Thank you. Good evening, ladies and gentlemen, and welcome to our conference call. In a very volatile environment in the third quarter, we were able to strengthen our position on the High Value, largely outperforming the global market by 3 percentage points in both Original Equipment and Replacement. This was particularly true in China, where we record an outstanding performance, +33% year-on-year on Car 18 inches and above, versus +21% of the market. Protect profitability through mix improvement and net savings, coming back in the third quarter to an almost 17% EBIT margin. Enforce our cash profile, further reducing inventories. Our cost reduction plan is progressing in line with expectations, pursuing a flexible cost structure and limiting the effect of the production slowdown and fall in demand. Our commitment to cash generation is confirmed despite the challenging external scenario.
Uncertainties on demand following the introduction of new mobility restriction in Europe, forex devaluation, all these are creating a very volatile environment. As we are near to the end of 2020, I want to highlight how we were learning from this unprecedented period of extreme uncertainty, unprecedented for the severity of the health crisis, the magnitude of the economic downturn, the duration of the crisis, the rapid pace with which causes generate effects. Not only have we taken early and indeed successful countermeasures, but in these months, we are adapting our whole working model to a new era of uncertainty. In particular, by staying very close to our customers, we are monitoring early warning signals, which we review with the whole global management team every week, and where we decide the countermeasures.
Our medium- and short-term planning is now integrated and supported by an enterprise-wide digital platform, where we can simulate actions and update our plans and targets, maintaining overall coherence. More generally, I'm very reassured by the fact that one of Mr. Papadimitriou's key mission as co-CEO is exactly to accelerate our pace, capitalizing on Pirelli's many strengths, and with novel eyes, simplify and accelerate our processes so as to capture the many opportunities in the resilient high-value market. This change of pace will be visible in our new plan. Mr. Papadimitriou will give some thoughts on the new businesses, business plan, while Mr. Casaluci will elaborate on Pirelli's 9-month results and market outlook, and Mrs. Leone will discuss our financial results. Cost reduction plan is progressing in line with our expectations.
The combined gross benefits of the competitiveness program and COVID action for the full year are confirmed at about EUR 280 million, approximately 6% of the 2019 cost base, or EUR 140 million net of inflation and slowdown. During the first 9 months of 2020, consistent with our forecast, gross benefit from the two plans amounted to 71% of full year target. Net of inflation and slowdown, efficiencies were equal to around EUR 84 million, since slowdown was almost entirely recorded during first half. For the fourth quarter, we expect approximately EUR 80 million of gross efficiencies, with major contribution from SG&A, product range optimization, logistic efficiencies, and footprint rationalization . Net of inflation and slowdown, benefits are expected to amount to about EUR 60 million.
Moving to 2020 targets, we have updated the outlook for the full year, taking into account the change of the external scenario. Mr. Casaluci will provide you more details on. To sum it up, on the one hand, we see demand improving, mainly driven by better Original Equipment in APAC and North America, while maintaining a cautious view for Europe, given the recently introduced restrictive measures to cope with the COVID-19 emergency. On the other hand, we are expecting a more volatile product environment following the appreciation of the euro against all major currencies in the second half of 2020. We now forecast revenues around EUR 4.2 billion, and adjusted EBIT margin between approximately 11.5% and 12%, implying an absolute adjusted EBIT close to EUR 500 million. The midpoint of the range, about EUR 35 million less compared to the August targets.
Current indications take into account more negative external headwinds, Forex and its impact on raw materials, and the increase of the other costs, partly non-cash. Net cash flow confirmed at around EUR 190 million, in case the EU fine will become due by December 2010, 2020, or around EUR 220 million, should this payment be delayed. The change in the profitability guidance is not impacting the net cash flow targets, thanks to a better working capital management, benefiting from a larger reduction of stocks than originally expected. A net debt of about EUR 3.3 billion is also confirmed. Now I leave the floor to Mr. Papadimitriou. Mr. Papadimitriou, please?
... and business administration. Over the past almost 30 years, I have split my professional efforts between the global pharmaceutical industry and the advanced industrial machinery and services business, living between the United States and various European countries. For the last 10 years, I served as the CEO of Coesia, a global leader in packaging machinery and industrial solutions, where I focused on a strategy of profitable growth, organic, and through mergers and acquisitions. Key themes in that journey were innovation through engineering and digital capabilities, service excellence, a global industrial footprint, and a resilient international organization. It was a rewarding, resilient, and enriching experience in which I had to compete within a rapidly changing industry. I will bring the best of that experience to Pirelli.
