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

Ladies and gentlemen, welcome to Pirelli's conference call in which Pirelli top management will present company's full year 2025 preliminary results. A live webcast of the event and the presentation slides are available in the Investor Relations section of the Pirelli website. I remind you that the Q&A session will follow the presentation. Now I would like to introduce Mr. Marco Tronchetti Provera. Please go ahead, sir.

Good evening, ladies and gentlemen. 2025 results mark another milestone in our journey of growth and value creation. In a highly volatile external environment, the group closed the year with outstanding results. We further improve our positioning in high value. Profitability is confirmed as the highest among Tier 1. Cash generation was above expectations, enabling us to accelerate the deleveraging process. At the same time, we strengthened our commitment to sustainability with result that reinforce our leadership. Pirelli is the only company in the global tire and auto component sector to be included in the top 1% of the Standard & Poor's Global Sustainability Yearbook. The scenario that we see for 2026 remains challenging with geopolitical uncertainties and high microeconomic volatility. In this complex landscape, we see real opportunities for growth that we are ready to capture through a business model that is increasingly data-driven. We aim to consolidate our leadership, improve profitability, deliver a sound cash generation and ensure a solid shareholder remuneration. I now give the floor to Mr. Casaluci, please.

Thank you, Mr. Tronchetti, and good evening. Revenues amounted to EUR 6.8 billion with an organic growth of 4.2%, driven by the strengthening of High Value, which now accounts for 79% of group sales, plus 3 percentage points year-on-year. Profitability reached 16%, supported by internal levers that more than offset the negative impact of the external headwinds for around EUR 320 million between exchange rates, tariffs and input cost inflation. Net income stood at EUR 531 million, up 5.9% year-on-year, benefiting from a solid operating performance and lower financial expenses. The deleveraging process was completed, thanks to cash generation before dividends of approximately EUR 1.1 billion, resulting from improved operating profit, rigorous working capital management and the successful conversion of the equity-linked bond. In 2025, we strengthened our commitment to sustainability, a strategic lever for innovation, growth and competitiveness. The results achieved are fully in line with our objectives and long-term strategy. Accident frequency rate was reduced by 14% year-on-year as a result of prevention and training programs. In decarbonization, we achieved important results. We reduced absolute CO2 emissions by 63% in our factories compared to 2018 through the electrification of curing processes, and we intensified the efforts with our suppliers who decreased emissions by 27.5% compared to 2018. These results are fully consistent with the carbon neutrality target for 2030 and net zero for 2040, validated by science-based targets initiatives. As for products, we increased the percentage of bio-based and recycled materials, which in P Zero developed for JLR accounted for more than 70%. This is an important achievement that places us at the forefront of the industry and also offers interesting business opportunities and mix improvement. Finally, to protect biodiversity, we have further reduced water consumptions by 54.3% across all the group's production sites compared to 2015. Let us now move on the detailed analysis of 2025 operating performance. The implementation of our strategic programs enabled us to strengthen the positioning in the high-value segment, gaining market share in both replacement and OE to consolidate the technological leadership with new products that stood out in comparative tests and to improve the competitiveness with the automation and digitalization of our processes. Let us now take a closer look to each program. We fully captured the growth of car 18 inches up, outperforming the market, plus 7% in full year 2025 compared to plus 6% of the market and plus 11% in the fourth quarter versus plus 8% of the market. The gaining market share concerned both channels. In original equipment, we benefited from strengthened partnerships with local carmakers in North America and Asia Pacific and a favorable year-on-year comparison. In replacement, our performance was positive in all regions, driven by pull-through and continuous product innovation, which enabled us to size opportunities in specific segments, for instance, all season in Europe and all terrain in the United States. During the year, we continued to reduce our exposure to standard, particularly in South America, where we revised our commercial and distribution policy to focus on more profitable products and channels. Let us now move on the innovation program. In 2025, we further consolidated our technological leadership in the high-end segments. We obtained approximately 320 new homologations, mainly in 19 inches and above specialties and electric vehicles. Our homologation portfolio is much wider than that of our peers, more than 3x in 19 inches up. This strengthened our partnerships with premium and prestige OEMs in various regions. In Europe, we confirm our role as a leading technology partner contributing to the evolution of iconic models such as the Ferrari [indiscernible] Testarossa. In North America, we are consolidating our leadership in high-performance vehicles such as Ford Mustang. In Asia Pacific, we have a closer partnership with the most important new premium electric vehicles producers. And finally, in South America, we are supporting the technological evolution of car park with a stronger presence on multipurpose vehicles such as the Ram Rampage. Our high-value offering was enhanced with 9 new car products. 2025 was a record year in terms of awards and recognitions for Pirelli products. In summer, P Zero E won Compasso d'Oro, a prestigious International Industrial Design Award. In addition, the fifth generation of P Zero was voted best ultra-high performance at Summer Tyre by Tyre Reviews and Auto Express. The P Zero Winter 2 ranked first in test conducted by the historic Swedish Magazine and Tyre Reviews. Finally, in the All-Season category, Cinturato All Season SF3 scored 12 victories, while Scorpion All Season SF3 stood out in the German AVD comparison taking first place. Important results were also achieved in the world of 2-wheelers. In motorcycles, we introduced 2 new products and won Motorrad and PS Magazin test. Finally, in Cycling, we further expanded our range with 4 new products. Pirelli's Cyber Tyre technology also received several global awards. In the United States, it was voted the most innovative technology for the future of smart mobility by the AutoTech Breakthrough Awards. And Frost & Sullivan named Pirelli Company of the Year. In Europe, the significant level of innovation was also recognized by AUTOBEST and by the Automobile Awards in the Safety category. Finally, let's analyze the results of the operations programs, which generated gross efficiency of EUR 158 million, offsetting the negative impact of inflation. More specifically, the greatest benefits drive from the product cost project, thanks to innovative design reducing the cost of materials and the manufacturing project through factory automation and electrification of the curing phase, allowing a more efficient use of energy. In the SG&A and organization projects, we continue developing the planned programs, generating efficiencies through the rationalization of the supply chain and the optimization of logistics and the digitalization of internal processes and personnel upskilling. I now give the floor to Mr. Bocchio.

