Pirelli & C. S.p.A. (PIRC.MI) Q3 2026 Earnings Call Transcript

Operator: Management will present company's nine months 2026 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.

Marco Tronchetti Provera: Good evening. The financial results for the nine months 2026 confirm Pirelli's financial strength against a challenging macroeconomic and geopolitical context. In recent months, we have seen a further deterioration in external environment marked by a downturn in car production, persistent inflationary pressures, and growing political uncertainty. In this context, Pirelli has continued to deliver a sound performance, leveraging its business model and the ability to quickly respond to the challenging landscape. The results for the first nine months show a solid organic growth, driven by market share gains in high value and a continuous price mix improvement. Profitability stood at around 16%, driven by the effectiveness of internal levers that offset forex, raw materials, and input cost inflation, as well as U.S. tariffs. Net cash flow improved year-over-year, confirming a solid financial discipline. We are continuing to boost our competitive edge in innovation. New homologations and product launches confirm the technological leadership. Excellent results in independent tests prove the quality of our products, which are developed with the support of digitization and AI. In parallel, the expansion of the Cyber Tyre ecosystem opens new application and future growth opportunities. Although external factors are proving more challenging than expected, we are confirming all targets for 2026. Beyond the short term, we are also continuing to lay the foundation for future growth through strategic action in markets with the greatest potential. In the U.S., we are investing to expand capacity to capture growth opportunities in high value. In India, the partnership with BKT will allow us to gradually enter a market that has an interesting long-term growth potential. These actions, together with innovation and leadership in the high-value segment, strengthen the foundation for sustainable and profitable long-term growth. Now I give the floor to Mr. Casaluci. Mr. Casaluci, please.

