Ladies and gentlemen, welcome to the Pirelli conference call in which Pirelli Top Management will present the company's first quarter 2025 results. A live webcast of the event and the presentation slides are available in the investor relations section of the Pirelli website. I remind you that the Q&A session will follow the presentation. Now, I would like to introduce Mr. Marco Tronchetti Provera. Please go ahead, sir.
Thank you. Thank you very much, and good evening, ladies and gentlemen. The results of the first quarter of 2025 confirm the solidity of our business model in a challenging external scenario. We closed the quarter with an organic growth of 4.7%. These results, achieved through a consistent commercial performance, are among the best in the industry. Continental AG is 3.9%, Michelin - 2.5%, Goodyear - 2.2%, which is expected at - 1.3%. An improvement in profitability, which is confirmed to be the highest in tier one. Continental AG is 13.4%, which is expected at 10.6%, Goodyear 4.6%, and the cash trend is in line with the usual business seasonality. We expect the overall scenario to remain uncertain in 2025 due to the persisting commercial tensions. At the macroeconomic level, the latest estimates forecast a slowdown in economic growth and a still high inflationary pressure.
In this context, the high-value market confirms its resilience. We've met single-digit growth forecast for 2025, while demand in the standard segment is expected to decline. Given the solid performance in the first quarter, we confirm 2025 targets. The tariff scenario remains uncertain in terms of duration and impact, as negotiations between the U.S. administration and its major commercial partners are still underway. The mitigation plan is already being implemented. In case the current tariffs are kept for the rest of the year, our mitigation plan will ensure the achievement of the adjusted EBIT and cash generation targets in the lower end of the range and therefore to reach the deleveraged target. Finally, an update on governance. The negotiation with the Sinochem group did not produce a solution to adjust the governance to fully comply with the U.S. regulations.
Our results confirm the solidity of the company that has grown and will keep on growing. The precision of our customers for the cyber tire hardware and software system shows that Pirelli's strategy and technological developments are going in the right direction. The launch of Pirelli P Zero fuel generation confirms the company's technological leadership. Finally, in China, the company has become the leader in the high-end electric segment. Therefore, we shall keep on doing whatever we can to safeguard the company's development and growth. There is not any more control of Pirelli. There is a historical course rule and the market. The company interests will prevail hopefully also with the support of the sign-off in group, in line with the bylaws principles of the shareholders' agreement. I now give the floor to Mr. Casaluci. Please.
Thank you. Thank you, Mr. Tronchetti, and good evening. Pirelli closed the first quarter of 2025 with an improvement of results in all metrics. Revenues at approximately EUR 1.8 billion, growing by 3.7%. 4.7% if we consider net of forex, thanks to an increased exposure to high value, now accounting for 81% of group sales, up 4 percentage points compared with the first quarter of 2024, and a mixed improvement within the high-value segment. Adjusted EBIT at approximately EUR 280 million, + 6.5% year over year, with a profitability of 15.9%, improving year on year thanks to internal levels contribution. Net income at EUR 127 million, with a 27% growth compared with the same period of 2024, which discounted higher non-monetary impacts related to the application of hyperinflation accounting. Net financial position stands at approximately -EUR 2.6 billion, with a debt reduction of +EUR 312 million compared with the end of March 2024.
In the first quarter of 2025, cash absorption before dividends amounted to EUR 697 million, in line, as Mr. Bocchio will discuss, with the first quarter of last year, despite higher investments and an inventory increase in the U.S. in view of the introduction of tariffs. Let's now talk about the operating performance. Slide five summarizes the results produced by the single programs. In the commercial program, we kept to our strategy of focusing on high value and selectivity on standards. To strengthen our position in high-value markets, on April 23rd, we signed an agreement with CTS, a tire service provider in Northern Europe. The contract provides for the sale of the KEB chain, with approximately 100 points of sale in Sweden, of which 60 fully owned, for around EUR 24 million.
Our partnership with CTS will allow Pirelli to expand its commercial presence to Northern Europe through a CTS-efficient distribution system and a wider market coverage, not only in Sweden but also in other Nordic markets. Pirelli will remain their main provider at least up to 2030. The agreement is in line with our distribution model, based on partnerships more flexible and less dilutive in terms of profitability than direct control over retail chains. The transaction is subject to various authorizations and is due to be finalized by July 25. As for the innovation program, we launched two new products for the car and two for the motor business. Pirelli technological leadership was confirmed by comparative tests conducted by some of the major specialist magazines. These tests ranked our car, the Cinturato C3 and Cinturato SF3, and motors, Diablo Supercorsa V4 ST, products at the top of their categories.
Regarding the Cyber Tire, we continue to collaborate with Premium and Prestige Orient over the joint development of control systems of new car models. We also cooperate with Movion, a company of the Autostrade per l'Italia group, for the monitoring of road surface. In the operations program, we achieved EUR 25 million efficiencies that more than cover the impact of inflation. Land saturation was equal to 91%, and the decarbonization plan for our factories has progressed with the electrification of the curing phase. Let's start with the commercial program on slide number six. In the first quarter of 2025, our performance in the car segment was in line with the market, although the single segment moved in opposite directions.
