Pirelli Stock

Ladies and gentlemen, welcome to Pirelli's conference call in which Pirelli's top management will present the company's first half 2026 results. A live webcast of the event and the presentation slides are available in the Investor Relations section of the Pirelli website.

I remind you that this Q&A session will follow the presentation. Now I would like to introduce Mr. Marco Tronchetti Provera. Please go ahead, sir.

Thank you. Good evening, ladies and gentlemen. First half results confirm Pirelli's ability to generate value in an uncertain environment marked by growing geopolitical tensions.

We have further consolidated our leadership in the high-value segment by leveraging the strength of our brand, technological innovation and a distinctive product portfolio.

The resilience of our business model and the implementation of strategic priorities allowed us to maintain profitability among the best in the industry, offsetting the negative effects of pension in the Middle East, U.S. tariffs and exchange rate volatility.

Cash flow generation remains in line with the seasonality of the business and with the expectations for the full year, reflecting the group's financial discipline.

In the second half of the year, the macroeconomic and geopolitical picture is expected to remain volatile. The resumed conflicts in the Middle East have put further pressure on energy costs, with Brent price back at above $90 per barrel and the TTF gas approaching EUR 60 per megawatt hour.

Furthermore, there are present signs of weak demand, especially in car manufacturing and the standard segment, while demand in the high-value replacement segment is proving resilient with a mid-single-digit growth rate.

Despite the challenging external environment that I described, based on the quality of our first half results, we are confirming our full year targets for revenue growth, profitability and cash generation.

Now I give the floor to Mr. Casaluci.

Thank you, Mr. Tronchetti, and good evening. Pirelli has reported solid results for the first half of the year, in line with our expectations.

Revenues reached approximately EUR 3.5 billion with organic growth of 2.5% driven by stronger high-value, accounting now for 82% of group sales and price/mix improvement.

Adjusted EBIT amounted to EUR 558 million with a margin of 16%, which remained stable compared with last year, thanks to the effectiveness of internal levers that offset the impact of the external scenario.

Net profit rose by 13% year-on-year, benefiting from lower financial expenses linked to debt reduction and a greater profit contribution from equity participations in the first quarter of the year.

The net financial position is approximately EUR 1.9 billion, and includes the debt consolidation of the Chinese joint venture, Shai, amounting to approximately EUR 210 million, as well as the payment of approximately EUR 47 million relating to the exercise of the call option, which increased Pirelli's stake to 70%.

Finally, in the second quarter, the net cash flow before dividends and M&A transactions was positive at EUR 148 million, in line with the level recorded in the same period last year.

Our long-term strategy for value creation and development continues to benefit from progress in sustainability. Over the past 6 months, we achieved tangible results in all areas.

In health and safety, the prevention and awareness-raising programs contributed to a significant reduction in the accident at Work frequency index, reducing the index by 54% compared with the first half of 2025.

The decarbonization plan continues in line with the 2040 net zero target. Energy efficiency and machinery electrification projects led to a 13.5% decrease in our emissions compared to last year. And the reduction of emissions by our suppliers is also in line with our 2027 target.

Furthermore, we made significant progress in developing circular supply chains for the recovery and integration of sustainable materials into production processes, as we will see in the next slide.

Finally, energy and water efficiency programs allowed for a 6.7% year-on-year reduction of water consumption for production purposes. We started 3 partnerships on key raw materials, namely carbon black, steel, and synthetic rubber.

Our target is accelerating the transition to materials circularity from increasingly sustainable and traceable supply chains. More specifically, in the United States, we started a collaboration with Boulder Industries, a company specialized in retrieving carbon black from end-of-life tires.

This raw material is then recycled and used for new tires. This project received the value chain collaboration award from the Tire Recycling Foundation.

In China, together with our strategic partner, Xinda, we made a remarkable contribution to the development of a pilot project to include recycled steel among the materials certified under ISCC+, the major international standard for the certification of recycled and bio-based materials traceability across the supply chain.

In Europe, we developed an integrated chain with Pirum, BAF and Sinos to turn end-of-life products into circular ISS+-certified materials, including synthetic rubber to be reused in large-scale production processes by guaranteeing high-quality performance and traceability standards.

Through these partnerships, we will strengthen our strategy on circular materials with a target of bringing products made from over 80% bio-based and recycled materials to the market by 2030.

Let's now analyze our first half operating performance. In line with our strategic priorities, we gained share in the high-value segment in the major geographic areas and business lines by leveraging technological innovation and sizing market opportunities.

Innovation represents a distinct factor in our strategy. In the first 6 months of the year, we expanded our homologation portfolio and widened the product range.

We also consolidated our position in the segments of higher value. In the cyber tire, the latest test confirmed the competitive edge of our technology.

We proved that connectivity applied to tires through a physical sensor can be translated into tangible benefits for both safety and driving experience.

The efficiency plan proceeds according to schedule. In the first 6 months, the efficiency plan generated gross benefits of EUR 81 million, that is approximately 54% of the full year target.

Let's start with the commercial performance in the first 6 months. We gained market share in the high-value segment, recording a volume growth of 3.5%, and strengthened our position in the car and motor segments.

We also continued our selectivity process in the standard segment, minus 8% on volumes, by reducing our exposure to segments with lower profitability, mainly in South America.

In the second quarter, the volume trend, minus 1.5% at group level, reflects a greater reduction in the exposure to the standard segment, volumes minus 11% versus a minus 4% in Q1, outcome of a strategy based on value and protection of profitability in an extremely competitive environment.

While the high-value trend plus 3% reflects a lower growth of the motor segment after a strong performance in the first quarter and a more limited growth in the car original equipment due to demand slowdown.

In the second half of the year, we expect high-value performance to strengthen, supported by a solid replacement demand in Europe as well as the gradual improvement of the North American market.

In the standard segment, we expect a gradual trend normalization. Let's now move to product innovation, which is one of the key drivers of differentiation in future growth.

In the first half of 2026, we obtained approximately 200 new homologations, mainly concentrated in higher range size specialties and electric vehicles.

These results confirm our role as a reference technology partner for both premium and prestige carmakers. Examples of these include the partnerships on the most advanced electric cars like Ferrari Luc and Radion R2S as well as premium SUVs like OD 7 and 9.

Innovation also means constant renewal of the product portfolio. In the car segment, in North America, we launched the new Scorpion Season 4, developed with an increasingly virtual approach, which led to an improvement in mileage, comfort, and driving control.

The value of our technological solutions is also confirmed by comparative tests. In the first half, we obtained 8 victories from leading European specialist magazines, which awarded several products in the Chinturato, Zero and Scorpion lines.

Also in the 2-wheels business, we continue to incorporate the racing experience into our products. In the motor segment, we launched Mettler Sportech 01RS, developed from the racing know-how to offer top performance on the road.

In the cycling segment, we introduced 2 new Chinturato lines designed for gravel riding, a rapidly growing segment. Within product innovation, Savvertire is one of the most distinctive solutions in the industry.

Through sensors integrated into the tire and our own algorithms, cyber solutions can turn a tire from a passive car component into a smart sensor that can exchange data with the vehicle in real time and provide accurate information about the tire and road conditions.

All this data allows the electronic systems of the vehicle, from ABS to stability control and traction, to be able to react more effectively and accurately, thus improving safety control and driving experience.

Recent tests carried out on our solar testing track, also attended by international trade press, positively proved the value of this technology under particularly challenging conditions.

Tests show tangible advantages in terms of safety and control of the vehicle. In an energy braking test from 100 kilometers per hour, the system allowed for a reduction of braking space of approximately 5 meters.

On a wet surface, vehicle stability and grip improved. In the event of aquaplaning, better control of the vehicle was achieved in circumstances where, without cyber tire support, the behavior of the car would have been much more critical.

These results prove that immediate and real data availability from the tire allows the vehicle to fully exploit the potential of safety treatment on board with actual benefits for the driver.

Interest by car manufacturers and media confirms the role of Cyber Tyre as an enabling technology for connected mobility as well as further development of ADAS systems and autonomous driving.

Cyber Tyre is a unique solution in the industry, strengthening Pirelli's leadership in integrating tire, vehicle and digital platforms. It provides new opportunities for growth and value creation along the entire mobility ecosystem.

Besides innovation, Brent is one of Pirelli's distinctive assets. Recent market analysis confirms the strength and uniqueness of our positioning with the Pirelli brand associated with high-tech, prestige and motorsports concepts.

During the first half of the year, we further strengthened this positioning with targeted actions in strategic markets. In the United States, we started a multi-year partnership with the Miami Open, one of the most prestigious international tennis events, giving even more visibility to the brand in a country which is crucial for our future growth.

In Europe, we consolidated our presence at iconic events such as the Goodwood Festival of Speed and the 24 hours of Spa, occasions that highlight Pirelli's association with innovation, performance and technological excellence.

Finally, the partnership agreement with Formula 1 was renewed until 2028, confirming Pirelli's role at the pinnacle of Motorsport. These activities contribute to enhancing our brand's global relevance and strengthening Pirelli's high-end positioning, supporting our ability to continue growing in the high-value and most profitable segment.

I would like to conclude these sections by mentioning transformative efficiency. A fundamental pillar in terms of competitive road map. This transformation involves the whole value chain from product design to manufacturing.

We are making full use of simulation, virtualization, and modularity, which means standardization of materials and semi-finished products. The aim is to reduce complexity in the factories while maintaining best of the industry quality and performance and accelerating time to market.

An example of this is the virtual compounder, our own platform based on artificial intelligence, which allows us to virtually develop and optimize compounds, identifying the most promising solutions before physical validation.

Results are already tangible. We reduced prototypes by 20%. Development time was cut by 30%. And in parallel, we are speeding up the introduction of bio-based and recycled materials into our products.

Furthermore, we continue investing in digitization, automation, and electrification to increase productivity, quality, and manufacturing flexibility. I'll now give the floor to Mr. Bocchio. Thank you.

Thank you, Mr. Casaluci. Let's see now in more detail the dynamics that have characterized the performance of the first half of 2026 compared to the same period last year.

As already pointed out, revenues were approximately EUR 3.5 billion with a 2.5% organic growth. Volume trend in the semester was stable, reflecting a share gain in high-value original equipment and replacement in both quarters.

The reduction of exposure to standard continues more specifically in the second quarter to protect profitability in a highly competitive environment.

Price/mix was positive, plus 2.5% in the first half and plus 2.9% in the second quarter, guided by the continuous improvement of the product mix and regional mix, while the price increases announced in the second quarter will be visible in the second part of this year.

The ForEx impact is negative, minus 2.1%, mainly due to the U.S. dollar depreciation versus the first 6 months of 2025. The exchange rate trend was positive in the second quarter, plus 0.4% due to the U.S. dollar trend improvement and the strengthening of some currencies such as the Chinese renminbi and Brazilian reais.

Finally, the perimeter change, minus 0.5%, is linked to the deconsolidation of the Dia business in the second quarter of 2025. We closed the first semester with an adjusted EBIT of EUR 558 million and a 16% margin, in line with last year, thanks to the effectiveness of the internal levers, which compensated the negative impact of external factors such as exchange rate volatility, the impact of exchange rate volatility, the Middle East crisis, as well as U.S. duties.

More specifically, the positive price/mix contribution of EUR 50 million and the efficiencies for EUR 81 million have more than compensated the negative impact from the exchange rates, minus EUR 44 million, and the inflation of input costs, minus EUR 65 million, which increased in the second quarter following the Middle East crisis.

Raw materials provided a positive contribution of EUR 32 million. Finally, the negative impact of depreciation and amortization equal to minus EUR 12 million, and an increase in other costs of EUR 43 million, mainly connected with the impact of the U.S. tariffs as well as the rigorous management of finished product inventories due to the highly volatile environment.

Profitability remained stable at 16% also in the second quarter. The contribution from price/mix for EUR 29 million and efficiencies for EUR 38 million more than offset inflationary pressures, including higher energy and logistics costs stemming from the Gulf crisis, the impact of U.S. tariffs recorded under other costs, and the negative foreign exchange effect mainly related to the appreciation of the Mexican peso.

The raw material impact was positive. We expect this tailwind to reverse in the second half of the year, reflecting the increase in oil prices that started at the end of February.

Let's now analyze the trend in net income, equal to EUR 299 million, up 13% compared to the EUR 264 million recorded in the first half of 2025.

This trend reflects the reduction of amortization included in the purchase price allocation worth EUR 11 million, lower net financial expenses of EUR 29 million, mainly related to the reduced gross debt as well as to a lighter financial debt in countries with higher interest rates, greater contribution from the results of equity participation for EUR 13 million, mainly connected to the revaluation at fair value of the 49% stake in the JV Suhzen Tyre, which occurred in the first quarter.

Higher tax charges of EUR 19 million with a tax rate of 30%, an increase as expected from the 29.2% in the first half of last year, but benefiting from positive impacts from nontaxable income and one-offs.

Let's now move to the net financial position. At the end of June, our net financial position is negative for approximately EUR 1.92 billion.

This reflects, on the one hand, a net cash flow before dividends and extraordinary operations of minus EUR 557 million, substantially in line with the first half of 2025, which had recorded minus EUR 547 million, net of the positive impact from the divestment of Dackia, while on the other hand, includes the negative impact of EUR 257 million related to the consolidation of the debt and the increased stake to 70% into Suhzen Tyre.

The operating net cash flow in the first half of 2026 is negative at EUR 416 million. It was EUR 217 million in the same period last year and mainly discounts increased investments and greater cash absorption due to trade payables dynamics.

More specifically, CapEx reached EUR 177 million compared to EUR 128 million in the first 6 months of 2025 and was mainly dedicated to high-value development, technology upgrades and industrial automation.

Working capital trend was negative for EUR 1 billion compared to EUR 810 million in the first 6 months of 2025, reflecting the reduction of trade payables related to the payment of the investment concentrated between the fourth quarter of 2025 and the first quarter of 2026.

Receivables follow the usual business seasonality with a limited negative impact due to the Middle East situation. Inventories on sales over the last 12 months stood at 22.4% compared with 21.2% for the same period in 2025, a figure that reflects the rigorous control of finished product volume, as the increase is mainly attributable to the rise in the cost of raw materials and the buildup of raw material safety stock to support business continuity in a context characterized by tensions in the Gulf region.

Net cash flow before dividends in the second quarter of 2026 is positive for EUR 148 million, in line with the result of the second quarter of 2025, which was EUR 150 million, excluding the already mentioned positive impact from the divestment of Dackia.

As of June 30, Pirelli had a gross debt of approximately EUR 3.1 billion, financial assets worth EUR 1.2 billion, and therefore, its net financial position is approximately EUR 1.9 billion.

The cost of debt over the last 12 months was 3.89%, down by more than 50 basis points compared to 4.40% at the end of 2025. This decrease is attributable to the reduction of the level of debt as well as optimization of the mix due to the lower financial debt in countries with higher interest rates.

The liquidity margin is approximately EUR 2.6 billion and allows for the hedging of maturities for over 3 years until the third quarter of 2029.

In January 2026, the group signed a contract for a new multicurrency banking line worth EUR 2.1 billion with a group of leading domestic and international banks.

This new line, linked to the decarbonization targets of the group for Scope 1, 2 and 3, consists of a term loan worth EUR 600 million and revolving lines for a total amount of EUR 1.5 billion.

The contract allows for the possibility to agree between the company and all the financial institutions to extend the expiration date with the same terms for a maximum period of another 2 years, that is until 2033.

This transaction has also allowed for refinancing of the whole amount of the debt due in 2027. I now give the floor back to Mr. Casaluci.

Thank you. Thank you, Fabio. And let's now talk about the update on this year's outlook.

This macroeconomic environment continues to be characterized by high uncertainty, with the Middle East tensions remaining the major risk factor when it comes to growth, inflation and raw material costs.

Recent hostilities between the U.S. and Iran have indeed caused a new increase in energy prices and commodities and caused an interruption in the normalization process observed in the weeks following the Strait of Hormuz agreement in June '26.

Based on the latest estimates, the worsening of the scenario is confirmed compared to our assumption in the first quarter of this year.

In 2026, global GDP growth is now expected to be 2.3%. The slowdown is more marked in Europe given its strong energy dependency, while the United States continues to show good resilience, supported by the investment connected with AI.

China is confirmed at a plus 4.5% expansion, although its domestic demand is still weak. Inflation is expected to increase to 3.8% versus the previous 3.7% and continues to be an element of scrutiny for the major central banks.

Regarding commodities, the scenario remains very volatile, and a reduction of prices is expected in the third quarter as well as a normalization of the flows through the Strait of Hormuz.

Based on this new environment, we updated our market outlook for 2026. The car tire demand is now expected to be between minus 3% and minus 1% versus minus 2% and flat indicated in May.

The estimate review involved the 2 most cyclical segments, the standard now expected to be negative mid-single digit versus a negative low single digit in May, and the original equipment demand, minus 3% compared to minus 2% in May, in line with the car production trend.

Regarding the high-value segment, Expectations are now for low to mid-single-digit demand growth given the more cautious outlook in original equipment, following the weak market performance in the first half, minus 2.5%, especially in China due to the end of government incentives that supported demand last year.

In the replacement high-value segment, we expect mid-single-digit growth with an improving trend in the second half of the year, driven by Europe and Asia Pacific, also thanks to better EV penetration and, above all, improving demand in North America following a weak first half.

In light of the quality of the results in the first half of the year, we confirm the 2026 guidance and update some of the drivers based on the current external scenario.

Revenues are expected to be between EUR 6.75 billion and EUR 6.95 billion, with volumes between stable and plus 1%, slowing down compared to the plus 1% and plus 2% indicated in May due to the original equipment and standard market demand slowdown.

