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

Ladies and gentlemen, welcome to Pirelli's conference call, in which Pirelli Health Management will present the company's 9 months 2021 financial results. A live webcast of the event and the presentation slides are available in the Investor Relations section of the Pirelli website. [Operator Instructions] Now I would like to introduce Mr. Marco Tronchetti Provera. Please go ahead.

Thank you. Good evening, ladies and gentlemen, and welcome to our 9 months conference call. Industry scenario is confirmed to be positive despite a weak demand for regional equipment due to semiconductor shortage and inflation pressure on input costs. Implementation of our industrial plan is proceeding according to expectations for all our programs. Consolidation of our position in high value, especially in the car 19 inches and above, plus 1.4 market share in 9 months, strengthening on the ESG front, where we achieved an important result in the way of decarbonization. Today in Europe, 100% of the electricity we purchase comes from renewable sources. And before the end of 2025, this will be true for the whole group fundamental milestone towards our ambition to reach carbon neutrality before 2030. The third quarter results prove our performance to be stronger. The price/mix at 10.9%, profitability at 15.7% and high cash generation, 7.4% of sales despite the business seasonality. Such some trends led us to revise our yearly targets upwards. External scenario is confirmed to be positive, but characterized by growing volatility. Economic recovery is proceeding with an expected growth of global GDP of 5.5% in 2021, slightly slower than previous forecast, that was 5.7% in August due to supply chain issues in oil industries and persistent pandemic outbreaks in different areas. The strong economic recovery has grow supply shortages and the general increase in input costs has resulted impact on inflation, which is expected to be 3.7%, was expected to 2.3% in industrial plan in March globally in 2021. In the tire industry the persistence semiconductor crisis has caused the major carmakers to revise their production estimates with the resulting impact on tire demand for original equipment. Expectations are now minus 1% globally in 2021 against plus 6% in year ago guidance. The outlook for replacement channel remains unchanged, especially for the high end of the market where demand is growing in the high teens in 2021. Pressure on input cost on materials, energy and transportation, together with the lower stock levels in the distribution chain, [indiscernible] sound price discipline in the tire industry with repeated price increases by various players in different regions. We already promptly responded to external headwinds to an action plan aimed at mitigating the supply chain volatility, averting production interruptions and a strong stock buildup. Production and logistics structure able to manage demand volatility and fully exploit all opportunities in the replacement business, while Original Equipment is experiencing a setback. The capital pricing policy, which, together with the mix improvement allowed us to deal with increases in raw materials and exchange rate volatility. Implementation of competitiveness program, which in 2021 more than offset the impact of inflation. Growing volatility of inflation and supply chain is expected in 2022. In order to deal with this scenario, Pirelli not only continue with the actions I already described, but it's also setting up a number of initiatives to support profitability. And in any case, ensuring that the deleverage is in line with the targets in our plan for 2022. Results from the first 9 months reflect the gradual implementation of the key programs of our industrial plan. At commercial level, we strengthened our position in a value leveraging on a highly technological product portfolio. In line with our targets, we increased our exposure to 19 inches and up, which accounts for 66% of high-value volumes plus 3% year-on-year. And new technologies with the volume growth in EV approximately 10x higher than in the first 9 months of 2020. At innovation level, we obtained 240 technical homologations. Over 70% of our yearly target concentrated in 19 inches and up approximately 85% and specialty is approximately 45%. Our product portfolio is now another 5 lines devoted to replacement to meet the different needs in regional -- of regional consumers All-seasons, Winter, push-lines. The competitivity level, step 2 of the efficiency plan is going on. The gross benefit for -- was EUR 110 million, EUR 59 million net of inflation, which means 74% of our yearly target. Concerning our operations program, the reorganization plan is now over. The Gravatai plant is now closed and our motor production has been moved to Campinas. This allows us to supply the Latam market and exports of our