the Board of Auditors, pursuant to art. 153 of Legislative Decree 58/1998 (“TUF Consolidated Finance Act”), is required to report to the Shareholders’ Meeting on the approval of the Financial Statements on the supervisory activities performed in the year and any omissions and reprehensible facts identified. The Board of Auditors may also make proposals regarding the Financial Statements and their approval and matters within its competence. During the year, the Board of Auditors carried out their duties of supervision in terms of the current legislation and taking into account principles of conduct recommended by the National Council of Chartered Accountants and Accounting Experts, and Consob regulations regarding corporate audits and activities of the Board of Auditors.
* * *
The 2014 financial statements show revenues for Euro 6,018.1 million, an operating result (EBIT) for Euro 837.9 million with an EBIT margin of 13.9%.
The total consolidated net income, which includes discontinued operations (Steel cord business) amounted to Euro 332.8 million.
The income from investments at 31 December 2014 was negative for Euro 87.0 million and mainly reflects: the negative impact for Euro 54.4 million from the consolidation with the equity method of the equity of the results of the associates Prelios S.p.A. (fourth quarter 2013 and nine months of 2014) and Fenice S.r.l. (FY 2014); write-downs for Euro 19 million detected on Fenice in order to align the value of the investment at fair value; further write-downs totalling Euro 29.3 million primarily related to investments in Compagnia Aerea Italiana S.p.A. (already Alitalia) and RCS Media Group. The positive effect of Euro 13.3 million from the replacement during the year 2014 of the convertible loan with class A and B Prelios shares.
The consolidated net financial position was negative for Euro 979.6 million (Euro 1,322.4 million at year-end 2013).
The parent company Pirelli & C. SpA closed the year with a net profit of Euro 258.0 million (Euro 191.9 million in 2013).
As a result of the signing of the sale contract of 100% of the steel cord business, in the 2014 financial statements this business was classified as “discontinued operations” and the result reclassified in the income statement under “result from discontinued operations”.
* * *
We note that the Financial Statements of Pirelli & C. S.p.A. have been prepared in accordance with IAS/IFRS International Financial Reporting Standards issued by the International Accounting Standards Board (“IASB”) and endorsed by the European Union, in force as at 31 December 2014, and in accordance with the measures issued in implementation of article 9 of Legislative Decree 38/2005.
The Directors’ Report on Operations summarizes the main risks and uncertainties and outlines the outlook.
The Financial Statements of the Company consist of the statement of financial position, income statement, statement of comprehensive income, statement of changes in equity, cash flow statement and notes.
The Financial Statements are accompanied by the Directors’ Report on Operations and the Annual Report includes the Report on Corporate Governance and Ownership Structure, prepared pursuant to article 123-bis of the CFA.
Appointment of the Board of Statutory Auditors
The Board of Auditors in office at the date of this report was appointed by the Shareholders’ Meeting on 10 May 2012 and is composed by Francesco Fallacara (Chairman), Antonella Carù and Umile Sebastiano Iacovino, who succeeded, on 12 June 2014, Enrico Laghi, who resigned from the office of Statutory Auditor of the Company.
Andrea Lorenzatti is Alternate Auditor.
The Board of Auditors expires from office for completing its mandate with the next Shareholders’ Meeting called to approve the financial statements at 31 December 2014.
Particularly significant transaction
The significant transactions are reported in the Directors’ Report on Operations. In particular:
- On 28 February 2014, Pirelli Tyre S.p.A. and Bekaert signed an agreement for the sale of the steelcord business of Pirelli to Bekaert for a total value (enterprise value relative to 100% of assets) of about Euro 255 million. As part of the agreement, a long-term supply and joint product development agreement was also defined. On 18 December 2014, the sale of the steelcord business was finalized in Italy (Figline), Romania (Slatina) and Brazil (Sumaré) for a value (enterprise value) of around Euro 150 million, consistent – in pro-quota terms – with approximately Euro 255 million of the total value of the agreement. The closing for the sale of the steelcord business in Turkey (Izmit) was announced on 6 February 2015, while the closing for the sale of the business in China (Yanzhou) was on 27 March 2015.
