Thank you. Good evening, ladies and gentlemen. Welcome to our nine-month conference call. The industry scenario is confirmed to be positive despite a weak demand for original equipment due to semiconductor shortage and inflation pressure on input costs. Implementation of our industrial plan is proceeding according to expectations for all our programs. Consolidation of our position in High Value, especially in the car 19 in and above, +1.4% market share in nine months. Strengthening on the ESG front, where we achieved an important result in the way of decarbonization. Today in Europe, 100% of the electricity we purchase comes from renewable sources, and before the end of 2025, this will be true for the whole group. Fundamental milestone towards our ambition to reach carbon neutrality before 2030.
The third quarter results prove our performance to be stronger. The price mix at 10.9%, profitability at 15.7%, and high cash generation 7.4% of sales despite the business seasonality. Such sound trends led us to revise our yearly targets upwards. External scenario is confirmed to be positive but characterized by growing volatility. Economic recovery is proceeding with an expected growth of global GDP of 5.5% in 2021, slightly slower than previous forecast t hat was 5.7% in August, d ue to supply chain issues in all industries and persistent pandemic outbreaks in different areas. The strong economic recovery has caused supply shortages and a general increase in input costs, with the resulting impact on inflation, which is expected to be 3.7%, w as expected 2.3% In industrial plan in March, globally in 2021.
In the tire industry, the persistent semiconductor crisis has caused the major car makers to revise their production estimates with the resulting impact on tire demand for original equipment. Expectations are now -1% globally in 2021 against +6% in the August guidance. The outlook for the replacement channel remains unchanged, especially for the high end of the market, where demand is growing in the high teens in 2021. Pressure on input costs, raw materials, energy and transportation, together with the lower stock levels in the distribution chain, favor the sound price discipline in the tire industry, with repeated price increases by various players in different regions. Pirelli promptly responded to external headwinds through an action plan aimed at mitigating the supply chain volatility, avoiding production interruptions, and a strong stock buildup.
Production and logistics structure able to manage demand volatility and fully exploit all opportunities in the replacement business while original equipment is experiencing a setback. A careful pricing policy, which together with the mix improvement, allowed us to deal with increases in raw materials and exchange rate volatility. Implementation of competitiveness program, which in 2021 more than offset the impact of inflation. A growing volatility of inflation and supply chain is expected in 2022. In order to deal with this scenario, Pirelli will not only continue with the existing actions I already described, but it's also setting up a number of initiatives to support profitability and, in any case, ensuring that the deleverage is in line with the targets in our plan for 2022.
Results from the first nine months reflect the gradual implementation of the key programs of our industrial plan. At commercial level, we strengthened our position in High Value, leveraging on a highly technological product portfolio. In line with our targets, we increased our exposure to 19 in and up, which accounts for 66% of High Value volumes, +3% year-on-year. In new technologies, with a volume growth in EV approximately 10 times higher than in the first nine months of 2020. At innovation level, we obtained 240 technical homologations, over 70% of our yearly target, concentrated in 19 in and up approximately 85% and specialties approximately 45%. Our product portfolio has now another five lines devoted to replacement to meet the different needs of regional consumers, All-Seasons, winter, bus lines.
At competitivity level, step two of the efficiency plan is going on with gross benefit of over EUR 10 million, EUR 59 million net of inflation, which means 74% of our yearly target. Concerning our operations program, the reorganization plan is now over. The Gravataí plant is now closed, and our motor production has been moved to Campinas. This allows us to supply the LATAM market and export our products with greater efficiency. The reorganization at Burton-on-Trent in the U.K. is over, and the focus is now on semi-finished products. Further to this, the process towards reaching the best plant saturation is ongoing, with a fill-up capacity of over 90% in the first nine months of 2021.
At ESG level, our actions to safeguard the natural environment, sustainability of materials and local communities continue at a fast pace. As already pointed out, as of 2021, 100% of the electricity we purchase in Europe comes from renewable sources. When it comes to sustainability of our supply chain, we are proud of having entered into a multiyear partnership with BMW and the NGO BirdLife International to enhance the production of sustainable natural rubber, avoiding deforestation in Indonesia. Mr. Casaluci will provide you with more details about it.
Last but not least, Pirelli has been reconfirmed on the list of the Global Compact Lead Companies 2021 by the United Nations. Pirelli is the only company in the automotive industry to appear on the list, and one of the 30 companies in the world most committed to implementing the ten principles of the United Nations Global Compact.
Slide number six sums up the solid performance achieved in the first nine months of 2021. The top line growth, +28.6% year-on-year, was supported by strong commercial performance. Profitability improved, both in absolute terms and margin, driven by the strong volume growth, effective price mix, price mix improvement, and net efficiency gains. The net cash rebounded, closing with EUR 236 million at the end of September. Of four million of net cash flow generation in the third quarter, or 7.4% of sales, supported by a tight working capital management. In particular, in inventories, we are benefiting from a strong integration with our clients established through the years, which provide us with high visibility into demand and the flexibility of our manufacturing footprint specialized on small lots.