Thank you, Mr. Casaluci. Let's now analyze in detail the performance of 2025 compared to the previous year. The top line recorded an organic growth of 4.2%. If you factor in exchange rates and the difference in perimeter, the top line was stable. High Value revenues were above EUR 5.3 billion, accounting for 79% of the group's revenues, up 3 percentage points compared to last year. Let's now move on to the individual drivers. The trend in volumes, plus 0.4% year-on-year reflects the opposite dynamics of High Value and standard already illustrated by Mr. Casaluci. The price/mix improved by 3.8%, driven by the product mix and the regional mix, while the channel mix was slightly negative, particularly in the fourth quarter, given the trend in sales of original equipment compared to those in replacement. The impact of exchange rates, minus 3.8%, reflects the depreciation of the U.S. dollar and the volatility of emerging market currencies against the euro. Finally, the change in perimeter, minus 0.4% is linked to the deconsolidation of the Dackia business, which was sold in the second quarter of 2025. Let's now analyze the profitability trend. Adjusted EBIT amounted to EUR 1.081 billion, up by approximately EUR 20 million year-on-year with a margin of 16% compared to the 15.7% in 2024. The improvement in profitability is linked to the effectiveness of internal levers, which more than offset the negative impact of external factors such as exchange rates, raw materials, inflation and U.S. tariffs, amounting to a total of EUR 320 million. More specifically, volumes contributed EUR 11 million. The price/mix of EUR 173 million more than offset the increase in the cost of raw materials for EUR 56 million and the impact of the exchange rates negative for EUR 85 million. Efficiencies equal to EUR 158 million more than covered input cost inflation that were EUR 121 million. Finally, we accounted for a negative impact of D&A for EUR 26 million and other costs for EUR 33 million. The gross impact of U.S. tariffs was EUR 55 million, approximately EUR 25 million net of the mitigation plan. In the fourth quarter, adjusted EBIT was EUR 246 million, essentially stable compared to the previous year, with an improved margin of 15.6%, and it was 15.4% in the fourth quarter of 2024, thanks to the excellent commercial performance, price/mix and efficiencies that fully offset the headwinds coming from exchange rates and tariffs. Let's now move on to the net profit, which amounted to EUR 531 million, up by approximately 6% compared to EUR 501 million last year. This trend reflects the EUR 21 million improvement in operating performance, the EUR 33 million increase in nonrecurring expenses, mainly linked to the continued streamlining of the organization in Europe and South America, the positive contribution of equity investments for EUR 21 million, especially for the dividends received following the liquidation of [indiscernible], reduction in net financial expenses of EUR 103 million due on the one hand to the lower nonmonetary impact linked to hyperinflation accounting and on the other hand, to lower expenses linked to the reduction in debt and interest rates. Finally, the EUR 83 million increases in taxes following the discontinuation of the tax benefits that were included in the 2024 results. The tax rate was 30%, in line with expectations. Pirelli closed 2025 with a net financial position of approximately EUR 1.1 billion and a leverage of 0.71x the adjusted EBITDA. Cash generation before dividends amounted to EUR 1.074 billion with a EUR 497 million benefit coming from the conversion of the equity-linked bond. Excluding this effect, the cash flow before dividends amounted to EUR 577 million, up EUR 43 million compared to 2024. Net cash flow from operating activities was positive at EUR 1.024 billion. This result is an improvement of EUR 35 million compared to 2024 and is due to the operating performance just discussed, investments of EUR 420 million related to high-value activities, technological upgrades and factory automation, EUR 113 million increase in right of use, positive contribution from working capital management, thanks to efficient management of inventory whose weight on revenues reduced to 21.5% versus 21.7% last year. The weight of trade receivables and the trade payables on revenues remained substantially unchanged. Interest paid went down to EUR 200 million. They were EUR 249 million in 2024 due to the reduction in debt and interest rates. Taxes paid were basically stable year-on-year and amount to EUR 154 million. Please note that in 2025, the taxes paid are lower than those in the profit and loss because the Italian tax system allows for payment on a historical basis. Therefore, the point of reference was the taxes due in 2024 that still accounted for tax benefits such as Patent box and ACE. This difference between profit and loss and cash flow tends to disappear in 2026 with an expected tax rate between 32% and 34%. As of December 2025, Pirelli had a gross debt of approximately EUR 2.96 billion, financial assets of EUR 1.86 billion and therefore, net financial position of approximately EUR 1.1 billion. Sustainable finance accounts for 100% of the parent company's gross debt, confirming the achievement of the target announced in 2024. The cost of debt over the last 12 months was 4.40%, down 66 basis points compared to 2024, benefiting for the variable rate portion from the trend in interest rates in the Eurozone and from a reduction of the debt portion in countries with high interest rates. As of December 2025, the liquidity margin of EUR 3.1 billion covered debt maturities up to the third quarter of 2029. In January 2026, Pirelli signed a contract for a new multicurrency bank line for a total amount of EUR 2.1 billion with a group of leading national and international banks. Specifically, the new line based on the group's decarbonization targets for Scope 1, 2 and 3 consists of a term loan of EUR 600 million and revolving lines for a total amount of EUR 1.5 billion. The agreement provides for the possibility by mutual understanding between the company and financial institutions to extend the maturity under the same contractual terms for a maximum of 2 additional years until 2033. The transaction also allowed for the refinancing more than a year in advance of all debt maturing in 2027. I now leave the floor back to Mr. Casaluci.

