REPORTS

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PRESENTATION OF 2023 INTEGRATED ANNUAL REPORT

The 2023 integrated annual report¹ of Pirelli (“Annual Report”) aims to provide a comprehensive overview of the process of creating value for the Company’s Stakeholders, resulting from the integrated management of the financial, productive, intellectual, human, natural, social and relational capitals. The reporting reflects the business model adopted by Pirelli, which is inspired by the United Nations Global Compact, the principles of Stakeholder Engagement set forth by the AA1000, and the Guidelines of ISO 26000.

The financial assets, which comprise the company’s financial resources, supply the sustainable management of other capital and are in turn influenced by the value created by the latter. Impacts on the economy, the environment, society and human rights are central to the definition of corporate development strategies with a view to minimising negative impacts and increasing positive ones. They are transversal to the management of the aforementioned capitals, which in turn evolve through the commitment, competence and dedication of human capital, the heart of the Company’s growth.

Pirelli’s commitment to engaging and valuing its people has continued, the engagement survey in all group factories found an Engagement Index of 85 percent, highlighting a high level of engagement and cohesion. The number of women in managerial positions is increasing, rising globally in one year from 24.5% to 27%, the number of women in executive positions is also on the rise. The total workforce stands at 31,072 resources (229 fewer than in 2022 and 382 more than in 2021).

The focus on health and safety protection led to a further decline in the accident frequency index, which dropped by 15% in 2023 compared to 2022 and 1.98% compared to 2021 (1.69 in 2023 compared to 1.98 in 2022 and 2.07 in 2021).

With a view to putting people at the center along the entire value chain, in November 2023 Pirelli also activated a training course on Business and Human Rights that involved 100% of the Group’s Raw Materials suppliers, and all Capital Goods suppliers considered continuous and strategic.

In 2023, the management of the business produced an adjusted EBIT² of €1,001.8 million (€977.8 million in 2022) with a margin of 15.1% (14.8% in 2022). Internal levers (price/mix, efficiencies) more than compensated for the negative external scenario (raw materials, inflation, exchange rate impact), enabling the company to achieve a higher-than-expected result (~€985m the target implied by the November target) and an adjusted Return on Net Invested Capital (ROIC) of 20.3% (~21% for the November target, 20.3% for the 2022 figure).

Important steps were taken in the area of sustainable finance: in 2023, Pirelli - the first company in the global tire industry - placed a 600-million-euro sustainability-linked bond with more than 190 international investors in 2023, with demand almost 6 times the supply.

The Company’s production capital, which includes a geographically diversified production structure with 18 plants in 12 countries on five continents, is managed with a view to environmental efficiency and respect for biodiversity, with targets in terms of reducing water withdrawal, energy consumption, CO2 emissions, increasing waste recovery and adoption of the “No net loss of biodiversity” model through the “mitigation hierarchy” (i.e. avoid, minimise, restore and compensate).

In 2023, a methodology was developed to analyse the state of biodiversity in the natural areas surrounding Pirelli’s production facilities, as well as the impacts and dependencies on these areas. All of Pirelli’s operating locations around the world were assessed against the four core criteria of the TNFD LEAP framework (Locate, Evaluate, Assess, Prepare)³ .

Pirelli’s commitment to protecting the sustainability of natural rubber also continued, with Pirelli producing the world’s first tires with Forest Stewardship Council (FSC)-certified natural rubber and rayon as early as 2021. In addition to the ongoing commitment to the traceability of natural rubber, the implementation of the three-year project in partnership with BMW GROUP and the NGO BirdLife International in the Hutan Harapan area (Sumatra Island-Indonesia) continued, with the goal of conserving 2,700 hectares of rainforest and its biodiversity and improving the living conditions of the local population dedicated to natural rubber production.

The decarbonisation plan for the group’s value chain continued, in line with the 2030 ‘carbon neutrality’ target. In terms of absolute CO2 emissions, after having obtained an upgrade of its Science Based Target in line with the 1.5°C scenario, Pirelli formalised its commitment to SBTi Net Zero.