In car 18 in up, we gained market share in replacement in the major regions, benefiting from our effective pull-through strategy and product innovation, whereas we kept our selective approach to original equipment with an increasing focus on the higher-in sizes. Volumes are growing in 19 in up segments, now accounting for approximately 86% of the 18 in and up volumes. In the car below 17 in, we further reduced our exposure, market + 1%, Pirelli + 7%, especially in South America, where Pirelli revised its distribution strategy to focus on the more profitable channels. The innovation program continues, as illustrated in slide number seven, with a launch of four product lines, two, as I said, of which are for the car segment and two for motorcycles. These products are boosting the performance level.
For cars, we introduced the new Cinturato, a summer tire for premium vehicles in Europe, which recorded top performance in the tire reviews test due to its excellent grip on both dry and wet surfaces, and Scorpion XTM AT for all-terrain segment in the North American market. For motorcycles, we launched two products, both of them based on motorsports experience. Diablo Power Cruiser addressed to the custom touring segment with a sport-like approach, and Scorpion MX-32, mid-soft, originally used in motorsport competitions and now also available to racing enthusiasts. Finally, the efficiency program generated EUR 25 million in the first quarter, in line with expectations and project development timelines. In detail, the highest benefit comes from manufacturing through the implementation of automation projects in the factories, electrification of the curing phase, and reduction of energy consumption.
An additional contribution comes from the following projects: SG&A, where the rationalization of the supply chain and general cost is progressing, alongside the optimization of logistics organization, thanks to advancements of digitization in internal processes and employee upskilling. Finally, the product cost project will produce, as expected, greater benefits from the second quarter of the year, deriving from the adoption of innovative design programs like design modularity and virtualization that allowed us a 30% reduction of tire development time. I will give the floor to Mr. Bocchio.
Thank you, Mr. Casaluci, and good evening. Let's now review our performance compared with the first quarter of 2024. As already indicated, our sales amounted to approximately EUR 1.76 billion, with an organic growth of 4.7% due to a solid commercial performance. We recorded a positive trend in volumes, + 0.8%, reflecting the strengthening in the car 18 in and above, and the progressive reduction of exposure to 17 in and below, with the high value now accounting for 81% of our sales, thus plus four percentage points year over year. Our price mix was strongly improving, + 3.9%, mainly supported by the product and original mix, and marginally by price increase in the original equipment channel due to raw materials cost indexation closes. Negative, instead, the impact of forex, - 1%, although improving compared with the previous quarter. It was - 4.8% in Q4 2024.
This is attributable to the volatility of emerging market currencies against the euro, and just partially mitigated by the US dollar appreciation. We now move to the adjusted EBIT, which in the first quarter of 2025 amounted to EUR 280 million, growing by 6.5% over the same period of 2024. EBIT margin reached 15.9%, improving year on year by 40 basis points, thanks to the effectiveness of internal levels. More in detail, the positive contribution of EUR 42 million from the price mix more than offsets the cost increase of raw materials. It was -EUR 22 million, mainly due to natural rubber and oil derivatives. Starting from this quarter, the impact of raw materials in our reporting only takes into account the price variations of commodities and the relevant impact in our COGS. The exchange rate impact on raw materials is included in the forex item.
Efficiencies stood at EUR 25 million, fully covering the EUR 24 million inflation impact. Exchange rates had a slightly positive impact, -EUR 4 million, due to the US dollar appreciation and the devaluation of the Mexican peso. The latter is a relevant currency for our cost basis since Mexico is mainly a production source. Finally, volumes generated a positive contribution, -EUR 6 million, which curbed the impact of DNA, -EUR 8 million, and other costs, -EUR 5 million, mainly related to marketing and research and development. Let's now review the net income, amounting to EUR 127 million, higher than the EUR 100 million of the same period of 2024.
This trend reflects the EUR 17 million improvement of operating performance, whose dynamics I just described, the slight increase of EUR 4 million in non-recurring costs, the reduction of net financial charges by EUR 51 million, of which EUR 40 million are due to the lower non-monetary impact relating to hyperinflation accounting, and EUR 11 million to lower financial charges. Finally, the tax increase of EUR 37 million more than in the first quarter of 2024 is due to an unfavorable year-on-year comparison basis, since the value recorded last year included the benefits from the patent box and the impact of the positive settlement of tax litigations. Pirelli closed the first quarter of 2025 with a negative net financial position equal to approximately EUR 2.62 billion. The net cash flow before dividends of the first quarter was - EUR 697 million, in line with the business and working capital seasonality.
