
orphans from various orphanages. In Kirov, Pirelli donated desks for children at the Nadezhda
orphanage, and participated in an initiative to help children from families in difficulty with school
supplies.
In China Pirelli supported 32 orphaned and poor children in Yanzhou. In Turkey Pirelli supported a
foundation for the protection of children and one for maternal education. In Sweden Pirelli contributed
to Children’s Day, raising funds for disadvantaged children. In France Pirelli made a donation to the
UN refugee agency, UNHCR. In Romania, employees participated in a craft fair, donating proceeds
to 50 local families.
In the UK, Pirelli supported a number of social solidarity initiatives, including a donation of 50 pots
and pans for needy families. In Germany, Pirelli sponsored the youth work of the local fire brigade.
In Brazil Pirelli supported several social solidarity activities: Associacao Imaculada Coracao de Maria
Educandario, an educational activity for 486 children run by Italian nuns; Aprender Brincando, an
after-school project with activities for 120 children; Servico de Convivencia Meninos e Meninas,
another important after-school activity for 33 children; and Projeto Guri, an important musical activity
for 165 children. In Argentina, Pirelli employees maintained a square, “Plaza Pirelli”, providing games
and benches.
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Health
During 2020, the global emergency due to Covid-19 caused Pirelli to devote a significant portion of
its contributions to the external community to initiatives supporting health, both aimed at the families
of Group employees and at the local communities where the Company operates.
Many initiatives have been launched in the countries where Pirelli operates.
In Italy, in collaboration with the Region of Lombardy, Pirelli has donated 65 ventilators for assisted
breathing, 5,000 suits for medical use, and 20,000 protective masks to hospitals in the region. Italian
employees also made a direct contribution by donating the equivalent of more than 7,000 working
hours through the “Together for Italy, Together for Research” project, amounting to about €220,000.
The Company donated directly an amount of the same value and, thanks also to donations received
from other companies close to Pirelli Group, donations reached €750,000. In addition, the Group
decided to cancel production of Pirelli Calendar for 2020 and donate €100,000 to medical research.
In China, through the Yanzhou Charity Federation, Pirelli donated RMB 5,000,000 to support the
local community.
Also in Romania, Pirelli donated five ventilators to the intensive care unit of Slatina Hospital, and
personal protective equipment to about 500 doctors, nurses and hospital staff. In addition, Pirelli
donated more than 10,000 masks and disinfectant to doctors and policemen in the area, as well as
to the transport company used by Pirelli workers.
In Russia, Pirelli made a donation to support the medical staff of regional health institutes and
donated 1,000 tyres to ambulances in the Voronezh, Kirov and Tatarstan regions. In Brazil Pirelli
also donated 8,000 tyres for ambulances and other emergency vehicles in the states of São Paulo,
Bahia and Rio Grande do Sul. In Turkey, five medical monitors were donated to local hospitals, as
well as 160 ambulance tyres.
In Germany and Sweden, a free tyre change service was offered to all health workers.
In Argentina, Pirelli managers organised information chats with students from local technical schools
on the factory’s adaptation to Covid-19 protocols. In addition, Pirelli donated oximeters and
sanitisation materials to two local hospitals.
Over the years Pirelli has always aimed to make a contribution to improving health services in the
communities in which it operates, supporting medical research and helping sick people.
In Romania a new centrifuge was purchased for the Slatina Transfusion Centre; in Turkey Pirelli
made donations to the Down Syndrome Association and the Dernegi Multiple Sclerosis Foundation.
In the Nordic countries Pirelli contributed to research and treatment of paediatric cancer. In Belgium
Pirelli made a donation to Sunchild for seriously ill children, and another for cancer research. In
Argentina, Pirelli supported a breast cancer awareness campaign with the Macma Foundation, and
a marathon to raise funds for the rights of children cured of cancer. In the Netherlands Pirelli chose
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a hospital centre for mothers with children for its donation. And in the UK Pirelli raised funds for a
heart centre, cancer, post-accident rehabilitation, kidney care and leukaemia.
Environmental initiatives
In keeping with the company’s vision of sustainability, Pirelli supports various environmental projects
around the world.
In Mexico, even in times of pandemic Pirelli has coordinated a “llantaton” (or “tyreathon”), i.e. the
collection of at least 10,000 end-of-life tyres in the municipality of Leon, to promote local hygiene.
The collected tyres were valorised as fuel for cement factories.
In Argentina, the company also dedicated itself to an end-of-life tyre recycling project, as well as
supporting waste recycling at the local children’s hospital.
In Voronezh, Russia, employees made a collection of batteries to promote their recycling.
In Germany Pirelli sponsored an innovative student project. Students built a dispensing machine for
“Miltenbecher,” reusable cups created by a 3D printer. The cups can be used in local cafés and
shops, e.g. for take-away cups of coffee.
Culture and social value
The internationality of Pirelli also emerges from the love for culture, with initiatives in certain countries
around the world also in 2020. 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.
In Italy, Pirelli’s commitment to culture is demonstrated by its numerous collaborations with
prestigious institutions: in the world of theatre and art, with Teatro Franco Parenti and Piccolo Teatro
in Milan, FAI (Fondo Ambiente Italiano), in the world of promoting reading, with the Campiello Prize,
in the world of music, with the Fondazione del Teatro alla Scala and the Giuseppe Verdi Symphony
Orchestra in Milan, and events such as the MITO SettembreMusica Festival in the cities of Milan
and Turin.
In the field of music, Pirelli sponsors the Mozarteum project in Brazil, in which major international
classical music orchestras participate. In 2020, the concerts were performed online. In São Paulo,
Pirelli also sponsored in 2020 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.
In Voronezh, Russia, Pirelli sponsored the Governor’s Ball, a fundraising ball to promote young
musical and artistic talent. Also in 2020, an exhibition of Pirelli Calendar was presented at the
Multimedia Art Museum in Moscow, partly in person and partly online. In Spain, Pirelli hosted about
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300 people in small groups for a historical guided tour of the old Manresa factory and the nearby
museum.
Fondazione Pirelli (Pirelli Foundation)
The Pirelli Foundation, established in 2008, counts among its objectives the safeguarding of the
Group’s historical and cultural heritage and the promotion of its corporate culture, through projects
with a strong social and cultural impact, aimed at enhancing the company’s heritage and
consequently its brand, also in collaboration with other institutions. During 2020, the health
emergency situation, with the consequent economic recession, made it necessary to transform
activities, also in a digital key, and short periods of closure of spaces normally accessible to the
public. The main initiatives include:
Digital communication projects to enhance the value of historical heritage and corporate culture:
digital tools and the schedule of communication activities were implemented and strengthened in
order to reach an increasing number of users in Italy and abroad, even virtually. The
fondazionepirelli.org website, with the virtual tour fondazionepirelliexperience, was visited a total of
96,300 times (+44.8% vs 2019). Among the new digital projects launched: the podcast programme
on the history of Pirelli (racing, architecture, literature) with 18 launches in a dedicated online section;
the activation of the newsletter Fondazione Pirelli e-news, with 18 issues that reached an average
of 3,000 contacts; the digital programme for education to support distance learning, distributed to
over 2,500 schools throughout Italy; 5 digital exhibitions with 33 in-depth studies on the themes of
product, design, visual communication; the website section “La Fondazione consiglia” (The
Foundation recommends), with the publication of 80 book reviews. Fondazione Pirelli’s social
accounts (Facebook, Instagram and Twitter) reached 13,080 followers (+22% vs 2019) with a total
post coverage of 2,404,415 (+141.6 vs 2019). More than 1,650 pieces of content were produced,
including 75 videos. Posts on the Pinterest channel, which reached 107,000 users, were visited
156,000 times. The Vimeo channel for audiovisual content had 5,600 views. In 2020 two new
projects dedicated to the world of reading were also created in the digital version: “Parole insieme”
with the launch in streaming of 5 interviews with guests related to publishing and writing (post
coverage on social channels: about 98,000); “Premio Campiello 2020”, sponsored by Pirelli and
communicated through reviews and video interviews on social channels and Vimeo (post coverage:
over 12,500). Also in 2020, the Pirelli Foundation contributed to the implementation of editorial plans
for Pirelli channels dedicated to heritage (BU Motorcycles, Pirelli USA, etc.).
Project on the celebrations of 60 years of the Pirelli Skyscraper: the exhibition “Stories of the
Skyscraper. 60 years of the Pirelli Skyscraper. 60 years of the Pirelli Skyscraper between industrial
culture and the institutional activities of the Lombardy Region”, promoted by the Pirelli Foundation
and the Lombardy Region and set up at the Pirelli Skyscraper, will be opened to the public during
2021, after the presentation on 16 December 2020, with a digital preview of the dedicated website
60grattacielopirelli.org and the launch of the catalogue. The book, published by Marsilio in Italian
and English language editions, traces the history of the building inaugurated in 1960 as the Pirelli
Group headquarters and later becoming the headquarters of the Lombardy Region through original
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historical materials, photographs and illustrations from the Pirelli Historical Archive and testimonies
by personalities such as Piero Bassetti, Eva Cantarella, Giuseppe Guzzetti, Uliano Lucas, Carlo
Ratti, Gianfelice Rocca and Andrée Ruth Shammah. The project is a celebration of the modernity of
Lombardy’s technology and industry and of the avant-garde urban planning of Milan, the “rising city”
of which the Pirellone remains an undisputed landmark in the present day. The digital event,
attended by the presidents of the institutions involved, totalled over 48,000 live streaming views on
the “Corriere della Sera” channels, followed by over 3,110,000 followers. In 2020, the communication
of the project reached over 168,400 users on social channels; 25 issues were published in the press
and on the websites of online newspapers. In 2021, also following the opening of the exhibition,
activities to promote the project will continue with guided tours and virtual tours, including for schools
and universities, presentations of the book and conferences with in-depth studies on various topics
(architecture, design, economic history, sustainability).
Educational and training projects for students and teachers:
Pirelli Educational Foundation - educational workshops aimed at primary and secondary
schools: after a start in presence, the conclusion of the 2019/2020 school year and the
opening of 2020/2021 continued with activities carried out entirely in digital mode, with live
online training courses that involved a total of more than 1,550 students and their teachers.
In addition, more than 300 teachers took part in the eighth edition of the training and refresher
course for Cinema & History teachers, organised in collaboration with Fondazione Isec and
Fondazione Cineteca Italiana;
projects aimed at universities: around 90 students took part in in-person and online guided
tours via virtual tour. Particularly noteworthy are the following universities: Politecnico di
Milano; Monash Business School - Victoria, Australia; Eindhoven University of Technology -
The Netherlands);
other educational projects: - participation in Time4child 2.0 during the XIX Settimana delle
Cultura d’Impresa (9-13 November), a digital event sponsored by the Ministry of Education
with 5 live appointments on the subject of Pirelli sustainability (natural rubber, research and
development, production process), in collaboration with colleagues from the Sustainability
Department; 116 secondary school students took part in the events; - participation in Job &
Orienta, a digital orientation and training event organised by Veronafiere; - participation in
the #ioleggoperché project with reading suggestions by primary school students on the social
channels of Fondazione Pirelli.
Loans of materials, historical and iconographic research, drafting of texts to support the brand and
the external community: about 150 requests were made for the preparation of plants, trade fairs,
events, Pirelli offices in Italy and abroad, product brochures, loans of materials for exhibitions and
publications edited by other institutions, historical documentaries, interviews, and theses by scholars
and researchers. Among the main ones: Pirelli Collezione and launch of new Pirelli tyres for Fiat
500, Pirelli China dealer convention, Automässan fair, Gamma Rally 2021 product launch,
Silverstone F1 GP. Also: “Autos Art and Architecture” exhibition by the Lord Norman Foster
Foundation and the Compasso d’Oro permanent museum by ADI - Association for Industrial Design
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in Milan; documentaries on the history of Campari for Sky Arte and “La costituzione in fabbrica” by
Istituto Luce; volume “Nuove architetture a Milano”, Hoepli edition.
Virtual tours, webinars and events to promote corporate culture: more than 500 participants took part
in Fondazione Pirelli’s initiatives to promote corporate culture, including: Museocity, with a focus on
the iconography of women in the last century; Digital Campus with educational activities; Movieweek
with a focus on the testimonials of Pirelli’s advertising campaigns; XVII Settimana della Cultura
d’Impresa, with the team virtual game “Giallo in archivio: sulle tracce del Cinturato Pirelli”. Among
the guests was the visit of the Consul of Mexico to Milan.
Processing and relocation of materials from the Historical Archive, digital heritage management:
implementation 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, with the upload of more than 30,000 digital assets;
Historical Archive: about 670 documents catalogued and published online, about 2,240
digitised, 190 restored (photographic, iconographic and audiovisual fund, Corporate section
and Research and Development section, with focus on product launches, factory interiors,
welfare). During 2020, part of the Historical Archive documents was relocated to the new
dedicated room in the recently built Cinturato building. The new archive spaces, designed for
long-term preservation, also include an area for consultation.
Cultural initiatives for Pirelli employees:
Management of Pirelli’s corporate libraries in Milan Bicocca and Bollate: the library holdings
reached about 8,250 catalogue titles; more than 1,000 loans, over 1,400 movements (loans
and extensions) and around 600 users were registered. The Biblionews newsletter with
periodical updates on books and libraries reaches about 400 subscribers;
participation in Pirelli Smart Kids, a digital campus organised by the HR Department in May
and September for the children of employees, with courses in the areas of innovation and
creativity.
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 conversion of a vast industrial plant into an art centre, in 2020 it received
official recognition and designation as a “Museum” by the Region of Lombardy.
The aim of Pirelli HangarBicoccaTM is to be a place open to the city and the territory, an institution
that combines its exhibition activities with a series of initiatives aimed at bringing contemporary art
closer to an Italian and international public made up of art experts, representatives of the most
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important museum institutions, journalists from the sector and the general press, as well as an
equally vast audience of enthusiasts, students, families and non-specialist users.
The exhibition and cultural activities of Pirelli HangarBicoccaTM underwent substantial changes in
2020 due to the emergency situation caused by Covid-19, which required closure at various times
during the year.
In line with its mission, Pirelli HangarBicoccaTM nevertheless guaranteed the realisation of solo
exhibitions by leading international artists and a programme that stood out for its research and
experimentation character and for the particular attention paid to site-specific projects capable of
dialoguing with the unique characteristics of the space. The artistic programme for 2020, curated by
Artistic Director Vicente Todolí, presented artists with a high international profile, alternating solo
exhibitions by established names with exhibitions by emerging artists.
A total of about 75,500 visitors (in attendance) visited 4 large temporary exhibition projects, in
addition to the permanent installations I Sette Palazzi Celesti 2004-2015 by Anselm Kiefer, La
Sequenza by Fausto Melotti and the Efêmero mural by OSGEMEOS:
Daniel Steegmann Mangrané, “A Leaf-Shaped Animal Draws The Hand” (closed on 19
January 2020);
Cerith Wyn Evans, “...the Illuminating Gas” (from 31 October 2019, closing date extended to
26 JUuly 2020);
Trisha Baga, “the eye, the eye and the ear” (from 20 February 2020, closure extended to 10
January 2021);
Chen Zhen, “Short-circuits” (from 15 October 2020, closing date 21 February 2021).
For the first time, in 2020 Pirelli HangarBicoccaTM produced an institutional publication, the Annual
Journal, which developed, through 219 pages of texts and images, an overall account of all the
activities dedicated to the public, with particular attention to production, communication, engagement
and development strategies.
During 2020 the Public Program, before the closures caused by the Covid emergency, hosted two
important events dedicated to the Cerith Wyn Evans exhibition (an evening of conversation and film
screening with the artist on 11th of January and a concert by Keiji Haino and Russell Haswell on 9th
of February), while starting in September 2020, calendars of in-person and later digitally streamed
encounters were devised, including a Book Club dedicated to Trisha Baga’s exhibition involving
writers including Jeannette Winterson, in collaboration with BookCity, which was attended by over
400 people online, as well as a digital conversation dedicated to Chen Zhen’s exhibition with
Guggenheim Senior Curator Alexandra Munroe.
After a few months of regular teaching and school activities, interrupted by the health lockdown, the
Education Department acted as a reference point to support families and schools in dealing with the
sudden isolation of the children and the impossibility of offering them meaningful creative and
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relational activities. The Education Department thus quickly set up a full programme of free live digital
workshops for children aged 6 to 10 in collaboration with the artist Marcella Vanzo and a calendar of
events involving the Arts Tutors of Pirelli HangarBicoccaTM; an engagement project was also
conceived for children through social media and the website in collaboration with the artist Alice
Ronchi.
Since it was impossible to work with school students, a teacher training programme was also set up
consisting of two different workshops a course of 5 lessons for primary school teachers entitled “Fare
insieme #squola pubblica” in collaboration with the Department of Education Sciences of Milano
Bicocca and the artist Marcella Vanzo, focusing on creativity and the use of artistic expressiveness
for digital teaching; a course on contemporary art, heritage and interculturalism, dedicated to high
school teachers, with the collaboration of the Ismu Foundation, inspired by Chen Zhen’s exhibition
to explore the narrative potential and enhancement of cultural differences.
With a view to enhancing the installation of “I Sette Palazzi Celesti 2004-2015” by Anselm Kiefer, a
guided tour was organised on 29th of January 2020 in the presence of the artist, attended by 620
people on the occasion of the Honorary Degree awarded to the artist by the Brera Academy. The
collaboration with the Milano Musica Festival also continued, hosting the inaugural concert of the
Festival on October 17, 2020.
During the course of 2020, Pirelli HangarBicoccaTM intensified its usual digital storytelling of
exhibitions and events, reinforcing the online activity of user involvement: there are many items of
content and themes proposed in the various programmes distributed on institutional communication
channels such as Instagram, Instagram Stories, Facebook, Twitter and on the home page of the
website. In particular, a new Pirelli HangarBicoccaTM profile was activated on Spotify where artists
and personalities linked to the institution share playlists of their music with the public. The Hangar
Voices project was also launched on social media, a selection of thoughts, ideas and opinions
proposed through the contributions of artists, philosophers, thinkers, protagonists of the institution’s
cultural projects. The Video Channel section of the website has also been enriched with video
interviews with artists and curators, making of exhibition projects, documentation of concerts, sound
performances, visits and conferences. The Google Arts & Culture platform has been further
strengthened, where the 360° Street View of Anselm Kiefer’s permanent work was already present,
taking advantage of the one dedicated to Cerith Wyn Evans’ light installations and emphasising the
reference to the Pirelli HangarBicoccaTM iconographic archive.
In 2020 Pirelli HangarBicoccaTM maintained its Membership programme with the aim of keeping alive
the community that shares a passion for contemporary art. In 2020 the Membership reached about
300 active Members.
In 2020 there were 4 activities dedicated to Members: a preview visit to Trisha Baga’s exhibition, two
curatorial visits to the exhibitions (Cerith Wyn Evans and Trisha Baga) and an out-of-town family
activity at the Brera Botanical Garden, on the occasion of Daniel Steegmann Mangrané’s exhibition.
There were 17 dedicated newsletters. Among the benefits, the possibility to book in advance the
activities of the Public Program, to reserve the visiting hours on the occasion of the opening of the
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exhibition of Chen Zhen, to stay always updated on the digital contents, to receive exclusive
advances of the new catalogues, to take advantage of special discounts on the purchase of the
catalogues of the exhibitions and of the institutional line at the Bookshop and at IUTA Bistrot.
During the year Pirelli HangarBicoccaTM also hosted a number of major events including the meeting
between the President of the Italian Republic Sergio Mattarella and the President of the Federal
Republic of Germany Frank-Walter Steinmeier for the conference “La rinascita ai tempi del Covid”
(“Resurgence in the time of Covid”, the presentation of the new Armani Beauté skincare, the
presentation of the 2020-2021 ski season and the celebrations for the centenary of FISI (Italian
Winter Sports Federation).
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Report on corporate governance
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 31 MARCH 2021 IN
RELATION TO THE YEAR ENDED 31 DECEMBER 2020. THE REPORT IS ALSO AVAILABLE ON THE WEBSITE
WWW.PIRELLI.COM)
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Pirelli & C. S.p.A. – 2020 Annual Report
GLOSSARY
Annual General Meeting: the meeting called to approve the financial statements as at 31 December
2020.
Camfin: Camfin S.p.A., a company established under Italian law controlled by Marco Tronchetti
Provera through MTP&C, with registered office at Via Larga n. 2, Milan, VAT number, Tax Code and
registration number with the Milan-Monza Brianza-Lodi Register of Companies 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 art. 93 of the TUF.
CNRC: China National Tire & Rubber Corporation Ltd., a company established under Chinese law
with registered offices at 62 West Beisihuan Road, Haidian district, Beijing (People’s Republic of
China), registered with the State Administration of Industry and Commerce of the People’s Republic
of China, registration number 100000000008065.
Corporate Governance Code: the Corporate Governance Code for listed companies approved in
July 2018 by the Corporate Governance Committee and promoted by Borsa Italiana S.p.A., ABI,
Ania, Assogestioni, Assonime and Confindustria.
Civil Code: The Italian Civil Code.
Board of Directors: the Board of Directors of Pirelli & C. S.p.A.
Consob: the National Commission for Companies and the Stock Exchange.
Report date: indicates 31 March 2021, 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.
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Longmarch: Longmarch Holding S.à.r.l., a limited liability company established under Luxembourg
law, with registered office at 14 Rue Edward Steichen, 2540, Luxembourg (Grand Duchy of
Luxembourg).
LTI: Tacticum Investments S.A., a company established under Luxembourg law with its registered
office at 51, Boulevard Grand Duchesse Charlotte, L-2330, Luxembourg (Grand Duchy of
Luxembourg), registered in the Luxembourg Trade and Companies Register under No. B-187332.
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.
New Corporate Governance Code: the new edition of the Corporate Governance Code for listed
companies approved in January 2020 by the Corporate Governance Committee and to be applied
from 1 January 2021 with information to be reported in the Corporate Governance Reports to be
published during 2022.
Renewal of the Shareholders’ Agreement: the agreement entered into force on 1 August 2019
between ChemChina, CNRC, SRF, SPV HK 1, SPV HK 2, SPV Lux, MPI Italy, MTP&C. with effect
from 28 April 2020. The essential content of the Renewal of the Shareholders’ Agreement, to which
reference is made for further information, is available on the Website (www.pirelli.com).
PFQY: PFQY S.r.l., a company established under Italian law, with registered office at via San Primo
4, Milan, Tax Code, VAT and Milan-Monza Brianza-Lodi Companies Register number 11324920963.
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.
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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.
Board Regulation: the Regulation, adopted by the Board of Directors of Pirelli & C. S.p.A. on 22
June 2020, which governs the methods of organisation and internal functioning of the Board itself,
in line with the recommendations of the New Corporate Governance Code.
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 with resolution 17221 dated 12
March 2010 on Related-parties transactions, as last amended by resolution 21624 dated 10
December 2020.
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.
Website: Pirelli’s institutional website containing, among other things, information about the
Company and can be reached at the 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.
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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).
Bylaws: the Bylaws 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 as well as the New
Corporate Governance Code, to which the Company has adhered62.
Pirelli is aware that an efficient corporate governance system is one of the essential elements for
achieving the objective of sustainable value creation.63
1.
COMPANY PROFILE
Pirelli, with about 30,500 employees and annual sales of over €4.3 billion in 2020, is one of the
world’s leading tyre manufacturers and accessory service providers, the only operator in the sector
exclusively specialised in the consumer segment (car, motorbike and bicycle tyres), 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 and
are characterised by a high technological component and/or customisation (i.e. the so called ≥18”,
Specialties, Super Specialties and Moto Premium tyres). In addition, the Company currently
occupies a leadership position in the Car 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 tyres market for Car ≥18” and
replacement market.
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.
62 Resolution of adhesion adopted by the Board of Directors with effect from 31 August 2017 with reference to the Corporate Governance
Code; resolution of adhesion also to the New Corporate Governance Code adopted by the Board of Directors on 2 March 2020.
63 To that end, the Bylaws state (Art. 3.3): “Pirelli’s corporate governance will be guided by international best practices.
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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 the approval from the Audit, Risk, Sustainability and Corporate
Governance Committee and the Appointments and Successions Committee, the Board of Directors,
adopted a statement on diversity and independence (the so-called Diversity and Independence
Statement) in relation to the composition of the Board of Directors and the Board of Statutory
Auditors. The Company recommends to respect these values when its own corporate bodies are
being renewed or integrated, in line with the stated diversity and independence criteria. On 22 June
2020, on the occasion of the renewal of the Board of Directors, the newly elected Board of Directors
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adopted the “Diversity and Independence Statement”, updated to take into account the recent
regulatory changes on gender balance64.
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.
In addition to the administration, management and controlling bodies, the value of diversity
characterises the entire business organisation, in accordance to the procedures and terms outlined
in the NFD Report included in the Company’s annual financial statements, which should be referred
to for further 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.
On 14 December 2020, the Board of Directors resolved to place the bond Equity linked, named “EUR
500 million Senior Unsecured Guaranteed Equity-linked Bonds due 2025”, maturing on 22 December
2025 and reserved to institutional investors. The placement was made on 14 December 2020 and
closed the following day, with pricing finalised on 15 December 2020. Subsequently, on 24 March
2021, the Company’s Shareholders’ Meeting resolved on:
-
-
the convertibility of the aforementioned bond;
the proposal to increase the share capital in cash, paid and in one or more tranches with the
exclusion of pre-emptive rights for a maximum nominal amount, including any share premium,
of €500,000,000 to be paid in one or more tranches through the issue of up to 80,192,461
ordinary shares (it being understood that the maximum number of Pirelli & C. ordinary shares
may increase on the basis of the effective conversion ratio applicable from time to time) of the
64 Law No. 160 of 27 December 2019, effective as of 1 January 2020, amended art. 147-ter, paragraph 1-ter and Art. 148, paragraph 1-
bis of the Consolidated Law on Financial Intermediation, introducing new rules on gender quotas for the composition of the corporate
bodies of listed companies, establishing that such companies must ensure in their Bylaws that, for at least six consecutive terms, two-
fifths of the elected Directors and Statutory Auditors are the expression of the least represented gender, without prejudice to the
criterion of allocation of at least one-fifth provided for in Art. 2 of Law 120/2011 for the first renewal following the date of commencement
of trading.
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Company, having the same characteristics as the outstanding ordinary shares and reserved
exclusively and irrevocably to the conversion of the bond.
The conversion price of the bonds is EUR 6.23565
On 18 December 2020, the bond in question was admitted to trading on the ‘Third Market’ (MTF) of
the Vienna Stock Exchange.
Additionally, the Bylaws 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
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 art. 2497 et seq. 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;
- 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;
65 The conversion price is fixed subject to adjustment, and without prejudice to cases where the relevant conversion price will be
calculated in the different manner indicated in the Bond Rules.
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- 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 retained the aforementioned assessments (also in relation to MPI
Italy) and, most recently, in the meeting of 31 March 2021.
Conversely, Pirelli exercises direction and coordination activities 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 Bylaws 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 shareholders’ voting rights, except for the terms and
conditions governing the exercise of the right to attend and vote at the Shareholders’ Meeting, as
discussed in the following section 19 of the Report.
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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 art. 130 of the
Issuers’ Regulation.
The following is a brief summary of these agreements.
2.5.1. RENEWAL OF THE SHAREHOLDERS’ AGREEMENT
On 28 April 2020, entered into force the agreement, expiring on 28 April 2023, signed on 1 August
2019 between ChemChina, CNRC, SPV HK1, SPV HK2, SPV LUX, MPI Italy, SRF, MTP&C and
Camfin (the “Shareholders’ Agreement Renewal”) to renew the shareholders’ agreement
concluded by ChemChina, CNRC, SRF, SPV HK1, SPV HK2, SPV Lux, Camfin, LTI and MTP&C
on 28 July 2017 and intended to regulate the governance of Pirelli from the First Trading Date (the
“Shareholders’ Agreement”).
By signing the Shareholders’ Agreement Renewal, the parties (i) reaffirmed 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 aimed at
preserving Pirelli’s entrepreneurial culture by leveraging the long-term retention of management and
inspired by the best international practice of listed companies (ii) confirmed the role of ChemChina
and Camfin/ MTP&C as stable shareholders of Pirelli, with the latter retaining its current shareholding
in Pirelli of more than 10% of the share capital for the entire duration of the Shareholders’ Agreement
Renewal; (iii) confirmed the central role played by Marco Tronchetti Provera, as Company’s
Executive Vice Chairman and Chief Executive Officer, (a) in guiding Pirelli’s top management,
ensuring the continuity of Pirelli’s managerial culture, and (b) in appointing his successor, with the
implementation of the succession procedure to be completed by October 2022 and, therefore, a few
months before the renewal of the Board of Directors of Pirelli, scheduled for spring of 2023.
The Renewal of the Shareholders’ Agreement contains some provisions regarding the composition
of the Board of Directors and the Committees, which are described in the following section 4.2.
At the Report Date, MPI Italy, Camfin and PFQY (the latter as a result of the SPV Lux assignation
that will be described in the following section) conferred to the agreement more than 56% of Pirelli’s
shares.
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2.5.2. ACTING IN CONCERT
On 29 September 2020, as part of a broader reorganisation of the chain of control of MPI Italy,
provided for by the previous shareholders’ agreements signed by the parties66 - which entailed, inter
alia, the exclusion of SPV HK2 from the aforesaid chain of control (the “Reorganisation”) – was
finalised the partial non-proportional and asymmetrical demerger of MPI Italy in favour of PFQY. As
a result, PFQY was assigned, inter alia, with no. 90,212,508 Pirelli shares, representing 9.02% of
the share capital (the “SPV Lux Assignment”). Following the aforementioned demerger:
- the Equity Investment Agreement for Co-Involvement and Investment in Acquisition of Pirelli (the
“Investment Agreement”), the Supplemental Agreement of the Investment Agreement, as
subsequently amended on 28 April 2020, and the Second Supplemental Agreement of the
Investment Agreement stipulated, respectively, on 5 June 2015, 28 July 2017 and 7 August 2018
between CNRC, CC and SRF have ceased all their effects ceasing the co-participation of CC and
CNRC, on the one hand, and SRF, on the other hand, in Marco Polo and, consequently, having
become SRF direct shareholder of Pirelli & C. S.p.A. through PFQY;
- the essential information pursuant to art. 130 of the Issuers’ Regulation relating to the “Revised
Acting-in-Concert Agreement”, signed on 28 April 2020 between CNRC and SRF, which superseded
and replaced the “Acting-in-Concert Agreement” signed on 28 July 2017 between the same parties,
containing shareholders’ agreements relating to Pirelli & C. S.p.A. pursuant to which SRF has
assumed a lock-up commitment and a commitment to vote in Pirelli’s shareholders’ meetings
according to the voting instructions of CNRC, in relation to a number of Pirelli shares deriving from
the Assignment of SPV Lux, equal to 5% of Pirelli’s share capital.
On 29 March 2021, Silk Road Fund Co., Ltd. and China National Tire & Rubber Corporation, Ltd
signed the “Amended and Restated Acting-in-concert agreement”, which supersedes and replaces
the previous “Revised Acting-in-concert agreement” signed between the parties on 28 April 2020, in
order to take into account in the shareholders’ agreements the resolutions adopted by the
Shareholders’ Meeting of Pirelli & C. S.p.A on 24 March 2021 on the convertibility of the bond
denominated “EUR 500 million Senior Unsecured Guaranteed Equity-linked Bonds due 2025”.
2.5.3. THE LONGMARCH AGREEMENT
On 13 May 2020, Camfin and Longmarch entered into an agreement (the “Longmarch Agreement”)
containing, inter alia, certain shareholders’ agreement provisions with regard to a potential
participation, pursuant to art. 119 of the Issuers’ Regulation, consisting of a repurchase agreement
concluded between Longmarch and ICBC Standard Bank Plc (the “Repurchase Agreement”) and
concerning Longmarch’s right to repurchase a total number of 76,788,672 shares of Pirelli, equal to
66 See the previous Report on Corporate Governance and Share ownership Report 2019
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approximately 7.68% of Pirelli’s share capital (the “Pirelli Shares Subject to the Repurchase
Right”).
The Longmarch Agreement contains provisions concerning (i) the prior consultation and exercise of
voting rights in the shareholders’ meeting of Pirelli and, in particular, Longmarch assumed the
following commitments: (a) to provide, as long as the Repurchase Agreement is in force (pursuant
to which ICBC Standard Bank Plc (“ICBC”), during the term of the Agreement itself, is entrusted to
exercise its voting rights in relation to the Pirelli Shares Subject to the Repurchase Right), ICBC with
voting opinions and recommendations in accordance with the outcome of the discussions concluded
between the Parties and, in case of disagreement, in accordance with the voting recommendations
provided by Camfin and (b), following the purchase of the Pirelli Shares subject to the Repurchase
Right by Longmarch, if occurred before 9 March 2023, to exercise the voting rights relating to such
Pirelli Shares subject to the Repurchase Right in accordance with the outcome of the discussions
concluded between the Parties and, in case of disagreement, in accordance with the voting
recommendations provided by Camfin and (ii) the transfer of the Repurchase Agreement and the
Pirelli Shares subject to the Repurchase Right.
Furthermore, except with Camfin’s prior written consent, Longmarch agreed not to transfer or assign
the Repurchase Agreement (including the related rights) or any of the Pirelli Shares subject to the
Repurchase Right for a period of three years from the date of signing of the Longmarch Agreement.
As expressly provided for in the Longmarch Agreement, the provisions included therein (i) do not
regulate, nor influence, nor have any impact whatsoever on the governance of Pirelli, and (ii) cannot
in any way be considered connected or related to, nor have any effect and/or influence whatsoever
on the shareholders’ agreement on the Renewal of the Shareholders Agreement provided for in the
prior section 2.5.1.
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 role 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 total amount
of EUR 4,200,000,000 (the “New Loan”).
The loan agreement, entered into force on 27 June 2017 and concerning the New Loan (as
subsequently amended), provides, inter alia, that the Beneficiaries shall repay early that part of the
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New Loan made available by each lender upon the occurrence of certain events, including a changes
in Pirelli’s control structure.
In particular, this change of control clause may be invoked solely in one of the following
circumstances: (i) ChemChina ceases to hold, directly or indirectly, individually or together with
Camfin or another company controlled by Marco Tronchetti Provera or his close family members,
more than 25% of Pirelli post IPO; or (ii) ChemChina ceases to be, directly or indirectly, individually
or together with Camfin or another company controlled by Marco Tronchetti Provera or his close
family members, the relative majority holder of the voting rights in Pirelli (i.e. ceases to hold more
voting rights than other parties that act individually or together); or (iii) any other party (or parties
acting together) appoints or removes the majority of the Board of Directors.
Any takeover by Camfin (or another company directly or indirectly controlled by Marco Tronchetti
Provera or his close family members) as the parent company of Pirelli would not represent a change
of control on condition that certain requirements are met, including the requirement for Marco
Tronchetti Provera or a person designated by him to be the Chairman and the CEO of that company
and CEO of Pirelli.
2.6.2 PT EVOLUZIONE TYRES JOINT VENTURE
On 24 April 2012, Pirelli Tyre and PT Astra Otoparts tbk, an Indonesian company, signed a Joint
Venture Agreement in relation to PT Evoluzione Tyres, an Indonesian company incorporated on 6
June 2012 and operating in the production of motorcycle tyres in the plant of Subang, West Java.
Pursuant to this contract, in the event of a change in the ownership structure of one of the
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.
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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
billion - and extending its time horizon to 31 December 2019 (included).
It should be noted that pursuant to EMTN Programme, bondholders subscribing to bonds issued
under this programme will be entitled to request early reimbursement of their securities (so-called
“Put option”) in case of a change of control event.
In particular, this change of control clause may be invoked solely in case of the following
circumstances and unless there are specific cases permitted under the EMTN Programme: (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, on 25 January 2018, Pirelli issued a new and unrated fixed-rate, bond
for an original total nominal amount of €600 million (amount now reduced to €553 million following
repurchases made by the Company on the market), with a 5-year maturity and named “Pirelli & C.
S.p.A. €600,000,000 1.375% Guaranteed Notes due 2023”. This bond is listed on the Luxembourg
Stock Exchange.
The above-mentioned Change of Control clause is applicable to this new bond.
For the sake of completeness, please note that, on 26 March 2018, Pirelli issued a floating-rate,
unrated, bond for a total nominal amount of €200 million maturing in September 2020 and named
“Pirelli & C. S.p.A. €200,000,000 Floating Rate Notes due 2020”. This loan has been fully repaid at
maturity.
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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
€525 million (as subsequently amended, the “Schuldschein”), divided as follows: (i) Euro 82 million
due in 2021 (fully repaid in advance in January 2021); (ii) Euro 423 million due in 2023; and (iii) Euro
20 million due in 2025.
The Schuldschein prescribes, inter alia, that Pirelli must repay the loan in advance, if certain events
occur, including the case of a change in the control structures of Pirelli, according to terms and
conditions that are the same as those of the EMTN Programme.
2.6.6 BILATERAL LOAN WITH INTESA SANPAOLO
On 22 January 2019, the Board of Directors approved the stipulation by Pirelli of a medium-long
term, variable rate loan of €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 (as subsequently
amended), provides, inter alia, that Pirelli is required to repay the Transaction early should certain
events occur, including a change in Pirelli’s control structure.
In particular, the change of control clause may only be activated (and unless specific cases are
allowed under the terms of the loan agreement) if any subject or subjects acting in concert, other
than ChemChina, Camfin, MTP&C. (or any other company controlled by Marco Tronchetti Provera
or by his close family members) and/or their subsidiaries and/or any person or persons acting/acting
in concert with one of them should (a) hold the relative majority of votes in Pirelli; and (b) appoint or
removes 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 one or more of his close family
members) participates, directly or indirectly, in the control of Pirelli 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
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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 €125 million with Mediobanca - Banca di Credito Finanziario S.p.A. (the “Loan”).
The loan agreement, signed on 2 August 2019, provides, inter alia, that Pirelli must repay the Loan
early should certain events occur, including a change in Pirelli’s control structure.
In particular, the change of control may only be activated (and unless specific cases are allowed
under the terms of the loan agreement) in case that 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/acting in
concert with one of them should (a) hold a relative majority of the votes in the share capital of the
Company; 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) participates, 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.
2.6.9 EUR 800 MILLION ‘SUSTAINABLE’ CREDIT LINE
On 31 March 2020, Pirelli signed with a pool of leading Italian and international banks a new Euro
800 million credit line, guaranteed by Pirelli Tyre due in five years. The new credit line is entirely
‘sustainable’, and it is geared towards economic and environmental sustainability objectives.
The loan agreement relating to this new loan provides, inter alia, that Pirelli must repay early the part
made available by each lender should certain events occur, including a change in Pirelli’s control
structure.
In particular, the change of control may only be activated (and unless specific cases are allowed
under the terms of the loan agreement) in case that any subject or subjects acting in concert, other
than ChemChina, Camfin, MTP&C. (or any other company controlled by Marco Tronchetti Provera
or his family members) and/or their subsidiaries and/or any person or persons acting/acting in
concert with any of them, should (a) hold the 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 agreement provides that there will be no change of control if Camfin,
Marco Tronchetti Provera & C. (or any other company controlled by Marco Tronchetti Provera or one
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or more of his family members) participates, directly or indirectly, in the control of Pirelli or has the
right, directly or indirectly, individually or in concert with one or more persons, to designate the CEO
of Pirelli.
2.6.10
“EUR 500 MILLION SENIOR UNSECURED GUARANTEED EQUITY-LINKED BONDS
DUE 2025” EQUITY-LINKED BOND LOAN
On 22 December 2020, Pirelli & C. S.p.A. completed the placement of an equity-linked bond,
reserved to institutional investors, with a nominal amount of Euro 500,000,000, maturing on 22
December 2025, called “EUR 500 million Senior Unsecured Guaranteed Equity-linked Bonds due
2025” and guaranteed by Pirelli Tyre S.p.A.. The bonds were admitted to trading on the Vienna MTF,
a multilateral trading system operated by the Vienna Stock Exchange.
The bonds, interest-free, as resolved by the shareholders’ meeting of 24 March 2021, will be
convertible into ordinary shares of Pirelli & C. S.p.A., subject to the approval by the latter’s
extraordinary shareholders’ meeting of a capital increase, with the exclusion of pre-emptive rights
pursuant to art. 2441, paragraph 5 of the Italian Civil Code, to be reserved exclusively to the
conversion of the aforementioned bonds.
The rules governing the loan, contained in the Trust Deed, that includes the Terms & Conditions (the
“Regulation”), provide, inter alia, that, during the period of time set out in the Regulation, each
bondholder will be granted, at his discretion, in case of a change of control of the Company (so-
called “change of control”) or if the free-float of the Company’s ordinary shares (calculated in
accordance with the Regulation) drops below a certain threshold and remains at that level for a
certain number of trading days from the first day on which it fell below that threshold (so-called “free
float event”), either (i) the right to request early redemption at par value of the bonds, by exercising
a put option or (ii) the recognition of a new conversion price (if necessary also in the form of
settlement according to the mechanism of the so-called cash settlement amount), lower than the
original and based on the time elapsing between the event and the maturity of the bonds; all
according to the terms and procedures identified in the Regulation.
In particular, the change of control may only be activated (and unless specific cases are allowed
under the terms of the loan agreement) in case that any subject, other than ChemChina, Sinochem
Group, Silk Road Fund, Camfin, MTP&C. (or any other company controlled by Marco Tronchetti
Provera or any of his family members) and/or their subsidiaries and/or any person or persons acting
in concert with any of them, acquires the absolute majority of the voting shares following a public
offering to the shareholders and, as a result, has or controls the absolute majority of the voting rights
in Pirelli, or if any person or persons acting in concert, other than ChemChina, Sinochem Group, Silk
Road Fund or Camfin, MTP&C., or any other company controlled by Marco Tronchetti Provera or his
family members, and/or by their subsidiaries and/or by any subject or subjects acting/acting in
concert with the latter, holds/hold or controls/control the absolute majority of the voting rights in
Pirelli.
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For the sake of clarity, the loan agreement provides that there will be no change of control if that
Camfin, MTP&C. (or any other company controlled by Marco Tronchetti Provera or one or more of
his family members) participates, directly or indirectly, in the control of Pirelli or has the right, directly
or indirectly, individually or in concert with one or more persons, to designate the CEO of Pirelli.
* * *
For the sake of completeness, please note that, in addition to the foregoing, as is customary in the
commercial sector, certain companies belonging to the Pirelli Group have entered into contracts
containing a change of control clause concerning only the participation held, directly or indirectly, by
Pirelli in them. In particular, it should be noted that, under the terms of certain local loans, any change
of control of Pirelli could potentially trigger, in the absence of appropriate liability management
initiatives, the early repayment of the related amount disbursed locally and - in certain remote
circumstances - have a “cascading” effect on the central loan agreements, thus entailing the early
repayment of
the usual cross
default/acceleration clauses provided therein.
the related amounts disbursed at Group
level due
to
2.7
CLAUSES IN THE BYLAWS ABOUT PUBLIC OFFERS
The Bylaws do not provide for exceptions to the provisions regarding the passivity rule, or application
of the neutralisation rule set out in art. 104-bis TUF.
2.8 MANDATE TO INCREASE SHARE CAPITAL AND AUTHORISATIONS TO PURCHASE
OWN SHARES
With regard to the financial year ended on 31 December 2020, the Directors were not granted 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.
For completeness, please refer to section 2.1 for details on the capital increase approved by the
Shareholders’ Meeting on 24 March 2021; in this context, the shareholders’ meeting gave a mandate
to the Board of Directors - and, on its behalf, to the pro tempore legal representatives, also disjointly
- to implement the resolved capital increase by determining, inter alia, from time to time, in
compliance with the provisions of the Regulation (i) the exact issue price of the shares, as well as,
as a result of the determination of the issue price, (ii) the exact number of shares to be issued, and
thus the exact exchange ratio, as necessary for the purpose of the exact application of the provisions
and criteria set forth in the Regulation; all of the above on the understanding that, if by the deadline
of 31 December 2025 this capital increase is not fully subscribed, the share capital shall be deemed
to be increased by an amount equal to the subscriptions received.
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The Shareholders’ Meeting of the Company did not authorise any purchase of own shares.
3.
COMPLIANCE
During the meeting held on 22 June 2020, the Board of Directors of Pirelli resolved to adhere to the
Corporate Governance Code, as well as to the new edition of the New Corporate Governance Code,
published on 31 January 2020 and effective from 1 January 2021, with information to be reported in
the Corporate Governance Reports to be published during 2022, both of which are available to the
public on the Corporate Governance Committee’s website at https://www.borsaitaliana.it/comitato-
corporate-governance/codice/codice.htm.
During the year and on the occasion of the entry into force of the New Corporate Governance Code,
the Company examined, with the support of the Audit, Risk, Sustainability and Corporate
Governance Committee, the contents of the new edition, assessing the potential impact on Pirelli’s
corporate governance system and identifying the areas of specific interest and possible interventions
to adapt its corporate practices. The outcome of this analysis showed that the Company is already
substantially in line with the principles and recommendations of the New Corporate Governance
Code. The Board of Directors, during its meeting of 31 March 2021, took note of the changes
introduced and reserved the right to evaluate, if necessary, adjustments to certain corporate
practices of Pirelli. The Report has essentially been 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.
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4.
BOARD OF DIRECTORS
4.1
APPOINTMENT AND REPLACEMENT OF DIRECTORS
The provisions contained in the Bylaws, to which reference is made, regarding the appointment and
replacement of directors are summarised below.
4.1.1 APPOINTMENT AND REPLACEMENT67
Pursuant to art. 10 of the Bylaws, 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.
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
67 This paragraph contains the information required by Article 123-bis, paragraph 1, letter l) of the TUF (concerning “the rules applicable
to the appointment and replacement of directors [...] as well as to the amendment of the articles of association, if different from the
laws and regulations applicable in addition”).
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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 candidates
must include candidates of different genders, while lists containing four or more candidates must
include a number of candidates of different genders that at least satisfies the minimum required by
law, as specified in the notice of call of the Shareholders’ Meeting68. Any changes arising prior to the
actual date of the Meeting must be promptly notified to the Company.
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 quotient method described in
the Bylaws.
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.
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.
68 The article was brought into line with the new legislation on gender quotas in the composition of corporate bodies (Law No. 160 of 27
December 2019, in force as of 1 January 2020) at the Shareholders’ Meeting that approved the Financial Statements as at 31
December 2019.
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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
candidacies of persons 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 governing gender balance.
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 respect for the legislation
on gender balance and the independence of the directors.
4.1.2 SUCCESSION PLANS
As provided in the Renewal of the Shareholders’ Agreement and even earlier in the Shareholders’
Agreement, in order to ensure continuity in Pirelli’s corporate culture, Marco Tronchetti Provera has
been granted with a leading role in the procedure to identify his successor as the CEO of Pirelli.
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 (the “Succession Procedure”).
In particular, the Pirelli’s Executive Vice Chairman and Chief Executive Officer will continue and
complete the procedures for identify his successor by 31 October 2022 in order to allow for a smooth
transition. If: (i) Marco Tronchetti Provera does not specify a candidate for the Appointments and
Successions Committee or (ii) Marco Tronchetti Provera is for any reason unable to complete the
aforementioned activities and the member designated by MTP&C in the Appointments and
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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 in
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. The procedure for the succession of
Marco Tronchetti Provera was finally confirmed and adopted by the newly elected Board of Directors
on 22 June 2020.
4.2
COMPOSITION
The Board of Directors in charge at the Report Date was appointed by the Shareholders’ Meeting
held on 22 June 2020 and reflects the terms of the Renewal of the Shareholders’ Agreement.
In addition, following the resignation of Carlo Secchi from the position of Director of the Company on
31 July 2020 with effect from the approval of the half-yearly financial report on 30 June 2020, the
Board of Directors, on 5 August 2020, co-opted, pursuant to art. 2386 of the Italian Civil Code, a new
director, Angelos Papadimitriou, also appointing him as a member of the Strategies Committee.
Following the consensual termination of the employment relationship with Angelos Papadimitriou,
with effect from 28 February 2021, he retained the positions of Director and member of the Strategies
Committee. Subsequently, taking into account the proposal of the Executive Vice Chairman and
CEO, Marco Tronchetti Provera, shared with the Appointments and Successions Committee, about
appointing, reporting directly to him, Giorgio Luca Bruno as Deputy-CEO of Pirelli, in occasion of the
Shareholders’ Meeting on financial statements of 15 June 2021, Angelos Papadimitriou gave up the
charge (withdrawing his candidacy) for the confirmation as a director that was supposed to be on
the agenda of the Shareholders’ Meeting scheduled on 24 March 2021. For this reason, the
Shareholders’ Meeting did not resolve on this matter; consequently a seat is now vacant.
In light of the above, the Board of Directors, as of the Report Date, consists of 14 members (a seat
is vacant). In particular:
- Chairman Ning Gaoning, Marco Tronchetti Provera, Yang Xingqiang, Bai Xinping, Tao Haisu,
Zhang Haitao, Domenico De Sole, Marisa Pappalardo, Giovanni Tronchetti Provera, Fan
Xiaohua and Wei Yintao were appointed on the basis of the slate submitted by MPI Italy S.r.l.
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together with Camfin, which obtained approximately 87% of the votes of the share capital
represented at the Shareholders’ Meeting;
-
the Directors Giovanni Lo Storto, Roberto Diacetti and Paola Boromei were appointed on the
basis of a slate submitted by a group of asset management companies and institutional
investors that obtained approximately 13% of the votes of the share capital represented at
the Shareholders’ Meeting.
At the Report Date, 21.4% of the Board members are female and the remaining 78.6% are male. In
addition, about 64.3% of the directors are over 50 years old and the remaining, about 35.7%, are
between 30 and 49 years of age. The average age of the members of the Board is approximately 55
years of age with an average age of the female gender of about 50 years of age. The average
Directors’ time in office is about 3 years and a half69.
The attached Table 2 provides 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.
69 It should be noted that for the purposes of calculating the tenure of the Board, the date of first appointment shown in Table 2 has been
taken into account for each Director.
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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,
Risk, Sustainability and Corporate Governance Committee and the Appointments and Successions
Committee, resolved to reduce the maximum number of offices considered compatible with the office
of director of the Company from five to four, thereby revising in an even more restrictive sense its
previous orientation on the matter.
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In particular, pursuant to the policy recently adopted by the Board of Directors, it is therefore not
considered compatible with the duties of a director of the Company to be a director or statutory
auditor of more than four other companies other than those subject to the direction and coordination
of the Company, or its subsidiaries or affiliates, in case of (i) companies listed on the FTSE/MIB
index (or equivalent foreign index) or (ii) Italian or foreign companies, subject to the supervision of
the competent authorities, that carry out financial, banking or insurance activities; furthermore, it is
not considered compatible for the same director to hold more than three executive positions in
companies of the types indicated in points (i) and (ii) above.
Positions held in several companies belonging to the same group are considered to be a single
position and an executive position prevails over a non-executive position.
The Board of Directors is entitled to make a different assessment, properly motivated, to be
published in the Report and explained appropriately therein.
The policy on the maximum number of offices considered compatible with effective performance as
a director of the Company was last confirmed by the Board of Directors on 22 June 2020.
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 offices 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 PROGRAM
The Directors perform their duties autonomously and with competence, pursuing the priority
objective of creating sustainable value over the medium to 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.
During the Financial Year, induction initiatives were arranged, also with the support of top
management and taking into account the recent renewal of the Board of Directors during the
Financial Year, an illustration of the main characteristics of the business of Pirelli and its Group and
(also through the work of the committees) of the applicable legislative and regulatory framework and
the specific procedures and disciplines adopted by the Company.
Specific initiatives undertaken during the year included induction activities concerning (i) internal
organisation, on the one hand, and (ii) compensation and benefits and communication and brand
image matters, on the other. In addition, a third induction session was held in January 2021,
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concerning sustainability and cyber security matters. 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 Bylaws, the Board of Directors manages the business and, for this purpose,
exercises all the widest powers of management, except for those reserved by law or the Bylaws 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 nine times. The average
duration of each meeting was about 60 minutes, with attendance by around 89% of the Directors
and 97% of the Independent Directors. The Independent Directors had the opportunity to hold
informal meetings as described in the preceding section.
For the 2020 financial year, and for the current year, Pirelli released a calendar of the main corporate
events to the market70 (also available on the Website). For the 2021 financial year, the Board
scheduled to meet at least 7 times (at the Report Date, 3 meetings have already been held, one of
which is not included in the Calendar).
The organisation of the Board of Directors and the internal operation is governed by the Regulations
on the functioning of the Board of Directors which were adopted on 22 June 2020 in line with the
recommendations of the New Corporate Governance Code (“Board Regulations”)71. The Board
Regulations identify the deadlines for the prior sending of the information and the protection ways of
the confidentiality of data and information provided in order not to prejudice the timeliness and
completeness of the information flows.
The Directors and Statutory Auditors, in line with the provisions of the Board Regulations, received
at a notice deemed to be congruous and adequate the documentation and information necessary to
70 As a rule, dissemination takes place in November/December.
71 The full text of the Rules on the Functioning of the Board of Directors is available on the Website.
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express an informed opinion on the matters submitted to their examination. As a general rule, the
documents to be examined by the Board and the Committees are sent within ten days before the
meeting, unless specific situations do not allow this, in which case the documents are sent as soon
as they are available. 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.
In order to facilitate the taking of minutes, a recording of the Board meetings is provided for, with
subsequent destruction of the recording once the minutes have been transcribed into the relevant
corporate book.
If the Chairman is absent, unable to attend or at the request of the Chairman, the meeting is chaired,
by the Vice Chairman, the Chief Executive Officer, if appointed; if the latter is absent or unable to
attend, the meeting is chaired by another Director appointed by the majority of those present.
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 votes expressed.
Also in compliance with the recommendations of the Corporate Governance Code, the increase in
directors’ knowledge of the Company and Group’s situation and dynamics is also favoured through
the systematic participation of the Company’s top management to the meetings of the Board, which
contributes to providing the appropriate in-depth analysis of the topics on the agenda.
The Bylaws provide that, until a contrary resolution of the Shareholders’ Meeting, the directors are
not subject to the prohibition of art. 2390 of the Civil Code. Furthermore, with the approval of the
Board Regulations and in line with the recommendations of the New Corporate Governance Code,
the Secretary is appointed by the Board of Directors, which also assesses the existence of adequate
professional requirements. The Secretary supports the activities of the Chairman and/or Vice
Chairman and provides, with impartial judgement, assistance and advice to the Board of Directors
on any aspect relevant to the proper functioning of the corporate governance system. In particular,
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the Secretary supports the Chairman and/or Vice Chairman of the Board of Directors, so as to ensure
that:
a)
b)
c)
the pre-meeting information is accurate, complete and clear and the additional information
provided at meetings is adequate to enable directors to act in an informed manner;
the activities of the Board committees are coordinated with the activities of the Board of
Directors;
the top management of the Company and of the companies of the same Group, as well as the
heads of company departments, may attend Board meetings in order to provide appropriate
information on the items on the agenda;
d) all Directors may participate, after their appointment and during their term of office, in specific
induction activities;
e)
the self-assessment process is adequate and transparent.
During the financial year, the Board of Directors started the process of evaluation of its operation
and the operation of its Committees (board performance evaluation) for the 2020 financial year. For
the purposes of the assessment process, the Board – in line with what was done on 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 overall level of appreciation
was recorded, in line with the previous year. In particular, the Directors expressed their full
satisfaction and appreciation with 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 Italian and international best practices. With regard to the operation of the
Board and the Committees during 2020, the Board particularly appreciated the timely handling of the
Covid-19 emergency and the efficiency in the management of Board meetings thanks to the well-
established audio/video conferencing systems and the use of the document access portal. In
addition, the areas of excellence already identified in the self-assessment activities carried out in the
previous year were on the whole confirmed. The areas for which the greatest appreciation was
recorded are outlined below:
participation of management in the meetings of the Audit, Risk, Sustainability and Corporate
Governance Committee;
high quality of the documentation supporting the meetings of the Board of Directors and the
Committees, sent in a timeframe deemed adequate;
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high quality of the minutes of the Board of Directors’ and Committees’ work, which are
accurate and complete with respect to the course of the meetings;
sharing of activities related to the materiality matrix;
ability of the Related-Parties Transactions Committee to refer issues, when necessary, to the
full Board for discussion;
effectiveness of the support provided by the Council Secretary;
appropriate frequency and duration of meetings.
Particular appreciation was expressed by the Directors regarding (i) the mix of competences,
considered to be of an excellent level, since the Board is very rich in high-level managerial
competences, business experience and strongly international profiles and (ii) the relationship with
the management, characterised by openness, transparency and positivity.
The survey also revealed a number of indications for further improving the operation of the Board,
including, in particular, the provision of informal meetings of directors and an appropriate balance of
time devoted to presentation and debate during committee and board meetings, and the
development of opportunities for informal meetings between directors, in order to foster real mutual
understanding and further strengthen personal relations and team spirit.
Lastly, it should be noted that, in line with what happened in the previous year, the Audit, Risk,
Sustainability and Corporate Governance Committee also played a leading role in the context of the
board performance evaluation and shared the results, which were subsequently submitted to the
Board of Directors, in the meeting of 22 March 2021.
4.5.2 MATTERS FOR THE BOD
In accordance with the Bylaws, the Shareholders’ Meeting requires a qualified majority (e.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 22 June 2020, the Board of Directors resolved that all resolution regarding the following matters,
proposed by Pirelli and/or any company subject to Pirelli’s direction and coordination (excluding
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intergroup transactions), must be approved (as an internal restriction of the powers conferred the
Chief Executive Officer on that date) by the Company’s Board of Directors:
(i)
(ii)
obtaining or granting loans for a value higher than EUR 200,000,000 and with duration of more
than 12 months;
issue of financial instruments to be listed on European or non-European regulated markets for
a value higher than EUR 100,000,000 and/or their delisting;
(iii) giving guarantees in favour or in interest of third parties for amounts higher than EUR
100,000,000. For the sake of completeness, it should be noted that giving guarantees in the
interest of third parties other than the Company, its subsidiaries and joint ventures must in all
cases be subject to the approval of Pirelli’s Board of Directors;
(iv) signing derivative contracts (a) with a notional value exceeding EUR 250,000,000, and (b)
other than those having as their exclusive object and/or effect the hedging of corporate risks
(e.g. hedging of interest rate risk, hedging of exchange rate risk, hedging of commodity market
risk). For the sake of completeness, it should be noted that the stipulation of derivative
contracts of a speculative nature is subject, in any case, to the approval of Pirelli’s Board of
Directors;
(v)
the acquisition or disposal of controlling or associated shares in other companies for a value
higher than EUR 40,000,000 involving entry into (or exit from) geographical and/or commodity
markets;
(vi) purchase or sale of shares other than those described in point (v) above for a value in excess
of EUR 40,000,000;
(vii) purchase or sale of companies or business units of strategic importance or, in any case, of a
value higher than EUR 40,000,000;
(viii) purchase or sale of assets or other assets of strategic importance or, in any case, of a value
higher than EUR 40,000,000;
(ix) execution of significant transactions with related-parties, meaning transactions with related-
parties that satisfy the conditions set forth in Appendix 1 of the “Procedure for Transactions
with Related-Parties” approved by Pirelli’s Board of Directors on November 3, 2010, as
amended from time to time;
(x)
definition of Pirelli’s remuneration policy;
(xi) determination, in compliance with Pirelli’s internal policies and applicable regulations, of the
remuneration of the executive and directors holding special offices and, if required, allocation
among the members of the board of directors of the total remuneration set by the shareholders’
meeting;
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(xii) approval of the strategic, industrial and financial plans of Pirelli and its group;
(xiii) adoption of Pirelli’s corporate governance rules and definition of the group’s corporate
governance guidelines;
(xiv) definition of guidelines on the internal control system, including the appointment of a director
responsible for supervising the internal control system, defining his powers and duties;
(xv) any other matter that should be referred to the competence of the Board of Directors of a listed
company by the Corporate Governance Code of Borsa Italiana, as amended from time to time.
It being understood that the approval of the transactions listed above is reserved to the exclusive
competence of the Board of Directors not only if the thresholds indicated for each matter are
exceeded, but also if the matters (i) to (vii) whether if considered as a single action or as a series of
coordinated actions (carried out in the context of a common executive program or a strategic project)
exceed the values indicated in the annual budget/business plan or (solely for the matters from (i) to
(viii) above) if they were not included, listed or envisaged for in the annual budget/business plan.
As required by the Corporate Governance Code and the New Corporate Governance Code72, the
Board of Directors has positively assessed the adequacy of the Company’s organisational,
administrative and accounting structure, with particular reference to the internal control and risk
management system, referring to the analytical work carried out by the Audit, Risk, 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 22 June 2020of the Board of Directors, the Executive Vice Chairman and Chief
Executive Officer Marco Tronchetti Provera was granted with all the powers necessary to perform
all the acts pertaining to the Company’s business in its various applications, without any exceptions
aside from those reserved by law or by the Bylaws to the Board of Directors; all with the power to
grant special and general mandates, vesting the agent with the corporate signature, individually or
collectively, and with those powers that he deems appropriate for the best performance of the
Company, including the power to sub-delegate.
a)
In particular, the Executive Vice Chairman and Chief Executive Officer Marco Tronchetti Provera
is granted with: as sole signatory, powers for ordinary management of Pirelli and the Group with
regard to both Pirelli and any other company (including unlisted foreign companies) subject to
72 See recommendation 33(a).
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the direction and coordination of Pirelli, with the following internal limitations, and therefore with
the assignment of the related responsibility to the Board of Directors:
(i)
the thresholds amount envisaged for each of the matters indicated in section 4.5.2 are
exceeded; or
(ii) for the matters listed from (i) to (viii) in section 4.5.2 above, the amounts indicated in the
business plan and/or the annual budget are exceeded; or
(iii) solely 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) powers for the supervision and implementation by the General Manager and by the
management of the business plan, as well as the power to propose to the Board of Directors the
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 relating to the industrial initiatives underlying the business plan and
the annual budget; and (b) be accompanied and supported by adequate and appropriate
documentation illustrating 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 Significant Matters must be reserved solely
to the Board of Directors and/or to the Shareholders’ Meeting, as applicable; and (b) should the
Board of Directors does 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 Executive Vice Chairman and Chief Executive Officer has the power to propose to the Board
the appointment and removal from office of Pirelli’s Managers with strategic responsibility as
identified pursuant to the relevant internal procedure, and therefore the following Pirelli employees:
(i) the General Manager; (ii) the Manager responsible for the corporate financial documentation; (iii)
all positions currently defined as Executive Vice Presidents and (iv) the Secretary of the Board of
Directors 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.
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At the Report Date, Pirelli qualifies as executive directors, in addition to the Executive Vice Chairman
and Chief Executive Officer, the directors who at the same time are qualified as Manager with
Strategic Responsibility of the Company, where existing, or who also hold the position of Chief
Executive Officer or Executive Chairman in the main companies controlled by Pirelli73.
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
granted with management powers and that he plays no specific role in the elaboration of business
strategies.
4.7
INDEPENDENT DIRECTORS
At the Report Date, eight of the fourteen members74 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: Paola Boromei, Domenico De Sole, Roberto Diacetti, Tao Haisu,
Giovanni Lo Storto, Marisa Pappalardo, Fan Xiaohua and Wei Yintao. Upon appointment and
thereafter, at least once a year, the Board evaluates whether or not the members meet and/or retain
the requirements of independence specified in the Corporate Governance Code, in the New
Corporate Governance Code and in the TUF for non-executive directors qualified as independent.
This check - which takes into account not only the information provided by the directors themselves
but also any additional information available to the Company and with reference to the requirements
of the TUF, as well as those recommended by the Corporate Governance Code - was most recently
carried out during the Board meeting of 31 March 2021.
In making its assessments, the Board did not derogate from any of the criteria prescribed by the
Corporate Governance Code and the New Corporate Governance Code. 75
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.
On 25 February 2021, the Board of Directors – on the proposal of the Audit, Risk, Sustainability and
Corporate Governance Committee – approved the “Statement on independence” in order to define
73 For the sake of completeness, it should be noted that (i) the director Giovanni Tronchetti Provera is a senior manager of the Company;
(ii) during the Year, in addition to the Executive Vice Chairman and Chief Executive Officer, the director Angelos Papadimitriou - co-
opted on 5 August 2020 - was qualified by the Board as an “executive director” of the Company by virtue of his office as co-CEO
General Manager. As result of the consensual termination of the managerial employment relationship, Director Papadimitriou was
identified as a non-executive director. Following the proposal on appointing Giorgio Luca Bruno as Deputy-CEO, Papadimitriou
withdrew his candidacy for the confirmation as director, expiring from the office on 24 March 2021. Therefore, at the Report Date, no
director, other than the Executive Vice President and Chief Executive Officer, qualifies as an executive director.
74 For sake of completeness, a seat is vacant.
75 In particular, none of the Independent Directors can be qualified as “Key Personnel”.
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ex ante the qualitative and quantitative criteria to be used to assess the independence of directors
and statutory auditors.
This Statement defines (i) the qualitative and quantitative criteria to be used for assessing the
independence of directors pursuant to the New Corporate Governance Code and, in particular, the
parameters of relevance of any economic, professional or financial relationships of directors whose
independence is being examined, (ii) and explains in detail certain interpretative criteria concerning
also the other cases of independence mentioned by the New Corporate Governance Code, including
the notion of “significant additional remuneration”.
In particular, the Board of Directors of the Company has identified the following thresholds of
relevance of the relationships under assessment:
- with regard to the notion of “significant commercial, financial or professional relationship”
referred to in letter c) of Recommendation no. 7 of the New Corporate Governance Code, it
is understood to include consultancy or any other assignment - with the exception of non-
executive corporate offices held within the group, which are relevant in relation to the
significant additional remuneration according to the criteria indicated below - which have led,
for the director or auditor whose independence is being assessed, or their close family
members, an economic award in the calendar year exceeding (i) EUR 300,000 in the event
of relations maintained with companies or entities, of which the director, statutory auditor or
close family member has control or is a significant representative, or of the professional firm
or association or consulting firm of which such persons are partners, associates or
associates, in the event of relations maintained with such companies, entities, consulting
firms or professional firms and associations (ii) to EUR 100,000 for relations maintained
directly with natural persons. In the case of a partnership in a professional firm or consulting
company, an assessment of possible impacts on the position and role of the auditee is
considered appropriate.
- with regard to the notion of “significant additional remuneration”, referred to in letter d) of
recommendation no. 7 of the New Corporate Governance Code, it is understood all
remuneration paid for any reason during the calendar year by the Company, one of its
subsidiaries or parent company (direct or indirect), which cumulatively exceeds the total
amount of the remuneration for the office or of the remuneration for the attendance to the
Board committees paid to the director and of the remuneration for the office of member of
the Board of Statutory Auditors whose independence is subject to assessment.
None of the Directors qualified as independent at the date of their appointment had lost this status
during their term of office.
In light of the above, the structure of delegated powers, the shareholding structure and the provisions
of the New Corporate Governance Code, the majority of independent directors have not yet deemed
it necessary to propose the appointment of a lead independent director to the Board of Directors.
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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.
The Independent Directors meet at least once a year in the absence of the other directors, with the
aim of analysing matters of particular importance such as the functioning of the Board of Directors
or company management.
During the Financial Year, the independent directors have met twice in the absence of the other
directors, at the meetings on 16 October 2020 and on 10 December 2020, on the occasion of the
first two induction sessions organised by the Company’s offices. In addition, at the Report Date, the
independent directors have met once in the absence of the other directors at the meeting on 27
January 2021, during the third induction session. During these meetings, matters relating to internal
organisation were illustrated and discussed in depth, specifically with regard to (i) a description of
the organisational structure and a focus on the main changes it has undergone during the Year; (ii)
a description and contextualisation of the size of the Pirelli Group and (iii) the policies for developing
corporate talent, including performance evaluation criteria and training activities for Group
employees. In addition, the compensation schemes adopted by the Company and the
communication and cyber security strategies and the integration of sustainability matters into the
corporate strategy were analysed in depth.
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
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(“blackout 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 EUR 20,000, in compliance with the applicable current
regulations. In this regard, a black-out period of 30 calendar days imposed prior to the announcement
by the Company of the data contained in the annual, half-yearly and periodic financial reports
required by the laws and regulation in force at the time,76 during which 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.
Also taking into account the recommendations and the principles contained in the New Corporate
Governance Code, the Company’s Board of Directors, in its meeting of 22 June 2020, established
the Strategies Committee, the Appointments and Successions Committee, the Audit, Risk,
Sustainability and Corporate Governance Committee, the Remuneration Committee and the
Related-Parties Transactions Committee.
The composition of the Related-Parties Transactions Committee was amended with a subsequent
resolution approved on 5 August 2020, following the resignation of Director Secchi with effect from
the same date. Moreover, the composition of the Strategies Committee was modified following the
end in charge of Angelos Papadimitriou with effect from 24 March 2021.
6.1
OPERATION OF COMMITTEES
The Committees are appointed by the Board of Directors (which also designates their Chairman)
and remain in office for the entire mandate of the Board holding meetings whenever deemed
appropriate by the Chairman of the Committee, 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.
76 The Company publishes annually - normally before the end of the financial year - a calendar of the main corporate events relating to
the following financial year and updates it promptly in the event of subsequent changes.
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The Strategies Committee meets at least quarterly and in any case before the Board of Directors’
meeting called to approve the annual budget and/or the business plan, receiving the relevant
documentation at least 3 days before the meeting.
The Secretary of each Committee is the Secretary of the Board.
Meetings of the Committees shall be convened by notice sent to the participants by its Chairman or
by the Secretary of the Committee at the request of 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 way (normally 10 days before the meeting).
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.
Committees - which may make use of external advisers in carrying out their functions - are granted
adequate financial resources to perform their tasks with spending autonomy. The Related-Parties
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.
The entire Board of Statutory Auditors is entitled to participate in the activities of the Audit, Risk,
Sustainability and Corporate Governance Committee, the Remuneration Committee and the
Related-Parties Transactions Committee.
A member of the Board of Statutory Auditors (normally the Chairman) 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.
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7.
STRATEGIES COMMITTEE
At the date of the Report, the Strategies Committee is composed of 7 Directors (3 of whom are
independent): Marco Tronchetti Provera (Chairman of the Committee), Ning Gaoning, Yang
Xingqiang, Bai Xinping, Domenico De Sole, Giovanni Lo Storto 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:
-
-
supports the Board of Directors in reviewing the Company’s and the Group’s business plans,
also based on the analysis of matters relevant to the generation of long-term value;
assists the Board in assessing transactions, initiatives and activities of strategic importance,
including, in particular:
o entry into new markets, both geographical and business;
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o
industrial alliances (e.g. joint ventures);
o
special transactions (mergers, demergers, capital increases or capital reductions, other
than reductions for losses);
o
investment projects;
o
industrial and/or financial restructuring programs and projects.
-
periodically examines the organisational structure of the Company and the Group, formulating
any suggestions and opinions to the Board;
- monitors and evaluates over time the achievement by management of the Group’s economic
and financial objectives, according to the procedure on information flows set out below, thereby
proposing to the Board of Directors any actions and/or the adoption of corrections for the
implementation of the economic and financial objectives approved by the Board of Directors.
The Strategies Committee is required to receive a specific information flow 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 of the Committee), Ning Gaoning, Giovanni Tronchetti Provera
and Bai Xinping. Considering the fact that the Committee in question deals not only with aspects
relating to appointments, but also with matters concerning top management succession, and having
regard to the provisions of the Renewal of the Shareholders’ Agreement that outline a structured
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procedure for identifying the successor to Marco Tronchetti Provera as Chief Executive Officer of
Pirelli (see the section 4.1.2 below), it was decided, as an exception to the Corporate Governance
Code and the New Corporate Governance Code, to appoint the majority of non-executive (albeit not
independent) directors as members of this Committee.
In particular, the Appointments and Successions Committee:
-
-
prepares opinions for the Board of Directors on the size and composition of the Board and makes
recommendations about the professional roles whose presence on the Board is deemed
appropriate;
prepares opinions for the Board of Directors on the adoption and/or amendment by the Board
of its orientation towards the number of appointments considered compatible with effective
performance as a director of the Company;
- makes recommendations to the Board of Directors about any issues regarding application of the
prohibition of competition envisaged in art. 2390 of the Civil Code, should the Shareholders’
Meeting - for organisational reasons - authorise in advance, on a general basis, exceptions to
this prohibition;
-
-
-
-
recommends candidates to the Board of Directors, should it be necessary to co-opt new
Directors to replace independent directors;
recommends “emergency” top management succession plans to the Board of Directors;
prepares opinions for the Board of Directors on the designation of candidates (including persons
to be 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.