There was significant growth in the use of renewable electricity. In particular, 100% of the electricity purchased in Latam in 2023 is certified renewable, in addition to the 100% certified renewable electricity purchased in Europe as of 2021 and in North America as of 2022. Globally, 80% of the total electricity used is from renewable sources (compared to 74% in 2022 and 62% in 2021), with absolute group CO2 emissions down 17% from 2022 and 51% compared to 2015 (base year of the Science Based Target for group sites - Scopes 1 and 2). Absolute supply chain emissions decreased by 10.2% compared to 2022 and slightly more than 18% compared to 2018 (base year of the Science Based Target for Supply Chain - Scope 3). Positive results were also achieved through direct engagement with suppliers.

With reference to the Product accounting for more than 90% of absolute emissions from raw materials, and the involvement of suppliers in the CDP Supply chain programme, with a response rate of 88% (82% in 2022).

With reference to the Product - research and development activities contribute substantially to improving environmental efficiency along the entire product life cycle, from innovative raw materials to the process, from distribution to use, and through to the end of life of the tyre. Research and development expenditure amounted to €288.5 million in 2023 (4.3% of total revenues), of which €269.4 million was allocated to High Value activities (5.4% of High Value revenues).

Heavy investment in innovation also fuels Pirelli’s intellectual property assets, as it has a portfolio of active patents grouped into around 720 families covering product, process and materials innovations and CyberTM Tyre technologies, as well as being a globally recognised brand.

Relevant was the R&D efforts on innovative, renewable and recycled materials, which, among other things, enabled an acceleration in the use of silica from rice husk, a bio-circulating material that reached 10% of the total silica used in 2023 (compared to 5% in 2022 and 1% in 2021).

In turn, Pirelli’s Eco & Safety Performance products, which combine performance and respect for the environment, at the end of 2023 represent 72%⁴ of total car tyre turnover (67% in 2022 and 63% in 2021). By restricting the scope of the analysis to High Value products⁵, the percentage of Eco & Safety Performance products rises to 78% (73.2% in 2022 and 68.4% in 2021).

In addition, in 2023, 55% of the new IP Codes⁶ placed on the market have parameters in line with the highest class (A or B) of European labelling for rolling resistance (the environmental aspect of indirect impact on vehicle CO2 emissions), in line with Pirelli’s target of 70% by 2025. The percentage of new IP Codes produced globally with values in line with the European labelling classes A/B for wet grip (an aspect of direct impact on safety), including ice grip (ICE pictogram), also rose to 98% of the total (93% in 2022).

The average rolling resistance of Pirelli tyres worldwide improved by 2% compared to 2022 and by 15.8% compared to 2015.

Regarding the tyre wear rate, the new product lines launched in the last three years showed an average improvement of 22% compared to the previous generation.

From product to market - Transparency towards consumers is one of the central elements: Pirelli has created a new logo identifying tyres containing at least 50% bio-based and recycled materials. An example of this is the Pirelli P Zero E, Pirelli’s Perfect Fit for premium and prestige electric vehicles that need dedicated tyres with specific grip, rolling resistance and wear performance. The new Pirelli P Zero has been awarded triple class A in the European label on all measurements (rolling resistance, wet braking, noise) and contains more than 55% natural and recycled materials, a claim with third-party validation. The tyre life cycle analysis, conducted by Pirelli and validated by third party, shows a 24% reduction in CO2 equivalent emissions compared to a previous generation Pirelli tyre. Furthermore, tyre wear (expressed in g/1000km) has been reduced by 42% compared to the previous generation, thanks to virtualisation processes and new materials.

P Zero E, eco-design, sustainable materials and Elect technology were also the focus of engagement and training of European Dealer Customers as part of the workshop dedicated to them in 2023.

Even in motorsport, which in 2023 saw Pirelli confirmed as Formula One’s Global Tyre Partner until at least 2027, sustainability is among the key elements of the partnership and will see all tires used in FIA Formula One World Championship events certified FSC® (Forest Stewardship Council®) starting in 2024.

Pirelli’s sustainable performance in 2023 also received excellent ratings from the main Sustainable Finance Indices. Following the annual review of the Dow Jones Sustainability indices by S& P Global, the company recorded the Auto Components and Automotive Sector Top Score globally, followed by the Sustainability Yearbook 2024’s “Top 1%” award. Pirelli has been reconfirmed as a leader in the fight against climate change by being placed on the CDP “Climate A list” as well as being awarded “Prime” status by ISS ESG, which includes it among the sector leaders for ESG risk mitigation, and “ESG Top Rated” recognition by Sustainalytics.

