Risks and uncertainties

The current macroeconomic situation, financial market instability, complex management processes and continuous legislative and regulatory evolution force successful businesses to protect and maximise tangible and intangible sources of value that characterise the corporate business model. Pirelli adopts a pro-active risk management system.

It uses a systematic process of identifying, analysing and assessing risk-prone areas to provide the Board of Directors and management with decision-making tools so that they can anticipate and manage the effects of these risks, guided by the awareness that the assumption of risk is a fundamental part of business management.

Reference is made to the Corporate Governance Report for details on the risk management system.

The Pirelli Risk Model systematically assesses three categories of risks: external risks, strategic risks and operating risks.

1. external risks

The occurrence of these risks is beyond the Company's control. This category includes the risks related to macroeconomic trends, changes in demand, the strategy of competitors, technological innovation, new regulations, and country risk (and specifically economic, security, political and environmental risks).

2. strategic risks

These are typical risks in the Group's specific business sector. Proper management of these risks is a source of competitive advantage or, on the contrary, a cause for failure to achieve plan targets (three-year and annual targets). This category includes market risk, product innovation and process risk, human resource risk, raw material price risk, production process risk, financial risk, and M&A risk.

3. operating risks

These are risks generated by the organisational structure and processes 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.