The net operating cash flow, - EUR 455 million, reflects the operating performance we have just discussed, the investment of EUR 60 million, mainly in high value, technology upgrade, and plant automation, increasing the right of use, mainly related to efficiency projects in Romanian warehouses, while the negative working capital trend, amounting to EUR 866 million, discounts the increase in inventory levels, mostly in North America, after the U.S. administration announced the introduction of tariffs, 22% the weight of inventories on revenues compared with the 21.7% in December 2024, and the usual seasonality of trade receivables, 14.6% the weight of revenues, and trade payables, 23.5% the weight of revenues. As of the 31st of March 2025, the group's gross debt amounted to approximately EUR 3.86 billion. Considering that financial assets amount to around EUR 1.2 billion, the net financial position is about EUR 2.6 billion.
The liquidity margin is equal to EUR 2.5 billion, of which EUR 1.5 billion in unwrong committed credit lines. Such margin covers debt maturities for approximately three point five years, that is, until fourth quarter 2028. The cost of debt over the last 12 months is 4.96%, decreasing slightly compared with the end of last year. This reduction is attributable to the lower interest rates in the eurozone on the one side, and on the other, the optimization of the debt mix due to a lower exposure to high-yield currencies. Finally, at the end of March, sustainable finance keeps on accounting for 70% of the group's gross debt, that is, 84.5% when we take into account the holding company's debt, in line with the announced target of 100% for the end of 2025. I will give the floor back to Mr. Casaluci.
Thank you. Thank you, Mr. Bocchio. Let's now switch to 2025 market outlook. Our expectations for an essentially flat car tire market, -1% to +1%, are confirmed. However, the possible economic slowdown could have a negative impact on consumer demand, especially in the second half of the year. More specifically, we expect a low single-digit decline in original equipment due to the prolonged weakness of car production both in Europe and North America, and a stable market or slight growth in the replacement channel. Anyhow, high value confirms as the most resilient segment, with a mid-single-digit growth expectation driven by replacement. In the car 17 in and below, demand is expected to record a low single-digit negative trend in both channels. In this scenario, Pirelli confirms its strategy of gaining market share in the car 18 in and above and decreasing its exposure to standard.
Let me give now an update on the U.S. tariff scenario and our mitigation plan. As it is known, the U.S. generates over 20% of the group's revenues. Our local plant in Georgia, highly automated, covers around 5% of the local demand. Our sales in the U.S. are supported by importing approximately 55% of demand from Mexico and approximately 40% from Brazil and Europe. The tariff scenario is constantly evolving, as shown by both the agreement reached in the recent days by the U.S. administration with the U.K. and the announcements of negotiations with other major trading partners. The tariffs we are currently exposed to are a 25% on car tires imported from Europe and Brazil from May the 3rd.
As car manufacturers have obtained duty refunds on imported parts, possible exemptions on our OE sales are in the process of being defined, while for the replacement channel, it will depend on the negotiations of individual states. No tariffs on imports from Mexico at the moment because all our products are USMCA compliant. Universal reciprocal tariffs on motorbike and bicycle tires imported from all countries with different rates according to the source. Based on the current tariff scenario, we revised our mitigation plan, which now includes the optimization of flows and the inventory increase in the U.S., already implemented in the first quarter, a revision of the commercial agreements currently in force in the U.S. market, and a crash program to cap costs at group level, in addition to the benefits from the already announced transformation program.
We are also monitoring other highly volatile external factors such as the exchange rate trend, especially the EUR/USD rate, the raw material trend, given the current reduction in the cost of natural rubber and oil derivatives, and the demand trend, as GDP and consumption are cooling down. Based on the results achieved in the first quarter, Pirelli confirmed the targets disclosed on February 26th and reiterated on April 28th. Revenues between approximately EUR 6.8 billion and EUR 7 billion, with volumes increasing between around 1% and 2%. Price mix improving by about 2%-3%, mainly driven by the product mix. Negative impact from forex between approximately -2.5% and -1.5%. Profitability is expected to increase year over year, with an adjusted EBIT margin of around 16%. Net cash generation before dividends is expected between about EUR 550 million and EUR 570 million. We confirm investments of approximately EUR 420 million, around 6% of revenues.
Finally, we confirm the deleveraged target at approximately one time the net debt to adjusted EBIT ratio, with a net financial position of around EUR 1.6 billion. As already mentioned, the tariff scenario is continuously evolving. Should the current tariffs stay in force until the end of the year, the mitigation plan already discussed will ensure the achievement of the adjusted EBIT and cash generation target at the low end of the guidance range, therefore reaching the deleveraged target. I will leave the floor to Mr. Tronchetti for the final remarks.
Thank you, Mr. Casaluci. The external scenario remains challenging. Commercial tensions are denting economic growth, possibly impacting consumer demand. To sail these stormy waters, we are relying on our leadership on high value, the effectiveness of our business model, and our quick responsiveness to external challenges. The objectives for 2025 are clear: consolidate our technological leadership, maintain a basic growth profitability in tier one, and achieve our deleveraged target. That is the end of our presentation, and I give the floor to all of you, and I thank you for your attention.
Thank you. We will now begin the question and answer session. As a reminder, to enter the queue for questions, please click on the Q&A icon on the left side of your screen and then press the raise your hand button. Please do not mute your microphone locally. If you are on the phone instead, please press star and one on your keypad. The first question is from Akshat Kacker, JPMorgan. Please go ahead.