Andrea Casaluci: Thank you, Mr. Tronchetti, and good evening, ladies and gentlemen. Before reviewing our nine months results, I would like to focus on two key initiatives we are implementing to support future growth, starting with the U.S. project. The project addresses three strategic priorities for Pirelli: growth, stronger technological leadership, and higher local for local. First, growth. Accounting for around 40% of global segment volumes, the United States is the world's largest high-value market. It offers significant growth opportunities for Pirelli, where our market share is below the average of the other high-value regions. Second, technology and innovation. The project will create a state-of-the-art industrial hub, allowing us to produce high-tech products and accelerate the development of innovative solutions such as Cyber Tyre. These will further strengthen the competitive advantage we have in the most advanced segments of the market. Finally, local production and customer proximity. Increasing production capacity in the United States will strengthen the local for local model, enhance supply chain resilience, and improve service levels. The recent announcement by car makers such as Audi to build new capacity in Georgia further validates the strategic decision to expand our local production footprint. We have chosen a gradual and highly flexible approach. The first phase involves expansion through the new MIRS, our property modular integrated robotized system, which will enable us to add new capacity already starting from 2028. This technology will ensure great flexibility in adjusting the ramp-up to the demand evolution. The second phase regards the installation of a traditional and fully automated production facility, with investment not impacting the first years of the project. Overall, this project will reach a capacity of 6 million high-value tires by 2033, 3 million tires through the new MIRS and 3 million through the traditional and fully automated facility. The investment is expected to be of approximately EUR 1 billion in the period 2027-2033, and will create around 1,000 new jobs. The key characteristic of this project is the gradual approach of the execution. It allows to fully exploit the growth potential of the United States market while preserving flexibility, financial discipline, and cash generation, with CapEx on sales that remains around 7% in line with group's historical average. Let's now move to India, which offers an interesting growth opportunity. By 2030, car registrations are expected to grow at an average annual rate of 5%-7% while the premium car tire segment is expected to increase five times versus the actual level. Today, in India, we have a commercial presence limited by import licenses. To accelerate growth in this market, we signed a strategic partnership agreement with BKT, one of the leading Indian tire manufacturers with a solid manufacturing presence, operating in the agro and industrial segments. BKT is the ideal partner for Pirelli in India, given their value-oriented business model and a strong focus on innovation, quality, and sustainability. The partnership is based on an initial offtake agreement under which BKT will manufacture Pirelli-branded car tires at a new plant in Bhuj, in Gujarat, guaranteeing Pirelli's specific technological and quality standards. This approach will enable us to gradually expand the presence in the Indian market while limiting the initial investment and keeping full control of our technology, know-how, and brand positioning. Production will gradually increase to 800,000 premium tires by 2030, creating the conditions to evaluate the second phase of development, a 50/50 joint venture to build a high-value tire facility serving not only the Indian market, but also other international markets and producing both Pirelli and BKT-branded tires. Overall, this is a further step ahead in the execution of our industrial strategy, expanding in those markets with top growth, leveraging our technology, brand value, and through flexible and scalable operating models. Well, let's now discuss the results of the first nine months, which confirm Pirelli's ability to continue growing and creating value also in an increasingly tough context. Revenues reached approximately EUR 5.3 billion, with a +2.7% organic growth, supported by strengthening in the high-value segment, accounting now for 82% of the group's sales, and price mix improvement. Adjusted EBIT stands at EUR 841 million, with a 15.9% margin, substantially stable versus last year due to the effectiveness of internal levers. Net income increased by 7%, supported by lower financial expenses following the reduction of debt, lower PPA-related amortization, and a higher contribution from equity investments despite the expected increase in the tax rate. Net financial position, negative for around EUR 2.2 billion, includes EUR 369 million in dividend payments and a EUR 308 million impact of corporate transactions in China, which Mr. Bocchio will illustrate. Finally, cash generation in Q3 amounted to EUR 173 million, a EUR 32 million increase versus the third quarter of 2025, driven by a better operating performance and a disciplined working capital management. Now, let us go through the operating performance more in detail. In the first nine months of the year, we continued to execute our strategic programs. We strengthened our position in the high value and gained market shares both in the car and moto businesses through the strong innovation and quality of the products. On innovation, we further enriched the homologation portfolio and expanded the product range, as well as consolidated the position in the segments with the highest value and technology content. On Cyber Tyre, we continue to accelerate both industrial and commercial developments. We have started a collaboration with Abet HTS, opening up new applications such as defense and rescue under extreme conditions. The efficiency program is progressing according to plan, generating gross benefits worth EUR 109 million, which is 73% of the full-year target. In a highly volatile environment, we react quickly to protect profitability and cash generation. Let's start from the commercial performance. In the first nine months of the year, we further strengthened our leadership in high value, with car and moto volumes up by around 3% and further market share gains across both businesses. Growth was particularly strong in replacement, with volumes up 4% in the first nine months and accelerating to 6% in the third quarter from 3% of the first half. This confirms the growing preference of Pirelli across different geographies. In original equipment, volumes increased by 1% in the first nine months, with a specifically positive first semester, +5%, and a 7% decline in the third quarter. The trend of the third quarter reflects two main factors. On the one hand, a very challenging comparison base. In the third quarter of last year, moto volumes were up 18% and car volumes increased by roughly 7%, supported by very strong performance in North America and Asia Pacific, excluding China. On the other hand, a weaker-than-expected car production in all high-value regions. In Europe, we maintained a selective approach, prioritizing high-value replacement and focusing on the most advanced technologies. In North America, the performance was impacted by the production slowdown of some major clients. Finally, in China, lower incentives for electrification led to a significant decline in domestic car sales, down roughly 25% in the first nine months, only partially offset by strong export growth. The weakness particularly affected European premium carmakers, while Chinese premium new electric vehicles players continued to deliver a double-digit growth. Pirelli therefore mitigated the weakness in the original equipment demand thanks to its exposure to Chinese premium new electric vehicles players, while the strong growth in exports had no material impact on our sales, as it is mainly concentrated in the Standard segment. On Standard, we maintained a disciplined approach, fully consistent with our value-driven strategy. Volumes declined by 9% in the first nine months and 11% in the third quarter, reflecting our decision to reduce exposure to lower-margin products and channels, particularly in South America. Overall, group volumes declined by 0.5% in the first nine months and by 1.6% in the third quarter. This volume decline was more than offset, as Mr. Bocchio will illustrate, by a significant improvement in price mix, which reached a record plus 4.6% in the third quarter. These results confirm the effectiveness of our strategy, prioritizing value and profitability. Let us now turn to production innovation. In the first nine months of 2026, we achieved approximately 350 new homologations, mainly in larger rims, specialties, and electrified vehicles. These homologations will drive future growth in original equipment and later, due to the pull-through effect, in the replacement channel as well. These achievements enhance our role as reference technology partner for both premium and prestige carmakers. Good examples are the partnerships secured in the third quarter for some of the most advanced next-generation electric SUVs, including, just as example, the BMW iX4, the Range Rover Electric, the Aito 9, and the Zeekr 9X. Our product innovation and top quality is being recognized by the major independent tests. In Europe, we have introduced the new Scorpion Winter 3, developed by integrating artificial intelligence and virtual simulation. As a confirmation of our approach to product development, the new Scorpion already ranks first in the test conducted by the Italian magazine Al Volante. Cinturato Winter 3 also obtained remarkable acknowledgments, winner of the ADAC tests, the top European auto club, and Automobilclub von Deutschland, as well as achieving further podium positions in tests by top trade European magazines. The strong performance of the P Zero Winter 2, particularly in braking, was confirmed by Auto Bild, while Cinturato All Season SF3 remains the most awarded all-season tire on the market, with four wins and six additional podiums in the latest European comparative tests. These results once again confirm how the technological leadership continues to strengthen our high-value positioning and the competitiveness of the products in the most profitable segment of the market. Thank you, and I will now hand over to Mr. Bocchio.

