Pirelli & C. S.p.A. ($PIRC)

Ladies and gentlemen, welcome to Pirelli's Conference Call in which Pirelli top management will present Company's First Quarter 2026 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, sir.

Thank you, and good evening, ladies and gentlemen. The results for the First Quarter of 2026 confirmed the resilience of Pirelli business model in a highly challenging environment. In line with the strategic priorities, we consolidated the position in the high-value segment, leveraging our brand strength, technological leadership and a broadened distinct in product portfolio. By doing so, we gained market share in both the Car and Motorcycle business. Profitability remains among the best in the industry, the highest among Tier 1 players with adjusted EBIT margin of 16% despite the negative impact of exchange rates, inflation and U.S. tariffs. Thanks to the rigorous financial management, we closed the first quarter with a cash flow trend in line with last year and with the usual seasonality of the business. External environment remains complex and characterized by the high uncertainty. The crisis in the Middle East is a significant macroeconomic risk with growing pressures on input cost inflation. The closure of the Strait of Hormuz is already impacting energy and logistics prices with effects that are gradually spreading to the value chain and economic growth. In this context, demand in the High Value segment is proving resilient with growth expected to be in the mid-single digits. In response to this scenario, we acted promptly by implementing a mitigation plan based on price increase already communicated to the market and cost reduction. This plan enabled us to safeguard company's results and in particular, cash generation, which remains our priority. Finally, an update on the recent decision taken under the Golden Power regulation. Under the new provisions, which will remain in force for as long as Sinochem holds a stake of more than 9.99% in Pirelli's share capital. Sinochem may participate in appointment of up to 3 directors, 2 of whom must be independent. The directors nominated by Sinochem may not hold executive or senior positions Chairman by Chairman, Chief Executive Officer, nor Chair Board committees. Any transfers of shares by Sinochem must be notified in advance to the Ministry of enterprises and Made in Italy and cannot be made 2 parties linked to SASAC. These provisions are confirmed by statements from both the Minister for Enterprises and Made in Italy and the Minister for Foreign Affairs. In short, Pirelli's provisions, full compliance with U.S. regulations and connected vehicles. And now I give the floor to Mr. Casaluci. Please, go ahead.