products with greater efficiency. Reorganization in Burton-on-Trent in the U.K. is over and the focus is now on semi-finished products. Prior to this, the process towards reaching the best plant saturation is ongoing with a fill up capacity of over 90% in the first 9 months of 2021. At ESG level, our action of -- to self-regard the natural environment, sustainability of materials and local communities continue at a fast pace. As already pointed out, as of 2021, 100% of electricity we purchase in Europe comes from renewable sources. When it comes to sustainability of our supply chain, we are proud of having entered into a multi-year partnership with BMW and the NGO Birdlife International to [indiscernible] the production of sustainable natural rubber of deforestation in Indonesia. Mr. Casaluci will provide you more details about it. Last but not least, Pirelli's been reconfirmed on the list of the Global Compact LEAD companies 2021 by the United Nations. Pirelli is the only company in the automotive industry to appear on the list and 1 of the 30 companies in the world most committed to implementing the 10 principles of the United Nations global company. Slide #6 -- sorry, sums up the solid performance achieved in the first 9 months of 2021. The top line growth, plus 28.6% year-on-year was supported by strong commercial performance. Profitability improved, both in absolute terms and margin driven by the strong volume growth, effective price mix improvement and net efficiency gains. Net income rebounded closing with EUR 236 million at the end of September. Other formation of net cash flow generation in the third quarter was 7.4% of sales, supported by tight working capital management. In particular, in inventories, we are benefiting from a strong integration with our clients established through the years, which provide us with high visibility into demand and the flexibility of our manufacturing footprint specialized on small lots. Let us comment on 2021 expectations, starting from our market outlook. Persistence of semiconductor crisis leads us to review our forecast on total car tire demand of full year for full year 2021 with a trend growth expectation of 7% versus approximately plus 10% as previously indicated. In original equipment, we forecast a 1% decline in demand, previous indication was plus 6%, the worsening of the trend in fourth quarter. Demand and replacement is still vigorous with a plus 10% growth, minus 1 percentage point compared to the August expectations. This variation affects the standard segment and is the consequence of the lockdown impacting Apac during the third quarter. Our values confirmed to be the most resilient segment, the demand in a tire 18 inches and above of plus 12% and higher than before the pandemic, plus 2% versus full year 2019. Replacement demand trend is confirmed to be plus 18%. The sales market performance in North America and in Europe offset the temporary weaknesses in Apac due to the COVID emergency in the third quarter. Demand is expected to recover in the fourth quarter in this market. In Original Equipment, this tire demand is expected to have a positive trend, plus 3%, although values are lower than in the previous indication. It was plus 10% the expectation in August. In the standard business, we expect a mid-single-digit growth plus 6% versus plus 8% as per indication in early August. We confirm expectation on our volumes and expected growth between 14% and 15% because of our high value exposure where we are increasing our shares. Going to the next step, full year '21 targets update. Based on the 9 months results and our visibility into the external scenario, we revised our full year 2021 targets with the following expectations: Revenues between EUR 5 billion on the median and EUR 5.150 billion, plus EUR 100 million more than August guidance. Group volumes growth between 14% and 15% is confirmed, its growth in High Value. Price/mix around or plus 7%, is improving because of the further price increase and a more favorable product and channel mix compared with August. Negative exchange rates at minus 2%. Previous indication was between minus 2 and minus 2.5. Adjusted EBIT margin range is confirmed between around 15% and around 15.5%. With adjusted EBITDA improvement of approximately EUR 20 million compared with the implicit value of the August guidance due to the high price mix contribution that more than offset both the raw material headwinds now approximately 3.6% of revenues and negative exchange rates. All other adjusted EBIT bridge components are confirmed. Net cash flow generation before dividends is improving between EUR 390 million and EUR 410 million supported by operating performance and efficient management of the working capital. Investments are confirmed at EUR 330 million. I now leave the floor to Mr. Casaluci who will discuss the operating performance. Mr. Casaluci, please.