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9.
RELATED-PARTIES TRANSACTIONS COMMITTEE
At the Report Date, the Related-Parties Transactions Committee is composed of 3 independent
directors: Marisa Pappalardo (Chairwoman of the Committee), Domenico De Sole, and Giovanni Lo
Storto.
The Related-Parties Transactions Committee has consultative and advisory functions in relation to
related-parties transactions in the terms laid down in the current regulations and the Procedure for
Related-Parties Transactions (see section 14).
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10.
REMUNERATION COMMITTEE
At the date of the Report, the Remuneration Committee is composed of 5 directors (4 of whom are
independent): Tao Haisu (Chairman of the Committee); Paola Boromei (Director with appropriate
financial and remuneration policy knowledge and experience), Bai Xinping, Fan Xiaohua and Marisa
Pappalardo.
The Committee has investigative, propositional, advisory and supervisory functions to ensure the
definition and application within the Group of remuneration policies aimed, on the one hand, at
pursuing the sustainable success of the Company/Group and aligning the interests of the
management with those of the shareholders and, on the other hand, at having, retaining and
motivating resources with the skills and professional qualities required by the role held in the
Company.
In particular, the Remuneration Committee:
-
-
assists the Board of Directors to define the Group’s Remuneration Policy;
periodically assesses the adequacy and overall consistency of the Remuneration Policy for the
Company’s directors and, in particular, for directors holding special offices, General Managers
and managers with strategic responsibility;
- with regard to the executive directors and other directors holding special offices and to the
General Managers, makes proposals or expresses opinions to the Board in relation to:
o
their remuneration, in accordance with the Remuneration Policy;
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o
the setting of performance objectives related to the variable component of such
remuneration;
o
the definition of possible non-competition agreements;
o
the definition of possible termination agreements also on the basis of the principles set out
in the Remuneration Policy;
- monitors the actual application of the Remuneration Policy and verifies the effective
achievement of performance objectives; verifies the compliance of the remuneration of
executive directors, other directors holding special offices, general managers and executives
with strategic responsibility with the Remuneration Policy and expresses an opinion on them, if
required by the relevant procedure adopted within the Company, also pursuant to the Procedure
for Related-Parties Transactions;
-
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 implementation of the decisions adopted by the Board of Directors, in particular
verifying the actual achievement of the set performance objectives;
-
-
-
examines and submits to the Board of Directors the Remuneration Report that, by name for the
members of the management and controlling bodies, for General Managers and, in aggregate
form, for managers with strategic responsibility:
a) provides an adequate representation of each component of their remuneration;
b) illustrates analytically the remuneration paid during the reference financial year for any
reason and in any form by the Company and its subsidiaries.
expresses, in any case, opinions to the Related-Parties Transactions Committee, if the
competences in the field of Transactions with Related-Parties, for matters concerning the
remuneration of executive directors, including directors holding special offices, General
Managers and executives with strategic responsibility, are not attributed to the Committee itself;
assesses
Remuneration Policy.
the existence of exceptional circumstances allowing derogations
from
the
In the cases envisaged by the Procedure for related-parties transactions adopted by the Company
(“RPT Procedure”), the Remuneration Committee may be assigned the powers of the Related-
Parties Transactions Committee envisaged by Consob regulations and by the RPT Procedure for
matters concerning (i) the remuneration of executive directors, directors holding special offices,
General Managers and executives with strategic responsibilities and (ii) the approval of exceptions
to the Remuneration Policy, if exceptional circumstances to allow them exist.
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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.
For information on the remuneration policy for 2021 and on the remuneration paid in 2020, please
refer to the Remuneration Report prepared pursuant to art. 123-ter of the TUF, which is made
available to the public in accordance with the terms and procedures provided for by applicable laws
and regulations, including by publication on the Website. It should be noted that said document also
includes the information required by art. 123-bis, section 1, letter i) of the TUF.
12.
AUDIT, RISK, SUSTAINABILITY AND CORPORATE GOVERNANCE COMMITTEE
At Report Date, the Audit, Risk, Sustainability and Corporate Governance Committee is composed
of 5 directors (4 of whom were independent): Fan Xiaohua (Chairwoman of the Committee), Zhang
Haitao, Roberto Diacetti, Giovanni Lo Storto and Marisa Pappalardo. Directors Fan, Diacetti and Lo
Storto have appropriate experience in accounting, finance or risk management.
The Audit, Risk, 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 internal control and risk management system, as well as in the
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approval of periodic financial reports. In particular, the Audit, Risk, Sustainability and Corporate
Governance Committee:
-
supports the Board of Directors in:
a) defining the guidelines for the internal control and risk management system, in line with the
Company’s strategies;
b) evaluating, at least once a year, the adequacy of the internal control and risk management
system to the characteristics of the company and the risk profile assumed, as well as its
effectiveness;
c) appointing and dismissing the Head of internal audit, also defining his remuneration in line
with corporate policies, thus ensuring that he has adequate resources to carry out his duties;
d) approving, at least once a year, the work plan prepared by the Head of the Internal Audit
function, after consulting the controlling body and the CEO, and by the Head of the
Compliance function;
e) evaluating the possible adoption of measures aimed at ensuring the effectiveness and
impartiality of judgement of the other corporate functions involved in the controls, verifying
that they are endowed with adequate professionalism and resources;
f) assessing, after consultation with the Board of Statutory Auditors, the results presented by
the external auditor in any letter of recommendation and, if any, in the additional report
addressed to the Board of Statutory Auditors;
g) describing, in the report on corporate governance, the main features of the internal control
and risk management system and of the methods of coordination between the different
subjects involved in it, indicating the models and national and international best practices of
reference, expressing its assessment on the overall adequacy of the same;
- assesses, having consulted the Manager responsible for the corporate financial documentation,
the company responsible for external audit and the Board of Statutory Auditors, the correct use
of accounting standards and their uniform application within the Group in view of preparing the
consolidated financial statements;
- assesses the suitability of periodic financial and non-financial information to correctly represent
the Company’s business model, strategies, the impact of its activities and the performance
achieved, in coordination with the Strategies Committee;
- examines the content of periodic non-financial information relevant to the internal control and risk
management system;
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- expresses opinions on specific aspects relating to the identification of the main corporate risks
and supports the Board of Directors’ assessments and decisions relating to the management of
risks arising from prejudicial events of which the Committee has become aware;
- examines the periodic reports prepared by the head of internal audit and the compliance function;
- monitors the independence, adequacy, effectiveness and efficiency of the internal audit function;
-
-
-
requests the internal audit function, if deemed appropriate, to carry out checks on specific
operational areas, simultaneously notifying the Chairman of the Board of Statutory Auditors;
reports to the Board of Directors, at least on the occasion of the approval of the financial
statements and the half-yearly report, on the activities carried out and the adequacy of the
internal control and risk management system;
supervises the observance and periodic updating of the rules of corporate governance and
compliance with the principles of conduct that may be adopted by the Company and its
subsidiaries; in particular, it is responsible for proposing the procedures and terms for the Board
of Directors’ annual self-assessment;
- oversees sustainability matters related to the company’s operations and the dynamics of its
interaction 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.
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, Risk, Sustainability and Corporate
Governance Committee, carries out the tasks assigned to it in the Corporate Governance Code.
A more complete description of Pirelli’s internal control system can be found in the management
report. In this regard, it should also be noted that the Board of Statutory Auditors issued a statement
on the administration and accounting system of Pirelli’s relevant subsidiaries to ensure that the
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economic, equity and financial data for the preparation of the consolidated financial statements are
regularly received by Pirelli’s management and external auditor.
13.1 DUTIES OF THE CHIEF EXECUTIVE OFFICER IN RELATION TO THE ESTABLISHMENT
AND MAINTENANCE OF THE INTERNAL CONTROL SYSTEM
The Board of Directors, in its meeting of 22 June 2020, has designated Marco Tronchetti Provera as
the responsible of setting up and maintaining the internal control and risk management system.
The Executive Vice Chairman and Chief Executive Officer is entrusted with supervising the
functioning of the internal control and risk management system and implementing the guidelines
defined by the Board of Directors, with the support from the Audit, Risk, Sustainability and Corporate
Governance Committee, ensuring that all necessary actions are taken to implement the system. In
particular, in line with the recommendations of the New Corporate Governance Code:
-
-
-
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 function to carry out checks on specific operational areas and on
compliance with internal rules and procedures in the execution of corporate transactions,
simultaneously notifying the Chairman of the Board of Directors, the Chairman of the Audit, Risk,
Sustainability and Corporate Governance Committee and the Chairman of the Board of
Statutory Auditors;
-
promptly reports to the Audit, Risk, Sustainability and Corporate Governance Committee on
problems and critical issues that have emerged during the performance of its activities or of
which it has become aware, so that the Committee can take the appropriate initiatives.
13.2
INTERNAL AUDIT FUNCTION
The Company has established an internal audit function, whose functions are substantially in line
with those set out in the Corporate Governance Code and in the New Corporate Governance Code.
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In particular, the function 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 Function:
-
-
-
-
-
-
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, Risk, Sustainability and Corporate
Governance Committee, the Board of Statutory Auditors and the director responsible for the
internal control system, 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, Risk, 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 whistle-blowing procedures
established by the Group and regarding any cases of corruption/violation of the principles of
internal control and/or the provisions of the Ethical Code, 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 section 12, it should be noted that the Audit, Risk, Sustainability and Corporate
Governance Committee expresses an opinion on proposals relating to the appointment, revocation,
assignment of duties and determination of the remuneration, in accordance with corporate policies,
of the head of the internal audit function, as well as on the adequacy of the resources assigned to
the function to carry out his functions.
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13.3 COMPLIANCE FUNCTION
Operating within the Corporate Affairs, Compliance, Audit and Company Secretary department, the
Compliance function 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 CONTROL AND RISK MANAGEMENT OVER FINANCIAL INFORMATION
Pirelli has implemented a specific and structured internal control and risk management 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 Function – 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 Group’s Chief Financial Officer.
The Internal Audit Function 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 22 June 2020, the newly appointed Board of Directors confirmed the Executive Vice Chairman
and CEO Marco Tronchetti Provera as Director responsible for sustainability.
In that role, he is entrusted with the task of supervising sustainability topics associated with the
conduct of the activities of the company and with its dynamics of interaction with all the stakeholders,
and of implementing the guidelines defined by the Board of Directors, with assistance from the Audit,
Risk, 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 No. 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 No. 231/2001, the composition and functioning of the Supervisory Body, and the system of
penalties applicable in the event of breaches of the standards of conduct specified in Model 231,
and (b) special parts containing the general principles of conduct and the control protocols for each
type of identified offence deemed significant for the Company.
The Supervisory Body was appointed by the Board of Directors on 22 June 2020, and remodulated
by the Board of Directors on 11 November 2020, and it is composed of Carlo Secchi (Chairman),
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Antonella Carù (standing auditor), and Alberto Bastanzio (in light of his position as Executive Vice
President Corporate Affairs, Compliance, Audit 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 extract 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
office in Milan, Piazza Tre Torri 2, recorded in the Register of Auditors pursuant to art. 6 et seq. of
Italian Legislative Decree no. 39/2010.
On 1 August 2017, the Ordinary Shareholders’ Meeting of Pirelli confirmed the appointment for 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 and, therefore, from 4
October 2017, this appointment shall concerns: (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 art. 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 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
an expert in administration, finance and control matters and satisfies the integrity requirements
established for the directors. The attribution to Tanzi of the role of Manager responsible for the
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Preparation of Financial Reports and the verifications inherent to his position were lastly carried out
and confirmed by the Board of Directors in the meeting of 22 June 2020.
The Chief Reporting Officer puts in place suitable administrative and accounting procedures 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-PARTIES TRANSACTIONS
In accordance with the provisions of art. 2391-bis of the Italian Civil Code and the Related-Parties
Regulation, on 6 November 2017 - confirming the resolutions taken on 31 August 2017 - the Board
of Directors resolved to adopt the procedure for related-parties transactions (the “RPT Procedure”),
following the unanimous favourable opinion expressed by the Related-Parties Transactions
Committee. Lastly, the Board of Directors, following the unanimous opinion of the Related-Parties
Transactions Committee, in the meeting of 11 November 2020, resolved to confirm, without
amendments, the Procedure for Related-Parties Transactions, reserving the right to carry out a
subsequent review of it in order to adopt all the updates and amendments necessary or appropriate
in the light of the amendments of the Consob regulation that were subsequently adopted by the
Supervisory Authority in accordance with the amendments to the European directive on
shareholders. In particular, on 10 December 2020, Consob with Resolution no. 21624 amended
Regulation no. 17221 of 12 March 2010 setting out provisions on related-parties transactions (the
“RPT Regulation”). These amendments will enter into force on 1 July 2021. Therefore, there is a
transitional period until 30 June 2021 during which companies will have to adapt their procedures to
the new provisions.
The RPT Procedure establishes rules for the approval and execution of the related-parties
transactions conducted 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-Parties Transactions
Committee - considers the need to revise the RPT Procedure.
At Report Date, in light of the aforementioned changes, given the introduction of further procedural
and disclosure obligations and once the necessary in-depth analyses in relation to the newly issued
regulations have been completed, the Company will proceed to transpose the aforementioned
regulations into the RPT Procedure.
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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
Function, is submitted to the Related-Parties Transactions Committee and subsequently to the Board
of Directors. The analyses carried out up to the Report 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
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 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.
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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 order to ensure gender balance, the slates that,
considering both sections, present a number of candidates equal to or greater than three, must
include candidates of different gender at least to the minimum extent required by the law and/or
regulations in force at the time, as specified in the notice of call of the meeting, both in the section of
the slate for standing auditors and in the section for alternate auditors77.
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 Bylaws and complies with the gender balance requirements envisaged by the regulations
77 This clause was amended at the Shareholders’ Meeting that approved the financial statements for the year ended 31 December 2019
in order to bring it into line with the new legislation on gender quotas in the composition of corporate bodies (Law No. 160 of 27
December 2019, effective as of 1 January 2020).
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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 to
supplement the Board of Statutory Auditors, it shall proceed as follows: if it is necessary to replace
auditors elected from the majority slate, the appointment is made by relative majority vote without
slate constraints and without prejudice, in any case, to compliance with the gender balance provided
for by current legislation; if, on the other hand, it is necessary to replace auditors elected from the
minority slate, the Shareholders’ Meeting shall replace them by a relative majority vote, selecting
them, where possible, among the candidates on the slate to which the auditor to be replaced
belonged and, in any case, in accordance with the principle of the necessary representation of
minorities to which the Bylaws guarantee the right to participate in the appointment of the Board of
Statutory Auditors, without prejudice, in any case, to compliance with the gender balance provided
for by current legislation. 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. Expiring 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 minority shareholders), Fabio
Artoni, Antonella Carù, Luca Nicodemi and Alberto Villani, as standing auditors, and Franca Brusco
(appointed by minority shareholders), Elenio Bidoggia and Giovanna Oddo, as alternate auditors,
until the date of the Shareholders’ Meeting called to approve the financial statements for the year
ending 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.
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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, Pirelli’s Board of Statutory Auditors met 12 times, with each meeting lasting an
average of about 60 minutes.
At the Report Date, out of the eight members of the Board of Statutory Auditors (five standing
auditors and three alternate auditors) approximately 38% were women (20% for standing auditors
only). In addition, the average age of the members of the Board of Statutory Auditors is approximately
54 years of age (55 is the average age of the standing auditors only). The 80% of the statutory
auditors are between 55 and 60 years old, while the remaining statutory auditors are 47 years old.
During the course of the Financial Year, the Board of Statutory Auditors, like the Board of Directors,
once again carried out - in line with what was done in the previous financial year and in compliance
with the rules of conduct for listed companies issued by the National Council of Chartered
Accountants and Accounting Experts (“Rules of Conduct”) - the evaluation process on its
performance with the assistance from the independent consultancy firm SpencerStuart. This self-
assessment process, like the process set out 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
operating. The positive results of the self-assessment process of the Board of Statutory Auditors are
highlighted in the Statutory Auditors’ report on the financial statements as at 31 December 2020 and
were taken into account by the Board of Statutory Auditors itself - which, as is known, is due to
complete its term of office - for the purpose of drafting the document of the Expiring Board of
Statutory Auditors (as defined below).
The attached Table 3 provides the significant information about each member of the Board of
Statutory Auditors in office at the Report Date.
For the sake of completeness, it should be noted that the Shareholders’ Meeting called to approve
the 2020 Financial Statements will renew the Board of Statutory Auditors. Therefore, the latter,
having reached the end of its mandate, has made available to shareholders, in compliance with the
provisions of the Rules of Conduct, taking into account its experience and the results of the self-
assessment process, an end-of-mandate document containing an orientation with a summary of the
skills and professionalism that have contributed to the efficient and effective functioning of the Board
(“Expiring Board of Statutory Auditors Document”).
The Expiring Board of Statutory Auditors Document of the, illustrated below, is available on the
Website.
The Board of Statutory Auditors has indicated the main supervisory functions actually carried out
within Pirelli’s corporate governance system, issuing a summary of the individual characteristics that
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each candidate Statutory Auditor is deemed to possess (in addition to the requirements provided for
by law), and then its considerations on the optimal overall composition of the Board of Statutory
Auditors. In particular, in addition to the requirements of professionalism and honourableness
provided for by law and the Bylaws, and of independence provided for by law and by the New
Corporate Governance Code which Pirelli adheres to, the Statutory Auditors are also subject to the
limits on the accumulation of offices established by current legislation. In addition, the members of
the Board of Statutory Auditors, as members of the internal control and audit Committee, are
altogether competent in the sector in which the audited company operates (cf. art. 13, section 3,
Legislative Decree no. 39/2010).
Therefore, the expiring Board of Statutory Auditors recommends that each slate should also be
characterised by the presence of candidates possessing such specific expertise (also in terms of
previous experience). The availability of adequate time to devote to the task is also considered
essential for each candidate. In this regard, it should be noted that the Statutory Auditors attend the
meetings of the Board of Directors and are invited (in whole or in part) to participate in the
Committees set up within the Board. In addition, with regard to the commitment required to the
Statutory Auditors, it should be included the drafting of reports and opinions falling within the
competence of the Board of Statutory Auditors and of the minutes of the periodic meetings required
by current legislation, and the participation in training activities and induction sessions periodically
organised by the Company.
During the three-year period 2018-2020, the Board of Statutory Auditors attended a total of 124
meetings, including the meetings with the Board of Directors and the relevant Board Committees78.
The expiring Board of Statutory Auditors deems it desirable that the slates submitted by shareholders
would guarantee the enhancement of the personal and aptitude characteristics of the candidates
and an adequate diversity - as a success factor - in relation to aspects such as age, gender and
educational-professional background, in compliance with the priority objective of ensuring adequate
competence and professionalism. In particular, at least two-fifths of the members must belong to the
least represented gender (pursuant to Law No. 160 of 27 December 2019).
The continuity of certain members of the expiring Board is also recommended, in order to pass on
to the new members, the knowledge of the Group’s business and dynamics acquired during their
term of office.
The expiring Board of Statutory Auditors specified that, in order to ensure the effective exercise of
control activities, a climate of cooperation and trust between all members and a constant comparison
with constructive interactions (including informal) between members have been essential. In this
context, the role of the Chairman of the Board of Statutory Auditors has been considered central,
78 The entire Board of Statutory Auditors participates in the activities of the Audit, Risk, Sustainability and Corporate Governance
Committee, the Remuneration Committee and the Related-Parties Transactions Committee, while a representative of the Board of
Statutory Auditors (usually the Chairman) is invited to attend meetings of the Appointments and Successions Committee and the
Strategies Committee.
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and he has been called upon to guide the aforementioned discussion and to foster the creation of a
spirit of cohesion among the members.
Finally, pursuant to the Rules of Conduct and best practices and in light of the results of a
comparative analysis concerning the remuneration paid to the members of the Board of Statutory
Auditors of other comparable issuers, the Expiring Board of Statutory Auditors has invited the
shareholders to take into account the aforementioned comparative elements and the relevant
reference parameters in order to assess the adequacy of the remuneration to be proposed to the
Shareholders’ Meeting, also inviting the candidates to assess the aforementioned comparative
elements and the relevant reference parameters in order to assess the adequacy of the remuneration
envisaged for the office.
16.
OPERATIONS GENERAL MANAGER
It should be noted that the Operations General Manager role was established in May 2018 and is
entrusted to Andrea Casaluci.
As of 1 August 2020, a co-CEO General Manager role was established and it was entrusted to
Angelos Papadimitriou, until 28 February 2021 - the effective date of the consensual termination of
the managerial employment relationship. Following the appointment of the Deputy-CEO, after the
Shareholders’ Meeting that will appoint Giorgio Luca Bruno as a Director, the Co-CEO General
Manager role will be exceeded.
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 assured, preferably, by the
transmission of documents on a timely basis and, in any case, with sufficient frequency to ensure
compliance with the disclosure requirements, 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.
If the information flows concern inside information and/or relevant information, they must be carried
out in accordance with the procedures indicated in the Market Abuse Procedure.
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The Strategies Committee is required to receive a specific and continuous information flow 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.
In the course of the 2021 financial year, a policy on dialogue with the general public is scheduled to
be published, as required by the New Corporate Governance Code.
19.
SHAREHOLDERS’ MEETINGS
Pursuant to art. 7 of the Bylaws, 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 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 motions on the agenda. The proxy
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does not apply to items for which no voting instructions were given. The persons designated to
receive 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 Meeting. The additions and deductions recorded on those counts subsequent to
that deadline are not relevant when determining the legitimacy of the right to vote at the Meeting.
The communication must be received by the Company by the end of the third trading day prior to
the date fixed for the 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
Meeting.
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Ordinary and Extraordinary Shareholders’ Meetings are chaired by the Chairman of the Board of
Directors or, if absent or unavailable, by the Chief Executive Officer. If the above persons are absent,
the chair is taken by another person appointed by a majority of the share capital represented at the
Shareholders’ Meeting.
The Chairman of the 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 Meeting are taken by a Notary.
The Chairman of the Shareholders’ Meeting chairs the meeting and, in accordance with the law and
the Bylaws, 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 Bylaws.
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 sections, 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, to guarantee the transparency of
information and compliance with the current laws and regulations applicable to companies listed on
the Italian Stock Exchange.
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The Company’s objective is to provide simple and clear information for investors and, in general, all
its Stakeholders, through the Site, in line with common practice. For this reason, also taking 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 22 DECEMBER 2020 FROM THE CHAIRMAN
OF THE CORPORATE GOVERNANCE COMMITTEE
With a letter dated 22 December 2020 (the “Chairman’s Letter”), in the context of its usual
monitoring of the state of application of the provisions of the Corporate Governance Code, the
Chairman of the Corporate Governance Committee of Borsa Italiana, has formulated to listed
companies the further six recommendations indicated below (the “Recommendations of the
Committee for 2021”):
1. include the sustainability of the business activities in the definition of the strategies, the internal
control and risk management system and the remuneration policy, also on the basis of an
analysis of the relevance of the factors that may affect the production of value in the long term;
2. on pre-consultation disclosures: (i) explicitly determine the deadlines deemed appropriate for the
submission of documents, (ii) provide in the corporate governance report a clear indication of the
identified deadlines and their actual compliance, (iii) do not provide that such deadlines may be
waived for mere confidentiality reasons;
3. on the application of the independence criteria: (i) always justify on an individual basis the
possible non-application of one or more independence criteria, (ii) define ex ante the quantitative
and/or qualitative criteria to be used for the assessment of the significance of the relationships
under examination;
4. on the subject of self-evaluation of the board of directors: (i) evaluate the board’s contribution to
the definition of strategic plans, (ii) oversee the board review process;
5. on the appointment and succession of directors: (i) report promptly on the activities carried out
by the nomination committee in case it is merged with the remuneration committee or its functions
are attributed to the full board, (ii) ensure the completeness and timeliness of the proposals of
resolutions functional to the process of appointment of corporate bodies and express, at least in
companies with non-concentrated ownership, an orientation on its optimal composition, (iii)
provide, at least in large companies, a succession plan for executive directors identifying at least
the procedures to be followed in case of early termination of office;
6. on remuneration policies: (i) provide clear indications on the identification of the weight of the
variable component, distinguishing between components linked to annual and multi-year time
horizons, (ii) strengthen the link of the variable remuneration to long-term performance
objectives, including, where relevant, also non-financial parameters, (iii) limit to exceptional
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cases, after adequate explanation, the possibility to pay amounts not linked to predetermined
parameters (i.e. ad hoc bonus), (iv) define criteria and procedures for the allocation of severance
pay, (v) verify that the amount of remuneration paid to non-executive directors and members of
the controlling body is appropriate to the competence, professionalism and commitment required
by their office.
The Committee’s Recommendations for 2021 were brought to the attention of (i) the Audit, Risk,
Sustainability and Corporate Governance Committee and the Board of Statutory Auditors on 22
February 2021, and (ii) the Board of Directors on 25 February 2021.
The Board of Directors of the Company - having also obtained the favourable opinions expressed
by the members of the competent Committees and the Board of Statutory Auditors - believes that,
as promptly highlighted in this Report, no specific interventions to its own corporate governance
system are needed in relation to the issues highlighted in the Committee’s Recommendations for
2021, as they were already adequately implemented by the Company some time ago.
The following is a summary of the considerations made by the Board of Directors with regard to the
Committee’s 2021 Recommendations.
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 sustainability of business activities is a pillar of Pirelli’s strategy, which aims to create long-
term value for the benefit of shareholders, taking into account the other stakeholders relevant to
the Company. In order to contribute to the sustainable success of the Company, the internal
control and risk management system adopted by the Company, whose guidelines are defined by
the Board of Directors in accordance with the Company’s strategy, enables the identification,
measurement, management and monitoring of the main risks. In addition, the Company’s
remuneration policy provides for multi-year variable components of remuneration, aimed at
incentivising the achievement of the Company’s strategic objectives and sustainable growth;
- also in 2020, pre-meeting information (of a continuous nature or relating to specific topics) was
provided in advance, which was deemed to be congruous and adequate to allow Directors to
express their opinions in an informed manner on the matters submitted to the Board, with quality
standards in line with international best practices and with ample guarantees of confidentiality and
traceability of the information and documents sent; as stated in the Regulation on the functioning
of the Board of Directors (approved in the meeting of 22 June 2020), the documentation to be
examined by the Board and by the Committees is sent within ten days prior to the meeting, unless
specific requirements do not allow it: in such cases, the documentation is sent as soon as it is
available and full information on the subject under consideration is provided during the meeting;
- during the year, there were no exceptions to the application of the independence criteria provided
for in the Corporate Governance Code or in the regulations, from the checks carried out by the
controlling body on the criteria adopted by the Board to assess the independence requirements
of the directors. The Board of Directors meeting held on 25 February 2021, subject to prior
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approval by the Audit, Risk, Sustainability and Corporate Governance Committee, has approved
the “ Statement on independence”, in order to define ex ante the quantitative and/or qualitative
criteria to be used to assess the significance of the relationships pertaining to directors whose
independence is being examined;
-
the definition of strategic plans is a matter reserved for the exclusive competence of the Board of
Directors. In 2020, board performance evaluation activities were also carried out with the help of
a leading independent company specialised in this field (SpencerStuart) in the role of facilitator
of the process and with the support of the Audit, Risk, Sustainability and Corporate Governance
Committee;
- an Appointments and Successions Committee is set up within the Board of Directors, with the
task, among others, of assisting the Board of Directors in defining the optimal composition of the
Board of Directors and its Committees, formulating opinions regarding the size and composition
of the Board of Directors and expressing recommendations regarding the professional figures
whose presence on the Board is deemed appropriate; on 26 July 2019, the Board of Directors
detailed the procedure for the succession of the Executive Vice Chairman and Chief Executive
Officer, which was ultimately confirmed and endorsed by the newly elected Board of Directors on
22 June 2020;
-
(i.e.
fixed
remuneration, annual variable
the remuneration policy of the practice company: (i) shows the structure of the remuneration of
Group Management, highlighting the incidence of the various components of their compensation
package
remuneration, multi-year variable
remuneration); (ii) provides for a medium/long-term incentive plan, of the “rolling” type, which
ensures the linking of variable remuneration to parameters linked to long-term objectives,
including non-financial objectives, (iii) describes Pirelli’s policy on compensation in the event of
resignation, dismissal or termination of employment. The Remuneration Policy for the financial
year 2021 will also describe the cases in which, exceptionally, one-off bonuses may be paid and
the procedure for doing so. The remuneration of non-executive directors and members of the
controlling body is deemed adequate, also taking into account the specific skills, professionalism
and commitment required by the office. This assessment is also confirmed by the analyses carried
out by Pirelli on a national and international basis with comparable companies.
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Report on corporate governance
Pirelli & C. S.p.A. – 2020 Annual Report
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295
Pirelli & C. S.p.A. – 2020 Annual Report Report on the remuneration policy and compensation paid
REPORT ON THE REMUNERATION POLICY AND COMPENSATION PAID
PREAMBLE
This Report on the remuneration policy and on the compensation paid (the “Report” or the
“Remuneration Report”), approved by the Board of Directors on 31 March 2021, on the proposal of
the Remuneration Committee, after obtaining the favourable opinion of the Board of Statutory, is
structured into two sections:
- Section I: “Remuneration Policy” for FY 2021 (the “2021 Policy” or the “Policy”) and
- Section II: “Report on Compensation Paid” in FY 2020 (the “2020 Compensation Report” or
the “Compensation Report”).
The Report is prepared in accordance with art. 123-ter of the Italian Legislative Decree no. 58 of 24
February 1998 (“TUF”), as amended and supplemented by art. 3 of Italian Legislative Decree no. 49
of 10 May 2019 (the “Decree”), as well as with art. 84-quater and Scheme 7-bis of Annex 3A of
Consob regulation (Consob Resolution no. 11971 of 14 May 1999 on issuers), as also amended by
Consob Resolution no. 21623 of 10 December 2020 (the “Issuers’ Regulation”).
For the purposes of the Report, 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 adopted by the New Corporate Governance Code 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 has adhered, as well
as the more recent recommendations of the Corporate Governance Committee.
The Policy has also been drafted in accordance with and for the effects of Pirelli’s Related-Parties
Transactions Procedure.
The Report is made available to the public at the Company’s registered office, at the authorised
storage mechanism (www.emarketstorage.com) and on the website of Pirelli & C. S.p.A. (“Pirelli &
C.” or the “Company”) at the address www.pirelli.com.
The 2021 Policy submitted for the binding vote to the Shareholders’ Meeting called to approve the
financial statements for the year ended 31 December 2020 pursuant to art. 123-ter, paragraph 3-ter,
TUF defines the principles and guidelines for the 2021 financial year:
-
for determining the remuneration of the Company Directors, in particular Directors holding
specific offices, General Managers and KM, as well as, without prejudice to the provisions of art.
2402 of the Italian Civil Code, for determining the remuneration of members of the controlling
body;
-
to which Pirelli & C. refers in defining the remuneration of Senior Managers and, more generally,
Group Executives.
296
Report on the remuneration policy and compensation paid Pirelli & C. S.p.A. – 2020 Annual Report
The 2021 Policy: (i) sets out its contribution to the company strategy, the pursuit of long-term
interests and the sustainable success of Pirelli & C., understood as the creation of long-term value
to the benefit of shareholders, taking into account the other relevant stakeholders of the Company;
(ii) also takes account of the need to have, retain and motivate people with the expertise and
professional standing required by the role held in the Company; and (iii) indicates the purposes,
methods of operation and the beneficiaries of the remuneration, as well as the bodies involved and
the procedures used for its adoption and implementation.
The 2020 Compensation Report, submitted for the advisory and non-binding vote of the
Shareholders’ Meeting in accordance with art. 123-ter, paragraph 6, TUF, provides, by name, for the
Directors, Statutory Auditors and General Managers and, in aggregate form, for the KM:
- adequate information about each component of their remuneration, including payments
prescribed in the event of resignation from office or termination of employment, pointing out their
compliance with the remuneration policy adopted by the Company for the 2020 financial year;
- an analytical indication of the sums paid in the 2020 financial year for any reason and in any
form by the Company and its subsidiaries or affiliates, indicating any components of payments
that are referable to activities undertaken in years preceding 2020 (and also highlighting the
payments to be made in one or more subsequent years for activity undertaken in the 2020
financial year, providing, if applicable, estimates for the components that cannot be objectively
quantified in the 2020 financial year);
- an explanation of how the Company has taken into account the vote expressed by the
Shareholders’ Meeting in 2020.
297
Pirelli & C. S.p.A. – 2020 Annual Report Report on the remuneration policy and compensation paid
EXECUTIVE SUMMARY
Purposes and
principles of the
Policy
The Policy aims to achieve long-term interests, thereby contributing to the achievement of strategic objectives and
sustainable growth of the company as well as bringing the interests of the Management into line with those of the
shareholders.
Aims
How it operates
Fixed
Remuneration
To reward managerial and
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 assure that it is competitive.
Annual variable
remuneration STI
Intended to motivate
managers to achieve the
Company’s annual objectives,
maintaining strong alignment
with the business strategy and
the Company’s interests and
medium-long term
sustainability, including
through a sustainability target
and a partial deferral
mechanism.
Directly linked to the achievement of
performance objectives, assigned to each
beneficiary in coherence with the role they
cover:
EBIT (Group/Region/BU)
Net Cash Flow (Group/Region)
Group Net Income
A sustainability objective
Unit/department objectives (for Senior
Managers and 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 a minimum level for each
objective, 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, for General Managers, KM and
selected Senior Managers, with a view to
retention, a portion of the incentive accrued
ranging from a minimum of 25% to a
maximum of 50% is subject to three-year
deferral. The relative payment, together with
a corporate matching component, is subject
to the continuation of employment at the
company at the end of this period.
For the rest of the Management, on the
other hand, 25% of the incentive accrued is
deferred and its payment, together with any
Beneficiaries in office on the date
of the Report82
Chairman: €400,000
Executive Vice Chairman and
CEO: €2,400,000
Deputy-CEO: € 1,100,000
General Manager83: €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
Chairman: not one of the
beneficiaries of the plan.
Executive Vice Chairman and
CEO:
Minimum: 80% of fixed
remuneration
Target: 125% of fixed
remuneration
Cap: 250% of fixed remuneration
Deputy-CEO:
Minimum: 65% of fixed
remuneration
Target: 100% of fixed
remuneration
Cap: 250% of fixed remuneration
General Manager:
Minimum: 50% of the GABS
Target: 75% of the GABS
Cap: 150% of the GABS
KM:
Minimum: 35% of the GABS
Target: 50% of the GABS
Cap: 100% of the GABS
Senior Managers and Executives:
Minimum: from 10% to 25% of
the GABS
Target: from 15% to 40% of the
GABS
Cap: from 30% to 80% of the
GABS
82 The following table provides for the structure of the remuneration approved by the Board of Directors on 31 March 2021, also in light
of the resolution concerning the proposal to submit to the Shareholders’ Meeting to be held in order to resolve upon the approval of
the Financial Statements at 31 December 2020 the appointment of Giorgio Luca Bruno as Director and the proposal of the Executive
Vice Chairman and CEO to appoint Giorgio Luca Bruno as Deputy-CEO, directly reporting to the Executive Vice Chairman and CEO.
83 On the date of the Report, Andrea Casaluci held the role of General Manager, as General Manager Operations. Note that Angelos
Papadimitriou ceased to hold the office of General Manager co-CEO as of 28 February 2021.
298
Report on the remuneration policy and compensation paid Pirelli & C. S.p.A. – 2020 Annual Report
Medium-long
term variable
remuneration
(LTI)
The intention is to promote the
creation of success that is
sustainable in the long-term
and achievement of the
objectives in the Company’s
strategic plans, while also
promoting management
engagement and retention.
increase, is subject to the achievement of
the following year’s STI objectives.
2020-2022 LTI Plan and 2021-2023 LTI
Plan: monetary incentives dependent on
achievement of the following,
independent long term objectives:
Cumulative Group Net Cash Flow
Chairman: not one of the
beneficiaries of the Plans.
Executive Vice Chairman and
CEO (annual opportunities)
“Access threshold”: 52.5% of
(before dividends)
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 “access threshold” 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.
Vesting: 3 years
Rolling plan
fixed remuneration
Target: 70% of fixed
remuneration
Cap: 200% of fixed remuneration
Deputy-CEO (annual
opportunities)
“Access threshold”: 45% of fixed
remuneration
Target: 60% of fixed
remuneration
Cap: 160% of fixed remuneration
General Manager (annual
opportunities):
“Access threshold”: 45% of the
GABS
Target: 60% of the GABS
Cap: 160% of the GABS
KM (annual opportunities):
“Access threshold”: 37.5% of the
GABS
Target: 50% of the GABS
Cap: 130% of the GABS
Senior Managers and Executives
(annual opportunities):
“Access threshold”: from 11.25%
to 37.5% of the GABS
Target: from 15% to 50% of the
GABS
Cap: from 40% to 130% of the
GABS
Other tools84
To assure organisational
stability and the contribution
made to the implementation of
the Company’s strategic plans,
also for the purpose of
promoting sustainable success
over the long-term.
Preserve company know-how
and protect it from competitors.
Promote attractiveness of the
Company and loyalty of
managerial staff.
Non-competition agreements:
constraint regarding the market sector in
which the Group operates and the
territorial coverage. The extent varies
according to the role covered; the
Chairman and the Executive Vice
Chairman and CEO are not among the
beneficiaries of the non-competition
agreements.
Welcome bonus: one-off bonuses that
can be assigned with a view to attracting
managerial resources exclusively during
the hiring phase.
Benefit: non-monetary benefits currently
assigned on the basis of market
practices.
84 The four-year Retention Plan launched in 2017 for the General Manager Operations, the KM and selected Senior Managers/Executives
ends with payment of the last instalment scheduled for June 2021. The Retention Plan envisages the recognition of an amount equal
to at most 2.3 times the Total Direct Compensation at Target of each beneficiary at the time of inclusion in the plan (2017). The
Executive Vice Chairman and Chief Executive Officer is not beneficiaries of the Retention Plan.
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REMUNERATION POLICY FOR THE 2021 FINANCIAL YEAR
1. PARTIES INVOLVED IN THE PROCESS OF POLICY PREPARATION, ADOPTION AND
IMPLEMENTATION
Parties in the process
The definition of the remuneration 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, adopted and approved by the Board of Directors annually – based on a
proposal by the Remuneration Committee – and the Board then submits it to the Shareholders’
Meeting for approval.
The Board of Statutory Auditors issued its opinion on the policy, including 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 such purpose, at least once per year, when the report on compensation
paid is submitted, the Head of the Human Resources & Organisation Department reports on the
application of the remuneration policy to the Remuneration Committee, the chairman of which reports
it to the Board of Directors.
For the sake of completeness, it should be noted that, in accordance with current legislation, it is the
role of the Board of Directors to propose to the Shareholders’ Meeting the adoption of incentive
mechanisms for members of the board of directors, employees or collaborators via the attribution of
financial instruments or options on financial instruments, which, if approved, are later made public
by the legal deadline (without prejudice to any further transparency requirements laid down in the
applicable regulations). As at the date of this Report, the Company has no incentive plans based on
financial instruments in place85.
In preparing the 2021 Policy, the Company was assisted by Willis Towers Watson and Korn Ferry
for the preparation of national and international benchmarks used to define the structure of the
remuneration of the Directors holding specific offices, General Managers and KM, in addition to
Senior Managers and Executives.
Amongst the measures aimed at avoiding or managing conflicts of interest, it is noted that, in
compliance with the recommendations of the New Corporate Governance Code, no member of the
85 It should be noted that the Board of Directors’ meeting of 31 March 2021, in application of the “rolling” mechanism introduced with the
2020-2022 LTI Plan, established the objectives of the 2021-2023 LTI Plan, related to the objectives contained in the 2021-2022/2025
Strategic Plan. Such LTI plan will be submitted for approval of the Shareholders’ Meeting as regards 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, compared to a panel of selected peers from the Tyre sector. For a more extensive description, reference is made to § 2,
4, 5 and 6 below.
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Board of Directors shall attend meetings of the Remuneration Committee during which proposals
are made to the Board of Directors regarding their remuneration.
Shareholders’ Meeting
The Shareholders’ Meeting:
- determines at the time of appointment the gross annual remuneration to be paid to members of
the Board of Directors, except for the remuneration to be attributed, by the Board, to Directors
holding specific offices;
- determines at the time of appointment the gross annual remuneration to be paid to the members
of the Board of Statutory Auditors;
- approves the first section of the remuneration report;
-
issues an advisory vote on section 2 of the remuneration report;
- decides, upon the proposal of the Board of Directors, on any incentive mechanisms based on
the attribution of financial instruments or options on financial instruments.
Board of Directors
The Board of Directors defines:
-
the breakdown of the total remuneration defined for Directors by the Shareholders’ Meeting;
-
-
-
-
the policy on remuneration of members of the Board of Directors, General Managers, KM and,
without prejudice to the provisions of art. 2402 of the Italian Civil Code, members of the Board
of Statutory Auditors;
the remuneration of Directors holding specific offices in accordance with art. 2389, paragraph 3
of the Italian Civil Code, and that 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,
Risk, Sustainability and Corporate Governance Committee.
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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 by the Board
of Directors.
As at the date of this Report, the Committee, consistently with the recommendations of the New
Corporate Governance Code, is composed of five members, all of whom are non-executive and the
majority of whom are independent. The Chairman of the Committee is an independent director.
As at the date of this Report, the Committee members are as follows:
Director Paola Boromei was considered by the Board of Directors as having sufficient experience in
matters of accounting, finance and remuneration policies.
The entire Board of Statutory Auditors is entitled to participate in the work of the Remuneration
Committee.
The Secretary to the Board of Directors acts as the Secretary to the Remuneration Committee.
The Committee has investigatory, advisory, propositional and supervisory functions and ensures the
definition and application, within the Group, of remuneration policies that, on the one hand, aim at
pursuing the sustainable success of the Company/Group and aligning the interests of management
with those of the shareholders and, on the other, at attracting, retaining and motivating human
resources with the expertise and professional standing required of the role held in the Company.
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In particular, the Remuneration Committee:
assists the Board of Directors with defining the remuneration policy;
assesses periodically the adequacy and overall consistency of the remuneration policy for
Directors of the Company and in particular Directors holding specific offices, General Managers
and KM;
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
o
o
about their remuneration, in compliance with the remuneration policy;
about setting performance objectives linked to the variable part of that remuneration;
about the definition of any no-competition agreements;
about the definition of any agreements for the termination of working relationships, on the
basis of the principles established in the remuneration policy;
monitors the correct application of the remuneration policy and checks the actual achievement
of performance objectives;
verifies compliance of the remuneration of executive directors, other Directors holding specific
offices, General Managers and KM with the remuneration policy and expresses an opinion on
this, also in accordance with the related parties transaction procedure adopted by the Company
in application of the Consob regulation in force at the time;
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 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 report on compensation paid, on which, for
the members of the management and controlling bodies, the General Managers and in
aggregate form the KM:
o
o
provides adequate information about each component of their remuneration;
explains in detail the remuneration paid during the financial year in question, for whatever
reason and in whatever form, by the Company and its subsidiaries or affiliates;
in any case, provides the Related-Parties Transactions Committee with opinions if the
responsibilities of said Committee regarding related-parties transactions do not cover issues
pertaining to the remuneration of executive directors, including Directors holding specific offices,
General Managers and KM;
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assesses whether there are exceptional circumstances that allow for a derogation from the
remuneration policy. Where derogations to the Policy on the matters indicated in paragraph 10
below exist, they are approved by the Remuneration Committee, as Related-Parties
Transactions Committee, or by the Related-Parties Transactions Committee, on the basis of the
procedures adopted by the Company for related-parties transactions, in implementation of the
Consob regulation in force pro-tempore.
In relation to the operating methods of the Remuneration Committee, see the Report on the
Corporate Governance and Share Ownership.
Related-Parties Transactions Committee
In the cases envisaged by law and the procedures for related-parties transactions adopted by the
Company in implementation of the Consob regulation in force pro-tempore, the Related-Parties
Transactions Committee expresses the relevant opinions.
Moreover, in compliance with these procedures, the Company may adopt any decisions that
derogate from or implement the Policy within the limits required or in any case permitted by
applicable provisions of law or regulations in force pro-tempore. The Related-Parties Transactions
Committee is involved in assessments performed within the limits of the compliance criteria
established by the remuneration policy approved by the Shareholders’ Meeting. In case of derogation
to the Policy applied in exceptional circumstances, as better explained under paragraph 10 below,
the Company provides information on any those derogations, in accordance with the terms and
conditions set out by provisions of law and regulation in force pro-tempore.
In relation to the operating methods of the Related-Parties Transactions Committee, see the Report
on the Corporate Governance and Share Ownership.
2. PURPOSES AND PRINCIPLES OF THE 2021 REMUNERATION POLICY
Purposes of the 2021 Policy and guiding principles
The aims of the Policy is to attract, motivate and retain resources in possession of the professional
qualities required to pursue business objectives.
In addition, through the multi-year variable components assigned, in particular, to the Executive Vice
Chairman and Chief Executive Officer, Deputy-CEO, General Managers, KM, Senior Managers and
Executives, it aims to achieve long-term interests, contributing to the achievement of strategic
objectives and the sustainable success of the Company, as well as aligning the interests of
Management with those of shareholders.
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The Policy, in fact, is inspired by the principle of “pay for performance” taking into account, as better
explained below, that the objectives underlying the incentive plans in place are set consistently with
those disclosed to the market, without any “discount”.
The Policy is valid for one year and in any case until the Shareholders’ Meeting approves a new
remuneration policy.
It is defined taking into account various factors such as remuneration - defined on the basis of market
benchmarks, aiming at a level of attractiveness differentiated according to the company role and
skills - the compensation mix and the working conditions of Company employees. In this regard, the
2021 Policy also refers to the remuneration of the Senior Managers and Executives of the Group.
Moreover, Pirelli:
- applies and complies with, where existing, the national collective bargaining agreements
applicable from time to time to which it adheres;
-
for the entire managerial population and the remaining population of employees of the Group86,
adopts meritocratic policies, variable incentive systems, welfare initiatives and services to benefit
the person/family of the employee, as well as, in order to protect the company assets, non-
competition agreements for specific figures with technical know-how.
Results of the voting and feedback from investors
The Policy is established taking into account the analysis of the results of the Shareholders’ Meeting
vote and the feedback received from shareholders and key proxy advisors on the 2020 Policy and
86 Except for blue collar workers.
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the Report on Compensation paid in FY 2019. The diagram below presents the result of the binding
vote expressed by the Shareholders’ Meeting on 18 June 2020.
Pirelli places great importance on the analysis of the voting result and the feedback received and,
during 2020 and in the early months of 2021, it put in place activities necessary to ensure an
improvement of the Report.
Description of the changes with respect to the 2020 Policy
With re respect to the 2020 Policy, 2021 Policy reviewed the following aspects:
- composition of the reference panel for the purpose of comparing the Annual Total Direct
Compensation on-Target of the Executive Vice Chairman and Chief Executive Officer, limiting it
to on companies in the industry in which Pirelli operates;
- adjustment of the 2020-2022 LTI Plan cumulative Group Net Cash Flow (before dividends)
objective, aligning it with the guidance disclosed to the market on 5 August 2020 and with the
targets of the 2021-2022/2025 Strategic Plan for the years 2021 and 2022, in accordance with
the mandate conferred on the Remuneration Committee by the Board of Directors on 5 August
2020 as a result of the Covid-19 health emergency and the consequent review of the 2020-2022
Strategic Plan, as well as the announced launch of the Strategic Plan for the period 2021-
2022/2025 in the first quarter of 2021. The Policy provides also the normalisation of the potential
effects on the final result of the acquisition of Cooper by Goodyear (a company included in the
reference panel for the TSR objective) at the start of 2021, in order to calculate its impact on the
TSR (for both the 2020-2022 LTI Plan and the 2021-2023 LTI Plan);
-
the compliance criteria to be applied in the case of hiring of a new General Manager and new KM
in relation to the setting of fixed remuneration: (i) for the new General Manager, which determines
an Annual Total Direct Compensation on-Target not exceeding 80% of the Annual Total Direct
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Compensation on-Target of the Executive Vice Chairman and Chief Executive Officer, with the
limit of 85% of the fixed remuneration of the Executive Vice Chairman and Chief Executive Officer,
(ii) for the new KM, which determines an Annual Total Direct Compensation on-Target of a
maximum of +20% of the reference benchmark, with the limit of the fixed remuneration of the
General Manager Operations;
-
in the case of hiring of a new General Manager, the possible assignment of (i) higher incentive
percentages than those currently attributed to the General Manager Operations (for both the STI
Plan and the LTI Plan), with the maximum limit represented by the incentive percentages set for
the Executive Vice Chairman and Chief Executive Officer, (ii) non-competition agreements with a
fee set as a percentage above 60% of the GABS and in any case not exceeding 100% and annual
payment during employment of a maximum of 20% of the GABS, (iii) “welcome bonuses” usually
aimed at compensating monetary rights deriving from the previous employment relationship;
-
in the case of hiring of KM, the possibility of assigning “welcome bonuses”;
- downward revision of the STI Plan incentive percentages upon achievement of the minimum
performance objectives;
-
review, for General Managers, KM and selected Senior Managers, of the deferral mechanism of
part of the accrued STI Plan, which provides for the disbursement, together with a company
matching component, at the end of a three-year period subject to the permanence of the
employment relationship;
-
review of the non-competition agreement fee, providing for a range from a minimum of 30% to a
maximum of 60% of the GABS on the basis of the role held and the reason for leaving;
- adjustment of the last instalment of the Retention Plan for the General Manager of Operations,
given the need to adjust it to his current salary level (the previous value was the GABS received
in the position held before that of General Manager).
The 2021 Policy takes into account the definition of the objectives of the LTI Plan for the three-year
period 2021-2023, in application of the rolling mechanism already provided for in the 2020 Policy,
and in support of the Strategic Plan 2021-2022/2025 objectives, with consequent re-proportioning
on an annual basis, consistent with the 2020 Policy, of the three-year incentive percentages.
Furthermore, it provides also for 2021-2023 LTI Plan the option to normalise the potential effects on
the final result of the acquisition of Cooper by Goodyear (a company included in the reference panel
for the TSR objective) at the beginning of 2021, in order to calculate its impact on the TSR (for both
the 2020-2022 LTI Plan and the 2021-2023 LTI Plan).
The 2021 Policy also takes into account the inclusion of the Deputy-CEO and the relevant
remuneration.
The 2021 Policy, with the exception of the General Manager, KM and selected Senior Managers,
confirms the mechanism of deferral of 25% of the STI incentive previously provided for and which,
limited to the 2020 Policy, had been modified to take into account the resolution adopted by the
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Board of Directors on 3 April 2020 and cancellation of the STI plan for 2020 as a result of the health
emergency.
Moreover, with respect to the 2020 Policy, some institutes that were already taken into account in
the past were described in more detail (for example, non-competition agreements and non-monetary
benefits).
Market references and peer group
Pirelli defines and applies a policy:
-
-
for the Chairman, referring to the Korn Ferry “Non-Executive Directors in Italy” market median for
the year;
for the rest of Top Management and Senior Managers, with reference to the third quartile of the
comparison market (compared to the benchmarks used);
-
for Executives, targeting the median of the various comparative markets.
The Annual Total Direct Compensation on-Target constitutes the benchmark for market comparison.
The analysis of the positioning, the composition and more generally the competitiveness of the
remuneration of Directors holding specific offices is conducted by the Remuneration Committee and
the Board of Directors with the assistance of companies specialised in executive compensation, on
the basis of methodological approaches that allow the full assessment, although the typical limits of
benchmark analyses, of the complexity of their positions from an organisational point of view, any
specific duties assigned 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, it takes account of various components 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 possible 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 into account the main
recommendations on pay for performance, and is composed of the 15 companies shown in the table
below all belonging to the Vehicles, Auto Component & Tyre industry. The panel revision was carried
out to limit the comparison to companies operating in the same sector as Pirelli.
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The sample of reference companies used for the analysis of the competitiveness and for the possible
revision of the remuneration of the Deputy-CEO was established with the support of Korn Ferry and
in particular it should be noted that the source used for the market comparison is the European Top
Executive Compensation Survey, which was attended by 385 listed European companies, included
in the FTE500 list which includes the 500 largest European companies by capitalization.
Finally, the remuneration structure for General Managers, KM, Senior Managers and Executives is
defined on the basis of national and international benchmarks which, in view of the complexity and
specific nature of the role, were prepared by Willis Towers Watson and/or Korn Ferry and agreed
with the Remuneration Committee.
Elements of the 2021 Policy
Management remuneration has several elements:
-
-
-
-
gross annual base salary (GABS);
annual variable component (STI);
medium-long term variable component (LTI);
non-monetary benefits.
Fixed Remuneration
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.
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The STI and LTI variable components are established - taking account of the benchmarks for each
- as a percentage of base salary which increases according to the position held by the beneficiary.
Annual variable component (STI)
The STI, except for specific cases, covers all the Management - except for the Chairman -, and is
intended to reward the beneficiaries’ short term performance; moreover, it can be extended to
managers who joined the Group during the year.
The STI objectives for Directors holding specific offices to whom specific duties may be attributed,
for General Managers and for KM are established by the Board of Directors upon a proposal by the
Remuneration Committee (see §4 and §5).
The STI objectives of the Senior Managers and Executives are, instead, defined by the hierarchical
manager in accordance with the Human Resources & Organisation and Planning and Controlling
departments and envisage, amongst others, also objectives connected with the economic
performance of the relevant business unit/geography/department (cf. §6).
At the end of the year and based on the finalised performance figures (included in the draft financial
statements approved by the Board of Directors), the Department of Human Resources &
Organization, with the assistance of the Planning and Controlling Department, checks the level to
which the objectives have been achieved, on which basis the Board of Directors then resolves, after
examination by the Remuneration Committee, having obtained the opinion of the Board of Statutory
Auditors, on the amount of the variable compensation to be disbursed.
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 plan, in order to protect the Plan’s value and aims, thus ensuring that the objectives of the
Company and the objectives that underpin the Management incentive systems are constantly
aligned.
Achievement of the individual objectives will be assessed by the Remuneration Committee,
neutralising the effects of any extraordinary decisions that could have impacted the results (either
positively or negatively). The Board of Directors resolves on the proposed review potentially
submitted for its examination after obtaining the opinion of the Remuneration Committee.
For General Managers, KM and selected Senior Managers, part of the remuneration accrued as a
STI, from a minimum of 25% to a maximum of 50%, is deferred, with a view to retention, and
disbursed at the end of a three-year period subject to the permanence of employment relationship
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and together with a company matching component which can vary from a minimum of 1 time to a
maximum of 1.5 times the amount of the deferred STI (see the diagram below).
For the rest of the Management, on the other hand, part of the variable remuneration accrued as STI
is deferred to the benefit of continued results over time and thereby the creation of sustainable value
for shareholders in the medium-long term. Indeed, 75% of any STI accrued is paid, since the
remaining 25% is deferred by 12 months and subject to achievement of the STI objectives for the
following year. More specifically (see graph below):
-
-
-
in the event that no STI is accrued in the next year, the deferred STI quota of the previous year
is definitively “lost”;
in the event that the STI accrued in the next year is below target level, the STI quota deferred
from the previous year is paid;
in the event that the STI accrued in the next year is equal to or higher than target level, the STI
quota deferred from the previous year is paid, together with an additional amount equal to the
quota deferred (increase).
At the meeting held on 3 April 2020, in order to respond to the Covid-19 health emergency, the Board
of Directors of Pirelli & C. resolved - subject to approval by the Shareholders’ Meeting of the 2020
Policy and the favourable advisory vote on the 2019 Compensation Report - to early close the 2020
STI Plan without payment and, as a result (i) to pay, in the first quarter of 2021, the participants of
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the 2019 STI Plan 25% of the bonus accrued and initially subject to the achievement of the 2020 STI
objectives, conditioning the payment to the maintenance of employment relationship/position as
director of the Company until that date (except for “good leavers” who will receive this component in
any case), and (ii) to cancel the opportunity of increasing the 2019 STI.
Medium-long term variable component (LTI)
As for the medium-long term variable remuneration (LTI), it is assigned to Top Management – except
for the Chairman – and extended, except in specific cases, to all Executives whose grade,
determined with the Korn Ferry method, is equal to or above 20. It is also assigned to those who,
during the three-year period, join the Group and/or take over, due to internal career progression, the
position of Executive. In this case, their inclusion is subject to participation in each three-year cycle
for at least one full financial year and the incentive percentages are scaled to the number of months
of actual participation in the plan.
On 5 August 2020, as a result of the health emergency linked to the spread of Covid-19, the
consequent revision of the 2020-2022 Strategic Plan and the announced launch in the first quarter
of 2021 of the Strategic Plan for the period 2021-2022/2025, the Board of Directors instructed the
Remuneration Committee to adjust the cumulative Group Net Cash Flow (before dividends) objective
of the 2020-2022 LTI Plan, aligning it with the guidance communicated to the market on 5 August
2020 and with the targets of the 2021-2022/2025 Strategic Plan for the years 2021 and 2022.
The Board of Directors of Pirelli & C., at the meeting held on 31 March 2021, which also approved
the 2021-2022/2025 Strategic Plan, on the proposal of the Remuneration Committee, after obtaining
the favourable opinion of the Board of Statutory Auditors, set the cumulative Group Net Cash Flow
(before dividends) objective of the 2020-2022 LTI Plan, consistently with the resolution of 5 August
2020, and approved the objectives of the 2021-2023 LTI Plan on a rolling basis.
For both the 2020-2022 Plan and the 2021-2023 Plan it is possible to normalise the potential effects
on the final result of the acquisition of Cooper by Goodyear (a company included in the reference
panel for the TSR objective) at the start of 2021, in order to calculate its impact on the TSR.
The medium-long term incentive plans (LTI) are intended to:
link Management remuneration with the medium-long term performance of the Group;
promote the creation of shareholder value and sustainable success for the Company;
generate an effective Management retention effect, a key variable for the delivery of the
Company’s Strategic Plan.
The “rolling” mechanism introduced with the 2020-2022 LTI Plan sets out to: (i) guarantee a high
degree of flexibility, bringing the performance indicators into line with the evolution of the market and
Company and, therefore, the Company’s strategic plan for each new three-year cycle; (ii) create a
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recurring element of the remuneration policy, as each year it envisages the launch of a new cycle of
the LTI plan, (iii) ensure an effective retention effect compared to the “closed” medium-long term
incentive plans, (iv) support corporate sustainability in the long term.
Below is an example diagram showing how the rolling mechanism works:
The LTI Plans assign each beneficiary an incentive opportunity (the “LTI Bonus”), equal to a
percentage of the gross annual base fixed component (GABS) in place on the date on which
participation in the LTI 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 LTI plans is included in the economics of the 2021-2022/2025 Strategic Plan, so
that their 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 inconsistent with an acceptable level of risk (“risk appetite”) as defined by the Board of
Directors when approving the plans.
In the event of extraordinary transactions affecting the Group’s perimeter and/or deep changes in
the macroeconomic and business scenario, the Board of Directors, on proposal of the Remuneration
Committee, after obtaining the favourable opinion of the Board of Statutory Auditors, can propose:
any adjustment of the targets (both upward or downward) of the 2020-2022 and 2021-2023 LTI
Plans, so as to reflect their value and relative targets, thus ensuring constant alignment between
the Company’s objectives and the objectives underlying the Management incentive schemes;
a review of the objectives set in the LTI Plans;
possible early closure thereof.
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The diagram below shows the link between the corporate strategy and the KPIs of the incentive
systems.
Non-monetary benefits
When a member of the Management is hired, the Company reserves the right to define, in line with
market practice, the experience gained and the conventional seniority that maybe due to such
person.
Lastly, non-monetary elements of remuneration are benefits provided to beneficiaries, depending on
the position held, as a result of contractual provisions/Company policies or aimed at reinforcing
attraction during the recruitment phase (for example, accommodation and student grants for limited
periods of time).
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 to whom further specific duties may be attributed;
(ii)
Directors with no specific offices.
The attribution to Directors of powers for specific matters, that are not covered by the duties
delegated under art. 2381 of the Italian Civil Code, does not per se make them directors to whom
specific duties are attributed.
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The Shareholders’ Meeting of Pirelli & C., when appointing the Board of Directors, resolves on the
total annual remuneration of the Board of Directors pursuant to art. 2389, paragraph 1, of the Italian
Civil Code - to be distributed among its members in accordance with the resolutions adopted by the
Board itself - excluding the remuneration to be attributed by the Board to Directors holding specific
offices as provided for by art. 2389 of the Italian Civil Code.
More specifically, on 18 June 2020, the Pirelli & C. Shareholders’ Meeting resolved to establish, for
the years 2020, 2021, 2022 and until termination of office with the approval of the financial
statements as at 31 December 2022, a maximum of euro 2 million as the total annual salary 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, as envisaged by art.
2389 of the Italian Civil Code.
The total gross annual remuneration established by the Shareholders’ Meeting was allocated by the
Board of Directors as follows for the years 2020, 2021 and 2022:
On the same date, the Board of Directors confirmed the remuneration recognised to members of the
Supervisory Body during the previous term of office. For completeness, it is reported that the
remuneration assigned to members of the Supervisory Body is not included in the total gross annual
remuneration established by the Shareholders’ Meeting.
In line with best practice, Directors with 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.
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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
appointment. In deciding said allocation, the Board of Directors takes into account the effort required
for the Directors’ attendance of the individual board committees, on the basis of the previous
mandate.
In the event that during the current mandate of the Board of Directors is called to resolve again on
the allocation of the remuneration established by the Shareholders’ Meeting, and unless the
Shareholders’ Meeting provides otherwise, an allocation of said remuneration that envisages the
attribution (i) of a remuneration that is at most +25% of the Directors’ remuneration attributed during
the previous term of office and (ii) for the members of the board committees, +25% of the
remuneration for the office held in the committees in the previous mandate, is compliant with the
Policy. If new committees should be established, the maximum limit is that of the highest
remuneration envisaged for the corresponding office in other committees.
Again in line with best practices, a Directors & Officers Liability (“D&O”) insurance policy is envisaged
to cover the third party liability of the corporate bodies, the General Managers, the KM, the Senior
Managers and Executives, in going about their duties. Consequent 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 members of the controlling body is determined by the Shareholders’ Meeting
as a fixed annual amount, appropriate to the competence, professionalism and commitment required
by the importance of the position held and the size and sector characteristics of the company.
At the moment of renewing the Board of Statutory Auditors, the Shareholders’ Meeting of 15 May
2018 determined a gross annual fixed remuneration of its Chairman of 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 and of euro 50,000 for the other standing members.
The Shareholders’ Meeting called to approve the financial statements at 31 December 2020 will be
required to resolve on the appointment of the new Board of Statutory Auditors as well as, pursuant
to art. 2402 of the Italian Civil Code, the remuneration of the members of the controlling body for
their entire term of office.
In view of the Shareholders’ Meeting, the Board of Statutory Auditors provided the Company with a
document summarising the work it performed - specifying the number of meetings and their average
duration - as well as the time required for each meeting and the professional resources employed,
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in order to allow the Shareholders’ Meeting and the candidates for election as Statutory Auditors to
assess the adequacy of the proposed remuneration87.
For the Statutory Auditor called to be part of the Supervisory Body, following the Shareholders’
Meeting of 15 May 2018, 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 40,000. This remuneration was confirmed by the Board of Directors on
22 June 2020, when the Supervisory Body was renewed, as the annual remuneration for the years
2020, 2021 and 2022 and until the end of the mandate of the current Board of Directors and in any
case until renewal by the next Board of Directors.
Expenses incurred for official reasons are also reimbursed to the Statutory Auditors.
In line with best practices, a D&O insurance policy is envisaged 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 holding specific offices, but no further specific duties have been
assigned to them (at the date of the 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 the office is held by a different person).
The Chairman Ning Gaoning shall receive compensation for the office of a gross annual amount of
euro 400,000 for the years 2020, 2021 and 2022 and until termination of office with the approval of
the financial statements as at 31 December 2022.
In the event that during the current mandate the Board of Directors is called on to resolve again on
the compensation of the Chairman, a Chairman’s compensation that is at most equal to +10% of the
remuneration assigned during the previous mandate (in the case of the same holder of the office) or
87 The Document of the outgoing Board of Statutory Auditors is available on the Company’s website.
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with respect to the market benchmark - median - (if the office is held by a different person), is
considered compliant with the Policy.
For those Directors holding specific offices to whom no further specific duties have been attributed,
no non-monetary benefits, social security or pension cover is provided other than the obligatory
schemes.
Directors holding specific offices to whom further specific duties have also been attributed
The remuneration of Directors holding specific offices to whom further specific duties have also been
attributed (at the date of the Report, is the case for the Executive Vice Chairman and Chief Executive
Officer Marco Tronchetti Provera and, once appointed, for the Deputy-CEO88) is composed of the
following elements:
Directors holding specific offices to whom further specific duties have also been attributed89, shall
also receive the compensation for the office of director and any participation in committees90.
With regard to the incidence of the various components, the structure of the compensation package
of the Executive Vice Chairman and Chief Executive Officer and the Deputy-CEO in the event of
88 The Board of Directors of 31 March 2021 approved the proposal to the Shareholders’ Meeting scheduled for 15 June 2021 to appoint
Giorgio Luca Bruno as Board Member, in order to grant him the office of Deputy-CEO.
89 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 to whom specific duties have also been assigned.
90 The Executive Vice Chairman and Chief Executive Officer is also entitled to the compensation for serving as a Director (€65,000), and
as Chairman of the Strategies Committee (€50,000) and Appointments and Successions Committee (€50,000).
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achievement of the objectives of 2021 STI and 2021-2023 LTI plans at minimum, target and
maximum level is shown below.
Fixed Remuneration
The gross annual base salary for the office of Executive Vice Chairman and Chief Executive Officer
and Deputy- CEO is determined at the time of appointment, taking into account the compensation
attributed during the previous mandate (in the case of the same holder of the office) and the market
benchmark (if the office is held by a different person), in an amount that would ensure a balance
between the fixed component and the variable component that is adequate and consistent with the
strategic objectives and the risk management policy, taking into account the characteristics of the
business and the sector in which the Company operates, in any case establishing that the variable
component represents a significant part of the total remuneration.
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The gross annual fixed component for financial years 2020, 2021 and 2022 and up until approval of
the financial statements at 31 December 2022 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).
The gross annual fixed component for financial years 2021 and 2022 and up until approval of the
financial statements at 31 December 2022 attributed to the Deputy-CEO is euro 1,100,000 (no more
than 40% of the Total Direct Compensation on-Target).
In the event that during the current mandate the Board of Directors is called on to resolve again on
the gross annual fixed component of the Executive Vice Chairman and Chief Executive Officer or of
the Deputy-CEO, is compliant with the Policy 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 to at most (i) for the Executive
Vice Chairman and Chief Executive Officer +5% of the value assigned during the previous mandate
(in the case of the same holder of the office) or with respect to the market benchmark third quartile
(if the office is held by a different person) and (ii) for the Deputy-CEO +10% of the value assigned
during the previous mandate (in the case of the same holder of the office) or with respect to the
market benchmark third quartile (if the office is held by a different person).
Annual variable component (STI)
The Executive Vice Chairman and Chief Executive Officer and the Deputy-CEO hold an annual
variable remuneration (STI) equal to a percentage of the fixed remuneration determined at the time
of appointment and thereafter when launching the individual annual plans.
In the event that during the current mandate the Board of Directors is called on to resolve again on
the STI incentive percentages of the Executive Vice Chairman and Chief Executive Officer and the
Deputy-CEO, the attribution of STI incentive percentage no higher than the previous financial year
is compliant with the Policy.
The objectives underlying the STI Plan represent performance consistent with the corresponding
objectives disclosed to the market, in particular the objectives for obtaining the incentive at minimum
level are set as equal to the value disclosed to the market.
For each objective there is a minimum and a maximum (cap) to the amount of the incentive that can
be achieved; for performance below the minimum level, no pro-quota payment is envisaged.
The on/off condition is represented by the cumulative Group Net Cash Flow (before dividends) and
is established as an amount equal to the value announced to the market. Failure to achieve the
on/off condition shall result in the total cancellation of the STI incentive regardless of the level of
achievement of the other objectives.
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The finalisation of the performance for intermediate results between the minimum value and target
and between the target and maximum is carried out by linear interpolation.
Depending on the level of performance achieved, the Executive Vice Chairman and Chief Executive
Officer will be paid a bonus of 80% of fixed remuneration for minimum level performance, 125% of
the fixed remuneration in the case of on-target performance and 250% of fixed remuneration (equal
to double the target incentive) for maximum level performance.
Depending on the level of performance achieved, the Deputy-CEO will be paid a bonus of 65% of
fixed remuneration for minimum level performance, 100% of the fixed remuneration in the case of
on-target performance and 200% of fixed remuneration (equal to double the target incentive) for
maximum level performance.
Once the on/off condition has been achieved, all the objectives envisaged on the STI scorecard shall
apply independently, according to the incentive curve shown below. Therefore, according to the
performance achieved, each objective will go towards calculating the total payout, on the basis of
the weighting shown on the scorecard.
Example curve if all objectives are
achieved at minimum, target and
maximum level for the Executive
Vice Chairman and Chief Executive
Officer.
Part of the remuneration accrued as STI is deferred to the benefit of continued results over time and
thereby the creation of sustainable value for shareholders in the medium-long term. Indeed, 75% of
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any STI accrued is paid, since the remaining 25% is deferred by 12 months and subject to
achievement of the STI objectives for the following year. In particular:
-
-
-
in the event that no STI is accrued in the next year, the deferred STI quota of the previous year
is definitively “lost”;
in the event that the STI accrued in the next year is below target level, the STI quota deferred
from the previous year is paid;
in the event that the STI accrued in the next year is equal to or higher than target level, the STI
quota deferred from the previous year is paid, together with an additional amount equal to the
quota deferred (increase).
For 2021, the objectives assigned within the STI Plan to the Executive Vice Chairman and Chief
Executive Officer and to the Deputy-CEO are as follows:
Medium/long term variable component (LTI)
The Executive Vice Chairman and Chief Executive Officer and the Deputy-CEO will be assigned a
medium-long-term incentive plan so as to contribute to the Company’s strategy and sustainability,
and the pursuit of its long-term interests. For 2021, the Executive Vice Chairman and Chief Executive
Officer are assigned the 2020-2022 LTI Plan related to the goals of the 2020-2022 Strategic Plan
and the 2021-2023 LTI Plan related to achievement of the goals of the 2021-2022/2025 Strategic
Plan. For 2021, the Deputy-CEO is beneficiary of the 2021-2023 LTI Plan related to achievement of
the goals of the 2021-2022/2025 Strategic Plan. It is pointed out that the Deputy-CEO will be
beneficiary, pro-quota, of the 2020-2022 LTI Plan.
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Please refer to the Remuneration Report published in 2020 and the related Information Document
for details of the objectives of the 2020-2022 LTI Plan, as modified due to the described adjustment
of the cumulative Group Net Cash Flow (before dividends) objective; the objectives of the 2021-2023
LTI Plan are indicated below (which, in application of the rolling mechanism, replicate those
established for the 2020-2022 LTI Plan).
* The period of comparison is the second half of 2023 against the second half of 2020.
On 5 August 2020, as a result of the health emergency linked to the spread of Covid-19, the
consequent revision of the 2020-2022 Strategic Plan and the announced launch in the first quarter
of 2021 of the Strategic Plan for the period 2021-2022/2025, the Board of Directors conferred
mandate to proceed with an adjustment of the cumulative Group Net Cash Flow (before dividends)
target of the 2020-2022 LTI Plan, aligning it with the guidance communicated to the market on 5
August 2020 and with the targets of the 2021-2022/2025 Strategic Plan for the years 2021 and 2022.
The Board of Directors of Pirelli & C., at the meeting held on 31 March 2021, which also approved
the 2021-2022/2025 Strategic Plan, on the proposal of the Remuneration Committee, after obtaining
the favourable opinion of the Board of Statutory Auditors, set the cumulative Group Net Cash Flow
(before dividends) target of the 2020-2022 LTI Plan, in accordance with the resolution of 5 August
2020, and in application of the rolling mechanism defined the targets of the 2021-2023 LTI Plan. The
review aims to maintain the total alignment of shareholders and management’s interests.