Thank you. Thank you, Mr. Tronchetti, and good evening, everyone. In a demanding macroeconomic environment, Pirelli closed the first quarter of 2026, with solid results. Revenues were approximately EUR 1.7 billion with organic growth of 3.5%, driven by the continued strengthening of the high-value segment which now accounts for 82% of revenues and an improvement in price/mix. Adjusted EBIT stood at EUR 277 million with profitability at 16%, a slight improvement year-on-year, thanks to the contribution of internal levers which offset the negative impact of external factors amounting roughly to EUR 81 million. Net profit rose by 23% year-on-year benefiting from lower financial expenses linked to debt reduction and a greater contribution from the results of equity investments. The net financial position stands at approximately EUR 2 billion and includes the impact of the consolidation of the Chinese JV, Xushen Tyre, debt amounted to EUR 210 million. The cash out relating to the exercise of the call option to increase the stake to 70% is expected in the second quarter and amounts to approximately EUR 40 million. In the first quarter of 2026, cash absorption before dividends and prior to the consolidation of the Chinese JV amounted to EUR 704 million in line with the last year and reflects the usual seasonality of the business. Finally, we continue to strengthen our commitment to sustainability, a strategic lever for innovation, growth and competitiveness. Our leadership has been recently reaffirmed by the Dow Jones best-in-class Sustainability Index, where Pirelli ranked first in the auto components and the automobile sector, and is the only tire company included in the index. Let us now review the operating performance of the first quarter. In line with the strategic priorities, we gained market share in the high-value segments for both Car and Motorcycle business by leveraging technological innovation and capitalizing on market opportunities. On the innovation front, we are continuing to expand the range of homologations and products. As for Cyber Tyre, we are developing strategic partnerships with leading companies in the fields of connectivity and autonomous driving with the aim of further strengthening our technology platform. At the same time, the efficiency plan is proceeding as expected, generating gross benefits of approximately EUR 43 million in the first quarter, equivalent to around 29% of the annual target. Finally, as already communicated on April 16, to address the crisis in the Middle East, we implemented a mitigation plan worth EUR 80 million, which includes price increases and cost containment measures in addition to the aforementioned efficiency plan. Let's start with the Q1 performance in the High Value segment, which now accounts for 82% of revenues also thanks to a 4% increase in volumes at group level. We gained market share in both Car and Motorcycle as a result of growing demand for Pirelli high-tech products, such as specialties and tires for electric vehicles in the car market and Hyper Sport and custom touring in motorcycle. The expansion of partnerships with leading OEMs and the strengthening of geographical positioning, both in the Car segment, where we are sizing business opportunities in the United States and Asia Pacific through a dedicated offering and in the Motor segment, where we are consolidating the leadership in Europe and expanding the presence in the other high value regions. Let's now turn to product innovation. The first quarter of 2026, we obtained approximately 120 new homologations, of which 90% were for tires 19 inches and above, 80% for specialties, including Ran Flat, Run Forward and Pirelli Noise Canceling System, 65% for electric vehicles, mainly in Europe and China. Product innovation continues to leverage Pirelli experience in Motorsport. One example is the partnership with Audi. The RS 5 and RS 3 competition models will be fitted with a P Zero R and Trofeo R sports styles designed for both road and track use. Development took place in close collaboration with Audi also through an advanced virtual simulation approach based on artificial intelligence. In replacement, the product portfolio is expanding across all segments. For the car, the third generation of Scorpion was launched for SUV models. In Moto, sales of Metzeler SPORTEC 01 started for Hyper Sports segment. For Cycling, the P ZERO SL-R was launched for road racing applications. Finally, Pirelli technological leadership was further confirmed by comparative tests on car tires in which the Group achieved 6 victories. The development of Cyber Tyre continues through strategic partnership with leading organizations in the fields of connectivity and autonomous driving. With the aim of further strengthening Cyber Tyre technology platform. We acquired a 30% stake in Univrses, a Swedish company specializing in advanced AI-based image and video processing technologies. The integration of Univrses' 3D AI computer vision with Cyber Tyre enables the combination of data from sensors installed Tyres with information derived from video analysis, offering an even more accurate understanding of road conditions. This integration opens up to high-value applications in terms of safety and autonomous driving and also provides infrastructure managers with real-time data for more efficient maintenance and a lower risk of accidents. We also consolidated the partnership with RIDEsense a spin-off of the University of Naples in which we hold the stake of approximately 25%. The aim is to announce the performance of the Cyber Type through technologies based on virtual sensors. RIDEsense has over 10 years experience in real-time simulations applied to tires and motorsports, key expertise for accelerating the development of the platform. Finally, we joined the Board of NewLink and Italian startup originating from Milan Polytechnic that develops the entire technological system enabling autonomous driving from environmental perception to road planning and from vehicle control to remote fleet management. NewLink is testing an innovative car-sharing model using autonomous vehicles. and this collaboration is an opportunity for Pirelli to strengthen its position in the autonomous driving ecosystem. Cyber Tyre is evolving from a product technology into an integrated digital platform at the heart of the future mobility ecosystem. This is happening also thanks to targeted partnerships that accelerate its innovation with a strong technological value. This partnership in a way, have a negligible financial impact already factored in our figures. I now hand over to Mr. Bocchio.