- At the beginning of April 2014, the European Commission communicated to Pirelli, and other parties involved (including Prysmian Cavi e Sistemi, a subsidiary of Pirelli until July 2005) the decision taken at the conclusion of the antitrust investigation initiated for the energy cables business, which provides for a penalty against Prysmian of approximately Euro 104 million for a portion of which, amounting to Euro 67 million, Pirelli is jointly liable with Prysmian. Pirelli took action before the Court of Milan for the obligation of Prysmian to hold Pirelli harmless from any claim by the European Commission in relation to the aforementioned penalty to be ascertained and declared. Pirelli, on the basis of legal analysis supported by opinions of external legal advisers, believed it is not involved in the alleged irregularities of its former subsidiary, and that the ultimate full liability for any violation (and the payment of the related penalty) shall be the exclusive responsibility of the company directly involved. In consequence of the above, the risk assessment was such as not to have to request the allocation of any specific provision in the annual Financial Statements at 31 December 2014.
- On 14 April 2014, following the occurrence of the conditions for the anticipation of the conversion of the Prelios bond (“Converting”) at the time subscribed by Pirelli & C. S.p.A. under the debt restructuring plan of Prelios S.p.A., Pirelli & C. S.p.A. received, in exchange for the Prelios S.p.A. bonds held by it (Tranche A and B), with a total nominal value of Euro 148.4 million (plus accrued interest):
- approximately 112 million Prelios S.p.A. class A ordinary shares, which led to an increase in the portion of the voting capital held by Pirelli from 13.06% to 29.22%, of which about 7% is freely transferable and about 22% is bound by lock-up obligations until July 2016;
- approximately 93 million class B ordinary shares – unlisted and without voting rights – which, according to the agreements between the shareholders of Fenice S.r.l., were transferred on 30 June 2014 to Fenice. Following this transfer, Fenice S.r.l., vehicle established in 2013 following the restructuring of the financial credit to Prelios S.p.A. and held by Pirelli, Feidos 11 S.p.A., Unicredit S.p.A. and Intesa Sanpaolo S.p.A., holds all the class B shares with the purpose to proceed with the sale on the market.
- On 24 May 2014, the transaction was completed that led Long-Term Investments Luxembourg S.A. – a company controlled by Fondo Pensioni Neftegarant – to hold 50% of Camfin S.p.A. (company that holds 26.19% of Pirelli & C. S.p.A.). The remaining part is owned by Coinv S.p.A. held 76% by Nuove Partecipazioni S.p.A. and 12% each by Intesa Sanpaolo S.p.A. and Unicredit S.p.A.
- On 12 June 2014 the Shareholders’ Meeting of Pirelli & C. S.p.A. renewed for three years the Board of Directors (until approval of the Financial Statements at 31 December 2016) resulting in 15 members, of which 8 independent. The new Board of Directors appointed Marco Tronchetti Provera as Chairman and CEO, and Alberto Pirelli as Deputy Chairman. The Board of Directors also confirmed Francesco Tanzi as Chief Financial Officer of the Group.
- On 13 November 2014, Pirelli completed the placement with international institutional investors of an unrated bond, on the Euromarket for a nominal amount of Euro 600 million. The transaction obtained the lowest coupon – 1.75% – ever obtained by the Pirelli Group, as well as an Italian unrated corporate Eurobond.
As also shown by the directors in their report under significant events after the end of the year, we note that on 22 March 2015, China National Tire & Rubber Co., subsidiary of ChemChina’s, Camfin S.p.A. and the shareholders of Camfin signed a binding agreement for a long-term industrial partnership related to Pirelli and a proposed mandatory bid for all the Pirelli shares. Completion of the transaction is subject to the typical conditions of a transaction of this type and is expected in the summer of 2015, after approval by the antitrust authorities and other competent authorities.
Atypical or unusual transactions
Significant transaction in 2014 are set out in detail in the Directors’ Report on Operations. There were no atypical or unusual transactions.
Infra-group transactions with related parties
Pursuant to article 2391-bis of the Italian Civil Code and Consob Resolution 17221 of 12 March 2010 on the “Regulation of related party transactions”, as amended by Consob resolution no. 17389 of 23 June 2010, on 3 November 2010, the Board of Directors of Pirelli & C., with the approval of the competent Committee composed solely of independent directors (assigned for the purpose pursuant to article 4 of the above Regulation with a special resolution of the Board of Directors) unanimously approved the “Procedure for transactions with related parties”.