The reporting of Sustainability strategy and performance 2023 is prepared in accordance with the Global Reporting Initiative (GRI) Sustainability Reporting Standards 2021, Comprehensive “In accordance with” option, SASB Auto Parts Sustainability Accounting Standard, following the process suggested by the APS1000 APS principles (materiality, inclusivity and responsiveness), and considering the integrated reporting principles contained in the International Integrated Reporting Council (IIRC). In addition, this report considers the priorities reported by the European Securities and Markets Authority (ESMA) through the ESMA circular 32-193237008-1793 of 25 October 2023 and includes the considerations required by the European Taxonomy Regulation in its fields of application (EU Regulation 2020/852 dated 18 June 2020 and the Delegated Regulations (EU) 2021/2178 and (EU) 2021/2139 connected to it). The Annual Report 2023 concludes with third-party assurances.

The Financial Statements and Consolidated Financial Statements of Pirelli & C. S.p.A. (hereinafter referred to as the “Financial Statements” and “Consolidated Financial Statements”, respectively) have been prepared on the basis of IAS/IFRS.

ESEF OBLIGATIONS

(EUROPEAN SINGLE ELECTRONIC FORMAT)

This document has not been prepared pursuant to the EU Delegated Regulation 2019/815 (ESEF Regulation), which was adopted with the implementation of the Transparency Directive. This document which has been prepared pursuant to the ESEF Regulation, is available (in Italian only) on the website of the authorised eMarket Storage mechanism (emarketstorage.com) and on the Company’s website www.pirelli.com.

​​ PDF Version (16.8 MB)

PRESENTATION OF 2022 INTEGRATED ANNUAL REPORT

The 2022 integrated annual report¹ of Pirelli (“Annual Report”) aims to provide a comprehensive overview of the process of creating value for the Company’s Stakeholders, resulting from the integrated management of the financial, productive, intellectual, human, natural, social and relational capitals. The reporting reflects the business model adopted by Pirelli, which is inspired by the United Nations Global Compact, the principles of Stakeholder Engagement set forth by the AA1000, and the Guidelines of ISO 26000.

The financial assets, which comprise the company’s financial resources, supply the sustainable management of other capital and are in turn influenced by the value created by the latter. Impacts on the economy, the environment, society and human rights are central to the definition of corporate development strategies with a view to minimising negative impacts and increasing positive ones, and are transversal to the management of the aforementioned capitals, which in turn evolve through the commitment, competence and dedication of human capital, the heart of the Company’s growth.

Investment in a “culture of health and safety at work” is a priority. The accident frequency index in 2022 stands at 2.00² compared to 2.07 in 2021, confirming the steady downward trend.

Merit, ethics, dialogue, focus on well-being, inclusion and diversity are pillars of the employee experience and are accompanied by advanced instruments to attract and retain the best talent. 24.5% of management positions are held by women, with the number of women in executive positions increasing. Compared to 2021, the workforce grew by 611 new employees.

In 2022 the management of the business produced an adjusted EBIT³ of €977.8 million (€815.8 million in 2021) with a margin of 14.8% (15.3% in 2021). Internal levers (price/mix, efficiencies) more than compensated for the negative external scenario (raw materials, inflation, exchange rate impact), enabling the company to achieve a higher-than-expected result (~€960m the target implied by the November target) and an adjusted Return on net Invested Capital (ROIC) of 20.3% (~19% the November target).

Important steps were taken in the area of sustainable finance, with the publication of the Sustainability Linked Financing Framework in May 2022 and the placement of the first benchmark sustainability-linked bond in the global tyre sector in January 2023.

The Company’s production capital, which includes a geographically diversified production structure with 18 plants in 12 countries on four continents, is managed with a view to environmental efficiency and respect for biodiversity, with targets in terms of reducing water withdrawal, energy consumption, CO₂ emissions, increasing waste recovery and adoption of the “No net loss of biodiversity” model through the “mitigation hierarchy” (i.e. avoid, minimise, restore and compensate).