Good evening. Thank you, Akshat from JPMorgan. I have three questions, please. The first one on governance and the shareholder structure. You mentioned that negotiations have not yielded a positive outcome. I just wanted to ask, what are the next steps on this front that minority shareholders should look out for? Also, I remember from October last year, Sinochem was found in violation of the Golden Power procedure. Is there an update on that, please? That is the first question. The second question is on tariffs and the mitigation plan. It is very encouraging to see you guide at the lower end of the guidance irrespective of the tariffs. Could I just ask for more details there, please?
Based on what we know today, what is the gross cost impact on the business, and what are the mitigation actions that you're looking at both in the near term and if you're looking for additional U.S. capacity in the medium term? That's the second question. The third question is just broadly over your pricing strategy across the globe, not just in North America. How are you thinking about pricing over and above raw material and other cost inflators in 2025, please? Thank you.
Thank you. Thank you very much. The governance of Pirelli is written and is clear, I think, to all of you. The Golden Power intervened in June 2023, and they restated the governance that was changed unilaterally by the Sinochem group with a change of management. Let's say the merger between Sinochem and China knew new managers, and they intervened in changing the rules of the governance that were set on the bylaws, on the precondition of the pact, which were in an easy way granting the leadership of the management of Pirelli long term, the culture of Pirelli, and the management was in the hands of the managers that were stated by Camfin. It was the initial in 2015, the initial governance.
His willingness to change coming from an outside world, from new leaders of Sinochem Group, made them in a position Campin only succeeded because at the time there was 46% of the shares in the hands of different state-owned Chinese companies. 9% was in the hands of Silk Road Fund and 37% in the hands of Sinochem Group. This merger created discontinuity. We found a new shareholder, bigger, and the shareholder had to appeal to the Golden Power because this change in governance had to be declared to the Golden Power. They declared it, and the Golden Power intervened, in fact, restating the same condition of the governance set at the beginning, in line with the bylaws and the pact. The Sinochem Group did not react to this decision. They stated they were aligning their strategy to the DPCM, the Golden Power new law.
In fact, we see lately an attitude that we do not really understand because the motivation, there is no motivation at the end of the day. Facts are that the board of Pirelli, considering the best interest of Pirelli and considering the consult opinion that gave to the board the responsibility to set the governance in terms of control, they stated clearly that was related to IFRS. The board, the majority of the board, voted for the change, and now we do not have control on Pirelli because of the decision of the board. Lately, there have been attitudes that are in the press release without any explanation against the transparency that we were providing for the market. We tried, and we are still trying, so we never stopped to do it, to find agreement. There are three main points to consider. There is no control.
There is a shareholder targeting 39.9%, having 36.4%, and there is the market and the Golden Power. On our strategy, we look to the results, and results are supporting our strategy. The Sinochem Group with the Golden Power, they have now, there will be the decision if they are in compliance or not with the provision of the Golden Power. She has no links, no, let's say, any exchange of information between the shareholder, Sinochem Group, and the board members. We have seen lately that the situation is a bit different, and there is already a procedure in the Golden Power that is analyzing if their action is agreed between the board members that are also, let's say, top managers of the Sinochem Group.
In this scenario, we expect the decision of Golden Power coming, and there is a second point that is obviously this proposal that is not known. So Pirelli asked to be transparent in order to discuss it. Unfortunately, the answer was negative. We took the evidence of this fact, and we described in our press release that was also with majority vote because of some reasons. At the end of the day, the company is doing well. The governance is okay. There is not any more control. We go forward with our strategy, and we are confident that in America, everything will be developed nicely and in accordance with the American laws. As it happens in 160 countries in the world because Pirelli is distributing in more than 160 countries its products, always aligning the governance to the rules of the market.
Now I leave the floor to Mr. Casaluci about the American market, how we are developing our position. Thank you.
Thank you. Thank you, Mr. Tronchetti. The mitigation plan was defined based on the current duties scenario. Just to summarize, it is 25% duties from Europe and Brazil on car tariffs, no tariffs from Mexico, and reciprocal tariffs on two-wheel imports. That is till now. Let's see what will happen in the future. If these would be confirmed, the application of these duties will generate a negative impact, roughly around EUR 60 million at the EBIT level. The mitigation plan we presented, that I will recap later on, will represent roughly a positive impact to compensate the EUR 60 million negative on duties of around EUR 30-EUR 35 million positive impact. That is the conclusion that in our estimation, with the actual scenario of duties, we will have a negative impact maximum around EUR 25-EUR 30 million at EBIT level.
That's the reason why we feel confident to assure in case this scenario will remain, the low level of the guidance, as worst scenario, of course. We are also confident that the situation will improve, and the mitigation plan on the duties will come also from the negotiations between Europe and the United States, as happened with the United Kingdom. The mitigation plan includes the optimization of flows and inventory increase in the United States, already implemented, this last one, but to maximize as much as possible the export from Mexico into the US, a revision of the commercial agreements currently in force in US markets that is not only price, it's a set of actions.