Thank you, Fabio. The scenario in which we operate continues to be marked by great uncertainty and structural transformations. On a geopolitical level, regional tensions, protectionism and the fragmentation of global supply chains persist as elements of complexity. From a macroeconomic perspective, we continue to operate with an uncertain demand and different trends between segments and markets, as we will see in the next slide. For 2026, we expect from the one side, a global GDP growth of 2.9% together with a gradual slowdown of CPI inflation. On the other, a greater volatility of exchange rates and commodity prices. Finally, the technological transformation is bringing about structural changes in the automotive sector. We are living in an era of truly disruptive technologies. It is not just artificial intelligence, but automation evolving towards advanced robotics. And it is not just the powertrain, but the vehicle architecture that is becoming software defined and fully connected. For a group with a strong technological DNA, this transformation is a key lever for differentiation and sustainable growth in the long term. Let's move on the market outlook for 2026 on our expectations for the main regions. The car tire market is expected to remain basically flat, minus 1% or plus 1% with high value, our reference segment, confirming a mid-single-digit growth rate. High-value growth is driven by replacement, especially in Europe, Asia Pacific and North America. Demand for high-value original equipment is expected to grow at a low single-digit rate and to recover in the second half of the year, in line with the trend of car production. In the 17 inches and below car segment, demand is expected to be negative low single digit in both channels. In this scenario, Pirelli confirms its strategy of gaining market share in the 18 inches up and reducing its exposure to standard. We have identified 3 strategic priorities for 2026. The first is growth in the high-value segment, which will be driven by a continuous mix improvement, leveraging on electric vehicles and specialties by the expansion of partnership with premium and prestige carmakers and by the increase of exposure to markets where we have upside potential. The second priority is to strengthen the technological leadership through continuous renewal of product range and the development of opportunities offered by Cyber Tyre. The third priority is a transformative efficiency as a structural lever for competitiveness. Before expanding on the 3 strategic priorities, I would like to focus on our data-driven business model. In recent years, we have gradually built an integrated digital ecosystem powered by the digitalization of our core processes, advanced analytics and more than 110 artificial intelligence models. These ecosystems is strengthening the quality and speed of our decision-making and is progressively transforming Pirelli into a truly data-driven company. Let's now review more in detail our digital ecosystem. Starting from the top of the slide, the integrated business planning platform allows us to forecast replacement demand generated by original equipment homologations, integrating it with external data on car park. This process enables us to select business based on their expected profitability throughout the entire product supply life cycle. This is supporting our long-term and short-term forecasting. Below on the left, the integrated CRM platform, combining geolocalized data of the car park with our algorithms, these platforms allows us to support sales, making the best offers based on the client's reference market. Moving to the right, the product life cycle management platform is enabling us to digitalize the entire development process from compound design to simulation and testing. With the help of virtualization and AI, we are accelerating the development of new products, reducing time to market and cost and improving quality. In 2025, we increased the number of virtual tests fivefold. Moving down to the manufacturing. We are progressively connecting all machineries using industrial IoT technologies to allow real-time production data collection and through AI, improve product quality and factories competitiveness. In the supply chain, thanks to the introduction of AI algorithms, we are building a control tower to plan procurement of raw materials well in advance and to predict logistic flows. These ecosystems relies on a set of infrastructural digital enablers illustrated on the right-hand side, like the cloud, which greatly increases computational capacity and the data lake, making data available to every business process and all AI models. Cyber Tyre technology is fully integrated with this approach. The data collected by sensors integrated into the tire, processed through proprietary algorithm and enhanced by AI, not only improves vehicle safety and control dynamics, but also product development, AI models and overall performance. The Cyber Tyre is a pillar of our evolution towards a fully data-driven industrial model geared towards sustainable value in the long term. Let's now go back to our strategic priorities, starting from growth in high value. Despite our leading position, we intend to seize more opportunities. The first guiding principle is mix improvement, valuing electric vehicles and specialties, developing a more regional offering capable of meeting the specific needs of the different markets and increasing our presence in product segments where we still see unexplored potential for Pirelli. At the same time, we are strengthening our partnerships with the main OEMs to extend business opportunities and enlarge the customer base in North America on iconic vehicles, in China with premium new electric vehicles producers, in Europe with premium and prestige carmakers. Lastly, we want to speed up our geographic growth, in the U.S. where the potential is not fully expressed and in emerging markets where high value is growing at a faster pace, such as South Korea, Southeast Asia, Gulf countries or India. These are the 3 principles that are leading us to overperform the market in the car 