Pirelli & C. S.p.A. (PIRC) Earnings Call Transcript & Summary

Welcome to the Pirelli 2021 Industrial Plan Presentation. The event is about to start. [Operator Instructions] Thank you.

Good afternoon, ladies and gentlemen. I'm happy to welcome you to the presentation of the Pirelli 2021|2025 Industrial Plan. Let me briefly come in the session agenda, which you have already received. I will summarize the scenario we see, then the strategic guidelines, followed by a summary of the overall plan and targets. Mr. Casaluci will then lead a more detailed explanation of the various programs; with Mr. Bussacchini, the CCO, illustrating the commercial program; Mr. Misani, the CTO, illustrating the innovation program; Mr. Bocchio, the Head of SP&C, will illustrate the targets in more detail. We have 2 Q&A sessions and a 1-hour break at 3:00. Let's go to Slide #1. I now turn to the first session, and I will follow a 4-step agenda: the scenario, our strategic guidelines, the highlight of the plan's key programs and finally the overall targets. Before I describe the key scenario variables we see for the coming years, let me start with a consideration of 4 key learnings from the COVID crisis. First of all, we faced the difficult times with a sense of togetherness and participation, and our team is engaged as ever. Secondly, when the crisis first hit our Chinese activities, we immediately set more global countermeasures, and they've become much faster in anticipation of events. Also, we are making a more effective and predictive use of data from our customers or from our plants. In short, we recognize that value of being more data-driven. Finally, the pandemic further highlighted that in an ever-evolving economic, social and environmental context, resilience and reactiveness are essential to safeguard value for all stakeholders. Sustainability becomes ever more crucial to manage people, product strategies throughout their entire life cycle and the supply chain. In short, we are coming out of the crisis much stronger. Turning now to the scenario. We begin with the macroeconomic dynamics where we foresee 2 distinct phases, which characterize our old plan, both positive for our activities. A 2-year rebound phase until 2022 where you see significant real GDP average growth rates, especially plus 6.6% China and 4.9% U.S.A., obviously, vaccination coverage rates affecting 2021. We also foresee a Europe appreciation versus major currencies, especially with U.S. dollars. A year of steady growth -- a 3-year of steady growth period until 2025, where world growth rate slowing down from 4.6% to 3.1%. China is still leading the pack with 5.3% average growth rate. The scenario is expected to be more stable also for currencies. If we turn to demographics, we see high-income households growing, reaching 425 million in 2022 and more than 0.5 billion in 2025. COVID has obviously reprioritized core values, especially safety, health and wellbeing, but also digitalization and servitization, which also affect consumer journeys in tires as consumer increasing turn to online channels. If we take the direct business-to-consumer e-commerce, the share in total tire purchase, China has already reached 20% and is expected to reach 30% by 2025. All markets will break the double-digit penetration by 2025. The mobility scenario and, in particular, miles driven, is encouraging. You see on the far right of the chart, what we foresaw in our old plan, stable private car miles driven with respect to 2018, while total car miles growing to 13 trillion. Today, we foresee the same evolution for private car miles driven, while total car miles will grow less as a consequence of post-pandemic lower use of sharing and rental car models as well as a migration towards 2-wheel mobility. Very important for the mobility scenario is the growth of electric vehicles. 35% of Prestige and Premium vehicle production will be electric in 2025, up 5 percentage points with respect to our old plan. And this will push electric vehicles penetration in the Prestige and Premium car parc to 11% by 2025. Our insight in electric vehicle consumers show that they are knowledgeable, interested in vehicle performance and safety characteristics. This means that tires developed for electric vehicles are technologically sophisticated as they have to find the optimum balance between often conflicting characteristics: withstand higher loads, ensure lower rolling resistance, maximize grip, reduce noise, et cetera. We are developing a whole range of electric vehicle tire solution, fully designed around sustainability objectives. And we see the capability to blend technologies and processes for High Value EV tires as a source of competitive advantage. Finally, if we turn to the market scenario, we see Prestige and Premium car production bouncing back at 6% average growth rate until 2022 and then growing at 3%. Interesting to see the growth of upper synergic models, mainly large SUVs, growing 10% until 2022, approximately 23% of Original Equipment, 18 inches of tire demand, flattish in the period. This car production will drive, in Original Equipment, High Value tire demand, growing overall by 11% in 2020-2022 and plus 3% in 2023-'25. But the 19-inches-up segment, which will account for more than 50%, will grow at 14% and 4%, respectively. Turning to car parc. Prestige and Premium car parc will grow low mid-single digit, while High Value Replacement tire demand will grow at plus 10% and 8% overall, but much higher in 19-inches-up segment, 11% and 10%, respectively. In this scenario we have described, Pirelli will compete with and further enforce its key strengths: leadership in 19-inches-up marked tire homologation, 3x more than our peers in a very fast-growing segment; leader in High Value in China; growing our share in Original Equipment EV tires more than 83% of our capacity low-cost countries; leadership in moto High Value and growing very fast in cycling; taking position in emerging fields of connectivity, subscription services and micro-mobility; all these reinforced by our brand, synonym of reputation, leadership and high technology. To summarize, we see a very favorable scenario: a 2-phase macroeconomic growth with a strong short-term rebound; China leading this growth where Pirelli is leader in the High Value; high-end consumer growth with a private car miles driven growing and holding; demand for technology-sophisticated High Value EV tires growing strongly. I now turn to the second part of my agenda concerning Pirelli's strategic guidelines. Some key guidelines are in continuity with the February 2020 plan. We keep our focus on High Value market, which has proven to be time and time again growing and resilient. We build on our strengths. We embraced the green transition. This is an opportunity to innovate and enhance competitive barriers. However, in our new plan, we are adding and accelerating in precise directions. We are focusing growth in specialties, EV tires and 19 inches up. We will rebalance our OE business in favor of our Replacement business. We will accelerate growth in China. With growing consumer insights, we are feeding our online to offline business. And with the consumer data, we are developing region-specific replacement-only products. Finally, our business model will be completely changed for the better after digitally enabled transformation. These are the guidelines to achieve 2 successive objectives: fully capture opportunities in the next 24-months rebound and then accelerate cash flow generation as a remodeled High Value specialties leader. One of the most important guidelines will be our focus on the highest growing and profitable High Value tire segment. In this slide, at the top, you see the High Value tire market we talked about earlier. While at the bottom, you see that we are focusing on the blue ocean segments, segmenting which the competition is lower and the technology is higher. If you look at the High Value Original Equipment tires, the weight on our total OE tires will grow from 60% in 2019 to 70% in 2025. Within this, the weight of 19 inches up, which was already very high in 2019, 65%, will further increase. As you can see, our 19-inches-up tires will grow 15% in 2020-2022 and 5% in 2022-2025, outperforming the total High Value growth. Furthermore, our High Value Original Equipment tires are composed by specialties, of which High Value EV tires will be one of the main innovation and incremental value-creation levers in the planned period and, in 2025, will account for approximately 30% of High Value Original Equipment volumes. If you look at our High Value Replacement tires, their weight on our total Replacement tires will grow significantly from 40% in 2019 to 60% in 2025. And within this, the 19 inches up will grow even more. You can see an 18 inches average growth rate until 2022, then 12% from 2022-2025, much higher than the market. Within High Value, Replacement specialties account for 65% in 2019, growing to 70% in 2025. So as you can see, we are totally focusing on the high-tech, high-growth segments, already starting from a very strong position. Our Plan 2025 can be split into 2 phases: the first 2 years, when we want to seize or rebound opportunities in the scenario we just catched and take our company to the new normal by end of 2022; in the 3-year period from 2023 to '25, when we will reap the benefits of a faster innovation in many business areas and a more rational footprint. My colleagues will detail the macro programs on which we based our plan. But let me provide you with a summary outline. In the 2 first years, the commercial program will bring about between EUR 800 million and EUR 1 billion revenue growth, essentially depending on an increase in volumes from 54 million to 64 million tires, over 80% of which in High Value, over 60% in the 19 inches up. In the following 3 years, we assume a revenue growth between EUR 600 million and EUR 900 million due to an increase of volumes for 6 million tires, all high mix. The innovation program is based on faster product renewal, plus 44 new lines in 5 years with a 20% increase if we compare 2020 to 2022 to what we forecasted in the same time period in our last plan. The homologation procedure will be very selective and value-focused. In 2025, about 90% of homologation will be for 19 inches up and about 60% for EVs. In 2021-2022, the competitiveness program, we concluded 2 waves with efficiencies of 4.5% of the 2020 baseline. While in the remaining 3 years, efficiencies will decrease to 2%, 2.5% of the 2020 baseline. Almost 50% will be efficiencies due to the digital transformation. Mr. Casaluci will talk to you about. Regarding the operation program, in 2022, we shall complete the footprint rationalization. While in the following 3 years, given the scenario envisaged in the plan, our value capacity should start growing again, allowing us to reach a unique competitive position among Tier 1 as 77% of our High Value capacity will be in low-cost countries. Let's now move to CapEx. During the first phase in 2021-'22, we will mainly invest in technology upgrade and productivity improvement. This phase, we see limited investment in High Value capacity increase as our focus will be saturated already available capacity in that segment. In the second phase in 2023-'25, we will invest in technology upgrade and productivity improvement and capacity increase in order to be able to seize the growth of the High Value market. This new capacity, which will be better explained by Mr. Casaluci, is concentrated in low-cost countries and, in particular, in Mexico where we are enlarging our production hub. Both phase, we see investments in digitization. Those initial benefits, I will explain in a couple of slides. We have a clear vision and a consolidated and further enhanced strategy. Our challenge is the execution, speed and accuracy of implementation. The strong and fully engaged management team will be further strengthened in view of the future succession path with Mr. Giorgio Bruno as Deputy CEO. Mr. Bruno has gained significant experience in complex financial and business environments, tire business included. In the last 3 years, he managed the separation process of Pirelli industrial business, which today is in an independent company called Prometeon Tyre Group, headed by the ChemChina Group. Since 2018, he managed -- he's managed it as CEO with positive results also during the COVID pandemic. He will guarantee continuity by positively working with the internal management team. Today, we have an international and multicultural organization with 30,500 employees working in 35 countries. Diversity and inclusion are our fundamental values. Our people come from 92 countries, and 30% of staff are women. Our workforce is young with a marked sense of belonging. The average age is 39. Tenure is about 10 years, and voluntary attrition is below 5%. In the 150 years of our history, Pirelli has constantly focused on the human dimension of the business, always bearing in mind the positive impact we can have on individuals and society. Our programs are focused on caring, knowledge and social inclusion. Let me give you a few examples and real metrics. On people caring, first and foremost, we want to guarantee safety of our employees with an approach based on awareness and prevention. And this is proven by the reduction of our accident frequency index, the lowest in the industry, from 0.26 in 2019 to 0.22 in 2020 with a target of cutting it down to 0.10 in 2025. The COVID pandemic also strongly highlighted the need to evolve our traditional welfare system, introducing more tailored wellbeing initiatives, also through dedicated local listening initiatives. On knowledge, we are constantly upgrading internal know-how to support business transformation. Our up-skilling and re-skilling programs involving 4,700 people in 2019 have been extended to 15,000 people in 2020 with an objective of reaching over 25,000 in 2025. On social inclusion, we work globally with more than 40 universities and research centers. We support local communities with numerous initiatives in the areas of education, health, social and environmental responsibility and the promotion of cultures, such as the intra-conference in Romania, Mexico, Russia and the bilateral cooperation with hospitals all over the world. Our commitment in developing those programs also stems from a work environment that force our commitment and orientation towards results, guaranteed by the constant alignment between company and leadership team objectives, also reflected into a performance-based and retention incentive system for the management covering the entire plan time frame. Let's now move to targets. Phase 1, '21-'22, envisages a progressive return to pre-COVID levels by 2022 with an increase of our group sales between EUR 800 million and EUR 1 billion, reaching a top line between EUR 5.1 billion and EUR 5.3 billion in 2022. This will be backed by our commercial programs, which will fully capture market rebound opportunities. Profitability is steadily improving, supported by the sound contribution of internal levers: volume, price/mix and efficiencies. Our target is to land in 2022 with an adjusted EBIT margin between more than 16% and approximately 17%. Cumulated net cash flow generation in '21-'22, between EUR 700 million and EUR 800 million, mainly supported by improving operating performance. By the end of 2022, we expect to bring down our leverage to approximately 2x the adjusted EBITDA. In Phase 2, '23-'25, we forecast additional revenues of EUR 600 million and EUR 900 billion -- sorry, EUR 900 million or EUR 5.7 billion and EUR 6.2 billion of group sales by 2025. The balanced contribution of volumes and price/mix, Mr. Bocchio will show in more details later. A profitability between approximately 19% and 20% coming from improvement of internal levers. '23-'25 cumulated net cash flow between EUR 1.7 billion and EUR 1.9 billion, backed mainly by the improving operating performance I mentioned before. Net debt on adjusted EBITDA should reach about 1x at the end of 2025. The solid cash flow profile will allow us to ensure a sound shareholder remuneration. Today, the Board has approved to propose to the next shareholders' meeting EUR 80 million of dividend, 55% from 2020 net income and 45% from reserves, granting a dividend yield in line with peers' average. For the next 4 years, our remuneration policy sets out an average payout of 50% in Phase 1 and 40% in Phase 2. The solid cash flow profile will allow us to ensure a return on invested capital post fiscal impact will improve throughout the plan horizon, reaching 19% in 2022 and 25% in 2023. This trend will be the result of a better operating performance and tight working capital management. The plan targets do not include an opportunity and, on the other hand, having an inbuilt source of flexibility. The opportunity is the digital transformation program. In the plan numbers, we have included all the program CapEx, 7% of cumulated CapEx '21-'25; all the programs OpEx, 0.8% of yearly baseline '21-'25; but only a first layer of benefits, 6% to 8% of cumulated net cash flow. As you know, benefits of this program are not linear. Once people dominate, thanks to training and up-skilling the new way of working the new tools, benefits accelerate. In our plan numbers, we have included a first wave of benefits. Those that line management has committed to only configurating the first release concerning many customer-facing applications and the first series of improvements in the plants. So we have an opportunity in terms of other benefits we will achieve. In terms of flexibility, our plan takes into consideration an 8% average growth rate for the car 18-inches-and-above tire market. If, as an hypothesis, the market were to slow down, we will continue to outperform the market, but also take 2 countermeasures: reduce our cost for growth, which are OpEx inside the plan numbers and represent 10% of the High Value incremental revenues for '21-'25; reduce our CapEx for High Value capacity increase currently in the plan and representing 20% of cumulated CapEx '21-'25. Pirelli sustainability cannot overlook safety. First of all, our people. In the next 5 years, towards zero accidents at work program, we continue focusing on prevention, training and digitization to act safely in all working environments. We shall accelerate our eco and safety product road map with technology innovation throughout the entire life cycle of our tires by focusing even more on the reduction of the rolling resistance to abate carbon emissions during the use phase without compromising on safety where we already lead. By 2025, more than 70% of new products, for instance, new labeled IP codes, will have a Class A or B rolling resistance according to the European labeling classification, and more than 90% will fall into the highest wet grip A and B safety classes. Caring for the environment also when choosing and fine-tuning materials. Renewable and recycled materials will account for an ever-increasing proportion of the total. Thanks to our work on proprietary technologies, by 2025, they will exceed 43% in selected new products, a significant improvement on the current 23%. And this figure is set to rise to at least 67% by 2030. From now to 2025, with a plan approved by Science Based Targets initiative, we want to further reduce the group environmental footprint, moving to 100% renewable electric power by 2025 compared to 52% in 2020. In the next 5 years, we plan to neutralize 4.6 billion KVH of fossil origin, which correspond to an electric power yearly use by 3 million European citizens. In 2020, CO2 emission dropped by 35% compared to 2015, surely due to the temporary closure of our manufacturing plants. But the net of COVID impact would have still been a 20.5%. We can, therefore, confirm that in 2025, the SBT-approved reduction compared to 2015 will be 25%. This means that in the next 5 years, we forecast a CO2 emission reduction of more than 925,000 tonnes, equal to 6 million plants carbon absorption during their life cycle, with an ambition to reach the group carbon neutrality by 2030. A similar and no less valuable effort is being made to reduce CO2 emission around the raw materials supply chain, again in a -- in line with SBT approval by 9% in 2025 compared to 2015. Important efforts to turn into real impact for contributing to some of the most critical chapters of the Sustainable Development Goals, like safe mobility and climate actions, and which have also been reflected in the most important sustainability rating indexes drawn up for 2020. My colleague's presentation will detail the activity plan and specific sustainability targets that Pirelli has set itself for the next 5 years, which you will also find out about in the integrated sustainability plan in the full presentation available online. Once again, I'd like to emphasize that all this will be possible thanks to our people, who are passionate, engaged and highly skilled and can work in a safe and inclusive environment. And now I hand over to Mr. Casaluci for market outlook and strategy implementation. Please, Mr. Casaluci.