Fabio Bocchio: Thank you, Mr. Casaluci, and good evening all. Let's now analyze the main financial performance dynamics in the first nine months of 2026 compared to the same period last year. Revenues stood at approximately EUR 5.3 billion, with a +2.7% organic growth. It was +3% in the third quarter. Including the impact of foreign exchange and the delta perimeter, revenue grew by 1.6%. Let's go through each driver. Volumes were slightly down, -0.5% in first nine months and -1.6% in the third quarter. This reflects different trends between high value and standard, as well as in the high value between the solid performance in the replacement channel and the weakness in the original equipment already commented by Mr. Casaluci. Price mix was positive, growing by 3.2% in the last nine months and +4.6% in the third quarter, driven by the ongoing improvement of both product and regional mix. Starting from the third quarter, we recorded a positive contribution from price, reflecting the price increases announced in the second quarter. The exchange rate impact was negative, -0.8%, mainly due to the devaluation of the USD versus the first nine months of 2025. In the third quarter, the exchange rate trend was positive, +2.1%, due to the improvement of the USD trend and the strengthening of currencies such as the Chinese renminbi and the Brazilian real. Finally, the perimeter change, -0.3%, was related to the deconsolidation of Däckia in the second quarter of 2025. From the third quarter of 2026, no more impacts connected with this deal is recorded. We closed the first nine months with adjusted EBIT of EUR 841 million and a margin of 15.9%, slightly higher in absolute terms and broadly in line with the first nine months of 2025 in terms of profitability. This performance reflects the effectiveness of our internal levers, which more than offset weaker demand and higher raw materials and other input costs. In more detail, the price mix positive contribution for EUR 101 million, the structural efficiencies for EUR 109 million, and the cost control actions for EUR 7 million to mitigate the impact of the Middle Eastern crisis have more than offset the negative impact of the exchange rates that was equal to EUR -38 million, inflation of input costs equal to EUR -104 million, and of the weak demand, which accounted for EUR -11 million. Contribution by raw materials remain essentially neutral. It was EUR +2 million due to cost increase in the third quarter, which wiped out the benefits recorded in the first half. Finally, D&A had a negative impact equal to EUR -18 million and other costs for EUR -42 million, mainly due to the impact of the US tariffs. Profitability stands at 15.9% also in the third quarter, slightly down versus 16.3% in the third quarter of 2025 due to the strong negative impact of raw materials and inflation. The combined contribution of the price mix for EUR 50 million, structural efficiencies of EUR 28 million, and cost control actions for EUR 7 million have more than offset the raw material impact, which was negative by EUR 30 million, the inflation of input costs negative by EUR 40 million, and a weak demand with an impact of EUR -11 million. The exchange rate contribution is positive by EUR +7 million, offsetting the impact due to higher amortization cost. Finally, the other costs contributed positively by EUR 1 million. I would remind you that since the third quarter, the impact of US tariffs is expected to remain broadly unchanged compared with the previous year. Let's now review the net income, equal to EUR 430 million, up 7.4% compared to EUR 401 million in the same period of 2025. This trend reflects mainly lower net financial expenses for EUR 20 million, mainly reflecting the reduction in gross debt, as well as a lower exposure to financial debt in countries with high-yield currencies. A EUR 15 million reduction of the amortization of the purchase price allocation, lower one-off, non-recurrent, and restructuring charges for EUR 11 million, a greater contribution from the results of equity participation for EUR 5 million, mainly linked to the evaluation at fair value of the 49% stake in the Xushen Tyre JV in Shenzhou, accounted for in the first quarter. Higher tax charges for EUR 27 million, with a tax rate at 31.6%, broadly in line with our full-year range guidance, which is between 32% and 34%. As expected, the tax rate was higher than the 30% recorded in the first half, which benefited from non-taxable income and positive one-off effects. Let's now move to net financial position. In the first nine months of the year, the net financial position went from EUR 1.1 billion at the end of 2025 to around EUR 2.2 billion at the end of September. To analyze our financial performance, let's start with operating cash flow, which in the first nine months was negative for EUR 122 million, while it was positive for EUR 43 million in the same period of 2025. This is mainly due to increased investments and a higher cash absorption linked to trade payables dynamics. In detail, investment amounts to EUR 268 million, higher than the EUR 224 million in the same period of last year, and are mostly directed to high-value development, technological upgrade, and industrial automation. The trend of working capital, which is negative for about EUR 1 billion compared to EUR 821 million in the first nine months of 2025, reflects the stronger reduction of trade payables related to the payment of investments concentrated between the last quarter of 2025 and the first quarter of 2026. Trade receivables follow the usual business seasonality, with a limited negative impact due to the Middle East situation. Inventory management is positive. Its incidence on the last 12-month sales is higher than in the same period of last year, 22.3% compared to 20.7%. It reflects the rigorous management of finished product stocks, the raw materials cost increase linked to the commodity trend, and the buildup of a safety stock due to the conflict in the Gulf region. Finally, the net cash flow before dividends and corporate transactions in China amounted to EUR -384 million, basically in line with the EUR -363 million of the first nine months of last year that benefited from the positive effect of the Däckia divestment for EUR 43 million. Besides the operational dynamics just described, these results reflect an improvement in financial charges that mitigated the impact of higher taxes and the lower impact of exchange rates. The third quarter net cash flow before dividends and corporate transactions in China was positive at EUR 173 million, up EUR 33 million year-on-year, thanks to the stronger operating performance and disciplined working capital management. Let's now move to the corporate transaction in China. As you know, we have increased our stake in Shenzhou from 40% to 70%, which has been consolidated since January 2026, with an impact of EUR 257 million, already accounted in the first half of 2026, and related to both the JV debt consolidation and the exercise of the call option. We are now launching two transactions. One aimed at aligning the ownership structure in our joint ventures, Shenzhou and Yanzhou, and the second aimed at optimizing the liquidity management in the country. Let's start from the first one. Yanzhou and Shenzhou are two separate legal entities, but from an industrial standpoint, they operate as a single integrated platform entirely focused on high value. Under the transaction, Pirelli will increase its stake in Shenzhou from 70% to 75%, while Hixih Group will acquire a 15% stake in Yanzhou from Pirelli. As a result, Pirelli will own 75% of both companies, with the remaining 25% held by Hixih Group. This more balanced ownership structure will simplify governance, improve the efficiency of decision-making, and enable a more coordinated management of the two assets, while also supporting future growth opportunities in the high-value segment in China. The deal is expected to be finalized between the fourth quarter of 2026 and the first quarter of 2027, subject to the required authorization process in China. The second transaction is aimed at optimizing the liquidity held in China, particularly in light of increasing currency volatility and geopolitical uncertainty. This involves the distribution of retained earnings from Yanzhou. Assuming completion in 2026, the two transactions will have an overall positive impact of approximately EUR 71 million on the group's net financial position. Being an extraordinary item, the EUR 71 million does not impact the net cash flow target. The uncertainty regarding the timing of completion is related to the regulatory approval process in China. More specifically, the EUR 71 million benefits reflects a positive impact of approximately EUR 145 million from the reorganization of our shareholdings in China, including the payment of capital gains taxes related to the sale of the 15% stake in Yanzhou, and a negative impact of approximately EUR 74 million, which is the net amount between the dividends allocated to the minority shareholder and the tax treatment of dividends distributed to companies within the Pirelli Group. Out of the EUR 74 million, EUR 51 million was already recorded in the third quarter of 2026. Let's now switch to the group's financial structure. As of September 2026, Pirelli confirms its sound and well-balanced financial structure, allowing us to effectively deal with the current macroeconomic context and sustain our strategic priorities. Pirelli has a gross debt of approximately EUR 3 billion, financial assets worth around EUR 878 million, and therefore a net financial position of about EUR 2.2 billion. The liquidity margin is approximately EUR 2.2 billion and covers maturities for over three years, thus beyond the third quarter of 2029. The debt structure also remains balanced. The major maturities are distributed over time, and no relevant concentration is foreseen in the short term. This mitigates the refinancing risk and increases the group's financial flexibility. We are therefore able to choose the best way and most favorable market opportunity to refinance the debt maturing in 2028. The average cost of debt over the last 12 months is down 50 basis points from 4.4% at the end of 2025 to 3.91%. This result is particularly positive in a context of rising interest rates and reflects the group's lower exposure to debt denominated in high-yield currencies. Now I will give the floor back to Mr. Casaluci. Thank you.