The targets set in the LTI Plans represent a performance consistent with the corresponding targets
disclosed to the market. In particular, the objectives for obtaining the incentive at “access threshold”
level are set as equal to the value disclosed to the market (net of the sustainability objectives).
An “access threshold” level – associated with payment of 75% of the pro-quota of the bonus
achievable on-target – and a maximum (cap) on the pro-quota amount of the bonus that can be
achieved are envisaged for each objective.
The performance range for the economic-financial objectives is defined as the more challenging out
of the target and maximum level with respect to that envisaged between the “access threshold” level
and target. In order to offer an incentive for achieving results above target, the incentive curve is
fixed in such a way that the incentive opportunity grows faster between the target and the maximum
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than in the range between the “access threshold” and the target (see graph below). All the objectives
envisaged on the LTI scorecard shall apply independently, according to the incentive curve shown
below. Therefore, according to the performance achieved, each objective will go towards calculating
the total payout, on the basis of the weighting shown on the scorecard.
Example curve if all objectives are
achieved at “access threshold”,
target and maximum level for the
Executive Vice Chairman and Chief
Executive Officer.
For the TSR and cumulative Group Net Cash Flow (before dividends) objectives, for results falling
between the “access threshold” and target, or between the target and the maximum, performance
will be calculated by linear interpolation, unlike the sustainability objectives which will be calculated
in just three steps: “access threshold”, target and maximum, without considering intermediate
performances.
Within the scope of the 2021-2023 LTI Plan, depending on the level of performance achieved, the
Executive Vice Chairman and Chief Executive Officer will be recognised an annually based bonus
opportunity of 70% of fixed remuneration for on-target performance, 52.5% of fixed remuneration if
the “access threshold” performance is achieved (75% of the on-target bonus), and 200% of the fixed
remuneration (cap) in the case of maximum performance.
Within the scope of the 2021-2023 LTI Plan, depending on the level of performance achieved, the
Deputy-CEO will be recognised an annually based bonus opportunity of 60% of fixed remuneration
for on-target performance, 45% of fixed remuneration if the “access threshold” performance is
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achieved (75% of the on-target bonus), and 160% of the fixed remuneration (cap) in the case of
maximum performance.
In the case of lapsing from office at the end of mandate or termination of the entire Board of Directors,
and subsequent non-appointment even as director, the LTI Bonus is to be paid pro-quota.
Office Termination Payment and non-monetary benefits
In addition, the Board of Directors has made the following provision for Directors holding specific
offices to whom further specific duties have been attributed, in the event that said duties are not
related to their executive employment relationship (on the date of this Report, the Executive Vice
Chairman and Chief Executive Officer Marco Tronchetti Provera and, once appointed, the Deputy-
CEO), similarly to the treatment guaranteed pursuant to the law and/or national collective
employment agreement for the Group’s Italian executives:
- an Office Termination Payment (TFM) pursuant to art. 17, paragraph 1, letter c) of the TUIR
(Italian consolidated law on income tax) no. 917/1986, with similar characteristics to those typical
of Severance Indemnity Payment (TFR) pursuant to art. 2120 of the Italian Civil Code, comprising:
a) an amount equal to the amount that would be due as manager by way of TFR; the basis for
calculation consists of the gross annual fixed compensation received for the specific role held
in the Company;
b) an amount equal to the contributions paid by the employer that would be due to social security
and welfare institutes or funds in the event of a contract of employment as manager ex lege
and/or National Collective Bargaining Agreement for the Italian Managers of the Group with
the same degree of seniority of employment; the basis for calculation consists of the gross
annual fixed compensation received for the specific role held in the Company, in addition to
any other payments due by way of medium/long-term annual variable component.
TFM, including the relevant value adjustment of such amounts, will be due as a lump sum to
the beneficiary at the end of the current mandate or, in the event of premature death, their
assignees;
-
-
a compensation allowance for death from any cause and permanent invalidity following illness
as well as a compensation allowance for death from any cause and permanent invalidity
following accidents, the terms, limits and conditions of which are in line with what was
guaranteed in the previous term of office;
further benefits typical of the role and currently paid within the Group to General Managers,
Executives with strategic responsibilities and Executives (for example, company car).
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5.
GENERAL MANAGERS AND KM
The remuneration of the General Managers (at the date of the Report the General Manager
Operations Andrea Casaluci91) and the KM has the following elements:
With regard to the incidence of the various components, the structure of the compensation package
of the General Manager Operations and KM in the event of achievement of the objectives of 2021
STI and 2021-2023 LTI plans at minimum, target and maximum level is shown below.
91 Note that Angelos Papadimitriou ceased to hold the office of General Manager co-CEO as of 28 February 2021.
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The analysis of the remuneration of the General Manager Operations and the KM, reviewed once a
year and disclosed in the compensation report, is carried out with the help 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.
The market benchmark used to verify the competitiveness of the related remuneration includes
approximately 400 listed European companies selected by Korn Ferry, included on the FTE500 list
- which includes the 500 highest cap European companies.
In the case of hiring a new General Manager, in addition to the company mentioned above, the
Company may also use the services of another company specialised in executive compensation
(Willis Towers Watson) with the relative methodology and comparison market in view of the
complexity and specific nature of the role, after obtaining the agreement of the Remuneration
Committee.
Fixed remuneration of the General Managers and KM
The fixed remuneration of the General Managers is determined at the time of appointment by the
Board of Directors, based on the favourable opinion provided by the Remuneration Committee, in
compliance with the Policy.
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.
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In the event of the appointment of a new 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, making use of those prepared by Willis Towers Watson and/or Korn Ferry,
after obtaining the agreement of the Remuneration Committee.
Fixed remuneration that, considering the annual and medium-long term incentive percentages,
determines an Annual Total Direct Compensation on-Target not exceeding 80% of the Annual Total
Direct Compensation on-Target of the Executive Vice Chairman and Chief Executive Officer for the
new General Manager and equal at most to + 20% of the market benchmark (third quartile) for KM,
is compliant with the Policy.
In the event of hiring a new General Manager, the fixed remuneration may not exceed 85% of that
of the Executive Vice Chairman and Chief Executive Officer and the fixed remuneration of a new KM
may not exceed that of the General Manager Operations.
The proposals of determination and revision of the fixed remuneration are carried out with reference
to the purpose of the Policy to attract, retain and motivate key resources to achieve the Company’s
objectives. A revision which, taking into account the annual and medium/long-term incentive
percentages, determines an Annual Total Direct Compensation on-Target equal to at most +10%
compared to the market benchmark (third quartile) is compliant with the Policy, without prejudice, for
General Managers, to the limit of 85% of the fixed remuneration of the Executive Vice Chairman and
Chief Executive Officer and for KM the limit of the fixed remuneration of the General Manager
Operations. In such case the Related-Parties Transactions Procedure applies.
Annual variable component (STI)
The General Managers and KM are beneficiaries of the STI plan, defined according to the same
structure, mechanisms and objectives as for the Executive Vice Chairman and Chief Executive
Officer and the Deputy-CEO.
On the basis of the performance level achieved, the following shall be paid:
an incentive of 50% of the GABS for the General Manager Operations and an incentive of 35%
of the GABS for KM if the minimum performance level is achieved;
an incentive of 75% of the GABS for the General Manager Operations and an incentive of 50%
of the GABS for KM if the on-target performance is achieved;
an incentive of 150% of the GABS for the General Manager Operations and an incentive of
100% of the GABS for KM if the maximum performance is achieved (equal to double the on-
target incentive).
In the event of hiring a new General Manager, the Remuneration Committee, having as reference
the purpose of the Policy to attract key resources for the achievement of corporate objectives, may
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set incentive percentages higher than those indicated above, provided that they are not higher than
those of the Executive Vice Chairman and Chief Executive Officer. In such case the Related-Party
Transactions Procedure applies.
For General Managers and KM part of the remuneration accrued as STI, from a minimum of 25% to
a maximum of 50%, is deferred, with a view to retention, and disbursed at the end of a three-year
period subject to the continuation of employment relationship and together with a company matching
component which can vary from a minimum of 1 time to a maximum of 1.5 times the amount of the
deferred STI.
Medium-long term variable component (LTI)
In order to contribute to the Company’s strategy, the pursuit of long-term interests and the
sustainability of the Company, General Managers and KM are beneficiaries of mediu-/long term
incentive plans and, in particular, of the 2020-2022 LTI Plan and the 2021-2023 LTI Plan. The LTI
plans have the same structure, mechanisms and objectives as those envisaged for the Executive
Vice Chairman and Chief Executive Officer and the Deputy-CEO.
Within the scope of the 2021-2023 LTI Plan, on the basis of the performance level achieved, the
following shall be paid:
an annually based bonus opportunity of 45% of the GABS for the General Manager Operations
and 37.5% of the GABS for KM if the “access threshold” performance level is achieved (75% of
the on-target incentive).
an annually based bonus opportunity of 60% of the GABS for the General Manager Operations
and 50% of the GABS for KM if the on-target performance is achieved;
an annually based bonus opportunity of 160% of the GABS for the General Manager Operations
and 130% of the GABS for KM if the maximum performance is achieved.
In the event of appointment of a new General Manager, the Remuneration Committee, having as
reference the purpose of the Policy to attract key resources for the achievement of corporate
objectives, may set incentive percentages higher than those indicated above, provided that they are
not higher than those of the Executive Vice Chairman and Chief Executive Officer. In such case the
Related-Parties Transactions Procedure applies.
In the event of termination of the employment relationship for any reason before the end of the three-
year period, the General Managers and KM will no longer form part of the LTI plans and no award
nor pro-quota award will be paid.
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Non-monetary benefits, conventional seniority and welcome bonus
Non-monetary elements of remuneration are benefits provided to General Managers and KM as a
result of contractual provisions/company policies or aimed at reinforcing attraction during the
recruitment phase (for example, accommodation and student grants for family members for limited
periods of time).
Moreover, in the case of hiring a new General Manager or KM, the Remuneration Committee may
establish (i) an agreed seniority recognised on the basis of previous experience in similar roles, (ii)
the attribution of a one-off bonus not exceeding 100% of the beneficiary’s fixed gross annual
remuneration, taking into account the Policy’s objective of attracting key resources to achieve the
company’s objectives.
6.
SENIOR MANAGERS AND EXECUTIVES
The remuneration of Senior Managers and Executives consists of the following elements:
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
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objectives of the 2021 STI and 2021-2023 LTI plans at -minimum, target and maximum levels is
shown below.
Also, the analysis of the remuneration of Senior Managers and Executives is carried out with the
help of an independent company specialised in executive compensation (Korn Ferry) with the same
methodology as described previously with regard to General Manager Operations and KM.
For managers of the Internal Audit department, it should be noted that, in line with best practices,
the fixed component has a higher incidence than the variable.
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Annual variable component (STI)
Senior Managers and Executives are beneficiaries of the STI plan, defined according to the same
structure and the same mechanisms as for the Executive Vice Chairman and Chief Executive Officer,
the Deputy-CEO, the General Managers and the KM.
For the year 2021, the objectives assigned to Senior Managers and Executives are as shown in the
table below:
According to the performance level achieved, the Senior Managers and Executives are assigned:
a bonus ranging between 10% and 25% of the GABS, depending on the position held, if
minimum performance is achieved;
a bonus ranging between 15% and 40% of the GABS, depending on the role held if on-target
performance is achieved;
a bonus ranging between 30% and 80% of the GABS, depending on the position held, if
maximum performance is achieved (equal to 200% of the on-target incentive).
For selected Senior Managers, in line with what is provided for General Managers and KM, part of
the STI accrued, from a minimum of 25% to a maximum of 50%, is deferred, with a view to retention,
and disbursed at the end of a three-year period subject to the continuation of employment
relationship and together with a company matching component which can vary from a minimum of 1
time to a maximum of 1.5 times the amount of the deferred STI.
For the rest of the Senior Managers and Executives, 75% of the accrued bonus is paid, and the
remaining 25% is deferred by 12 months and payable upon the achievement of the STI objectives
of the following year, according to the same parameters specified for the Executive Vice Chairman
and Chief Executive Officer and the Deputy-CEO.
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Medium-long term variable component (LTI).
Senior Managers and Executives are beneficiaries of the medium-long term incentive plan so as to
contribute to the Company’s strategy and sustainability, and the pursuit of its long-term interests.
The 2020-2022 LTI Plan and 2021-2023 LTI Plan are defined according to the same structure,
mechanisms and objectives as envisaged for the Executive Vice Chairman and Chief Executive
Officer, the Deputy-CEO, General Managers and KM.
Within the scope of the 2021-2023 LTI Plan, on the basis of the performance level achieved, Senior
Managers and Executives shall be paid:
an annually based bonus opportunity ranging between 11.25% and 37.5% of the GABS,
depending on the position held, if “access threshold” performance is achieved (75% of the on-
target incentive);
an annually based bonus opportunity ranging between 15% and 50% of the GABS, depending
on the position held if on-target performance is achieved;
an annually based bonus opportunity ranging between 40% and 130% of the GABS, depending
on the position held if 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 form part of the LTI plan and no award nor pro-quota award
will be paid.
Non-monetary benefits and conventional seniority
Non-monetary elements of remuneration are benefits provided to the Senior Managers and
Executives as a result of contractual provisions/company policies or aimed at reinforcing attraction
during the recruitment phase (for example, accommodation and student grants for family members
for limited periods of time).
In the case of hiring a Senior Manager or Executive, a conventional seniority, equal to the seniority
gained in previous experience, may be recognized.
7.
CLAWBACK CLAUSES
The annual STI and multi-year (LTI) incentive plans for Directors holding specific offices to whom
further specific duties are attributed, General Managers and KM provide inter alia for clawback
mechanisms.
In particular, without prejudice to the possibility of any other action permitted by the order to protect
the interests of the Company, contractual agreements will be signed with the aforementioned
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persons, enabling Pirelli to claim back (in whole or in part), within three years of the payment thereof,
incentives paid to persons who, due to wilful misconduct or gross negligence, are held responsible
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 resulting in non-compliance with the accounting standards applied by
Pirelli, or
(ii) proven fraudulent conduct aimed at obtaining a specific representation of Pirelli’s financial and
equity situation, economic result or cash flow.
8. COMPENSATION IN THE EVENT OF RESIGNATION, DISMISSAL OR TERMINATION OF
RELATIONS
It is Pirelli Group policy not to enter into with Directors, General Managers, KM, Senior Managers or
Executives agreements regulating economic aspects related to any early termination of relations in
retrospect at the initiative of the Company or the individual (“parachutes”).
Pirelli aims at agreements to “terminate” relations in a consensual manner. Without prejudice to any
legal and/or contractual obligations, agreements to end relations 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 owns internal criteria, with which the other Group companies also comply, for
managing early termination agreements of relations with executives and/or those of 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 disseminated to the market.
With regard to Directors holding specific offices to whom further specific duties are attributed 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 for other than cause;
-
termination by the director for cause, including but not limited to substantial changes to the role
or duties attributed and/or cases of a “hostile” takeover bid.
In such cases, the indemnity amounts to 2 years of gross annual salary, i.e. the sum of (i) the gross
annual base salary for the duties performed in the Group, (ii) the average annual variable
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remuneration (STI) accrued in the previous three years and (iii) TFM on the aforementioned
amounts.
As regards General Managers and KM, agreements for consensual termination of employment are
submitted to the Remuneration Committee, which assesses their compliance with the Policy and
authorises their negotiation by setting the maximum amounts that can be disbursed, including the
maintenance of non-monetary benefits for a predetermined period.
The closure amounts are determined with reference to the applicable category national collective
bargaining agreements. In particular, as regards General Managers and KM, reference is 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 of notice reimbursable by entities and
supplementary indemnity in the event of arbitration, depending on the employee’s length of service
in the 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 review, evaluation and approval by the competent Committee, it may also be granted to
General Managers and KM:
- an additional amount by way of general and novative transaction, within the limits of the low
thresholds established for related-parties 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 General Managers
and KM and a Group company, which is predefined in the term subsequent to termination of the
employment contract and subject, in this case too, to the assessment and approval of the competent
Committee.
Remuneration due to General Managers and KM by virtue of positions occupied on the Board of
Directors is not included in the calculation of severance pay and is due in the amount determined
solely for the period during which the position was held on the Board of Directors.
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Finally, as regards the medium-long term incentive system (LTI):
for the Executive Vice Chairman and Chief Executive Officer and the Deputy-CEO, in the case of
lapsing from office at the end of mandate or termination of the entire Board of Directors, and
subsequent non-appointment even as director, the bonus is to be paid pro-quota.
for General Managers, KM, Senior Managers and Executives, in the event of termination of the
employment relationship for any reason before the end of the three-year period, no award nor
pro-quota award will be paid.
9.
NON-COMPETITION AGREEMENTS AND RETENTION PLAN
The Group enters into non-competition agreements providing for a payment to the Deputy-CEO,
General Managers, KM and, Senior Managers and Executives for particularly crucial duties, in
proportion to the GABS in relation to the duration and extent of the constraints arising from the
agreement itself.
The constraints refer to the market sector in which the Group was operating when the agreement
was made and to territorial size. Extent varies according to the position held when the agreement
was completed and can in some highly critical cases, as in the case of the Deputy-CEO, General
Managers and KM extend to a wider geographical area covering the main countries where the Group
operates.
The Executive Vice Chairman and Chief Executive Officer is not subject to a non-competition
agreement.
In the case of Deputy-CEO, 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 from when the contract of employment
ends;
the fee: from a minimum of 30% to a maximum of 60% of the GABS on the basis of the role held
and the reason for leaving 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
GABS per year of clause validity (usually 5 years). When hiring a new General Manager, the
consideration for the non-competition agreement may be determined as a percentage above 60%
of the GABS and in any case not above 100% and, in this case, the annual payment during
employment may be a maximum of 20% of the GABS.
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In 2021, the medium-long term Retention Plan for the General Manager Operations, KM and
selected Senior Managers/Executives, approved on 26 February 2018, ends. For the General
Manager Operations only, the amount of the last instalment of the Retention Plan is adjusted to the
GABS received by the same as at 1 January 2021. This is pursuant to the need to reinforce the
retention of the General Manager Operations, whose Retention Plan was based on the GABS
received in his previous position as KM.
The Retention Plan envisages the recognition of an amount equal to at most 2.3 times the Total
Direct Compensation on-Target of each at the time of inclusion in the plan (2017). It is disbursed 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 Company on the date of each payment.
The Executive Vice Chairman and Chief Executive Officer do not participate in the Retention Plan.
10.
DEROGATION TO THE REMUNERATION POLICY
In compliance with art. 123-ter of the TUF and art. 84-quater of the Issuers’ Regulation, the Company
may adopt any decisions that temporarily make an exception to the Policy.
With reference to subjects for whom the Board of Directors defines remuneration in accordance with
the Policy, in the presence of exceptional circumstances, it is possible to make a temporary
exception to the fixed or variable remuneration criteria indicated in the Policy or the structure of non-
competition agreements and the attribution of non-monetary benefits.
Exceptional circumstances are situations in which an exception to the Policy is necessary for the
purposes of pursuing the long-term interests and sustainability of the Company as a whole or to
ensure its ability to stay on the market, such as, for example (i) the need to replace, due to
unforeseen events, the Chief Executive Officer, General Managers or KM and to negotiate a
remuneration package quickly, without limits to the possibility of attracting managers with the most
suitable professional skills to manage the business and to ensure that the same levels of sustainable
success and market positioning are at least maintained; (ii) significant changes in the scope of the
company’s business during the term of the policy, such as the sale of a company/business unit or
acquisition of a significant business.
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-parties transactions, in
implementation of the Consob regulation in force at the time.
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The Company provides information about any derogations to the Policy applied in exceptional
circumstances, in accordance with the terms and conditions of current provisions of law and
regulations in force at the time.
11.
OTHER INFORMATION
Pursuant to Scheme 7-bis of Annex 3A of the Issuers’ Regulations, introduced by Consob Resolution
no. 18049 of 23 December 2011 and amended thereafter with Resolution no. 21623 of 10 December
2020, it should be noted that:
- Pirelli has no shareholder incentive plans in place;
-
in defining the 2021 Policy, Pirelli has not used the specific remuneration policies of other
companies as a benchmark. The Policy has been prepared 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 governing bodies, General Managers and KM, shall contain at least the information set out
in the scheme referred to above.
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ANNEX 1– GLOSSARY
Directors: members of the Board of Directors of Pirelli & C.
Directors holding specific offices: these are the Directors of Pirelli & C. holding the office of
Chairman, Executive Vice Chairman and Chief Executive Officer and the Deputy-CEO. 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 with no specific offices: are the Directors of Pirelli & C. other than those holding specific
offices. Directors with no 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 sum total 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), if target objectives are achieved;
(iii) medium-long term variable component comprising:
a. annual value of the long-term incentive (LTI) plan if multi-year target objectives are
achieved;
b. pro quota value of the STI accrued and deferred, to be paid if the underlying conditions are
met;
c. an additional value of an equal or higher amount in respect of the pro quota of the STI
accrued and deferred, to be paid if the underlying conditions are met.
Shareholders’ Meeting: means the meeting of the shareholders of Pirelli & C..
Remuneration Committee: the Remuneration Committee of Pirelli & C..
Board of Directors: indicates the Board of Directors of Pirelli & C..
General Manager(s): the persons chosen by the Pirelli & C. Board of Directors to be assigned
extensive powers of business segment management. The subjects holding the office of General
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: executives, chosen by the Pirelli & C. Board of Directors in accordance with the procedure
confirmed and adopted by Board resolution passed on 22 June 2020, having the power or
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responsibility for planning, directing and controlling the Company’s activities or the power to make
decisions that can impact its evolution or future prospects and, more generally, those of Pirelli. In
accordance with the procedure, in any case all 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) Company Secretary.
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.
Management: means all Directors holding specific offices, General Managers, KM, Senior
Managers and Executives.
2020-2022 LTI Plan: means the Long-Term Incentive plan for the three-year period cycle 2020-
2022, in support of the achievement of the new objectives set by the 2020-2022 Strategic Plan and
approved by the Board of Directors on 19 February 2020 and subsequently by the Shareholders’
Meeting held on 18 June 2020,as subsequently modified by the Board of Directors on 31 March
2021 (amendment submitted to the Shareholders’ Meeting scheduled for 15 June 2021).
2021-2023 LTI Plan: means the Long-Term Incentive Plan for the three-year period cycle 2021-2023
approved by the Board of Directors on 31 March 2021 and subject to the approval of the
Shareholders’ Meeting scheduled for 15 June 2021, in support of the achievement of the new
objectives set by the 2021-2022/2025 Strategic Plan.
Retention Plan: means the Retention Plan explained in paragraph 9, approved by the Board of
Directors on 26 February 2018.
2020-2022 Strategic Plan: means the business plan approved by the Pirelli & C. Board of Directors
on 19 February 2020.
2021-2022/2025 Strategic Plan: means the business plan approved by the Pirelli & C. Board of
Directors on 31 March 2021.
GABS: means the gross annual base salary of the compensation for those employed by a Pirelli
Group company.
Senior Managers: means the persons to whom the following shall first report, except where they
are KM, (i) Directors holding specific offices to whom specific duties have been attributed and (ii)
General Managers, where the work of the Senior Manager significantly impacts business results.
Statutory Auditors: members of the Board of Statutory Auditors of Pirelli & C.
The Company or Pirelli & C.: means Pirelli & C. S.p.A.
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STI: means the annual variable component of remuneration that can be achieved if the predefined
corporate objectives are achieved, as more fully described in paragraphs 2, 4, 5 and 6.
Top Management: means all Directors holding specific offices, General Managers and KM.
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REPORT ON COMPENSATION PAID IN 2020
1. REPRESENTATION OF REMUNERATION ITEMS
The Compensation Report sets out the Policy implemented by the Pirelli Group during the 2020
financial year with regard to remuneration and provides information on the final remuneration of the
various categories of persons concerned, without prejudice to the transparency obligations
contained by other applicable legal or regulatory provisions, highlighting its compliance with the
Policy on remuneration approved the previous year (2020 Policy).
The subject appointed to carry out the external audit of the financial statements verifies that the
Directors have prepared the Report on Compensation paid. The Shareholders’ Meeting express its
advisory vote on the second section of the Report.
The Shareholders’ Meeting held on 18 June 2020 voted in favour of the Report on Compensation
Paid in the 2019 financial year. The graph below shows the result of the advisory vote
1.1 TOTAL REMUNERATION
It is recalled that, given the health emergency related to the spread of Covid-19, at the meeting on 3
April 2020, having obtained the favourable opinion, for all intents and purposes, of the relevant Board
Committees and the Board of Statutory Auditors, the Board of Directors resolved - subject to
approval by the Shareholders’ Meeting of the 2020 Policy and the favourable advisory vote on
Compensation Paid during 2019 - to early close the 2020 STI Plan without payment and, as a result
(i) to pay, in the first quarter of 2021, the participants of the 2019 STI Plan 25% of the bonus accrued
and initially subject to the achievement of the 2020 STI objectives, making the payment conditional
to the maintenance of employment relationship/position as director of the Company until that date
(except for “good leavers” who will receive this component in any case), and (ii) to cancel the
opportunity of increasing the 2019 STI.
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On the same date, as part of the actions taken in response to the Covid-19 health emergency, the
Board of Directors acknowledged and shared the wish of all the members of the Board of Directors
to renounce a part of the remuneration paid to them and in particular (i) the wish of the Executive
Vice Chairman and Chief Executive Officer to renounce, for three months, 50% of the gross fixed
annual compensation paid to him for the offices of Executive Vice Chairman and Chief Executive
Officer, director and Chairman of some board committees; (ii) the wish of the directors to renounce,
for the second quarter, 50% of the remuneration they are paid as directors and members of the
board committees.
At the same meeting the Board of Directors also acknowledged the wish of the leadership team
(made up of KM and some Senior Managers) to renounce 20% of their gross annual base salary for
a period of three months.
As a result of the above, no indication is provided for the 2020 financial year with regard to the
variable components of remuneration and, in particular, the methods for applying the performance
objectives, the comparison between the objectives achieved and those envisaged as well as the
proportion between fixed and variable remuneration.
1.2 COMPENSATION IN THE EVENT OF TERMINATION OF OFFICE AND/OR TERMINATION
OF EMPLOYMENT RELATIONSHIP DURING THE YEAR 2020
It should be noted that in 2020 there were no cases of termination of office of directors or members
of the Board of Statutory Auditors and/or termination of employment of General Managers or KM
leading to the allocation of indemnities and/or other benefits.
On 28 February 2021, the agreement for consensual termination of employment with the General
Manager co-CEO Angelos Papadimitriou became effective, the terms of which were disclosed to the
market and will be reported in the report on compensation paid during the 2021 financial year.
Angelos Papadimitriou terminated from the office of Director with the Shareholders’ Meeting as of
24 March 2021.
1.3 DEROGATIONS TO THE 2020 POLICY
It should be noted that there were no derogations to the 2020 Policy in exceptional circumstances
for Directors (including Directors holding specific offices), General Managers, KM and members of
the Board of Statutory Auditors.
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1.4 CLAWBACK CLAUSES
It should also be noted that during the year the conditions for the application of the mechanisms for
ex post repayment of the variable component (clawback clause) envisaged by the annual (STI) and
multi-year (LTI) incentive plans did not occur.
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1.5 COMPARISON INFORMATION
The chart below summarises the comparison information for the annual variations, in the last two
financial years, of: (i) total remuneration of each of the individuals for whom the information in this
section of the Report is provided by name, (ii) the Company’s results, (iii) the average gross annual
remuneration of the employees.
Annual variation in remuneration and performance
Values in €
2020
2020 vs 2019
2019 vs 2018
Executive Vice Chairman and Chief Executive Officer
Marco Tronchetti Provera
General Manager of Operations
Andrea Casaluci
2.239.112
Actual Total Cash [1]
-47%
712.500
Actual Total Cash [1]
-33,0%
Board of Directors
Name
Ning Gaoning [2]
Yang Xingqiang
Bai Xinping
Tao Haisu
Zhang Haitao
Paola Boromei
Domenico De Sole
Roberto Diacetti
Giovanni Lo Storto
Marisa Pappalardo
Angelos Papadimitriou
Giovanni Tronchetti Provera
Fan Xiaohua
Wei Yintao
Board of Statutory Auditors
Name
Francesco Fallacara
Antonella Carù
Fabio Artoni
Luca Nicodemi
Alberto Villani
Results
Relative TSR [3]
Group Adjusted EBIT (mln euros)
Position
Chairman
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Position
Chairman
Standing auditor
Standing auditor
Standing auditor
Standing auditor
435.874
79.344
128.805
81.844
47.500
47.500
121.407
47.500
126.421
126.633
664.583
273.959
96.844
79.344
75.000
100.000
70.000
60.000
50.000
-
501
Actual Total Cash [1]
-11%
-12%
-11%
-9%
-
-
-19%
-
15%
27%
-
3%
8%
-12%
Actual Total Cash [1]
0%
0%
0%
0%
0%
Actual Result
-7,6%
-45,4%
-11%
23,0%
148%
0%
0%
0%
-
-
0%
-
58%
0%
-
23%
0%
0%
0%
3%
7%
6%
0%
-2,2%
-4,0%
Average remuneration of employees
Employees of Pirelli & C. S.p.A. active at 31/12
Actual Total Cash [1]
78.445
-11,4%
-3,1%
[1] Fixed remunerations as well as the compensations for any partecipation in committees + Bonus and other incentives
[2] Ning Gaoning was appointed Chairman in 2018
[3] Vs peer panel made up of: Nokian, Michelin, Continental, Goodyear and Bridgestone
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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 General Managers;
-
in aggregate form, the remuneration paid to KM92. As of 31 December 2020, in addition to the
General Manager co-CEO (Angelos Papadimitriou) and the General Manager Operations
(Andrea Casaluci), 7 KM were in office.
Remuneration is reported on an accruals basis and the notes to the tables indicate the office for
which the remuneration is received (for example, where a director is a member of more than one
Board Committee) and the company - Pirelli & C. or subsidiary and/or affilited company - that proceed
with the relevant payment (not for remuneration waived or transferred to the Company).
The tables include all those individuals who held the aforementioned positions during all or even only
part of the 2020 year. Non-monetary benefits, where received, are also identified on an accruals
basis, and reported according to the “taxable income criterion” of the benefit assigned. In particular,
It should be noted that, as mentioned above:
-
-
-
-
those who, during 2020, were directors of the Company who accrued/received (on an accruals
basis) remuneration established in accordance with the criteria set out in paragraph 3 of the 2020
Policy;
those who, during 2020, were Directors holding specific offices (Executive Vice Chairman and
Chief Executive Officer and Chairman) who accrued/received (on an accruals basis)
remuneration established in accordance with the criteria set out in section 4 of the 2020 Policy;
the General Manager Operations accrued/received (on an accruals basis) compensation
established in accordance with the criteria set out in section 5 of the 2020 Policy;
the General Manager co-CEO, by reason of his employment as of 1 August 2020,
accrued/received (on an accrual basis) a fixed compensation established in accordance with the
criteria set forth in section 5 of the 2020 Policy (in addition to the compensation received by
reason of the positions held on the Board of Directors); -the KM received/accrued remuneration
for the 2020 financial year in accordance with the criteria outlined in section 5 of the 2020 Policy;
92 Point b) of Section II of Scheme 7-bis of Annex 3 A of the so-called Issuers’ Regulations provides that the 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 with strategic responsibilities who have received, in the reporting year, total
remuneration (obtained by adding their salary and any remuneration based on financial instruments) that exceeded the highest total
remuneration attributed to the persons indicated in point a).
For key managers other than those indicated in point b) information is provided at aggregate level in special tables, indicating the
number of persons to whom it refers in place of names”.
346
Report on the remuneration policy and compensation paid Pirelli & C. S.p.A. – 2020 Annual Report
- each member of the Board of Statutory Auditors received/accrued remuneration for the 2020
financial year in line with the provisions of the Shareholders’ Meeting at the time of appointment,
in accordance with the criteria set out in section 3 of the 2020 Policy;
- each member of the Supervisory Body received/accrued remuneration pertaining to the year
2020 equal to an annual gross remuneration of euro 40,000 and the Chairman received/accrued
an annual gross remuneration of euro 60,000, as set out in section 3 of the 2020 Policy;
- Senior Managers and KM received/accrued remunerations for 2020 year in accordance with the
criteria set out in section 6 of the 2020 Policy.
It should be noted that for the General Manager Operations, KM and more generally other selected
Senior Manager and Executives, Pirelli has introduced non-competition agreements to protect
strategic and operational know-how. The Executive Vice Chairman and Chief Executive Officer is
not party to a non-competition agreement, nor is the General Manager co-CEO. For the resolutions
adopted by the Company’s Board of Directors in connection with actions in response to the Covid-
19 health emergency, please refer to section 1.1. of this section.
347
Pirelli & C. S.p.A. – 2020 Annual Report Report on the remuneration policy and compensation paid
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Report on the remuneration policy and compensation paid Pirelli & C. S.p.A. – 2020 Annual Report
3.
MONETARY INCENTIVE PLANS FOR MEMBERS OF THE BOARD OF DIRECTORS,
GENERAL MANAGERS AND KM
For a description of the monetary incentive plans, please refer to the 2020 Policy.
At the meeting on 3 April 2020, having obtained the favourable opinion of the relevant Board Committees and the Board of
Statutory Auditors, the Board of Directors resolved to close the 2020 STI Plan early without payment and, as a result (i) to
pay, in the first quarter of 2021, the participants of the 2019 STI Plan 25% of the 2019 STI bonus accrued and initially subject
to the achievement of the 2020 STI objectives, making the payment conditional to the maintenance of employment
relationship/position as director of the Company until that date (except for “good leavers” who will receive this component in
any case), and (ii) to cancel the opportunity of increasing the 2019 STI.
Therefore 25% of the 2019 STI bonus is shown in the “Still deferred” column of the “Bonus for the previous years”.
Office
Plan
Payable/
Paid out
Deferred
Deferment
period
No longer
payable
Payable
/Paid out
Still
deferred
Bonus for the year
Bonus for the previous years
Other
bonuses
First and
last name
Marco
Tronchetti
Provera
Giovanni
Tronchetti
Provera
Executive
Vice
Chairman
and CEO
2020 STI
0.00
0.00
LTI Plan
2020-
2022
-
2020 STI
0.00
0.00
Director
(1)
LTI Plan
2020-
2022
-
-
Andrea
Casaluci
General
Manager
Operations
2020 STI
0.00
0.00
LTI Plan
2020-
2022
-
-
2020 STI
0.00
0.00
Executives with strategic
responsibilities
(2)
LTI Plan
2020-
2022
-
-
(I) Remuneration in the
Company that has prepared
the financial statements
(II) Remuneration from
Subsidiary and Affiliated
Companies
2020 STI
0.00
0.00
LTI Plan
2020-
2022
-
-
2020 STI
0.00
0.00
LTI Plan
2020-
2022
-
(III) Total
0.00
0.00
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.00
409,184.00
0.00
-
-
0.00
0.00
4,613.00
0.00
-
-
0.00
0.00
76,722.00
275,000.00
-
-
0.00
0.00
259,708.00 3,437,500.00
-
-
0.00
0.00
576,143.00 2,050,000.00
-
-
-
0.00
174,084.00 1,662,500.00
-
-
-
0.00
750,227.00 3,712,500.00
(1) Giovanni Tronchetti Provera is included in the LTI and STI variable incentive plans as a senior manager of Pirelli Tyre S.p.A.
(2) As of 31 December 2020 there were 7 KM. It should be noted that the variable STI remuneration paid to the General Manager Operations
is not included in this item, as he is named separately in the table. The General Manager co-CEO has not been assigned any monetary
incentive plans.
353
Pirelli & C. S.p.A. – 2020 Annual Report Report on the remuneration policy and compensation paid
4.
TABLE OF EQUITY INVESTMENTS OF THE MEMBERS OF THE ADMINISTRATIVE AND
CONTROLLING BODIES, GENERAL MANAGERS AND KM
The table below provides disclosures on any equity investments held in Pirelli & C. and in its
subsidiary companies, 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 KM, 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 controlling bodies, General Manager or as KM, even for a fraction of the year.
1) Equity investments of the members of the administrative and controlling bodies and
General Managers
First and last name
Office
Investee
company
No. of shares
owned at
31.12.2019
No. of shares
purchased/subscribed
No. of
shares
sold
No. of shares
owned at
31.12.2020
Marco Tronchetti Provera* Director
Pirelli & C.
100,959,399
-
- 100,959,399**
Angelos Papadimitriou
Director*** Pirelli & C.
-
170000****
Giorgio Luca Bruno
Director
Pirelli & C.
500*****
-
-
-
170,000
500*****
*
**
Shares held by the indirect subsidiary Camfin S.p.A.
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 46,568,099 Pirelli & C. S.p.A. shares, totalling 4.66% of the relative share capital.
*** Mr Angelos Papadimitriou was appointed by co-option to the Board of Directors on 5 August 2020. From 1 August 2020 he held the
office of General Manager co-CEO.
**** Shares purchased on 6 August 2020.
***** Shares purchased during the listing of the Company on 4 October 2017 and held on the date of termination of office (18 June 2020).
354
Report on the remuneration policy and compensation paid Pirelli & C. S.p.A. – 2020 Annual Report
2) Equity investments of other executives with strategic responsibilities
Number of key
managers with
strategic
responsibilities
Investee
company
No. of shares
owned at
31.12.2019
No. of shares
purchased/subscribed
No. of
shares
sold
No. of shares
owned at
31.12.2020
-
-
-
-
-
-
355
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2020
356
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (in thousands of euro)
Note
12/31/2020
12/31/2019
of which related
parties (note 43)
of which related
parties (note 43)
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
Other assets (*)
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
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
Deferred tax liabilities
Provisions for 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
Provisions for employee benefit obligations
Tax payables
Derivative financial instruments
Current liabilities
9
10
11
12
13
15
16
22
27
17
14
15
18
19
16
27
20.1
20.2
20
23
25
21
13
22
26
27
23
24
25
21
22
26
27
3,159,767
5,582,033
72,588
42,720
109,378
402,148
4,761
80,422
-
9,453,817
836,437
597,669
469,194
58,944
2,275,476
29,153
39,327
4,306,200
13,760,017
4,447,418
1,904,375
2,513,262
29,781
104,432
91,540
12,892
4,551,850
4,970,986
77,280
73,257
1,006,799
243,931
10,795
87,601
6,470,649
883,567
1,267,971
374,266
48,083
5,013
99,505
59,113
2,737,518
5,826
12,790
111,325
14,693
213
5,926
2,408
2,192
134,597
6,719
3,017
3,649,809
5,680,175
80,846
58,967
81,188
342,397
9,140
57,829
52,515
10,012,866
1,093,754
649,394
451,858
38,119
1,609,821
41,494
37,148
3,921,588
13,934,454
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
260,832
12,555
10,327
5,503,350
1,419,403
1,611,488
402,757
43,528
4,104
81,766
41,427
3,604,473
5,617
9,823
45,154
17,386
213
3,065
-
2,267
171,909
7,510
2,257
Total Liabilities and Equity
(*) In 2020, the amount related to the UK funded pension fund Pirelli General Executive Pension and Life Assurance Fund that has a value of assets exceeding liab ilities in the net amount of euro 80,422 thousand
was reclassified to Other non-current assets. To ensure comparab ility with the previous year, the net assets at Decemb er 31, 2019 amounting to euro 57,829 thousand were reclassified to Other non-current assets.
13,934,454
13,760,017
357
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
Note
2020
2019
of which
related parties
(note 43)
of which
related parties
(note 43)
15,074
49,392
(4,917)
(14,959)
(241,764)
(5,629)
2,338
(921)
4,302,131
306,313
(160,223)
(1,280,361)
(949,678)
(11,205)
(517,152)
(1,466,294)
(17,385)
1,788
219,139
(5,271)
(5,629)
1,140
(847)
65
146,384
(302,886)
57,366
(14,693)
42,673
29,781
12,892
0.030
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
438,134
19,563
0.438
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
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
Net income / (loss) before tax
Taxes
Net income / (loss)
Attributable to:
Owners of the Parent Company
Non-controlling interests
29
30
31
32
33
34
35
36
37
38
Total earnings / (losses) per base share (in euro per share)
39
358
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in thousands of euro)
Total Net income / (loss)
- Remeasurement of employee benefits
- Tax effect
Note
2020
2019
42,673 457,697
22 18,946 (13,100)
(5,271) (1,365)
- Fair value adjustment of other financial assets at fair value through Other Comprehensive Income
Total items that may not be reclassified to income statement
12 (16,129) (366)
(2,454) (14,831)
Exchange differences from translation of foreign financial statements
- Gains / (losses)
- (Gains) / losses reclassified to Income Statement
Fair value adjustment of derivatives designated as cash flow hedges:
- Gains / (losses)
- (Gains) / losses reclassified to Income Statement
- Tax effect
Cost of hedging
- Gains / (losses)
- (Gains) / losses reclassified to Income Statement
- Tax effect
20 (373,552) (3,247)
35 (932) (1,567)
27 (119,247) 73,439
27 124,345 (79,060)
(482) 1,989
27 4,496 2,828
27 (7,104) (7,189)
81 546
Share of other comprehensive income related to associates and j.v. net of tax
Total items reclassified / that may be reclassified to income statement
11 (2,093) (1,176)
(374,488) (13,437)
Total other comprehensive income (B+C)
(376,942) (28,268)
A
B
C
D
A+D
Total comprehensive income / (loss)
(334,269) 429,429
Attributable to:
- Owners of the Parent Company
- Non-controlling interests
(336,516)
2,247
405,610
23,819
359
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AT 12/31/2020
(in thousands of euro)
Attributable to the Parent Company (note 20.1)
Share Capital
Translation
reserve
Total IAS
Reserves *
Other reserves/
retained earnings
Total attributable to
the Parent Company
Total at 12/31/2019
1,904,375
(313,805)
(89,424)
3,223,303
Other components of comprehensive income
Net income / (loss)
Total comprehensive income / (loss)
Convertible bond reserve
Effects of Hyperinflation accounting in Argentina
Other
Total at 12/31/2020
(in thousands of euro)
-
-
-
-
-
-
(365,932)
-
(365,932)
-
-
-
(365)
-
(365)
-
-
(104)
-
29,781
29,781
41,200
20,041
(1,652)
Total
(note 20)
Non-
controlling
interests
(note 20.2)
102,182
4,826,631
(10,645)
(376,942)
12,892
42,673
2,247
(334,269)
-
-
3
41,200
20,041
(1,753)
4,724,449
(366,297)
29,781
(336,516)
41,200
20,041
(1,756)
1,904,375
(679,737)
(89,893)
3,312,673
4,447,418
104,432
4,551,850
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 12/31/2019
Other components of comprehensive income
Other changes
Total at 12/31/2020
(228)
(16,129)
-
(16,357)
9,898
(2,608)
-
(31,326)
5,098
-
(43,946)
(23,822)
(89,424)
18,946
(5,672)
(104)
-
(365)
(104)
7,290
(26,228)
(25,104)
(29,494)
(89,893)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AT 12/31/2019
(in thousands of euro)
Attributable to the Parent Company (note 20.1)
Non-controlling
interests
(note 20.2)
Total
(note 20)
Share Capital
Translation
reserve
Total IAS
Reserves *
Other reserves/
retained earnings
Total attributable to
the Parent Company
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 Hyperinflation 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)
360
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands of euro)
Note
2020
2019
of which
related parties
(note 43)
of which
related parties
(note 43)
Net income / (loss) before tax
Reversals of amortisation, depreciation, impairment losses and restatement of
property, plant and equipment and intangible assets
Reversal of Financial income / (expenses)
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
Net Taxes paid
Change in Inventories
Change in Trade receivables
Change in Trade payables
Change in Other receivables
Change in Other payables
Uses of Provisions for employee benefit obligations
Uses of Other provisions
32
36/37
35
35
35
38
A Net cash flow provided by / (used in) operating activities
Investments in owned tangible assets
Disposal of owned tangible assets
Investments in intangible assets
Disposal of intangible assets
Disposal of investments in subsidiaries
(Acquisition) of investments in associates and joint ventures
Change in Financial receivables from associates and joint ventures
Dividends received
B Net cash flow provided by / (used in) investing activities
Change in Borrowings from banks and other financial institutions due to draw down
Change in Borrowings from banks and other financial institutions due to repayments
and other
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 liabilities
23
23
C Net cash flow provided by / (used in) financing activities
D Total cash flow provided / (used) during the period (A+B+C)
E Cash and cash equivalents at the beginning of the financial year
F Exchange rate differences from translation of cash and cash equivalents
G Cash and cash equivalents at the end of the period (D+E+F) (°)
19
(°)
of which:
cash and cash equivalents
bank overdrafts
57,366
517,152
156,502
(65)
(293)
5,629
64,781
(90,692)
140,645
(35,324)
(184,604)
21,926
60,555
(37,173)
(58,053)
618,352
(177,879)
5,405
(15,527)
279
69
-
(64,093)
65
(251,681)
2,577,182
622,259
527,818
109,479
(5,526)
6,854
9,678
37,509
(141,985)
28,300
(44,637)
18,815
(32,161)
(47,446)
(43,029)
(23,226)
1,022,703
(365,935)
7,646
(20,812)
15
10,700
(8,925)
(13,420)
14,956
(375,774)
1,706,457
5,629
(4,029)
390
(6,868)
2,524
(2,257)
(64,093)
(1,806,690)
(1,623,341)
(192,666)
(38,504)
0
(99,924)
439,398
806,069
1,600,627
(137,013)
2,269,683
2,275,476
(5,793)
(2,856)
(41,715)
(85,537)
(185,768)
(101,157)
(331,061)
315,868
1,303,852
(19,092)
1,600,627
1,609,821
(9,194)
9,678
5,844
(19,695)
30,644
(2,596)
(2,930)
(8,925)
(13,420)
(1,921)
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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 31, 2021 the Board of Directors authorised the publication of these Consolidated Financial
Statements.
2.
BASIS OF PRESENTATION
COVID–19
During 2020, the tyre sector was strongly impacted by the COVID-19 emergency and by the
deterioration in the economic outlook, with a general drop in consumption and production. The
demand for car tyres recorded a decline in volumes of -15.3% which was particularly marked for the
first half-year (-28.1%), but gradually improved for the second half-year (-3.9%), thanks to the
recovery in demand for Car New Premium (+3.6% for the second half-year and -9.5% for the year).
Pirelli responded promptly to the profound change in the global scenario by implementing an action
plan, communicated to the financial market on April 3, 2020.
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This plan made it possible to:
guarantee the health and safety of its employees by adopting all necessary preventive measures;
protect profitability and cash generation through cost containment and the renegotiation of
investment programs;
strengthen the capital structure through the signing of a new sustainable euro 800 million bank
credit facility (5-year maturity), the issue of an equity-linked euro 500 million bond (5-year
maturity) and in general, to optimise the financial structure through the extension of debt
maturities;
consolidate their collaboration with the main Premium and Prestige vehicle manufacturers and
with the sales network, in view of the recovery in demand, while counting on a resilient supply
chain and strengthen its leadership in the high-end segment.
In 2020, the Group recorded revenues of 4,302.1 million euros, -19.2% compared to 2019, supported
by the market recovery during the fourth quarter and a strengthening of the leadership on the high-
end. Regarding the operating result, it should be noted that the impacts of the external scenario,
such as weak demand, exchange rate volatility and input cost inflation, were contained thanks to
efficiency actions and the cost reduction program related to the Covid-19 emergency.
With regard to the medium term outlook, as well as to the elements of risk and uncertainty, reference
should be made to the relevant paragraphs in this document.
On the basis of the measures implemented, and considering the estimated results for the 2021
financial year, as well as for the years 2022-2025, as reported in the “Outlook for the five-year period”
section of the Directors’ Report on Operations, the existence of the going concern assumption
underlying the preparation of the Consolidated Financial Statements has been confirmed, using a
future period of at least 12 months as of the closing date of the financial year as reference.
The effects deriving from the Covid-19 pandemic, in addition to impacting the Group’s economic
results, have also been included in the estimates and assumptions, as they have had an impact, in
particular, on the assessment of the recoverability of goodwill and other intangible assets with an
indefinite useful life, the recoverability of intangible assets with a finite useful life and tangible assets,
the recoverability of receivables, the determination of taxes (current and deferred) and the
assessment of the recoverability of investments in associates and joint ventures.
These impacts are described in the relevant notes, to which reference should be made for further
details.
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Consolidated Financial Statements
Financial Statements
The Consolidated Financial Statements at December 31, 2020 consist of the Statement of Financial
Position, the Income Statement, the Statement of Comprehensive Income, the Statement of
Changes in Equity, the Statement of Cash Flows and the Explanatory Notes, which are accompanied
by the Directors’ Report on Operations.
The format adopted for the Statement of Financial Position provides for the distinction of assets and
liabilities according to whether they are current or non-current.
The Group has opted to present the components of gains/losses for the financial year in a separate
Income Statement, rather
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 the
homogeneous categories, income and expenses are recognised directly in equity, in accordance
with the IFRS.
The Group has opted for the presentation of tax effects, as well as the reclassifications to the Income
Statement of gains/losses which were recognised in equity in previous financial years, directly in the
Statement of Comprehensive Income and not in the Explanatory Notes.
The Statement of Changes in Equity sets forth, in addition to the total gains/losses of the period, the
amounts from transactions with equity holders and the changes which occurred during the financial
year in the reserves.
In the Statement of Cash Flows, the financial flows derived from operating activities are presented
using the indirect method, by way of which the gains or losses for the period 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 agreements for joint control
(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 of the subsidiary,
that is activities that have a significant influence on the results of the subsidiary;
-
the right to the variable (positive or negative) results from the investment in the entity;
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-
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 Statement of Financial Position, the Income Statement and the Statement of
Comprehensive Income.
All companies for which the Group is able to 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 of 100% of the company Omnia Motor S.A. – Sociedad Unipersonal which took
place on February 20, 2020;
- disposal of 100% of the Joint Stock company “Scientific institute of medical polymers” which
took place on December 24, 2020.
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Consolidated Financial Statements
Information on subsidiaries
The Consolidated Financial Statements include the assets and liabilities of 88 legal entities. The
following is a list of the significant subsidiaries:
Headquarter
12/31/2020
12/31/2019
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 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)
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%
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 –
Companies consolidated on a line-by-line basis”.
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 items of the Income Statement, with the exception of the Financial Statements
of companies operating in hyperinflation 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 translation reserve, 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
translation reserve is reversed to the Income Statement when the company that originated the
reserve is disposed of.
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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 related portion of equity;
- equity and income related transactions between fully consolidated companies, including
dividends distributed within the Group, are eliminated;
- non-controlling interests are shown as a separate item 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, any goodwill
allocable to the subsidiary in determining the capital gains or losses arising from the disposal,
is taken into account;
-
in the case of an equity investments 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 share of the financial results of the subsidiary realised after the acquisition date;
the pertinent share of gains and losses are recognised directly in the equity of the subsidiary,
in accordance with the applicable standards;
- dividends are paid by the subsidiary;
-
if the Group’s share in the losses of the associate/joint venture exceeds the carrying amount
of the investment in the Financial Statements, the carrying amount of the investment is reset
to zero and the Group’s share of any further losses is recognised under “Provisions for
liabilities and charges”, if and 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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Consolidated Financial Statements
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, 2020, 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, 2020, 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 which 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 consideration plus any non-controlling interests in the acquired company,
measured at fair value (if this option is chosen for the acquisition in question) or in proportion to
the non-controlling interest’s share 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 (acquisition in phases - step acquisition), the previously held investment is measured at fair
value and the effects of this adjustment is recognised the Income Statement.
The costs of business combination operations are recognised in the Income Statement.
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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 if certain future events occur, or specific conditions are fulfilled,
are recognised at fair value at the acquisition date as part of the amount transferred in exchange for
the acquisition itself. Any subsequent changes in the fair value of these agreements are 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.
Capital gains and capital losses deriving from the sale or retirement 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 tested for impairment, at least annually or whenever there are indicators of
impairment. For this purpose goodwill is allocated to the cash generating units (CGUs) or groups of
units, in compliance with the maximum restriction, which cannot exceed that of the business sector
identified pursuant to IFRS 8. The criterion applied in the allocation of goodwill coincides with the
sole business sector in which the Group operates, being Consumer Activities and takes into
consideration the minimum level at which goodwill is monitored, for internal management control
purposes.
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 accumulated amortisation and
impairment. This cost is amortised for whichever period is shorter between, the duration of the
contract and the useful life of the asset. 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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Consolidated Financial Statements
Software
Software license costs, including incidental expenses, are capitalised and recognised in the Financial
Statements net of any amortisation and net of any accumulated impairment. Software is amortised
on the basis of its useful life.
Customer relationships
Customer relationships mainly refer to intangible assets acquired in a business combination, are
recognised in the Financial Statements at their fair value at the purchase date and amortised on the
basis of their useful life.
Technology
The value of technology refers mainly to product technology and process technology, as well as
product development technology identified during the Purchase Price Allocation. This value is
recognised in the Financial Statements at fair value at the date of acquisition and is amortised on
the basis of its useful life.
Research and development costs
Research costs refer to product innovation, innovation in production processes and research into
new materials. These are expensed as they are incurred.
There were no development costs that satisfied the requisites for capitalisation, as provided for by
IAS 38.
Owned tangible assets
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 goods, plus the cost of replacing any parts or
portions of the assets of this category, are capitalised only if they increase the future financial benefits
inherent to the 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.
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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.
Depreciation is accounted for starting from the month in which the asset is available for use, or is
potentially capable of providing the financial benefits associated with it.
Depreciation is charged on a monthly straight-line basis at rates that allow for the depreciation of
assets until the end of their useful life or, in the case of decommissioning, until the last month of use.
Depreciation rates were as follows:
Buildings
Plants
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 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
residual useful lives, determined at the time of the evaluation. Useful lives are reviewed annually.
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.
Improvements to third-party (leasehold) assets are classified as tangible assets, consistent with the
nature of the cost incurred. The depreciation period corresponds to whichever is shorter between
the remaining useful life of the asset and the residual period 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 dismantling 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 de-recognised from the Statement of Financial Position at the
time of decommissioning or their permanent retirement from use and, as a consequence, no future
financial benefits can be expected to be derived from their disposal or use.
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Consolidated Financial Statements
Any capital gains or capital losses resulting from the sale or retirement of property, plant and
equipment are determined as the difference between the net proceeds from disposal and the
carrying amount of the asset.
Right of use
As of the date on which the assets covered by a lease contract become available for use by the
Group, lease contracts are accounted for as a right of use asset under non-current assets with a
counter entry under financial liabilities.
The cost of the lease payment is separated into two components; as a financial expense which is
recognised in the Income Statement for the duration of the contract and as the 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.
Right of use and financial liabilities are initially valuated at the current value of future payments.
The current 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 redemption option, in the event that the exercise of the option is
considered reasonably certain;
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.
Right of use is 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;
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- estimated costs for dismantling or restoration.
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
unit 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 changes, in
accordance with any changes in the facts or circumstances (not linked to sales
performances), which were not foreseeable at the starting date.
Low-value contracts are mainly relative to the following categories of goods:
-
computers, telephones and tablets;
- office and multi-function printers;
- other electronic devices.
Impairment of assets
Tangible and intangible assets and right of use
In the presence of specific indicators of impairment, or at least on an annual basis, intangible assets
with an indefinite useful life including goodwill, tangible and intangible assets and right of use, are
subjected to an impairment test.
The test consists of an estimate of the recoverable amount for the asset compared to its carrying
amount.
The recoverable amount of an asset is whichever is higher between its fair value less the costs of
sale and its value in use.
The value in use for property plant and equipment and intangible assets, is the present value of the
estimated future financial flows originating from the use of the asset, plus those deriving from its
retirement at the end of its useful life, net of taxes and the application of a discount rate, which
reflects the current market assessment of the time-value of money and the risks specific to the asset.
For the right of use, the value in use is the present value of the estimated future cash flows originating
from the right of use, for the duration of the lease contract and of the outgoing right of use which is
to be replaced in accordance with the terms of the lease contract (for example, the cost of purchasing
an asset to replace the one that is leased).
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Consolidated Financial Statements
It is not necessary to estimate both amounts in order to verify the absence of any impairment, as it
is sufficient that one of the two configured amounts is higher than the carrying amount.
If the recoverable amount of an asset is lower than the carrying amount, the latter is reduced and
adjusted to the recoverable amount. This reduction in value constitutes an impairment which is then
recorded in the Income Statement.
In order to evaluate an impairment, assets are aggregated at the lowest level at which their
independent cash flows are separately identifiable (cash generating units).
Specifically, goodwill must be allocated to the cash generating units or group of cash generating
units in compliance with the maximum aggregation restriction, which cannot be exceeded, for the
operating segment.
In the presence of indications that an impairment recognised in previous financial years for property,
plant and equipment or intangible assets, other than goodwill or right of use, may no longer exist, or
may have decreased, the recoverable amount for the asset is estimated again and if it results as
higher than the net carrying amount, then the net carrying amount is increased up to, but not
exceeding, the recoverable amount.
The restatement of a value may not exceed the carrying amount that would have been determined
(net of impairment, depreciation or amortisation) had no impairment been recognised in previous
financial years.
The restatement of the value of an asset other than goodwill is recognised in the Income Statement.
Any impairment which has been detected for goodwill cannot be restated in subsequent financial
years.
Any loss due to the impairment of any goodwill recorded in the interim (half-year) Financial
Statements cannot be restated in the Income Statement in subsequent financial years.
Investments in associates and joint ventures
Following the application of the equity method, in the presence of the indication of an impairment,
the value of investments in associates and joint ventures must be compared with the recoverable
amount (the impairment test). The recoverable amount corresponds to the higher amount between
the fair value less the costs of sale and the value in use.
For the purposes of impairment testing, the fair value of an investment in an associate or joint venture
with shares listed on an active share 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 resorting to estimates based on the best available information.
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For the purposes of determining the value in use of an associate or joint venture, an estimate is
made of the owned share of the present value of future cash flows which are estimated will be
generated by the associate or joint venture, including financial flows deriving from the operating
activities of the associate or joint venture and the amount that will be received from the final disposal
of the investment (the so-called Discounted Cash Flow criteria – asset side).
When there is evidence that an impairment recognised in previous financial years may no longer
exist or may have been reduced, the recoverable amount of the investment is estimated again and
if it results as higher than the amount of the investment, then the latter amount is increased up to
and not exceeding the recoverable amount.
The restatement of a value may not exceed the value of the investment that would have been
determined (net of impairment) had no impairment been recognised in previous financial years.
The restatement 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)
This valuation category includes the equity instruments for which the Group - at the time of their
initial detection – had exercised the irrevocable option to report the gains and losses deriving from
the changes in fair value in equity (FVOCI), as these are financial assets that do not belong to the
Group’s usual activity. These are classified as non-current assets under the item “Other financial
assets at fair value through Other Comprehensive Income”.
They were initially recognised at fair value, including the transaction costs directly attributable to the
acquisition.
They were subsequently carried at their fair value and any gains and losses deriving from any
changes in fair value were recognised in a specific equity reserve. This reserve was 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 detection - had not exercised
the irrevocable option to present the gains and losses deriving from the changes in fair value
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in equity. These 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 asset management model provides that the sale of
the debt instruments and the cash flows associated with the financial asset, represent the
payment of the outstanding capital. These are classified as current assets under the item
“Other financial assets at fair value through the Income Statement”;
derivative instruments, with the exception of those designated as hedging instruments.
These are initially recognised at fair value. Transaction costs directly attributable to their acquisition
are recognised in the Income Statement.
They are subsequently valuated at fair value and any gains, earnings or losses deriving from any
changes in their fair value are recognised in the Income Statement.
Inventories
Inventories are valued at whichever is lower between, the cost determined under the FIFO method
(first-in first-out), or their estimated realisable value. The valuation of inventories includes the direct
costs of materials and labour as well as indirect costs. Impairment provisions for inventories
considered to be obsolete and slow moving are calculated by taking their estimated future use and
their realisable value into account. Their realisable value is the estimated selling price, net of all costs
estimated for the completion of the goods, including any sales and distribution costs that will be
incurred. The cost is increased by incremental expenses in the same manner as described for
property, plant and equipment.
Receivables
Receivables are initially reported 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 their amortised cost, which is reduced in the case of impairment. Amortised cost is
calculated by using the effective interest rate method, which is equivalent to the discount rate which,
when applied to future cash flows renders the present carrying amount of such cash flows equal to
their initial fair value.
Receivables in currencies other than the functional currency of the individual companies are adjusted
to the period-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 benefits
connected with holding the receivable have been substantially transferred, or in cases when the
receivable is deemed to be definitively irrecoverable, after all the necessary collection procedures
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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 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 to rating of the customer
and which is adjusted to take forecasting factors into account which are specific to some customers.
Trade receivables are grouped on the basis of similar risk characteristics. This grouping is based on
the original credit maturity date and on the customer’s credit rating, as attributed by independent
market assessors. 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 market 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.
The Group assesses whether there has been a significant increase in credit risk when the customer’s
credit rating, as attributed by independent market assessors, undergoes a change that shows an
increase in the probability of default.
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 full expired contractual amount (for example,
when receivables have been referred to the legal department).
Payables
Payables 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 paid. They are subsequently valued
at the amortised cost. Amortised cost is calculated by using the effective interest rate method, which
is equivalent to the discount rate which, when applied to future cash flows, renders the present value
of such cash flows equal to their initial fair value. Payables in currencies other than the functional
currency of the individual companies are adjusted to the period-end exchange rates, with a counter
entry in the Income Statement. Payables are de-recognised from Financial Statements when the
specific contractual obligation is extinguished. In the event of a change in a financial liability that
does not entail its de-recognition, the gain or loss resulting from the change is calculated by
discounting the change in the contractual cash flows using the original effective interest rate and is
immediately recognised in the Income Statement.
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The fair value of the debt component of a convertible bond is equal to the fair value of a liability
issued on substantially equivalent market terms, without the right of conversion. This component is
subsequently measured at the amortised cost until extinguished at the time of conversion, or until
the maturity of the bonds. The residual portion, up to the amount collected, is recognised as an equity
component. Issuance costs are allocated proportionally to the debt component and to the equity
component.
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 measured at their fair value and any relative changes are
recognised in the Income Statement.
Potential assets
Any potential assets, which arise as a result of past events and whose generation is linked to the
occurrence or otherwise of unpredictable future events, are not reported in the Financial Statements,
unless the realisation of revenue is virtually certain.
Provisions for liabilities and charges
Provisions for liabilities and charges include accruals for current obligations (legal or implicit) deriving
from a past event, the fulfilment of which will likely require the necessary use of resources and whose
amounts can be estimated in a reliable manner.
Changes in estimates are recognised in the Income Statement for the financial year in which the
change occurs.
If the effect of discounting is significant, provisions are stated at their present value.
A provision for restructuring is recognised only if, in addition to meeting the requisite conditions for
provisions for liabilities and charges, there exists a detailed formal restructuring plan so that any
concerned third parties can maintain a valid expectation that the restructuring will take place.
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Employee benefits
Employee benefits paid after the termination of the employment relationship such as defined benefit
plans and other long-term benefits, are subject to actuarial evaluations. The liability recognised in
the Financial Statements is the present value of the Group’s obligation, net of the fair value of any
plan assets.
For defined benefit plans, the actuarial gains and losses deriving from adjustments based on past
experience and 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 relative to defined contribution plans are recognised in the Income Statement as they are
incurred.
Where defined benefit plan assets exceed 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 rules and 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 Financial Statements as plan assets and are evaluated on
the same basis as the liabilities to which they refer.
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, of the Group’s risk management objectives and
of the strategy for implementing the hedge cover;
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-
the hedging relationship meets all the following efficiency requirements:
o
there is a financial relationship between the hedged item and the hedging instrument;
o
o
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 coherent with the risk management strategy adopted by
the Group.
These derivative instruments are measured at fair value.
The following accounting treatments are applied on the basis of the type of coverage:
- 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 too is recognised in the Income Statement;
- Cash flow hedge – if a derivative financial instrument is designated as a hedge against exposure
to the variability in the financial flows of an asset or liability recognised in the Financial
Statements, or to 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. Amounts that have been recognised directly
in equity are reclassified to the Income Statement for the financial year in which the hedged item
produced an effect on the Income Statement. If the hedge of a highly probable future transaction
subsequently entails the recognition of a non-financial asset or liability, the amounts that are
suspended in equity are included in the initial value of the non-financial asset or liability.
When future transactions are hedged through forward contracts, the Group may designate to hedge
accounting:
-
-
the full fair value (including forward points): the effective portion of the changes in fair
value of the entire derivative instrument is recognised in equity (cash flow hedge reserve);
the single spot component (excluding forward points): the effective portion of the changes
in fair value relative to the single 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
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in the cost of hedging reserve) remain suspended in equity until the hedged item manifests an impact
on the Income Statement. Subsequently they are reclassified to the Income Statement for the
financial years during which the acquired financial asset or the assumed financial liability manifests
an impact on the Income Statement.
When the hedged item is no longer expected to have any impact on the Income Statement, the fair
value adjustments accumulated in equity (both in the cash flow hedge reserve and in the cost of
hedging reserve) are immediately recognised in the Income Statement.
For the derivative instruments that do not satisfy the prerequisites provided for 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 share 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 an interest rate swap is calculated by discounting estimated future cash flows based
on observable yield curves.
The fair value of forward exchange contracts is determined by using the forward exchange rate at
the reporting date.
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.
The fair value of natural rubber futures is determined by using the closing price of the contract at the
reporting date.
Income taxes
Current taxes are determined on the basis of a realistic forecast of the tax expenses payable in the
application of the current tax regulations of the country.
The Group periodically evaluates the choices it has made in determining taxes in situations where
the tax legislation in force lends itself to interpretation and if deemed appropriate, adjusts its
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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 Financial Statements 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 during the financial year in which the asset will be realised or the liability settled, based
on the tax legislation in force at the closing date of the financial 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 financial 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 relative deferred tax liabilities are not recognised in cases where the investing
entity is able to control the reversal of the temporary differences and it is 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 financial year or during previous financial years.
Equity
Treasury shares
Treasury shares are classified as a reduction of equity.
If they are sold, reissued or cancelled, the resulting earnings or losses are recognised in equity.
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Costs of capital transactions
Costs that are directly attributable to the capital transactions of the Parent Company are accounted
for as a reduction in equity.
Share-based payment transactions (cash settled)
The additional monetary benefits (cash settled) granted to certain Group executives have been
recognised under “Personnel Funds” (other long-term benefits) with a counter entry under
“Personnel costs”. This cost is estimated at fair value and is accounted for over the duration of the
plan according to the degree of maturity of the vesting condition at the reporting date. The estimate
is revised at each reporting date up until the settlement date.
Recognition of revenues
Revenues are recognised for an amount that reflects the consideration to which the Group believes
it is entitled to in exchange for the transfer of goods and/or services to its customers. The variable
considerations that the Group deems necessary as payable to direct or indirect customers are
recognised as a reduction to revenues.
Product sales
Revenues from product sales are recognised when the performance obligations towards customers
have been satisfied. Performance obligations are deemed to have been met when the control of
goods has been transferred to the customer, that is, generally when the goods are delivered to the
customer.
If the products are ready to be delivered, but delivery is postponed to a future date, sales 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 have been 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 owned by 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.
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Retrospective discounts are applied to product sales based on the achievement of the objectives
defined within the framework of commercial agreements. Revenues from sales are recognised net
of these discounts and estimated on the basis of historical experience with the expected valuation
method and for amounts which are not expected to be reversed.
Sales do not include a financial component, in that the average terms of payment applied to
customers fall within the standard commercial terms for the country in which the 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 provisions of the relevant
agreement, which provides for the transfer to the customer of the rights of access to intellectual
property. The amounts for royalties are estimated using the output method. Royalties invoiced for
each period directly correlate with the value transferred to the customer.
Dividends
Dividends are recognised when the right to collect is established, which normally corresponds to a
resolution approved by the Shareholders for the distribution of dividends.
Earnings/(losses) per share
Earnings/(losses) per share - basic: basic earnings/(losses) per share are calculated by dividing
the income/(loss) attributable to the Group by the weighted average number of outstanding ordinary
shares during the financial year excluding treasury shares.
Earnings/(losses) per share - diluted: diluted earnings/(losses) per share are calculated by
dividing the income/(loss) attributable to the Group by the weighted average number of outstanding
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ordinary shares during the financial year, excluding treasury shares. For the purposes of calculating
the diluted earnings/(losses) 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 or
extinction of monetary items, or from their translation at rates other than those of their initial
recognition for the financial year or different to those at the end of the previous financial, are
recognised in the separate Consolidated Income Statement.
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 provisions 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 hyperinflationary countries
Group companies operating in hyperinflation 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.
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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
hyperinflation 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.
3.1
Accounting standards and interpretations approved and in force as of January 1, 2020
Pursuant to IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors, the IFRS
standards in force as of January 1, 2020 were as follows:
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 an output. This amendment results in multiple acquisitions qualifying as
asset acquisitions instead of as business acquisitions. There were no impacts on the Financial
Statements of the Group.
Amendments to IAS 1 - Presentation of Financial Statements and to IAS 8 - Accounting Policies,
Changes in Accounting Estimates and Errors - Key definitions
In addition to clarifying the concept relevant to transactions (“materiality”), these amendments
focus on the definition of a relevant concept which is coherent and unique amongst the various
accounting standards and also incorporate the guidelines included in IAS 1 which are not
irrelevant. There were no impacts on the Financial Statements of the Group or in their
disclosures.
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
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make it possible to not carry out the evaluations required by IFRS 9 in the presence of any
changes in rates.
The impacts of these amendments on the Group’s outstanding interest rate hedging instruments
are subjected to continuous monitoring. There are no impacts as long as the LIBOR is not
replaced by a new benchmark rate (expected during 2021).
Amendment to IFRS 16 Leases - COVID-19 related rent concessions
These amendments introduced an optional accounting treatment for lessees in the presence of
reductions in permanent lease payments (rent holidays) or temporary lease payments linked to
COVID-19.
Lessees can choose to account for reductions occurring up to June 30, 2021 as variable lease
payments, recognised directly in the Income Statement for the period in which the reduction
applies, or treat them as an amendment to the lease, with the consequent obligation to
re-measure the lease obligation based on the revised consideration using a revised discount
rate. Such reductions in lease payments have been treated as variable lease payments and have
therefore been recognised directly in the Income Statement for the period. The positive impact
on the Income Statement for 2020 amounted to euro 889 thousand.
3.2 International Accounting Standards and/or interpretations issued but which did not yet
enter into force during 2020
Pursuant to IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors - the new
standards and interpretations that were issued but had not yet come into force, or had not yet been
approved by the European Union at December 31, 2020 and which were therefore not applicable,
along with any expected impacts on the Consolidated Financial Statements.
None of these standards and interpretations were adopted in advance by the Group.
Amendments to IAS 1 — Presentation of Financial Statements - Classification of Liabilities as
Current or Non-current
The amendments clarify the standards that must be applied for the classification of liabilities as
current or non-current. These amendments, which will come into force on January 1, 2023 have
not yet been approved by the European Union. No significant impacts on the classification of
financial liabilities are foreseen as a result of these amendments.
Amendments to IAS 16 – Property, Plant and Equipment - Proceeds before intended use
These amendments prohibit the deduction of amounts received from the sale of products from
the cost of property, plant and equipment, while the asset is being prepared for its intended use.
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The proceeds from the sale of products and the relative production cost must be recognised in
the Income Statement.
These amendments, which will come into force on January 1, 2022 have not yet been approved
by the European Union. No impacts on the Group’s financial statements are forseen as a result
of these amendments.
Amendments to IAS 37 - Provisions, contingent liabilities and contingent assets - Onerous
contracts - Cost of fulfilling a contract
These amendments specify the costs to be taken into consideration when evaluating onerous
contracts.
These amendments, which will come into force on January 1, 2022 have not yet been approved
by the European Union. No impacts on the Group’s financial statements are forseen as a result
of these amendments.
Annual improvements (2018–2020 cycle) issued May 2020
These are limited changes to some principles (IFRS 1 - First time adoption of the International
Financial Reporting Standards, IFRS 9 - Financial instruments, IAS 41 - Agriculture and
illustrative examples of IFRS 16 Leases) which clarify the wording or correct omissions or
conflicts between the requirements of the IFRS principles.