Price/mix improvement is confirmed between plus 2.5% and 3%. Exchange rate impact has been slightly revised based on expectations of a smaller U.S. dollar depreciation.

ForEx is now expected to range between minus 2.5% and minus 1.5% versus the previous minus 4% and minus 2%. Profitability is expected to be approximately 16% with an adjusted EBIT in absolute value at EUR 1,080 million at the midpoint.

Investments confirmed at EUR 450 million, net cash generation before dividends and the impact of the exercise of the call option for the Fusentile joint venture confirmed at EUR 500 million.

Net financial position confirmed at EUR 1.2 billion, including the impact of the call option exercise.

And I now leave the floor to Mr. Tronchetti for the final remarks.

Thank you, Mr. Casaluci. The results of the first half of the year confirmed the strength of Pirelli's business model and the effectiveness of the strategic decisions taken in recent years.

In an environment characterized by high volatility and growing geopolitical uncertainties, we continue to deliver strong results, maintaining a profitability that ranks among the best in the industry and confirming the group's ability to react rapidly to changes in the external scenario.

We continue to stand out, thanks to a combination of unique assets, the strength of the brand, our technological leadership and an increasingly efficient and sustainable industrial platform.

Innovation remains a key element of our differentiation. Sebertire is a clear example, a unique technology in the industry that reinforces Pirelli's role in the evolution of connected mobility.

It confirms our ability to anticipate demand trends in the automotive industry. The quality of these assets, combined with disciplined execution and the flexibility of our operating model, allows us to look forward to the second half of the year with confidence and to confirm our 2026 targets for revenue, profitability and cash generation.

We will continue investing in our areas of strength to further improve Pirelli's competitive positioning and create sustainable value over the long term. And this concludes our presentation. We may now open the Q&A.

[Operator Instructions]

The first question comes from Monica Bosio with Intesa Sanpaolo.

Actually, I have 4 questions. The first one is on the market share at the country level. At the country level, where did the group find the most relevant market share gains in the second quarter?

If I remember well, in the first quarter, it was in the U.S.A.; is it still the case for the second quarter?

The second question is on the replacement channel trend in China, which is also positive in the second half. So can you confirm that you expect to get market share in China in the replacement channel on the back of the EV tires replacement cycle?

And if you can share with us what the loyalty rate of the Chinese consumer to the Pirelli brand is.

The third question is on the price mix. Please correct me if I'm wrong, but I think that the 2.9% price mix in the second quarter was mostly products and regions, so mostly mix.

For the second half, we should also add the pricing effect. So can you confirm this and tell us what the drop-through will be by year-end?

And finally, on the Cyber Tyres, I was wondering if you can share with us some indication of the multi-year investment plan. What is the time horizon?

And I'm curious to know if you have received further homologation in Cyber Tyres since the beginning of the year.

Thank you for your questions. I will start from the gain of market share in the second quarter.

We have been able to gain market share in all the high-value markets, but the better performance also in the second quarter is coming mainly from the United States, where we have been able to gain market share both in the original equipment and in the replacement.

This is the result of our growth strategy based on the introduction of new products fully dedicated for the U.S. market, the enlargement of the customer base where we grow market share with all the most iconic vehicle for the United States in the last years like the 4 F150, A the Dodge Ram, all the Tesla's most popular models, but also the growing popularity of our brand and the enlargement of the customer base.

In the second quarter, we also gained quite significantly in market share in China in the replacement channel. And this is mainly driven by the pull-through effect starting in the electric vehicle, as you correctly said.

And so we are taking advantage of the original equipment growth in the last years. Price/mix, you are also right. In the second quarter, the performance, roughly 3%, has been mainly driven by product mix, including the region mix, with still a slightly negative channel mix, where we had a growth of the original equipment faster than the replacement.

What we do expect in the second half is a slight reduction of the mix effect, mainly due to a lower reduction in the standard volumes, where we do expect a normalization of the volume performance, also thanks to a more profitable comparison versus last year in South America, while the price will start to be meaningful because the price increase that we announced during the months of May and June will be effective starting from the second half.

So you can expect another 3% roughly of price/mix performance. But in this case, half driven by price and half by product mix. It's improving the drop-through in the second half.

We do expect 80% more or less of drop-through in the second half. Cyber will keep on growing in penetration. And what we do expect, considering the high interest of the most important premium and prestige carmakers in Europe and in China and also in the United States, we do expect to finalize agreements also in the premium segment.

You know that we are already delivering in the Prestige segment the Cyber Tyre technology. We do expect to scale up into the premium, and we are confident some good news will come already in the last quarter of this year.

The next question comes from Martino De Ambroggi with Equita.

The first question is on net working capital. Considering the additional absorption you saw in the first half and considering the raw materials price increase, isn't it a risk for your free cash flow guidance?

And if I remember correctly, you are always using factoring in the region of EUR 200 million at year-end. So this is my first question.

The second is on the standard profitability because volumes are heavily down. So just to have an idea if it remains profitable this year. Maybe this is too rude to say that.

And price increases, is it easy to pass price increases also in this segment? And referring to price increases, any pre-buy that you saw in the second quarter?

I will start from the first question related to the net working capital. Obviously, we confirm our guidance for cash generation for the full year.

We don't expect to have difficulties. Everything is on plan. As you saw in the first semester, stock management made us arrive at an incidence on net sales of about 22.4%, which is a little bit higher than March and last year.

But this was due not from the volume of the stock, but from the value of the finished products and the raw material given the fact that obviously, the commodity has grown up quite a lot since the end of February.

We expect this effect to slow down a little bit during the last part of the year. So we expect December to have an incidence of inventories on net sales of the last 12 months at about 22%.

Consider that in June, actually, we were building up a little bit of safety stock on raw materials in order to avoid any kind of disruption in our factories.

On the receivable side, we achieved 14.5% in June, which was in line with March. And for the remaining part of the year, by year-end, we expect this number to arrive at about 9% of sales.

On the payables, again, we had a negative impact in June related to the fact that there was this accumulation of CapEx between Q4 '25 and the beginning of '26, so with the cash out during quarter 3, but then we expect normalization given that our CapEx at EUR 450 million will be expected.

So by the end of the year, we are expecting payables to be in the range of 30%, so not dissimilar to what we had in the previous years.

We use factoring to balance the cash flow of the company on one side and to balance the risk of our accounts receivable, and we are in line with the usual trend.

In some quarters, it's a bit higher, and in some quarters a little bit lower. In June, for example, it was lower than the average of the previous quarter, but no major differences compared to the past.

Thank you. And now I'll move to the following questions. The standard profitability in 2026 is expected to be between 7% and 8%. So high single-digit.

We still target double-digit, and we are confident we will arrive there. Nevertheless, it's a more volatile segment. It's not really a question of price increase, but the volatility of the demand. It's down at 18% of our total sales.

It will be reduced even more. Let's consider that in the high-value regions, Europe, the U.S., and Asia Pacific, the weight on sales is already in the ballpark of 10%, 12%. And in these regions, we are very close to double-digit profitability.

And last point is the pre-buying; no, we haven't seen pre-buying effects. The stock level in the trade is well normalized so far.

The next question comes from Christoph Laskawi with Deutsche Bank.

I'd like to start on the U.S. investment plan, please. I know it's not yet fully approved by the Board, but the size that you have indicated in the press release of EUR 1 billion to EUR 1.2 billion, very back of the envelope, I can get to up to a 10% capacity addition from that.

Could you comment on whether there is a need then to cut elsewhere, say, in South America or Europe? The capacity? And if there essentially is now a bit of a change in strategy, should it be approved from basically growing through mix improvements now actually chasing volume a bit?

And then the last one on that one would be, is it in the short term limiting cash return potential if you should approve the U.S. investment plan and actually follow through with it?

And then just the second block on volumes into H2. You mentioned that high-value-added volumes should improve in the second half. At the same time, obviously, you've raised prices.

Is there any indication that volume or demand has changed as a result of the price hikes? Or is it pretty stable and resilient as you see?

Thank you for your questions. First, there is no change in strategy. So the investment in the U.S. is just related to the growth we are having in the United States, as I told you a few minutes ago.

We grew in the first quarter. We grew in the second quarter. We continue to grow. We are underrepresented in the United States compared to our market share in the other main regions.

So it's in line with what we are doing. It's in line with our strategy. And now I leave the floor to Mr. Casaluci.

Yes. Thank you. No. Let's consider that, as we commented on other occasions, if we do consider 100 what we sell in the United States today, 5% is more or less 5% is already produced locally.

55% is coming from Mexico, and 40%, 40% remaining, is imported by Europe and South America. The capacity we will install in the U.S. will be, of course, 100% high value and will support, as Mr. Tronchetti said, the local growth plus eventually a reduction of imports from Europe and South America, and the free capacity in these regions will be used to support the local growth.

So we don't plan any kind of reduction in the high-value capacity of the group. While the major changes in demand are in the second half, it's mainly linked to the different expectations of the market.

First, we have to remind you that the change in the outlook of the market is mainly driven by the result of the first half, where we saw a worsening of replacement demand in the United States and regional equipment demand in China compared to our previous guidance.

So what we do expect in the second half is an improvement in these 2 areas. Also driven by a better comparison year-over-year in the 2 regions.

So all in all, we keep on growing in the high value, overperforming the market, and we have a more positive outlook of the second half compared to the first half, mainly driven by lower reduction of the original equipment in China and a star growing environment in United States replacement, while Europe is expected to maintain its high double-digit growth in the replacement high value as has been showed in the first half.

The next question comes from Harry Martin with Bernstein.

The first one actually is a follow-up about the outlook for U.S. volume growth in the market in the second half.

What gives you the confidence that that will get better? It looks like the first half of the year has really been driven by the weak consumer. I appreciate that June data may have been a little bit better.

Is there an extrapolation of that? Or do you have any other information for us that can help explain why that market will get better?

The second question, I wanted to ask about the U.S. MTA renegotiation. What are you hearing? We've seen some headlines that the U.S. is pushing for increased U.S. content within cards, but is there anything else that you've heard or we need to think about for that Mexico-to-U.S. business?

And then finally, I wanted to ask about your capabilities in digital twin and software. What higher proportion of original equipment shipments today are requiring some level of digital integration with the R&D and design phase?

And how differentiating is Pirelli's software in this field and helping to win those market share gains?

Thank you for your questions. Mexico, USMCA. The fact is that the agreement is to be renewed for 10 years. Negotiable every year.

But as far as we can see, considering the importance of the Mexican supply to the American market to the North American market, we do not expect an impact on our operations in Mexico.

So we feel comfortable on that side. But now I leave the floor to Mr. Casaluci.

Yes. Thank you. The U.S. volume, we are optimistic on the second half, mainly in the replacement, first of all, because we come from 6 months in a row of negative markets, which is something that is preparing a restart of the demand in our view. And also because of a more favorable comparison versus last year, which is also helping.

And we target to outperform the market. So we already have a long-term agreement with our partners in distribution. So the orders are already on our hands with a clear view at least for the following 3, 4 months.

So we are very positive on the outlook of the U.S., both driven by an expectation of a better market and also our order collection.

Digital twin, yes, you are fully right. This is one of the most important innovations that we have been able to introduce in our research and development processes.

And the competitive advantage that we see is for 2 sets of reasons. First of all, we are becoming much faster in the development of new products, which is meeting the needs and requirements of the OEMs, especially the Chinese ones. And that's one of the major reasons why we have a competitive advantage in this arena.

It's also allowing us to reduce the number of prototypes, and so has a positive impact on cost and is helping us to accelerate the introduction of recycled bio-based materials because with the virtual compounders, so the simulation on the development of new compounds, we can make test on laboratory without losing a lot of time for physical tests, and that's also a good competitive advantage.

The second reason is linked to our Cyber Tyre technology. So the digital twin of Tyres, a mathematical model mirroring the real performance of a tire is part of the Cyber Tyre technology that is integrating data collection from sensors into the tires into a way to use this data applied to the digital twin of a tire, thanks to the new computing capacity of the cars to elaborate on the best possible instruction to give to the control unit of the car using the same logic that we use when we develop the tire, but applied with a completely different conditions.

The next question comes from Stefan Benhamou with Bank of America.

I have 3 questions. The first one is on raw materials. So they are going to turn negative in H2.

Based on your latest assumption, can you please give us an indication of what you anticipate in terms of headwind for H2?

The second question is regarding the efficiency gains. So if I'm not mistaken, when we are doing the math, you're anticipating around EUR 70 million of efficiency gains in H2.

Given the global cost inflation, should we expect those efficiency gains to more than offset cost inflation, just like in H1?

And the last question is regarding the tax rate. Again, if I'm not mistaken, you were anticipating a slightly higher tax rate in 2026.

In H1, you are at only 30%. So should we expect any tax rate increase in H2? And what are the reasons for that?

Thank you. I will take the question. I'll start from the raw materials. In the first 2 quarters of the year, we benefited from the positive contribution from raw materials compared to the previous year.

And overall, we had an impact of about a little more than EUR 30 million. Now this trend for the second half will reverse completely because commodities, after the end of February, have gone up quite a lot.

So we will see the first impact of this increase in commodities, and that means an increase in our cost of goods sold starting from quarter 3, that means starting from now.

What we expect is a sizable impact for the second semester because if the first half was a positive contribution from raw materials of EUR 30 million, in the second semester, we expect a negative impact of about EUR 70 million.

So total different trend between the first half and the second half. Regarding the efficiencies and inflation, I can confirm that for the full year, we expect efficiency from our projects that is absolutely in line with the expectation for a total amount of EUR 150 million.

And on top of this EUR 150 million, there will be an additional impact of the cost mitigation plan that will be between EUR 20 million and EUR 30 million related to the Middle East crisis in order to try to offset and balance the additional inflation that will come related to the energy cost and inflation on the transportation cost.

Having said that, with this additional mitigation plan, we think that overall for the year, the efficiency plan and the mitigation plan will be sufficient to not only offset but even give a little bit of positive impact to the result of the company.

Regarding the third point related to the tax rate. The tax rate in the first semester was equal to 30%, but I confirm the full year guidance for the tax rate between 32% and 34%, which was in our original guidance, taking into consideration some one-off positive impact for the full year that has been materialized a little bit earlier than expected, meaning in the first half.

That is why we had this 30% in the first half, and it will be a little bit higher in the second semester, but fully in line with the expected tax rate that not only for 2026, but even for the following years, we expect to be in this ballpark at 32% to 34%.

The next question comes from Thomas Bon with Kepler.

I'll try to make it quick. I have 3 questions, please. Firstly, your net interest charge to follow up with Mr. Bocchio, was low in H1.

Should we expect this to continue in H2 and have a benefit versus the previous years, or are the tax one-offs helping you on that front? The first question.

The second question, could you remind us broadly or approximately your OE share with Chinese automakers in H1 and, as well, directionally where you stand in terms of China replacement share in H1 and how it's improved versus H1 '25.

Finally, I think you mentioned that you believe we could sign the first contract with a premium automaker eventually in Q4, which is great. May I please ask you to remind us what the existing contracts are today with the prestige automakers and whether you would expect a contract with a premium automaker to have you be the sole supplier of that car or whether they would be an option for the vehicle that would only be allocated to customers effectively choosing the [indiscernible]

I will take the one related to the financial expenses, the net financial expenses. As you correctly pointed out, in the first half, we had a positive impact on financial expenses of about EUR 29 million compared to the previous year.

And as I was saying, this is related to the lower gross debt and to the mix of debt between high-cost countries with a high interest rate and countries with lower interest rates.

For the full year, we expect a dynamic in the second semester to be a little bit different. So I expect a reduction in the financial charges related to the lower debt that will be at the same level for the second part of the year.

But on the other side, we expect some volatility and some negative impact from noncash components linked to hyperinflation and FX volatility.

So for the full year, the expectation is to arrive at a level that would be in the range of EUR 190 million to EUR 200 million. So let me say, similar to the full amount for 2025.

Well, moving to the second question. So the OE market share we have in the premium segment is similar in all the geographies.

It means that we always target market share in the Prestige segment, which is 100% concentrated in Europe, around 50% in the original equipment, while in the premium in between 20% and 22%.

And the more we go on to the upper end, the more the market share of the product portfolio of the carmakers, the more the market share is growing.

And that's exactly the market share we are performing in China, but only if we focus on the premium carmakers, namely Liuto, Xiaomi, [indiscernible]; these are the kind of newcomers in the EV market we are working with.

That's the result of a strategy of customer base enlargement and diversification that we started 5, 6 years ago, growing in share premium segment, both in the United States and in China.

As far as cyber technology, yes, we are working with some very important premium carmakers in Europe. And as I said before, we are enlarging the partnership and the collaboration with some premium carmakers.

And as I said before, the Chinese premium carmakers are very interested not only because of the typical CFT performance or driving performance of the prestige segment, but also because of the opportunities related to autonomous driving, because with an autonomous driving solution where the decision is braking or steering.

It will be in the hands in brackets of software and no longer, let's say, the responsibility of a software and no more of a human to have a very accurate estimation of the grip and the forces between the tire and the road; it will be of paramount importance to take the right decision.

So this is the kind of application we are working on with some of the most important premium Chinese carmakers.

The next question comes from Ross MacDonald with Citi.

The first one is just on organic growth. And just noting that year-to-date, the organic growth for Pirelli is at the low end of the full year guidance corridor at 2.5%.

We're talking a lot about a recovery in the second half on organic growth, price mix and volume. But specifically on Q3, how should we think about organic growth compared to the slightly lower 1.4% that we see in Q2?

Would you expect organic growth to recover back to sort of the midpoint of the full year guidance corridor, let's say, above 3% as soon as Q3? Or is this more of a Q4-loaded recovery? That's my first question.

