Earnings call transcript: Pirelli Q1 2025 sees revenue growth, strong EV segment

Pirelli & C SPA reported its financial results for the first quarter of 2025, showcasing a 3.7% increase in revenues to €1,800 million, bolstered by growth in its high-value tire segment. The company noted a significant rise in net income by 27% year-over-year to €127 million. Despite no specific earnings per share (EPS) data provided, the market reacted positively with a 1.36% increase in stock price, closing at €6.096.

Key Takeaways

• Revenues increased by 3.7% to €1,800 million in Q1 2025.
• Net income rose by 27% year-over-year to €127 million.
• The high-value tire segment now constitutes 81% of sales.
• The stock price rose by 1.36% following the earnings announcement.
• Strong market performance in the electric vehicle tire segment.

Company Performance

Pirelli’s performance in Q1 2025 reflected a robust growth trajectory, particularly in high-value tire sales, which now account for 81% of total sales, up by four percentage points from the previous year. The company’s focus on innovation and premium segments, especially in electric vehicle (EV) tires, has paid off, with Pirelli holding a 28% market share in the premium EV segment compared to 20% for internal combustion engine (ICE) vehicles. InvestingPro analysis reveals an impressive overall Financial Health Score of 3.14 (rated as GREAT), supported by strong price momentum and profitability metrics. The company has maintained a solid 5-year revenue CAGR of 5%, demonstrating consistent growth.

Financial Highlights

• Revenue: €1,800 million, up 3.7% year-over-year.
• Adjusted EBIT: €280 million, a 6.5% increase from the previous year.
• EBIT Margin: 15.9%, an improvement of 40 basis points year-over-year.
• Net Income: €127 million, up 27% from the previous year.

Outlook & Guidance

Looking forward, Pirelli has set ambitious targets for 2025, with revenue expectations between €6.8 billion and €7.0 billion. The company anticipates a volume increase of approximately 12% and plans to improve its price mix by 2-3%. The adjusted EBIT margin is projected to reach around 16%, with net cash generation between €550 million and €570 million. Capital expenditures are expected to be around €420 million.

Executive Commentary

CEO Marco Tranchetti Correira expressed confidence in the company’s growth trajectory, stating, "Our results confirm the solidity of the company that has grown and will keep on growing." Executive Casaluci highlighted the technological advancements in the EV segment, noting, "The EV requires sizes with higher performance and higher technology." These statements underscore Pirelli’s commitment to innovation and market leadership.

Risks and Challenges

• Potential supply chain disruptions could impact production and delivery timelines.
• Fluctuations in raw material costs may affect profitability.
• Competitive pressures in the high-value tire segment could intensify.
• Economic uncertainties in key markets may influence consumer spending.

Q&A

During the earnings call, analysts inquired about Pirelli’s strategies to mitigate US tariffs and governance issues with the Sinochem Group. The company also addressed concerns regarding raw material costs and its strategic focus on the electric vehicle tire market, reinforcing its commitment to maintaining a competitive edge through innovation and efficiency improvements.

Full transcript - Pirelli & C SPA (PIRC) Q1 2025:

Conference Moderator: Ladies and gentlemen, welcome to conference call in which Pirelli’s top management will present the company’s first quarter twenty twenty five 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 and A session will follow the presentation. Now I would like to introduce Mr. Marco Tranchetti Correira.

Please go ahead, sir.

Marco Tranchetti Correira, CEO, Pirelli: Thank you. Thank you very much, and good evening, ladies and gentlemen. The results of the first quarter of twenty twenty five confirmed the solidity of our business model in a challenging external scenario. We closed the quarter with an organic growth of 4.7%. These results achieved through a consistent commercial performance is among the best in the industry.

Quanti is 3.9, Michelin minus 2.5, Gurria minus 2.2, which is expected at one minus 1.3. Improvement in profitability, which is confirmed to be the highest in tier one, 2013.4%. This is an expected 10.6% with the 4.6, and the cash trend in line with the usual business seasonality. We expect the overall scenario to remain uncertain in 2055 due to the persisting commercial tensions. At microeconomic level, the latest estimates forecast a slowdown in economic growth and a still high inflationary pressure.

In this context, the high value market confirms its resilience with mid single digit growth forecast for 2025, while demand in the standard segment is expected to decline. Given the solid performance in the first quarter, we confirm 2025 targets. That is scenario remains uncertain in terms of duration and impact as negotiation between the US administration, its major commercial partners are still underway. Mitigation plan is already being implemented. In case the current tariffs are kept for the rest of the year, our mitigation plan will ensure the achievement of the adjusted EBIT and cash generation target in the lower end of the range and therefore to reach the deleverage target.

Finally, an update on governance. Negotiation with Sanofi Group did not produce a solution to adjust the governance to fully comply with The US regulations. Our results confirm the solidity of the company that has grown and will keep on growing. The position of our customers for the CyberTire hardware and software system shows that Pirelli’s strategy and technological development are going to in the right direction. The launch of Pirelli P Zero fifth generation confirms the company’s technological leadership.

Finally, in China, the company has become the leader in the high end electric segment. Therefore, we should keep on doing whatever we can to safeguard the company development and growth. There is nothing more control of Pirelli. There is an historical culture over and the market. The company interest will prevail hopefully also with the support of Sanofi Group in line with the bylaws principles of the shareholders agreement.

And I’ll now give the floor to mister Casaluci. Please.

Casaluci, Executive, Pirelli: Thank you. Thank you, Mr. Tronkety, and good evening. Kirelli closed the first quarter of twenty twenty five with an improvement of results in all metrics. Revenues at approximately €1,800,000,000, growing by 3.7.