Thank you, Mr. Tronchetti, and good afternoon, ladies and gentlemen. Let me turn to my section to give you a more in-depth insight on our market outlook and on the plan, which will implement the strategy described by Mr. Tronchetti. I begin with the High Value car tire market, commenting the high-quality growth prospects of our target segments: 19 inches and above and the electric vehicles tires. On the bottom left, electric vehicles Original Equipment total tire market is growing very fast, reaching 15 million pieces in 2022 and 30 million in 2025. The same with the normal lags in electric vehicles Replacement total tire market, growing 50% and 30%, reaching 8 million in 2022 and 20 million in 2025. So our target segments in 19 inches and above and electric vehicles are high-growth and technologically sophisticated. Indeed, electric vehicles share of car production will be higher in Premium and Prestige. Electric vehicles represent 15% of Premium and Prestige car production in 2022 against the 6% on total. It will grow approximately 30% by 2025. Currently, China represents the main car parc for pure electric vehicles. However, on the right, you can see how Premium and Prestige European electric vehicles are taking a growing share of electric vehicles production, together with U.S. Premium and SUVs. Mid-high car segment's share of electric vehicle production, therefore, grows from 20% to 40% in 10 years. And this shift towards Premium and Prestige electric vehicles, Pirelli will take a leadership position. On the left, you see why electric vehicles' tires are high value. They require bigger rim sizes to support weight and torque, as you can see in the Audi example. The electric vehicle car calls for a premium price and pulls for fitment and technology, which have more value and higher price. Finally, pull-through rates are higher in electric vehicles. Indeed, tires which are not specifically designed for electric vehicles are going to deliver a weaker performance if mounted on an electric vehicle with limited ability to sustain electric vehicle typical high torques, damaging both driving experience and safety. Moreover, also comfort will not be optimized with louder noise and higher rolling resistance affecting negatively battery range. On the right, our ambition by 2025 is to be leader with 60% of our future homologation will be electric vehicles by 2025; almost 1/3 of our sales volume on 18 inches and above in the regional equipment channel directed to electric vehicles; 1.5x higher Original Equipment market share in electric vehicles versus the overall share on Premium brands. After electric vehicles, a second market insight I want to give is on China. On the left, you see the High Value tire market, Original Equipment plus Replacement, which is going to grow very healthy underneath Pirelli's plan, which will grow much faster, with 19 inches up delivering double-digit growth during the whole 5-years period. High Value OE plus Replacement tires, which represent today 75% of total tire sales in China, will see their share growing to 90% and more. On the right, this booming market, Pirelli will consolidate its leadership position. OE will grow on the back of electric vehicles market. Our pull-through will drive Replacement growth. And in China, we also have very efficient plants, in particular, Yanzhou plant, which won the green prize with the official notification of Class-A performance enterprise as green plant certified, a very important institutional recognition. Finally, we are mastering the fast-moving e-commerce in tires, working with innovative e-tailers, applying new business models and digital marketing approaches with the ability and flexibility to develop dedicated products for our customers designed specifically for this channel. In the box, you see that sales in these channels will grow at 20% a year, and they are a good channel for Prestige and specialty tires, which will account for more than 50% of volumes in 2025. After having given you insights on electric vehicles and China, I'll turn to a third planning plan, Prestige, where, by the way, electric vehicle in China are again key drivers. The Prestige car market trends look very favorable for Pirelli. The SUV tire market is growing double digit, bringing rich mix growth. 1 out of 3 Prestige cars will be fully electric by 2025. With Elect technology, we are definitely ready for this trend. Super/sports car tire market, the closest market segment to our motor sport DNA, is expected to grow almost double digit. Indeed, Pirelli will maintain its top leadership in the segment, fitting around 50% of the Prestige new car production. Among the levers, 4 new P ZERO lines: our Elect tire technology adopted on high-growth BVs; R&D collaboration based on virtualization; shortening the development of time to market; extending our brand to cover richer consumer journeys, including events and experiences; all this to conclude that I see a very favorable market outlook generally with unique opportunities in electric vehicles, China and Prestige. So let's now turn to the Pirelli plan, which is structured around 5 programs and many initiatives which we individually track. The 5 programs are structured to deliver both short-term results in the next 24 months as well as in 2025. The commercial program will be handled by Mattia shortly. In summary, we will capture the High Value market rebound with past homologation portfolio with an acceleration with new product introductions. With China's strong growth, we will continue to grow also in 2023-2025 as we rebalance Original Equipment / Replacement in favor of the second with more consumer-driven replacement products; push high-growth specialties, 19 inches and above; realize our correct price position as we exploit our consumer insight and manage their entire journey; stabilize our standard position in a profitable cost-competitive niche. The innovation program will be explained by Pierangelo Misani. We will reap the benefits of modularity and commonality in the first phase and in-process innovation, electric vehicles and lifetime sustainability in the second. The competitiveness program will deliver the first 2 waves we had planned and see a third wave in 2023-2025, where we will reap some, not all yet, benefits from digital transformation. The operations program will see us improving in the next 24 months as we ramp up volumes and benefits fully from footprint rationalization. Then in the second period, we will innovate our processes and deploy industrial IoT as well as selectively increase High Value capacity in low-cost countries. The digital transformation program is changing the key company processes and then connecting them in a simultaneous, real-time workflow. By 2022, we will have all customers facing applications deployed with people skilled and trained. In the second period, all other processes will be deployed to form our integrated, simultaneous business model. I now turn the floor to Mattia Bussacchini, our Senior Vice President, Commercial Operations. Thank you.