Thank you, Mr. Casaluci, and good evening. Let's now review in detail the economic and financial performance for the first quarter of 2026 compared with last year. As previously noted, revenues stood at approximately EUR 1.74 billion, with an organic growth of plus 3.5%. Volumes were positive 1.5%, reflecting the strengthening of the high value in both Car and Motorcycle businesses and the gradual reduction of the exposure to the standard segment. The price/mix continued to improve, plus 2%, supported by product and regional mix. However, the channel mix was negative due to the strong performance recorded in original equipment. The impact of exchange rates was negative 4.5% due to the volatility of emerging market currencies against the euro and the weakness of the dollar, which is suffering from an unfavorable year-on-year comparison base. Finally, the change in perimeter, minus 0.2% is linked to the deconsolidation of the Däckia business, which took place in the second quarter of 2025. Let's now turn to the profitability dynamics. We closed the first quarter with adjusted EBIT of EUR 277 million, essentially stable year-on-year and a margin of 16% compared with 15.9% in the first quarter of 2025. The improvement in profitability was driven by internal levers. More specifically, the positive contribution from volumes for EUR 10 million, price mix plus EUR 21 million and efficiencies for EUR 43 million substantially offset the negative impact of exchange rates for EUR 40 million, reflecting the devaluation of the United States dollar, input cost inflation for EUR 28 million and the impact of U.S. tariffs amounting to approximately EUR 13 million in the first quarter and included under the item Other. Finally, the impact of raw material was positive EUR 15 million, while the increase in depreciation and amortization amounted to EUR 5 million. Let's now examine the trend in net profit, which amounted to EUR 157 million, up 23% compared with EUR 127 million in the first quarter of 2025 due to a higher contribution from the results of equity participations amounted to EUR 22 million, mainly linked to the revaluation at fair value of the 49% stake in the Xushen Tyre joint venture and lower net financial expenses relating to that by EUR 14 million. Other notable components include lower expenses from PPA amortization by EUR 6 million, and an increase in taxes of approximately EUR 10 million compared with the first quarter of 2025, mainly attributable to the improvement in pretax profit. The tax rate stands at 30.5% compared with 31.7% in the first quarter of 2025. As the revaluation at fair value of the 49% stake in the Chinese JV is not taxable. Let's now turn to the net financial position. Pirelli closed the first quarter of 2026, with a negative net financial position of approximately EUR 2.02 billion, due to a negative net cash flow before dividends of EUR 704 million in the first quarter, in line with the seasonality of the business and working capital and the consolidation of the Xushen Tyre joint ventures debt from January 1, 2026, amounting to EUR 210 million. Net cash flow before dividends is broadly in line year-on-year despite CapEx of EUR 87 million, up EUR 27 million compared to the first quarter of 2025, look at primarily to high-value activities, technological upgrades and factory automation, an increase in rights of use of EUR 34 million compared to EUR 28 million in 2025. Key projects included the renewal of the agreement for the Burton finished goods warehouse in the U.K. and the working capital absorption of EUR 939 million, in line with the usual seasonality of the business, but increasing year-on-year due to a sharp reduction in trade payables driven by the high concentration of capital expenditure in the final quarter of 2025. As at the end of March 2026, Pirelli reported gross debt of around EUR 3.2 billion, financial assets of around EUR 1.18 billion and therefore, the net financial position of approximately EUR 2.02 billion. The cost of debt over the last 12 months stood at 4.20%, down by 20 basis points compared with the end of 2025. This reduction is attributable to the optimization of the debt mix due to a lower exposure to high-yield currencies. As at March 31, the liquidity margin of EUR 2.5 billion allows for the coverage of maturities for over 3 years, that is until Q3 of 2029. It should be noted that in January 2026, Pirelli signed an agreement for a new multicurrency banking facility, totaling EUR 2.1 billion with a group of leading national and international banks. Specifically, the new facility linked to the Group's decarbonization targets for Scope 1, 2 and 3 consists of EUR 600 million term loan and the revolving facilities totaling EUR 1.5 billion. The agreement provides for the possibility subject to agreement between the company and the financial institutions to extend the maturity on the same contractual terms for a maximum of a further 2 years until 2033. The transaction also enabled the refinancing more than a year in advance of all debt maturing in 2027. I return the floor to Mr. Casaluci.

