Good afternoon. This is the event moderator. Welcome, and thank you for joining the WebCorp for Pirelli 2023 results and 2024-2025 industrial plan update. As a reminder, during the presentation, all participants are in listen-only mode. After the presentation, there will be a Q&A session during which your webcam and microphone will be turned on by the moderator. For operator assistance via web call, please press the headset icon on the bottom left. For telephone assistance, press star zero on your telephone. Now I would like to turn the conference over to Mr. Tronchetti Provera, Pirelli Executive Vice Chairman. Please go ahead, sir.
Good afternoon, ladies and gentlemen. Welcome to our presentation. Today, together with the management team, we will review the achievements reached so far and discuss the update plan for 2024-2025, deep diving into commercial and technology priorities. Looking ahead, a new industrial plan will be presented at the end of 2025 or beginning of 2026. In the last three years, we have faced a challenging context characterized by an economic slowdown, the GDP growth that was 1 percentage point lower than expected, growing geopolitical tensions, high inflation, and interest rates that reached their peak in the last decade, introduction of new and more stringent regulation on CO2 emission in both Europe and the U.S.
In this scenario, Pirelli leveraged on a resilient business model focused on High Value, an efficiency program supported by digitization, a flexible organization ready to implement mitigation plans, and increasingly local-for-local manufacturing structure, and an accelerated and effective decarbonization roadmap. Results achieved proved the effectiveness of our strategy. Performance was better than expected and allowed us to consolidate our position in the industry. In the past three years, we increased our focus on High Value, which in 2023 accounted for 75% of the group's sales. Improved profitability with an adjusted EBIT margin of 15.1%. These results were the highest demand of the Tier 1 players. Our sound and steady cash generation allowed us to decrease the debt and cut the leverage by half, from 3.65 at the end of 2020 down to 1.56 x the adjusted EBITDA in 2023.
We accelerated the decarbonization process in our plants by cutting CO2 emission by 51% compared to 2015, becoming one of the most responsive players in this area. These important results were achieved through the strong commitment of the whole company. Looking ahead in the next two years, geopolitical and macroeconomic context, we remain volatile, and we forecast a moderate global GDP growth in both years, +2.3% in 2024 and +2.6% in 2025, below the assumption of the previous plan, +3.1%, especially in the U.S. and Europe. Still high inflation in 2024, 4.7%, almost double the previous plan assumption, but gradually improving in 2025, +3.1% the previous indication was, +2.6%. Interest rates are declining but still higher than forecasts in our previous plan, both in Europe and in the United States. Macro trends offer important opportunities.
High Value is confirmed as the fastest growing segment, +5% per year between 2023 and 2030, compared to a basically stable Standard segment. Sustainability is becoming an increasingly influential factor for end consumers and for OEMs, and in turn, are setting challenging decarbonization targets. Electric vehicles, approximately 40% of all new premium and prestige cars will be electric in 2025, and these instances will double by 2030. Connectivity keeps spreading. 32% of the global car park will be connected by 2025, 60% by 2030, with consumers ever more inclined to use connectivity solutions in their cars. In this context, Pirelli aims at reinforcing its distinctive positioning, leveraging on our technical superiority, which is the basis of our historical leadership in premium and prestige, and is being further enriched with the new competencies through the collaborations with the emerging EV players.
Our iconic brand that combines tradition with innovation remains a distinctive factor in the purchasing choices of consumers. Our constant ability to innovate allows us to look at connectivity as the most interesting value creation opportunity. Pirelli leads in this technology thanks to its Cyber Tyre system that has been the first to be integrated into a car system. Lastly, our leadership in sustainability. We want to be a driving force in the automotive ecological transition across the value chain. Indeed, ours is the most ambitious decarbonization plan in the industry. We aim at becoming the Tier 1 player to achieve carbon neutrality in 2030 and net zero in 2040, as well as we will see in the following presentation. This target allows us, on the one hand, to comply with regulation in advance, and on the other, to meet customer and consumer requirements, though giving us a competitive edge. Now, Mr.
Casaluci, the floor is yours.
Thank you. Thank you, Mr. Tronchetti, and good afternoon. We will now continue with the presentation of the main achievements for 2023, then the outlook for 2024 and 2025, how our strategy is evolving, and finally, we will provide an update on our targets for the next two years. Let's begin with 2023 results that confirmed the resilience of our business model. We closed 2023 with EUR 6.65 billion sales and an organic growth of 6.8% driven by a strong price mix improvement. Adjusted EBIT exceeded EUR 1 billion with an EBIT margin of 15.1%, supported by internal levers. Net income amounted to EUR 496 million due to operating performance and tax benefits. Solid cash generation, EUR 509 million net cash flow before dividends, above targets thanks to an efficient inventory management.
Based upon these results, the board of directors will propose to the next shareholders' meeting the distribution of a dividend of EUR 0.198 per share, with a payout ratio of 40%, in line with the shareholder remuneration policy approved in March 2021. In terms of sustainability, our commitment to guarantee health and safety resulted in a decrease of the accident frequency index to 1.7, with a 15% drop compared with 2022. Significant acceleration in decarbonization, where we cut our plant emissions by 51%, Scope 1 and 2, and suppliers emissions, Scope 3, by 18%, exceeding 2025 science-based targets. Strong push on eco and safety projects with the launch of the P Zero E, with more than 55% of bio-based and recycled materials, a significant result that places Pirelli in the leading position for materials innovation. Our commitment was recognized by the major ESG indices, where we rank at the highest levels.
As for the tire market, a demand recovery is foreseen for 2024 and 2025, around +1%, driven by High Value, the fastest growing segment with a growth rate 6 percentage points higher than that of the Standard. High Value market trend is confirmed to be in line with our 2021 industrial plan assumptions, while the weakness of the Standard segment weights on the overall demand. Focusing on High Value, the two fastest growing segments are: tires 19 inches up, which will account for over 50% of High Value in 2025; electric vehicles tires, where we have the leadership with a total market, original equipment, and replacement expected to reach 90 million tires in 2025, compared with about 50 million in 2023. In line with the previous plan, we aim to strengthen our leadership in High Value.
With the commercial programs, we will accelerate EV and specialties, taking growth opportunities in North America, Europe, and Asia-Pacific. With the operations programs, we aim to strengthen the resilience of our value chain and increase efficiencies. Finally, the innovation programs to accelerate and exploit Cyber Tyre development opportunities. Enriching these objectives, Pirelli can count on the strength, passion, and commitment of all its people, led by an expert management team with a deep knowledge of the industry. In 2023, we introduced a new company structure designed to make the decision-making process smoother. Engagement is another key factor. It reflects a consistent and performance-oriented corporate culture. Let's now deep dive into the plan, starting from the commercial strategy. In the next two years, we estimate that the share of tires 18 inches up is going to increase further.
In the replacement channel, where we aim at increasing our market share, growth will be driven by the pull-through due to the wide homologation portfolio, increasingly oriented to EVs and specialties, and push-through thanks to an expansion of the product range. In original equipment, we keep our focus on improving the mix by concentrating on tires 19 inches up and EV tires. Finally, we continue to decrease our exposure to 17 inches and below tires, concentrating sales in the regions that we define as standard and focusing on the most profitable segment. As we said, part of the growth in the replacement channel is driven by past OE homologations and by the high loyalty rate of 80%. We have the widest premium and prestige homologation portfolio in the industry.