Four point seven if we consider net of forex. Thanks to an increased exposure to high value, now accounting 81% of group sales, up four percentage points compared with the first quarter of twenty twenty four, and a mix improvement within the High Value segment. Adjusted EBIT is approximately €280,000,000 plus 6.5% year year over year with a profitability of 15.9%, improving year on year, thanks to internal levers contribution. Net income at €127,000,000 with a 27% growth compared with the same period of 2024, which discounted higher non monetary impacts related to the application of high hyperinflation accounting. Net financial position stands at approximately minus €2,600,000,000 with a debt reduction of €312,000,000 compared with the March 2024.

In the first quarter of twenty five, cash absorption before dividends amounted to €697,000,000, in line, as mister Bokio will discuss, with the first quarter of last year despite higher investments and an inventory increase in The U. S. In view of introduction of tariffs. Let’s now talk about the operating performance. Slide five summarizes the results produced by the single programs.

In the commercial program, we kept to our strategy of focusing on high value and selectivity on standard. To strengthen our position in high value markets, on April, we signed an agreement with CTS, part service provider in Northern Europe. The contract provides for the sale of the KAB chain with approximately 100 of sale in Sweden, of which 60 fully owned for around €24,000,000. Our partnership with CTS will allow Pirelli to expand its commercial presence to Northern Europe through a CTS efficient distribution system and a wider market coverage, not only in Sweden, but also in other Nordic markets. Kirelli will remain the main provider at least up to 2030.

The agreement is in line with our distribution model based on partnerships, more flexible and less intuitive in terms of profitability than direct control over retail chain chains. The transaction is subject to various authorizations and is due to be finalized by July 25. As for the innovation program, we launched two new products for the car and two for the motor business. Pirelli technological leadership was confirmed by comparative tests conducted by some of the major specialist magazines. These tests ranked our car, the Cinturato c three and Cinturato s f three and motor, Diablo Supercorsa v four s t, products at the top of their categories.

Regarding the Saver tire, we continue to collaborate with premium and prestige OEMs over the joint development of control systems of new car models. We also cooperate with Movion, a company of the Group for the monitoring of road surface. In the operations program, we achieved 25,000,000 efficiencies that more than cover the impact of inflation. Plant saturation was equal to 91%, and the decarbonization plan for our factories has progressed with the electrification of the curing phase. Let’s start with the commercial program on slide number six.

In the first quarter of twenty twenty five, our performance in the car segment was in line with the market, although the single segment moved in opposite directions. In car, 18 inches up, we gained market share replacement in the major regions, benefiting from our effective pull through strategy and product innovation. Whereas, we kept our selective approach to original equipment with an increasing focus on the hiring sizes. Volumes are growing in 19 inches up segment, now accounting for approximately 86% of the 18 inches and up volumes. In the car below 17 inches, we further reduces our exposure, marketing plus one percent, Pirelli minus seven, especially in South America, where Pirelli revised its distribution strategy strategy to focus on the more profitable channels.

The innovation program continues as illustrated in slide number seven with the launch of four product lines. Two, as I said, of which are for the car segment and two for motorcycles. These products are boosting the performance level. For cars, we introduced the new Cinturato, a summer tire for premium vehicles in Europe, which record the top performance in the tire reviews test due to its excellent grip on both dry and wet and wet surfaces, and Scorpion XT m a t for all terrain segments in the North American market. For motorcycles, we launched two products, both of them based on motorsports experience.

Diablo power cruiser addressed it to the custom touring segment with a sport like approach and Scorpion MX 32 mid soft originally used in motorsport competitions and now also available to racing enthusiasts. Finally, the efficiency program generated a €25,000,000 in the first quarter, in line with expectations and project development timelines. In detail, the highest benefit come comes from manufacturing through the implementation of automation projects in the factories, electrification of the curing phase, and reduction of energy consumption. An additional contribution comes from the following projects. SG and A, where the rationalization of the supply chain and general cost is progressing alongside the optimization of logistics.

Organization, thanks to advancement of digitization in internal processes and employee upscaling. Finally, the product cost project will produce as expected greater benefits from the second quarter of the year, deriving from the adoption of innovative design programs like design modularity and virtualization that allowed us a 30% reduction of time development time. And I’ll give the floor to mister

Marco Tranchetti Correira, CEO, Pirelli: Bochio. Thank you, mister Casaluci, and good evening. Let’s now review our performance compared with the first quarter of twenty twenty four. As already indicated, our sales amounted to approximately €1,760,000,000 with an organic growth of 4.7% due to a solid commercial performance. We recorded a positive trend in volumes plus 0.8%, reflecting the strengthening in the car 18 inches and above and the progressive reduction of exposure to 17 inches and below with the high value now accounting for 81% of our sales, thus plus four percentage point year over year.

Our price mix was strongly improving, plus 3.9%, mainly supported by the product and regional mix and marginally by price increase in the original equipment channel due to raw materials cost indexation clauses. Negative instead, the impact of ForEx, minus one percent. Although improving compared with the previous quarter, it was minus 4.8% in q four twenty twenty four. This is attributable to the volatility of emerging market currencies against the euro and just partially mitigated by the US dollar appreciation. We now move to the adjusted EBIT, which in the first quarter of twenty twenty five amounted to €280,000,000, growing by 6.5% over the same period of 2024.

EBIT margin reached 15.9%, improving year on year by 40 basis points, thanks to the effectiveness of internal levers. More in detail, the positive contribution of €42,000,000 from the price mix more than offset the cost increase of raw materials. It was minus €22,000,000, mainly due to natural rubber and oil derivatives. Starting from this quarter, the impact of raw materials in our reporting only takes into account the price variations of commodities and the relevant impact in our COGS. The exchange rate impact on raw materials is included in the ForEx item.