Thank you, Andrea, and good afternoon, ladies and gentlemen. Our commercial development program is structured around 4 key initiatives: 3 to grow our 18-inches-and-above sales and outperform the market; and 1 to continue our repositioning in the standard segment, 17 inches and below. Altogether, they will help us grow overall by 10 million tires net between 2021 and 2022 and by an additional 6 million in the 2023-2025 period with a higher volume contribution from 18 inches and above, in particular, [ 2 KI ] value initiative focused on growing our Replacement business. The first is based on our Original Equipment-driven demand, thanks to the homologation captured in the last few years. 85% of the sales growth mirrors market growth, which came from cars already fitting Pirelli tires with a significant growth compared to the previous period, mainly in China. The second will allow us to gain market share and to grow our presence in the high-value replacement market, with introduction in 5 years of 28 new line, specifically designed to meet regional consumer needs and to expand our distribution footprint. Also in the 18 inches and above, we will grow selectively in Original Equipment to prepare a profitable pull-through growth for the future years. Such growth will focus on 19 inches and above tires, the upper car segment and Premium electric vehicle model and brand, always following the integrated lifetime profitability approach to select our businesses. Finally, on standard, we are working on our landing point process and we will be already very close to our target by 2022, with volumes stable at approximately 25 million tires. The production of standard tires is concentrated in 3 specialized factories optimizing product costs. Let me now dive more specifically into the high-value replacement initiatives. On the left side, as shown before, we have both market potential growing double-digit and a growth of our Original Equipment homologation on high-technology tires. Here, we have built a portfolio of homologation specialties, which is unrivaled in the market. On the right side, the replacement market potential, where we are not present as Original Equipment, and we are planning to introduce new products very rapidly to meet specific regionalized consumer needs. These 2 product strategy, combined together, are laying the foundation for our growth in high value with the aid of the following enablers: first, the right selection of distribution partner, sharing with us the high-value strategy; second, a completely redesigned sales process, supported by best-of-breed digital solution and tools; third, a consistent marketing spend redirected through the conversion portfolio of the digital funnel. Turning now to specialties. In the 19 inches and above, our portfolio of Original Equipment product has proven to be the widest of the market, almost double that of the nearest competitor. This is the result of our strong and consolidated relationship with all Premium and Prestige carmakers. Our product leadership is going to be further enhanced during the planned period as we will focus more than 90% of our effort in the 19 inches and above. Moreover, the high number of specialties, developing partnership with carmaker, raises a high competitive barrier in segment where the loyalty rate is higher. Specialties demand from both car manufacturers and consumer is continuously on the rise. With our rich portfolio solution, Pirelli is the market leader. Our offer range from safety and mobility-oriented specialties, like, for example, Run-flat and Seal-Inside, to specialties for the new ecofriendly mobility, like the Noise Cancelling System, reducing noise and improving comfort inside the car, or elect tires available in all Pirelli design and especially conceived to meet low rolling resistance and noise requirement for electric vehicle. There are also new specialties like Cyber Tyre to address the challenges of connected mobility in the future. Vehicle equipped with sensor for safe mobility and connected with car's electronic system are already a reality, as recently shown on board of the new McLaren Artura and to be described in detail by Mr. Misani later on. Together with the loyalty rate, higher than 80% in the entire life cycle, consumers are also well prepared to pay a premium price as long as high-value tires offer a technology-based benefit. So far, we have given much on our pull-through strategy, which turned out to be successful in reaching those premium consumer who prefer to fit Original Equipment homologated tires. However, as we have seen, the high-value tire segment, not linking to homologated car parc is big, is growing and is reaching opportunities. So we are turning on consumer inside and product development network to this market. Therefore, we collect consumer data analytically, clustering and identifying specific personas in all geographies. Here an example of a premium online customer from China, from which we derive product specification, leading to the introduction of 28 new replacement product line in the next 5 years. In this slide, you can find another example of another personas this time from Europe. This product differ in application but are all modular under the concept of high-technological content, best-in-class safety is a must, higher mileage and ecofriendly features. In this slide that I'm not going to comment on, you can find another example of personas this time from the U.S. Moving now to distribution. Our sales channel are ready to funnel our new products to our consumers. The car dealer channel is expected to grow its channel share in the planned period, thanks to the increased Original Equipment-driven demand. Here, we will consolidate our strong position in terms of partnership and share of wallet. We will continue developing our direct retail organization, adding approximately 5,000 new point of sales, especially in China and Central Europe, which is an important basis for our price/mix protection. We are expanding our partnership with major Tier 1 players to reach all the potential demand in areas where we are not directly present, this means further coverage with national and regional specialized distributor. We are also designing our penetration strategy with premium offering into the fast-growing online channel through partnership with the major players and through the shopping windows of the major retail chains. The ability to use data to convert the potential coming from the homologated car parc, the user behavior and the dealership assortment are all key elements of our business model. We now have tools and that are a direct result of our digital transformation ecosystem. Our sales and marketing teams are starting to use the best-of-breed digital tools that are able to connect in real-time with the sales force, contact center and consumer campaigns. All of this is aimed at achieving very targeted improvement with a definitely more efficient process. Allow me now to make an example of how we are going to take advantage of the above mentioned big data analytics. We are now in the position to move from the Prestige and Premium car parc at the worldwide level, accounting more than 190 million vehicles in 2025, to dip into the market potential of a selected vehicle in a certain area of a specific country. As we can see in the slide, we can look at the Porsche car parc in Germany, to focus on a specific model, the 911 as per example, and in a specific area, the city of Munich. We know which market potential this car generates considering each tire fitment and the seasonality. This powerful tool is now available to our salespeople, with a clear indication of the potential we can capture in every single area. To support our high-value replacement sales, we are also reallocating our marketing spend, more on the conversion phase of the consumer journey funnel. We are already live on the market with solution able to drive our consumer to the choice of the right product and leading them to our trade partner platform, like the click-to-buy and the driver shopping window. Let me now briefly summarize the key initiative of the high-value Original Equipment plan implementation. We continue to grow in Original Equipment, and we are setting the floor for the future, through a rich project pipeline, 85% of '21-'22 volume are coming from business already running as of today; through new homologation, focus on 19 inches and above and obviously specialties; through a diversification of the customer base, especially in the region with a higher growth rate like North America and China; and through a strong focus on the electric vehicle model of existing car brand or newcomer, thanks to the specific elect technology. All of this enjoys the support of our dedicated local-for-local supply chain, maximizing service for customers while reducing risk. The last program for the car business concern the Standard segment. Here, as previously said, we are working on our landing point process, and we will be already very close to our target by 2022. Volume will remain stable at approximately 26 million tires, definitely finalizing our move from 16 inches and below to 17 inches and from car to SUV and CUV segment. The production will remain concentrated in 3 specialized factory, optimizing product cost and assuring a profitability at low double-digit during the whole plan period. Before ending my presentation, let me give you a brief overview of 2 Pirelli excellences in a market which has been spurred by consumer interest out of the COVID-19 crisis, the 2-wheels. Within this segment, Pirelli holds, let me say, 2 different sources. A sport/racing one, fueled by Pirelli DNA of MotoSport heritage and a sustainable and [ journey one ] placing side by side, leisure with touring and commuting. In the Moto segment, Pirelli is a sound leader in the top end of the market, the high-value segment with 2 distinctive premium brands, Pirelli and Metzeler, and with a cutting-edge product innovation, meeting enthusiast review on top winning award products. In the cycling segment, where we are entering 2017, continuing a glorious journey interrupted in the '90s, we are targeting the Premium segment and we have been able to win awards with newly designated products, and we plan to grow 8x in volume, taking full advantage of the favorable market condition enabled by the conversion of Bollate plant in Italy, which we start producing cycling tires this year. Concluding with this very positive note on 2 wheels, I thank you for your attention. And I now leave the floor to Mr. Misani.

Thank you, Mattia, and good afternoon, ladies and gentlemen. In the next few minutes, I will guide you through the innovation path, which is the feature of the new Pirelli industrial plan. Let's begin by going through the innovation model we make reference to. We are working based on skills and experience about markets to generate innovative ideas, which are then turned into practical solutions, thanks to enablers, which are in turn quickly updated so that we can introduce into the market distinctive products that meets demands, which are increasingly focused on sustainability and new mobility requirements. If we are confirming the basics of February 2020 plan, with a further acceleration in 2021 and 2022, our R&D guideline, all along the industrial plan, will be the eco-safety design. But what are the strong points allowing us to guide and accelerate innovation? Starting from the left in this slide, our cooperation with top carmakers is the first answer. We now have almost twice as many homologations compared to our best competitor. Therefore, we know both technology and solutions, and we know where they are going to. These solutions and technologies guided from our OE business as well as a consistent feedback from the market allows us to know more about the evolution of our customer needs. On top of it, our open innovation model, which is strictly connected with the world of centers and suppliers, allow us to take the lead of our innovation path, especially as raw material and sustainability are concerned. But let's now see the enablers we are leveraging on to accelerate our innovation process. Let's start from human resources, which is a topical issue. In order to face and cope with future challenges, we have devised the continuous R&D reshaping program around 4 fundamental pillars. Investments in new capabilities through a talent acquisition program to announce skills, especially in the area of digital design, industrial IoT as well as connectivity and software. A development program of our in-house resources through ongoing upskilling to improve our modeling and virtualization skills. On top of it, 2 programs connected with the future development of our resources: one on talent management through identification of well-designed and accelerated career path development as well as our totally new graduate program, developed in cooperation with universities to create master course on specific features of both vehicle and tires. All this is fundamental to support the further acceleration of design through push to virtualization and simulation. As we pointed out in February 2020, virtual tire design, virtual performance simulation were 2 fundamental pillars of our development plan. And here, we will experience a further acceleration. Within our plan horizon, we actually expect to have 60% of OE projects virtualized. While when it comes to our in-house development program for replacement, 100% of the new lines will be fully virtualized. Yet, this is not all. Methods as well as simulation tools will evolve. Last year, we told you about our static simulator. Well, this year, we will start developing dynamic simulator in cooperation with the Milan Polytechnic. But the biggest step of innovation will be to have tire modeling and parametric design also within local R&Ds to accelerate industrialization programs and achieve an even higher product quality. Therefore, we reconfirm the targets to reduce by 30% our product development time, by 20% the prototype cost as well as an acceleration in terms of new product lines availability with a 30% improvement. Virtualization will also have an impact on material development, which will be based on 2 key pillars: virtualization itself and the eco-safety design. As far as virtualization is concerned and in coherence with the target in product development, we expect a 30% faster material development time, with a strong focus on models for tire wear prediction. And as far as sustainability is concerned, we confirm an end-to-end life cycle approach based on increasingly eco-sustainable materials upstream as well as investments in new advanced mixes to hit the target of 40% renewable materials by 2025. We will also pay a great deal of attention to the tire end of life. Through the open innovation model and in cooperation with universities and competent centers, we shall develop new processes like pyrolysis to increase the percentage of recycled material and focus on product regeneration. Well, in 2020, we already made the first experiment in the motorsport business by regenerating used tires through a process based on pyrolysis, where we turn them into carbon black, which was later used in our plant in Slatina. This is still a prototype, and yet it marks our future. Turning now the attention to plants. The development of processes will increasingly be data-driven as well as consistent with the integrated technology road map. But what does data-driven industrial process mean? On the one hand, we shall develop processes and connected equipments to support our rush towards the world of new materials. For instance, we have implanted a total innovative mixing room. On the other end, with targeted digitalization concept. We will introduce innovations on existing machines and equipments, allowing us to achieve machine-to-machine interaction through IoT platform in the plants. Through this platform, we target to have a digital twin in our plants to simulate and anticipate issues typically connected with setup and material availability. Furthermore, in high-cost plants, we shall further develop and enhance our highly-automated robotic and flexible processes. This is in line with process capability improvement and plant automation programs aimed to reach 0 defect manufacturing and better support the industrial efficiencies within the plant. The further development of our modularity program, which we have already introduced, is also fundamental to reach the efficiency targets. We have now completed the first step of this program, that is the introduction of modularity in products components as well as value-based monitoring of the product range. From this year on, we shall extend the modularity concept to production processes but also to the integration of production planning and sales forecast. Our ultimate target is reducing complexity in the plants within a framework of increasing pool demand through the increasing commonality. Indeed, the increase of 30% component commonality can be exploited in 2 ways: by a reduction of 15% in the complexity of semi-finished products in the plants as well as improving service through a 15% improved mix rotation. All in all, the development enforcement of these enablers will be fundamental to reach our eco-safety targets through a more massive use of renewable materials, end-of-life approach, product and process design innovation pattern as well as the life cycle assessment process on all new products. By 2025, we will have 40% of overall materials from renewable sources, at least 70% of new product lines in Class A or B for rolling resistance. The only categories which will not enter this pattern will be specialties like ICE, standard, off-road racing tires. And when it comes to safety, a Class A or B for wet braking higher than 90% in our new products. In plants, which will use 100% supply of renewable energy, 98% of waste recovery to guarantee our path to carbon-neutrality by 2030. Let's get now to the delivery of our plan in terms of new products. Last year, we mentioned that we wish to speed up the delivery. Well, thanks to our virtualization program, we are in a position to further accelerate the product renewal policy. By 2022, we will have 24 new products versus the 20 that were foreseen in our old plan. And by 2025, the total number of new product lines developed and introduced to the market will be 44, that means the renewable of more than 50% of the full range. All these products will have the eco-safety driver in common. As I already said, 90% plus A or B for wet breaking, 70% Class A or B in terms of rolling resistance. If from one side, we will introduce 16 new OE-driven lines, we will also be very careful to replacement segment through a further acceleration of consumer-driven and regional lines. We will develop ad-hoc lines to meet the different market requirements, such as: high mileage lines for U.S. market; high robustness and comfort lines for Asia Pacific market; specialties connected to snow and ice for Nordics and Russia; while in Europe, we shall have eco-label as main driver to measure our performance. Yet, we shall not pay attention only to the number of lines, but also to support the growth of product mix in our plan. Until now, approximately 70% of our homologations were 19 inches and above. Well, we expect that 90% of them will become part of this cluster by 2025. We shall also further accelerate specialties cluster. To date, 47% of our homologations in 18 inches and above is made of specialties. By 2025, we expect 60% of homologations in 18 inches and above to be covered by specialties, specialties such as light Run-flat and Seal-Inside for safety, but also noise canceling and elect technology for sustainability. When it comes to elect, we have to say that indeed, the electric car segment will be at the core of our development programs, mainly connected to OE projects. In 2020, 29% of our homologation were related to electric or plug-in hybrid cars. We expect that in our plan horizon, this number will double to reach approximately 60% of homologation in electric car segment, all this, with a further expansion of our client portfolio. We shall make the most of our elect technology, not only to meet the challenging targets in terms of WLTP rolling resistance, but also to improve the rolling resistance in what we define the real driving condition, with special attention to details, such as, for example, the aerodynamic study of the interaction between tire sidewall and car shape. All this to further contribute to the reduction of emissions and longer battery life for electric cars. As we have seen, if the assumption is that the future of car is increasingly towards electricity, the connectivity is also bound to become more and more important. Last year, we announced that one stabilization phase as well as strict test on technology were over, we would begin a phase of scale up and industrialization, together with some prestige car makers. With a project developed with McLaren Artura, Cyber Tyre hits the ground. For the first time, there is a perfect integration between tires and vehicle, and data are constantly exchanged between the tires and the car electronic system. If today, our Cyber Tyre system can already supply TPMS data, tire ID and eventual mass distribution to contribute to improved car stability, we are already working on new functions, such as tire wear, eco planning, dynamic forces measurements to further develop our tire vehicle interaction. It will be fundamental to support the change to autonomous driving systems. In parallel, since we are a unique tire producer, member and conductor to the 5G AA community, and thanks to the value of the data we may gather, we believe in the potential and development of connectivity with artificial intelligence and IoT-based services where Pirelli tires can play a fundamental role. Thank you for your attention. And I turn the floor back to Mr. Tronchetti.

