Pirelli & C SpA
MIL:PIRC
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
4.508
6.234
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Pirelli & C SpA
Earnings Call Analysis
Q1-2024 Analysis
Pirelli & C SpA
Pirelli's first quarter of 2024 demonstrated the resilience and soundness of its business model, despite an uncertain global economic environment characterized by geopolitical tensions, high interest rates, and volatile exchange rates. The company saw an improvement in its price mix by 2.3%, outperforming the industry average, and achieved a profitability rate of 15.5%, which is significantly higher than the industry average of 7 - 9.7% when excluding specific outliers.
Revenue, excluding exchange rate impacts, grew by 4.6%, with the high-value segment making up 77% of total revenues. The company saw its EBITDA adjusted rise to EUR 263 million, marking a 6% increase year-over-year and a 1 percentage point improvement in profitability. Net income for the quarter was reported at EUR 100 million, though this figure was impacted by approximately EUR 49 million in non-monetary effects linked to hyperinflation accounting.
Pirelli's net financial position remained negative at EUR 2.9 billion, but this is a decrease of around EUR 300 million compared to the end of March 2023. The company reported a net cash absorption of EUR 673 million for the quarter, which includes the acquisition of Hevea-Tec costing about EUR 23 million.
Pirelli continued to strengthen its positioning in the high-value segment, particularly in specialties which account for 60% of group sales and 75% of high-value sales. The company expanded its homologation portfolio in high-rain, specialties, and EV categories, launching two new products in both the car and motorbike segments.
The company's operational program yielded benefits of EUR 32 million, aligning with expectations and including measures to mitigate the impact of the Red Sea crisis. Car volumes increased by 2.7%, outperforming the overall market growth of 2.1%.
For 2024, Pirelli maintains its guidance, forecasting revenues between EUR 6.6 billion and EUR 6.8 billion with organic growth expected between 3.5% and 4.5%. The company anticipates volume growth between 1.5% and 2.5%, primarily within the high-value segment, while the exposure to the standard segment is expected to continue decreasing. The price/mix is projected to rise by 2%, driven by product mix improvements. Investments are estimated to be around EUR 400 million, approximately 6% of revenues, focused on technological upgrades, mix improvement, and sustainability. Net cash generation before dividends is expected to be between EUR 500 million and EUR 520 million, with a targeted reduction in net financial position to approximately EUR 1.95 billion.
Despite the challenging external factors, Pirelli expects the tire industry to remain resilient in 2024. The company's strategic de-risking actions and solid business model are designed to deliver performance in line with or better than top-tier competitors, especially in terms of profitability and cash generation. Pirelli aims to steadily decrease its debt, aiming for a leverage ratio of 1.3x adjusted EBITDA by year-end.
You don't have any saved screeners yet
Ladies and gentlemen, welcome to Pirelli's conference call in which Pirelli top management will present the company's first quarter 2024 financial 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 after the presentation. [Operator Instructions]. Now I would like to introduce Mr. Marco Tronchetti Provera. Please go ahead, sir.
Thank you. Good evening, ladies, and gentlemen. The results of the first quarter 2024 confirmed the soundness of our business model with improving performance year-on-year and among the best in the industry. Quarter 1 closed with a sound price mix, plus 2.3% versus the PS average of minus 1% as a result of our strengthening in high value. Profitability at 15.5% versus the PS average of 9.7%, excluding Nokia and 7%, including Nokia, in line with the full year target. A cash trend improvement versus quarter 1 2023 due to the careful management of the working capital. Scenario expect for 2024 remains uncertain due to the persisting geopolitical tensions. We expect a moderate economic growth impacted by high interest rates and the volatility of exchange rates. The value segment, our reference market confirms its resilience with a growth rate higher than the standard. In this scenario, deployment of our strategic programs allows us to convert targets we set on March 6. So, Mr. Casaluci the floor is yours.