Second question, just coming back on the U.S. CapEx to Christoph's question. Obviously, the $1 billion to $1.2 billion is a big number, but it's over several years.

But could you maybe give us a sense of what that sort of check buys you in terms of capacity, just in terms of units? How should we think about the cost of a U.S. factory and what that would bring Pirelli in terms of capacity?

And then my final question is just on the EV trends in Europe. Obviously, these are going quite strongly. You talked about the homologations with EVs. I think your definition is BEV plus plug-in hybrid.

But specifically in the BEV segment, how do you feel about your market share versus your competitors on OE?

On organic growth, we have performed at 2.5% in the first half and a bit below our expectation because mainly driven by the reduction of volume on standard, higher than expected, and the Chinese original equipment, where the demand in China, in the local market, was negative in the first 6 months, double-digit negative, so more than expected.

While our expectation for the second half is to stay in the ballpark of 4% of organic growth, mainly driven by price/mix, 3% and 1% on volume.

We are confident in this growth. Nevertheless, it remains the highest organic growth in the Pirelli tyre industry. That's mainly driven by our overexposure to the high-value segment, representing now 82% of our sales, and the high value is a growing segment and more resilient.

United States capacity, yes, we announced, first of all, as you correctly said before, is not fully approved by the Board of Directors. This will be included in one of the following Board of Directors meetings. But a rough indication, it is in the ballpark of $1.2 billion in between $1.2 billion, $1.3 billion investment.

That is an investment that will target the highest possible level of automation and innovation in the plant. And we are upgrading our MRS technology with a new release. So it will be a capital-intensive Europort tire because of the high level of automation that will lead to more efficiency, better quality performance, stability, and flexibility of the plant.

And the capacity, we target to arrive at the end of the process of development in the year around 6 million fully high-value tires with a highly flexible plant. But let us finalize approval, and then we will be back with all the details of the project.

BEV homologations, in our view, electrification, it will be the major technology in car registration of the future. In China, we have already seen more than 60% of new car registrations being full electric or plug-in hybrid or extended, but the most important and most relevant technology remains the full electric.

In Europe, we have seen more than 20%, 23% of car registrations being new electric vehicles, again, mainly full electric. While in the United States, the percentage is still it's below Europe and China, not far from 10%.

So we are confident that full electric will be the main technology, but also plug-in hybrid, it's growing. And from a tire perspective, both powertrains require the same performance.

From a tyre perspective, you need higher load index, better grip, lower rolling resistance, a better noise control performance. So all in all, for us, it's a great opportunity.

The next question comes from Gianluca Bertuzzo with Intermonte.

I have a question on antidumping measures in Europe. What's your take on that? Do you think you can have some benefit or not?

And second question is on your penetration with Chinese vehicles, but not in China. I'm referring in Europe. It is too early to measure your market share in the replacement channel with these Chinese vehicles?

Or can you share some of your achievements in that field?

So the antidumping measures, we welcome the final decision of Europe because the uncertainty before was creating a bit of confusion in the market.

So we welcome the final decision because we are confident that will lead into a better stability. But all in all, the dumping on the Chinese imported tires are not affecting our addressable market because it's mainly standard tires.

So not a direct impact on our sales, but a positive impact because finally, will create stability and clarity into the market. Penetration of Chinese car models is growing in Europe.

As a matter of fact, in the car registration in Europe of the most important Chinese players like BYD or G are growing. But in the premium segment, the penetration of Chinese models is still very limited in Europe.

So we see the penetration of EV in Europe in the premium and prestige segment still driven by the European carmakers that are now in the process of introducing new car models with a very good performance.

And so we are confident that the premium segment and of course, the Prestige will remain at least, in the short term, 2, 3 years in the hands of the European carmakers.

Nevertheless, the penetration in the synergy market of the Chinese models is growing.

The next question comes from Jose Asumendi with JPMorgan.

I want to go back again, please, to the Suzhen Tyre joint venture. If you could please speak a bit more about the rationale of the partnership there and whether we should be expecting any other financial impacts on the net financial position on the net debt during the year.

So thank you for your question. The rationale is that we are now in the position to fully control an asset that is dedicated to the production of high-value product and the high content of technology.

So for us, strategically, it has been a positive movement. I leave the floor to Mr. Bocchio for the impact on the net financial position.

The impact on the net financial position we already accounted for the impact of the consolidation of the debt of this JV at the beginning of the year.

So in quarter 1, there was an impact of EUR 210 million. Then in quarter 2, there was the exercise and effectively the payment of the call option for an additional EUR 247 million.

So the net financial position achieved at the end of half 1, it is already accounted for the full amount of the impact for the operation. Obviously, that plant is now creating value for the group.

It is selling with an average contribution that is higher than the average of the group. So obviously, there is a cash flow generation coming from the operative business of that company.

But for the remaining part of the year, we don't have any additional impact to take into account considering the specific operation.

Mr. Tom Provera, there are no more questions registered at this time.

So thank you for the attendance to our conference call. This ends our today's program. Thank you, and I wish you a very good evening.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices. Thank you.

Ladies and gentlemen, welcome to Pirelli's Conference Call in which Pirelli top management will present Company's First Quarter 2026 Results.

A live webcast of the event and the presentation slides are available in the Investor Relations section of the Pirelli website. [Operator Instructions]

Now I would like to introduce Mr. Marco Tronchetti Provera. Please go ahead, sir.

Thank you, and good evening, ladies and gentlemen. The results for the First Quarter of 2026 confirmed the resilience of Pirelli business model in a highly challenging environment.

In line with the strategic priorities, we consolidated the position in the high-value segment, leveraging our brand strength, technological leadership and a broadened distinct in product portfolio. By doing so, we gained market share in both the Car and Motorcycle business. Profitability remains among the best in the industry, the highest among Tier 1 players with adjusted EBIT margin of 16% despite the negative impact of exchange rates, inflation and U.S. tariffs.

Thanks to the rigorous financial management, we closed the first quarter with a cash flow trend in line with last year and with the usual seasonality of the business. External environment remains complex and characterized by the high uncertainty. The crisis in the Middle East is a significant macroeconomic risk with growing pressures on input cost inflation. The closure of the Strait of Hormuz is already impacting energy and logistics prices with effects that are gradually spreading to the value chain and economic growth.

In this context, demand in the High Value segment is proving resilient with growth expected to be in the mid-single digits. In response to this scenario, we acted promptly by implementing a mitigation plan based on price increase already communicated to the market and cost reduction. This plan enabled us to safeguard company's results and in particular, cash generation, which remains our priority.

Finally, an update on the recent decision taken under the Golden Power regulation. Under the new provisions, which will remain in force for as long as Sinochem holds a stake of more than 9.99% in Pirelli's share capital. Sinochem may participate in appointment of up to 3 directors, 2 of whom must be independent. The directors nominated by Sinochem may not hold executive or senior positions Chairman by Chairman, Chief Executive Officer, nor Chair Board committees. Any transfers of shares by Sinochem must be notified in advance to the Ministry of enterprises and Made in Italy and cannot be made 2 parties linked to SASAC.

These provisions are confirmed by statements from both the Minister for Enterprises and Made in Italy and the Minister for Foreign Affairs. In short, Pirelli's provisions, full compliance with U.S. regulations and connected vehicles.

And now I give the floor to Mr. Casaluci. Please, go ahead.

Thank you. Thank you, Mr. Tronchetti, and good evening, everyone. In a demanding macroeconomic environment, Pirelli closed the first quarter of 2026, with solid results.

Revenues were approximately EUR 1.7 billion with organic growth of 3.5%, driven by the continued strengthening of the high-value segment which now accounts for 82% of revenues and an improvement in price/mix. Adjusted EBIT stood at EUR 277 million with profitability at 16%, a slight improvement year-on-year, thanks to the contribution of internal levers which offset the negative impact of external factors amounting roughly to EUR 81 million.

Net profit rose by 23% year-on-year benefiting from lower financial expenses linked to debt reduction and a greater contribution from the results of equity investments. The net financial position stands at approximately EUR 2 billion and includes the impact of the consolidation of the Chinese JV, Xushen Tyre, debt amounted to EUR 210 million. The cash out relating to the exercise of the call option to increase the stake to 70% is expected in the second quarter and amounts to approximately EUR 40 million.

In the first quarter of 2026, cash absorption before dividends and prior to the consolidation of the Chinese JV amounted to EUR 704 million in line with the last year and reflects the usual seasonality of the business.

Finally, we continue to strengthen our commitment to sustainability, a strategic lever for innovation, growth and competitiveness. Our leadership has been recently reaffirmed by the Dow Jones best-in-class Sustainability Index, where Pirelli ranked first in the auto components and the automobile sector, and is the only tire company included in the index.

Let us now review the operating performance of the first quarter. In line with the strategic priorities, we gained market share in the high-value segments for both Car and Motorcycle business by leveraging technological innovation and capitalizing on market opportunities. On the innovation front, we are continuing to expand the range of homologations and products.

As for Cyber Tyre, we are developing strategic partnerships with leading companies in the fields of connectivity and autonomous driving with the aim of further strengthening our technology platform. At the same time, the efficiency plan is proceeding as expected, generating gross benefits of approximately EUR 43 million in the first quarter, equivalent to around 29% of the annual target.

Finally, as already communicated on April 16, to address the crisis in the Middle East, we implemented a mitigation plan worth EUR 80 million, which includes price increases and cost containment measures in addition to the aforementioned efficiency plan.

Let's start with the Q1 performance in the High Value segment, which now accounts for 82% of revenues also thanks to a 4% increase in volumes at group level. We gained market share in both Car and Motorcycle as a result of growing demand for Pirelli high-tech products, such as specialties and tires for electric vehicles in the car market and Hyper Sport and custom touring in motorcycle. The expansion of partnerships with leading OEMs and the strengthening of geographical positioning, both in the Car segment, where we are sizing business opportunities in the United States and Asia Pacific through a dedicated offering and in the Motor segment, where we are consolidating the leadership in Europe and expanding the presence in the other high value regions.

Let's now turn to product innovation. The first quarter of 2026, we obtained approximately 120 new homologations, of which 90% were for tires 19 inches and above, 80% for specialties, including Ran Flat, Run Forward and Pirelli Noise Canceling System, 65% for electric vehicles, mainly in Europe and China. Product innovation continues to leverage Pirelli experience in Motorsport.

One example is the partnership with Audi. The RS 5 and RS 3 competition models will be fitted with a P Zero R and Trofeo R sports styles designed for both road and track use. Development took place in close collaboration with Audi also through an advanced virtual simulation approach based on artificial intelligence. In replacement, the product portfolio is expanding across all segments. For the car, the third generation of Scorpion was launched for SUV models.

In Moto, sales of Metzeler SPORTEC 01 started for Hyper Sports segment. For Cycling, the P ZERO SL-R was launched for road racing applications. Finally, Pirelli technological leadership was further confirmed by comparative tests on car tires in which the Group achieved 6 victories. The development of Cyber Tyre continues through strategic partnership with leading organizations in the fields of connectivity and autonomous driving.

With the aim of further strengthening Cyber Tyre technology platform. We acquired a 30% stake in Univrses, a Swedish company specializing in advanced AI-based image and video processing technologies. The integration of Univrses' 3D AI computer vision with Cyber Tyre enables the combination of data from sensors installed Tyres with information derived from video analysis, offering an even more accurate understanding of road conditions. This integration opens up to high-value applications in terms of safety and autonomous driving and also provides infrastructure managers with real-time data for more efficient maintenance and a lower risk of accidents. We also consolidated the partnership with RIDEsense a spin-off of the University of Naples in which we hold the stake of approximately 25%.

The aim is to announce the performance of the Cyber Type through technologies based on virtual sensors. RIDEsense has over 10 years experience in real-time simulations applied to tires and motorsports, key expertise for accelerating the development of the platform. Finally, we joined the Board of NewLink and Italian startup originating from Milan Polytechnic that develops the entire technological system enabling autonomous driving from environmental perception to road planning and from vehicle control to remote fleet management.

NewLink is testing an innovative car-sharing model using autonomous vehicles. and this collaboration is an opportunity for Pirelli to strengthen its position in the autonomous driving ecosystem. Cyber Tyre is evolving from a product technology into an integrated digital platform at the heart of the future mobility ecosystem. This is happening also thanks to targeted partnerships that accelerate its innovation with a strong technological value. This partnership in a way, have a negligible financial impact already factored in our figures.

I now hand over to Mr. Bocchio.

Thank you, Mr. Casaluci, and good evening. Let's now review in detail the economic and financial performance for the first quarter of 2026 compared with last year. As previously noted, revenues stood at approximately EUR 1.74 billion, with an organic growth of plus 3.5%. Volumes were positive 1.5%, reflecting the strengthening of the high value in both Car and Motorcycle businesses and the gradual reduction of the exposure to the standard segment.

The price/mix continued to improve, plus 2%, supported by product and regional mix. However, the channel mix was negative due to the strong performance recorded in original equipment. The impact of exchange rates was negative 4.5% due to the volatility of emerging market currencies against the euro and the weakness of the dollar, which is suffering from an unfavorable year-on-year comparison base.

Finally, the change in perimeter, minus 0.2% is linked to the deconsolidation of the Däckia business, which took place in the second quarter of 2025.

Let's now turn to the profitability dynamics. We closed the first quarter with adjusted EBIT of EUR 277 million, essentially stable year-on-year and a margin of 16% compared with 15.9% in the first quarter of 2025. The improvement in profitability was driven by internal levers. More specifically, the positive contribution from volumes for EUR 10 million, price mix plus EUR 21 million and efficiencies for EUR 43 million substantially offset the negative impact of exchange rates for EUR 40 million, reflecting the devaluation of the United States dollar, input cost inflation for EUR 28 million and the impact of U.S. tariffs amounting to approximately EUR 13 million in the first quarter and included under the item Other.

Finally, the impact of raw material was positive EUR 15 million, while the increase in depreciation and amortization amounted to EUR 5 million. Let's now examine the trend in net profit, which amounted to EUR 157 million, up 23% compared with EUR 127 million in the first quarter of 2025 due to a higher contribution from the results of equity participations amounted to EUR 22 million, mainly linked to the revaluation at fair value of the 49% stake in the Xushen Tyre joint venture and lower net financial expenses relating to that by EUR 14 million.

Other notable components include lower expenses from PPA amortization by EUR 6 million, and an increase in taxes of approximately EUR 10 million compared with the first quarter of 2025, mainly attributable to the improvement in pretax profit. The tax rate stands at 30.5% compared with 31.7% in the first quarter of 2025. As the revaluation at fair value of the 49% stake in the Chinese JV is not taxable.

Let's now turn to the net financial position. Pirelli closed the first quarter of 2026, with a negative net financial position of approximately EUR 2.02 billion, due to a negative net cash flow before dividends of EUR 704 million in the first quarter, in line with the seasonality of the business and working capital and the consolidation of the Xushen Tyre joint ventures debt from January 1, 2026, amounting to EUR 210 million.

Net cash flow before dividends is broadly in line year-on-year despite CapEx of EUR 87 million, up EUR 27 million compared to the first quarter of 2025, look at primarily to high-value activities, technological upgrades and factory automation, an increase in rights of use of EUR 34 million compared to EUR 28 million in 2025. Key projects included the renewal of the agreement for the Burton finished goods warehouse in the U.K. and the working capital absorption of EUR 939 million, in line with the usual seasonality of the business, but increasing year-on-year due to a sharp reduction in trade payables driven by the high concentration of capital expenditure in the final quarter of 2025.

As at the end of March 2026, Pirelli reported gross debt of around EUR 3.2 billion, financial assets of around EUR 1.18 billion and therefore, the net financial position of approximately EUR 2.02 billion. The cost of debt over the last 12 months stood at 4.20%, down by 20 basis points compared with the end of 2025. This reduction is attributable to the optimization of the debt mix due to a lower exposure to high-yield currencies. As at March 31, the liquidity margin of EUR 2.5 billion allows for the coverage of maturities for over 3 years, that is until Q3 of 2029. It should be noted that in January 2026, Pirelli signed an agreement for a new multicurrency banking facility, totaling EUR 2.1 billion with a group of leading national and international banks.

Specifically, the new facility linked to the Group's decarbonization targets for Scope 1, 2 and 3 consists of EUR 600 million term loan and the revolving facilities totaling EUR 1.5 billion. The agreement provides for the possibility subject to agreement between the company and the financial institutions to extend the maturity on the same contractual terms for a maximum of a further 2 years until 2033. The transaction also enabled the refinancing more than a year in advance of all debt maturing in 2027.

I return the floor to Mr. Casaluci.

Thank you, Fabio. And let's now turn to the outlook for the year, starting with the macroeconomic context. The crisis in the Middle East is one of the main risk factors for the economy, particularly due to its impact on input cost inflation. Tensions in the region with the closure of the Strait of Hormuz have led to significant pressure on oil prices, plus 60% since the start of the crisis to the beginning of May, and gas prices, plus 51%. The impact is gradually spreading across the entire value chain with growing pressure on raw materials, logistics and transport costs.

Freight costs have risen by 17% since the outbreak of the crisis. In this context, latest estimate point to a deterioration in the macroeconomic outlook compared to the previous assumptions. For 2026, global GDP growth is now expected to be 2.4%, down by around 0.5 percentage point with a slowdown mainly concentrated in the United States and Europe. At the same time, inflation is forecasted to rise to 3.7%, an increase of around 1 percentage point with a resulting risk of interest rate prices.

