Pirelli & C Spa Azioni

Good evening, ladies and gentlemen. The results of the first half of 2023 confirm the resilience of our business model, with performance improving year over year. The scenario we expect for 2023 remains highly volatile and is characterized by a slowdown of economic growth, where the main uncertainties concern Europe and China. A high inflation rate, in particular of consumer prices, despite the decrease in energy, transportation and raw material costs, the growing volatility of exchange rates fueled by interest rate differentials and economic situation in emerging markets. In this context, we prefer to take a more cautious view on the external scenario, both on tight demand where we confirm the resilience of high value and on exchange rates. While we confirm our adjusted EBIT and cash flow targets, thanks to the effectiveness of our internal levers. As we are going to see shortly, our solid price discipline and improving product mix allow us to revise the price mix upwards, offsetting the impact of volumes and forex, and upgrading our EBIT margin target. Our result for the first half of 2023 remains among the best in the industry. 7.5% top-line growth year-on-year, supported by the strong improvement in the price mix and the strengthening on high value, which now accounts for 74% of the group's revenues. Adjusted EBIT amounted to 517 million, with a margin of 15.1%, stable compared to the first half of 2022. Net income of 243 million, up 4% year-on-year. The net cash absorption... of 535 million in line with the usual seasonality of the working capital. Moving on, I would like to give you an update on sustainability. The group is firmly committed to safety as well as diversity, equity and inclusion of our employees. In addition to the campaign to raise awareness at group level, the reduction of accident frequency and increase of gender balance in managerial positions become part of the objectives in our short-term incentive program for managers. We expanded our welfare portfolio further to include projects in support of parenthood and psychophysical well-being. Regarding product sustainability, in mid-July we launched the new P0E, a top-of-the-range style for electric vehicles, which received a AAA European label for rolling resistance, wet grip and noise control. and contains more than 55% of bio-based and recycled materials, verified by the third party for maximum transparency. Such results have never been achieved before in the UHP tire market. In terms of sustainability materials, we also announced the acquisition of 100% of AVEA Tech, the largest independent natural rubber processors in Brazil. This transaction is due to be closed by the end of the year and will allow us to launch innovative natural rubber projects to increase the use of non-fossil materials, further improve control over the natural rubber supply chain, as well as expand our FSC certification programme. Finally, the decarbonisation plan progressed more than expected, with all our factories involved in the Climate Change Challenge programme. We are also helping our suppliers to reduce emissions in line with our commitment to net zero formalized towards the science-based target initiative. And I'll leave the floor to Mr. Casalucci, please.

Thank you, Mr. Tronchetti, and good evening, everybody. Let us analyze the market dynamics and Pirelli's performance. The second quarter of 2023, recorded an improving trend compared with the first quarter, plus 1% year-over-year versus a minus 4% in the first quarter. However, due to the stocking in Europe and North America, together with a slower than expected recovery in China, the market trend in replacement was below our expectation. In the first half of the year, the global car tire demand declined by 1.3%, with very different dynamics between segments and channels. Pirelli kept overperforming the market thanks to our strong positioning in the more resilient high-value segment. Positive original equipment market, plus 8.4%. was supported by a strong demand increase in Europe and North America. In 18 inches and above, Pirelli saw roughly 10% volume growth versus a plus 11% of the market, with increasing focus on higher rim sizes and electric. In 17 inches and below, Pirelli minus 6.7% versus a market plus 7.2%, We didn't benefit from the market rebound due to our selective approach in all regions. However, the replacement market remained weak, minus 4.8% year over year, discounting the volatile macro scenario worldwide. In 18 inches and below, Pirelli outperformed the market by 2 percentage points, Pirelli plus 2.9 versus market plus 0.8. driven by a market share gain. And in 17 inches and below, Pirelli minus 10.4 versus market minus 6, we continue to reduce our exposure to this segment and focus on a mix more oriented towards bigger sizes. Let's now go through the key programs of our industrial plan, as well as the results achieved in the first half of 2023. On the commercial program, we overperformed in 18 inches and above car market and reduced our exposure on the standard segment, which in the first half accounted for 36% of the total car volumes. On the innovation program, 150 new technical homologations focused on 19 inches and above, approximately 86%, and electric vehicle, approximately 50%. We consolidated our position in the electric vehicle segment with a