Roughly three months into the job, I have already had the opportunity to appreciate the depth of Pirelli's management team, the clarity of its high-value strategy, and the progress made towards an integrated business model designed to support Pirelli's continued success. Similarly, Pirelli's premium brand and technology leadership are constant sources of inspiration and assets we are going to build on for the future. For today, I would simply like to make three general observations from my first weeks of exposure to the business. Pirelli's unique high-value strategy, presented during the February 2020 strategic plan, builds on the company's strengths and is clearly the right way forward. There is room for refining and enriching it, progressively accelerating its impact on our business, and the way to implementation is clear.
The market discontinuity caused by the COVID-19 epidemic brought out a solid response by Pirelli's management, the results of which are already showing in the second half of 2020 and prove the resilience of the management team and the business. Beyond COVID-19, an even broader set of discontinuities will offer new opportunities for us: electric vehicles, connectivity, change in mobility preferences, sustainability, to mention only a few. Our plan going forward will take stock of these discontinuities and will be based on profitable and sustainable growth. We will have the chance to further discuss Pirelli's strategic outlook during the upcoming presentation of the 2021, 2023/2025 strategic plan in March of 2021. The Pirelli management team and I will be spending significant effort in preparing this plan in the coming months under the guidance of our CEO, Mr. Tronchetti.
Of course, we will remain vigilant and resilient to possible external volatility in the near future as we gradually come back to a more stable business outlook. And now, I would like to turn over to Andrea Casaluci for the review of the market and of Pirelli's performance. Thank you.
Thank you, Mr. Papadimitriou, and good evening, ladies and gentlemen. Let me comment to the third quarter market dynamics and Pirelli performance. Third quarter tire demand still is negative territory at -6% overall, but significantly improved compared with the previous quarter level, -35%. Original equipment, partial recovery, the -4%, has been driven by an improved demand, particularly in the premium segment. Replacement demand, -7%, was also recovering, but still negatively impacted by the slow economic recovery in Standard regions. The High Value trend, Car 18 inches and above, showed again the segment resilience versus the Standard. High Value growth, +2%, while demand for Standard product fell by 8%. In the Car 18 inches and above, Pirelli outperformed the market in the third quarter, +5% versus a market +2% in both channels.
In the Original Equipment , our performance has been driven by Asia Pacific, where the high exposure to the premium segment in China pulled us ahead of the market. In North America, we are benefiting from the widening of the customer base from the second half 2019, with the supply of relevant projects for the market. In the Replacement channel, +6% versus market +3%, we gained the share lost at the beginning of the year due to the destocking of our trade partners, completely in Europe in April and in the third quarter in North America. In the third quarter, we outperformed the market in China through a higher presence in both the online channel and Car dealers. In Europe, we enhanced our performance, leveraging on the product portfolio extension in the summer and all-season fast-growing segments.
In South America, in the third quarter, we gained share in the Replacement channel of the Standard segment, taking advantage of lower imports in the area, while continuing to reduce the exposure to the less profitable products. On the back of the third quarter market trend, we have updated the scenario for the remaining part of the year, taking into account a better trend in the Original Equipment in Asia Pacific and North America, while keeping a conservative stance for Europe. We are now assuming a global Car demand down 17% for the full year, two percentage points better than our previous expectations, and a -5% in the fourth quarter. High Value is confirming its resilience.
In more detail, in Europe, where the main concerns are the effects of scattered mobility restrictions on tire demand, we are assuming a double-digit drop in both Original Equipment and Replacement demand, almost 10%. Asia Pacific, instead, pushed by the positive momentum of China, is expected to continue to outpace the global market. This is more evident in the High Value, where a positive trend is expected in both the Replacement channel and in the Original Equipment . In North America, we expect a positive Original Equipment , although, also thanks to the weak relative comparisons with 2019, while Replacement is expected to keep third quarter momentum, even in a volatile market environment with very heterogeneous situations in stock levels and supply chains, and a still rather high number of coronavirus cases.
In Standard regions, Latin America, Russia, Middle East, and Africa, a gradual recovery is expected, yet the slow real economy upturn will limit the tire market expansion, which is still expected to decline a double-digit. Let me give you now an update on the efficiencies and cost-cutting programs. On product cost, where we achieved 75% of the full year target, we are streamlining the entire product range toward a value-based portfolio, working on tire structure simplification, weight reduction, and material portfolio decomplexity, and exploiting virtual design process, reducing need for physical prototypes. On manufacturing, we reached about 80% of the EUR 60 million full year target. In this stream, we continue to rationalize our footprint, mainly in Latin America, and exploit benefits from lowered waste, increased flexibility, and plant digitalization.
