Operating Risks
The main operating risks inherent in the nature of the business are associated with the supply chain, the unavailability of production facilities, product marketing, international economic conditions, issues involving health, job safety and the environment and, to a lesser extent, the regulatory framework of the countries in which the Group operates.
Supply Chain
Supply chain risk manifests as the volatility of raw material prices and dependence on strategic suppliers, which could jeopardise the company’s production process and ability to fill orders from clients in a timely manner by suddenly suspending supply arrangements. To mitigate this risk, the Purchasing Department identifies alternate suppliers to ensure the availability of critical materials (supplier risk management programme). The supplier selection process, including an assessment of suppliers’ financial solidity — an aspect that has taken on growing importance in the current scenario — has been reinforced. By diversifying its sources, Brembo can also reduce its risk exposure to price increases (a risk that is however partially offset by reflecting price increases in sales prices).
Business Interruption
With reference to the risk of operational downtime at production facilities and continuity of operation, the company reinforced its risk mitigation process, through the planning of loss prevention engineering on the basis of U.S. NFPA (National Fire Protection Association) standards. The aim of this process was to eliminate risk factors in terms of probability of occurrence and to implement protective measures aimed at limiting the impact of this risk, thereby constantly enhancing the current operating continuity levels of the Group’s production facilities.
Product Quality
Brembo considers the risk relating to the marketing
of its products, in terms of their quality and safety, to
be of fundamental importance. The Group has always
been committed to mitigating this risk through robust
quality controls. As part of this process, it has instituted
a worldwide Supplier Quality Assurance function,
specifically dedicated to quality control of components
that do not meet Brembo’s quality standards,
in addition to constantly optimising its Failure Mode &
Effect Analysis (FMEA).
Environment, Safety and Health
The Group’s primary risks relating to health, job
safety and the environment can be of the following
types:
• inadequate protection of employee health and
safety, which can lead to serious accidents or
work-related illnesses;
• environmental pollution resulting from sources
such as uncontrolled emissions, inadequate waste
disposal or the spreading of dangerous substances
onto the ground;
• partial or non-compliance with laws and regulations
governing the sector.The occurrence of these facts could result in
substantial criminal and/or administrative penalties
or pecuniary fines against Brembo.
Furthermore, in
particularly serious cases, the actions of public entities
in charge of assessing the situation could interfere with
Brembo’s normal production activities, even causing
production lines to halt or forcing the production
facility to close. Brembo manages this type of risk by
carrying out ongoing and systematic evaluations of its
exposure to specific risks and reducing or eliminating
those considered unacceptable.
This procedure is
organised within a Management System (which is
compliant with international ISO 14001 and OHSAS
18001 standards and certified by an independent
body) that covers health, job safety and environmental
aspects.
Brembo therefore implements the activities necessary
to allow it to effectively monitor and manage
these aspects while scrupulously complying with
applicable laws.
Some examples of activities that are currently
underway include the definition and yearly review of:
• “Management Plans” for Safety and the Environment
that define the objectives to be achieved;
• “Supervisory Plans”, which list the activities to
be carried out under the laws governing the
sector or regulations imposed by the Group (e.g.,
authorisation renewals, periodic controls, reports to
public entities, etc.);
• “Audit Plans”, which monitor the extent to which the
System is being applied and encourage continuous
improvement.
In summary, although accidents and mistakes can
happen, the Group has implemented systematic rules
and management procedures that allow it to minimise
the number of accidents, as well as the impact they
may have.
A clear-cut assignment of responsibility
at all levels, the presence of independent internal
control bodies that report to the company’s highest
officers and the application of the highest international
management standards are the best way to guarantee
the company’s commitment to health, job safety and
the environment.
The internationalisation strategies and, particularly,
international industrial footprint development have
also highlighted the need to strengthen operational
management able to operate locally and communicate
effectively with the functional departments of Business
Units and Central Functions, in order to improve the
efficiency and effectiveness of the quality system and
the capacity of production processes.
Legal & Compliance
Brembo is exposed to risks arising from the
failure to rapidly comply with changing laws and
new regulations in the sectors and markets in which
it operates.
To mitigate this risk, each compliance
function stays abreast of the relevant legal and
regulatory developments, with the assistance of
outside consultants, where necessary, through a
constant process of legal and regulatory updates and
research.