These amendments, which will come into force on January 1, 2022 have not yet been approved
by the European Union. No impacts on the Group’s financial statements are forseen as a result
of these amendments.
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: (Reform of interbank offered rates
- IBOR reform - phase 2)
These changes relate to the operational methods by which the impacts of replacing the current
benchmark interest rates with alternative reference interest rates will have to be managed,
particularly:
-
-
-
the introduction of a practical expedient for the accounting of changes in the calculation
basis on which contractual cash flows of financial assets and liabilities are calculated;
the introduction of certain exemptions relative to the termination of hedging relationships;
the temporary exemption from the requirement to separately identify a risk component
(where that separate hedged component is an alternative interest rate);
-
the introduction of some additional disclosures regarding the impacts of the reform.
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These amendments, which came into force on January 1, 2021, whose impact on the Group’s
financial statements is currently being analysed, have already been approved by the European
Union.
4.
FINANCIAL RISK MANAGEMENT POLICIES
The Group is exposed to financial risks which are mainly 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 which are more defined on a more general level by the Risk Management
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.
The Group aims to minimise the impact of transactional risk 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 transactional exchange rate risk,
whose hedging is then provided in the form of forward contracts which are entered into with the
Group Treasury.
The positions subject to managed exchange rate risk are mainly represented by receivables and
payables in foreign currencies.
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The Group Treasury is responsible for hedging the resulting net position for each currency and, in
accordance with the established guidelines and predetermined restrictions, it in turn closes all risk
positions by trading derivative hedging contracts on the market, which typically take the form of
forward contracts.
For such contracts, the Group did not consider it necessary to avail itself of the option for hedge
accounting as provided for by IFRS 9, in that the representation of the impacts on the Income
Statement and the Statement of Financial Position of a hedging strategy for transactional exchange
rate risk is nevertheless substantially guaranteed even without the Group availing itself of the
aforementioned option.
With reference to some loans denominated in foreign currencies, the Group has entered into
derivative contracts (cross currency interest rate swaps) in order to hedge not only interest rate risk,
but also transactional exchange rate risk for which hedge accounting has been activated pursuant
to the requirements of IFRS 9.
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 transactional exchange rate 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.
The impacts on the Group’s equity and Income Statement, deriving from changes in the exchange
rates calculated on outstanding hedging instruments at December 31, 2020, are described in Note
27 - “Derivative Instruments”.
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, 2020 approximately 36.3% of the total consolidated equity was expressed in euro
(approximately 37.9% at December 31, 2019). The most important currencies for the Group, other
than the euro, were the Brazilian real (9.8%; 14.7% at December 31, 2019), the Turkish lira (0.4%;
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Pirelli & C. S.p.A. – 2020 Annual Report
0.5% at December 31, 2019), the Chinese yuan (15.2%; 12.5% at December 31, 2019), the
Romanian leu (14.7%; 11.3% at December 31, 2019), the UK pound sterling (3.8%; 3.8% at
December 31, 2019), the US dollar (4.2%; 3.6% at December 31, 2019) the Mexican peso (10.4%;
10.1% at December 31, 2019) and the Russian rouble (1.8%; 2.1% at December 31, 2019).
The effects on consolidated equity of 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 Peso
US Dollar
Mexican Peso
Total on consolidated equity
Appreciation of 10%
12/31/2020
49,534
2,073
76,782
74,158
9,337
19,402
8,874
21,081
52,697
313,938
12/31/2019
79,039
2,794
67,007
60,763
11,329
20,475
9,737
19,453
54,371
324,968
Depreciation of 10%
12/31/2020
(40,528)
(1,696)
(62,822)
(60,675)
(7,640)
(15,875)
(7,260)
(17,248)
(43,116)
(256,860)
12/31/2019
(64,668)
(2,286)
(54,824)
(49,715)
(9,269)
(16,752)
(7,966)
(15,916)
(44,486)
(265,882)
It should be noted that during the course of 2020, due to the worsening of the macroeconomic
scenario caused by the COVID-19 pandemic, some currencies suffered a depreciation of more than
-10%, particularly the Brazilian real, the Turkish lira, the Argentinian peso and the Mexican peso. For
information on the effect on equity, reference should be made to Note 20 - “Equity”.
Interest rate risk
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 interest rates - all other conditions being equal, of all currencies to which the Group
is exposed:
(in thousands of euro)
Impact on Net income / (loss)
+0,50%
-0,50%
12/31/2020
(7,332)
12/31/2019
(7,949)
12/31/2020
7,332
12/31/2019
7,949
391
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
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, 2020, 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 0.74% of the total consolidated assets
at December 31, 2020 (0.70% at December 31, 2019). 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.
No derivatives were put in place to limit the volatility risk for these assets.
These financial assets are subdivided as follows:
- assets at fair value through other Comprehensive Income represented by listed equity securities
amounted to euro 14,076 thousand (euro 24,892 thousand at December 31, 2019) and those
represented by securities indirectly associated with listed equity securities (Fin. Priv. S.r.l.),
amounted to euro 15,902 thousand, (euro 20,565 thousand at December 31, 2019);
- assets at fair value through the Income Statement amounted to euro 34,571 thousand and are
represented by Argentinian dollar-linked bonds.
The financial assets at fair value through other Comprehensive Income constituted 29.5% of the total
financial assets subject to price risk (45.7% at December 31, 2019). A 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 704 thousand (a positive change of euro 1,245 thousand at December
31, 2019) while a 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 704 thousand (a
negative change of euro 1,245 thousand to the Group’s equity at December 31, 2019).
The financial assets at fair value through the Income Statement constitute 34% of the total financial
assets subject to price risk (zero at December 31, 2019). A change of +5% in the price of the
aforesaid listed securities, all other conditions being equal, would result in a positive change to the
Group’s equity of euro 1,687 thousand, while a change of -5% in the price of the aforesaid listed
equities, all other conditions being equal, would result in a negative change of euro 1,687 thousand
to the Group’s equity.
392
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
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,
Pirelli has
financial
creditworthiness, to monitor expected collection flows and to take credit recovery action if and when
necessary. The aim of these procedures is to define customer credit limits, whereby in the event that
those limits are exceeded, the rule to withhold further supplies is activated. In some cases customers
are asked to provide guarantees, mainly bank guarantees issued by parties of the highest credit or
personal standing. Less frequently, mortgage guarantees may be requested.
the customer’s potential and
to evaluate
Other instruments used for commercial credit risk management is the taking out of insurance
policies. For over 8 years a master agreement has been in place, which was recently renewed for
the 2021-2022 two-year period, with a leading insurance company with AA credit rating according to
Standard & Poor’s ratings, for worldwide coverage for credit risk, mainly relative to sales on the
Replacement channel (the coverage ratio at December 31, 2020 was equal to 72%).
However, with regard to the financial counterparties for the management of its temporarily surplus
resources, 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 losses on trade receivables are calculated over the life of the receivables, starting from
the moment of initial recognition, using a matrix linked to the customer’s credit rating and to the
ageing of the receivables, which is adjusted to take forecasting factors into account which are
specific to some customers, as well as the presence of any collateral and other credit risk mitigation
instruments, such as the insurance coverage mentioned above. The calculation of expected losses
is based on (i) a matrix which includes the credit ratings of customers provided by independent
market assessors, and on (ii) the value of receivables, which takes the collateral and related
insurance coverage into account. Consequently, this calculation includes an updated evaluation of
the losses forecast due to the impact that COVID-19 has had on the specific markets in which the
counterparties operate, with its impact on the probability of default and on the ceilings granted by
the insurance company. The provision for bad debts at December 31, 2020 was calculated according
to the method described above, and is composed as follows:
(in thousands of euro)
Due
Past due 1-
30 days
Past due 31-
90 days
Past due 91 -
180 days
Past due 181 -
365 days
Past due > 1
year
Total
Expected loss rate
2.8%
3.4%
6.8%
10.2%
24.3%
90.1%
12.0%
Exposure net of credit enhancements
Bad debt provision
387,703
(10,866)
38,564
(1,326)
39,000
(2,658)
15,751
(1,614)
23,235
(5,639)
49,112
553,364
(44,243)
(66,345)
The exposure gross of credit risk mitigation instruments amounts to euro 754,771 thousand and the
difference with respect to the value of trade receivables of euro 664,014 thousand shown in note 14
is given by the credit notes to be issued not considered for the purposes of calculating the allowance
for doubtful accounts.
393
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
At December 31, 2020, the maximum exposure to credit risk calculated the allowance for doubtful
accounts calculated without considering the presence of collateral and other credit risk mitigation
instruments is euro 72,369 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 and on
the due dates.
The main instruments used by the Group to manage liquidity risk are comprised of one and three
year financial plans and treasury plans. These allow for the complete and correct detection and
measurement of cash inflows and outflows. The differences between the plans and final data are
constantly analysed.
The Group has implemented a centralised system for managing collection and payment flows, in
compliance with the various local currency and tax regulations. The negotiation and management of
banking relationships is carried out centrally, in order to ensure hedging for short and medium term
financial needs at the lowest possible cost. Even the procurement of medium/long-term resources
on the capital market is optimised through centralised management.
The prudent management of the aforesaid risk requires the maintenance of an adequate level of
cash or cash equivalents and/or easily liquidated short-term securities, the availability of funds
obtainable through an adequate amount of committed credit facilities and/or the possibility to resort
to the capital market, by diversifying products and maturities to seize the best opportunities available.
Furthermore, the Group has adopted an extremely prudent approach to the maturities of its financial
debt, refinancing them well in advance in order to minimise the risks associated with liquidity crises
or market shut-downs.
Thanks to this approach, at the outbreak of the COVID-19 pandemic, the Pirelli Group could count
on a liquidity margin (total liquidity and committed credit facilities available), which were sufficient
enough to cover three years of its financial debt maturities. This level of coverage was maintained
throughout all of 2020. This enabled the Group to not have to resort, for liquidity reasons, to financing
or guarantees which were granted to support the economy during the pandemic, by the countries in
which it operates.
At December 31, 2020 the Group had, in addition to cash and other financial assets at fair value
through the Income Statement to the amount of euro 2,334,420 thousand (euro 1,647,940 thousand
at December 31, 2019), unused credit facilities to the amount of euro 700,000 thousand (euro
700,000 thousand at December 31, 2019), maturing in the second quarter of 2022.
394
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
Maturities for financial liabilities at December 31, 2020 were composed as follows:
(in thousands of euro)
within 1 year
1 to 2 years
2 to 5 years
over 5 years
Total
Trade payables
Other payables
1,267,971
-
-
-
1,267,971
374,266
13,734
24,326
39,220
451,546
Derivative financial instruments
60,068
67,289
2,835
-
130,192
Borrowings from banks and other financial institutions
of which financial leasing liabilities
1,143,948
94,982
1,758,008
79,673
3,225,909
172,514
239,521
239,521
6,367,387
586,690
2,846,254
1,839,032
3,253,070
278,740
8,217,096
Maturities for financial liabilities at December 31, 2019 were composed 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
43,763
4,811
4,021
26,142
59,618
493,328
4,656
139
52,579
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
3,336,767
238,021
3,020,345
345,214
6,940,347
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 as 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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Consolidated Financial Statements
The following table shows assets and liabilities measured at fair value at December 31, 2020
subdivided 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
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:
Current derivative financial instruments
Non-current derivative financial instruments
TOTAL LIABILITIES
Note
Carrying
amount at
12/31/2020
Level 1
Level 2
Level 3
18
27
12
27
27
27
58,944
39,327
34,571
-
24,373
39,327
-
-
39,934
2,786
42,720
140,991
14,076
-
14,076
48,647
15,902
2,786
18,688
82,388
9,956
-
9,956
9,956
(58,741)
-
(58,741)
(372)
(372)
-
(87,601)
(146,714)
-
(87,601)
(372)
(146,342)
-
-
-
-
The following table shows assets and liabilities measured at fair value at December 31, 2019
subdivided 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
-
-
-
396
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
The following table shows changes in the financial assets classified as level 3 that occurred
during the course of 2020:
(in thousands of euro)
Opening balance 01/01/2020
Translation differences
Decreases
Fair value adjustments through Other Comprehensive Income
Other changes
Closing balance 12/31/2020
9,562
(25)
(91)
511
(1)
9,956
These financial assets are mainly represented by equity investments in the European Institute of
Oncology (euro 7,962 thousand) and Tlcom I LP (euro 185 thousand).
Fair value adjustments through other Comprehensive Income equalled a positive value of euro
511 thousand and mainly refers to the fair value adjustment of the investment in the European
Institute of Oncology.
During the course of 2020 there were no transfers from level 1 to level 2 or vice versa, nor from level
3 to other levels and vice versa.
The fair value of financial instruments traded on active markets is based on the price quotations
published at the reporting date. 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;
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 euros using the
exchange rate at the reporting date;
the fair value of natural rubber futures is determined by using the closing price of the contract at
the reporting date.
397
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
5.2
Categories of financial assets and liabilities
The table below shows the carrying amounts for each class of financial assets and liabilities as
identified by IFRS 9.
Note
Carrying
amount at
12/31/2020
Carrying
amount at
12/31/2019
18
27
15
14
15
19
12
27
27
27
23
25
23
24
25
23
23
27
27
58,944
39,327
98,271
38,119
26,962
65,081
402,148
597,669
469,194
2,275,476
342,397
649,394
451,858
1,609,821
3,744,487
3,053,470
42,720
58,967
-
-
-
10,186
52,515
62,701
3,885,478
3,240,219
58,741
41,427
4,580,537
77,280
808,163
1,267,971
374,266
3,544,461
90,571
1,341,606
1,611,488
402,757
7,108,217
6,990,883
390,449
75,404
465,853
87,601
372
87,973
405,375
77,797
483,172
10,327
-
10,327
7,720,784
7,525,809
(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 liabilities)
Other non-current payables
Current borrowings from banks and other financial institutions (excl. lease liabilities)
Current trade payables
Other current payables
Lease liabilities
Non-current lease liabilities
Current lease liabilities
Derivative financial hedging instruments
Non-current derivative financial instruments
Current derivative financial instruments
TOTAL FINANCIAL LIABILITIES
398
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
6.
CAPITAL MANAGEMENT POLICY
The Company’s objective is to maximise the return on net invested capital while maintaining the
capacity to operate over time, in order to ensure adequate returns for its shareholders and benefits
for other stakeholders and also providing for the gradual de-leveraging of the financial structure of
the Group, which is to be achieved over a short to medium-term period, as also reported in the
section on “Outlook for the next five years” in the Management Report on Operations.
The main indicator that the Group uses for capital management is the R.O.I.C., calculated as the
ratio between adjusted EBIT net of tax effect and 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 profit or loss”
and”, intangible assets related to assets recognized as a result of Business Combinations and
deferred tax liabilities related to the latter.
The R.O.I.C. for fiscal year 2020 was 10.4% which compares to 18.1% in fiscal year 2019. The
reduction compared to the previous year is mainly due to the decrease in Adjusted EBIT due to the
effects that the Covid-19 pandemic had on the sector in which the Group operates.
7.
ESTIMATES AND ASSUMPTIONS
The preparation of the consolidated Financial Statements entails the necessity of Management in
making estimates and assumptions which, under certain circumstances are based on difficult and
subjective evaluations and estimates based on historical experience, as well as assumptions that
are from time to time considered reasonable and realistic in light of the circumstances. It is possible
that the actual results achieved 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 amended for the period in which the change of
circumstances occurred. The estimates and assumptions refer mainly to assessments of the
recoverability of goodwill and other intangible assets with an indefinite useful life, to the definition of
the useful lives of 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
Pursuant to the accounting standards adopted for the preparation of the Financial Statements,
goodwill is tested annually in order to ascertain the existence of any impairment to be recorded in
the Income Statement. In particular, testing involves the allocation of goodwill to the cash generating
399
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
units (which for the Group coincide with the business sector that is Consumer Activities), and the
subsequent determination of the relative recoverable amount, being the greater amount between the
fair value and the value in use.
If the recoverable amount proves to be lower than the carrying amount of the cash generating units,
the goodwill allocated to them is impaired.
With reference to the impacts derived from the adoption of the accounting standard IFRS 16 -
Leases, the carrying amount of the cash generating units includes the value of the right of use of the
CGUs themselves. In determining the present value of future flows, any flows relative to the
repayment of lease liabilities are excluded, in that they represent flows deriving from financing
activities. Consequently, the value of lease liabilities 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, 2020, is that of the value in use, which corresponds to the present value of the future
financial flows which are expected to be associated with the group of CGUs, using a rate which
reflects the specific risks of the individual group of CGUs 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 the explicit forecast period,
for the purpose of estimating the terminal value and the weighted average cost of capital (discount
rate).
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
which 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, 2020 was performed using the assistance of an independent
third-party professional.
The configuration of the recoverable amount for impairment testing purposes at December 31, 2020,
was the fair value, calculated on the basis of the income approach (the so-called Level 3 of the the
IFRS 13 hierarchy – Fair Value Measurement).
The key assumptions used by Management were the estimates for future increases in sales, their
growth rate beyond the explicit forecast period for the purposes of estimating the terminal value, in
the royalty rate, and in the discount rate which is based on the weighted average cost of capital
increased by a premium determined on the basis of the riskiness of the specific asset.
400
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Pirelli & C. S.p.A. – 2020 Annual Report
Owned tangible assets
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 signal that difficulties are to
be expected for in recovery of their relative net carrying amount, through their use. Any verification
of the existence of the aforesaid impairment indicators requires that the Directors make subjective
judgements based on the information available from both internal and external sources, as well as
on historical experience. Also if it is determined that a potential impairment may have been
generated, the impairment is calculated using the 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.
Right of use and lease liabilities
As regards the estimates and assumptions used for the determination of lease liabilities and the right
of use, the application of IFRS 16 has introduced 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 as follows:
renewal clauses in contracts are considered for the purposes of determining the duration of the
contract, that is, 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 renewals that can be exercised unilaterally by
the Group, only the first extension period has been 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 evaluates the inclusion of the renewal option in the
determination of the duration of the contract. This assessment is also carried out considering the
degree of personalisation of the leased asset. If personalisation is high, the lessor could incur a
significant penalty if they oppose the renewal;
early termination clauses in contracts: these clauses 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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Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
the incremental borrowing rate is the risk-free rate of the country in which the contract is
negotiated and is based on the duration of the contract itself. It is then adjusted according to the
Group’s credit spread and the local credit spread.
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 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 probable fact that the tax authority will not
accept the tax treatment adopted and not to the probability of the assessment.
Pension funds
The companies of the Group have in place pension plans, health insurance plans and other defined
benefit plans for their employees, primarily in the United Kingdom and the United States. These
funds have been closed to new participants and therefore the actuarial risk refers only to past deficit.
Management, through the use of a leading consulting firm, uses different actuarial assumptions to
calculate the liabilities and assets servicing these pension plans. The actuarial assumptions of a
financial nature concern the discount rate, the rate of inflation and trends in medical costs. The
actuarial assumptions of a demographic nature are essentially concerned with mortality rates. The
Group has identified discount rates which it has deemed are balanced, given their context.
Provisions for liabilities and charges
In view of the legal and tax risks relative to indirect taxes, provisions for the risk of unfavourable
outcomes have been recorded. The value of provisions reported in the Financial Statements relative
to these risks, represent the best estimate to date made by Management for legal and tax issues
regarding a vast range of problematic issues that are subject to the jurisdiction of different countries.
This estimate entails the adoption of assumptions which depend on factors that may change over
402
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
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
capacity as Chief Operating Decision Maker (CODM);
for which separate income, equity and other financial data is available.
For the purposes of IFRS 8, the activities performed by Consumer Activities are identifiable in a
single operating sector.
With the aim of accelerating the implementation of the business model focused on High Value, the
Group adopted a new organisational model at regional level, composed of five Regions instead of
six.
In addition to APAC, North America and South America, two new macro Regions were renamed:
Europe and Turkey;
Russia, Nordics and MEAI.
The comparative data for 2019 have been restated to adapt them to the new repartitions by Regions.
Revenues from sales and services according to Regions were as follows:
(in thousands of euro)
Europe and Turkey
North America
APAC
South America
Russia, Nordics and MEAI
Total
2020
2019
1,757,359
870,511
865,988
458,617
349,656
4,302,131
2,116,885
1,101,890
961,939
681,995
460,345
5,323,054
403
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
Non-current assets by Region which are allocated on the basis of the country in which the assets
are located, are shown below:
(in thousands of euro )
12/31/2020
12/31/2019
Europe and Turkey
North America
APAC
South America
Russia, Nordics and MEAI
Non-current unallocated assets
Total
5,440,542
389,634
486,468
358,383
182,828
1,883,945
8,741,800
62.24%
4.46%
5.56%
4.10%
2.09%
21.55%
100.00%
5,697,779
468,610
523,549
510,318
242,740
1,886,988
9,329,984
61.08%
5.02%
5.61%
5.47%
2.60%
20.22%
100.00%
The non-current allocated assets reported in the preceding table consist of property, plant and
equipment and intangible assets, excluding goodwill. The non-current unallocated assets are
relative to goodwill.
9.
PROPERTY, PLANT AND EQUIPMENT
Their composition was as follows:
(in thousands of euro)
Total Net Value:
- Tangible assets
- Right of use
12/31/2020
3,159,767
2,725,755
434,012
12/31/2019
3,649,809
3,187,190
462,619
9.1
Owned tangible assets
The composition and changes were as follows:
(in thousands of euro)
12/31/2020
12/31/2019
Land
Buildings
Plants and machinery
Industrial and trade equipment
Other assets
Total
Gross Value Accumulated
Depreciation
Net Value Gross Value Accumulated
Depreciation
Net Value
147,406
787,489
2,458,722
500,443
-
147,406
189,417
-
189,417
(150,793)
(763,568)
(303,197)
636,696
1,695,154
197,246
859,506
2,613,755
510,899
(133,598)
(647,884)
(264,423)
725,908
1,965,871
246,476
111,179
(61,926)
49,253
114,520
(55,002)
59,518
4,005,239
(1,279,484)
2,725,755
4,288,097
(1,100,907)
3,187,190
404
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
NET VALUE
(in thousands of euro)
12/31/2019
Change in
consolidation
scope
Hyperinflation
Argentina
Translation
differ.
Increases Decreases Depreciation Devaluation Recl./Other
12/31/2020
Land
Buildings
Plants and machinery
Industrial and trade equipment
Other assets
Total
189,417
725,908
1,965,870
246,476
59,519
(666)
(3,624)
(503)
-
(35)
740
3,253
6,268
1,083
546
(20,540)
(68,647)
(155,297)
-
12,428
58,419
(1,560)
(1,125)
(2,247)
-
(33,069)
(176,389)
(27,099)
48,874
(1,395)
(69,237)
(4,895)
4,787
(100)
(10,683)
-
(33)
(7,074)
(1,974)
(57)
(19,985)
1,605
6,107
518
171
147,406
636,696
1,695,154
197,246
49,253
3,187,190
(4,828)
11,890
(276,478)
124,508
(6,427)
(289,378)
(9,138)
(11,584)
2,725,755
NET VALUE
(in thousands of euro)
12/31/2018
Hyperinflation
Argentina
Translation
differ.
Increases Decreases Depreciation Devaluation Recl./Other
12/31/2019
Land
Buildings
Plants 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
Hyperinflation 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
Hyperinflationary Economies. The effect was offset by negative translation differences of euro
17,194 thousand.
Increases totalling euro 124,508 thousand, were primarily aimed at High Value activities and to the
continuous improvement in the mix and quality in all manufacturing plants.
The ratio of investments to amortisations for 2020 was equal to 0.43 (1.27 for the year 2019).
Reclassification/other was mainly due to the reclassification of government concessions for land
in China, to the item “Concessions, licenses and brands - indefinite useful life” under intangible
assets - (Refer to Note 10).
Devaluation refers mainly to plants and equipment in the UK and Italy.
Property, plant and equipment in progress at December 31, 2020, included in the individual asset
categories, amounted to euro 138,012 thousand (euro 217,620 thousand at December 31, 2019).
It should be noted that the companies of the Group did not pledge any property, plant and equipment
as collateral.
The crisis induced by the COVID-19 pandemic and the New Guidance published by the company
on April 3, 2020, which revised the Group’s targets for the year 2020 compared to those published
on February 19, 2020, on the occasion of the presentation of the 2020-2022 Strategic Plan, represent
indicators of possible impairment of the Group’s Cash Generating Units. An impairment test was
therefore carried out using available updated post-COVID-19 information, consistent with the
assumptions made for the purposes of goodwill impairment testing. (Refer to subsequent
Note 10 - “Intangible assets”).
405
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
On the basis of the analysis carried out, no impairment loss emerged.
9.2
Right of use
The value of the assets for which the Group has entered into a lease agreement, was composed as
follows:
(in thousands of euro)
Right of use land
Right of use buildings
Right of use plants and machinery
Right of use other assets
Total net right of use
12/31/2020
12/31/2019
13,730
336,740
26,012
57,530
434,012
15,323
355,939
30,689
60,668
462,619
Right of use buildings mainly refers to contracts relative to offices, warehouses and points of sale.
Right of use other assets mainly refers to contracts relative 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 right of use during the 2020 financial year amounted to euro 68,532 thousand (euro
51,235 thousand for 2019), for new lease contracts signed mainly in Europe and North America.
There were no reassessments or amendments to any significant contracts during the course of 2020.
The depreciation of the right of use recognised in the Income Statement and included under the
item “Depreciation and impairments” - (Note 32), was composed as follows:
(in thousands of euro)
Land
Buildings
Plants and machinery
Other assets
Total depreciation of right of use
2020
2019
1,121
60,505
7,644
19,356
88,626
1,130
60,613
7,789
19,947
89,479
For interest on lease liabilities, reference should be made to Note 37 - “Financial expenses”.
Information on the costs of lease contracts with a duration of less than twelve months, lease contracts
for assets with a low unit value and lease contracts with variable lease payments, is included in Note
33 - “Other costs”.
406
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
With regard to the considerations for impairment, reference should be made to the details provided
in Note 9.1.
10.
INTANGIBLE ASSETS
Composition and changes were as follows:
(in thousands of euro)
12/31/2019
Translation
differences
Increase
Decrease
Amortisation
Riclass./Other
12/31/2020
Concessions / licenses / trademarks - finite life
Pirelli Brand - indefinite life
Goodwill
Customer relationships
Technology
Software applications
Patents and design patent rights
Other intangible assets
Total
59,834
2,270,000
1,886,988
308,585
1,122,317
18,971
4,490
8,990
5,680,175
(1,608)
-
(2,765)
(168)
-
(394)
-
(448)
(5,383)
430
-
-
-
-
11,172
3,925
-
15,527
(6)
-
(278)
-
-
(3)
-
-
(287)
(5,061)
-
-
(34,547)
(76,850)
(10,219)
(726)
(646)
(128,049)
20,105
-
-
-
-
6,654
-
(6,709)
20,050
73,694
2,270,000
1,883,945
273,870
1,045,467
26,181
7,689
1,187
5,582,033
(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
Intangible assets were composed as follows:
the Pirelli Brand valued at euro 2,270,000 thousand (indefinite useful life). 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) valued at euro 49,133 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 980,467 thousand and euro 65,000 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. Projected sales in the 2021-2025 Strategic
Plan, which are the primary input for determining the Technology’s recoverable amount, are
407
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
higher than those used for impairment testing purposes as of June 30, 2020, therefore there are
no signs of impairment with respect to June 30, 2020;
goodwill to the amount of euro 1,883,945 thousand, of which euro 1,877,363 thousand was
recognised at the time of the acquisition of the Group in September 2015. The residual portion
refers to the goodwill 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 an impairment.
For the purposes of such impairment testing, goodwill is allocated to the cash generating units
(CGUs) or group of CGUs, in compliance with the maximum aggregation limit which cannot exceed
that of the business sector identified pursuant to IFRS 8. Goodwill, amounting to euro 1,883,945
thousand, was allocated to the group of “Consumer Activities” CGUs, which represent the only sector
of activity in which the Group operates and 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 value 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 the costs of disposal (equivalent value net of sales
costs).
The value configuration used to determine the recoverable amount of Consumer Assets at
December 31, 2020 is value in use, which corresponds to the present value of the future cash flows
expected to be generated by the group of CGUs, using a rate that reflects the risks specific to the
group of CGUs at the measurement date. The forecasts move from the 2021-2025 plan approved
by the parent company’s Board of Directors, prudently adjusted downwards to take account of
analysts’ consensus estimates as external evidence in accordance with IAS 33 letter (a), and also
sterilizing cash flows relating to expansion investments and restructuring charges and related
benefits to which the Company was not committed at the balance sheet date, in accordance with
IAS 36.44.
The average cumulative annual growth rate (CAGR) of revenues for the explicit forecast period used
for the calculation of the recoverable amount, which was calculated with respect to revenues
recorded for 2020, equalled 6.67%, while the average EBITDA margin for the period used for the
calculation of the recoverable amount, equalled 24.3% with an EBITDA CAGR of 10.4% compared
to the absolute value recorded for 2020.
408
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
The impairment test at December 31, 2020 was performed using the assistance of an independent
third-party professional.
The discount rates, defined as the weighted average cost of capital (WACC) net of taxes, which were
applied to the prospective cash flows equalled 6.75%, while the growth factor of operating cash
flows, for the purpose of estimating the terminal value (g) equalled zero. The capitalisation rate of
operating cash flows (WACC - g) therefore equalled 6.75%.
Based on the results of the tests carried out, no impairment emerged.
The recoverable amount is greater than the carrying amount for Consumer Activities (21%), while,
in order for the value in use to be equal to the carrying amount, a downward change in the key
parameters is necessary, in particular:
an increase in the discount rate of 145 basis points;
an annual growth rate beyond the explicit forecast “g” period negative by -198 basis points;
a decrease in the EBITDA margin adjusted of 288 basis points.
Impairment testing of the Pirelli Brand (intangible asset with an indefinite useful life)
The Pirelli Brand, valued at euro 2,270,000 thousand is an intangible 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, 2020 was performed using the assistance of an independent
third-party professional.
The configuration of the recoverable amount for impairment testing purposes at December 31, 2020,
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) which is based on:
-
the same revenue streams used for the purpose of impairment testing of goodwill i.e.
revenues lower than those in the plan, in order to take account of analysts’ consensus
estimates as external evidence; for the purposes of determining the recoverable value of
the brand, given that the value configuration is fair value, the benefits deriving from
expansion investments were not sterilized;
- a sum-of-parts valuation criterion 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;
409
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
-
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 relative to the main brands of the listed companies of the Tyre
sector and equalled an average royalty rate of 4.62%. With reference to the contribution
in terms of royalties from the Prometeon Tyre Group, the royalty rates stipulated in
existing contracts were used;
- a discount rate of 8.34% which included a premium, compared to the 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 from which the market
participant who acquires the asset separately could in abstract terms benefit, due to the
possibility of amortising 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 emerged.
The recoverable amount is greater than the carrying amount of the Brand (19.5%) while, in order for
the fair value to be equal to the carrying amount, a downward change in the key parameters is
necessary, in particular:
a reduction in royalty rates for the Consumer valuation units by 77 basis points and the
simultaneous zeroing of the balance for royalties from the license agreement with the Prometeon
Tyre Group;
an increase in the discount rate of 144 basis points;
a g growth rate negative by -265 basis points.
11.
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
Changes in investments in associates and joint ventures were as follows:
(in thousands of euro)
12/31/2020
12/31/2019
Opening balance
Increases
Distribution of dividends
Share of net income / (loss)
Share of other components recognised in Equity
Use of provision for future risks and expenses
Other
Closing balance
Associates
JV
Total
Associates
JV
Total
8,703
-
(192)
228
-
-
(344)
8,395
72,143
80,846
-
-
(5,857)
(2,093)
-
-
64,193
-
(192)
(5,629)
(2,093)
-
(344)
72,588
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
410
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
11.1
Investments in associates
The item was composed as follows:
(in thousands of euro)
12/31/2019
Eurostazioni S.p.A.
Joint Stock Company Kirov Tyre Plant
Investments in other associates
Total
6,395
1,417
891
8,703
Distribution of
dividends
-
-
(192)
(192)
Share of net
income / (loss)
-
42
186
228
Other
12/31/2020
-
(338)
(6)
(344)
6,395
1,121
879
8,395
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)
12/31/2019
PT Evoluzione Tyres
Xushen Tyre (Shanghai) Co., Ltd
Total
15,015
57,128
72,143
Share of net
income / (loss)
(1,299)
(4,558)
(5,857)
Share of other components
recognised in Equity
(1,613)
(480)
(2,093)
12/31/2020
12,103
52,090
64,193
The Group holds:
-
-
an investment of 63.04% 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 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 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. As announced on August 1st, 2018 the JV agreement provides for a purchase option
in favour of Pirelli Tyre S.p.A., exercisable from January 1, 2021 to December 31, 2025, which
– if exercised – would would enable the same to increase its holding in the said company up
to 70%. During 2020, Pirelli Tyre S.p.A. represented to the associates in Xushen Tyre
(Shanghai) Co., Ltd. its intention not to exercise the option until December 31, 2022.
411
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
The share of net income/(loss) amounted to euro 5,857 thousand, and refers to the pro-rata share
of the loss of euro 4,558 thousand attributable to the joint venture Xushen Tyre (Shanghai) Co., Ltd.,
and of euro 1,299 thousand attributable to the joint venture PT Evoluzione Tyres.
It should be noted that, with regard to both investments, it was considered that the negative result,
deriving from the company which owns the production plant, together with the fact that the company
operates in a market affected by the crisis induced by the COVID-19 pandemic, represented
impairment indicators and therefore the investments were subjected to an impairment test. The
recoverable amount of the investments resulted as higher than the carrying amount of the same and
therefore no impairment was recorded.
Investments in joint ventures were not significant in terms of their impact on the total consolidated
assets.
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 42,720 thousand at December 31, 2020 (euro 58,967 thousand at December 31, 2019) and
were as follows:
(in thousands of euro)
Opening balance at 01/01/2020
Translation differences
Decreases
Fair Value adjustment through other comprehensive income
Closing balance 12/31/2020
58,967
(27)
(91)
(16,129)
42,720
The composition of the item according to the individual securities is as follows:
(in thousands of euro)
Listed securities
RCS Mediagroup S.p.A.
Unlisted securities
Fin. Priv. S.r.l.
Fondo Anastasia
Istituto Europeo di Oncologia S.r.l.
Euroqube
Tlcom I LP
Other companies
12/31/2020
12/31/2019
Total
Total
14,076
14,076
15,902
2,786
7,962
10
185
1,799
28,644
24,892
24,892
20,565
3,947
7,465
10
195
1,893
34,075
Total other financial assets at Fair Value through
Other Comprehensive Income
42,720 58,967
412
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
The fair value adjustment through other Comprehensive Income amounted to a net loss of euro
16,129 thousand and mainly refers to the RCS MediaGroup S.p.A. (negative at euro 10,816
thousand), to Fin. Priv. S.r.l. (negative at euro 4,663 thousand) and to Fondo Comune di
investimento Anastasia (Anastasia Real Estate Investment Fund), (negative at euro 1,161
thousand), which was offset by the European Oncological Institute (positive at euro 497 thousand).
For listed securities, their fair value corresponded to the stock market price at December 31, 2020.
The fair value of unlisted securities was determined by using estimates based on the best available
information.
13.
DEFERRED TAX ASSETS AND LIABILITIES
Their composition is as follows:
(in thousands of euro)
Deferred tax assets
Deferred tax liabilities
Total
12/31/2020
109,378
(1,006,799)
(897,421)
12/31/2019
81,188
(1,058,760)
(977,572)
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 item deferred tax liabilities mainly refers to the difference between the tax value and the
carrying amount of the of the assets identified during the course of 2016, 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 year, 2016. Changes for the year also include the release, for an amount of euro 13,708
thousand, of deferred liabilities relative to the Metzeler trademark, as a result of the tax reassessment
of the same, pursuant to Legislative Decree No. 104/2020.
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 beyond 12 months
Deferred tax liabilities
- of which within 12 months
- of which beyond 12 months
Total
12/31/2020
355,547
180,958
174,589
(1,252,968)
(12,134)
(1,240,834)
(897,421)
12/31/2019
351,373
159,911
191,462
(1,328,945)
(5,935)
(1,323,010)
(977,572)
413
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
The composition of deferred taxes relative to temporary differences and tax losses carried forward,
is shown in the following table:
(in thousands of euro)
Deferred tax assets
Provisions for liabilities and charges
Property, plant and equipment
Leases
Provision for employee benefit obligations
Inventories
Tax losses carried forward
Trade receivables and other receivables
Trade payables and other payables
Other
Total
Deferred tax liabilities
Intangible assets
Property, plant and equipment
Leases
Other
Total
12/31/2020
12/31/2019
50,369
5,189
-
55,672
48,670
50,094
30,894
5,047
109,612
355,547
(1,006,521)
(155,339)
(7,733)
(83,375)
(1,252,968)
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)
The item other relative to deferred tax assets mainly includes deferred tax assets recorded on non-
deducted surplus interest payables (euro 6,793 thousand) and on the ACE (Allowance for Corporate
Equity) benefit (euro 66,306 thousand).
The item other, relative to the deferred tax liabilities, mainly includes deferred tax liabilities
recorded on the undistributed gains of subsidiaries, for which distribution of the same in future
financial years is probable (euro 48,887 thousand).
At December 31, 2020 the value of deferred tax assets not recognised on tax losses equalled euro
89,796 thousand, while those relative to temporary differences equalled euro 31,756 thousand. The
latter item mainly includes deferred tax assets not recognised on interest payables. Deferred tax
assets were not reported, in that no taxable income is expected to justify their recovery.
414
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
The value of tax losses according to their maturity date, against which deferred tax assets are not
recognised, are as follows:
(in thousands of euro)
Year of maturity
12/31/2020
12/31/2019
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
-
2,663
2,211
5,135
1,280
1,818
5,117
3,648
424
764
1,713
2,663
2,211
5,136
1,280
1,818
5,122
3,648
424
764
Without maturity date
Total
316,904
339,964
282,512
307,291
Of the total tax losses with no maturity date, euro 188,997 thousand refers to losses attributable to
the subsidiaries in the UK, Spain, Brazil and Chile, and euro 108,970 thousand to Pirelli & C. S.p.A.
deriving from the company Marco Polo Industrial Holding S.p.A., incorporated in 2016.
The tax effect of gains and losses recognised directly in equity, was negative to the amount of euro
5,672 thousand (positive to the amount of euro 1,171 thousand for 2019) and is disclosed 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 cash flow hedge
derivatives.
14.
TRADE RECEIVABLES
Trade receivables were analysed as follows:
(in thousands of euro)
Trade receivables
Provision for bad debts
Total
Total
664,014
(66,345)
597,669
12/31/2020
Non-current Current
-
-
-
664,014
(66,345)
597,669
Total
715,361
(65,967)
649,394
12/31/2019
Non-current Current
-
-
-
715,361
(65,967)
649,394
The gross value of trade receivables amounted to euro 664,014 thousand (euro 715,361 thousand
at December 31, 2019).
415
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
At the reporting date, overdue receivables, gross of credit notes to be issued and net of credit risk
mitigation instruments, amount to euro 165,662 thousand.
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.
Impaired 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. The calculation of impairment is based on (i) a matrix which includes the credit
ratings of customers provided by independent market assessors and on (ii) the value of receivables,
which takes the collateral and related insurance coverage into account. Consequently, this
calculation includes an updated evaluation of the losses forecast due to the impact that COVID-19
has had on the specific markets in which the counterparties operate, with its impact on the probability
of default and on the ceilings granted by the insurance company.
Changes in the provision for bad debts were as follows:
(in thousands of euro)
Opening balance
Translation differences
Accruals
Decreases
Releases
Other
Closing balance
12/31/2020
12/31/2019
65,967
(9,636)
22,358
(6,788)
(5,515)
(41)
66,345
57,122
612
30,251
(14,433)
(8,016)
431
65,967
Accruals to the provision for bad debts have been recognised net of releases, in the Income
Statement under “Impairment of net financial assets” - (Note 34).
The carrying amount for trade receivables is considered to approximate their fair value.
For fully impaired trade receivables which were the subject of legal action, it is estimated that an
amount not exceeding 10% of their gross value could be recovered.
416
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
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
Bad debt provision for other receivables and financial receivables
Total
12/31/2020
Total Non-current
273,198
11,174
1,094
-
93,917
30,018
409,401
(7,253)
402,148
377,024
36,485
5,038
1,402
328,654
131,986
880,589
(9,247)
871,342
Current
103,826
25,311
3,944
1,402
234,737
101,968
471,188
(1,994)
469,194
12/31/2019
Total Non-current
140,324
15,803
899
-
150,513
39,186
346,725
(4,328)
342,397
180,150
46,399
7,513
2,136
458,921
108,080
803,199
(8,944)
794,255
Current
39,826
30,596
6,614
2,136
308,408
68,894
456,474
(4,616)
451,858
Non-current financial receivables (euro 273,198 thousand) refer mainly to, euro 54,878 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 185,052 thousand in sums deposited into
escrow accounts in favour of the pension funds of Pirelli UK Ltd. and Pirelli UK Tyres Ltd. to euro
14,464 thousand in contributions paid in cash at the time of signing an association in participation
contract, to euro 5,826 thousand in loans disbursed in favour of the Indonesian joint venture PT
Evoluzione Tyres.
The increase in escrow accounts was the main reason for the increase in financial receivables.
Starting from February 2020, the Group has in fact assessed that it is financially more convenient to
not renew the insurance guarantees previously issued to guarantee its obligations towards the
pension funds of Pirelli UK Ltd., which have therefore been replaced by escrow account deposits.
Depending on market conditions prevailing from time to time, Pirelli will decide whether to restore
the insurance guarantees.
Current financial receivables (euro 103,826 thousand) refer mainly to, euro 88,769 thousand for
the short-term portion of loans disbursed to the joint venture Jining Shenzhou Tyre Co., Ltd., for
which there was no significant increase in credit risk since the date of disbursement.
The provision for bad debts (euro 9,247 thousand) mainly includes euro 8,505 thousand relative
to the impairment of financial receivables.
Receivables from tax authorities not related to income taxes (euro 328.654 thousand compared
to euro 458,921 thousand for 2019) are mainly comprised of receivables for IVA (value added tax)
and other indirect taxes, the recoverability of which is expected in subsequent years. This decrease,
compared to December 31, 2019, mainly refers to the exchange rate impact (negative to the amount
of euro 117,901 thousand), mainly for the Brazilian subsidiaries whose currency depreciated during
the course of the year, as well as the off-set of the same to the amount of euro 30,039 thousand.
Other non-current receivables (euro 30,018 thousand) mainly refer to amounts deposited as
guarantees for legal and tax disputes involving the Brazilian business units (euro 27,057 thousand)
and receivables pledged as collateral to the amount of euro 1,297 thousand in Pirelli’s favour, which
may be exercised in the event of contingent liabilities arising in relation to the acquisition of the
417
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
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 101,968 thousand) mainly includes:
- advances to suppliers amounting to euro 43,976 thousand;
-
-
-
-
receivables for the disposal of property owned, but not used for industrial activities in Brazil
amounting to euro 1,568 thousand;
receivables from associated companies and joint ventures to the amount of euro 12,548
thousand, mainly for royalties and the sale of materials and moulds;
receivables from the Prometeon Group to the amount of euro 7,405 thousand;
receivables amounting to euro 9,800 thousand from an insurance company for an indemnity
not yet paid;
- a receivable for the disposal of the investment in the Joint Stock company “Scientific institute
of medical polymers” to the amount of euro 4,301 thousand, collected during the early days
of 2021.
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 33.914 thousand
(of which euro 4,761 thousand was non-current) compared to euro 50.634 thousand at December
31, 2019 (of which euro 9,140 thousand was non-current). In more detail, it mainly refers to
receivables for advance payments on taxes for the financial year and to income tax receivables from
previous financial years recorded by the Brazilian companies.
17.
INVENTORIES
The following is an inventories analysis:
(in thousands of euro)
12/31/2020
12/31/2019
Raw and auxiliary materials and consumables
Sundry materials
Work in progress and semi-finished products
Finished products
Advances to suppliers
Total
108,306
6,638
51,534
669,433
526
836,437
121,048
7,915
58,183
905,713
895
1,093,754
418
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
The restatement of the value of inventories, which was recognised net of impairments, amounted to
euro 14,044 thousand (restatement of euro 7,502 thousand for 2019).
The reduction in value compared to December 31, 2019 is mainly due to the sharp reduction in
inventories (approximately 3 million pieces of finished Car and Motorcycle products during the
second and third quarters of 2020).
Inventories were not subject to any guarantee pledges.
18.
OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH THE INCOME STATEMENT -
CURRENT
Other financial assets at fair value through the current Income Statement amounted to
euro 58,944 thousand at December 31, 2020, compared to euro 38,119 thousand at December 31,
2019. The fair value of unlisted securities was determined by using estimates based on the best
available information. This increase compared to December 31, 2019 was mainly due to investments
made by the Argentinian subsidiary in dollar-linked bonds, with the aim of mitigating the effects of
the depreciation of the local currency. Changes in the fair value for the period were recognised in
the Income Statement as “Financial expenses” - (Note 37).
19.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents went from euro 1,609,821 thousand at December 31, 2019 to euro
2,275,476 thousand at December 31, 2020. These were concentrated in the finance companies of
the Group and in companies that generate liquidity and use it locally. These were essentially invested
in accordance with risk diversification principles and in compliance with minimum rating levels, on
the short-term deposits market with banking counterparties, at interest rates consistent with the
prevailing market conditions. The credit risk associated with cash and cash equivalents is to be
considered as limited, as the counterparties are leading national and international banks.
For the Statement of Cash Flows, the balance of cash and cash equivalents was recorded net of
passive current accounts, to the amount of euro 5,793 thousand at December 31, 2020 (euro 9,194
thousand at December 31, 2019).
20.
EQUITY
20.1 Attributable to the Parent Company
Equity attributable to the Parent Company went from euro 4,724,449 thousand at December 31,
2019 to euro 4,447,418 thousand at December 31, 2020.
419
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
The subscribed and paid up share capital at December 31, 2020 amounted to euro 1,904,375
thousand and was represented by 1,000,000,000 registered ordinary shares without indication of
their nominal value.
The translation reserve, generated by the conversion into euro of the financial statements of
subsidiaries that use a functional currency other than the euro, was negative to the amount of
679,737 thousand at December 31, 2020. Changes for the financial year mainly included a negative
change of euro 365,326 thousand, mainly attributable to the subsidiaries in Brazil, Mexico and
Argentina, associates and joint ventures, and a negative change of euro 606 thousand relative to
the reversal to the Income Statement of the translation reserve accumulated up until the date of
disposal of the Joint Stock company “Scientific institute of medical polymers”.
IAS reserves went from a negative value of euro 89,424 thousand at December 31, 2019 to a
negative value of euro 89,893 thousand at December 31, 2020 mainly due to a combined effect of
actuarial gains on pension funds (positive to the amount of euro 18,946 thousand), offset by losses
on financial assets at fair value through other Comprehensive Income (negative to the amount of
euro 16,129 thousand). The reserves in total mainly include the reserve for the remeasurement of
employee benefits which was negative to the amount of euro 25,104 thousand, the cash flow hedge
reserve negative to the amount of euro 26,228 thousand and the reserve for adjusting the fair value
of financial assets at fair value through other Comprehensive Income, which was negative to the
amount of euro 16,357 thousand.
Other reserves/retained earnings went from euro 3,223,303 thousand at December 31, 2019, to
euro 3,312,673 thousand at December 31, 2020, essentially due to the net income for the financial
year (positive to the amount of euro 29,781 thousand), due to hyperinflation in Argentina (positive to
the amount of euro 20,041 thousand, offset by a negative translation reserve of euro 30,559
thousand) and due to a new reserve created to accommodate the equity component recognised in
respect of the convertible bond issue (positive to the amount of euro 41,200 thousand).
20.2 Attributable to non-controlling interests
Equity attributable to non-controlling Interests went from euro 102,182 thousand at December
31, 2019 to euro 104,432 thousand at December 31, 2020. The change was mainly due to the
positive result for the year of euro 12,892 thousand, offset by exchange rate losses of
euro 10,645 thousand.
420
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
21.
PROVISIONS FOR LIABILITIES AND CHARGES
Changes in the non-current portion of provisions that occurred during the period are shown
below:
PROVISION FOR LIABILITIES AND CHARGES - NON-
CURRENT PORTION (in thousands of euro)
12/31/2019
Translation
differences
Increases
Uses
Releases
Reclass.
Other
12/31/2020
Provision for 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
13,520
6,019
2,575
26,181
72,174
120,469
(4,226)
(1,409)
-
(3,471)
(282)
(9,388)
6,952
458
1,180
2,983
7,991
19,564
(1,107)
-
(114)
(2,494)
(36,236)
(39,951)
(459)
(109)
-
(1,232)
-
(1,800)
-
-
-
(13,582)
(2,100)
(15,682)
17
28
-
-
-
45
14,697
4,987
3,641
8,385
41,547
73,257
Increases refer mainly to provisions for labour disputes mainly for the Brazilian subsidiaries to the
amount of euro 6,880 thousand and to rationalisation measures in Italy to the amount of euro 2,983
thousand.
Uses were mainly attributable to the completion of the antitrust investigation described below, to
rationalisation measures in Italy to the amount of euro 2,494 thousand, and to litigation regarding
occupational diseases.
On October 28, 2020, the European Court of Justice confirmed in the last instance, the legitimacy of
the decision issued on April 2, 2014 by the European Commission, at the conclusion of the antitrust
investigation launched in relation to the alleged conduct of restricting competition in the European
high voltage electric cables market. The decision had provided for a sanction against Prysmian Cavi
e Sistemi S.r.l. (“Prysmian”) as it was directly involved in the cartel, a part of which (euro 67 million)
Pirelli, despite not having been found directly involved in the activities of the cartel, had been held
as 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 infringement, the share capital of Prysmian S.p.A. was
held, either directly or indirectly by Pirelli. In this regard, Pirelli had provided, in the Commission’s
favour (and at the latter’s request), a bank guarantee of euro 33.6 million (corresponding to 50% of
the aforementioned sanction imposed jointly and severally on Pirelli and Prysmian), in addition to
interest, and had consequently made appropriate provisions.
On December 31, 2020, Pirelli paid their portion of the above mentioned sanction to the European
Commission.
Reclassifications refer mainly to the reclassification of provisions from current to non-current,
relative to provisions for rationalisation measures for Brazilian subsidies. Under “other risks”, of note
were the reclassifications of the provision for commercial risks of the subsidiary Pirelli Tyre S.p.A.,
from current to non-current.
421
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
Changes in the current portion of provisions that occurred during the period are shown below:
PROVISION FOR LIABILITIES AND CHARGES -
CURRENT PORTION (in thousands of euro)
12/31/2019
Translation
differences
Increases
Uses
Releases
Reclass.
Other
12/31/2020
Provision for 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
312
2,039
2,665
13,591
10,226
14,695
43,528
(40)
(519)
-
(4,445)
(783)
(313)
(6,100)
81
5,783
500
-
950
5,794
13,108
(120)
-
-
(4,583)
(388)
(6,710)
(11,801)
(155)
-
-
(137)
(2,178)
(1,600)
(4,070)
-
-
-
11,492
-
2,100
13,592
-
-
-
-
-
(174)
(174)
78
7,303
3,165
15,918
7,827
13,792
48,083
Increases were mainly attributable to tax risks for indirect taxes, to the provisions for insurance risks
and work place accidents, the latter relative to the English subsidiary.
Uses of the provision for other risks essentially refers to insurance risks and commercial risks of the
subsidiary Pirelli Tyre S.p.A..
Releases relative to other risks mostly refer to adjustments to the provisions for work place accidents
and insurance risks.
Reclassifications refer mainly to the provision for commercial risks for the subsidiary Pirelli Tyres
S.p.A. from current to non-current.
22.
EMPLOYEE BENEFIT OBLIGATIONS AND OTHER ASSETS
Pension funds – non-current portion
The item is composed as follows:
(in thousands of euro)
12/31/2020
12/31/2019
Pension funds:
- Asset for funded pension fund
Total other assets
Pension funds:
- Liability for funded pension fund
- Liability for unfunded pension fund
Employee leaving indemnities (TFR - Italian companies)
Healthcare plans
Other benefits
Total provisions for employee benefit obligations
80,422
80,422
65,028
83,630
31,486
16,026
47,761
243,931
57,829
57,829
84,064
89,690
32,680
17,825
36,573
260,832
422
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
Pension funds
The following table shows the composition of pension funds at December 31, 2020.
(in thousands of euro)
Germany
Sweden
Total unfunded
pension funds
12/31/2020
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
107,059
1,215,473
34,384
(92,526) (1,251,882)
(27,902)
1,356,916
(1,372,310)
80,454
80,454
3,176
3,176
83,630
83,630
14,533
(36,409)
6,482
(15,394)
The following table shows the composition of pension funds at December 31, 2019.
(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
86,477
86,477
3,213
3,213
Germany
Sweden
Total unfunded
pension funds
USA
UK
Other
countries
Total funded
pension funds
12/31/2019
124,619
1,181,736
32,957
(102,720) (1,183,006)
(27,351)
1,339,312
(1,313,077)
89,690
89,690
21,899
(1,270)
5,606
26,235
The characteristics of the main pension funds in place at December 31, 2020 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 which was administered by a Trust.
This fund guaranteed a pension in addition to the state pension. 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). For the
first two abovementioned funds, it is expected that the buy-out (insurance outsourcing) will be
423
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
finalised by the first months of 2021, followed by the relative wind-up (closure) of the funds
themselves.
Sweden: a defined benefits plan (ITP2), which is closed to new participants. The only participants
are retired employees and the recipients of deferred pensions, based on percentages applied to
different wage and salary ranges.
Changes in the net liabilities of defined benefits for the 2020 financial year (for both funded
and non-funded pension funds) were as follows:
(in thousands of euro)
Opening balance at January 1, 2020
Translation difference
Movements through income statement:
- current service cost
- cost of services rendered for previous years
- interest expense / (income)
Remeasurements recognised 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, 2020
Present value
of gross
liabilities
Fair value of
plan assets
Total net
liabilities
1,429,002
(74,152)
(1,313,077)
73,292
1,783
11,403
27,508
40,694
(3,297)
130,989
(8,051)
-
119,641
-
532
(74,118)
(1,053)
1,440,546
-
-
(26,533)
(26,533)
-
-
-
(138,788)
(138,788)
(37,702)
(532)
68,496
2,534
(1,372,310)
115,925
(860)
1,783
11,403
975
14,161
(3,297)
130,989
(8,051)
(138,788)
(19,147)
(37,702)
-
(5,622)
1,481
68,236
424
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
Changes in the net liabilities of defined benefits for the 2019 financial year (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
The current service cost and cost of services rendered for previous years are included in the item
“Personnel expenses” - (Note 31), while interest payables are included in the item “Financial
expenses” - (Note 37).
The cost of services rendered for previous years refers mainly to the adjustment of the value of some
pension funds in the UK for inflation revaluations and gender imbalances as part of the completion
of the buy-out operation which will be finalised in early 2021.
The following table shows the composition of funded pension fund assets:
(in thousand of euro)
12/31/2020
12/31/2019
Shares
Bonds
Insurance policies
Deposits
Balanced funds
Real Estate
Derivatives
Other
Total
listed
57,638
40,240
2,835
94,300
unlisted
315,104
94,284
91,330
8,950
(349) 233,147
5,112 47,843
385,012
(16,490)
-
13,354
774,168
598,142
total
372,742
134,524
94,165
103,250
232,798
52,955
368,522
13,354
1,372,310
listed
%
55,412
27.1%
80,590
9.8%
83,838
6.9%
7.5% 307,900
unlisted
314,342
79,834
-
8,213
17.0% (2,546) 237,017
3.9% 3,867 57,447
68,385
-
765,238
26.8% -
18,778
1.0%
100% 547,839
total
369,754
160,424
83,838
316,113
234,471
61,314
68,385
18,778
1,313,077
%
28.2%
12.2%
6.4%
24.1%
17.9%
4.7%
5.2%
1.3%
100%
The main risks to which the Group is exposed in relation to pension funds are detailed as follows:
volatility of pension fund assets: in order to be able to balance liabilities, an investment strategy
cannot limit its horizons exclusively to risk-free assets. This implies that certain investments,
425
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
such as listed securities, represent high volatility for the short-term and that this exposes the
pension 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 has 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, through longevity swaps stipulated with a pool of insurance companies, to cover
approximately 50% of the risks. Residual risks are evaluated by using prudent assumptions
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 given by the Trustees, to a Fiduciary Manager who operates in accordance
with a model of Liability Driven Investment (LDI), namely using the liability benchmark as a reference,
so as to minimise the volatility (and thus the risk) of the deficit, which in fact has been reduced to
more than one third compared to the levels which existed prior to its introduction (at the beginning
of 2011). In addition, for the 3 smaller funds, the buy-in operation implemented in 2017 and the
consequent stipulation of policies on a collective basis (one for each of the three pension funds of
the buy-in), 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 managed dynamically over time, rather than a fixed allocation strategy;
a hedge which covers approximately 100% - 115% of the risk associated with interest rates and
inflation – understood as a percentage of 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 resulting impact
426
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
on the Group’s covenant, an agreement (the Pension Framework Agreement), was entered into as
part of the refinancing process with the UK pension funds, through which, through the
implementation of a package of measures (Credit Support Guarantees entered into with a pool of
insurance companies, comprising of limited deposits into escrow accounts and the definition of an
accelerated contributions plan, limited to the period of extraordinary leverage), 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. was guaranteed, in order to be able to continue with 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 2023. 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 2021
financial year amount to euro 5,384 thousand, while for funded pension funds the amount expected
is euro 40,582 thousand.
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 recognised in equity:
- actuarial (gains) / losses arising from changes in financial assumptions
Indemnities/advanced payments
Other
Closing balance
12/31/2020
12/31/2019
32,680
32,175
41 22
240 498
292 1,443
(1,273) (1,364)
(494) (94)
32,680
31,486
The current service cost is included in the item “Personnel expenses” - (Note 31) while interest
payables are included in the item “Financial expenses” - (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 12/31/2020
Liabilities recognised in the Financial Statements at 12/31/2019
USA
16,026
17,825
427
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
The following changes occurred during the period:
(in thousands of euro)
12/31/2020
12/31/2019
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
17,825
(1,485)
2
505
1,061
(467)
(307)
(1,109)
16,026
17,126
328
2
682
1,834
(329)
(775)
(1,043)
17,825
The current service cost is included in the item “Personnel expenses” - (Note 31), while interest
payables are included in the item “Financial expenses” - (Note 37).
Contributions which are expected to be paid into the healthcare plan during the 2021 financial year,
amount to euro 1,321 thousand.
Additional information regarding post-employment benefits
Net actuarial gains accrued during 2020 which were recorded directly in equity amounted to euro
18,946 thousand.
The main actuarial assumptions used at December 31, 2020 were as follows:
Italy
Germany
Sweden
UK
USA
Switzerland
Discount rate
Inflation rate
0.60%
1.00%
0.80%
1.50%
0.75%
1.50%
1.40%
2.85%
2.20%
N/A
0.15%
0.50%
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%
428
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
The following table presents an analysis of the payment deadlines for subsequent 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
65,112
2,622
1,321
69,055
67,304
2,408
1,300
71,012
203,034
7,112
3,714
213,860
345,404
8,393
5,254
359,051
680,854
20,535
11,589
712,978
The weighted average duration for post-employment benefit obligations equalled 14.97 years for
pension funds (15.04 years at December 31, 2019), 8.65 years for employees’ leaving indemnities
(TFR) (8.67 years at December 31, 2019) and 8.65 years for medical assistance plans (8.51 years
at December 31, 2019).
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
3.59%
2.43%
increase of
decrease of
3.80%
2.29%
At the end of 2019 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
3.53%
2.62%
increase of
decrease of
3.82%
2.14%
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, in proximity to the central assumption
on the rates themselves, rather than referring to an alternative set of assumptions.
The sensitivity analysis on the liabilities relative to post-employment benefits is based on the same
methodology used to calculate the liability recognised in the Financial Statements.
429
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated 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
12/31/2020
12/31/2019
11,238
19,210
10,366
6,947
47,761
-
19,513
12,154
4,906
36,573
The item Long Term Incentive Plans relates to the amount allocated for the three-year monetary
Long Term Incentive 2020 - 2022 plan for Group management (to date around 260 participants)
approved by the Board of Directors on February 19, 2020 and correlated with the 2020 - 2022
Business Plan figures presented on the same date. On the occasion of the figures as at 30 June
2020, in order to take account of the radical changes in the macroeconomic scenario, the Board of
Directors instructed the Remuneration Committee to draw up a proposal to revise the incentive plan,
aligning the targets with the new guidance for 2020 communicated to the market on the same date
and with the targets of the new Business Plan for the years 2021 and 2022 approved on March 31,
2021.
Employee benefit obligations - current portion
The item employee benefit obligations, which amounted to euro 5,013 thousand, refers to the
relevant portion at December 31, 2020 of the fourth instalment of the retention plan, which will be
liquidated during the first half-year of 2021, while the third portion of the plan was liquidated during
the first half-year of 2020. The plan was approved by the Pirelli Board of Directors on February 26,
2018 and is aimed at Key Managers, as well as 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
Total
1,524,559
3,793,780
43,930
465,853
12/31/2020
Non-current Current
1,442,650
3,137,857
-
390,449
81,909
655,923
43,930
75,404
Total
1,271,392
3,532,377
56,384
483,172
12/31/2019
Non-current Current
1,071,475
2,472,056
-
405,375
199,917
1,060,321
56,384
77,797
13,512
-
13,512
21,459
-
21,459
12,919
5,854,553
30
4,970,986
12,889
883,567
4,455
5,369,239
930
3,949,836
3,525
1,419,403
430
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
The item bonds refers to:
- a non-interest-bearing senior unsecured guaranteed equity-linked bond loan, for a nominal
value of euro 500 million maturiing on December 22, 2025. The loan, reserved for institutional
investors, was issued by Pirelli &C S.p.A. on December 22, 2020, guaranteed by Pirelli Tyre
S.p.A. and admitted for trading on the Vienna MTF system, the multilateral trading facility
managed by the Vienna Stock Exchange. The bond is convertible, at the option of the
bondholders, into new ordinary shares of the Company at a price of euro 6.235 per share,
subject to the anti-dilutive adjustments provided for by the loan regulations. The convertible
bond is a compound financial instrument, consisting of (i) a five-year loan at market rates and
(ii) a call option sold to the subscribers of the loan, represented by the option to convert the
loan into new ordinary shares of the Company at a predefined price. In accordance with the
relevant accounting standards, the Parent Company Pirelli & C. S.p.A. accounted for the two
components of the loan separately, recording, against the issue value of 500 million euros
(euro 492.9 million net of transaction costs), the fair value of the five-year loan (net of
transaction costs) under financial payables, and the fair value of the call option sold (net of
transaction costs) under equity reserves, to the amount of euro 451.7 million and euro 41.2
million, respectively;
-
-
the unrated bond loan for the nominal amount of 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% and an original
maturity of 5 years. This loan, guaranteed by Pirelli Tyre S.p.A. and placed with international
institutional investors, was 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 (Euribor + spread) “Schuldschein” loan for the nominal value of euro 525
million placed on July 26, 2018. This loan, guaranteed by Pirelli Tyre S.p.A. and 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 the item bonds, was determined as follows:
(in thousands of euro)
Nominal value
Equity component of the convertible bond
Transaction costs
Bond discount
Amortisation of effective interest rate
Non monetary interest on convertible bond loan
Total
12/31/2020
12/31/2019
1,578,000
(41,791)
(15,133)
(2,988)
6,275
196
1,524,559
1,278,000
-
(7,683)
(2,988)
4,063
-
1,271,392
431
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
The item borrowings from banks, which amounted to euro 3,793,780 thousand, mainly refers to:
the use of unsecured financing (“Facilities”) granted to Pirelli & C. S.p.A. for the amount of
euro 1,617,504 thousand, classified under non-current payables. The nominal amount of the
refinancing operation signed on June 27, 2017, (with a closing date of June 29, 2017) equalled
euro 2.45 billion (net amount of repayments made since the date of signing - original amount of
the credit facility granted of euro 4.2 billion). The loan is guaranteed by Pirelli Tyre S.p.A., Pirelli
Deutschland GmbH, Pirelli Tyres Romania S.r.l. e Pirelli Pneus Ltda. On November 29, 2018 the
loan was amended to insert the right for the Pirelli Group to extend, at its own discretion, the
expiry of the individual credit facilities of the loan for up to 2 years, with respect to their original
contractual maturity of 3 and 5 years. The facilities are denominated in euros and US dollars and
carry a floating interest rate of Euribor + spread and Libor + spread, respectively.
the “Sustainable Credit Facility” for euro 794,599 thousand relative to the euro 800 million credit
facility with floating interest rate (Euribor + spread) signed on March 31, 2020 with a pool of
leading Italian and international banks and with a 5 year maturity. This bank credit facility is
entirely sustainable, that is, parameterised to the Group’s financial and environmental
sustainability objectives and is guaranteed by Pirelli Tyre S.p.A.;
euro 921,538 thousand relative to three bilateral loans disbursed to Pirelli & C. S.p.A. by primary
banks, consisting of a nominal euro 600 million maturing in February 2024 at a floating rate
(Euribor + spread) and guaranteed by Pirelli Tyre S.p.A., euro 200 million maturing in September
2021 at a fixed rate and euro 125 million maturing in August 2023 at a floating rate (Euribor +
spread);
euro 337,793 thousand relative to loans mainly fixed rate disbursed in Brazil by local and
international banking institutions of which euro 2,159 thousand has been classified under non-
current borrowings from banks. This value includes a negative exchange rate effect of euro
139,813 thousand, due to the significant depreciation of the Brazilian currency;
borrowings from banks and the use of credit facilities in local currency at local level in Russia,
(equivalent to euro 64,296 thousand), in China (equivalent to euro 43,110 thousand) and in
Turkey (equivalent to euro 6,660 thousand), classified entirely as current borrowings from banks.
At December 31, 2020 the Group had a liquidity margin equal to euro 3,034.420 million, composed
of euro 700.000 thousand in the form of non-utilised committed credit facilities and of euro 2,275.476
thousand in cash and cash equivalents, in addition to financial assets at fair value through the Income
Statement to the amount of euro 58.944 thousand.
The item lease liabilities, represents the financial liabilities relative to the application of the IFRS 16
accounting standard as of January 1, 2019.
Non-discounted future payments for lease contracts for which the exercise of extension options are
not considered to be reasonably certain, amounted to euro 90,373 thousand at December 31, 2020
and were not included in this item (euro 52,124 thousand at December 31, 2019).
432
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
Accrued financial expenses and deferred financial income (euro 13,512 thousand) mainly refers
to the accrual of interest matured on bond loans to the amount of euro 8,990 thousand (euro 9,082
thousand at December 31, 2019) and to the accrued interest matured on borrowings from banks to
the amount of euro 2,062 thousand (euro 11,731 thousand at December 31, 2019).
The change in the total borrowings from banks and other financial institutions for 2020 is
composed as follows:
(in thousands of euro)
Borrowings from banks and other financial institutions at December 31, 2019
Bond issuance (Convertible bond)
Bond repayment (EMTN program)
Drawdowns of unsecured financing (Facilities)
Repayments of unsecured financing (Facilities)
New bilateral borrowings
Financial inflows for the local credit facilties of Group companies
Financial outflows for the local credit facilties of Group companies
Transaction costs
Repayment of lease liabilities
Cash changes
Reclassification to equity of convertible option at issuance date
Amortised cost for the period
Translation differences and other changes for the period
Increases in lease liabilities
Remeasurement and early termination
Non-cash changes
Borrowings from banks and other financial institutions at December 31, 2020
5,369,239
500,000
(200,000)
1,127,978
(1,342,297)
800,000
149,204
(250,732)
(13,661)
(99,924)
670,568
(41,200)
9,813
(254,287)
89,557
10,863
(185,254)
5,854,553
The change in total borrowings from banks and other financial institutions for 2019 is shown
below:
(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 inflows for the local credit facilties of Group companies
Financial outflows for the local credit facilties of Group companies
Repayment of lease liabilities
Cash changes
IFRS 16 first time adoption impact
Increases in lease liabilities
Remeasurement and early termination
Amortised cost for the period
Translation differences and other changes for the period
Non-cash changes
Borrowings from banks and other financial institutions at December 31, 2019
4,729,224
395,931
(1,097,498)
720,900
(10,000)
589,626
(515,844)
(101,157)
(18,042)
494,292
72,391
15,139
(15,734)
91,969
658,057
5,369,239
433
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
At December 31, 2020 there were no financial payables secured by collateral (pledges and
mortgages). At December 31, 2019 these payables totalled euro 96 thousand.
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:
(in thousands of euro)
Bonds
Borrowings from banks
Other financial payables
Total non-current financial payables
12/31/2020
12/31/2019
Carrying amount
1,442,650
Fair value Carrying amount
1,071,475
1,465,120
3,137,857
390,479
4,970,986
3,164,333
390,479
5,019,931
2,472,056
406,305
3,949,836
Fair value
1,084,830
2,500,469
406,305
3,991,604
The 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. They have 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 borrowings from banks, was calculated by discounting each expected debt cash flow at
the market swap rate for the currency and the relevant maturity date and increased by the Group’s
creditworthiness for other debt instruments similar in 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 Rouble)
RON (Romanian Leu)
BRL (Brasilian Real)
SEK (Swedish Krona)
GBP (British Pound)
TRY (Turkish Lira)
JPY (Japanese Yen)
MXN (Mexican Peso)
Other Currencies
Total
12/31/2020
12/31/2019
3,813,245
1,770,024
62,784
66,798
44,028
35,992
29,841
16,024
8,708
1,449
581
5,079
5,854,553
2,772,361
2,303,523
66,284
64,939
28,263
52,480
29,926
19,482
16,075
10,147
1,684
4,075
5,369,239
At December 31, 2020 there were derivative hedging instruments for interest rates and exchange
rates in place for floating rate debt in foreign currencies.
434
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
Considering the effects of the aforementioned hedging derivatives, 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
renegotiation (resetting) date of the same, was subdivided as follows:
floating rate payables to the amount of euro 2,490,368 thousand, whose interest rate is
subject to renegotiation during the course of 2021;
fixed rate payables to the amount of euro 3,364,185 thousand, whose interest rate was not
subject to renegotiation until the natural maturity of the debt to which it refers (euro 300,935
thousand with maturity in the next twelve months and euro 3,063,250 thousand euro with
maturity beyond twelve months).
The cost of debt year-on-year stood at 1.94% compared to 2.83% at December 31, 2019.
The reduction in the cost of debt during the course of 2020 mainly reflected:
the lower impact, to the amount of euro 13 million, deriving from the application of
hyperinflation accounting in Argentina;
the general reduction in interest rates in the currencies in which the Group operates, which
resulted in a benefit of less interest paid on debt;
a lower incidence of debt denominated in high-yield currencies mainly in Brazil and Mexico;
the temporary reduction of the cost of the central credit facilities due to the improvement in
the Group’s financial leverage and the consequent reduction in the interest margin, from
which the Group benefited until November 2020.
With regard to the existence of financial covenants, it is to be noted that (i) the Group’s main bank
credit facility (“Facilities”), granted to Pirelli & C. S.p.A. and Pirelli International Plc (to date to be
utilised solely by Pirelli & C. S.p.A.), (ii) the “Schuldschein” loan, (iii) the bilateral euro 600 million
credit facility granted to Pirelli & C. S.p.A. during the course of the first quarter of 2019 (“Bilateral
600”), (iv) the bilateral euro 125 million credit facility granted to Pirelli & C. S.p.A. during the course
of the third quarter of 2019 (“Bilateral 125”) and, (v) the “Sustainable Credit Facility” signed on March
31, 2020, provide for the compliance with the maximum ratio (“Total Net Leverage”) between net
debt 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 or non-fulfilment event.
Specifically, any such default or non-fulfilment event will have the following consequences, if the
lending banks exercise their remedies: (i) for the “Facilities” loan, only if requested by a number of
the lending banks which represents at least 66 2/3% of the total commitment, the early repayment
(partial or total) of the loan with the simultaneous cancellation of the relative commitment; (ii) for the
“Schuldschein” loan, individually and independently if requested by each lending bank for their own
435
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
share, the early repayment of the loan only for that share; (iii) for both the “Bilateral 600” and the
“Bilateral 125”, if requested by the sole bank that had granted each of the loans, the termination of
the contract and early repayment of the full amount disbursed and (iv) for the “Sustainable Credit
Facility”, only if requested by a number of the lending banks representing at least 50% of the total
commitment (or at least 60% if an additional lending bank is added to the current four), the
termination of the contract and early repayment of the loan.