Andrea Casaluci: Thank you, Fabio. Let's now move to the outlook for the year. The overall picture is characterized by two contrasting dynamics. On the one hand, the global GDP growth outlook has improved compared with the expectations in July. Global GDP is now expected to grow by 2.6% compared with the previous assumption of 2.3%, mainly supported by the resilience of the U.S. economy and the strong investment cycle related to artificial intelligence, digital infrastructure, and industrial transformation. Growth is therefore being driven more by investment than by consumption, which remains relatively weak. On the other hand, inflation is significantly increasing, with the consumer price index now expected to exceed 3% in the U.S. and Europe, and the restrictive monetary conditions due to last for a longer period of time. The renewed tensions in the Middle East once again rise their pressure over energy and raw materials. Brent went from an average of $84 barrel in July to $107 barrel in October. Gas in Europe from an average of EUR 54 MWh in July to EUR 84 MWh in October. Natural rubber from an average of $2,100 per ton in July to $2,600 per ton in October. These dynamics have required further cost containment measures in the fourth quarter, and above all, are redefining the assumptions based on which we are planning for 2027. We are in fact getting ready to deal with a scenario characterized by higher energy, logistics, and raw material costs, along with volatility that we expect to persist over the coming months. As for the car tire market, we revised our estimates for 2026, mainly for original equipment, in light of the trend observed in the first nine months of the year. The global car tire market is expected to go down by approximately 2% for the full year. In this scenario, we confirm the resilience of high-value replacement, predicted to grow by a mid-single digit, with the fourth quarter basically in line with the trend observed in the third quarter. Growth continues to be supported by the strong performance in Europe, with a double-digit growth rate in both full year and last quarter, by the sound demand in the Asia-Pacific region, and by the gradual recovery of North America after the weakness in the first half of the year. In the high-value original equipment segment, we revised our expectations downward. We now estimate a low to mid-single digit drop over the year, with the fourth quarter expected to be in line with the third quarter. At regional level, the measure weakness is expected in Asia-Pacific, where the slowdown of car production, especially in China, following the reduction of incentives for EVs, is affecting original equipment demand. In Europe, on the contrary, there are signals of a stabilization in the fourth quarter, while North America is expected to close the year with a basically flat trend. The standard market is also predicted to experience a low single-digit downturn. In this context, we expect to continue gaining market share in high value, especially on the replacement channel. The sound results achieved in the first nine months allow us to confirm the guidance for 2026, while adapting some of the underlying revenue drivers to reflect the current market environment. We confirm our expectations for revenues and have narrowed the range of approximately EUR 6.85 billion-EUR 6.95 billion. Volumes slightly down, minus 0.5%, compared with our previous expectation of flat to +1% growth, reflecting weaker market demand in original equipment. Price mix has been revised upward to between 3% and 3.5%, compared to a 2.5% and 3% in July. Exchange rate impact was also adjusted based on an expected lower devaluation of the US dollar. Forex is now predicted to range between -1% and -0.5%, compared to the previous -2.5% and -1.5%. Profitability is confirmed at approximately 16%, with an adjusted EBIT of around EUR 1,080 million in absolute value in the midpoint. Investments confirmed at EUR 450 million, around 6.5% of revenue. Net cash flow target is also confirmed at around EUR 500 million, and net financial position is also confirmed at around EUR 1.2 billion. I now leave the floor to Mr. Tronchetti for the final remarks.