Also in implementation of a specific recommendation of Consob in regard, and as three years have elapsed after the adoption, the Board of Directors, subject to approval of the Committee for transactions with related parties, at its meeting on 5 November 2013, evaluated as valid and effective the Procedure for Transactions with Related Parties as a whole, with some slight amendments.
At its meeting of 31 March 2015, the Board of Directors, after consulting with the Committee for Transactions with Related Parties, made some marginal amendments to the procedure for related parties to take account of some organizational changes within the Group.Following its renewal, the Board of Directors resolved to grant to the Audit, Risks, Sustainability and Corporate Governance Committee the task of also operating as the “Committee for related party transactions”, with the exception of remuneration issues entrusted to the Remuneration Committee.
According to article 4, paragraph 6 of the said Regulations, we note that the Procedure adopted by the Company also as last amended (i) is consistent with the principles contained in the Regulation itself, (ii) is published on the Company’s website (www.pirelli.com). During the year 2014, transactions were entered into with related parties both infra-group and with third parties.
The infra-group transactions examined by us are of an ordinary nature, as essentially consisting of reciprocal provision of administrative, financial and organizational services. They were regulated by applying normal conditions determined in accordance with standard parameters, which reflect the actual use of the services and were carried out in the interest of the Company, as aimed at rationalizing the use of resources of the Group. Transactions with related parties outside the Group examined by us are also of an ordinary nature (as they fall in the ordinary course of business or financial activities related to it) and/or concluded on terms equivalent to standard or market terms and respond to the interest of the Company. These transactions were regularly reported to us by the Company.
We participated in the meetings of the Audit, Risks, Sustainability and Corporate Governance Committee (also met as the Committee for Related Party Transactions) during which the same expressed a favourable opinion on some related party transactions of “minor importance”, since the Committee evaluated the Company’s interest in the transaction and the convenience and substantial fairness of its conditions.
Transactions with related parties are set out in the notes to the Financial Statements and the consolidated Financial Statements of the Company, which also show the resulting economic and financial effects.
We monitored compliance with the Procedure adopted by the Company in regard and the fairness of the process followed by the Board and the competent Committee regarding the qualification of related parties and we have nothing to report.
Procedure for Impairment Test
We report that the Board of Directors at its meeting of 24 March 2015, as suggested by the joint document of the Bank of Italy / Consob / ISVAP of 3 March 2010, approved, autonomously and prior to the approval of the Financial Statements by the Board of Directors (which took place at the meeting of 31 March 2015), compliance of the impairment test procedure with the requirements of IAS 36 after sharing the same by the Audit, Risks, Sustainability and Corporate Governance Committee and the Board of Auditors.
In particular, the procedures for impairment tests were conducted by the Company on the goodwill allocated to the Consumer and Industrial CGUs, as well as on investments held by the Company in Prelios S.p.A. and Fenice S.r.l. at 31 December 2014.
The notes to the Financial Statements provide information and results of the evaluation process conducted with the help of a highly qualified expert.
Supervisory activities pursuant to Legislative Decree 39/2010 “Statutory Auditors”
The Board of Auditors together with the Audit, Risks, Sustainability and Corporate Governance Committee supervised:
- financial reporting process;
- effectiveness of internal control, internal audit and risk management systems;
- statutory audit of annual accounts and consolidated accounts;
- independence of the independent auditors, in particular as regards the provision of non-audit services.
Supervisory activities on the financial reporting process
The Board of Auditors verified the existence of appropriate standards and processes to oversee the process of “formation” and “spread” of financial information and therefore expresses an evaluation of the adequacy of the process of preparing financial reporting and believes there are no findings to be submitted to the Shareholders’ Meeting.
Oversight of the effectiveness of internal control, internal audit and risk management systems and the statutory audit of annual and consolidated accounts
The Board of Auditors, together with the Audit, Risks, Sustainability and Corporate Governance Committee, met the Internal Audit Director quarterly being informed as to the results of audits aimed at verifying the adequacy and the effectiveness of the Internal Audit System, compliance with the law, procedures and business processes as well as the activities of implementation of related plans for improvement. It also received the Audit Plan for the year and the related accounts as well as the Annual Risk Assessment and Annual Risk Management Plan.