During the second quarter of 2020, the Group, in the new context strongly impacted by the Covid-
19 emergency, deemed it prudent to proactively approach its main lenders and obtain additional
flexibility for the emergency period (estimated until the end of 2021). The process was concluded
with the support of all lenders who agreed to review the terms of existing loans including the financial
covenant.
In relation to the above, it should be noted that at December 31, 2020 no default or non-fulfilment
event had occurred.
The “Facilities”, “Schuldschein”, “Bilateral 600”, “Bilateral 125” loans and the “Sustainable Credit
Facility” also provide for Negative Pledge clauses and other usual provisions whose terms and
conditions are consistent with market standards, for each of the aforementioned types of credit
facility.
The other outstanding financial payables at December 31, 2020 were not subject to financial
covenants.
24.
TRADE PAYABLES
Trade payables were composed as follows:
(in thousands of euro)
Trade payables
Bill and notes payable
Total
Total
1,224,863
43,108
1,267,971
12/31/2020
Non-current Current
12/31/2019
Non-current Current
Total
-
-
-
1,224,863
1,546,714
43,108
64,774
1,267,971
1,611,488
-
-
-
1,546,714
64,774
1,611,488
For trade payables, it is considered that their carrying amount approximates their relative fair value.
436
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
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
82,119
120,470
83,074
55,010
254
4,198
106,421
451,546
12/31/2020
Non-current Current
52,292
5,178
2,038
17,008
-
-
764
77,280
29,827
115,292
81,036
38,002
254
4,198
105,657
374,266
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
Non-current accrued expenses and deferred income refer to euro 46,205 thousand in capital
contributions received for investments realised in Romania, whose benefits are recognised in the
Income Statement in proportion to the costs for which the contribution was disbursed and to euro
3,726 thousand in costs for commercial initiatives in Brazil.
Current accrued expenses and deferred income include euro 7,575 thousand for various trade
initiatives realised in Germany and Brazil, euro 8,009 thousand in government grants and tax
incentives received mainly in Italy and Romania and euro 1,357 thousand for costs relative to
insurance coverage in some European countries.
The item tax payables for taxes not related to income is mainly comprised of IVA (value added
tax) payables and other indirect taxes, withholding tax for employees and other taxes not related to
income.
Current payables to employees mainly includes commissions accrued during the period, but not
yet paid.
The item contract liabilities refers to advanced payments received from customers, against which
the performance obligation has not yet been completed, pursuant to the provisions of IFRS 15.
The item other payables (euro 106.421 thousand) mainly includes:
euro 49,040 thousand for the purchase of property, plant and equipment (euro 109,634
thousand at December 31, 2019); The decrease in this item compared to the previous financial
year is due to lower investments in 2020, compared to the previous year;
euro 10,642 thousand for the settlement of a dispute with a supplier;
euro 4,430 thousand in payables to representatives, agents, professionals and consultants;
euro 7,477 thousand in withholding taxes on income;
euro 5,563 thousand in payables to Prometeon group companies particularly in Brazil and
China;
437
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
euro 510 thousand in payables to Directors, Auditors and supervisory bodies.
26.
TAX PAYABLES
Tax payables were for the most part national and regional income taxes in different countries and
amounted to euro 110,300 thousand (of which euro 10,795 thousand was for non-current liabilities),
compared to euro 94,321 thousand at December 31, 2019 (of which euro 12,555 thousand was for
non-current liabilities), which was substantially consistent with the current taxes recorded for the
financial year. Income tax payables include the Management’s assessment of the possible 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)
12/31/2020
12/31/2019
Without adoption of hedge accounting
Exchange rate derivatives - commercial positions
Exchange rate derivatives - included in net financial position
Interest rate derivatives - included in net financial position
Hedge accounting adopted
- cash flow hedge:
Interest rate derivatives - included in net financial position
Other derivatives - included in net financial position
Other derivatives - commercial positions
Total derivatives included in net financial position
Non
current
assets
Current
assets
Non current
liabilities
Current
liabilities
Non current
assets
Current assets Non current
liabilities
Current
liabilities
-
-
-
-
-
-
-
-
4,561
34,422
344
-
-
-
-
-
-
(10,623)
(76,978)
(4,815)
(53,926)
-
-
-
-
(372)
-
-
-
481
52,034
-
5,058
21,904
-
-
10,186
-
-
-
-
(10,327)
-
-
(9,724)
(31,703)
-
-
-
-
39,327
(87,601)
(59,113)
52,515
37,148
(10,327)
(41,427)
34,766
(87,601)
(53,926)
52,515
32,090
(10,327)
(31,703)
438
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
The composition of the items by type of derivative instrument is as follows:
(in thousands of euro)
Current assets
12/31/2020
12/31/2019
Forward foreign exchange contracts - fair value recognised in the Income Statement
38,983
Interest rate swaps - fair value recognised in the Income Statement
Cross currency interest rate swaps - cash flow hedge
Total current assets
Non current assets
Interest rate swaps - cash flow hedge
Cross currency interest rate swaps - cash flow hedge
Total non-current assets
Current liabilities
Forward foreign exchange contracts - fair value recognised in the Income Statement
Commodity Futures in natural rubber - cash flow hedge
Total current liabilities
Non current liabilities
Interest rate swaps - cash flow hedge
Cross currency interest rate swaps - cash flow hedge
Total non-current liabilities
344
-
39,327
-
-
-
(58,741)
(372)
(59,113)
(10,623)
(76,978)
(87,601)
26,962
-
10,186
37,148
481
52,034
52,515
(41,427)
-
(41,427)
(10,327)
-
(10,327)
Derivative financial instruments not in hedge accounting
The value of foreign exchange derivatives included in current assets and liabilities corresponds to
the fair value measurement of forward currency purchases/sales outstanding at the end of the
reporting period. These transactions mirror commercial and financial transactions of the Group for
which hedge accounting has not been adopted. The fair value is determined using the forward
exchange rate at the balance sheet date.
The value of interest rate derivatives included in current assets refers to the fair value
measurement of five USD IRS basis swaps for a total notional value of USD 1,761 million, with a
term of one year, effective September 2020. These are hedging transactions of the basis of 3-12
months following the change to the interest period on the underlying liability from 3 months to 12
months, for which the hedge accounting option was not adopted. By means of these IRS basis
swaps, the Group pays the 3-month USD LIBOR on the one hand, which will net the proceeds from
the pre-existing CCIRS and the 12-month USD LIBOR on the other, which will serve the interest
flows on the USD liability paid on a quarterly basis with annual fixing.
439
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
Derivative financial instruments with the adoption of hedge accounting
The value of interest rate derivatives recorded under current assets to the amount of euro 10,623
thousand refers to the fair value of 10 interest rate swaps.
Derivative
Hedged element
Notional amount
(Euro million)
Start date
Maturity
IRS
IRS
IRS
IRS
IRS
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
For these derivatives, hedge accounting of the cash flow hedge type was adopted. Items subjected
to hedge accounting were:
-
floating rate bank credit facilities denominated in euro, and the relative future cash flows (refer
to Note 23 – “borrowings from banks and other financial institutions”);
-
the combination of a floating rate liability in USD and a CCIRS (Basis Swap).
The change in the fair value for the period which was negative to the amount of euro 3,772 thousand,
was entirely suspended in equity, while euro 3,054 thousand was reversed to the Income Statement
under the item “Financial expenses” - (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 5,359 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 5,455 thousand in
the equity of the Group.
The value of other derivatives, recognised under non-current liabilities to the amount of euro 76,978
thousand, refers to the fair value measurement of 6 cross currency interest rate swaps with the
following characteristics:
Derivative
Notional amount Notional amount
Start date
Maturity
(USD million)
(Euro million)
CCIRS
CCIRS
Total
682
1,079
1,761
July 2017
July 2019
582
920
1,501
June 2022
pay floating EURIBOR / receive floating LIBOR USD
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 USD/EUR exchange rate generated by a liability in USD at a
floating rate.
440
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
The negative change in the fair value for the period was suspended in equity to the amount of euro
110,791 thousand, (the cash flow hedge reserve was negative to the amount of euro 115,287
thousand and the cost of hedging reserve was positive to the amount of euro 4,496 thousand), while
costs to the amount of euro 133,595 thousand were reversed to the Income Statement under
“Financial expenses” - (Note 37), to the item “net losses on exchange rates” to offset unrealised
exchange rate gains recorded on the hedged liability and income to the amount of euro 19,223
thousand to correct 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 6,467 thousand in the equity of the Group, while a change
of -0.5% in the same curves, all other conditions being equal, would result in a negative change of
euro 6,550 thousand in the equity of the Group.
A +10% change in the USD/euro exchange rate, all other conditions being equal, would result in a
positive change of euro 378 thousand in the Group’s equity, and euro 338 thousand in the Income
Statement, while a negative change of -10%, instead, would result in a positive change of euro 307
thousand in the Group’s equity, and euro 337 thousand in the Income Statement.
Hedging relationships relative to any IRS (interest rate swap) and CCIRS (cross-currency interest
rate swap - Basis Swap) are considered prospectively effective when 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 the frequency of interest liquidation) are substantially aligned 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 an elevated credit
standing, while 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 as the underlying financial liability.
Possible causes of ineffectiveness include the following:
-
the application of credit risk adjustments only to the hedging instrument but not to the hedged
item;
441
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
-
-
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.
During the month of September 2020, in accordance with the terms and conditions of the loan
agreement, the tenor of the reference rate of the hedged item was changed from USD LIBOR 1
month to USD LIBOR 12 month. The change in the tenor of the reference rate of the underlying loan
resulted in an ineffectiveness due to the misalignment between the characteristics of the hedge item
and the hedging instrument, amounting to euro 338 thousand, which was recognised in the Income
Statement under “Financial expenses”, as part of the fair value measurement of other derivatives -
(Note 37).
The value of other derivatives, recognised under non-current liabilities to the amount of euro 372
thousand, refers to the fair value valuation of commodity futures trading in natural rubber.
The objective of these derivatives, for which hedge accounting of the cash flow hedge type was
adopted, was to hedge the Group from the risk of costs fluctuations deriving from the variability of
future natural rubber prices, through the negotiation of commodity futures listed on a regulated
market, whereby the value of the expected purchases of natural rubber is fixed at levels specific to
the relative reference price.
The negative change in the fair value for the period, to the amount of euro 188 thousand was
suspended in equity, while euro 184 thousand was reversed to the Income Statement to the item
“raw materials and consumables used (net of change in inventories)” to reduce the purchase cost of
natural rubber.
Hedging relationships relative to any commodities futures are considered prospectively effective
when 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 notional amounts and the reference price of the
underlying future) are substantially aligned with those of the underlying forecast transactions.
Therefore, changes in the fair value of the designated hedging instrument are expected to
regularly offset those of the relative hedged item;
the effect of credit risk is not predominant within the hedging relationship. Based on the Group’s
operating rules, derivatives are negotiated only with banking counterparties of elevated standing.
Furthermore, Commodity Futures contracts are listed derivative products subject to central
clearing procedures without counter-party risk for all market participants;
-
the designated hedge ratio is aligned with that used for financial risk management and is equal
to 100% (1:1).
442
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
The only potential source of ineffectiveness is represented by a possible over-hedging situation that
could occur when the actual volumes of natural rubber purchases are lower than those covered.
However, under current risk management policies, over-hedging is considered a remote event.
At December 31, 2020, no ineffectiveness was identified amongst the aforementioned hedging
relationships.
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 to
euro 77,283 thousand and euro 7,292 thousand respectively and refer mainly to subsidiary
companies in Italy, Romania, UK, China, Russia and Mexico.
LEASING CONTRACT COMMITMENTS
At December 31, 2020, the total amount for non-discounted future payments for lease contracts not
yet in force and against which no financial debt was recognised, equalled euro 33,446 thousand and
mainly referred to rental 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
Litigation against the companies of the Prysmian Group before the Court of Milan
Pending the settlement of the EU Court 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 assessment 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.
Prysmian Cavi e Sistemi S.r.l. entered an appearance in the abovementioned proceedings, seeking
the dismissal of Pirelli’s claims and by way of a counterclaim, to be held harmless and indemnified
443
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
by Pirelli in relation to any consequences deriving from the European Commission’s decision or
otherwise related to it. The proceedings had been suspended pending the final ruling of the EU
Courts and were resumed by Pirelli on November 30, 2020 following the ruling of the Court of Justice.
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 declaratory judgement of Prysmian Cavi
e Sistemi S.r.l.’s obligation to indemnify and hold Pirelli harmless from any charges, expenses, costs
and/or damage resulting from the 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.
In this regard, Pirelli also requested that Prysmian Cavi e Sistemi S.r.l. and Prysmian S.p.A. be held
liable for certain unlawful conduct connected with the abovementioned anti-competitive agreement
and accordingly, that they be ordered to pay compensation for all damages suffered and to be
suffered by Pirelli.
Pirelli lastly, requested the assessment and declaratory judgement of the joint and several liability of
Prysmian S.p.A. with Prysmian Cavi e Sistemi S.r.l. in relation to the amounts that will be paid both
due to these new proceedings and those brought in November 2014 and that they should not be
satisfied by the latter.
Prysmian Cavi e Sistemi S.r.l. and Prysmian S.p.A. entered an appearance in the above proceedings
in November 2020, seeking the dismissal of Pirelli’s claims and, by way of counterclaim, to be held
harmless and indemnified by Pirelli in relation to any consequences deriving from the claims of
private and/or public third parties relating to, connected with and/or consequential to the facts
covered by the European Commission’s decision.
On the basis of thorough analysis supported by authoritative external legal opinions, the evaluation
of the risk relative to the disputes described above is such as to not require the allocation of any
specific provision in the Consolidated Financial Statements at December 31, 2020.
Other litigation in connection with the European Commission Decision
In November 2015, some of the companies of Prysmian Group served Pirelli with a summons for
compensation proceedings brought before the London High Court of Justice against them 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 harmed by the alleged unlawful agreement.
Specifically, the companies of Prysmian Group have filed a petition requesting that Pirelli and
Goldman Sachs, in view of their role as Parent companies, hold them harmless with respect to any
(as yet unquantifiable) damages obligations towards National Grid and Scottish Power. Pending the
aforementioned pending action before the Court of Milan brought in November 2014, Pirelli
challenged the lack of jurisdiction of the London High Court of Justice claiming that, that any decision
444
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
on the merits must be referred to the previous Court of appeal. In April 2016, the High Court of
Justice, at the request of Pirelli and the companies in the Prysmian Group, suspended the
proceedings until the judgment that will define the Italian proceedings already pending, becomes
final.
In April 2019, before the Court of Milan, 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, to obtain compensation for the damages allegedly
suffered as a result of the anti-competitive conduct, to date quantified by the plaintiff to be euro 199.9
million. Pirelli appeared in court contesting Terna’s claims and like the other defendants and against
them, has filed a counterclaim for recourse in the unlikely event that it is held jointly and severally
liable for the anti-competitive conduct.
Finally, also 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 writ of summons against Pirelli, some of the Prysmian Group companies and other
defendants named in the aforementioned European Commission decision, suing them jointly and
severally to obtain compensation for the damages allegedly suffered as a result of the alleged anti-
competitive conduct. These proceedings were brought before the Court of Amsterdam, which, with
its ruling of November 25, 2020, upheld the objection raised by Pirelli and excluded its jurisdiction
over Pirelli itself. In February 2021, the claimants appealed against this judgment before the Court
of Appeal in Amsterdam.
On the basis of thorough analysis supported by authoritative external legal opinions, the evaluation
of the risk relative to the disputes described above is such as to not require the allocation of any
specific provision in the Consolidated Financial Statements at December 31, 2020, 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. This litigation was brought before the
445
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
competent administrative-tax commissions. On August 8, 2017, despite the fact that the initial
decisions were not in favour of Pirelli Pneus, a legislative provision (Complementary Law No. 160)
came into force, capable of putting an end to the dispute between the various states in Brazil. This
regulation validates the incentives, which up to now have been 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, Pirelli
Pneus has also already filed a petition for amnesty for the dispute in question. This petition does not
interrupt the ongoing litigation in court, which can therefore continue in case the petition for amnesty
should have a negative outcome. It should be noted that, to date, for two of the cases involving Pirelli
Pneus in the above dispute, the petition for amnesty has already been granted, respectively in
January and February 2021.
The risk is estimated at approximately euro 122 million, inclusive of taxes, interest and sanctions.
The risk of losing the case has not been assessed as probable and, therefore, no provision has been
made in the Financial Statements for this dispute.
Contestation concerning the IPI tax 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 (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, 2017 and 2021, the aforementioned tyres should have been subjected to the IPI
tax for the production and importation of tyres for cars – with an applicable rate of 15% - instead of
the 2% rate applied by Pirelli Pneus, as is provided for the production and importation of tyres
destined 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 rulings 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 30 million, inclusive of taxes, interest and sanctions. The
risk of losing the case has not been assessed as probable and, therefore, no provision has been
made in the Financial Statements for this dispute.
Litigation concerning transfer pricing applied to some inter-group transactions
Pirelli Pneus is currently in litigation with the Brazilian tax authorities for income tax (IRPJ - Imposto
sobre a renda das pessoas jurídicas) and social security contributions (CSLL - Contribuição Social
sobre o Lucro Líquido) due from the Company for the 2008, 2011 and 2012 fiscal years, deriving
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Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
from the application of transfer pricing regulations to import transactions with related parties. Based
on the notices of assessment served on the Company during 2013, 2015 and 2016, the Brazilian tax
authorities are mainly contesting the incorrect application by the Company, of the methodology
provided for by the administrative practice in force at the time (IN - Instrução Normativa 243), for the
valuation of transfer prices applied to imports of goods from related parties. To date, the dispute filed
by the Company is pending before the competent administrative-judicial courts. The Group maintains
that it has a good chance of winning and, in this regard, Pirelli Pneus has already obtained a
favourable ruling from the administrative court, which recognised the Company’s arguments by
reducing the amount originally contested by the Brazilian tax authorities.
In light of the above, the risk is estimated at approximately euro 14 million inclusive of taxes,
sanctions and interest. The risk of losing the case 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 with respect to the sale of tyres to the automotive sector
Pirelli Pneus is involved in a dispute concerning the IPI tax, (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 exemption as provided for by law in the case of sales of particular components to companies
operating in the automotive sector. The dispute is under discussion before the competent
administrative-judicial courts, however the Group maintains that it has well founded reasons to object
to the tax administration’s claim.
The risk is estimated at approximately euro 17 million, inclusive of taxes, interest and sanctions. The
risk of losing the case 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
authorities 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 statement valuations and, at the same time,
commenced legal proceedings aimed at asserting its reasons for the correct amount of taxes owed.
447
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
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 proceeding is underway before the competent judicial courts and the risk is estimated as up to
approximately euro 27 million, inclusive of taxes, interest and sanctions. The risk of losing the case
has not been assessed as probable and, therefore, no provision has been made in the Financial
Statements for this dispute.
Other Pirelli Pneus disputes
Pirelli Pneus is involved in other tax disputes relevant to federal taxes and excises, (such as the IPI
(Imposto sobre Produtos Industrializados) tax, the PIS (Programa de Integração Social) and
COFINS (Contribução para Financiamento de Seguridade Social) unemployment insurance and
social security contributions), 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)
(ii)
(iii)
the so called “Desenvolve” litigation relative to a fiscal incentive which is recognised
by the Federal State of Bahia but which, as claimed by the Brazilian tax authorities
was incorrectly calculated by Pirelli Pneus - approximately euro 6 million inclusive of
taxes, sanctions and interest;
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 6 million inclusive of taxes,
sanctions and interest.
a new dispute, relative to the method of calculating the taxable base of PIS and
COFINS social security contributions and to the right to deduct the ICMS reported in
invoices, on the basis of the interpretation provided by the tax authorities in the
Solução - COSIT Internal Consultation Solution No. 13 - approximately euro 15 million
in taxes, sanctions and interest.
For the aforementioned disputes, the risk of losing the case has not been assessed as probable and,
therefore, no provision has been made in the Financial Statements for these disputes.
448
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
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
2020
2019
4,191,752
110,379
4,302,131
5,174,701
148,353
5,323,054
These revenues refer to contracts with customers.
For further information on the performance of revenues from sales and services, refer to the section
“Group performance and results” in this document.
30.
OTHER REVENUES
The item is composed as follows:
(in thousands of euro)
2020
2019
Other income from the 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
38,897
136,305
6,187
2,907
922
38,598
13,613
68,884
306,313
60,922
158,709
1,298
3,780
1,662
164,475
13,343
82,118
486,307
The item other income from the Prometeon Group includes the sale of raw materials, semi-
finished and finished products to the amount of euro 7,598 thousand, royalties recorded for the
trademark license agreement to the amount of euro 13,218 thousand, royalties recorded for the
know-how license contract to the amount of euro 6,500 thousand and services rendered to the
amount of euro 11,575 thousand. The decrease in other income compared to the previous year, was
mainly attributable to lower sales in raw materials, finished goods and semi-finished goods, as well
as the renegotiation of know-how royalties for 2020 only.
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 by the Prometeon Group and sold by
the distribution network controlled by the Pirelli Group.
Gains on the disposal of property, plant and equipment refers to the disposal of buildings carried
out in 2020 in Milan and Settimo Torinese.
449
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
The item recoveries and reimbursements includes, in particular:
refunds of taxes and duties for a total of euro 3,515 thousand, received mainly from the
Brazilian subsidiary. For 2019 the item included euro 73,938 thousand attributable to the
benefit recorded following the attainment of favourable rulings 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 basis for the calculation of PIS (Programa de Integração
Social) and COFINS (Contribução para Financiamento de Seguridade Social) social security
contributions for the 2003-2014 period;
tax refunds totalling euro 7,918 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 1,010 thousand;
income from the sale of tyres for testing and the recovery of transport expenses incurred in
Germany to the amount of euro 1,761 thousand.
The item other income includes income from the sale of goods and services in connection with
sporting activities, to the amount of euro 33,352 thousand.
31.
PERSONNEL EXPENSES
The item is composed as follows:
(in thousands of euro)
Wages and salaries
Social security and welfare contributions
Costs for employee leaving indemnities and similar
Costs for defined contribution pension funds
Costs for defined benefit pension funds
Costs for jubilee awards
Costs for defined contribution healthcare plans
Other costs
Total
2020
2019
721,058
140,469
11,474
23,143
13,210
6,630
3,180
30,514
949,678
822,647
167,184
16,887
23,583
1,627
3,622
5,290
31,327
1,072,167
The item other costs includes the portion of the retention plan (equal to euro 8,423 thousand in
2020 and euro 6,891 thousand in 2019) which was approved by the Pirelli Board of Directors on
February 26, 2018 and intended for Key Managers with strategic responsibilities, as well as a select
number of senior Managers and Executives whose contribution to the implementation of the
Strategic Plan is considered particularly significant.
450
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Pirelli & C. S.p.A. – 2020 Annual Report
The item personnel expenses for 2020 includes non-recurring events for a total of euro 11,205
thousand (1.2% of the total) and refers to the buy-out operation of the UK pension funds.
32.
DEPRECIATION, AMORTISATION AND IMPAIRMENTS
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 intang.assets (excl. right of use)
Impairment of right of use
Total
2020
2019
128,049
289,379
88,626
9,138
1,960
517,152
125,823
292,045
89,479
18,556
1,915
527,818
The item impairment of property, plant and equipment mainly refers to property, plant and
equipment in the UK and Italy due to plant decommissioning.
For the composition of the amortisation of the right of use, reference should be made to Note “9.2 -
Right of use”.
451
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
33.
OTHER COSTS
This item is subdivided as follows:
(in thousands of euro)
Selling costs
Purchases of goods for resale
Fluids and energy
Advertising
Warehouse operating costs
IT expenses
Consultants
Maintenance
Insurance
Leases and rentals
Outsourcing
Duty stamps, duties and local taxes
Other provisions
Travel expenses
Key managers compensations
Cleaning expenses
Canteen
Security expenses
Waste disposal
Telephone expenses
Other
Total
2020
2019
255,395
326,737
142,214
193,039
67,045
38,376
48,038
41,436
30,401
24,281
24,561
24,190
32,673
16,676
7,469
13,092
12,811
10,214
8,010
5,427
144,209
1,466,294
320,189
367,365
181,650
214,919
71,226
34,537
48,522
50,494
31,476
36,905
34,944
27,507
41,785
37,311
7,235
14,836
16,091
9,714
7,558
8,744
150,396
1,713,404
The total decrease in the item was mainly attributable to the costs of sales and the purchases of
goods held for resale, linked to the drop in volumes as well as to savings on the item “fluids and
energy”, due to the temporary lock-down of factories during the first half-year of 2020, as well as to
savings on travel expenses mainly due to the limitations imposed due to the pandemic.
The item leases and rentals includes:
euro 12,358 thousand for lease contracts with a duration of less than twelve months (euro
23,555 thousand for 2019);
euro 6,820 thousand for lease contracts for low unit value assets (euro 7,394 thousand for
2019);
euro 5,103 thousand for lease contracts with variable payments (euro 5,956 thousand for
2019).
The item relative to variable lease instalments includes the positive effect of the changes in payments
for leasing contracts due to reductions in permanent lease payments (rent holidays), or temporary
lease payments linked to COVID-19 (euro 889 thousand) and which was recognised directly in the
452
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Pirelli & C. S.p.A. – 2020 Annual Report
Income Statement in that the Group made use of the practical expedient provided by the
amendments to IFRS 16.
The item other includes, amongst others, labour provided by third parties to the amount of euro
27,230 thousand, (euro 31,083 thousand for 2019) and expenses for technological testing to the
amount of euro 11,974 thousand (euro 20,190 thousand for 2019).
34.
IMPAIRMENT OF NET FINANCIAL ASSETS
This item, which was negative to the amount of euro 17,385 thousand compared to euro 22,266
thousand for 2019, mainly includes the net impairment of trade receivables to the amount of euro
16,843 thousand (euro 22,235 thousand for 2019).
35.
NET INCOME (LOSS) FROM EQUITY INVESTMENTS
35.1 Share of the net income (loss) from equity investments in associates and joint
ventures.
The share of the net income/(loss) from equity investments in associates and joint ventures was
evaluated using the equity method and amounted to a loss of euro 5,629 thousand, and refers mainly
to investments in the joint venture Xushen Tyre (Shanghai) Co., Ltd which recorded a loss of euro
4,558 thousand (a loss of euro 7,158 thousand for 2019), and in the joint venture PT Evoluzione
Tyres in Indonesia, which recorded a loss of euro 1,299 thousand (a loss euro 2,769 thousand for
2019).
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 1,140 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 subsidiary, of the Joint
Stock Company “Scientific institute of medical polymers” equalling euro 932 thousand.
35.3 Losses on equity investments
For 2020 the item amounted to euro 847 thousand and refers to the disposal of the investment in
Omnia Motor S.A.
453
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
For 2019 the item had amounted to euro 8,538 thousand and referred to the disposal of the
investment in Inter Wheel Sweden Aktiebolag.
35.4 Dividends
For 2020 this item amounted to euro 65 thousand compared to euro 5,526 thousand for 2019 and
mainly includes dividends received from the RCS Mediagroup S.p.A. (euro 1,482 thousand), from
the Fondo Comune di investimento 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).
36.
FINANCIAL INCOME
The item is composed as follows:
(in thousands of euro)
Interests
Other financial income
Net gains on exchange rates
Fair value measurement of currency derivatives
Fair value measurement of other derivatives
Total
2020
15,707
5,379
-
124,631
667
146,384
2019
13,774
112,443
2,461
-
83
128,761
The item interests includes euro 3,760 thousand for interest on fixed income securities and euro
6,078 thousand for interest receivables from financial institutions and associated companies and
joint ventures.
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 amount
for the previous year included the interest accrued on receivables from the Brazilian tax authorities
which was recorded following the attainment, during the first-half year of 2019, 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 calculation basis
for the PIS (Programa de Integração Social) and COFINS (Contribução para Financiamento de
Seguridade Social) social security contributions.
The item valuation at fair value of foreign currency derivatives refers to forward currency
purchase/sale transactions to hedge commercial and financial transactions, in accordance with the
Group’s exchange risk management policy. For transactions still open at the end of the financial
year, the fair value was determined by applying the forward exchange rate at the closing date of the
Consolidated Financial Statements. The valuation at fair value is composed of two elements: the
interest component which is linked to the interest rate differential between the currencies covered by
the individual hedges, equal to a net cost of euro 15,618 thousand and the exchange rate component
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Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
equal to a net cost of euro 140,249 thousand. The foreign exchange 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 negative to the amount of euro 133,595 thousand and was reclassified
under the item net losses on exchange rates, offsetting the unrealised exchange gains recorded on
the hedged liability. Net of the aforementioned reclassification, in comparing the net losses on
exchange rates, which totalled euro 147,683 thousand, recorded for receivables and payables in
currencies, other than the functional currency, used by the various subsidiaries, with the fair value
valuation of the foreign exchange component of the derivatives to hedge foreign exchange, which
amounted to a net income of euro 140,249 thousand, there resulted a negative imbalance of euro
7,434 thousand.
Fair value measurement of other derivative instruments mainly includes:
the ineffectiveness of cross currency interest rate swaps to the amount of euro 338 thousand,
due to the misalignment between the characteristics of the hedge item and the hedging
instrument - (Note 27 - “ Derivative financial instruments”);
the fair value valuation of the IRS basis swap which was positive to the amount of euro 1,045
thousand - (Note 27 - “Derivative financial instruments”).
37.
FINANCIAL EXPENSES
The item is composed as follows:
(in thousands of euro)
Interests
Commissions
Hyperinflation effect
Other financial expenses
Interest expenses on lease liabilities
Net losses on exchange rates
Net interest costs on provision for employee benefit obligations
Fair value measurement of other financial assets
Fair value measurement of exchange rate derivatives
Total
2020
101,602
11,712
6,592
11,108
21,334
147,683
2,142
713
-
302,886
2019
107,166
20,298
19,995
9,303
23,480
-
4,612
-
53,386
238,240
Interests which totalled euro 101,602 thousand included:
euro 65,406 thousand for bank credit facilities held by Pirelli & C. S.p.A., and euro 15,059
thousand in financial expenses relative to bond loans, of which euro 9,658 thousand refers to
unrated bonds and euro 5,175 thousand is relative to the “Schuldschein” loan, both issued by
Pirelli & C. S.p.A.. The amount is reported net of net interest income on Cross Currency Interest
455
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
Rate Swaps and Interest Rate Swaps to the amount of euro 16,169 thousand. For further details
reference should be made to Note 27 - “Derivative financial instruments”;
euro 24,280 thousand in financial expenses relative to bank finance for foreign affiliates.
The item commissions includes, in particular, euro 3,523 thousand in costs for the assignment of
receivables without recourse mainly in South America, Italy and Germany and euro 8,190 thousand
relative to expenses for sureties and other bank commissions.
The item Hyperinflation effect 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 41 - “Hyperinflation” for more details.
The item net losses on exchange rates which amounted to euro 147,683 thousand (gains
amounted to euro 2,805,187 thousand and losses amounted to euro 2,952,870 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 closing date of the Consolidated Financial Statements
and to the net losses realised on items closed during the course of the period. They also include
losses to the amount of euro 133,595 thousand due to the exchange rate component of the fair value
valuation of the cross currency interest rate swaps, for which hedge accounting of the cash flow
hedge type was adopted, to offset unrealised exchange gains recorded on the hedged liability.
38.
TAXES
Taxes were composed as follows:
(in thousands of euro)
Current taxes
Deferred taxes
Total
2020
2019
106,938
(92,245)
14,693
198,460
(33,898)
164,562
Tax expenses for 2020 amounted to euro 14,693 thousand against pre-tax earnings of euro 57,366
thousand, compared to the amount of euro 164,562 thousand for 2019 against pre-tax earnings of
euro 622,259 thousand. The tax rate for 2020 stood at 25.6% compared to 26.5% for 2019.
456
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
The reconciliation between theoretical and effective taxes is as follows:
(in thousands of euro)
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
2020
2019
57,366
5,924
622,259
172,424
(9,710)
12,965
2,175
3,339
14,693
(38,787)
8,924
15,895
6,106
164,562
The difference between the nominal and effective Group tax rate was mainly due to non-deductible
costs which were considered irrecoverable net of tax incentives.
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:
Europe and Turkey
Italy
Germany
Romania
Great Britain
Turkey
Russia, Nordics and MEAI
Russia
North America
USA
Mexico
South America
Argentina
Brazil
APAC
China
2020
2019
27.90%
30.00%
16.00%
19.00%
22.00%
27.90%
30.00%
16.00%
19.00%
22.00%
20.00%
20.00%
25.00%
30.00%
30.00%
34.00%
25.00%
30.00%
30.00%
34.00%
25.00%
25.00%
The incidence of taxes paid according to geographical Region during the course of the financial year,
equal to euro 90,692 thousand, (euro 141,985 thousand for 2019), was as follows:
- 38% South America (14% for 2019);
- 36% APAC (41% for 2019);
- 13% Europe and Turkey (35% for 2019);
- 8% North America (7% for 2019);
457
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
- 5% Russia, Nordics and MEAI (3% for 2019).
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 advances
payments paid in 2020, to income taxes paid during the course of 2020 but relative to previous
financial years (e.g. income tax balances relative to 2019) or to payments relative to tax assessments
for previous financial years. Taxes paid also include withholding taxes incurred on the cross-border
payments such as dividends, interest and royalties which have been reported in the tax residence
jurisdictions of the recipient.
The increase in taxes paid in the South America area (14% in 2019) was mainly attributable to the
withholding taxes incurred by the Brazilian subsidiary Pirelli Pneus on the cash flows received at the
time of closing derivative contracts, which had been entered into to hedge exchange rate risk.
39.
EARNINGS (LOSSES) PER SHARE
Earnings/(losses) per share are determined by the ratio between the earnings/(losses) attributable
to the Parent Company and the weighted average of the number of ordinary shares outstanding
during the period, with the exclusion of treasury shares.
(in thousands of euro)
Net income/(loss) attributable to the Parent Company
Weighted average number of ordinary shares outstanding (in thousands)
Earnings /(losses) per share (in euro per share)
2020
2019
29,781
1,000,000
0.030
438,134
1,000,000
0.438
It should be noted that the basic and diluted earnings/(loss) per share coincide. The share conversion
option relating to the convertible bond has no dilutive effect as the market price of the shares was
lower than the exercise price of the option itself from the date of issue of the loan to December 31,
2020.
40.
DIVIDENDS PER SHARE
The Board of Directors meeting on March 2, 2020 Pirelli & C.S.p.A. resolved to approve the proposal
to distribute a unit dividend of euro 0.183. However, this resolution was subsequently cancelled by
the Board of Directors meeting on April 3, 2020 as part of the Covid-19 containment actions.
41.
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 is the only Group company operating in a hyperinflation country.
458
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
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, 2020 the official inflation index of 37.8%
was used.
Losses on the net monetary position were recorded in the Income Statement as “Financial expenses”
(Note 37) to the amount of euro 6,592 thousand.
42.
NON-RECURRING EVENTS
Pursuant to CONSOB Communication No. DEM/6064293 of July 28, 2006, information regarding
the impact of non-recurring events and transactions on the Group’s Income Statement, Statement
of Financial Position and Financial Statement is presented below:
(in millions of euro)
Equity
Net income/(loss) Cash flow
Financial statement (a)
Operating costs
Total impact non recurring items (b)
Total adjusted (a-b)
4,551.9
(11.2)
(11.2)
4,563.1
42.7
(11.2)
(11.2)
53.9
806.1
(9.2)
(9.2)
815.3
The impact on the consolidated Income Statement items is detailed as follows:
(in millions of euro)
Personnel expenses:
- UK pension fund buy-out
Impact on operating income
Impact on net income/(loss) before tax
Impact on net income/(loss)
2020
(11.2)
(11.2)
(11.2)
(11.2)
43.
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.
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Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
The following table summarises the items from the Statement of Financial Position, the Income
Statement and the Statement of Cash Flows which include related party transactions and their
relative impact.
The effects of the related party transactions contained in the Income Statement and the Statement
of Financial Position on the consolidated data for Pirelli Group were as follows:
STATEMENT OF FINANCIAL POSITION
(in millions of euro)
12/31/2020
of which related
parties
% incidence
12/31/2019
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
Other payables
Provisions for liabilities and charges
Provisions for employee benefit obligations
Current liabilities
Borrowings from banks and other financial institutions
Trade payables
Other payables
Provisions for employee benefit obligations
INCOME STATEMENT
(in millions of euro)
Revenue from sales and services
Other income
Raw materials and comsumables used (net of changes in inventories)
Personnel expenses
Other costs
Financial income
Financial expenses
Net income / (loss) from equity investments
CASH FLOW
(in thousands of euro)
Net cash flow operating activities:
Change in Trade receivables
Change in Trade payables
Change in Other receivables
Change in Other payables
Uses of Provisions for employee benefit obligations
Net cash flow investing activities:
(Acquisition) of investments in associates and J.V.
Change in Financial receivables from associates and J.V.
Net cash flow financing activities:
402.1
597.7
469.2
4,971.0
77.3
73.3
243.9
883.6
1,268.0
374.3
5.0
5.8
1.4%
342.4
5.6
1.6%
12.8
111.3
14.7
0.2
5.9
2.4
2.2
134.6
6.7
3.0
2.1%
23.7%
0.3%
0.3%
8.1%
1.0%
0.2%
10.6%
1.8%
60.2%
649.4
451.9
3,949.8
90.6
120.5
203.0
1,419.4
1,611.5
402.8
4.1
9.8
45.2
17.4
0.2
3.1
-
2.3
171.9
7.5
2.3
1.5%
10.0%
0.4%
0.2%
2.5%
n.a.
0.2%
10.7%
1.9%
55.0%
2020
of which related
parties
% incidence
2019
of which related
parties
% incidence
4,302.1
306.3
(1,280.4)
(949.7)
(1,466.3)
146.4
(302.9)
(5.3)
15.1
49.4
(4.9)
(15.0)
(241.8)
2.3
(0.9)
(5.6)
0.4%
16.1%
0.4%
1.6%
16.5%
1.6%
0.3%
n.a.
5,323.1
486.3
(1,741.2)
(1,072.2)
(1,713.4)
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%
0.9%
0.4%
n.a.
2020
of which related
parties
% incidence
2019
of which related
parties
% incidence
(35.3)
(184.6)
21.9
60.6
(37.2)
-
(64.1)
(4.0)
0.4
(6.9)
2.5
(2.3)
-
(64.1)
n.a.
n.a.
n.a.
n.a.
n.a.
-
n.a.
n.a.
(44.6)
18.8
(32.2)
(47.4)
(43.0)
(8.9)
(13.4)
5.8
(19.7)
30.6
(2.6)
(2.9)
(8.9)
(13.4)
(101.2)
(1.9)
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Repayment of principal and payment of interest for lease obligations
(99.9)
(2.9)
460
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
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
INCOME STATEMENT
(in millions of euro)
Revenues from sales and services
Other income
Raw materials and consumables used (net of change in inventories)
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
Change in Financial receivables from associates and J.V.
Repayment of principal and payment of interest for lease liabilities
Net cash flows provided by / (used in) investing activities
12/31/2020
5.8
5.8
6.9
102.3
88.8
13.7
1.7
30.6
12/31/2019
5.6
5.6
3.4
40.7
26.5
15.4
1.6
36.2
2020
12.8
3.4
(2.6)
(98.2)
2.3
(0.5)
(5.6)
2020
(3.6)
(5.2)
(1.2)
(64.1)
(2.2)
-
2019
19.0
6.8
(0.4)
(85.4)
1.0
(0.6)
(9.7)
2019
0.2
13.1
11.9
(13.4)
(1.6)
(8.9)
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 to the Chinese joint
venture Jining Shenzhou Tyre Co., Ltd.
The item other current receivables mainly refers to:
receivables for Pirelli Tyre S.p.A. for royalties, from PT Evoluzione Tyres and Jining
Shenzhou Tyre Co., Ltd. to the amount of euro 2.5 million each;
receivables for the sale of materials and moulds to the Joint Stock Company “Kirov Tyre
Plant” to the amount of euro 4.1 million;
461
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
receivables for service fees for the Pirelli Tyre Co., Ltd from Jining Shenzhou Tyre Co., Ltd.
to the amount of euro 2 million.
The financial portion refers to two loans:
one granted by Pirelli Tyre Co., Ltd to Jining Shenzhou Tyre Co., Ltd. for euro 88.8 million;
the other granted by Pirelli Tyre S.p.A. to the Indonesian joint venture PT Evoluzione Tyres
for euro 5.1 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 a portion of
the aforementioned short-term 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 10 million, as well as to royalties charged to
PT Evoluzione Tyres and to Jining Shenzhou Tyre Co., Ltd. for a total of euro 2.7 million.
The item other income refers mainly to the recharging of labour costs.
The item other costs mainly refers to costs for:
the purchase of tyres from Jining Shenzhou Tyre Co., Ltd. to the amount of euro 44.8 million;
the purchase of motorcycle products from PT Evoluzione Tyres to the amount of euro 30.8
million;
the purchase of energy and machine hire from Industriekraftwerk Breuberg Gmbh to the
amount of euro 15.4 million.
The item financial income refers to interest on the loans disbursed to the two joint ventures.
462
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
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.
Also included is the remuneration paid to Directors and Key Managers.
STATEMENT OF FINANCIAL POSITION
(in millions of euro)
Trade receivables
Other current receivables
Borrowings from banks and other financial institutions non-current
Other non-current payables
Provisions for liabilities and charges non-current
Provisions for employee benefit obligations non-current
Borrowings from banks and other financial institutions current
Trade payables
Other current payables
Provisions for employee benefit obligations current
INCOME STATEMENT
(in millions of euro)
Revenues from sales and services
Other income
Raw materials and consumables used (net of change in inventories)
Personnel expenses
Other costs
Financial income
Financial expenses
CASH FLOW
(in millions of euro)
Change in trade receivables
Change in trade payables
Change in Other receivables
Change in Other payables
Uses of Provisions for employee benefit obligations
Repayment of principal and payment of interest for lease liabilities
12/31/2020
5.9
9.0
1.0
0.2
5.9
2.4
0.5
104.0
6.7
3.0
2020
2.3
46.0
(2.3)
(15.0)
(143.5)
0.1
(0.4)
2020
(0.5)
5.6
(5.7)
2.5
(2.3)
(0.7)
12/31/2019
6.4
4.4
2.0
0.2
3.1
-
0.6
135.7
7.5
2.3
2019
0.3
68.0
(3.7)
(14.5)
(185.5)
0.1
(0.4)
2019
5.6
(32.8)
18.7
(2.6)
(2.9)
(0.3)
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 7.4 million and from the Aeolus Tyre Co., Ltd. to the amount of euro 1.6 million.
463
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
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
Endüstriyel ve Ticari Lastikler A.S. to the amount of euro 0.7 million and to the payables of Pirelli
Pneus Ltda to the Prometeon Tyre Group Industria Brasil LTDA to the amount of euro 0.3 million.
The item current borrowings from banks and other financial institutions refers to the short-term
portions of the previously mentioned debts.
The item trade payables almost exclusively refers to payables to companies of the Prometeon
Group to the amount of euro 102.7 million.
The item other current payables mainly refers to other current payables to companies of the
Prometeon Group to the amount of euro 5.7 million.
Transactions - Income statement
The item other income includes recognised royalties regarding the Aeolus Tyre Co., Ltd. in respect
of the license agreement stipulated in 2016 to the amount of 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 agreement for the use of the Pirelli trademark to the
amount of euro 13.2 million;
the sale of raw materials, finished and semi-finished products for the total amount of euro 7.6
million, of which euro 5.8 million was carried out by Pirelli Pneus Ltda;
the licence agreement for know-how charged by Pirelli Tyre S.p.A. to the amount of euro 6.5
million;
the Long-Term Service Agreement to the amount of euro 5.7 million of which euro 2.7 million
was earned by Pirelli Sistemi Informativi S.r.l. and euro 1 million by Pirelli Pneus Ltda;
logistic services for a total of euro 1.1 million, rendered by the Spanish company Pirelli
Neumaticos S.A. - Sociedad Unipersonal.
The decrease in other income compared to the same period of the previous financial year was mainly
attributable to lower sales of raw materials, finished and semi-finished products, as well as the
renegotiation of royalties for know-how for 2020 only.
The item raw materials 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
1 million was carried out by the Brazilian company Pirelli Pneus Ltda and euro 0.6 million by the
Turkish company Pirelli Otomobil Latikleri A.S.
464
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
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 79.7 million, of which euro 64.5
million was carried out by the Brazilian company Comercial e Importadora de Pneus Ltda and
subsequently resold to retail customers and euro 4.1 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 36.3
million of which euro 34.2 million was carried out by the Turkish company Pirelli Otomobil
Latikleri A.S. in respect of the off-take contract and euro 2.1 million by Pirelli Pneus Ltda for
the purchase of inner tubes for tyres;
costs to the amount of euro 6 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 S.p.A. and the Prometeon Group.
Benefits for key managers of the Company
Statement of Financial Position and Income Statement transactions regarding Directors and Key
Managers can be summarised as follows:
-
-
-
the Statement of Financial Position items provisions for liabilities and charges and
provisions for employee benefit obligations – non-current, include long-term benefits to
the amount of euro 5.9 million and euro 2.4 million, respectively, relative to the monetary
three-year 2020-2022 Long Term Incentive Plan, as well as employee leaving indemnities;
the Statement of Financial Position item provisions for employee benefit obligations –
current, includes short-term benefits for the year (euro 3 million), relative to the fourth
installment of the retention plan;
the Income Statement items personnel expenses and other costs, include the
remuneration for the financial year equal to euro 15 million (euro 14.5 million for 2019) and
euro 7.5 million (euro 7.2 million for 2019) respectively. It should be noted that the amounts
mentioned include euro 1.2 million relative to employees’ leaving indemnity (TFR) and
retirement benefits (euro 1.5 million for 2019), as well as short-term benefits to the amount
of euro 6.1 million (euro 7 million for 2019), and long-term benefits to the amount of euro 4.4
million.
465
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
NON-FINANCIAL DISCLOSURES ON CLIMATE CHANGE
With regard to non-financial disclosures, and in particular the risks relating to climate change as well
as the objectives of sustainable development and the main international commitments for
sustainability, reference should be made to the relevant sections of the Report on Responsible
Management on the Value Chain within this Annual Report.
SIGNIFICANT EVENTS SUBSEQUENT TO THE END OF THE YEAR
During January and February 2021, Pirelli repaid some of its maturing debt in advance, which had
been scheduled for 2021 and 2022 to the total amount of euro 838 million. In particular, a tranche of
the “Schuldschein” loan, to the amount of euro 82 million with original maturity on July 31, 2021 was
repaid, plus a portion of the unsecured (“Facilities”) loan to the amount of euro 756 million with
original maturity in 2022, was repaid. These repayments, for which part of the liquidity raised in 2020
was used, made it possible to reduce financial expenses, thereby optimising the financial structure
of the debt.
On February 25, 2021 Pirelli announced the terms of the termination of the employment relationship,
effective February 28, 2021, with the General Manager, co-CEO Angelos Papadimitriou, already
announced to the market on January 20, 2021.
In accordance with the current Remuneration Policy of the Pirelli Group, the Board of Directors
granted to Mr. Papadimitriou, in addition to the amounts due by way of compensation and other legal
benefits accrued up to the date of his termination: (i) 10 months’ gross annual remuneration as a
redundancy incentive, equal to the value of what would have been the compensation in lieu of notice,
based on conventional seniority recognised at the time of recruitment as an executive, to be paid by
April 20, 2021; (ii) euro 100,000 gross by way of a general novative settlement, to be paid once the
termination has been defined in accordance with the existing labour law procedures, by April 20,
2021, as well as the maintenance until December 31, 2021 of certain non-monetary benefits granted
at the time of recruitment as an executive. As provided for at the time of his recruitment, subordinate
to the suspensory condition of the approval of the 2021 Remuneration Policy by the Shareholders’
Meeting, Mr. Papadimitriou will be bound, for the two years following his termination of office as
Director, to a non-compete agreement, valid for the main countries in which Pirelli operates, in
exchange for a consideration, for each year, equal to 100% of his gross annual remuneration, to be
paid in 8 deferred quarterly instalments starting from July 1, 2021. The non-compete agreement
includes a non-solicit clause as well as penalties, in the event of any breach of the obligations
pursuant to the non-compete agreement.
On March 24, 2021, in order to provide support for the execution of the Industrial Plan, the Executive
Vice Chairman and CEO, Marco Tronchetti Provera, decided to propose the appointment of Giorgio
Luca Bruno to the office of Deputy-CEO, which reports directly to him.
This proposal - shared with the Chairman of the Board of Directors, Ning Gaoning, and the
Nominations and Successions Committee, whose Directors were informed - aims also at
466
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
strengthening the management team in view of the future succession path in-line with the Procedure
already adopted by the Company, and provides that the Deputy-CEO may also contribute to the
development of internal management. The Executive Vice Chairman and CEO will therefore propose
on March 31, to the Board of Directors, to invite the Shareholders’ Meeting scheduled for June 15,
2021, to appoint Giorgio Luca Bruno as a Director, and will also propose that once appointed as a
Director, he assumes the role of Deputy-CEO.
Following the proposal, Angelos Papadimitriou renounced his candidacy for Director. Therefore, the
Shareholders’ Meeting, which met on the same date with, amongst other things, his reappointment
on the Agenda, decided to postpone the appointment of a new Director until June 15, which the
Board of Directors will nominate in the person of Giorgio Luca Bruno. Angelos Papadimitriou, who
had previously been co-opted, has therefore ceased to be a Director. The Shareholders’ Meeting,
also approved, during an extraordinary session, the convertibility of the “euro 500 million Senior
Unsecured Guaranteed Equity-linked Bonds due 2025”, issued on December 22, 2020, as well as
approved a divisible share capital increase, with the exclusion of option rights, to service the
conversion of the aforementioned bond, for a total counter-value, including any share premium, of
euro 500 million. On the basis of the initial conversion ratio of the Bond Loan of euro 6.235 this
increase will correspond to the issue of a maximum of 80,192,461 Pirelli & C. ordinary shares
(notwithstanding that the maximum number of Pirelli & C. ordinary shares could increase on the
basis of the effective conversion ratio applicable from time to time).
On March 31, 2021, the Board of Directors approved the 2021-2022|2025 Industrial Plan, which was
presented to the financial community on the same date. For further information, reference should be
made to the section “Outlook for the five-year period” in this document.
44.
OTHER INFORMATION
Research and Development expenses
Research & Development expenses for 2020 amounted to euro 194.6 million and represented 4.5%
of sales and mainly included expenses destined for High Value activities (euro 182.5 million, equal
to 6.0% of High Value revenues). Research and development costs refer to expenses for product
and process innovation, as well as to the development of new materials. For further details, reference
should be made to the section “Research and development activities” within the Directors’ Report
on Operations in this document.
467
Pirelli & C. S.p.A. – 2020 Annual Report
Consolidated Financial Statements
Remuneration for Directors and Statutory Auditors
The compensation paid to the Directors and Statutory Auditors was as follows:
(in thousands of euro)
Directors
Statutory Auditors
Total
2020
5,507
315
5,822
2019
6,020
315
6,335
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
2020
2019
6,082
23,708
898
30,688
6,755
23,920
993
31,668
Remuneration for Independent Auditors
Pursuant to the applicable laws, the total fees for the 2020 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
79
1,147
1,222
150
334
33
150
-
5
2,448
78%
517
17%
155
3,120
5%
100%
1) the item "certification services" indicates the amounts paid for other services that require the issuance of an auditor’s report, as w ell as the amounts paid for the so-called certification services, as they are
concomitant w ith the statutory auditing services
Information required by Law No.124 / 2017 art. 1 paragraphs 125-129
Pirelli Tyre S.p.A. also obtained a non-refundable grant from the Lombardy Region for euro 1,695
thousand and euro 2,462 thousand for the implementation of two research and development projects
468
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
on Safety and Smart Manufacturing issues, for which euro 1,695 thousand and euro 972 thousand
were received during the year, respectively. With reference to the agreement signed with the MiSE
(Ministry of Economic Development) during the previous year for the subsidisation of three R&D
projects, for up to a maximum of euro 6.3 million in total for the current year, the Company has
completed the approval process with the submission of the final applications for subsidies and the
subsequent preliminary assessments by the competent body.
For the purposes of providing complete information, it should be noted that during the 2018 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.
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 2020 financial year that no exceptional and/or unusual transactions as defined in the
aforesaid Notice were carried out by the Company.
469
Pirelli & C. S.p.A. – 2020 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
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 Yuan
Russian Rouble
British Pound
Japanese Yen
12/31/2020
12/31/2019
10.0375
10.4489
1.5896
1.5633
1.6218
1.2271
34.4742
1.0802
19.3879
9.0079
4.8694
103.2605
24.4791
18.0219
6.3779
8.0067
90.6824
0.8990
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
126.4900
121.9400
Change
in %
(3.94%)
(0.62%)
7.09%
7.33%
9.23%
2.32%
(0.48%)
7.15%
35.44%
1.89%
53.48%
15.63%
14.23%
40.78%
2.16%
30.78%
5.67%
3.73%
Average exchange rates
Change in
%
2020
2019
10.4862
10.5907
(0.99%)
1.6549
1.5300
1.5742
1.1422
33.6519
1.0705
18.1303
8.0186
4.8376
103.2605
24.5637
18.7655
5.8989
7.8802
82.4781
0.8897
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
121.8458
122.0058
2.73%
3.00%
3.07%
2.03%
(2.74%)
(3.77%)
(3.95%)
26.25%
1.95%
53.48%
13.92%
16.01%
33.55%
2.04%
13.94%
1.36%
(0.13%)
470
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
NET FINANCIAL POSITION
(Alternative performance indicators not provided for by the accounting standards)
(in thousands of euro)
Note
12/31/2020
31/12/2019
Current borrowings from banks and other financial institutions
Current derivative financial instruments (liabilities)
Non-current borrowings from banks and other financial institutions
Non-current derivative financial instruments (liabilities)
Total gross debt
Cash and cash equivalents
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
of which
related parties
(note 43)
of which
related parties
(note 43)
2,192
1,419,404
2,267
14,693
(88,769)
(5,826)
31,703
3,949,836
10,327
5,411,270
(1,609,821)
(38,119)
(35,503)
(32,090)
3,695,737
(52,515)
(135,996)
3,507,226
17,386
(26,486)
(5,617)
23
27
23
27
19
12
15
27
27
15
883,567
53,926
4,970,986
87,601
5,996,080
(2,275,476)
(58,944)
(102,574)
(34,766)
3,524,320
-
(265,945)
3,258,375
* Pursuant to Consob Notice of July 28, 2006 and in compliance with ESMA/2013/319 Recommendations
** The item “financial receivables and other assets” is reported net of the relative provision for impairment which amounted to euro 8,505 million at
December 31, 2020 (euro 8,651 million at December 31, 2019).
471
Pirelli & C. S.p.A. – 2020 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-
Technik GmbH)
Greece
Elastika Pirelli C.S.A.
Tyre
Tyre
Tyre
Tyre
Tyre
Tyre
Breuberg /
Odenwald
Breuberg /
Odenwald
Breuberg /
Odenwald
Breuberg /
Odenwald
Hoechst /
Odenwald
Breuberg /
Odenwald
Tyre
Elliniko-
Argyroupoli
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
73.20%
Elastika Pirelli C.S.A.
472
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
Business Headquarter
Currency Share Capital
% holding
Held by
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.
Tyre
Tyre
Services
Services
Tyre
Milan
Milan
Milan
Milan
Settimo
Torinese (To)
Pirelli International Treasury S.p.A.
Finance
Milano
Pirelli Servizi Amministrazione e
Tesoreria S.p.A.
Services
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
Milan
Milan
Milan
Milan
Milan
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
Euro
40,000,000
100.00%
Pirelli Tyre S.p.A.
125,000,000
70.00%
Pirelli Tyre S.p.A.
30.00%
Pirelli & C. S.p.A.
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
64.50%
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.
473
Pirelli & C. S.p.A. – 2020 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 5,000,000
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 2,189,797,300
100.00%
Pirelli Tyre S.p.A.
Russia
Closed Joint Stock Company
"Voronezh Tyre Plant"
Limited Liability Company Pirelli Tyre
Services
Tyre
Voronezh Russian Rouble 1,520,000,000
100.00%
Limited Liability Company Pirelli
Tyre Russia
Tyre
Moscow Russian Rouble 54,685,259
95.00%
Pirelli Tyre (Suisse) SA
Limited Liability Company "Industrial
Complex "Kirov Tyre"
Limited Liability Company Pirelli Tyre
Russia
Tyre
Tyre
Kirov Russian Rouble 348,423,221
100.00%
5.00%
Pirelli Tyre S.p.A.
Limited Liability Company Pirelli
Tyre Russia
Moscow Russian Rouble 6,153,846
65.00%
E-VOLUTION Tyre B.V.
474
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 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.
Pirelli Neumaticos S.A. - Sociedad
Unipersonal
Tyre & Fleet S.L. - Sociedad
Unipersonal
Sweden
Tyre
Barcellona
Euro 302,303
66.20%
Tyre
Valencia
Euro 25,075,907
100.00%
Tyre
Valencia
Euro 20,000
100.00%
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
Stockholm
Swed. Krona 31,000,000
100.00%
Pirelli Tyre S.p.A.
Pirelli Tyre Nordic Aktiebolag
Tyre
Stockholm
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
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
Tyre
Budapest
Hun. Forint 3,000,000
100.00%
Pirelli Tyre S.p.A.
St-Laurent
(Quebec)
Tyre
New York
(New York)
Rome
(Georgia)
Tyre
Tyre
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.
Prestige Stores LLC
Tyre Los Angeles
US $ 10
100.00%
Pirelli Tire LLC
475
Pirelli & C. S.p.A. – 2020 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.
Pirelli Comercial de Pneus Brasil
Ltda.
Tyre
Sao Paulo
Bra. Real 381,473,982
100.00%
Pirelli Comercial de Pneus Brasil
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
Campinas
(Sao Paulo)
Tyre
Bra. Real 14,000,000
100.00%
Pirelli & C. S.p.A.
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.
Elias Fausto
(Sao Paulo)
Tyre
Bra. Real
89,812,000
60.00%
40.00%
Pirelli Pneus Ltda
Pirelli Comercial de Pneus Brasil
Ltda.
TLM - Total Logistic Management
Serviços de Logistica Ltda.
Chile
Tyre Santo Andrè
Bra. Real 3,074,417
99.99%
Pirelli Pneus Ltda
0.01%
Pirelli Ltda
Pirelli Neumaticos Chile Ltda
Tyre
Santiago
US $ 3,520,000
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 11,260,032,348
99.83%
Pirelli Tyre S.p.A.
0.17%
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.
476
Consolidated Financial Statements
Pirelli & C. S.p.A. – 2020 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.
South Africa
Pirelli Tyre (Pty) Ltd
Tyre Gauteng 2090
S.A. Rand 1
100.00%
Pirelli Tyre (Suisse) SA
0.06%
0.06%
Pirelli Tyre S.p.A.
Pirelli Tyre (Suisse) SA
Oceania
Australia
Pirelli Tyres Australia Pty Ltd
Tyre
Pyrmont
Aus. $ 150,000
100.00%
Pirelli Tyre (Suisse) SA
Asia
China
Pirelli Taiwan Co. Ltd
Pirelli Trading (Beijing) Co., Ltd.
Pirelli Tyre (Jiaozuo) Co., Ltd.
Pirelli Tyre Co., Ltd
Pirelli Tyre Trading (Shanghai) Co.,
Ltd
Korea
Pirelli Korea Ltd
Japan
Tyre
Tyre
Tyre
Tyre
New Taipei
City
N.T. $ 10,000,000
100.00%
Pirelli Tyre (Suisse) SA
Beijing
Ch. Yuan 4,200,000
100.00%
Pirelli Tyre S.p.A.
Jiaozuo
Ch. Yuan 350,000,000
80.00%
Pirelli Tyre S.p.A.
Yanzhou
Ch. Yuan 2,071,150,000
90.00%
Pirelli China Tyre N.V.
Tyre
Shanghai
US $ 700,000
100.00%
Pirelli China Tyre N.V.
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
477
Pirelli & C. S.p.A. – 2020 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
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. Yuan
1,050,000,000
49.00%
Pirelli Tyre S.p.A.
Jining Shenzhou Tyre Co, Ltd
Tyre
Jining City
Ch. Yuan
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.
478
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
FINANCIAL STATEMENTS
AT DECEMBER 31, 2020
479
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
STATEMENT OF FINANCIAL POSITION (in euro)
Note
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Investments in associates
Other financial assets
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
Employee benefit obligations
Tax payables
Derivative financial instruments
Current liabilities
Total Liabilities and Equity
8
9
10
11
12
13
17
14
13
15
16
17
18
19
23
20
24
21
17
19
22
23
21
25
17
12/31/2020
12/31/2019
of which related
parties (Note 39)
of which related
parties (Note 39)
76,326,337
2,273,753,812
4,633,665,637
6,374,501
41,073,518
2,000,575,034
2,000,000,000
-
9,031,768,839
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
30,268,648
80,567,655
76,654,853
23,774,954
21,725,022
1,166,741,332
1,154,822,631
2,347,951,637
2,327,043,431
1,741,849
32,675,745
2,894,124
1,284,620,705
10,316,389,544
1,904,374,936
2,162,640,657
540,084,129
43,956,054
4,651,055,776
4,623,295,428
538,238
11,105,042
524,338,063
8,463,592
109,696,906
5,277,437,269
307,349,886
27,570,277
25,312,098
2,447,901
11,985,460
13,230,877
387,896,499
10,316,389,544
31,368,963
2,894,124
211,511
5,925,871
1,349,130
109,696,906
2,084,327
3,080,055
6,575,851
1,697,946
11,756,578
13,230,877
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
211,511
3,065,355
-
9,588,636
252,124
4,770,882
14,565,091
1,099,996
17,387,827
5,084
480
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
INCOME STATEMENT (in euro)
Note
2020
of which related
parties (Note 39)
2019
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
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
Net income (loss) before taxes
Taxes
Total net income of the year
27
28
29
30
31
32
33
34
35
36
37
53,485,963
124,405,233
(228,201)
(49,952,080)
(9,916,348)
(108,667,961)
(23,024)
9,103,582
39,650,001
1
(14,000,000)
53,650,000
68,152,687
(104,537,534)
12,368,736
31,587,318
43,956,054
53,336,756
111,602,641
(8,909,020)
(20,456,756)
(14,000,000)
53,650,000
30,994,080
(34,837,663)
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
481
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
STATEMENT OF COMPREHENSIVE INCOME (in euro)
Note
2020
2019
A
Net income of the year
- Remeasurement of employee benefits
- Tax effect
- Fair value adjustment of other financial assets at fair value through other
comprehensive income
B
Items that may not 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
C
D
Items reclassified / that may be reclassified to income statement
Total other components of comprehensive income (B+C)
A+D
Total comprehensive income / (loss) for the financial year
21
12
17
17
17
17
43,956,054
273,241,811
(18,491)
4,438
(16,129,415)
(95,957)
21,120
(366,374)
(16,143,468)
(441,211)
(118,508,558)
120,951,632
(586,338)
4,682,676
(5,022,200)
81,486
1,598,698
(14,544,770)
29,411,284
69,841,426
(78,130,940)
1,989,483
5,350,715
(7,627,777)
546,495
(8,030,598)
(8,471,809)
264,770,002
482
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
STATEMENT OF CHANGES IN EQUITY (in euro)
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
Share
Capital
Legal
Reserve
Share Concentration
Reserve
Premium
Other
reserves
IAS Reserves *
Merger
Reserve
Reserve from
results carried
Net result
of the year
Total
Reserve
forward
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(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
Result carried forward as per resolution of June 18, 2020
Bond conversion reserve
Other components of comprehensive income
Result for the year
Total comprehensive income/(loss) for the year
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
41,199,808
-
-
-
-
-
(14,544,770)
-
(14,544,770)
-
-
-
-
-
273,241,811
(273,241,811)
-
-
-
-
-
-
-
41,199,808
(14,544,770)
43,956,054
43,956,054
43,956,054
29,411,284
Total at 12/31/2020
1,904,374,936
380,874,988
630,380,599
12,466,897
133,734,599
(17,744,141)
1,022,927,715
540,084,129
43,956,054
4,651,055,776
(in euro)
BREAKDOWN OF IAS RESERVES *
Balance at 12/31/2018
Other components of comprehensive income
Other changes
Balance at 12/31/2019
Other components of comprehensive income
Balance at 12/31/2020
Reserve for fair value
adjustment of financial
assets at fair value
through other
comprehensive income
10,972,470
(366,374)
31,475
10,637,571
(16,129,415)
(5,491,844)
Reserve for cost of
hedging
Cash flow hedge
reserve
Reserve
Remeasurement
for employee
benefit
Tax effect
Total IAS
Reserves
6,835,817
(2,277,062)
-
4,558,755
(339,524)
4,219,231
(17,037,448)
(8,289,514)
-
2,019,748
(95,957)
-
2,450,376
2,557,098
-
5,240,963
(8,471,809)
31,475
(25,326,962)
1,923,791
5,007,474
(3,199,371)
2,443,074
(18,491)
(500,414)
(14,544,770)
(22,883,888)
1,905,300
4,507,060
(17,744,141)
483
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
Note
2020
of which related
parties (Note 39)
2019
of which related
parties (Note 39)
31
32
36
34
34
28
14
22
13
23
16
21
20
8
8
9
10
12
34
13
35
19
19
18
36
19
12,368,736
9,916,348
11,834,568
36,384,847
261,003,967
8,253,996
2,623,933
3,843,583
23,750,395
(91,212,624)
(53,650,000)
(53,650,000)
(268,903,476)
13,999,999
13,999,999
(2,065)
(263,841,647)
(7,939,419)
-
1,909
-
(56,815,726)
(54,929,831)
11,505,912
10,627,130
8,307,914
13,731,447
(1,690,827)
(3,070,023)
(1,784,032)
247,000
5,316,000
1,367,000
(5,745,869)
(5,517,611)
(17,055,252)
(14,282,767)
9,237,046
9,237,046
45,327,218
45,961,314
(2,119,269)
(1,099,996)
(38,459,199)
(48,948,576)
(2,671,000)
4,683,035
(858,351)
-
-
53,650,000
54,803,684
(552,734)
(1,965,000)
(3,146,200)
63,641,315
(165,500)
21,000
(1,554,334)
53,650,000
(75,883,269)
(75,883,269)
9,431,000
268,270,519
200,119,416
263,841,647
(827,567,175)
(821,528,964)
(204,828,000)
(204,802,000)
24,606,201
24,524,783
43,889,329
43,840,121
2,427,978,000
(1,557,746,749)
-
1,120,930,986
(1,100,556,252)
(177,000,000)
(67,338,777)
22,625,758
(43,508,386)
52,134,229
(5,798,851)
(5,867,352)
(12,244)
1,754,093
1,741,849
(2,698,417)
(363,770,741)
(100,010,010)
101,764,103
1,754,093
CASH FLOW STATEMENT (in euro)
Net income (loss) before taxes
Reversals of amortisation, depreciation, impairment losses
Reversal of accruals
Reversal of Financial income/(financial expenses)
Reversal of Dividends
Reversal of (gain)/losses on investments
Reversal of Gains/losses from sales of property,plant and equipment and intangible assets
Net taxes paid
Change in Trade receivables
Change in Trade payables
Change in Other receivables
Change in Other payables
Change in Tax receivables/Tax payables
Use of Provisions for employee benefit obligations
Use of 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) of other non current financial assets at fair value through other
comprehensive income
Dividends received
B Net cash provided/(used) by investment activities
Change in Financial receivables
Financial income
Change in Borrowings from banks and other financial institutions due to draw down
Change in Borrowings from banks and other financial institutions due to repayments
Dividends paid
Financial expenses
Cash outflow for lease obligations
C Net cash provided/(used) by financing activities
D Total net cash generated/(used) in the year (A+B+C)
E Opening balance of Cash and cash equivalents
F Closing balance of Cash and cash equivalents (D+E)
484
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
EXPLANATORY NOTES
1. GENERAL INFORMATION
Pirelli & C. S.p.A. (hereinafter also the “Company” or the “Parent Company”) is a corporation
organized 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.
The audit of the financial statements is entrusted to PricewaterhouseCoopers S.p.A. pursuant to
Legislative Decree January 27, 2010 no. 39 and in execution of the resolution of the shareholders’
meeting of August 1, 2017, which assigned the mandate to this company for each of the nine financial
years ending from December 31, 2017 to December 31, 2025.
Pirelli & C. S.p.A. is directly controlled by Marco Polo International Italy S.r.l., a company 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 31, 2021, the Board of Directors authorised publication of these Annual Financial
Statements (“Annual Financial Statements or Separate Financial Statements”).
Significant Events 2020
Following the Covid-19 emergency, in the first three months of 2020, Pirelli activated a series of
measures to protect the health of employees and the community at both the Headquarters and the
factories, the production of which, first in China and then in the rest of the world, has progressively
slowed and subsequently stopped. During the second quarter, after the restart of operations already
in China, the other Group plants also gradually restarted production, initially at a slower pace, taking
into account the drop in demand.
On March 2, 2020, the Pirelli Board of Directors approved the 2019 financial statements of Pirelli &
C. S.p.A. that closed with a profit of euro 273,242 thousand and resolved to propose to the
shareholders’ meeting the distribution of a unit dividend of euro 0.183 for a total of euro 183 million.
On April 3, 2020, as part of the containment actions of Covid-19, the Board of Directors subsequently
cancelled the distribution of dividends for the 2019 financial year, modifying the previous resolution.
485
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
On March 31, 2020, Pirelli announced that it had signed a new euro 800 million credit line with an
incentive mechanism linked to product and process environmental sustainability objectives and with
a 5-year maturity used mainly to repay existing debt. The company has also extended the maturity
of a euro 200 million credit line by more than one year (to September 2021 from June 2020). These
transactions are part of the constant optimisation and strengthening actions of Pirelli’s financial
structure.
On October 28, 2020, the EU Court of Justice confirmed the previous decisions of the EU Court and
the EU Commission regarding the cartel in the electricity cables market, which had imposed a
pecuniary sanction on Prysmian Cavi e Sistemi S.r.l., for a part of which (euro 67,310,000) Pirelli
had been called to jointly respond with Prysmian in the exclusive application of the EU principle of
parental liability. In this regard, Pirelli had already filed a bank guarantee of euro 33,655,000 in favour
of the EU Commission (corresponding to 50% of the fine imposed jointly on Prysmian and Pirelli) in
addition to interest. The payment by Pirelli of the aforementioned portion of the fine to which it is
entitled, the value of which had already been accrued in its provisions for risks and charges, took
place on December 31, 2020. It should be noted that since 2014, a judgement brought by Pirelli
before the Court of Milan has also been pending, aimed at obtaining the assessment and declaration
of the obligation of Prysmian to hold Pirelli harmless from any claim relating to the cartel, including
the sanction imposed by the EU Commission.
On December 15, 2020, Pirelli placed euro 500 million of non-interest bearing unsecured
guaranteed equity-linked senior bonds maturing in 2025 convertible, subject to approval by the
shareholders’ meeting, into Pirelli shares. The bonds were issued at a price equal to 100.0% of the
nominal value, with a conversion price of euro 6.235 per share (equal to a 45% premium on the
reference price of the transaction of euro 4.3 per share). This financing makes it possible to optimise
the debt profile, extending its maturities, and to preserve the cash generated by the business, thanks
to the non-interest bearing nature of the bonds. The proceeds deriving from the issue of the bonds
can be used both for the general activities of the Group and for the refinancing of part of the existing
debt. The bond was admitted to trading on the Vienna MTF, a multilateral trading facility managed
by the Vienna Stock Exchange.
2.
BASIS FOR PREPARATION
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. Please refer to the Explanatory Notes to the Consolidated
Financial Statements on the considerations regarding the actions implemented in response to the
Covid-19 emergency, confirming the assumption of business continuity. The description of the ways
in which the Company manages financial risks is contained in Chapter 4 Financial risk management
policy and Chapter 6 Capital management policy of these Notes.