Thank you, Mr. Tronchetti, and good evening to you all. Pirelli closed the first quarter of 2024 with a sound performance in line with our targets. The top line, excluding the impact of exchange rates, increased by 4.6%. We increased market share in high value, which now accounts for 77% of the group's revenues. EBITDA adjusted amounted to EUR 263 million, plus 6% year-over-year with a 15.5% profitability, posting a 1 percentage point improvement. Net income was EUR 100 million. It discounts the nonmonetary impacts linked to hyperinflation accounting approximately EUR 49 million. Net financial position is negative for EUR 2.9 billion, down by around EUR 300 million compared with the end of March 2023. In the first quarter of 2024, in line with the usual business seasonality, net cash absorption amounted to EUR 673 million, including Hevea-Tec acquisition of around EUR 23 million. Let's now discuss the operating performance. The commercial program allowed us to strengthen our positioning in the high-value segment, particularly in the specialties that account for 60% of group sales and 75% of Pirelli high-value sales. As for innovation, we expanded our homologation portfolio, mainly driven by the higher rains, specialties, and EV. And we launched 2 new products, one for the old season segment in the car business and the other for the enduro sport touring segment of motor bikes. As regards the operations program, we achieved EUR 32 million benefits in line with expectations and the project development, and took measures to mitigate the impact of the Red Sea crisis. Let's deep dive into the single programs. In Q1, we recorded a 2.7% increase in car volumes against a plus 2.1% growth of the overall market. This result was driven by our overperformance in high value. As a result of the pull-through effect and the renewal of product ranges, we recorded a double-digit growth in the replacement channel, 18 inches up, plus 11.4% against the plus 1.1% of the overall market, gaining share in the main regions. In regional equipment, plus 0.9% Pirelli volumes and plus 1.5% in the market, we continue to focus on higher RINs. The weight of 19 inches up volumes grew by 3 percentage points, equal to approximately 85% of OE 18-inches up volumes, and we increased it by 1 percentage point specialties weight, now equal to 82% of OE 18 inches up volumes. Exposure to standard is decreasing. Pirelli car volumes 17 inches and below are at minus 3.8% compared to a plus 0.8% of the market. In the first quarter, we increased the number of homologations in those products with a higher technological content. We achieved 80 new technical homologations in car 18 inches up, approximately 26% of the annual target, mainly in the 19 inches up, 85% of the homologations in the quarter, now counting around 2,700 homologations. And in the specialties, 65%, like the Pirelli noise canceling system ran forward and seal inside. In the electric vehicles, despite the temporary market slowdown, we continue to homologate our products with the main premium and prestige car makers. For instance, new homologations with Porsche Taycan, Audi Q4 E-tron and Volkswagen ID4, and new Chinese premium EV producers, for instance, Polystar, Hongqi, ZEEKR and Geely. In addition, we enriched our product range with 2 new launches. Cinturato All Season SF3 for the car business, which consolidates our positioning in the European old season segment. The new product has already been awarded by Auto Bild as the best all-season tire in the market due to its top safety in all weather conditions. For motor bikes, we launched Pirelli's Scorpion Trail 3, combining sportiness and spirit of adventure with a wet performance matching the sport during and an excellent acoustic comfort. The efficiency program produced EUR 32 million that fully offset inflation. Approximately 56% of the efficiencies achieved in the quarter came from the product cost project and mainly virtualization. The faster contribution came from SG&A, where we as logistics and supply chain and organization with digitization of internal processes and the upskilling of employees. Finally, the manufacturing project is to produce benefits in the second half of the year, as anticipated, with implementation of plant automation, electrification of the curing stage and the lower energy consumption. Finally, a quick update on the deployment of the sustainability plan announced on March 6. We started major projects in 4 macro areas with challenging targets. Climate, we aim at decarbonizing the value chain and be the first company in the industry to achieve the net 0 in 2040. Products. Our objective is to reduce environmental impact by increasing the use of bio-based and recycled materials. Nature. We are committed to decreasing water withdrawal and protecting biodiversity. Finally, people. Our priorities are health and safety. In the first quarter of Pirelli sustainability achieved once again excellent scores in the major indices. We are the only company in the global auto component industry ranking in the top 1% category, the highest in sustainability book 2024 published by S&P Global. Finally, our commitment to fight climate change was rewarded by confirming as in the Climate A list of CDP, the nonprofit international organization that collects and disseminates information on environmental issues. I hand over to Mr. Bocchio.
