Ladies and gentlemen, welcome to Pirelli's conference call, in which Pirelli's top management will present the company's first half 2021 financial results. A live webcast of the event and the presentation slides are available in the investor relations section of the Pirelli website. Ladies and gentlemen, I remind you that the Q&A session will follow through the presentation. Now, I would like to introduce Mr. Marco Tronchetti Provera. Please go ahead.
Thank you. Good evening, ladies and gentlemen, and welcome to our conference call. The scenario that is taking shape highlights a faster recovery from the pandemic, both in the global economy and in the tire industry, where the High-Value demand is already exceeding 2019 levels. The 18- inch and above market in 2021 is now expected to grow at 15% year-on-year, 2 percentage points more than the initial expectation. Our industrial plan implementation continues in line with the expectation on all programs. Our High-Value share increased sensibly, in particular in car, 18- inch and above, almost 2 share points gained in first half. A further commitment in sustainability is witnessed by the production of the first ever tire made with natural rubber and rayon, certified and traced by an important international NGO.
The results of the second quarter show the strengthening of our performance with a 15.8% EBIT margin, close to the second quarter 2019 level, and a high cash flow generation, 13% of sales. The good results in second quarter and improvement of the external scenario have led us to upgrade our full year targets on revenues, profitability, and cash flow. The economic recovery is accelerating compared with the initial expectations, thanks to the massive government aids and the vaccination plan proceeding at a fast pace. The average yearly growth rate at global GDP is currently estimated to exceed 5% in 2021 and 2022, with the major economies on the way to a full recovery of pre-COVID levels, especially in the High-Value regions, U.S., Europe, and China.
The volatility of exchange rates is decreasing, and the trend has become clearer already in the results of the second quarter. In the tire industry, the expectation for High-Value demand has improved. The global High-Value market is expected to exceed 2019 levels by 5% for the full year. The view is different according to the channel. Due to the good sell-out demand and still limited inventories in the trade, the expectation for replacement demand are on the rise. Instead, in the original equipment channel, expectations are modest due to the uncertain trend of vehicle production caused by semiconductor shortage. And in this context, we keep on monitoring the market to deal with slowdowns and seize every opportunity in the replacement channel. The price scenario remains favorable. The announced price increases were applied to our sales network in all regions.
The levels of trade inventories are normal. These will facilitate the acceptance of the announced price increases, effective for Pirelli, for instance, in the United States from July 1st, or planned in other regions, given the inflationary scenario of raw materials and in transportation. What we aim is the offsetting raw material and exchange rate headwinds over the year through the price mix increase. First half results reflect the progressive implementation of our key programs in the industrial plan. At commercial level, we strengthen our leadership in High Value through a product portfolio with high technological content and production and logistics structures that allowed us to fully capture demand recovery.
In line with our objectives, we increased our exposure to 19- inch and above, that now account for 66% of High-Value volumes, + 3% year-on-year, and to new technologies, where the electric business experienced a volume growth equal to 9x of the first half of 2020, which means 4.7% of the 18- inch and above original equipment. In these six months, we consolidated our leadership at the high end of the market in China, with a + 2.5 percentage point increase of our share in 18- inch and above, both in the original equipment, with a share increase of 2.3%, thanks to our strong exposure to premium car makers and our partnership with the major local premium producers of electric vehicles.
Replacement channel share, + 3.4%, where we intercepted demand recovery through our distribution chain and a strong development on the online business, that today accounts for 27% of our volumes. As for innovation, in the first half, we completed around 170 technical homologations, exceeding 50% of our full year target, equal to about 330. They were concentrated in the 19- inch and above, approximately 85%, and Specialties, approximately 50%. We launched four product lines dedicated to replacement, two lines in Europe and two in North America. They expand our all-season offering and the range of tires for the CUV, SUV segment. In the Competitiveness Program, phase two of the efficiencies plan is proceeding, with gross benefits of EUR 83 million, EUR 50 million net of inflation.