Efficiencies stood at €25,000,000, fully covering the €24,000,000 inflation impact. Exchange rates had a slightly positive impact, plus €4,000,000, due to the U. S. Dollar appreciation and the devaluation of the Mexican peso. The latter is a relevant currency for our cost basis since Mexico is mainly a production source.

Finally, volumes generated a positive contribution plus €6,000,000, which covered the impact of D and A minus €8,000,000 and other costs minus €5,000,000, mainly related to marketing and reversion development. Let’s now review the net income amounting to €127,000,000 higher than the €100,000,000 of the same period of 2024. This trend reflects the €17,000,000 improvement of operating performance whose dynamics I just described, the slight increase of €4,000,000 in nonrecurring costs, the reduction of net financial charges by €51,000,000, of which €40,000,000 are due to the lower nonmonetary impact relating to hyperinflation accounting and €11,000,000 to lower financial charges. Finally, the tax increase of €37,000,000 more than in the first quarter of twenty twenty four is due to an unfavorable year on year comparison basis since the value recorded last year included the benefits from the Patent Box and the impact of the positive settlement of tax litigations. The rally closed the first quarter of twenty twenty five with a negative net financial position equal to approximately €2,620,000,000.

The net cash flow before dividends of the first quarter was negative €697,000,000, in line with the business and working capital seasonality. The net operating cash flow negative before €555,000,000 reflects the operating performance we have just discussed, the investments of €60,000,000 mainly in high value technology upgrade and plant automation, increase in the right of use mainly related to efficiency projects in Romania warehouses, while the negative working capital trend amounting to €866,000,000 discount. The increase in inventory levels in not mostly in North America after US Administration announced the introduction of tariffs, 22% the weight of inventories on the revenues compared with the 21.7% in December 2024. And the usual seasonality of trade receivables, 14.6% the weight of revenues, and trade payables, 23.5 the weight of revenues. As of the 03/31/2025, the group’s gross debt amounted to approximately €3,860,000,000.

Considering that financial assets amounted to around €1,200,000,000, the net financial position is about 2,600,000,000. The liquidity margin is equal to €2,500,000,000, of which 1,500,000,000.0 in undrawn committed credit lines. Such margin covers debt maturities for approximately three point five years, that is until fourth quarter twenty twenty eight. The cost of debt over the last twelve months is 4.96%, decreasing slightly compared with the end of last year. This reduction is attributable to the lower interest rates in the Eurozone on the one side and on the other, the optimization of the debt mix due to a lower exposure to high yield currencies.

Finally, at the March, sustainable finance keeps on accounting for 70% of the group’s gross debt. That is 84.5%, when we take into account the holding company’s debt in line with the announced target of 100% for the end of twenty twenty five. And I’ll give the call back to mister Cusarucci.

Casaluci, Executive, Pirelli: Thank you. Thank you, mister Borchio. Let’s now switch to 2025 market outlook. Our expectations for an essentially flat car car market minus 1% plus 1% are confirmed. However, the possible economic slowdown could have a negative impact on consumer demand, especially in the second half of the year.

More specifically, we expect a low single digit decline in original equipment due to the the prolonged weakness of car production both in Europe and North America, and a stable market or slightly growth in the replacement channel. Anyhow, High Value confirms as the most resilient segment with a mid single digit growth expectation driven by replacement. In the car 17 inches and below, demand is expected to record a low single digit negative trend in both channels. In this scenario, Pirelli confirms its strategy of gaining market share in the car 18 inches and above and decreasing its exposure to stand up. Let me give now an update on The United States tariff scenario and our mitigation plan.

As it is known, The US generates over 20% of the group’s revenues. Our local plant in Georgia, highly automated, covers around 5% of the local demand. Our sales in US are supported by importing approximately 55% of demand from Mexico and approximately 40% from Brazil and Europe. The tariff scenario is constantly evolving as shown by both the agreement reached in the recent days by the United States administration with The UK and the announcements of negotiations with other major trading partners. The tariffs we are currently exposed to are a 25% on car tires imported from Europe and Brazil from May.

As car manufacturers have obtained the duty refunds on imported parts, possible exemptions on our OE sales are in the process of being defined. While for the replacement channel, it will depend on the negotiations of individual states. No tariffs on imports from Mexico at the moment because all our products are USMCA compliant. Universal reciprocal tariffs on motorbike and bicycle tires imported from all countries with different rates according to the source. Based on the current tariff scenario, we revised our mitigation plan, which now includes the optimization of flows and the inventory increase in The US already implemented in the first quarter.

A revision of the commercial agreement currently in force in US market and the crash program to cost to cut costs at group level, in addition to the benefits from the already announced transformation program. We are also monitoring other highly volatile external factors such as the exchange rate trends, especially the euro dollar rate, the raw material trend, given the current reduction in the cost of natural rubber and oil derivatives, and the demand trend as the GDP and consumption are cooling down. Based on the results achieved in the first quarter, it really confirms that the target disclosed on February 26 and reiterated on April 28. Revenues between approximately €6,800,000,000 and €7,000,000,000 with volumes increasing between around 12%. Price mix improving by about two to 3%, mainly driven by the product mix.

Negative impact from ForEx between approximately minus 2.5% and minus 1.5%. Profitability is expected to increase year over year with an adjusted EBIT margin of around 16%. Net cash generation before dividends is expected between about $550,000,000 and €570,000,000 We confirm investments of approximately €420,000,000, around 6% of revenue. Finally, we confirm the deleverage target at approximately one time the net debt to adjusted EBITDA ratio with a net financial position of around €1,600,000,000. As already mentioned, the tariff scenario is continuously evolving.