Thank you, Mr. Casaluci, and good evening to all. Let's now review our fourth quarter performance in detail. Sales amounted to EUR 1.69 billion, basically in line with last year, minus 0.2%, but with a plus 4.6% organic growth, consistent with the full year target. This performance was supported by the positive trend of volumes plus 2.3% at group's level, reflecting the solid commercial performance already outlined by Mr. Casaluci. The price/mix improvement, plus 2.3% due to the continued development of the product mix as a result of our strategy of focusing on the high-value segment, the positive channel mix, while the price component remained basically stable despite the impact of indexation clauses on original equipment. Forex impact was negative for 4.8%, although improving compared with the previous quarter, that was minus 10.6%. It discounts the weakening of the U.S. dollar, renminbi, and currencies of emerging countries against the euro. In the first quarter of 2024, the adjusted EBIT reached EUR 263 million with a 6% increase year-on-year and a 15.5% margin, growing approximately 1 percentage point against Q1 2023, thanks to internal levers. In more detail, the impact of commercial performance was positive, volumes plus EUR 15 million; price/mix plus EUR 27 million. Efficiencies equal to plus EUR 32 million, fully offsetting inflation equal to minus EUR 29 million, whereas the lower cost of raw materials plus EUR 29 million contributed to compensate for the Forex impact, minus EUR 39 million, which keeps on discounting the revaluation of the Mexican peso. Finally, the impact of amortizations was negative for EUR 7 million as well as the other cost, minus EUR 14 million, mainly linked to marketing, R&D and inventory reduction. Let's review now the net income dynamics against Q1 of 2023. The operating performance has improved by EUR 14 million, as I just described. Equity participations improved their results. The increase of net financial charges for EUR 58 million mainly discounts the noncash impact of around EUR 49 million linked to the temporary misalignment between inflation rates and Forex in high-inflation countries. Based on the latest estimates, such impact is expected to realign with our expectations during the course of the year. Finally, the reduction of taxes for EUR 24 million reflects the lower income before taxes, the benefits from the patent box, which were not included in Q1 of 2023, and the positive settlement of tax litigations as expected. In the first quarter, the net cash flow before dividends was negative for EUR 673 million, in line with the business seasonality. It posted a EUR 40 million improvement compared with the EUR 691 million of Q1 '23, where we exclude the impact of Hevea-Tec acquisition for a value of around EUR 23 million. The net operating cash flow was equal to minus EUR 538 million reflects the operating performance, which posted an improvement compared to Q1 '23, investments of EUR 53 million, in line with the value of Q1 2023 and mainly located to high-value activities, the ongoing mix improvement, the quality of our plants and to support the sustainability plan. In addition, the working capital trend discounts a careful inventory management with a 21.4% incidence on sales, and the usual seasonality of trade receivables, 14.1%, their weight on revenues and the trade payables, 22% their weight on revenues. The group gross debt as of December 2023 amounted to slightly less than EUR 4.2 billion. Considering financial assets worth approximately EUR 1.24 billion. The net financial position is equal to around EUR 2.9 billion. In the first quarter of 2024, Pirelli subscribed a new EUR 600 million term loan with maturity in October 28. This was widely used to repay in advance debt with maturities spread over the next 2 years. The new facility, in line with the ESG finance objectives communicated to the market is indexed to the new decarbonization targets of the group disclosed in March with update of 2024, 2025 industrial plan. Following the publication of the new ESG objectives, Pirelli has also indexed the EUR 500 million revolving credit facility subscribed in December of last year to the same decarbonization targets. Sustainable finance now accounts for around 68% of the group's gross debt. As of March 2024, our liquidity margin amounts to approximately EUR 2.5 billion, of which EUR 1.5 billion in undrawn committed credit lines. The liquidity margin covers the financial debt maturities for the next 3 years. That is until the first quarter of 2027. The cost of debt over the last 12 months is at 5.18%, basically in line with the value recorded at the end of last year. Finally, our fixed floating mix remains balanced with around 50% of our debt at fixed rate. I'll give the floor back to Mr. Casaluci.