Thank you, Mr. Tronchetti and good evening to all of you. Now let us analyze both the market dynamics and Pirelli's performance. Over the first 9 months of 2021, the global tire market demand increased by 13%. The recovery was more sustained in the 18 inches and above segment, with plus 21% year-over-year and is exceeding pre-COVID levels plus 5% versus the first 9 months of 2019. Pirelli confirms its overperformance versus the market with volumes at plus 24% in the total car and plus 31% in the 18 inches and above. More specifically, in the high end of the market, Original Equipment growth, Pirelli volumes plus 34% and market plus 15%, was supported by exposure to Premium and Prestige consolidation of customer base in North America and Asia Pacific as well as by a higher demand of products for electric vehicles. In the Replacement, Pirelli volumes plus 30% and market plus 24%. Our share in the major regions is now stronger due to a growth in high-value pull-through volumes and new dedicated lines. Pirelli also recorded a more market volume growth, plus 17% in the car, 17 inches and below segment versus its reference market, plus 12% because of a strong demand recovery, both in South America and Russia. In the third quarter, the market trend, minus 5% total car was due to a lower Original Equipment demand, minus 20%, caused by the semiconductors shortage. Demand in the replacement channel also impacted by the new lockdown rules in Asia Pacific is only slightly higher, plus 1%. In the third quarter, Pirelli keeps on overperforming the 18 inches and above market, plus 4% Pirelli volumes while market volumes are down 2%. Limiting Original Equipment impact, Pirelli volumes minus 3%, while market minus 15 because of a greater exposure to Prestige and Premium OEMs and the new contracts in North America and Asia Pacific getting stronger in replacement, Pirelli volumes plus 10% versus plus 8% of the market because of our performance in both North America and Europe. In the third quarter, the volume reduction in the car 17 inches and below minus 6% was indeed substantially in line with the market minus 5%. The overperformance of our top of the range segment confirms the current implementation of the commercial program. The overperformance in the car 18 inches and above was driven by our upper most technological products, offering over 75% of the growth was driven by the 19 inches segment, and over 60% of specialties. Lines sold to replacement with Original Equipment homologation were fundamental for the growth of the pool volumes, mainly in Europe and United States, roughly 66% of the global growth. The new lines dedicated to replacement drove a solid performance of the push volumes particularly in Europe and U.S., more than 80% of the world growth. The Original Equipment market share increase was uniform in all the regions. The focus on equipments for EVs continues since they are accounted for approximately 20% of the growth in the first 9 months. Our innovation program unfolds in line with the planned roadmap where a higher market share than the typical one is expected in the EV segment, already from next year and 1.5% higher in 2025. The Munich Motor Show offered a wide visibility in terms of our positioning in the EV segment. Almost one electric car out of 3 of those exhibited in the pavilions of the motor show or in the districts of Munich was fitted with Pirelli tires. And our presence was on average twice as much if compared to our main competitors. The P Zero market elect that couple the motorsport morale with the electric technology was chosen to be fitted on cars such as Porsche Taycan, Ford Mustang Mach-E GT, Polestar 1, BMW iX and Mercedes-Benz EQE. Munich was also showcased for the first time in the world certified by the Forest Stewardship Council, FSC fitted on the new BMW iX5 Hydrogen and on the BMW X5 xDrive45e Plug-In Hybrid. The Pirelli P Zero tyres with natural rubber and rayon with FSC certification are