486
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
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 on the basis of the historical cost criterion with the
exception of the following items valued 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, 2020 consist of the Statement of Financial
Position, the Income Statement, the Statement of Comprehensive Income, the Statement of
Changes in Equity, the Statement of Cash Flows and the Explanatory Notes, and are accompanied
by the Directors’ Report on Operations.
The format adopted for the Statement of Financial Position classifies assets and liabilities as current
and non-current.
The 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 Comprehensive Income Statement.
The Income Statement adopted classifies costs by nature.
The Statement of Comprehensive Income includes the result for the period and, for homogeneous
categories, the revenues and costs which, in accordance with IFRS, are recorded 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.
487
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
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 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.
The indicators are as follows:
the carrying amount of the investment in the separate financial statements exceeds the
carrying amount 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 company in the year to which the 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;
488
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
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 carrying amount 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, less costs to sell,
and value in use.
For the purposes of impairment testing, the fair value of an investment in a subsidiary, associate or
joint venture with shares listed on an active market is always equivalent to its market value,
irrespective of the percentage of ownership. In the case of investments in unlisted companies, the
fair value is determined using estimates based on the best information available.
For the purposes of determining the value in use of a subsidiary and associate, the future net
operating cash flows are estimated, discounted net of the net financial position of the company
considered at the reference date of the estimate (Discounted Cash Flow criterion – Asset side). 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.
Impairment of financial receivables from subsidiaries and associates
The impairment of financial receivables from subsidiaries and associates is calculated with reference
to the expected losses in the following twelve months. This calculation is based on a matrix that
includes the ratings of the companies provided by independent market operators. In the event of a
significant increase in credit risk after the date of origin of the credit, the expected loss is calculated
with reference to the entire life of the credit. The Company assumes that the credit risk relating to a
financial instrument has not increased significantly after initial recognition, if it is determined that the
financial instrument has a low credit risk at the reporting date.
The Company assesses whether there has been a significant increase in credit risk when the
counterparty’s credit rating, as assigned by independent market participants, undergoes a change
that shows an increase in the probability of default. The Company considers a financial asset to be
in default when internal or external information indicates that the Company is unlikely to receive the
489
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
full contractual amount past due (for example, when receivables have been referred to the legal
department).
Dividends
Dividend income is recognised in the Income Statement when the right to receive payment is
established, which normally corresponds to the resolution approved by the Shareholders’ Meeting
for the distribution of dividends.
3.1
Accounting standards and interpretations endorsed and in force from January 1, 2020
In accordance with IAS 8 “Accounting standards, changes in accounting estimates and errors”, the
IFRS effective from January 1, 2020 are indicated below:
•
Amendments to IFRS 3 “Business Combinations”
These amendments introduced a new business definition, 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.
There are no impacts 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” – Definition of relevant
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.
There are no impacts on the Financial Statements and disclosures of the Company.
•
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 in the presence of changes in rates.
The effects of these amendments on interest rate hedging transactions carried out by the Company
are continuously monitored. There are no impacts until LIBOR is replaced by the new benchmark
rate (expected in 2021).
490
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
•
Amendments to IFRS 16 Leases – reductions in fees related to Covid-19
These amendments introduce an optional accounting treatment for lessees in the presence of
reductions in permanent (rent holidays) or temporary fees related to Covid-19.
Lessees can choose to account for lease reductions occurring up to June 30, 2021 as variable lease
payments recognised directly in the income statement for the period in which the reduction applies,
or treat them as a modification of the lease contract with the consequent obligation to remeasure the
lease payable based on the revised fee using a revised discount rate. These lease reductions were
treated as variable lease payments, and therefore recognised directly in the income statement for
the period. The positive impact on the 2020 income statement was euro 111 thousand.
3.2
International accounting standards and/or interpretations issued but not yet in force
in 2020
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, 2020, 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 by the Group.
Amendments to IAS 1 - Presentation of Financial Statements - Classification of liabilities as
current or non-current
The amendments clarify the principles that must be applied for the classification of liabilities as
current or non-current. These amendments, which will come into force on January 1, 2022, have
not yet been endorsed by the European Union. No significant impacts are expected on the
classification of financial liabilities following these amendments.
Amendments to IAS 16 - Property, plant and machinery - Fees received before intended use
These amendments prohibit deducting from the cost of property, plant and machinery amounts
received from the sale of products, while the asset is being prepared for its intended use. The
proceeds from the sale of the products, and the related production cost must be recorded in the
income statement.
These amendments, which will come into force on January 1, 2022, have not yet been approved
by the European Union. No significant impacts are expected on the Company’s Financial
Statements following these amendments.
491
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
Amendments to IAS 37 - Provisions, contingent liabilities and contingent assets - Onerous
contracts - Costs of fulfilling a contract
These amendments specify the costs to be taken into account when evaluating onerous
contracts.
These amendments, which will come into force on January 1, 2022, have not yet been approved
by the European Union. No significant impacts are expected on the Company’s Financial
Statements following these amendments.
Annual Improvements (cycle 2018 – 2020) issued in May 2020
These are amendments limited to some standards (IFRS 1 First-time adoption of IFRS, IFRS 9
Financial Instruments, IAS 41 Agriculture and illustrative examples of IFRS 16 Leases) that clarify
the formulation or correct omissions or conflicts between the requirements of IFRS. These
amendments, which will come into force on January 1, 2022, have not yet been endorsed by the
European Union. No significant impacts are expected on the Company’s Financial Statements
following these amendments.
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Reference interest rate reform
(IBOR reform – phase 2)
These amendments concern the operating methods by means of which to manage the impacts
deriving from the replacement of the current reference interest rates (benchmark) with alternative
interest rates, in particular:
the introduction of a practical expedient for accounting for changes in the basis on which
the contractual cash flows of financial assets and liabilities are calculated;
the introduction of some exemptions relating to the termination of hedging;
the temporary exemption from the obligation to separately identify a risk component
(where such separate component subject to hedging is represented by an alternative
interest rate);
the introduction of some additional disclosures regarding the impacts of the reform.
These amendments, which will come into force on January 1, 2021, have already been endorsed
by the European Union. The impacts on the Company’s Financial Statements are being
analysed.
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.
492
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
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 aims to minimise the impact of transaction exchange rate risk related to volatility. To
achieve this objective, Group procedures make the Operating Units responsible for collecting
complete information about the assets and liabilities that are subject to transaction exchange rate
risk. This risk is hedged with forward contracts made with the Group Treasury.
The items subject to exchange rate risk are mainly represented by receivables and payables
denominated in foreign currency.
The Group Treasury is responsible for hedging the net position for each currency and, in accordance
with established guidelines and restrictions, it closes all risk positions by trading derivative contracts
on the market, which typically take the form of forward contracts.
The Group has decided not to opt for hedge accounting pursuant to IFRS 9, insofar as the
representation of the economic and financial effects of the hedging strategy on foreign exchange
rate risk is still substantially guaranteed even without adopting such option.
Furthermore, it shall be noted that as part of the annual and three-year planning process, exchange
rate forecasts are made using the best information available on the market. The fluctuation in
exchange rates between the time when the forecast is made and the time when the commercial or
financial transaction occurs represents the exchange rate risk on future transactions.
From time to time, the Group assesses the need to engage in hedging transactions on future
transactions for which it typically uses both forward and optional purchase or sale transactions such
as risk reversal (e.g. zero cost collar). Hedge accounting in accordance with IFRS 9 is used when
the conditions are met.
493
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
With reference to some foreign currency loans, the Company enters into derivative contracts, cross
currency interest rate swaps, to hedge for which hedge accounting is activated in compliance with
the requirements of IFRS 9.
The effects on the shareholders’ equity and on the income statement of the Company deriving from
changes in exchange rates calculated on the hedging instruments in place at December 31, 2020
are described in Note 17 “Derivative financial instruments”.
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.
The following is an outline of the effects on net arising from an increase or decrease of 0.50% in the
level of interest rates, with all other conditions being equal:
(in thousands of euro)
+0.50%
-0.50%
Impact on Net income (loss)
(4,982)
505
4,982
(505)
12/31/2020
12/31/2019
12/31/2020
12/31/2019
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,
2020 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 14,076 thousand (euro 24,892 thousand at
December 31, 2019) and those represented by securities indirectly associated with listed shares
(Fin. Priv. S.r.l.) amounted to euro 15,902 thousand (euro 20,565 thousand at December 31, 2019);
these financial assets represent 73% 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
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Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
euro 704 thousand of the Company’s shareholders’ equity (positive for euro 1,245 thousand at
December 31, 2019), while a -5% negative change of these listed securities, other things being
equal, would result in a negative change of euro 704 thousand of the Company’s shareholders’
equity (negative for euro 1,245 thousand at December 31, 2019).
Credit risk
Credit risk represents the Company’s exposure to contingent losses resulting from default by
commercial and financial counterparties.
The Company’s exposure to 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.
Cash is deposited according to risk diversification principles and in compliance with minimum rating
levels. Specifically, as of December 31, 2020, cash and cash equivalents totaling 1,742 thousand
euros were held in the company’s current accounts with domestic credit institutions with credit ratings
of Baa1 according to Moody’s and BBB according to Standard & Poor’s ratings
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.
495
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
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.
Furthermore, the Group adopts an extremely prudent approach with respect to the maturities of its
financial debt, with refinancing well in advance in order to minimize the risks associated with liquidity
crises or market shut-downs.
At December 31, 2020, the Company had, aside from cash equal to euro 1,742 thousand (euro 1,754
thousand at December 31, 2019), unused credit facilities equal to euro 700,000 thousand (euro
700,000 thousand at December 31, 2019) maturing Q2 2022.
The maturities of financial liabilities at December 31, 2020 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
347,480
7,301
27,570
25,312
13,180
413,542
from 1 to 2
years
1,683,574
7,073
-
538
90,838
1,774,950
12/31/2020
from 2 to 5
years
3,068,653
19,393
-
-
2,865
3,071,518
over 5 years
Total
22,821
22,821
-
-
-
22,821
5,122,528
56,587
27,570
25,850
106,883
5,282,831
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
5.
INFORMATION ON FAIR VALUE
5.1
Fair value measurement
In relation to financial instruments measured at fair value, the following table shows the classification
of these instruments on the basis of the hierarchy of levels pursuant to IFRS 13, reflecting the
significance of the inputs used in determining the fair value. The levels are as follows:
level 1 – unadjusted quotations recorded on an active market for assets or liabilities subject to
valuation;
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Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
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 the assets measured at fair value at December 31, 2020, 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
12/31/2020
Level 1
Level 2
Level 3
17
17
12
12
17
17
17
17
17
-
2.894
38.288
2.786
-
-
43.968
(13.226)
-
(109.697)
(122.923)
-
-
14.076
-
-
-
14.076
-
2.894
15.903
2.786
-
-
21.583
-
-
-
-
(13.226)
-
(109.697)
(122.923)
-
-
8.309
-
-
-
8.309
-
-
-
At December 31, 2019, 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
12/31/2019
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
-
-
-
-
The following table shows the changes of financial assets that occurred in level 3:
(in thousands of euro)
Opening balance
Fair value adjustments through other comprehensive income
Closing balance
12/31/2020
7,799
510
8,309
12/31/2019
7,372
427
7,799
497
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
These financial assets mainly consist of the equity investment in Istituto Europeo di Oncologia
(European Institute of Oncology) (euro 7,962 thousand).
In the year ended December 31, 2020, 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 of the Financial Statements. These instruments, included in level 1,
primarily comprise equity investments classified as financial assets at fair value through other
comprehensive income.
The fair value of financial instruments not traded on active markets (e.g. derivatives) is determined
by the use of evaluation 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 cross currency interest rate swaps is calculated by discounting estimated future
cash flows based on observable yield curves;
the fair value of foreign exchange derivatives (forward contracts) is determined by using the
forward exchange rate at the reporting date.
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Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
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
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
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
Note
12/31/2020
12/31/2019
17
17
13
14
13
15
12
17
17
17
19
19
22
23
23
19
19
17
17
-
2,894
2,894
2,000,575
80,568
1,166,741
1,742
3,249,626
11
-
11
620
23,775
2,347,952
1,754
2,374,100
41,074
57,203
-
-
-
10,143
30,269
40,412
3,293,594
2,471,727
13,231
5
4,579,366
301,571
27,570
538
25,312
4,934,357
43,929
5,779
49,708
-
109,697
109,697
3,541,694
675,542
19,262
212
32,107
4,268,817
35,479
2,747
38,226
-
9,589
9,589
Total financial liabilities
5,106,994
4,316,637
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, as
also reported in the section on “Outlook for the next five years” in the Management Report on
Operations.
499
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
7.
ESTIMATES AND ASSUMPTIONS
The preparation of the Separate Financial Statements entails Management making estimates and
assumptions which, under certain circumstances, are based on difficult and subjective assessments
and estimates that are based on historical experience, and assumptions that are periodically
considered reasonable and realistic in light of the circumstances. Therefore, the actual results
achieved may differ from said estimates. Estimates and assumptions are reviewed periodically and
the effects of any changes made to them are reflected in the Income Statement in the period in which
the estimate is revised. If such estimates and assumptions, based on the best evaluation currently
available, should differ from actual circumstances, they will be modified accordingly in the period of
the change of the circumstances. The estimates and assumptions mainly refer to the valuation of
the recoverability of intangible assets with indefinite useful life and of the investments in subsidiaries,
to the determination of payables for leases and rights of use, to the determination of taxes (current
and deferred), and to the recognition/valuation of provisions for risks and charges. These estimates
and assumptions take into account the effects deriving from the Covid-19 pandemic, which have had
particular impacts on the assessment of the recoverability of intangible assets with indefinite useful
life, on the determination of taxes (current and deferred) and on the assessment of the recoverability
of investments in subsidiaries. These impacts are described in the explanatory notes to which
reference is made for further details.
Pirelli Brand (intangible assets with indefinite useful life)
The Pirelli Brand is an intangible asset with indefinite useful life not subject to amortisation, 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, 2020 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, 2020
is the Fair Value, calculated on the basis of the income approach (Level 3 of the hierarchy of IFRS
13 – Fair Value measurement). The key assumptions used by management are the estimate of
future increases in sales, their growth rate beyond the explicit forecast period, the royalty rate, and
the discount rate, which is based on the weighted average cost of capital plus a bonus determined
based on the riskiness of the specific asset.
Rights of use and lease payables
With regard to the estimates and assumptions used to determine lease payables and rights of use,
the application of IFRS 16 introduced some elements of professional judgement and the use of
500
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
assumptions and estimates in relation to the lease term, to the definition of the incremental borrowing
rate. The standards are summarised as follows:
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 of contracts 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 including 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
example, the Company is already negotiating a new contract or has already given notice to the
lessor).
Investments in subsidiaries
Investments are assessed to establish whether there was a decrease in value, to be recognised with
impairment, if there are indications that it will be difficult to recover their net accounting value. 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 loss 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. In particular, the key assumptions used by management are the
estimate of future increases in sales, operating cash flows, the growth rate of operating cash flows
beyond the explicit forecast period to estimate the terminal value and the weighted average cost of
capital (discount rate).
501
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
Provisions for risks and charges
Provisions are set aside against legal and fiscal risks related to indirect taxes, representing the risk
of losing lawsuits. 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)
- Tangible assets
- Rights of use
Net Value
12/31/2020
12/31/2019
33,988
42,338
76,326
34,878
32,490
67,368
502
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
8.1
Owned tangible assets
The breakdown and changes of these items are as follows:
(in thousands of euro)
12/31/2020
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
NET VALUE
(in thousands of euro)
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
5,245
44,179
2,787
1,891
14,938
-
-
(21,866)
(1,820)
(1,011)
(10,355)
-
5,245
22,313
967
880
4,583
-
69,040
(35,052)
33,988
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
12/31/2019
Increases
Decreases
Riclassif.
Depreciation
12/31/2020
6,584
24,040
247
6
3,836
165
34,878
-
45
884
949
793
-
2,671
(1,339)
(355)
(33)
-
(16)
-
(1,743)
-
1
98
-
66
(165)
-
-
(1,418)
(229)
(76)
(95)
-
(1,818)
5,245
22,313
967
879
4,584
-
33,988
12/31/2018
Increases
Decreases
Business
combination
Depreciation
12/31/2019
6,584
25,535
453
9
4,046
-
36,627
-
-
-
-
-
165
165
-
-
-
-
(21)
-
(21)
-
-
-
-
15
-
15
-
(1,495)
(206)
(3)
(203)
-
(1,907)
6,584
24,040
247
6
3,836
165
34,878
The increases are mainly due to the purchase by the company of plant, equipment and furniture for
the new company canteen.
The decreases in the year mainly refer to the sale of the land located in Settimo Torinese and the
building and related land located in Milano, on which gains of approximately euro 8,000 thousand
euro were realised, as outlined in Note 28.
Financial expenses were not capitalised on property, plant and equipment.
503
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
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
12/31/2020
12/31/2019
40,588
1,750
42,338
30,327
2,163
32,490
Rights of use on buildings mainly refer to contracts relating to offices.
Rights of use on other assets mainly refer to contracts relating to motor vehicles. 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.
The increases in rights of use in 2020 amounted to euro 14,506 thousand (euro 550 thousand in
2019) for new office lease contracts.
There were no reassessments or changes to significant contracts in 2020.
At December 31, 2020, 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
2020
4,839
792
5,631
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”.
504
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
9.
INTANGIBLE ASSETS
The items in question and the related changes are detailed as follows:
(in thousands of euro)
12/31/2019
Increase
Business
combination
Amortisation
12/31/2020
Pirelli Brand - indefinite life
Software licenses
Other intangible assets
Assets under construction
Total
2,270,000
489
4,875
-
2,275,364
-
357
276
225
858
(in thousands of euro)
12/31/2018
Increase
Business
combination
Pirelli Brand - indefinite life
Software licenses
Other intangible assets
Total
2,270,000
833
2,831
2,273,664
-
-
2,111
2,111
-
-
-
-
-
-
-
1,912
1,912
-
(279)
(2,189)
-
(2,468)
2,270,000
567
2,962
225
2,273,754
Amortisation
12/31/2019
-
2,270,000
(344)
(1,979)
(2,323)
489
4,875
2,275,364
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
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 costs for the purchase of application software (euro 218
thousand).
No impairment was carried out in 2020.
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, but, pursuant to IAS 36, to impairment annually or more
frequently, if specific events or circumstances occur which may lead to the presumption of
impairment.
The impairment test at December 31, 2020 was performed using the assistance of an independent
third-party professional.
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Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
The recoverable value configuration for the purposes of the impairment test at December 31, 2020
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:
-
the same revenue streams used for the purpose of impairment testing of goodwill in the
consolidated financial statements, i.e., revenues lower than those in the plan, in order to
take account of analysts’ consensus estimates as external evidence; for the purposes of
determining the recoverable value of the brand, given that the value configuration is Fair
Value, the benefits deriving from expansion investments were not sterilized;
- 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 4.62%. With reference to the contribution in terms
of royalties from the Prometeon Tyre Group, the royalty rates envisaged in the
outstanding contracts were used;
- discount rate of 8.34%, which includes a premium with respect to WAAC determined on
the basis of the risk of the specific asset;
- growth rate “g” in the terminal value assumed to be zero;
- TAB (Tax Amortization Benefit), which is the tax benefit that could potentially benefit the
market participant that acquired the asset separately due to the possibility of fiscally
amortizing it.
For the purposes of the impairment test, the recoverable value of the Pirelli Brand cum TAB is
compared with the respective carrying amount (cum TAB) and no impairment has emerged.
The recoverable value is higher than the carrying amount of the Brand (19.5%) while, in order for
the Fair Value to be equal to the carrying amount, a worsening variation of the key parameters is
necessary and in particular:
decrease in the royalty rates of the Consumer valuation units of 77 basis points and the
simultaneous cancellation of royalties from the license contract with Prometeon Tyre Group;
increase in the discount rate of 144 basis points;
a negative growth rate “g” of -265 basis points.
506
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
10.
INVESTMENTS IN SUBSIDIARIES
At December 31, 2020, this item amounted to euro 4,633,666 thousand compared to euro 4,647,666
thousand at December 31, 2019, 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
Write-downs
Closing balance
12/31/2020
230
1,315
6,346
9,666
3,238
1,655
4,528,245
7,871
75,000
100
4,633,666
12/31/2020
4,647,666
-
(14,000)
4,633,666
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
12/31/2019
4,568,324
79,342
-
4,647,666
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 subsidiaries on which it
was necessary to carry out the test were Pirelli Tyre S.p.A, Pirelli UK Ltd and Pirelli Ltda.
With specific reference to the investment in the subsidiary Pirelli Tyre S.p.A., the carrying amount
was compared to the recoverable value identified as the value in use, which was calculated starting
from the value in use of Consumer Activities estimated for the purposes of the impairment test of
goodwill in the consolidated financial statements, which represent the Pirelli Group as a whole,
adjusted downwards for the recoverable value of the assets of Pirelli & C. S.p.A. other than the
investment in Pirelli Tyre S.p.A. (for example the Pirelli brand) and activities that do not generate
operating flows and that decrease the Net Financial Position of Pirelli Tyre S.p.A. There were no
resulting impairment losses.
With specific reference to the investment in the subsidiary Pirelli UK Ltd, the carrying amount was
compared to the recoverable value identified as the carrying amount of equity. The impairment test
determined the need for an impairment of euro 14 million of the investment in Pirelli UK Ltd.
The impairment test of the investment in the subsidiary Pirelli Ltda did not give rise to impairment
losses.
507
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
Further details are set out in the Annexes to the Explanatory Notes.
11.
INVESTMENTS IN ASSOCIATED COMPANIES
At December 31, 2020, this item amounted to euro 6,375 thousand, unchanged compared to
December 31, 2019, 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
12/31/2020
104
6,271
6,375
12/31/2019
104
6,271
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 41,074 thousand at December 31, 2020 (euro 57,203
thousand at December 31, 2019).
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
12/31/2020
12/31/2019
14,076
24,892
15,902
2,786
7,962
348
41,074
20,565
3,947
7,465
334
57,203
The changes in the year are shown below:
(in thousands of euro)
Opening balance
Adjustment to fair value recognised in other comprehensive income
Closing balance
57,203
(16,129)
41,074
The fair value adjustments in the other components of the statement of comprehensive
income mainly refer to the investments in RCS MediaGroup S.p.A (negative for euro 10,816
thousand), in Fin.Priv. S.r.l. (negative for euro 4,663 thousand), in Fondo Comune di investimento
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Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
Anastasia (negative for euro 1,161 thousand), in Istituto Euroopeo di Oncologia (positive for euro
497 thousand) and in Nomisma - Società di Studi Economici S.p.A. (positive for euro 13 thousand).
The fair value of listed securities corresponds to the stock market price at December 31, 2020. 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
Financial receivables from third parties
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
2,307
3,151,544
5,000
267
3,705
3,390
943
160
3,167,316
12/31/2020
Non-current
-
2,000,000
-
267
308
-
-
-
2,000,575
Current
Total
2,307
1,151,544
5,000
-
3,397
3,390
943
160
1,166,741
2,554
2,317,507
-
268
11,212
9,368
6,982
681
2,348,572
12/31/2019
Non-current Current
-
-
-
268
352
-
-
-
620
2,554
2,317,507
-
-
10,860
9,368
6,982
681
2,347,952
Financial receivables from subsidiaries include the current portion of the short-term use of a long-
term credit line (maturity 31/1/2023) disbursed in favour of Pirelli International Treasury S.p.A. for an
amount of euro 1,140 million, the receivable for interest accrued not yet paid on the same line for
euro 9,923 thousand and the relation with Pirelli International Treasury S.p.A. relating to the interest-
bearing current account, regulated at interest rates market for euro 1,622 thousand (at December
31, 2019 equal to euro 284,051 thousand).
The amount shown in non-current other financial receivables from subsidiaries refers to an existing
loan with Pirelli International Treasury S.p.A. taken out on January 31, 2020 with maturity on January
31, 2023.
For the purposes of applying the IFRS 9 accounting standard in relation to loans to Group
companies, management has made an estimate of the expected credit losses in the 12 months
following the closing of the financial statements. The analysis takes into consideration qualitative,
quantitative, historical and prospective information to determine whether the intra-group loan has a
credit risk at December 31, 2020. Using a probability of default of a Pirelli & C. Group loan
considering their equity-financial situation, the management of the company concluded that any
impairment required by the standard would be of an insignificant amount.
Current financial receivables of euro 5,000 thousand refer to an escrow account established
following the sale of a property, released in the first days of March.
Receivables from the tax authorities for taxes not related to income for euro 3,390 thousand
mainly refer to receivables for VAT, which decreased compared to the previous year.
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Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
Accrued financial assets refer to portions of interest accrued but not yet collected on cross
currency interest swap derivative contracts related to the unsecured syndicated financing “Facilities”
granted to Pirelli & C. S.p.A.
Deferred financial assets relate mainly to the commissions on the revolving and term loan credit
line.
The carrying amount of financial receivables and other receivables approximates their fair value.
14. TRADE RECEIVABLES
Trade receivables amounted to euro 80,568 thousand compared to euro 23,775 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
12/31/2020
76,578
3
4,630
81,211
(643)
80,568
12/31/2019
21,486
3
2,906
24,395
(620)
23,775
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
Total
% of total trade
receivables
% of total trade
receivables
12/31/2020
74,625
111
1,556
4,919
81,211
92%
0%
2%
6%
100%
12/31/2019
20,657
-
619
3,119
24,395
85%
0%
2%
13%
100%
Receivables from subsidiaries at December 31, 2020 mainly include the amounts that Pirelli & C.
S.p.A. charges for services rendered through Corporate functions and charge-backs of costs. The
aforementioned receivables are due within the financial year and do not show past due balances of
significant amount.
Receivables from other companies of euro 4,630 thousand (euro 2,906 thousand at December
31, 2019), shown gross of the provision for bad debts of euro 643 thousand, are past due for euro
1,566 thousand.
Past due 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”.
510
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
Impaired receivables include both significant positions impaired separately, and positions with similar
characteristics in terms of credit risk, grouped and impaired 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
12/31/2020
620
23
-
643
12/31/2019
2,970
96
(2,446)
620
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, 2020, they amounted to euro 1,742 thousand, against euro 1,754 thousand at
December 31, 2019 and refer to balances of bank accounts in euro repayable on demand.
The credit risk associated with cash and cash equivalents is to be considered limited because the
counterparties are represented by leading national and international banking institutions.
It is believed that the value of cash and cash equivalents is in line with their fair value.
16. TAX RECEIVABLES
At December 31, 2020, they amounted to euro 32,676 thousand (euro 31,744 thousand at December
31, 2019).
The amount mainly includes:
receivables from Group companies participating in the tax consolidation for euro 31,369
thousand (euro 29,828 thousand at December 31, 2019). The increase compared to the
previous year substantially depends on the greater contribution of the positive taxable result
by the subsidiary Pirelli International Treasury S.p.A.;
receivables for IRAP advances for euro 125 thousand (euro 925 thousand at December 31,
2019).
511
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
17. DERIVATIVE FINANCIAL INSTRUMENTS
The item includes the fair value of derivative instruments. The breakdown is as follows:
(in thousands of euro)
12/31/2020
12/31/2019
Non Current
Assets
Current
Assets
Non Current
Liabilities
Current
Liabilities
Non Current
Assets
Current
Assets
Non Current
Liabilities
Current
Liabilities
Without adoption of hedge accounting
Forex instruments - trade positions
Forex instruments - included in net financial position
Derivatives for interest rate - included in net financial position
In hedge accounting
- cash flow hedge:
Derivatives for interest rate
Other derivatives instruments
Total derivative instruments
-
-
-
-
-
-
25
2,642
227
-
-
-
(5)
(13,226)
-
-
-
-
11
-
-
-
-
(9,733)
(99,964)
-
-
449
29,820
-
10,143
2,894
(109,697)
(13,231)
30,269
10,154
-
-
-
(8,735)
(854)
(9,589)
(5)
-
-
-
-
(5)
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 are transactions that mirror
Company commercial and financial transactions for which the hedge accounting option was not
adopted. The fair value is determined by using the forward exchange rate at the reporting date.
The value of interest rate derivatives included in current assets refers to the fair value
measurement of five IRS basis swaps USD for a total notional of USD 1,761 million starting
September 2020 and duration of one year. These are hedging transactions of the basis 3 - 12 months
following the change in the period of interest on the underlying liability from 3 months to 12 months,
for which the hedge accounting option was not adopted. Through these IRS basis swaps, the
Company pays Libor USD 3 months that nets the proceeds from the pre-existing CCIRS on one side,
and collects Libor USD 12 months that will serve the interest flows on liabilities in USD liquidated on
a quarterly basis with annual fixing on the other.
Derivative financial instruments in hedge accounting
The value of interest rate derivatives recorded under current liabilities for euro 9,733 thousand
refers to the fair value of 6 interest rate swap contracts with the following characteristics:
Instrument
Covered Item
Notional
(in thousands of euro)
Start date
Deadline
Description
Term loan in Eur
Term loan in Eur
Term loan in USD + CCIRS
Schuldschein
Schuldschein
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
IRS
IRS
IRS
IRS
IRS
Total
512
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
For these derivatives, cash flow hedge accounting was adopted. Items subjected to hedge
accounting are:
-
-
floating rate bank lines denominated in Euro, and the related future cash flows (see note 19
Borrowings from Banks and other lenders);
the combination of a USD floating rate liability and a CCIRS or cross-currency interest rate
swap (Basis Swap).
The change in the fair value of the IRS for the year, negative for euro 3,770 thousand, was entirely
suspended in equity, while in the income statement, euro 2,382 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 5,361 thousand in the Company’s shareholders’ equity, while a -0.5% change in the same
curve would result in a negative change of euro 5,456 thousand in the Company’s shareholders’
equity.
The value of other derivatives, recognised as non-current liabilities for euro 99,964 thousand, refers
to the fair value measurement of 3 cross currency interest rate swaps with the following
characteristics:
Instrument
Notional
(in thousands of USD)
Start date
Deadline
Description
CCIRS
CCIRS
CCIRS
Total
681,690
170,422
908,920
1,761,032
July 2017
July 2019
July 2019
June 2022
June 2022
June 2022
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
changes in the LIBOR rate and changes in the USD/EUR exchange rate, generated by a liability in
USD at variable rate with a notional value of USD 1,761,032 thousand (see note 19 Payables to
banks and other lenders).
The negative change in fair value for the year was suspended in equity for euro 110,056 thousand
(cash flow hedge reserve negative for euro 114,739 thousand and cost of hedging reserve positive
for euro 4,683 thousand), while euro 133,595 thousand was reversed to the income statement to
offset unrealised exchange rate gains recognised on liabilities hedged and euro 20,047 thousand
was instead reversed in the item “financial expenses” (Note 36), adjusting 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 6,638 thousand and a negative
net impact of euro 6,724 thousand on the shareholders’ equity of the Company.
513
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
A +10% change in the USD/EUR exchange rate, all other conditions being equal, would result in a
positive change of euro 378 thousand in the Company’s equity and euro 338 thousand in the Income
Statement; a negative 10% change, on the other hand, would entail a positive change of euro 307
thousand in the Company’s equity and of euro 337 thousand on the Income Statement.
IRS and CCIRS hedging relationships are considered prospectively effective when the following
conditions are met:
-
-
-
there is an economic relationship between the hedging instrument and the hedged item, as the
characteristics of the hedging instrument (nominal interest rate, interest rate reset and frequency
of interest payment) are substantially aligned with those of the hedged item. As a result, changes
in the fair value of the hedging instrument offset those of the hedged item on a regular basis;
the effect of credit risk is not predominant within the hedging relationship: according to the
Group’s operating rules, derivatives are only traded with high standing bank counterparties and
the credit quality of the outstanding derivatives portfolio is constantly monitored;
the designated hedge ratio is in line with that used for financial risk management purposes and
is 100% (1:1).
The ineffectiveness of the hedging relationship is calculated at each reporting date using the Dollar
Offset method, which involves comparing the risk-adjusted fair value changes of the hedging
instrument (except for those attributable to the currency basis spread) with the risk-free fair value
changes of the hedged item, through the identification of a hypothetical derivative with the same
characteristics as the underlying financial liability.
Possible causes of ineffectiveness are the following
-
-
application of credit risk adjustment 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;
- mismatch between the actual contractual terms of the future transaction and those of the
hedging instrument.
During September 2020, in accordance with the terms and conditions of the loan agreement, the
tenor of the reference rate of the hedged item was changed from USD Libor 1m to USD Libor 12m.
The change in the tenor of the reference rate of the underlying loan resulted in an ineffectiveness
due to the misalignment between the characteristics of the hedge item and the hedging instrument
amounting to euro 338 thousand, which was recognised in the income statement under “financial
expenses”, within net expenses on derivatives (Note 36).
18.
SHAREHOLDERS’ EQUITY
Equity amounted to euro 4,651,056 thousand (euro 4,580,445 thousand at December 31, 2019).
514
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
The statement of changes in equity is shown in the main financial statements.
Equity went from euro 4,580,445 thousand at December 31, 2019 to euro 4,651,056 thousand at
December 31, 2020. The positive change is essentially due to the net result for the year (positive for
euro 43,956 thousand), the creation of a reserve to accommodate the equity component relating to
the convertible bond (positive for euro 41,200), the adjustment to fair value of derivatives designated
as cash flow hedges (positive for euro 1,599 thousand) and to the adjustment to fair value of financial
assets at fair value recognised as other components of comprehensive income (negative for euro
16,129 thousand).
Share capital
The share capital at December 31, 2020, 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, 2019.
Legal reserve
The legal reserve at December 31, 2020 amounted to euro 380,875 thousand, unchanged compared
to December 31, 2019, having already reached the limit set by article 2430 Civil Code.
Share premium reserve
At December 31, 2020, the share premium reserve amounted to euro 630,381 thousand and
unchanged compared to December 31, 2019.
Concentration reserve
At December 31, 2020, concentration reserves amounted to euro 12,467 thousand and unchanged
compared to December 31, 2019.
Other reserves
At December 31, 2020, other reserves amounted to euro 133,735 thousand (euro 92,535 thousand
at December 31, 2019). The positive change is due to the reserve created to include in equity the
515
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
component related to the fair value of the option sold to subscribers of the convertible bond loan
issued during the year (positive for euro 41,200 thousand). Refer to Note 19.
IAS reserve
At December 31, 2020, the IAS reserves were negative for euro 17,744 thousand and refer to the
reserve for the fair value adjustment recognised in the statement of comprehensive income (negative
for euro 5,492 thousand), to the employee benefits remeasurement reserve (positive for euro 1,905
thousand) and the cash flow hedge reserve and the cost of hedging reserve, net of the tax effect
(negative for euro 14,157 thousand).
Merger reserve
At December 31, 2020, the merger reserve amounted to euro 1,022,928 thousand, unchanged
compared to December 31, 2019. 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 540,084 thousand compared to a 266,842
at December 31, 2019. The increase is to be attributed to the allocation of the entire 2019 result to
retained earnings as per the shareholders’ resolution of June 18, 2020.
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.
516
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
(in thousands of euro)
Amount
Possible use
Available
portion
Summary of reserves
uses in the last 3
previous years
Share capital
Share premium reserve
Legal reserve
Other reserves
- Concentration reserve
- Convertible bond loan Reserve
- Other Reserves
- IAS Reserves
- Merger Reserve
- Reserve from results carried forward
Total
Non distributable
Residual quota available
A to increase the share capital
B to cover losses
C to distribute to the shareholders
1,904,375
630,381
380,875
12,467
41,200
92,535
(17,744)
1,022,928
540,084
4,607,101
A, B, C
B
A, B, C
A
A, B
-
A, B, C
A, B, C
630,381
380,875
12,467
41,200
92,535
-
1,022,928
540,084
2,720,470
514,610
2,205,860
-
-
-
-
-
-
-
-
-
19.
BORROWINGS FROM BANKS AND OTHER LENDERS
The item borrowings from banks and other lenders, is broken down as follows:
(in thousands of euro)
Bonds
Borrowings from banks
Lease payables
Other financial payables
Accrued liabilities
Total borrowings from banks
and other financial institutions
The item bonds refers:
Total
1,524,500
3,336,716
49,708
7,335
12,386
12/31/2020
Not currents
1,442,650
3,136,716
43,929
-
-
Currents
81,850
200,000
5,779
7,335
12,386
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
4,930,645
4,623,295
307,350
4,255,462
3,577,173
678,289
-
to the non-interest bearing senior unsecured guaranteed equity-linked bond loan for a nominal
value of euro 500 million maturing December 22, 2025. The bond, reserved for institutional
investors, issued by Pirelli & C. S.p.A. on December 22, 2020, guaranteed by Pirelli Tyre S.p.A.
and admitted to trading on the Vienna MTF, multilateral trading facility managed by the Vienna
Stock Exchange. The bond loan is convertible, at the discretion of the bondholders, into new
ordinary shares of the Company at a price of euro 6.235 per share, subject to the anti-dilutive
adjustments envisaged by the loan regulations. The convertible bond loan is a compound
financial instrument, consisting of (i) a five-year loan at market rates and (ii) a call option sold to
the bond subscribers, represented by the right to convert the loan into new ordinary shares of
the Company at a predefined price. In accordance with the reference accounting standards, the
parent company Pirelli & C. S.p.A. has separately accounted for the two components of the loan,
recording, against an issue value of euro 500 million (euro 492,9 million net of transaction costs),
the fair value of the five-year loan (net of transaction costs) under financial payables, and the
fair value of the call option sold (net of transaction costs) under equity reserves, to the amount
of euro 451.7 million and euro 41.2 million, respectively;
517
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
-
-
-
the fair value of the five-year loan under financial payables, and the fair value of the call option
sold under equity reserves, respectively equal to euro 458.2 million and euro 41.8 million;
to the unrated bond, for a nominal amount of euro 553 million (originally euro 600 million 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 with an original maturity of 5 years. The
bond, guaranteed by Pirelli Tyre S.p.A. and placed with international institutional investors, was
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;
to the floating rate (Euribor + spread) “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.
The carrying amount of bonds was determined to be as follows:
(in thousands of euro)
Nominal value
Equity convertible bond component
Transaction costs
Bond discount
Non- monetary interest convertible bond loan
Amortisation of effective interest rate
Total
The breakdown of the item bonds is as follows:
(in thousands of euro)
Bonds as at 12/31/2019
Bond issues (Convertible bond)
Transactions costs
Bond repayments (EMTN program)
Reclassification of convertible option at issue date
Non-cash interest convertible bond
Amortised cost of the year
Bonds as at 12/31/2020
The following is the change in the item bonds for the previous year:
(in thousands of euro)
Bonds as at 12/31/2018
Amortised cost of the year
Bonds as at 12/31/2019
518
12/31/2020 12/31/2019
1,578,000
1,278,000
(41,791)
-
(15,133)
(7,683)
(2,988)
(2,988)
196
6,216
-
4,063
1,524,500 1,271,392
1,271,392
500,000
(8,041)
(200,000)
(41,200)
196
2,153
1,524,500
1,269,514
1,878
1,271,392
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
Borrowings from banks, amounting to euro 3,336,716 thousand, mainly refer to:
use of the unsecured loan (Facilities) granted to Pirelli & C. S.p.A. for euro 1,620,578 thousand,
classified under non-current payables. The nominal refinanced total subscribed to on June 27,
2017 (with a closing date of June 29, 2017), amounted to euro 2.45 billion (the net amount of
repayments made since the date of signing – the original amount of the credit facility granted
was euro 4.2 billion). The loan is guaranteed by Pirelli Tyre S.p.A., Pirelli Deutschland GmbH,
Pirelli Tyres Romania S.r.l. and Pirelli Pneus Ltda. 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.The
lines of credit are denominated in euros and US dollars and carry a floating interest rate of Euribor
+ spread and Libor + spread, respectively;
Sustainable Credit Line for euro 794,599 thousand relating to the credit line of euro 800 million
at variable rate (Euribor + spread) stipulated on March 31, 2020 with a pool of leading Italian and
international banks and with a 5-year maturity. The banking line is entirely sustainable, i.e.,
parametrised to the Group’s economic and environmental sustainability objectives and
guaranteed by Pirelli Tyre S.p.A.;
euro 921,538 thousand relating to three bilateral loans disbursed to Pirelli & C. S.p.A. by leading
banking institutions, of which nominal euro 600 million maturing in February 2024 at variable rate
(Euribor + spread) and guaranteed by Pirelli Tyre S.p.A., euro 200 million maturing in September
2021 at fixed rate, and euro 125 million with maturity August 2023 at variable rate (Euribor +
spread).
At December 31, 2020, the Company had a liquidity margin equal to euro 701,742 thousand
composed of euro 700,000 thousand of unused committed credit lines, and euro 1,742 thousand in
cash.
Below are the changes in borrowings from banks:
(in thousands of euro)
Borrowings from banks at 12/31/2019
Drawdown of unsecured financing (Facilities)
Reimbursements of unsecured financing (Facilities )
New bilateral borrowings
Transactions costs
Amortized cost for the period
Translation differences
Borrowings from banks at 12/31/2020
2,921,413
1,127,978
(1,342,297)
800,000
(10,520)
11,124
(170,982)
3,336,716
519
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
The change in total borrowings from banks for the previous year is shown below:
(in thousands of euro)
Borrowings from banks at 12/31/2018
Drawdown of unsecured financing (Facilities)
Reimbursements of unsecured financing (Facilities )
New bilateral borrowings
Transactions costs
Amortised cost of the year
Translation differences
Borrowings from banks at 12/31/2019
2,851,995
395,931
(1,097,498)
725,000
(4,100)
14,182
35,903
2,921,413
Lease liabilities 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)
Lease payables as at 12/31/2019
Increase of lease obligations
Remeasurement and early termination
Cash outflow for lease obligations - principal amount
Lease payables as at 12/31/2020
The change in total borrowings from banks for the previous year is shown below:
(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)
38,226
14,967
541
(4,026)
49,708
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 50,144 thousand at December 31, 2020 and
are not included in this item (euro 40,248 thousand at December 31, 2019).
The item other financial payables includes for euro 2,415 thousand the payable to shareholders
following the squeeze out operation, for euro 4,000 thousand the short-term portion of bank fees on
the sustainable credit line, for euro 900 thousand the short-term portion of the upfront fee on the
“Bilaterale 600” loan, and for euro 20 thousand fees on sureties.
The item accrued expenses essentially refers to interest that has accrued on the term loans but
has not yet been paid (euro 1,285 thousand) and to interest accrued on bonds for euro 8,990
thousand.
520
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
The carrying amount of current financial payables is considered to approximate their fair value. The
table below compares the fair value of non-current financial payables with their carrying amount:
(in thousands of euro)
Bonds
Borrowings from banks
Lease payables
Other financial payables
Total borrowings from banks and
other financial institutions - non current
12/31/2020
12/31/2019
Carrying amount
1,442,650
3,136,716
43,929
-
Fair value Carrying amount
1,071,476
1,465,120
2,469,318
3,160,117
35,479
43,929
900
-
Fair value
1,084,830
2,492,591
35,479
900
4,623,295
4,669,166
3,577,173
3,613,800
The public bonds issued by Pirelli & C. S.p.A. are listed on an active market and the related fair value
was measured with reference to its prices at the end of the year. It has therefore been classified in
level 1 of the hierarchy, as provided for by IFRS 13 – Fair Value Measurement. The fair value of the
“Schuldschein” loan and of current payables to banks was calculated by discounting each expected
borrowings cash flow at the market swap rate for the currency and at the maturity date, increased
by the Group’s creditworthiness for debt instruments similar by nature and technical characteristics,
which therefore places it at level 2 of the hierarchy as provided for by IFRS 13 – Fair Value
Measurement.
The distribution of payables to banks and other lenders by currency of origin of the payable at
December 31, 2020 and December 31, 2019 is as follows:
(in thousands of euro)
EUR
USD (Dollar USA)
Total
12/31/2020
3,499,002
1,431,643
4,930,645
12/31/2019
2,439,408
1,816,054
4,255,462
At December 31, 2020, there are hedging derivatives for interest rate and exchange rate on payables
at variable rate in foreign currency.
Considering the effects of the above-mentioned hedging derivatives, the Company’s exposure to
changes in interest rates on its financial debt, in terms of both the type of interest rate and the date
of resetting, breaks down as follows
-
-
floating rate debt totaling euro 2,006,594 thousand, the interest rate on which is subject to
renegotiation during 2021;
fixed rate debt totaling euro 2,924,051 thousand, the interest rate on which is not subject to
renegotiation until the natural maturity of the debt in question (euro 205,779 thousand falling
due in the next twelve months and euro 2,718,272 thousand falling due beyond twelve months).
With regard to the existence of financial covenants, it is noted that (i) Group’s main bank credit facility
(“Facilities”) granted to Pirelli & C. S.p.A. and Pirelli International Plc (currently usable only by, and
in its entirety by Pirelli & C.), (ii) the “Schuldschein” loan, (iii) the bilateral line of euro 600 million
granted to Pirelli & C. in the first quarter of 2019 (“Bilaterale 600”), (iv) the bilateral line of euro 125
million granted to Pirelli & C. in the third quarter of 2019 (“Bilaterale 125”) and (v) the “Linea di Credito
Sustainable” entered into March 31, 2020, require compliance with a maximum ratio (Total Net
521
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
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 will have the consequence, in cases of exercise of the relative
remedies by the lending banks (i) as part of the Facilities, only if requested by a number of lending
banks representing at least 66 2/3% of the total commitment, the early (partial or total) repayment of
the loan with simultaneous cancellation of the related commitment; (ii) as part of the Schuldschein
loan, individually and independently if requested by each lending bank for its portion, the early
repayment of the loan only for said portion; (iii) as part of both the Bilateral 600 and Bilateral 125, if
requested by the only bank that granted said loan, the termination of the contract and the early
repayment for the entire amount disbursed; and (iv) as part of the Sustainable Credit Line, only if
requested by a number of lending banks that represents at least 50% of the total commitment (or at
least 60% if an additional lending bank is added to the current four), the termination of the contract
and early repayment of the loan.
During the second quarter of 2020, the Group, in the new context strongly impacted by the Covid-
19 emergency, deemed it prudent to proactively approach its main lenders and obtain additional
flexibility for the emergency period (estimated until the end of 2021). The process was concluded
with the support of all lenders who agreed to review the terms of existing loans including the financial
covenant.
In relation to the above, it is noted that at December 31, 2020, no event of default or default has
occurred.
The Facilities, the Schuldschein loan, the Bilateral 600, the Bilateral 125 and the Sustainable Credit
Line also provide for Negative Pledge clauses and other usual provisions, 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, 2020 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, 2020 and December 31, 2019, determined in accordance with the provisions of Consob
communication DEM/6064293 of July 28, 2006 and in compliance with the ESMA/2013/319
Recommendations.
522
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
(in thousands of euro)
Note
12/31/2020
of which
related parties
(note 39)
12/31/2019
of which
related parties
(note 39)
Current borrowings from banks and other financial institutions
Current derivative financial instruments (liabilities)
Non-current borrowings from banks and other financial institutions
Non-current derivative financial instruments (liabilities)
Total gross debt
Cash and cash equivalents
Current financial receivables and other assets
Derivative financial instruments - assets
Net financial debt *
Non-current financial receivables and other assets
Derivative financial instruments
19
17
19
17
15
13
17
13
17
307,350
13,226
4,623,295
109,697
5,053,568
(1,742)
(1,157,648)
(2,869)
3,891,309
-
-
-
109,697
-
(1,152,488)
(2,869)
(2,000,267)
-
(2,000,000)
-
Total net financial (liquidity)/debt position
1,891,042
711,021
-
3,544,441
9,589
4,265,051
(1,754)
(2,325,160)
(10,154)
1,927,983
(268)
(30,269)
1,897,446
-
-
-
9,589
-
(2,324,489)
(10,143)
-
(30,269)
* Pursuant to Consob Notice of July 28, 2006 and in compliance with CESR recommendation of February 10, 2005 "Recommendations for the
consistent implementation of the European Commission regulation on Prospectuses".
20.
PROVISIONS FOR RISKS AND CHARGES
The following is a detail of changes of the item in question:
(in thousands of euro)
Provision for employees controversies
Provision for tax risks
Provision for environmental risks
Provision for other risks
Provision for liabilities and charges - non current portion
Closing balance
12/31/2019 Increases
632
-
1,180
3,450
Uses Reversals 12/31/2020
1,914
(152)
1,141
-
1,727
-
6,323
-
11,105
40,331 5,262 (34,336) (152)
(563)
-
(80)
(33,693)
1,997
1,141
627
36,566
40,331
5,262
(34,336)
(152)
11,105
Increases mainly refer to provisions for environmental reclamation, labour disputes and end-of-term
indemnity for directors.
The uses are mainly attributable to the payment of its share of the sanction in favour of the European
Commission for euro 33.6 million; in this regard, it should be noted that on October 28, 2020, the
Court of Justice of the European Union ultimately confirmed the legitimacy of the decision issued on
April 2, 2014 by the European Commission at the conclusion of the antitrust investigation launched
in relation to alleged restrictive conduct of competition in the European high voltage electrical cables
market. This decision had imposed a sanction against Prysmian Cavi e Sistemi S.r.l. (Prysmian) as
directly involved in the cartel, of which a part (euro 67 million), Pirelli, despite having been found to
not have been involved directly in the activities of 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 infringement, the capital of Prysmian was directly or indirectly held by Pirelli. In this
regard, Pirelli had provided the Commission (and at the latter’s request) with a bank guarantee of
euro 33.6 million (corresponding to 50% of the sanction imposed jointly on Prysmian and Pirelli) in
523
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
addition to interest, and had consequently made the appropriate allocations. On December 31, 2020,
Pirelli paid the aforementioned portion of the sanction in favour of the European Commission.
Reversals of excess funds are mainly related to the adjustment of provisions for labour disputes.
21.
PERSONNEL PROVISIONS
Personnel provisions amounted to euro 10,912 thousand (euro 6,311 thousand at December 31,
2019), and the breakdown is as follows:
(in thousands of euro)
Employee leaving indemnities (TFR)
Other benefits
Total employees' benefit obligation
Total
2,518
8,394
10,912
12/31/2020
Non current
2,518
5,946
8,464
Current
Total
-
2,448
2,448
2,672
3,639
6,311
12/31/2019
Non current
2,672
1,605
4,277
Current
-
2,034
2,034
Employee severance indemnity (TFR)
The changes in the year 2020 for the employee severance indemnity 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)
12/31/2020
2,672
12/31/2019
1,077
1,786
23
18
-
(1,981)
2,518
1,800
23
96
1,411
(1,735)
2,672
The amounts recognised in the income statement are included in the item “Personnel Costs” (note
30).
Net actuarial gains accrued in 2020, recognised directly in equity, amounted to euro 18 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
524
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
accrued since 2007 be allocated, on the employees’ option, either to the INPS Treasury Fund or to
supplementary pension schemes, assuming the nature of “Defined contribution plan”. In any case,
for all companies, the revaluations of the amounts outstanding at the option dates are still accounted
for under staff severance indemnities as well as, for companies with less than 50 employees, also
the portions accrued and not allocated to supplementary pensions.
The principal actuarial assumptions used at December 31, 2020 are as follows:
Discount rate
Inflation rate
2020
0.6%
1.0%
The main actuarial assumptions used at December 31, 2019 were as follows:
Discount rate
Inflation rate
2019
0.7%
1.0%
Hired employees at December 31, 2020 amounted to 345 units (353 units at December 31, 2019).
In other conditions being equal, a hypothetical change of 0.25% in the discount rate would result in
a decrease in liabilities equal to 1.81%, in the case of an increase (1.84% at December 31, 2019),
and an increase in liabilities of 1.84%, in the case of a decrease (1.88% at December 31, 2019).
Other employee benefits
The breakdown of other benefits is as follows:
(in thousands of euro)
Long-term incentive plans
Jubilee awards
Other benefits
Total
12/31/2020
Non current
12/31/2019
Non current
Total
Current
Current
-
4,253 4,253
-
1,692 1,692
2,448
- 2,034
8,394 5,946 2,448 3,639 1,605 2,034
- - -
1,605
-
2,034
- 2,448
1,605
Total
The item Long Term Incentive Plans relates to the amount allocated for the three-year monetary
Long Term Incentive 2020 - 2022 plan for Group management (to date around 260 participants)
approved by the Board of Directors on February 19, 2020 and correlated with the 2020 - 2022
Business Plan figures presented on the same date. On the occasion of the figures as at 30 June
2020, in order to take account of the radical changes in the macroeconomic scenario, the Board of
Directors instructed the Remuneration Committee to draw up a proposal to revise the incentive plan,
aligning the targets with the new guidance for 2020 communicated to the market on the same date
and with the targets of the new Business Plan for the years 2021 and 2022 approved by the Board
of Directors on 31 March 2021.
525
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
The other benefits for euro 2,448 thousand refer to the portion attributable to December 31, 2020
of the fourth installment of the retention plan that will be paid in the first half of 2021. The plan was
approved by the Board of Directors on February 26, 2018 and is intended for Key Managers and a
selected number of senior Managers and Executives.
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
12/31/2020
2,815
265
24,490
27,570
12/31/2019
4,562
102
14,598
19,262
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)
Payables to subsidiaries
Payables to social security and welfare institution
Payables to employees
Other payables
Accrued liabilities
Deferred income
Total other payable
Total
5,997
3,810
4,431
11,370
56
186
25,850
12/31/2020
Non-current
-
-
-
538
-
-
538
Current
Total
5,997
3,810
4,431
10,832
56
186
25,312
11,515
3,193
7,213
9,593
271
533
32,318
12/31/2019
Non-current
-
-
-
211
-
-
211
Current
11,515
3,193
7,213
9,382
271
533
32,107
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).
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.
For other current payables it is considered that the carrying amount approximates their fair value.
526
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
24.
PROVISION FOR DEFERRED TAX LIABILITIES
The deferred tax provision amounted to euro 524,338 thousand at December 31, 2020 (euro 538,902
thousand at December 31, 2019).
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
12/31/2020
114,631
46,362
68,269
(638,969)
(5,639)
(633,330)
(524,338)
12/31/2019
101,909
64,050
37,859
(640,811)
(1,842)
(638,969)
(538,902)
The breakdown of deferred tax assets related to temporary differences and tax losses carried
forward 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
Other
Total deferred tax assets
Provision for deferred tax liabilities
Brand Pirelli
Exchange differences not realised
Total provision for deferred tax liabilities
Total
12/31/2020
12/31/2019
1,533
-
2,202
126
34,596
66,306
5,253
4,480
135
114,631
(633,330)
(5,639)
(638,969)
(524,338)
665
65
1,037
120
24,080
54,501
16,010
4,984
446
101,909
-
(633,330)
(7,481)
(640,811)
(538,902)
At 31 December 2020, the value of unrecognised deferred tax assets relating to unlimited tax losses
that can be carried forward was euro 25,294 thousand (euro 30,048 thousand at December 31,
2019), while those relating to temporary differences amounted to euro 25,856 thousand (unchanged
from December 31, 2019).
The tax effect of gains and losses recognised directly in equity was negative for euro 500 thousand
(positive for euro 2,557 thousand in 2019), and is disclosed in the Comprehensive income statement;
these changes were mainly due to the tax effects associated with actuarial gains/losses on employee
benefits obligations and to the adjustment of derivatives in cash flow hedges to their fair value.
527
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
25.
TAX PAYABLES
These amounted to euro 11,985 thousand (euro 17,617 thousand at December 31, 2019) 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
Lease contract commitments
At December 31, 2020, there were no commitments for lease contracts not yet in force.
Disputes against Prysmian Group Companies before the Court of Milan.
Pending the definition of the Community proceeding pursuant to Note 20 “Provision for risks and
charges”, in November 2014, Pirelli & C. S.p.A. (“Pirelli”) took action before the Court of Milan in
order to obtain the ascertainment and declaration of the obligation of Prysmian Cavi e Sistemi S.r.l.
to hold it free from any claim relating to the alleged anti-competitive agreement in the energy cables
sector, including the penalty imposed by the European Commission.
Prysmian Cavi e Sistemi S.r.l. appeared in the aforementioned judgement, requesting the rejection
of Pirelli’s claims, and as counter-claim, to be indemnified by Pirelli in relation to the consequences
deriving from or related to the decision of the European Commission. The judgement had been
suspended pending the definitive sentence of the EU judges and was resumed by Pirelli on
November 30, 2020 following the sentence of the Court of Justice.
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.
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 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. with
Prysmian Cavi e Sistemi S.r.l. in relation to the amounts that will be paid both in this new judgement
and in the one in November 2014 and that may not be settled by the latter.
528
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Pirelli & C. S.p.A. – 2020 Annual Report
Prysmian Cavi e Sistemi S.r.l. and Prysmian S.p.A. appeared in the aforementioned judgement in
November 2020, requesting the rejection of Pirelli’s claims and, as counter-claim, to be held
harmless and indemnified by Pirelli in relation to any consequences deriving from claims of private
and/or public third parties relating, connected and/or consequential to the facts covered by the
decision of the European Commission.
Based on accurate analyses supported by authoritative opinions from external lawyers, 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, 2020.
Other disputes in relation to the European Commission Decision
In November 2015, some companies of the Prysmian Group notified Pirelli of proceedings for the
recovery of damages before the High Court of Justice of London against them 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, the companies of the
Prysmian Group submitted a request to obtain from Pirelli and Goldman Sachs, based on the role of
parent companies during the period of the cartel, to hold them 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, filed in November 2014, 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 the companies of the Prysmian Group, suspended the
proceedings until the final passing of judgement that will define the Italian judgement 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 anti-competitive conduct, quantified by the plaintiff at euro 199.9 million. Pirelli appeared in court
contesting the claims made by Terna and filing, like the other defendants and against them, a
counter-claim in recourse for the denied case in which it was held jointly liable for the anti-competitive
agreement.
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 initiated before the Court of Amsterdam, which, with sentence of
November 25, 2020, upholding the objection brought by Pirelli, excluded its jurisdiction against Pirelli
itself In February 2021, the claimants appealed against said sentence before the Amsterdam Court
of Appeal.
529
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
Based on accurate analyses supported by authoritative opinions from external lawyers, 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, 2020, also considering their
initial status.
INCOME STATEMENT
27.
REVENUES FROM SALES AND SERVICES
Revenues from sales and services amounted to euro 53,486 thousand for 2020 compared to euro
51,992 thousand in 2019 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
2020
53,125
361
53,486
2019
50,108
1,884
51,992
Revenues from subsidiaries refer to services provided by the central functions.
28.
OTHER INCOME
Other income amounted to euro 124,405 thousand in 2020 (euro 110,180 thousand in 2019), and
the breakdown is as follows:
(in thousands of euro)
Other income from subsidiaries
Other revenues from third parties
Other income from other companies
2020
111,548
12,857
124,405
2019
106,613
3,567
110,180
Other income from subsidiaries mainly include royalties paid by Group companies for the use of the
brand (euro 57,610 thousand in 2020 compared to euro 71,730 thousand in 2019) and also include
cost recovery and other revenues deriving from the charge-back of costs to Group companies.
Other revenues from other companies mainly include the gains deriving from the sale of the property
located in Milan and land located in Settimo Torinese for approximately euro 8,000 thousand and
the royalties paid by other companies for the use of the Pirelli brand (euro 1,370 thousand in 2020
compared to euro 1,645 thousand in 2019).
530
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
29.
RAW MATERIALS AND CONSUMABLES USED
They amounted to euro 228 thousand in 2020 (euro 225 thousand in 2019) and include purchases
of advertising material, fuels and various materials.
30.
PERSONNEL COSTS
Personnel costs amounted to euro 49,952 thousand (euro 48,229 thousand in 2019), 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
2020
35,441
8,046
1,901
563
4,001
49,952
2019
33,886
8,568
1,933
533
3,309
48,229
The item other costs includes this includes the portion of the retention plan (euro 3,297 thousand
in 2020 and euro 2,597 thousand in 2019) that was approved by the Board of Directors on February
26, 2018 and intended for Managers with strategic responsibilities and a selected number of senior
Managers and Executives.
The average staff headcount is the following:
Executives
White collars
Workers
80
260
6
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
2020
2,468
1,817
5,631
9,916
For the breakdown of the amortisation of the rights of use, see note 9.2 - Rights of use.
2019
2,324
1,907
4,023
8,254
531
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
32.
OTHER COSTS
The breakdown of other costs is the following:
(in thousands of euro)
Advertising and sponsorship
Consultancy and collaboration services
Accruals to provisions (net of reversals)
Legal and notarial expenses
Travel expenses
Remuneration of Directors and supervisory bodies
Membership fees and contributions
Rental and lease instalments
IT expenses
Energy, gas and water expenses
Security service
Insurance premiums
Patents and trademarks expenses
Cleaning and property ordinary maintenance expenses
Property maintenance
Other
Total other costs
2020
59,806
12,580
2,212
762
2,734
7,548
2,272
969
5,674
1,271
1,856
2,896
874
444
1,829
4,941
108,668
2019
38,625
11,204
77
835
4,013
7,086
2,418
1,202
6,327
1,351
2,474
2,594
1,198
750
683
8,681
89,518
The item Advertising and sponsorships increased from 2019 due to non-discretionary
sponsorship costs for event cancelled or with reduced visibility due to Covid-19.
The item Leases and rentals includes costs relating to the application of the accounting standard
IFRS 16, in particular:
euro 661 thousand for lease contracts with a duration of less than twelve months (euro 980
thousand at December 31, 2019);
euro 197 thousand for lease contracts for low unit value assets (euro 208 thousand at
December 31, 2019);
euro 111 thousand for lease contracts with variable fees (euro 14 thousand at December 31,
2019) and refers to the positive effect of changes in payments for lease contracts due to
reductions in permanent (rent holidays) or temporary lease fees related to Covid-19 (euro
111 thousand) that was recognised directly in the income statement as the Group made use
of the practical expedient envisaged by the amendments to IFRS 16.
33.
NET IMPAIRMENT OF FINANCIAL ASSETS
The item, negative for euro 23 thousand, mainly includes the net impairment of trade receivables. At
December 31, 2019, the net impairment of trade receivables amounted to euro 97 thousand.
532
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
34.
RESULT FROM INVESTMENTS
34.1. Gains from investments
They were almost nil in 2020 compared to euro 2 thousand in 2019, which referred to the sale of
1,014 shares of Servizi Aziendali Pirelli S.c.p.A. to Pirelli International Treasury S.p.A.
34.2. Losses from investments
Losses from investments amounted to euro 14,000 thousand in 2020 and refer to the impairment of
the investment in the subsidiary Pirelli UK Ltd. No losses on equity investments were recognised in
2019.
34.3 Dividends
They amounted to euro 53,650 thousand in 2020 compared to euro 268,903 thousand in 2019, 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
- Pirelli International Treasury S.p.A. - 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
2020
2019
50,000
-
200
1,050
2,400
-
-
-
-
-
53,650
250,000
13,342
200
300
-
1,482
10
957
178
2,434
268,903
The lower amount of dividends from subsidiaries received in fiscal 2020 compared to fiscal 2019 is
primarily attributable to lower dividends distributed by the subsidiary Pirelli Tyre S.p.A., which, in
view of the pandemic, resolved to allocate a large portion of the profits earned during the year to its
own capital strengthening.
533
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
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
2020
31,075
11
37,067
68,153
2019
39,723
32
519
40,274
Interest refers to interest accrued on loans granted in 2020 to subsidiaries.
Net exchange rate gains of euro 37,067 in 2020 (euro 519 thousand in 2019) 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.
They also include the unrealised exchange rate gains recorded on the liability hedged by cross
currency interest rate swaps, for which cash flow hedge accounting was adopted for euro 133,595
thousand. These exchange rate gains are presented net of losses of the same amount relating to
the exchange rate component of the fair value measurement of the aforementioned derivatives.
36.
FINANCIAL EXPENSES
The breakdown of the item is as follows:
(in thousands of euro)
Interest and other financial expenses
Commissions
Interest expenses on lease liability
Net interest on employee benefit obligations
Net losses on derivative financial instruments
Total financial expenses
2020
65,763
2,241
1,725
28
34,781
104,538
2019
59,712
2,736
1,421
36
120
64,025
Interest and other financial expenses for a total of euro 65,763 thousand mainly include:
euro 63,320 thousand for the bank loan lines held by Pirelli & C. S.p.A.;
euro 15,059 thousand of financial expenses related to bonds, of which euro 9,658 thousand
related to unrated bonds, euro 5,175 thousand related to the “Schuldschein” loan and euro 226
thousand of notional interest relating to the convertible bond issued in December 2020;
net of euro 16,781 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.
534
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
For further details, refer to as reported in Note 17 “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. The fair value measurement includes two
elements: the interest component linked to the interest rate spread between the currencies subject
to the individual hedges, a net revenue of euro 2,455 thousand, and the exchange rate component,
a net cost of euro 170,831 thousand. The exchange rate component of the fair value measurement
of cross currency interest rate swaps, for which cash flow hedge accounting was adopted, negative
for euro 133,595 thousand, was reclassified to the item net exchange rate gains, to offset unrealised
exchange rate gain recorded on the hedged liability.
Comparing net exchange rate gains, equal to euro 37,067 thousand, with the exchange rate
component of net gains on derivatives, net of the aforementioned reclassification (euro 37,236
thousand), the difference is immaterial and shows that the positions at exchange risk have been
hedged in line with Group policies.
37.
TAXES
The breakdown of taxes is as follows:
(in thousands of euro)
Current taxes
Deferred taxes
Total income taxes
2020
(16,523)
(15,064)
(31,587)
2019
(26,120)
13,882
(12,238)
Current taxes for the year 2020 were positive for euro 16,523 thousand compared to euro 26,120
thousand in the previous year and mainly include income from tax consolidation. The reduction
compared to the previous year is essentially attributable to the lower taxable income of the subsidiary
Pirelli Tyre.
Deferred tax assets were positive for euro 15,064 thousand and mainly refer to the recognition of
deferred tax assets on the ACE benefit and on previous tax losses.
535
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
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
Loss on investments
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)
2020
12,369
2,968
-
(12,232)
3,360
1,179
(4,431)
(11,805)
(10,626)
(31,587)
24%
-255.4%
2019
261,004
62,641
(5,736)
(60,755)
-
1,305
(1,007)
(8,686)
-
(12,238)
24%
-4.7%
Tax consolidation
It shall be noted that starting from 2004, the Company exercised the option for consolidated taxation
as consolidator, pursuant to article 117 and following of the TUIR, with regulation of relations arising
from adhesion to consolidation through a special “Regulation”, which involves a common procedure
for the application of laws and regulations.
Said regulation was updated in subsequent years as a result of amendments made within the
companies participating in the agreement and the related shareholding structure, as well as in light
of the corrective and supplementary interventions of the relevant legislation.
The above amendments particularly concerned the remuneration of the tax losses used by the
companies adhering to the consolidation. The adoption of the consolidation makes it possible to
compensate, with regard to the parent company Pirelli & C. S.p.A., the taxable income or loss of the
same parent company with those of its resident subsidiaries which have exercised the option, given
that the tax losses accrued during periods prior to the introduction of Group taxation can be used by
those companies which are eligible.
38. NON-RECURRING EXPENSES AND INCOME
Pursuant to Consob Communication no. DEM/6064293 of July 28, 2006, no non-recurring events
were recognised in 2020.
39.
TRANSACTIONS WITH RELATED PARTIES
Transactions with related parties mainly include transactions with subsidiaries related to:
services (technical, organisational, general) provided by the headquarters;
536
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
royalties for the use of the brand.
financial transactions.
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.
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
Other payables
Provision for liabilities and charges
Employee benefit obligations
Derivative financial instruments
Current liabilities
Payables to banks and other financial lenders
Trade payables
Other payables
Employee benefit obligations
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
12/31/2020
of which
related
parties
% share
12/31/2019
of which
related
parties
% share
2,000,575
-
2,000,000
-
80,568
1,166,741
32,676
2,894
76,655
1,154,823
31,369
2,894
538
11,105
8,464
109,697
307,350
27,570
25,312
2,448
11,985
13,231
212
5,926
1,349
109,697
2,084
3,080
6,576
1,698
11,757
13,231
100.0%
0.0%
95.1%
99.0%
96.0%
100.0%
39.3%
53.4%
15.9%
100.0%
0.7%
11.2%
26.0%
69.4%
98.1%
100.0%
620
30,269
-
30,269
0.0%
100.0%
23,775
2,347,952
31,744
10,154
21,725
2,327,043
29,830
10,154
212
40,331
4,277
9,589
678,289
19,262
32,107
2,034
17,617
5
212
3,065
-
9,589
252
4,771
14,565
1,100
17,388
5
91.4%
99.1%
94.0%
100%
100.0%
7.6%
0.0%
100.0%
0.0%
24.8%
45.4%
54.1%
98.7%
100.0%
2020
of which
related
parties
% share
2019
of which
related
parties
% share
53,486
124,405
(49,952)
(108,668)
-
(14,000)
53,650
68,153
(104,538)
53,337
111,603
(8,909)
(20,457)
-
(14,000)
53,650
30,994
(34,838)
99.7%
89.7%
17.8%
18.8%
0.0%
100.0%
100.0%
45.5%
33.3%
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%
537
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
Transactions with related parties
The tables below shows the main equity transactions with related parties for the years ended
December 31, 2020 and December 31, 2019.
(in thousands of euro)
Subsidiaries
Associates
Other non current receivables
Trade receivables
Other current receivables
Tax receivables
Derivative financial instruments (current assets)
Other payables (Non-current liabilities)
Provision for liabilities and charges (Non-current liabilities)
Employee benefit obligations (Non-current liabilities)
Derivative financial instruments (non-current liabilities)
Payables to banks and other lenders (current liabilities)
Trade payables
Other payables (current liabilities)
Employee benefit obligations (current liabilities)
Tax payables
Derivative financial instruments (current liabilities)
-
3
-
-
-
-
2,000,000
76,578
1,154,823
31,369
2,894
-
-
-
109,697
2,084
2,815
5,929 -
-
-
-
-
-
265
-
11,757
13,231
-
-
(in thousands of euro)
Subsidiaries
Associates
Trade receivables
Other current receivables
Tax receivables
Derivative financial instruments (current assets)
Derivative financial instruments (non current assets)
Other payables (Non-current liabilities)
Provision for liabilities and charges (Non-current liabilities)
Derivative financial instruments (non-current liabilities)
Payables to banks and other lenders (current liabilities)
Trade payables
Other payables (current liabilities)
Employee benefit obligations (current liabilities)
Tax payables
Derivative financial instruments (current liabilities)
21,486
2,327,043
29,830
10,154
30,269
-
-
9,589
252
4,562
11,698
-
17,388
5
3
-
-
-
-
-
-
-
-
102
-
-
-
-
Other
related parties
-
74
-
-
-
212
5,926
1,349
-
-
-
647
1,698
-
-
Other
related parties
236
-
-
-
-
212
3,065
-
-
107
2,867
1,100
-
-
Total
12/31/2020
2,000,000
76,655
1,154,823
31,369
2,894
212
5,926
1,349
109,697
2,084
3,080
6,576
1,698
11,757
13,231
Total
12/31/2019
21,725
2,327,043
29,830
10,154
30,269
212
3,065
9,589
252
4,771
14,565
1,100
17,388
5
Other non-current receivables amounted to euro 2,000,000 thousand (zero at December 31, 2019)
and refer to credit lines granted to Pirelli International Treasury S.p.A., maturity 2023.
Trade receivables amounted to euro 76,655 thousand (euro 21,725 thousand at December 31,
2019) and mainly refer to receivables for services/provisions provided to Group companies (euro
68,060 thousand from Pirelli Tyre S.p.A., euro 4,919 thousand from Pirelli Group Reinsurance
Company SA, euro 1,667 thousand from Limited Liability Company Pirelli Tyre Russia, euro 980
thousand from Pirelli Tyre Co. Ltd., euro 400 thousand from Pirelli Tyre Trading (Shanghai) Co).
Other related parties include trade relations with the Prometeon Group for euro 74 thousand.
Other current receivables amounted to euro 1,154,823 thousand (euro 2,327,043 thousand at
December 31, 2019) and mainly refer for euro 1,622 thousand to the intra-group current account
with Pirelli International Treasury S.p.A., euro 1,149,923 thousand to the loan including accrued
interest granted to Pirelli International Treasury S.p.A., euro 983 thousand to the accrued asset
towards Pirelli International Treasury S.p.A. on the hedging transactions of the Cross Currency
538
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
Interest Rate Swap in place at December 31, 2020, euro 2,307 thousand to the VAT receivables
transferred to the consolidation (euro 1,705 thousand from Pirelli Industrie Pneumatici S.r.l., euro
353 thousand from Pirelli Sistemi Informativi S.r.l., euro 247 thousand from Pirelli Servizi
Amministrazione e Tesoreria S.p.A.).