The decarbonisation plan of the group’s value chain continued, in line with the 2030 ‘carbon neutrality’ target. In terms of absolute CO₂ emissions in 2022 Pirelli obtained an upgrade of its Science Based Target in line with the 1.5°C scenario from SBTi and formalised its commitment to Net Zero. The growth in the use of renewable electricity was very significant. In particular, 100% of the electricity purchased in North America in 2022 is certified renewable, adding to the 100% certified renewable electricity purchased by Europe as of 2021. Globally, 74% of the total electricity used is from renewable sources (compared to 62% in 2021), with absolute group CO₂ emissions down 14% compared to 2021 and 41% compared to 2015 (base year of the Science Based Target for group sites - Scopes 1 and 2). Absolute supply chain emissions decrease by 3.1% compared to 2021 and by 8.9% compared to 2018 (base year of the Science Based Target for Supply Chain - Scope 3).

The research and development activities contribute substantially to the improvement of environmental efficiency along the entire product life-cycle, from the innovative raw materials to the process, distribution, use and up to the end of life of tyres. Research and development expenses in 2022 totalled €263.9 million (4.0% of sales), of which €247.1 million was for High Value activities (5.3% of High Value revenues).

The heavy investment in innovation also fuels Pirelli’s intellectual assets, as it has a portfolio of active patents grouped into 695 families covering product, process and materials innovations, as well as a globally recognised brand

In turn, Pirelli’s Eco & Safety Performance products, which combine performance and respect for the environment, at the end of 2022 represent 67%⁴ of total car tyre turnover (63% in 2021 and 58% in 2020). By restricting the scope of the analysis to High Value products⁵, the percentage of Eco & Safety Performance products rises to 73.2% (68.4% in 2021 and 63.8% in 2020).

In addition, in 2022, 50% of the new IP Codes⁶ placed on the market have parameters in line with the highest class (A or B) of European labelling for rolling resistance (the environmental aspect of indirect impact on vehicle CO₂ emissions), in line with Pirelli’s target of 70% by 2025. At the same time, the percentage of new IP Codes produced globally with values in line with the European labelling classes A/B for wet grip (an aspect of direct impact on safety), including ice grip (ICE pictogram), remains very high at 93% of the total.

The average rolling resistance of Pirelli tyres worldwide decreased by more than 3% compared to 2021 and by 13.6% compared to 2015.

Regarding Tyre Wear, the new product lines launched in 2021-22 (Cinturato and Scorpion) show an improvement in wear rates of up to 33% compared to the previous generation.

There was a significant Research & Development commitment on innovative, renewable and recycled materials, which, among other things, enabled an acceleration in the use of silica from rice husks, a bio-circular material that reached 5% of the total silica used in 2022 (compared to 1% in 2021 and the expected 10% in 2023).

Innovation and sustainability of materials for Pirelli includes attention to people and biodiversity, and it is with this conviction that Pirelli has also worked in 2022 to protect the sustainability of natural rubber. In addition to the ongoing commitment to natural rubber traceability, which already in 2021 saw Pirelli produce the world’s first tyres with Forest Stewardship Council (FSC)-certified natural rubber and rayon, implementation continued of the multi-year project in partnership with BMW GROUP and the NGO BirdLife International in the Hutan Harapan area (Sumatra Island - Indonesia), with the aim of conserving 2,700 hectares of rainforest and its biodiversity and improving the living conditions of the local population dedicated to natural rubber production.

Pirelli’s sustainable performance in 2022 also received excellent ratings from the main Sustainable Finance Indices. Following the annual review of the Dow Jones Sustainability indices by S& P Global, the company recorded the Auto Components Sector Top Score globally, followed by the Sustainability Yearbook 2023’s “Top 1%” award. Pirelli has been reconfirmed as a leader in the fight against climate change by being placed on the CDP “Climate A list” and also obtaining the maximum score of “A” in the CDP Supplier Engagement Rating Leaderboard for the management of climate issues along its supply chain, as well as being awarded the top sector rating in FTSE4GOOD and the “ESG Top Rated” recognition by Sustainalytics.