a new step forward to reach an increasingly sustainable production. Indeed, this certification guarantees full traceability of the raw material throughout the supply chain. Implantations managed so as to preserve biological diversity and improve the life of the local communities. In the first 6 months, following the introduction of four replacement regional lines developed to meet our customers' needs, the upgrading of our product range continued during the third quarter with the launch of the Cinturato Winter 2. A winter tire of medium-sized cars and CUVs, Cinturato Winter 2 is the outcome of Pirelli's cutting-edge technologies such as size with variable geometry guaranteeing better grip and higher safety standards and a special compound developed through an innovative system of liquid polymers improving performance on wetting snow. In addition, Cinturato Winter 2 was developed through virtual simulation processes. Cinturato Winter 2, besides being an environmentally safe tire, is also on the top of the European labeling features for its rolling resistance and low noise level. Cinturato Winter 2 offers a level of performance among the best on the market under all driving conditions in winter, as confirmed by TUV SUD that granted in the performance market. As already mentioned by Mr. Tronchetti, our commitment to preserve the environment was further developed through a multiyear partnership with BMW and an NGO called Bird Life International. This is a partnership to increase the production of sustainable natural rubber in Indonesia by sparing the Hutan Harapan area on the island of Sumatra from further deforestation. It is a project based on two fundamentals: A partnership among stakeholders belonging to the value chain of natural rubber and sharing the same values. Therefore, they wish to maximize the positive impact of this project. And the core of this project is the full creation of sustainable value through the following: Preservation of 2,700 hectares of rainforest, protection of the rights of the local community, promotion of women's participation to social and economic life, agricultural and forestry training to locals and natural rubber farmers, and protection of several animal species at risk. This project is a further milestone by Pirelli for the sustainable management of natural rubber. The competitiveness program continues in line with our plan. with the gross efficiencies expected to be worth EUR 155 million this year, of which EUR 80 million net of inflation, approximately 2.1% of the baseline. Over the first 9 months of this year, the gross benefits from our competitiveness program were worth EUR 110 million, which means double absorption of the impact from the growing inflation. Net efficiencies are worth $59 million and account for 74% of the target of the current year. In the third quarter, gross efficiencies were worth EUR 27 million, EUR 9 million net of inflation. I wish to provide you with more details on the several projects we have launched. Within product cost, which is worth 38% roughly of the gross efficiencies during the 9 months of 2021, we continue to implement our new approach to modular design and the more efficient materials purchasing program. On manufacturing, which accounts for approximately 36% of the efficiencies made during the first 9 months of 2021, the program to increase flexibility, digitization and sustainability continues. In line with volume rebound and the saturation reached in the factories, manufacturing has already hit 90% of its yearly target. On SG&A, we have leveraged on further efficiencies to redesign our distribution network and optimize stocks. And finally, our organization process digitization and upskilling programs are still ongoing. In the fourth quarter, we expect a stronger impact from inflation mainly due to the increase of energy and logistics costs. Thank you for your attention, and I now give the floor to Mr. Bocchio for the financial performance.