We continue to feed the replacement demand with our homologation strategy in OE, which is increasingly focused on 19 inches up, accounting for over 90% of new homologations, specialties due to reach a weight of 70% in 2025, and EVs, which will account for 67% of new homologations by the end of 2025. Our offering, with a high technological content, is distinctive and includes safety and mobility-oriented solutions like Seal Inside tires and the new RunForward technology, solutions for the new eco-friendly mobility like the noise-canceling system and Elect, Cyber to meet the challenges of connected mobility, which Mr. Misani is going to explain in more detail. Another driver for growth in replacement is the widening of the product range. Between 2021 and 2023, we successfully launched 7 new product lines per year that will drive the growth of revenues in the next two years.
In 2024 and 2025, we are planning a further expansion of our range with 10 new products per year, focusing more and more on solutions for EVs and sustainability, five new global lines with a focus on sustainability materials, Elect technology, and extended mobility, 10 new regional lines to better cover, among others, the all-season segments in Europe, Asia-Pacific, and the United States, five lines dedicated to new fast-growing segments like, for instance, all-terrain in the United States. In the original equipment , as already mentioned, we aim to grow in the electric segment. For the EV market, despite the short-term slowdown, we expect strong growth in the premium and prestige segments. At present, EVs account for 25% of premium and prestige car production. This is expected to reach 40% in 2025 and double in 2030. Pirelli is well-positioned to make the most of this opportunity.
We can count on our solid partnership with premium and prestige car makers, both traditional and new Pure EV players, and we continue to extend our EV homologation portfolio, reaching a target of more than 900 homologations by 2025. We have the Elect technology for all product families, ensuring high level of safety and performance. We aim at doubling EV volumes between 2023 and 2025. This growth will still be driven by OE, whose weight in 18 inches up volumes will increase from 25% in 2023 up to 40% in 2025. The high value market is concentrated in North America, Europe, and Asia-Pacific that together account for 95% of 18 inches up volumes.
In North America, the largest High Value market, we intend to strengthen our positioning by extending the range of dedicated products to cover key segments such as all-terrain, consolidating the partnership with local OEMs on iconic American models, expanding the distribution network, and with our brand boosted by the partnership with the Formula 1. We confirm our leadership in Europe with a selective approach in regional equipment, while in replacement, we are taking growth opportunities in high-potential segments such as all-season. Finally, in Asia-Pacific, we will increase our focus on Southeast Asia and Pacific markets, where we have a limited market share, exploit opportunities with Chinese EV car makers, and leverage on digitization to expand our distribution network. Our commercial strategy is supported by our brand. In High Value, the brand is a key factor in the purchasing choices of consumers.
The Pirelli brand represents an element of differentiation, as it is not only recognized globally but also perceived as prestigious, sporty, and high-tech. This is the result of more than 150 years of history and heritage, combined with a continuous evolution in tune with our consumers, always keeping in mind sustainability and inclusion. But why try to explain the brand with words when I can show it to you in a video?
You're walking a miles the door. In my eyes, I've been waiting for. Let me know, let's kill or die. And I'm gonna change it. I know I can't complain. No matter how hard we try. And I'm gonna change it. And I'm gonna change it. I know I can't complain. No matter how hard we try. No matter how hard we try. No matter how hard we try. No matter how hard we try. Let me know, let's kill or die. And I'm gonna change it. I know I can't complain. No matter how hard we try. I'm gonna change it.
Now, moving to operations, we have three main priorities to support the execution of our strategy. First, keep strengthening the resilience of our supply chain end-to-end. As an example, we aim at covering 90% of demand through local-for-local production. Second, maintain a high level of efficiency, always driven by digitization and automation initiatives. We aim at obtaining about EUR 370 million efficiencies between 2023 and 2025. Third, accelerate decarbonization, as mentioned before, with a plan that places us in a leading position in the industry. Our first target is to make the supply chain more resilient. We can count on a manufacturing structure which is increasingly High Value-oriented, which by 2025 will account for 78% of total capacity, and more local-for-local, as in the case of the joint venture in KSA.
Moreover, we keep working on risk management of the supply chain, leveraging on the experience gained in the last years in managing emergencies by extending the risk monitoring activities throughout the supply chain, increasing local-for-local sourcing of materials to reduce risks associated with logistics and transportation. An example here is the already announced acquisition of Hevea-Tec in Brazil. Finally, adopting AI and new technologies to support risk monitoring, such as real-time visibility of shipments that allowed us to promptly react to the Red Sea crisis. Moving to the efficiency program, the three-year period 2023-2025 is the third phase of the cost competitiveness program launched in 2020. We aim at achieving about EUR 370 million in efficiencies in three years, equal to around 7% of the cost base in 2022, while accelerating from EUR 92 million in 2023 to about EUR 135 million-EUR 140 million in both 2024 and 2025.
Compared to what indicated in the 2021 industrial plan, we expect to generate about EUR 70 million more in the three-year period. The projects remain the same, but the initiatives see an extra boost from digitization and innovation. Some of the initiatives we are currently developing are modularity in product development, electrification of the curing processes, plant automation, and digitization. Finally, let's switch to the decarbonization program, where we keep accelerating. We have revised the SBTI targets for the third time after reaching the previous targets two years in advance. In defining the new targets, we standardized the base year to 2018. We adapted to the new Science Based Targets initiative protocols, which include perimeter changes for Scope 1, 2, and 3. Therefore, we have recalculated 2023 data based on the new parameters.
Our goal is to achieve carbon neutrality by 2030, reducing Scope 1 + 2 absolute CO2 emissions by 80% versus 2018, and offsetting residual emissions. We aim at net zero by 2040, with at least 90% reduction of our emissions and those from the entire supply chain, in line with the 1.5 degrees of the Paris Agreement. To achieve these goals, we have designed a clear roadmap. Namely, for Scope 1 + 2 emissions, we are working on more than 90 energy efficiency projects with a total investment of EUR 50 million between 2022 and 2025, a transition process towards 100% electricity from renewable sources by 2025, a project to electrify 75% of the curing presses up to 100% in Europe by 2030, with a EUR 22 million investment period between 2024 and 2030. These projects will allow us to achieve carbon neutrality in 2030 for Scope 1 and 2.
Meanwhile, we are reducing Scope 3 emissions through some key programs, engaging with suppliers accounting for more than 90% of emissions in order for them to share primary data, report to CDP, and set SBTI targets, pushing on bio-based and recycled materials innovation, targeting to reach 40% of use in our total production by 2030 and 80% by 2040. The combination of the two will allow us to achieve the net zero target by 2040. Let's now talk about 2024-2025 targets, where we expect low single-digit organic growth of the top line, about 4% in 2024, which will be partially eroded by Forex volatility, on which we remain cautious, gradual improvement of profitability from 15% in 2023 up to 16% in 2025, supported by internal levers, increasing cash generation around 80% of revenues, ensuring a leverage of 1x adjusted EBITDA by 2025.
Based on the solid cash generation outlook, the dividend policy has been revised up. In 2025, we expect it to be approximately 50% of the 2024 consolidated net profit. Please note that the previous industrial plan assumed a payout ratio of 40%. We updated our sustainability targets, which are already fully integrated into our growth strategy. We have developed a plan in line with the ongoing sustainability transition process and in response to the evolving scenario. In this slide, we have outlined the main targets, but you will find the complete picture in the appendix uploaded on the website. I would like, anyhow, to highlight the strong commitment to safety that has always been a key priority for Pirelli, the acceleration on decarbonization with a 60% reduction of our emissions and a 27% reduction of suppliers' emissions, eco-and-safety product development with an increasingly high percentage of bio-based and recycled materials.