Thank you, Fabio. And let's now turn to the outlook for the year, starting with the macroeconomic context. The crisis in the Middle East is one of the main risk factors for the economy, particularly due to its impact on input cost inflation. Tensions in the region with the closure of the Strait of Hormuz have led to significant pressure on oil prices, plus 60% since the start of the crisis to the beginning of May, and gas prices, plus 51%. The impact is gradually spreading across the entire value chain with growing pressure on raw materials, logistics and transport costs. Freight costs have risen by 17% since the outbreak of the crisis. In this context, latest estimate point to a deterioration in the macroeconomic outlook compared to the previous assumptions. For 2026, global GDP growth is now expected to be 2.4%, down by around 0.5 percentage point with a slowdown mainly concentrated in the United States and Europe. At the same time, inflation is forecasted to rise to 3.7%, an increase of around 1 percentage point with a resulting risk of interest rate prices. As a regard, commodities and energy following the initial shock and assuming the crisis is resolved within the first half of the year, prices are expected to normalize gradually in the second half of the year. Although, they will remain structurally higher than in the precrisis period. In light of the new macroeconomic scenario, we have updated our market outlook for 2026. Car tyre demand is now forecasted to be between minus 2% and flat compared with a minus 1% to plus 1% range indicated in the end of February. The revised estimates mainly apply to the standard segment, which is more sensitive to economic trends. Expectations for the high-value segment, however, remain unchanged with mid-single-digit growth driven by replacement, particularly in Europe. For original equipment, we forecast a low single-digit growth with a gradual recovery in demand in the second half of the year across all regions, in particular in China, following a weak first quarter, linked to the revision of government incentives for electric vehicles we expect a recovery in demand in the second half of the year. This outlook assumes the resolution of the Middle East crisis in the second quarter. If the tension in the Strait of Hormuz is prolonged, that could be risks for original equipment demand with potential reduction due to call offs since approximately 20% of global aluminum transit through the trade. Let's now turn to the impact of the crisis in the Middle East. As already communicated, the Group's exposure to the Gulf regions is limited and closely monitored. Approximately $90 million in annual revenues equivalent to around 1% of sales concentrated in the high-value segment. From the start, our priority has been the safety of people. In response to the instability in the Middle East, we activated a structural contingency plan to protect staff in the region, reinforcing security and monitoring protocols. At the same time, we strengthened collaboration and support for local business partners, assisting them in managing the key operational challenges. Logistically, we adjusted trade flows diverting them the alternative routes to the Strait of Hormuz via the Red Sea and then overland through the Western part of the United Arab Emirates and Oman with a cost impact that remains manageable. Finally, on the industrial front, there are currently no delays or impacts on the construction of this healthy JV factory, also considering its location on the Red Sea. As already mentioned, the main impacts of the crisis in the Middle East related to the cost of raw materials, energy and transport. In addition, there are specific supply risks for the derivates of oil in the Asian regions, mainly butadiene, which is heavily dependent on flows through the Gulf as well as potential slowdown in global demand should the situation deteriorate. In this scenario, we responded by promptly activating a mitigation plan. On the one hand, through price increases already communicated in all regions with the objective of mitigating for the increase in raw material and transport costs. On the other hand, we launched further cost containment initiatives, primarily in SG&A. At the same time, we are temporarily increasing stocks of all derivatives made in Asia and identifying alternative suppliers to ensure operational continuity. Assuming a peak in the commodity market, energy and transport prices in the second quarter and the gradual normalization in the second half of the year. We estimate a gross negative impact on 2026 adjusted EBIT of approximately EUR 100 million. Thanks to the mitigation measures already in place, we expect to offset around EUR 80 million with a net impact on adjusted EBITDA estimated at around EUR 20 million, as communicated on April 16. Let us now turn to the targets, which have been updated in line with the new outlook, 2026 guidance is as follows: revenues of between EUR 6.75 billion and EUR 6.95 billion, approximately EUR 50 million higher than the targets announced in February. Volumes confirmed to be growing between 1% and 2%. Price/mix now expected to improve between 2.5% and 3%. That is an additional increase between 0.5 and 1 percentage point, thanks to price increases already communicated. Currency impact slightly revised based on expectations of a lower depreciation of the dollar. Exchange rates are now forecasted between minus 4% and minus 2% compared to the previous minus 4.5% and minus 2.5%. Profitability is expected to be around 16%. Adjusted EBIT in absolute terms is expected to be around EUR 1.08 billion at the midpoint, corresponding to the lower end of the previous guidance, as indicated on 16th of April. Capital expenditure confirmed at EUR 450 million, approximately 6.5% of revenues. Net cash generation before dividends and impact of the exercise of the call option on the Chinese joint venture confirmed at EUR 500 million. Net financial position confirmed at EUR 1.2 billion, including the expected impact related to the exercise of the call option. I'll now leave the floor back to Mr. Tronchetti for the final remarks.