In addition, every six months it received from the Audit, Risks, Sustainability and Corporate Governance Committee and the Supervisory Body the respective report on the activities carried out.
The Board of Auditors also acknowledged as reported by the Executive in charge that, upon approval of the draft Financial Statements, confirmed the adequacy and suitability of the powers and means conferred upon it by the Board of Directors of the Company, also confirming to have had direct access to all the information necessary for the preparation of the accounting data, without the need for any authorization; the Board of Auditors also noted that the Executive in charge reported to have participated in the internal information flows for accounting purposes and to have approved all the company procedures that had an impact on the economic and financial position of the Company.
The Board therefore expresses an evaluation of the adequacy of the internal audit system and risk governance as a whole and there are no findings to be submitted to the Shareholders’ Meeting.
The Board of Auditors met at least quarterly with the independent auditors and the meetings did not reveal fundamental issues in the review or significant deficiencies in the internal audit system relating to the financial reporting process also pursuant to the provisions of article 19 paragraph 3 of the Legislative Decree 39/2010.
Supervisory activities on the independence of the independent auditors, in particular as regards the provision of non-audit services
The Board of Auditors monitored the independence of the Independent Auditors and in particular received periodic evidence of tasks other than audit services to be assigned (or allocated on the basis of specific regulations) to the Statutory Auditor.
With reference to the independence of the Independent Auditors, at Group level an articulated procedure in regard has been defined and issued that establishes the prohibition for all companies of the Pirelli Group to assign tasks to companies belonging to the network of the Statutory Auditor in charge without prior and express authorization of the Chief Financial Officer who, with the help of the Internal Audit Director, has the task of verifying that the appointment is not among those not allowed by article 17 of the aforementioned Legislative Decree 39/2010 and that, in any case, given its characteristics, does not affect the independence of the auditor.
All assignments other than statutory audit or required by law that involve an annual fee of more than Euro 50,000 are subjected to the examination of the Board of Auditors of Pirelli & C., subject to specific and justified reasons. The Internal Audit Director provided a list of non-audit services assigned to the Auditor quarterly to the Board of Auditors.
During the year 2014, Reconta Ernst&Young S.p.A. carried out in favour of the Group the activities summarized below:
|(in thousands of euro)||Company that provided the service||Company that received
|Independent auditing services
and certification services (1)
|Reconta Ernst & Young S.p.A.||
Pirelli & C. S.p.A.
|Reconta Ernst & Young S.p.A.||Società controllate||657|
|Network Ernst & Young||Società controllate||2,202||3,170||77.9%|
|Services other than auditing||Reconta Ernst & Young S.p.A.||Pirelli & C. S.p.A.||-|
|Reconta Ernst & Young S.p.A.||Società controllate||-|
|Network Ernst & Young||Società controllate||90 (2)||900||22.1%|
(1) the item “independent auditing and certification services” includes amounts paid for auditing services and other services that envisage the issuance of an auditor’s report as well as amounts paid for the so called certification services since they create synergies with the auditing services.
(2) support for the analysis of the distribution network and go-to-market activities in Brazil concerning a multiyear project.
The activities in note (2) refer to two separate projects, one in continuation of the other, relating respectively to the analysis of the distribution network in Brazil, concluded in 2014, and the go-tomarket activities also in Brazil, which will end in 2015; the above table shows the portion of 2014, added to that of the first project, for a total of about Euro 900,000 accrued in 2014.
The Board of Auditors considers that the above fees are adequate to the size, complexity and characteristics of the work performed and also considers that the tasks (and related fees) other than audit services are not such to affect the independence of the Statutory Auditor. In this latter regard, it is noted that the Board of Directors, after evaluation of the Audit, Risks, Sustainability and Corporate Governance Committee, shared said assessment.
The Board of Auditors evaluated the Company’s organizational structure as adequate to the needs of the same and appropriate to ensure compliance with the principles of proper management.
Remuneration of Directors and Key Executives
In the course of the year, the Board of Auditors expressed the opinions required by law on the remuneration of directors holding particular positions, expressing the opinions provided by article 2389 of the Civil Code.