The reporting of Sustainability strategy and performance 2022 is prepared in accordance with the Global Reporting Initiative (GRI) Sustainability Reporting Standards 2021, Comprehensive “In accordance with” option, SASB Auto Parts Sustainability Accounting Standard, following the process suggested by the APS1000 APS principles (materiality, inclusivity and responsiveness), and considering the integrated reporting principles contained in the International Integrated Reporting Council (IIRC). In addition, this report considers the priorities reported by the European Securities and Markets Authority (ESMA) through the ESMA circular 32-63-1186 and includes the considerations required by the European Taxonomy Regulation in its fields of application (EU Regulation 2020/852 dated 18 June 2020 and the Delegated Regulations (EU) 2021/2178 and (EU) 2021/2139 connected to it). The Annual Report 2022 concludes with third-party assurances.

The Financial Statements and Consolidated Financial Statements of Pirelli & C. S.p.A. (hereinafter referred to as the “Separate Financial Statements” and “Consolidated Financial Statements”, respectively) have been prepared on the basis of IAS/IFRS.

ESEF OBLIGATIONS

(EUROPEAN SINGLE ELECTRONIC FORMAT)

This document has not been prepared pursuant to the EU Delegated Regulation 2019/815 (ESEF Regulation), which was adopted with the implementation of the Transparency Directive. This document which has been prepared pursuant to the ESEF Regulation, is available (in Italian only) on the website of the authorised eMarket Storage mechanism (emarketstorage.com) and on the Company’s website www.pirelli.com.

​​ PDF Version (10.6 MB)

PRESENTATION OF 2021 INTEGRATED ANNUAL REPORT

The Pirelli 2021 integrated Report (Annual Report 2021) aims to provide a comprehensive overview of the process of creating value for the Company’s Stakeholders, as resulting from the integrated management of the financial, productive, intellectual, human, natural, social and relational capitals. Reporting reflects the business model adopted by Pirelli, inspired by the United Nations Global Compact, the principles of Stakeholder Engagement set forth by the AA1000, and the Guidelines of ISO 26000.

The financial capital, which comprise the company’s financial resources, supply the sustainable management of other capitals and is in turn influenced by the value created by the latter.

In 2021, the management of the business produced an adjusted EBIT¹ of €815.8 million (€501.2 million in 2020) with a margin of 15.3% (11.6% in 2020). Internal levers (volumes, price/mix and efficiencies) more than offset the negativity of the external scenario (raw materials, inflation and exchange rate impact), enabling the company to achieve a better result than expected (€770-800 million was the goal implicit in the November target) and an adjusted Return of Investments (ROI) of 17.6% (≥16% November target).

The Company’s productive capital, which includes a geographically diversified production structure with 18 plants in 12 countries on four continents, is managed with a view to environmental efficiency, with targets in terms of reducing water withdrawal, energy consumption, CO₂ emissions and increasing waste recovery.

In line with the goal of achieving Group carbon neutrality by 2030, in 2021 the decarbonisation plan for Pirelli’s value chain continued. In terms of absolute CO₂ emissions (scopes 1 and 2) in 2021, Pirelli reached the well below 2°C Target approved by the Science Based Target Initiative (SBTi) four years ahead of schedule and asked the SBTi to upgrade it in line with 1.5°C. Significant the use of renewable electricity: 100% of the electricity acquired by the Group in Europe in 2021 is certified as renewable, 62% at global level. The absolute emissions of the supply chain increased from the pre-pandemic period, declining by 2.5% compared with 2019 and by 6% compared with 2018, the base year for the Science Based Target Initiative for the supply chain (reduction target -9% in 2025 compared with 2018).

The research and development activities contribute substantially to the improvement of environmental efficiency along the entire product life-cycle, from the innovative raw materials to the process, distribution, use and up to the end of life of tyres. Research and development expenses in 2021 amounted of €240.4 million (4.5% of sales), of which €225.1 million was for High Value activities (6.0% of High Value revenues). In turn, Pirelli’s Eco & Safety Performance products, which combine performance and respect for the environment, at the end of 2021 represent 63.1%² of total car tyre turnover (58% in 2020 and 55.8% in 2019). By restricting the scope of the analysis to High Value products³ , the percentage of Eco & Safety Performance products rises to 68.4% (63.8% in 2020 and 63.3% in 2019). Furthermore, in 2021, 49% of the new IP Code placed on the market a growth of 10 percentage points of new IP Codes⁴ placed on the market have parameters in line with the highest classes (A or B) of the European rolling resistance labelling (which indirectly impacts the energy efficiency of vehicles), 10 percentage points more than in 2020 (70% the target for 2025). At the same time, the percentage of new IP Code tyres produced globally with values in line with the A or B European labelling values for wet grip remained very high at 87% of the total. The average rolling resistance of tyres produced by Pirelli worldwide decreased by more than one percentage point with respect to 2020, with a drop of 10.3% compared to 2015.