We focus on quick efficiencies from factory flows optimization and strict control over fixed and variable costs. On SG&A, in the nine months, we registered almost 60% of the full year target, since we expect a major contribution from belt-tightening of G&A and marketing and procurement renegotiations during the last quarter of the year. Finally, we confirm our efforts toward a lean organization that will bring us a full year cost saving of around EUR 50 million, out of which 75% already saved in the first nine months. In terms of activities, we are leveraging on footprint rationalization in Latin America, development of our existing shared service centers in Latin America and Europe, process reengineering, also thanks to digital transformation and forthcoming introduction of structural remote working. We are fully on track in the deployment of our key projects.
On the commercial side, the stock reduction, also aimed at safeguarding our customers' financial position, did not affect the service level that we kept as best-in-class in both Europe and North America. We increased our focus on the online business in China, also through partnerships such as the new partnership with JD.com and the already in place with Tuhu and Alibaba Group. Pirelli is now the top tier one premium brand in 18 inches and above segment in the e-commerce channel, which represents roughly 20% of our Replacement sales. The launch of the new CRM tools completed in the pilot country, Italy, and is preparing to other European countries, where it will be enabled increased, increasing retail coverage and effectiveness in demand fulfillment rates.
On technology-based innovation, leadership in electric vehicle tire technology led to the homologation of one third of new Original Equipment projects to be fully devoted to electric vehicle platforms. Thanks to both consolidated partnership with traditional Pirelli customers and electric vehicles only producers in North America and China. Widening North America presence as we started to supply new, for example, F-150 iconic model. Extension in winter and all-season portfolio, leading to the widest coverage in the industry in the winter High Value segment, and enlarging our coverage in the fast-growing market of the all-season. Let's finally move to the operational drivers of our guidance. Based on the market scenario already described, we now forecast for the group a volume decline, Car plus Moto, between -17% and -18%.
-18 and -20 was the range of the previous indication, with High Value volumes recording a -11% from the previous -14%, and Standard tires at -25% from the previous -26%. Car New Premium volumes, 18 inches and above, are expected to be down 10%, -13%, the previous indication. price mix is now forecasted to be approximately +1.5%, approximately +2% the previous target, reflecting a more positive trend in the Original Equipment during the second semester, in line with Car production recovery, and a more cautious view on Europe, especially in the Replacement channel, following the recent restrictive measures. A 5% decline on Forex is expected, -4% previous target, following the appreciation of the euro versus the major currencies in the second half of this year.
As a consequence, revenues are now expected to be between EUR 4.18 billion and EUR 4.23 billion. Previous target, between EUR 4.15 billion and EUR 4.25 billion. On profitability, we now expect Adjusted EBIT margin between approximately 11.5% and approximately 12%, based on the different external scenario, with a worsening of Forex also impacting the cost of raw materials, currently expected to be -EUR 15 million versus -EUR 10 million. The increase of other costs from -EUR 70 million to -EUR 90 million, partially of non-monetary nature and connected to the significant finished product stock reduction in the third quarter to lower earnings from Prometeon and higher sponsorship expenses. As already pointed out by Mr. Tronchetti, our cash flow generation target is confirmed, thanks to a better working capital management. I now leave the floor to Ms.
Leone for the review of the financial results. Thank you.
Thank you, Mr. Casaluci, and good evening, ladies and gentlemen. Let's now review Pirelli 9 months results in detail. Our top line performance was impacted by a tough external scenario, with the global demand falling -20.5% Car target market in the first 9 months, and high Forex volatility due to emerging market currencies. The above headwinds were partially countered by price mix improvement, driven by our exposure to a high-value segment. Sales improved in the third quarter with a small drop of sales, -1.5% year-over-year, net of Forex. A rebound was recorded in the high-value segment, volume +3.9%, more pronounced in the Car, 18 inches and above, +5.3% year-over-year, while Pirelli largely outperformed the global market by 3 percentage points in both OE and Replacement.
This is particularly true for China, where we enjoyed an outstanding growth and consolidating our position in the most prominent market for High Value. We continue to reduce our exposure to Standard, with volumes -12%, now accounting for about 45% of total Car volume, without neglecting the best opportunities, as we did in Latin America, to achieve a higher plant saturation and decrease the stock level. price mix improved by +2.3%, a touch lower than in the second quarter, due to a more balanced trend between Replacement, Original Equipment . Indeed, the channel mix was, which was positive in the second quarter, became neutral in the third. Product and regional mix were the major contributors.