Thank you. Thank you, Mr. Misani. Now we can open the first session of Q&A.

[Operator Instructions] The first question is from Martino De Ambroggi with Equitas.

My first question is on the tires for electric cars that you discussed during the presentation. I know we cannot get a precise number, but could you provide any clue on the profitability you expect on the tire for electric cars? And how many homologation do you have today? I'm not sure if probably I missed it, I'm sorry. And what is the competitive environment today in this field? And what is the percentage of sales you expect in 2022 as a first step in your growth in this field?

Thank you, Mr. De Ambroggi. Almost 100 have been the new EV homologation in full year 2020, representing 30% of total 2020 technical homologation price level. In the top end, it's between 10% and 15% below average. We see that the homologation in 2025 will be in total, around 60% of the all homologation we are going to have.

Yes. In terms of sales, if I may?

Mr. De Ambroggi, the sales number in 2021 is still irrelevant. We have a number that is between 6% and 7% in 2025.

Okay. And should we assume higher profitability than all the rest of the business, all other things being equal?

Yes. This is like specialties. I mean we set the brand Elect, and we are focused on the higher end. The technology is creating a barrier, mainly for the top end because the acceleration is different. The weight of the car is higher. The tires have to be lighter, so use of nanomaterials and other tools. The torque momentum, the acceleration is different. We are talking about gas that can go from 0 to 100 in less than 3 seconds. And so the only few players are able to deliver them. We see our competitive environment in the very high end, close to the one on Prestige. And then we have the traditional competitors, no more than 4 in the other segments. But we stay only on the top end.

Okay. If I may, another question on the profitability. In one of your slides, you mentioned the standard business is in the region of double-digit return on sales. Probably you never achieved such a level of profitability for standard, at least until you provided the split between high-value and standard. So just to have an idea what are the projections you have for the 2 different businesses underlying your business plan?

As you saw in our figures, we will have a stabilization of standard and growth of the high-value. In the high-value, the profitability with over 20%. In the standard, we get close to the mid-teens. That's the target in 2025.

And very last, if I may, on CapEx. Am I right in estimating roughly less than [ 400 million for the 2 million ] additional absolute capacity in high value, because level of CapEx, particularly in the second phase is to be relatively high?

Yes. We see these investments are based on an expected growth that could also exceed the one we have in our plan. As we show in the chart of the, let's say, plan in case, the growth is not the one we forecasted. It is flexible these numbers. So we have a possibility to, let's say, stay within this as a maximum range of investments.

The next question is from Monica Bosio of Intesa Sanpaolo.

The first one is a general view on the market. I remember that in occasion of the February 2020 business plan, you gave us a picture of the high-value overcapacity. So the balance between the demand and the capacity in 2019 and the view for 2022. I'm just wondering if you can give a similar picture now, just an update? And the second question is on China. I understand that most of the growth will come from 19 inches and above the electric vehicles and the penetration in this area, and last but not least from China. If I remember well, the weight of China was at roughly 12% in terms of revenues, if I'm not wrong. Can you give us just a rough indication of what do you expect by the end of the plan that the weight of China could be? And the very last question, maybe I will postpone later when we will address the targets.

Thank you. So the general view is that the recovery is coming fast. In China, is already there, as I mentioned. But we see also in the United States, numbers that are, let's say, supporting our expectation or exceeding our expectations. In Europe, there are some good news, mainly on the volume growth, which is good because the pandemia, all in all, reduced the stock of the trade. And so we see there an opportunity coming. China will exceed 12%, but I leave the floor to Mr. Casaluci who can provide you more precise figure. Mr. Casaluci?

Yes. Thank you. I would say, at the end of the period, China -- only China, both channels will represent roughly 16% in terms of volume and above in terms of net sales, close to 20%, considering the average price of China is higher than the average price we sell on the other countries.

Okay. And...

I want Mr. Casaluci to provide you the good news.

And what about the overcapacity, the current market situation in terms of balance between demand capacity for 2021 and 2022? Do you still see overcapacity persisting? And maybe a follow-up. China is fine. U.S.A. is fine. What about Europe? Do you see competitive pressure in Europe from Tier 2 even in the context of the starting?

No. I have to say that in Europe, we don't see such a pressure. We see also in Europe a shortage. So it's the time in which the demand is outperforming the capacity. And back to the capacity demand, following our presentation, you saw the enhancement of new product lines and -- of specialties. So we are moving to specialties in an arena where the competition is not creating an overcapacity. It's a market we are creating with the technology. It was true for the Run-flat in the past. It's true now for the Noise Cancelling System mixed with the Seal-Inside, Run-flat and there are some news coming also on the Run-flat side. So we have a portfolio of new products. You saw 44 new lines that is supporting our segment of the market in which there is no overcapacity.

The next question is from Thomas Besson of Kepler Cheuvreux.

I have 2, please. First, I'd like to come back on your OE approach and the pull-through effect that has been something you've been looking for, for a while. I mean, am I understanding correctly that you're slightly adjusting the approach maybe going less towards the type of clients like what you call synergistic and going more towards BEV? And that eventually, we could hope to see a better pull-through effect in 2021, 2022 than what we have seen in the last couple of years? That's the first question. And the second question is on the relations you indicate, Mr. Tronchetti in your initial comments, between the 2 periods, you've separated. The first period is more volumes. The second period is more split between volumes and price/mix. Can we also hope to see some price/mix benefit eventually lifting your figures in 2021, given that we are going to see more leveling off for OE better replacement and that you're also raising prices to reflect rising input costs? So that would be the 2 questions.

Thank you. First of all, price/mix, yes, it's true what you mentioned, we see a positive effect in prices that is coming because of also offsetting the raw material price increase. But this time, the market discipline is high. As I was saying, the demand is strong. And so we see this trend continue in the coming months, is true in the beginning of the year, but is true also looking forward. So we are positive on that sense. The pull through, that was 26% is going up. It is expected to be -- 76% is expected to go up to about 80% in 2025. Price/mix in 2021 between 2.5% and 3% and expected to improve in 2022. But I'll leave the floor to Mr. Casaluci for more details on pull-through effect, which is very positive.

Thank you, Mr. Tronchetti, and thank you for your question. Pull-through and -- is strictly linked to our business model, and we will never give up on that ease and will remain our focus, as Mr. Tronchetti said 80% is our target. Then we decided to address also the 18 inches market, which is a high-value segment where our car parc is becoming older or where very interesting and important carmakers into the synergies segment are entering with new nice cars fitting 18 or 19 inches where we are not in the regional equipment. That's the reason why we decided to enlarge and enhance our business model, introducing some replacement line dedicated to these segments. But the core of the business is and will remain the pull-through and the link with the technology of the regional equipment.

And this is announced by the -- what we mentioned before about the specialties and electric. Having a lower number of competitors in this specific segment of specialties within which there is also the up end of the electric, we see a growth in the pull-through effect.

The next question is from Michael Jacks of Bank of America Securities.

I'll start with the standard tires, if I may. And the first one, if I recall correctly, the landing point at the previous industrial plan was around 22 million units. We've now shifted that to 25 million or 26 million. If I'm correct on that point, and please forgive me if I'm not, can you please outline the drivers behind your more positive thoughts there on around 3 million units of additional capacity? And then secondly, on the landing point itself, I'm not sure if I'm interpreting the chart on Slide 26 correctly, which is entitled, I think, Pirelli versus market. But it looks like the standard volumes go backwards between 2022 and 2025. So can you please just clarify the landing points at the 2 different time increments? And then finally, my last question just expanding on price/mix. Clearly, the EV and 19 inches and above dynamics are very positive. Could you perhaps shed some light on what your expectations are for mix over the next 2 to 4 years?

Thank you. I leave the floor to Mr. Casaluci.

Thank you, Mr. Tronchetti. To clarify, the landing point in terms of volume we plan for 2025 on standard tires is roughly 25 million, which represents 35% of our entire expected volume of sales on car business. Why is it a bit more, but not that big difference compared to the last 10 also considered last time we ended in 2022 and now we are approaching the period till 2025 is because we succeed in our rightsizing plan of the capacity even before that was planned at the beginning. And we are able now to reach the target of double-digit profitability within 2022 in the standard and as Mr. Tronchetti said before, we plan to improve till mid-double-digit within the end of the period of the plan, 2025. So we are focusing on interesting niche of standard winter tires, all-season tires, tires with content of technology that, in a way, is protecting the price position into the market and is allowing us to reach an acceptable level of profitability. So we are entering to cover long story short into the last phase of our phasing out exit approach to the standard, reaching a stable level and acceptable in terms of profitability. Going to your second question, this, in a way, will remodel the price/mix performance for the coming years. So Mr. Bocchio in the second session will give you more detail in terms of numbers. But I can anticipate you, we do expect a more stable, low single-digit performance, including the growth of high value and the micro mix effect and a stable price performance during the period, which means roughly from 2% to 3% on the price/mix performance, with a better performance in the first 2 years of the plan because we are still in the last part of the phasing out of the standard plan.