Should the current tariffs stay in force until the end of the year, the mitigation plan already discussed will ensure the achievement of the adjusted EBIT and cash generation target at the low end of the guidance range, therefore, reaching the deleverage target. And now I’ll leave the floor to mister Tronketti for the final remarks.

Marco Tranchetti Correira, CEO, Pirelli: Thank you, mister Casaluci. The external scenario remains challenging. Commercial tensions are damping economic growth. It possibly impacts on consumer demand. To save these stormy waters, we are relying on our leadership on high value, effectiveness of our business model, and our quick responsiveness to external challenges.

The objective for 2025 are clear, consolidate our technological leadership, maintain a best in class profitability in tier one, and achieve our deleverage target. So that’s the end of our presentation, and I give the floor to to all of you. And I thank you for your attention.

Conference Moderator: Thank you. We will now begin the question and answer session. As a reminder, to enter the queue for questions, please click on the q and a icon on the left side of your screen and then press the raise your hand button. Please do not mute your microphone locally. If you are on the phone instead, please press star and one on your keypad.

The first question is from Akshat Kaker, JPMorgan. Go ahead.

Marco Tranchetti Correira, CEO, Pirelli: Evening. Thank you. Akshat from JPMorgan. I have three questions, please. The first one on governance and the shareholder structure.

You mentioned that negotiations haven’t yielded a positive outcome. I just wanted to ask, what are the next steps on this front that minority shareholders should look out for? And also, I remember from October, Sinocem was found in violation of the Golden Power procedure. So is there an update on that, please? That’s the first question.

The second question is on tariffs and the mitigation plan. It’s very encouraging to see you guide at the lower end of the guidance irrespective of the tariffs. Could I just ask for more details there, please, based on what we know today, what is the gross cost impact on the business? And what are the mitigation actions that you’re looking at both in the near term and if you’re looking for additional U. S.

Capacity in the medium term? That’s the second question. And the third question is just broadly over your pricing strategy across the globe, not just in North America. How are you thinking about pricing over and above raw material and other cost inflators in 2025, please? Thank you.

Thank Thank you very much. So the governance of ULE is written and and is clear, I think, to to to all of you. The Golden Power intervened on June 2023, and they restated the the governance that was changed unilaterally by the Sinocem Group with exchange of management. The the, they they merge between us and okay, and China new new managers. And they they intervene in changing the rules of the governance that were set on on the bylaws on the precondition of the fact, which were in an easy way granting the leadership of the management of Pirelli long term, the capture of Pirelli, and the management was in the hands of the managers that were stated by campaign.

It was the the the initial in in 2015, the initial governance. His willingness to change coming from an outside world, from new leaders of Sanofi Group, made them in a position accounting, I only talked to them because at the time there was 46% of the shares in the hands of different state owned Chinese companies. 10% was in the hands of a secret fund and 37 in the hands of Cenoch and Blue. This merger, it created a discontinuity. We we found a new shareholder, Piga, and the shareholder had to appoint to appeal to the golden power because this change in in in governance had to be declared to the govern to the golden power.

They declared it and the golden power intervene, in fact, restating the same condition of the governor’s state at the beginning, in line with the bylaws and the fact. And then the Synergon Group didn’t react to the decision. They they said that they were aligning the strategy to the DPCM, Golden Power, a new law. And in fact, we we see lately an attitude that we we don’t really understand because the motivation there is no motivation at the end of the day. Facts are that the the board of Pirelli, considering the best interest of Pirelli and considering the the conserve I’m sorry.

Conserve opinion that gave to the to the board the responsibility to set the governance in terms of control. They they said that clearly that was related to IFRS. And so the board, majority of the board voted for the change, and now we do not have control on Pirelli because of the decision of the board. And lately, there have been attitude that are in the in the press release that without any explanation were against the transparency that we were providing for the market. We tried and we are still trying to net we never stopped to do it to find agreement.

There is there are three main points to consider. There is no control. There is a shareholder targeting 39.9%, having 36.4, and there is the market and the golden power. So in our on our strategy, we look to the results. And results are supporting our our strategy.

The Standard and Grupo with the Golden Power, they have now there will be the decision if the they are in compliance or not with the provision of the golden power. She’s no links nor, let’s say, any exchange of information between the shareholder, Synergon Group, and the board members. We have seen lately that the situation is a bit different. And if there is already a procedure in in the golden power that is analyzing if their action is agreed between the board members that are also, let’s say, top managers of the of the Sanofi Group. In the in this scenario, we expect the decision of Golden Power coming.

And there is a second point that is obviously this proposal that is not known. So Pirelli asked to be transparent to in order to discuss it. Unfortunately, the answer was negative. And so we we we took the evidence of of this fact and and we described in our press release. It was also with majority vote because of some leaders.

And so at the end of the day, the company is doing well. The governance is okay. There is nothing more control. And so we go forward with our strategy, and we we are confident that in America, everything will be developed nicely and in accordance with the American laws as it happens in 60 countries in the world because we’re already distributing in more than 60 countries this product always aligning the governance to the rules of the market. And now I leave the floor to mister Casaluci about the American market, how we are developing our position.

Thank you.

Casaluci, Executive, Pirelli: Thank you. Thank you, mister Tronketti. So mitigation plan was defined based on the current duties scenario. That just to summarize, it’s 25% duties from Europe and Brazil on Qatar, not tariffs from Mexico, and the reciprocal tariffs on two real imports. Let’s see now.

Let let let’s see what will happen in the in the future. And if these would be confirmed, the application of these duties will generate a negative impact roughly around €60,000,000 at EBIT level. And the mitigation plan we presented that I will I will recap later on will represent roughly a positive impact to compensate the the the 60,000,000 negative on duties of around $3,035,000,000 positive impact. That’s the conclusion is that in our estimation with the actual scenario of duties, we will have a negative impact maximum around $2,530,000,000 at EV’s level. That’s the reason why we feel confident to assure in case this scenario will remain the the the mid the low level of the guidance as as worst scenario, of course.