18 inches up and increase exposure to high value above 80% of revenues in 2026. Brand continues to be a distinct asset supporting growth. Formula 1 and the major international sports competitions together with MotoGP from 2027 allow Pirelli brand an extraordinary visibility worldwide, further enhanced by cultural activities such as The CAL and the HangarBicocca. The result of such initiatives is an iconic and strongly distinctive brand. Pirelli is globally recognized as a synonym of technology, sports and performance and the reference point for our high-value target as proven by the top scores achieved in brand equity studies carried out by major research institutes. Let's turn to the second strategic priority, product innovation, which relies on the whole digital ecosystem we have just described. We are introducing 9 new car products, marking a significant renewal of our most successful lines. This new portfolio strengthens our position in key segments and markets. We have put a strong emphasis on safety and performance, integrating our most advanced technologies to deliver measurable improvements in driving experience, safety and durability. On the 2-wheels side, we are launching 7 new products designed to meet evolving customer needs across segments. In motorcycles, we introduced 3 new models engineered to deliver high performance with a distinctly sporty character, responding to riders who demand both excitement and control. In cycling, we expand with 4 new products covering racing, road and gravel and mountain bike, broadening our reach and reinforcing our presence in high-growth segments. Regarding Cyber Tyre, the development is ongoing. Our technology is a key component of software-defined vehicles and autonomous driving since it provides vehicle accurate information on the tire conditions and grip. At the same time, it contributes to developing smart roads and smart cities where the data collected enable predictive maintenance of infrastructures and the more efficient and safe management of urban mobility. To make this evolution feasible, we set up an expanding network of partnerships. We work with technological leaders like Bosch, [indiscernible] and Movyon, and institutions of excellence like the Italian Ministry for Infrastructures and Transportation, the Politecnico di Milano and Anas to develop advanced solutions for smart and safe infrastructures. In the meantime, we are building partnerships with prestige and premium carmakers that recognize in this technology, a key feature for their next-generation models. Let's now move to the third strategic priority, transformative efficiency. There are 2 main programs that will contribute the most to the approximately EUR 150 million efficiencies in 2026. The first involves product design. The vast adoption of virtualization and simulation in product development allows us to expedite the time to market and to decrease environmental impact. More than 80% of our current products is developed through these digital tools with structural benefits in terms of quality, speed and efficiency. In parallel, our modular design approach allows us to reduce production complexity. We are progressively increasing the number of common components, both across product families and within our factories with clear and tangible benefits. The second program is related to manufacturing. As mentioned, we are making our industrial platform more efficient and flexible by digitalizing factories and adopting next-generation technologies. Approximately 80% of our machinery is connected by industrial IoT, allowing for real-time data collection and improving process control and stability. Besides all these, we develop technologies specific to key processes such as curing electrification, cutting edge on -- sorry, cutting down on energy consumption by 80% compared to traditional steam systems with additional measure benefits on emissions and water consumption, process and handling automation, making low added value activities more efficient and safer. Finally, let's review the targets for 2026. Revenues are expected to be in the range of EUR 6.7 billion to EUR 6.9 billion, with volumes growing between 1% and 2%, supported by the strengthening of high value, price/mix improving to up to 2%, driven by the product mix, a negative currency impact of between minus 4.5% and minus 2.5% linked to the weakness of the dollar and the volatility of South American currencies. Profitability is expected to improve slightly with an adjusted EBIT margin of around 16%, similar between first and second semester despite the different impact of external variables that will impact more heavily in the first quarter. Investments are expected to amount to EUR 450 million or 6.5% of revenues and will be mainly allocated to high-value activities, technological upgrades and factory automation. Net cash generation before dividends is expected to be approximately EUR 500 million following increased tax pressure. Finally, net financial position is expected to be approximately EUR 1.2 billion with a leverage of 0.75x. This will include the impact for around EUR 250 million related to exercise of the option to increase the stake in Jining Shenzhou Tyre Company from 49% up to 70%. This will allow us to take the control of the Shenzhou plant, which is strategically important for strengthening the Pirelli Group's presence in China and our positioning in the local premium electric vehicle market. In line with last year dividend policy, which provides for a payout of around 50% of consolidated net income, the Board will propose to the next AGM, the distribution of an ordinary dividend of EUR 0.24 per share for a total amount of EUR 260 million. In addition, in light of the positive results achieved in 2025 and lower leverage, the Board will also propose the payment of an additional dividend of EUR 0.10 per share for a total of EUR 109 million. Therefore, the overall dividend per share will amount to EUR 0.34 per share, equal to a total distribution of EUR 369 million. Thank you for the attention. And now I'll leave the floor back to Mr. Tronchetti for the final remarks.