The Board of Auditors found that the remuneration system in place provides for the allocation of fees broken down into a fixed component and an additional bonus (variable) linked to the economic performance in the long term at Group level and related to the achievement of specific objectives set by the Board of Directors, upon the proposal of the Remuneration Committee.
At its meeting of 27 February 2014, the Board of Directors, upon the proposal of the Remuneration Committee and the favourable opinion of the Board, approved a three-year incentive plan from 2014 to 2016 related to the fulfilment of the objectives contained in the business plan 2014-2017. Said three-year incentive plan is extended, as in the past, to the whole Pirelli management and was submitted to the Shareholders’ Meeting on 12 June 2014, which approved it, to the extent that it is expected that a portion of the incentive is determined on the basis of an objective of Total shareholder return.
Moreover, the LTI Plan involves a rolling mechanism of deferment of part of the MBO accrued and increase of the same MBO accrued upon achievement of certain objectives the following year.
Additional activities of the Board of Auditors and disclos ure required by Consob
In the exercise of its functions, the Board of Auditors, as required by article 149 of the CFA, monitored:
- compliance with the law and the By-laws;
- compliance with the principles of good management;
- adequacy, for the aspects of it competence, of the organizational structure of the Company;
- the procedures for effective implementation of corporate governance rules in codes of conduct which the Company, in public disclosures, declares to follow. In this regard, we note that the Company prepared in accordance with article 123-bis of the Consolidated Finance Act, the Annual Report on Corporate Governance and Ownership Structure which provides information about (i) the corporate governance practices actually applied by the Company beyond the obligations under the laws or regulations, (ii) the main characteristics of the risk management and internal audit systems in relation to the financial reporting process, even consolidated, (iii) the operating mechanisms of the Shareholders’ Meeting, its main powers, shareholder rights and procedures to exercise them, (iv) the composition and operation of the administrative and control bodies and their committees as well as the other information required by article 123-bis CFA;
- the adequacy of instructions given to subsidiaries pursuant to article 114, paragraph 2 of Legislative Decree 58/1998, after finding that the Company is able to promptly and regularly fulfil the communication obligations under the law, as required by article 114, paragraph 2 of the Legislative Decree 58/1998. This also through the collection of information from the heads of the organizational functions and regular meetings with the independent auditors, for the mutual exchange of relevant data and information. In this regard, there are no particular observations to report. We also note that in the Directors’ Report on Operations a paragraph was included containing the description of the main characteristics of the risk management and internal audit systems in relation to the financial reporting process, even consolidated.
The Board of Auditors acknowledges:
- that the Directors’ Report on Operations complies with current standards, consistent with the decisions of the administrative body and with the results of the Financial Statements and contains adequate information on the activities of the year and infra-group transactions. The section containing the information on transactions with related parties was included, in accordance with IFRS standard, in the notes to the Financial Statements;
- that the notes comply with current standards with indication of the criteria used in the assessment of the items of the financial statements and the value adjustments and that the consolidated financial statements of the Company were prepared in accordance with the structure and the formats imposed by law. Pursuant to Consob Resolution no. 15519/2006 the financial statements expressly state the effects of related party transactions on the statement of financial position and the income statement;
- that the Boards of Directors of the main subsidiaries include directors and/or executives of the parent company that provide coordinated direction and adequate flow of information, also supported by appropriate accounting information.
We also report that the Board of Auditors:
received from the Directors, at least quarterly, also in compliance with the specific procedure approved by the Board of Directors, information about the activities and transactions of major strategic, economic, financial importance carried out by the Company. The Board of Statutory Auditors can reasonably ensure that the transactions approved and implemented comply with the law and the By-laws and were not manifestly imprudent or reckless, or in conflict of interest, or in contrast with the resolutions passed by the Shareholders’ Meeting, or such to affect the integrity of corporate assets;
- received from the Supervisory Board, established pursuant to Legislative Decree 8 June 2001, no. 231 and to which, as a member, is attended by the Auditor Antonella Carù, information about the results of their audit work, which shows that there were no anomalies or reprehensible facts;
- held periodic meetings with representatives of the independent auditors in order to be able to exchange with it, as required by article 150, paragraph 3 of the CFA, data and information relevant to the performance of its task. In this regard it is noted that no significant data and information arose that should be reported in this report;
- obtained information from the corresponding bodies of the main subsidiaries regarding the administration and control systems and general business performance (pursuant to paragraphs 1 and 2 of article 151 of Legislative Decree no. 58/1998);
- did not receive complaints or claims under article 2408 of the Civil Code;
- issued during the year 2014, opinions pursuant to article 2386 of the Civil Code and opinions in accordance with article 2389 of the Civil Code.