Significant efforts were made by Research & Development in renewable and recycled innovative materials, which led Pirelli fitting the Volvo Recharging Concept with a tyre containing 94% non-fossil materials (like silica from rice husks, carbon black from recycling and bio-resin). Innovative and sustainable materials for Pirelli include attention to people and biodiversity, and it is with this conviction that last May Pirelli presented the first tyre in the world with natural rubber and rayon certified by Forest Stewardship Council (FSC), destined for the BMW X5 Plug-In Hybrid. In 2021, Pirelli also launched a multi-year project in partnership with the BMW GROUP and the NGO BirdLife International to favour the production of sustainable natural rubber in Indonesia through a project that involves part of the rainforest of Hutan Harapan (island of Sumatra). It aims to improve the quality of life of the indigenous community and protect animals at risk.

The heavy investment in innovation also fuels Pirelli’s intellectual capital, as it has a portfolio of active patents grouped into more than 685 families covering product, process and materials innovations, as well as a globally recognised brand.

These types of capital evolve thanks to the commitment, competence and dedication of human capital, the heart of the Company’s growth. Merit, ethics and the sharing of strong values and clear policies, dialogue, attention to welfare and diversity are accompanied by advanced instruments to attract and retain the best talent. The number of management positions held by women increased further in 2021 to 24.8%. Investment in our ‘occupational health and safety culture’ is paramount. The accident frequency index in 2021 stands at 2.07⁵, confirming the constant downward trend.

The main awards obtained in 2021 include:

• in the motorsport and sustainability area, Pirelli was the only tyre manufacturer in the world to receive three stars from the Environmental Accreditation Programme promoted by FIA, the International Automobile Federation, considered as the maximum recognition for the commitment to reducing the environmental impact in the context of FIA Motorsport.
• confirmation of ESG Leadership position by the main Sustainability Indices and Initiatives: Pirelli was awarded the “S&P Global Gold Class” recognition in the Sustainability Yearbook 2022, published by S&P Global based on the results of the Dow Jones Sustainability Index 2021 assessments. The Company was reconfirmed among the global leaders in the fight against climate change, being placed on the CDP “Climate A list” and also obtaining the maximum score of “A” in the CDP Supplier Engagement Rating Leaderboard for the management of climate issues along its supply chain. In conclusion, Pirelli was reconfirmed, as the only company from the automotive sector on the United Nations Global Compact Lead list, which includes the companies identified as those most committed to implementation of the Ten Principles of the Global Compact of the United Nations.

The annual financial statements and the consolidated financial statements have been prepared in accordance with IAS/IFRS

In the drawing up of the Annual Report 2021 the principles of Integrated Reporting contained in the Framework of the International Integrated Reporting Council (IIRC) have been considered, the sustainability performance complies with the GRI Standards, SASB Auto Parts Framework and with the provisions of Legislative Decree no. 254 of 30 December 2016, following the process dictated by the principles of the AA1000 APS (materiality, inclusivity and responsiveness). In addition, this report includes the assessments required by the European Taxonomy Regulation in its areas of application (EU Regulation 2020/852 of 18 June 2020 and the related Delegated Regulations (EU) 2021/2178 and (EU) 2021/2139.

​​ PDF Version (19.1 MB)

PRESENTATION OF 2020 INTEGRATED ANNUAL REPORT

The Pirelli 2020 integrated Report (Annual Report 2020) aims to provide a comprehensive overview of the process of creating value for the Company’s Stakeholders, as resulting from the integrated management of the financial, productive, intellectual, human, natural, social and relational capitals. Reporting reflects the business model adopted by Pirelli, which is inspired by the United Nations Global Compact, the principles of Stakeholder Engagement set forth by the AA1000, and the Guidelines of ISO 26000.