Thank you, Mr. Casaluci. As I mentioned at the beginning, of this conference call. The first quarter results confirm that Pirelli's successfully implementing its value-focused strategy supported by distinctive assets. In a complex and highly uncertain macroeconomic environment, our distinctive business model has enabled us to outperform peers. We continue to invest in high-value, technological innovation and brand strength. Elements that allow us to strengthen the position in the more strategic markets such as the United States, where we plan to develop Cyber Tyre in accordance with local regulation. We approach the external environment with real lease, but also with confidence backed by mitigation plan already in place, a flexible industrial structure and a rigorous financial management. These factors enable us, not only to protect Pirelli performance in the short term, but also to continue building sustainable value in the medium to long term for all stakeholders. Even though uncertainties in the external environment, which could persist beyond the second quarter, we believe it is more appropriate to present the next business plan in the first part of 2027. This ends our presentation. And now we may open the Q&A session.

[Operator Instructions] The first question comes from Stephen Benhamou with Bank of America.

Yes. I have 3 questions. The first one is regarding the Middle East conflict. So you anticipate around EUR 100 million growth impact. Can you please give us an indication of what's the breakdown between raw mat and other cost inflation? And because of the natural time lag, how much of the cost impact and mitigation measures we should expect as of Q2. This is my first question. The second one is regarding the Q2 margin. Should we expect a higher margin in Q2 before likely lower profitability in H2 given the phasing of the cost inflation and mitigation measures? And finally, can you please give us any indication of a shift in terms of demand given this current environment, which is challenging. Did you experienced any slowdown in terms of demand in April, for instance?

Yes. Thank you for your questions. As far as the impact of the crisis in the Middle East, as we said, we have a gross impact expected around EUR 100 million that is roughly 80% linked to raw material inflations. The mitigation plan that is going to offset the vast majority of this impact accounting roughly EUR 80 million. I would say, it's mainly concentrated in the second half of the year. But also the negative impact will arrive mainly in the second half of the year. We feel to start the first negative impact on the inflationary cost starting from the month of June, I would say. So the majority of the impact, both the headwinds and the mitigation plan will come in the second half. The margin, the profitability of the second quarter is expected slightly below the first quarter, but because we still have the headwinds of the duties because I remind that we started to pay the duties in 2025, starting from mainly the month of June, still some headwinds on the ForEx. But more or less, we do expect, thanks to the mitigation plan we have in place to have a quite stable profitability looking forward quarter by quarter. No major impacts really. The demand, no slowdown of the demand in the month of April. Also the first quarter, even if the total market demand has been negative roughly 4% I think it's useful to remind that the high-value segment that is now representing more than 80% -- 82% of our sales was anyhow positive, mainly driven by a positive replacement channel but all in Europe. So all in all, the demand is still sound and in the high value above all, and we keep on targeting to gain market share.

The next question comes from Monica Bosio of Intesa Sanpaolo.