In the first half, we achieved 60% of the full year target. In the operations program, we completed a reorganization of our plant in Burton, U.K., while the saturation level of the other facilities is improving. On the ESG front, we maintain our commitment to support people and environment. In cooperation with local authorities, where allowed, the initiatives in favor of vaccination of our employees and their families are proceeding, with Pirelli facilities made available as vaccination hubs. We intensified our activities for the development of new skills to support our business transformation. In R&D, we started at Politecnico Milano, a master degree course to specialize in tire technologies for the development of a new generation of researchers and engineers.
Lastly, we started the production of tires certified by the Forest Stewardship Council, FSC, and an international NGO promoting the responsible management of forests in the world. Their certification confirms the sourcing of materials, natural rubber and rayon, from plantations that preserve biological diversity and support local communities and workers. A solid performance was achieved in the first half of 2021, with strong contribution from the second quarter. The strong top line growth was supported by a marked increase in high value, coupled with a sound price mix. Profitability improved, driven by the strong commercial performance and efficiency gains. Net income rebounded, posting over EUR 32 million in the first half, 76% of which in the second quarter. The cash flow generation of over EUR 73 million, 13% of sales, was recorded in the second quarter, over a million more than in the same period of 2019.
Let's now review the outlook for 2021 . The expectation for the full year market growth are confirmed at 10%. What changed are the dynamics among segments and channels. The very good performance of 18- inch and above segment, already in the first half of the year, prompted us to revise upward our expectation for the market, +15% year-over-year, +2 points more than our initial guidance. The replacement channel drives the growth, with an expected increase of 18% against the initial estimate of +20%. More caution is advisable for the original equipment channel, due to the semiconductor shortage. The growth of the high-end in the market is expected at around 10%, approximately 5 percentage points less than the initial assumption. In this context, we confirm our ambition to outperform the High-Value market.
Hence, our target for volumes has been raised, as I will discuss in the next slide. Some performance recorded in the first half, the improved market outlook we just reviewed, and the more favorable pricing environment led us to revise upward our 2021 targets. The expectation for the full year are: revenues between approximately EUR 5 billion and EUR 5.1 billion, around EUR 300 million more than in the plan. With volume on the rise between 14% and 15%, the old guidance was between 11% and 13%+ . Driven by high value, with volumes at 18%-19%, the old target was +15%-17%. Price mix improving between 4.5% and 5%. In the plan, the target was between 2.5% and 3%, due to the already mentioned price increases and the more favorable channel and product mix.
Exchange rates are going to be negative, - 2.5%, - 2%. The guidance was - 3.5%. EBIT margin between approximately 15% and 15.5%. The previous target was above 14% and around 15%, with an improvement of the adjusted EBIT of around EUR 60 million, compared with implicit value of the planned target, due to the greater contribution from volumes and price mix. The latter will compensate for the increase of raw materials costs, mainly oil and derivatives. All the other components of the EBIT bridge are confirmed. Net cash flow generation before dividends is improving by between EUR 360 million and EUR 390 million, and the planned target was between EUR 300 million and EUR 340 million, supported by the operating performance and an efficient management of the working capital.
Investments are confirmed at approximately EUR 330 million. I now leave the floor to Mr. Casaluci, who will discuss the operating performance. Please, Mr. Casaluci.
Thank you, Mr. Tronchetti, and good evening, ladies and gentlemen. Let's now review market dynamics and Pirelli performance in the first half of 2021 . Car tire demand recorded a significant + 25% growth, particularly marked in the second quarter at 41% year-over-year. Pirelli outperformed the market by approximately 18 percentage points, gaining share in both channels. Total demand, however, remained lower than pre-COVID levels, - 6% versus first half of 2019 . In the high-end segment, the market grew - 35% year-over-year, and the demand has already exceeded 2019 levels by approximately + 7%. In line with our full year targets, Pirelli consolidated its leadership in the car 18- inch and above segment, with volumes growing by 51%. In the rim sizes 19- inch and above, the increase was even higher at 58%.
In original equipment, the already constant share increase of 2020 continued, with volumes of the 18- inch and above segment growing +60%, compared with 37% of the market. This is due to the consolidation of Pirelli leadership in China, in the high-end segment, and its growing exposure to the electric vehicle market. In the replacement channel, volumes of 18- inch and above went up 44%, compared with 34% of the market. Although inventories are still lower than pre-COVID levels, Pirelli intercepted the demand recovery through its distribution chain and the strong development of the online channel. Pirelli performance above the market in the Standard business, with volumes at +35%, 12 percentage point more than the market, discounts a favorable comparison basis with last year, and a share increase in South America, concentrated in the higher rim sizes.