Thank you, Mr. Casaluci. With 2025, the industrial planning cycle ends with a solid execution above peers. 2026 starts with new challenges. Despite this, we aim at growing, improving profitability and ensuring a solid cash generation. All this by leveraging a unique data-driven business model, which, as we saw, combines technology, a strong focus on high value and industrial excellence. This model allows us not only to respond to external dynamics, but even to foresee them and turn complexity and volatility into a competitive edge. The digital infrastructure, the consistent use of artificial intelligence in all areas of the company as illustrated by Mr. Casaluci, and the integration of the data collected, thanks to our unique cyber technology within the software of the controlling units of our clients and in our modeling is strengthening our business model, making it future-proof in a fast-changing environment. With all of this, we end now our presentation, and we may open the Q&A session.

[Operator Instructions] the first question is from Akshat Kacker of JPMorgan.

Akshat from JPMorgan, and congratulations on another strong quarter. I have 3 questions, please. The first one is on Sinochem. Is it just possible to give us some more clarity on the situation and how are the discussions proceeding? And how should we think about the next steps or time lines from here, given that the U.S. screening deadline and even the shareholder pack negotiation is due in March. So the first question on Sinochem, please. The second one is on the standard tire business. Volumes were down 13% in Q4, 11% in 2025. Could you just give us your expectations for 2026, please? How should we think about volume decline? And what are the current margins and operating income in this segment, please? And the last one is, if you could just give us an updated assumption on your raw material guide for 2026, please?

Thank you. So I will answer the question related to the shareholder structure and then Mr. Casaluci will answer all the other questions. There are not ongoing negotiation with Sinochem. We are going to end the pact. We will not renew the pact in June -- in May next. The -- now that the -- let's say, the Golden Power is analyzing the situation. What we can confirm is that clearly, the government, the Ministry of Industry, they stated that Pirelli will be in a position to enter in all markets, obviously, including the American market with its technologies. And so for what concerned the 17th of March, which is the date in which the carmakers, they have to confirm that the alignment to the regulation of the BIS, the statement of the government of the Ministry of Industry are the answer. So we don't see an issue looking forward. And so we are sure that Pirelli will be in a condition to fulfill the requirements of the BIS. Please, Mr. Casaluci.

Okay. So on standard, the target volume we have for 2026, it stays around [ EUR 90 million, 18.8 million ] tires. That represents a further decrease versus 2025. I would say around 4%, 5% reduction on volume. It's important to remind that half of this volume, it remains concentrated in South America. The target of profitability for the segment, it is in the ballpark of mid- high single digit. And we maintain our medium-term target to reach the double-digit profitability, but not yet in 2026. I will leave the floor to Mr. Bocchio for the raw material scenario.

On the raw material, we will take this one. We are expecting a tailwind in 2026 compared to 2025. All of this tailwind is expected to be in the first half. It will be -- while in the second half, we expect it to have a sort of neutral impact, so zero variance compared to previous year. And the overall impact is expected to be in the ballpark of EUR 30 million. Obviously, we are monitoring the situation of the commodities, specifically of the natural rubber trend because it went from a low point in mid-2025 of about $1,600 to the quotation in these days, which arrived to $1,900 or $2,000 per ton. So we are strictly monitoring at this point. And the other point is related to the tension of -- geopolitical and economical tension in the Middle East, which obviously may affect the value of the brand. monitoring the situation. But so far, this is our view for 2026.

One very quick clarification on accounting. Your increased stake in the Xushen Tyre joint venture, you expect to account for that at equity going forward?

You mean on the Shenzhou plant in China. The expectation is to exercise this call to enter in the full control of the plant and to use the production capacity of the factory and the expected growth on the following year of this capacity that will be 100% high value to take the opportunity of the -- to grow in the fast-growing high-value market on the electric vehicle segment, where the market is still growing with a high single-digit pace of growth and with -- where we are enlarging our customer base, partnering with a new successful premium player in China. That's the target.

Sorry, I just wanted to confirm, you're increasing your stake to 70%. So will this be fully consolidated on your P&L for 2026? Or are you still accounting for it at equity?

Yes. We will have the option to go from the 49% up to the 70%. This will be our option. And it will be consolidated line by line starting from January 1, 2026.

The next question is from Monica Bosio of Intesa Sanpaolo.

I have a few. The first is on the deployment of the business across the year. So should we expect a soft start to the year at the revenue lines and maybe a stronger second half? On the other side, in the first part of the year, you will have the tailwinds from raw materials. So any insights on how the business will deploy across the year if it will -- maybe it will be a year ahead to speed, just to check on this. And the second question is on the Cyber Tyres. You entered in a lot of negotiation also with premium players. And I was wondering if you can share with us what is the weight in terms of revenues coming from the Cyber Tyres? And the last question is on the Chinese market. In the last call, the company highlighted that it enjoys with Chinese carmakers a market share, which is even slightly higher than Pirelli market shares with Western third players in the country. Can you quantify the market share gains the group gets in 2025 with Chinese players? And in relation to this, are you seeing a strong revenue stream from the replacement channel in the BEV segment in China and overall?