As a regard, commodities and energy following the initial shock and assuming the crisis is resolved within the first half of the year, prices are expected to normalize gradually in the second half of the year. Although, they will remain structurally higher than in the precrisis period. In light of the new macroeconomic scenario, we have updated our market outlook for 2026.

Car tyre demand is now forecasted to be between minus 2% and flat compared with a minus 1% to plus 1% range indicated in the end of February. The revised estimates mainly apply to the standard segment, which is more sensitive to economic trends. Expectations for the high-value segment, however, remain unchanged with mid-single-digit growth driven by replacement, particularly in Europe. For original equipment, we forecast a low single-digit growth with a gradual recovery in demand in the second half of the year across all regions, in particular in China, following a weak first quarter, linked to the revision of government incentives for electric vehicles we expect a recovery in demand in the second half of the year.

This outlook assumes the resolution of the Middle East crisis in the second quarter. If the tension in the Strait of Hormuz is prolonged, that could be risks for original equipment demand with potential reduction due to call offs since approximately 20% of global aluminum transit through the trade.

Let's now turn to the impact of the crisis in the Middle East. As already communicated, the Group's exposure to the Gulf regions is limited and closely monitored. Approximately $90 million in annual revenues equivalent to around 1% of sales concentrated in the high-value segment. From the start, our priority has been the safety of people. In response to the instability in the Middle East, we activated a structural contingency plan to protect staff in the region, reinforcing security and monitoring protocols. At the same time, we strengthened collaboration and support for local business partners, assisting them in managing the key operational challenges.

Logistically, we adjusted trade flows diverting them the alternative routes to the Strait of Hormuz via the Red Sea and then overland through the Western part of the United Arab Emirates and Oman with a cost impact that remains manageable.

Finally, on the industrial front, there are currently no delays or impacts on the construction of this healthy JV factory, also considering its location on the Red Sea. As already mentioned, the main impacts of the crisis in the Middle East related to the cost of raw materials, energy and transport. In addition, there are specific supply risks for the derivates of oil in the Asian regions, mainly butadiene, which is heavily dependent on flows through the Gulf as well as potential slowdown in global demand should the situation deteriorate. In this scenario, we responded by promptly activating a mitigation plan.

On the one hand, through price increases already communicated in all regions with the objective of mitigating for the increase in raw material and transport costs. On the other hand, we launched further cost containment initiatives, primarily in SG&A. At the same time, we are temporarily increasing stocks of all derivatives made in Asia and identifying alternative suppliers to ensure operational continuity. Assuming a peak in the commodity market, energy and transport prices in the second quarter and the gradual normalization in the second half of the year. We estimate a gross negative impact on 2026 adjusted EBIT of approximately EUR 100 million.

Thanks to the mitigation measures already in place, we expect to offset around EUR 80 million with a net impact on adjusted EBITDA estimated at around EUR 20 million, as communicated on April 16.

Let us now turn to the targets, which have been updated in line with the new outlook, 2026 guidance is as follows: revenues of between EUR 6.75 billion and EUR 6.95 billion, approximately EUR 50 million higher than the targets announced in February. Volumes confirmed to be growing between 1% and 2%. Price/mix now expected to improve between 2.5% and 3%. That is an additional increase between 0.5 and 1 percentage point, thanks to price increases already communicated.

Currency impact slightly revised based on expectations of a lower depreciation of the dollar. Exchange rates are now forecasted between minus 4% and minus 2% compared to the previous minus 4.5% and minus 2.5%. Profitability is expected to be around 16%. Adjusted EBIT in absolute terms is expected to be around EUR 1.08 billion at the midpoint, corresponding to the lower end of the previous guidance, as indicated on 16th of April.

Capital expenditure confirmed at EUR 450 million, approximately 6.5% of revenues. Net cash generation before dividends and impact of the exercise of the call option on the Chinese joint venture confirmed at EUR 500 million. Net financial position confirmed at EUR 1.2 billion, including the expected impact related to the exercise of the call option.

I'll now leave the floor back to Mr. Tronchetti for the final remarks.

Thank you, Mr. Casaluci. As I mentioned at the beginning, of this conference call. The first quarter results confirm that Pirelli's successfully implementing its value-focused strategy supported by distinctive assets. In a complex and highly uncertain macroeconomic environment, our distinctive business model has enabled us to outperform peers. We continue to invest in high-value, technological innovation and brand strength. Elements that allow us to strengthen the position in the more strategic markets such as the United States, where we plan to develop Cyber Tyre in accordance with local regulation. We approach the external environment with real lease, but also with confidence backed by mitigation plan already in place, a flexible industrial structure and a rigorous financial management.

These factors enable us, not only to protect Pirelli performance in the short term, but also to continue building sustainable value in the medium to long term for all stakeholders. Even though uncertainties in the external environment, which could persist beyond the second quarter, we believe it is more appropriate to present the next business plan in the first part of 2027.

This ends our presentation. And now we may open the Q&A session.

[Operator Instructions]

The first question comes from Stephen Benhamou with Bank of America.

Yes. I have 3 questions. The first one is regarding the Middle East conflict. So you anticipate around EUR 100 million growth impact. Can you please give us an indication of what's the breakdown between raw mat and other cost inflation? And because of the natural time lag, how much of the cost impact and mitigation measures we should expect as of Q2. This is my first question.

The second one is regarding the Q2 margin. Should we expect a higher margin in Q2 before likely lower profitability in H2 given the phasing of the cost inflation and mitigation measures? And finally, can you please give us any indication of a shift in terms of demand given this current environment, which is challenging. Did you experienced any slowdown in terms of demand in April, for instance?

Yes. Thank you for your questions. As far as the impact of the crisis in the Middle East, as we said, we have a gross impact expected around EUR 100 million that is roughly 80% linked to raw material inflations. The mitigation plan that is going to offset the vast majority of this impact accounting roughly EUR 80 million.

I would say, it's mainly concentrated in the second half of the year. But also the negative impact will arrive mainly in the second half of the year. We feel to start the first negative impact on the inflationary cost starting from the month of June, I would say. So the majority of the impact, both the headwinds and the mitigation plan will come in the second half. The margin, the profitability of the second quarter is expected slightly below the first quarter, but because we still have the headwinds of the duties because I remind that we started to pay the duties in 2025, starting from mainly the month of June, still some headwinds on the ForEx. But more or less, we do expect, thanks to the mitigation plan we have in place to have a quite stable profitability looking forward quarter by quarter.

No major impacts really. The demand, no slowdown of the demand in the month of April. Also the first quarter, even if the total market demand has been negative roughly 4% I think it's useful to remind that the high-value segment that is now representing more than 80% -- 82% of our sales was anyhow positive, mainly driven by a positive replacement channel but all in Europe. So all in all, the demand is still sound and in the high value above all, and we keep on targeting to gain market share.

The next question comes from Monica Bosio of Intesa Sanpaolo.

The first batch of questions is related to the Cyber Tyre maybe you can share it now with that. But I was wondering what could be the additional investments for the development of the Cyber Tyre in Georgia. And ideally, what could be the annual Cyber Tyres production in the site? And I was wondering if the company has already in place contracts with U.S. car makers. This is the first question.

The second question is on the volume trend in the first quarter, which was well above the market. Have you seen any prebuy effect from wholesalers in the high-value segment. And I reminded that in the last conference, the company gave some colors on the gain of market share by channel. Are you gaining market share both in original equipment and in the aftermarket in this quarter?

So we don't disclose the volume on the Cyber Tyre production and also the expected growth on the Georgia plant, but it's useful to remind that the growth of capacity in United States will be a bit concentrated in Georgia and will be one of our most important capacity growth projects for the coming years. And we will be very soon in the position to communicate the investments and the capacity volume we target to grow in the United States. What I can tell you is that we are already working on the introduction of the Cyber Tyre technology. We are accelerating the negotiation and the development with the most important U.S. car makers, mainly in the Electric Vehicle segment.

We are already supplying Cyber Tyres in United States, today produced in our plant of Mexico. We will keep the production over there, and we will add the production in the Georgia and very soon, we will also in the position to announce some new supply agreement in the U.S. As far as the volume of the Q1 is concerned, I can tell you that the market, as I said, was positive in the high value, even not as brilliant as in the past quarters, mainly driven by a negative original equipment market in China.

And this has been mainly driven by the reduction of the local incentivation on the new electric vehicle that affected the demand on the first quarter in China on the original equipment and also for the prebuying in the last quarter of 2025 in China and also negative in United States replacement channel because of the bad weather conditions and the not favorable comparison with last year.

All the other channels and all the other regions were positive, mainly in the replacement channel and mainly driven by Europe and replacement in China. We have been able to gain market share in replacement channel everywhere in all the major high-value markets, mainly in China and in the United States. And we also were able to gain market share in the regional equipment in all geographies, mainly in this case, in China and in United States.

This is the outlook of the volumes in the Q1. The level of the stock in the trade is, I would say, at a normal level. We have not seen any kind of pre-booking approach even if we already announced all the price increase during the month of April. And at the same time, thanks to a good sellout season in winter in Europe, mainly in the month of January and -- November and January. The stock level of winter at the end of the winter season in Europe is back to a very normal and healthy position.

Okay. If I may add. So I understand you can't announce the investments for the Cyber Tyre, but is it something which is already embedded in the guidance? Or is it something that will come on top.

Now this year, the investment is included what we will do in Georgia. So there are no changes in our investment. And looking forward, the investment in Georgia will be part of our investment plan. So in our roadmap, Georgia is a natural growth and so there is more change in the strategy.

The next question comes from Martino De Ambroggi with Equita.

On prices, in your Slide #18, you're talking about price increases already announced to the market. Two questions on this. Could you elaborate on the rough indication of what was the price increase by I don't know if by region, if it's possible. But I imagine that among the mitigation actions, price increases represent the bulk of the EUR 80 million that you have in mind? And the second question is on the BEV Tyres. They are not anymore so important as it was a couple of years ago, but could you tell us what is the penetration and the potential upside, if any, when the aftermarket will come.

On you for your questions. And I will start from the price. The mitigation plan we presented is roughly EUR 80 million of support to the result out of which, I would say EUR 50 million, EUR 55 million are coming from the price increase already announced during the month of April in all geographies. If you look at our price mix, new guidance is, I would say, putting us on the average point of 2.7%, 2.8% of price/mix. You can consider the mix impact more or less stable along the year, which is strictly linked with our business model, I would say, roughly 2 percentage points, while the price is moving from a 0 impact more or less in the first half into a 1.5% positive impact in the second half. That's the -- if you look at the full year on the full year base, out of the 2.7%, 2% is mix and 0.7% is price effect. The announcement has been done public during the month of April everywhere, and the entity of decrease is similar because it's linked to the inflation of raw material, transport and energy. As far as the replacement is concerned. While original equipment is we have an utilization approach, and it represents roughly 20% of our total sales, which is following a cost metrics approach.

So it is already in the indexation to the inflation. Thank you, Fabio. Task for electric vehicle are still extremely important for us because I remember that the entire performance for electric vehicle, it's much higher because you need to have better load index, better grip to support a stronger torque momentum, better noise control because, first, in terms of comfort, the first cause of noise of the electric vehicle is not coming anymore from the engine, but the contact between the road -- the tire and the road and also rolling resistance is extremely important for the durability of batteries.

So a lot of technology for the premium electric vehicles, and this is where Pirelli is leading the penetration of the Premium and Prestige segment. We target during the year 2026 to arrive at roughly 9 million tires out of which the vast majority, around 6.5 million steel original equipment because it's a young segment, but we have already 2.5 million more or less coming from the replacement channel, and the profitability is, as expected, in line with the profitability of High Value or even a bit higher.

The next question comes from Akshat Kacker with JPMorgan.

I have 2, please. The first one on the U.S. market in general. We have seen that the sell-in volumes for quite a few of your peers have been negative in that market, and they've called out much higher competition and general channel inventories. So could you just talk about your business in the U.S. in Q1, please? And if you still expect to grow volumes on a full year basis in the U.S. markets? That's the first question.

And the second one is on China. A similar question, if you could just talk about overall volume development for the business in Q1 or revenues, if you could just give us a sense of China business performance, that would be helpful.

Yes. Thank you for your questions. Starting from United States, you are right. I talk about the premium market, so the high-value market has been slightly negative in Q1, not really the regional equipment that has been positive, roughly 1% positive, but the replacement channel was slightly negative, roughly 3%, 4% negative.

Pirelli was able to gain market share in both channels and the original equipment and in replacement. I remember that it is a market where we see the biggest opportunity to growth, not only because it's the biggest high-value market in the world, but it's because our market share is still below the average of our market share in the High Value segment, if we compare our presence in U.S. to the presence we have in Europe, for example, or in China. So we see a lot of opportunities, and we are catching these opportunity through a strategy that is done of a completely new product range developed for the American consumers. It is mainly high mileage driven through the penetration on the most iconic American vehicles where we have been able in the last 4, 5 years to gain market share, and we are now benefiting of the pull-through of this segment.

Just to mention some of them, the Ford F-150, the Dodge RAM, the Teslas, the most -- the best sellers of Tesla, Jeep and so on through the development of production capacity already mentioned, of course, and a healthy brand consideration, supported by all the investment we did in the brand in the last years, including Formula 1, which is very more and more popular with growing popularity, but also tennis, where we started to sponsor the Miami Open starting from this year. And enlarging the distribution channel also where we enlarge the customer base, and we are now covering all the markets in the United States. So we see a lot of opportunities, and it's a country where we have gained more market share during the first quarter.

China. Sorry, I leave the floor to Mr. Bocchio.

Yes. On the net sales in China, I would just remind you that Asia Pacific generally speaking, in the first quarter had the weight on revenues of about 17%. And it is expected for the full year 2026 to remain a little bit higher than the number around 18% of the revenues of the Group and inside the numbers, China represents for the full year, roughly between 11% and 12% of Group net sales.

The next question is from Michael Filatov of with Berenberg.

First one is just around efficiencies. You gained 29% of your total expected efficiencies in the first quarter. And I'm wondering if you see scope for additional efficiency gains beyond the $150 million. Second question, just around sort of the mitigation plan. You assumed commodity normalization in the second half, but just hypothetically, if prices remain sort of at current spot levels for the year-end, could you maybe help quantify the impact on the business? And then lastly, just because you've got fairly strong share with premium Chinese EV OEMs. When do you expect that replacement cycle to really kick in? And is there any difference in the margin profile of that particular business?

Thank you. On the efficiency, on the efficiency plan, you are right, the first quarter is representing roughly EUR 43 million of efficiency out of the total of EUR 150 million, we do expect for the full year. Roughly out of this EUR 150 million of efficiency plan, roughly 25% is coming -- 25%, 30% is coming from product cost. So product modularity and product design to cost approach roughly 10%, 12% is coming from SG&A, cost rationalization, another 10%, 12% from organizational streamlining and so we come to the vast majority of the impact that is roughly 50% coming from manufacturing, where we are accelerating our investment in electrification, in digitization and, above all, in automation of our factories mainly in Europe, but not only, also South America and all around the world, generally speaking.

On the replacement cycle on EV and then I leave the floor to Mr. Bocchio for the commodities impact on the replacement cycle on EV. First, it's useful to mention that the car registration in the Premium segment in China are already more than 50% linked to electric vehicles. So China has been able to accelerate in the penetration of EV, not only in the Synergy segment, which is out of our strategy, but also in the Premium segment where a lot of newcomers have been able to gain market share, introducing in the market cars that has a level of technology, mainly related to infotainment and autonomous driving, but also battery durability that is, I would say, a very high level of technology. Also, the design of the cars is better than before. And so they are very successful in gaining share.

And Pirelli was able to partner with a majority of these car makers and today can benefit of a market share in the premium EV segment in China, which is very similar also in some cases, even higher than the market share that we have with the traditional premium car makers of Europe or United States. The pull-through of these cars is coming in the market, and we are carefully measuring the effectiveness of this pull-through because it's a completely new segment and also the experience in the tire change is new.

So we are investing a lot in the education of the consumers to let them know that the tire should be homologated in order not to lose in terms of driving experience, both in terms of safety, in terms of comfort and so on. And so we will be able in the coming 2 years to understand if the pull-through of the EV in China is as good as the European car makers. But never forget that for electric vehicles, the tire maintenance is of paramount importance because of the reasons I said before, comfort, durability of batteries, but also safety because of the grid.

So I'm quite confident that the pull-through on the electric vehicle, generally speaking, all around the world will be even higher than the internal combustion engine. Fabio?

I will take the one on the commodities and raw materials. During the year, we will have a very different trend quarter by quarter. In quarter one, we just showed that we had a positive impact, positive contribution coming from the raw materials for about EUR 15 million. This was coming in our COGS from the natural rubber, butadiene, and the Brent decline year-over-year. We are expecting a similar trend for quarter 2, meaning, again, a positive contribution for our raw mat in Q2, even if at the end of quarter 2, we will begin to see the impact of the Middle East crisis. But still, we are expecting raw mat to be positive in quarter 2, while obviously, in the second part of the year, starting from Q3, the sizable increase in all the commodities is expected to turn completely the sign and to be a headwind for us standing from quarter 3 and to quarter 4.

What we are expecting for the moment, we are considering for the second quarter, commodities at the level that we have seen on the market in these past few weeks. So with the Brent at about, an average, $100, the natural rubber at about $2,100 per ton. We are expecting the normalization of these values for the second half of the year, even if we expect them to be at a higher level than the situation than the pre-war situation. So for the full year, we are expecting, for example, Brent, on average, that will be between around $85 per barrel.

