Pirelli & C Spa Azioni

conference call in which Pirelli top management will present companies full year 2024 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 after the presentation. 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 2024 confirm the resilience of our business model in a challenging external environment. We strengthen our positioning in high value, our main growth driver. The effectiveness of internal levers price mix and efficiencies led to an improvement in profitability, the highest among Tier 1 players. Finally, we reduced debt with a cash generation above the target. Important progress was also made in the sustainability front. The safeguard of health and safety in the workplace and the development of people remain our priorities. We are strongly committed to the development of products and materials with lower environmental impact. And finally, we accelerated the decarbonisation process along the value chain. The results consolidate our leadership within the industry as acknowledged by the most important sustainability indices. For 2025, we confirm the targets of the industrial plan presented in March 2024, despite a more challenging external environment. Our targets do not include the potential application of tariffs in the US, given the uncertainty regarding their amount and timing. We have defined a contingency plan to mitigate this impact, which will allow us to maintain cash generation and the leveraging targets and reaching the low end of the adjusted EBIT guidance range. And now I leave the floor to Mr. Casarucci, please.

Thank you, Mr. Tronchetti, and good evening, everyone. We are closing 2024 with results above expectations, despite the volatility of the macroeconomic and geopolitical scenario. More in detail, revenues of approximately 6.8 billion euro up by 1.9% due to a solid commercial performance with a high value accounting for 76% of revenues. Adjusted EBIT was around 1.06 billion euro plus 5.9% year-on-year with a profitability of 15.7 percent, higher than the target of 15.5, and growing year on year thanks to the contribution of internal levers. Net result was equal to 501 million euro, which, as Mr. Bocchio will present, discounts non-monetary impacts related to hyperinflation. The net financial position was negative for approximately €1.9 billion, down €336 million compared to the end of 2023. Cash generation before dividends was higher than expected, €534 million compared to the target of €500-520 million, due to the solid operating performance and lower financial expenses. In 2024, Pirelli further strengthened its commitment and focus on safety, engagement, and development of our people. The main results achieved are coherent with our targets. We further decreased the accident frequency index by 16.6% through prevention and training. The number of women in managerial positions increased to 28.3% globally. And finally, the engagement rate is confirmed at 83%, testifying the strong involvement and motivation of the group's employees. 2024 was a year of strong push on decarbonization. with a reduction of absolute CO2 emissions in our factories minus 57% compared to 2018 and decrease of emissions from our suppliers minus 26% compared to 2018. These results are consistent with our goal of carbon neutrality by 2030 and our target of net zero by 2040. as validated by the science-based targets initiative. The percentage of bio-based and recycled materials is increasing, reaching 58.5% in our best-selling product on the market. To protect biodiversity, we further reduced our water consumption by 34.6% in areas with high water stress compared to 2015, and by 51.4% if we consider all the group's production sites. These results confirm our global leadership in the sector as recognized by the most important sustainability indices. Let's move to the operational performance. Our commercial program enabled us to gain market share in the high value segment. In the innovation program, we expanded the OE portfolio, mainly in the electric vehicles and higher rim sizes. We launched seven new products for cars and five for the two wheels, while the partnership with Bosch for the development of the Sabertire is evolving. In the operations programme, we reached efficiencies of 143 million euro, fully offsetting the impact of inflation. Finally, as a result of the electrification of the curing process, our plan to decarbonize our factories is accelerating. Let's review each program in more detail. The commercial program. Our distinctive positioning in the high value segment enabled us to outperform the market in 2024. recording a 2% growth in car volumes versus a 1% growth of the market. In the 18 inches up segment, we gained market share, both in original equipment, where we expanded our collaboration with Chinese premium new energy vehicle manufacturers, and in replacement, where we are benefiting from the effectiveness of our pull-through strategy and product innovation. Exposure to standard is decreasing. Pirelli car volumes 17 inches and below was down 4% versus a market flat, in line with our strategy. In the fourth quarter, we outperformed the market of replacement 18 inches up, also benefiting from the good performance of the winter season in Europe. The original equipment trend in Q4 is influenced by the weakness of the market in Europe and North America, and by an unfavorable comparison basis in China. It is worth mentioning that in Q4 2023, Pirelli recorded strong sales growth due to new contracts with Chinese premium new EV manufacturers. The innovation program continued in 2024. We achieved 306 new homologations with a strong focus on 19 inches up, roughly 90% of total homologations, specialties and EVs to meet the increasingly stringent performance and safety requirements of our premium and prestige partners. We expanded the product range with the launch of 12 new products. For the car segment, we introduced seven new product lines with high technological content. Two global lines, winter and all season, and five regional lines, specific for Europe and Asia-Pacific. Among the new products, two stand out. The P Zero Winter 2, winner of Thai Reviews 2024, and the Cinturato All Season SF3, awarded Best All Season Tire by AutoBuild. For the two wheels segment, we introduced two motorcycle products, focused on touring and off-road lines, and three cycling products, mainly for road racing. Finally, the efficiency program. 123 million euro in line with the target and able to compensate for input cost inflation in particular labor and transport costs in detail the greatest benefit come from the product cost area due to the adoption of new design programs such as design to cost and virtualization that has allowed us to reduce tire development time by 30%. Manufacturing generated, as expected, greater efficiencies in the later part of the year, with projects to automate plants, electrify the curing phase, and improve energy efficiency. In the SG&A project, the rationalization of the supply chain and the optimization of general and logistic costs continued. Finally, the benefits of the organization project derived from the digitization of internal processes and the upskilling of personnel. I now hand over to Mr. Bocchio.