Thank you for the 3 questions. So on the first question, no, I would say it's a bit the contrary. We do expect a first half with more headwinds, mainly related to duties. I do remember that we started to pay duties from -- in 2025 from May on. So we will have a negative comparison in the first 5 months of the year, and also the exchange rate that will be the main headwind for the first quarter. I remember that the euro-dollar exchange rate in the Q1 2025 was roughly $1.05 average, while now we stay around $1.18, something like this. So it's absolutely negative. We target to have stable profitability in terms of EBIT margin along the year in all the quarters, as Mr. Bocchio explained it. But in terms of EBIT in absolute value, I would say that the growth that we have in our plan, it's mainly concentrated in the second half for this reason. While if we move on the Cyber Tyre revenues, no, we don't disclose these numbers yet, but this will be a very important chapter of the new industrial plan. We are fully concentrated in developing the technology and accelerating the penetration of the technology both in the car industry and in the infrastructure -- Italian infrastructure project. But the meaningful impact in terms of revenues will be part of the next futures, not now. Yes. And also important for the data connections coming from this new technology that, in a way, is supporting us the value creation already now, but it's not represented by revenue itself on the cyber product. Last, the original equipment market share we have in China with premium players is similar to the one we have with the European premium players, all the Americas today, and it stays around 20%. What we are doing is we are enlarging the customer base because we want to have the same share with the most important premium players in China, which is a process in place. And of course, we do expect that these will benefit the replacement demand for the coming years. It's still mainly supporting the regional equipment business because it's a technology quite young, but the first volumes in the replacement channel are already present in our numbers in 2026.

We should see more in 2027. Is it correct?

Yes, is, of course, it will be of growing importance in the coming years. But just to give you a flavor already 30% more or less of our volume in electric vehicle technology, it is replacement. So the replacement, it starts to represent a meaningful value stream for the replacement sales.

And thank you for clarifying that the second half will be stronger.

The next question is from Stephen Benhamou of Bank of America.

I have 3 questions, please. The first one is on the EBIT bridge. So you've already mentioned the raw mat tailwind, can you please give us more color regarding the efficiency gains that you anticipate. So you've mentioned EUR 150 million. If you could give us the phasing and the flip side, is, for sure, the cost inflation. So what should we expect in 2026? The second question is regarding your return policy. So given the group's historical cash flow generation and the solid balance sheet, should we expect a higher payout ratio going forward? And the last question is more a confirmation. So do you confirm that despite this ongoing situation with Sinochem, this has -- this will have no consequence regarding the ability of Pirelli to have access to the U.S. market because if I'm not mistaken, you've said just before regarding the Akshat question that the U.S. ban on March 17 will not be an issue at all for Pirelli because Pirelli will still have access to the U.S. market or at least for the Cyber Tyre market. So can you please confirm this remark?

Thank you for your questions. I'll start with the last one. We confirm the will that have been expressed by the government and by minister. So it's obvious that we have to align the governance of the company to the BIS prescriptions, and we are confident that it will happen. So we stick with the -- with what have been stated by the official Italian authorities. Please Mr. Casaluci.

On the payout policy, no, we are not changing the payout policy. We do consider payout policy today, 50% of the net result is best practice in the industry. So we do remain with this policy. What we decided to do this year in 2026, considering the good results of '25 and the deleverage is to propose an extraordinary dividend for 2026. And in the following years, we will see, and this will be part of our industrial plan. For the balance between efficiency and inflation, if I correctly understood your question, we do expect to have a positive balance between our efficiency plan and the inflation. Overall, we do expect around EUR 25 million positive on the full year compensating EUR 125 million, more or less EUR 1 million negative of inflation, well distributed during the 4 quarters during the year with a positive efficiency plan of EUR 150 million, I would say, also well distributed during the year. So we don't expect major changes in the seasonality of the positive balance between efficiency and inflation.

If I may, just a follow-up question regarding the situation. So you believe that you will solve this governance issue at some point. Do you believe that this governance issue will be solved before the deadline of March 17? And is the Italy government have any power to force Sinochem to comply with this U.S. regulation?

This is something you have to ask to the Italian government. So we confirm what the government mentioned last year, what has been confirmed year-end by the Minister of Industry and that the Golden Power now has the -- in his hands, the new regulation to align the governance to the requirements of the American regulation. So that is what we can confirm. Thank you.

The next question comes from Martino De Ambroggi of Equita.

Focusing on the Chinese deal. In your Slide 27, you mentioned that the debt will have a EUR 250 million impact coming from debt consolidation and the exercise of the option. Could you split the 2 figures? And in order to understand, since it will be consolidated since the beginning of year, I don't know the size of this business that will be consolidated, the capacity in high value that you mentioned to be added. So just to have a flavor of what are the figures that are involved in this deal? And Mr. Casaluci, just you mentioned the electric vehicles will be showed the potential in the business plan presentation. So there is already scheduled a presentation.

Yes. So the consolidation of the Shenzhou plant, what you said is the EUR 250 million is mainly debt consolidation of the investment done in the previous years. What we do expect is to consolidate the factories, as I said before, that will grow in value in the coming years in terms of capacity and will be a value-creative operations because we will -- yes, we'll improve the overall profitability. It stays above the average of our actual profitability. Sorry, CMD already scheduled? No, not yet. But after the new Board of Directors will be in place. And so I do consider in the second half of the year could be a reasonable period of time to present. I don't know if Mr. Tronchetti wants to agree on that.