We are also confident that the situation will improve and the mitigation plan on the duties will come also from the negotiations between Europe and United States as happened with United Kingdom. The mitigation plan includes the optimization of flows and inventory increase in The United States already implemented, this last one, but to maximize as as much as possible the export from Mexico into US, provision of the commercial agreements currently in force in US market that is not not only price, it’s a set of actions. It’s a review of the income terms, it’s price, it’s the opportunity to take a refund from the original equipment. And and and last but not least, a cash program a cash program on on cost all around the country, not only focusing on US. This is a short term metric.

Long term, as we already announced, that we want to plan. We plan a growing capacity, local capacity, and this will happen independently from the duties environment because it was already part of our long term plan. Thank you.

Marco Tranchetti Correira, CEO, Pirelli: Thank you.

Conference Moderator: The next question is from Monica Bosio in Tito San Paolo. Please go ahead. Miss Bosio, we cannot hear you. Maybe your line is on mute. Miss Pozio, could you please check your microphone, please?

The next question is from Martin Harry Bernstein. Please go ahead.

Analyst: Hi. Yeah. Can you can you hear me okay?

Conference Moderator: Yes. Can you hear me?

Marco Tranchetti Correira, CEO, Pirelli: Yes. We can. Okay. Great. Yeah.

So a couple of questions on the the tariffs and the litigation. I mean,

Analyst: the first one, you are

Marco Tranchetti Correira, CEO, Pirelli: a very efficient company with a high utilization rate, a cost saving program already in place. So I’m interested where you can find the incremental savings, you know, what is the, you know, the target of of of those incremental plans and and, you know, how how quickly will they be implemented? The second one on the tariffs as well, within the section two three two legislation, as written there is the stated intention to also tariff the non US content of USMCA imports once a process is established to do this. So I just wondered what proportion of the content of the Mexico produced hire is non US, and what’s your expectation on when, if ever, that change may occur in The US market? And also, is that something maybe on top of your existing target?

Thanks very much. Thank you. So starting with the section two three two. As you know, the Mexican leadership is dealing with the American leadership and there are continuous contracts. Right now, the production from Mexico goes on as it used to go with NAFTA first and USMCA afterwards.

The content of American products being, let’s say, a part of of the car, the tires, there is no request on our side to have content because as everybody knows, we are the inside natural rubber and materials that are not possible to be bought in America. So we we continue business as usual. And we believe that when we will be in a condition to define and start the investment in US, Part of the negotiation is also not only for Mexico, but trying to have a reduction on duties coming from Europe and Brazil. So it’s still a situation that is not defined, but it seems to me that it’s going to the right directions and will be in full compliance with the American laws. Please, mister Cabellucci for the other question.

Casaluci, Executive, Pirelli: Yes. Well, cost cost cutting is a fresh cost cutting plan. There there are always flexibility to act on cost if we if we consider the full perimeter of the company at 360 degrees and heading in front of our three quarters. So we are addressing cost at 360 degrees. Of course, we’ll accelerate the manufacturing efficiencies mainly in the programs with the shorter payback, mainly driven by energy consumption reduction that is due, for example, on the increase of the current patient programs and the electrification program.

But above all, we are working on the s g and a at 360 degrees. So we are confident that we will we will deliver these these and it will be part of the our transformation program. The question of increasing the acceleration and the cost discipline.

Marco Tranchetti Correira, CEO, Pirelli: Thank you.

Conference Moderator: The next question is from Martino De Ambrocci, Equita. Please go ahead.

Marco Tranchetti Correira, CEO, Pirelli: Thank you. Good evening, everybody. The first is on CapEx. You can remind us what is CapEx plan without any U. S.

Tariff and if you are planning any upgrade or just a reshuffle of the CapEx plan following the tariff introduction? And always on price, you mentioned during the speech that there is a possibility of tariff exemption for original equipment imports. I suppose it is 2025% of the total imports from Brazil and Europe. I don’t know if there is a different mix for these imports. And last on Sinochem again.

Sorry, I clearly understand it’s a very sensitive issue. Is it correct that the goal is to see Sinochem below 25 to be compliant with The US First? And I don’t know if you can elaborate on what are the possible scenarios here on on your view. Thank you, Mr. Casaluci.

Then

Casaluci, Executive, Pirelli: Yes. I will answer on the first two questions. CapEx wise, no, we maintain our CapEx target for 2025, but it’s continued being around 420,000,000. There is still relatively low level of CapEx dedicated to US because our plan to increase the production capacity will not have major impact in 2025. So the duties US will not affect our CapEx all in all.

Just to remind that roughly 30% of our CapEx is stable, dedicated to base load, the maintenance, and so on. While the remaining 70% has been switched in the last two years mainly on activities of efficiency, technological upgrades, sustainability, h HSE. So everything that will make our plans more efficient and and more sustainable looking forward. So today, 60% of our CapEx are dedicated to these activities while no more than 50% on production capacity growth. The second demand is yes.

You are right. More or less, 25% of what we import is related to the original equipment. And this is the volume where we are working with our partners in the car industry, the OEMs, to find the the way to take advantage of the refund that has been committed by the US administration. But is is a war is a negotiation, let me say, that has been started in the in the last days. So we are in the in the the middle of the process of setting the new condition.

Thank you.