Let us comment on 2021 expectations, starting from our market outlook. Persistence of semiconductor crisis leads us to review our forecast on total car tire demand of full year, for full year 2021, with a current growth expectation of 7% versus approximately +10%, as previously indicated. In the original equipment, we forecast a 1% decline in demand. The previous indication was +6%, with a worsening of the trend in fourth quarter. Demand in replacement is still vigorous, with a +10% growth, -1 percentage point compared to the August expectations. This variation affects the Standard segment and is the consequence of the lockdown impacting APAC during the third quarter. High Value is confirmed to be the most resilient segment, with demand in a car 18 in and above of +12% and higher than before the pandemic, +2% versus full year 2019.
Replacement demand trend is confirmed to be +18%. The sales market performance in North America and in Europe offset the temporary weaknesses in APAC due to the COVID emergency in the third quarter. Demand is expected to recover in the fourth quarter in this market. In original equipment instead, demand is expected to have a positive trend, +3%, although values are lower than in the previous indication. It was +10% the expectation in August. In the standard business, we expect a mid-single digit growth, +6% versus +8% as per indication in early August. We confirm expectation on our volumes with an expected growth between 14% and 15% because of our High Value exposure where we are increasing our shares.
Going to the next step, full year 2021 targets update. Based on the nine months results and our visibility into the external scenario, we revise upwards our full year 2021 targets with the following expectations. Revenues between EUR 5.1 billion and EUR 5.15 billion, +EUR 100 million more than August guidance. Group volumes growth between 14% and 15% is confirmed. High-teens growth in high value. Price mix around +7% is improving because of the further price increase and a more favorable product and channel mix compared with August. Negative exchange rates at -2%. Previous indication was between -2% and -2.5%.
Adjusted EBIT margin range is confirmed between around 15% and around 15.5%, with A djusted EBIT improvement of approximately EUR 20 million compared with the implicit value of the August guidance due to the higher price mix contribution that more than offset both the raw material, admin, now approximately 3.6% of revenues, and negative exchange rates. All other adjusted EBIT bridge components are confirmed. Net cash flow generation before dividends is improving between EUR 390 million and EUR 410 million, supported by operating performance and efficient management of the working capital. Investments are confirmed at EUR 330 million. I now leave the floor to Mr. Casaluci, who will discuss the operating performance. Mr. Casaluci, please.
Thank you, Mr. Tronchetti, and good evening to all of you. Now, let us analyze both the market dynamics and Pirelli's performance. Over the first nine months of 2021, the global tire market demand increased by 13%. The recovery was more sustained in the 18 in and above segment, with a +21% year-over-year, and is exceeding pre-COVID levels, +5% versus the first nine months of 2019. Pirelli confirms its overperformance versus the market with volumes at +24% in the total car and at +31% in the 18 in and above. More specifically, in the high end of the market, original equipment growth, Pirelli volumes +34% and market +15%, was supported by exposure to premium and prestige, consolidation of customer base in North America and Asia Pacific, as well as by a higher demand for products for electric vehicles. In the replacement, Pirelli volumes +30% and market +24%.
Our share in the major regions is now stronger due to a growth in high-value pull-through volumes and new dedicated lines. Pirelli also recorded above-market volume growth, +17%, in the car 17 in and below segment versus its reference market, +12%, because of a strong demand recovery both in South America and Russia.
In the third quarter, the market trend, -5% total car, was due to a lower original equipment demand, -20%, caused by the semiconductor shortage. Demand in the replacement channel, also impacted by the new lockdown rules in Asia Pacific, is only slightly higher, +1%. In the third quarter, Pirelli keeps on overperforming the 18 in and above market, +4% Pirelli volumes while market volumes are down 2%. Limiting original equipment impact, Pirelli volumes -3% while market -15%, because of a greater exposure to prestige and premium OEMs and the new contracts in North America and Asia Pacific. Getting stronger in replacement, Pirelli volumes +10% versus a +8% of the market because of our performance in both North America and Europe.
In the third quarter, the volume reduction in the car 17 in and below, -6%, was indeed substantially in line with the market, -5%. The overperformance of our Top of the Range segment confirms the correct implementation of the commercial program. The overperformance in the car 18 in and above was driven by our uppermost technological products offering, o ver 75% of the growth was driven by the 19 in segment and over 60% of specialties. Lines sold to replacement with original equipment homologation were fundamental for the growth of the pull-through volumes, mainly in Europe and United States, roughly 66% of the global growth. The new lines dedicated to replacement drew a solid performance of the push volumes, particularly in Europe and U.S., more than 80% of the world growth.