The share increase in the high-end market I have just mentioned confirms that our commercial plan is being implemented correctly. The more technological part of our product offering keeps on expanding. Over 70% of our growth is concentrated in the 19- inch and above, and more than 60% in Specialties. The replacement volumes coming from OE homologations were fundamental for the growth of pull volumes, especially in Asia Pacific. The new lines exclusively dedicated to replacement allowed push volumes to perform very well, particularly in Europe and North America. In original equipment, Pirelli gained share uniformly in all regions. The company keeps focusing on fitments for electric vehicles that accounted for 10% of the growth. The innovation program proceeds at a fast pace, as presented in the industrial plan.
In the second quarter of 2021 , we launched our first High Load tire, a new technology dedicated to electric or hybrid cars and SUVs. This new tire is made to support 20% heavier loads than Standard tires, without affecting performance, with low rolling resistance and high levels of driving comfort. Lucid Air, the new luxury American electric sedan, is the first car to be fitted with the new P Zero High Load tires, developed together with the car maker and provided with Pirelli ELECT technology and Pirelli noise-canceling systems. The introduction of this new product contributed to grow our market share in the premium EV business as expected, bringing us closer to our objective of reaching a share in the EV business 1.5x that of the traditional car market by 2025 .
We expect that our share in the EV business will exceed that of traditionally powered cars already next year. The ability to combine technologies and processes to develop cutting-edge tires for the electric High-Value segment is certainly going to be a competitive advantage. After we launched two products for the European market, one all-season and one summer in the first quarter, in May, we expanded our offering in North America with introduction of Scorpion All Season Plus 3, a new touring all-season tire for crossovers, SUVs, and pickups. This new product is, in fact, part of the Pirelli Plus line, developed to meet the needs of North American drivers. With a new tread pattern, compound, and construction, Scorpion All Season Plus 3 was developed to offer extra mileage with 60,000 miles treadwear warranty, placing it among the best-in-class in its category.
The use of the 3D Sipe Technology, together with innovative materials, allows this new tire to deliver smooth wear, improved snow traction, excellent wet performance, and a comfortable ride with reduced noise in the cabin. Finally, as a witness of the strong attention Pirelli pays to sustainability, I would like to mention that we have recently launched the first ever tire line certified by the Forest Stewardship Council. These products were designed for the new BMW plug-in hybrid X5, and contain FSC certified natural rubber and rayon. They are a significant milestone towards an increasingly sustainable tire production. The FSC certification guarantees full traceability of raw materials all along the supply chain, with plantations managed so as to preserve biological diversity and benefit local communities and workers, while ensuring economic sustainability.
Besides contributing to the environment-friendly philosophy of hybrid engines, this P Zero tire was developed by Pirelli according to the Perfect Fit strategy, and ensures a low rolling resistance, A class of the European label, with the resulting fuel savings and low noise. The Competitiveness Program is progressing according to our plan, with expected gross efficiencies for the full year of EUR 155 million, or net EUR 80 million, approximately 2.1% of the baseline. During the first half of 2021, the gross benefits of the Competitiveness Program amounted to EUR 83 million or EUR 50 million net of inflation, equal to around 60% of the overall target for the year, with a bulk achieved in the second quarter.
Getting into the detail of the single projects, in product cost, which is worth around 40% of the first half gross benefits, we continued to implement the new approach to modular design and the search of, for a better efficiency in the purchase of materials. In manufacturing, which accounts for approximately 50% of the first half efficiencies, we progressed in our flexibility increase, digitization, and sustainability effort. The reorganization of our U.K. plant in Burton was completed in the second quarter. Consistent with the rebound of volumes and the saturation levels reached in our plants, manufacturing has already reached 80% of its full year target in the first half of the year. In SG&A, we achieved further efficiencies by redesigning the distribution network and with warehousing optimization. Lastly, in organization, we continued digitalizing our processes and upskilling our people.
Thank you for your attention, and I give the floor to Mr. Bocchio.
