Risks and uncertainties

Pirelli adopts a pro-active risk management system by using a systematic and organised process of identifying, analysing and assessing risk-prone areas that could compromise the attainment of strategic objectives or undermine the tangible and intangible assets value. Such risk management system provides the Board of Directors and management with decision-making tools so that they can anticipate and manage the effects of these risks and, more in general, govern them, guided by the awareness that the assumption of risk is a fundamental part of business management1.

The Pirelli Risk Model systematically assesses three categories of risks: external risks (i.e risks beyond the Company's control, such as risks related to macroeconomic trends, changes in demand, the strategy of competitors, technological innovation, new regulations and country risk), strategic risks ( i.e. these are typical risks in the Group's specific business sector, such as market risk, product and process innovation risks, human resources risk, raw material price risk, production process risk, financial risk, sustainability risk, and M&A risk. Proper management of these risks is a source of competitive advantage or, on the contrary, a cause for failure to achieve plan targets) and operational risks (i.e. these are risks generated by the organisational structure, processes and systems of the Group, and the assumption of which does not determine any competitive advantage. The principal areas of risk in this category are information technology, business interruption, legal and compliance, health, safety and environment and security risk).

1Reference is made to the Corporate Governance area for details on the new risk management system.

Last revised: 11 Jun 2013