The financial capital, which comprise the company’s financial resources, supply the sustainable management of other capitals and is in turn influenced by the value created by the latter. Among the actions to optimise and strengthen the group’s financial structure conducted in 2020, it is worth noting Pirelli’s subscription of a new €800 million credit line with a 5-year maturity, qualified by an incentive mechanism linked to product and process environmental sustainability objectives. The 2020 financial year was impacted by the Covid-19 emergency, which was reflected in a sharp drop in market demand (-15% in the Car tyre market) and production. Pirelli responded promptly to the profound change in the global scenario, implementing an action plan aimed at ensuring the safety of its employees and protecting its profitability and cash generation by containing costs and reshaping its investment programmes.

In 2020, the management of the business produced an adjusted EBIT¹ of €501.2 million (€917.3 million in 2019) with a margin of 11.6% (17.2% in 2019). Internal levers (price/mix, efficiencies and the cost reduction programme) contributed to limiting the negative impacts arising from

• the external scenario (volumes, commodities, Forex and inflation),
• increased D&A and other costs.

The Company’s productive capital, which includes a geographically diversified production structure with 19 plants in 12 countries on four continents, is managed with a view to environmental efficiency, with targets in terms of reducing water withdrawal, energy consumption, CO₂ emissions and increasing waste recovery. In this regard, in 2020 compared to 2019, Pirelli recorded a 6.8% decrease in absolute water withdrawal, a reduction in absolute energy consumption of 10.5%, and a reduction in absolute CO₂ emissions of around 23%, also due to a fall in production volumes due to the pandemic. The growth in the consumption of electricity from renewable sources was noteworthy, reaching 52%² of the total electricity used by the Group at the global level. Moreover, in June 2020 Pirelli’s targets for reducing CO₂ emissions were validated by the Science Based Targets initiative (SBTi), which judged them consistent with the actions needed to keep climate warming well below 2°C. The Covid-19 scenario entailed a reduction in volumes produced, thus impacting factory efficiency with an increase in the specific energy and water consumption indices, weighted on volumes produced, without structurally affecting the improvement curve that the Group has set itself for the coming years. In addition, 97% of waste was sent to recovery, effectively pursuing the Group’s “zero waste to landfill” target.

The research and development activities, which have always been at the heart of Pirelli’s strategy, contribute substantially to the improvement of environmental efficiency along the entire product life-cycle, from the innovative raw materials to the process, distribution, use and up to the end of life of tyres. Research and development expenses in 2020 totalled €194.6 million (4.5% of sales), of which €182.5 million was for High Value activities (6.0% of High Value revenues). In turn, Pirelli’s Eco & Safety Performance products, which combine performance and respect for the environment, at the end of 2020 represent 58%³ of total car tyre turnover (55.8% in 2019 and 49.8% in 2018). By restricting the scope of the analysis to High Value products⁴ , the percentage of Eco & Safety Performance products rises to 63.8%.

The heavy investment in innovation also fuels Pirelli’s intellectual capital, as it has a portfolio of active patents grouped into more than 790 families covering product, process and materials innovations, as well as a globally recognised brand.

These types of capital evolve thanks to the commitment, competence and dedication of human capital, the heart of the Company’s growth. Merit, ethics and the sharing of strong values and clear policies, dialogue, attention to welfare and diversity are accompanied by advanced instruments to attract and retain the best talent. The investment in “health and safety” was a priority, with an accident frequency index down 15% compared to 2019 and new programmes introduced to support people’s psycho-physical wellbeing and with a view to resilience against pandemic impacts.

Pirelli’s social and relational capitals are based on the continuous and transparent dialogue that the Company maintains with its Stakeholders, as well as on the integration that Pirelli maintains within the Communities in which it operates. During 2020, the Company placed a significant focus on supporting Communities in connection with the pandemic emergency.

In methodological terms, in the preparation of the Annual Report 2020 the principles of Integrated Reporting contained in the Framework of the International Integrated Reporting Council (IIRC) have been considered, the sustainability performance complies with the GRI Standards, and with the provisions of Legislative Decree no. 254 of 30 December 2016, following the process dictated by the principles of the AA1000 APS (materiality, inclusivity and responsiveness), the Parent Company Financial Statements and the Consolidated Financial Statements have been prepared on the basis of the IAS/IFRS international accounting standards.