Thank you, Mr. Casalucci, and good evening, everyone. Let's now analyze our 2024 performance in more details. Pirelli closed the financial year with revenues of approximately €6.8 billion and an organic growth of plus 4.4%, thanks to a solid commercial performance. The trend in volume sales, plus 1.9%, in line with the guidance, reflects the strengthening of the car 18 inches and above segment and the gradual reduction of exposure to the 17 inches and below segment, as already explained by Mr. Casalucci. The price mix, plus 2.5%, was supported by the progressive transition from the standard segment to high value and by an improvement in the mix within both segments. On the other hand, the impact of Forex was negative 2.5%, reflecting the volatility of emerging countries' currencies. In the fourth quarter, organic revenue growth was plus 2.3 percent, supported by, on one hand, the good performance of the price mix, plus 1.8 percent, driven by the consistent improvement of the product mix, and, on the other hand, by the volume, plus 0.5 percent. The Forex impact was positive, plus 4.3 percent, benefiting both from the appreciation of the dollar and from the favorable comparison base. As in Q4 2023, the exchange rate impact had been particularly negative because it was equal to minus 10.6%. Pirelli is closing the year with an adjusted EBIT of 1.06 billion, up 5.9% compared to 2023, with an adjusted EBIT margin of 15.7%, improving year-on-year by 60 basis points as a result of commercial performance. More specifically, the contribution of volumes was positive for 49 million euro, The price mix, plus 110 million euro, more than offset the impact of raw materials, negative for 24 million, and the negative effect of forex, 25 million. Efficiencies, plus 143 million euro, covered inflation that were equal to 142 million euro. Finally, there was a negative impact of depreciation and amortization for €22 million and of the other cost, minus €30 million, mainly related to marketing and R&D. In the fourth quarter, adjusted EBIT stood at €245 million, an improvement of approximately €26 million compared to the same period of the previous year. Adjusted EBIT margin improved to 15.4%, it was 14.7% in the fourth quarter of 2023, thanks to the positive effect of the price mix, efficiencies, and exchange rates, which more than offset the increase in the cost of raw materials and inflation. Let's now move to the net income, equal to €501 million, up from €496 million in 2023. This trend reflects the improvement in operating performance for €59 million, whose dynamics have just been described, the reduction in non-recurring costs for €36 million, and the improvement in the result of equity participation for €16 million, mainly in China and Indonesia. The increase of net financial expenses, which discount a non-monetary impact of €53 million, linked to hyperinflation. Finally, the increase in taxes, 13 million euro compared to 2023, is linked to the different tax rate of the two financial years. In 2024, the tax rate was 22.6%, better than the 26% expected, due to some positive tax litigation outcome, which impacted positively for about 30 million euro in Q4. In 2023, on the other hand, The tax rate was 21.3% and included tax benefits of 40 million euro related to the patent box for the three-year period between 2020 and 2022. Pirelli closes 2024 with a negative net financial position of approximately 1.93 billion euros, with a cash generation before dividends of 534 million euros, which is 25 million higher than in 2023, and 58 million euros higher excluded the impact of extraordinary operations, such as the acquisition of Hevea Tech and the contribution to the JV in Saudi Arabia. The improvement in cash generation before dividends is attributable to the operating performance and the reduction in financial expenses paid. Net cash flow for operating activities amounted to €989 million and reflects the operating performance already commented, capital expenditure of €415 million related to high-value activities, technological upgrades and factory automation, increase in rights of use, The contribution from working capital management was positive, although lower than the previous year due to the appreciation of the dollar and the adjustment of inventory levels, mainly in North America, in light of the potential introduction of duties. The weight of trade receivable, 9.2 percent of revenues in 2024 compared with 9.8 percent in 2023, and the trade payables, 30.7 percent in 2024 compared to 30.1 percent in 2023, remained substantially unchanged. Net cash flow before dividends in Q4 2024 was positive €891 million, an improvement of €14 million compared to €877 million in the previous year. The Group's gross debt as of December 2024 amounts to approximately €3.8 billion. Considering financial assets of approximately €1.9 billion, The net financial position is therefore equal to approximately €1.9 billion. Let me summarize the main transactions of the year. In March 2024, we signed a new ESG bank loan for €600 million with maturity in Q3 2028. And in July, we issued a €600 million sustainability-linked bond with a five-year maturity. At the same time, we paid back all the debt due up to the first half of 2025. The combination of these transactions improved the debt maturity profile, with 70% of the debt maturing from 2027 onwards. Finally, as a result of stable cash generation, we ended the year with a liquidity margin of approximately €3.2 billion, of which €1.5 billion in undrawn committed credit lines. This margin covers debt maturities until Q3 2029, that is, for more than four and a half year from now on. As of December 2024, sustainable finance continues to account for approximately 70% of the group gross debt, or 85% if we consider the holding company's debt. Finally, The cost of debt calculated over the last 12 months stands at 5.06%, basically in line with last year. I now leave the floor to Mr. Casalucci.