Thank you, Andrea, and good evening to you all. Pirelli closed the first 9 months of 2021, with sales worth EUR 3.98 billion, growing 28.6% year-over-year being supported by a definite overperformance versus the market within a framework of demand recovery. More in detail, revenue growth amounted to EUR 885 million, with a negative impact of EUR 71 million, minus 2.4% from exchange rates due to the depreciation of the dollar and the major currencies of emerging countries against the euro. If we exclude the exchange rate impact, the organic growth amounted to plus 31% in the first 9 months of the year. Let's go through the commercial variables in detail. A positive volume impact on sales, EUR 763 million, plus 24.7%, particularly due to the growth in the high-value segment, plus 27.8% which is confirmed to be at pre-COVID levels both in the car and motor segments. A sustained contribution by the price/mix, EUR 194 million or plus 6.3% supported by price increases in the replacement business in both segments, product mix improvement based on the growing demand for bigger rim sizes and products with more technology. In the third quarter, revenue trend reflects a slowdown in market demand, as already shared by Mr. Casaluci with slightly declining volumes, minus 0.4% in the quarter at group level with high value at plus 1.8% and standard at minus 2.6%. Conversely, the price/mix were on a strong rise at plus 10.9%, supported by price increases and an improved product mix and channel mix due to the slowdown in car production caused by semiconductor shortages. Let's now analyze the profitability trend. In the first 9 months, adjusted EBIT was worth EUR 599 million with a 15% margin in line with our full year target. The solid contribution of all internal levers, volumes, price/mix, efficiencies more than compensated for the negatives of the external scenario, raw materials, inflation and exchange rate impact. More specifically, the profitability improvement in the first 9 months is due to a strong volume contribution plus EUR 310 million price/mix improvement, plus EUR 150 million that has more than offset the impact of raw materials, minus EUR 114 million and exchange rates, minus EUR 18 million. Phase 2 of our competitiveness plan generated efficiencies worth EUR 110 million, about 3% of revenues. EUR 59 million net from inflation, which covered the reversal impact from the COVID actions, minus EUR 23 million and other cost increases minus EUR 38 million. A short comment on the item, other costs, which includes three macro clusters. R&D, sponsorship and marketing expenses are part of the first cluster. That recorded a EUR 33 million increase, mainly in the first quarter. The second cluster includes provisions for the short- and long-term management incentives with an impact worth EUR 37 million in the 9 months, EUR 13 million in the third quarter. We wish to remind you that in 2020, because of the COVID emergency, the management short-term incentive plan was canceled. The third cluster includes the impact from stocks, credit impairment, royalties and other costs. In the first 9 months of this year, the variation amounted to plus EUR 31 million which is mainly reflecting the positive impact from stock replenishment. The overall impact of the item others over the year is confirmed to be approximately minus EUR 30 million where the provisions for management incentives are compensated for by benefits connected to stock replenishment. Let's now talk about the third quarter 2021 profitability. Adjusted EBIT was worth EUR 221 million, a 4% year-on-year growth, supported by the price/mix contribution that has compensated 1.3x for the raw material and exchange rate impacts. The adjusted EBIT margin was at 15.7% and compared to 16.7% in the third quarter of 2020 and discounts the reversal impact due to COVID actions worth EUR 12 million in the third quarter, which means almost a 1 point of margin. Let's move now to the net income dynamics. Net income showed a strong improvement in 2021, about plus EUR 254 million year-over-year. The trend discounts, we already mentioned improvement in the operating performance, delta adjusted EBIT plus EUR 318 million. Restructuring and nonrecurring costs improving from the same period of 2020. Results from equity participations was positive by EUR 2 million, a plus EUR 8 million improvement related mainly to the result of our JVs in China and Indonesia. Net financial charges were slightly improving year-on-year as higher charges on central debt impacted mainly by the COVID pandemic, which caused a temporary increase in the spread of the major credit line of the group were more than compensated for by benefits stemming from financial management at local level. The EUR 91 million increase in tax charges was related to the greater operating results discussed previously, with the tax rate remaining stable at around 26%. Net income adjusted, meaning excluding all the one-offs and nonrecurring items is positive for EUR 360 million in the first 9 months of 2021. Let's move now to the cash flow and our financial position. In the first 9 months of 2021, the net cash flow in terms of variation of the net financial position is equal to minus EUR 457 million, including EUR 80 million related to the dividend distribution made in the period. The net cash flow before dividends was of -- negative of EUR 377 million improving by EUR 369 million versus the first 9 months of 2020 and improving of EUR 252 million compared to the first 9 months of 2019. This trend was mainly supported by the improvement of the operating performance that has just been mentioned. Lower absorption of the working capital through a careful stock management 18.8% as a percentage of last 12 months sales in line with the first 9 months of 2020, but a 2 percentage points improvement compared with the same period of 2019. and trade payables benefiting from the business recovery. In the third quarter of 2021, the net cash flow before dividends was positive EUR 104 million despite the seasonality of the business, thanks to the already mentioned dynamics of working capital. The net financial position is of approximately EUR 3.7 billion at the end of September. Gross debt at the end of September is approximately EUR 5 billion less than at the end of December 2020 because of advance payment of financial debt worth approximately EUR 1 billion. The liquidity margin is confirmed to be at approximately EUR 1.5 billion and allow us to cover debt maturities until June 2023. The cost of debt in the last 12 months was of 2.41% with an increase of 0.47 percentage points compared to full year 2020, mainly because of the temporary impact of the increased leverage following COVID, which impacted on the major corporate financing projects. For full year 2021, we expect the cost of debt to be approximately of 2.5%. It was 1.94 in 2020 in line with the industrial plan, considering the above measure dynamics and due to increased local interest rates, in particular, in Brazil. Net financial charges are expected to be worth EUR 141 million, approximately EUR 20 million less than the assumptions made in the plan, especially due to favorable dynamics on the hyperinflation in Argentina and to lower commercial hedging. Thank you for your attention, and I'll give the floor back to Mr. Tronchetti.