​​ PDF Version (41.7 MB)

PRESENTATION OF 2019 INTEGRATED ANNUAL REPORT

The Pirelli 2019 integrated Report (Annual Report 2019) aims to provide a comprehensive overview of the process of creating value for the Company’s Stakeholders, as resulting from the integrated management of the financial, productive, intellectual, human, natural, social and relational capitals. Reporting reflects the business model adopted by Pirelli, which is inspired by the United Nations Global Compact, the principles of Stakeholder Engagement set forth by the AA1000, and the Guidelines of ISO 26000.

The financial capital, which comprise the company’s financial resources, supply the sustainable management of other capitals and is in turn influenced by the value created by the latter. In 2019 the business operations generated an adjusted EBIT¹ of €917.3 million (€955 million in 2018) with a margin of 17.2% (18.4% in 2018). Internal levers (price/mix, efficiencies and the cost reduction programme) have helped to contain the impacts of the external scenario (increased in the cost of production factors, weak demand and price pressure).

In turn, the Company’s productive capital, which includes a geographically diversified production structure with 19 plants in 12 countries on four continents, is managed with a view to environmental efficiency, with targets in terms of reducing water withdrawal, energy consumption, CO₂ emissions and increasing waste recovery. In this regard, in 2019 compared to 2018, Pirelli recorded a 14.7% decrease in absolute water withdrawal, a reduction in absolute energy consumption of over 2%, and a reduction in absolute CO₂ emissions of around 2%. In addition, 97% of waste was sent to recovery, effectively pursuing the Group’s “zero waste to landfill” target.

All this has helped to achieve efficiencies on the costs amounting to €70 million in total, approximately 1.3% of turnover.

The research and development activities, which have always been at the heart of Pirelli’s strategy, contribute substantially to the improvement of environmental efficiency along the entire product life-cycle, from the innovative raw materials to the process, distribution, use and up to the end of life of tyres. Research and development expenses in 2019 totalled €232.5 million (4.4% of sales), of which €215.7 million was for High Value activities (6.1% of High Value revenues). In turn, Pirelli’s Green Performance products, which combine performance and respect for the environment, at the end of 2019 represent 55.8%² of total tyre turnover (49.8% in 2018 and 43.5% in 2017). By restricting the scope of the analysis to High Value products³ , the percentage of Green Performance products rises to 63.3%.

The heavy investment in innovation also fuels Pirelli’s intellectual capital, as it has a portfolio of active patents grouped into more than 780 families covering product, process and materials innovations, as well as a globally recognised brand.

These types of capital evolve thanks to the commitment, competence and dedication of human capital, the heart of the Company’s growth. Merit, ethics and sharing of strong values and clear policies, dialogue, attention to welfare and diversity are accompanied by advanced instruments to attract and retain the best talent. Investment in a “culture of health and safety at work” and in training is a priority. The accident frequency index in 2019 was in line with the previous year with a reduction of 83% compared to 2009, while investment in training was, for the seventh consecutive year, greater than 7 average days per employee.

Pirelli’s social and relational capitals are based on the continuous and transparent dialogue that the Company maintains with its Stakeholders. During 2019, particular importance was given to the engagement and training of natural rubber suppliers on the contents of the “Pirelli Policy on Sustainable Natural Rubber Management” and its Implementation Manual, published in 2017 and 2018 respectively, following consultations with relevant stakeholders (including international NGOs, Pirelli’s main natural rubber suppliers, retailers and farmers in the supply chain, automotive customers, international multilateral organisations).

In methodological terms, in the preparation of the Annual Report 2019 the principles of Integrated Reporting contained in the Framework of the International Integrated Reporting Council (IIRC) have been considered, the sustainability performance complies with the GRI Standards, and with the provisions of Legislative Decree no. 254 of 30 December 2016, following the process dictated by the principles of the AA1000 APS (materiality, inclusivity and responsiveness), the Parent Financial Statements and the Consolidated Financial Statements have been prepared on the basis of the IAS/IFRS international accounting standards.

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