It's a review of the Incoterms, it's price, it's the opportunity to take a refund from the original equipment, and last but not least, a cash program on costs all around the countries, not only focusing on the U.S. This is a short-term exchange. Long-term, as we already announced, we plan a growing capacity, local capacity, and this will happen independently from the duties environment because it was already part of our long-term plan. Thank you. Thank you.
The next question is from Monica Bosio in Intesa Sanpaolo. Please go ahead. Ms. Bosio, we cannot hear you. Maybe your line is on mute. Ms. Bosio, could you please check your microphone, please? The next question is from Martin Harry Bernstein. Please go ahead.
Hi. Can you hear me okay?
Yes. Please go ahead.
Okay. Great. Yeah. A couple of questions on the tariffs and the mitigation. The first one, you are a very efficient company with a high utilization rate, a cost-saving program already in place. I'm interested where you can find the incremental savings, what is the target of those incremental plans, and how quickly will they be implemented? The second one on the tariffs as well, within the Section 232 legislation, as written, there is the stated intention to also tariff the non-U.S. content of USMCA imports once a process is established to do this. I just wondered, what proportion of the content of a Mexico-produced tire is non-U.S., and what's your expectation on when, if ever, that change may occur in the U.S. market, and also if that's going to be on top of your existing guidance? Thanks very much.
Thank you. Starting with the Section 232, as you know, the Mexican leadership is dealing with the American leadership, and there are continuous contacts. Right now, the production from Mexico goes on as it used to go with NAFTA first and USMCA afterwards. The content of American products being, let's say, part of a car, the tires, there is no request on our side to have content because, as everybody knows, we have inside natural rubber and materials that are not possible to be bought in America. We continue business as usual, and we believe that when we will be in a condition to define and start the investment in the U.S., part of the negotiation will be also not only for Mexico, but trying to have a reduction of duties coming from Europe and Brazil.
It's still a situation that is not defined, but it seems to me that it's going in the right direction and will be in full compliance with American laws. Please, Mr. Casaluci, for your requesting.
Yeah. Cost-cutting is a fresh cost-cutting plan. There is always flexibility to act on cost if we consider the full perimeter of the company at 360 degrees and having in front of us three quarters. We are addressing costs at 360 degrees. Of course, we will accelerate the manufacturing efficiencies, mainly in the programs with the shorter payback, mainly driven by energy consumption reduction that is due, for example, to the increase of the carbonization programs and the electrification programs. Above all, we are working on the SG&A at 360 degrees. We are confident that we will deliver these, and it will be part of our transformation program, the question of increasing the acceleration and the cost discipline.
Thank you.
The next question is from Martino De Ambroggi, Equita. Please go ahead.
Thank you. Good evening, everybody. The first is on CapEx. If you can remind us what is the CapEx plan without any U.S. tariff, and if you are planning any upgrade or just a reshuffle of the CapEx plan following the tariff introduction. Always on tariff, you mentioned during the speech that there is a possibility of tariff exemption for original equipment imports. I suppose it is 20%-25% of the total imports from Brazil and Europe. I do not know if there is a different mix for these imports. Last on Sinochem again, sorry, I clearly understand it is a very sensitive issue. Is it correct that the goal is to see Sinochem below 25% to be compliant with the U.S. first? I do not know if you can elaborate on what are the possible scenarios here on your view.
Thank you. Mr. Casaluci, can I answer?
Okay. Yes. I will answer on the first two questions. CapEx-wise, no, we maintain our CapEx target for 2025 that is confirmed being around EUR 420 million. There is still a relatively low level of CapEx dedicated to US because our plan to increase the production capacity will not have major impact in 2025. The duties on US will not affect our CapEx all in all. Just to remind that roughly 30% of our CapEx is stable, dedicated to baseload, maintenance, and so on, while the remaining 70% has been switched in the last two years mainly on activities of efficiency, technological upgrades, sustainability, HSE. Everything that will make our plants more efficient and more sustainable looking forward. Today, 60% of our CapEx are dedicated to these activities, while no more than 15% on production capacity growth.
The second demand is, yes, you're right, more or less 25% of what we import is related to the original equipment, and this is the volume where we are working with our partners in the car industry, the OEMs, to find the way to take advantage of the refund that has been committed by the U.S. administration. It is a negotiation, let me say, that has been started in the last days. We are in the middle of the process of setting the new conditions. Thank you.
Thank you, Mr. Casaluci. Regarding your question about the agreement or not with the Sinochem group, this is obviously an important question. What we know in our experience on legal terms on the Golden Power, the situation of an important shareholder not disclosing the reason why he's acting in the board or not in the best interest of Pirelli, leaving aside for a moment the shareholder while looking to the board. I think that one day soon will happen that the best interest of the company will prevail. Our projects are for the next month. We are dealing with the American authorities. We are dealing with Georgia to have the, let's say, the incentives that they used to provide. In my opinion, this situation will find a way because the best interest of the company will prevail.
It's also the value for the shareholders, which means that it's also the value for the Sinochem group. I think that we will find a reasonable way sooner or later, but the strategy of the company will not change, and we will go on the way we are going today. Thank you.