In relation to the independent auditors, the Board of Auditors noted that Reconta Ernst&Young S.p.A.:
- issued today, the report containing its opinion on the compliance of the financial statements and consolidated financial statements with the legislative framework and the applicable accounting standards., with positive opinion. The one relating to the consolidated financial statements also include a recall of information related to the sale of the “steel cord business” and the related accounting in the context of IFRS 5 provisions (non-current assets held for sale and discontinued operations).
- verified the actual preparation, by the Company, the Report on Corporate Governance and Ownership Structure;
- confirmed the statement of the Company in relation to the fact that there were no other assignments to parties connected by continuing relationships with the independent auditors.
Moreover, regarding the corporate bodies, the Board of Auditors noted that:
- the Board of Directors if office - appointed 12 June 2014, expiring at the Shareholders’ Meeting called to approve the financial statements for the year ended 31 December 2016 - at the date of this report consists of 15 Directors, including 13 non-executive directors and, among the latter, 7 in possession of the independence requirements of the Code of Conduct and the CFA. During the year 2014, following renewal of the Board, the Board of Auditors structure underwent the following changes:
- On 10 July 2014 the Directors Claudio Sposito, Riccardo Bruno, Piero Alonzo, Emiliano Nitti, Luciano Gobbi and Enrico Parazzini (all taken from the majority list and of which three are independent) resigned from office. On the same date, The Board of Directors - with favourable opinion of the Board of Auditors - co-opted Igor Sechin, Didier Casimiro, Andrey Kostin (independent), Ivan Glasenberg (independent), Petr Lazarev and Igor Soglaev in replacement of the Directors who resigned.
- in 2014, the Board of Directors met 8 times;
- the Audit, Risks, Sustainability and Corporate Governance Committee, at the date of the Report, is composed of three Directors, all independent, and, during the year 2014, met 9 times;
- at the date of the Report, The Remuneration Committee consists of three directors, all independent and, in 2014, met 5 times;
- at the date of the Report, the Appointments and Successions Committee is composed of four Directors, the majority of whom are non-executive - of which two are independent - and, during the year 2014, did not meet;
- at the date of the Report, The Strategies Committee consists of seven directors, three of whom are independent and, in the course of 2014 did not meet.
The Board of Auditors was present at all meetings of the Board of Directors and Board Committees. The Report on Corporate Governance and Ownership Structure provides evidence of the percentage of participation of individual members of the Board of Auditors in meetings of the Board of Directors and its Committees. The Board of Auditors intervened in the above meetings also as the Committee for Internal Control and Audit, pursuant to article 19 of Legislative Decree no. 39/2010. All members of the Board of Auditors also attended the Ordinary Shareholders’ Meeting of 12 June 2014.
The Board also attended the Savings Shareholders’ Meeting of 27 January 2015 which appointed the new Common Representative.
