Business interruption risks

The global scale of Group operations exposes it to a plethora of risks that might cause an interruption in business activities for an indefinite period of time, consequently impacting its operating capacity and financial results. Risks associated with natural or accidental events (fire, flood, earthquake, etc.), malicious acts (vandalism, sabotage, etc.), malfunctions in auxiliary plants or interruption of utilities may cause serious property damage and production losses, with a particular impact on production sites that have high volumes or specific (high-end) products. In 2010, business interruption scenarios were assessed and measured (in terms of their impact, likelihood of occurrence and existing risk management system) for five production sites of material interest to Group strategies. In 2011 this analysis continued at another seven production sites. These analyses confirmed that adequate protections against business interruption risk have been implemented, with a detailed series of safety measures and prevention systems.

However, specific business continuity plans are being analysed, prepared and adopted for all factories and will also be extended to the supply chain.

In 2012 the scope of analysis of business interruption risks was extended to the Pirelli supply chain, particularly in regard to Tier-1 suppliers. About 70% (in terms of spending) of the raw materials used in Group production processes and their criticality were assessed in terms of the substitutability of the supplier / material itself and the strategic nature of the related finished product (premium production / original equipment customers / motorsport activities). Each raw material was also analysed according to the risk related to their suppliers (in terms of market risk, force majeure, reputation risk, quality risks and production capacity risks).

The analysis led the Group to undertake a series of mitigation actions to reduce the vulnerability of the supply chain. In particular, this involved extending the portfolio of approved plants by individual supplier, approval of alternative materials/suppliers, increase in the levels of safety stocks of critical materials, supplier audits, etc.

During 2013, this analysis will be extended to all raw materials used, and then also to machinery and industrial services.

Last revised: 11 Jun 2013