Thank you.
The next question is from Gianluca Bertuzzo at Intermonte. Please go ahead.
Hi. Good evening to everybody. Thank you for taking my question. First one is on tariffs. I was wondering about the response of competition. Did you see, in terms of commercial discipline, some attitudes like discounting, applying price increase? If so, to what extent these price increases are coming? Are they trying to fully cover the cost for tariffs or the price increases are less? Second question is on electric vehicle tires. There has been a lot going on on the OE market for a bit. Does all these changes due to regulation, specific situation of some player impacting the performance you expect from EV tires and your plans? Thank you.
In terms of commercial condition, the United States is really early to give you a clear trend of the market. We see different reactions. It is still very confused and under development. What we know is that we will review the commercial condition that, as I said before, is a set of activities, including the incoterms and the way of managing inventories and so on. It is early to give you a clear understanding on the market developments in the U.S. While on EV tires, we are fully confident that we will face an acceleration on the EV penetration. China, okay, we know is already in place. The first quarter of this year, we recorded roughly 50% of the new car registrations are electric vehicles already. And new electric vehicles concept or QRV or plug-in hybrid vehicles. Also, Europe is facing an acceleration.
What we saw in the first quarter is a growth year over year of around 40% on car registration on new EV or QRV or hybrid plug-in, reaching a weight on the total car registration in Europe that is close to 20%. We are confident that this will accelerate again. As far as tires are concerned, we see enormous opportunities because, as we explained more times, the EV requires tires with higher performance and higher technology in terms of noise control, in terms of rolling resistance, in terms of grip, in terms of load index. Here is where we see that the technological leadership is providing a competitive advantage. My view is absolutely positive on this area. Thank you so much.
Okay. I just want to follow up on the inventories. The increasing inventories you have in the U.S. to offset the tariff impact will allow you to cover second quarter demand or even the third quarter or fourth quarter? Just to understand the level of inventories increase, what kind of flexibility it provides you?
It goes without saying that April has been, but it's not in the numbers of the Q1, but March and April, I would say, have been good months in terms of both selling and sell out because a sort of pre-stocking was visible in the market. Most probably, May would be more a month of retuning on the stock level. All in all, I don't see nothing that is worrying about the inventories level in the U.S. It's a bit higher than the average of this period of year for the reason mentioned, but it's not worrying. It supported the good performance of the Q1, both in terms of volume and product mix.
While if you want an outlook out of the United State, sorry, for U.S., when we talk about inventories, this is true for both our own inventories that we transferred in our warehouses before the duties were in place and the inventories on our partner of distributions. Out of U.S., the stock is absolutely under control. China is at a normal level. Europe is a bit higher than the average of the season because the sell out in April was not so good, but in May, it's starting a very good sell out season. Winter is quite low, which is creating good expectations for the winter selling season.
Thank you very much.
The next question is from Stephen Benhamou from BNP Paribas. Please go ahead.
Yes. Good afternoon, everyone. I have one question regarding your price mix. Can you please give us a breakdown between the price and the mix in Q1? You are much higher than the full organics of +2% to +3%. Can you please elaborate on the reasons why you anticipate a lower price mix impact in the coming quarters? This is my first question. The second question is about the seasonality. Q2 and Q3 are historically your biggest quarters in terms of profitability. Do you anticipate margins to be above your three objectives of around 16%? Thank you.
Hi. Hello. Thank you for the question. I'll take this one. Price mix in Q1, as I said, it was a very sound 3.9%, positive 3.9%, mainly driven by the good mix performance. More specifically, looking at the mix, we had a very consistent product mix improvement, which was higher than two percentage points. Channel mix was roughly flat, and the positive regional mix at about 1%, a little bit stronger than expected, driven by the strong performance we had on the high value in North America and the weaker performance on the standard sales in South America. Price was slightly positive, but very slightly positive, and it was mainly linked with the indexation of the original equipment prices related to the ongoing situation of the commodities.
Now, for the remaining part of the year, for the next few quarters, we are expecting product mix, the price mix, to keep on being aligned with the full year guidance, to be one of the supports for the total value of the EBIT and the generation of the EBIT margin for the company. We expect to be more aligned in Q2, Q3, and Q4 with the expected full year guidance. The profitability that we are expecting for the next quarter is roughly aligned at about 16% for all of the quarters. We do not foresee major movement compared to what we achieved in quarter one. We will be in the ballpark of roughly 16%.
Sorry, if I may add, the first quarter is right when you said implicit of the following quarters, it looks a little bit below the first quarter because in the first quarter, on top of the product mix, well explained by Fabio, we have been supported by a positive region mix because of the good performance of US producers and because of the acceleration of the exit in standard in South America. That's the only difference, but the product mix will remain absolutely stable.
Very clear. Thank you.
The next question is from Ross MacDonald from Citi. Please go ahead.