Thank you. Thank you, Mr. Bocchio. Let's now discuss the market outlook in 2024. We confirm our forecast for the car tire market with demand rising by approximately 1%. The High Value segment is confirmed as the most resilient with a mid-single-digit growth rate. In particular, in the car, 18 inches and above, we expect an improvement in the replacement trend mid- to high single digit in the major regions, and the mid-single-digit growth in regional equipment, especially in North America with a plus 8.5% in Asia Pacific with a plus 5.6%. Standard demand appears basically flat. Based on the results achieved in the first quarter of 2024 and of the scenario described, we confirm all targets for 2024. Revenues between EUR 6.6 billion and EUR 6.8 billion with an organic growth rate from 3.5 and 4.5. Volumes on the rise between 1.5 and 2.5 with a mid-single-digit growth in high value, whereas our exposure to the standard segment keeps on decreasing. Price/mix at 2%, mainly driven by the ongoing improvement of the product mix. Forex in decline between 4% and 3%. Profitability, adjusted EBIT margin, between higher than 15% and around 15.5%, supported by internal levers. Investments of about EUR 400 million, roughly 6% of revenues for a technological upgrade of plants, mix improvement and sustainability. Net cash generation before dividends between about EUR 500 million and EUR 520 million, thanks to the operating performance and an efficient management of the working capital. Net financial position equal to approximately minus EUR 1.95 billion. I'll now leave the floor to Mr. Tronchetti for the final remarks. Thank you.
Thank you, Mr. Casaluci. On the basis of what we have just discussed, we expect the tire industry to show its resilience in 2024. In an external context, which is still going to be tough and characterized by geopolitical tensions, assisted inflation and volatile exchange rates. Our business model and the derisking actions on the value chain are there to allow us to deal with this scenario and make sure that our performance is in line with expectations and better than Tier 1 peers in terms of both profitability and cash generation. We expect to deleverage progressively and bring indebtedness to approximately 1.3x adjusted EBITDA at the end of the year. And this ends our presentation, and so we may open the Q&A session. Thank you.
Thank you. This is the Chorus Call conference operator. We will now begin the question-and-answer session. [Operator Instructions]. The first question is from Monica Bosio with Intesa Sanpaolo.
The first one is in your shorter-term view on the overall replacement market in the second quarter, if you have any details or color to give us. I'm particularly interested in the high-value tire market in the replacement channel. And if there's a difference, and if you see a difference between the North American side and the European side. I'm particularly interested in your growing opportunities in North America? And my second question is on the price mix. I can imagine that 2.3% was mostly mix. Do you confirm drop-off for the full year between 16% and 65%? Thank you very much.
Yes. Thank you for the questions. As far as market is concerned, in the Q2, we see a market, I would say, similar to the first quarter with a high value performing around 6%, 7% positive, mainly driven by replacement that we do expect to be more in the range of 8% and an original equipment performing better than the Q1, but anyhow, around 4%, 5% positive. I'm always talking about the high-value market following your questions. Europe has been relatively weak in terms of performance in the Q1 in the original equipment. And we don't expect a recovery in the second quarter while staying in the original equipment, we saw in North America performing a bit better with a single-digit growth in the high value in the first quarter. We do expect to be confirmed also in the second quarter. If we move to replacement, the performance has been in the range of the double-digit growth around 10%, both in Europe and in North America in the first quarter, so quite positive. And we also expect a similar performance in the second quarter. I have to say that April started with this trend confirmed. Price/mix, you are right, the performance of the first quarter to around 2.3% positive has been mainly driven by mix performance. And we expect the same trend for the following quarters. So, a flattish price environment with a slightly negative in the first quarter, slightly negative coming from the original equipment. And because of the cost metrics approach and slightly positive in the replacement in the first quarter. But all in all, the price/mix has been mainly driven by mix. So, you can consider a drop-through of around 60%, as you mentioned, for the full year.