The price component was marginally down, in line with previous quarter, due to a slight trimming in the less technology intensive segment and to raw material index clauses for OE. Forex devaluation was more pronounced in the third quarter, -6%, -4.7% in second quarter, when, in addition to emerging market and currency volatility, the euro appreciated against all the other major currencies. In the third quarter, we posted a stronger profitability than in the first half, with an adjusted margin close to 17%, again, among the best in the tire industry. This was a result of a robust delivery of our net savings, competitiveness versus inflation, and cost reductions versus slowdown, recording +EUR 51 million, or about 60% of the nine months progression.
This was also possible due to the limited impact of slowdown, EUR 8 million in the third quarter versus EUR 70 million in the first half, and the positive price mix equal to +EUR 14 million.
These internal levers limited the effect of the following headwinds: volume drop equal to -EUR 22 million, the volatility of Forex, -EUR 18 million, also in part raw materials, -EUR 5 million, as the main plants or countries where the group's production is located, for instance, Latin America, Romania, and Russia, depreciated against the euro, and increase of other costs, -EUR 43 million in the quarter, which were higher than expected, due to non-cash items equal to -EUR 15 million, mainly related to the accounting impact of the strong reduction of finished product stocks for the period, -EUR 14 million with -1.1 million Car pieces. And cash items related to additional costs, such as lower earnings from Prometeon, equal to -EUR 5 million, transformation costs and sponsorships, like soccer team Inter.
Moving to cash flow, at the end of September, our net debt stands at about EUR 4.3 billion, almost flat versus the end of June. The third quarter net cash flow was positive for EUR 12 million and in line with the same period of the previous year, thanks to an EBITDA, basically, at the third quarter, twenty nineteen level, a lower CapEx versus previous year, however, aligned to the full-year target, a cash out on net working capital, reflecting the decrease of inventories now go to a more normal level, 18.8% on sales in nine months of 2020, from 21.1% in the first half of 2020.
The inventories reduction partially offset the increase of trade receivables, 22% of sales in nine months versus 14% in the first half, due to the strong improvement of the business in the third quarter. In line with the usual seasonality of the working capital, trade receivables are to be collected in the fourth quarter. Lower interests and taxes paid are basically offsetting the cash out for restructuring and the other expenses. We confirm our net cash flow target of approximately EUR 190 million, in case of payment of the European antitrust fine before the year- end, and EUR 220 million in case of payment is due in 2021.
The adjustment of EUR 35 million of the full-year guidance profitability is not affecting the cash flow target, since part of the additional cost, EUR 4 million, impacting the Adjusted EBIT, are non-monetary and relating to the accounting of the inventories reduction and credit impairment. The remaining EUR 31 million are covered by a better working capital management, mainly coming from inventories reduction in products, raw material, semi-finished products. Finally, the ten million euros of additional CapEx are not impacting, since its cash out is due in the first quarter 2021. Let me close my remarks with our current capital structure situation. As of September 2020, our gross debt stands at EUR 5.8 billion, a reduction during the quarter, also thanks to the repayment of EUR 200 million of floating rate notes, which came due in September.
Net financial position lands at EUR 4.3 billion, while liquidity margin remains sound at EUR 1.85 billion, covering debt maturities through the first half of 2023, when full borrower extension options on our main bank financing are considered. Last 12 months, cost of debt reduces by 0.84 percentage points to 1.99%, thanks to our deleverage, which positively impacted the margins of our committed bank lines, reduced exposure to high-yield currencies, general trend of interest rates in countries where the group has its production facilities. Finally, let me remind you that during the first half of the year, we have managed our financial covenants and gained appropriate flexibility until year-end 2021, so that we can now face the outbreak of the second wave from the most comfortable position. Now, I leave the floor back to Mr.
Tronchetti, and thank you.
Thank you. So this ends our presentation, and now we may open the Q&A session.
We will now begin the question and answer session. Please press star and one for questions. The first question comes from Monica Bosio of Intesa Sanpaolo. Please go ahead, madam.
Good evening, everyone, and thanks for taking my questions. The first one is on the price mix. I know that, maybe it's too early to talk about 2021, but I was wondering, what is your feeling on the price mix for the 2021? And if we can imagine, a price mix, more in line with, with your traditional level, let's say 2%-2.5% on the back of a better balancing between Original Equipment and aftermarket. And, my second question, is on the dealer stock inventories. How do you see the dealer stock inventories so far, also on the back of a likely weak winter tire season? And, very last question is on the EV platforms.
Could you please elaborate a little bit more on Pirelli's penetration on the electric vehicles, both in Original Equipment , and maybe if you can, on the aftermarket, and what do you expect going forward? Thank you very much.
