Significant events 2014

On January 16, 2014, following up on the decision by the World Motor Sport Council which confirmed Pirelli as the sole supplier of tyres to the FIA Formula 1 World Championship, Pirelli announced the extension of the relative contract with FIA for a three year term.

On February 28, 2014 Pirelli Tyre S.p.A. and Bekaert signed an agreement for the sale of Pirelli’s steel cord business to Bekaert for a total value (enterprise value related 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. The sale of steel cord activities in Italy (Figline), Romania (Slatina) and Brazil (Sumaré) was finalized on December 18, 2014 for an enterprise value of about euro 150 million, consistent – in pro-rata terms – with the approximately 255 million of the total value of the agreement. The closing for the sale of steel cord activities in Turkey (Izmit) was announced on February 6, 2015, while on March 27, 2015 sale of activities in China (Yanzhou) had been closed.

On February 28, 2014, Pirelli & C. S.p.A. announced that effective from December 31, 2013, the medium to long term management cash incentive plan – Long Term Incentive (LTI) – adopted in 2012 to support the 2012-2014 three-year objectives had been closed without proceeding with any pay-out, either full or pro rata, of the three-year incentive. The company adopted a new plan based on the objectives of the period 2014/2016 contained in the Industrial Plan presented in London on November 6, 2013. As in the past, the 2014-2016 plan as is also entirely self-funded, insofar as the relative expenses are included in the financial figures of the Industrial Plan.

At the beginning of April 2014 the European Commission notified Pirelli and the other parties involved (including Prysmian Cavi e Sistemi, a subsidiary of Pirelli until July 2005), of the decision taken upon the completion of the antitrust investigation in the energy cables business, that levies a fine of about euro 104 million on Prysmian with Pirelli being held jointly liable with Prysmian for a portion of that amount equal to euro 67 million. This decision confirms that there was no direct involvement by Pirelli in the alleged cartel.

The alleged antitrust violation is attributable solely to the principle of “parental liability”, because, during part of the period of the alleged cartel, Prysmian was controlled by Pirelli. Pirelli appealed to the European Court of Justice against the decision of the European Commission alleging the application of the principle of “parental liability”.

In fact, Pirelli deems that it shall not be applied the “parental liability” principle. The European Commission also ordered Pirelli to deposit bank guarantee to cover the payment, if and when due, of 50% of the penalty levied on Prysmian and Pirelli jointly. In consequence of the above on December 17, 2014, Pirelli provided the Commission with the guarantees requested.

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 careful legal analysis supported by professional opinions of external legal advisers, believes 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 is such as not to have to request the allocation of any specific provision in the annual Financial Statements at December 31 st, 2014.

On April 14, 2014, following the occurrence of the conditions for the anticipation of the conversion of the Prelios bond (the so-called “Convertendo”) 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 bonds held by Prelios S.p.A. (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% freely transferable and about 22% 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 June 30, 2014 to Fenice itself. Following this transfer, Fenice S.r.l., a vehicle established in 2013 following the restructuring of the financial credit to Prelios S.p.A. and held by Pirelli as well as by 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.

Pirelli reiterated its strategy of focusing on the tyre core business and to not be a long-term investor in the ‘real estate’ sector.

On May 24, 2014 Pirelli and Rosneft strengthened the industrial and commercial cooperation by signing two Memorandums of Understanding (MoU). On the industrial front, Pirelli and Rosneft will collaborate in Russia in the production of synthetic rubber (including styrene-butadiene) in Nakhodka, in the wake of the MoU signed in Armenia in December 2013. The agreement in Nakhodka was subsequently opened to a third technology partner. On the trade front, however, Pirelli and Rosneft agreed to open at least 200 Pirelli brand product stores at Rosneft service stations by 2019.

On May 24, 2014 the transaction 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.) was completed. 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.. The transaction, which was closed on July 10, 2014, valued the share of Pirelli & C. S.p.A. held by Camfin S.p.A. at euro 12 per share. According to the agreements between the parties, the governance of Pirelli & C. S.p.A. remains unchanged and focused on the fundamental role of leadership of the board, in line with the international best practices. All strategic materials, the definition of the business plan and Pirelli budget are submitted to the board by the President and CEO and, as is already the case, approved by a majority.

On June 12, 2014, the Shareholders' Meeting of Pirelli & C. S.p.A., approved the Financial Statements for 2013 closed with a consolidated net profit of euro 306.5 million and a net profit of the parent company of euro 191.9 million, resolving the distribution of a dividend of euro 0.32 per ordinary share and euro 0.39 per savings share. The Shareholders Meeting renewed the authorization for the purchase and disposal of treasury shares up to 10% of the Share Capital and for a maximum period of 18 months, also expressing a favourable opinion on the Policy regarding the remuneration of the company and approving the adoption of the three-year incentive plan 2014-2016 LTI (Long Term Incentive).

The Shareholders Meeting also established the duration of the Board of Directors for three years (until approval of the Financial Statements at December 31, 2016) consisting of 15 members, including 8 independent. On the basis of the lists presented, the following directors were appointed: Marco Tronchetti Provera, Alberto Pirelli, Anna Maria Artoni, Luigi Piergiuseppe Ferdinando Roth, Paolo Fiorentino, Gaetano Micciché, Claudio Sposito, Riccardo Bruno, Piero Alonzo, Emiliano Nitti, Luciano Gobbi, Enrico Parazzini, Elisabetta Magistretti, Manuela Soffientini and Paolo Pietrogrande.

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 July 10, 2014 the Directors Claudio Sposito, Riccardo Bruno, Piero Alonzo, Emiliano Nitti, Luciano Gobbi and Enrico Parazzini resigned. The Board of Directors co-opted Messrs. Igor Sechin, Didier Casimiro, Andrey Kostin, Ivan Glasenberg, Petr Lazarev and Igor Soglaev in place of the Directors who resigned.

The Board of Directors also appointed Luigi Roth Lead Independent Director and appointed the new Supervisory Board, which shall remain in office until the end of the mandate of the current Board of Directors.

On November 5, 2014 Pirelli was selected as leader of the “Climate Disclosure Leadership Index Italy 2014” (CDLI), index that evaluates the completeness of corporate strategies against climate change and transparency in communication to stakeholders.

On November 13, 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 ever for Pirelli – 1.75% – as well as an Italian unrated corporate Eurobond.

On November 18, 2014 the 2015 Pirelli Calendar signed by Steven Meisel was presented to the press and to guests and collectors from around the world at the “Hangar Bicocca” in Milan. The choice of Milan stems from the desire to link this “Made in Italy” cult object to the city which will be flying Italy’s flag in the world in 2015 by hosting the great universal Expo.

On November 25, 2014 Pirelli and the Minister for Investment of the Arab Republic of Egypt signed a Memorandum of Understanding for the possible expansion of the radial truck tyre factory of Alexandria Tire Co. (Atco), the Egyptian company of which Pirelli controls more than 90%, in Alexandria, Egypt.