So one element I think you have to value in our plan is also the change of, let's say, the weight of the original equipment, 18 inches and above between '22 and '25, from above 30 -- from, let's say, above 44% in '22, will go down to 39%. So we are having a wave of replacement, including electric with a high profitability that is coming. Because when we talk about specialties, as I was saying before, for the electric, we're always talking about 10%, 15% price premium on Run-flat, Noise Canceling System, Seal-Inside, ELECT, so this is supporting the profitability and reducing the competition.

That's very clear. If I can just slip in one last question, just on the outperformance expectations of 2 to 3-odd percentage points. Is that over and above the global market number? Or does that take regional mix into consideration?

We consider the segment in which we are. So we are gaining -- if I understood well your question, so the 18 inches and above, the market share we envisage in global -- in -- sorry, as a global number, goes up to close to 13%. We are around 12-point something now in 2021, and it goes up. So if we look backward in 2020, where we have a drop at the beginning of the year due to the China effect at the beginning of the year and on stock reduction, we made the action to protect the cash flow at the beginning of the year, the increase in percentage point will be around 1.1. So all in all, we are increasing.

Okay. Just so that I'm clear, so does that mean then that your guidance for outperformance includes geographic mix?

It includes geographic mix. But what is really, I think, has to be taken into account is also the channel mix because we have an increase in specialties dedicated to replacement, a rebalance between original equipment and replacement, that is creating obviously an upside in terms of profitability.

The next question is from Gabriel Adler of Citi.

I have 2 questions. First is on the CapEx. At the last Capital Markets Day, you told us that you have excess capacity and high value and that there would be no need for additional capacity at that point in time. Now it looks like you're planning on expanding high-value capacity from 2023 even though the volume expectations for 2023 look roughly the same as the last plan. So maybe you could just help us understand what has changed. It means you're looking to spend more CapEx on high-value capacity expansion? That's my first question.

As you know, when we talk about capacity, we have to take into account that if we have to build a building and to build a new production capacity, it takes 12 months to start having capacity. So the investment we envisage are to cover the time frame that goes beyond the visibility we have in the plan. So that is the reason why you see this growth. But the growth of the market is the one that we foresee in our plan. And that's why we have a bit of flexibility in our plan because if we envisage for the future a lower level of growth, we are ready to reduce at least by 20% our CapEx. The investment you see starting '23 are going to be effective between '25 and '26.

Okay. That's helpful. Second question was on e-commerce because you showed this interesting slide of increased online penetration for standard tires. Do you think that could have a negative impact maybe on prices because it could encourage customers to trade down or perhaps increase price transparency? Any thoughts on e-commerce and pricing would be great.

It is absolutely the opposite in our segment. So what we see happening in China, where we're also launching the dedicated lines to the channel -- to the online channel, we see an opportunity of growth or profitability. We have already customers that are selling online in America, mainly, and they are very nice customers. We have to split the market between specialties, very high-end products and standard. What you mentioned in standard is true. There is a trading down made in standard through the online channel. We can say that there is the opposite in the high end.

Mr. Tronchetti, there are no questions registered, sir.

So thank you very much. We see you in an hour, and we continue with the presentation and then with the session, Q&A session. Thank you for your attention, and see you later. [Break]

The press conference is about to start. I'll now leave the floor to Mr. Marco Tronchetti Provera, CEO of Pirelli.

[Interpreted] Good afternoon. Good afternoon, everybody. Today, we look forward in a world that's reopening, in a world in which Italy probably sees another 2 difficult months for everybody, but a world that's showing opportunities, which are already a reality in China where growth has started and is now even higher than what had been envisaged. It is also recovering in the U.S., where they think the country is going to reopen already on July 4, totally reopen. And we see Europe where some delays have been seen, but where we start seeing very positive signals. And in this world that's reopening after COVID-19, our world that of tires and of the automotive business is tackling a reset after the pandemic with a strong energy, which is really extraordinary. Our people, during this last year, which has been very difficult, worked very hard. And they have become better because they have been capable of seeing how to work in a better way, in a more effective way using more technology to go back to a path which moves towards positive without being stopped by difficulties and transforming difficulties into opportunities. These opportunities are called new products for us. 44 new product lines from now to 2025. And this opportunity is called training and upskilling of people who will use digital more and more because the digital transformation is entering our company but the world in a pervasive manner. And then another opportunity is the environment, the environment where we've relaunched cycling, the 2-wheels world. We are coming back with the idea of getting capacity of 2 million by 2025. We have a world where technology is connected to electric vehicles and where technology is becoming more and more sophisticated, and where Pirelli not only comes with its EV tires but as a first has given sensors to a car that provide information in the relationship between the car and the tires and the ground, which is an important step forward in terms of safety because you can understand whether you have aqua planning, there is ice on the ground or things like that, to allow for a safer driving and in the future to allow autonomous cars to have a good relationship between the car and the tire. So Pirelli is working here, is coming out of the pandemic stronger than before. And for this reason, it has a young team of managers. The average in our group is 39 years out of 30,500 people. The first 260 people, the top managers with managerial responsibilities are not above 48 years of age on average. So it's a young company with a lot of technology, a company that looks at the future where we rebound stronger than before. I don't want to steal you any more time. So I'm here for your questions. Thank you.

[Interpreted] There's a first question by Pierluigi Bonora from Il Giornale.

[Interpreted] Okay. Can you hear me now?

[Interpreted] Yes. Absolutely, yes.

[Interpreted] I have 3 questions very quickly. 2 are connected, and then there's an extra one. Electrification in car manufacturers leads to an unbalance between important CapEx required and expected returns on the side of the companies which are more diluted in time. Besides all estimates, EV cars are always a big bet. So I'd like to understand what you're doing with EV tires. Then the second connected question is the EV cars. Electric vehicles have always been connected to benefit connected to mobility in urban areas, and that's why we have grants and incentives being output. Whilst car manufacturers are in competition for electric vehicles for top of the range, but then the problem is actually selling these cars because they are very expensive. So this is a scenario that's already starting discussions and debates. And then my last question is about your Brembo partner. You're moving towards digital also for EV cars. Are -- do you have any agreement along the line because the 2 companies are very, very close? They have systems that are useful to you and vice versa.

[Interpreted] Well, electrification for us is an opportunity. The world of cars is investing. We don't need to make extra investments. Our technologies have been developed to be able to provide tires to more performing cars because the acceleration of an electric vehicle what we provide with, premium and prestige, is much, much higher than with traditional cars. We have from 0 to 100 kilometers per hour in less than 2 seconds. And even though they're not used that way to be approved by car manufacturers, we need to reach such performances. There's just a few players doing this. So for us, this is an opportunity. There's more technology obviously. There's a higher price. And so seen from our point of view, this is not a risk. We keep on moving on the traditional business and will develop specialties there because we think that EV or non-EV tires can have very many other features and characteristics. We have Noise Canceling Systems to reduce noise inside the car, which is one of the most important elements for electric vehicles because electric vehicles are not very noisy. But then we also have ELECT or extended specialties, tires that have foam inside so that you can go on for another 50 kilometers when you puncture your tire. Then we have Run-flat, which is an even more sophisticated product that allows you for 80 kilometers to drive at a higher gear. So we keep on working on top and very top technology. And then obviously, we have sensors which will represent in the future one of the distinctive elements in high technology and the -- between high technology and the traditional world. With Brembo, we have very good relationships. I have very good personal relationships with Mr. Bombassei, who's a friend of mine. And so we can always discuss in front of a glass of wine. But apart from the glasses of wine, we've never tackled integration topics because we have 2 worlds that only marginally touch one another. The development of tire is different from the development of brakes. So there is nothing that goes beyond the glass of wine amongst -- between friends, but they made a good business because they've invested in Pirelli. Thank you very much. Thanks to you.

Valor Economico, Brazil.

Can you hear me?

Yes. Go ahead.

Okay. I saw in your industrial plan that you announced today that you intend to invest in places where costs are lower. So I'd like to know which places are these, what countries are that you can get lower costs? And also to know regarding to Brazil, how do you see today the economic situation in the country? Is it still a good place to invest here?

[Interpreted] We're investing where we have growth, madam, not only where we have competition on low cost, et cetera. Our philosophy has always been to have 80% local per local, which means we invest 80% in Europe of what we sell in Europe; in China, what we sell in Asia; and Brazil and Argentina, in particular, for Latin America. This concept continues. But of course, the major growth is in Asia, where we have invested more, but we also take into consideration Europe in terms of technological growth in particular. Technologically advanced products, demand is strong in Europe as well as in the U.S. where we continue to invest for growth and, of course, in Mexico as well. In my opinion, Brazil is going through a hard phase, as everyone can see, the pandemic as hit Brazil a lot, but it's still a young and vital country. I am confident in the future of Brazil is a tough time, but we are there, we shall remain in Brazil and we see Brazil as a country of opportunity for the future. We're very close to all our people because we know that this is a tough time, and we will have the possibility in a few months to be able to see Brazil getting out of this very bad situation. Thank you.

[Interpreted] Next question, Marigia Mangano, Il Sole 24 Ore.

[Interpreted] Mr. Tronchetti, I wanted to ask you. In the light of the current economic situation and in the light of the difficulties connected to the pandemic, what can you tell us about consolidation? Because it might be something important for Pirelli, is it considered a priority? And to this extent, you've already answered the second question, Brembo's presence and investment in you. Can this also be considered an opportunity to maybe consider further M&As, possible cooperations and partnerships in such a complex moment?

[Interpreted] Thank you. Well, this is a moment of great opportunity, in my opinion. We got out of 2020 with a company that generated positive cash flow in the world. Our people have been very, very good in reorganizing the company. And so we look at the future, looking at more opportunities than risk. This is a general outlook. Aggregations can be made when they make sense, when there is value. Should there be value in whatever aggregation and consolidation we might see, we will consider that. Currently, we don't see the need for consolidation because we are very much focused on the development of our technologies and of our markets. We see technology growth within our business and what difficulties might exist are seen as an opportunity by us because our products, as it happens instead for other engine components, for example, are not suffering from this idea of electrification. Car manufacturers have to make huge investments. We instead just need to invest to improve our technologies to provide car manufacturers with what they need, good tires. So as I was saying before, we see more opportunities than not within our business. Will there be an opportunity for consolidation and/or aggregation, we're ready to do so. But obviously, there needs to be a logic behind it all, but we're open.

[Interpreted] Next question from Giulio Piovaccari, Reuters.

[Interpreted] Mr. Tronchetti, my question is indeed this. We have the news that China has given green light to merge ChemChina with Sinochem, and we are almost finished with it. What about possible repercussions in terms of your shareholders?

[Interpreted] No problem at all. I believe that for them, this has been a good transaction. They've been starting this scheme for many years now. We're not directly involved because, as you may know, we have a separate management, both in terms of bylaws and the rest. And therefore, this is not something that involves us directly. There is no impact on us at all. If for them, it's good, we're very happy that our shareholders carry out good deals. This was one of their targets for many years now.