Okay. If I may, a follow-up. What kind of opportunities do you see for the year in your growing presence in North America, because you are underexposed to that market? If I'm not wrong.
Yes. North America remains the biggest high-value market in the world, and Pirelli has a market share that is below the average we have in the high value, in the other main regions like Europe or Asia. So, it's in North America that we have the highest opportunities and is where we are accelerating our growth, and we are gaining share more than other in other regions. The strategy is based by the enlargement of our product portfolio, developing a replacement product dedicated to the U.S. customers, enlarging our customer base in the regional equipment fitting since a couple of years, iconic North American vehicles like the F-150, or the Dodge, but also the Tesla product portfolio. Growing in production capacity, of course, enlarging the customer base. And I would like also to mention the healthiness of our brand in North America, supported also by the growing popularity of the Formula 1, but the awareness and also the consideration of the Pirelli brand in the last years due quite significantly in North America.
The next question is from Martino De Ambroggi with Equita.
Two questions on the -- if it's possible, an update on the BEV penetration and is it progressing as you expected? And standard return on sales in Q1. And if you can remind us what is the target for the full year? And the third and last question is on the market share gains, if you could elaborate on where you gain shares in terms of regions, segments or what else? Just to have an idea how you can replicate it going forward.
Okay. I will start from the last question, the market share. We gained market share basically in all the high-value regions. I would say mainly North America and United States, but also in Europe and in China, we were able to overperform the market. The electric vehicle penetration, it goes without saying we are facing a slowdown in EV penetration compared to the previous expectation and forecast, but we do consider this is a temporary slowdown. We don't see this as a structural. In our view, the electric vehicle penetration will continue and will restart in the following months. And we do confirm our target of EV penetration in 2025, around 40% of new car registration in Premium and Prestige segment, and around 80% within 2030. So, this is also demonstrated by the new homologation that we presented before, and also the acceleration driven both by the traditional incumbent carmakers in Europe, but also the Chinese premium carmakers. And the homologation portfolio on EV that we were able to obtain in the first quarter is half, half of the premium Chinese carmakers and half on the European one. Anyhow, the slowdown of 2024 is already included in our numbers. So, it's fully reflected in our numbers. But just to give you the sense of this slowdown at the worldwide level, the BEV, the electric vehicle car registration has been in the first quarter of plus 34%, while the non-BEV, the nonelectric has been 3%. And that more or less the same trend is reflected in Europe. At the full year base, electric vehicle car registration is expected to be plus 32% and the nonelectric car around 0. So, as you can see, even if we are in a slowdown, the car registration on EV is anyhow increasing its penetration. Moving to the standard performance. Our profitability in the standard, as we explained during the presentation of the industrial plan, we maintain our target to reach the double-digit ROS. Anyhow, we have a couple of years of delay, mainly driven by the non-saturation of the standard capacity in Russia and the high inflation of South America. Because of these 2 effects today, we target in 2024, a profitability in the range of the high single digit, so around 7%, 7%, 8%. But we maintain the target to arrive in a couple of years at 10% that we previously announced. Thank you.
The next question is from Sanjay Bhagwani with Citi.
Hello, and thank you very much for taking my question also. I've got 2 instances as well. The first one is a follow-up on the Q2. I understand you provided some good comments on the market level. So, could you please also provide some comments for the Pirelli group, mainly on the Q2, how are you seeing the trends on volume, price mix and margin? That is my first question. And my second question is on the raw material inflation. As we are starting to see some of the key raw material prices have started to go up from that low. Can you please provide some color on as per your purchasing contracts with your suppliers or how long the existing prices are logged in? So, do we start to see, let's say, this new natural double prices already in your cost base in Q4 this year? Or this is probably more H1, '25 story? Those are my 2 questions.