The original equipment market share increase was uniform in all the regions. The focus on fitments for EVs continues since they accounted for approximately 20% of the growth in the first nine months. Our innovation program unfolds in line with the plan roadmap, where a higher market share than the typical one is expected in the EV segment already from next year and 1.5% higher in 2025. The Munich Motor Show offered wide visibility in terms of our positioning in the EV segment. Almost one electric car out of three of those exhibited in the pavilions of the Motor Show or in the districts of Munich was fitted with Pirelli tires. Our presence was on average twice as much if compared to our main competitors.
The P Zero ELECT that coupled the motorsport know-how with the electric technology was chosen to be fitted on cars such as PORSCHE TAYCAN , FORD MUSTANG MACH-E GT, POLESTAR 1, BMW IX, and MERCEDES-BENZ EQE . Munich was also a showcase for the first tires in the world certified by the Forest Stewardship Council, FSC, fitted on the new BMW X5 Hydrogen and on the BMW X5 XDRIVE45E plug-in hybrid. The Pirelli P Zero tires with natural rubber and rayon with FSC certification are a new step forward to reach an increasingly sustainable production. Indeed, this certification guarantees full traceability of the raw material throughout the supply chain, in plantations managed so as to preserve biological diversity and improve the life of the local communities.
In the first six months following the introduction of four replacement regional lines developed to meet our customers' needs, the upgrading of our product range continued during the third quarter, with the launch of the CINTURATO WINTER 2. A winter tire of medium-sized cars and SUVs, CINTURATO WINTER 2, is the outcome of Pirelli's cutting-edge technologies, such as sipes with variable geometry, guaranteeing better grip and higher safety standards, and a special compound developed through an innovative system of liquid polymers, improving performance on wet and snow. In addition, CINTURATO WINTER 2 was developed through virtual simulation processes. CINTURATO WINTER 2, besides being an environmentally safe tire, is also on the top of the European labeling features for its rolling resistance and low noise level.
CINTURATO WINTER 2 offers a level of performance among the best on the market under all driving conditions in winter, as confirmed by tests made by TÜV that granted it the performance mark.
As already mentioned by Mr. Tronchetti, our commitment to preserve the environment was further developed through a multi-year partnership with BMW and an NGO called BirdLife International. This is a partnership to increase the production of sustainable natural rubber in Indonesia by sparing the Hutan Harapan area on the island of Sumatra from further deforestation. It is a project based on two fundamentals: a partnership among stakeholders belonging to the value chain of natural rubber and sharing the same values. Therefore, they wish to maximize the positive impact of this project. The core of this project is the full creation of sustainable value through the following: preservation of 2,700 hectares of rainforest, protection of the rights of the local community, promotion of women's participation to social and economic life, agricultural and forestry training to locals and natural rubber farmers, and protection of several animal species at risk.
This project is a further milestone by Pirelli for the sustainable management of natural rubber. The competitiveness program continues in line with our plan, with the gross efficiencies expected to be worth EUR 155 million this year, of which EUR 80 million net of inflation, approximately 2.1% of the baseline. Over the first nine months of this year, the gross benefits from our competitiveness program were worth EUR 110 million, which mean to double absorption of the impact from the growing inflation. Net efficiencies are worth EUR 59 million and account for 74% of the target of the current year. In the third quarter, gross efficiencies were worth EUR 27 million, EUR 9 million net of inflation.
I wish to provide you with more details on the several projects we have launched. Within product cost, which is worth 38%, roughly, of the gross efficiencies during the nine months of 2021, we continue to implement our new approach to modular design and the more efficient materials purchasing program. On manufacturing, which accounts for approximately 36% of the efficiencies made during the first nine months of 2021, the program to increase flexibility, digitization, and sustainability continues. In line with volume rebound and the saturation reached in the factories, manufacturing has already hit 90% of its yearly target.
On SG&A, we have leveraged on further efficiencies to redesign our distribution network and optimize stocks. Finally, on organization process, digitization and upskilling programs are still ongoing. In the fourth quarter, we expect a stronger impact from inflation, mainly due to the increase of energy and logistic costs. Thank you for your attention, and I now give the floor to Mr. Bocchio for the financial performance.
Thank you, Andrea, and good evening to you all. Pirelli closes the first nine months of 2021 with sales worth EUR 3.98 billion, growing 28.6% year-over-year, being supported by a definite overperformance versus the market within a framework of demand recovery. More in detail, revenue growth amounted to EUR 885 million, with a negative impact of EUR 71 million, -2.4% from exchange rates due to the depreciation of the dollar and the major currencies of emerging countries against the euro. If we excluded the exchange rate impact, the organic growth amounted to +31% in the first nine months of the year.
Let's go through the commercial variables in detail. A positive volume impact on sales, EUR 763 million, +24.7%, particularly due to the growth in the High Value segment, +27.8%, which is confirmed to be at pre-COVID levels, both in the Car and Moto segments. A sustained contribution by the price mix, EUR 194 million or +6.3%, supported by price increases in the replacement business in both segments. Product mix improvement based on the growing demand for bigger rim sizes and products with more technology.