Thank you Mr. Bocchio. We can now open the Q&A session.

[Operator Instructions] The first question is from Martino De Ambroggi of Equita.

ThefFirst question is on the guidance -- actually, two questions on the guidance. The first is on the implicit Q4 midpoint because it implies significant reduction in terms of top line and absolute value in terms of adjusted EBIT despite some recovery in the original equipment expected, just if you could provide us what are the main reasons for this in Q4. And on the free cash flow guidance, I understand that CapEx are confirmed, but what is your assumption on net working capital? Because Mr. Bocchio speech, he mentioned net working capital improvement. I don't know if there is something that could be more positive at the end of the year. And in particular, is factoring is confirmed around EUR 200 million as it used to be at the end of the year?

Thank you. And before leaving the floor to Mr. Bocchio to answer about the cash flow. I want to underline that we are not thinking that the last quarter will have a recovery on the Original Equipment. We believe that the Original Equipment will remain weak even at least for the first quarter, but probably until June of next year. So our forecast in terms of results has been confirmed in the highest part of our targets. And we don't see any specific change in working capital policy. But Mr. Bocchio will provide you the answer. Please, Mr. Bocchio.

Thank you for the question. I have to reaffirm that on the full year basis, the net cash flow before dividend generation will be a generation of about EUR 400 million. That will be sustained by for sure the better operating performance and the for management of the working capital specifically related with an increase in in trade payables as a consequence of the business recovery a slight increase in receivables as a consequence of the higher sales expected in the last quarter of the year improving in terms of incidence on net sales as a consequence of the improved condition of the market and customer liquidity position that should reduce the volatility in credit risk and collection and partially compensated by a very moderate stock increase in absolute value in order to sustain the decrease in sales. But anyhow, in percentage of the stock, we expect it to be in line with the 9 months with a very light increase. The financial income and expenses, as I said, will be amounted to about EUR 141 million in reduction compared to previous year. And the increase in taxes paid, obviously, is a consequence of the higher result. Coming back to your point about the factoring, I can confirm you that the company is not changing the policy, and we foresee the value of factoring to be in line with the value of previous year.

And the follow-up is on the [indiscernible] products. If you could provide a rough indication on what is the profitability considering the weakness of the Original Equipment? And if you are in the same path you expected in order to achieve 10% return on sales next year?

Mr. Casaluci?

Yes. We confirm we are on the direction to reach the low double-digit profitability in 2022. And what we do expect in the standard all in all is to arrive very close to the 10% in 2021. In the replacement channel, overperforming already these return on sales, while in the Original Equipment a bit below.

The next question is from Monica Bosio of Intesa Sanpaolo.

The first question is on the market share gains. Any color on your market share gains across the different regions would be appreciated. And my second question is on the price mix. Can you just give us -- tell us how much is pricing and how much is channel mix? And should we expect for the first part of the next year, a similar price mix trend to the one that we have seen so far in the second half of 2021?

Mr. Casaluci?

Yes. Thank you. I will start from the price/mix. If we look at the performance of the third quarter, that was presented by Mr. Bocchio, we can assume that roughly 40% of the price/mix is related to price. And what we do expect for the first -- the last quarter of the year is a similar trend. For the 2022 is too early to have a clear understanding and picture because there is still a very high level of volatility into the market. But what is given for granted is that with price/mix, we will be able to more than compensate the impact of raw material and Forex in 2022. Back to the question on the market share. The gain of market share was spread all around the channels and the regions in 2022 versus 2020 is more pronounced in the first half because of the favorable comparison. You most probably remember that in 2020, in the first half we decided to reduce the level of stock in the trade. And as a consequence, we lost market share, in the 2021, we were able to recover. While if we compare versus 2019, there is a clear acceleration in the third quarter in terms of gain of market share. This is true in the Original Equipment, even more evident in all the regions because of our exposure to the Premium and Prestige segment of the regional EBIT. As a matter of fact, it has been less affected by the price of the semiconductors compared to the synergy. And inside the premium product offer, the carmaker are protecting the high end of their product portfolio because of profitability. And as a consequence, Pirelli took advantage, taking advantage of this. As far as the replacement is concerned, the third quarter performance, as I mentioned in the presentation, was particularly positive in terms of gain of market share in Europe and in North America.

Sorry, just a follow-up, if I may. Did you have any extra cost, one-off costs in the third quarter related to the lockdowns in China?