Okay. The market for the second quarter is expected to be, as I said before, more or less in line with the performance of the Q1. All in all, we expect a total global market performing around plus 1%, 2%. And the high-value market, which is our main focus around plus a positive 7%, 8%. If we split by channel, what we expect for the original equipment is plus 3% in the total market and the plus 5% in the high-value. While in the replacement, we expect around 2% in the total market and around 7%, 8% in the replacement. So, as you can see, quite similar to the first quarter. If we move to our performance, again, we see a volume performance in the range of 2%, which is quite similar to the first quarter. And also, the price/mix is stable expected in the range of 2% to 2.5%, reflecting the full year guidance, mainly driven by mix. I now, leave the word to Mr. Bocchio to discuss about the raw material question.
I will take the one on the raw materials. So, first of all, recapping a little bit in quarter 1, we had a positive variation of EUR 29 million, where we benefited mainly from the favorable comparable view on both brand and butadiene. For quarter 2, we expect roughly flattish or neutral impact with commodity impact still on the positive side, but lower compared to the first quarter due to the increase of natural rubber and butadiene that we had in the past few weeks and months. And there will be a negative impact for the Forex. So overall, Q2, we are expected to be with raw material impact about 0. For quarter 3, quarter 4, instead for the second half of the year, we are expecting that being the commodities at the level that we are seeing nowadays probably the driver will be negative for the second half of the year. And we have to consider that from the commodity quotation that we see on the market to the impact on our COGS, cost of goods sold, we have a delay in time, which is between 3 to 4 months depending on the family of the raw materials.
The next question is from Michael Jacks with Bank of America.
Thank you for the presentation, and for the detail on raw materials. My first question is on bottom drop-through. In Q1, it was a touch lower than the normal 43% we've become accustomed to. How should we think about this development for Q2 and the remainder of the year? And then my second question is on production inflation and depreciation in amort. We had headwinds of around EUR 50 million there in combination for Q1. Should we expect a similar development in Q2, given that there was already quite a high-cost base there in Q2 '23? And what is now your full year expectation for that bucket?
I will start from the second one from the inflation. And yes, for the first quarter, we had an inflation which was about EUR 29 million negative compared to the first quarter of 2023, out of which the 2 main drivers are the ones that we highlighted during our update of the industrial plan. So, the most important headwind is coming from the labor inflation. And the second one is related to the logistics inflation. And this is the trend that for the time being, we foresee even for the next quarters of the year. The value is expected to stay roughly in line with the impact that we had in Q1, but it's important to underline that we expect each single quarter to be this negative impact from inflation to be compensated by the efficiency program that we have in place. So, we confirm the target of generating efficiencies for about EUR 140 million for the full year. And we expect that this should be sufficient to compensate at least the impact from the inflation, being, again, the 2 major points of inflation, the labor contract renegotiation has taken place in the second part of 2023 and at the beginning of 2024, and the local logistics specifically mainly in Europe.
The next question is from Ross MacDonald with Morgan Stanley.
I have 2, please. Sorry to come back to the second quarter volume question, but I'm just curious why you're not expecting second quarter volumes to be even stronger than the first quarter, just given the calendar day effect that many of your peers are calling out during this set of results? And then secondly, on capacity utilization, this looks very high for the high-value segment, I think, 97% factory. Just curious how quickly you can increase capacity on the high value side if demand starts moving in that direction?
Well, the performance in terms of volume for the first quarter is expected positive, as I said before, around 2%, 2.5% positive, targeting to overperform the market in the high value and gaining market shares we did in the first quarter, and to decrease the exposure on the standard. But all in all, the volume performance is expected to be positive, around 2%. The saturation, the utilization rate of our capacity is also expected to be confirmed around 90%, which has been also the utilization rate of the first quarter, with a higher utilization rate on the high value capacity more than 95%. But all in all, is expected to remain stable on 90%. Thank you.
Okay. Can I just follow up very quickly on the point of working day effect? Because what I'm trying to see is the first quarter here looks very strong, actually because of the timing of Easter for you to be growing against that tricky comp is impressive. My point is more that surely but the easy calendar day effect in the second quarter. So, there is some sequential step-up? I'm just curious if you agree with that.