It's not -- yes, yes, of course. We don't tell yet schedule data, but just after the approval of the Annual General Meeting, we will set the new schedule for the year-end.

Okay. Sorry, if I come back to the consolidation impact. So I don't have the idea of what is the impact of the sales and the EBIT consolidated for the joint venture in China. So just a very, very rough indication in order to understand what is the impact?

On the top, I get this question. On the top line, there won't be a material effect on the top line of the company because we are already in place an offtake agreement with the company. So actually, the vast majority of the flow of tires were already purchased from them and we sold in the Chinese market. So no major impact on our top line. On EBIT, obviously, there will be an accretive value. It is a plant that is fully dedicated to high value. So the average of the profitability generated by that plant is higher than the average of the group. So that's why we are saying that it is an accretive operation.

Okay. In terms of capacity, how many millions of tires is the installed capacity?

So from EUR 3.5 million to EUR 4 million now and with a plan to grow in the coming years.

The next question is from Thomas Besson of Kepler Cheuvreux.

I'd like to ask a quick question on modeling, please. Your net industry position has improved dramatically. Can you give us an idea of the net interest charge we should anticipate in 2026, please? You've mentioned pressure, and that's my second question on taxes in 2026. Could you tell us what you expect in terms of P&L and cash tax expenses in '26 versus '25? And final question, -- in 2025, you've deconsolidated the business of distribution that you've sold. In 2026, you're going to consolidate this factory with higher margins than the group. Could you just help us understanding the benefits of both operations on group margins in '25 and '26, please?

Okay. Thank you for the question. I will take the first and the second one. First of all, on the financial expenses, just to recap that in 2025, we had financial expenses in profit and loss for about EUR 184 million, which was a significant decrease compared to the EUR 287 million that we booked in 2024. And the main driver of this decrease is related on one side for about half of the decrease related to the currency devaluation, local inflation in the hyperinflation countries, so with no impact on the net financial position. And for about the other half, slightly less than the other half is related to lower financial charges linked to the -- overall to the cost of debt and to the overall net financial position, which was decreasing quarter-by-quarter. Now for 2026, what we foresee is to have financial expenses in the ballpark of EUR 200 million, so slightly above what we booked in 2025 because we have 2 different dynamics. On the first one, we anticipate an additional slight reduction of financial charges related to the cost of debt, even if we foresee the average of the interest in the Eurozone may slightly increase during 2026. But on the other side, we have a prudent view, and we are taking into consideration some negative impact again from the noncash component linked to the hyperinflation and FX volatility, especially in the Latin American countries. For the second question related to tax, as you saw already in 2025, the tax rate for the full year has been at about 30%, so fully in line with the guidance that was between 28% to 30%. What we expect going forward for 2026, we expect the tax rate in the ballpark from 32% to 34%, so an additional slight increase. What is important to remind is what I was saying during the presentation that the tax cash out in 2025 has still been lower compared to the tax rate and the profit and loss, while starting from 2026, what we expect is that the tax cash out at the tax rate and profit loss will be very, very similar. So we will have a hit in the cash flow generation given the higher taxes that will be paid in 2026.

On the last question, sorry, the benefit of the Däckia deconsolidation and the expected benefit of the Shenzhou consolidation in 2026. So on Däckia, no major impact on the group profitability affected in 2025, just a bit of impact on the net sales. That is what you see in the line delta perimeter in the revenue drivers of 2025. While 2026 Shenzhou, we don't expect major impact on the sales because the vast majority of this production was, as Bocchio said before, already consolidated because the factory was producing Pirelli tires that we were buying and reselling. And in 2026, consolidating the factory, we have a slight improvement in the profitability. As we said, it is value creative because being the owner of the factory and consolidated the factory, we will not have the transfer cost, but we will consolidate the whole margin of the production. So it's slightly positive in the group impact, but not that meaningful anyhow is value creative.

The next question comes from Christoph Laskawi of Deutsche Bank.

The first one on the dividend and cash distribution again. With the leverage nicely below 1x also in the future, is there any reason why you shouldn't move to in 1 to 2 years, distributing essentially the majority or close to the entire net cash flow before dividends, either through adjusting the regular divi or always within special DV on top? And then the second question, just on the guidance on the margin. There's the comment of a slight improvement year-over-year. Is that related to the percentage margin or to absolute adjusted EBIT?

Thank you for your question for the -- what concerns the distribution of dividends. Obviously, it's never enough. We are all happy if we have more money. But I think that it's a good policy to improve the dividends, and this is what we are doing in line with what have been done by other competitors. And then we have to see the -- how the market will evolve looking forward in the coming year. So it's too early to say anything. So we are proving now that as soon as there are the condition, we want to have with all shareholders the positive results. It's a positive step. Let's enjoy it. Please, Mr. Casaluci.

Yes. Yes, I would say both improvement on both in EBIT margin percentage and absolute value. In absolute value, if you consider the midpoint is roughly EUR 20 million in absolute improvement. And in percentage, as we said in the guidance, we do expect a slight improvement. So let's see, based also on the trend of the net sales, what will happen, but 0.2%, 0.3%. That's the target. So we target to improve on both sides.

The next question comes from Gianluca Bertuzzo of Intermonte.

First one is on net working capital contribution in 2026. What are you embedding in the guidance? Second question is about the JV in Saudi, how things are going there? Can you provide maybe an update? And last question is on the Cyber Tyre. You mentioned that you're focused on developing the technology for the auto, but also the infrastructure business. I was wondering, is there a way to monetize this product beyond the automotive market, given also the partnership you had with the Apulia region. Am I right? Or I'm going too far?

So I will answer the second and the third question, and I will leave to Bocchio for the working capital answer. Joint venture in Saudi is proceeding as expected in the initial plan. So we have a very positive feedback from the first step in the construction of the factory. We will expect the first tire production in the second half of 2027, was probably Q3 2027. And hopefully, we will celebrate the groundbreaking in the following weeks. So so far, so good. On the Cyber Tyre, absolutely. We do this to improve the value creation of the whole company. There is a direct monetization in the business with the car industry, which is easily understandable. So it's a question of price power linked to the technology, increase of the pull-through rate and to the replacement and the loyalty rate, but above all the capability to take advantage of the data collection, and we target to be in the position to understand the tire behavior during the real-life conditions during the driving experience, which is something that as a tire industry today, we are not a with a traditional tire. Once the tire is circulating into the market, we basically lose the contact. But in the future with the Cyber Tyre, we will maintain and which is already happening with Cyber Tyre circulating we will maintain the link with the performance of our product during the real life cycle. And when we talk about infrastructure, of course, this is not our core business, but it's an important development of the technology because it makes part of the new ecosystem of the autonomous driving. Once the cars will be autonomous and most probably the pure performance as we see the performance of the tires today, will be less important. I mean, when we talk about handling all the traditional driving experience with an autonomous driving car will be less relevant. While it will be of paramount importance, the capability from a tire perspective to measure the grip and to collect data about the tire status and the road conditions because this information will be of paramount importance for the vehicle dynamic in the future. So that's the vision we have, and that's the reason why we are investing a lot since decades in this technology, and we consider this will be a part -- a relevant part of the high-value tire of the future. We have already tire -- Cyber Tyre circulating in the market and we are accelerating because the automotive industry is realizing that that's the major trend of automotive for the future. Okay. I leave the floor to Mr. Bocchio.

On the working capital, in 2025, we had a positive contribution from the working capital to the cash flow of the company for about EUR 9 million. What we are expecting for 2026 is to have a higher contribution from working capital, slightly higher in order to try to balance somehow the additional cash out from the taxes. What I can tell you anyhow is that the focus on the net working capital management in the past few years, you know pretty well that has been a priority for the comp for the past years in order to achieve the deleverage. Now we arrive at a point where the leverage is 0.7x, 0.75x the adjusted EBITA. But anyhow, we confirm that the priority to manage the working capital properly is still the focus for the company. So the cash flow still remains one of the target of the company.

The next question comes from Ross MacDonald of Citi.

I had 2 quick questions on the China JV news. I appreciate there's been a lot of questions on this already, so apologies in advance for coming back to that one. But just curious, you bought, if I understand correctly, the 49% stake back in 2018, I think, for around EUR 65 million. Firstly, correct me if that's not valid. So I just wanted to understand what is the what is the consideration that you're paying for that additional 21% stake here? I'd understood that to build a 4 million, 5 million unit factory in the U.S. must cost around $400 million, something like this. So just trying to understand the book value of the assets that have come into the group here. That's the first question. Second question, obviously, just trying to put the 2 and 2 together, the timing of this, obviously, you're showing a commitment to investing in China. Does this in any way benefit negotiations with ChemChina in terms of how they think about their stake in Pirelli? It seems like the 2 are completely unrelated, but obviously, investors will ask just given the timing of this news flow? And then third question, just be interested in your views on overall industry pricing in 2026. There's been some commentary in the market around promotional activity on the Tier 1s. How confident are you in protecting price/mix, which I think on the price side is mostly a first half story. Do you see any further scope for price out this year?

I will try to answer part of your question. First, there is no link between ChemChina, Sinochem Group and negotiation in Shenzhou. So that's different shareholders, different -- is a private company, the one that owns 51% of the company in Shenzhou, and we are negotiating with them with this private company. What we are going to buy something between 2% to 3% and 21%, up to 70%, which means that we will consolidate by year-end. We could consolidate with EUR 51 million or with EUR 70 million. We don't know yet the maximum payment we will make will be up to EUR 44 million. So that's the -- based on the contract we have that is based on the book value. So maximum EUR 44 million, for sure, we will consolidate. And we are now looking to what is more convenient for us, and we are negotiating with our partner. And please now Mr. Casaluci.

Yes. On the price environment for 2026, also we never disclosed the price by region or by channel, but what we do is a general expectation for the whole year. And on the 2 percentage points of price mix you see in our guidance, I would consider the vast majority will be -- will come from product mix. So on the price overall scenario, we do expect flattish environment, considering altogether replacement, original equipment, all the markets all around the world. So clearly you can easily understand the scenarios will be different market by market. But all in all, that's the expectation.

Okay. Understood. That's very clear. And actually very, very helpful to understand the EUR 44 million. That actually looks like a very good volume next to what those assets would cost in the U.S., for example. So I appreciate that color.

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

Thank you, everybody. Thank you for your questions, and this ends our presentation, and I wish to all of you a good evening.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices. Thank you.