Grazie, Allei. Thank you, thank you. So, Mr. Casaluci will elaborate on the different question about price mix, and the trend for 2021, what we expect from 2021. I just want to make a comment on electric vehicles. So we see it becoming an opportunity. This year, one-third, approximately, of our new homologations are coming from electric vehicle. We expect in coming years, from half, close to 50% of our new homologation. This year, we will have more than 300 homologation, so it means that 100 will come from electric, all 18 inches and above, and they are specialty. So, this is the feeling of what is happening and where is the Pirelli position.
Our position will be in line with the position we have today in prestige and in the high end of the premium. So we see this as a great opportunity. Please, Mr. Casaluci.
Thank you, Mr. Tronchetti. As you correctly said, it's too early to have a clear understanding of the price mix for 2021. What we can say is that, coming out from this volatile environment, that is something we cannot predict when will happen, but we do expect a more stabilized region and channel mix versus what happened in the last quarters. While we do expect to maintain our product mix performance, which is, as always, overperforming the industry, what is interesting to analyze for the time being is the price environment.
As we mentioned, there is price stability in the industry, and there is a low level of inventory that is supporting some thoughts, positive thoughts concerning the price environment, for the beginning of 2021 as well. So all in all, I don't expect the same performance as we saw in the last years, where we reduced the Standard much higher than what we did, or we, we will do in the coming future, but we target to overperform the industry.
Just a follow-up before the dealer stock inventory question. I can imagine that the increased penetration into electric vehicles might further support the price mix, given that electric vehicles are mainly related so far to premium cars. Is it correct?
Yes, I kindly ask to repeat the first part of the question, please.
Yes, it was just a follow-up on the price mix, on the back also of the penetration into electric vehicle platforms. Electric vehicle platforms are usually so far for premium cars, and they should carry a higher mix. So, I was wondering if this could be a driver also for 2021 for the price mix, or maybe it's a more long-term driver?
Yes, this is more a long-term perspective. The electric vehicle market is still too small to affect the price, the price mix, environment for 2021. But looking forward, you are right, electric vehicle needs requires a high level of technology, and as a consequence, we do expect to have a better price protection in this segment. I can answer to the question related to the stock inventories in the trade, as I mentioned before, all in all, in all the regions, we record a quite low level of inventories as far as summer and all season tires is concerned. While for winter, is too early to have a conclusion because, the winter season in Europe is still affected by the warm temperature, and above all, by the restriction in mobility.
The stock is still high, and it is too early to have a clear picture on what will happen at the end of the season.
Thank you.
Okay. Thank you, thank you. Thank you.
The next question is from Martino De Ambrogi of Equita. Please go ahead, sir.
Thank you. Good evening, everybody. The first is still on, on price mix. Your comments were clear, but there is also the growing prices of raw material, that sooner or later will lead higher prices in a very disciplined market, like the tire one. So when do you expect the first moves, the first action in order to cover the rebound of raw mat?
If I may, there are already signs, let's say, in the industry that not only there is a price discipline, but there are signs of price increase. So we expect in the coming weeks and months that something positive can happen in the market.
Okay, the second is just two quick questions. One, on cost savings, could you remind us how much is temporary and how much is permanent of all your cost saving actions?
Mr. Casaluci .
Yes, the picture that we have presented in our presentation is showing you on a full year basis a saving of EUR 140 million net of inflation, which is absolutely confirmed for 2020. As mentioned by Mr. Tronchetti, Ms. Leone, we already delivered EUR 84 million out of 140 in the first nine months, and we are confident to confirm the full target for 2020. Again, we are in the full phase of preparing our new industrial plan, and it's too early to tell you the amount of this cost that will be confirmed and as structural for the next year. The environment changed a lot.
There are a lot of discontinuities, and at the same time, a lot of opportunity and things we learned during this difficult 2020, and we will reflect all these activities and jobs in our new industrial plan. Thank you.
Okay, last question will be net debt. Just to, if you could elaborate a bit more on net working capital trend, which is probably also the risk, which could be affected by the more prudent, more cautious view that you have on the upper market in Europe. And if you could remind us what is the underlying factor and assumption in your guidance?
Mrs. Leone.
Working capital. Yeah. Yeah, good day, Martino. I can give you a flavor of the working capital for the end of the year. We expect that the operating working capital will reach 4% of sales at the end of the year, versus the 3% of the last year. We have three different components if you want to have more color. Inventories at the end of 2020 is forecasted by around EUR 200 million less than the previous year, so we should reach more or less 21% on the sales. Trade receivables are expected to reach 15% on sales by the end of the year, thanks to the cashing of the third quarter sales.