Yes. Good evening. Hi there. It's Ross from Citi. Congrats on the results. I have three questions. I think two are follow-ups, so I'll start with those. Just on the pricing commentary, I mean, if I look at the Michelin net pricing, I think it's slightly higher potentially in Q1, and they're talking about EUDR-specific price inflation. Just be curious, when you talk about indexation within the net price benefit in Q1, is that it for the full year, or do you have some more sort of inflator that you can pass through potentially related to things like the EUDR that haven't been done just yet? The second follow-up was really on the inventory situation, just to help me understand exactly what you're seeing there. How should we think about the net working capital build in Q2?
I assume you've been building inventories in the U.S. right up until May the 2nd, let's say, and then you will begin to work those down into the dealer network from here. What does that mean for Q2 volume? Should we expect strong selling in the U.S. in Q2 as you work down the company inventory? The final question. Obviously, last time we spoke, you were talking around leaning on the Brazilian factories to potentially mitigate any tariffs, but the situation has changed. Given that you're losing some share in Brazil on the standard side in line with your strategy, where does that leave the Brazilian footprint in terms of capacity utilization, and how should we think about the utilization in Brazil from here? Thank you.
Thank you for your questions. I will answer to the first one on the indexation and the last one on the capacity, and then I will leave to Fabio to answer to the working capital expectations for the next quarter. The indexation that is affecting the positive performance on price will be mainly related to the original equipment and affecting positively the first half. We will have the cost impact and the price impact on the new raw material scenario starting from the second half. As Fabio said, all in all, the vast majority of our price mix performance in the first quarter and also in the remaining part of the year is related to product mix. This will not change significantly our price mix performance. Brazilian capacity today, we have opportunity to produce more.
When we mentioned on the optimization of the flows, it means that we are taking advantage of the Brazilian capacity to maximize high-value sales in South America and Mexico, creating more spare capacity in Mexico to support U.S. sales. That is a way to reduce, clearly only reduce partially, the impact on duties from Brazil that today are in place for the U.S. market. This is a tactical action to try to optimize the actual footprint. In Brazil, we will never ever lose the high-value market share. What we are losing, and this is driven by the strategy, is our market share in standard, mainly 13, 14, 15 inches where we are exiting from this segment because under strong attack of the trade down of Asian brands.
We want to stay out from this segment to protect profitability and taking advantage of the new capacity for the high-value market that is growing very fast in Brazil. Thank you.
Talking about, instead, the inventories, obviously, the inefficient working capital management has been for the past few years, and this even today, our priority number one in order to stabilize and to support our cash flow generation, and finally, our goal that is the leverage of the company. We decided to increase a little bit the stock during the end of quarter one. That's why the inventories overall arrived at about 22% of the last 12-month net sales. We are expecting now for the next few quarters to stabilize again to a more efficient level.
I am expecting during Q2 and then Q3 a reduction in the level of inventories compared to the top line and going back to what we consider to be a more efficient level of inventories.
Very clear. Can I maybe follow up very quickly just on the price mix feedback you gave there? If I look at the drop-through on price mix in Q1, it's about 63%. So just be curious, given the raw mass comment you made around the second half, what a fair estimate for price mix drop-through through the rest of the year would be given that comment?
Drop-through in quarter one has been about 64%, and we do not foresee major variation for the next few quarters. We are expecting to be 64-65% until the end of the year.
Very clear. Thank you.
The next question is from Thomas Besson, Kepler Cheuvreux. Please go ahead.
Thank you very much. I have three questions as well, please. First, I'd like you to come back on distribution. I think you've announced a disposal in Sweden. Can you mention the revenues of the disposal set in 2024 and confirm if it's effectively relative for your 2025 profits? And can you remind us how much of your distribution you still own in LATAM, the Nordics, or Russia? I think it's more partnerships in China or Europe. The first question on distribution. The second, I'd like to come back to Cyber Tyre, please. Can you give us rough ideas of Cyber Tyre revenues in 2024 or in Q1, Q2, Q5, please? And lastly, I'd like to come back, and apologies for that, I know it's sensitive, but it's a topic on which we get a lot of questions as well on your relationship with Sinochem.
Could you explain how you see the positive outcome you're looking for happening practically and be positive for both sides? Because otherwise, it's a bit tricky to envision. Confirm that what you would eventually lose if the current holding stays as it is is just an incentive from Georgia and mention the amount of that annual incentive, please. Thank you.
Thank you for your question. The development with Sinochem is, in a way, positive because there is no more control by Sinochem. Now we have the shareholders that are supporting Pirelli, LITAMFIN, obviously, and the market. There are also rules in the market whereby if you do not provide any motivation on your behavior against the interest of the company, there are consequences. We strongly believe that at the end of the day, they will align their interests with the interests of the company because the company will continue its strategy, and there is no reason not to continue. The technology, I remind you, is also protected by a law. We are in a position that you mentioned revenues on cyber. You know better than I know that technology is something that goes on and on and then delivers a lot after a few years.