In the third quarter, revenue trend reflects a slowdown in market demand, as already shared by Mr. Casaluci, with slightly declining volumes, -0.4% in the quarter at group level, with High Value at +1.8% and standard at -2.6%. Conversely, the price mix was on a strong rise at +10.9%, supported by price increases and an improved product mix and channel mix due to the slowdown in car production caused by semiconductor shortages.
Let's now analyze the profitability trend. In the first nine months, Adjusted EBIT was worth EUR 599 million, with a 15% margin, in line with our full year target. The solid contribution of all internal levers, volumes, price mix, efficiencies, more than compensated for the negatives of the external scenario, raw materials, inflation, and exchange rate impact. More specifically, the profitability improvement in the first nine months is due to a strong volume contribution, +EUR 310 million, a price mix improvement, +EUR 150 million, that has more than offset the impact of raw materials, -EUR 114 million, and exchange rates, -EUR 18 million.
Phase II of our competitiveness plan generated efficiencies worth EUR 110 million, about 3% of revenues. EUR 59 million net from inflation, which covered the reversal impact from the COVID actions, -EUR 23 million, and other cost increases, -EUR 38 million. A short comment on the item, other costs, which includes three macro clusters. R&D, sponsorship, and marketing expenses are part of the first cluster that recorded a EUR 33 million increase, mainly in the first quarter. The second cluster includes provisions for the short and long-term management incentives, with an impact worth EUR 37 million in the nine months, EUR 13 million in the third quarter. We wish to remind you that in 2020, because of the COVID emergency, the management short-term incentive plan was canceled.
The third cluster includes the impact from stocks, credit impairment, royalties, and other costs. In the first nine months of this year, the variation amounted to +EUR 31 million, which is mainly reflecting the positive impact from stock replenishment. The overall impact of the item others over the year is confirmed to be approximately -EUR 30 million, where the provisions for management incentives are compensated for by benefits connected to stock replenishment. Let's now talk about the third quarter 2021 profitability. Adjusted EBIT was worth EUR 221 million, a 4% year-on-year growth, supported by the price mix contribution that has compensated 1.3 x for the raw material and exchange rate impacts.
The Adjusted EBIT margin was at 15.7% compared to 16.7% in the third quarter of 2020, and this counts the reversal impact due to COVID actions worth EUR 12 million in the third quarter, which means almost a one point of margin.
Let's move now to the net income dynamics. Net income showed a strong improvement in 2021, about +EUR 254 million year-over-year. The trend discounts the already mentioned improvement in the operating performance, Delta Adjusted EBIT +EUR 318 million, restructuring and non-recurring costs improving from the same period of 2020. Results from Equity participations was positive by EUR 2 million, a +EUR 8 million improvement related mainly to the results of our JVs in China and Indonesia. Net financial charges were slightly improving year- on- year, as higher charges on central debt impacted mainly by the COVID pandemic, which caused a temporary increase in the spread of the major credit line of the group, were more than compensated for by benefits stemming from financial management at local level.
The EUR 91 million increase in tax charges was related to the greater operating result discussed previously, with the tax rate remaining stable at around 26%. Net income adjusted, meaning excluding all the one-offs and non-recurring items, is positive for EUR 360 million in the first nine months of 2021.
Let's move now to the cash flow and net financial position. In the first nine months of 2021, the net cash flow in terms of variation of the net financial position is equal to -EUR 457 million, including EUR 80 million related to the dividend distribution made in the period. The net cash flow before dividends was - EUR 377 million, improving by EUR 369 million versus the first nine months of 2020, and improving of EUR 252 million compared to the first nine months of 2019.
This trend was mainly supported by the improvement of the operating performance that has just been mentioned. Lower absorption of the working capital through a careful stock management, 18.8% as a percentage of last 12 months sales, in line with the first nine months of 2020, but a 2 percentage points improvement compared with the same period of 2019, and trade payables benefiting from the business recovery.
In the third quarter of 2021, the net cash flow before dividends was + EUR 104 million, despite the seasonality of the business, thanks to the already mentioned dynamics of working capital. The net financial position is of approximately EUR 3.7 billion at the end of September. Gross debt at the end of September is approximately EUR 5 billion, less than at the end of December 2020 because of advanced payment of financial debts worth approximately EUR 1 billion. The liquidity margin is confirmed to be at approximately EUR 1.5 billion, and allows to cover debt maturities until June 2023.
The cost of debt in last 12 months was of 2.41%, with an increase of 0.47 percentage points compared to full year 2020, mainly because of the temporary impact of the increased leverage following COVID, which impacted on the major corporate financing projects. For full year 2021, we expect the cost of debt to be approximately of 2.5%. It was 1.94% in 2020, in line with the industrial plan, considering the above mentioned dynamics and due to increased local interest rates, in particular in Brazil. Net financial charges are expected to be worth EUR 141 million, approximately EUR 20 million less than the assumption made in the plan, especially due to favorable dynamics on the hyperinflation in Argentina and to lower commercial hedging. Thank you for your attention, and I'll give the floor back to Mr. Tronchetti.