Marco Tranchetti Correira, CEO, Pirelli: Thank you, mister Casaluci. So regarding the your question about agreement or not with the Sanofi Group. So this is obviously an important question. What we know in our experience on on the legal terms, on the golden power, the situation of a important shareholder not disclosing the reason why he’s acting in the board, not in the best interest of Pirelli. So leaving aside for a moment, the shareholder by looking to the board, I I think that one day soon will happen that the the best interest of the company will prevail.

Our projects are for the next month. So we we are dealing dealing with the American authorities. We we are dealing with the Georgia to have the, let’s say, the incentive they they used to to provide. So in my opinion, this situation, they find a way because the best interest of the company will prevail. It’s also the value for the shareholders, which means that it’s also the value for for for for the sign of the group.

I think that we will find a reasonable ways now or later, but the strategy of the company will not change and we will go on the way we are going today. Thank you. Thank you.

Conference Moderator: The next question is from Gianluca Berthutto, Inter Monter. Please go ahead.

Analyst: Hi. Good evening to everybody. Thanks First one is on tariffs. Was wondering about the response of competition. Did you see in terms of commercial discipline some markets like discounting, applying price increase.

And if so, to what extent this price increase are coming? They are trying to to fully fully cover the cost for tariffs or the price increase are less? Second question is on electric vehicle tires. There has been a lot going on on the OE market for this. Does all these changes to regulation specific situation of some player impacting performance you expect from EV and and your plans?

Thank you.

Casaluci, Executive, Pirelli: Well, in terms of commercial condition in United States, it’s really early to to to give you clear trend of the market. We see different reactions. It’s still very confused and under development. What we know is that we will review the commercial condition that is as I said before, is a set of activities and including the incoterms and the way of managing inventories and so on. But it’s early to give you a clear understanding on the on the market development in US.

While on the retail side, are fully confident that we will face an acceleration on the EV penetration. China, okay, we know is already in place On the first quarter of of this year, we recorded roughly 50% of the new car registration are electric vehicles already. And new electric vehicles concept or QED or or a plug in hybrid vehicles. And also, is is facing an acceleration. It is a is a is what we saw in the first quarter is a growth year over year of around 40% on current situation of new on new EV or QEV or added the plug in.

Reaching a weight on the total current situation in Europe that is close to the 20%. So we are confident that these will accelerate again. And as far as that is concerned, see an enormous opportunity because as we explained it more times that the EV requires size with higher performance and a higher technology in terms of noise control, in terms of volume resistors, in terms of grid, in terms of load index. And so here is where we see that the the technological leadership is providing a competitive advantage. So my view is absolutely positive on this on this area.

Thank you so much.

Analyst: Okay. And and for now, I’ll follow-up on the inventories. The the increasing inventories you adding The US to to offset the tariff impact, it will allow you to cover second quarter demand or even the third quarter or fourth quarter? Just understand the level of the inventories increase, what kind of flexibility it provides you.

Casaluci, Executive, Pirelli: Well, it goes without saying that April has been, but it’s not in my numbers of the Q1. But March and April, I would say, been a good has been a good month in terms of both sell in and sell out because sort of restocking was visible in the market. Most probably, May would be more a a of retuning on on the stock level. But all in all, I don’t see nothing that is worrying about the inventors level in US. It’s a bit higher than the average of this period of year for the reason mentioned, but it’s not it’s not worrying.

And supported the good performance of the Q1, both in terms of volume and product mix. While if we if you want an outlook out of out of United States is is sorry. For US, when we talk about inventories, this is true for both our own inventories that we transferred in our warehouse before the the duties that were in place and the inventories on our partner of distribution. Out of US, the stock is absolutely under control. China is at the normal level.

And Europe is is a bit higher than the average of the season because the sell out in April was not so good, but in May, it’s starting a very good sell out season. And and winter is is quite low, which is creating good expectation for the winter say selling season say selling season. Sorry. Thank you very much.

Conference Moderator: The next question is from Steven Benhamo from BNP Paribas. Please go ahead.

Marco Tranchetti Correira, CEO, Pirelli: Yes. Good afternoon, everyone. I have one question regarding your price mix. So please can you please give us a breakdown between the price and the mix in q one? And so you’re much higher than the full guidance of plus 2% to plus 3%.

So can you please elaborate on the reasons why to anticipate a lower prices impacting in the coming quarters? This is my first question. The second question is about the seasonality. So Q2 and Q3 are historically your biggest quarters in terms of profitability. Do you anticipate margins to be above your three objectives of around 16%?

Hi, Aloha. Thank you for the question. I’ll take I’ll take this one. Pricemix in q one, as we said, it was a very sound of 3.9 for the positive 3.9%, mainly driven by the good mix performance. Most specifically looking at the mix, we had a very consistent product mix improvement, which was higher than two percentage point.

Channel mix was roughly roughly flat, and the positive regional mix at about 1%. A little bit stronger than expected, driven by the sound performance we had on the high value North America and the the the the weaker performance on the standard sales in in South America. So price was largely positive, but very slightly positive, and it was mainly linked within taxation of the original equipment prices related to the ongoing situation of the of the commodities. Now for the remaining part of the year, for the next few quarters, we are expecting a product mix the price mix to keep on being aligned with the full year guidance. So to be one of the support for the total value of the EBIT and the generation of the EBIT margin for for the company, but we expect to be more aligned in q two, q ’3, and q four with the expected full year full year guidance.

And the profitability that we are expecting for the next quarter is roughly aligned at about 16% for all of the quarter. So we we don’t foresee major movement compared to what we achieved in quarter one. We would be in the ballpark of roughly 16%. If if I sorry. If I may add,

Casaluci, Executive, Pirelli: the the first quarter is right when you said the implicit of this following quarter, it looks below the first quarter. Because in the first quarter, on top of the product mix, well well extended by Fabio, we have been supported by a positive region mix because of the good performance of US producers and because of the acceleration of the exit in in standard in in South America. That’s the only difference, but the product mix will remain absolutely stable.