Tax receivables amounted to euro 31,369 thousand (euro 29,830 thousand at December 31, 2019)
and refer to receivables from Group companies that adhere to tax consolidation (mainly euro 20,697
thousand from Pirelli Tyre S.p.A., euro 679 thousand from Pirelli Industrie Pneumatici S.r.l., euro
9,083 thousand from Pirelli International Treasury S.p.A.).
Derivative financial instruments (current assets) for euro 2,894 thousand (euro 10,154 thousand
at December 31, 2019) refer to hedging transactions with Pirelli International Treasury S.p.A..
Provisions for risks and charges (non-current liabilities) include long-term benefits of euro 1,962
thousand, relating to the three-year monetary Long Term Incentive Plan 2020-2022 and the
Directors’ severance indemnity of euro 3,964 thousand.
Employee benefit obligations (non-current liabilities) include long-term benefits of euro 1,349
thousand, relating to the three-year monetary Long Term Incentive Plan 2020-2022 and regarding
Key Managers.
The amount of euro 109,697 thousand (euro 9,589 thousand at December 31, 2019) of derivative
financial instruments (non-current liabilities) refers to the fair value measurement of the cross
currency interest rate swap (euro 99,964 thousand) and IRS (euro 9,733 thousand) with Pirelli
International Treasury S.p.A..
Payables to banks and other lenders (current) amounted to euro 2,084 thousand (euro 252
thousand at December 31, 2019) 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, 2020.
Trade payables amounted to euro 3,080 thousand (euro 4,771 thousand at December 31, 2019)
and mainly refer to payables for the provision of services. These payables mainly refer for euro 2,466
thousand to Pirelli Tyre S.p.A. and for euro 735 thousand to HB Servizi S.r.l..
Trade payables to associated companies refer to the Consortium for the Research of Advanced
Materials (Consorzio per la Ricerca di Materiali Avanzati - CORIMAV).
Other payables (current liabilities) amounted to euro 6,576 thousand (euro 11,895 thousand at
December 31, 2019) and mainly refer to payables with Group companies that adhere to the VAT
consolidation. The main ones are: euro 5,653 thousand to Pirelli Tyre S.p.A., euro 74 thousand to
Driver Servizi Retail S.p.A..
The item Employee benefit obligations (current liabilities) includes the portion pertaining to
December 31, 2020 of the fourth installment of the retention plan referring to Key Managers.
539
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
Tax payables amounted to euro 11,757 thousand (euro 17,388 thousand at December 31, 2019)
and refer to payables to subsidiaries that adhere to tax consolidation (euro 10,491 thousand Pirelli
Tyre S.p.A., euro 1,182 thousand Pirelli International Treasury S.p.A.).
The amount of euro 13,231 thousand (euro 5 thousand at December 31, 2019) of derivative
financial instruments – current liabilities refers to hedging transactions 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 2020 and
2019.
(in thousands of euro)
Revenues from sales and services
Other income
Personnel expenses
Other costs
Losses from investments
Dividends
Financial income
Financial expenses
(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
53,125
111,548
-
(12,423)
(14,000)
53,650
30,994
(34,838)
-
-
-
(265)
212
55
(8,909)
(7,769)
- -
- -
- -
- -
Subsidiaries
Associates
50,108
106,613
-
(14,399)
263,842
39,706
51,507
-
-
-
(270)
-
-
-
Other
related parties
715
113
(5,571)
(7,646)
-
-
-
Total
2020
53,337
111,603
(8,909)
(20,457)
(14,000)
53,650
30,994
(34,838)
Total
2019
50,823
106,726
(5,571)
(22,315)
263,842
39,706
51,507
Revenues from sales and services amounted to euro 53,337 thousand in 2020 (euro 50,823
thousand in 2019) and mainly refer to service contracts. The main transactions with subsidiaries are:
euro 51,606 thousand with Pirelli Tyre S.p.A., euro 658 thousand with Pirelli Servizi Amministrazione
e Tesoreria S.p.A., euro 262 thousand with Pirelli International Treasury 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 111,603 thousand in 2020 (euro 106,726 thousand in 2019) mainly refer to:
royalties (euro 55,924 thousand with Pirelli Tyre S.p.A., euro 1,665 thousand with Limited Liability
Company Pirelli Tyre Russia); other recoveries (euro 50,220 thousand from Pirelli Tyre S.p.A., euro
1,836 thousand from Pirelli Group Reinsurance Company SA, euro 645 thousand from Pirelli Tire
LLC, euro 384 thousand from Pirelli Tyre Co.Ltd.); lease contracts (euro 113 thousand with Pirelli
Sistemi Informativi S.r.l.).
540
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
The amount recorded under other related parties for euro 55 thousand mainly refers to service
contracts with Camfin S.p.A. (euro 31 thousand), and with Marco Tronchetti Provera & C. S.p.A.
(euro 23 thousand).
The item personnel expenses includes the emoluments related to key managers.
Other costs for euro 20,457 thousand in 2020 (euro 22,315 thousand in 2019) mainly refer to
charges for services and miscellaneous costs (euro 4,150 thousand HB Servizi S.r.l., euro 3,360
thousand Pirelli Sistemi Informativi S.r.l., euro 2,930 thousand Pirelli Tyre S.p.A., euro 992 thousand
Pirelli Servizi Amministrazione e Tesoreria S.p.A.).
The amount recorded under associates refers to relations with the Consortium for Research on
Advanced Materials – Corimav.
The amounts recorded under other related parties refer to the remuneration of directors and key
managers for euro 5,507 thousand.
The item losses from investments shows the impairment of the investment of Pirelli UK Ltd.
Dividends for euro 53,650 thousand in 2020 (euro 263,842 thousand in 2019) refer to dividends
collected during the year (euro 50,000 thousand from Pirelli Tyre S.p.A., euro 1,050 thousand from
Pirelli Sistemi Informativi S.r.l., euro 2,400 thousand from Pirelli International Treasury S.p.A. and
euro 200 thousand from Pirelli Servizi Amministrazione e Tesoreria S.p.A.).
Financial income for euro 30,994 thousand in 2020 (euro 39,706 thousand in 2019) refers to
interest income on receivables from Pirelli International Treasury S.p.A. (euro 27,661 thousand) and
Pirelli Tyre S.p.A. (euro 3,333 thousand).
Financial expenses of euro 34,838 thousand in 2020 (positive for euro 51,507 thousand in 2019)
mainly refer to net expenses on derivatives with Pirelli International Treasury S.p.A..
Benefits for key managers
At December 31, 2020, remuneration payable to key managers amounted to euro 16,378 thousand.
The portion relating to employee benefits was recognised in the Income Statement item “personnel
costs” for euro 8,909 thousand. The difference, equal to euro 7,469 thousand and mainly related to
directors’ fees, is recognised in the Income Statement item “other costs”. The remuneration also
includes euro 1,038 thousand relating to employee severance indemnity and end-of-term indemnity
(euro 1,332 thousand at December 31, 2019), as well as short-term benefits for euro 3,750 thousand
(euro 3,919 thousand at December 31, 2019) and long-term benefits for euro 3,311 thousand.
541
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
40.
ADDITIONAL INFORMATION
Directors and auditors’ fees
The fees due to Directors of Pirelli & C. S.p.A. amounted to euro 5,467 thousand in 2020. The fees
due to the Auditors for the function performed at Pirelli & C. S.p.A. amounted to euro 315 thousand
in 2020.
Independent auditors’ fees
Pursuant to applicable regulations, the following table shows the fees pertaining to 2020 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
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
Independent certification services (1)
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
Services other than auditing
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
79
150
150
20%
40%
40%
379
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.
Disclosure requested by Law no. 124/2017 article 1 paragraphs 125-129
There is no information to highlight pursuant to the legislation in question referring to Pirelli & C.
S.p.A. for 2020.
Any information referring to the subsidiaries of 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 2020.
42.
SIGNIFICANT EVENTS SUBSEQUENT TO THE END OF THE YEAR
In January and February 2021, Pirelli repaid in advance some debt maturities scheduled for 2021
and 2022 for a total of euro 838 million. In particular, a tranche of the “Schuldschein” loan with original
542
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
maturity on July 31, 2021 for euro 82 million and part of the unsecured loan (“Facilities”) for euro 756
million with original maturity in 2022 were repaid. The repayments, for which part of the liquidity
collected in 2020 was used, make it possible to reduce financial expenses, thus optimising the
financial structure of the debt.
On February 25, 2021, Pirelli communicated the terms of the termination, with effect from February
28, 2021, of the employment relationship with the co-CEO General Manager Angelos Papadimitriou,
already announced to the market on January 20, 2021.
In accordance with the current Remuneration Policy of the Pirelli Group, Mr. Papadimitriou was
recognised by the Board of Directors, in addition to the amounts due by way of remuneration and
other employment law services accrued up to the date of termination: (i) 10 months of gross annual
remuneration as an incentive to retirement, equal to the value of the expected indemnity in lieu of
the notice, based on the conventional seniority recognised at the time of hiring as executive, to be
paid by April 20, 2021; (ii) euro 100,000 gross as a general novative settlement, to be paid once the
termination is defined in accordance with the current employment law procedures, by April 20, 2021
as well as the maintenance until December 31, 2021 of some non-monetary benefits attributed at
the time of hiring as executive. As envisaged at the time of hiring, subject to the suspensive condition
of the approval of the 2021 Remuneration Policy by the shareholders’ meeting, Mr. Papadimitriou
will remain bound, for two years following the termination of the office of Director, to a non-
competition agreement, valid for the main countries in which Pirelli operates, against a fee, for each
year of validity, equal to 100% of the gross annual remuneration, to be paid in 8 deferred quarterly
installments starting from July 1, 2021; the non-competition agreement includes a non-solicit clause
as well as penalties in the event of violation of the obligations deriving from the non-competition
agreement.
On March 24, 2021, in order to provide support for the execution of the Industrial Plan, the Executive
Vice Chairman and CEO, Marco Tronchetti Provera, decided to propose the appointment of Giorgio
Luca Bruno to the office of Deputy-CEO, which reports directly to him.
This proposal - shared with the Chairman of the Board of Directors, Ning Gaoning, and the
Nominations and Successions Committee, whose Directors were informed - aims also at
strengthening the management team in view of the future succession path in-line with the Procedure
already adopted by the Company, and provides that the Deputy-CEO may also contribute to the
development of internal management. The Executive Vice Chairman and CEO will therefore propose
on March 31, to the Board of Directors, to invite the Shareholders’ Meeting scheduled for June 15,
2021, to appoint Giorgio Luca Bruno as a Director, and will also propose that once appointed as a
Director, he assumes the role of Deputy-CEO.
Following the proposal, Angelos Papadimitriou renounced his candidacy for Director. Therefore, the
Shareholders’ Meeting, which met on the same date with, amongst other things, his reappointment
on the Agenda, decided to postpone the appointment of a new Director until June 15, which the
Board of Directors will nominate in the person of Giorgio Luca Bruno. Angelos Papadimitriou, who
had previously been co-opted, has therefore ceased to be a Director. The Shareholders’ Meeting,
also approved, during an extraordinary session, the convertibility of the “euro 500 million Senior
543
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
Unsecured Guaranteed Equity-linked Bonds due 2025”, issued on December 22, 2020, as well as
approved a divisible share capital increase, with the exclusion of option rights, to service the
conversion of the aforementioned bond, for a total counter-value, including any share premium, of
euro 500 million. On the basis of the initial conversion ratio of the Bond Loan of euro 6.235, this
increase will correspond to the issue of a maximum of 80,192,461 Pirelli & C. ordinary shares
(notwithstanding that the maximum number of Pirelli & C. ordinary shares could increase on the
basis of the effective conversion ratio applicable from time to time).
On March 31, 2021, the Board of Directors approved the 2021-2022|2025 Business Plan, which was
presented to the financial community on the same date. For further information, reference should be
made to the section “Outlook for the five-year period” in the Directors’ Report on Operations.
544
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
— ANNEXES TO THE NOTES
545
Servizi Aziendali Pirelli S.C.p.A. - Milan
HB Servizi Srl - Milan
Total investments in Italian subsidiaries
FOREIGN COMPANIES
Brazil
Pirelli Ltda - Sao Paulo
Prometeon Tyre Group Industria Brasile Ltda
Pirelli Latam Participações Ltda.
UK
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
MOVEMENTS OF INVESTMENTS IN SUBSIDIARIES FROM 12/31/2019 TO 12/31/2020
12/31/2019
Carrying
amount
(€/thousand)
Number
of shares
CHANGES
12/31/2020
% of total
investments
of which
direct
Number
of shares
(€/thousand)
Number
of shares
Carrying
amount
(€/thousand)
% of total
investments
of which
direct
INVESTMENTS IN SUBSIDIARIES
ITALY
Unlisted:
Pirelli Servizi Amministrazioni e Tesoreria S.p.A. - Milan
Maristel S.r.l. - Milan
Pirelli International Treasury SpA - Milan
Pirelli Sistemi Informativi S.r.l. - Milan
2,047,000
1 share
37,500,000
1 share
3,237
1,315
75,000
1,656
Pirelli Tyre S.p.A. - Milan
558,154,000
4,528,245
100
100
100
100
100
100
100
100
100
30
100
100
90
100
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,047,000
1 share
37,500,000
1 share
3,237
1,315
75,000
1,656
558,154,000
4,528,245
92,950
1 share
100
230
4,609,783
100
100
100
100
100
100
100
100
100
30
100
100
90
100
CHANGES
12/31/2020
% of total
investments
of which
direct
Number
of shares
(€/thousand)
Number
of shares
Carrying
amount
(€/thousand)
% of total
investments
of which
direct
92,950
1 share
100
230
4,609,783
12/31/2019
Carrying
amount
(€/thousand)
Number
of shares
13,999,991
9,666
100
100
1
1
0
0
-
-
-
-
Pirelli UK ltd. - London - ordinary
163,991,278
21,871
100
100
Switzerland
Pirelli Group Reinsurance Company S.A.
300,000
Total investments in foreign subsidiaries
Total investments in subsidiaries
100
100
6,346
37,883
4,647,666
MOVEMENTS OF INVESTMENTS IN ASSOCIATES FROM 12/31/2019 TO 12/31/2020
-
(1)
-
-
-
-
13,999,991
9,666
100
100
(0.0)
-
-
1
-
0
-
-
-
-
(14,000.0)
163,991,278
7,871
100
100
-
300,000
(14,000.0)
(14,000.0)
6,346
23,883
4,633,666
100
100
INVESTMENTS IN ASSOCIATES
ITALY
Unlisted:
Consorzio per le Ricerche sui Materiali Avanzati (CORIMAV) -Milan
Eurostazioni S.p.A. - Rome
Focus Investments S.p.A.
Total unlisted companies
Total investments in associates - Italy
Total investments in associates
12/31/2019
Carrying
amount
(€/thousand)
Number
of shares
CHANGES
12/31/2020
% of total
investments
of which
direct
Number
of shares
(€/thousand)
Number
of shares
Carrying
amount
(€/thousand)
% of total
investments
of which
direct
100
100
33
8
33
8
-
-
-
1 share
52,333,333
111,111
104
6,271
-
6,375
6,375
6,375
100
100
33
8
33
8
1 share
52,333,333
111,111
-
-
-
-
-
-
104
6,271
-
6,375
6,375
6,375
546
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
MOVEMENTS OF OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPRENSIVE INCOME FROM 12/31/2019 TO 12/31/2020 (Continue)
12/31/2019
Carrying
amount
(€/thousand)
Number
of shares
Changes
% of total
investments
of which
direct
Number
of shares
(€/thousand)
Number
of shares
12/31/2020
Carrying
amount
(€/thousand)
% of total
investments
of which
direct
INVESTMENTS IN OTHER COMPANIES
ITALIAN LISTED COMPANIES
RCS Mediagroup S.p.A. - Milan
Total other Italian listed companies
Total other listed companies
ITALIAN UNLISTED COMPANIES
Aree Urbane S.r.l. (in liquidazione) - Milan
C.I.R.A. - Centro Italiano di Ricerche Aerospaziali S.c.p.A. - Capua (CE)
24,694,918
Number
of shares
1 share
30
Alitalia Compagnia Aerea Italiana S.p.A. - Rome
1,162,098,622
CEFRIEL - Società Consortile a Responsabilità limitata
Consorzio DIXIT (in liquidazione) - 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
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
24,892
24,892
24,892
12/31/2019
Carrying
amount
(€/thousand)
-
-
-
-
-
-
-
-
-
20,565
7,465
280
16
26
28,352
4.7
4.7
-
(10,816)
24,694,918
(10,816)
(10,816)
Changes
% of total
investments
of which
direct
Number
of shares
(€/thousand)
Number
of shares
0.3
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
14.3
14.3
6.1
3.3
0.6
0.6
6.1
3.3
0.6
0.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 share
30
1,162,098,622
1 share
1 share
12,000
1 share
1,100
55,805,625
1 share
1 share
959,429
1 quota
592,450
-
-
-
-
-
-
-
-
-
(4,663)
-
497
-
13
1
-
(4,152)
4.7
4.7
% of total
investments
of which
direct
-
-
0.1
1.4
4.9
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
14.3
14.3
6.1
3.3
0.6
0.6
6.1
3.3
0.6
0.6
14,076
14,076
14,076
12/31/2020
Carrying
amount
(€/thousand)
-
-
-
-
-
-
-
-
-
15,903
7,962
293
17
26
24,200
547
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
MOVEMENTS OF OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPRENSIVE INCOME FROM 12/31/2019 TO 12/31/2020
12/31/2019
Carrying
amount
(€/thousand)
Number
of shares
Changes
% of total
investments
of which
direct
Number
of shares
(€/thousand)
Number
of shares
12/31/2020
Carrying
amount
(€/thousand)
% of total
investments
of which
direct
FOREIGN COMPANIES
Libia
Libyan-Italian Joint Company - ordinary shares B
300
-
1.0
1.0
Belgium
Euroqube S.A. (in liquidation)
67,570
12
18.0
18.0
-
-
-
-
-
-
(0)
-
-
-
(0)
-
-
-
-
2.8
2.8
1,724,138
194,248
100
-
-
-
(1,161)
53 shares
(1,161)
(16,129)
300
-
1.0
1.0
67,570
11
18.0
18.0
-
-
-
-
2.8
2.8
-
-
-
-
-
11
2,786
2,786
41,074
U.S.A.
Gws Photonics Inc - Wilmington - Az. Priv tipo B
Gws Photonics Inc - Wilmington - Az. Priv tipo C
UK
Eca International
Total other foreign companies
OTHER PORTFOLIO SECURITIES
1,724,138
194,248
100
Fondo Comune di Investimento Immobiliare - Anastasia
53 shares
TOTAL AVAILABLE-FOR-SALE FINANCIAL ASSETS
TOTAL FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER
COMPRENSIVE INCOME
-
-
-
12
3,947
3,947
57,203
548
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
LIST OF INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES (PURSUANT TO ART. 2427 OF THE CIVIL CODE)
Legal address
Carrying
amount
Share % Share capital Attributable
equity
Attributable
net income
(loss)
Milan
Milan
Milan
Milan
Milan
Milan
Milan
3,237
1,315
1,656
4,528,245
100
230
75,000
4,609,783
100%
100%
100%
100%
91.3%
100%
30%
2,047
50
1,010
558,154
104
10
125,000
3,179
3,379
2,836
1,714,474
405
328
81,992
Lugano
6,346
100%
Sao Paulo
9,666
100%
2,777
2,195
12,795
978
(19)
(43)
507
7,299
44
90
6,763
1,656
(397)
London
(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
Pirelli Group Reinsurance Company S.A.
Brasil
Pirelli Ltda
UK
Pirelli UK Ltd.
Total investments in foreign subsidiaries
Total investments in subsidiaries
INVESTMENTS IN ASSOCIATES - ITALY
Consortium for the Reserach into Advanced Materials (CORIMAV) Milan
Rome
Eurostazioni S.p.A. **
Milan
Focus Investments S.r.l.
Total investments in associates - Italy
Total investments in associates
* Data not yet available
** balance sheet at July 31, 2020
100%
182,409
7,476
(13,551)
100%
32.7%
8.3%
104
6,482
*
104
6,398
*
-
84
*
7,871
23,883
4,633,666
104
6,271
-
6,375
6,375
549
Pirelli & C. S.p.A. – 2020 Annual Report
Separate Financial Statements
REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE
SHAREHOLDERS’ MEETING
Dear Shareholders,
The Board of Statutory Auditors of Pirelli & C. S.p.A. (“Pirelli” or the “Company”) (which, pursuant
to legislative decree no. 39 of 27 January 2010, also acts as the Internal Control and Audit
Committee), pursuant to art. 153 of legislative decree no. 58 of 24 February 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 (“Report”), has been continuously updated on the actions to monitor the situation and
the social, economic and financial effects for Pirelli and the Group of which it is the parent company,
deriving from the spread of the Covid-19 virus (“Coronavirus”) since January 2020. The
considerations made are set out in a specific paragraph of this Report.
During the financial 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
Rules of Conduct for the Boards of Statutory Auditors of Listed Companies recommended in the
document issued by the Italian National Council of Chartered Accountants and Accounting Experts
last updated in April 2018 (“Rules of Conduct”), and the Consob provisions on company controls
and the activities of the Board of Statutory Auditors and the indications contained in the Corporate
Governance Code for listed companies, in force until 31 December 2020 (“Corporate Governance
Code”), and in the new Corporate Governance Code in force from 1 January 2021 (“New Corporate
Governance Code”), to which Pirelli has resolved to adhere.
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 Report date was appointed by the Shareholders’
Meeting held on 15 May 2018 for the financial years 2018-2020 and will expire due to having reached
550
Separate Financial Statements
Pirelli & C. S.p.A. – 2020 Annual Report
the end of the mandate at the Shareholders’ Meeting convened to approve the financial statements
at 31 December 2020.
The Board of Statutory Auditors is composed of 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 art. 148, paragraph 3, of the TUF, and the provisions of the Corporate Governance Code
and New Corporate Governance Code, to which, as previously mentioned, Pirelli has resolved to
adhere, the Board of Statutory Auditors has verified that as of 31 December 2020 its Standing
members had retained the requirements of independence (that they already ascertained to possess
at the time of their appointment, together with the correct application of the criteria and the
ascertainment procedures adopted by the Board of Directors to assess the independence of
Directors). For more details in this regard see paragraph “Self-assessment process for the Board of
Statutory Auditors”.
ADHESION TO THE CODES OF CONDUCT
As anticipated, Pirelli resolved to adhere, first, to the Corporate Governance Code and, then, to the
New Corporate Governance Code.
The Board of Statutory Auditors has assessed the effective and correct application of corporate
governance rules provided herein by the Company and ensured that these are fully implemented in
the corporate governance model currently in force, described in the Report on the Corporate
Governance and Share Ownership (as described in more detail below), that is substantively in line
with the principles contained in both codes of conduct mentioned above.
COMMENTS ON THE 2020 FINANCIAL STATEMENTS AND ON TRANSACTIONS OF MAJOR
IMPORTANCE CARRIED OUT DURING THE YEAR
It should be noted that Pirelli’s financial statements have been drawn up based on the IAS/IFRS
international accounting standards issued by the International Accounting Standards Board (IASB)
and endorsed by the European Union, in force on 31 December 2020 and in accordance with the
instructions issued in implementation of art. 9 of Legislative Decree 38/2005. The financial
statements also include the notice required by law 124/2017 (art. 1, paragraphs 125-129).
The principal risks and uncertainties are summarised in the Directors’ Report on Operations, and
there is a section on the outlook for the coming year.
The Company’s financial statements are composed of the Statement of Financial Position, Income
Statement, Statement of Comprehensive Income, Statement of Changes in Equity, Statement of
Cash Flows and Explanatory Notes.
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The financial statements are accompanied by the Directors’ Report on Operations, and include the
Report on the Corporate Governance and Structure of Share Ownership – prepared pursuant to art.
123-bis of the TUF – as well as the Report on responsible management of the value chain
(consolidated non-financial declaration pursuant to legislative decree no. 254, of 30 December
2016), drawn up by the Company in accordance with the Sustainability Reporting Standards of the
Global Reporting Initiative (GRI) - Comprehensive option - and the principles of inclusiveness,
materiality and compliance with the AA1000 Standard. The financial statements also include the
Report on the remuneration policy and the compensation paid, comprising the 2021 Remuneration
Policy (“2021 Policy”) and the Report on Compensation Paid in 2020.
The 2020 separate financial statements and consolidated financial statements of Pirelli 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.
Pirelli’s 2020 consolidated financial statements present the following summary data:
Revenues
Operating income (EBIT)
Adjusted EBIT
Consolidated net profit
4,302.1 million euro
219.1 million euro
501.2 million euro
42.7 million euro
The consolidated net financial position is negative for 3,258.4 million euro, compared to 3,507.2
million euro at 31 December 2019;
Parent company Pirelli closed the financial year with positive net income to the amount of 44.0 million
euro (273.2 million euro in 2019).
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 19 February 2020 Pirelli 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 (LTI) intended for the whole management of the
Group and related to the targets of the plan and it resolved on the early closure - effective as
of 31 December 2019 - with no disbursement, of the previous plan adopted in 2018 and linked
to the objectives of the 2018-2020 period. The Board of Directors of 3 April 2020, as part of
the cost containment actions for Covid-19, reformulated the 2020 targets and reviewed the
2020 Remuneration Policy (“2020 Policy”) taking into account, in particular, the cancellation
of the short-term incentive system for 2020;
-
following the Covid-19 emergency, in the first three months of 2020, Pirelli implemented a
series of measures protecting the health of its employees and community, at both the
Headquarters and plants, where production progressively slowed until it stopped, first in
China and then in the rest of the world. During the second quarter, operations started up
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again, first in China, and then progressively in the other plants, with slow initial production
considering the decline in demand;
-
in March 2020, thanks to the support of certain partners, including Camfin S.p.A. and
Fondazione Silvio Tronchetti Provera, Pirelli promoted a series of charitable initiatives in Italy
and throughout the world to support the fight against Coronavirus and Coronavirus research;
- on 2 March 2020, Pirelli’s Board of Directors approved the 2019 financial statements closed
with consolidated net income to the amount of 457.7 million euro and resolved to propose to
the Shareholders’ Meeting a distribution of a dividend to the amount of 0.183 euro, for a total
of 183 million euro. The Board of Directors of 3 April 2020, as part of the cost containment
actions for Covid-19, described below in more detail, cancelled the distribution of dividends
in the financial year 2019, changing the previous resolution proposed to the Shareholders’
Meeting;
- on 31 March 2020, Pirelli announced that it had stipulated a new credit facility for 800 million
euro with an incentive mechanism related to the Group’s product and process environmental
sustainability goals provided for by Pirelli’s business plan and expiring 5 years after first use,
mainly to repay existing debt. The Company also extended the expiry of a credit facility for
200 million euro by more than a year (from June 2020 to September 2021), through the early
repayment of the existing loan and the simultaneous granting of a new credit line of the same
amount and under the same economic conditions. These operations are examples of the
constant actions implemented to optimise and strengthen Pirelli’s financial structure;
- on 3 April 2020 Pirelli’s Board of Directors, beyond the above resolutions, implemented -
before a deteriorated scenario - a series of actions aimed at protecting profitability and cash
generation. In particular, it implemented further cost containment actions, revisited the
investment plan in line with the new market outlook, implemented actions for the optimal
management of working capital and reduced the remuneration of Top Management;
- on 29 April 2020, following the call of the Shareholders’ Meeting held on 28 April 2020,
Pirelli announced the entry into force of agreements undersigned on 1 August 2019 - already
disclosed to the market - between China National Chemical Corporation Limited
(“ChemChina”), China National Tire & Rubber Corporation Ltd. (“CNRC”), Silk Road Fund
Co., Ltd., Camfin S.p.A. and Marco Tronchetti Provera & C. S.p.A., concerning their long-
term partnership with Pirelli. Moreover, with the occasion, Silk Road Fund Co., Ltd. and
CNRC undersigned the “Revised Acting-in-concert Agreement”, that supersedes and
replaces the previous “Acting-in-concert Agreement” undersigned by the parties on 28 July
2017, and the “Amendment” to the Supplemental Agreement of the investment agreement in
Pirelli, signed by the parties on 28 July 2017. The Revised Acting-in-concert Agreement was
in force from 29 September 2020, following the completion of the non-proportional and
asymmetric partial demerger of Marco Polo International Italy S.r.l. in favour of PFQY S.r.l. -
a company wholly owned by Silk Road Fund Co., Ltd. - whereby, among other things, an
equity investment of 9.02% of Pirelli’s capital was assigned to the latter. Following the above
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demerger, Marco Polo International Italy S.r.l., controlled by ChemChina/CNRC, holds
37,01% of Pirelli’s capital;
- on 30 April 2020, Pirelli announced the relaunching of activities from 4 May with a plan, in
collaboration with the University of Milan - Department of Biomedical and Clinical Science “L.
Sacco”, directed by Professor Massimo Galli, aimed at ensuring the maximum protection of
the health of its employees and the safety of the workplaces. In May and June, after the
reopening of factories in China in March, all of the Group’s production plants were gradually
reopened, at a pace that was proportionate to the demand trend. In particular, at the Bollate
site - a plant that will focus on the Velo business - a procedure was launched for the
production of masks for the exclusive use of employees and their families, allowing for
potential risks related to the discontinuity of supply by third parties to be eliminated;
- on 18 June 2020, the Pirelli Shareholders’ Meeting approved the financial statements of 2019
and the allocation of the result, appointed, until the approval of the Company’s financial
statements at 31 December 2022, the Board of Directors with 15 component members, of
which the majority are independent members, and confirmed Ning Gaoning as Chairman.
Based on the two slates submitted, the following were appointed Directors of Pirelli: Ning
Gaoning, Marco Tronchetti Provera, Yang Xingqiang, Bai Xinping, Wei Yintao, Domenico De
Sole, Giovanni Tronchetti Provera, Zhang Haitao, Fan Xiaohua, Marisa Pappalardo, Tao
Haisu, Carlo Secchi, Giovanni Lo Storto, Paola Boromei and Roberto Diacetti. The
Shareholders’ Meeting also approved the 2020 Policy and voted in favour of the Report on
Compensation Paid in the financial year 2019. The Shareholders’ Meeting also approved the
adoption of the three-year monetary Incentive Plan (LTI Plan) for the period 2020-2022 for
the management of the Pirelli Group and the “Directors and Officers Liability Insurance”. In
extraordinary session, the Shareholders’ Meeting also approved certain changes to the
bylaws, mainly related to the new legislation on gender quotas;
- on 22 June 2020, Pirelli’s new Board of Directors appointed Marco Tronchetti Provera as
Executive Vice Chairman and Chief Executive Officer (CEO), granting him with the
operational management powers of Pirelli. The Board also proceeded to appoint Board
Committee members, confirming all the previous Committees with their respective duties of
investigation, consultation and advice. The Board of Directors also confirmed Francesco
Tanzi as the Group’s Chief Financial Officer and Manager responsible for the preparation of
the corporate financial documents; it also appointed the Supervisory Body, whose term of
office ended at the same time as the Board;
- on 23 July 2020, the Pirelli Board of Directors appointed, at the proposal of the Executive
Vice Chairman and Chief Executive Officer and directly reporting to him, the General
Direction co-CEO, assigned to Angelos Papadimitriou, with effect from 1 August 2020.
Angelos Papadimitriou was co-opted by the Board of Directors on 5 August 2020 (and
qualified, as General Manager of the Company, as “executive director”), replacing Carlo
Secchi who, with effect from the same date, resigned from his position as Director. Mr Carlo
Secchi continues to hold the office of Chairman of the Supervisory Body of the Company;
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- on 5 August 2020, the Board of Directors, in order to take account of the radical changes to
the macroeconomic scenario, gave the Remuneration Committee a mandate to review the
‘Net Cash Flow’ section of the Long-Term Incentive Plan 2020-2022, to align the relative goal
with the new guidance disclosed to the market, on the occasion of the data at 30 June 2020
and with the targets of the business plan for the years 2021 and 2022, that would have been
communicated within the first quarter of 2021. This was to maintain the full alignment of
interests between shareholders and management in an LTI Plan that confirms the Total
Shareholders Return objectives (with respect to the peers tier one) and Pirelli’s position in
selected sustainability indices at the global level;
- on 28 October 2020, the European Union Court of Justice confirmed the previous decisions
of the EU Court and the EU Commission, with regards to the cartel in the electricity cables
market, to sentence Prysmian Cavi e Sistemi S.r.l. to the payment of a fine, for a part of which
(equal to 67,310,000 euro) Pirelli was called to answer jointly with Prysmian under the
exclusive application of the Community principle of parental liability. In this regard, Pirelli had
already deposited a bank guarantee, in favour of the EU Commission, of 33,655,000 euro
(corresponding to 50% of the sanction imposed jointly to Prysmian and Pirelli), with interest.
The payment, by Pirelli, of its part of the fine, whose value was already allocated in its
provisions for liabilities and charges, was made on 31 December 2020. It should be noted
that a case brought by Pirelli in 2014 is still pending before the Court of Milan to ascertain
and obtain a declaration that Prysmian has an obligation to hold Pirelli fully harmless against
any claim related to the cartel, including the fine issued by the EU Commission;
- on 15 December 2020, Pirelli allocated 500 million euro worth of non interest-bearing
Convertible Senior Unsecured Guaranteed Equity-linked Bonds in Pirelli shares due in 2025,
having obtained the approval of the Shareholders’ Meeting. The bonds were issued at 100%
of their nominal value, with a conversion price of 6.235 euro per share (equal to a premium
of 45% on the reference price of the operation of 4.3 euro). This loan transaction allows for
the optimisation of the company debt profile, extending their expiry dates, and maintaining
the business-generated cash, thanks to the fact that the bonds are non interest-bearing. The
revenues deriving from the bonds can be used both for the Group’s general operations and
to refinance part of its existing debt. The bond was admitted for trading on the Vienna MTF,
a multilateral trading system managed by the Vienna Stock Exchange.
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.
It should be noted, in particular, that in January and February 2021, Pirelli made early repayment
of some of its debt due in 2021 and 2022, for a total amount of 838 million euro. In particular, the
Company repaid a tranche of the “Schuldschein” loan, due on 31 July 2021, equal to 82 million euro
and part of the unsecured loan, due in 2022, equal to 756 euro. The repayments, for which part of
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the liquidity received in 2020 was used, reduce the company’s financial expenses, thereby optimising
its debt financial structure.
On 25 February 2021, Pirelli communicated the terms of the termination, with effect from 28
February 2021, of the employment contract with the General Manager co-CEO Angelos
Papadimitriou, already disclosed to the market on 20 January 2021.
In compliance with the 2020 Policy, Mr. Papadimitriou was acknowledged, by the Board of Directors,
the following benefits, in addition to the amounts owed to him by way of remuneration and other
employment law accrued up to the date of termination of his office as General Manager co-CEO: (i)
10 months of gross annual salary, by way of incentive to take redundancy, equal to the amount that
would have been due to him by way of indemnity in lieu of notice, due to the conventional seniority
acknowledged at the time he was hired as manager, to be paid by 20 April 2021; (ii) a gross 100,000
euro by way of general novative transaction by 20 April 2021, once the termination has been defined,
in accordance with current employment law procedures as well as the maintenance until 31
December 2021 of some of the non-monetary benefits attributed at the time he was hired as
manager. As envisaged at the time he was hired, subject to the condition precedent of approval of
the 2021 Policy by the Shareholders’ Meeting, Mr Papadimitriou will remain bound, for two years
after leaving his position as Director, to a non-competition agreement, valid for the main countries in
which Pirelli operates, in exchange for payment, for each year of validity, equal to 100% of the gross
annual salary, to be disbursed in 8 quarterly instalments in arrears, starting from 1 July 2021; the
non-competition agreement includes a non-solicit clause, as well as penalties in the event of breach
of the obligations deriving therefrom.
On 24 March 2021, in support of the execution of the business plan, the Executive Vice Chairman
and CEO decided to propose the appointment of Giorgio Luca Bruno, directly reporting to him, as
Deputy-CEO.
Pursuant to the above, Angelos Papadimitriou withdrew his candidature for the position of Director.
Therefore the Shareholders’ Meeting, convenedon the same date and during which his
reconfirmation was planned, among other things, as part of the Agenda, decided to postpone the
appointment of a new Director, in the person of Giorgio Luca Bruno as shall be indicated by the
Board of Directors, to 15 June. Angelos Papadimitriou, previously co-opted, has therefore expired
from his position as Director. The Shareholders’ Meeting also approved, in extraordinary session,
the convertibility of the equity-linked bond, named “EUR 500 million Senior Unsecured Guaranteed
Equity-linked Bonds due 2025”, issued on 22 December 2020, and approved a capital increase in
tranches, with the exclusion of the option rights, to service the conversion of the aforementioned
bond, for a total equivalent amount, including surcharges, of 500 million euro. Based on the initial
bond conversion ratio of 6.235 euro, the abovementioned increase will correspond to the issue of a
maximum of 80,192,461 ordinary Pirelli shares (without prejudice to the fact that the maximum
number of ordinary Pirelli shares could increase based on the effective applicable conversion ratio).
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On 31 March 2021, the Board of Directors approved the 2021-2022|2025 Business Plan that was
presented on the same date to the financial community.
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 art. 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 (“Consob Regulation”), the Board of Directors, on 31 August
2017, unanimously approved the “Procedure for Related-Party Transactions” (“RPT Procedure”)
with effect from 4 October 2017, when listing of the Company’s ordinary shares started on the Stock
Exchange 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 subject to the favourable opinion of the relevant Committee, comprised exclusively of
Independent Directors (and entrusted with this duty under art. 4 of the aforementioned Consob
Regulation with a specific resolution passed by the Board of Directors - “RPT Committee”)
unanimously confirmed the text of the RPT Procedure approved before listing.
On 22 June 2020, the Board of Directors appointed by the Shareholders’ Meeting of 18 June 2020
resolved to confirm the RPT Procedure.
On 11 November 2020, the Board of Directors - taking into account that pursuant to art. 17.2 of the
RPT Procedure, “Periodically and at least every three years, the Board of Directors, having received
the opinion of the RPT Committee, assesses the need to revise this Procedure, taking into account
any amendments made to the ownership structure as well as its effectiveness” - resolved, having
received the favourable opinion of the RPT Committee, to confirm the RPT Procedure, without
changes, reserving itself to carry out a further re-assessment of the same to ensure all the necessary
or appropriate updates are adopted, in light of the changes to the Consob Regulation to be adopted
by the Supervisory Authority on implementation of the changes to the European directive,
“Shareholders’ rights directive II”.
In this context, the Board of Statutory Auditors, in virtue of the supervisory duties laid down by current
regulations, agreed with the RPT Committee’s proposal to the Board of Directors regarding the
confirmation of the RPT Procedure and carried out supervisory activities to ensure this Procedure
was compliant with the principles indicated in the Consob Regulation. Pursuant to art. 4, paragraph
6, of the Consob Regulation, it should be noted that the RPT Procedure adopted by the Company
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and currently in force (i) is coherent with the principles contained in said Regulation, and (ii) is
published on the Company’s website (www.pirelli.com).
The abovementioned changes to the Consob Regulation were, as has already been established,
introduced with Consob Resolution no. 21624 of 10 December 2020, which amended the Consob
Regulation (“New Consob Regulation”). The New Consob Regulation will enter into force from 1
July 2021 and by 30 June 2021 the Company will undertake to adjust the RPT Procedure to the New
Consob Regulation. In this context, the Board of Statutory Auditors will be called to monitor
compliance of the procedure with the principles indicated in the New Consob Regulation.
During the 2020 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
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 RPT Committee during which the Committee expressed a
favourable opinion of some related party transactions of “lesser significance”, after having
considered the interest of the Company in the completion of the transaction and the convenience
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 effects of the aforementioned transactions for the 2020 financial year are fully reflected in the
financial statements.
We have monitored compliance with the RPT Procedure and the correctness of the process followed
by the Board and by the competent RPT Committee for the qualification of related parties - sharing,
inter alia, the assessments of the RPT Committee regarding the qualification of Pirelli’s related
parties established in November 2020 in light of the changes to the share ownership structure of the
Company itself - 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
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Pirelli & C. S.p.A. – 2020 Annual Report
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
that
It should be noted
joint Banca
the Board of Directors, as provided
d’Italia/Consob/ISVAP document of 3 March 2010, independently, and before the approval of the
relative periodic financial report by the Board of Directors, resolved that the impairment test
procedure complied with the prescriptions of international accounting standard IAS 36, after said
procedure had been approved by the Audit, Risks, Sustainability and Corporate Governance
Committee and the Board of Statutory Auditors; this occurred, in particular, in the meetings:
the
for
in
(i) of 23 July 2020 (therefore, independently and before the meeting of 5 August 2020 for the
approval of the Half Year Financial Report as at 30 June 2020), in the context of a review of
the impairment test procedure approved by the Board itself on 19 February 2020, by virtue
of the indications of the Supervisory Authorities in relation to the financial markets
(respectively Consob warning notice no. 6/20 of 9 April 2020 and the ESMA public statement
32-63-972 of 20 May 2020), which invited the listed companies to assess, on the basis of
internal and external information sources, and also in consideration of the effects deriving
from the Covid-19 emergency, the presence, or lack thereof, of any loss in value indicators
in relation to the assets entered into the Half Year Financial Report); and
(ii) of 25 February 2021 (therefore, independently and before the meeting of 31 March 2021 for
the approval of the draft financial statements as at 31 December 2020).
In both cases, 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, with the assistance of a highly
qualified expert.
Information on the assessment process in point (ii) 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 deems the procedure adopted by the Company for the preparation
of the financial statements as at 31 December 2020 adequate (the same as the one used in the
preparation of the Half Year Financial Report at 30 June 2020) and the relative information
comprehensive.
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SUPERVISORY ACTIVITY PURSUANT TO LEGISLATIVE DECREE 39/2010 “EXTERNAL
AUDITORS”
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
no. 135 of 17 July 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 art.
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 art. 82-ter of Consob Regulation 11971/99 (so called
“interim reports on operations”) for the periods that end on 31 March and 30 September each year.
Regarding the single electronic communications format for the annual financial reports (ESEF), for
completeness, attention should be drawn to the power of postponing provisions of the Delegated
Regulation (EU) 2019/815 regarding financial reports relative to the financial years starting from 1
January 2021, introduced by Regulation (EU) 2021/337 of the European Parliament and the Council,
and subject to notification, to the European Commission, by each member State of its intention to
authorise said postponement before19 March 2021, the option - as already established -
implemented by Italy (with law no. 21 of 26 February 2021, converting legislative decree no. 183 of
31 December 2020, “Milleproroghe”) and notified to the Commission on 2 March 2021. In virtue of
the information provided above, the draft financial statements as at 31 December 2020 were not
prepared using the ESEF format.
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SUPERVISING THE NON-FINANCIAL REPORTING PROCESS
The Board of Statutory Auditors has monitored compliance with the provisions contained in
legislative decree no. 254 of 30 December 2016 with reference to the non-financial declaration (the
“DNF”), 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 DNF 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 DNF, after appropriate highlighting and verification; (iv) signature
of a letter of attestation by the senior management on the non-financial data included in the
paragraphs on this subject in the financial statements.
The Company did not avail itself of its right pursuant to art. 3, paragraph 8, of legislative decree no.
254 of 30 December 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 Statutory Auditors also confirmed the efficiency and adequacy of the internal control
system, following some changes to the organisational structure arising from the Internal Audit
department, which was carried out during 2020. The Board also received the Audit Plan for the
financial year, its final results and the risk analysis, expressing a favourable opinion of their approval
by the Board, where requested. During the meetings, it was also constantly updated about the
application of the “Whistleblowing” procedure in the Pirelli Group.
Furthermore, every six months it received the reports of the Audit, Risks, Sustainability and
Corporate 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
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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 development of internal flows of information for
accounting purposes and had approved all corporate procedures which impacted the Company’s
profitability, financial position and/or assets and liabilities.
The Board of Statutory Auditors confirms that at present there is no need for measures to guarantee
the effectiveness and impartiality of the corporate departments involved in the internal control and
risk management system and, specifically, other than the Internal Audit department (mentioned
above), the Compliance and Rules department, the Tax Risk Officer and Enterprise Risk
Management;
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 to 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 art. 19,
paragraph 3 of legislative decree no. 39 of 27 January 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 2020 evidenced that the
administrative-accounting procedures had been applied correctly. The prescribed controls on the
application of the control framework for the DNF 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 DNF 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 controlling body, in its meeting
on 1 August 2017, for the nine-year period 2017/2025, pursuant to the applicable provisions for listed
companies (the appointment was effective from 4 October 2017, the date Pirelli’s shares were
admitted to trading). PWC was also appointed as external auditor of the accounts of the principal
Pirelli Group companies in Italy and abroad.
It should be specified that, with respect to the remuneration granted in favour of PWC, on 19 October
2020 the Board of Statutory Auditors undertook to acknowledge, in favour of PWC, the adjustment
of the remuneration, for the financial year 2020 only, of 5,000 euro - an insignificant amount which,
as such, does not constitute a substantial review of the proposal approved by the Shareholders’
Meeting of 1 August 2017 - by virtue of the integrated activities carried out by PWC, under the scope
of the limited audit of Pirelli’s Half Year Financial Report, due to the Covid-19 emergency.
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Pursuant to art. 14 of legislative decree no. 39 of 27 January 2010, and art. 10 of Regulation (EU)
537/3014, on 2 April 2021 PWC issued its Reports on the separate and consolidated financial
statements as at 31 December 2020. On the same date, the auditing firm issued its Additional report
for the internal control and audit committee, drafted pursuant to art. 11 of Regulation (EU) 537/3014.
On the same date, PWC issued its Report on the consolidated non-financial disclosure pursuant to
art. 3, paragraph 10 of legislative decree no. 254 of 30 December 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.
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 no. 39 of 27 January 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 of the Secretary of the Board, has the responsibility of checking that the
proposed assignment is not listed as not permitted by art. 5 of Regulation (EU) no. 537/2014, and
that in any event, given its characteristics (considering the payment planned, the nature of the
service and the reasons for the assignment), said assignment complies with the principles of
independence of the external auditor and it has no impact on the independence of the external
auditor.
In a letter dated 2 April 2021, 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 2020 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:
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2020 EXTERNAL AUDITOR FEES
(thousands of euros)
Service provider
Recipient
Partial fees
Total fees
External auditing
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
PricewaterhouseCoopers S.p.A.
Subsidiaries
Network PricewaterhouseCoopers Subsidiaries
Attestation services (1)
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
Services other than auditing
PricewaterhouseCoopers S.p.A.
Pirelli & C. S.p.A.
PricewaterhouseCoopers S.p.A.
Subsidiaries
Network PricewaterhouseCoopers Subsidiaries
PricewaterhouseCoopers S.p.A.
Subsidiaries
Network PricewaterhouseCoopers Subsidiaries
79
1.147
1.222
150
334
33
150
-
5
2.448
78%
517
17%
155
3.120
5%
100%
(1) “Attestation services” include amounts paid for other services that require the issuance of an audit report as w ell as amounts paid for so-called attestation services as they are synergistic w ith the
external auditor.
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.
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 (EIP), 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 activity. The Company has launched a procedure to comply with
the aforementioned standard.
The Board of Statutory Auditors notes:
that it assessed the adequacy of these procedures which are adequate to allow the Board of
Statutory Auditors to understand the reasons for the proposal to assign a service other than
an external audit and to possess all the data required to carry out the assessments;
that it shared with the auditing firm the methodological system used for the calculation and
periodic update of the aforementioned fee cap and payments made to the auditing firm for
non-audit tasks carried out, and that said methodological system is deemed adequate for the
purpose of monitoring compliance with the independence requirements of the auditing firm
itself, and
-
-
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-
that the remuneration received by PWC during 2020 for services other than external auditing
do not exceed 70% of the average remuneration for the external audit activity carried out at
Pirelli and received in the three-year period 2017-2019.
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 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 31 March 2021 the Board of Directors confirmed its preceding
assessments regarding the absence of a subject that exercises direction and coordination on the
Company pursuant to art. 2497 of the Italian Civil Code, without prejudice to the right of the parent
company to include Pirelli within its own consolidation perimeter for accounting purposes.
It is useful to note that Pirelli exercises direction and coordination activity on numerous subsidiaries,
having made the communications required by art. 2497-bis of the Italian Civil Code. The Board
imparted instructions to the subsidiaries regarding compliance with the provisions pursuant to art.
114 of the TUF that are deemed adequate.
REMUNERATION OF THE DIRECTORS, GENERAL MANAGER AND KEY MANAGERS WITH
STRATEGIC RESPONSIBILITIES
During 2020, 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 art.
2389 of the Italian Civil Code.
In particular, the Board of Statutory Auditors:
- expressed its favourable opinion at the meeting of the Board of Directors of 19 February 2020
on (i) the 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, provided in the following point) 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 business plan (with the inclusion of a new
sustainability objective – with 10% weighting – relating to Pirelli’s rating in the CDP index).
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- at the Board of Directors meeting of 2 March 2020 it expressed its favourable opinion, in
addition to the above, of the approval of the 2020 remuneration report (made up of the 2020
Policy and the Report on Compensation Paid in 2019), as well as the relative Directors’
Reports to the Shareholders’ Meeting on compensation;
- at the Board of Directors meeting of 3 April 2020, it expressed its favourable opinion, within
its competence:
on the renunciation, under the scope of the cost containment measures, by the
Executive Vice Chairman and Chief Executive Officer, members of the Board of
Directors and managers of the leadership team, of a part of their remuneration for the
following quarter;
on the cancellation of the 2020 STI (MBO) plan, aimed at the Group’s managers,
including the Executive Vice Chairman and Chief Executive Officer and the leadership
team, subject to the approval, by the Shareholders’ Meeting, of the 2020 Policy and
the advisory vote in favour of the Report on Compensation Paid in the financial year
2019;
- at the Board of Directors meeting of 13 May 2020, it confirmed its approval of the
remuneration of the Corporate Vice President Internal Audit:
- at the Board of Directors meeting of 22 June 2020, it expressed its favourable opinion:
on the distribution, by the Board, of the overall remuneration granted by the
Shareholders’ Meeting of 18 June 2020;
on the confirmation of the remuneration in favour of the Chairman, the Executive Vice
Chairman and Chief Executive Officer and the General Manager;
on the confirmation, for the General Manager and Key Managers, of the structure of
the 2020/2022 long-term incentive plan, as well as the retention plan under the terms
already resolved by the Company during the previous mandate, taking into account
the resolutions passed by the Board of Directors in the meeting held on 3 April 2020;
and
- at the Board of Directors meeting of 23 July 2020, it expressed its favourable opinion on the
remuneration of the General Manager co-CEO to be appointed, responsible for the
corresponding newly established General Manager co-CEO Direction, directly reporting to
the Executive Vice Chairman and Chief Executive Officer.
In addition, following the close of the 2020 financial year, the Board of Statutory Auditors:
- at the Board of Directors meeting of 25 February 2021, expressed its favourable opinion on
the consensual termination of the managerial employment contract with the General Manager
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co-CEO, from 28 February 2021, approving the economic terms of the relative termination
agreement;
- at the Board of Directors meeting of 31 March 2021, it expressed its favourable opinion on
(i) the 2021 STI plan; (ii) the review of the “Cumulative Group Net Cash Flow (before
dividends)” objective included in the 2020-2022 LTI plan and the possibility of normalising
the effects on the promotion of the TSR relative to Cooper’s integration in Goodyear; (iii) the
adoption of the new 2021-2023 LTI plan, to support the new 2021-2022/2025 Strategic plan;
(iv) the approval of the 2021 Remuneration Report (composed of the 2021 Policy and the
Report on Compensation Paid in 2020), as well as the relative Directors’ reports to the
Shareholders’ Meeting on compensation and the remuneration of the Deputy CEO.
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 art. 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;
- as already pointed out, how the corporate governance rules contained in the codes of conduct
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 art. 123-bis of the TUF, the
Company has, also for the 2020 financial year, drafted its annual Report on corporate
governance and share ownership which provides information on (i) the corporate governance
practices actually applied by the Company, over and above the obligations specified in the
legal or regulatory provisions, (ii) the principal features of the risk and internal control systems
that exist in relation to the financial reporting process, including the consolidate financial
reports, (iii) how the Shareholders’ Meeting functions, including its principal powers and
shareholders’ rights and how they are exercised, (iv) the composition and operation of the
administration and control bodies and their committees, and the other information specified in
art. 123-bis of the TUF;
-
the adequacy of the instructions imparted by the Company to its subsidiaries pursuant to art.
114, paragraph 2, of the TUF, 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
567
Pirelli & C. S.p.A. – 2020 Annual Report
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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 Bylaws, and are not manifestly imprudent, reckless or in conflict of interest, or in
violation of the resolutions passed by the Shareholders’ Meeting, or capable of compromising
the integrity of the company’s assets;
- received from the Supervisory Body, of which Statutory Auditor Ms. Antonella Carù is a
member, information about the results of its own control activity, which did not reveal anomalies
or misconduct;
- held periodic meetings with representatives of the external auditor in order to exchange
important data and information for the performance of its duties, as prescribed in art. 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;
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Pirelli & C. S.p.A. – 2020 Annual 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
paragraph 1 and 2 of art. 151 of the TUF);
- gave its favourable opinion to confirm the role of Manager responsible for the preparation of
the corporate financial documents to Mr Francesco Tanzi, resolved by the Board of Directors
of 22 June 2020;
- gave its favourable opinion, pursuant to art. 2386 of the Italian Civil Code, on the appointment
by co-option of Director Angelos Papadimitriou on 5 August 2020;
- endorsed, as better described above, the RPT Committee proposal to confirm the RPT
Procedure;
- received the annual report from the Company’s Data Protection Officer which showed the
Company is fully compliant with privacy legislation;
-
issued statements on the (i) non-application of the limits pursuant to art. 2412 of the Italian
Civil Code for the issue of the equity-linked bond “EUR 500 million Senior Unsecured
Guaranteed Equity-link Bonds due 2025”, approved by the Board of Directors on 14 December
2020 and (ii) underwriting and payment, in full, of the share capital, during the Shareholders’
Meeting held on 24 March 2021, that resolved on the conversion of the aforementioned bond
and the increase of capital in favour of said bond.
During the 2020 financial year the Board of Statutory Auditors did not receive any complaints or
reports pursuant to art. 2408 of the Italian Civil Code.
With regard to the external auditor, the Board of Statutory Auditors noted that PWC:
-
-
issued its report pursuant to art. 14 of legislative decree no. 39 of 27 January 2010 and art. 10
of Regulation (EU) 537/201 on 2 April 2021. This containing its opinion without remarks 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
2020, and of the economic results and cash flow for the financial year that closed on that date,
in compliance with applicable accounting standards, and provided evidence of key aspects of
their audit;
issued a coherence opinion indicating that the Report on Operations accompanying the
separate and consolidated financial statements as at 31 December 2020, and some specific
information contained in the Report on corporate governance and share ownership, as laid
down in art. 123-bis, paragraph 4, of the TUF have been drafted in compliance with current
legislation;
- as regards possible significant errors in the Report on Operations, stated that, based on the
knowledge and understanding of the company and its market that it had acquired in the course
of the audit activities, it had no matters to raise;
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Pirelli & C. S.p.A. – 2020 Annual Report
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- 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 2 April 2021, provided the Board of Statutory Auditors with the Additional Report referred
to in art. 11 of regulation EU 537/2014, indicating that there were no significant shortcomings
in the internal control system in relation to the financial reporting process that needed to be
brought to the attention of persons responsible for “governance” activities;
- on 2 April 2021, pursuant to art. 3, paragraph 10, of legislative decree no. 254 of 30 December
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 DNF for
the year to 31 December 2020 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 art. 6 of Regulation (EU) 537/2014, with a statement from which no situations
emerge that could compromise the independence of the external auditor (for more details
concerning the provision of non-auditing services, see the paragraph entitled “supervising the
independence of the external auditor, in particular with regard to the provision of non-auditing
services” in this Report).
The Board of Statutory Auditors also took note of the Transparency Report drafted by the external
auditor and published on its web site, pursuant to art. 18 of legislative decree 39/2010.
Furthermore, with regard to the corporate bodies, the Board of Statutory Auditors noted that:
-
the Board of Directors in office - that will expire at the Shareholders’ Meeting convened for the
approval of the financial statements of the financial year ending 31 December 2022 - at the date
of the Report is composed of 14 Directors (due to a vacancy following the aforementioned
resignation of Angelos Papadimitriou on his re-appointment as Director), of which 13 are non-
executive Directors and, of these, 8 hold the independence requirements provided for by the
Corporate Governance Code (in force until 31 December 2020), by the New Corporate
Governance Code (in force from 1 January 2021) and by the TUF. During 2020, it met 9 times.
At the date of the Report:
the Audit, Risks, Sustainability and Corporate Governance Committee is composed of five
Directors, the majority of whom are independent. During 2020, it met 8 times;
the Remuneration Committee is composed of five Directors, the majority of whom are
independent (the Chairman is an independent Director). During 2020, it met 4 times;
the Related-Parties Transactions Committee is composed of three Directors, all independent.
During 2020, it met 10 times;
-
-
-
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-
-
the Appointments and Successions Committee is composed of four Directors, one of whom is
the Executive Director. During 2020, it met 2 times;
the Strategies Committee is composed of seven Directors, including the Executive Director
and three independent Directors. During 2020 it met 2 times.
The Board of Statutory Auditors has always attended the meetings of the Board of Directors and the
board committees, also in its capacity as internal control and audit committee pursuant to art. 19 of
legislative decree no. 39 of 27 January 2010.
The Board of Statutory Auditors also attended the ordinary Shareholders’ Meeting that in 2020 was
held on 18 June.
The percentage attendance figures of the single members of the Board of Statutory Auditors at the
meetings of the above corporate bodies are provided in the Report on corporate governance and
share ownership.
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 22 March 2021, as recommended by the Borsa Italiana Corporate Governance Code and
the New Corporate Governance Code, that members possess the same independence
requirements - where applicable - as those requested for the directors in the aforementioned
Codes of Conduct;
that they have found that the criteria and procedures to ascertain the independence
requirements adopted by the Board of Directors to annually verify 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 main risks and uncertainties to which the Company is exposed;
that, with reference to the provisions of art. 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 2020,
the subsidiaries set up in and regulated by the laws of States that are not members of the
571
Pirelli & C. S.p.A. – 2020 Annual Report
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European Union and deemed to have significant importance under art. 15 of Consob Market
Regulation are: Pirelli Neumaticos SAIC (Argentina), Pirelli Pneus Ltda (Brazil), Comercial e
Importadora de Pneus Ltda. (Brazil), Pirelli Comercial de Pneus Brasil Ltda (Brazil), Pirelli Tyre
Co., Ltd (China), Pirelli Neumaticos de Mexico S.A. de C.V. (Mexico), Pirelli Neumaticos S.A.
de C.V. (Mexico), Limited Liability Company Pirelli Tyre Russia (Russia), Pirelli Tyre (Suisse)
S.A. (Switzerland), Pirelli Otomobil Lastiskeri S.A. (Turkey), Pirelli Tire LLC (USA).
During the course of its supervisory activities, and on the basis of the information obtained from the
external auditor, no omissions, misconduct, irregularities or significant facts were found which are
worthy of being reported or mentioned in this Report.
The activities described above, conducted both collectively and individually, have been documented
in the minutes of the 12 meetings of the Board of Statutory Auditors held during 2020.
***
The Board of Statutory Auditors noted that, at the date of this Report, the Coronavirus health
emergency was still ongoing around the world, including in Italy.
In this regard, the Board of Statutory Auditors:
- undertook to continuously monitor the evolution of the reference regulatory framework and
provisions issued by the competent Authorities to address the ongoing Covid-19 crisis,
concerning the supervisory activities it is responsible for with reference to Pirelli;
- was constantly informed by the competent departments of the Company of the assessments
carried out by the management and the actions implemented to monitor the possible social,
economic and financial impact of the Covid-19 emergency on the Group. This exchange of
information was continuous throughout 2020 and will continue until the end of the ongoing
pandemic;
-
continuously monitored, within its respective competence, throughout 2020, the issuing of i)
recommendations, by the competent European and Italian local Authorities, that could impact
on Company and Group activities and, in particular, on the process of periodic financial
reporting, ii) guidelines by the trade associations and the firm engaged to perform the external
audit, PWC, on the interpretation and the consequent application of certain international
accounting standards.
In particular, the Board of Statutory Auditors, as part of its duties and for the purpose of the issue of
the present Report, also took into account:
-
the recommendations provided by ESMA in the public statement “Implications of the COVID-
19 outbreak on the half-yearly financial Reports” of 20 May 2020;
-
the Consob warning notice no. 6/20 of 09 April 2020;
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-
-
-
-
-
the Consob warning notice no. 8/20 of 16 July 16 2020;
the Consob warning notice no. 9/20 of 30 July 2020;
the recommendations provided by ESMA in the public statement “European common
enforcement priorities for 2020 annual financial reports” of 28 October 2020;
the Consob warning notice no. 1/21 of 16 February 2021, and
the Consob warning notice no. 4/21 of 15 March 2021.
To this end, the Board of Statutory Auditors expressed:
that it had received correct and complete information from the Board of Directors, the
Manager in charge, the Chief Executive Officer and the competent Departments within the
Company on the training process and on the information provided in the 2020 Company’s
draft financial statements and the 2020 Group’s Consolidated Financial Statements;
that it had constant, continuous and particularly in-depth exchanges with the auditing firm
regarding the training process and the information provided in the 2020 Company’s draft
financial statements and the 2020 Group’s Consolidated Financial Statements and regarding
the elements which arose during the auditing and control activities for which the same was
responsible; no issues worth noting in this Report arose during these exchanges;
that there had been a constant exchange of information, pursuant to the provisions of art.
151, paragraph 2, of the TUF, with the corresponding control bodies of the main subsidiaries;
no issues worth noting in this Report arose during these exchanges;
that there was no particular evidence that would lead the Board of Statutory Auditors to
disagree with the assessments carried out by the Board of Directors confirming the existence
of the requirement for business continuity;
that the Company did not make use of its opportunity to suspend the regulations pursuant to
articles 2446 and 2447 of the Italian Civil Code;
that the regulatory restrictions imposed, at the national and international level, with regard to
movement during the ongoing Covid-19 emergency did not pose particular limitations on the
monitoring activities of the Board of Statutory Auditors of the Company and those of the
corresponding Control Bodies of the main subsidiaries or on the auditing activities carried out
by the auditing firm.
With reference to the ongoing Covid-19 emergency, the Board of Statutory Auditors also noted that
the “2020 Annual Financial Report”, approved by the Board of Directors of the Company on 31 March
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2021 and made available to the public according to the terms and procedures provided for by the
regulatory frameworks in force, reports:
in the Directors’ Report on Operations at 31 December 2020, a paragraph entitled “The cost
competitiveness plan and actions to tackle the Covid-19 emergency”;
in the Explanatory Notes, a paragraph on “Covid-19”, as well as additional information on the
effects of the pandemic with regards to each potentially affected component.
SELF-ASSESSMENT OF THE BOARD OF STATUTORY AUDITORS
In 2020, the Board of Statutory Auditors – in continuity with the previous financial year and as
recommended by the Standards of Conduct – 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 and the related outcomes were discussed and agreed upon by the Board of Statutory
Auditors during a dedicated meeting held on 22 March 2021.
The Board of Statutory Auditors noted that the self-assessment of 2020 (the current Board of
Statutory Auditors’ third and last year of mandate) confirmed a broadly positive picture of the
composition and operation of the Board of Statutory Auditors, as already outlined in the previous
years. In fact, despite the exceptional circumstances due to the pandemic, the profound knowledge
of the Group’s business and dynamics acquired by the Statutory Auditors over the course of the
previous years has enabled them (also while working remotely) to efficiently carry out the work they
initiated at the end of the first year of mandate.
The areas for which the most appreciation was reported include, inter alia, the excellent relations
with the Company and the Pirelli management team, the suitability of the size and composition of
the Board of Statutory Auditors, the extremely efficient training and induction sessions, used as a
means of gaining knowledge about the Group and the business, and the Company and Board of
Directors’ significant contribution to addressing the challenges of the current health crisis, along with
accurate and timely communications and reporting;
From the investigation, some areas have been identified for future reflection, including forecasting,
when possible, opportunities for informal meetings with Company Directors and managers and
continuing an active participation in induction sessions.
It should also be noted that the Board of Statutory Auditors, due to expire - as already established -
on completion of its mandate with the Shareholders’ Meeting convened to approve the annual
financial report at 31 December 2020, undertook to draft a document, pursuant to the Rules of
Conduct, intended to make available to the shareholders a complete picture of the activities that the
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Pirelli & C. S.p.A. – 2020 Annual Report
Pirelli Board of Statutory Auditors, appointed by the Shareholders’ Meeting, is required to perform
and, in addition to this, a summary of its assessments regarding the optimum composition of the
controlling body (in addition to the regulatory requirements) for the purposes of the effective
operation of the same. The considerations presented in the aforementioned document take into
account the experience gained by the members of the outgoing Board of Statutory Auditors in
performing their duties, Pirelli’s corporate governance system and the results of the self-assessment
process referred to in this paragraph of the Report.
BOARD OF DIRECTORS SELF-ASSESSMENT PROCESS
The Board of Statutory Auditors notes that the Board of Directors carried out the process to evaluate
its operation and the operation of its Committees (board performance evaluation) for the 2020
financial year. For the purposes of the assessment process, the Board – in line with what was done
in the previous financial year – also availed itself of the assistance of the aforementioned consulting
firm, Spencer Stuart. The self-assessment process was carried out through individual interviews with
questions about the size, composition and operation of the Board of Directors. The results of the
board performance evaluation were shown and shared in the Board of Directors Meeting of 31 March
2021, after sharing these with the Audit, Risks, Sustainability and Corporate Governance Committee
on 22 March 2021. The Board of Statutory Auditors notes that it participated in both of the
aforementioned meetings. The Report on the corporate governance and share ownership
summarises the areas regarding which the most appreciation was reported, along with some
indications which emerged on how to further improve the operation of the Board.
PROPOSALS TO THE SHAREHOLDERS’ MEETING
FINANCIAL STATEMENTS AT 31 DECEMBER 2020
The Board of Statutory Auditors expresses its favourable opinion on the approval of the Financial
Statements at 31 December 2020 and has no objections to raise regarding the proposal made to:
1) distribute to the shareholders a total dividend, gross of withholdings tax, consisting:
-
-
for euro 43,956,054.00 of the profit for the year;
for euro 36,043,946.00 of retained earnings from previous years and recorded in the balance
sheet liabilities under the item “Retained earnings reserve”,
and therefore to distribute a dividend of 0.08 euro for each of the 1,000,000,000 outstanding ordinary
shares, for a total of 80,000,000.00 euro;
2) to authorise the Directors to allocate to retained earnings the balance of the rounding that may
be determined at the time of payment of the dividend.
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Separate Financial Statements
3) to establish, in the event that before the ex-dividend date, the number of outstanding ordinary
shares changes following the bond conversion of the equity-linked bond named “EUR 500 million
Senior Unsecured Guaranteed Equity-linked Bonds due 2025”, that the abovementioned unit
dividend remains unchanged and that the amount necessary for distribution of any new shares is
taken from the item “Retained earnings reserve”.
APPOINTMENT OF THE BOARD OF STATUTORY AUDITORS
The Board of Statutory Auditors is due to expire due to the completion of its mandate.
We would like to thank you for the trust you have put in us and we would like to remind you that all
Shareholders are invited to appoint the Board of Statutory Auditors for the next three-year period
using the slate voting system.
REMUNERATION POLICY AND COMPENSATION PAID
Please note that the Board of Statutory Auditors expressed a favourable opinion of the Remuneration
Policy for the 2021 financial year subject to the binding vote of the Shareholders’ Meeting and the
Report on Compensation Paid in the 2020 financial year, subject to the advisory vote of the
Shareholders’ Meeting.
THREE-YEAR MONETARY INCENTIVE PLAN FOR THE PIRELLI GROUP’S MANAGEMENT
We would like to inform you that the Board of Statutory Auditors has expressed its favourable opinion,
within the scope of its competence, on the review of the “Group Cumulative Net Cash Flow (before
dividends)” objective included in the 2020-2022 LTI Plan, on the possibility of normalising the effects
on the promotion of the TSR objective relative to Cooper’s integration in Goodyear, and on the
adoption of the new 2021-2023 LTI Plan to support the new 2021-2022/2025 Strategic Plan.
OTHER ISSUES SUBMITTED TO THE SHAREHOLDERS’ MEETING FOR APPROVAL
Regarding the other issues submitted to you for approval (the appointment of Director) the Board of
Statutory Auditors has no comment to make.
****
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Pirelli & C. S.p.A. – 2020 Annual Report
Pursuant to art. 144-quinquiesdecies of the Issuers’ Regulations, 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 art. 144-quaterdecies (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 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 share ownership.
The Board of Statutory Auditors here acknowledges that all its members were in full compliance of
the aforementioned regulatory provisions laid down by Consob governing the “maximum number of
positions to be held”.
Milan, 2 April 2021
Mr Francesco Fallacara
Mr Fabio Artoni
Ms Antonella Carù
Mr Luca Nicodemi
Mr Alberto Villani
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RESOLUTIONS
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Pirelli & C. S.p.A. – 2020 Annual Report
FINANCIAL STATEMENTS AS AT 31 DECEMBER 2020:
- APPROVAL OF THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 2020.
PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 31
DECEMBER 2020. PRESENTATION OF THE REPORT ON RESPONSIBLE MANAGEMENT
OF THE VALUE CHAIN RELATED TO 2020 FINANCIAL YEAR;
- PROPOSAL ON THE ALLOCATION OF THE RESULT OF THE FINANCIAL YEAR AND
DISTRIBUTION OF DIVIDENDS USING ALSO PROFITS SET ASIDE IN PREVIOUS YEARS;
RELATED AND CONSEQUENT RESOLUTIONS.
(item 1 on the agenda)
Dear Shareholders,
The year ended December 31, 2020 closed with a profit of euro 43,956,054.00.
The Board of Directors, considering that:
-
-
following the shareholders’ resolutions adopted in 2017, the legal reserve was completed and
reached the limit set by art. 2430 of the Italian Civil Code;
the “Retained earnings reserve” is sufficient enough to proceed with the distribution proposed
below;
proposes to distribute a dividend, gross of withholding taxes, of euro 0.08 for each of the
1,000,000,000 outstanding ordinary shares, by means of:
- distribution of the entire 2020 profit of euro 43,956,054.00;
- distribution of a further amount of euro 36,043,946.00 to be drawn from the “Retained earnings
reserve”, which after this withdrawal will remain at euro 504,040,183.00.
The proposed dividend was calculated taking into account the number of shares currently
outstanding. This number may vary following any requests for conversion of the “EUR 500 million
Senior Unsecured Guaranteed Equity-linked Bonds due 2025”. In this case, the Board proposes to
withdraw any necessary amounts from the item “Retained earnings reserve”.
If you agree with our proposal, we request that you adopt the following
RESOLUTIONS
“The Shareholders’ Meeting,
having examined the annual report at December 31, 2020;
having acknowledged the Statutory Auditors’ Report;
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Resolutions
having acknowledged the Independent Auditors’ Report;
taking into account that from the financial statements at December 31, 2020, it emerges that
the “Retained earnings reserve” is sufficient for eur 540,084,129.00
RESOLVED
a)
to approve the Company’s financial statements for the year ended December 31, 2020, as
presented by the Board of Directors as a whole, in the individual entries and with the proposed
provisions, showing a profit of eur 43,956,054.00;
b)
to distribute to shareholders a total dividend, gross of withholding taxes, consisting:
-
-
for euro 43,956,054.00 of the profit for the year;
for euro 36,043,946.00 of retained earnings from previous years93 and recorded in the
balance sheet liabilities under the item “Retained earnings reserve”
c)
d)
and therefore to distribute a dividend, gross of withholding taxes, of euro 0.08 for each of the
1,000,000,000 outstanding ordinary shares, for a total of euro 80,000,000.00;
to authorise the Directors to allocate to retained earnings the balance of the rounding that may
be determined at the time of payment of the dividend;
to establish, in the event that before the ex-dividend date, the number of outstanding ordinary
shares changes following the conversion of the “EUR 500 million Senior Unsecured Guaranteed
Equity-linked Bonds due 2025”, that the unit dividend referred to above will remain unchanged
and that the amount necessary for distribution to any new shares will be taken from the item
“Retained earnings reserve”.