Despite the dramatic change of the external scenario, the targets I just illustrated lead us to confirm the same profitability and cash objectives as in the previous plan. Namely, 2025 revenues at EUR 6.9 billion, average estimate about 6.8-7.0 billion, around EUR 1 billion more due to the inflationary boost, adjusted EBIT at approximately EUR 1.1 billion in line with our estimate in March 2021, however, with a lower margin due to the strong inflationary impact, 2021-2025 cumulative net cash flow before dividends at EUR 2.5 billion in line with our estimate in March 2021, net financial position adjusted EBITDA ratio at 1x. Now, before leaving the word to Mr. Misani, who will talk about future challenges and the way we are getting ready to tackle them, I'd like to conclude by highlighting one of our major strengths: the ability to innovate ahead of the main trends in this industry.
We have driven the premiumization of the tire market through a close cooperation with premium and prestigious brands, introducing the concept of perfect fit. We have accelerated the electrification of the automotive industry, and in 2019, four years ago, we launched the first tire with a specific technology for electric vehicles. We are focusing on sustainability as a key differentiator of our offering. Finally, connectivity will redefine the interaction between the user and the vehicle, and tires will play a leading role in this transformation thanks to our Cyber Tyre system. Thank you so much, and I now leave the floor to Mr. Misani.
Thank you, Mr. Casaluci, and good afternoon, ladies and gentlemen. To contribute to the results in the plan and support Pirelli leadership in the High Value, our innovation will move in three directions. First of all, products, where innovation is focused on consolidating our leadership in EVs through a further development of eco-safety design program and increasingly using sustainable materials. Second, processes and manufacturing technologies, where innovation is aimed at developing the future factories, increasingly based on the pervasiveness of digitization, IIoT, automation, and electrification. Third, the even more connected automotive business, where, based on our Cyber Tyre, we keep on developing connectivity with OEM vehicles as well as infrastructures and end users. But let's start with the product. As we heard from Mr. Casaluci, we achieved the objective set in the previous plan by becoming the leader in EV business, as proven by the over 500 homologations closed so far.
In this endeavor, we leveraged on the Elect technology package, which meets the specific needs of EVs, like lower rolling resistance to increase the battery range, better wear resistance, noise comfort, both inside the vehicle and outside, what we call pass-by noise. But Elect is not a specific product line. It's a technology that Pirelli applies to all segments, from summer to winter and all-season tires for cars and SUVs, to always offer customers the best solution for each specific application. In the planned time horizon, we continue to develop this technology to further improve performance and expand our customer base. As far as the acceleration of our product roadmap is concerned, all new products are developed using what we call eco-safety design.
In other words, the ability to improve product sustainability parameters like mileage and wear rate, rolling resistance, acoustic comfort, also by means of the Pirelli Noise Cancelling System specialty, and all of this with the use of innovative materials coming from bio-based or recycled sources. But at the same time, we are also improving product safety features like wet braking and aquaplaning, performance at warm, and when required, ensuring extended mobility with the RunForward technology. In 2023, we have been the first in the market to launch a new sustainable UHP tire, the P Zero E product line, a true flagship of eco-safety design because it has a AAA European label, rolling resistance, wet braking, and noise, which, together with an improved mileage, led to a 24% reduction of CO2 emissions when compared to previous products.
All of this was done using more than 55% of bio-based and recycled materials, as validated by the third-party Bureau Veritas. Let me say, P Zero E is just the first step that makes us confident and allows us to improve our internal targets for an ever-increasing use of bio-based or recycled materials. In fact, in 2025, we will launch our best product with at least 70% sustainable materials, while the value of such materials will reach 30% on the whole product range. Our vision to 2030 raises these percentages above 80% for best product and 40% for the entire product range. By using a specific logo to identify all products with over 50% bio-based or recycled materials, such gradual reduction of fossil content will be transparent to consumers and will be validated always by third parties such as Bureau Veritas mentioned before.
These raw materials will also be certified as compliant with ISCC or FSC, as in the case of natural rubber. Besides the technical details, we can show in this chart how complete our roadmap is with the materials that will become available for production and their timeline to fulfill our ambition to be able to use 100% bio-based or recycled materials by 2040. Recycled materials will not just come from end-of-life tires, like, for example, carbon black through pyrolysis, but also from waste coming from other industries, like recycled polyester, the already well-known silica from rice husk, oils from recycling processes, and last but not least, from pulp and paper waste, like lignin, a material that we have already used in P Zero E to partially replace carbon black. To achieve these targets and align with our circular economy approach, we are working in three different innovation streams.
The first, consistent with our open innovation model, is about working with the best raw material suppliers of polymers, fillers, and chemicals to develop new JDAs. Today, we already have 13 JDAs to develop exclusive materials for Pirelli. But at the same time, we closed the acquisition of Hevea-Tec, a natural rubber transformer in Brazil, with the aim to develop, starting both from natural rubber and latex, new technologies to transform this material and gradually replace synthetic polymers with biodegradable natural ones. Finally, through a JV with a selected partner and consistent with our focus on High Value, we are developing advanced pyrolysis processes that, in our lab, already allowed us to obtain high-performance-grade carbon black from end-of-life tires, with the final objective to replace 50% of carbon black content in a tire with this new material.
Consider that typically, currently available grades of recycled carbon black from pyrolysis do not exceed 15% of such content when in premium tires. The speed of product innovation, the acceleration in the introduction of sustainable materials, will be accompanied in the manufacturing area by efficiency, quality, and flexibility programs to make the industrial processes consistent with this transformation. To shape the future factories, manufacturing will move along two axes. The first one, we call large-scale, high-tech plants with a capacity typically above 10 million pieces, like those in Romania, Shandong in China, or Mexico, for premium tires and their OEM application. The second one, the small-lot, high-tech plants, typically located in Italy and Germany, for the flexibility, quality, and efficiency level necessary for our leadership in the prestige segment.
In these small, low-volume, high-tech plants, we shall work on process innovation, mainly on the second generation of the continuous mixing process, but also on making semi-finished products manufacturing processes more flexible. At the same time, we will keep investing in the deployment and further development of robotized processes. Process standardization, electrification of the curing presses, and automation, mainly in the finishing area, will become programs used in both large-scale and small-lot plants. To support and accelerate this transformation, we have already relaunched the Pirelli Manufacturing Excellence Program, PME, to optimize all shop floor activities and flows using standard methods and cost analysis tools. And all of this will be supported by an upskilling and reskilling program of human resources. It has already started, and in the next three years, we will reach more than 80% of the total workforce.
It will become a powerful enabler for the development of digitization, IIoT projects that guarantee 50% of the efficiencies indicated in the plan. But the challenge of digitization can be better understood when we talk of connectivity. The automotive business is rapidly becoming even more connected, also thanks to the acceleration in the introduction of electric vehicles and assisted driving systems. We expect 32% of car park will already be connected in 2025, and this percentage will almost double by 2030. In this rapidly evolving scenario, through our Cyber Tyre technology, data collected by the sensor integrated in the tire will be processed in real time to optimize car stability and control, to improve safety aspects, to contribute to consumption saving, and also to plan predictive maintenance of the tire itself. Let's see how all this takes place by following the data flow.
The sensor in the tire measures and generates pressure, temperature, and acceleration raw data and unambiguously indicates in real time which tire type is mounted and its characteristics. These data are then sent to a receiving control unit in the vehicle and processed by algorithms specially developed to implement the different functionalities. Then, these data can be transferred to Pirelli Cloud or directly used onboard the vehicle for safety and control. The data stored in the cloud can be further processed to implement functions for infrastructures, fleets, or end users. Finally, gathered data are very important as they allow us to integrate a big quantity of data from the field into product development virtualization systems. We name this flow crowd testing.