portfolio for approximately 400 homologations and a market share in premium and prestige segment 1.5 times that of internal combustion engine. And our focus on sustainability and performance was further improved with the launch of the new P0 generation. why new products were introduced in the two-wheel business based on our racing experience. On the competitiveness program, 30 million euro gross benefits were achieved, in line with the expectations and project development schedules. On the operations program, the level of plant saturation is of approximately 90%, 95% in the high value. Finally, thanks to the acquisition of EVIA-TEC, the leading independent Brazilian natural rubber processing operator, we shall increase the supply of this raw material from South America. In the first half of the year, we increased our exposure on car 18 inches and above by 3 percentage points, which accounts for 61% of the car volumes. In the original equipment 18 inches and above segment, our performance plus 10% versus a market plus 11 is featured by a growing selectivity focused on the 19 inches and above where electric vehicle accounted for over 27% of the original equipment volume plus 11 percentage points versus the first half of 2022. In the replacement 18 inches and above, volumes 2.6 versus 0.8 in the market, growth was mainly driven by new product lines introduced over the past year, particularly North America and Asia Pacific. On innovation, Pirelli launched three new products in the P Zero family at the Goodwood Festival of Speed, of which Pirelli is the exclusive tire partner. This new range of tires, developed considering the demand of car makers and consumers, is specifically focused on sustainability and efficiency. These new products were developed in line with our Eco and Safety Design approach, an innovative development methodology based on virtualization, which is the outcome of our experience in motorsport. More in detail. P0e is a concentrate of technology and sustainability, as I am going to illustrate in the next slide. P0r is the ideal choice for the prestige segment, due to its sporty performance and driving pleasure. And finally, P0 Trofeo RS, a top product in terms of its performance on track. This product is also homologated for road usage and was designed for the original equipment of hypercars and supercars. Let's now go into more details about P0E. This tire integrates the latest technological innovations developed by Pirelli and was designed for electric and sustainable mobility. It is the first ultra-high performance tire on the market with over 55% of bio-based and recycled materials and a 24% reduction of the CO2 emissions compared to the previous generations. Both features are verified by third parties for maximum transparency. P0E features a low rolling resistance, a lower noise, coupled with a consistent performance when both new and worn. It is then the first UHP tyre on the market with a triple A on the European level across the entire range. Finally, P0e is equipped with the new Pirelli Run Forward technology that guarantees support after puncture and allows to continue driving up to 40 km at a maximum speed of 80 km per hour. And this technology is specifically developed for electric vehicle cars, which do not carry a spare tyre due to their battery on board. The competitiveness program in the first half of the year recorded gross efficiencies of around €30 million, equal to 30% of the annual target, and is in line with the project development schedule. Higher contribution of the efficiencies will be in the second half of the year. More in detail. Our main efficiencies come from product cost, where we continued our modular design and design-to-cost approach. aiming at reducing the complexity of the structure and the weight of tires. In the manufacturing area, the results of which will be concentrated in the second half of this year, projects to improve the production process are being implemented by leveraging an industrial IoT with particular focus on predictive maintenance and energy consumption. In the SG&A area, logistic and supply chain optimization process continue along their roadmap. And finally, in the organization area, the process of digitization and staff upskilling follow their schedule. Finally, I would like to comment on the Hevea Tech acquisition, leading independent natural rubber processor in the Brazilian and our supplier as well. The transaction is expected to be closed by the end of 2023, and it is worth approximately €21 million as enterprise value, with no impact on our 2023 cash flow target. Through the AVEATEC acquisition, Pirelli will increase its natural rubber supply share in Latin America and ensure continuity of supply in the region, and therefore greater efficiency and benefits in terms of stock management. In addition, the operation will facilitate the launch of innovative natural rubber projects, aimed at increasing the use of non-fossil-based materials in the production of tires, in line with Pirelli's sustainability goals. As just mentioned, and always in terms of sustainability, the Avertec acquisition will also enable the company to further improve its control of the natural rubber supply chain, reduce CO2 emissions thanks to a local-for-local supply, and launch new FC certification projects. Thank you, and I now leave the floor to Mr. Bocchio.