The dividend will be paid as from June 23, 2021, with ex-dividend date on June 21, 2021 (record
date June 22).
93 This is a share of profits related to tax year 2017.
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APPOINTMENT OF A MEMBER OF THE BOARD OF DIRECTORS; RELATED AND
CONSEQUENT RESOLUTIONS.
(item 2 on the agenda)
Illustrative report drafted by the Directors pursuant to art. 125-ter of Legislative Decree no. 58 of 24
February 1998 and subsequently amended and supplemented, approved by the Board of Directors
on 31 March 2021.
Dear Shareholders,
-
following the resignation from the office of Director of the Company presented by Carlo Secchi
with effect from the approval of the half year financial report as at 30 June 2020, on 5 August
2020, Angelos Papadimitriou was co-opted as member of the Board of Directors, pursuant to art.
2386 of the Italian Civil Code, with resolution approved by Board of Statutory Auditors, until the
Shareholders’ Meeting called on 24 March 2021;
- on 24 March 2021, Pirelli announced that, in order to support the execution of the business plan
presented to the market on 31 March 2021, the Executive Vice Chairman and CEO has proposed
to the Board of Directors to invite the Shareholders’ Meeting scheduled for 15 June 2021, to
appoint Giorgio Luca Bruno as Director. The Executive Vice Chairman and CEO has also
proposed to the Board that, once appointed, Director Giorgio Luca Bruno shall be designated,
reporting directly to him, as Deputy-CEO.
The proposal – approved by the Board of Directors on 31 March 2021 - aims to strengthen the
management team in view of the future succession pathway in line with the procedure already
adopted by the Company and expects that the Deputy-CEO may also contribute to optimise the
internal management team.
Following the future assumption of the position of Deputy-CEO by Giorgio Luca Bruno, the
macro-organisational structure of Pirelli foresees that Strategic Planning & Controlling; Investor
Relations, Competitive, Business and Value Insight, Micromobility Solutions; Communication
and Brand Image; Institutional Affairs and Culture; Corporate Affairs, Compliance, Audit and
Company Secretary will continue to report to the Executive Vice Chairman and CEO.
The Deputy-CEO shall be attributed all the necessary executive levers, in addition to the staff
areas not directly reporting to the Executive Vice Chairman and CEO, and the report of the
General Manager Operations, Andrea Casaluci, who will continue to head up all the business
lines and the regions.
Informed of this proposal, Angelos Papadimitriou, whose confirmation as Director was envisaged
on the agenda of the Shareholders’ Meeting called on 24 March 2021, communicated the
withdrawal of his candidacy as Director, to allow the implementation of the above proposal;
-
therefore, the Shareholders’ Meeting held on 24 March 2021 did not resolve on the appointment
of a new director, deleting the sole point of the ordinary session on the agenda. As a result,
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Angelos Papadimitriou, co-opted by the Board of Directors on 5 August 2020, expired from the
office of Director with effect from 24 March 2021; for this reason a seat on the Board of Directors
is currently vacant.
It should be noted that, for the purposes of adopting the decisions of the Shareholders’ Meeting, the
procedure of the slate vote, provided for by the Bylaws, does not apply, as there is no full renewal of
the Board of Directors. Therefore, as provided for in art. 10 of the Bylaws, the Shareholders’ Meeting
shall vote on the basis of the majorities required by law.
It is also recalled that:
- each member of the Board of Directors receives a gross annual remuneration for the position of
Euro 65 thousands, in addition to the eventual further remuneration established by the Board of
Directors in the event of participation in Board Committees;94
-
the new Director will expire at the same time as those currently in office, therefore on the date of
the Shareholders’ Meeting called to resolve upon the approval of the Company financial
statements as at 31 December 2022.
BOARD OF DIRECTORS DECISION PROPOSAL
In light of the above, the Board of Directors proposes you the following resolution:
to confirm as fifteen the number of members of the Board of Directors of Pirelli & C. S.p.A.
and to appoint Giorgio Luca Bruno as member of the Board of Directors, born in Milan on
23 February 1960, who will remain in office until the date of the Shareholder's Meeting
called to approve the Company financial statements closed on 31 December 2022.
Shareholders are informed that the Shareholders’ Meeting is called to resolve upon the decision
proposal above.
The curriculum vitae of Director Giorgio Luca Bruno is available on the Company website at
www.pirelli.com in the section dedicated to the Shareholders' Meeting.
Finally, for completeness, as at the date of the Report, the Director Giorgio Luca Bruno is holder of
no. 500 Pirelli shares.
***
94 For further details on the remuneration established for participation in the Board Committees, please see the Remuneration Policy for
the year 2021 contained in the Annual Report 2020 and available on the Company website www.pirelli.com.
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The Board of Directors invites the Shareholders who wish to submit further proposals for the
candidacy for the office of Board Member to take into account, not only the legal provisions and the
Bylaws of the Company, but also the relevant recommendations of the Corporate Governance Code.
In particular, the Board wishes that any further candidacy shall be made available to the public -
even through the Company - accompanied by the necessary documentation, as detailed in the
Shareholders’ Meeting section on the Company website, at least 21 days before the Shareholders’
Meeting and therefore by 25 May 2021, in order to allow persons entitled to vote at the Shareholders’
Meeting to know in advance the personal and professional data of the candidate(s), consistently with
the terms required for the publication of the slates in case of appointment of the whole Board of
Directors.
Finally, the Board of Directors invites Shareholders to also take into account the professional skills
and competences necessary for the office of Director of Pirelli as well as the orientation towards the
maximum number of appointments deemed compatible with the effective performance of the role of
Director of the Company published on the Pirelli website www.pirelli.com – Governance section.
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APPOINTMENT OF THE BOARD OF STATUTORY AUDITORS FOR THE FINANCIAL YEARS
2021, 2022 AND 2023 AND DETERMINATION OF ITS REMUNERATION:
- APPOINTMENT OF STANDING AND ALTERNATE AUDITORS;
- APPOINTMENT OF THE CHAIRMAN OF THE BOARD OF STATUTORY AUDITORS;
- DETERMINATION OF THE ANNUAL REMUNERATION OF THE BOARD OF STATUTORY
AUDITORS’ MEMBERS;
RELATED AND CONSEQUENT RESOLUTIONS.
(item 3 on the agenda)
Illustrative report drafted by the Directors pursuant to art. 125-ter of Legislative Decree no. 58 of 24
February 1998 and subsequently amended and supplemented, approved by the Board of Directors
on 31 March 2021.
Dear Shareholders,
the term of office of the Board of Statutory Auditors of Pirelli & C. S.p.A., appointed by the
Shareholders’ Meeting of 15 May 2018 for the three-year period 2018/2020, is due to expire on
approval of the annual financial report as of 31 December 2020.
At present, the members of the Board of Statutory Auditors are:
- Francesco Fallacara (Chairman of the Board of Statutory Auditors)
- Fabio Artoni (Standing Auditor)
- Antonella Carù (Standing Auditor)
- Luca Nicodemi (Standing Auditor)
- Alberto Villani (Standing Auditor)
- Elenio Bidoggia (Alternate Auditor)
- Giovanna Maria Carla Oddo (Alternate Auditor)
- Franca Brusco (Alternate Auditor).
The Shareholders’ Meeting is therefore called on, pursuant to applicable legal and regulatory
provisions and art. 16 of the company Bylaws (reported in full as a footnote to this report) to:
- appoint five Statutory Auditors and three Alternate Auditors for the financial years 2021, 2022
and 2023;
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- appoint the Chairman of the Board of Statutory Auditors, where it is not possible to identify this
figure following application of the slate voting mechanism;
- determine the remuneration of members of the Board of Statutory Auditors.
Standing and Alternate Auditors shall be appointed using the slate voting mechanism.
In this regard, it is pointed out that only shareholders who, alone or together with other shareholders,
represent at least 1% of the share capital entitled to vote at an Ordinary Shareholders’ Meeting
(minimum threshold laid down in the company Bylaws, identical to that established by Consob with
Executive Resolution no. 44 of 29 January 2021) are entitled to submit slates.
Slates of candidates – signed by the shareholders that submit them, indicating their identity and the
percentage of total shares held by them in the ordinary share capital of the Company – must be filed
at the Company’s registered offices at least twenty-five days before the scheduled date of the
Shareholders’ Meeting.
Shareholders may also file the slates of candidates by sending them and the relative supporting
documentation to the following certified email address: assemblea@pec.pirelli.it.
If by the deadline indicated above only one slate or only slates submitted by shareholders who are
connected to each other have been submitted, pursuant to the applicable legislation, including
regulations, additional slates may be submitted up to the third day after the deadline for the
submission of slates. In this case, the thresholds set for their submission shall be reduced by half,
therefore, 0.5% of the share capital entitled to vote at an ordinary Shareholders’ Meeting.
Ownership of the total equity investment shall be confirmed, pursuant to current regulatory
provisions, even after the filing of the slates as long as it occurs at least 21 days prior to the date of
the Shareholders’ Meeting.
The slates of candidates must be divided into two distinct sections: the first section contains the list
of candidates (indicated by a consecutive number) for the office of Standing Auditor, while the
second section contains the list of candidates (indicated by a consecutive number) for the office 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 order to ensure gender balance, slates that - taking account of both sections -
present a number of candidates equal to or exceeding three, must include candidates of each gender
at least to the minimum extent required by law and / or pro tempore regulations in force, as specified
in the notice of call of the Shareholders’ Meeting, both in the section for standing statutory Auditors
and in the section for alternates.
Each slate must also be accompanied by the documentation required by art. 16 of the Bylaws and
applicable legal and regulatory provisions. In particular, 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 that would make them ineligible for or incompatible with the
role, and that they satisfy any requirements established by applicable provisions, including
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Pirelli & C. S.p.A. – 2020 Annual Report
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regulations, and by the Bylaws to hold the office. Together with the declarations, a curriculum vitae
is to be filed for each candidate containing comprehensive information on their personal and
professional characteristics and providing information – even in an annex – on the administration
and control positions held with other companies.
Note that - pursuant to the Corporate Governance Code (“Code”)95, to which the Company has
subscribed – “all the members of the supervisory body meet the independence requirements
prescribed by Recommendation no. 7 for directors”96 and, therefore, those who wish to submit slates
and are entitled to do so are invited to take account of this when identifying the candidates to be
proposed.
Each shareholder may submit or contribute to the submission of just one slate and each candidate
may be included in just one slate, under penalty of ineligibility.
Slates which are submitted in breach of the provisions pursuant to art. 16 of the Company Bylaws
are deemed not to have been submitted.
If only one list is submitted, the Shareholders’ Meeting shall vote on it and, if the list obtains the
relative majority, the standing and alternate Auditors candidates listed in the respective section of
the slate shall be elected; the person named first on the above slate becomes the Chairman of the
Board of Statutory Auditors.
Whereas, if two or more slates are submitted, members of the Board of Statutory Auditors shall be
elected as follows:
–
–
four standing members and two alternate members shall be chosen from the slate which obtains
the highest number of votes (known as the majority slate), in the consecutive order in which they
are listed thereon;
the remaining standing member and the other alternate member shall be chosen from the slate
which obtains the highest number of votes cast by the shareholders after the first slate (known
as the minority slate), in the consecutive order in which they are listed thereon. If several slates
obtain the same number of votes, a new vote between said slates will be cast by all those entitled
to vote attending the meeting, and the candidates on the slate which will obtain the simple
majority of the votes will be elected.
If more than one slate is submitted the position of Chairman of the Board of Statutory Auditors shall
be assigned to the standing member indicated as the first candidate on the slate that came second
in terms of numbers of votes.
95 Available for consultation at the following website: https://www.borsaitaliana.it/comitato-corporate-governance/codice/2020eng.en.pdf.
96 See recommendation no. 9 of the Corporate Governance Code.
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If no slates are submitted, the Shareholders’ Meeting shall arrange for the Board of Statutory
Auditors to be appointed with the legal majorities, in any case without prejudice to compliance with
gender balance regulations.
In this regard, note that as regards gender quotas for the composition of the control bodies of listed
companies, art. 148 of Legislative Decree no. 58 of 24 February 1998 (TUF), as amended by law
no. 160 of 27 December 2019, states that at least two-fifths of the standing members of the Board
of Statutory Auditors shall belong to the least represented gender. This allocation criterion shall apply
for six consecutive terms of office.
Therefore, in order to ensure gender balance, art. 16 of the Bylaws establishes that, as mentioned
earlier, slates that - taking account of both sections - present a number of candidates equal to or
exceeding three, must include candidates of each gender at least to the minimum extent required by
law and / or pro tempore regulations in force, as specified in the notice of call of the Shareholders’
Meeting, both in the section for standing Auditors and in the section for alternate Auditors. The
Bylaws also establish that, should application of the slate voting mechanism not obtain, considering
the standing and alternate Auditors separately, the minimum number of statutory Auditors belonging
to the less represented gender envisaged by the laws and/or regulations in force at the time, the
candidate belonging to the most represented gender and elected, indicated with the highest
progressive number of each section from the slate that obtained the largest number of votes, is
replaced by the first candidate belonging to the less represented gender not already elected from
the same section of that slate, pursuant to the sequential order of presentation.
Outgoing Auditors may be re-elected.
In view of the above, the Board of Directors invites shareholders who intend to submit slates for the
election of members of the Board of Statutory Auditors to comply with the aforementioned provisions.
In view of the renewal of the board, the Board of Statutory Auditors has made a document available,
in accordance with the rules of conduct of the Board of Statutory Auditors of listed companies issued
by the CNDCEC on 26 April 2018, in which, inter alia, it sets out its assessments on what it considers
to be the optimal composition of the controlling body (in addition to fulfilling the regulatory
requirements) for its efficient functioning. This document is made available to the public at the same
time and in the same manner as this Report. Shareholders who intend to submit slates for the
election of members of the Board of Statutory Auditors are invited to bear in mind the aforementioned
indications of the outgoing Board of Statutory Auditors when choosing the candidates.
The Company will make any slates of candidates submitted available to the public, together with the
information required by applicable legislation, at its registered offices, on the authorised storage
mechanism and through publication on its website www.pirelli.com, in the specific section dedicated
to the Shareholders’ Meeting.
Lastly, shareholders that intend to submit slates for the appointment of members of the Board of
Statutory Auditors are invited to examine the specific documentation published on the Company’s
in Consob
website www.pirelli.com and,
the recommendations contained
in particular,
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Communication no. DEM/9017893 of 26 February 2009 and current Consob provisions on the limits
set for the accumulation of offices of members of the control bodies of listed companies.
In addition to the appointment of the Board of Statutory Auditors and its Chairman, it is also
necessary to resolve on the allocation of the gross annual compensation due to members of the
Board of Statutory Auditors, currently established as 75 thousand euro for the Chairman of the Board
of Statutory Auditors and 50 thousand euro for each of the Standing Auditors (at present an additional
40 thousand euro is attributed to the member of the Board of Statutory Auditors called on to join the
Company’s Supervisory Body).
In determining the compensation to be attributed to the members of the Board of Statutory Auditors,
you are invited, moreover, as already occurred during the previous renewal of the controlling body,
to take into consideration - in addition to what is envisaged by the current regulatory provisions
regarding the competences of the Board of Statutory Auditors – also the additional duties attributed
to this body by Legislative Decree no. 39 of 27 January 2010, “Implementation of Directive
2006/43/EC concerning statutory audits of annual accounts and consolidated accounts” and the
circumstance that, pursuant to art. 6, paragraph 4-bis of Legislative Decree no. 231 of 8 June 2011,
“Provisions on the administrative liability of legal persons, companies and associations, including
those without legal personality, pursuant to art. 11 of Law no. 300 of 29 September 2000”, the Board
of Statutory Auditors may be assigned the duties of the Supervisory Body laid down by the
aforementioned legislative decree.
Lastly, note that Standing Auditors attend the meetings of the Board of Directors and (some or all of)
are invited to attend the meetings of the Committees set up within the Board.
In view of the above, the Board of Directors, in accordance and compliance with applicable
provisions of the Bylaws and legislation, including regulations, invites you to submit slates of
candidates for the appointment of the members of the Board of Statutory Auditors as well as
proposals on the determination of the relative compensation and to resolve in this regard on:
1. the appointment of the members of the Board of Statutory Auditors (five standing Auditors and
three alternate Auditors) for the financial years 2021, 2022 and 2023, by voting on any slates of
candidates that are submitted;
2. the appointment of the Chairman of the Board of Statutory Auditors, unless this figure cannot be
identified according to the provisions of the Bylaws; and
3. the determination of the compensation due to the members of the Board of Statutory Auditors.
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Bylaws - Article 16
Pirelli & C. S.p.A. – 2020 Annual Report
16.1 The Board of Statutory Auditors shall be composed of five effective and three alternate auditors, who must be in possession of the
requisites established under applicable laws and regulations; to this end, it shall be borne in mind that the fields and sectors of business
closely connected with those of the Company are those stated in the Company’s purpose, with particular reference to companies or
corporations operating in the financial, industrial, banking, insurance and real estate sectors and in the services field in general.
16.2 The ordinary shareholders’ meeting shall elect the Board of Statutory Auditors and determine its remuneration. The minority
shareholders shall be entitled to appoint one effective auditor and one alternate auditor.
16.3 The Board of Statutory Auditors shall be appointed in compliance with applicable laws and regulations and with the exception of the
provisions of paragraph 17 of this article 16, on the basis of slates presented by the shareholders in which candidates are listed by
consecutive number.
16.4 Each slate shall contain a number of candidates which does not exceed the number of members to be appointed.
16.5 Shareholders who, alone or together with other shareholders, represent at least 1 percent of the shares with voting rights in the
ordinary shareholders’ meeting or the minor percentage, according to the regulations issued by Commissione Nazionale per le Società e
la Borsa for the submission of slates for the appointment of the Board of Directors shall be entitled to submit slates.
16.6 Each shareholder may present or take part in the presentation of only one slate.
16.7 The slates of candidates which must be undersigned by the parties submitting them, shall be filed in the Company’s registered office
at least twenty-five days prior to the date set for the shareholders’ meeting that is required to decide upon the appointment of the members
of the Board of Statutory Auditors, except for those cases in which the law and/or the regulation provide an extension of the deadline.
They are made available to the public at the registered office, on the Company website and in the other ways specified by Commissione
Nazionale per la Società e la Borsa regulations at least 21 days before the date of the general meeting. Without limitation to any further
documentation required by applicable rules, including any regulatory provisions, a personal and professional curriculum including also the
offices held in management and supervisory bodies of other companies, of the individuals standing for election must accompany the slates
together with the statements in which the individual candidates agree to: - their nomination – declare, under their own liability, that there
are no grounds for their ineligibility or incompatibility, and that they meet the requisites prescribed by law, by these Bylaws and by
regulation for the position. Any changes that occur up to the date of the Shareholders’ meeting must be promptly notified to the Company.
16.8 Any slates submitted without complying with the foregoing provisions shall be disregarded.
16.9 Each candidate may appear on only one slate, on penalty of losing the right to be elected.
16.10 The slates shall be divided into two sections: one for candidates for the position of standing Auditor and one for candidates for the
position of alternate Auditor. The first candidate listed in each section must be selected from among the persons enrolled in the Register
of Auditors who have worked on statutory audits for a period of no less than three years. In order to ensure gender balance, slates that -
taking account of both sections - present a number of candidates equal to or exceeding three, must include candidates of each gender at
least to the minimum extent required by law and/or pro-tempore regulations in force, as specified in the notice of call of the shareholders’
meeting, both in the section for standing statutory auditors and in the section for alternates.
16.11 Each person entitled to vote may vote for only one slate.
16.12 The Board of Statutory Auditors shall be elected as specified below: a) four standing members and two alternate members shall be
chosen from the slate which obtains the highest number of votes (known as the majority slate), in the consecutive order in which they are
listed thereon; b) the remaining standing member and the other alternate member shall be chosen from the slate which obtains the highest
number of votes cast by the shareholders after the first slate (known as the minority slate), in the consecutive order in which they are
listed thereon; if several slates obtain the same number of votes, a new vote between said slates will be cast by all those entitled to vote
attending the meeting, and the candidates on the slate which obtains the simple majority of the votes will be elected.
16.13 The chair of the Board of Statutory Auditors shall pertain to the standing member listed as the first candidate on the minority slate.
16.14 If, considering the standing statutory auditors and the alternate statutory auditors separately, the application of the slate voting
procedure fails to secure the minimum number of statutory auditors of the less represented gender as required by law and/or regulation
in force at the time, the appointed candidate of the more represented gender indicated with the higher progressive number in each section
of the slate that attracts most votes, shall be substituted by the non-appointed candidate of the less represented gender drawn from the
same section of the same slate on the basis of their progressive order of presentation.
16.15 The position of a standing auditor which falls vacant due to his/her death, forfeiture or resignation shall be filled by the first alternate
auditor chosen from the same slate as the former. If filling the position in this way fails produce a composition of the Board of Statutory
Auditors that complies with the rules in force even on gender balance, the position will be filled by the second alternate auditor drawn from
the same slate. If, subsequently, there is a need to substitute another statutory Auditor from the same slate that obtained most votes, the
other alternate auditor drawn from the same slate shall fill the position, whatever the outcome. In the event of the replacement of the
Chairman of the Board of Statutory Auditors, the chair shall pertain to the statutory auditor of the same slate as the outgoing Chairman,
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following the order contained in the slate, subject in all cases to observance of the requirements in law and/or in the Company By-laws
for holding that office and to compliance with gender balance as provided by law and/or regulation currently in force; if it proves impossible
to effect substitutions and replacements under the foregoing procedures, a shareholders’ meeting shall be called to complete the Board
of Statutory Auditors which shall adopt resolutions by relative majority vote.
16.16 When the shareholders’ meeting is required, pursuant to the provisions of the foregoing paragraph or to the law, to appoint the
standing and/or alternate members needed to complete the Board of Statutory Auditors, it shall proceed as follows: if auditors elected
from the majority slate have to be replaced, the appointment shall be made by relative majority vote without slate constraints, without
prejudice, whatever the circumstances, to compliance with the gender balance as provided by law and/or regulation in force at the time;
if, however, auditors elected from the minority slate have to be replaced, the shareholders’ meeting shall replace them by relative majority
vote, selecting them where possible from amongst the candidates listed on the slate on which the auditor to be replaced appeared and in
any event in accordance with the principle of necessary representation of minorities to which this By-Laws ensure the right to take part to
the appointment of the Board of Statutory Auditors, without prejudice, whatever the circumstances, to compliance with the gender balance
as provided by law and/or regulation in force at the time. The principle of necessary representation of minorities shall be considered
complied with in the event of the appointment of Statutory Auditors nominated before in the minority slate or in slates different other than
the one which obtained the highest number of votes in the context of the appointment of the Board of Statutory Auditors.
16.17 In case only one slate has been presented, the Shareholders’ Meeting shall vote on it; if the slate obtains the relative majority of
the share capital, the candidates listed in the respective sections shall be appointed to the office of standing auditors and alternate auditors;
the candidate listed at the first place in the slate shall be appointed Chairman of the Board of Statutory Auditors.
16.18 When appointing auditors who, for whatsoever reason, were not appointed under the procedures established herein, the
shareholders’ meeting shall vote on the basis of the majorities required by law, without prejudice, whatever the circumstances, to
compliance with the gender balance as provided by law and/or regulation in force at the time.
16.19 Outgoing members of the Board of Statutory Auditors may be re-elected to office.
16.20 Meetings of the Board of Statutory Auditors may, if the Chairman or whoever acts in his/her stead verifies the necessity, be attended
by means of telecommunications systems that permit all attendees to participate in the discussion and obtain information on an equal
basis.
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REMUNERATION POLICY AND COMPENSATION PAID:
- APPROVAL OF THE REMUNERATION POLICY FOR 2021 FINANCIAL YEAR
PURSUANT TO ART. 123-TER, PARAGRAPH 3-TER OF LEGISLATIVE DECREE 24
FEBRUARY 1998 N. 58;
- ADVISORY VOTE ON THE REPORT ON COMPENSATION PAID FOR 2020 FINANCIAL
YEAR PURSUANT TO ART. 123-TER, PARAGRAPH 6 OF LEGISLATIVE DECREE 24
FEBRUARY 1998 N. 58;
RELATED AND CONSEQUENT RESOLUTIONS.
(item 4 on the agenda)
Illustrative reports drafted by the Directors pursuant to art. 125-ter of Legislative Decree no. 58 of 24
February 1998 and subsequently amended and supplemented, approved by the Board of Directors
on 31 March 2021.
A. Approval of the 2021 remuneration policy
Dear Shareholders,
In accordance with art.123-ter of Legislative Decree no. 58 of 24 February 1998 (“TUF”), as amended
and supplemented by art. 3 of Legislative Decree no. 49 of 10 May 2019 (“Decree”), the
Shareholders’ Meeting has also been called to vote on the first section of the Report on the
remuneration policy and on the compensation paid (“Remuneration Report”) which outlines the
remuneration policy (“2021 Policy”) for members of administrative bodies, General Managers and
Key managers (“KM”), to which Pirelli refers in order to define the remuneration of the Senior
Managers and Executives of Pirelli.
The 2021 Policy submitted for your vote was drawn up on the basis of the application experience
and pursuant to art. 123-ter of the TUF and the regulations adopted by Consob, pursuant to art. 84-
quater and on the basis of Scheme 7-bis of Annex 3A of the Consob Resolution no. 11971 of 14
May 1999 (“Issuers’ Regulation”), as recently amended and supplemented by Consob under
Resolution no. 21623 of 10 December 2020.
With respect to the 2020 Policy, the 2021 Policy takes into account the following aspects:
- composition of the reference panel for the purpose of comparing the Annual Total Direct
Compensation at Target of the Executive Vice Chairman and Chief Executive Officer, limiting it
to companies in the industry in which Pirelli operates;
-
revision of the 2020-2022 LTI Plan for the part concerning the cumulative Group Net Cash Flow
(before dividends) target, aligning the relative target to the guidance communicated to the market
on 5 August 2020 and to the targets of the 2021-2022/2025 Strategic Plan for the years 2021 and
2022, in accordance with the mandate conferred to the Compensation Committee by the Board
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of Directors on 5 August 2020, as a result of the health emergency related to the spread of Covid-
19 and the consequent revision of the 2020-2022 Strategic Plan and the announced launch for
the first quarter of 2021 of the Strategic Plan for the period 2021-2022/2025. With reference to
2020-2022 LTI Plan, 2021 Policy provides also the normalisation of the potential effects on the
final result of the acquisition of Cooper by Goodyear (a company included in the reference panel
for the TSR objective) at the start of 2021, in order to calculate its impact on the TSR (for both the
2020-2022 LTI Plan and the 2021-2023 LTI Plan);
- establishment of Policy compliance criteria to be applied in the case of hiring of a new General
Manager and new KM to define the fixed remuneration and the other parts of the compensation
package, with indication of the relative cap;
- downward revision of the STI Plan incentive percentages upon achievement of the minimum
performance objectives;
-
revision, for General Managers, KM and selected Senior Managers, of the deferral mechanism of
part of the accrued STI Plan which provides for the disbursement, together with a company
matching component, at the end of a three-year period subject to the permanence of the
employment relationship.
The 2021 Policy takes into account the definition of the objectives of the new LTI Plan for the three-
year period 2021-2023, in application of the rolling mechanism already provided for in the 2020
Policy, in support of the objectives of the 2021-2022/2025 Strategic Plan, with consequent re-
proportioning on an annual basis, in line with the provisions of the 2020 Policy, of the three-year
incentive percentages. Furthermore, it provides also for 2021-2023 LTI Plan the option to normalise
the potential effects on the final result of the acquisition of Cooper by Goodyear (a company included
in the reference panel for the TSR objective) at the start of 2021, in order to calculate its impact on
the TSR (for both the 2020-2022 LTI Plan and the 2021-2023 LTI Plan).
The 2021 Policy also takes into account the inclusion of the Deputy-CEO and the relevant
remuneration.
As provided for in art.123-ter TUF, the first section of the Remuneration Report brought to your
attention outlines:
a.
the remuneration Policy for the members of the administrative bodies, General Managers
and Key managers and, without prejudice to the provisions of art. 2402 of the Italian Civil
Code, for members of the controlling bodies, to which Pirelli refers to define the remuneration
of the Senior Managers and Executives;
b.
the procedures used for the adoption and implementation of this Policy.
In accordance with TUF, the Shareholders’Meeting is asked to express its favourable vote on the
first section of the Remuneration Report.
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B. Advisory vote on the Report on the remuneration paid in 2020
Dear Shareholders,
pursuant to art.123-ter of the Legislative Decree no. 58 of 24 February 1998 (“TUF”), as amended
and supplemented by art. 3 of Legislative Decree no. 49 of 10 May 2019 (“Decree”), we have also
called you to submit to your advisory vote the second section (“Compensation Report”) of the
Report on the remuneration policy and compensation paid (“Remuneration Report”), which
provides, by name, for the members of the administrative and controlling bodies, for the General
Managers, as well as, in aggregate form, for the Key managers (“KM”), a summary of the
remuneration paid in implementation of the remuneration policy adopted by the Group in 2020,
highlighting its compliance with the same.
The Compensation Report submitted for your vote is drawn up pursuant to art. 123-ter TUF and
takes into account the regulatory provisions adopted by Consob, as per art. 84-quater and on the
basis of Scheme 7-bis of Annex 3A of the Consob Resolution no. 11971 of 14 May 1999 (“Issuers’
Regulation”), as amended and supplemented by Consob Resolution no. 21623 of 10 December
2020.
As required by art. 123-ter of the TUF, the second section of the Remuneration Report that we submit
to you illustrates, by name, for the members of the administrative and controlling bodies, the General
Managers, as well as, in aggregate form, the KM:
a.
b.
the items of which the remuneration is composed, including payments prescribed in case of
resignation from office or termination of employment;
the sums paid in the 2020 financial year for any reason and in any form by the Company and
its subsidiaries or affiliates, indicating any components of said payments that are referable to
activities undertaken in years preceding the year of reference and also highlighting the
payments to be made in one or more subsequent years for activity undertaken in the
reference year, providing, if applicable, estimates for the components that cannot be
objectively quantified in the year of reference.
The subject appointed to carry out the external audit of the financial statements verifies that the
Directors have prepared the Compensation Report.
In accordance with TUF, the Shareholders’Meeting is asked to express its favourable advisory vote
on the second section of the Remuneration Report.
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THREE-YEAR MONETARY INCENTIVE PLANS FOR PIRELLI’S GROUP MANAGEMENT:
- APPROVAL OF THE MONETARY INCENTIVE PLAN FOR THE THREE-YEAR PERIOD 2021-
2023 FOR PIRELLI’S GROUP MANAGEMENT;
- ADJUSTMENT OF THE OBJECTIVE OF CUMULATIVE GROUP NET CASH FLOW (BEFORE
DIVIDENDS) AND NORMALIZATION OF POTENTIAL EFFECTS ON THE RELATIVE TOTAL
SHAREHOLDER RETURN OBJECTIVE INCLUDED IN THE MONETARY INCENTIVE PLAN
FOR THE THREE-YEAR PERIOD 2020-2022 FOR PIRELLI’S GROUP MANAGEMENT;
RELATED AND CONSEQUENT RESOLUTIONS AND CONFERMENT OF POWERS.
(item 5 on the agenda)
Illustrative reports drawn up by the Directors pursuant to art. 125-ter of Italian Legislative Decree no.
58 of 24 February 1998 as subsequently amended and supplemented, approved by the Board of
Directors on 31 March 2021
A. Approval of the monetary incentive plan for the three year period 2021-2023 for Pirelli’s Group
management
Dear Shareholders,
in the meeting of 31 March 2021, the Board of Directors approved the objectives of the three-year,
monetary incentive Plan for the 2021-2023 cycle for the Pirelli’s Management (“2021-2023 LTI
Plan”), related to the targets of the 2021-2022/2025 Strategic Plan presented on the same date
(“Strategic Plan”). The 2021-2023 LTI Plan was also approved pursuant to art. 2389 of the Italian
Civil Code, on the proposal of the Remuneration Committee and with the favourable opinion of the
Board of Statutory Auditors, in relation to the persons for whom such opinion is required. The 2021-
2023 LTI Plan is subject to the approval of the Shareholders’ Meeting pursuant to art. 114-bis of
Legislative Decree no. 58 of 24 February 1998 (“TUF”) as it states, inter alia, that part of the incentive
is determined on the basis of a relative Total Shareholder Return target, calculated with respect to
an index made up of selected “Tier 1” peers in the Tyre sector.
Moreover, pursuant to art. 123-ter of TUF, the 2021-2023 LTI Plan is included in the 2021
remuneration policy adopted by Pirelli (“2021 Policy”), submitted for the approval to the
Shareholders’ Meeting.
The main information on the 2021-2023 LTI Plan is set out below, while for a more analytical
description you are invited to read the Information Document prepared pursuant to art. 84-bis,
paragraph 1, of Consob Resolution No. 11971 of 14 May 1999 (“Issuers’ Regulation”), which is
also available to the public at the registered offices of Pirelli & C. S.p.A. (in Milan, Viale Piero e
Alberto Pirelli 25) and on the website www.pirelli.com as well as at Borsa Italiana S.p.A. together
with this report.
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Reasons for adopting the Plan97
In line with national and international best practices, the 2021 Policy is tailored to Pirelli’s objective
of attracting, motivating and retaining resources with the professional qualities required to pursue
business objectives. In addition, through the multi-year variable components assigned, in particular,
to the Executive Vice Chairman and Chief Executive Officer, Deputy-CEO, General Managers, KM,
Senior Managers and Executives, it aims to achieve long-term interests, contributing to the
achievement of strategic objectives and the sustainable success of the Company, as well as aligning
the interests of Management with those of shareholders.
Starting from LTI Plan of the three-year cycle 2020-2022, included in the 2020 Remuneration Policy
approved by the Shareholders’ Meeting of 18 June 2020 (“2020 Policy”), the Company introduced
a “rolling” mechanism for medium-long term incentive plans. On applying it, the Board of Directors
of Pirelli & C. defined the 2021-2023 LTI Plan objectives, linked to achieving the Strategic Plan
targets for the 2021-2022/2025 period (“Strategic Plan”), with no change to the incentive plan
structure.
Recipients of the Plan98
The 2021-2023 LTI Plan is extended to all Top Management - except for the Chairman - and
extended, except in specific cases, to all Executives whose grade, determined with the Korn Ferry
method, is equal to or above 20. It is also assigned to those who join the Group and/or were promoted
to an Executive position, due to internal career growth, during the three-year period. In this case,
their inclusion is subject to participation in the LTI Plan for at least one full financial year and the
incentive percentages are scaled to the number of months of actual participation in the LTI Plan.
In particular, as at the date of this report, among others, the Executive Vice Chairman and Chief
Executive Officer Marco Tronchetti Provera, the Director Giovanni Tronchetti Provera (as Senior
Manager), the General Manager Operations Andrea Casaluci, and Key managers (“KM”) are
participants in the LTI Plan99.
Performance Targets and Bonus Calculation100
The Management remuneration structure, as better described in the 2021 Policy which should be
referred to for further details, has several elements:
gross annual base salary (GABS);
STI annual variable component: designed to reward the beneficiary’s performance in the short
term, motivating Management to achieve the Company’s annual objectives; it is set as a
percentage of the base salary, increasing in relation to the role held by the beneficiary and taking
97 Information required by Article 114-bis, paragraph 1, letter a) of the TUF.
98 Information required by Article 114-bis, paragraph 1, letters b) and b-bis) of the TUF.
99 In case of appointment, the Deputy-CEO will partecipate to the 2021-2021 LTI Plan.
100 Information required by Article 114-bis, paragraph 1, letter c) of the TUF.
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account of the benchmarks for each figure. This percentage can range, in case of on-target
performance, from a minimum of 15% for Executives (managers of Pirelli’s Italian companies or
employees of Group’s foreign companies with a position or role comparable to that of an Italian
manager) up to a maximum of 125% for Directors holding specific offices to whom further specific
duties may be attributed;
medium-long term variable component (LTI): composed of LTI incentive plans linking
Management remuneration to the Group’s medium-long term performances, and of the deferral
and mark-up component of the STI incentive.
As for the STI incentive, the LTI incentive is also set as a percentage of the base salary with
increasing percentages in relation to the role held and taking into account the reference
benchmarks of each figure. Applying the rolling mechanism, the 2021-2023 LTI Plan confirms the
three-year incentive percentages set forth in the 2020-2022 LTI Plan which, as of 2021, are re-
proportioned on an annual basis and, in case of on-target performance, can go from a minimum
of 15% for Executives to a maximum of 70% for Directors holding specific offices to whom further
specific duties may be attributed. There is also a limit (cap) to the maximum achievable LTI
incentive.
The 2021-2023 LTI Plan, which is monetary and does not include the assignment of shares or
options on shares, is also subject to the achievement of three-year objectives and determined as
a percentage of the gross annual base salary (GABS) received by the beneficiary at the date on
which their participation in the Plan was established.
The medium-long term incentive plan “rolling” structure introduced with the 2020 Policy enables
yearly definition of the value of the following three-year period targets, while ensuring
management loyalty and the correct focus on performance targets. The date of eventual first
payment is April 2023 (if the 2020-2022 results are achieved) and, from then on, April of each
subsequent year if the results of the previous three-year period are achieved.
In continuity with the 2020-2022 LTI Plan, the 2021-2023 LTI Plan foresees three objectives types,
all independent of each other and each with a specific weight:
― objective represented by the cumulative Group Net Cash Flow (before dividends), with a
weight at target performance of 40% of the overall LTI bonus;
― Total Shareholder Return (“TSR”) objective related to a panel of selected Tier 1 peers, with
a weight at target performance of 40%. The Information Document made available at the
Shareholders’ Meeting provides more detailed information on the application of the Total
Shareholder Return objective;
― the remaining 20% is calculated on the basis of Sustainability indicators in relation to Pirelli’s
positioning in two indices of equal weight: (i) Dow Jones Sustainability World Index ATX Auto
Component sector and (ii) CDP Ranking.
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For all three objectives (cumulative Group Net Cash Flow (before dividends), relative TSR and
Sustainability) there is a minimum value associated with the recognition of a payout of 75% of the
bonus achievable at target performance.
Regarding each objective, where the set minimum value is not attained, no right is accrued by the
beneficiary to the payment of the related pro-quota bonus.
For intermediate results falling between the “access threshold” and the target or between the target
and the maximum, performance will be calculated by linear interpolation, differently to the
Sustainability objectives, which are calculated only in three steps: “access threshold”, target and
maximum, without considering intermediate performances.
Bonus Period
If objectives are achieved, the 2021-2023 LTI Plan incentive (so-called LTI Bonus) will be paid in the
first half of 2024, subject to participants being present at 31 December 2023.
If the office and/or employment relationship has been terminated for any reason (without prejudice
to the following) before the end of the three-year period, the beneficiary’s participation in the 2021-
2023 LTI Plan shall cease and, as a result, no LTI Bonus nor pro-rated bonus will be paid. For
Directors holding specific office to whom further specific duties may be attributed who cease to hold
office due to having completed their mandate or to the termination of the entire Board of Directors,
and are not appointed thereafter even as Directors, a pro-rata payment of the LTI Bonus is provided
for.
Plan Duration and Amendments
The 2021-2023 LTI Plan implements the second LTI Plan cycle, based on the “rolling” mechanism
already included in the 2020 Policy, structured on three-year performance periods (cycles) that start
each year, with the definition of performance indicators and related objectives.
The “rolling” mechanism allows performance indicators to be aligned, for each new cycle, with market
changes and the company’s strategic objectives which could be revised from year to year.
Special fund to encourage workers’ participation in enterprises101
The LTI Plan 2021-2023 does not receive any support from the Special Fund to encourage workers’
participation in enterprises, referred to in art. 4, paragraph 112, of Law No. 350 of 24 December
2003.
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The 2021-2023 LTI Plan is to be considered “of particular importance” as it is addressed, as at the
date of this report, inter alia, to the Executive Vice Chairman and Chief Executive Officer, the General
101 Information required by Article 114-bis, paragraph 1, letter d) of the TUF.
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Manager Operations and KM as they have regular access to inside information and have the power
to make decisions that may affect the Group’s development and future prospects102.
Considering that the LTI Plan is monetary in nature, as it does not provide for the assignment of
shares or stock options on shares, but only a cash incentive partly linked to the performance of Pirelli
& C.’s ordinary shares, the Information Document prepared in accordance with current regulations
does not contain the information required for mechanisms that consider the assignment of shares or
stock options.
102 In case of appointment, the Deputy-CEO will partecipate to the 2021-2021 LTI Plan.
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B. Adjustment of the cumulative Group Net Cash Flow (before dividends) and normalization of
potential effects on the relative total shareholder return objective included in the monetary
incentive plan for the three-year period 2020-2022 for Pirelli’s Group management.
Dear Shareholders,
in its meeting of 5 August 2020, as a result of the health emergency linked to the spread of Covid-
19, of the consequent revision of the 2020-2022 Strategic Plan and the announced launch for the
first quarter of 2021 of the Strategic Plan for the period 2021-2022/2025, the Board of Directors gave
the Remuneration Committee a mandate to proceed with an adjustment of the cumulative Group Net
Cash Flow objective (before dividends) of the three-year monetary incentive Plan for the 2020-2022
cycle for the Pirelli’s Management (“2020-2022 LTI Plan”) - already submitted for Shareholders’
Meeting approval on 18 June 2020 pursuant to art. 114-bis of Legislative Decree no. 58 of 24
February 1998 - to align it with the 2020 guidance disclosed to the market on 5 August 2020 and
with the targets of the 2021-2022/2025 Strategic Plan (“Strategic Plan”) for the years 2021 and
2022.
That adjustment was examined and approved in the Board of Directors’ meeting of 31 March 2021
(which also approved the Strategic Plan) implementing what was planned related to the plan review
and adjustment of objectives in the Information Document on the 2020-2022 LTI Plan made available
to the public on 28 April 2020 pursuant to art. 84-bis, paragraph 1 of the Consob Resolution no.
11971 of 14 May 1999 (“Issuers’ Regulation”). The adjustment is also reported in the 2021
remuneration policy (the “2021 Policy”) and was approved by the Board of Directors subordinate to
Shareholders’ Meeting approval of that adjustment and the 2021 Policy.The adjustment of the
cumulative Group Net Cash Flow objective (before dividends) of the 2020-2022 LTI Plan is aligned
with the guidance disclosed to the market on 5 August 2020 and the new Strategic Plan. For a more
analytical description of the adjustment of the cumulative Group Net Cash Flow objective (before
dividends) of the 2020-2022 LTI Plan, you are invited to read the Information Document prepared
pursuant to art. 84-bis, paragraph 1, of the Issuers’ Regulation, as amended by the adjustment
described, made available to the public at the registered offices of Pirelli & C. S.p.A. (in Milan, viale
Piero e Alberto Pirelli 25) and on the website www.pirelli.com as well as at Borsa Italiana S.p.A.
together with this report.
Also for the 2020-2022 LTI Plan, it is provided the option to normalise the potential effects on the
final result of the acquisition of Cooper by Goodyear (a company included in the reference panel
for the TSR objective) at the start of 2021, in order to calculate its impact on the TSR.
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Dear Shareholders,
on the basis of the above, we hereby ask you to adopt the following resolutions:
Related to item 5.1 on the agenda:
1. approve - pursuant to art. 114-bis of Legislative Decree No. 58 of 24 February 1998, as
subsequently amended and supplemented - the adoption of the three-year monetary incentive plan
for the 2021-2023 period (“2021-2023 LTI Plan”) for the Management of the Pirelli Group, regarding
the part where it is also based on the performance of Pirelli shares, in the terms set out in this report
and as better described in the Information Document (prepared pursuant to art. 84-bis, paragraph 1,
of the Issuers’ Regulation). The LTI Plan 2021-2023 states, inter alia, that a quota of the LTI bonus
will be determined on the basis of a relative Total Shareholder Return objective, calculated with
respect to an index made up of selected Tier 1 peers in the Tyre sector;
2. grant the Board of Directors with all the powers needed or opportune to implement the 2021-2023
LTI Plan and to adjust or modify the performance indicators and relative 2021-2023 LTI Plan
objectives, submitting the new performance indicators and objectives to the Shareholders’ Meeting
if the plan has characteristics established by art. 114-bis of TUF (remuneration plans based on
financial instruments);
related to item 5.2 on the agenda:
3. with reference to the monetary incentive plan for the three-year cycle 2020-2022 for Pirelli’s Group
Management, already approved by the Shareholders’ Meeting of 18 June 2020 (“2020-2022 LTI
Plan”), approve the adjustment of the «cumulative Group Net Cash Flow (before dividends)»
objective of in the terms described in this report and as indicated in the Information Document
(prepared pursuant to art. 84-bis, paragraph 1, of the Issuers’ Regulation) as amended by the
adjustment to align it with the guidance communicated to the market on 5 August 2020 and with the
2021-2022/2025 Strategic Plan targets for the years 2021 and 2022;
4. with reference to the 2020-2022 LTI Plan, already approved by the Shareholders’ Meeting of 18
June 2020, approve the option to normalise the potential effects on the final result of the acquisition
of Cooper by Goodyear (a company included in the reference panel for the TSR objective) at the
start of 2021, in order to calculate its impact on the TSR;
5. grant the Board of Directors with all the powers needed or opportune to implement the 2020-2022
LTI Plan (as adjusted) and perform any other adjustment or amendment of the performance
indicators and relative objectives, submitting the new performance indicators and objectives to the
Shareholders’ Meeting if the plan has the characteristics established by art. 114-bis of TUF
(remuneration plans based on financial instruments).
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Certifications
616
Certifications
Pirelli & C. S.p.A. – 2020 Annual Report
617
Pirelli & C. S.p.A. – 2020 Annual Report
Certifications
618
Certifications
Pirelli & C. S.p.A. – 2020 Annual Report
619
Pirelli & C. S.p.A. – 2020 Annual Report
Certifications
620
Certifications
Pirelli & C. S.p.A. – 2020 Annual Report
GRI CONTENT INDEX
GRI
Standard
Disclosure
Page Number, URL
Omission
Material Topic
101: Foundation 2016
102-1 Name of the organization
218
102-2 Activities, brands, products, and
services
221, corporate
website
(www.pirelli.com)
section about
102-3 Location of headquarters
218
102-4 Location of operations
472-478, corporate
website
(www.pirelli.com)
section about
102-5 Ownership and legal form
218, 223-224, 283
102-6 Markets served
102-7 Scale of the organization
102-8 Information on employees and
other workers
89, corporate
website
(www.pirelli.com)
section about
20-22, 128, 155,
223-224
156-158, 162-163
102-9 Supply chain
113-116
102-10 Significant changes to the
organization and its supply chain
113-116, 155, 159-
160
102-11 Precautionary Principle or
approach
102-12 External initiatives
42-53
67, 69, 118-121,
196-197
102-13 Membership of associations
196-203
102-14 Statement from senior decision-
maker
102-15 Key impacts, risks, and
opportunities
Corporate website
(www.
pirelli.com) section
sustainability/ Pirelli’s
model
42-53
:
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
621
Pirelli & C. S.p.A. – 2020 Annual Report
Certifications
102-16 Values, principles, standards,
and norms of behavior
102-17 Mechanisms for advice and
concerns about ethics
102-18 Governance structure
77-81, 98-99, 117,
160, 173, 182-183,
corporate website
(www.pirelli.com)
section
sustainability/main
sustainability policies
81-82
221-222, 236-239,
244-249, 254-264,
268
102-19 Delegating authority
69-70, 262-264, 268
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
69-70
69-70, 73-74, 105-
107
239-242, 256-264,
268, 285-286, 288-
290
102-23 Chair of the highest governance
body
239-242
102-24 Nominating and selecting the
highest governance body
221-222, 236-239
102-25 Conflicts of interest
270-271
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
69-70, 262-264, 268
243-244
244-247
262-264
42-53, 262-264
254-255, 262-264
102-32 Highest governance body’s role
in sustainability reporting
69-70, 262-264
102-33 Communicating critical
concerns
262-264
622
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
Certifications
Pirelli & C. S.p.A. – 2020 Annual Report
102-34 Nature and total number of
critical concerns
Confidentiality
Constraints
102-35 Remuneration policies
304-338, 342-344
Confidentiality
Constraints
Confidentiality
Constraints
102-36 Process for determining
remuneration
102-37 Stakeholders’ involvement in
remuneration
102-38 Annual total compensation ratio
102-39 Percentage increase in annual
total compensation ratio
300-304
300-304
102-40 List of stakeholder groups
73-77
102-41 Collective bargaining
agreements
102-42 Identifying and selecting
stakeholders
102-43 Approach to stakeholder
engagement
178
73-74
73-74
102-44 Key topics and concerns raised
73-77
102-45 Entities included in the
consolidated financial statements
102-46 Defining report content and
topic Boundaries
67, 128, 472-478
67, 621-631
102-47 List of material topics
74-77
102-48 Restatements of information
67
102-49 Changes in reporting
67, 69-72, 621-631
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
67
67
67
69
67
102-55 GRI content index
102-56 External assurance
621-631
639-642
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
Corporate
Governance
623
Pirelli & C. S.p.A. – 2020 Annual Report
Certifications
6
1
0
2
e
c
n
a
m
r
o
f
r
e
P
c
m
o
n
o
c
E
i
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c
n
e
s
e
r
P
t
e
k
r
a
M
:
1
0
2
I
R
G
:
2
0
2
I
R
G
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
44-45, 85-87, 118-
121, 181
85
Financial Health
44-45, 118-121
Financial Health
201-3 Defined benefit plan obligations
and other retirement plans
181-182, 422-430,
450
Financial Health
201-4 Financial assistance received
from government
86-87
Financial Health
GRI 103: Management Approach 2016
160-165
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
:
3
0
2
I
R
G
c
i
m
o
n
o
c
E
t
c
e
r
i
d
n
I
GRI 103: Management Approach 2016
6
1
0
2
s
t
c
a
p
m
203-1 Infrastructure investments and
services supported
203-2 Significant indirect economic
impacts
I
164
161
85-87, 203-215
85-87, 203-215
85-87, 203-215
Community
Engagement
:
4
0
2
I
R
G
t
n
e
m
e
r
u
c
o
r
P
s
e
c
i
t
c
a
r
P
GRI 103: Management Approach 2016
6
1
0
2
204-1 Proportion of spending on local
suppliers
113-114
114
GRI 103: Management Approach 2016
78-81, 99-102
205-1 Operations assessed for risks
related to corruption
81-84
Business Ethics
& Integrity
205-2 Communication and training
about anti-corruption policies and
procedures
78-81, 243-244
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
78-84
Business Ethics
& Integrity
GRI 103: Management Approach 2016
78-81
206-1 Legal actions for anti-competitive
behavior, anti-trust, and monopoly
practices
81
Business Ethics
& Integrity
:
5
0
2
I
R
G
6
1
0
2
n
o
i
t
p
u
r
r
o
c
-
i
t
n
A
:
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
i
r
o
v
a
h
e
B
624
Certifications
Pirelli & C. S.p.A. – 2020 Annual Report
GRI 103: Management Approach 2016
207-1 Approach to tax
:
7
0
2
I
R
G
9
1
0
2
x
a
T
207-2 Tax governance, control, and
risk management
207-3 Stakeholder engagement and
management of concerns related to tax
456-458, corporate
website
(www.pirelli.com)
area sustaibanility/
main sustainability
policies/ global tax
policy
Investors/ key
financials/ tax
overview
corporate website
(www.pirelli.com)
area sustaibanility/
main sustainability
policies/ global tax
policy
Investors/ key
financials/ tax
overview
83-84, corporate
website
(www.pirelli.com)
area sustaibanility/
main sustainability
policies/ global tax
policy
Investors/ key
financials/ tax
overview
corporate website
(www.pirelli.com)
area sustaibanility/
main sustainability
policies/ global tax
policy
Investors/ key
financials/ tax
overview
Information
Unavailable:
information
provided by
Region
207-4 Country-by-country reporting
457, 472-478
:
1
0
3
I
R
G
6
1
0
2
s
l
a
i
r
e
t
a
M
GRI 103: Management Approach 2016
301-1 Materials used by weight or
volume
77-78, 115, 141,
145-146
115
301-2 Recycled input materials used
115, 126-127
301-3 Reclaimed products and their
packaging materials
141, 145, 151
Renewable
Materials
End of Life Tyre
Recovery and
Recycling
625
Pirelli & C. S.p.A. – 2020 Annual Report
Certifications
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
Responsible Use
of Natural
Resources
Responsible Use
of Natural
Resources
GRI 103: Management Approach 2016
129-132, 146-147
302-1 Energy consumption within the
organization
129, 131-132
302-2 Energy consumption outside of
the organization
124-125
302-3 Energy intensity
129, 131-132
302-4 Reduction of energy
consumption
302-5 Reductions in energy
requirements of products and services
131-132
146-147
GRI 103: Management Approach 2016
48, 117, 121-125,
138
303-1 Interactions with water as a
shared resource
303-2 Management of water discharge-
related impacts
138-140
140
303-3 Water withdrawal
138-140
303-4 Water discharge
303-5 Water consumption
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
140
140
105-108, 117-118,
124-125, 126, 143-
144
143-144
140, 143-144
304-3 Habitats protected or restored
137, 143-144
304-4 IUCN Red List species and
national conservation list species with
habitats in areas affected by operations
143
:
2
0
3
I
R
G
6
1
0
2
y
g
r
e
n
E
:
3
0
3
I
R
G
8
1
0
2
s
t
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l
f
f
E
d
n
a
r
e
t
a
W
:
4
0
3
I
R
G
6
1
0
2
y
t
i
s
r
e
v
i
d
o
B
i
626
Certifications
Pirelli & C. S.p.A. – 2020 Annual Report
GRI 103: Management Approach 2016
44-45, 48, 117-125,
132-138
305-1 Direct (Scope 1) GHG emissions
128, 132-136
305-2 Energy indirect (Scope 2) GHG
emissions
128, 132-136
305-3 Other indirect (Scope 3) GHG
emissions
112-113, 124-125,
133, 137
305-4 GHG emissions intensity
132-136
305-5 Reduction of GHG emissions
133-137
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
145
142-145
48, 117-118, 121-
125, 138-141
140
Refer also to GRI
303 Water and
Effluents 2018
141-142
145
306-4 Transport of hazardous waste
141-142
306-5 Water bodies affected by water
discharges and/or runoff
140
Refer also to GRI
303 Water and
Effluents 2018
:
5
0
3
I
R
G
6
1
0
2
s
n
o
s
s
m
E
i
i
:
6
0
3
I
R
G
6
1
0
2
e
t
s
a
W
d
n
a
s
t
n
e
u
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f
f
E
:
7
0
3
I
R
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l
a
t
n
e
m
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r
i
v
n
E
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c
n
a
i
l
p
m
o
C
6
1
0
2
GRI 103: Management Approach 2016
48, 117-118, 145
307-1 Non-compliance with
environmental laws and regulations
130, 134, 145
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
627
Pirelli & C. S.p.A. – 2020 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
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E
6
1
0
2
t
n
e
m
s
s
e
s
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A
:
1
0
4
I
R
G
6
1
0
2
t
n
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m
y
o
p
m
E
l
GRI 103: Management Approach 2016
53, 77-78, 99-102
308-1 New suppliers that were
screened using environmental criteria
308-2 Negative environmental impacts
in the supply chain and actions taken
GRI 103: Management Approach 2016
401-1 New employee hires and
employee turnover
401-2 Benefits provided to full-time
employees that are not provided to
temporary or part-time employees
99-100, 102-104
103-104
48, 160-161, 163-
164, 181-182
159-160
181-182
401-3 Parental leave
162
Responsible
Procurement
Responsible
Procurement
Employees Well-
Being & Work-
life Balance
:
2
0
4
I
R
G
t
n
e
m
e
g
a
n
a
M
/
r
o
b
a
L
GRI 103: Management Approach 2016
6
1
0
2
s
n
o
i
t
a
l
e
R
402-1 Minimum notice periods
regarding operational changes
49, 77-78, 178-180
178
Labour Relations
Management
GRI 103: Management Approach 2016
48, 182-184
403-1 Occupational health and safety
management system
403-2 Hazard identification, risk
assessment, and incident investigation
183-184
185
403-3 Occupational health services
185-186
403-4 Worker participation,
consultation, and communication on
occupational health and safety
403-5 Worker training on occupational
health and safety
182-183
184-186
403-6 Promotion of worker health
177, 184-186
403-7 Prevention and mitigation of
occupational health and safety impacts
directly linked by business relationships
100, 146, 185
403-8 Workers covered by an
occupational health and safety
management system
184
Occupational
Health&Safety
Occupational
Health&Safety
Occupational
Health&Safety
Occupational
Health&Safety,
Labour Relations
Management
Occupational
Health&Safety
Occupational
Health&Safety
Occupational
Health&Safety
Information
Unavailable:
absolute number
of contractors
not available
:
3
0
4
I
R
G
8
1
0
2
y
t
e
f
a
S
d
n
a
h
t
l
a
e
H
l
a
n
o
i
t
a
p
u
c
c
O
628
Certifications
Pirelli & C. S.p.A. – 2020 Annual Report
Confidentiality
Constraints:
absolute
numbers and
hours worked
not disclosed
publicly
403-9 Work-related injuries
186-192
403-10 Work-related ill health
189
GRI 103: Management Approach 2016
48, 168-175
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
174
169-175
168
:
4
0
4
I
R
G
6
1
0
2
n
o
i
t
a
c
u
d
E
d
n
a
g
n
n
a
r
T
i
i
:
5
0
4
I
R
G
l
a
u
q
E
d
n
a
y
t
i
s
r
e
v
i
D
6
1
0
2
y
t
i
n
u
t
r
o
p
p
O
GRI 103: Management Approach 2016
160-161, 222-223
405-1 Diversity of governance bodies
and employees
158, 163, 222-223,
239-242
405-2 Ratio of basic salary and
remuneration of women to men
163-164
6
1
0
2
6
1
0
2
n
o
i
t
a
n
m
i
i
r
c
s
i
d
i
g
n
n
i
a
g
r
a
B
e
v
i
t
c
e
l
l
o
C
d
n
a
:
6
0
4
I
R
G
:
7
0
4
I
R
G
-
n
o
N
n
o
i
t
a
i
c
o
s
s
A
f
o
m
o
d
e
e
r
F
GRI 103: Management Approach 2016
161-162
406-1 Incidents of discrimination and
corrective actions taken
83-84, 162
GRI 103: Management Approach 2016
49, 53, 99-102, 152-
154, 178-179
407-1 Operations and suppliers in
which the right to freedom of
association and collective bargaining
may be at risk
:
8
0
4
I
R
G
r
o
b
a
L
d
l
i
h
C
6
1
0
2
:
9
0
4
I
R
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r
o
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l
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p
m
o
C
6
1
0
2
r
o
b
a
L
GRI 103: Management Approach 2016
408-1 Operations and suppliers at
significant risk for incidents of child
labor
GRI 103: Management Approach 2016
409-1 Operations and suppliers at
significant risk for incidents of forced or
compulsory labor
99-104, 152-154,
179-180
53, 99-102, 152-154,
179-180
99-104, 152-154,
179-180
53, 99-102, 152-154,
179-180
99-104, 152-154,
179-180
Occupational
Health&Safety
Occupational
Health&Safety
Training &
Development
Training &
Development
Training &
Development
Diversity & Equal
Opportunities
Diversity & Equal
Opportunities,
Human Rights
Diversity & Equal
Opportunities,
Human Rights
Labour Relations
Management,
Human Rights,
Responsible
Procurement
Human Rights,
Responsible
Procurement
Human Rights,
Responsible
Procurement
629
Pirelli & C. S.p.A. – 2020 Annual Report
Certifications
GRI 103: Management Approach 2016
152-154
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
152-154
411-1 Incidents of violations involving
rights of indigenous peoples
83-84
Human Rights
GRI 103: Management Approach 2016
53, 152-154
412-1 Operations that have been
subject to human rights reviews or
impact assessments
152-154, 179-180
Human Rights
412-2 Employee training on human
rights policies or procedures
152-154
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
98-102
Human Rights
GRI 103: Management Approach 2016
152-154
413-1 Operations with local community
engagement, impact assessments, and
development programs
73-74, 152-154
413-2 Operations with significant actual
and potential negative impacts on local
communities
152-154
GRI 103: Management Approach 2016
53, 77-78, 99-102
414-1 New suppliers that were
screened using social criteria
414-2 Negative social impacts in the
supply chain and actions taken
99-104
102-104
Information
Unavailable:
information
currently
unavailable
Information
Unavailable:
information
currently
unavailable
Community
Engagement
Community
Engagement
Responsible
Procurement
Responsible
Procurement
:
0
1
4
I
R
G
6
1
0
2
s
e
c
i
t
c
a
r
P
y
t
i
r
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S
:
1
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4
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6
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6
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t
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6
1
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2
s
e
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C
l
a
c
o
L
:
2
1
4
I
R
G
:
3
1
4
I
R
G
:
4
1
4
I
R
G
l
a
i
c
o
S
r
e
i
l
p
p
u
S
6
1
0
2
t
n
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m
s
s
e
s
s
A
630
Certifications
Pirelli & C. S.p.A. – 2020 Annual Report
:
5
1
4
I
R
G
:
6
1
4
I
R
G
y
c
i
l
o
P
c
i
l
b
u
P
d
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a
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t
l
a
e
H
r
e
m
o
t
s
u
C
GRI 103: Management Approach 2016
6
1
0
2
415-1 Political contributions
86-87
86-87
GRI 103: Management Approach 2016
48-49, 77-78
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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
100
98
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GRI 103: Management Approach 2016
146-150
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
146-150
98
98
GRI 103: Management Approach 2016
77-78
418-1 Substantiated complaints
concerning breaches of customer
privacy and losses of customer data
98
GRI 103: Management Approach 2016
77-78
419-1 Non-compliance with laws and
regulations in the social and economic
area
98
OTHER MATERIAL TOPICS IDENTIFIED
(not covered or partially covered by the GRI Standards)
Material Topic
Page Number
Employees Well-Being & Work-life Balance
176-178, 184-185
Customer Satisfaction
Product Quality & Safety
Product Environmental Sustainability
Road Safety Initiatives
90-96
96-98
146-150, 151
203-205
Product Quality
& Safety
Legal &
Regulatory
Compliance
Legal &
Regulatory
Compliance
Legal &
Regulatory
Compliance
Legal &
Regulatory
Compliance
Business Ethics
& Integrity,
Legal &
Regulatory
Compliance
631
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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
632
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Pirelli & C. S.p.A. – 2020 Annual Report
Areas of the
Global Compact
Global Compact
Principles
Directly Relevant
GRI Indicators
Indirectly Relevant
GRI Indicators
Labour Standards
Principle 3 –
Businesses should
uphold the freedom of
association of workers
and recognise the right
to collective bargaining.
Principle 4 – Business
should uphold the
elimination of all forms
of forced and
compulsory labour.
Principle 5 – Business
should uphold the
effective elimination of
child labour.
Principle 6 – Business
should uphold the
elimination of
discrimination in respect
of employment and
occupation.
Disclosure 402: Labour/Management
Relations
Disclosure 403: Occupational Health
and Safety
Disclosure 407: Freedom of
Association and Collective
Bargaining
Disclosure 410: Security Practices
Disclosure 102-11: Precautionary
Principle or Approach
Disclosure 102-41: Collective
Bargaining Agreements
Disclosure 409: Forced or
Compulsory Labor
Disclosure 410: Security Practices
Disclosure 412: Human Rights
Assessment
Disclosure 408: Child Labor
Disclosure 410: Security Practices
Disclosure 412: Human Rights
Assessment
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
633
Pirelli & C. S.p.A. – 2020 Annual Report
Certifications
Areas of the
Global Compact
Global Compact
Principles
Directly Relevant
GRI Indicators
Indirectly Relevant
GRI Indicators
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 and
Effluents
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 and Effluents
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
Principle 9 –
Businesses should
encourage the
development and
diffusion of
environmentally friendly
technologies.
Disclosure 301: Materials
Disclosure 302: Energy
Disclosure 303: Water and Effluents
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 419: Socioeconomic
Compliance
Disclosure 102-16: Values,
Principles, Standards, and Norms of
Behavior
Disclosure 102-17: Mechanism for
Advice and Concerned about Ethics
Disclosure 205: Anti-Corruption
Disclosure 419: Socioeconomic
Compliance
Disclosure 102-16: Values,
Principles, Standards, and Norms
of Behavior
Disclosure 102-17: Mechanism for
Advice and Concerned about
Ethics
634
Certifications
Pirelli & C. S.p.A. – 2020 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 2020-2022 with Vision 2025 and 2030)
1 - No Poverty
Company Initiatives for the External Community (Solidarity p. 207)
2 - Zero Hunger
Company Initiatives for the External Community (Solidarity p. 207)
Welfare and Initiatives for the Internal Community (pp. 176-178)
Occupational Health, Safety and Hygiene (pp. 182-192)
3 - Good Health and Well-
being
Company Initiatives for the External Community (Road Safety pp. 203-205, Sport and
Social Responsibility pp. 206-207, Health pp. 208-209)
Target:
Accident Frequency Index: ≤ 0.15 by 2022 and ≤ 0.1 by 2025
Training (pp. 169-175)
Company Initiatives for the External Community (Training pp. 205-206, Culture and
Social Value pp. 209-210)
4 - Quality Education
Target:
Training: training on new digital competences
5 - Gender Equality
Diversity Management (pp. 160-165)
Water Management (pp.138-140)
6 - Clean Water and
Sanitation
Target:
Specific water withdrawal: -43% by 2025 compared to 2015
Joining the Task Force on Climate-Related Financial Disclosures (TCFD) (pp. 118-
121)
Energy Management (pp. 129-132)
Management of Greenhouse Gas Emissions and Carbon Action Plan (pp. 132-138)
7 - Affordable and Clean
Energy
Targets:
Specific Energy Consumption: -10% by 2025 compared to 2019
Renewable Electricity: 100% by 2025
Group Carbon Neutrality by 2030
8 - Decent Work and
Economic Growth
Our Suppliers (pp. 98-116)
Internal Community (pp. 155-192)
Company Initiatives for the External Community (Training pp. 205-206)
9 - Industry, Innovation
and Infrastructure
Target:
For new product segments, by 2025: > 40% renewable materials, > 3% recycled
materials e < 40% fossil-based materials; by 2030: > 60% renewable materials, >
7% recycled materials e < 30% fossil-based materials
10 - Reduced Inequalities
Diversity Management (pp. 160-165)
635
Pirelli & C. S.p.A. – 2020 Annual Report
Certifications
Sustainable Development
Goals (SDGs)
Paragraphs describing the Group’s activities in support of the SDGs and
relevant targets (from Sustainability Plan 2020-2022 with Vision 2025 and 2030)
Main International Commitments for Sustainability (WBCSD pp. 198-200)
Company Initiatives for the External Community (Road Safety pp. 203-205, Solidarity
pp. 207)
Target:
Absolute CO2 Emissions: -25% by 2025 compared to 2015
Group Carbon Neutrality by 2030
Eco & Safety Performance Revenues: > 71% on total car tyres revenues e > 78%
on High Value revenues by 2022
Raw Materials Suppliers Absolute CO2 Emissions: -8.6% by 2025 compared to
2018
Product performance by 2022:
o
car (vs 2015): rolling resistance -10%, wet grip +7%, wear rate -12%, noise -4%
o moto (vs 2015): rolling resistance -15%, wet grip +21%, mileage +4%
o
velo (vs 2017): rolling resistance -25%, wet grip +10%, braking +5%
Product performance by 2025:
o
car (vs 2015): rolling resistance -14%, wet grip +9%, wear rate -18%, noise -4%
o moto (vs 2015): rolling resistance -20%, wet grip +25%, mileage +13%
o
velo (vs 2017): rolling resistance -25%, wet grip +15%, braking +10%
Joining the Task Force on Climate-Related Financial Disclosures (TCFD) (pp. 118-
121)
Energy Management (pp. 129-132)
Management of Greenhouse Gas Emissions and Carbon Action Plan (pp. 132-138)
Water Management (pp. 138-140)
Waste Management (pp. 141-142)
Company Initiatives for the External Community (Environmental Initiatives p. 209)
Targets:
Specific Energy Consumption: -10% by 2025 compared to 2019
Absolute CO2 Emissions: -25% by 2025 compared to 2015
Renewable Electricity: 100% by 2025
Group Carbon Neutrality by 2030
Water Specific Withdrawal: -43% by 2025 compared to 2015
Waste Recovery: ≥ 98% by 2025
11 - Sustainable Cities
and Communities
12 - Responsible
Consumption and
Production
636
Certifications
Pirelli & C. S.p.A. – 2020 Annual Report
Sustainable Development
Goals (SDGs)
Paragraphs describing the Group’s activities in support of the SDGs and
relevant targets (from Sustainability Plan 2020-2022 with Vision 2025 and 2030)
CDP Supply Chain (pp. 112-113)
Joining the Task Force on Climate-Related Financial Disclosures (TCFD) (pp. 118-
121)
Management of Greenhouse Gas Emissions and Carbon Action Plan (pp. 132-138)
Main International Commitments for Sustainability (International Commitments against
Climate Change pp. 202-203)
Targets:
Specific Energy Consumption: -10% by 2025 compared to 2019
Absolute CO2 Emissions: -25% by 2025 compared to 2015
Renewable Electricity: 100% by 2025
Group Carbon Neutrality by 2030
13 - Climate Action
Eco & Safety Performance Revenues: > 71% on total car tyres revenues e > 78%
on High Value revenues by 2022
Product performance by 2022:
o
car (vs 2015): rolling resistance -10%, wet grip +7%, wear rate -12%, noise
-4%
o moto (vs 2015): rolling resistance -15%, wet grip +21%, mileage +4%
o
velo (vs 2017): rolling resistance -25%, wet grip +10%, braking +5%
Product performance by 2025:
o
car (vs 2015): rolling resistance -14%, wet grip +9%, wear rate -18%, noise
-4%
o moto (vs 2015): rolling resistance -20%, wet grip +25%, mileage +13%
o
velo (vs 2017): rolling resistance -25%, wet grip +15%, braking +10%
14 - Life below Water
Water Management (pp. 138-140)
15- Life on Land
16- Peace, Justice and
Strong Institutions
17 - Partnerships for the
Goals
Sustainability of the Natural Rubber Supply Chain (pp. 105-108)
Company Initiatives for the External Community (Environmental Initiatives p. 209)
Programs of Compliance 231, Anti-corruption, Privacy and Antitrust (pp. 78-81)
Sustainability of the Natural Rubber Supply Chain (pp. 105-108)
Main International Commitments for Sustainability (WBCSD pp. 198-200)
Company Initiatives for the External Community (Road Safety pp. 203-205)
Please note that in March 2021 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.
637
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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
Greenhouse Gas Emissions
and Air-Polluting Emissions
Risks Related To Environmental Issues
Water Management
Risks Related To Climate Change
Joining the Task Force on Climate-Related
Financial Disclosures (TCFD)
Management Of Greenhouse Gas
Emissions and Carbon Action Plan
Solvents
NOx Emissions
Other Emissions and Environmental
Aspects
Coronavirus risk (COVID -19)
48, 129-132
48, 138-140
44-45, 118-121,
132-138, 142; 144-
145
Health and Safety
Employee Health and Safety Risks
44, 48, 182-192
Training and Development
Development
48, 168-175
Occupational Health, Safety and Hygiene
Risks associated with Human Resources
Welfare
Dialogue with Employees
Training
Welfare and Initiatives for the Internal
Community
Litigation Risks
Listening: Group Opinion Survey
Industrial Relations
Actions for Gender Equality
Diversity Management
Diversity Policies
Respect for Human Rights:
Measures Taken and
Prevention
Fight against Active and
Passive Corruption
Risks relative to Corporate Social and
Environmental Responsibility, and Business
Ethics
Human Rights Governance
Diversity Management
Risks relative to Corporate Social and
Environmental Responsibility, and Business
Ethics
53, 78-81
Programs of Compliance 231, Anti-
corruption, Privacy and Antitrust
176-178
49, 175-176; 178-
179
160-165, 222-223
53, 152-154, 160-
165
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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