Marco Tranchetti Correira, CEO, Pirelli: Okay. Thank you.

Conference Moderator: The next question is from Ross MacDonald from Citi. Please go ahead.

Marco Tranchetti Correira, CEO, Pirelli: Yes. Good evening, Heather. It’s Ross from Citi. Congrats on the on the results. I have three questions.

I think two follow ups, so I’ll start with those. Just on the pricing commentary, I mean, I look at the Michelin net pricing, I think slightly higher potentially in in q one, and they’re talking about EUDR specific price inflation. So I’d just be curious, you know, when you talk about indexation within the the net price benefit in q one, is is that it for the full year? Or do you have some more sort of inflators that you can pass through potentially related to things like the EUDR that haven’t been done just yet. The second follow-up was really on the inventory situation just to help me understand exactly what you’re seeing there.

So how should we think about the net working capital build in 2Q? I assume you’ve been building inventories in The US right up until May, let’s say. And then you will begin to work those down into the dealer network from here. So, you know, what does that mean for q two volume? Should we expect strong selling in The US in q two as as you work down the the company’s inventory?

And then the final question, obviously, last time we spoke, you were talking around leaning on the Brazilian factories to potentially mitigate any tariffs, but the situation has changed. So, you know, given that you’re losing some share in in in Brazil on on the standard side in line with your strategy, you know, where does that leave the Brazilian footprint in terms of capacity utilization? And how should we think about, you know, the the the utilization Brazil from here? You.

Casaluci, Executive, Pirelli: So thank you for your questions. I will answer to the first one on the index indexization and the last one on the capacity, and then I will leave to Fabio to answer to the working capital expectations for the next quarter. But the the index indexization on the on the on the that is affecting the positive performance on price will be mainly related to the original equipment and affecting positively the first half. Then we will have the COGS impact and the pricing impact on the new raw material scenario starting from the second half. But as Fabio said, all in all, the vast majority of our price mix performance in the first quarter and also in the remaining part of the year is related to product mix.

So this not will not change significantly our price mix performance. Brazilian capacity today, we have opportunity to produce more. And but what when we mentioned it on the optimization of the flow, it means that we are taking advantage of the Brazilian capacity to maximize high value sales in South America and Mexico. Fulfill sorry. Free creating a more spec capacity in Mexico to support US sales.

That’s a way to reduce clearly, only reduce partially the impact on duties from Brazil that today are in place for The US market. This is a tactical action to try to optimize the actual footprint. But in Brazil, we will never ever lose the high value market share. What we will we are losing and this is driven by the strategy is our market share in standard. Mainly thirteen, fourteen, 15 inches where we are exiting from this segment because our under strong attack of the trading trade down of Asian brands.

So we want to to stay out from this segment to protect profitability and taking advantage of the new capacity for for the high value market. It is growing very fast in Brazil. Thank you.

Marco Tranchetti Correira, CEO, Pirelli: And talking about instead the inventories, obviously, the inefficient working capital management has been for the past few year and this even today, our priority number one in order to stabilize and to support our cash flow generation. And finally, our goal that is the the leverage of of the company. So we took we defined to increase a little bit the stock during the end of quarter one. That’s why the inventories overall arrived at about 22% of the last twelve months net sales. But we are expecting now for the next few quarters to finalize again to a more efficient level.

So I am expecting during the q two and then q three reduction in the level of inventories compared to the to the top line and going back to what we consider to be a a more efficient level of of inventories. Very clear. Can I maybe follow-up very quickly just on the on the price mix feedback you gave there? If I look at the drop through on price mix in q one, it’s about 63%. So just be curious, given the raw math comment you made around the second half, you know, what a fair estimate for price mix drop through through the rest of the year would be given that comment?

Drop through in the quarter one has been about 64%, and we we don’t foresee major variation for the next few quarters. So we are expecting it to be 64 to 65% until the end of the year. Okay. Thank you. The

Conference Moderator: next question is from Thomas Beth Besson, Kepler Cheuvreux. Please go ahead.

Marco Tranchetti Correira, CEO, Pirelli: Thank you very much. I have three questions about this. First, I’d like you to come back on distribution. Think you’ve announced a disposal in Sweden. Can you mention revenues of the disposal assets in 2024 and and confirm the the specific liabilities for your 2025 profit?

And can you remind us how much of your distribution you still own in LatAm, The Nordics, or Russia? I think it’s more partnerships in China or Europe. The first question on distribution. The second, I’d like to come back to cyber policies. Can you give us a rough idea of cyber type revenues in in 2024 or in q one twenty five, please?

And lastly, I’d like to come back and apologies for that, but I know it’s sensitive and it’s a question it’s a topic of which we get a lot of questions about on your relationship with Samuka. Could you explain how you see the the quality of outcome you’re looking for happening practically and be positive for both sides? Because otherwise, it’s a bit tricky to end it up and confirm that what you would eventually lose if the current holding stays as it is is just an incentive from Georgia and mention the the amount of that annual incentive fee. Thank you. Thank you for for your question.

And so the development with Synochem is, in a way, positive because there is no more control By Sinochem, now we we have the shareholders that are supporting the Pirelli campaign, obviously, and the market. And there are also rules in the market whereby if you don’t provide any motivation on your behavior against the interest of the company, there are consequences. So we we are strongly believe that at the end of the day, they will align their interest with the interest of the company. Because the company will continue its strategy, and there are no reason not to continue. The technology, I remind you, is also protected by by law.

And then we we are in a position that you mentioned revenues from cyber. You know better than I know that technology is something that goes on and on and then delivers a lot after two years. Now we are providing already to some car makers our cyber that is unique between software and hardware. And we have the agreement with with Roche. This is going on well.