The positive effect of the working days has been mainly in April compared to March. But all in all, in the second quarter, there are no, maybe it's 1 day, 1 working day difference is not a major impact all in all. What we did in the first quarter has been to overperform the market. And we -- on the high value, of course, and we target to make the same in the second quarter, overperforming the average of the market in the high value. That's the target, around 2% growth.
The next question is from Thomas Besson with Kepler Cheuvreux.
I have 3 questions, please. The first one is coming back to some of your P&L items below your operating level. I mean, your financial charges were way higher than expected for the year, and taxes were much lower. Can you confirm what we should build in for the full year and reminders why Q1 was so different? The second question is about factoring. You are not disclosing a lot of details about factoring. Could you just confirm that factoring was stable or down in Q1 '24 versus Q1 '23? And lastly, could you also confirm, I think this is what you said before, but I'd like to have that clear that you anticipate price mix for the year to fully offset inflation or a bit more with your 140 million savings on top.
Okay. We had some issue on -- I will answer to the second and third question, and I leave Fabio for the first question. Hopefully, we understood properly because the connection was not that good. So, utilization rate of our factories, and as I said before, is around 90%, that is more or less in line with a bit better, I would say, than last year. But there is no major differences that we have a saturation rate around 95%, 96% on the high value and 90% on the overall capacity. Before we have a full year expectation of inflation in our cost, maybe we can give you a bit more of color of around EUR 140 million negative impact on the full year base, while we have internal efficiency plan, gross efficiencies, of course, for the same amount of money. So, we do expect to fully compensate the inflationary impact of EUR 142 million with EUR 140 million, EUR 143 million to be exact of gross efficiencies. So, we fully compensate. The mix performance goes on top and is expected to remain stable also in the full year following the result of the first quarter to 2.5% of mix performance. Hopefully, I understood probably your question, otherwise please repeat. But in the meanwhile, I leave Bocchio the word for the first question. Thank you.
If we understood correctly your first question, it was related to factoring maybe. So, I'm just saying that we use factory as a leverage to mix the risk of the company and balancing the opportunities for the cash flow. I have to say that the policy for the group has not changed. And the level of factoring at the end of quarter 1, 2024 was very similar to the end of Q1 2023. So, no major differences compared to the activation of factoring initiatives. If this was the right question that we understood.
Yes, that was the right question. The only one that you did not understand correctly, and I apologize for the connection was the first one, which was about financial expenses and tax expenses. So, financial expenses were a lot higher than the trend for the full year, while taxes were way lower. So, I was asking if you could confirm what we should build in for the full year for both net financial expenses and the tax rate? Thank you.
Yes. Thank you very much. Not much clear the question. So yes, you're right. In quarter 1, financial charges were higher than expected than the average. And this is because they are discounting an accounting effect with no cash impact due to the hyperinflation connected to the temporary alignment between inflation and exchange rate in high-inflation countries, meaning in Argentina and Turkey. But based upon the latest available estimates, this means align we expect to normalize during the remaining part of the year. This impact is not going to affect at all our cash flow guidance. So, we take and we confirm our guidance for cash flow generation in the range of between EUR 500 million and EUR 520 million for the full year. Regarding the profit and loss, specifically, following the higher FX and up inflation impact of the first quarter, financial charges should be in the ballpark between EUR 200 million and EUR 230 million, so a touch higher than what we were forecasting in March indication, partially compensated by a tax rate, which is expected to be in the low end of the range that we gave around 1 month ago during the update of our industrial plan.
The next question is from Christoph Laskawi with Deutsche Bank.
There will be one on the indexation pricing for OE. Should we expect that to be negative again in Q2? And should then -- because of the raw mat development turn positive in H2? If you could comment on that. And I'm not sure if you can, in the current environment, also comment on the replacement pricing, if in the current market situation, you would see scope to marginally move higher in the second half if the raw mats continue to move up.
Well, in the original equipment is expected to remain positive in the range of mid-single-digit growth in North America and Asia, even better in the high value, while we expect will remain slightly negative in Europe. There is a slowdown of the car registration in Q1 and that we do expect will be reflected also in the second quarter. The second question, no, we see negative -- Yes, please.