Thank you, Mr. Bocchio. We can now open the Q&A session.
Excuse me. This is the conference operator. We will now begin the question-and-answer session. Please press star one for questions. The first question is from Martino De Ambroggi of Equita. Please go ahead.
Thank you. Good evening, everybody. The first question is on the guidance. Actually, two questions on the guidance. The first is on the implicit Q4 midpoint, because it implies significant reduction in terms of top line and absolute value in terms of Adjusted EBIT, despite some recovery in the original equipment expected. Just if you could provide us what are the main reasons for these in Q4? On the free cash flow guidance, I understand the CapEx are confirmed, but what is your assumption on net working capital? Because in Mr. Bocchio speech, he mentioned net working capital improvement. I don't know if there is something that could be more positive at the end of the year. In particular if factoring is confirmed around EUR 200 million, as it used to be at the end of the year.
Thank you. Before leaving the floor to Mr. Bocchio to answer about the cash flow, I want to underline that we are not thinking that the last quarter will have a recovery on the original equipment. We believe that the original equipment will remain weak even at least for the first quarter, but probably until June of next year. Our forecast in terms of results has been confirmed in the highest part of our targets, and we don't see any specific change also in working capital policy. Mr. Bocchio will provide you the answer. Please, Mr. Bocchio.
Thank you for the question. I have to reaffirm that on the full-year basis, the net cash flow before dividend generation will be a generation of about EUR 400 million. That will be sustained by, for sure, the better operating performance and the careful management of the working capital, specifically related with an increase in trade payables as a consequence of the business recovery and a slight increase in receivables as a consequence of the higher sales expected in the last quarter of the year, improving in terms of incidence on net sales as a consequence of the improved condition of the market and customer liquidity position that should reduce the volatility in credit risk and collection. Partially compensated by a very moderate stock increase in absolute value in order to sustain the increase in sales.
Anyhow, in percentage, the stock we expect to be in line with the nine-month or with a very light increase. The financial income and expenses, as I said, will be amounting to about EUR 141 million in reduction compared to previous year. The increase in taxes paid obviously is a consequence of the higher result. Coming back to your point about the factoring, I can confirm to you that the company is not changing the policy, and we foresee the value of factoring to be in line with the same value of previous year.
Good. The follow-up is on the standard products. If you could provide a rough indication on what is the profitability considering the weakness of the original equipment, and if you are in the same path you expected in order to achieve 10% return on sales next year.
Mr. Casaluci.
Yes. We confirm we are on the direction to reach the low double-digit profitability in 2022. What we do expect all in all is to arrive very close to the 10% in 2021. In the replacement channel overperforming already this return on sales while in the original equipment a bit below.
Thank you.
Thank you.
Excuse me, sir. The next question is from Monica Bosio of Intesa SanPaolo. Please go ahead.
Yes, good evening. I hope you can hear me. There is an echo. The first question is on the market share gains. Any colors on your market share gains across the different regions would be appreciated. My second question is on price mix. Can you just tell us how much is pricing and how much is channel mix? Should we expect for the first part of the next year a similar price mix trend to the one that we have seen so far in the second half of 2021?
Mr. Casaluci.
Yeah. Thank you. I will start from the price mix. If we look at the performance of the third quarter that was presented by Mr. Bocchio, we can assume that roughly 40% of the price mix is related to price. What we expect for the last quarter of the year is a similar trend. For 2022 is too early to have a clear understanding and picture because there is still a very high level of volatility into the market. But what is given for granted is that with price mix, we will be able to more than compensate the impact of raw material and forex in 2022.
Back to the question on the market share. The gain of market share was spread all around the channels and the regions in 2022, versus 2020 is more pronounced in the first half because of the favorable comparison. You most probably remember that in 2020, in the first half, we decided to reduce the level of stock in the trade, and as a consequence, we lost market share. In 2021, we were able to recover. If we compare versus 2019, there is a clear acceleration in the third quarter in terms of gain of market share. This is true in the original equipment, even more evident in all the regions because of our exposure to the Premium and Prestige segment of the original equipment that, as a matter of fact, has been less affected by the crisis of the semiconductors compared to the Synergic.
Inside the Premium product offer, the carmakers are protecting the high end of their product portfolio because of profitability. As a consequence, Pirelli took advantage, is taking advantage of this. As far as the replacement is concerned, the third quarter performance, as I mentioned in the presentation, was particularly positive in terms of gain of market share in Europe and in North America. Thank you.
Sorry, just a follow-up, if I may. Did you have any extra cost, one-off cost in the third quarter related to the lockdowns in China?
No, nothing.
Okay. Thank you.
Thank you.
Thank you.
The next question is from Gabriel Adler of Citi. Please go ahead.
