Power is nothing without control Pirelli AnnualReport 2018

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Annual Report 2018

01 Letters to stakeholder

Letter from the chairman

Ning Gaoning

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Dear Stakeholder,

In the challenging context of 2018, when the automobile sector was not immune to the uncertainties of the global economy, Pirelli showed exceptional resilience compared with its peers, validating its strategy, put in place in recent years, focused on High Value products for top-of-the-range cars, motorcycles and bicycles. The decision to become the sole tyre maker dedicated exclusively to the Consumer sector has thus proven to be inspired, capitalizing on the Company’s deep industrial heritage, further enhancing an already prestigious brand, and the importance of its innovation and leading edge technology.

Pirelli’s positioning at the top of the market goes hand in hand with its constant commitment to technological innovation. The company maintains one of the highest levels of R&D investment in the sector and continues to make advances in its cutting-edge connected tyre technology. In the area of environmental responsibility and sustainability, in 2018 Pirelli consolidated its position as an industry benchmark when, following the annual review of the Dow Jones Sustainability indices, it was declared a global leader in the Automobiles & Components sector.

The effectiveness of the company’s business model and corporate culture is underpinned by governance structures which are inspired by the best international practices, as well as the strong role of committees and of the independent directors. The resulting decision-making processes are fun damental to the company’s solid development and a guarantee to all stakeholders.

In 2018, the ability of Pirelli’s management to not only navigate the year’s challenges but to bring home impressively good results once again confirms the Company’s excellence and that of its people. It is a testament to the clarity and far sightedness of the strategic vision at the top and the consolidated ability to execute effectively at all levels. The key to this, of course, is the passion, creativity and enthusiasm that all Pirelli’s people bring to their work every day. I wish to thank you all for your contributions to Pirelli’s ongoing success.

Ning Gaoning

Letter from executive vice-chairman and CEO

Marco Tronchetti Provera

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Dear Stakeholder,

In 2018, the singularity of our business model, focused on the High Value segment, allowed us to achieve our profitability targets, the slowdown of the automotive market not-withstanding. In order to enhance the group’s profitability, we moved to accelerate the focus on High Value, which represents 64% of sales (57.5% in 2017) and 83% of profitability, and is not as exposed to the fluctuations of the economic cycle as the lower tiers.

Combined with cost containment, this offset the faster decline of the Standard segment and allowed us to reach an Adjusted Ebit margin before start-up costs of 8.2%, over the one billion euro level, and an adjusted Ebit margin before start-up costs of 19.3%, rising from 17.3% in 2017. Net profit, thanks to improved financial and fiscal management, was over 440 million euro. These figures are the result of a team approach capable of responding to the signals coming from our markets with flexibility and speed. This perfectly captures the spirit of “Power is nothing without control”, the Pirelli catchphrase, which this year reaches its 25th anniversary and we have chosen as the title of our Annual Report.

The group’s digital transformation has also been of fundamental importance in the achievement of our goals, driving the progressive evolution of our operating processes and technology with the aim of greater horizontal integration in the way we work, in order to manage the growing complexity and uniqueness of our business model on a global scale. The revision of processes and data analysis have, in fact, increased our ability to foresee and be ready for market demand and, above all, to supply our customers – both car makers and consumers – with products that are always more tailor-made, technologically sophisticated, high performing, safe and sustainable.

Thanks to our Research & Development, where we invested over 6% of High Value revenues, we launched Cyber Car, the first connected tyre for Original Equipment. Capable of “talking” to the car and of delivering important measurements for car and passenger safety, as well data of use in the development of the product itself. With the passion that has set us apart for almost 150 years, we have created products suited to the new forms of sustainable mobility, developing tyres for electric vehicles and new products for cars, motorcycles and bicycles.

This year we also achieved significant improvements in results in the environmental, societal and economic context, earning positions at the top of the key international sustainability indices. We also developed a new natural rubber policy to promote sustainable and responsible behavior along the entire supply chain.
Our constant all round efforts have further strengthened the Pirelli name which stands among the leading brands in terms of reputation in Italy and worldwide. A brand which has further solidified its links to the world’s most important sporting competitions to which we contribute our skills and from which we also draw to improve ourselves. For the fourth time, in fact, we renewed the contract for the FIA Formula 1 World Championship for which we will be the Global Tyre Partner until 2023. As well as continuing to excel in the Superbike championship, we have also linked our brand to the world of sailing through a partnership in which Pirelli is co-title sponsor of Luna Rossa in the challenge to win the America’s Cup in 2021 – a competition with the same DNA as Pirelli, based on technology, speed and passion.

The results already obtained and plans that will enable us to remain competitive in the years ahead are the fruit of the work of all the women and men of Pirelli. Our people are the basis for everything, with their teamwork, commitment and passion. It is all of you whom I must thank for the confidence and trust of our stakeholders.

Marco Tronchetti Provera

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03 Editorial project

An icon that is still relevant

Of the many images that have depicted Pirelli over the years, perhaps one of the most extraordinary is that of American sprinter Carl Lewis in the typical starting position wearing a pair of red stiletto heels. Already a world record holder and having won his eighth Olympic gold medal, Carl Lewis and those heels perfectly embodied the message that Pirelli wanted to convey: power is nothing without control. Twenty-five years on, those words are more relevant than ever before.

The 2018 Annual Report celebrates this with a short film, a photo essay and the reflections of three authors who each offer their personal insight into the famous payoff, presented from their own unique point of view.

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Sport

The Control of the Power

by J.R. Moehringer

In fact everyone has special powers. The ones who succeed are the ones who find ways of achieving durable, consistent control over their powers.

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Art and Culture

Hurrying Slowly

by Lisa Halliday

The power that propels such a journey is nothing without control because control is what harnesses artistic potential and directs it.

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Innovation

Standing in the Way of Control

by Adam Greenfield

The distinction between power and control ranks among the central challenges of our time.

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04 Pirelli in images

Pirelli
in images