One comment more on the answer related to the efficiency plan. We were talking about EUR 150 million of efficiency plan. This is not considering the cost reduction that is part of the mitigation plan for the Hormuz crises. This is on top of the EUR 150 million, just to clarify. The EUR 150 million if I just may comprehend is related to the efficiency program that we have started, even starting from the last part of the previous year that are going around 2026 accordingly to the projects that we are putting, especially in our plants.

So this is fully confirmed. We saw the impact in the first quarter of EUR 43 million accordingly to the timing of the project we would foresee for Q2 or Q3 a slightly lower amount and then to arrive to EUR 150 million for the full year. On top, given the overall macroeconomic situation, we are doing an exceptional, lets say, mitigation plan on cost, mainly on the G&A part, which would be on top of this EUR 150 million, which I have fully confirmed.

Mr. Tronchetti Provera there are no more questions registered at this time.

Thank you, so this ends our presentation. I thank you for the attendance, all of you, and I wish you a very good evening.

Ladies and gentlemen, thank you for joining the conference. It's now over. You may disconnect your devices. Thank you.

Ladies and gentlemen, welcome to Pirelli's conference call in which Pirelli top management will present company's full year 2025 preliminary results. A live webcast of the event and the presentation slides are available in the Investor Relations section of the Pirelli website. I remind you that the Q&A session will follow the presentation.

Now I would like to introduce Mr. Marco Tronchetti Provera. Please go ahead, sir.

Good evening, ladies and gentlemen. 2025 results mark another milestone in our journey of growth and value creation. In a highly volatile external environment, the group closed the year with outstanding results. We further improve our positioning in high value. Profitability is confirmed as the highest among Tier 1. Cash generation was above expectations, enabling us to accelerate the deleveraging process. At the same time, we strengthened our commitment to sustainability with result that reinforce our leadership.

Pirelli is the only company in the global tire and auto component sector to be included in the top 1% of the Standard & Poor's Global Sustainability Yearbook. The scenario that we see for 2026 remains challenging with geopolitical uncertainties and high microeconomic volatility. In this complex landscape, we see real opportunities for growth that we are ready to capture through a business model that is increasingly data-driven. We aim to consolidate our leadership, improve profitability, deliver a sound cash generation and ensure a solid shareholder remuneration.

I now give the floor to Mr. Casaluci, please.

Thank you, Mr. Tronchetti, and good evening. Revenues amounted to EUR 6.8 billion with an organic growth of 4.2%, driven by the strengthening of High Value, which now accounts for 79% of group sales, plus 3 percentage points year-on-year. Profitability reached 16%, supported by internal levers that more than offset the negative impact of the external headwinds for around EUR 320 million between exchange rates, tariffs and input cost inflation.

Net income stood at EUR 531 million, up 5.9% year-on-year, benefiting from a solid operating performance and lower financial expenses. The deleveraging process was completed, thanks to cash generation before dividends of approximately EUR 1.1 billion, resulting from improved operating profit, rigorous working capital management and the successful conversion of the equity-linked bond. In 2025, we strengthened our commitment to sustainability, a strategic lever for innovation, growth and competitiveness. The results achieved are fully in line with our objectives and long-term strategy.

Accident frequency rate was reduced by 14% year-on-year as a result of prevention and training programs. In decarbonization, we achieved important results. We reduced absolute CO2 emissions by 63% in our factories compared to 2018 through the electrification of curing processes, and we intensified the efforts with our suppliers who decreased emissions by 27.5% compared to 2018. These results are fully consistent with the carbon neutrality target for 2030 and net zero for 2040, validated by science-based targets initiatives.

As for products, we increased the percentage of bio-based and recycled materials, which in P Zero developed for JLR accounted for more than 70%. This is an important achievement that places us at the forefront of the industry and also offers interesting business opportunities and mix improvement. Finally, to protect biodiversity, we have further reduced water consumptions by 54.3% across all the group's production sites compared to 2015.

Let us now move on the detailed analysis of 2025 operating performance. The implementation of our strategic programs enabled us to strengthen the positioning in the high-value segment, gaining market share in both replacement and OE to consolidate the technological leadership with new products that stood out in comparative tests and to improve the competitiveness with the automation and digitalization of our processes.

Let us now take a closer look to each program. We fully captured the growth of car 18 inches up, outperforming the market, plus 7% in full year 2025 compared to plus 6% of the market and plus 11% in the fourth quarter versus plus 8% of the market. The gaining market share concerned both channels. In original equipment, we benefited from strengthened partnerships with local carmakers in North America and Asia Pacific and a favorable year-on-year comparison.

In replacement, our performance was positive in all regions, driven by pull-through and continuous product innovation, which enabled us to size opportunities in specific segments, for instance, all season in Europe and all terrain in the United States. During the year, we continued to reduce our exposure to standard, particularly in South America, where we revised our commercial and distribution policy to focus on more profitable products and channels.

Let us now move on the innovation program. In 2025, we further consolidated our technological leadership in the high-end segments. We obtained approximately 320 new homologations, mainly in 19 inches and above specialties and electric vehicles. Our homologation portfolio is much wider than that of our peers, more than 3x in 19 inches up. This strengthened our partnerships with premium and prestige OEMs in various regions.

In Europe, we confirm our role as a leading technology partner contributing to the evolution of iconic models such as the Ferrari [indiscernible] Testarossa. In North America, we are consolidating our leadership in high-performance vehicles such as Ford Mustang. In Asia Pacific, we have a closer partnership with the most important new premium electric vehicles producers. And finally, in South America, we are supporting the technological evolution of car park with a stronger presence on multipurpose vehicles such as the Ram Rampage.

Our high-value offering was enhanced with 9 new car products. 2025 was a record year in terms of awards and recognitions for Pirelli products. In summer, P Zero E won Compasso d'Oro, a prestigious International Industrial Design Award. In addition, the fifth generation of P Zero was voted best ultra-high performance at Summer Tyre by Tyre Reviews and Auto Express. The P Zero Winter 2 ranked first in test conducted by the historic Swedish Magazine and Tyre Reviews. Finally, in the All-Season category, Cinturato All Season SF3 scored 12 victories, while Scorpion All Season SF3 stood out in the German AVD comparison taking first place.

Important results were also achieved in the world of 2-wheelers. In motorcycles, we introduced 2 new products and won Motorrad and PS Magazin test. Finally, in Cycling, we further expanded our range with 4 new products. Pirelli's Cyber Tyre technology also received several global awards. In the United States, it was voted the most innovative technology for the future of smart mobility by the AutoTech Breakthrough Awards. And Frost & Sullivan named Pirelli Company of the Year. In Europe, the significant level of innovation was also recognized by AUTOBEST and by the Automobile Awards in the Safety category.

Finally, let's analyze the results of the operations programs, which generated gross efficiency of EUR 158 million, offsetting the negative impact of inflation. More specifically, the greatest benefits drive from the product cost project, thanks to innovative design reducing the cost of materials and the manufacturing project through factory automation and electrification of the curing phase, allowing a more efficient use of energy. In the SG&A and organization projects, we continue developing the planned programs, generating efficiencies through the rationalization of the supply chain and the optimization of logistics and the digitalization of internal processes and personnel upskilling.

I now give the floor to Mr. Bocchio.

Thank you, Mr. Casaluci. Let's now analyze in detail the performance of 2025 compared to the previous year. The top line recorded an organic growth of 4.2%. If you factor in exchange rates and the difference in perimeter, the top line was stable. High Value revenues were above EUR 5.3 billion, accounting for 79% of the group's revenues, up 3 percentage points compared to last year.

Let's now move on to the individual drivers. The trend in volumes, plus 0.4% year-on-year reflects the opposite dynamics of High Value and standard already illustrated by Mr. Casaluci. The price/mix improved by 3.8%, driven by the product mix and the regional mix, while the channel mix was slightly negative, particularly in the fourth quarter, given the trend in sales of original equipment compared to those in replacement. The impact of exchange rates, minus 3.8%, reflects the depreciation of the U.S. dollar and the volatility of emerging market currencies against the euro. Finally, the change in perimeter, minus 0.4% is linked to the deconsolidation of the Dackia business, which was sold in the second quarter of 2025.

Let's now analyze the profitability trend. Adjusted EBIT amounted to EUR 1.081 billion, up by approximately EUR 20 million year-on-year with a margin of 16% compared to the 15.7% in 2024. The improvement in profitability is linked to the effectiveness of internal levers, which more than offset the negative impact of external factors such as exchange rates, raw materials, inflation and U.S. tariffs, amounting to a total of EUR 320 million. More specifically, volumes contributed EUR 11 million. The price/mix of EUR 173 million more than offset the increase in the cost of raw materials for EUR 56 million and the impact of the exchange rates negative for EUR 85 million.

Efficiencies equal to EUR 158 million more than covered input cost inflation that were EUR 121 million. Finally, we accounted for a negative impact of D&A for EUR 26 million and other costs for EUR 33 million. The gross impact of U.S. tariffs was EUR 55 million, approximately EUR 25 million net of the mitigation plan. In the fourth quarter, adjusted EBIT was EUR 246 million, essentially stable compared to the previous year, with an improved margin of 15.6%, and it was 15.4% in the fourth quarter of 2024, thanks to the excellent commercial performance, price/mix and efficiencies that fully offset the headwinds coming from exchange rates and tariffs.

Let's now move on to the net profit, which amounted to EUR 531 million, up by approximately 6% compared to EUR 501 million last year. This trend reflects the EUR 21 million improvement in operating performance, the EUR 33 million increase in nonrecurring expenses, mainly linked to the continued streamlining of the organization in Europe and South America, the positive contribution of equity investments for EUR 21 million, especially for the dividends received following the liquidation of [indiscernible], reduction in net financial expenses of EUR 103 million due on the one hand to the lower nonmonetary impact linked to hyperinflation accounting and on the other hand, to lower expenses linked to the reduction in debt and interest rates.

Finally, the EUR 83 million increases in taxes following the discontinuation of the tax benefits that were included in the 2024 results. The tax rate was 30%, in line with expectations. Pirelli closed 2025 with a net financial position of approximately EUR 1.1 billion and a leverage of 0.71x the adjusted EBITDA. Cash generation before dividends amounted to EUR 1.074 billion with a EUR 497 million benefit coming from the conversion of the equity-linked bond. Excluding this effect, the cash flow before dividends amounted to EUR 577 million, up EUR 43 million compared to 2024.

Net cash flow from operating activities was positive at EUR 1.024 billion. This result is an improvement of EUR 35 million compared to 2024 and is due to the operating performance just discussed, investments of EUR 420 million related to high-value activities, technological upgrades and factory automation, EUR 113 million increase in right of use, positive contribution from working capital management, thanks to efficient management of inventory whose weight on revenues reduced to 21.5% versus 21.7% last year.

The weight of trade receivables and the trade payables on revenues remained substantially unchanged. Interest paid went down to EUR 200 million. They were EUR 249 million in 2024 due to the reduction in debt and interest rates. Taxes paid were basically stable year-on-year and amount to EUR 154 million. Please note that in 2025, the taxes paid are lower than those in the profit and loss because the Italian tax system allows for payment on a historical basis. Therefore, the point of reference was the taxes due in 2024 that still accounted for tax benefits such as Patent box and ACE.

This difference between profit and loss and cash flow tends to disappear in 2026 with an expected tax rate between 32% and 34%. As of December 2025, Pirelli had a gross debt of approximately EUR 2.96 billion, financial assets of EUR 1.86 billion and therefore, net financial position of approximately EUR 1.1 billion. Sustainable finance accounts for 100% of the parent company's gross debt, confirming the achievement of the target announced in 2024. The cost of debt over the last 12 months was 4.40%, down 66 basis points compared to 2024, benefiting for the variable rate portion from the trend in interest rates in the Eurozone and from a reduction of the debt portion in countries with high interest rates.

As of December 2025, the liquidity margin of EUR 3.1 billion covered debt maturities up to the third quarter of 2029. In January 2026, Pirelli signed a contract for a new multicurrency bank line for a total amount of EUR 2.1 billion with a group of leading national and international banks. Specifically, the new line based on the group's decarbonization targets for Scope 1, 2 and 3 consists of a term loan of EUR 600 million and revolving lines for a total amount of EUR 1.5 billion. The agreement provides for the possibility by mutual understanding between the company and financial institutions to extend the maturity under the same contractual terms for a maximum of 2 additional years until 2033. The transaction also allowed for the refinancing more than a year in advance of all debt maturing in 2027. I now leave the floor back to Mr. Casaluci.

Thank you, Fabio. The scenario in which we operate continues to be marked by great uncertainty and structural transformations. On a geopolitical level, regional tensions, protectionism and the fragmentation of global supply chains persist as elements of complexity. From a macroeconomic perspective, we continue to operate with an uncertain demand and different trends between segments and markets, as we will see in the next slide. For 2026, we expect from the one side, a global GDP growth of 2.9% together with a gradual slowdown of CPI inflation. On the other, a greater volatility of exchange rates and commodity prices.

Finally, the technological transformation is bringing about structural changes in the automotive sector. We are living in an era of truly disruptive technologies. It is not just artificial intelligence, but automation evolving towards advanced robotics. And it is not just the powertrain, but the vehicle architecture that is becoming software defined and fully connected. For a group with a strong technological DNA, this transformation is a key lever for differentiation and sustainable growth in the long term.

Let's move on the market outlook for 2026 on our expectations for the main regions. The car tire market is expected to remain basically flat, minus 1% or plus 1% with high value, our reference segment, confirming a mid-single-digit growth rate. High-value growth is driven by replacement, especially in Europe, Asia Pacific and North America.

Demand for high-value original equipment is expected to grow at a low single-digit rate and to recover in the second half of the year, in line with the trend of car production. In the 17 inches and below car segment, demand is expected to be negative low single digit in both channels. In this scenario, Pirelli confirms its strategy of gaining market share in the 18 inches up and reducing its exposure to standard.

We have identified 3 strategic priorities for 2026. The first is growth in the high-value segment, which will be driven by a continuous mix improvement, leveraging on electric vehicles and specialties by the expansion of partnership with premium and prestige carmakers and by the increase of exposure to markets where we have upside potential.

The second priority is to strengthen the technological leadership through continuous renewal of product range and the development of opportunities offered by Cyber Tyre. The third priority is a transformative efficiency as a structural lever for competitiveness. Before expanding on the 3 strategic priorities, I would like to focus on our data-driven business model. In recent years, we have gradually built an integrated digital ecosystem powered by the digitalization of our core processes, advanced analytics and more than 110 artificial intelligence models.

These ecosystems is strengthening the quality and speed of our decision-making and is progressively transforming Pirelli into a truly data-driven company. Let's now review more in detail our digital ecosystem. Starting from the top of the slide, the integrated business planning platform allows us to forecast replacement demand generated by original equipment homologations, integrating it with external data on car park.

This process enables us to select business based on their expected profitability throughout the entire product supply life cycle. This is supporting our long-term and short-term forecasting. Below on the left, the integrated CRM platform, combining geolocalized data of the car park with our algorithms, these platforms allows us to support sales, making the best offers based on the client's reference market.

Moving to the right, the product life cycle management platform is enabling us to digitalize the entire development process from compound design to simulation and testing. With the help of virtualization and AI, we are accelerating the development of new products, reducing time to market and cost and improving quality. In 2025, we increased the number of virtual tests fivefold.

Moving down to the manufacturing. We are progressively connecting all machineries using industrial IoT technologies to allow real-time production data collection and through AI, improve product quality and factories competitiveness. In the supply chain, thanks to the introduction of AI algorithms, we are building a control tower to plan procurement of raw materials well in advance and to predict logistic flows. These ecosystems relies on a set of infrastructural digital enablers illustrated on the right-hand side, like the cloud, which greatly increases computational capacity and the data lake, making data available to every business process and all AI models.

Cyber Tyre technology is fully integrated with this approach. The data collected by sensors integrated into the tire, processed through proprietary algorithm and enhanced by AI, not only improves vehicle safety and control dynamics, but also product development, AI models and overall performance. The Cyber Tyre is a pillar of our evolution towards a fully data-driven industrial model geared towards sustainable value in the long term.

Let's now go back to our strategic priorities, starting from growth in high value. Despite our leading position, we intend to seize more opportunities. The first guiding principle is mix improvement, valuing electric vehicles and specialties, developing a more regional offering capable of meeting the specific needs of the different markets and increasing our presence in product segments where we still see unexplored potential for Pirelli.

At the same time, we are strengthening our partnerships with the main OEMs to extend business opportunities and enlarge the customer base in North America on iconic vehicles, in China with premium new electric vehicles producers, in Europe with premium and prestige carmakers.

Lastly, we want to speed up our geographic growth, in the U.S. where the potential is not fully expressed and in emerging markets where high value is growing at a faster pace, such as South Korea, Southeast Asia, Gulf countries or India. These are the 3 principles that are leading us to overperform the market in the car 18 inches up and increase exposure to high value above 80% of revenues in 2026.

Brand continues to be a distinct asset supporting growth. Formula 1 and the major international sports competitions together with MotoGP from 2027 allow Pirelli brand an extraordinary visibility worldwide, further enhanced by cultural activities such as The CAL and the HangarBicocca. The result of such initiatives is an iconic and strongly distinctive brand. Pirelli is globally recognized as a synonym of technology, sports and performance and the reference point for our high-value target as proven by the top scores achieved in brand equity studies carried out by major research institutes.

Let's turn to the second strategic priority, product innovation, which relies on the whole digital ecosystem we have just described. We are introducing 9 new car products, marking a significant renewal of our most successful lines. This new portfolio strengthens our position in key segments and markets. We have put a strong emphasis on safety and performance, integrating our most advanced technologies to deliver measurable improvements in driving experience, safety and durability.