The trade payables will follow the usual seasonality of the business, so will increase in the last quarter of the year, and should reach weight on sales by around 32% by the year end.
22 is the payables? Sorry.
The payables-
Yes.
For what regards the trade payables, should reach 32%, by the end of 2020, versus 30 last year, as a consequence of the general business recovery and stock increase.
Okay. Okay, and factoring underlying?
So for what regards the factoring on trade receivable, by the end of nine months to 2020, we stood at the Standard level versus last year due to the business downturn. By the end of 2020, we should be just a bit lower than previous year, mainly due to business downturn.
Okay, thank you.
The next question comes from Henning Cosman of HSBC. Please go ahead.
Yes. Hi, good afternoon. Thank you for taking my question. The first one is on volume, please. I appreciate this out for the market.
I'm sorry, sir, could you please speak closer to the microphone? We can't hear you.
Is that better? Can you hear me now?
Yes, sir.
Hello?
Yes, sir, we hear you now. Thank you.
Okay. So the first question is on volume, please. Appreciating that you've outperformed the market, I'm under the impression you have outperformed a little bit less than your European competitors, maybe especially in Europe and the U.S., where you may be not able to take advantage of these potential market share gains as much because you were still conscious of the recent destocking that you've done with your dealers. And then in that same context, also, when we look at pricing or price mix, are you satisfied with the pricing that you have achieved, considering also the currency effect that you may have wanted to offset and the opportunities you may have wanted to capture? So that's the first question. The second question is on the SG&A in, Mr.
Casaluci's part of the presentation. I believe you said in the fourth quarter, you're still looking to renegotiate some agreements, and, the savings that you're envisaging for the full year are conditional to the success of these renegotiations. So if you could just please repeat what amount we're talking about and how confident you are to achieve that? And then finally, you, you're talking about the preliminary industrial plan, so I'm wondering if it's premature to give us a bit of a direction with respect to free cash flow. Your last industrial plan was obviously indicating EUR 500 million and EUR 600 million free cash flow, respectively, for 2021 and 2022.
If it's not at all too premature to give us a bit of direction on that, do you see anything materially changed, why that would be a lot lower than you saw it at the time? Thank you very much.
Thank you. Before leaving the floor to Mr. Casaluci, I just answer to the third question, related to the industrial plan. You're right, it's very early to say. It really will depend on the speed of recovery we are going to face in 2021, 2022. So, any number could be given today has to be confirmed by what is in reality happening. So we are confident that the basis and the trend of our plan will be confirmed. We can enhance some, let's say, part of the plan, and obviously the cash flow is a priority. We are able, I think, this year to deliver a consistent result in such a difficult year.
We rationalize our stocks, we made a deep analysis, and we introduced new actions in order to have a better control of it. And so structurally, I think we'll be a sound beginning of 2021. Then, as soon as we have numbers, we will provide you, but these numbers are obviously linked to the evolution of the market. Mr. Casaluci.
Thank you, Mr. Tronchetti. As far as volume and price mix performance is concerned, you correctly said we gained market share in the third quarter, overperforming the market, both in the Original Equipment and the Replacement. While in the first half, was not the case for the Replacement, or at least was the case in China and the Asia Pacific, but was not in Europe and North America, where we decided to reduce our stock level in the distribution network. So now we are again on track, we are gaining market share. We do project to gain market share in the fourth quarter, and this will be one of the key target of the next industrial plan. Price performance, we are never satisfied, of course.
We know we can do better always, but considering that, the price mix performance has been the best performance in the industry, together with only one other tier one player, I think that we can consider the third quarter performance in line with the expectation and with our target. SG&A, so I repeat the numbers, our target in terms of cost competitiveness and COVID actions, cost reduction amounts for EUR 280 million gross. That comes to EUR 140 million net of inflation and slowdown. As far as SG&A is concerned, the target comes at EUR 110 million gross out of the 280.
60% of this target has been already reached and delivered in the first nine months, and we are confident to reach the remaining part of the target in the last quarter. Negotiation with the suppliers is part of the normal activities during the end of the year, where we have a clear picture, or once we will have the clear picture of the volume for the coming year and coming years, we will be in the position to renegotiate the majority of the contracts with our suppliers, and this is what we will do. Of course, if we will not reach the full target with these activities, we will continue in belt-tightening of all the costs, and we will find other sources to do. But today, we can confirm we are fully on target with our objective. Thank you.
Thank you very much, everybody.