The next question is from [ Wen Xia Hua ], Xinhua News Agency. You have to activate the microphone. [Technical Difficulty]

I have 2 questions. During the presentation, you mentioned that there will be acceleration for growth in China. So could you please elaborate on this? I'd like to know like how is Pirelli's business performance and profitability in the Chinese market in 2020? Like what do you think will be the driving forces behind the company's growth in China? And another question is about the trend of electric cars. They are trend for green and low-carbon auto market growth as Chinese consumers are switching to electric vehicles. And the government has set goals about lowering China's carbon emissions and achieving carbon neutrality. So what new opportunities does Pirelli see in China's emphasis on green growth and the country's expanding EV market.

[Interpreted] Thank you. Well, let's say that China is growing at a speed which is above 6.5%. So we are also driven by this growth because it is a growth that is driven by the increase in domestic consumption. In this period of time in China, there is a strong increase in domestic consumption. So we see demand becoming stronger and stronger. We see the growth of electric vehicles as an important opportunity for the development of our technologies and everything that has to do with being green sees us a leader in the sector for all the parameters connected with sustainability. And also our Chinese plants are in line with the group standard. So for us, this is an important opportunity to use Pirelli's technology, which is very much appreciated in China where we are a leader in the top line where we have the highest level of EVs. And also there, we are finding homologations with very sophisticated products. So we follow this growth very, very closely with great attention, and we keep maintaining that leadership role in that business as we've had it until today..

[Interpreted] Next question, Andrea Fontana, Radiocor.

[Interpreted] You have made a number of introductory remarks involving a lot Pirelli's managers. You have announced few weeks back a new path and a new direction in terms of your managerial organization. My question is, therefore, with the advent of Mr. Bruno, have you defined the path towards 2025 or is this a temporary solution, given that you have made reference a number of times to the value of your management team? And the other question I have is that the choice you made last summer was an external manager to drive the company and to lead the company. Now the choice is completely different. The -- Mr. Bruno comes from in-house and so it's a completely different choice. Why?

[Interpreted] Well, Mr. Papadimitriou for 6 months spent his time with us. And he said to me the way the company was seen from the outside. He left us because of his own personal reason. He stressed the idea that Pirelli has a management which is definitely above standard with a very clear-cut and well-defined strategy. These thoughts which we shared with Mr. Papadimitriou was something I also needed because when you keep being in-house, you may be drawn not to take into consideration another point of view. And this led me to a solution which is less temporary possible because Mr. Giorgio Bruno has been my collaborator since the past 30 years. And therefore, he is not only skilled in terms of markets and finance, but for 3 years he was also the manager of former Pirelli Industrial Department. He was very good. He is much appreciated by investors as well as the management. He has already M&A responsibilities, so he is popular with everyone. And he is the mix between in-house and continuity, which is what the company needs. And therefore, I feel and I -- and this reflects really what I expected. And this choice is actually shared by people outside Pirelli. Well, that's why I consider this path an ideal one for Pirelli and for those who want to follow them.

[Interpreted] There aren't any other questions.

[Interpreted] So thank you. Thank you very much for your attention. And Happy Easter to you all, first and foremost. Thank you. Happy Easter. [Break]

Good afternoon. Welcome back to all of you. We start the second part of our presentation, and I hand over the floor to Mr. Casaluci.

Good afternoon, and welcome back to our session. Just to remind you, I will cover the remaining programs in our plan. Fabio Bocchio will then cover the planned targets in greater detail. If we turn to competitiveness program, we had a 2-way program ending in 2022. We confirm the total net impact in 2020 as well as what we had foreseen in the old plan for the period '21, '22, around EUR 110 million in 2020 and EUR 170 million in '21/'22, equally divided between '21 and '22. Let me now elaborate a bit more on streams activities. As already anticipated by Mr. Misani on product cost, which was 30% of wave 2, we will continue to implement the modular and design-to-value approach, optimizing our structure complexity and weight. Evolve the homologation process through a simulative approach with prototyping and physical testing, deploying the digitization of product life cycle management, reducing time to market, enhance material purchasing efficiency through suppliers portfolio flexibility and long-term agreements. On manufacturing, which builds a similar amount to the product program, we will complete the announced industrial footprint optimization in Europe with Bollate and Barton Myers and in Latin America with Gravatai and Campinas. Implement modern infrastructures and digitized processes, granting higher flexibility and efficiency through data-driven decision systems. On organization, which accounts around 15% of wave 2, we will continue to sustain the industrial footprint optimization and complete rightsizing and streamlining of the structure. Make Pirelli a linear and faster company with process digitization and refocus of competencies toward digital skills. Finally, on SG&A, still a solid contributor to efficiencies, we will carry on the effort of reducing spending on discretionary costs and complete distribution network redesign, increasing the adoption of service level segmentation and optimizing warehousing and direct deliveries. With successive 3 years from '23 to '25, we expect a further EUR 70 million to EUR 100 million accumulated net impact coming from further operational improvement in manufacturing and product development, deriving from the first 2 waves and mostly from a first layer of digital transformation benefits. In particular, in the plan, we have factored in all digital transformation cumulative investments and cumulative OpEx, but only a first layer of benefits. Coming from the first specific areas to be transformed with benefits taking bottom-up from line management. We still have to add other areas plus the benefits when all our processes will be simultaneous integrated and in real time, starting from 2023. Let me now turn to the manufacturing program, well -- where we continue to have 83% of our capacity in low-cost countries between the highest exposure in the Tier 1. An increase of saturation to 90% by 2022, reducing standard and increasing high value. Selectively increasing in the second period, high-value capacity in low-cost countries by 3 million pieces, especially to serve high-value regions. At the end of the plan, reach 95% saturation with 75 million capacity and 75%, of which in high value. Let me clarify one point on this chart, also linked to the questions we received before. In 2022, we would reach, as you can see, 53 million pieces of capacity in the high-value, which is equal to the old plan. The CapEx in the period '21/'22 roughly EUR 700 million, you will see with Bocchio later on, only 10% of this CapEx will be dedicated to capacity increase on the high-value to prepare the following 3 years. Then if we move to the period '23-'25, you will see a CapEx which is expected to be around EUR 1.2 billion, EUR 1.3 billion, out of which roughly 30% will be dedicated to prepare further increase on high-value capacity. That will be useful and utilized not only the 3 following years but also mainly in the period which will be after the '23-'25 period. In 2025, we will have a 56 million high-value capacity, as you can see in the chart, that will be 98% saturated, how to produce the 46 million pieces of high-value and to produce another roughly 7 million pieces of standard that requires high-value technologies and as we commented before will be at mid -- sorry?

Teens.

Mid-teens digit of EBIT margin. Thank you, Mr. Tronchetti. Okay. The remaining part will be a spare capacity limited to roughly 5% of the entire high-value capacity because it's useful to optimize the service and follow the market requirement. Okay. Moving to the next slide. If we turn to our regional footprint, represented in these 4 quadrants, you see that starting from the upper left, in Europe, we have rationalized our footprint by cutting high-cost capacity, specializing standard production in very cost-competitive plans, specialize some plans on small lots and prestige products. In China, we have 2 plants focusing on high-value and 1 for standard. They are among the most efficient also meeting sustainability targets and will play an increasing role in producing specialties. Turning to North America. We expect to source from Latin America high-value products and then add capacity in Chile. Finally, South America sees the benefits of rationalization and specialization. In short, in 2019-2020, we have been very active in setting solid foundations for the new plan. One of our key initiatives inside the plans will be to deploy digital technologies and to improve the flow and avoid any failure or drift from target performance. Basically, by 2023, we will have 100% of our high-value machinery connected, providing data and receiving instructions; 300 data analysts, including blue collars, assessing 100 existing apps to optimize specific performance areas. Furthermore, we will have reproduced the entire process interaction in key plants with digital twins to simulate planning and scheduling decisions leading to further optimizations. The benefits will be many, and 3 are immediate. Full tracking and tracing 95% of all the process data will be managed in cloud platforms, energy cost savings of minus 10%, waste and cost of nonquality reduction with a target of minus 15% reduction. Another initiative engaging us in our industrial footprint is leadership in process sustainability, which goes hand-in-hand with product sustainability. We aim to reach 100% renewable energy sourcing by 2025, group carbon neutrality by 2030, maintain our leadership in the resource management in terms of zero waste to landfill and water management. Let me go back to the green prize we won in China, where Pirelli Yanzhou plant got the official notification of Class A performance enterprise as green plant certified. Part of operations is our supply chain, whose mission is now focused on supporting top line growth with a customer-centric orientation given by 5 dedicated supply chains engineered to fit with our different customer business models. These chains are not only dedicated but integrated, thanks to digital, where we collaborate on forecasts, orders, stock, sell out data, geolocalized sale opportunities. Data sharing interpretation is forming an important part of our trust-based relationship. These new processes will deliver industry-leading service levels, strong synchronizations in sales and replenishment, better stock turnover ratios with lower inventories. We therefore plan to improve our customers' ROI, not only by helping them to improve their margins but also to reduce their capital employed. Finally, let me turn to the fifth program of our digital -- the fifth program, which is our digital transformation. We try to give you as simple as possible a vision on our simultaneous business model. Basically, all our workflow is necessary to manage the company from developing times with our OEM partners in the far left or by connecting with our consumers and customers with connected sensors in the tires on the right will lead people to constantly focus their priorities on what matters for clients and what creates value from these relationships. These simultaneous integration will be enriched by data being stored in one shared data lake where artificial intelligence models can feed early warning systems and promote optimal decision-making. This model is made possible by not only adopting 5 key digital platforms but also by integrating them both inside and outside with our partners. We, therefore, have a very rich plan, broken down in programs and key initiatives. We have a tracking and monitoring system for all the key initiatives forming the improvements. In terms of final summary, I would like to conclude showing that all programs capitalize on Pirelli's strengths that are being constantly honed and upgraded since year-by-year we improve our capabilities in our target high-value markets. Let me review these strengths and where they have been applied. Strong brand built on 150-year-old heritage; focus on high-value specialties and electric vehicles produced in low-cost countries; having rationalized high-cost capacity; in terms of geography, growth in China; high-tech sports given us stimuli on innovation and teamwork; and finally, we promote a culture of speed integration, effectiveness and efficiency. Thank you very much for your attention, and I now leave the floor to Fabio Bocchio for the presentation of the planned targets. Thank you.

Thank you, Mr. Casaluci, and good afternoon, ladies and gentlemen. This slide shows our '21-'25 targets, which Mr. Tronchetti illustrated in the first session. In my presentation, I will walk you through the main drivers behind those targets. So let's go directly to the next slide. This chart summarizes our value road map. Our plan envisages 2 different phases, both consistent with external scenario. The first phase in 2021-'22 is characterized by a rebound of GDP and market demand and will bring us back to the pre-COVID level in terms of revenues and profitability. Our program will allow us to ride the market recovery and structurally reduce our cost base. More specifically, our commercial programs will produce benefits in terms of volume increase, which will be the main contributor to the profitability growth. We will gain market share in the high-value segment, focusing on the fastest-growing and most technologically advanced segments. The higher exposure to the 19 inches and above segment and the more balanced original equipment replacement performance will support our mix improvement. We will keep price discipline in response to the raw material and ForEx volatility, and we will deliver our competitiveness plan substantially in line with the February 2020 indication, reaching approximately EUR 170 million of cumulated net savings in 2021-'22. Our cash flow generation in '21-'22 between EUR 700 million and EUR 800 million in the 2 years will be supported by the operating performance with a free cash flow conversion of around 70%. Let's have a look at the second phase now, where we will deal with a more normalized scenario. The improvement in profitability will be driven by our commercial programs that will equally impact on volumes and mix, 19 inches and specialties, and the delivery of Wave 3 of our competitiveness program, strongly based on digital transformation. The cash profile will be stronger than in Phase 1, EUR 1.7 billion to EUR 1.9 billion in '23-'25 versus EUR 700 million to EUR 800 million in '21-'22, despite the higher investments. Cash flow generation will be supported by a solid performance with an adjusted EBITDA further enhanced compared with Phase 1 and a better free cash flow conversion, 72% versus 70% in Phase 1, stemming from the effectiveness of our programs and lower cash out from restructuring as all major programs will be completed before the end of 2022. Finally, just 2 words on capital -- working capital management through the '21-'25 plan horizon. We target to improve the efficiency of our inventories, thanks to our local for local strategy and an optimized supply chain, as described by Mr. Casaluci. We will normalize our receivables coming back to the pre-COVID level already in 2021 by reducing the DSO. We will reduce the days of payables, further strengthening our partnership with suppliers. Let's now have a look at the 2 phases in more detail. Let's start from the top line trend. Between 2021 and 2022, our commercial programs will translate into a EUR 0.8 billion to EUR 1 billion additional revenues. If we exclude the ForEx headwind, around 70% of sales growth is linked to volumes, the remaining 30% will come from price/mix improvement, as we increased our exposure to car 19 inches and above and to specialties with the contribution of price discipline. More specifically, in 2021, we expect a double-digit top line growth driven by a volume rebound in both high value and standard segment. In the high-value segment, we will outpace the market across regions, while in the standard segment, our growth will be less pronounced compared to the market as we keep pruning the less profitable products. Price/mix is expected at plus 2.5% to plus 3%, as I will detail you in the next chart. Finally, ForEx is expected at minus 3.5% due to the weakness of the emerging market currencies and the euro appreciation. If we look at 2022, we expect sales to keep growing between plus 7% and plus 10% with a more balanced contribution of volumes and price/mix versus 2021 dynamics. We will outperform the car 18 inches and above. Let's move to the price/mix dynamics, where we expect a plus 2.5% to plus 3% growth in 2021 and even a better performance in 2022. First, the mix. Product mix will be one of the major drivers of this improvement in both areas, thanks to the migration from standard to high value and the improvement of the mix in each segment supported by the renewal of the product portfolio, around 20 new products in '21-'22 out of the 44 products that will be introduced in the plan horizon, as Mr. Misani indicated previously. Region mix will be another relevant driver, especially in 2022, when in Asia Pacific, we will fully seize the benefits of the strong original equipment sales of the past years. Channel mix will be more balanced in 2021 after a negative 2020 when original equipment volumes outperformed the replacement channel. From 2022, the channel mix will be driven by the improvement of replacement volumes, as Mr. Bussacchini explained before. This improvement will be supported by the pull-through effect in line with the expansion of our homologation portfolio achieved in the past years as new cars sold start approaching their first replacement of tires and the push-through effect, especially in Europe and North America. Finally, on pricing, we will keep price discipline and respond to the external scenario, mainly in connection with raw materials and ForEx dynamics. Before moving to the next slide, just 2 words on the price/mix trend in 2021. We do expect some volatility, especially in first half, due to the 2020 comparison base. We remind you that last year, channel and region mix had a very volatile trend due to the COVID impact. Channel mix was negative in quarter 1, 2020, and rebounding in the second quarter due to the very weak original equipment channel. Regional mix was negative in the first quarter and rebounding in the second quarter, thanks to China recovery. Let's now move to the efficiencies. As Mr. Casaluci underlined, we are on track with the second wave of the competitiveness plan. We expect to deliver around EUR 170 million of cumulated net efficiencies between 2021 and 2022. This will be achieved despite the lower saturation of the standard capacity versus our old plan. We will be able to cover a large part of the standard and absorb the fixed cost impact working on SG&A and organization. In 2020, we launched a short-term cost-cutting program in order to counterbalance the COVID impact. Out of the EUR 110 million of gross savings achieved in 2020, EUR 73 million will revert back in 2021 as we will restart activities kept on hold in 2020. The EUR 78 million slowdown impact in 2020 will be only partially reverting back for EUR 44 million since production recovery is still below the old plan, and furlough for EUR 41 million will no longer be contributing. Hence, in 2021, the net impact of reversing COVID actions will amount to around minus EUR 29 million versus the net positive amount of plus EUR 32 million in 2020. Let's move now to the profitability trend. Adjusted EBIT is expected to grow by approximately EUR 400 million in the '21/'22 period and be back to the pre-COVID level by 2022, with an adjusted EBIT margin of 16% to 17%. Growth will be equally split between '21 and '22, but with different dynamics. 2021 will see a higher volume contribution and positive price/mix will balance the raw material hike. 2022 will see a lower contribution from volume, while the price/mix impact will be more robust. Net efficiencies will have a positive effect similar in the 2 years. Just 2 words on the cost for growth. These are discretionary costs such as marketing, R&D and organization costs that can be reduced or postponed in case of a market slowdown. Let's now look at the main profit and loss items below the operating profitability. Regarding to restructuring and nonrecurring items. In the last 2 years, we launched restructuring programs to optimize our manufacturing footprint, as Mr. Casaluci showed you during the presentation. The factories most affected by such restructuring activities are in Brazil, Gravataí, that was closed down and Campinas that was transformed into one single production center for car and motor. In Italy, Bollate, that was turned from a car standard plant into one for cycling premium. In the U.K., Barton, whose missed capacity will be consolidated in other plants. In addition, we have launched organization rightsizing and streamlining programs to support our competitiveness plan. Finally, we also introduced early retirement programs in order to change the mix of available competencies crucial to support the company transformation effort with cash-out diluted in 2, 4 years. A part of such accruals for layoff and write-off charges were made in 2019, especially in Brazil, and in 2020. We expect the restructuring and nonrecurring charges to be about EUR 120 million in 2021 and about EUR 50 million in 2022, with a cash out 20% higher than the profit and loss impact in each year given previous accruals. The benefits of such activities are included in the competitiveness plan. Let's move now to our financial income and expenses, which will benefit from the stronger cash flow generation and resulting deleverage, while facing some headwinds as interest rates in emerging markets are expected to go up, namely in Brazil, also affecting the cost of debt, and an increase of our hedging costs related to the improvement of our top line. In the planned horizon, our funding policy will favor capital markets, ideally reaching 50% of our gross debt with structural new funding in the format of ESG-linked instruments. Finally, on tax rate. The expected average consolidated tax rate of 25% to 27% is in line with historical tax rate of 26% of the group, depending on the regional contribution to the profit. This rate includes an estimate of the patent box as the company has already applied for the renewal of the current agreement with Italian tax authorities. Let's go now to cash flow. We expect to generate between EUR 0.7 billion to EUR 0.8 billion cumulative net cash flow before dividends in the period '21-'22. About 1/4 of this cash should be allocated to shareholder remuneration and the rest to deleveraging with a net financial position to reach around EUR 2.7 billion in '22 from EUR 3.3 billion in 2020 with a leverage of approximately 2x the adjusted EBITDA. This sound cash profile is based on 2 main pillars: first, an improving operating performance, as I already described previously, which will more than cover the investment, mainly devoted in this phase to the mix, quality and productivity improvement; the cash out for the mentioned restructuring programs in Europe and South America; the higher taxes related to the improved performance. Second, a tight working capital management that we expect to show different trend in '21 and 2022. In 2021, we expect an increase in payables as a consequence of the business recovery and higher investment; a stabilization of receivables, thanks to DSO improvement, partially compensated by stock increase in absolute value. In 2022, the delta working capital should be marginally negative as the increase in inventories and receivables will be compensated by the higher payables. Let's move now to the second phase of our plan. Between 2023 and 2025, our commercial programs will translate into a EUR 0.6 million to EUR 0.9 billion additional revenues, meaning a 4% to 5% annual growth. If we exclude the expected ForEx headwind, around 60% of sales growth is linked to volumes, mainly on car 18 inches and above, where we will outpace the market in the period by 1 percentage point, while on standard, we will keep reducing our exposure. The remaining 40% will come from price/mix improvement as we increase our exposure to car 19 inches and above with a more selective approach on the original equipment. We expect the high value to account for 75% of our total revenues in 2025, 2 percentage points higher versus 2022. As for profitability, we expect EBIT margin to improve from 16% to 17% in '22 to 19% to 20% in 2025. The adjusted EBIT growth will leverage on the volume growth already commented, the continuous price mix improvement and the third wave of competitiveness program, which will bring between EUR 70 million and EUR 100 million of net efficiencies in the period or 2% to 2.5% of 2020 cost baseline. Let's finally talk about the cash flow, where we expect a sound cash generation of EUR 1.7 billion to EUR 1.9 billion before dividends in 2023-'25. This will come from the operating performance improvement, coupled with a slightly better free cash flow conversion average Phase 2, 72%, versus 70% in Phase 1; lower cash out from restructuring after completing all major programs within 2022; tight working capital management with a ratio on sales stable at low single digit. The lower cash out from financial expenses should only partially mitigate the higher taxes. If we sum up the shareholders' remuneration, which assumes a 40% payout for Phase 2, the net financial position should reach about EUR 1.6 billion to EUR 1.4 billion at the end of 2025 or a leverage of about 1x the adjusted EBITDA. Thank you very much. This ends my presentation. And now I leave the floor to Mr. Tronchetti.

Thank you. Thank you, Mr. Bocchio. So this ends our presentation, and we open the second Q&A session.

[Operator Instructions] The first question is from Monica Bosio of Intesa Sanpaolo.

Just a quick follow-up on the third quarter, I understand that there could be some volatility. Can you give us some more flavor on the third quarter in term of main KPIs, volumes, price/mix, regional mix? And the second question is on the price/mix on the very long term. On the back of a potential commoditization of the EV vehicles, what is your feeling on the price/mix in the long term, let's say, 2024 to 2025? I know that you are going to be focused more and more on high-value EV and so on. But the market is expected to -- also to have a sort of commoditization of these products, just a feeling.

Thank you. So starting with volatility, second quarter seems to come out consistent as it is the first quarter. So we don't see very high volatility. We have to take into account also that the stock for the winter tires are not high. Last season, we didn't have the seasonality of the original equipment sold between beginning of the year and June that are preparing the first changeover. So we expect to have a second quarter that continued trend of the first that, as I mentioned before, is going to the right direction. And talking about the medium term, let's say, price/mix trend, you mentioned what is the key point of our strategy is not to enter into the commoditization of the electric cars. Obviously, the acceleration of a standard car is not the same of a premium car. And the demand for performance are higher and higher. And I have to say that the high value of electric, as a content of technology, that is higher, and the market is ready to pay for it. So I don't see a risk on that arena, also because there is no risk of overcapacity in this very specific segment. We also add to these, the specialties. So within this technology, we combine electric and silicide, electric and noise canceling system, electric and different, let's say, kind of what today is the extended mobility we have with run-flat tires. So we are evolving also in this arena. So we see really more opportunities in the electric that I have seen lately in other segments.

Okay. So just a follow-up, so would it be realistic to model a price/mix between 2024-2025 above 2% and below 3%?

Can be. So we expect it to be in this range. So we are -- we consider 2% is realistic, and we stick to this number. It's really something we will experiment looking forward. For sure, the mix would be much better.

Okay. Sorry, just again one very last question, it's not on the numbers, is on the ESG program and on the company involvement in ESG. Do you have an idea of the weight of ESG investors in your report?

I have to check it. So they are increasing. We don't have an update on our shareholder structure. I think that it's the data we will have just before the Annual General Meeting, where we can have more precise numbers. They are increasing, but I cannot -- I don't have the number.

The next question is from Edoardo Spina of HSBC.

Yes. I have a couple of questions on the electric vehicles to clarify this important driver for the future. First of all, if I can ask about the manufacturing. Is there any difference in the production of electric vehicle tires compared to nonelectric? Do you need any fixed asset investments or can you produce them on the very same lines that you're using today? And the second question, I think, is a follow-up from the previous one, it's about the technological barrier that you talked about. Does it apply mainly to the premium vehicles? Or can we think that also the mass market electric vehicles can become a more interesting market for you if they also require better tires than today? And the third one is actually to ask your opinion about something on the vehicles. Do you see the gap in driving performance between a cheaper electric vehicle and a premium electric vehicle converging and reducing the gap compared to today? Is that an opportunity for you maybe to get there? And the very final one is still on electric, if you can clarify the link between electric vehicles and rim size? I think you mentioned that earlier in the presentation, but is it correct that basically electric vehicles will require larger rim sizes?

Okay then, so I'll start with the last question. The electric vehicle, they have a higher weight. They need a better -- an improvement in rolling resistance. To combine all of these, the outcome are tires lighter and with a base that is not as wide as the base of a similar car, nonelectric, to help the rolling resistance. So the inches are growing. The wide base of the tires remains more content because we have to combine the rolling resistance. That brings me to the second question, the difference between a cheap and an electric vehicle, I think cheaper electric vehicle and a premium can be tested directly, I have to be patient on cars and luckily I am patient on cars. And I tried many electric cars. If you take, let's say, a standard car today and, let's say, a Ferrari or an Aston Martin and you take an electric vehicle cheap and let's say an e-tron, GES, GT, RS, Audi, you see that it's amazingly different, the acceleration. So the performance we have to deliver, it's very, very demanding, but this acceleration is linear. So it starts as soon as you touch and you press the accelerator, you have immediately the couple that we have at 1,000 or 2,000 turns in a traditional engine. So it's really a different world, the premium car, prestige car electric and the electric itself. Electric standard, they have a better acceleration, but nothing to compare with the difference between a premium car electric and a premium car with traditional engine. Now going to manufacturing. The -- we don't need major investment. We have adds-on and mostly is based on mathematic models and simulators because the profile of the tire changes in the high-performance tires and the structure changes. So we have some adds-on in our technology, but we don't need to change the basic plans we have. So no major investments required. The investments are in R&D, much more than in steel. Standard EV, I don't think is our future. So the standard EV, below a certain level, it's not demanding of technology as is the high end. That's why we put Elect engraved in this type because it would be very dangerous for a performing electric vehicle to use tires that are not dedicated to electric.

The next question is from Martino De Ambroggi of Equita.

Two questions on the guidance. One is the drop-through of volumes because in the last call, you guided for 2021 in the 40%, 45% range. Will it stay in this range going forward over the business plan period? And the second is more specific on the price/mix in line with raw material, basically with 0 balance for 2021. Don't you believe to be on the conservative side on this item?

So looking forward, we prefer to be, let's say, realistic and a bit cautious than bullish. So this is the number we have in the plan. Then when we have a plan, the -- we change also the entry level for the management. So we are stimulated to do better than the plan. So -- anyhow this is the number, and we confirm this number. The drop-through is 42% average what we have in our plan.

Okay. If I may, 2 more questions. One is on the cyber tires and the related service activity. Will it remain a niche market almost invisible? Or are you talking to sizable clients making possible to become something more relevant?

I may say that this market will become bigger. And we are in touch with clients that have different numbers compared to the numbers of a prestige car like the one we are now supplying. So yes, this market is coming.

But it's not part of the 2025 figures at least becoming sizable in this business plan?

We didn't put any figure in this plan. We are -- let's say, we are part of the -- an evolution of new models. But until we don't finalize anything, we don't put any figure in our plan, but it's consistent what we have in hands.

Okay. And very last on the -- if not on the business plan, but on the shareholding structure. We saw several changes, several moves in the past few months; Brembo, Camfin, Chinese partner and so on. So what's the most likely evolution of the shareholding structure over the next 12, 24 months?

I see that all these moves made these shareholders richer, which is good. So they made good investment. I don't see major changes, but we are a listed company. So anything can happen. I don't see major moves coming. So first of all, when we talk about this merger, Sinochem, ChemChina is something that comes back 2, 3 years ago. Now it's finalized, nothing changes 100%. So we -- there are no moving in the foreseeable future within the shareholder that can change the basic structure.

The next question is from José Asumendi of JPMorgan.

José, JPMorgan. A few questions, please. The first one, just want to come back to the price increases you've done maybe in the first 3 months of the year. Can you just run us a little bit through the -- across each of the categories? By how much have you increased prices? What has been the reaction of the market? And have you seen, maybe, some prebuy effect from some of the dealers anticipating the price increases and buying ahead of that? That will be the first question. Second question, China expansion plans, can you comment a bit about -- around the capacity you have in China? And where do you see unit-wise -- how do you see the business evolving? And the third question I want to come back to Brembo. Is there a technological collaboration with them? Can you share any details of whether you're doing any work with Brembo that could complement your product offering as well?

Thank you. I will leave the floor to Mr. Casaluci for the other questions. For what concerned Brembo, as I already mentioned, we don't have any cooperation with Brembo. We have a good relation with them. If ever it will come out something interesting, we're always ready to cooperate with reliable companies. So -- but nothing on our table today. Mr. Casaluci?

Thank you, Mr. Tronchetti. As far as price is concerned, you are right, there is a positive price movement into the market. The major Tier 1 announced price increase basically in all geographies since January. The amount of the price increase is different region by region, but in terms of price list is in the order of 2%, 3%. A bit more in South America, where there is a higher inflation and is more around 4.5%, 5%. This is in terms of price list. And in terms of capitalization of the price increase, the signals are also positive, supported by relatively shortage in terms of availability and low stock level into the trade. And so you will see that in the price/mix performance of 2021 compared to 2020, there is an improvement of roughly 1 percentage point, which is mainly linked to price performance. Replacement, we do expect a capitalization already in the first quarter, while the original equipment, which is linked -- 70% of the business linked to cost metrics approach will show the positive impact starting from the second half. So so far, so good in terms of price environment. Capacity in China, of course, is extremely important for us, and we can count at the end of the plan horizon on a capacity between 14 million and 15 million tires, 2 factories dedicated to high value and 1 factory is mainly but not only dedicated to standard. Having the plan to grow in China and Asia Pacific for us is key to support with the capacity growth. Thank you.

What is the current capacity you have in China? Apologies, you gave us the midterm 14, 15. What is the starting point?

Yes. The starting point is close to 12. And during -- within the end of the period, we target the number I said before, 14, 15, with the same plans, within the same plans.

The next question is from Thomas Horsell of Prometheus.

I suppose my question is for Andrea Casaluci, and I don't know how much you'll be able to divulge in this, Andrea. But I was wondering how do you plan to simultaneously integrate and forecast planning and scheduling for maintenance within the plant?

Okay. The predictive maintenance is one of the key pillars of the digital transformation of a factory, including a tire factory. I'm not an expert. I cannot give you answer in details, but to make the story simple. Once you have a lot of machineries working disconnected inside a factory, it's easy to have cost of quality increasing, to have mistakes, and you are forced to react to an error and to something that is not working properly. While if you are able, and this is the scope of our integration and industrial IoT to connect all the machineries, you can change data and information, and you can predict any kind of errors. For example, at the end of the process in the curing area, you know if a semifinishing product or something is coming with an error inside or with an issue in terms of quality and you can stop in advance without waiting to detect the error at the very end of the production with a higher cost of quality. You can act in advance. This is the core of the connectivity of all the machineries inside the factory, which is supporting the predictive maintenance of everything with the main target to reduce the cost of quality, improving quality with a less cost.

The next question is from Thomas Besson of Kepler Cheuvreux.

It's Thomas. I have 3 additional questions, please. First, I'd like to focus on '21 for the short term. Could you help us understand your degree of confidence on the channel mix evolution in 2021 and the ability of Pirelli to gain share in replacement instead of losing shares in 2020? And whether we should see a better performance in the second half or the first half on that front? That's the first question. The second is about your relationship and involvement with F1. As we shift towards an electrified car market, do you think it still makes sense to use F1 as your main marketing vehicle? Or will it make more sense to get into something more linked with electrification for communication? And lastly, you started deleveraging, which is great. The plan anticipate that you get down to between 1 and 2x between 2022 and 2025. And so we can ask you a more positive question about leveraging if it works. Where do you view the appropriate leverage for Pirelli? Is it down to 1x or are you comfortable anywhere between 1 and 2?

Thank you. Thank you for your questions, so starting for -- with channel mix and with mix. I think that as you have seen, we already started recovering in the replacement because in the original equipment, we didn't lose. We started recovering in the last -- in the second part of the year, mainly in the fourth quarter. And this trend continues. So we can confirm that this trend continues. There were specific reasons of the slowdown we had at the beginning of 2020. I mentioned them before. One was China, and second one was our cautiousness in controlling the stock. But we see that the pull-through is working all -- so our marketing tools are working, and I don't see risks on that area. When we go to Formula 1, I have to say that we continue to check, obviously, viewers and return between Formula 1 and other formulas. And still, we see that the other formulas, including electric, are not attracting today the number of viewers because there is an issue, everybody knows it, so the limit is bottomless. And so it's difficult to have the same -- it's interesting, but to have the same interest we have in electric and in Formula 1. Formula 1 is also moving to a direction of sustainability, part is hybrid. The requirements of emission are more and more demanding. I think that is also a good testing arena for the hybrid supercar as a number of players are proving. So still good, still the best vehicle for the foreseeable future. Deleveraging. Deleveraging, I think, we have been able in 2020 to prove our capability to create cash flow that gives me the opportunity to sum up the cash flow generation between now and '22 and then '23-'25. So we have an adjusted EBITDA that cumulative should be in a range of EUR 2.4 billion in '21-'22 and EUR 4.6 billion in '23-'25, all in all saving more than EUR 7 billion. CapEx in the range of EUR 2.720 billion in '21-'22; EUR 1.2 billion, EUR 1.3 billion, '23-'25. And if we look to the IFRS, in -- EUR 161 million in '21-'22; EUR 180 million in '23-'25, which makes the operating cash flow worth EUR 1.6 billion, '21-'22, and EUR 3 billion in '23-'25. And the total is EUR 4.6 billion. When we go to net cash flow, we see that we repay in -- let's say in terms of cash out, we repay EUR 2.5 billion, including obviously the debt. The debt goes down to EUR 1.5 billion, taking into account the distribution in -- between '21 and '25 of EUR 850 million. And so the net debt reduction will be EUR 1.7 billion. So with that cash flow production that is growing in '23-'25 because all the effects of restructuring that have been paid in the last few years, these restructuring were related to Brazil, to the move from Bollate to Russia of the production capacity, and in U.K. to the rationalization of our plant. So considering that the main maneuver with cash out has been finalized, and there is a part that will be finalized this year, then we see a cash flow production coming smoothly afterwards, taking into account also that the burden of the interest rate is going down. So all in all, I consider that this deleveraging is very realistic and will continue in the coming years.

If I may just follow up, I think it's effectively showing that you start deleveraging. My question was, where would you feel comfortable already in terms of leverage? Do you want to take leverage down to 1? Or eventually if there are opportunities, you're happy if leverage stays between 1 and 2?

I think that 1.5, I always continue with the same number in mind. Until the interest rate stays at this level, a ratio 1.5 is reasonable. So we consider to have this deleverage in continuity in a business model that is producing cash. And in an environment where the financing has a low cost, I don't see that we have to go down to 0. So I think that there are opportunities. One thing I want to remind is also the Formula 1 has the target to be carbon neutral by 2030. So also within Formula 1, things are happening.

Mr. Tronchetti, at this time, there are no questions registered, sir.

Thank you very much for your attention. Thank you. You spent an interesting half day with us and is an opportunity to wish to all of you happy Easter. [Portions of this transcript that are marked [Interpreted] were spoken by interpreters present on the live call.]