Marco Tronchetti Provera: Thank you, Mr. Casaluci. Today's discussion clearly shows a fundamental aspect. Pirelli continues to deliver solid results while building a stronger competitive position for the future. External environment remains challenging, with geopolitical uncertainty and major changes in the automotive industry. In this context, confirming our full-year targets reflects the strength of our business model, discipline execution, and ability to adapt. At the same time, we continue to invest in the key pillars of our future growth: technological innovation, high value, Cyber Tyre, and the evolution of the industrial footprint in the most promising markets. Initiative in U.S. and in India presented today are part of the strategy aimed at strengthening Pirelli's presence in the most attractive markets and creating the conditions for sustainable long-term growth. We therefore look to the coming years with confidence. We are fully aware of the challenges in the external environment, but we can rely on a clear strategy, distinct team capabilities, and a strong track record of execution. This concludes our presentation, and we may now open the Q&A session.

Operator: Thank you. We will now begin the question-and-answer session. As a reminder, to enter the queue for questions, please click on the Q&A icon on the left side of your screen, and then press the raise your hand button. Please do not mute your microphone locally. If you are on the phone instead, please press star one on your keypad. The first question comes from Stephen Benhamou with Bank of America. Please go ahead.

Stephen Benhamou: Good evening. Good evening, gentlemen. Thanks for taking my questions. I have three questions, please. The first one is on the price mix. The updated guidance implies a price mix between 2.5%-4.5% in Q4. What are the underlying assumptions behind the low and the high end of the range? What is your confidence to maintain a high price mix next year? Regarding my second question, it is linked to the price mix. It is about the raw mat. Raw mat inflation is starting to become more visible. What raw mat headwind do you expect in Q4? Based on the current spot price, what would be your first estimate for 2027 and the phasing through the year? For Q4, what are the main levers that could support the margin in Q4? Finally, efficiencies have also been a strong support so far. Do you expect any further efficiency gains in 2027? Because if I am not mistaken, the bulk of your production optimization is now behind you. I was wondering, what do you have, I would say, as incremental savings to activate next year? Thank you.