Sorry, I probably have to repeat my first one, sorry, if the connection is bad as well. There was just on the pricing on the OE side, which is indexed and linked to the raw material development, which was negative in Q1, should it be negative in Q2 as well? And can it turn positive in the second half? That was the question.
Yes, it's expected to become positive in the second half following the initiation of the raw material in the second part of the year, slightly positive.
And on the replacement side, can you comment on that as well? Should that be just flat, about flat? Or can that move slightly higher when the raw mats are moving higher as well?
We don't see major differences in the price environment will depend on the trend of the market and the development of the demand. So far, we don't see major differences and impact to the actual environment.
The next question is from Michael Jacks with Bank of America.
I'm just circling back on my previous questions. I think you forgot to answer the first one on the volume drop-through. In Q1, it looks like volume drop-through was around 39%, which is lower than the normal sort of 43% range that we've become used to. How should we think about this developing for the remainder of the year? And then if I may just add one more question on the guidance range. And if perhaps you just indulge me on some bridge math. You mentioned earlier that efficiencies fully neutralized cost inflation. And based on your guidance, it would appear that volume growth would at least offset Forex, which means that price mix provides a kind of a pure upside to EBIT for this year. And if that's correct, I struggle to get as low as the 15.5% ceiling for your guidance range for the year. So, are there any headwinds that I should be thinking about or that you're currently thinking about that keeps you within that 15% to 15.5% guide range?
I would take the question on the first one. I understand now, I'm sorry. It is related to the drop-through of the volume in quarter 1, which was slightly lower than the usual. And that's because the performance of the business motor was a little bit weaker than the performance of the business car. So, changing a little bit the mix of performance between the 2 business units. But what we are expecting is for the remaining of the year, for the next 3 quarters to normalize the impact, let me say, usual average of about 42% to 42%.
And then just on my second question around the various sort of buckets for the EBIT bridge. You mentioned that that efficiencies will fully neutralize cost inflation. And if I just take your guidance, it looks like the volume effect in EBIT will fully offset Forex, if not maybe more than offset, which means that price mix is kind of a pure upside to EBIT for the year. Is that the right way to think about it? Or are there any other headwinds that I should be thinking about?
No. The only point that you should take into consideration is related to the trend of the raw materials because as I was saying previously, we are expecting for the second quarter still raw material to have an impact, which is flattish compared to previous year. While we are expecting a negative impact for the second part of the year if commodities stay at values that are similar to what we see on the market as of today in these weeks. So, you're right. Efficiency and deflation will be compensating, roughly compensating. So, we don't have any major variation coming from this net impact, but the raw materials on the second part of the year, we expect to have a negative impact compared to previous year.
And then just perhaps your current view on raw materials. So, should we expect the raw materials to have a neutral impact for the full year at current prices or a slightly negative impact?
No, on the full year, you should be expecting a balance, a flattish impact for the full year. But again, with different seasonality between quarters. But overall, no major impact on the full year.
The next question is from Tristan Gruet with Allianz GI.
It seems that for high-value tariffs, your plants are very close to being fully used, fully saturated. Do you plan to increase CapEx on these plans to follow the growth in this segment?
Yes. We always have a utilization rate of the high value capacity, higher than the average because we use around EUR 10 million of the high-value capacity to produce standard tires. So, this is allowing us to catch any further opportunity we make from the market on the high value. And so, in the short-term, we don't need to accelerating on the growth. As per today, around 20% of our total CapEx is dedicated to the capacity growth only in high value, and this is enough to balance the expected growth of our demand. Thank you.
[Operator Instructions]. The next question is from Michael Aspinall with Jefferies.
One quick one for me. Margins were at the high end of the guidance range for the year at 15.5%. Can you share if you expect margins to remain at the high end in the second quarter?
Yes.
Okay. Great. That would be kind of right at the high end towards 15.5% or 15.3% to 15.5%?
No. It's difficult to write. But that's the expectation is very similar to Q1.
Mr. Tronchetti Provera. Gentlemen, there are no more questions registered at this time.
So, thank you. Thank you to everybody, and have a good evening.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices.