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.
During 2013 the vulnerability of all Group facilities to catastrophic natural events (particularly flooding, hurricane and earthquakes) was analysed, with an estimate of the contingent damage (give the probability of occurrence). The analyses that were performed confirmed that business interruption risks are adequately covered, through a detailed series of safety measures, damage prevention systems and mitigation of possible impact on business, inter alia on the basis of current business continuation plans and existing insurance policies covering property damage and business interruption. In regard to earthquake risk, and specifically at the plant located in Turkey, particularly large seismic events might cause losses exceeding the insurance coverage limits, with a consequent negative impact on operating results.
In 2012 the scope of analysis of business interruption risks was extended to the Pirelli supply chain, particularly in regard to Tier-1 suppliers. 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. A joint effort was launched in 2013 with certain of the Group's principal suppliers to agree on areas for improvement of the principal business interruption risks at their production sites, including the sharing of Pirelli best practices applicable to loss prevention.
Group operating activities rely increasingly on the proper, uninterrupted functioning of information systems and network infrastructure in support of business processes. Human error, access by unauthorised personnel, vulnerable security systems, and/or system and network infrastructure breakdowns or malfunctions might negatively impact the performance of operating activities, cause the disclosure of critical, confidential corporate information, with consequent repercussions on the Group’s corporate image and/or the risk of statutory and regulatory violations. The Group has finished mapping the principal risks connected with the 10 most important information systems supporting core processes (production, purchasing, sales, and logistics). The risk was analysed on the basis of its impact on the Group if confidentiality were breached and according to the likelihood that the event occur in connection with the vulnerabilities existing in the system. Specific measures for the principal vulnerabilities were implemented for additional reinforcement of safety measures (physical, logic and infrastructure).
Please refer to paragraph “risks and uncertainties” of 2013 annual financial report for more details regarding other types of risk relating to Pirelli’s ordinary processes ( such as risks related to the employee health and safety, product defects, HR etc.).