The first batch of questions is related to the Cyber Tyre maybe you can share it now with that. But I was wondering what could be the additional investments for the development of the Cyber Tyre in Georgia. And ideally, what could be the annual Cyber Tyres production in the site? And I was wondering if the company has already in place contracts with U.S. car makers. This is the first question. The second question is on the volume trend in the first quarter, which was well above the market. Have you seen any prebuy effect from wholesalers in the high-value segment. And I reminded that in the last conference, the company gave some colors on the gain of market share by channel. Are you gaining market share both in original equipment and in the aftermarket in this quarter?

So we don't disclose the volume on the Cyber Tyre production and also the expected growth on the Georgia plant, but it's useful to remind that the growth of capacity in United States will be a bit concentrated in Georgia and will be one of our most important capacity growth projects for the coming years. And we will be very soon in the position to communicate the investments and the capacity volume we target to grow in the United States. What I can tell you is that we are already working on the introduction of the Cyber Tyre technology. We are accelerating the negotiation and the development with the most important U.S. car makers, mainly in the Electric Vehicle segment. We are already supplying Cyber Tyres in United States, today produced in our plant of Mexico. We will keep the production over there, and we will add the production in the Georgia and very soon, we will also in the position to announce some new supply agreement in the U.S. As far as the volume of the Q1 is concerned, I can tell you that the market, as I said, was positive in the high value, even not as brilliant as in the past quarters, mainly driven by a negative original equipment market in China. And this has been mainly driven by the reduction of the local incentivation on the new electric vehicle that affected the demand on the first quarter in China on the original equipment and also for the prebuying in the last quarter of 2025 in China and also negative in United States replacement channel because of the bad weather conditions and the not favorable comparison with last year. All the other channels and all the other regions were positive, mainly in the replacement channel and mainly driven by Europe and replacement in China. We have been able to gain market share in replacement channel everywhere in all the major high-value markets, mainly in China and in the United States. And we also were able to gain market share in the regional equipment in all geographies, mainly in this case, in China and in United States. This is the outlook of the volumes in the Q1. The level of the stock in the trade is, I would say, at a normal level. We have not seen any kind of pre-booking approach even if we already announced all the price increase during the month of April. And at the same time, thanks to a good sellout season in winter in Europe, mainly in the month of January and -- November and January. The stock level of winter at the end of the winter season in Europe is back to a very normal and healthy position.

Okay. If I may add. So I understand you can't announce the investments for the Cyber Tyre, but is it something which is already embedded in the guidance? Or is it something that will come on top.

Now this year, the investment is included what we will do in Georgia. So there are no changes in our investment. And looking forward, the investment in Georgia will be part of our investment plan. So in our roadmap, Georgia is a natural growth and so there is more change in the strategy.

The next question comes from Martino De Ambroggi with Equita.

On prices, in your Slide #18, you're talking about price increases already announced to the market. Two questions on this. Could you elaborate on the rough indication of what was the price increase by I don't know if by region, if it's possible. But I imagine that among the mitigation actions, price increases represent the bulk of the EUR 80 million that you have in mind? And the second question is on the BEV Tyres. They are not anymore so important as it was a couple of years ago, but could you tell us what is the penetration and the potential upside, if any, when the aftermarket will come.