And we have also request from Koreans, Chinese, and American companies to introduce our technology for them. And so we are on the way. I’d like to ask us in ’20 in 1985 if the zero line would have been successful. It has been successful and we had the fifth generation. And so I believe and we do believe and we have all the time that our technology year after year will be placed because it’s related to safety information, real time information.

So we have millions of kilometers that have been made. We have information that digitalized our system. So we are, obviously, confident that it’s a winning technology. It’s like go going backward to other technologies. And now we’ve seen again, end of the day, we’ll be in line with the interest of Pirelli.

I never seen in my life, I said all the voting against the interest of the company because it’s like they’re shooting in the seat. I mean, at the end of the day, they have to provide value for themselves. So we we are not scared. We we fight. We have great support by by shareholders.

And I think that is we don’t know why. So the interesting part of it cannot happen looking forward is that there is no reason to keep the position that is not in line with the growth of the company, the spreading of technology around. So I’m I’m and really, it is counterproductive that the the technology will be stopped. It’s also protected by the golden power. So I I really don’t don’t see it.

It’s not a good end of all that story. Please, mister Tagalog.

Casaluci, Executive, Pirelli: Yes. Thank you so much. Very quickly on all the other questions, Daycare is not is not been only a sale of their network. It’s been an agreement with CTS including the sale from our side to them of the network, so for an amount of cash of $424,000,000 as announced. And an agreement with the counterpart of a long term supply agreement, not only in Sweden, but in the whole Nordic market because they have a wider network.

Second on Brazil, we have our own network. We control and is is an And on top, we have also partnership with other retail network and distributors. We are market leader in Brazil. And we are also in the phase to optimize the footprint of the company’s But we’ll remain our network, of course.

The Stabber Tire, I’d say, that we don’t disclose is is in a development phase of technology. Nevertheless, in more than 100,000 tires, meaning, more are already circulating mainly United States since the rise has been working, but we don’t disclose the the numbers now. We are still in a very early stage of introduction of technology. This will be disclosed within our next investor plan with the long term view on the penetration of this technology. Last, for the investor investment US, of course, we are looking for a incentivization and the user to do to to to to be possible in United States.

We are exploiting different states, of course. Georgia is where we are, so it’s our first choice. And to solve the governance issues mentioned by mister Tronkett is also part of this plan because we need we we, of course, we need a bit of flexibility, you can imagine, and and the fact in that right now considering The US regulations. But we are very confident that we will find the best solution for the future of our investor presence in United States. Thank you.

Thank you very much.

Conference Moderator: The next question is from Monica Bozzio, Intido San Paolo. Please go ahead. Good evening. I hope you can hear me now. Most of my questions have been already answered, but I’m just wondering if you can indicate us what has been the market share gain in USA in the first quarter.

I’m not asking the market share, but the market share gain in the first quarter and if you have a target by year end. And my second question is on the raw material impact, the expectation for the full year overall. You.

Casaluci, Executive, Pirelli: Thank you. In terms of market share, the first quarter in in United States, North America, generally speaking, but specifically in United States has been quite positive. We are well satisfied of our performance. I can say around one point of gaining original equipment and a half a point of replacement is we do consider a very good performance. And we want to keep this performance for the full year, of course, possibly.

We will do our best to to to do it. Raw material, think, Fabio, you can. Yeah.

Marco Tranchetti Correira, CEO, Pirelli: On the raw materials, in the first first quarter, we had a negative impact, and that was related mainly to natural rubber and butadiene, just partially compensated by the the oil derivatives. Natural rubber is due to the fact that the quarter one twenty twenty four, it was just above $1,500 per ton. And and now it was just below in this quarter, was just below $2,000 per per ton. And due to that, it was last year at about $800, and now it is more than $1,000 per €1,000 per per ton. What we are expecting is still to have a negative impact from the raw material from the commodities in quarter two because the trend in commodities is getting softer a little bit.

But for q two, we see a better negative impact, even higher negative than quarter one. But then if the commodity will stay as we are experiencing them in this week, probably in for the second half of the year, we may see a reduction in the in the negative impact in our in our result.

Conference Moderator: Okay. Thank you very much. Thank you. And the last question is from Eduardo Stina, HSBC. Please go ahead.

Marco Tranchetti Correira, CEO, Pirelli: Good evening. I have one question. If we focus on the electric vehicle market, OE, that is actually battery electric vehicle, can you give us a better idea about the market share that you have in OE, you project for the next twelve, twenty four months between the European carmakers, the Chinese carmakers, and maybe the American carmakers? Just so we understand, given that the different rate of growth of these carmakers sometimes. Thank you.

Casaluci, Executive, Pirelli: Yes. Well, the the market share I always talk about high value high value segment and premium segment. Also, the market share I mentioned before in US are related to the 18 inches and above market. So back to your question, our market share average on the EV premium is 1.5 times our market share in the internal combustion engine. So if our premium market share that in the IC is in in original equipment is is around 20%, in EEV, the purity is around 28% of market share.

And it’s quite similar if we consider Europe and China. This is helping us to derisk the company also in several of the fast growing Chinese new premium EV players. In US, it’s very similar, but we only have a couple of players in US, Tesla, region, and Lucid, of course. That’s more or less the the target share we have. Thank you.

Okay. Thank you.

Conference Moderator: Gentlemen, mister Tronquetti Provea, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.

Marco Tranchetti Correira, CEO, Pirelli: So thank you very much. Thank you to all of you for your interesting questions. Have a good evening. Bye bye.

Conference Moderator: Ladies and gentlemen, thank you for joining the conference at Nova. You may disconnect your devices.

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