Thank you, Mr. Casaluci, and good evening, ladies and gentlemen. Pirelli closed the first half of 2021 with revenues of around EUR 2.6 billion, up 41.2%. More in detail, revenues grew by 749 million, with a negative impact of exchange rate of EUR - 74 million , -4.1%, due to the depreciation of the United States dollar and the major currencies of the emerging countries against the euro. Excluding exchange rates, the organic growth of revenues in the first six months accounted for +45.3%. Let's review the single commercial components. Volumes grew by 42.3%, driven by High Value, +46.3%, that climbed back to pre-COVID levels, both in Car and in Moto business.
Price mix improved by 3%, supported by price increases in the Replacement Channel, both for High Value and Standard, and improved product mix with a strong High Value growth, especially in the higher rim sizes and Specialties. In the second quarter, the price mix grew significantly, +4%, due to price increases. The already mentioned product mix improvement offset a negative channel mix, due to the rebound of sales in original equipment after the lows of the second quarter of 2020, and the negative region mix, which discounts the comparison with last year, when China was the first country to get out of the COVID crisis. Let's now review the profitability trend. The adjusted EBIT amounted to EUR 377 million in the first half, with a margin of 14.7%.
The strong contribution of internal levers, volumes, price mix, efficiencies, more than compensated for the external scenario headwinds, raw materials, inflations, exchange rates. More in detail, the improved profitability of the first half reflects: the strong contribution of volumes, EUR +350 million; the improvement in price mix, EUR +47 million, which offset the impact of raw materials, EUR -39 million; and exchange rates, EUR -13 million. The implementation of the competitiveness plan, with net efficiencies amounting to EUR 50 million, which more than compensated for the reversal impact of the COVID plan of minus EUR 10 million, and higher depreciation and amortizations, EUR -6 million. Lastly, the trend of the other costs. This item includes three cost clusters.
The first one is made up of R&D, sponsoring activities, and marketing, which in the first half recorded an increase of EUR 32 million, EUR 27 million in the first quarter, and EUR 5 million in the second quarter. The second cluster includes the provisions for short and long-term management incentives, with an impact of EUR -23 million in the first half. In 2020, due to the COVID emergency, management incentive plans were canceled. The third cluster comprises the impact of inventories, royalties, and other costs. In the first half, this cluster produced a positive contribution of EUR 21 million, plus EUR 42 million in the second quarter. It reflects the normalization of cost seasonality compared with 2020, but also the positive impact of inventory reconstitution. The overall impact of the three clusters on the year is confirmed to be around EUR -30 million.
Just a couple of comments on the profitability trend in the second quarter of 2021, that recorded an adjusted EBIT margin of 15.8%, close to 2019 levels, which was 16.5% in second quarter of 2019. The improvement of adjusted EBIT to EUR 9 million compared to EUR -74 million in Q2 2020, is to be attributed mostly to the strong contribution of commercial variables, and namely, volumes, EUR +219 million, and price mix EUR +31 million, net efficiencies EUR +36 million, around 44% of the full year target, and the already mentioned dynamics of the other costs, EUR +24 million. Let's now move to the net income dynamics. Net income showed a strong improvement in 2021, about EUR +213 million year- over- year.
The trend discounts the already mentioned improvement in the operating performance, variation of adjusted EBIT EUR +311 million. Restructuring and non-recurring costs slightly increasing from the first half of 2020. Results from equity participation was positive by EUR 2 million, with a EUR +7 million euro improvement year- over- year, related mainly to the results of our JVs in China and in Indonesia. Net financial charges were basically flat at EUR 72 million euro, as higher costs for commissions related to the early reimbursement of part of the major credit line were compensated for by lower exposure to high-yield currencies and lower financial charges in Argentina. The EUR 80 million increase in tax charges was mainly related to the greater operating results, while the tax rate remained basically stable at 26%.
First-half adjusted net income, meaning excluding non-recurring items and other adjustments, is positive for EUR 224 million. Looking at the cash flow, we closed the first half with a net cash flow before dividends equal to EUR -481 million, with a strong improvement versus the same period of both 2020 and 2019. The improvement against 2020 was equal to EUR 277 million, and mostly underpinned by the already mentioned better operating performance and a lower absorption of working capital, the latter mainly in connection with debts that benefit from business recovery with higher investment than in 2020. The EUR 160 million improvement against 2019 is mainly related to working capital management, resulting from a better management of receivables, with improvement in collections and the trend of payables just described.
In line with the seasonality of the business, the second quarter showed a net cash flow before dividends amounting to EUR 173 million, 13% of the revenues, up EUR 100 million against the second quarter in 2019 due to the dynamics already mentioned. Gross debt at the end of June 2021 stood at approximately EUR 5 billion, EUR 1 billion less than at the end of December 2020, thanks to early repayment of financial debts. The liquidity margin amounted to approximately EUR 1.5 billion, and allows the usual coverage of debt maturities for at least two years, until June 2023.
The cost of debt in the last 12 months was 2.27%, a touch higher than in full year 2020, due to the temporary increase of the leverage resulting from COVID effects, only partially offset by efficiencies at the level of local debt. For the full year, we expect the cost of debt to be equal to 2.6%. It was 1.94% in 2020, in line with the plan assumption, due to the already measured dynamics and the increase in local interest rates, namely in Brazil. Net financial charges are projected to be around dynamics of hyperinflation in Argentina and commercial hedging. Thanks for your attention, and I give the floor back to Mr. Tronchetti.
Thank you, Mr. Bocchio, and now we can open the Q&A session.
Thank you, sir. We will now begin the question and answer session, and please use the receiver when asking questions. The first question is from Gabriel Adler of Citi.
Hi, Gabriel Adler, Citigroup. Thank you for taking my questions. My first one is on input costs, and do you anticipate weaker pricing when this happens? Inflation for raw materials for the full year, and if raw material price increases pass through in the coming months? And then my final question is on M&A. We've seen some consolidation in the tire market this year already. Do you think Pirelli would benefit as part of a bigger group, be that with another tire manufacturer or maybe another auto supplier focused on the premium segment? I just really want to get an understanding here of whether M&A is a topic of interest to the Pirelli executive board currently.
M&A, we don't see opportunity around. We are always open to look around, but we don't have anything related to M&A. And now I leave the floor to Mr. Casaluci.
Thank you, Mr. Tronchetti. As far as North America is concerned, we see that today in, among the high value regions, is the region with the highest rebound in the demand. The stock level on the trade is still below the normal level we consider and below the pre-COVID scenario. So we do expect another third quarter with a strong increase in the replacement demand. And most probably we will go towards a stabilization within end of the year, as far as replacement is concerned. In the original equipment, North America is affected as Europe by the shortage of the semiconductor, and as a consequence, we are facing some cancellation in the call off of the car makers. But all in all, is under control.
Also, because the car makers are protecting more the high end of their product portfolio, and being Pirelli overexposed in the high end of the car makers, is less affected than others in this period. Concerning price increase, of course, we have announced and implemented the price increase all around the regions. And we have, for example, back to North America, announced a price increase up to 6% in July. Another price increase in Europe has been announced for August, with an increase of roughly 3 percentage points. And the same has been announced for effective April and May in China of around 2%. Thank you.
Mr. Bocchio, on raw materials, please.
Yeah, thank you for the question. Actually, you saw in the presentation that, for the first half of 2021, we already recorded a negative impact from raw material compared to last year, for about EUR 39 million , comprising EUR 10 million in commodities and EUR 29 million in FX, in Forex. For the second half, we are expecting a much higher headwind, because we see costs rising, month after month. The expectation for the full year is a headwind that is weighing, around 3% of our full year revenues. Another important point to say is that actually we foresee, for the full, for the second part of the year, that, that price mix will be able to fully compensate this expected negative impact from the raw materials, jointly with an additional, small negative impact from the Forex.
Great, thank you very much.
The next question is from Monica Bosio of Intesa Sanpaolo. Please go ahead, madam.
Yes, good evening, and thanks for taking my question. Pirelli's pricing power and prices increases in the high value segment is evident. I'm just wondering if you can comment on the pricing scenario for Standard tires, and if you can give us an indication of the profitability of this segment. I remember that in the first quarter, it was in the region 7.8%, in line with your assumption. Just an update on this, or if you see some pressure due to raw material. And the second is on the working capital going forward. I'm just wondering if you do expect some impact on the working capital from the supply chain shortages. And that's it for the time being. Thank you very much.
First of all, on working capital, no, we do not expect any effect, but I leave the floor to Mr. Casaluci for what concern the raw material prices.
Yes. Thank you, Mr. Tronchetti. The question related to Standard. Well, the price increase are, has been transferred to Standard without major issues because of two reasons. In the High Value regions, we are following our exit strategy, so we maintain the point of the price increase, managing eventually trade-off between price increase and volume, always protecting the price increase and supporting the exit strategy. While in the Standard regions, where the inflation is running higher, like South America or Turkey, we are able to transfer the price increase supported by both effect raw material and local inflation. So no major issues in the price increase on Standard. As far as the profitability of Standard is concerned, you are right.
We confirm that we are in the direction of the low double digit, which is our target within 2022, and today we confirm a high single digit level of profitability on Standard. Thank you.
Yeah, sorry, just a follow-up regarding the price mix effect for the second half. Should we expect a higher impact of mix in the last part of the year? Am I wrong?
Yes, the price performance is expected to improve in the second half compared to the first half, because of two reasons: First, we continue to implement price increase into the replacement. Before, I mentioned a couple of cases that will be implemented within July and August. And secondly, even more important, the cost matrix in the original equipment channel will start to be effective from second half on. So all in all, the price performance of the second half is expected to be better than the first half.
Okay. Thank you. Thank you.
The next question is from Martino De Ambroggi of Equita. Please go ahead, sir.
Thank you. Good evening, everybody. The first is just a quick confirmation on the price mix drop-through being roughly 100%, does it mean it's 100% price, while the mix between, among channel, regions, products is basically zero?
No, no, no, no. The price is 160% is the drop-through of the rest. Mix, 70%. Average, 60%.
Okay. Okay, the second question is on the net working capital, because in your slide, talking about the trade receivables, you specify general improvement in collection. Is it just a matter of a better market environment, or there is a structural change in the terms of collection, or maybe higher factoring? And maybe if you can provide the amount of factoring. Thank you.
I can confirm-
Yeah ...
Yeah, I can confirm you that it is that this better collection are related to the better environment that we are experiencing. So both in Europe and in North America, we see that the payment inflow is getting much better, obviously, than 2020, and even better than 2019 due to the environment. So we are not opening a new operation, higher operation of factory compared to previous times.
No change in terms collection and basically no jump in factoring?
With the previous period, and we foresee the same trend similar to the past for the second part of the year.
Okay. My last question is on Camfin, because it is going to round up its stake 4% now, probably another 3% or more going forward. So how should we interpret such a move?
Sorry. We made this move as it has been explicated in our press release. We maintain the same governance inside Camfin. We enlarge the shareholder structure with Class B Shares . We have a different category, so no change in governance, and we are strengthening the role that continues to be kept by Camfin, as I think we did in the last 30 years, so we continue to remain a core shareholder within Pirelli.
If I may just, my personal view, I personally believe this may be interpreted as a preliminary step before a deal in order to avoid dilution. I clearly understood your answer to the previous question, but I just share my view. I don't know if you are totally against such a view.
Sorry, there is no. I was having a translation in Italian, that's why I'm answering in Italian. Sorry about it. But so, we do not envisage any, let's say, extraordinary transaction, as I mentioned at the beginning of this call, and so, it's not a dilution, it's just a strengthening of our position.
Okay. Thank you.
Thank you.
The next question is from Thomas Besson of Kepler Cheuvreux. Please go ahead, sir.
Thank you very much. This is Adam. I only have one financial question. I'd like to come back to the three elements of the other costs that you project for the year to be at EUR -30 million. I'd like to know if you're prepared to give us an idea of where each of the three lines is gonna be to get to EUR -30 million, and also at which level we should expect the other costs in 2022? That's my first question. The second question is on CapEx. You maintain the CapEx at a relatively low level compared with historic levels in 2021 in the plan, so EUR 330 million.
With the acceleration in volumes we see in 2021 , which is great, should we expect CapEx to accelerate to some extent in 2022 , 2023 versus the initial plan? Or could you give us an idea of where to put our CapEx assumptions for next year? And I have a last question, please. You report a PPA since a few years now. Is it possible for us to remind you how long your P&L earnings are gonna be penalized by PPA? What is the date? What is the year when that stops, please? Thank you.
Thank you. So for the other cost, Mr. Bocchio.
Yeah, over the full year, as previously mentioned, the overall cost for growth and other are expected to amount to about EUR -30 million. Approximately half of the value that we recorded, if you remember, in the first quarter. More specifically, looking at the three clusters, the R&D, marketing, and sponsoring costs are expected to be approximately at EUR 30 million. That means with the residual value in the next quarters. The provision for management incentives are expected to amount for the full year to around EUR 35 million. Obviously, in 2020, this item had a very minor or nil impact because of the cancellation of the incentive plan for the short term, for the long term.
For the other cost instead, we foresee a positive impact full year of a process for the normalization of the cost, the seasonality, offsetting the negativity of the first quarter, and the normalization and decrease of the stock compared to 2020, with a positive accounting impact of about EUR 40 million. Obviously, the increase in stock is in line with the expected increase of our sales at the end of the year, the beginning of the following year. For the same value in 2022, obviously, we will work on it on the second part of the year, and we will give a full visibility as soon as we will have, internally, a better view on this cost.
Going to CapEx, we confirm what we had in our plan, where we had flexibility on volume, so covering all the needs, there are no changes compared to what we had in our plan. On PPA, started five years ago, so we have another 15 years that we started including 2017 , and so we have 15 years in front of us.
Thank you very much.
Thank you.
The next question is from Christoph Laskawi of Deutsche Bank. Please go ahead.
Hi, good evening. Thank you for taking my question. The first one will be on the bridge for Q2. The efficiencies went up quite a bit versus Q1, almost 2x . Could you just comment on what was driving that in a bit more detailed way? What kind of measures led to that? Then the second question will be on the working capital that you've shown in the Q2 free cash flow. Do you expect that to slightly reverse in the second half, or should we expect fairly stable levels in case there's no disruption on the volume side? And lastly, could you comment on the inventories that you have also across the regions? Are you selling essentially everything that you produce?
Or, could you, by now, establish quite healthy inventory levels so that you are prepared in case demand swings back in the OE side as well? Thank you.
Mr. Casaluci, on efficiencies and stock, and then Mr. Bocchio.
Yes, thank you. So as far as inventories is concerned, as I said before, in the trade, the inventories of China are back to normal. In Europe, still a bit below the level of pre-COVID, while in North America, the level of the stock in the trade is far away from the pre-COVID environment, so still opportunities to restock. As far as our inventories is concerned, we have the level of efficiencies and inventory that we consider optimal to support the service level and the rebound of the demand in replacement. So we don't see material changes looking forward in the second half.
As far as Competitiveness Program is concerned, the biggest contribution in the second quarter compared to the first quarter is coming from manufacturing, and is mainly related to the rebound of the production and the overall saturation. And as I mentioned during in my presentation, the program related to the digitization of our plants and the measure efficiencies also coming from the finalize the program of the restructuring in our plant in Burton, United Kingdom. Thank you.
One comment on the cash flow. So we expect to achieve the higher part of the range we gave today to the market. Mr. Bocchio, please.
Yeah, I would like to add just a quick comment about the cash flow. We foresee to maintain the seasonality of the cash flow as per previous years. So in the first quarter, you know that in our business, we have a cash absorption, even if this year has been better than previous years. Second quarter, a good, very good cash generation, this year with EUR 173 million only in the second quarter 2021. We foresee a trend similar to previous year for quarter three and quarter four. So in quarter three, still a quarter of cash generation, and we are expecting to keep the trend to be better than 2020 and better than 2019.
Then the fourth quarter, as usual, with a very strong cash generation overall. As Mr. Tronchetti, we think that we will be able to stay in the higher part of our range.
Thank you.
The next question is from Gianluca Bertuzzo of Intermonte SIM. Please go ahead, sir.
Hi, good evening, everybody, and thank you for taking my question. I have a couple of question. I noticed in your presentation, you unveiled a new product for North America, dedicated to the SUV pickup segment of the market. I was wondering, what is your presence in the pickup segment at the moment? Are you playing in this segment, or is it a segment in which you are under exposed at the moment? Second question is on the level of competition. Given that volumes are still below 2019 levels, and, if I'm not wrong, in 2019, the industry was in an overcapacity situation.
I was wondering, what are the drivers behind this positive pricing environment, supply chain challenges that reduce the presence of imported products, tariffs, inventories, or what else? Thank you.
Before giving the floor to Mr. Casaluci, I want to underline that our strategy in terms of competitiveness is based on leveraging on technology and Specialties. That's why we are leading the Prestige market. That's why we are getting a larger step by step a larger market share in the high-end electric. So and Specialties, there is no overcapacity in Specialties, because Specialties are products on demand, where we offer a broad portfolio that includes noise-cancelling systems inside, run flat, electric. Now we introduce products with specific qualities on environment, lightweight for high weight products.
That is something where we have our own strategy, and 60% of our sales in the High Value are now based in Specialties, where there is no overcapacity, because as I mentioned, it's like an on-demand offer we make, and a custom-made offer we make. Mr. Casaluci.
Thank you. Back to North America. For Pirelli, North America, United States represent most probably one of the biggest of the biggest opportunity we have, because we are still small in a big market, fast growing. And so we will continue investing in new products, reducing the life cycle of our products, and renewing the range. You correctly mentioned the Scorpion All Season Plus 3 for crossover SUVs and pickups. We also entered in important pickups of North American producers, like the Ram 1500 or the Ford F-150. We are addressing this segment that, for us, is where historically we were not as we would like to be, and so we started a new enlargement of customer base and product portfolio for the U.S. Thank you.
The next question is from Philipp Koenig of Goldman Sachs. Please go ahead.
Yeah, thank you for taking my questions. My first question is also on the bridge on the savings from COVID last year. If you could just clarify if there are any further reversals that are yet to expected in the second half of the year, because you obviously booked a few savings also in the second half last year. And my second question is on capacity. You mentioned in your presentation that capacity is running already back at 90%, and you also just mentioned that obviously, one of your main growth avenues could be the North American market. Now, at the moment, obviously, as we know, you only have one plant in the U.S. and a further one in Mexico.
Just wondering what your capacity strategy is, and if there's any potential for you to expand into further capacity in the region? Thank you.
One, first answer, and then about Mexico, and then Mr. Casaluci will provide all the other information. Well, we continue to grow in Mexico, is a very efficient factory. So, the investment in Mexico are part of our plan. The growth we see, looking forward is Mexico and China, the investments we are making and in Romania. Mr. Casaluci.
Yes, we will support our growth in North America, as Mr. Tronchetti said, with investment in Mexico, where part of the investment that Mr. Tronchetti mentioned before, for 2022, will be addressed to our Silao plant in Mexico, and we will support the growth of North America also with production from Brazil. So more or less, 1/3 of our growth will be supported by North American factories, Mexico and U.S., in Rome, Georgia. 1/3 from South America, and 1/3 is coming from import, mainly of Prestige, high-end tires from Europe.
Mr. Bocchio, on other costs.
Yeah, on the COVID cost. Actually, as you saw in the bridge, in the first half, we already registered EUR -10 million out of the foreseen EUR -30 million in 2021 COVID action reversal impact. In particular, EUR -55 million were related to discretionary costs linked to activity canceled in 2020, in order to counterbalance the impact of the pandemic. And the positive of EUR 45 million benefits coming from higher saturations of our plants, in particular during second quarter. On the full year basis, we confirm net COVID impact, net COVID actions equal to around EUR -30 million, a substantial revert back of the 2020 COVID positive net impact of EUR +32 million.
In particular, around EUR -80 million out of the 2021 EUR 110 million gross cost saving will revert back as 2021 cost. In particular, almost all the benefits gained in manufacturing and product cost, together with about 50% of the SG&A, and the EUR +50 million will be accounted as volume rebound, considering the production recovery and full or not contributing anymore. Hence, overall, the net COVID action will equal for the full year at about EUR -30 million.
Mr. Tronchetti Provera, there are no more questions registered at this time, sir. Would you like to make some closing remarks?
So, thank you, ladies and gentlemen. This will conclude today's program. Thank you for your attendance. Have a good evening.
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