On you for your questions. And I will start from the price. The mitigation plan we presented is roughly EUR 80 million of support to the result out of which, I would say EUR 50 million, EUR 55 million are coming from the price increase already announced during the month of April in all geographies. If you look at our price mix, new guidance is, I would say, putting us on the average point of 2.7%, 2.8% of price/mix. You can consider the mix impact more or less stable along the year, which is strictly linked with our business model, I would say, roughly 2 percentage points, while the price is moving from a 0 impact more or less in the first half into a 1.5% positive impact in the second half. That's the -- if you look at the full year on the full year base, out of the 2.7%, 2% is mix and 0.7% is price effect. The announcement has been done public during the month of April everywhere, and the entity of decrease is similar because it's linked to the inflation of raw material, transport and energy. As far as the replacement is concerned. While original equipment is we have an utilization approach, and it represents roughly 20% of our total sales, which is following a cost metrics approach. So it is already in the indexation to the inflation. Thank you, Fabio. Task for electric vehicle are still extremely important for us because I remember that the entire performance for electric vehicle, it's much higher because you need to have better load index, better grip to support a stronger torque momentum, better noise control because, first, in terms of comfort, the first cause of noise of the electric vehicle is not coming anymore from the engine, but the contact between the road -- the tire and the road and also rolling resistance is extremely important for the durability of batteries. So a lot of technology for the premium electric vehicles, and this is where Pirelli is leading the penetration of the Premium and Prestige segment. We target during the year 2026 to arrive at roughly 9 million tires out of which the vast majority, around 6.5 million steel original equipment because it's a young segment, but we have already 2.5 million more or less coming from the replacement channel, and the profitability is, as expected, in line with the profitability of High Value or even a bit higher.

The next question comes from Akshat Kacker with JPMorgan.

I have 2, please. The first one on the U.S. market in general. We have seen that the sell-in volumes for quite a few of your peers have been negative in that market, and they've called out much higher competition and general channel inventories. So could you just talk about your business in the U.S. in Q1, please? And if you still expect to grow volumes on a full year basis in the U.S. markets? That's the first question. And the second one is on China. A similar question, if you could just talk about overall volume development for the business in Q1 or revenues, if you could just give us a sense of China business performance, that would be helpful.

Yes. Thank you for your questions. Starting from United States, you are right. I talk about the premium market, so the high-value market has been slightly negative in Q1, not really the regional equipment that has been positive, roughly 1% positive, but the replacement channel was slightly negative, roughly 3%, 4% negative. Pirelli was able to gain market share in both channels and the original equipment and in replacement. I remember that it is a market where we see the biggest opportunity to growth, not only because it's the biggest high-value market in the world, but it's because our market share is still below the average of our market share in the High Value segment, if we compare our presence in U.S. to the presence we have in Europe, for example, or in China. So we see a lot of opportunities, and we are catching these opportunity through a strategy that is done of a completely new product range developed for the American consumers. It is mainly high mileage driven through the penetration on the most iconic American vehicles where we have been able in the last 4, 5 years to gain market share, and we are now benefiting of the pull-through of this segment. Just to mention some of them, the Ford F-150, the Dodge RAM, the Teslas, the most -- the best sellers of Tesla, Jeep and so on through the development of production capacity already mentioned, of course, and a healthy brand consideration, supported by all the investment we did in the brand in the last years, including Formula 1, which is very more and more popular with growing popularity, but also tennis, where we started to sponsor the Miami Open starting from this year. And enlarging the distribution channel also where we enlarge the customer base, and we are now covering all the markets in the United States. So we see a lot of opportunities, and it's a country where we have gained more market share during the first quarter. China. Sorry, I leave the floor to Mr. Bocchio.

Yes. On the net sales in China, I would just remind you that Asia Pacific generally speaking, in the first quarter had the weight on revenues of about 17%. And it is expected for the full year 2026 to remain a little bit higher than the number around 18% of the revenues of the Group and inside the numbers, China represents for the full year, roughly between 11% and 12% of Group net sales.

The next question is from Michael Filatov of with Berenberg.

First one is just around efficiencies. You gained 29% of your total expected efficiencies in the first quarter. And I'm wondering if you see scope for additional efficiency gains beyond the $150 million. Second question, just around sort of the mitigation plan. You assumed commodity normalization in the second half, but just hypothetically, if prices remain sort of at current spot levels for the year-end, could you maybe help quantify the impact on the business? And then lastly, just because you've got fairly strong share with premium Chinese EV OEMs. When do you expect that replacement cycle to really kick in? And is there any difference in the margin profile of that particular business?