Finally, the Board acknowledged:
- to have monitored the fulfilment of obligations related to “Market Abuse” and “Protection of savings” regulations regarding corporate disclosure and “internal dealing”, with particular reference to the handling of confidential information and the procedure for the distribution of press releases and information to the public;
- to have verified, as recommended by the Code of Conduct of the Italian Stock Exchange, the possession by its members, of the same independence requirements for directors of said Code;
- to have found the correct application of the criteria and procedures for verification of the independence requirements adopted by the Board of Directors to annually assess the independence of its members and does not have any comments in this regard;
- to have noted that the Directors’ report, annexed to the Financial Statements of the Company, describes the main risks and uncertainties to which the Company is exposed;
- with reference to the provisions of article 36 of the Market Regulations, approved by Consob resolution 16191/2007, to have verified that the company organization and procedures implemented allow Pirelli & C. to ensure that its subsidiaries established and governed by the laws of non-EU countries subject to compliance with the provisions of Consob, have an accounting system appropriate for regular reporting to the management and auditor of the Company of the income statement, statement of financial position and financial data necessary for preparation of the consolidated Financial Statements. We point out that at 31 December 2014, the non-EU companies controlled, directly or indirectly, by Pirelli & C. relevant under article 36 of the Market Regulation are: Pirelli de Venezuela C.A. (Venezuela), Pirelli Neumaticos S.A. de C.V. (Mexico), Pirelli Neumaticos S.A.I.C. (Argentina), Pirelli Pneus Ltda (Brazil), Pirelli Tire LLC (USA), Pirelli Tyre Co. Ltd (China), Turk Pirelli Lastikleri A.S. (Turkey), Limited LiabilityCompany Pirelli Tyre Russia (Russia), Comercial e Importadora De Pneus LTDA (Brazil), Alexandria Tire Company S.A.E. (Egypt).
In the course of the supervisory activities and on the basis of information obtained by the independent auditors, there were no omissions or reprehensible facts, or irregularities or however significant facts that require reporting or mention in this report.
The activities described above, which took place in either individual or collegiate form, were recorded in the minutes of the 9 meetings of the Board of Auditors held during 2014.
Proposal of the Shareholders ’ Meeting
Financial statements at 31 December 2014
The Board expresses its opinion in favour of approval of the Financial Statements at 31 December 2014 and has no objections to make regarding the proposed resolutions submitted by the Board of Directors on the allocation of profits and the amount of dividend to be distributed.
Group Remuneration Policy
We inform you that the Board of Auditors expressed a favourable opinion on the 2015 Remuneration Policy submitted to the consultation of the Shareholders’ Meeting.
The Board of Auditors has no comments on the request by the Board of Directors - under articles 2357 and 2357-ter of the Civil Code, of article 132 of Legislative Decree 58/98 and article 144-bis of the Issuers’ Regulations - to authorize the purchase and disposal of shares of the Company, also taking into account that the purchase submitted for your approval concerns shares fully paid, within the limits of the distributable profits and reserves available as resulting from the last Financial Statements and 10% of the share capital pro-tempore of Pirelli (taking into account shares already held by the Company and those held by subsidiaries), with the exception of the procedure under article 144-bis letter c) of the Issuers’ Regulation. The right is therefore excluded to make purchases of treasury shares through purchase and sale of derivative instruments traded on regulated markets that provide for the physical delivery of the underlying shares and the conditions laid down by Borsa Italiana S.p.A. (Italian Stock Exchange).
Appointment of the Board of Statutory Auditors
The Board of Auditors is expiring for having completed its mandate. We thank you for the trust you have bestowed, and we remind you that shareholders are kindly requested to provide for the appointment of the Board for the next three years with the voting list.
Other matters proposed
Regarding other matters submitted for your approval, the Board has no comments.
Under article 144-quinquiesdecies of the Issuers’ Regulations, approved by Consob resolution 11971/99 and subsequent amendments and additions, the list of positions held by members of the Board of Auditors in the companies referred to in Book V, Title V, Chapters V, VI and VII of the Civil Code, is published by Consob on its website (www.consob.it).
It is noted that article 144-quaterdecies (disclosure obligations to Consob) provides that whoever holds the position of member of the control body of a single issuer is not subject to the disclosure requirements laid down in said article and in this case, therefore, is not present in the lists published by Consob.
In this last regard, it is noted that the Board of Statutory Auditors in office at the date of this Report does not have other offices in the control bodies in listed issuers and therefore the following table shows the main positions they hold:
Chairman of the Board of Auditors Francesco Fallacara: Statutory Auditor in Innova S.p.A.; Statutory Auditor in Skiller Italia S.p.A., auditor in Hirafilm srl.
Auditor Antonella Carù: no office in companies pursuant to Book V, Title V, Chapters V, VI and VII of the Civil Code. Auditor Sebastiano Umile Iacovino: Statutory Auditor in Pirelli Tyre S.p.A., Arianna 2001 S.p.A. and Servizi in rete 2001 S.r.l.
Milan, 20 April 2015
Sebastiano Umile Iacovino