Thank you. Gabriel Adler from Citi. I'd like to come back to the price mix, please, which was clearly very impressive in Q3. At what point do you think price increases start to impact consumer demand, especially for a premium tire maker like Pirelli? How do you manage the risk of pushing prices higher and that possibly resulting in consumers trading down to cheaper tires? It may be this is less relevant today because supply is obviously still quite tight. I imagine when imports normalize and capacity starts growing again, this may become more of a challenge for your business and the industry as a whole. Then my second question is just whether you could quantify the impacts that you expect in Q4 from cost concentrations, raw materials and logistical costs and any other costs that you are willing to quantify. Thank you.
For the first question, the price mix is obviously due to the environment, the price and it has to be underlined that the consumers in a segment of the market where we are, they are not so much affected by price increase of few points. The cost of the cars is average two-to-three times the cost of standard car. It's a question of the market dynamic, and luckily, the market dynamics are positive and stocks are not growing. Stocks, we don't see in the market, the pipeline being full. The pipeline still is quite empty and so these price increases leave us in a, let's say, positive condition considering the entrance in 2022 with the price increases we made. We don't expect this coming. For the second question, Mr. Bocchio.
Okay, thank you for the question. Going back to the raw material point, we obviously saw an impact in our accounts for the increase in the cost of the raw materials. Compared to our previous full year view, we see an increase that is about EUR 20 million. Talking about impact on net sales, previously we were expecting a negative impact of raw materials in the ballpark of 3% of net sales. Now we are expecting a negative impact that is about 3.5% of the top line. I hope this clarifies your question.
I think that an additional point has to be taken into account that this year we launched five new product lines dedicated to the replacement market. In our plan, next year, we launch more than five. All the new launches are related to products that are performing better than the existing products. There is value in these new product lines, and prices will be protected also by the new lines we launched, and we are going to launch.
Okay, thank you. Maybe I can just follow up on the first question. Given your comment there that stock isn't really increasing, would you consider pulling forward some of the capacity expansion plans that you currently have in your midterm plan to take advantage of the tight supply environment? Are you happy with your capacity levels currently?
No, nothing has changed in a capacity. The utilization is around 90%. The increase of stock is related to the higher volumes of sales we have. That is only a natural, let's say, consequence of the fact that we increase the volumes. That's why the working capital remains, let's say, balanced, and we have a cash flow that is sound and continue to be consistent.
Okay. Brilliant. Thank you.
Thank you.
The next question is from Thomas Besson of Kepler Cheuvreux.
Thank you very much. Thomas Besson, Kepler Cheuvreux. I have a few questions, and I'll ask one by one, if it's possible. Firstly, I'd like to come back to a question that was raised earlier by, I think, Martino De Ambroggi on the guidance, specifically on the revenue guidance. Your midpoint implies a substantial sequential decline in revenues, Q3 to Q4, that I'd like to understand a bit better, if it's possible. It's clear to me that price mix is going to be relatively close in Q4 to Q3, unless I missed something. FX is also going to be a positive. What is the assumption that I'm missing for explaining that your revenues would decline a lot more than any time before in Q4?
We already underlined at first that compared to the guidance of last August, the top line is growing. It's not lower than the previous guidance. Regarding the last quarter, we remain conservative considering the reduction of original equipment. Even if in our segment the effect is lower than in the other segment. It is, I think, better to stay on the safe line in a volatile environment.
Yeah, thank you.
Thank you.
Looking at your new EUR 1.6 billion financing line, could you discuss like the financial charges in 2022? Is it going to have a positive impact? You're already talking about, I think, EUR 142 million net financial charges for this year. Is it going to be lower in 2022, thanks to that as well?
We consider until now that they remain in line, so we don't see major changes. We are negotiating and we don't see not a negative nor a significant positive effect.
Okay, thank you. Last question, please. You've launched new products on the Winter side, and you've discussed launching five products or more that are in attractive and growing segments that are working fairly well. Could you discuss the development of your market share, both in the Winter segment and in the All-Season segment, and whether you managed to reach similar margins in All-Season by in Winter or whether, like most of your peers, this is relatively dilutive to see the all-season taking share on the Winter segment? Thank you.
Thank you. As you can see, we are in a phase of recovering our market share. This trend we expect to continue thanks to the new product lines we already launched. Also, thanks to the new product lines we are going to launch in 2022. They are supporting obviously profitability and market share.
Thank you.
Thank you.
The next question is from Giulio Pescatore of Exane. Please go ahead.
Hi. Thanks for taking my question. The first one on ELECT tires. Are you willing to share some insight on the marginal profitability of an ELECT tire versus a normal premium tire? Is it just higher or maybe at the same level because despite the higher price you need to put in more content?
The average is between 10% and 15% higher because of what you were saying about the content of technology and the technology required for performance cars, electric.
Okay. Thanks for sharing that. I mean, what role are these ELECT tires playing in the market share gains? Because I know you mentioned it in your beginning remarks, but can you maybe elaborate on what role they are playing in the increase we're seeing quarter after quarter?
Yes. The electric cars, they have a different acceleration, obviously, because it's a continuous acceleration and an internal combustion engine car compared to the performance from zero to 100 of a non-electric car. We have a difference in acceleration from zero to 100 between 20% and 40%, which means a stress on tires that is totally different, and it's continuous. The second main point is that the new electric cars, they are average. Let's say they have a weight that is averaged between 20% and 30% higher because of the batteries compared to the traditional cars. We cannot produce tires, let's say with more material to sustain it.
We have to do the opposite because there is a need to, because of CO2 emission, there is a need to reduce the rolling resistance. Less material, more sophisticated materials, in order to perform in line with the requirement of the clients, which means the use of nanotechnology, et cetera. That are the main reasons. This is obviously more evident in premium cars where the performance is quite stressed. That is why there is more value, because there is more technology.
Okay, thanks. That's something that in your view, it's recognizable by the customer. The customer actually asks for ELECT tires. I mean, are customers aware? Is that a brand that is widely recognized?
It will be easy to recognize if they don't have it. Which means that if you don't have tires that are fitting properly the requirements and the performances of the car, your tires will last very little, and any performance will be affected. That's why we engrave in the sidewall Elect for the cars that are homologated with electric car makers of electric cars. This is to kind of warning. The performances are related to tires that are Elect. If you change tires that are Elect, so with the specific, let's say technologies I mentioned, then the customer cannot complain not to have the performances that the car maker are providing them. It's easy to be recognized.
Interesting. Thank you.
Thank you.
The next question is from Philipp Koenig of Goldman Sachs. Please go ahead.
Yeah, thanks for taking my question. My first question is again on price mix, which was obviously very strong in the quarter. Just if we look at the different segments, it seems a lot of it was driven by the Standard segment. Can you maybe just elaborate behind the mix? What was the major driver? Did you exit some smaller rim segments that were less profitable? My second question is also on the Standard segment. It seems like the share of the revenues in standard has gone up this year a little bit, again close to 30%. Could you just sort of clarify what is the level where you're comfortable with the standard share, is it around 30%, or are you planning to reduce the volumes further in the next couple of years? Thank you.
Mr. Casaluci.
Yes. Thank you for the question. As far as price mix is concerned, 10.9% performance of the third quarter, as I mentioned before, 40% is due to price and the 60% related to mix is mainly linked to product mix. Inside the product mix, we have the growth of the High Value and the reduction on the standard. There is also a first positive signal coming from the channel mix, because of the already mentioned shortage of the semiconductor that is affecting the original equipment channel and not the replacement. All in all, out of the 60%, you can consider roughly a 10% coming from the channel mix. The majority of the impact is on the product mix.
As far as the net sales growth, we are confident to keep on growing in market share in the High Value segment, which is the core of our business model and our major target. While, as we presented in the industrial plan, the volume of the standard is expected to reach a floor that is confirmed. You can consider the volume you see in the coming years of the standard as stabilized. This is what is balancing our capacity and is also where we need to stay in terms of commercial policies. Always focused on the Pirelli brand, no more second brand, and keeping profitability and focus on the most profitable segment inside the Standard. 16, 17 in, Winter tires, All-Season tires, no more 13 and 14 inches.
I think one additional information that could be useful is that we are still talking about a small market for electric until now, growing fast. To give you two numbers, last year we did have roughly 6% of this market. This year it's 10%. We are talking about original equipment because there is not yet a consistent mature replacement market. Meanwhile, we have overall 4% total market share in the global market. That is a way to understand why we are confident that this market share will grow for us and for the time being, obviously also because there are performing cars coming to the market where we have a larger market share.
The next question is from Edoardo Spina of HSBC. Please go ahead.
Good evening. I have two sets of questions. Let me start with the Standard segment. Can you remind us how much OE is, percentage-wise of the Standard segment at the moment? Secondly, after the growth in the first half, should we expect that the Standard segment will start to decline year-on-year from here onwards?
Mr. Casaluci.
Out of the total volume, if we consider the 2021 as a reference, out of the total volume, the Standard is no more than 30% and all concentrated in South America and Russia.
Sorry, in terms of OE.
Yes.
I want to ask about how much of the Standard is OE. 30% of Standard is OE.
Okay. Give me a couple of seconds. Is it 25% more or less?
Whether this is also-
Sorry, it's 20%, 20%. Bit higher than 20%.
Thank you. Can I ask you, sorry, if from here the growth in the Standard will come back to be negative for the foreseeable future?
It's decreasing, obviously. We are not. The standard original equipment is going down every year. We have changed the mix in the replacement market, where we have, let's say, canceled from our production the 14 in. We are going to cancel the 15 in. We have moved our capacity to Russia. In Russia we can produce 17 in in a very competitive way. The, let's say, the point in which we will land in with the standard will be in the range of 25 million. Considering that we are going over beyond 65 million, you understand the speed of our decrease.
We have been decreasing our volumes for several years at double-digit. Now we are reducing single-digit, high-single-digit every year, but with a profitability that, as Mr. Casaluci was mentioning before, is already now in the high teens, close to the teens, and next year will be over the 10%. That is for us a reversal of a situation where both the results and cash flow were affected in the last three years because of the strong reduction of the standard, the investment we made for the layoffs and the write-offs. Now the situation is totally changed.
It is cash productive, and we will not have any more restructuring costs that affect our cash flow. We will have a better cash flow coming from the profitability of the standard. Until last year, it was in the range of 4%-5%, now is close to 10% and next year will be double digits.
Very clear. Thank you very much. The last question is on the electric vehicles. Can I ask a clarification about slide 13? You mentioned 29%. I just wanted to ask if that means that 29% of Pirelli tires in Munich were EV, or did you have 29% of all the EV tires on display from different brands?
We had 29% of the fitting for the cars that were in Munich and these cars were the top cars electric cars. That was a sign of where we are. We already have 130, sorry, over 190 homologations in our portfolio in electric cars growing. We confirm what I said before about our market share targets on electric high-end tires.
Thank you very much. Sorry, the very, very final one is a follow-up from previous question from Giulio. You mentioned that if you put normal tire on an EV, the tire will wear out very fast. But what if you put an EV tire on a normal car? Are you going to create like a super tire that wears out very slowly, or is it just not gonna work?
We'll have a noise. You will have a different when you test tires, each car has its own proper fitting. Obviously, the structure of the electric cars is different, and you will have a handling different from the one you have for the purpose you have. It is a nice new market coming.
Thank you.
The next question is from Gianluca Bertuzzo of Intermonte SIM. Please go ahead.
Hi, good evening. Three questions from my side. First one on the 2021 guidance. Sorry to come back on it, but I understand your cautions on the OE market, given the shortage of semiconductor. As your numbers are, let's say, moved more by the replacement channel, can you help us understand the reason behind your what it seems a high level of caution? Is demand reacting negatively to price increase or what else? Second question is on 2022. Can you share with us your thoughts about market growth and profitability? Last question is on capital allocation. Given that you are de-leveraging now, what are your priorities? Are you thinking about maybe M&A or adding more capacities, or you prefer to return cash to shareholders? Thank you.
Thank you. I answer the last question and then I give the floor to Mr. Casaluci. Our target is to reach 2x net EBITDA next year. In our plan, we have an objective to 1.5 net EBITDA ratio. When we'll be there, it will be nice, and then we will have different options. Depending on the effective situation, we can maybe open new options both in M&A or in giving back to shareholders, increasing the dividends. We will see at that time. Mr. Casaluci.
Yes. Thank you, Mr. Tronchetti. As far as the net sales of the last quarter, first of all, there is a question of seasonality as always since the last quarter. The only prudence we have is related to the original equipment. Today, we forecast the market in the last quarter that is more or less negative for -23%, -24%, which is more or less the estimation of all the industry. This is due to the crisis of the semiconductor and also to a not favorable comparison versus last year. Most probably, we have a prudence in the net sales of the last quarter could be, but we do prefer to stay on the safe side considering the high level of volatility. No risk of not applying the price increase.
Price increases are going through the market, no risk on this side. As far as the estimation of the market for the next year is very difficult to have today a clear picture because there is still a high level of volatility. I would consider on the replacement channel roughly 2%-3% if I have to make an estimation today, while much closer to 10% on the original equipment.
If I can add something to what Mr. Casaluci was saying. Looking to the global market, because you wanted, I think, the global market and then our position. We see a positive trend in low- single-digit in 2022 for the entire market, +3%-4%, and with the 18 in and above being double-digit in the range of 12%. In original equipment, as I was saying before, we expect for the first half of 2022 still problems on semiconductor supply and the rebound in the second half. For 2022, we expect the original equipment to grow in a high- single-digit. In 2021, it's -1%, and we expect in the range of 8-9%.
We have a better performance on 18 in and above in the range of 17% versus 3% in 2021, driven by vehicle mix favoring more profitable models like the high-end, because we see them coming, we see the homologation we are making. A full recovery back to pre-COVID level only for the market as a whole, we see it in 2022 and 2023. In that situation, we see our segment, the one that is better performing. On replacement, we forecast a moderate growth, considering that between 2016 and 2019, the growth was only 1.6%. We expect a growth that is higher than this in 2022.
With stabilization in all regions and 18 in segment overperforming the total market growing around 4 x for all rims compared to standard. That is what we expect until now, obviously. The precise figures will be given in February when we have provided the final numbers on our 2021 results. This is, in few words, what we expect today.
Thank you very much. Very clear.
Thank you. They tell me there are no more questions. I want to thank all of you, concluding our today's program. I thank you for your attention, and obviously, I am wishing you a very good evening. Bye-bye, everybody.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.