Andrea Casaluci: Thank you for your questions. As far as the price mix is concerned, in the last quarter, we do expect, as you correctly said, a performance around 3.5%, which is mainly supported by a constant positive product mix performance, which is around 2%, which is stable all around the year. An improved performance on price, because we will fully capitalize the price increase announced during summer, and that are in place starting from the third quarter in the replacement channel, plus the positive impact coming from the cost matrix on the original equipment. Roughly, these will be the two major driver of the positive price mix. 2% on product mix, roughly 1% on price, and 0.5% coming from a channel mix, because we saw a negative performance expected in the original equipment also in the last quarter. On raw materials, the last quarter will be negative, of course, and even worsening compared to the third quarter. We do expect around EUR 45 million negative, from EUR 45 million to EUR 50 million headwinds on raw materials. Price mix will be the part of the compensation together with the last mile of our efficiency program, because we have delivered 73% of our total target of gross efficiencies of EUR 150 million during the full year, so we still miss the remaining 27% of the total efficiency. These are the major protection against the headwinds of raw material in Q4. Of course, we will continue our efficiency program also in 2027. We don't have finalized yet the full amount of efficiencies we do expect for 2027, but I don't expect a number different or with major differences to what we performed in the last two, three years, because we are accelerating the programs on the automation of all our factories, as well as the energy consumption reduction. So, we are full confident that the efficiency program will continue to deliver positive contribution also in 2027. 2027 raw materials impact is maybe the missing part of the second question. But of course, we are sure we will have a negative impact in Q1, because it's already written in our COGS, and we do expect a similar negative impact that we will face in the last quarter of the year. For the remaining part of the year, it's too early to have a clear understanding, because the volatility of the raw material price is still very, very high. Thank you.

Stephen Benhamou: Thank you.

Operator: The next question comes from Monica Bosio with Intesa SanPaolo. Please go ahead.

Monica Bosio: Yes. Good evening, and thanks for taking my questions. I would have a question on the group performance in China. You well described the outlook for the fourth quarter, but I was wondering if you can give us more color on how Pirelli expects to perform in China in the fourth quarter and in the next year. Then, I would like to ask a question on the BEV tires. Can you please quantify what is the group shares in the BEV tires, and if you see some changes in the customers' approach toward BEV in Europe, and if this could some way offer some new opportunities. The very last is on the recent agreement with the BKT, which is a way to enter into a new market with a capital asset-light mode. Is this something that the company could be willing to replicate in other regions? Thank you very much.

Andrea Casaluci: Thank you for your questions. Performance in China in Q4, I start from the market. We always have the angle of the high-value market, of course. It is expected to be resilient in the replacement channel, maintaining the pace of growth of around 4%-5% in the replacement channel, which is performing well during the whole year, and where Pirelli is gaining market share, overperforming a couple of percentage point the market. While the original equipment, our outlook is to remain negative. The local car production is expected to be as negative as the first nine months, so around 7%-8% negative in terms of production, with a double-digit negative, 23%-24% on the local sales, supported by a positive export, expected to be around 70% positive. But the combination of the two is forecasting a negative OE market. We are more or less surfing the market, but in the last quarter, we expect to lose a bit of market share in Asia Pacific in the original equipment because the comparison versus last year is not favorable for us. That is the first question. The electric vehicles tires are growing quite significantly, and as expected, they start to have a meaningful impact on our results. In 2026, we project to sell around 8.5 million tires for electric vehicles, still mainly driven by original equipment, but we start to see first full effect of the replacement. Out of the 8.5 million, around 3 million are expected to be in the replacement channel. And in terms of sales, we are moving towards the EUR 1 billion impact on sales coming from electric vehicles. No, on the last question, I think we have signed this agreement with BKT that will help us to grow in India, which is a very promising market with a pace of growth which is expected to be very high compared to the other markets, and where our presence today is very, very limited. But with the project we announced in Saudi Arabia, which is a joint venture with the PIF, and this one, which is in the first step, an offtake agreement, and most probably will be a joint venture in the following years, but let us see. We have covered all the most important emerging markets where the presence of Pirelli is still limited. We do not see in the coming years further projects like this. Thank you.

Monica Bosio: Thank you very much. Thank you.

Operator: The next question comes from Ross MacDonald with Citi. Please go ahead.

Ross MacDonald: Yes. Thank you very much for taking my questions. I have three questions. First one is on the Georgia CapEx plan and tariff rebates. Specifically, there was some talk in the media around OE potentially getting tariff relief for investing in the state of Georgia, potentially some local incentives to do that CapEx. Simple question, do you have any such agreements if you make the Georgia investment? Should we expect to see maybe a lower net CapEx figure if you can get some incentives from the local state? Then linked to that, within the P&L, we have seen some of your competitors in Q3 still receiving tariff rebates, so just wanted to double-check, is there any one-offs of that nature in the Q3 EBIT, or you are not receiving any tariff rebates at this time? That is my first question. Second one, just on utilization. Obviously, high value OE is weak in Q3. That is very good for channel mix, obviously, but how should we think about high value utilization as we enter 2027? Do you think that is still likely to remain 100% or close to 100% on the utilization side? Then a final question, just obviously, given the new wave of cost inflation, can you maybe talk around how much more resilient Pirelli are versus 2022? Because there is a lot of similarities between today and 2022 in terms of marine shipping, EU energy costs, wages, logistics, raw material inflation. So, how should we think about your ability to again pass on the inflation that is likely coming in 2027 with further efficiency measures, is my final question. Thank you.

Andrea Casaluci: Thank you. A lot of questions. I will start with incentives for U.S. Of course, we have an agreement. We are in discussion with the Georgia government. The Georgia government always supported us, also with the small plant we have that was built in 2001. We have a very good relationship. We do not disclose the agreement, of course, it is confidential, but we have a very good relationship not only with the government, but with the local community, generally speaking. So, we have been supported. Anyhow, it is a high CapEx-intensive project because the level of automation, as we presented, is very high. But we fully trust on this project, not really linked to duties, because when we build a factory, we do it for decades. While duties are part of the volatility we are facing now, we want to have a more resilient supply chain, being protected from duties, from volatility of exchange rate, logistic costs, and so on, staying as close as possible to our customers, and valuing the made in U.S.. Today, the local production is no more than 5% of what we sell, so we need to improve the local production. The U.S. tariffs refund is being included in the second quarter and was in the ballpark of EUR 5 million, so not that big, and anyhow, was included in the second quarter results. No major impact in the third quarter. Saturation rate of the high-value capacity is stable in around 93%. We remind you that our high-value capacity is today 59 million tires, and we use more or less 10 million of this capacity to produce standard tires, which is part of our strategy. We always want to have a part of the high-value capacity spare, ready to catch any further potential opportunities in the high value. So, it is saturated 93%, and out of this volume, roughly 10 million are on standard tires. Ability to pass on inflation is something that has been always one of the strengths of Pirelli, because being exposed for 82% on the high-value tires, and being the high-value tires protected by higher technology, homologations of the original equipment, specialties, and so on, is where the competition is less aggressive because you have less players able to deliver this level of technology. That is the strength we have, and that is what we have been always able to do, to deliver in the last years. We project to do the same also in future.

Operator: For any further questions, please click on the Q&A icon on the left side of your screen or press star one on your telephone. The next question comes from José Asumendi with JPMorgan. Please go ahead.

José Asumendi: Thank you very much. Slightly longer-term question, Mr. Tronchetti. I would love to hear your thoughts, please, with regards to the 3-to-5-year view on the company, and whether there is an opportunity to transform the geographical footprint, expanding the business in China. If you could comment, please, on the potential of the two transactions you have done in China from a production footprint perspective. It is a bit more farther out, but I think there is an opportunity for you to grow in the region, and obviously, the margins in the region are higher than other regions out there. Thank you.

Andrea Casaluci: Yes, of course. China is and remain a strategic market for us. The car park is changing very quickly. Maybe it is no more a question of growth of the car park as it was in the last decade, but is more a question of improving the mix inside the car park, because it is becoming more and more electric. I remind you that 65% of new car registration in China in 2026 are electric, new electric vehicle, mainly pure electric. This is a tremendous opportunity for us in the future for the coming years. SUV penetration is also growing, so we remain focused on China, and we still see opportunities in the long-term view.

José Asumendi: Thank you. Following-up a little bit more short term as we think about first half 2027. We have seen these cycles, right? High inflation costs, and you achieve efficiencies, and you pass on price increases, and you have set the raw materials, and the execution is there quarter after quarter, year after year. Can you help us travel a bit more into sort of maybe first half 2027? Do we see some mechanical margin contraction as a result of the inflation cost, and then some expansion, and then you focus on cash flow? Just any comments. I know it is too early for 2027 guidance, but any comments with regards to the different cycles and what you have seen in the last years, and how Pirelli is positioned for this into 2027. Thank you.

Andrea Casaluci: What we can tell you, that we are very confident on our strategy, so strategy will not change. We will remain focused on the high value, doing all is on our hands to compensate, to offset the negativity coming from high inflations, which is written already in numbers in the first at least three, four months of 2027. So, we will keep on working on the price power and price performance of our product, and at the same time, on our efficiency plan. As I said before, we do expect to go in continuity with our efficiencies programs. But it is too early to have a clear understanding of the first half because the volatility on the input cost is still very high. You see what is happening on the oil price in the last, if not days, hours. We need some weeks to have a better understanding of the picture of 2027. Thank you.

José Asumendi: Very helpful. Thank you.

Operator: The next question comes from Thomas Besson with Kepler Cheuvreux. Please go ahead.

Thomas Besson: Thank you very much for taking my questions. Good evening, it is Thomas Besson with Kepler Cheuvreux. I have three questions as well, please. Firstly, I would like to come back on your India project. I mean, I was willing to get a bit more comment from you, both on whether you are targeting the local high-value market. I would begin to hear a bit of few numbers about that market because from the outside, it does not seem to be a huge high-value market, and whether this is eventually a strategy to export from India to other markets or not, or if it is purely for the local market. Also on India, the BKT choice, I mean, they are, as you say, a standard specialist focusing on industrial tires. I would have expected maybe someone in a closer segment as a partner. Could you explain a bit more why you've chosen them? I am not sure I understood the first stage of the partnership before. It is a 50/50 JV. It is a dedicated plant for you, but it is not a 50/50 JV. So how does it work exactly? The second question is about volumes. I think this is the negative part of the scenario that is developing with a new wave of inflation. You are projecting volumes to be probably slightly negative again in Q4. Is there any comments you want to make already on what you think we should assume for replacement markets in 2027, and whether it makes sense to assume volumes as well to be relatively close to zero overall in an environment of high inflation, where price mix will be higher? Last question, a detail on the numbers. I think you flagged lower PPA in Q3. Could you explain where it is coming from, what we should expect for Q4 and sort of 2027 in terms of the PPA figure? Thank you very much.

Andrea Casaluci: Okay, thank you. For India, it is still a very small market in the high-value segment, which is our core business. That is the reason why we arrive in this market with a local production, if you want to say, after the others, because our addressable market is still very small. But the pace of growth is expected to be very high. On our estimation, the replacement market in 2030 will arrive at 50 million potential, out of which 20% 17 inches up, and 10% 18 inches up. That is the potential we see. That is the reason why we decided to start with an offtake agreement and not with our own facilities and the local investment, because we wanted to start growing local penetration, a distribution network, a brand awareness, a brand consideration to better understand the market, to confirm this expectation of growth. As soon as all these points will be confirmed, we will be ready to enter into a joint venture with our local facilities. BKT, after scouting in the market, has been identified as the best partner for us because they have a very high focus on innovation, sustainability, quality, and technology. They lead the agro and industrial high-performance tire market. We found out a very good fit also from values and cultural perspective. They are entering into the consumer business. Till now, they were out of this segment. I think there are a lot of synergies we can develop together. Export is not expected in the first phase, so we want to focus these 800,000 pieces offtake agreement for the local market. But as soon as we will develop our own facilities, export from India will be also an option to be carefully evaluated. On the global volume market for 2027, we have a positive expectation for the replacement high-value market. We do expect to see mid-single-digit growth on the high-value market, as it has been in 2026 and in the last year. There is a proven resiliency of this segment. While in the original equipment, personally, I am not optimistic for the first at least quarter or half of 2027, because I still see some difficulties mainly coming from China to recover in the car registration. All in all, high value is confirmed to remain more resilient than the total market. That is too early to have a full picture for the market. While on PPA, I leave the word to Mr. Bocchio. Thank you.

Fabio Bocchio: Yes, on the PPA, I will take this one. Actually, you are right. For this year, we foresee a depreciation of the PPA lower than previous year. We expect this year to arrive just below EUR 100 million, while last year, it was roughly EUR 107 million. The main driver for this reduction is related to the end of depreciation of the customer relationship, which was built up at the beginning of the process. For the next year, we foresee an additional step down of the PPA, and the final value to be depreciated will be in 2035.

Andrea Casaluci: Sorry, allow me to add one last point on India market I forgot before. It is also becoming more and more interesting for us because car makers are entering, also European, South Korean, Japanese car makers, more and more entering in the market with local production, or they declare to have planned to grow. This is a further opportunity for us to stay beside our historical customers. Thank you.

Thomas Besson: Thank you very much.

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

Marco Tronchetti Provera: Ladies and gentlemen, this ends our presentation. Thank you for your attendance, and have a good evening.

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