On the 2-wheels side, we are launching 7 new products designed to meet evolving customer needs across segments. In motorcycles, we introduced 3 new models engineered to deliver high performance with a distinctly sporty character, responding to riders who demand both excitement and control. In cycling, we expand with 4 new products covering racing, road and gravel and mountain bike, broadening our reach and reinforcing our presence in high-growth segments.

Regarding Cyber Tyre, the development is ongoing. Our technology is a key component of software-defined vehicles and autonomous driving since it provides vehicle accurate information on the tire conditions and grip. At the same time, it contributes to developing smart roads and smart cities where the data collected enable predictive maintenance of infrastructures and the more efficient and safe management of urban mobility. To make this evolution feasible, we set up an expanding network of partnerships. We work with technological leaders like Bosch, [indiscernible] and Movyon, and institutions of excellence like the Italian Ministry for Infrastructures and Transportation, the Politecnico di Milano and Anas to develop advanced solutions for smart and safe infrastructures.

In the meantime, we are building partnerships with prestige and premium carmakers that recognize in this technology, a key feature for their next-generation models. Let's now move to the third strategic priority, transformative efficiency. There are 2 main programs that will contribute the most to the approximately EUR 150 million efficiencies in 2026. The first involves product design. The vast adoption of virtualization and simulation in product development allows us to expedite the time to market and to decrease environmental impact. More than 80% of our current products is developed through these digital tools with structural benefits in terms of quality, speed and efficiency.

In parallel, our modular design approach allows us to reduce production complexity. We are progressively increasing the number of common components, both across product families and within our factories with clear and tangible benefits. The second program is related to manufacturing. As mentioned, we are making our industrial platform more efficient and flexible by digitalizing factories and adopting next-generation technologies. Approximately 80% of our machinery is connected by industrial IoT, allowing for real-time data collection and improving process control and stability.

Besides all these, we develop technologies specific to key processes such as curing electrification, cutting edge on -- sorry, cutting down on energy consumption by 80% compared to traditional steam systems with additional measure benefits on emissions and water consumption, process and handling automation, making low added value activities more efficient and safer.

Finally, let's review the targets for 2026. Revenues are expected to be in the range of EUR 6.7 billion to EUR 6.9 billion, with volumes growing between 1% and 2%, supported by the strengthening of high value, price/mix improving to up to 2%, driven by the product mix, a negative currency impact of between minus 4.5% and minus 2.5% linked to the weakness of the dollar and the volatility of South American currencies.

Profitability is expected to improve slightly with an adjusted EBIT margin of around 16%, similar between first and second semester despite the different impact of external variables that will impact more heavily in the first quarter. Investments are expected to amount to EUR 450 million or 6.5% of revenues and will be mainly allocated to high-value activities, technological upgrades and factory automation.

Net cash generation before dividends is expected to be approximately EUR 500 million following increased tax pressure. Finally, net financial position is expected to be approximately EUR 1.2 billion with a leverage of 0.75x. This will include the impact for around EUR 250 million related to exercise of the option to increase the stake in Jining Shenzhou Tyre Company from 49% up to 70%. This will allow us to take the control of the Shenzhou plant, which is strategically important for strengthening the Pirelli Group's presence in China and our positioning in the local premium electric vehicle market.

In line with last year dividend policy, which provides for a payout of around 50% of consolidated net income, the Board will propose to the next AGM, the distribution of an ordinary dividend of EUR 0.24 per share for a total amount of EUR 260 million. In addition, in light of the positive results achieved in 2025 and lower leverage, the Board will also propose the payment of an additional dividend of EUR 0.10 per share for a total of EUR 109 million. Therefore, the overall dividend per share will amount to EUR 0.34 per share, equal to a total distribution of EUR 369 million. Thank you for the attention. And now I'll leave the floor back to Mr. Tronchetti for the final remarks.

Thank you, Mr. Casaluci. With 2025, the industrial planning cycle ends with a solid execution above peers. 2026 starts with new challenges. Despite this, we aim at growing, improving profitability and ensuring a solid cash generation. All this by leveraging a unique data-driven business model, which, as we saw, combines technology, a strong focus on high value and industrial excellence.

This model allows us not only to respond to external dynamics, but even to foresee them and turn complexity and volatility into a competitive edge. The digital infrastructure, the consistent use of artificial intelligence in all areas of the company as illustrated by Mr. Casaluci, and the integration of the data collected, thanks to our unique cyber technology within the software of the controlling units of our clients and in our modeling is strengthening our business model, making it future-proof in a fast-changing environment. With all of this, we end now our presentation, and we may open the Q&A session.

[Operator Instructions] the first question is from Akshat Kacker of JPMorgan.

Akshat from JPMorgan, and congratulations on another strong quarter. I have 3 questions, please. The first one is on Sinochem. Is it just possible to give us some more clarity on the situation and how are the discussions proceeding? And how should we think about the next steps or time lines from here, given that the U.S. screening deadline and even the shareholder pack negotiation is due in March. So the first question on Sinochem, please.

The second one is on the standard tire business. Volumes were down 13% in Q4, 11% in 2025. Could you just give us your expectations for 2026, please? How should we think about volume decline? And what are the current margins and operating income in this segment, please? And the last one is, if you could just give us an updated assumption on your raw material guide for 2026, please?

Thank you. So I will answer the question related to the shareholder structure and then Mr. Casaluci will answer all the other questions. There are not ongoing negotiation with Sinochem. We are going to end the pact. We will not renew the pact in June -- in May next. The -- now that the -- let's say, the Golden Power is analyzing the situation. What we can confirm is that clearly, the government, the Ministry of Industry, they stated that Pirelli will be in a position to enter in all markets, obviously, including the American market with its technologies.

And so for what concerned the 17th of March, which is the date in which the carmakers, they have to confirm that the alignment to the regulation of the BIS, the statement of the government of the Ministry of Industry are the answer. So we don't see an issue looking forward. And so we are sure that Pirelli will be in a condition to fulfill the requirements of the BIS. Please, Mr. Casaluci.

Okay. So on standard, the target volume we have for 2026, it stays around [ EUR 90 million, 18.8 million ] tires. That represents a further decrease versus 2025. I would say around 4%, 5% reduction on volume. It's important to remind that half of this volume, it remains concentrated in South America. The target of profitability for the segment, it is in the ballpark of mid- high single digit. And we maintain our medium-term target to reach the double-digit profitability, but not yet in 2026. I will leave the floor to Mr. Bocchio for the raw material scenario.

On the raw material, we will take this one. We are expecting a tailwind in 2026 compared to 2025. All of this tailwind is expected to be in the first half. It will be -- while in the second half, we expect it to have a sort of neutral impact, so zero variance compared to previous year. And the overall impact is expected to be in the ballpark of EUR 30 million.

Obviously, we are monitoring the situation of the commodities, specifically of the natural rubber trend because it went from a low point in mid-2025 of about $1,600 to the quotation in these days, which arrived to $1,900 or $2,000 per ton. So we are strictly monitoring at this point. And the other point is related to the tension of -- geopolitical and economical tension in the Middle East, which obviously may affect the value of the brand. monitoring the situation. But so far, this is our view for 2026.

One very quick clarification on accounting. Your increased stake in the Xushen Tyre joint venture, you expect to account for that at equity going forward?

You mean on the Shenzhou plant in China. The expectation is to exercise this call to enter in the full control of the plant and to use the production capacity of the factory and the expected growth on the following year of this capacity that will be 100% high value to take the opportunity of the -- to grow in the fast-growing high-value market on the electric vehicle segment, where the market is still growing with a high single-digit pace of growth and with -- where we are enlarging our customer base, partnering with a new successful premium player in China. That's the target.

Sorry, I just wanted to confirm, you're increasing your stake to 70%. So will this be fully consolidated on your P&L for 2026? Or are you still accounting for it at equity?

Yes. We will have the option to go from the 49% up to the 70%. This will be our option. And it will be consolidated line by line starting from January 1, 2026.

The next question is from Monica Bosio of Intesa Sanpaolo.

I have a few. The first is on the deployment of the business across the year. So should we expect a soft start to the year at the revenue lines and maybe a stronger second half? On the other side, in the first part of the year, you will have the tailwinds from raw materials. So any insights on how the business will deploy across the year if it will -- maybe it will be a year ahead to speed, just to check on this.

And the second question is on the Cyber Tyres. You entered in a lot of negotiation also with premium players. And I was wondering if you can share with us what is the weight in terms of revenues coming from the Cyber Tyres? And the last question is on the Chinese market. In the last call, the company highlighted that it enjoys with Chinese carmakers a market share, which is even slightly higher than Pirelli market shares with Western third players in the country. Can you quantify the market share gains the group gets in 2025 with Chinese players? And in relation to this, are you seeing a strong revenue stream from the replacement channel in the BEV segment in China and overall?

Thank you for the 3 questions. So on the first question, no, I would say it's a bit the contrary. We do expect a first half with more headwinds, mainly related to duties. I do remember that we started to pay duties from -- in 2025 from May on. So we will have a negative comparison in the first 5 months of the year, and also the exchange rate that will be the main headwind for the first quarter. I remember that the euro-dollar exchange rate in the Q1 2025 was roughly $1.05 average, while now we stay around $1.18, something like this. So it's absolutely negative.

We target to have stable profitability in terms of EBIT margin along the year in all the quarters, as Mr. Bocchio explained it. But in terms of EBIT in absolute value, I would say that the growth that we have in our plan, it's mainly concentrated in the second half for this reason.

While if we move on the Cyber Tyre revenues, no, we don't disclose these numbers yet, but this will be a very important chapter of the new industrial plan. We are fully concentrated in developing the technology and accelerating the penetration of the technology both in the car industry and in the infrastructure -- Italian infrastructure project. But the meaningful impact in terms of revenues will be part of the next futures, not now. Yes. And also important for the data connections coming from this new technology that, in a way, is supporting us the value creation already now, but it's not represented by revenue itself on the cyber product.

Last, the original equipment market share we have in China with premium players is similar to the one we have with the European premium players, all the Americas today, and it stays around 20%. What we are doing is we are enlarging the customer base because we want to have the same share with the most important premium players in China, which is a process in place.

And of course, we do expect that these will benefit the replacement demand for the coming years. It's still mainly supporting the regional equipment business because it's a technology quite young, but the first volumes in the replacement channel are already present in our numbers in 2026.

We should see more in 2027. Is it correct?

Yes, is, of course, it will be of growing importance in the coming years. But just to give you a flavor already 30% more or less of our volume in electric vehicle technology, it is replacement. So the replacement, it starts to represent a meaningful value stream for the replacement sales.

And thank you for clarifying that the second half will be stronger.

The next question is from Stephen Benhamou of Bank of America.

I have 3 questions, please. The first one is on the EBIT bridge. So you've already mentioned the raw mat tailwind, can you please give us more color regarding the efficiency gains that you anticipate. So you've mentioned EUR 150 million. If you could give us the phasing and the flip side, is, for sure, the cost inflation. So what should we expect in 2026?

The second question is regarding your return policy. So given the group's historical cash flow generation and the solid balance sheet, should we expect a higher payout ratio going forward? And the last question is more a confirmation. So do you confirm that despite this ongoing situation with Sinochem, this has -- this will have no consequence regarding the ability of Pirelli to have access to the U.S. market because if I'm not mistaken, you've said just before regarding the Akshat question that the U.S. ban on March 17 will not be an issue at all for Pirelli because Pirelli will still have access to the U.S. market or at least for the Cyber Tyre market. So can you please confirm this remark?

Thank you for your questions. I'll start with the last one. We confirm the will that have been expressed by the government and by minister. So it's obvious that we have to align the governance of the company to the BIS prescriptions, and we are confident that it will happen. So we stick with the -- with what have been stated by the official Italian authorities. Please Mr. Casaluci.

On the payout policy, no, we are not changing the payout policy. We do consider payout policy today, 50% of the net result is best practice in the industry. So we do remain with this policy. What we decided to do this year in 2026, considering the good results of '25 and the deleverage is to propose an extraordinary dividend for 2026. And in the following years, we will see, and this will be part of our industrial plan.

For the balance between efficiency and inflation, if I correctly understood your question, we do expect to have a positive balance between our efficiency plan and the inflation. Overall, we do expect around EUR 25 million positive on the full year compensating EUR 125 million, more or less EUR 1 million negative of inflation, well distributed during the 4 quarters during the year with a positive efficiency plan of EUR 150 million, I would say, also well distributed during the year. So we don't expect major changes in the seasonality of the positive balance between efficiency and inflation.

If I may, just a follow-up question regarding the situation. So you believe that you will solve this governance issue at some point. Do you believe that this governance issue will be solved before the deadline of March 17? And is the Italy government have any power to force Sinochem to comply with this U.S. regulation?

This is something you have to ask to the Italian government. So we confirm what the government mentioned last year, what has been confirmed year-end by the Minister of Industry and that the Golden Power now has the -- in his hands, the new regulation to align the governance to the requirements of the American regulation. So that is what we can confirm. Thank you.

The next question comes from Martino De Ambroggi of Equita.

Focusing on the Chinese deal. In your Slide 27, you mentioned that the debt will have a EUR 250 million impact coming from debt consolidation and the exercise of the option. Could you split the 2 figures? And in order to understand, since it will be consolidated since the beginning of year, I don't know the size of this business that will be consolidated, the capacity in high value that you mentioned to be added. So just to have a flavor of what are the figures that are involved in this deal?

And Mr. Casaluci, just you mentioned the electric vehicles will be showed the potential in the business plan presentation. So there is already scheduled a presentation.

Yes. So the consolidation of the Shenzhou plant, what you said is the EUR 250 million is mainly debt consolidation of the investment done in the previous years. What we do expect is to consolidate the factories, as I said before, that will grow in value in the coming years in terms of capacity and will be a value-creative operations because we will -- yes, we'll improve the overall profitability. It stays above the average of our actual profitability.

Sorry, CMD already scheduled? No, not yet. But after the new Board of Directors will be in place. And so I do consider in the second half of the year could be a reasonable period of time to present. I don't know if Mr. Tronchetti wants to agree on that.

It's not -- yes, yes, of course. We don't tell yet schedule data, but just after the approval of the Annual General Meeting, we will set the new schedule for the year-end.

Okay. Sorry, if I come back to the consolidation impact. So I don't have the idea of what is the impact of the sales and the EBIT consolidated for the joint venture in China. So just a very, very rough indication in order to understand what is the impact?

On the top, I get this question. On the top line, there won't be a material effect on the top line of the company because we are already in place an offtake agreement with the company. So actually, the vast majority of the flow of tires were already purchased from them and we sold in the Chinese market. So no major impact on our top line. On EBIT, obviously, there will be an accretive value. It is a plant that is fully dedicated to high value. So the average of the profitability generated by that plant is higher than the average of the group. So that's why we are saying that it is an accretive operation.

Okay. In terms of capacity, how many millions of tires is the installed capacity?

So from EUR 3.5 million to EUR 4 million now and with a plan to grow in the coming years.

The next question is from Thomas Besson of Kepler Cheuvreux.

I'd like to ask a quick question on modeling, please. Your net industry position has improved dramatically. Can you give us an idea of the net interest charge we should anticipate in 2026, please? You've mentioned pressure, and that's my second question on taxes in 2026. Could you tell us what you expect in terms of P&L and cash tax expenses in '26 versus '25?

And final question, -- in 2025, you've deconsolidated the business of distribution that you've sold. In 2026, you're going to consolidate this factory with higher margins than the group. Could you just help us understanding the benefits of both operations on group margins in '25 and '26, please?

Okay. Thank you for the question. I will take the first and the second one. First of all, on the financial expenses, just to recap that in 2025, we had financial expenses in profit and loss for about EUR 184 million, which was a significant decrease compared to the EUR 287 million that we booked in 2024. And the main driver of this decrease is related on one side for about half of the decrease related to the currency devaluation, local inflation in the hyperinflation countries, so with no impact on the net financial position. And for about the other half, slightly less than the other half is related to lower financial charges linked to the -- overall to the cost of debt and to the overall net financial position, which was decreasing quarter-by-quarter.

Now for 2026, what we foresee is to have financial expenses in the ballpark of EUR 200 million, so slightly above what we booked in 2025 because we have 2 different dynamics. On the first one, we anticipate an additional slight reduction of financial charges related to the cost of debt, even if we foresee the average of the interest in the Eurozone may slightly increase during 2026. But on the other side, we have a prudent view, and we are taking into consideration some negative impact again from the noncash component linked to the hyperinflation and FX volatility, especially in the Latin American countries.

For the second question related to tax, as you saw already in 2025, the tax rate for the full year has been at about 30%, so fully in line with the guidance that was between 28% to 30%. What we expect going forward for 2026, we expect the tax rate in the ballpark from 32% to 34%, so an additional slight increase.

What is important to remind is what I was saying during the presentation that the tax cash out in 2025 has still been lower compared to the tax rate and the profit and loss, while starting from 2026, what we expect is that the tax cash out at the tax rate and profit loss will be very, very similar. So we will have a hit in the cash flow generation given the higher taxes that will be paid in 2026.

On the last question, sorry, the benefit of the Däckia deconsolidation and the expected benefit of the Shenzhou consolidation in 2026. So on Däckia, no major impact on the group profitability affected in 2025, just a bit of impact on the net sales. That is what you see in the line delta perimeter in the revenue drivers of 2025. While 2026 Shenzhou, we don't expect major impact on the sales because the vast majority of this production was, as Bocchio said before, already consolidated because the factory was producing Pirelli tires that we were buying and reselling.

And in 2026, consolidating the factory, we have a slight improvement in the profitability. As we said, it is value creative because being the owner of the factory and consolidated the factory, we will not have the transfer cost, but we will consolidate the whole margin of the production. So it's slightly positive in the group impact, but not that meaningful anyhow is value creative.

The next question comes from Christoph Laskawi of Deutsche Bank.

The first one on the dividend and cash distribution again. With the leverage nicely below 1x also in the future, is there any reason why you shouldn't move to in 1 to 2 years, distributing essentially the majority or close to the entire net cash flow before dividends, either through adjusting the regular divi or always within special DV on top?

And then the second question, just on the guidance on the margin. There's the comment of a slight improvement year-over-year. Is that related to the percentage margin or to absolute adjusted EBIT?

Thank you for your question for the -- what concerns the distribution of dividends. Obviously, it's never enough. We are all happy if we have more money. But I think that it's a good policy to improve the dividends, and this is what we are doing in line with what have been done by other competitors.

And then we have to see the -- how the market will evolve looking forward in the coming year. So it's too early to say anything. So we are proving now that as soon as there are the condition, we want to have with all shareholders the positive results. It's a positive step. Let's enjoy it. Please, Mr. Casaluci.

Yes. Yes, I would say both improvement on both in EBIT margin percentage and absolute value. In absolute value, if you consider the midpoint is roughly EUR 20 million in absolute improvement. And in percentage, as we said in the guidance, we do expect a slight improvement. So let's see, based also on the trend of the net sales, what will happen, but 0.2%, 0.3%. That's the target. So we target to improve on both sides.

The next question comes from Gianluca Bertuzzo of Intermonte.

First one is on net working capital contribution in 2026. What are you embedding in the guidance? Second question is about the JV in Saudi, how things are going there? Can you provide maybe an update?

And last question is on the Cyber Tyre. You mentioned that you're focused on developing the technology for the auto, but also the infrastructure business. I was wondering, is there a way to monetize this product beyond the automotive market, given also the partnership you had with the Apulia region. Am I right? Or I'm going too far?

So I will answer the second and the third question, and I will leave to Bocchio for the working capital answer. Joint venture in Saudi is proceeding as expected in the initial plan. So we have a very positive feedback from the first step in the construction of the factory. We will expect the first tire production in the second half of 2027, was probably Q3 2027. And hopefully, we will celebrate the groundbreaking in the following weeks. So so far, so good.

On the Cyber Tyre, absolutely. We do this to improve the value creation of the whole company. There is a direct monetization in the business with the car industry, which is easily understandable. So it's a question of price power linked to the technology, increase of the pull-through rate and to the replacement and the loyalty rate, but above all the capability to take advantage of the data collection, and we target to be in the position to understand the tire behavior during the real-life conditions during the driving experience, which is something that as a tire industry today, we are not a with a traditional tire.

Once the tire is circulating into the market, we basically lose the contact. But in the future with the Cyber Tyre, we will maintain and which is already happening with Cyber Tyre circulating we will maintain the link with the performance of our product during the real life cycle. And when we talk about infrastructure, of course, this is not our core business, but it's an important development of the technology because it makes part of the new ecosystem of the autonomous driving. Once the cars will be autonomous and most probably the pure performance as we see the performance of the tires today, will be less important.

I mean, when we talk about handling all the traditional driving experience with an autonomous driving car will be less relevant. While it will be of paramount importance, the capability from a tire perspective to measure the grip and to collect data about the tire status and the road conditions because this information will be of paramount importance for the vehicle dynamic in the future. So that's the vision we have, and that's the reason why we are investing a lot since decades in this technology, and we consider this will be a part -- a relevant part of the high-value tire of the future.

We have already tire -- Cyber Tyre circulating in the market and we are accelerating because the automotive industry is realizing that that's the major trend of automotive for the future. Okay. I leave the floor to Mr. Bocchio.

On the working capital, in 2025, we had a positive contribution from the working capital to the cash flow of the company for about EUR 9 million. What we are expecting for 2026 is to have a higher contribution from working capital, slightly higher in order to try to balance somehow the additional cash out from the taxes. What I can tell you anyhow is that the focus on the net working capital management in the past few years, you know pretty well that has been a priority for the comp for the past years in order to achieve the deleverage.

Now we arrive at a point where the leverage is 0.7x, 0.75x the adjusted EBITA. But anyhow, we confirm that the priority to manage the working capital properly is still the focus for the company. So the cash flow still remains one of the target of the company.

The next question comes from Ross MacDonald of Citi.

I had 2 quick questions on the China JV news. I appreciate there's been a lot of questions on this already, so apologies in advance for coming back to that one. But just curious, you bought, if I understand correctly, the 49% stake back in 2018, I think, for around EUR 65 million. Firstly, correct me if that's not valid. So I just wanted to understand what is the what is the consideration that you're paying for that additional 21% stake here?

I'd understood that to build a 4 million, 5 million unit factory in the U.S. must cost around $400 million, something like this. So just trying to understand the book value of the assets that have come into the group here. That's the first question.

Second question, obviously, just trying to put the 2 and 2 together, the timing of this, obviously, you're showing a commitment to investing in China. Does this in any way benefit negotiations with ChemChina in terms of how they think about their stake in Pirelli? It seems like the 2 are completely unrelated, but obviously, investors will ask just given the timing of this news flow?

And then third question, just be interested in your views on overall industry pricing in 2026. There's been some commentary in the market around promotional activity on the Tier 1s. How confident are you in protecting price/mix, which I think on the price side is mostly a first half story. Do you see any further scope for price out this year?

I will try to answer part of your question. First, there is no link between ChemChina, Sinochem Group and negotiation in Shenzhou. So that's different shareholders, different -- is a private company, the one that owns 51% of the company in Shenzhou, and we are negotiating with them with this private company. What we are going to buy something between 2% to 3% and 21%, up to 70%, which means that we will consolidate by year-end. We could consolidate with EUR 51 million or with EUR 70 million. We don't know yet the maximum payment we will make will be up to EUR 44 million.

So that's the -- based on the contract we have that is based on the book value. So maximum EUR 44 million, for sure, we will consolidate. And we are now looking to what is more convenient for us, and we are negotiating with our partner. And please now Mr. Casaluci.

Yes. On the price environment for 2026, also we never disclosed the price by region or by channel, but what we do is a general expectation for the whole year. And on the 2 percentage points of price mix you see in our guidance, I would consider the vast majority will be -- will come from product mix. So on the price overall scenario, we do expect flattish environment, considering altogether replacement, original equipment, all the markets all around the world. So clearly you can easily understand the scenarios will be different market by market. But all in all, that's the expectation.

Okay. Understood. That's very clear. And actually very, very helpful to understand the EUR 44 million. That actually looks like a very good volume next to what those assets would cost in the U.S., for example. So I appreciate that color.

Mr. Tronchetti Provera, there are no more questions registered at this time.

Thank you, everybody. Thank you for your questions, and this ends our presentation, and I wish to all of you a good evening.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices. Thank you.

Ladies and gentlemen, welcome to the Pirelli's conference call in which Pirelli top management will present company's 9 months 2025 results. A webcast of the event and the presentation slides are available in the Investor Relator section for the Pirelli website. I remind you that the Q&A session will follow the presentation.

Now I would like to introduce Mr. Marco Tronchetti Provera. Please go ahead, sir.

The result for the first 9 months of 2025 highlight the resilience of our business model, capable of generating value in challenging external environment, marked by geopolitical and trade tensions and high exchange rate volatility. We closed the first 9 months with organic revenue growth of 3.7%, thanks to the effective commercial strategy that has enabled us to gain market share in the high-value segment. Profitability that remains the best among our peers, solid cash generation in Q3, supported by improved operating performance and carefully working capital management.

International evolution of the Cyber Tyre and continuous product innovation have contributed to strengthen our technological leadership. The U.S., Cyber Tyre was acknowledged to be the most innovative vehicle to everything, technology by Tech Breakthrough, a leading platform for innovation in the automotive industry.

This award confirms the role of Cyber Tyre as a central element for the smart mobility of the future, which includes autonomous driving, connected vehicles and digitization of the infrastructures. We've also signed an agreement with Aston Martin to integrate Cyber Tyre technology into the British manufacturers upcoming models, introducing advanced features. Finally, our leadership in product innovation was recognized by major European sector magazines, which elected Cinturato SF3 as the best all-season tyre in Europe. This achievement positions us as the reference benchmark for the performance and safety, 2 of the pillar brands distinctive -- 2 of the brand distinctive pillars. The macroeconomic environment remains volatile with limited global economic growth weighed down by the U.S. trade tariffs, the significant weakness of the dollar, input cost inflation.

In this scenario, we are continuing with our commercial strategy of strengthening our position in high value, the most resilient market segment, which is expected to grow mid-single digit over the year. We confirm all targets for 2025, driven by solid organic growth and the effectiveness of our internal levels. And I give the floor to Mr. Casaluci.

The results for the first 9 months of 2025 are among the best in the industry. The revenues of approximately EUR 5.2 billion, up 3.7% net of ForEx due to the strengthening of high value, which accounts now for 79% of the group sales, up 3 percentage points year-on-year. Profitability at 16.1%, up year-on-year, supported by the effectiveness of internal levers that more than offset the impact of exchange rates, tariffs and input cost inflation. Net income improved plus 8%, thanks to operating performance and lower financial expenses. Continued deleveraging with a year-on-year reduction in debt of approximately EUR 280 million.

Solid cash generation before dividends in the third quarter, EUR 141 million, also driven by rigorous inventory management. Over the past 9 months, we kept to our commitment to sustainability, a strategic lever for innovation growth and competitiveness. We are developing increasingly sustainable products to meet the needs of customers who are keen to combine safety with environmental responsibility. With Jaguar and Rover, we created the first tyre in the PO family with over 70% bio-based and recycled materials. In addition, the natural rubber contained in this tyre is FSC certified, which we expected to extend to our entire production in Europe in 2026.

Demand is growing for our eco-safety products, which fall within classes A and B of European labeling for both safety and energy efficiency. Also in our operations, the results in terms of environmental efficiency are tangible. With effects on plant management, we are continuing to reduce Scope 1 and 2 emissions, aiming at a 60% reduction compared to 2018 by the end of the year. 100% of the electricity purchased for our plants worldwide already comes from renewable sources. By the end of the year, we aim to reduce specific water withdrawal at sites located in high water stress areas by 36% compared to 2015. All this is made possible by the fundamental contribution of our people.

First and foremost, we are promoting workplace safety actions with the aim of bringing the accident frequency rate to around 1 by the end of the year. At the same time, we are investing in digital skills and operational excellence, promoting engagement actions to encourage ideas and projects aimed at energy efficiency and continuous improvement. Let us now move on to a detailed analysis of our operating performance. The implementation of our strategic programs as we will see in the next few slides, has enabled us to strengthen the leadership in 3 main areas. We gained market share in high value with a plus 5% volume growth rate in the car segment. We consolidated the technological leadership through the expansion of our homologation portfolio, the launch of new products, 7 for cars and 6 for 2-wheels and the international development of the Cyber Tyre technology.

Finally, we improved our competitiveness with profitability that remains the highest among the Tier 1 players. Let's start with commercial performance. We strengthened the positioning in the car 18 inches up with a steady middle single-digit growth in each quarter, gaining market share in both channels. In original equipment, especially in North America through the consolidation of partnership with local car manufacturers, in replacement in all regions, leveraging product innovation and the effectiveness of the pull-through strategy. We continue to reduce our exposure to the car below 17 inches tires, especially in South America, where we revised our distribution policy to focus on the most profitable products and channels.

In the third quarter, we recorded stable standard sales in absolute terms compared to the second quarter, while the more significant year-over-year decline, minus 14% in quarter 3 versus a minus 11% in quarter 2 reflects an unfavorable comparison basis. Let's move on to the innovation program. We continue to strengthen our technological leadership in the segments with the highest value. In the first 9 months of the year, we obtained approximately 210 new homologations, mainly for 19 inches and above specialties and EV cars. These results prove the strength of our partnership with leading manufacturers, including both premium and prestige models such as Ferrari Testa Rosa, Porsche 911 and Mercedes GLC and emerging pure electric models such as ZEC 9X in China.

We can count on a portfolio of homologation that is unique among Tier 1 players. In Europe, approximately 1,350 in car types above 19 inches, more than 3x the average of our competitors. Our products have received important awards, confirming the technological leadership and ability to innovate. At Expo 2025 in Japan, the PCOE received the Compasso d'Oro International Award, one of the world's most important prizes in the field of industrial design. It is the first time Tyre ever to receive this award. It was given for its ability to combine environmental sustainability, high performance, safety, efficiency and comfort in a single product. The Cinturato all-season SF3 ranked first in test conducted by autobuild and Tyre Review for its sporty behavior and high safety levels on both dry and wet roads.

Finally, we recently presented the new Cinturato Winter 3, a tyre for sedans and crossovers, which stands out for its high performance on snow and wet surfaces in tests conducted by TÜV and DEKRA. These results were also achieved through the virtual development of materials supported by Pirelli's virtual compounder, a tool based on generative artificial intelligence that accurately selects the most effective material combinations and optimizes the production processes. An update on Cyber Tyre and global technological and commercial developments. Pirelli Cyber Tyre was named Vehicle to Everything Innovation of the Year at the Autotech Breakthrough Awards 2025. This price certifies the high level of innovation of the technology and consolidates its position in the smart mobility of the future.

Cyber Tyre is a key component of software-defined vehicles, providing the car electronics with detailed information on tyre status and road surface conditions with tangible benefits in terms of safety, performance and efficiency. Cyber Tyre contributes to the development of smart roads and smart cities, where the data collected is essential for urban mobility planning and infrastructure maintenance. During the third quarter, an important agreement was signed in the OEM world. In Europe, a commercial partnership was launched with Aston Martin, which will be fitting future models with the cyber Tyre system. Braking space reduction is among the new features introduced. It optimizes ABS performance based on the specific characteristics of the tyre.

Let us now analyze the results of the operations programs. In the first 9 months of 2025, in line with expectations, these programs generated gross efficiency of EUR 117 million, 78% of the annual target. The progression of individual projects varied. The product cost project based on the adoption of innovative design programs such as design modularity and virtualization achieved 80% of the benefits expected for the year. The SG&A and organization projects almost completed the development of the planned programs, generating efficiencies through the rationalization of the supply chain and the optimization of logistics, the digitization of processes and the upskilling of personnel. Finally, the manufacturing project. As anticipated, given the seasonal nature of the project, it achieved approximately 50% of the benefits expected for the year and will be the main driver of efficiencies in the fourth quarter. I now give the floor to Mr. Bocchio. Thank you.

Thank you, and good evening. Let's analyze now in detail the performance of the first 9 months of 2025 compared to the previous year. Revenues amounting to EUR 5.2 billion recorded an organic growth of 3.7%, essentially stable, including exchange rates and the perimeter delta. High Value revenues amounted to EUR 4.1 billion, accounting for 79% of group revenues, up 3 percentage points compared to last year. The lower weight of High Value in Q3 that was 78% compared to the first half of the year that was 80% is linked to the seasonality of the motorcycle business, whose sales are concentrated in the first half of the year.

Let's now move on to the individual drivers. The trend in volumes, minus 0.2% reflects the opposite dynamics of High Value and standard as already described by Mr. Casaluci. The growth in price/mix, plus 3.9% was solid and steady in the 3 quarters, driven by the product and region mix, while the channel mix was slightly negative given the sales performance of original equipment. The impact of the exchange rates, minus 3.4% reflects the depreciation of the U.S. dollar and emerging market currencies against the euro. Finally, the change in perimeter, minus 0.1% is due to the deconsolidation of the Dackia business, which was sold in the second quarter of this year. Adjusted EBIT for the first 9 months amounted to EUR 835 million, up by approximately EUR 20 million compared with the previous year, with a margin of 16.1% compared with 15.7% for the first 9 months of 2024.

The improvement in profitability is linked to the effectiveness of internal levers. More specifically, the positive contribution of price/mix for EUR 141 million more than offset the increase in the cost of raw materials for EUR 57 million and the EUR 53 million negative impact of exchange rates due to the dynamics already described. The balance between efficiencies and inflation was positive for EUR 24 million, thanks to the benefits of competitiveness programs. Finally, there was a negative contribution of volumes for EUR 4 million, depreciation and amortization for EUR 21 million and other costs for EUR 10 million. The gross impact of U.S. tariffs was EUR 35 million, approximately EUR 13 million net of the mitigation plan.

In the third quarter, adjusted EBIT was EUR 277 million, stable year-on-year. Price/mix and efficiency fully offset all headwinds. Profitability stood at 16.3%, improving both year-on-year, plus 0.4 percentage points and compared to the second quarter, plus 0.3 percentage points. Let's now move on to analyze the net income. In the first 9 months, we achieved profits of EUR 401 million, up 8% compared to EUR 371 million of last year. This trend reflects the improvement in operating performance for EUR 20 million. An increase in nonrecurring expenses of EUR 19 million, mainly related to higher layoff and write-off costs in South America, where the process of optimizing standard capacity is underway with the shutdown of some machinery and streamlining of the organization.

A reduction in net financial expenses of EUR 67 million, driven by both reduced debt and interest rates and the lower nonmonetary impact from hyperinflation accounting. Finally, the increase in taxes for EUR 38 million is linked to the loss of tax benefits that were included in the first 9 months of 2024. The tax rate was 30%, in line with expectations for the year. Starting next year, in the absence of tax benefits such as bag in [indiscernible] and ACE in Italy and extraordinary items, the tax rate is expected to settle at a normalized level between 32% and 34%. Pirelli closed the first 9 months of 2025 with a negative net financial position of approximately EUR 2.54 billion. Operating net cash flow was positive at EUR 43 million, in line with the seasonality of the business.

This result is an improvement compared with the same period of 2024, mainly supported by the operating performance already mentioned. Working capital absorption remained similar to previous year trend, thanks to efficient inventory management with a decreasing incidence over 3 quarters -- over the quarters and the usual seasonality of trade receivables, which were approximately 24% of revenues and trade payables, 15% of revenues. Net cash flow before dividends was negative by EUR 363 million, not only discounting financial and tax expenses, but also the impact of tariffs and exchange rate depreciation. Net cash flow before dividends for the third quarter of 2025 was positive by EUR 141 million, basically aligned with the EUR 162 million generated in Q3 2024.

As of September 2025, Pirelli had a gross debt of approximately EUR 3.8 billion, financial assets of EUR 1.3 billion and a net financial position of approximately EUR 2.5 billion. The liquidity margin of approximately EUR 2.5 billion covers debt maturities until the last quarter of 2025. The average cost of debt over the last 12 months stood at 4.66%, down from 5.06% at the end of 2024 due to more favorable interest rates in the euro area and the reduction in the portion of debt in countries with high interest rates. Sustainable finance continues to account for approximately 71% of the group's gross debt or 84.4% if we consider the holding company's debt, fully in line with the 100% target announced for the end of 2025. Pirelli's financial structure, therefore remains resilient and sustainability oriented with careful management of maturities and liquidity, supporting the group's growth strategy. Thank you. And now I return the floor to Mr. Casaluci.

Thank you, Mr. Bocchio. Let's now move on to the market outlook for 2025. Based on trends in the first 9 months and expectations for the last quarter, the forecast is for a car tyre market essentially flat year-on-year. The high-value segment remains the most resilient with expected growth in the mid-single digits. While in car below 17 inches, demand for the tyre is expected to decline by a low single digit. In this scenario, Pirelli confirmed its strategy of strengthening in car 18 inches and above with a gain in market share in both channels.

In the third quarter, we expect our volumes to grow, thanks to the outperformance of the high-value segment, in particular, in the original equipment, where we will benefit from the consolidation of partnerships with local manufacturers in Asia Pacific and North America and a more favorable year-on-year comparison. In the last quarter '24, OE sales in the EU and North America were negative, in line with the car production. On replacement 18 inches up, we will continue to gain market share in the main regions. Finally, in car equal and below 17 inches, we will continue to reduce our exposure to less profitable products and channels.

The tariff scenario has become clearer, even though bilateral negotiations with the U.S. administration are still ongoing. Under current regulations, we are subject to the following U.S. tariffs. On imports of car tires from Europe, 15% from August 1, replacing the previous tariffs and the additional 25 tariffs applied from May 3 to July 31. On imports from United Kingdom, 10% additional tariffs from July 1, 25% additional duty from May 3 to June 30. On imports from Brazil, 25% from May 3. Negotiations are ongoing with the U.S. administration anyhow. No tariffs on imports from Mexico as our products are USMCA compliant.

Finally, universal tariffs on import of motorcycle and bicycle tires from all countries with different percentages according to the country of origin. For 2025, we confirm the estimated gross impact of EUR 60 million for the year and EUR 30 million net of the mitigation plan, which was implemented starting in the second quarter. The results achieved in the first 9 months make us confident that we will meet our targets for 2025. Our forecasts are for revenues of between EUR 6.7 billion and EUR 6.8 billion with slightly higher volume, approximately plus 0.5% was plus 1% in the previous guidance.

Price/mix improving between 3.5% and 4% compared to the 3.3% and 3.5% previously indicated, negative currency impact now expected to be minus 4% compared to the previous minus 4.5%, minus 4%. Profitability is confirmed at around 16% Investments are also confirmed around EUR 420 million, roughly 6% of revenues. Cash generation of around EUR 550 million and the resulting deleverage target are also confirmed. Thank you. And I now return the floor to Mr. Tronchetti for the final remarks.

Thank you, Mr. Casaluci. The results for the first 9 months confirm the effectiveness of our strategy, as we mentioned at the beginning. Faced with the challenges of the external environment, we reacted with determination, speed and coordination, seizing opportunities for growth in high value and improving the mix, accelerating competitiveness programs, successfully implementing derisking actions as in the case of U.S. tariffs and maintaining careful management of inventories and working capital. His ability to react and the solidity of our business model make us confident that we will achieve our 2025 targets, as Mr. Casaluci was mentioning, and at the same time, guarantee one of the best performance in the industry. And this ends our presentation. We may open now the Q&A session. Thank you.

[Operator Instructions] First question is from Monica Bosio, Intesa Sanpaolo.

I have, let's say, 3. The first one is a general question on the inventories level. How do you see the inventories level overall and for the high-value tires, maybe if you can split between the regions, it would be really appreciated. And I'm just wondering if you see a softening in replacement. It seems to me that it's a little bit weaker than initially expected, but maybe I'm wrong. The second one is on the levers the company has to further improve the profitability next year. Maybe volumes could be better, we hope. Price/mix will keep strong. But are you planning a further efficiency plan? And if yes, if you can elaborate on this? And the third question is on the raw mat. It seems to me that 2026 could benefit from tailwinds from raw mat. If you can elaborate a bit on this?

Thank you for your questions. So about stock level, I would say, quite normalized the stock position all around the world in all geographies. Clearly, in the European countries due to the winter season that has just started, the stock level is high, but this is that's normal in this part of the year. So the prebooking in winter was good, pretty good. And we are now all waiting for the sellout season that will depend on the weather conditions. The weather in October was very sunny and good. So let's see what will happen in November and December. But all in all, the stock level is well balanced.

The market replacement in Q4 is expected to be in the first 9 months, roughly 4%, 5% positive in the high-value replacement. In all regions, we do expect a good performance in China, around 4%, 5% and also Europe, even if will be linked to the weather conditions. In 2026, the profitability is too early to have all the figures and will be presented at the beginning of 2026. But what we can anticipate you that we plan to have an efficiency plan aligned with what we did in the last 2 years, including 2025. So we are working to accelerate all our programs in terms of automation, digitization and electrification of our factories in order to assure the same running rate of efficiency we had in the last 2 years roughly. And it's also expected a tailwind on raw materials, mainly in the first half and due to the figures we have and the COGS impact we can estimate today, we are around in between EUR 30 million and EUR 40 million benefits, all concentrated in the first half of 2026. Thank you.

Perfect. If I may follow up the tariffs for the next year given that they will be based on a 12 months should be higher. Do you have any rough indication?

Yes. Based on the duties scenario we presented in our market presentation before, we do expect a net impact for 2026 similar to the impact of 2025. I remind you that the net impact in 2025 is expected to be around EUR 30 million negative. And that's with the actual scenario, of course, if nothing will change, which is difficult to predict because as you see, is a scenario under development. But with the actual duties, the impact is expected to be more or less the same in the ballpark of EUR 30 million, all concentrated in the first half because it's where we have the negative comparison with last year.

Next question is from Harry Martin, Bernstein.

I've got a couple of questions. The first one, I wanted to ask your latest perspectives on new competition from some of the Asian competitors. We hear plenty from the Chinese about developing 18-inch and above tires and targeting the premium vehicle segment. So any latest perspective you have on the technology gap and whether you see that closing or widening as the competitive landscape evolves. And also, we noticed the BYD Yangwang that recently did the lands speed record was not on a European tyre. It was on a [indiscernible] tyre. So it would be good to hear your latest perspectives there. And then maybe a left field question on the governance situation. I wondered whether you had or have looked or would look at doing a stock-funded acquisition as a solution to the ownership issue, which would effectively dilute the existing shareholders' ownership rights. So I'd be interested to hear whether that was something under consideration.

Thank you for your questions. I answer on the question related to governance. No, the answer is no. As everybody knows, now there is -- the government is negotiating the parties in order to solve the problem of governance. But it's not on the table anything related to any extraordinary, let's say, kind of transaction. Mr. Casaluci, please.

Yes. Thank you. The answer is no also on the first question because we see that Chinese tyre makers are growing in terms of volumes and market share, including in China, but are not affecting the highest technology, the high-tech segment of the products. We don't find any single Chinese tyre maker in the prestige segment. Very, very, very limited presence in the premium segment. So the gap in terms of technology is still very high, even though they are affecting the European markets in the lowest segment. Just to give you a couple of numbers, the trade down in the 16 inches and below tires in Europe is huge.

If we compare the weight of the imported -- the Tier 2, Tier 3 brands in 2025 with 2019, so in the last 6 years, it went down around 30 percentage point, the weight of the Tier 1, moving from roughly 60%, 55% in '29, down to 30% in '25. So as you see, the trade down is visible, is affecting the market, but in the standard segment. In the homologated tyre segment, 19 inches and below market tires where Pirelli is targeting its strategy, the weight of Tier 1 players, it remains stable above 90% of the total market. So we feel well protected. Above, of course, 90% 19 inches and above, it weighs 90% of the total market, more than 90%.

Next question is from Martino De Ambroggi, Equita.

Sorry to bother you on the governance issue. But just to understand because we read some statement from the Minister also about ongoing negotiation. But my question is not on specific subject, but just to have an idea, is there any ideal time limit in order to solve the U.S. issue before this could become problematic? The first question. The second is on the pricing in the U.S. because one of your competitors was misplaced in the U.S. pricing environment and rethinking the policy. So what's your feeling and your picture for the U.S. market?

Thank you for the questions. So starting with the first one. Yes, there are obviously time limits in the BIS law related to connected vehicles is asking that by March 17 next year. All car makers declare that they do not have any, let's say, Chinese software included in the BIS laws. So that is what we have as a limit. Thank you. Mr. Casaluci?

Yes. On the pricing in U.S., as we said also in the last call, what we are doing in the U.S. market to mitigate or partially mitigate the duties impact is to renegotiate the commercial conditions with all the customers. And the approach is different by channels with carmakers and with replacement market distributors. And what we do is to review at 360 degrees, the commercial conditions. It's not only a question of price, it's also a question of [indiscernible] terms, stock target and so on. So this is one of the key pillars of our mitigation plan in -- against the duties impact.

So you do not perceive any specific imbalance in the sector overall? So you are able to implement your strategy without any big issue.

Yes, problems, of course, are there, but we are managing. And as you saw in the numbers, we have been able to mitigate at least half of the impact. And this has been done through cost reductions at 360 degrees in the company on top of the efficiency plan, inventory management and reallocation to more competitive sources and also commercial conditions, including price.

Next question is from Akshat Kacker, JPMorgan.

I have 3, please. The first one on the volume outlook for the full year. You're still expecting growth of 50 basis points, which implies a strong Q4. Could you just give us more details in terms of where that growth is coming from? And if you expect price/mix trends to remain stable like they have in the last few quarters? That's the first question. The second one is just on overall business development, specifically in the high-value business in China or APAC. Could you just give us more insight on how the business has performed in Q3 or in the first 9 months? And how are you expecting volumes to trend into Q4, please?

And the last one is on standard tires and specifically on the South American business. How are you thinking about profitability for your Brazilian operations going forward, given the high competition from Chinese imports, we've had additional tariffs on exports into the U.S. I see you have also implemented additional restructuring in the quarter. Is that linked to South America? Just wondering how you're thinking about the standard tyre business going forward.

Okay. Thank you for all the questions. Volume-wise, we do expect on the high-value segment last quarter, in line with the 9 months, roughly 5%, 6% growth in the market in the last quarter with different speed we do expect replacement market a bit faster with a growth that is around 7%, more or less, mainly driven by Europe and North America. While in the original equipment is the other way around, we do expect lower growth around 3% and mainly driven by China, that is the market where the original equipment is performing better in the high-value segment, mainly supported by the electrification of the car park.

Price/mix is also expected to be positive and in the last quarter, around 3% roughly. So a bit below the average of the first 9 months. This is mainly driven by negative channel mix because due to a more favorable comparison versus last year, we do expect to grow in the original equipment in the last quarter faster than what we did in the first 9 months, and this will affect slightly negative the price/mix. But anyhow, we remain in the ballpark of 3%, 3.3% growth in the last quarter as well, supported as always, by the product mix and the slight positive price. High Value China is performing very well. It's a fast-growing market in the original equipment, as I said before, mainly driven by the electrification of the car park.

More than 50% of the new car registration are driven by new electric vehicles, including pure electric, hybrid plug-in or REV. We are serving this market because we have been able to grow market share with the most important Chinese premium newcomers like Like [indiscernible], Neo,[indiscernible], all these -- the high end of BYD and Geely and so on. And today, we have a market share with these customers that is even higher, slightly higher than the market share -- the average market share we have with the traditional European carmakers. This is helping us to grow faster than the market in the original equipment. And we do expect a pull-through effect also in the replacement market in the coming years because electric vehicle requires good tires because they are heavier.

They have a stronger talk momentum. They need the noise control and so on. And so we do expect good level of pull-through in the replacement channel. Profitability on standard at the group level, it remains in the high single digit, not at the level we would like to have so double digit, not yet. And South America standard profitability more or less is reflecting the average of the group because half of the standard sales are concentrated in South America. We are accelerating the exit from the lower segment in standard, and this is also reflected in our numbers of the first 9 months, exactly because of the growing competition of the Chinese tyre makers that are -- today, they weight more or less half of the Brazilian market and around 40% of the Argentinian market.

And so we want to exit from a very competitive market. For this reason, we are implementing streamlining of the organization and the acceleration of the conversion of the capacity from standard to a value or in some cases, also write-off of some part of capacities, but no major restructuring are expected in the region. So we will remain with the actual footprint, 2 plants in Brazil and 1 in Argentina. And we use this capacity to support the export towards North America, roughly a couple of million tires, 2 million, 2.5 million tires are exported from Brazil to United States.

Next question is from Thomas Besson, Kepler Cheuvreux.

I'd like to talk about the balance sheet improvement, please, and the consequences it could have on your dividend, your capital allocation overall and whether this is tied to the solution we are waiting for on your shareholding structure. I mean your balance sheet has significantly improved. Right now, it's difficult to do anything in terms of buyback. Would it make sense for you to increase the dividend? That's the first question. The second is would you wait for a solution to eventually happen before adjusting this capital allocation policy? And lastly, could you remind us your views about M&A acquiring either competition or technologies, anything? And where would you see an efficient level in terms of leverage? And how much can you improve your cost of debt, which has already declined to 4.6% but with your current balance sheet, could eventually be even slightly better, I guess?

Thank you for your question. So we don't have any M&A, let's say, objective within our targets. On the use of the cash having achieved or we will achieve by year-end net debt-EBITDA ratio close to 1:1, then we will have in front of us different options. There is nothing set yet, and we will take a decision looking forward. Now it's time to continue with the efficiencies, continue to deliver. And we have also to have more visibility on the market looking forward on the automotive industry in 2026 and onward. We know that in China it is fine that in U.S. is fine, but Europe is really a question mark. And it's really too early to say where we are going to be focused with the potential availability of cash related to the cash flow production. That is more or less where we are today.

Next question is from Gianluca Bertuzzo Intermonte SIM.

I know it's maybe a little bit early, but what could be a reasonable scenario for volumes looking at next year? Do you expect high volume to continue on a mid-single-digit level? Do you expect the reduction in standard to keep going at 2025 base of minus 10%, 11%? Any comment would be helpful. Second question is on your debt management policy. I noticed a good decline in interest expense in the last quarter. What are your plans also with the convertible? Any thoughts also here would be helpful.

So thank you. On volume side, yes, you are right. It's early to say what will happen in 2026. What we can tell you is that we do expect a resilient high-value market in the replacement channel. We do expect a pace of growth in the same range of 2025, so around 4%, 5% in all regions, and we target to gain market share in replacement high value. And as well, we target to keep on reducing our presence in the standard segment. While the original equipment is very difficult to predict now because you see a lot of volatility.

The incentivation on the electrification of the car park is changing the approach, has been canceled in the United States is expected to be reduced in China. Still a lot of confusion, I would say, in Europe. A lot of disruption in the supply chain. You have heard about the cyberattack in Jaguar and Rover, the aluminum supply disruption in the last weeks in United States or the semiconductor supply chain volatility and also the demand and the car registration. So a lot of volatility still to be analyzed on the original equipment side. For debt management, we have a convertible bond that will expire half of December and today is on the money. We will see the development. But apart from that, no major update.

And if I may, a follow-up. In the presentation, you talked about the Cyber Tyre and you mentioned the partnership with Aston Martin. I noticed that there are logos of also other prestige brands. But at the same time, also a premium brand is present like Audi. What do we have to read here?

Sorry, we -- yes, we are working all these logos that you see on the presentation are already on supply with the Cyber tyre. We are working with Audi with the RS version with the truck race edition of the Cyber Tyre solution. We are working with McLaren Artura that has been the first project that we introduced it. And with Pagani with a full integration with the vehicle electronics, thanks to the brand-new partnership -- at that time, brand-new partnership with Bosch Engineering. And the last one is Aston Martin, as we presented, but more will come. So we are.

I think I was asking why there is also a brand that is not prestige. This is obvious because we have also how to say this we have others. So we are not -- we start from the very difficult part of the market where technology has to be tested at a very extreme level. But our technologies work for also the premium cars. And we are in touch with some premium cars. In this case, Audi as Mr. Casaluci was describing, is only the version that is RS. Please go ahead.

No, no, no, yes, you are fully right. We always introduce new technology, the most advanced technology in the prestige segment because it's a sort of laboratory also where we can accelerate the development of the new technologies but then the target also for the Cyber Tyre is to scale up into the premium, the wider premium segment. And we have already a lot of interesting projects in the pipeline with premium carmakers. Thank you very much.

Thank you, everybody. I see that there are no more questions. And so this ends our presentation. Thank you, and have a good evening.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices.