Pirelli & C Spa Azioni

Ladies and gentlemen, welcome to Pirelli's conference call, in which Pirelli Top Management will present companies' first half 2026 results. A live webcast of the event and the presentation slides are available in the investor relations section of the Pirelli website. I remind you that the Q&A session will follow the presentation. Now, I would like to introduce Mr. Marco Tronchetti Provera. Please, go ahead, sir.

Thank you. Good evening, ladies and gentlemen. The first half results confirm Pierelli's ability to generate value in an uncertain environment marked by growing geopolitical tensions. We have further consolidated our leadership in the high-value segment by leveraging on the strength of our brand, technological innovation, and a distinctive product portfolio. The resilience of our business model and implementation of strategic priorities allowed us to maintain a profitability among the best in the industry, offsetting the negative effects of pension in the Middle East, U.S. tariffs and exchange rate volatility. Cash flow generation remains in line with the seasonality of the business and with the expectations for the full year reflecting the group's financial discipline. The second half of the year, the macroeconomic and geopolitical picture is expected to remain volatile. The resumed conflicts in the Middle East has further pressure on energy costs, with Brent price back at about $90 per barrel, and the TTF gas approaching 60 euros per megawatt hour. Furthermore, there are persistent signs of weak demand, especially in car manufacturing and the standard segment. while demanding a high value replacement is proving resilient to a single digit growth rate. Despite the challenging external environment that I described, based on the quality of our first half results, we are confirming our full year targets for revenue growth, profitability, and cash generation. Now I give the floor to Mr. Casaluci.

Thank you, Mr. Branchetti, and good evening. Direlli has reported solid results for the first half of the year, in line with our expectations. Revenues reached approximately 3.5 billion euro, with organic growth of 2.5%, driven by stronger high value, accounting now for 82% of group sales, and price mix improvement. Adjusted EBIT amounted to 558 million euro. Thank you very much. and a greater profit contribution from equity participations in the first quarter of the year. The net financial position is of approximately 1.9 billion euro and includes the debt consolidation of the Chinese joint venture, Husheng Tai, amounting to approximately 210 million euro, as well as the payment of approximately In the second quarter, the net cash flow before dividends and M&A transactions was positive at 148 million euro, in line with the level recorded in the same period last year. Our long-term strategy for value creation and development continues to benefit from progress in sustainability. Over the past six months, we achieved tangible results in all areas. In health and safety, The prevention and awareness-raising programs contributed to a significant reduction of the accident-at-work frequency index, reducing the index by 54% compared with the first half of 2025. The decarbonization plan continues in line with the 2014 E0 target. Energy efficiency and machinery electrification projects led to a 13.5% decrease of our emissions compared to last year, and the reduction of emissions by our suppliers is also in line with our 2027 target. Furthermore, we made significant progress in developing circular supply chains for the recovery and integration of sustainable materials into production processes, as we will see in the next slide. Finally, energy and water efficiency programs allowed for a 6.7% year-on-year reduction of water consumption for production purposes. We started three partnerships on key raw materials, namely carbon black, steel and synthetic rubber. Our target is accelerating the transition to materials circularity from increasingly sustainable and flexible supply chains. More specifically, in the United States, we started a collaboration with Boulder Industries, a company specialized in retrieving carbon black from end-of-life tires. This raw material is then recycled and used for new tires. This project received the Value Chain Collaboration Award from the Tire Recycling Foundation. In China, together with our strategic partner Shinda, We gave a remarkable contribution to the development of a pilot project to include the recycled steel among the materials certified under ISCC+, the major international standard for the certification of recycled and bio-based materials traceability across the supply chain. In Europe, we developed an integrated chain with PIRUM, BASF and SYNTHOS, to turn end of life products into circular ISS Plus certified materials, including synthetic rubber to be reused in large scale production processes by guaranteeing high quality performance and traceability standards. Through these partnerships, We will strengthen our strategy on circular materials with the target of bringing products made from over 80% bio-based and recycled materials to the market by 2030. Let's now analyze our first half operating performance. In line with our strategic priorities, we gained share in the high value segment. In the major geographic areas and business lines by leveraging on technological innovation and sizing market opportunities. Innovation represents a distinct factor in our strategy. In the first six months of the year, we expanded our homologation portfolio and widened the product range. We also consolidated our position in the segments of higher value, In the cyber tire, the latest test confirmed the competitive edge of our technology. We proved that connectivity applied to tires through a physical sensor can be translated into tangible benefits for both safety and driving experience. Efficiency plan Proceeds according to schedule. In the first six months, the efficiency plan generated gross benefits of 81 million euro, that is approximately 54% of the full year target. Let's start from the commercial performance in the first six months. We gained market share in the high value segment, recording a volume growth of 3.5% and strengthened our position in the car and motor segments. We also continued our selectivity process in the standard segment, minus 8% on volumes, by reducing our exposure to segments with lower profitability, mainly in South America. In the second quarter, the volume trend, minus 1.5% at group level, reflects a greater reduction in the exposure to the standard segment, volumes minus 11% versus a minus 4 in Q1, Outcome of a strategy based on value and protection of profitability in an extremely competitive environment. While the high value trend, plus 3%, reflects a lower growth of the motor segment after a strong performance in the first quarter and a more limited growth in the car original equipment due to demand slowdown. In the second half of the year we expect high value performance to strengthen, supported by a solid replacement demand in Europe, as well as the gradual improvement of the North American market. In the standard segment we expect a gradual trend normalization. Let's now move to product innovation, which is one of the key drivers of differentiation in future growth. In the first half, In the spring of 2026 we obtained approximately 200 new homologations mainly concentrated in high range, size, specialties and electric vehicles. These results confirm our role reference technology partner for both premium and prestige car makers. Examples of these include their partnerships on the most advanced electric cars like Ferrari Luce and Radeon R2S. as well as premium SUVs like Audi Q7 and Q9. Innovation also means constant renewal of the product portfolio. In the car segment, in North America, we launched the new Scorpion All Season 4, developed with an increasingly virtual approach which led to an improvement in mileage, comfort and driving control. The value of our technological solutions is also confirmed by comparative tests In the first half, we obtained 8 victories from leading European specialist magazines, which awarded several products in the Cinturato, Pizzero and Scorpion lines. Also in the two wheels business, we continue to incorporate the racing experience into our products. In the motor segment, we launched Metzeler Sportec 01 RS. Developed from the racing know-how to offer top performance on the road. While in the cycling segment, we introduced two new Cinturato lines designed for gravel riding, a rapidly growing segment. Within product innovation, CyberTire is one of the most distinctive solutions in the industry. Through sensors integrated into the tire and our own algorithms, Cyber Solutions can turn a tire from a passive car component into a smart sensor that can exchange data with the vehicle in real time and provide accurate information about the tire and road condition. All these data allow the electronic systems of vehicle, from ABS to stability control and traction, to be able to react more effectively and accurately, thus improving safety, control and driving experience. Recent tests carried out on our Wizzola testing track, also attended by international trade press, positively proved the value of this technology under particularly challenging conditions. Tests showed the tangible advantages in terms of safety and control of the vehicle. In emerging braking tests from 100 km per hour, the system allowed for a reduction of braking space of approximately 5 meters. On wet surface, vehicle stability and grip improved, and in the event of aquaplaning, a better control of the vehicle was achieved in circumstances where, without cyber tire support, the behavior of the car would have been much more critical. These results prove that immediate and real data availability from the tire allows the vehicle to fully exploit the potential safety treatment on board, with actual benefits for the driver. Interest by car manufacturers and media confirms the role of CyberTire as an enabling technology for connected mobility as well as further development of ADAS systems and autonomous driving. CyberTire is a unique solution in the industry, strengthening Pirelli's leadership in integrating tire, vehicle and digital platforms. It provides new opportunities for growth and value creation along the entire mobility ecosystem. Besides innovation, brand is one of our Pirelli's distinctive assets. Recent market analysis confirmed the strength and uniqueness of our positioning, with Pirelli brands associated to high-tech, prestige and motorsport concepts. During the first half of the year, we further strengthened this positioning, with targeted actions in strategic markets. In the United States, we started a multi-year partnership with Miami Open, one of the most prestigious international tennis events, giving even more visibility to the brand in a country which is crucial for our future growth. In Europe, we consolidated the presence at iconic events such as the Goodwood Festival of Speed and the 24 Hours of Spa. Occasions that highlight Pirelli's association with innovation, performance and technological excellence. Finally, the partnership agreement with Formula 1 was renewed until 2028, confirming Pirelli's role at the pinnacle of motorsport. These activities contribute to enhance our brand's global relevance and strengthen Pirelli's high-end positioning. supporting our ability to continue growing in the high value and most profitable segments. I would like to conclude these sections by mentioning transformative efficiency. A fundamental pillar in terms of competitivity roadmap, this transformation involves the whole value chain, from product design to manufacturing. We are making full use of simulation, virtualization and modularity, which means standardization of materials and semi-finished products. The aim is to reduce complexity in the factories, while maintaining best of the industry quality and performance, and accelerating time to market. An example of these is the Virtual Compounder, our own platform based on artificial intelligence which allows to virtually develop and optimize compounds, identifying the most promising solutions before physical validation. Results are already tangible, we reduced prototypes by 20%, development time was cut by 30% and in parallel, We are speeding up the introduction of bio-based and recycled materials into our products. Furthermore, we continue investing in digitization, automation and electrification to increase productivity, quality and manufacturing flexibility. I now give the floor to Mr. Bocchio. Thank you.

Thank you, Mr. Casaluci. Let's see now in more detail the dynamics that have characterized the performance of first half of 2026 compared to the same period last year. As already pointed out, revenues was approximately 3.5 billion euro with a 2.5% organic growth. Volume trend in the semester was stable, reflecting a share gain in high value regional equipment and replacement in both quarters. The reduction of exposure to standard continues, more specifically in the second quarter, to protect profitability in a highly competitive environment. Price mix was positive, plus 2.5% in the first half and plus 2.9% in the second quarter, guided by the continuous improvement of the product mix and regional mix, while the price increases announced in the second quarter will be visible in the second part of this year. The forex impact is negative, minus 2.1%, mainly due to the US dollar depreciation versus the first six months of 2025. The exchange rate trend was positive in the second quarter, minus 0.4%, due to the US dollar trend improvement and the strengthening of some currencies, such as the Chinese renminbi and Brazilian reais. Finally, the perimeter change, minus 0.5%, We close the first semester with an adjusted EBIT of €558 million and a 16% margin, in line with last year, thanks to the effectiveness of the internal levers which compensated the negative impact of external factors such as exchange rate volatility The impact of the exchange rate volatility, the Middle East crisis, as well as US duties. More specifically, the positive price-mix contribution, equal to 50 million euro, and of the efficiencies for 81 million euro, have more than compensated the negative impact from the exchange rate, minus 44 million, and the inflation of input costs, minus 65 million euro, which increased in the second quarter following the Middle East crisis. Roma Tigers provided a positive contribution for 32 million euro. Finally, negative impact of depreciation and amortization equal to minus 12 million and increase in other costs for 43 million euro mainly connected with the impact of the US tariffs as well as the rigorous management of Finnish product inventories due to the highly volatile environment. Profitability remained stable at 16% also in the second quarter. The contribution from price mix for 29 million euro and efficiencies for 38 million more than offset inflationary pressures, including higher energy and logistic costs stemming from the Gulf crisis, the impact of US tariffs recorded under other costs, and the negative foreign exchange effect mainly related to the appreciation of the Mexican peso. Raw material impact was positive. We expect this tailwind to reverse in the second half of the year, reflecting the increase in oil prices that started at the end of February. Let's now analyze the trend in net income. Equal to 299 million euro, Up 13% compared to the €264 million recorded in the first half of 2025. This trend reflects the reduction of amortization included in the purchase price allocation worth €11 million, lower net financial expenses of €29 million mainly related to the reduced gross debt, as well as to a lighter financial debt in countries with higher interest rates, Greater contributions from the results of equity participation for 13 million euro, mainly connected to the revaluation at fair value of the 49% stake in the JV Shushan Tire, which occurred in the first quarter. Higher tax charges of 19 million euro, with tax rate at 30%. An increase, as expected, from the 29.2% in the first half of last year, but benefiting from positive impacts from non-taxable income and one-offs. Let's now move to the net financial position. At the end of June, our net financial position is negative for approximately 1.92 billion euros. This reflects, on the one hand, a net cash flow before dividend and extraordinary operations of minus 557 million euro, substantially in line with the first half of 2025, which had recorded minus 547 million net of the positive impact from the divestment of Decchia, while on the other hand includes the negative impact of 257 million euro related to the consolidation of the debt and they increased the stake to 70% into Shushan Tire. The operating net cash flow in the first half of 2026 is negative of 416 million euro. It was 217 million in the same period last year. And mainly this counts increased investments and greater cash absorption due to trade payables dynamics. More specifically, CAPEX, Thank you very much. Reflected the reduction of trade payables related to the payment of the investment concentrated between the fourth quarter of 2025 and the first quarter of 2026. Receivables follow the usual business seasonality with a limited negative impact due to the Middle East situation. Inventories on sales over the last 12 months stood at 22.4% compared with 21.2% for the same period in 2025. A figure that reflects the rigorous control of finished product volume as the increase is mainly attributable to the rise in the cost of raw materials and the build-up of raw materials safety stock to support business continuity in a context characterized by tensions in the Gulf region. Net cash flow before dividends in the second quarter of 2026 is positive for 148 million euro. in line with the result of the second quarter 2025, which was €150 million, excluding the already mentioned positive impact from the divestment of Decchia. As of June 30, Pirelli had a gross debt of approximately €3.1 billion, financial assets worth €1.2 billion, and therefore its net financial position is of approximately €1.9 billion. The cost of debt over the last 12 months was 3.89%, down by more than 50 basis points compared to 4.40% at the end of 2025. This decrease is attributable to the reduction of the level of debt as well as optimization of the mix due to the lower financial debts in countries with higher interest rates. The liquidity margin is approximately 2.6%. 2.6 billion euro and allows for the edging of maturities for over three years until the third quarter of 2029. In January 2026, the group signed a contract for a new multi-currency banking line worth 2.1 billion euro with a group of leading domestic and international banks. This new line linked to the carbonization targets of the group for scope 1, 2 and 3 The contract consists of a term loan worth 600 million euro and revolving lines for a total amount of 1.5 billion euro. The contract allows for the possibility to agree between the company and all the financial institutions to extend the expiration date with the same terms for a maximum period of another two years, that is, until 2033. has also allowed for refinancing of the whole amount of the debt due in 2027. And I'll give the floor back to Mr. Casaluci.

Thank you, thank you Fabio. And let's now talk about the update on this year's outlook. This macroeconomic environment continues to be characterized by high uncertainty. With the Middle East tensions remaining the major risk factor when it comes to growth, inflation and raw material costs. Recent hostilities between the US and Iran have indeed caused a new increase in energy prices and commodities and caused an interruption in the normalization process observed in the weeks following the Strait of Hormuz agreement in June 26. Based on the last estimates, the worsening of the scenario is confirmed, compared to our assumption in the first quarter of this year. In 2026, global GDP growth is now expected to be 2.3%. The slowdown is more marked in Europe, given its strong energy dependency, while the United States continues to show a good resilience, supported by the investment connected with the AI. China is confirmed at plus 4.5% expansion, although its domestic demand is still weak. Inflation is expected to increase at 3.8% versus the previous 3.7% and continues to be an element of scrutiny for the major central banks. Regarding the commodities, the scenario remains very volatile. and the reduction of prices is expected in the third quarter, as well as a normalization of the flows through the Strait of Hormuz. Based on this new environment, we updated our market outlook for 2026. The car tire demand is now expected to be between minus 3 and minus 1, versus minus 2 and flat indicated in May. The estimates review involved the two most cyclical The standard now expected to be negative mid single digit versus a negative low single digit in May and the original equipment demand, minus 3% compared to minus 2% in May, in line with the car production trend. Regarding the high value segment, expectations are now for a low to mid single digit demand growth, given the more cautious outlook in original equipment. Following the weak market performance in first half, minus 2.5%, especially in China, due to the end of government incentives that supported demand last year. In the replacement high value segment, we expect a mid-single-digit growth with an improving trend in the second half of the year, driven by Europe and Asia-Pacific, also thanks to a better EV penetration and, above all, improving demand in North America. In light of the quality of the results in the first half of the year, we confirm the 2026 guidance and update some of the drivers based on the current external scenario. Revenues are expected to be between 6.75 and 6.95 billion euro, with volumes between stable and plus 1%, Slowing down compared to a plus 1 and plus 2 indicated in May, due to the original equipment and standard market demand slowdown. Price mix improvement is confirmed between plus 2.5 and 3%. Exchange rates impact has been slightly revised, based on expectations of a smaller US dollar depreciation. Forex is now expected to range between minus 2.5 and minus 1.5% versus the previous minus 4 and minus 2. Profitability is expected to be approximately 16% with an adjusted EBIT in absolute value at 1,080 million euro in the midpoint. Investment confirmed at 450 million euro. Net cash generation before dividends and impact of the exercise of the call option for the Shushen Tiles joint venture confirmed at 500 million euro. Net financial position confirmed at 1.2 billion euro, including the impact of the call option exercise. And I now leave the floor to Mr. Bronchetti for the final remarks.

Thank you, Mr. Casaluci. The results of the first half of the year confirm the strength of Pirelli's business model and the effectiveness of the strategic decision taken in recent years. In an environment characterized by high volatility and growing geopolitical uncertainties, they continue to deliver strong results, containing a profitability that ranks among the best in industry and confirming the group's ability to reach rapidly to react rapidly to changes in the external scenario. We continue to stand out thanks to a combination of unique assets, the strength of the brand, our technological leadership, and an increasingly efficient and sustainable industrial platform. Innovation remains a key element of our differentiation. CyberTire is a clear example, a unique technology in the industry that reinforces Pirelli's role in the evolution of connected mobility. It confirms our ability to anticipate demand trends in the automotive industry. The quality of these assets combined with disciplined execution and the flexibility of our operating model Allows us to look forward to the second half of the year with confidence and to confirm our 2026 targets for revenue, profitability and cash generation. We will continue investing on our areas of strength to further improve Pirelli's competitive positioning and create sustainable value over the long term. And this concludes our presentation. We now open the Q&A.

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. When announced, please click continue on the pop-up window. Please do not mute your microphone locally. If you are on the phone instead, please press star 1 on your keypad. The first question comes from Monica Bosio with Interza San Paolo. Please go ahead.

Good evening, everyone, and thanks for taking my questions. Actually, I have four questions. The first one is on the market share at the country level. At the country level, where did the group find the most relevant market share gains in the second quarter? If I remember well, In the first quarter, it was in the USA. It's still the case for the second quarter. The second question is on the replacement channel trend in China, which keeps positive also in the second half. So can you confirm that you expect to get market share in China in the replacement channel on the back of the The third question is on the price mix. Please correct me if I'm wrong, but I think that the 2.9% price mix in the second quarter was mostly Product & Regions, so mostly mix. And for the second half, we should also add the pricing effect. So if you can confirm this and tell us what will be the drop-through by year-end. And finally, on the cyber tires, I was wondering if you can share with us some examples Thank you very much.

Thank you for your questions. I will start from the gain of market share in the second quarter. We have been able to gain market share in all the high-value markets, but the better performance also in the second quarter is coming mainly from the United States, where we have been able to gain market share both in the regional equipment and in the replacement. This is the result of our growth strategy. Based on the introduction of new products fully dedicated for the US market, the enlargement of the customer base where we grow market share with all the most iconic vehicles for the United States in the last years like the Ford F-150 or the Dodge Ram or the Tesla's most popular models. but also the growing popularity of our brand and the enlargement of the customer base. In the second quarter we also gained quite significantly market share in China in the replacement channel and this is mainly driven by the pull-through effect starting in the electric vehicle as you correctly said and so we are taking advantage of the original equipment growth in the last years. The price mix, you are also right, in the second quarter the performance, roughly 3%, has been mainly driven by a broader mix, including the region mix, with still a slightly negative channel mix, where we had a grow of the regional equipment faster than the replacement. What we do expect in the second half is a slight reduction of the mix effect mainly due to a lower reduction of the standard volumes, where we do expect a normalization of the volume performance, also thanks to a more profitable comparison versus last year in South America, while the price will start to be meaningful because the price increase that we announced during the months of May and June will be effective starting from the second half. So you can expect another 3% roughly of price-nix performance, but in this case, half driven by price and half by product mix. That's roughly improving the drop-through in the second half, We do expect 80% more or less of drop-through in the second half. Cyber will keep on growing in penetration and what we do expect is to, considering the high interest of the most important premium prestige car makers in Europe and in China and also in the United States, We do expect to finalize agreement also in the premium segment. You know that we are already delivering in the prestige segment the cyber-type technology. We do expect to scale up into the premium and we are confident some good news will come already in the last quarter of this year. Thank you.

Thank you very much. Thank you. The next question comes from Martino D'Ambrogio with Equita. Please go ahead.

Thank you, good evening everybody. The first question is on networking capital. Considering the additional absorption you saw in the first half and considering the raw materials price increase, isn't it a risk for your free cash flow guidance? And if I remember correctly, you are always using factoring in the region of 200 million at the end, so this is my first question. The second is on the standard profitability because volumes are heavily down so just to have an idea if it remains profitable this year maybe this is too rude to say that and in price increases is it easy to pass price increases also in this segment and referring to price increase any pre-buy that you saw in the second quarter?

Thank you.

And we start from the first question related to the networking capital. Obviously, we confirm our guidance of the cash generation for the full year. We don't expect to have difficulties. Everything is on plan. As you saw in the first semester, Stock management made us arrive at an incidence on net sales of about 22.4%, which is a little bit higher than March and last year. But this was due not from the volume of the stock, but from the value of the finished products and the raw material, given the fact that obviously the commodity has grown up quite a lot since the end of February. We expect a little bit this effect to slow down during the last part of the year, so we expect for December to have an incidence of inventories on net sales of the last 12 months at about 22%. Consider even that in June actually we were building up a little bit of safety stock on raw materials in order to avoid any kind of disruption in our factories. On the receivable side, we achieved 14.5% in June, which was in line with March, and for the remaining part of the year, by year-end, we expect this number to arrive at about 9% on sales. On the payables, again, we had a negative impact in June related to the fact that there was this accumulation of capex between Q4 2025 and the beginning of 2026, so with a cash out during Q3, but then we expect a normalization given that our capex at 450 million will be respected, so by At the end of the year we are expecting payables to be in the range of 30%, so not dissimilar to what we had in the previous years. We use factoring to balance the cash flow of the company on one side and to balance the risk of our accounts receivable, and we are in line with the usual trend. In some quarters it's a bit higher, in some quarters a little bit lower. In June, for example, it was lower than the average of the previous quarter, but no major differences compared to the past.

Thank you. Now I'll move to the following questions. The standard profitability in 2026 is expected to be between 7% and 8%, so a high single digit. We still target the double digit and we are confident we will arrive there. But nevertheless, it's a more volatile segment. It's not really a question of price increase, but the volatility of the demand. It's down at 18% of our total sales. It will be reduced even more. Let's consider that in the high-value regions, Europe, US, and Asia-Pacific, The weight on sales is already in the ballpark of 10-12% and in these regions we are very close to the double-digit profitability. And last point, the pre-buying, no, we haven't seen pre-buying effects. The stock level in the trade is well normalized so far. Thank you. Thank you.

The next question comes from Christophe Lascawi with Deutsche Bank. Please go ahead.

Good evening, thank you for taking my questions. I'd like to start on the US investment plan, please. I know it's not yet fully approved by the board, but the size that you've indicated in the press release of 1 to 1.2 billion, very back of the envelope, I can get to up to a 10% capacity addition from that. Could you comment on if there is a need then to cut elsewhere, say in South America or Europe, the capacity and if there essentially is now a bit of a change in strategy, should it be approved from Thank you very much. Thank you for your questions. First, there is no change in strategy. So the investment in US

It's just related to the growth we are having in the United States as have been told you a few minutes ago. We grew in the first quarter, we grew in the second quarter, we continue to grow. We are underrepresented in the United States compared to our market share in the other main regions. So it's in line, what we are doing is in line with our strategy. And now I leave the floor to Mr. Casaluci.

Yes, thank you. No, let's consider that, as we commented in other occasions, if we do consider 100 what we sell in the United States today, 5% is more or less 5% is already produced locally, 55% is coming from Mexico, and 40% is imported by Europe and South America. The capacity we will install in the US will be of course 100% high value and will support, as Minister Tronchetti said, the local growth plus, eventually, a reduction of imports from Europe and South America and the free capacity in these regions will be used to support the local growth. So we don't plan any kind of reduction of the high value capacity of the group. While the major changes on the demand on the second half, it's mainly linked to the different expectations of the market. First, we have to remind that the change in the outlook of the market is mainly driven by the result of the first half, where we saw worsening of the replacement demand in the United States and the regional deep equipment demand in China. compared to our previous guidance so what we do expect in the second half is an improvement in these two areas also driven by a better comparison year over year on the two regions so all in all we keep on growing in the high value over performing the market and we have a more positive outlook of the second half compared to the first half mainly driven by lower reduction of the original equipment than China and start growing environment in United States replacement while Europe is expected to maintain its high double digit growth in the replacement high value as has been shown in the first half.

Thank you.

The next question. Harry Martin with Bernstein

What gives the confidence that that will get better? It looks like the first half of the year has really been driven by the weed consumer. I appreciate that June data maybe was a little bit better. Is there an extrapolation of that or do you have any other information for us that can help on why that market will get better? The second question I wanted to ask about the USMCA renegotiation. What are you hearing? We've seen some headlines that the US is pushing for increased US content within cars, but is there anything else that you've heard or we need to think about for that Mexico to US business? And then finally I wanted to ask about your Thank you.

Thank you for your questions. Mexico, USMCA. The fact is that the agreement will be renewed for 10 years, renegotiable every year, but as far as we can see, considering the importance of the Mexican supply to the American market, to the North American market, We do not expect impact on our operations in Mexico, so we feel comfortable on that side, but now I leave the floor to Mr. Casaluci. Yes, thank you.

The US volume, we are optimistic on the second half, mainly in the replacement. First of all, because we come from 6 months in a row of negative markets which is something that is preparing a restart of the demand in our view and also because more favorable comparison versus last year which is also helping and we target to overperform the market so we have already a long-term agreement with our partners in distribution so the orders are already on our hands with a clear view at least for the following three, four months. So we are very positive on the outlook of US both driven by an expectation of a better market and also our order collection. Digital twin, yes, you are fully right. This is one of the most important innovation that we have been able to introduce in our research and development processes. and the competitive advantage that we see are of two sets of reasons. First of all, we are becoming much faster in the development of new products which is fitting the needs and requirements of the OEMs about all the chains one and that's one of the major reasons why we have a competitive advantage in this arena. It's also allowing us to reduce the number of prototypes and so with a positive impact on cost and is helping us to accelerate the introduction of recycled bio-based materials because with the virtual compounder so the the simulation on the development of new compounds we can make The second reason is linked to our cyber tire technology. So the digital twin of tires and mathematical model Mirroring the real performance of a tire is part of the CyberTire technology that is integrating data collection from sensors into the tires into a way to use this data applied to the digital twin of a tire thanks to the new computing capacity of the cars to elaborate on the best possible instruction to give to the control unit of the car using the same logic that we use when we develop virtually a tire, but applied with a completely different conditions. Thank you.

The next question comes from Stefan Benamou with Bank of America. Please go ahead.

Yes, good evening. Thanks for taking my questions. I have three questions. The first one is on raw math. So they are going to term a negative in H2. Based on your latest assumption, can you please give us an indication of what do you anticipate in terms of headwind for H2? The second question is regarding the efficiency gains. So if I'm not mistaken, when we are doing the math, you are anticipating around 70 million euros of efficiency gains in H2. Given the global cost inflation, should we expect those efficiency gains to more than offset cost inflation, just like in H1? And the last question is regarding the tax rate. Again, if I'm not mistaken, you were anticipating a slightly higher tax rate in 2026. In H1, you are at only 30%. So should we expect any tax rate increase in H2? And what are the reasons for that? Thank you.

Thank you, we take the question and start from the raw materials. In the first two quarters of the year we benefited from the positive contribution from ROMAT against previous year and overall we had an impact for about a little more than 30 million euro. This trend for the second half will reverse completely because commodity after the end of February has gone up quite a lot so we will see the first impact of this increase in commodity and that means an increase in our cost of goods sold starting from quarter 3, that means starting from now. What we expect is a sizable impact for the second semester, because if the first half was a positive contribution program for 30 million in the second semester, we expect a negative impact for about 70 million euros, so total different trend between the first half and the second half. Regarding the efficiencies and the inflation, I can confirm that for the full year we expect efficiency from our project absolutely in line with the expectation for a total amount of 150 million and on top of this 150 million there will be Thank you very much. Not only offset, but even give a little bit of positive impact to the result of the company. Regarding the third point, related to the tax rate, tax rate in the first semester was equal to 30%, but I confirmed the full year guidance for the tax rate between 32% to 34%, which was, as in our original guidance, taking into consideration Thank you very much.

The next question comes from Thomas Besson with Gabler Chevreux. Please go ahead.

Thank you very much for leading. I'll try to make it quick. I have three questions, please. Firstly, you're not interested to offer up with Mr. Bocchio. It was low in H1. Should we expect this to continue in H2 and have a The benefits versus the previous years or whether as well like all the tax rates were not helping you on that front, the first question. The second question, could you remind us broadly or approximately your OE chair with Chinese automakers in H1 and as well directionally where you stand in terms of China replacement chair in H1 and how it's improved versus H125. And finally, I think you mentioned that you believe you could find the first type of car contracts with a premium automaker eventually in Q4, which is great. May I please ask you to remind us what are the existing contracts today with the prestige automakers and whether you would expect a contract with a premium automaker to have you being I will take the one related to the financial expenses.

As you correctly pointed out in the first half, we had a positive impact on financial expenses for about 29 million compared to previous year. And as I was saying, this is related to the lower gross debt and to the mix of debt between high-cost countries with a high interest rate and countries with lower interest rates. For the full year, we expect dynamics in second semester to be a little bit different. I expect a reduction in the financial charges related to the lower debt that will be at the same level for the second part of the year but on the other side we expect some volatility and some negative impact from non-cash components linked to hyperinflation and fax volatility so for the full year the expectation is to arrive to a level that would be in the range 190 to 200 million euros Let me say, similar to the full amount for 2025.

Well, moving to the second question, the OE market share we have in the premium segment. It's similar in all the geographies. It means that we target always market share in the prestigious 100% concentrated in Europe, around 50% in the regional equipment, while in the premium in between 20-22%. And the more we go on to the upper end, the more the market share, also the product portfolio of the car makers, the more the market share is growing. And that's exactly the market share we are performing in China, but only if we focus on the premium market makers, namely Lyoto, Xiaomi, Aitoseres, NIO. These are the kind of newcomers in the EV we are working with. And that's the result of a strategy of customer-based enlargement and diversification that we started 5-6 years ago, growing in shared premium segments both in the United States and in China. As far as the cyber technology, yes we are working with some very important prestige car makers in Europe and as I said before we are enlarging the partnership and the collaboration with some premium car makers and as I said before the Chinese premium car makers are very interested not only because of the typical CFET performance or driving performance of the Prestige segment but also because of the opportunities related to the autonomous driving where it goes with an autonomous driving solution where the decision is braking or steering it will be in the hands in the hands in brackets of a software and no more in the responsibility of a software and no more of a human To have a very accurate estimation of the grip and the forces between the tire and the road, it will be of paramount importance to take the right decision. So this is the kind of application we are working on with some of the most important premium Chinese carmakers. Thank you.

The next question comes from Ross McDonald with Citi. Please go ahead.

Thank you very much for doing my questions especially given we've run over slightly. The first one is just on organic growth and just noting that year to date the organic growth for Pirelli is at the low end of the full year guidance corridor at 2.5%. We're talking a lot about a recovery in the second half on organic growth on price mix and volume but Specifically on Q3, how should we think about organic growth compared to the slightly lower 1.4% that we see in Q2? Would you expect organic growth to recover back to midpoint of the full year guidance quarter, let's say above 3% as soon as Q3, or is this more of a Q4 loaded recovery? That's my first question. Second question, just coming back on the US capex to Christoph's question. Obviously, the $1 to $1.2 billion is a big number, but it's over several years. But could you maybe give us a sense of what that sort of check buys you in terms of capacity, just in terms of units? How should we think about the cost of a US factory and what that would bring Pirelli in terms of capacity? And then my final question is just on the EV trends in Europe. These are going quite strongly. You talk about the homologations with EV. I think your definition is dev plus plug-in hybrid, but specifically in the DEV segment, how do you feel about your market share versus your competitors on OE?

Thank you. Thank you. On the organic growth, we have performed at 2.5% in the first half and a bit below our expectation because mainly driven by the reduction of volume on standard, higher than expected, and the Chinese original equipment where the demand in China, in the local market, was negative in the first six months, double-digit negative, so more than expected. While our expectation for the second half is to stay in the ballpark of 4% of organic growth, mainly driven by price mix, 3%, and 1% on volume. We are confident on this growth, and nevertheless it remains the organic growth of Pirelli the highest in the tire industry, that's mainly driven by our overexposure to the high value segment representing now 82% of our sales and the high value is a growing segment and the more resilient. United States capacity, yes, we announced first of all, as you correctly said before, is not fully approved by the Board of Directors. This will be included in one of the following Board of Directors But a rough indication it is in the ballpark of 1.2-1.3 billion dollars investment. That is an investment that will target the highest possible level of automation and innovation in the plant and we are Upgrading our MIRS technology with a new release. So it will be capital intensive, because of the high level of automation that will lead to more efficiency, better quality performance, stability and flexibility of the plant. and the the capacity we target to arrive at the end of the process of development in the year around six million high value fully high value tires with a high flexible length but let us finalize approval and then we will be back with all the details of the project bad homologations in our view the electrification it will be the main the The major technology in the car registration of the future, in China we have seen already more than 60% of new car registration being fully electric or plug-in hybrid or edge-extended, but the most important and most relevant technology remains the fully electric. In Europe we have seen more than 20%, 23% of car registration being a new electric vehicle, again mainly full electric, while in the United States the percentage is still below Europe and China, not far from 10%. So we are confident that full electric will be the main technology, but also plug-in hybrid, it's growing, and from a tire perspective, both powertrains require the same performance. From a tire perspective, you need higher load index, better grip, lower rolling resistance, better noise control performance. So all in all, for us, it's a great opportunity.

Thank you.

The next question comes from Gianluca Bertuzzo with Inter Montessin. Please go ahead.

Hello, good evening and thank you for taking my question. I have a question on anti-dumping measures in Europe. What's your take on that? Do you think you can have some benefit or not? Second question is on your penetration with Chinese vehicles, but not in China, I'm referring in Europe. Is it too early to measure your market share in the replacement channel with these Chinese vehicles, or can you share some of your achievements in that field? Thank you.

So, the anti-dumping measures, we welcome the final decision of Europe because the uncertainty before was creating a bit of confusion in the market. So, we welcome the final decision because we are confident that we'll live into a better stability. But all in all, the dumping on the Chinese imported types are not affecting our economy. Addressable markets because it's mainly standard, are mainly standardized. So not a direct impact on our sales, but a positive impact because finally we create stability and clarity into the markets. Penetration of Chinese OEMs. Penetration of Chinese car models is growing in Europe. As a matter of fact, the car registration in Europe of the most important Chinese players like BYD or Geely are growing. But in the premium segment, the penetration of Chinese models is still very limited in Europe. So we see the penetration of EV in Europe in the premium and prestige segments still driven by the European car makers that are now in the process of introducing new car models. with a very good performance and so we are confident that the premium segment and of course the prestige will remain at least for the short term, 2-3 years in the hands of the European car makers. Nevertheless, the penetration in the synergy market of the Chinese models is growing.

Okay, thank you.

The next question comes from Jose Assumendi with JP Morgan. Please go ahead.

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

So, thank you for your question. The rationale is that we are now in the position to fully control an asset that is dedicated to the production of high-value products and the high content of technology. So for us, strategically, it has been a positive movement. I leave the floor to Mr. Bocchio for the impact on the net financial position.

For the impact on the net financial position, We already accounted for the impact, the consolidation of the debt of this JV at the beginning of the year. So in quarter one there was an impact of 210 million euro. Then in quarter two there was the exercise and the payment of the, effectively the payment of the co-option for an additional 247 million euro. So if the net financial position achieved at the end of half one, it is already accounted for the full amount of the impact for the operation. obviously that plant is now creating value for the group it is selling with an average contribution that is higher than the average of the group so obviously there is a cash flow generation coming from the operative business of that company but we don't have any addition for the remaining part of the year we don't have any additional impact to take into account considering the specific operation thank you very much

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

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

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