Thank you, Mr. Casalucci, and good evening to all. Let's go through the revenue dynamics in the first half of the year. The volume trend, minus 2.1% at group level, discounts the weakness of the market demand, especially in the replacement channel. As Mr. Casalucci already explained, we overperformed the market on car 18 inches and above, while further reduced our exposure on standard, in line with our strategy. Strong improvement in price mix, plus 12.5%, expected to be among the best in the industry, was supported by a solid price discipline and a continued product mix improvement. The forex impact was negative, minus 2.9% in the first half, equal to minus 94 million euro, with a worsening trend in the second quarter, following the depreciation of the dollar and other major currencies against euro. In the first half of 2023, adjusted EBIT was €517 million, with a 7.4% growth year-on-year and a stable margin of 15.1%, compared to the first half of 2022. Internal levels more than offset the weak external scenario. More specifically, the price mix, plus €345 million, and efficiencies, plus €30 million, More than covered, the drop in volumes, minus €29 million, linked to a weak market demand, the increase in cost of raw materials for €99 million, including their related exchange rate impacts, input cost inflation, minus €131 million related to energy, labour and transport, the negative exchange rate impact, minus €51 million, due to two different dynamics. On one hand, the evaluation of the Mexican peso, plus 13% versus euro, with a direct impact on costs, given that Mexico is the production hub for North America. On the other hand, the devaluation of renminbi, Latin American currencies, and the devaluation trend in the second quarter of the dollar. The impact of depreciation, amortization and other costs was negative, minus 16 million euro and minus 14 million euro respectively. The latter were concentrated in the second quarter and relative to marketing expenses, R&D and to stock reduction. Profitability improved in the second quarter, reaching a margin of 15.5%. 15.1% in Q2 2022, thanks to the strong contribution of price mix plus 147 million euro and the efficiencies plus 21 million euro, which in total covered 1.4 times the negative impact of Roma Tegas minus 22 million euro, inflation minus 62 million euro and exchange rates equal to minus 36 million euro. Let's now analyze the net income dynamics in the first half of the year, a plus 4% year-on-year growth. This trend reflected the already mentioned improvement in operating performance, which more than offset the increase in net financial charges related to interest rates hikes in the Eurozone and the higher tax impact linked to the better operating result with a 28.5% tax rate. The adjusted net income was €298 million versus €288 million in the same period of 2022. The net cash flow in the first half of 2023 was negative for €535 million, in line with our business seasonality. Excluding the impact of the three-year management incentive plan for 2020-2022, worth 67 million euro paid in the second quarter, the net cash flow before dividends was stable year over year. The variation of the operating cash flow mainly reflects the improvement of the operating performance, the higher absorption of investment activities, and the working capital and other items trend. Let's discuss the dynamics of the latter. Thanks to a careful stock management, inventories were reduced in the first half of the year, reaching a 20.7% on sales, minus one percentage point versus the end of March. The reduction was related mainly to raw material inventories. It should be remembered that in 2022, the high incidence of raw material stocks was due to both rising inflation and actions to contain supply chain risks. finished product inventories, on the other hand, remained stable. The other elements of the working capital reflected the usual seasonality of our business, with an increase in trade receivables to 13% of sales, plus 3.5 percentage points versus the end of 2022, and a reduction of trade payables versus 2022 year-end, due to the investment trend and the normalization of raw material stocks. Trade payables on sales is expected to return to around 30% at the end of 2023, in line with the previous year. Finally, we would like to remind you that the non-recurring impact from the incentive payment was related to the three-year long-term incentive plan 2020-2022. This roughly 67 million euro impact was included under the item other payables from 2024 to With the transition to the rolling system, incentive payments will be on an annual basis, with a substantial alignment expected between the impact on the income statement and cash outflow. The group gross debt, as of June 30, amounted to approximately 4.8 billion euros. Considering the 1.7 billion euro financial assets, our net financial position stood at 3.1 billion euro. The 2.8 billion euro liquidity margin allows us to cover the debt maturities up to 2025 year-end. In the first half of the year, two new sources contributed to the liquidity margin. The first is the €600 million five-year bond issued in January, which marked Pirelli's debut as an investment-grade company and represented the world's first sustainability-linked benchmark issue in the tire sector. The second is a €300 million bilateral loan benchmarked to sustainability targets, maturing in February 2026. This loan, as of June, had not yet been drawn and therefore positively contributed to increasing the liquidity margin as undrawn committed line. The utilization of this new bank line happened in July and facilitated, partially using the liquidity already available, the voluntary early repayment of Euro 600 million loan maturing in February 2024. Financing with ESG features now accounts for 58% of total debt. Finally, the cost of debt stood at 4.46%, up 15 basis points from Q1 2023, impacted by the restrictive monetary policy mainly in the Eurozone. I now turn the floor over to Mr. Trunchetti.