Thank you, Fabio. Let's now move to the second part of our presentation. The macroeconomic scenario we expect for 2025 is characterized by a global GDP growth of 2.5%, broadly in line with the forecast of the business plan presented in March 2024, and by lower inflation than in the previous year. The current trade tensions pose a risk to this scenario. The application of tariffs advanced by the U.S. administration, still under definition, could slow down economic growth and contribute to inflation. The impact of tariffs could affect both the supply chain, with a resulting increase in production costs, and the final demand. According to the first simulations, If import duties are applied, economic growth could be impacted by approximately 20 basis points versus the current estimations. Let's now analyze the outlook that we foresee for the car tire demand in 2025. We forecast a substantially stable car tire market for 2025, minus 1, plus 1%. with opposite trend by channel. Original equipment is expected down low single digit due to the ongoing weakness of car production in Europe and North America. While the replacement channel is expected to be stable or slightly up year over year across regions. High value confirming its resilience with a mid single digit growth rate driven by replacement in Europe, North America and China. Demand for original equipment 18 inches up is forecasted stable, thanks to the recovery of car production in the second half of the year and to the demand in China. In cars 17 inches and below, demand will be negative, low single digit in both channels. In this scenario, Pirelli confirms its strategy of gaining share on car 18 inches up and reducing exposure on standard. To cope with the emerging scenario and strengthen our technological leadership, we have identified three priorities. The first is the product innovation. We aim to expand our technology portfolio to meet the needs of new high-end vehicle manufacturers, satisfy the needs of different consumers, and exploit growth opportunities in new profitable business areas. The second priority is the transformational efficiency, leveraging on new technologies, automation, and digital solutions to drive a faster, and sustainable transformation of our cost base. Finally, the third priority is the value chain resilience. We aim to further strengthen our local for local strategy, respond quickly to the possible introduction of tariffs, and expand our customer base both to new car manufacturers and in markets where we still have a lot of opportunities to grow, such as United States, Southeast Asia, Pacific and East Europe. Let's start from innovation. Connectivity is an important challenge for the future. We have defined the multi-year roadmap of performance and safety features. and following the project with Pagani, our cyber tire solution will be made available to other premium and prestige car makers. Our portfolio will expand with over 300 homologations with a strong focus on the high rim sizes and new energy vehicles. In 2025, we will introduce nine new car products developed with virtualization and artificial intelligence. In the regional equipment channel, we will launch a new generation of products that will strengthen Pirelli's technology portfolio by optimizing the performance of the new generation of high-end vehicles. On replacement, we will renew our regional lines to meet the needs of local consumers while strengthening our positioning in specific business segments, such as all-terrain in North America. These actions will support our commercial strategy, which will translate into an increase of high value weight, 78 percent of the group's revenues in 2025, up to two percentage points year over year. Let's move to the second strategic priority. In 2025, the efficiency program is going to accelerate approximately €150 million, compared to €135 million announced in March 2024. Automation, electrification, digitization of plants and processes are the drivers for this transformation path. Let's start with the product cost program, where we are significantly investing at that and that allows Pirelli to develop ties in a different way, by adopting a modular approach and cutting design time and costs, while the virtualization of development stages allows at minus 30% of the time to market. The manufacturing program aims at increasing productivity, quality and flexibility in plants by automating some production steps like finishing, handling and materials flows, and adopting digital solutions driven by industrial IoT and AI. Plants' energy efficiency is also improving. The electrification of curing allows an 80% reduction of consumption compared with the steam curing process. Finally, we continue to optimize our organization and logistics footprint in line with 2024. Given the timing of the implementation of some programs, in particular the manufacturing projects, the efficiency contribution will be more relevant in the second half of the year. Let's now focus on the contingency plan for the potential introduction of tariffs in the United States. Our U.S. business contributes more than 20% of group sales. However, our production in the United States is limited. The plant in Georgia, which has the group's highest level of automation, the so-called MIRS, has a capacity of around 400,000 high-tech ties. To meet demand, we import more than 50% from Mexico and about 40% from Brazil and Europe. If tariffs are introduced to mitigate the impact, we will leverage both on exogenous factors such as forex movements and on a contingency plan. This plan provides for increased imports from Brazil and U.S. capacity increase. we have already started with a technological upgrade of the MIRS process that will be the basis for the first step of capacity expansion in the United States. Moreover, the commercial policy will be reviewed based on the inflationary scenario. We remind you that 30 percent of the overall U.S. tire demand is imported, so some inflationary pressure is expected. Our contingency plan also includes cost reductions additional to the €150 million benefits of the transformation plan. Finally, let's review our expectations for 2025. In light of the results achieved in 2024, we confirm all the targets of the industrial plan presented last year. Our 2025 targets are revenues between approximately 6.8 and 7.0 billion euro, with volumes up between around 1 and 2%. Price mix increasing by around 2 and 3%, mainly driven by the product mix. Forex impact is expected to be negative, between about minus 2.5 and minus 1.5%. Profitability is due to improve with an adjusted EBIT margin of approximately 16%. Also thanks to a strengthening of the efficiency plan as already seen. Net cash generation before dividends is confirmed between about 550 and 570 million euro. Investments approximately 420 million euro or around 6% of revenues are confirmed. Net financial position is expected to be approximately minus 1.6 billion euro, with a leverage of around one time net debt on adjusted EBITDA. 2025 targets do not include the impact of any possible US duties, given the uncertainty around their application and timing. The contingency plan, as already described, will enable us to meet cash generation and leverage targets, as well as the lower end of the adjusted EBIT range. Finally, we confirm our sustainability targets for 2025. An ongoing commitment to safeguarding people's health and safety, progress in the decarbonization of the value chain, Increase of biobased and recycled materials percentage, which in our best product is going to exceed 70%. Further reduction of water consumption to protect biodiversity. These targets are consistent with the 2030 objectives. Thank you for your attention and I now leave the floor to Mr. Tonchetti for the final remarks.

Thank you, Mr. Casalucci. The 2024 results confirm the effectiveness of our business model, while the strategic priorities defined at both global and regional levels provide us with a clear direction. In addition, our proven ability to quickly react to external challenges makes us confident in our future path. Looking to 2025, we are determined to strengthen our technological leadership improve profitability and reduce our debt fully aligned with the industrial plan target presented a year ago. Mr Casalucci explained our mitigation plan and we have to add that we also have as part of our plans we are evaluating material investment in U.S. to increase our production capacity. We can leverage on our leadership in technology, innovation on connected ties and eco-safety products and our iconic brand due to the market impact also of Formula One. We see this as an opportunity. Thank you and we can open the Q&A session.

We will now begin the question and answer session. As a reminder to enter the queue for questions, please click on the Q&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 one on your keypad. First question is from Martino de Ambrosi, Equita. Please go ahead.

Thank you. Good evening, everybody. The first question is on the standard profitability, not only in 24, but also the projection in 25, considering that the majority of your top-line growth comes from high value, going up to 78% of sales. And a more strategic question is on the deleverage, because achieving your guidance, you will end the year with debt to EBITDA at around one. And I was wondering if you consider this level point of arrival in the sense that you can think about things you never did so far, because the focus was on deleverage, meaning Maybe buyback, maybe why not M&A or what else?

Thank you for the question. So I'll answer the second part of your question related to our financial position. First, we have to achieve the target and we will achieve it. Then we have different options, obviously. On one hand, depending on the market growth, which can be an opportunity. On the other hand, there is buyback, as you mentioned, dividend increase, who knows. So now we are in a volatile environment, but where we have all the tools to navigate and to serve on it. We are focused on this. We have plans for the next years of investments, and we have to see the market opportunity. But we are open to any option that is in the interest of Pirelli future. Thank you. Mr. Casalucci, please.

Yes. Back to the question on standard. The standard, it is today around 20% of our sales. with a profitability that stays on the ballpark of 7%. In terms of volume, we are talking of around 20 million pieces. The target of reaching the double-digit profitability on standard is still there. We are not where we wanted to be, mainly because of the standard profitability in the last year has been negatively affected by the restructuring on Russia and the Argentinian and economical environment. Nevertheless, we maintain the target of reaching the double digit ROEs in the coming years. The percentage of standard will decrease here over here. And it is important to mention that in the high-value regions today, it represents already around 10, maximum 12 percent of our total sales. So, it is mainly concentrated in South America. Thank you.

Mr. Thank you. If I may just follow up on the tariffs. You mentioned the need to invest more. So, the CAPEX plan could be revised upwards because of need to adjust your footprint.

No, because this is not short-term, obviously. And so our financial plan for 2025 is confirmed, and what you have in our presentation is what is going to happen. So then we are evaluating an investment. Obviously, the investment will start, we hope, because we see the opportunity, before the end of this year, but nothing that could affect our financial. And if we look forward, we can plan to invest more on one part or on the other. So no problem about our priority to have a stable financial position. We work on it. We are close to achieve one-to-one relation, and so this is our target, and we are working to achieve it. Thank you. Thank you.

The next question is from Monica Bozio in Tesa San Paolo. Please go ahead.

Good evening. Thanks for taking my question. I have a few. Would you prefer I ask one by one or all at once?

As you like. As you like, obviously.

Okay. All at once. Because you are a lady. Thank you. The first is on the price mix. You are flagging plus 2%, plus 3%. Can I assume that in case of duties, I assume that this price mix could be mostly mixed. But in case of duties, are you planning any price increases? And if yes, can you give us any indications, even if it's a little bit early? And I'm just asking also about the drop-through on the base case scenario, so the current guidance. My second question is on the market share gains. The company is still a little bit underrepresented in the United States. So can you give us some granularity on the current market share in USA and Europe? potential improvements you made, the company made in 2024 in USA. And finally, as for China, I remember that the overall market share was 16%, roughly 20% in replacement, in the region of 15% in original equipment. Can you comment on your expectations in terms of market shares in China going forward? Thank you very much.

I will go through the four questions. Price mix, 2-3% of our guidance is mostly mix. In case duties will be applied in the import into United States, one of the expectations we have to mitigate the impact is exactly as you mentioned on the price increase because As I said, we do estimate that 30% of the US demand on ties is related to import. So there is not enough installed local capacity to satisfy the entire demand. So in case of duties, we do expect an inflationary impact, and so we will follow with adjustment. It's not possible to mention the entity of these adjustments, of course, because we don't know exactly if and when duties will be applied and how big that will be, so we wait and see. That's the reason why we have not included in our plan numbers related to duties, but it's a mitigation plan out of the guidance. Drop through in 2025 is expected to be around 65, very close to the 2024. US market share. We have a market share. Let's remind that the United States is the biggest high-value market of the world. It represents almost half of the global high-value markets. And our market share is growing year over year, but anyhow it remains below the average we have at a global level. And we have... around five percentage point of gap versus the average and that's the biggest opportunity we see in our future development on this sales growth in the high value and And China, you are right in the numbers you have mentioned, and we target to remain in this position in terms of market share. It's a fast-growing market, above all in the high-value original equipment, driven by the new electric vehicles. And so we want to serve the growing market, targeting the same market market share and growing it together with the market. Sorry, one second. Yes, of course. What I mentioned has to do with the 2025, but looking forward in the mid-long-term plan, all is related to technology, and generally speaking, specialties and connectivity will drive the growth on the high-value market. That's the reason why we are preparing our homologations and our technology to gain market share in this future market. Thank you.

Okay, perfect. Just a follow-up, a quick follow-up. As of now, you have an equal positioning towards Western card players in China and local Chinese players. Should we expect a reversal of the situation in 2025? So a higher weight of the Chinese local players. It's a qualitative question.

Let's consider that the weight of the premium carmakers, Chinese premium carmakers, all of them related to the new electric or new energy vehicles, today represents roughly half of our sales. It's much more balanced, half on the Chinese premium carmakers, Lyoto, Zecra, NIO, Aitoceres, all the winners on the premium segment and half still remains related to the very important European and American car makers that are producing cars in China. So that's, we do consider a well-balanced footprint because it's completely de-risking the company. against the rebalance of the competitive environment. The more the Chinese will grow, or the more the Europeans or the Americans will grow as far as is related to the premium segment, we will grow with them. Thank you.

Got it. Thank you very much. Got it.

Next question is from Martin Harry Bernstein. Please go ahead. Next question is from George Galliers with Goldman Sachs. Please go ahead.

Yes, good afternoon and thank you for taking my questions. I really wanted to follow up firstly on the first questions on the call around the leverage. Obviously, you're very confident around reaching one times. Could you maybe just give us some insight of what do you think is the right level of leverage for Pirelli in the medium term in terms of balance sheet efficiency, just given the sustainable and consistent free cash flow we've seen from the company over the last two to three years? And then as you did mention M&A in your response, are there any particular areas that you are already thinking about with respect to M&A going forward. And then just a question more related to the state of the tire industry today. How do you see inventories by region in the high value segment at this point in time? Thank you.

Thank you for your questions. First of all, about how we see the leverage looking forward. Now we are going to deliver what was in our plan. We have to prepare the new plan. Within the new plan, taking into account the environment, the growth potential, our technologies that are developing very fast, we will have opportunity to look around. What we see is more inside of technology where we can, and we are already making agreements, which means that we look to partnership related to technology. So we have a clear view of our, let's say, future. Our future is technology of ties and technology on connected ties. On this will be step-by-step revolution in the tire industry. We understood it, I think, maybe, but I'm sure because we are the only one that deliver until now. We believe in connected cars, in technology. And so this is something we know, we handle, and where we already have partnership and we will continue on it. M&A. So the answer on M&A is that one. On that, again, for us, it's the market looking around us. We don't have a specific target today. It will be based in our plan on the visibility we have in the future. Always look into sustainability because the key is to do things that are sustainable. We went through the COVID and we are still, let's say, leading the market. And I think that the resilience of our company has been delivered until now and will continue to be delivered. Mr. Casalucci, for the third question.

Yes, no, the inventories are normalized, I would say, all around the markets. We are back to a normal level of inventories, and the volatility in the inventory management is something less affecting the demand of the last month. And that's what we also see for the beginning of 2025.

Great. Thank you very much. Very clear.

The next question is from Christoph Lakowski, Deutsche Bank. Please go ahead.

Good evening. Thank you for taking my question. The first one, actually a technical one on the guide, where you say that if terrorist would occur and your measures take effect, you would still be at the lower end of the adjusted EBIT margin range. Does the range translate into 15.5% to 16.5% based on the 16% guide? Or could you just comment on that? And then basically on the mitigation measures, how quick can you ramp up the flow of goods from Brazil into the U.S.? You're already obviously exporting there. Is it easy to just ramp up the volumes? And could that be within a quarter or so? Does it need far more time to prepare?

Thank you. Mr. Casalucci will follow up with some more details, but we see the duties as something to be handled. So we are in a global world where regional became more evident. We organize the company in a way to be local for local. That's the first question. What we are saying, that we have the opportunity, and we are analyzing it, of growth in U.S. So looking forward, the real mitigation in the new plan will be our growth in U.S., as Mr. Casalucci told us. So I think that everything is based on business at the end of the day, and is convenient for any country, obviously, America in the first place, to provide opportunity of growth, of investment, of employees, and we will do it. So, I mean, the duties at the end of the day will be key in order to have growth in America, but also stability in Europe and China. We know China. So that's the general picture. Now, Mr. Casalucci, if you want to follow up.

Yes. So impact on the guidance, just to summarize, the midpoint of our guidance as far as EBITDA justice is concerned, it is around 1.1 billion euro. The low end of the guidance goes into 1.07. So the gap is around 30 million. 3.0 is what we do expect as net impact based on the worst scenario we see, so 25 import duties from Mexico to U.S. That is what has been announced by the American administration right now, but on hold, not really. and execution till now mitigated by the actions I mentioned before. Price increase in US, exchange rate with a devaluation expected from the Mexican pesos, bigger import, higher import from Brazil. Today we import from Brazil to United States roughly 2.5 billion tires. We can increase around 20% in a short term, I mean in few months. and increasing in production capacity in U.S. Mr. Tronchetti mentioned that we are evaluating investment to increase the production capacity. Nevertheless, I remind you that we still have production facilities in the U.S., and we have land, and we have build, and we can grow, and we can start to grow also in short term. And in our capex for 2025, the 420 million, there is still already included a part of this capex for the growth in U.S. And last point is the expected price increase in U.S. I mentioned before. So all in all, the net impact we estimate, but it's an estimation because it's so volatile, it lands into a net negative impact of around 30, 35 million euro. That leads us into the low end of the guidance, the estimation. But it's a downside risk. It's not on our numbers today. Thank you.

Thank you. That's helpful.

Next question is from Thomas Besson. Kepler, please go ahead.

Thank you very much. Good evening. I have a few questions as well, please. Your French competitor decided to put together motorbikes or two wheels along with its passenger service. And actually, it comes exactly in line with what you're doing, if I understand correctly. Could you discuss in 2024 the dynamic you have seen in motorbike in terms of volumes and margins? Michelin suggests a clear improvement that should continue in 2025. That's the first question. The second, could you please give us an update on your Saudi Arabia project? And third and last question, on Russia, if we come to an end of the current Ukrainian war. Could you share with us what the plans could be, would be for your Russian assets? Thank you.

So two wheels, the outlook is stable on the two wheels. Two wheels is a good profit for us. The profitability stays around the 20s. So it's around the 21% of return on sales. So it's a profitable business growing because we are leading the high value market on the two wheels. And we are leveraging on our presence in motorsport activity and in the radial business with the two brands strategy that we have in the market, Pirelli and Metzler. The joint venture in Saudi Arabia is progressing. We have finalized all the agreement and we plan to start the construction of the factory in the Q2 of 2025. I remind you that this is a joint venture where we are a financial partner with a 25% of market share. It's not consolidated in our numbers. And we are partnering in terms of technological development, of course, and we will take advantage of these production sources and offtake for the Pirelli brand as well. I leave the floor to Mr. Tronchetti for Russia, the question on Russia. Thank you.

In Russia, we are in line with our plans. So we stated since day one that our Scope was, as it has been in other countries in the past, to maintain the workforce and to guarantee them the welfare and not to add the burden of debt. This is going well. No news. Russia is isolated and is... delivering what we had in our targets. And so we continue like this. Our plan is to continue like it has happened until now. Nothing changes. Thank you.

Thank you.

The next question is from Akshat Kakar, JP Morgan. Please go ahead.

Thank you. Good evening. Just a couple of questions left. The first one on the high-value replacement market. At the market level, you expect 5% growth in 2025, and you've talked about gaining market share and fairly outperforming that number. I'm just interested if you see any difference in the first half performance versus the second half. We've always seen very strong numbers come out of January. But if you're expecting any big differences between the first half and the second half in terms of European or the overall high value placement market, that's the first question. And the second question is on FX. When I think about your Q4 bridge, there was a slight surprising development on the top line as well as drop through to profits in terms of contribution from FX. Could you just explain that in a bit more detail, please? Thank you.

Okay, we'll start from the high-value market, the replacement. And generally speaking, the total market. Replacement, you're right, we do expect a growth in the 18 inches up markets of around 5%, 4-5%. And I do expect this growth to be more or less stable during the year. maybe a bit more than 5% in Europe, supported also from a good start of 2025, but anyhow stable during the two half. Where we do expect a different speed of growth is in the regional equipment, where we do expect a first half still negative, also in the high value, slightly negative, while we do expect a recovery in the second half of the regional equipment high value, supported by a more favorable comparison versus last year, where in the last four, five months of 2024, we have faced a strong reduction of the regional equipment in Europe and about all in North America, with a huge destocking of the trade. That's the expectation we have. So a stable plus 4% or 5% in the replacement along the year and more conservative 1%, 2% growth in the regional equipment, more positive in the second half. I'll leave the floor to Mr. Bocchio for the question on the exchange rate. Thank you.

I will take the question on the FX. In quarter four, effectively, the Forex impact was positive for $46 million. And this was related to the consolidation of foreign markets in Europe. The drop through was non-representative as we have the devaluation, the strong devaluation of the Mexican peso that started last June and affecting our cost structure for the production in our Mexican plant for the delivery in the U.S. market. On top of that, there was the positive impact of the currency mentioned as Argentinian peso and the Brazilian real. The US dollar evaluation that occurred in the last part of 2024 had a very minor impact on adjusted EBIT. But the fact that the drop-through was non-representative is mainly driven by the Mexican peso, where we have very little impact on the top line, as the local sales are not really representative for Pirelli Group. But the flow of products from Mexico to the U.S. is particularly significant. So the impact of the Mexican peso forex on our cost base is very significant.

Thank you for the details.

Next question is from Gianluca Bertuzzo in Termonte. Please go ahead.

Hi, good evening and thank you for taking my question. The first one is on inventory level. Was sell-in in line with sell-out in 2024 or you had tailwind or headwind from destocking or restocking? Second one, what should we expect in terms of net financial charges and JV contribution in 2025? And still on forecast, what is the assumption behind networking capital development? Last one, on dividend policy, should we assume a 50% payout on 2024 results? Thank you.

I will start with the first question. As I said before, inventories are back to a normal level, basically everywhere in all the markets. We have been able to destock our partners during the last quarter of 2024, mainly North America and Europe, which is something we try to do every year because we do prefer to start in the most disciplined way each new selling season. But anyhow, nothing special. It's a stabilized environment. I now leave the floor to Mr. Bocchio for the financial expenses and the working capital.

On the financial expenses, first of all, I remind that in 2024, for the full year, financial expenses amounted to about $287 million, out of which $53 million were non-cash linked to inflation and currency devaluation in the high inflation countries. Now, for 2025, we expect overall... the financial charges to be lower, to be in the range of 220 to 230 million, including non-cash item in the ballpark of 30 million euro. 2025 shows lower impact from the financial income due to the reduction of gross debt and the reduction of interest rates in the euro area, even if in some economies, such as in Brazil, there is a trend of interest rates rise. On the other hand, as I was saying, on the non-cash item, we are expecting lower negative effects from the non-monetary items compared to 2024, as inflation in Argentina has been steadily reducing, and we are monitoring the situation. But for the time being, we are expecting lower impact in 2025. Regarding the working capital, working capital management, obviously, even in 2025, is one of our priorities in order to manage the cash generation for the group. We expect an efficient management of our level of inventories. Stock that in 2024 ended with an incidence of net sales of about 21.7%. We are expecting to be slightly lower than this number to stay in the ballpark of 21%. receivable to stay in the ballpark to 9% to 9.5%, and payables in the ballpark to 31%, 32%. So payable and receivable pretty similar to 2024, but on the inventory we expect to be a little bit more strict on the management of the stocks.

Sorry, and the payout, the dividend policy also confirmed at 50% of the payout. Thank you.

Thank you very much.

The next question is from Stephen Benhamou, BNP Paribas Exxon. Please go ahead.

Hi, thanks for taking my question. I have a couple of questions. The first one is about the US cells sourced from Brazil and Europe. Could you please give us an estimate of what's the breakdown between the two regions? This is related to the fact that Trump announced this evening that he will soon impose a 25% tariff on auto imports from Europe. So my second question is about the saturation rate of your existing capacities in Brazil. And if you would like to transfer a part of European production there, would it be possible? And my third question is regarding your expectation in terms of inflation in 2025. Do you expect your efficiency program to more than offset the expedited inflation this year? Thanks.

Thank you for the question. Inflation, as you know, if there are tariffs, the balance between the different currencies changes. So this is a natural impact. Then there are all the mitigation plans Mr. Casalucci explained to us. And so looking forward, the only thing in this volatile world we cannot deliver today are details, because details will come after a single law will be implemented. And talking about 25%, this is a negotiation that is in place between Europe and US in which they are talking about the cost. So we are not talking about our products. Our products, let's say, not mentioned, but considering that we have a plan, we want to grow. We want to be in the United States and grow, as Mr. Casalucci stated. We want to grow because our market share compared to our brand, our technologies, connected cars, is still lower than average, lower than average because we started investing in Mexico and US after we invested in China. And so now the focus is US, where we see the major opportunity, taking into account that our position is strong already and can be stronger because of our technology. So the base of all what we are saying is the certainty that we handle our technology As leaders, and we are a leader, you can navigate on situation. So that is what we can say today, that we are ready, as Mr. Castellucci said, to serve on that situation, knowing the risks, because we are aware, we every day check what is happening, any statement made in any part of the world, but we see every day how to navigate and we move our details in order to navigate. That's the situation. But we are used to be in this. The world has been always not easy. And I mentioned before COVID. We did it. We came out of it. We didn't burn cash. At the end of the day, we are here delivering our plan. Thank you anyhow for your question.

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

Thank you, everybody, to have been with us. It is an interesting conversation. I hope we answered all your questions in a way that is, for you, exhaustive.

Thank you, and have a good evening.