Due to the complexity, lack of clarity and uncertain
timetable of the laws and regulations concerning
Worker Safety and Environmental Protection, in
managing compliance risk in this field, the Group relies
on a specific Quality & Environment Department (see operational risks - Environment, Safety and Health
section) to obtain permits and licences and ensure
that the related complexities are handled properly.
For information concerning other compliance
risks, including those arising as a result of Brembo’s
listing within Borsa Italiana’s STAR Segment, see the
Corporate Governance and Ownership Structure
Report available on Brembo’s website (www.brembo.
com, section Investors/Corporate Governance/
Corporate Governance Reports).
Compliance risk includes the risk that the company
may incur administrative liability, which may be broken
down into three levels:
1. risk arising from Legislative Decree No. 231/2001,
applicable to Brembo S.p.A. and the Group’s Italian
companies, and the possible attribution of liability
to the Parent for the related offences committed
outside Italy;
2. risk arising from local statutes concerning the liability
of companies, as applicable to each subsidiary;
3. risk arising from extra-territorial statutes concerning
the liability of companies (such as the FCPA and
Bribery Act) applicable to both Brembo S.p.A. and
its subsidiaries.
The risk deemed most significant for the Group at a
theoretical level relates to the case indicated in point 2
above, for the following reasons:
• different regulations for each country, based on different
legal systems, often presenting complexities
and interpretative challenges;
• a lack, in other legal orders, of a system of exemption
from liability similar to the one in force in Italy;
• failure by subsidiaries to provide information to,
and communicate with, the Parent in a consistently
timely manner;
• the strategic importance of certain local markets;
• cultural diversity and possible critical issues in the
management of local personnel.
The probability that liability for offences committed
outside Italy may be ascribed to the Parent is regarded
as remote in light of the connection criteria set forth
in the Italian Penal Code. However, it is theoretically
plausible that a top manager or employee of Brembo
S.p.A. might take action outside Italy in the context
of his or her duties to the Parent or an international subsidiary. In the matter of corruption involving public
officials, given the nature of its business, the Brembo
Group does not engage in dealings with government
officials, except in managing permits (such as building
permits). As a result, offence-risk opportunities are
considered to be very limited.
The mitigating measures taken by the Group are
regarded as sufficient to significantly reduce its
exposure to cases of risk and are aimed at ensuring
the global spread of a culture of compliance through
the establishment of specific principles of ethics and
conduct, in addition to constant monitoring of legal
changes, through implementation of the following:
• mapping (and periodic updates) by the Legal &
Corporate Department of statutes that provide for
administrative liability for companies in effect in all
foreign countries in which the Group operates;
• reporting to the Country Committees of subsidiaries
through a specific monitoring system on the main
issues of concern in the areas of compliance,
governance, legal/contracts and litigation;
• adoption and implementation (through training
sessions) of a multiple-tier compliance system;
– Brembo’s Corporate & Compliance Tools
(such as, for example, the Code of Ethics, the
Anti-Bribery Code, the operating procedures
applicable pursuant to Legislative Decree No.
231/2001, the authorisation matrices, etc.),
disseminated and applied worldwide, laying
down ethical and behavioural guidelines for
managing stakeholder relations, including in
light of the extraterritorial application of certain
statutes such as the FCPA (USA) and Bribery
Act (UK);
– the launch of specific compliance programmes
at the local level, so as to check the adequacy of
measures aimed at preventing the commission
of offences;
– the Brembo Compliance Guidelines and Group
Policies and Procedures issued by the Parent
and disseminated and applied worldwide;
– the 231 Model, prepared by the Parent
pursuant to Legislative Decree No. 231/2001,
from which the Brembo Compliance Guidelines
disseminated throughout the Group have
been drawn and that the management deems
adequate and capable of effectively preventing
offences.
With reference to litigation, the Legal & Corporate
Department periodically monitors the progress of
existing and potential litigations and determines the
strategy to be applied and the most appropriate steps
to take in managing them, involving specific corporate
functions, when needed.
The Administration and
Finance Department is responsible for the recognition
of the appropriate checks or impairment losses in
connection with such risks and their effects on the
Statement of Income.
Planning and Reporting
The same ERP (Enterprise Resource Planning)
software has been implemented at nearly all
Group companies in order to prepare accurate and
reliable financial reporting for the Group, while also
improving the Internal Control and Risk Management
System and the quality, timeliness and comparability
of the data provided by the various consolidated
companies.