No, nothing.

The next question is from Gabriel Adler of Citi.

Gabriel Adler from Citi. I'd like to come back to the price mix, please, which was clearly very impressive in Q3. But at what point do you think price increases start to impact consumer demand? especially for a premium to make like Pirelli, how do you manage the risk pushing prices higher and that possibly result in consumers trading down to cheaper players? Maybe this is less relevant today because supply is obviously still quite tight. But I imagine when imports normalize and capacity starts growing again, this may become more of a challenge for your business and the industry as a whole? And then my second question is just whether you could quantify the impact that you expect in Q4 some cost inflation. So raw materials and just on costs or any other costs that you are willing to quantify?

For the first question, the price/mix is obviously due to the environment, the price. And it has to be underlined that the consumers in the segment of the market where we are, they are not so much affected by a price increase of a few points. The cost of the cars is average 2 to 3x the cost of standard car. So it's a question of the market dynamic and luckily, the market dynamic -- dynamics are positive and stocks are not growing. So stocks, we don't see in the market the pipeline being full. So the pipeline still is quite empty. And so these price increases leave us in let's say, positive condition considering the entrance in 2022 with the price increases we made. So we don't expect this coming. For the second question, Mr. Bocchio?

Okay. Thank you for the question. Going back to the raw material point that we -- obviously, we saw on the market and any hit in our accounts for the increase in the cost of the raw materials. Compared to our previous view -- previousfull year view, we see an increase that is about EUR 20 million. And talking about incidence on net sales, previously, we were expecting raw materials -- a negative impact of raw materials in the ballpark of 3% of net sales. And now we are expecting a negative impact that is about 3.5% of the topline. I hope this clarifies your question.

I think that an additional point has to be taken into account, that this year, we launched 5 new product lines, dedicated to the replacement market. In our plan next year, we launch more than 5. And all the new launches are related to products that are performing better than the existing products. So there is value in these new product lines and prices will be protected also by the new lines we launched, and we are going to launch.

Maybe I can just follow up on the first question. Given your comment there that stock isn't really increasing. Would you consider pulling forward some of the capacity expansion plans that you currently have in your midterm plan to take advantage of the time supply environment? Are you happy with your capacity levels currently?

No, nothing has changed in the capacity. The utilization is around 90%. The increase of stock is related to the higher volumes of sales we have. So that is only a natural, let's say, consequence of the fact that we increased the volumes. So -- and that's why the working capital remains, let's say, balanced, and we have a cash flow that is sound and continue to be consistent.

The next question is from Thomas Besson of Kepler Cheuvreux.

And I have a few questions and I'll ask one by one, if it's possible. Firstly, I'd like to come back to a question that was raised earlier by I think by Senor Martino. On the guidance, particularly on the revenue guidance, your midpoint implies a substantial sequential decline in revenues, Q3 to Q4. But I'd like to understand a bit better if it's possible. It's clear to me that price/mix is going to be relatively close in Q4 to Q3, unless I missed something. And FX is also going to be a positive. So what is the assumption that I'm missing for explaining that your revenues would decline a lot more than any time before in Q4?

So we already underlined at first compared to the guidance of August last, the top line is growing is not lower than the previous guidance. Regarding the last quarter, we remain conservative considering the reduction of our new general equipment, even if in our segment, the effect is lower than in the other segment, but is I think is in a volatile environment, it's better to stay on the safe line.

Looking at your new EUR 1.6 billion financing line, could you discuss the -- like the financial charges in 2022? Is it going to have a positive impact? You're already talking about, I think, EUR 142 million net financial charges for this year. Is it going to be lower in '22, thanks to that as well?

We consider until now that they remain in line. So we don't see major changes. We are negotiating, and we don't see not a negative nor a significant positive effect.

Last question, please. You've launched new products on the winter side and you've discussed launching 5 products or more that are in attractive and growing segments that are working fairly well. Could you discuss the development of your market share both in the Winter segment and in the All-season segment? And whether you managed to reach similar margins in All-season by in Winter? Or whether like most of your peers, this is relatively dilutive to see the All-season taking share on the Winter segment.