Thank you. On the efficiency, on the efficiency plan, you are right, the first quarter is representing roughly EUR 43 million of efficiency out of the total of EUR 150 million, we do expect for the full year. Roughly out of this EUR 150 million of efficiency plan, roughly 25% is coming -- 25%, 30% is coming from product cost. So product modularity and product design to cost approach roughly 10%, 12% is coming from SG&A, cost rationalization, another 10%, 12% from organizational streamlining and so we come to the vast majority of the impact that is roughly 50% coming from manufacturing, where we are accelerating our investment in electrification, in digitization and, above all, in automation of our factories mainly in Europe, but not only, also South America and all around the world, generally speaking. On the replacement cycle on EV and then I leave the floor to Mr. Bocchio for the commodities impact on the replacement cycle on EV. First, it's useful to mention that the car registration in the Premium segment in China are already more than 50% linked to electric vehicles. So China has been able to accelerate in the penetration of EV, not only in the Synergy segment, which is out of our strategy, but also in the Premium segment where a lot of newcomers have been able to gain market share, introducing in the market cars that has a level of technology, mainly related to infotainment and autonomous driving, but also battery durability that is, I would say, a very high level of technology. Also, the design of the cars is better than before. And so they are very successful in gaining share. And Pirelli was able to partner with a majority of these car makers and today can benefit of a market share in the premium EV segment in China, which is very similar also in some cases, even higher than the market share that we have with the traditional premium car makers of Europe or United States. The pull-through of these cars is coming in the market, and we are carefully measuring the effectiveness of this pull-through because it's a completely new segment and also the experience in the tire change is new. So we are investing a lot in the education of the consumers to let them know that the tire should be homologated in order not to lose in terms of driving experience, both in terms of safety, in terms of comfort and so on. And so we will be able in the coming 2 years to understand if the pull-through of the EV in China is as good as the European car makers. But never forget that for electric vehicles, the tire maintenance is of paramount importance because of the reasons I said before, comfort, durability of batteries, but also safety because of the grid. So I'm quite confident that the pull-through on the electric vehicle, generally speaking, all around the world will be even higher than the internal combustion engine. Fabio?

I will take the one on the commodities and raw materials. During the year, we will have a very different trend quarter by quarter. In quarter one, we just showed that we had a positive impact, positive contribution coming from the raw materials for about EUR 15 million. This was coming in our COGS from the natural rubber, butadiene, and the Brent decline year-over-year. We are expecting a similar trend for quarter 2, meaning, again, a positive contribution for our raw mat in Q2, even if at the end of quarter 2, we will begin to see the impact of the Middle East crisis. But still, we are expecting raw mat to be positive in quarter 2, while obviously, in the second part of the year, starting from Q3, the sizable increase in all the commodities is expected to turn completely the sign and to be a headwind for us standing from quarter 3 and to quarter 4. What we are expecting for the moment, we are considering for the second quarter, commodities at the level that we have seen on the market in these past few weeks. So with the Brent at about, an average, $100, the natural rubber at about $2,100 per ton. We are expecting the normalization of these values for the second half of the year, even if we expect them to be at a higher level than the situation than the pre-war situation. So for the full year, we are expecting, for example, Brent, on average, that will be between around $85 per barrel.

One comment more on the answer related to the efficiency plan. We were talking about EUR 150 million of efficiency plan. This is not considering the cost reduction that is part of the mitigation plan for the Hormuz crises. This is on top of the EUR 150 million, just to clarify. The EUR 150 million if I just may comprehend is related to the efficiency program that we have started, even starting from the last part of the previous year that are going around 2026 accordingly to the projects that we are putting, especially in our plants. So this is fully confirmed. We saw the impact in the first quarter of EUR 43 million accordingly to the timing of the project we would foresee for Q2 or Q3 a slightly lower amount and then to arrive to EUR 150 million for the full year. On top, given the overall macroeconomic situation, we are doing an exceptional, lets say, mitigation plan on cost, mainly on the G&A part, which would be on top of this EUR 150 million, which I have fully confirmed.

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

Thank you, so this ends our presentation. I thank you for the attendance, all of you, and I wish you a very good evening.

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