One last comment on cash flow looking forward. So, we reduced drastically this year investments, but we have consistently invested in the last few years in capacity, and also thanks to the efficiency effect coming from the digitalization at all level of the company, we don't need any additional investment, if not, to go back to normal, average EUR 300 million investment. So, that's why we are confident that the cash flow in the coming years, being a priority, regardless of what is going to happen in the market, will be sound in the condition the company and the market will be in, in the coming years. Thank you.
Understood. Thank you very much.
The next question is from Gabriel Adler of Citi. Please go ahead.
Hi, Gabriel Adler at Citi. Thanks for taking my questions. I have two questions, please. My first is on the other costs. You've increased the outlook for other costs from EUR 70 million to EUR 90 million, but it looks like a large portion of this increase already impacted Q3 because of inventory destocking. So could you please clarify what precisely are included in the other cost line that you expect to impact Q4, which mean that you've reduced the EBIT guidance? That's my first question. My second question is, you're coming back on volumes and the -17% to -18% target. It implies a bit of a deterioration in Q4.
I was interested to understand if this deterioration is linked to what you're already seeing in your sales in the first six weeks of the quarter, or more reflects that caution regarding a market slowdown because of government restrictions that you mentioned in your presentation? Thank you.
Thank you, Mrs. Leone, for the first question, Mr. Casaluci, for the second question. Please go ahead.
Thank you, Mr. Tronchetti. So, Gabriel, for what regards other costs, I can elaborate on the third quarter and not the forecast for the full year. So, for the third quarter, we recorded EUR 43 million, including 40% on non-cash items, so equal to EUR 50 million related to accounting impact of the strong reduction of finished product stocks. So, means around EUR 40 million for 1.1 million pieces Car. Then, we add other provisions accounting for around EUR 3 million, including impairments for EUR 2 million. The cash items were equal in the third quarter to the 60% of the total amount, and they included the lower earnings for Prometeon and additional costs related to transformations. For us, transformation cost means serving these other activities as digital.
Plus, we had some additional sponsorship costs, more or less equal to EUR 4 million. On the other hand, we had positive effect of cost and still related to some activities that we postponed from the third quarter from the first half due to COVID-19 crisis. For what regards the full year guidance on other costs, they should reach by around EUR 90 million, out of which 40%, again, will be non-cash items, and the residual, the 60% will be cash items.
Again, for what regards the non-cash items, we will have accounting impact of strong reduction finished product stocks for a total amount of EUR 23 million, credit impairments of around EUR 6 million, due a more conservative accounting approach on receivables, and, other provision, more or less for EUR 7 million. As far as the cash items, there all should be equal to EUR 50 million, including the lower earnings from Prometeon, equal to, more or less EUR 28 million. And again, the transformation cost that should stand at EUR 20 million, again, including, the same categories already the named. That's all for other costs. I hope I was clear.
Yes, volumes. Our expectation for the last quarter of the year, for the entire demand of tires, is a -5%, as I said before, and for Pirelli, we projected to perform in line with the market. While if we move into the High Value segment, the 18 inches and above segment, we do expect the market at +2%, and we projected to overperform the market with a +3% to +4% in our performance. We do see volatility in Europe, as we explained it before, where the market is expected to be down at 10%, and we target to perform more or less in line with the market. This 10% is both in Original Equipment and Replacement. In the Original Equipment, the performance of 10% negative is more or less in line with the third quarter.
We do not expect a cancellation in the call offs of the Car makers, for October and November, at least, because we already have orders on our hands, and we are delivering. We, we will see what will happen in December, thanks to the slowdown of the Christmas period, and in the first quarter, but no measure volatility in the Original Equipment in Europe for the time being. While the Replacement is affected already by the restriction in the mobility. The months of October, the first, let me say, indication from the market is a negative 6%, and, let's consider that October was before the majority of the restriction in mobility that will, are taking place, in the beginning of November.
So the 10% negative market of Europe is something that today, in our opinion, is reflecting the actual environment and is included in the numbers we presented before. North America and Asia Pacific are more stable. We don't see big changes in the performance compared to what we saw in the third quarter.
Okay, thank you very much. The next question is from Gianluca Bertuzzo of Intermonte SIM. Please go ahead.
Good evening to everybody. Thank you for taking my question and for the detailed presentation. I was interested in the detail you provided about the online development in China with 20% of Replacement sales coming from the internet. Can you maybe elaborate a little bit on how this model works, both maybe operationally and financially? I was also wondering about the pricing dynamics for this type of sale. How much the Pirelli brand is defendable in this channel, as it seems that it is taking place? And finally, what is the share of online sales in other regions? If you can share with us these details, it would be helpful. Thank you very much.
Thank you. Before leaving the floor to Mr. Casaluci, I want to underline that we are leading also in platforms, online platforms, the high-end segment. We are in partnership with the three platforms that represent 98% of the market, Tuhu, JD.com, and Alibaba. Pirelli, so, thanks to the position acquiring in also in the online, is strengthening the leadership in the 18 inches and above. But for more details, I leave the floor to Mr. Casaluci.
Thank you, Mr. Tronchetti. As you said, I would like first to underline the difference we see between the online in China and in the other geographies. As Mr. Tronchetti said, the online is mostly controlled by three big players, JD.com, Tuhu, and the Alibaba platform in China. And another important difference is that the mix of product, that we see, sold in the online in China, is representing the average of the mix, of the market. Also, thanks to the high penetration of the online, that counts to the more or less the 20% of the entire market.
While if we move on other geographies, for example, in Europe, the average price sold in the online, I'm talking about the market, is a bit below the average of the market, so it's more a channel still focused on commodities and low end. This is the major reason why we decided to surf the growth of the online channel in China. Of course, brand is important, is key, and we have one of the strongest brand in China with a high recognition, and this also helped us to penetrate the channel. To assure the, let me say, the correct price stability and in the environment that we agreed with these important partners to develop dedicated product lines for these channels.
And, and that's also one of the marketing activities we are doing to support our growth there. So mix, positive, price control, and stability, and dedicated products. Thank you.
Thank you.
The next question comes from Thomas Besson of Kepler Cheuvreux. Please go ahead.
Thank you very much. I have a few questions. If I may, I'm gonna ask them one by one. The first one is very basic. Your guidance for higher High Value volumes than in August, -11 versus -14. But the price mix guidance has deteriorated from +2 to +1.5. So can you help me reconcile that? Because usually, the High Value gap, specifically with Standard and a higher volume in High Value, would imply a stronger price mix.
Mr. Casaluci .
Yes, the price mix in the High Value is more affected, mainly in 2020, by the negative channel mix. Because, as we said before, in the High Value, the Original Equipment is more resilient compared to the entire market, and so this is, in a way, negatively affecting. The second element is the price of the Original Equipment that is more under pressure compared to the Replacement channel. And the third element is also the pure product mix related mainly to Europe, where we are selling, but this is not only Pirelli, it's the industry, much less winter tires in favor of all season and summer.
So you correctly mentioned at the, let me say in percentage point, a performance on the price mix of the High Value, which is below the average of the entire sales. I told you the three elements that are driving the difference. Thank you.
Thank you very much. Second question, if I may. Your drop through on Forex is higher than in the past, if I made my calculation correctly. Can you just come back on that point? Tell us which currencies specifically lead to this situation, and I've noticed a recent improvement on emerging market currencies in the U.S. election. Should that not help you in Q4 and ahead?
It is Provera.
Yeah, for what regards of the Forex, consider that, for when we refer to the drop through of Forex, because we have the appreciation of euros versus dollar, versus Japanese yen, and versus renminbi. For worse, so, and the drop through is 22%. If you see what should be the guidance for the full year, consider that the negative effect on EBIT will be twofold. We will have the negative consolidation effect from the translation of the local statutory EBIT in euro for an amount of EUR 50-60 million, more or less, corresponding to an effect, an impact on revenues. So that should be by around EUR 170 million.
Plus, you have to add the effect of higher raw material purchase price in local currencies. As you see in the guidance, we should have an effect of EUR 150 million over months. That clearly will be mitigated by cost competitiveness on export flows from our manufacturers located in low-cost countries to mature markets. I remember you that more or less, we have, 70, 80% of our plants in low-cost countries.
Okay. Thank you very-
Thank you. Level of import and export between U.S. and Europe, and so this was rebalancing the currency effect due to the pandemic, the exchange between the two regions lowering and also the export from other low-cost countries to Europe and U.S. is low. And so that's why the positive side of the export from low-cost countries was much less this year than previously.
Thank you, Mr. Tronchetti. Can I ask a last question, please? Is there anything to say about your shareholding structure and its possible evolution? Are all the main shareholders still happy with the current structure?
I think that we have a very consistent structure with a very positive relation between all shareholders, and there is no pressure of any sort. I think that we are comfortable with the structure we have today.
Thank you very much, Mr. Tronchetti.
Thank you.
Mr. Tronchetti Provera, there are no questions registered at this time, sir.
Oh, thank you. And so ladies and gentlemen, this will conclude today's program. Thank you for your attendance, and have a good day.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.