It's particularly important because knowing the real usage condition of our products with a large amount of data and in a more detailed and objective manner, we can improve efficiency and effectiveness of virtual design methodologies in order to speed up the development of new products. For the cyber technology, we have two go-to-market strategies. The first targets OEM and car connectivity. The second is oriented to services and based on the interaction with the end user. Let's start with the first one. Pirelli has been a pioneer in the integration of process tire sensor data into vehicle systems with the well-known McLaren project. Recently, we have expanded the customer base not only to Pagani in the prestige segment but also to Audi, Tesla, just to mention a couple of examples, in the premium market.
We intend to continue working together with OEMs to make an increasing use of process tire data and improve performance and safety. But this is not all. We have already started to work in order to pre-integrate the Cyber Tyre data in the vehicle control system. This allows us to advance and enable more features in the vehicle dynamics and, above all, to accelerate the introduction of Cyber Tyre technology in the larger premium market. As for servitization, we have already entered the partnership for the monitoring of road infrastructures with Movyon, a company of Autostrade per l’Italia Group. In 2024, the first Movyon vehicle fleet with Pirelli sensorized tires is going to map the Italian motorway in order to perform a more pervasive monitoring of the road surface and a better road management and maintenance of the autostrade itself.
We have also started to finance scale-up projects within MOST, Centro Nazionale Mobilità Sostenibile, or in English, National Sustainable Mobility Center, to further develop these technologies in other different applications. Last but not least, we are going to develop services linked to connected tires based on sensors for different types of end users, dealers, and fleets. But here is a video that shows Pirelli Cyber Tyre and what it enables. Thank you. This is a new defining moment for the tire industry. Today, Pirelli, a pioneer in its sector, is ready to bring the best of its existing intelligent technology to the heart of its business, transforming the tire into a powerful data source.
Presenting Cyber Tyre Technology by Pirelli, a unique solution natively integrated with the onboard electronic systems that translates the interaction between tires and roads into a real-time, actionable data stream with a positive impact for drivers, car manufacturers, infrastructures, fleets, and our tire development. A proprietary innovation by Pirelli, which first and foremost brings advantages to drivers in everyday life, thanks to sophisticated algorithms that turn data into functional benefits. Enhanced road safety due to real-time hydroplaning detection and prevention, ABS braking optimization, and tire wear monitoring. Superior performance and control thanks to real-time available grip computation, dynamic stability control, and optimized all-surfaces traction control towards a more sustainable driving style with wear monitoring for extended tire life, maximized EV battery usage, and reduced fuel consumption. But its impact goes way beyond driver safety and experience. Car manufacturers will get unique insights from real-road data.
To enhance vehicle design and evolution, infrastructure providers will have access to a wealth of intelligence as each car becomes a moving sensor capable of locating issues and feeding analysis tools for continuous maintenance and improvement. What's more, by collecting data and transforming it into key information combining algorithms, models, and artificial intelligence, Cyber Tyre technology will work to continuously improve our tires. And you know what the best part is? The tire of the future is here, ready to hit the road. Contemporary connections. Safety, sustainability, mobility. Pirelli Cyber Tyre Technology. Contemporary performance for contemporary humans. Thank you, everybody. I will now leave the floor to Mr. Bocchio.
Thank you, Mr. Misani, and good afternoon all. Let's now review our 2023 results.
We end the year with EUR 6.65 billion revenues above the November guidance, profitability at 15.1% with an adjusted EBIT of just above EUR 1 billion, cash generation before dividends of EUR 509 million, about EUR 50 million more than expected thanks to our solid operating performance and efficient working capital management. Please note that the 2023 figure does not include the acquisition of Hevea-Tec, the closing of which was signed on the 3rd of January, 2024, at an enterprise value of approximately EUR 21 million. The negative net financial position of EUR 2.26 billion with leverage significantly better than the 2023 target. Analyzing more in detail our performance, Pirelli closed the year with revenues up by 0.5% and +6.8% when we exclude Forex and hyperinflation in Argentina and Turkey. High Value sales account for 75% of the group total revenues. It was 71% in 2022.
The volume trend, which was -1.8% in 2023, shows the different dynamics between high-value and standard segments. We increased our market share in high-value replacement while keeping a selective approach on high-value original equipment and standard. It is worth noting how volumes developed in the fourth quarter +2.1%, outperforming main peers. The price mix was +8.6% in full year 2023 and +2.7% in Q4 and exceeded our expectations of about +8% in the November guidance. It was the highest among Tier 1 players. It was supported by price increases aiming at offsetting input cost inflation and the FX impact and the product mix improvement. Foreign exchange had a negative impact. It was -6.3% in 2023 and -10.6% in Q4 in line with the November guidance.
This is due to the weakening of the United States dollar, renminbi, and emerging market currencies against the euro as well as the hyperinflation impact in Argentina and Turkey. Pirelli closed 2023 with an adjusted EBIT of just over EUR 1 billion with an improvement of EUR 24 million over the previous year and a margin of 15.1% due to the strong contribution of the internal levers that more than offset the headwinds of the external scenario. More in detail, the price mix and efficiencies more than compensated for the volume decline, the increase in raw material costs affected by Forex volatility, input cost inflation, namely labor following the renegotiation of contracts, energy, which discounts the impact of hedging made in 2022, and the increase in logistics, especially in regional transportation costs.
Internal levers also cover the negative impact of Forex reflecting Mexican peso devaluation with Mexico being the production hub for North America. The increase in amortization and other costs, the latter being linked to R&D and marketing activities. In the fourth quarter, the adjusted EBIT amounted to EUR 219 million, basically in line with last year. Margin improved to 14.7%. It was 14.2% in Q4 2024, however, lower than in the previous quarters due to the seasonality of the business. Let's move now to net income dynamics, which grew 14% year-over-year thanks to the improvement in the operating performance, lower net financial expenses where the interest rate increase in the eurozone was offset by a higher valuation at fair value of other financial assets in Argentina, and finally, tax benefits deriving from the Patent Box with a 2023 full year tax rate at 21.3%.
Adjusted net income was EUR 595 million. At the end of 2023, Pirelli's net financial position stood at -EUR 2.26 billion with a cash generation before dividends of EUR 509 million and a leverage ratio of 1.56x the Adjusted EBITDA. The operating cash flow improved by EUR 16 million compared to last year to EUR 1.25 billion thanks to the Adjusted EBITDA growth, investments of EUR 406 million in High Value to continue improving the mix and quality in all plants and to increase the production capacity in Mexico and Romania, increased right of use, and a better management of the working capital through a reduction of inventory, mainly raw materials, which reached 20.6% of revenues with a decline of 1.4 percentage point compared with December 2022. The weight of receivables, 9.8% of 2023 revenues compared to 9.6% in 2022, and payables, 30.1% and 29.8% in 2022, remained unchanged.
At the end of last year, Pirelli's gross debt amounted to slightly less than EUR 4 billion. Taking into account EUR 1.7 billion of financial assets, the net financial position is equal to EUR 2.26 billion. In the last quarter of the year, Pirelli signed a new committed revolving credit facility for EUR 500 million with the objective of increasing the group's financial flexibility and the liquidity margin. At the end of 2023, our liquidity margin was around EUR 3 billion, half of which was committed lines not drawn and half liquidity position. The liquidity margin covers the financial debt maturities up to the first quarter of 2028. The cost of debt was 5.08%, up 104 basis points compared with December 2022. This increase reflects the interest rate hike mainly in the eurozone where the group has most of its financial debt, approximately 78%.
Our fixed and floating rate mix remains balanced with about 50% of the debt at a fixed rate. Finally, in terms of sustainability-linked debt, at December 2023, it accounted for 67.5% of our overall gross financial debt compared with 48.7% in the previous year. So far, we talked about 2023. Now, let's address our 2024 and 2025 targets, which Mr. Casaluci just discussed in his presentation. Let's focus on the main drivers behind these targets. In a still very volatile environment, we are projecting mid-single digit organic growth between about +3.5% and +4.5% in 2024 to be partially eroded by Forex headwinds. More in detail, we expect volume growth to be between +1.5% and 2.5% in 2024. We aim to continue to outperform the high-value replacement market and keep a selective approach on high-value original equipment market and further reduce our exposure to standard business.
Price mix of about +2% in 2024 thanks to continuous mix improvement. Negative Forex impact between -4% and -3% in 2024 mainly due to the weakening of the U.S. dollar, the high volatility of emerging market currencies, as well as the hyperinflation impact in Argentina and Turkey. The top-line growth in 2025 is expected to be supported by similar dynamics and will further benefit from slightly better volume increase and price mix as well as lower Forex impact. We aim to improve our profitability by around 0.5 percentage point per year to reach an Adjusted EBIT margin of around 16% in 2025. Now, let's analyze in detail our assumptions on raw materials, inflation, and efficiencies.
We expect neutral raw material impact in 2024 including effects impact on commodities while in 2025, we foresee some raw material headwinds partly due to the commodity trend as a result of the improved GDP growth in the world's major economies and partly to the continued volatility of exchange rates. We expect persisting inflation headwinds until 2025 mainly related to higher labor costs and higher regional transportation costs. As Mr. Casaluci underlined, we are accelerating our competitiveness program and expect to deliver EUR 275 million of cumulated efficiencies during 2024 and 2025. The improvement in profitability in 2024 will therefore be driven by volume growth while price mix and efficiencies will cover the impact of the external scenario, namely Forex, raw material, and inflation. In 2025, in addition to the positive volume performance, price mix and efficiencies will more than offset the negative impact of the external scenario.
Finally, let's talk about the cash flow. Cash flow conversion in 2024 and 2025 is expected to be in line with the first phase of our 2021 industrial plan. We expect a solid cash generation of EUR 1 billion-EUR 1.1 billion in 2024 and 2025 leading to our leverage target of 1x net debt over Adjusted EBITDA. Our sound cash profile is based on an improving operating performance and efficient working capital management which will more than cover CapEx of about EUR 400 million each year in 2024 and 2025 stable at about 6% of revenues of which over 60% are devoted to technology upgrade, productivity improvement, digitalization, and sustainability. Financial income and expenses of approximately EUR 200 million per year in both 2024 and 2025 where the positive impact due to lower interest rate will be offset by the hyperinflation impact in Argentina and Turkey.
Higher taxes with a rate between about 28%-30% in 2024 and 2025, which is mainly related to the cancellation of the allowance on equity in 2024 and change in the Patent Box benefit in 2025. We would like to remind you that on our 2024 cash flow guidance, it includes EUR 21 million cash out related to the Hevea-Tec acquisition, which was completed in January 2024 instead of 2023 year-end. This ends my presentation. I now leave the floor to Mr. Tronchetti.
Thank you, Mr. Bocchio. This ends our presentation, and so we may now open the Q&A session. The floor is yours. This is again the event moderator. Thank you, Mr. Tronchetti. We will now begin the question and answer session. To enter the queue for questions, please press the Q&A icon on the left side of your screen and click on raise your hand.
Please make sure to enable your audio and video connection. I remind you that you also have the possibility to type the question. If you are instead on the phone, press star one on the telephone keypad. We will pause for a moment as participants are joining the queue. The first question is from Akshat Kacker with JP Morgan. Please go ahead.
Thank you for the presentation, Akshat from JP Morgan. Three questions, please. The first one on market share opportunities in high-value replacement specifically in North America and Asia. Could you just talk about and give us more details in terms of new product launches and the steps that you are taking to grow push-through demand in these regions specifically? And can you also remind us of your market share in high-value replacement specifically in China? The second question is on managing effects volatility and risks.
Could you just discuss your strategy around mitigating or managing transactional and translational effects risks for the business going forward? I ask that as in 2023, there were almost EUR 215 million of profit headwinds from effects specifically. The final question is on Standard tires. Could you remind us what is the size of the business today in terms of volumes and what is the new landing point that you are targeting in the medium term? Thank you. Okay. Thank you for your questions. I will start from our growth strategy in the High Value in North America and Asia.
So basically, when we talk about North America, which is by far the biggest market in the High Value in the tire industry, is where we see the major opportunities for Pirelli because our market share today is below the average of our High-Value market share in other regions like Europe, for example, or Asia. The strategy is based into the introduction that we started years ago, 3, 4 years ago of purely replacement products dedicated to the U.S. consumers. We started with the complete renewal of our all-season product range and now we rank in the top evaluation of the most important magazines and dealers' evaluation on the all-season as far as the mileage performance, for example, is concerned. What we want to address in the coming years is also the all-terrain market that is quite big.
We do estimate around 20% of the United States market where we still have a very low presence and we are planning to renew our product range which is part of the 10 new product lines per year that we presented before. It's not only replacement. The United States, in my opinion, is also our presence in the most iconic U.S. vehicle because in the past, Pirelli was recognized more as the, let me say, European carmaker supplier while we started years ago to deal with the U.S. carmakers and now we are fitting iconic vehicles like the F-150, the Dodge Ram, the most important models of Tesla, and so on.
Moving into the Asia-Pacific, we see opportunities in the introduction of all-season products in China as well, but we also can grow a lot out of China, in Japan, in Southeast Asia, in South Korea where we still have a relatively small presence and we can still exploit a lot of the opportunities of our traditional pull-through models related to original equipment homologations. These are the two main pillars. As far as the landing point on volume, what we can tell you is that in terms of volume in 2025, we now plan to arrive at 65.5 million tires more or less with the standard tires landing at 21 million.
It means that if we compare our plan to the previous plan presented in 2021 where we are below in terms of volume but the difference is all concentrated in the standard segment mainly driven by our lower presence in Russia and in South America and also the exit strategy from standard in Europe that has been accelerated due to the loss of the Russian source and so we decided to accelerate our phase-out and exit strategy in some less profitable standard segment. The third question related to the risk management, I leave the floor to Mr. Bocchio. Thank you. Thank you.
About the question on the FX, obviously, we are living in a still very volatile environment and that's why we are expecting Forex headwind in both years, both in 2024 and 2025 and these mainly are due to the weakness of the U.S. dollar for the next two years, the still expected volatility of Latin American currencies, and the impact of other emerging markets' weaker currencies such as the Turkish lira and, for example, the Russian ruble. Obviously, as a policy, we are fully covered with the transactional risk of the FX. We are not covering the translation risk but anyhow, the policy that the project that Mr. Casaluci was highlighting previously that is increasing the local for local business from 85% to the expected around 90% in 2025, we think it is already a strategy to reduce the exposure to the Forex volatility. Thank you so much.
One quick follow-up. Could you remind us on your targets for margins in standard tires, please? Yes. In the previous plan, we announced a target of a double-digit profitability on standard. Unfortunately, we are not yet there. We still plan to arrive at the double-digit but we have a delay, I would say, a couple of years delay mainly driven by the undersaturation of the Russian plant and the loss of the competitive sources of Russia for Europe and also the high inflation impact in South America. So these two effects were not forecasted and foreseeable in our previous plan and so in a way, now we are trying to recover it through efficiencies and more selectivity in the standard in order to go back to the target of the double-digit, I would say, with a couple of years delay. Thank you. Great. Thanks for that.
The next question is from Ashik Kurian with Millennium. Please go ahead. Ashik Kurian from Millennium. Your line's open. We will move to the next question. The next question is from Martino De Ambroggi with Equita. Please go ahead.
Thank you. Good afternoon, everybody. The first question is on the BEV tires. You upgraded your expectation in terms of volumes but could you provide us what is the starting point in 2023 in terms of sales and profits and what do you expect in 2025 as an arrival point just for the BEV? The second is a more general question concerning the business plan because your strategy to focus on High Value started several years ago and was successful but many other competitors are moving in the same direction.
So just wondering if you don't feel the competitive environment could be worse going ahead and don't you see any consequence from the European investigation which is ongoing? The third is just a follow-up on the standard segment profitability. What is the starting point in 2023 with and without Russia? Just to have an idea where the standard is without the exceptional situation in Russia. Thank you. Okay. Thank you. EV tires, despite the slowdown of the last months in the car registration, we are confident of our forecast mainly the premium and prestige segment. We confirm our forecast of 80% of new car models within 2030 in the electric in the premium and prestige segment.
Having said that, in terms of volume, we start from 2023 where we close around 4.5 million tires in EV mainly related to original equipment because the market is extremely young and we plan within 2025 roughly to double this volume. The original equipment will remain the biggest contributor but we will start to see a presence also in the replacement channel of sales, I would say, between 20% and 30% of the total volumes in 2025. As far as profitability of the EV, we see a similar profitability of the high-value segment so in terms of percentage but as I mentioned in the past, this profitability, so high double-digit in the close to the 20s, is applied to an average selling price which is roughly 15% higher than the average selling price of a tire developed for internal combustion engine.
As a consequence, in absolute value, we do expect an improvement of the profitability. The competition in the High Value, of course, is high which is in a way confirming that our strategy and our business model is the right one and so the vision of more than a decade ago of Mr. Tronchetti was the right one. So we are happy to see that others are following. We like competition and we always target to remain the leader in this segment for two simple reasons, I would say, because we are focusing on this. We just do that and that is the core of our business. We exited from the industrial.
We have a very consistent exit strategy from the Standard and more and more, we focus on the development of the High Value segment and now I come to the second reason which is our capability to innovate and always introduce new technologies in tires. We started with a marked tires concept in the premium and prestige segment where we still have in prestige half of the market with a market share around 50%. Then we move it into the electric vehicle and we are now accelerating the introduction of sustainability as a selling proposition both in the Original Equipment and replacement and the new frontier we have seen in our presentation has to do with the connectivity and the connected tires which is already a reality but numbers and impact will arrive in the following years after 2025.
And then there is also a strong acceleration in virtualization that is helping us to be faster in introducing new technology. So innovation and focus are the two answers, and then there is also a long, long-term relationship with the most important carmakers based on trust and, again, on the capability to innovate and provide the right service level that in a way is protecting us as a competitive advantage. Yeah, yes, yes, yes. You're right. This is also demonstrated by our market share in the EV, which is a brand new segment very related to performance. Mr. Misani explained why an EV tire is different from a tire developer for an internal combustion engine, and this, again, has to do with technology and innovation. Antitrust, we are very confident that we act always following the antitrust rules not only in Europe but everywhere.
We provide the full transparency and access to all the information we have and we are waiting for the response, but we're very confident that this is. You have to know it's an extremely competitive industry and what I can tell, but it's a personal opinion, is that it's a bit frustrating to spend the last 20 years of my life to find a way to gain against competition a bit of share, a bit of positioning, and then to have to answer to this question. But okay, we assume and we are very confident and wait for the response in the coming future, being always full available with the authorities for the investigation.
Standard in the today, the profitability of standards is in the range of the mid-high single-digit, I would say, between mid- and high single-digit and I cannot exclude the Russia effect simply because Russia was providing a positive contribution to the profitability of the standard for Europe because it was a competitive source and today, the profitability I just mentioned to you is including the exit from Russia effect. So all in all, we can consider that without Russia, the standard profitability is in between single- and high single-digit and high single-digit profitability.
Thank you.
Thank you. The next question is from Sanjay Bhagwani with Citigroup . Please go ahead.
Hello and thank you very much for taking my question also. I have got two questions. The first one is on the follow-up on the BEVs.
So if I understood it correctly, the price of in the hype of high-value tires, BEV tires are priced 15% higher and similar profitability. So my question is to what extent this accretion, all the acceleration of the BEVs is already baked into your margin targets and the sales targets on the mixed side and is there any scope for further upside especially to 2025 margins if BEV penetration or, let's say, the replacement tire sale of the BEVs goes up? My second question is on the 2024 outlook. So what I'm really trying to reconcile is your guidance looks a bit conservative for margins especially your guiding for 15 basis points margin improvement versus this year for 2024 but when you look at all the key drivers like the volumes are getting better, prices are still holding up well, price and mix effects is okay.
So can you maybe walk us through the key what sort of drop-throughs we should be thinking for the volume, price, mix, and effects and to what extent this guidance is just you are being conservative on the margins? Thank you. Thank you. I will answer the first question then I will leave to Mr. Bocchio for the second one. As I said before, the BEV penetration is expected to grow, of course. In our estimation, the car production in the BEV is expected to be in 2025 around 20 million car production but what is more important is that if we focus for a while on the premium and prestige in 2025 is expected to reach 40% of the car production which means roughly 6 million new cars in the BEV.
As a consequence, as I said before, we plan to double up our volumes in BEV tires from the actual around 4.5 million tires up more or less at the double in 2025 with the replacement reaching around a couple of million so a bit more than around 20%-25% in terms of volume. In terms of profitability, I said before, is in terms of return on sales, I would say, EBIT margin is similar to a High Value but this EBIT margin is applied to an average selling price which is roughly 15% higher and this is included in our profitability projection of 2025 at around 16% as a whole company, of course. But why is higher the average selling price? It's because of the technology inside the electric tires.
It's even more a mix effect because the same tire with the same size and the same diameter with the electric has more technology inside and this technology is what is creating the better average selling price with, again, same return on sales. I leave to Mr. Bocchio second question. Yeah. Thank you. I will summarize a little bit, a few numbers for you. First of all, the organic growth in 2024, the top line is expected to be between 3.5%-4.5% out of which volumes will be between 1.5%-2.5% and the price mix about 2% and you may consider in this price mix of 2% that we foresee prices to be flatish while the positive coming from the mix, from the improving mix that is typical from our business model.
Effects still expected to have a negative contribution and we expect to be between -3% and -4% in 2024 compared to 2023. Another important point to consider in order for us to gain the 0.5 percentage point in the EBIT margin that we are forecasting for 2024 is that our efficiency program will be able to offset almost completely the inflation that we are expecting, inflation that mostly will be related to the labor cost renegotiation, regional transportation and the inflation coming from the high inflation markets while on the other side, the price mix, raw material almost neutral, and the negative impact on the EBIT coming from the effects will be balanced, overall balanced.
So the real engine for the increase in the result will be the volume and the target, as I said, is to increase at least a half percentage point so from the 15.1% gross achievement in 2023 to be in the range higher than 15.1% up to 15.5% in 2024.
Thank you. That is very helpful.
The next question is from Monica Bosio with Intesa Sanpaolo. Please go ahead.
Thank you very much for taking my question. I hope you can hear me. I have a few questions. The first one is on the BEV tires. Thanks for giving us the weight in volumes. I was wondering if you can share with us the weight in terms of revenues for 2023 and 2025. My second question is on the replacement market. What are your expectations for 2024 and going forward and especially what are your expectations for China?
Also on China, can you share with us your exposure to Chinese local players and what could be the balance in a two-year time? Thank you very much. Thank you. Thank you for your questions. I will start from the replacement expectation for the market including the China view and then I will leave to Fabio Bocchio for a rough estimation of the impact of EV tires in revenues. We are positive on the high-value market as we said before. We do expect roughly a growth from 5%-6% of the high-value market in 2024 which is both valid for original equipment and replacement, both.
China is following this trend, so we confirm in the High Value a pace of growth for China in 2024 and in 2025 around 5% as a whole market, also reflected in both channels, around 4-5% in replacement, a bit higher in the OE. This is the whole High Value market I'm mentioning. About our partnership with the Chinese carmakers and mainly I would talk about the new EV comers on the Chinese market, we follow in China the same strategy we have in all the other markets and regions. So we partner with the premium carmakers. We are not entering in the EV market of the synergic segment which is very big in China and offering a lot of opportunities but is not our target.
We partner with the new carmakers focusing on the electric vehicle and growing very fast in the premium segment both in the local market and in the export as well. Just to mention some of them, Li Auto, Xiaomi, Nio but also the high-end of BYD. So brand, mainly the first one that were basically unknown four, five years ago and now are growing and introducing new cars, successful car models in this segment. This is demonstrating that Pirelli is not selecting a specific region or a specific car maker. Pirelli is following the premiumization of the car park and if the premium car park or the prestige car park is becoming electric, we partner and we support the transitioning to electric.
If the newcomers of the electric vehicles are more from the United States or from China, we partner with them and we start a new relationship, a new long-term technical relationship that are also helping us to first, the risk, the exposure on the customer base and second, to learn more from a different way to develop cars. At the same time, we are supporting the incumbent European carmakers into the EV transition. So it's a premium strategy that is widening the customer base all around the world as far as OE is concerned, Fabio, please. Yeah.
Regarding the weight of the electric product on our sales, I have to say that for the year 2023, 2024, and 2025, the weight of volume is pretty similar of the weight in net sales and it is related to the fact that still for 2023, 2024, and 2025, the majority of the sales of the electric product are related still with the original equipment. Obviously, going forward, we expect the part related to the replacement market to grow, that's why I am expecting going after 2025, the weight on net sales would be much higher than the weight on the volume. For the time being, I can tell you that in 2023, the weight of the electric on the 18 inches and above was between 8%-9% overall. Okay. Thank you very much.
Maybe I didn't catch in the previous question. Can you remind the pull-through on price mix across the plan please? For the plan, both in 2024 and 2025, what we are expecting is pricing to be in 2024 flatish and really slightly positive in 2025 driven by the fact that we are expecting raw materials to be a little bit rebounding in 2025. So obviously, there is part of our pricing that is linked to the original equipment and linked to the cost matrix so there will be an impact coming from that but there is no major increase in the pricing for this year, for next year and the price mix is fully related to the improvement in mix so you may consider that the vast majority of the price mix guidance is coming from mix.
So the pull-through is you consider the usual pull-through overall, obviously, price is 100% but on mix is between 60%-65%.
Okay. Fine. Thank you very much.
Thank you. The next question is from Ross MacDonald with Morgan Stanley. Please go ahead.
Hi there. Yeah. Ross MacDonald from Morgan Stanley. Thank you very much for the update. I have three questions please. First one on R&D expenses. Just given the new product rollout, the 20 product lines you're talking about and the sustainable tire acceleration that you're rolling out also, how will that impact your R&D expenses on sales in 2024 and 2025 please? And secondly, on your 2024 guidance, I can see you're guiding to net interest expense being flat at EUR 0.2 billion. Just curious if you can be a little bit more specific around net interest expense going forward.
Are you expecting that to be slightly higher than the current 2023 level or broadly in line? And then third question, a theoretical question on tire wear. I can see you're guiding to quite large improvements in wear rates by 2030. Obviously, that's good for the environment. It's good for the consumer also but it could be an issue for the Pirelli business model if tires are structurally lasting longer. Can I just understand how I should think about that in my model? Should I be assuming a longer wear rate for Pirelli tires or are you effectively keeping the tire lifespan the same by using less tread? So I'd be really interested to understand that. Okay. Thank you. Thank you so much. First question, the R&D expenses, we assume are around 6% and we maintain.
So growing the net sales, we support as a consequence but this is the core of our activities and so we keep on this ratio and we do consider this as the optimal one to support our roadmap of technologies. As far as the tire consumption, I leave to Pierangelo Misani which is the most expert in the company. Thank you. As you correctly highlighted, the tire wear improvement will not be fully reflected into higher effective mileage but part of it is cached, let me say, to reduce the tire weight, to reduce then the amount of rubber that would be generated by the abrasion. In the case of the P Zero E, for example, I mentioned that we had up to 42% increase in tire wear.
Of course, we have not translated this 100% in more mileage, but only the half of it has been used to increase the true mileage of the tire to make it in line also with the fact that, being fitted mainly to EV tires, we have to compensate, let me say, the effect of EV vehicles to wear more of the tire. Thank you. Can I maybe just follow up? I think I understood that correctly. So R&D expenses for 2024 are rising to 6%, up from 4.3% of sales in 2023, and then there was a question also from some financial expenses. I'm wondering how you see those progressing versus 2023? Yes. R&D expenses on a High Value sales will remain around 5.5%-6%. Yes. And Fabio will answer on the question on interest. I will take the question on the interest.
First of all, reminding that on the full year 2023, the net financial expenses stood at EUR 194 million. Now for 2024 and 2025, we expect lower interest charges as a consequence of the reduction of debt and the expected decrease of the interest rates. On the other side, we are expecting higher volatility especially related to the hyperinflation in countries such as Argentina and Turkey. So overall, we maintain a guidance of around EUR 200 million of impact per year. Thank you.
Thank you very much. Next question is from George Galliers with Goldman Sachs. Please go ahead.
Thank you for taking my questions. I had two questions regarding the connected or Cyber Tyre. The first one was whether you could help us to potentially size the market that.
On slide 40, you very helpfully give us the percentage of cars that you expected to be connected but do you see a very high, almost 100% of connected cars having some kind of connected tire on them or will the penetration start quite low and grow in the coming years and any insights or comments around that would be very helpful? Second question I had was with respect to the biggest opportunity economically from the connected tires yourself. Do you see it coming from the seller of connected tires at a higher price point which presumably they command or do you think the bigger economic opportunity in the medium term will be the R&D and manufacturing efficiencies and learnings that you're able to make as a result of the data from these tires? Thank you. Thank you.
So as far as the penetration of the connected car park, what we can confirm is what we presented in terms of the different pace of growth of connected cars between the EV and the traditional one, and so this is what we plan and where we see the big opportunities of this fast-growing market. While if we move into a pricing estimation or a value creation estimation inside our numbers, it is too early to have these, and these will be part of our next industrial plan because we are now defining the sizing of the market but also the different application and the opportunities related to connected tires.
You mentioned already some integrating the tire with the dynamic of the vehicle and so to be a contributor in the performance and safety of a car which is the first, I would say, priority for us now and so be part of the development of a new way of designing the dynamic of the vehicle. Second opportunity is to provide data to infrastructure and to support the maintenance of infrastructure. Third potential application is to provide a new way of having a predictive maintenance of the tire and so has to do with the servitization to the end users that will be able more and more to plan well in advance the tire change at the right time without losing money but at the same time without losing nothing in terms of safety.
And then there is also the opportunity to use data back from the tires cloud testing as Misani explained it before to improve the development of our new product. So again, to do with better performance and more value to our product. So as you can see, there are a lot of potential opportunities. We are sizing all these opportunities and we are accelerating the introduction of the technology in order to be ready in the next industrial plan to translate all these roadmap of technology and first marketing activities we have already in place into consistent numbers and business plan. Thank you so much.
Thank you. Next question is from Pedro Baptista with HSBC. Please go ahead.
Thank you very much. Hi. Thank you very much for taking my questions. I have two. The first is on merger acquisition and financial leverage.
If I recall correctly, a couple of years ago in 2022, you mentioned that once net debt went below 1.5 x, that's when you could start to look again at the use of cash and potential M&A. So given that we are approaching that level, I was wondering if you have any internal discussion about M&A at this stage at all and if you're looking in the future for something transformative or just small ballpark. I think it would be very interesting to understand the growth prospects for the next decade beyond the tires if any. The second question is on the regulation. You already touched a little bit about the durability of the tire and the fuel consumption but we understand that the European Union is evaluating the opportunity for some restrictions on the emission of particulate matters from the tires.
So I would like to ask, first of all, if you expect some regulation in Europe to actually come in the near term, if you expect other regions to follow, maybe the U.S., and finally, if you think what would be the impact on Pirelli vis-à-vis the cheaper tires and potentially also some bigger competitors because I understand Pirelli focused a lot on the performance and maybe a little bit less on the durability. So I was wondering about this. Thank you very much. Thank you. So as far as the M&A strategy, priority one today, as we mentioned, the priority of our balance sheet is to reach the leverage of one within 2025 but in the meanwhile, of course, we are looking and evaluating, analyzing different opportunities.
So far, I would say that the most important opportunities that we see in front of us are in the field of materials and that has to do with sustainability. We have the small example of a Hevea-Tec acquisition already in 2023, finalized it in 2024, beginning of 2024 but this is just a small example where we can accelerate our M&A strategy in the future because this is opening opportunities to increase the percentage of bio-based and recycled materials. It's not only natural rubber. It's also pyrolysis and carbon black opportunities and so on. So the field of new materials and innovation. Another big opportunities we already discussed is coming from connectivity and so creating an ecosystem of alliances and opportunities to enlarge our knowledge mainly in the side of digital and algorithm and to accelerate the introduction of these technologies.
These are two examples of where we are evaluating possible future opportunities. As far as the tire road wear particle, the most important regulation that we have in front of us is by far the Euro 7 announced in Europe. We fully support the introduction of the Euro 7 and that is expected for the car tires, if I'm not wrong, to be applied within July 2028 and we are accelerating all the development of more durable product as Mr. Misani said before. It's not right that it's not the first performance we look at. On the contrary, all the new product lines that we are introducing today has a minimum target of 30% of reduction in the tire, in the wear, in the wear and the emission of particles.
So we fully support the introduction of this regulation and we do expect that these will have possibly even a positive impact on the value of product because we'll raise the technological barrier and only the players with the technology and the capability to develop more durable and with lower tire road wear particle emission tires will have a competitive advantage. So we are fine with that. Thank you very much.
The next question is from Gianluca Bertuzzo with Intermonte. Please go ahead.
Hi everybody and thank you for taking my question. I have a couple of them. Can you talk about the contribution of your equity investments line in the P&L? What are the driving forces here and what do you expect going forward? A second one is a follow-up to Ross's question on tire wear.
There are any plan in terms of tire labeling to present also tire duration? I'm talking at a legislative level. Thank you. Thank you for the question. I will start from the tire wear. Sorry, from the tire wear. As anticipated, Euro 7 is going to regulate non-gas emission, non-exhaust emission, and then regulate brakes and tires. The current status is that it has been completed a first stage of methodology setting just at the end of the last year and the community will take one year to evaluate the levels, to evaluate the clusters. So we do expect that by the Q1 2026, there will be a definition inside Euro 7 of the clusters, so labels basically, and which will be the limit for these labels.
The results from equity investments, which you're right, in 2023, were pretty positive, pretty good compared to 2022, and they are coming mainly from the results of the two JVs that we have with local partners in Indonesia for the production of motorcycle tires and in China for the production of some car tires. Those two JVs generated a good operating performance, so obviously we received part of the dividends related to the two JVs. Okay. Thank you. Is there any plan to buy out these minorities? Not for the time being. We are not foreseeing any buyout in our plan for 2024 and 2025. Thank you. Thank you very much.
The next question is from Michael Aspinall with Jefferies. Please go ahead. Good afternoon, guys. Thanks for taking the question.
Just thinking about your continued shift to sustainable materials, are those recycled and bio-based materials cost competitive with kind of more legacy materials or do you expect to see higher prices of those more sustainable tires to offset the higher costs? Thank you. I would like to evaluate our sustainability roadmap at 360 degrees for answering you to this very important question. Yes. And I tell you why. Yes, because in the short term, we do expect a higher cost of these materials because the demand will be most probably higher than the offers in the coming years, in the short term. In the long term, we do expect a rebalance of demand and offer and so again, more stable cost of these materials. But if I look at the sustainability roadmap at 360 degrees, I don't see these as a cost.
I see these as an opportunity in terms of global efficiencies for the company because on one side, most probably we will pay a bit more for these materials. On the other side, we expect a lot of efficiencies coming from the reduction of energy consumption and also electrification of our factory. So all in all, the balance we see in the coming 4-5 years is positive. So we do expect a positive impact on the global efficiencies of the company, putting together a higher cost of some materials and the better efficiencies of our factories. All these keeping aside the commercial opportunity because first of all, we do these because of ESG reasons and then we do expect that in some markets with some product, we also have the opportunities to growth in terms of revenues thanks to the selling proposition of sustainability but these will come later.
If you look only at the efficiency plan, we see these two effects more or less balanced or even slightly positive. Thank you. Okay. Great. And one follow-up, just a very quick one on your dividend payouts policy. Just checking that your leverage target of 1x net debt adjusted EBITDA by the end of the plan includes a step up directly to 50% in 2024 and 2025 from 40% this year? I take the question. No, our policy, as it was explained, is for in 2024, a payout of 40% of the net result and in 2025, a payout of 50% of the result of 2024 and this is already included in the numbers so to arrive at the end of 2025 with a leverage ratio of around 1.0. The adjusted EBITDA. Okay. Excellent. Thanks for your time.
The next question is from Ashik Kurian with Millennium Management. Please go ahead. Ashik Kurian, your line is open. We move to the next question. Next question is from Martino De Ambroggi with Equita. Please go ahead.
Yeah. Thank you. Two more questions. One, still on connectivity. I was wondering if you probably are looking for or you need a joint venture, a partnership, I don't know, car components maker, car maker. I don't know if you are looking at it in order to maximize the potential value of connectivity which will come later on. And the second is on the press release because I'm reading your press release about the shareholding structure, the Golden Power, and so on. Could you clarify what are the next steps and the potential implications on the shareholding structure if any? Thank you. Thank you.
As far as potential opportunities in the future to create alliances, a joint venture, or maybe acquisition with some partners, as I said before, I do see these more in the side of algorithm, data management, or a capability to integrate our system with the dynamic of the vehicles more than on hardware producers of components of the cars. Anyhow, we are in a phase of evaluating all the opportunities we may need with a clear target to accelerate the introduction of the technology into the market. Thank you. As far as the second question related to control, after the DPCM decision, the Golden Power decision, and the implementation of the DPCM, the internal auditors and the management started an analysis if the Marco Polo Italy that owns 37% of the company is still considered to be in control of the company.
Meanwhile, also, Marco Polo is doing his own analysis. The process has not come to an end until now and we decide to keep the declaration of control of Marco Polo until now has not been modified. Obviously, if the conclusion will be different, will be in the future modified. So that's the situation. We will inform, obviously, as soon as the board will achieve a conclusion, we will inform the market. Now, the analysis is ongoing and this will be disclosed as it is in our press release. It will be disclosed the same way it is in our press release will be disclosed into the balance sheet. There are no more questions registered at this time. I'll leave the floor back to Mr. Tronchetti. So thank you. Thank you very much. This meeting has come to an end.
I thank you, everybody, and I wish you a good evening.