Now we are providing already to some car makers our Cyber Tire that is a mix between software and hardware, and we have the agreement with Bosch. This is going on well, and we have also requests from Korean, Chinese, and American companies to introduce our technology for them. We are on the way. It is like to ask us in 1985 if the P Zero line would have been successful. It has been successful, and we are the fifth generation. I believe, and we do believe, and we have all defined that our technology, year after year, will be placed because it is related to safety, information, real-time information. We have millions of kilometers that have been made. We have information that digitalized our system. We are obviously confident that it is a winning technology. Going backward to other technologies.
With SENOCAN, at the end of the day, we'll be in line with the interests of Pirelli. I've never seen in my life shareholders voting against the interests of the company because it's like shooting in the feet. I mean, at the end of the day, they have to provide value for themselves. We are not scared. We fight. We have great support by shareholders. I think that we don't know why. The interesting part of it and cannot happen looking forward is that there is no reason to keep a position that is not in line with the growth of the company, the spreading of technology around. I'm really, it is counterproductive that the technology will be stopped. It's also protected by the Golden Power. I really don't see it. It's not good end for all that story. Please, Mr. Casaluci.
Yes. Thank you so much. Very quickly on all the other questions. DECIA has not been only a sale of the network. It's been an agreement with CTS, including the sale from our side to them of the networks for an amount of cash of EUR 24 million, as announced, and an agreement with the counterpart of a long-term supply agreement, not only in Sweden but in all Nordic markets because they have a wider network. Second, on Brazil, we have our own network. We control and is an equity, Camp Neos. And on top, we have also partnership with other retail networks and distributors. We are market leader in Brazil, and we are also in the phase to optimize the footprint of the Camp Neos network, but will remain our network, of course. The Cyber Tire sales that we don't disclose is in a development phase of technology.
Nevertheless, more than 100,000 tires minimum are already circulating, mainly United States sensorized and working, but we do not disclose the numbers now. We are still in a very early stage of the introduction of the technology. This will be disclosed in our next industrial plan with a long-term view on the penetration of this technology. Last, for the industrial investment, U.S., of course, we are looking for incentivation and it is usual to be possible in the United States. We are exploiting different states. Of course, Georgia is where we are, so it is our first choice. To solve the governance issues mentioned by Mr. Tronchetti is also part of this plan because we need, of course, we need a bit of flexibility, you can imagine, and effectiveness right now considering the U.S. regulations.
We are very confident that we will find the best solution for the future of our industrial presence in the United States. Thank you.
Thank you very much.
The next question is from Monica Bosio, Intesa Sanpaolo. Please go ahead.
Yes. Good evening. I hope you can hear me now. Most of my questions have been already answered, but I'm just wondering if you can indicate to us what has been the market share gain in the U.S. in the first quarter. I'm not asking the market share, but the market share gain in the first quarter and if you have a target by year-end. My second question is on the raw material impact, the expectation for the full year overall. Thank you.
Thank you. In terms of market share, the first quarter in the United States, in North America generally speaking, but specifically in the United States, has been quite positive. We are well satisfied of our performance. I can say around one point of gaining original equipment and a half a point of replacement, which we do consider a very good performance. We want to keep this performance for the full year, of course, possibly. We will do our best to do it. Raw material, I think, Fabio, you can.
Yeah. On the raw materials, actually, in the first quarter, we had a negative impact, and that was related mainly to natural rubber and butadiene, just partially compensated by the oil derivatives. Natural rubber is due to the fact that quarter one 2024, it was just above $1,500 per ton, and now it was just below, in this quarter, it was just below $2,000 per ton. And butadiene, it was last year at about $800, and now it is more than EUR 1,000 per ton. What we are expecting is still to have a negative impact from the raw material, from the commodities in quarter two because the trend in commodities is getting softer a little bit. For Q2, we still expect a negative impact, even higher negative than quarter one.
If the commodity will stay as we are experiencing them in these weeks, probably for the second half of the year, we may see a reduction in the negative impact in our result.
Okay. Thank you very much. Thank you.
The last question is from Edoardo Spina, HSBC. Please go ahead.
Good evening. I have one question. If we focus on the electric vehicle market, OE, especially the battery electric vehicle, can you give us a better idea about the market share that you have in OE you project for the next 12-24 months between the European car makers, the Chinese car makers, and maybe the American car makers? Just so I understand, given that very different rate of growth of these car makers sometimes. Thank you.
Yes. The market share, I always talk about high-value segment and premium segment. Also, the market share I mentioned before in the U.S. is related to the 18 in and above market. Back to your question, our market share average on the EV premium is one point five times our market share in the internal combustion engine. If our premium market share in VIC in original equipment stays around 20%, in EV, the pure EV is around 28% of market share and is quite similar if we consider Europe and China. This is helping us to de-risk the company also in favor of the fast-growing Chinese new premium EV players. In the U.S., it is very similar, but we only have a couple of players in the U.S., Tesla, Rivian, and Lucid, of course. That is more or less the target share we have. Thank you.
Okay. Thank you.
Gentlemen, Mr. Tronchetti Provera, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.
Thank you very much. Thank you to all of you for your interesting questions. Have a good evening. Bye-bye.
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