H1 2014 earnings call transcript

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Premium, our platform for value growth, exceeded our expectations worldwide. The OE market share increase we are experiencing, now above >20%, +5pp since 2011, is translating into replacement sales with a very high pull-through rate in marked items. In this segment, resilient in terms of pricing, we increased our marked homologation portfolio by more than 60 items per year in the last 5 years, becoming a clear market leader with a total homologation portfolio of more than 1700 items.

The Premium concept is a ‘moving target’: every time a new Premium car is launched, tyres of a larger size and new technological solutions are needed to set them apart in terms of quality standards.

- For mobility, we offer runflat, self- sealing Tyres

- For a better parameter monitoring, our cyber tyre technology connects tyres to the car control unit

- for consumption and comfort, we developed technologies such as ultra-rolling resistance and noise reduction

- for customers’ specific requirements, we provide summer/winter/all season and tailor- made tyres...

- for ‘perfect fit’ with electronic drive-control systems, we co-design tyres with Premium car manufacturers, to device OE marked tyres

All of this fits in with our current Premium range, with different tyre sizes and lower unit volumes for each manufacturer. To lead in this segment, we must be focused on a fast portfolio renewal and extremely flexible manufacturing facilities. We distinguished ourselves from our competitors on the basis of these levers and assets and we accelerate our progress to fully seize market opportunities.

In the last six months, speed and flexibility of execution, combined with the value creation culture increasingly permeating our organization, allowed us to manage price/mix, raw materials, and high foreign-exchange-rate volatility in the best possible manner. With a positive impact of these three elements of approx. + 60 mln euro on the Ebit bridge, we are best performers amongst our peers.

At the same time, we keep improving our efficiency plan which fully offset input cost inflation.

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As for our outlook for 2H 2014, despite the economic slowdown in some developing markets, the exchange rate volatility in some of them, and the strong reduction in the Car and Truck OE segment , the tyre industry once again turns out to be resilient and and the main players keep on focusing on profitability and free cash-flow generation.

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In this context, we are confident to achieve our 2014 targets. We are implementing short-term recovery plans in Latin America and new medium-term projects are under scrutiny.

At this point, let’s quickly review our results to leave you more time for the Q&A session.

SLIDE 4: PIRELLI KEY FINANCIAL RESULTS

We delivered profitable growth, improved our positioning in the top product segments globally and were able to generate cash after dividend payment, making further progress towards our 2014 targets.

2Q Results show:

 Continued organic revenue growth due to the acceleration of price/mix, +6% (+4.6% in 1Q) and the best in the industry, as we reaffirm our commitment to value and focus on the most profitable market segments.

 Improved positioning in the Premium segment, with volumes up nearly 21%, in line with the first quarter, and a clear market outperformance in Europe, North America, Asia Pacific and Middle-

East / Africa. While providing resilience to economic cycles, this segment is now 56% of our

Consumer sales and more than 77% in terms of Ebit.

 Efficiency gains worth approximately 21 million euro and reaching 54% of our yearly target already in 1H 2014.

 Ebit growth at 12.6% year on year, with margin improving by more than 2 percentage points and approaching 15%.

 Net Income above 100 mln euro, + 31% yoy.

 Cash Flow Generation of nearly 190 million euro before dividends, due to strong Operating

Cash Flow performance (~100€/mln in 1H 2013).

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SLIDE 5: 1H PERFORMANCE BY REGION

On a regional basis, half year results were characterized by:

- Strong growth in our core Premium markets: Europe, Asia Pacific and North America.

- Positive progress in Russia, in line with expectations. Despite a decreasing market, we ended the first half with a market-share gain of more than 2 points in the second quarter, reaching around 12%, and a high single-digit profitability.

Turnaround is progressing with the winter product renewal:

 the new Pirelli Sottozero is available in a wide range,

 Pirelli Ice Zero has more than doubled its sizes versus 2013 and

 we extended range also for the studded Formula Ice.

In terms of industrializations, we are ahead of schedule in both Voronezh and Kirov plants and retail development continues supported by geo-localization the partnership with Rosneft.

- In South America, despite market contraction in OE (-19% YTD) and resilient Replacement

(+4% YTD), we protected our profitability which is confirmed in the mid-teen range after a 1 percentage point drop in Ebit margin compared with 2013.

In this region, we proactively addressed the volume drop with an improvement in price mix which counterbalanced the headwind from raw materials and foreign exchange volatility and a greater focus on efficiencies. We are also defining specific plans to strengthen our positioning in the market and new efficiency programs to protect value also in the medium term.

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SLIDE 6: PREMIUM: OUR GROWTH ENGINE ACROSS REGIONS

More specifically for the Premium segment

 In Europe, which is our main Premium market, the positive effect of the OE Pull-through strategy continues. Premium replacement sales of Marked Tyres increased by 20% yoy in the first half and now account for about 50%.

 Winter market forecasts are positive. Negotiations in Central Europe on Winter pre-orders closed positively and in line with expectations for the year-end.

To support this growth, a number of programs are already in place to consolidate our Premium

leadership

 OE Homologations: in the second quarter, over 30 new homologations were added to our portfolio which, in Europe, account for around 87% of our global homologation portfolio.

 Retail: increased market coverage and stronger support through tailored marketing initiatives for those outlets most exposed to Premium consumers with.

In North America, OE Pull-trough is working well and we are benefiting from our past investments in

the Original Equipment channel

 Marked Tyre sales increased by 19% yoy and accounted for about 39% of Premium

Replacement sales in the first half

 very good performance among the main Premium OEMs, in particular BMW with an OE share well above 40%

Meaningful improvement also in distribution coverage through our FasTrack program: a successful loyalty program that we started in 2013 and now accounts for more than 700 POSs, with increasing volume and solid premium mix (over 50% of volume is 18 inches and above)

In South America, we are driving the expansion of the Premium Replacement Market (today less than

6% of the Car tyre market and +17% yoy in the first half) leveraging on the evolution of regulations for green products and car market trends.

Finally, in APAC we are reinforcing our OE strategy. In 2Q, the positive effect of the link with European

Premium brands was even better than in 1Q, with an improvement in market share strengthening our partnership with Mercedes, BMW and Volvo. OE Pull-trough is working well, in the first half of 2014, the incidence of Marked Tyres on Premium Replacement Sales reached 45% (+4 percentage points vs. FY

2013).

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SLIDE 7: PIRELLI NET INCOME 1H’14 VS 1H’13

Net Income in the first six months of 2014 was positive for 193.8 million euro, or 39 cents per share in terms of attributable income.

This is a growth of more than 43 million euro compared with the first six months of 2013, which is to say more than 29% yoy, above our percentage growth in Ebit.

This growth stems from our Operating Performance, which delivered nearly 48 million euro in additional

Ebit.

Financial charges were lower by more than 11 million euro year-on-year, as they discount a slightly lower Cost of Debt, which now stands at approximately 6% and compares with a 2013 figure which included one-off charges linked to Foreign Exchange devaluation (worth more than 8 million euro).

Results from Equity Participations, negative 2.9 million euro year-on-year, mainly relate to valuation adjustments of our stake in both Prelios and Alitalia.

Finally, Tax Rate improved year-on-year at a seasonally high 37.4%, in line with our full-year target of

36%, but better Operating Results led to higher Tax Charges for approximately 14 million euro.

SLIDE 8: PIRELLI DEBT STRUCTURE AS OF JUNE 30, 2014

Pirelli’s Gross Debt is worth approximately 2.5 billion euro, around 50% of which maturing from 2016 onwards.

Our main maturities come due in 2015 and 2016 and they will be refinanced in both banking and capital markets which are very supportive of our credit.

The liquidity margin of 0.85 bln euro includes 0.5 bln euro of Cash and Cash Equivalents.

Finally, the Cost of Debt stood at 6%, in line with the target of “below 6.5%”, as announced to the market for FY 2014.

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SLIDE 9: PIRELLI 1H’14 NET FINANCIAL POSITION

Let us now review the development of our Net Financial Position over the second quarter of 2014.

Net Cash Flow generation before dividends was 190 million euro, or 12.6% of our sales in the Quarter, almost doubled as compared with the first half of 2013.

Positive Cash Flow generation was mainly achieved through an improvement in Net Working Capital, as we cashed-in the seasonally high receivables booked in 1Q. Our Inventory also structurally improved, and now stands seasonally at approximately 17.5% on sales (equal to June 2013), also for the winter season preparation, and will be reduced, within year-end, to approximately 16.5%.

Investments totaled approximately 78 million euro, or 1.1x depreciation, in line with our full-year target which implies, as usual, higher Capex towards the end of the year.

Therefore, at the end of June 2014, our Net Financial Position amounted to approximately 1.9 billion euro; this value is in line with our Budget and will reverse back to meet our full-year target of approximately 1.2 billion euro at constant consolidation perimeter.

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SLIDE 11: 2014 PIRELLI OUTLOOK BY REGION

Let us now review the evolving scenario we are witnessing in global tyre markets.

Although the overall picture remains unchanged and our targets are confirmed, I would like to address the updated assumptions versus our first quarter 2014 presentation.

In brief, we still see the global Car Tyre Market growing between 3% and 4% this year, the Premium

Market confirmed growing three times more than Non-Premium, with the main differences being a pick- up in growth in Europe and a slower OE market in South America.

Our more optimistic view on Europe – with faster growth by 1 percentage point as compared with the previous Guidance given in May – is based upon better expectations for the Premium segment as well as improved Original Equipment markets in general. Even accounting for this growth, the European market is well below the expectations we had in our 2011 Industrial Plan.

Central European markets are performing particularly well and Winter pre-booking is positive, also due to favorable stock levels in the distribution channel.

Our value proposition and continued investments are proving successful in allowing us to benefit from this market growth, hence the improved outlook of high single-digit Revenue growth and mid-teen profitability for the Region.

In South America, while the Premium segment is still growing rapidly, the OE market has worsened in connection with the deteriorated macro environment and limited car production.

We will address this market more in detail later on, but we are confident in our ability to maintain a solid

Profitability in the region, in the mid-teens, as Replacement demand is proving resilient – benefiting from the strong car park growth seen over the last 4 years. We can also rely on the wider distribution network and improved operating efficiency.

Market growth expectations for the other regions have not changed significantly.

What we have seen so far this year, however, makes us more confident in market growth for the

Premium segment in Asia Pacific, where we confirm our Revenue targets but will deliver better profitability through an improved Product Mix.

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Successful deployment of our Premium strategy in selected markets of the Middle-East Africa region will allow us to achieve an Ebit margin in the high-teens, with unchanged assumptions as far as market growth is concerned.

While the Russian Car Tyre market is expected to contract in 2014 as compared with the previous year, our improved product offering and wider market coverage will allow us to outperform, gain market share and reach a profitability in the high-single digit, above our prior expectations. In addition, the shift from legacy brands to Pirelli is progressing above our expectations.

Concerning the well-known issue of US sanctions against Russia and possible implications of Pirelli or

Pirelli Board Members, I believe it is important to share with you the legal opinion by a prominent international legal firm that we just received two days ago which states that “under current US law,

Pirelli is not in violation of the Office of Foreign Asset Control (OFAC) sanctions on account of the ownership interest of Rosneft and/or the presence of Mr. Sechin (and the other Rosneft designees) on the Pirelli board”.

Lastly, we confirm our assumptions of a low-single digit Tyre Market growth in North America, where we aim at growing Revenues in the mid-single digit and reach an Ebit margin in the mid-teens.

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SLIDE 12: SOUTH AMERICA

Now, I would like to focus on the actions we are putting in place to navigate the current challenges in the South American market.

As you are well aware, the macro-economic scenario has changed significantly over the last 2 to 3

quarters

 high interest rates – the Selic now being as high as 11% - have depressed consumer demand and investments;

 high inflation – also due to energy shortage - has impacted on consumer and business confidence.

This notwithstanding, the Brazilian economy has strong fundamentals which reinforce our long-term

plans for the Region

low domestic debt as a percentage of GDP, 50% of the average mature countries, and fast growing middle class, with 53% of the population now having a formal job, having access to credit and having acquired a car or a motorbike.

As for the Car Tyre Market, the OE channel is contracting in line with its cyclicality. Growth is expected to return in 2015, albeit at a mid-single digit rate and depending on Government support. The Car

Market Mix is improving, and, with it, the quality of the tyre market, expected to include an increasingly high proportion of 17 inches and up tyres.

The Car Replacement Market is still growing, benefiting from the Car Park growth we saw in the last 4 years which will support tyre sales for the years to come.

The Truck Business is highly cyclical and discounts the reduction in governmental financing support.

We are strongly exposed to the Replacement channel, which compares with a particularly challenging comparison base given the strong volume growth in 2013.

For the full year 2014 we expect a Replacement market down 3% but with the All-Steel segment still positive up to 2%.

We aim at counterbalancing the current market weakness by leveraging on our strengths:

 in Car OE, we are protecting our leadership by acquiring new homologations;

 in Car Replacement, we are strengthening our positioning through new services to Premium dealers and new product launches, maintaining our pricing leadership; Premium has a growing

contribution in South America results

it is more than 6% of car volumes but nearly 4 times as much Ebit.

 Better market coverage through our integrated retail network counting more than 600 points of sale, out of which 130 are equities.

 On truck we will speed up the introduction of the new All Steel product platform 01 Series and we will focus on upgrading our current service offer to medium and large fleets. This will be done leveraging on our current partners, like Marangoni in Retreading and Autotrac in telematics services, as well as future partners

 Acceleration of our efficiency program, working both on de-complexity in order to make our plants leaner and reduce our SG&A expenses;

 Increased exports to adjacent markets where we are currently underrepresented and have the potential for strong growth.

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SLIDE 13: FY 2014 TARGETS CONFIRMED

As mentioned, our overall 2014 targets are confirmed.

Revenues are expected at 6.2 billion euro with a different driver mix:

 4.5% volume growth, almost 1 percentage point less than the previous guidance, due to the revision of our assumptions for the Industrial business;

 Stronger Premium growth leading to better price/mix; and

 An expected smaller negative foreign exchange impact.

The Consumer business is expected to show a stronger growth profile as compared with previous assumptions, mostly due to our performance in the Premium segment and overall in Europe and Asia

Pacific.

This will compensate slower top-line growth in the Industrial business due to market slowdown in South

America.

Profitability is confirmed at approximately 850 million euro, and Net Debt of 1.2 billion euro, before the

Steelcord impact.

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SLIDE 14: FY 2014 CONSUMER AND INDUSTRIAL TARGETS

More specifically on our two Business Units, we expect the Consumer business to show a higher revenue growth, driven by

 Volume, at more than 6.5% yoy

 Price/mix, now seen between +4.5% and +5.5% where the difference is essentially the mix improvement

 A slightly lower negative Foreign exchange impact

Profitability will improve to at least a 15% of the Ebit margin and will compensate for lower Industrial

Ebit, due to:

 Volume drop of 2% yoy

 Lower price/mix improvement of around 1 percentage point, mostly due to lower price increases as compared with the previous assumption, consistently with the current raw materials and foreign exchange rate scenario

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SLIDE 15: FY 2014 PROFITABILITY GUIDANCE CONFIRMED

Our Profitability Guidance is confirmed at 850 million euro after restructuring costs.

A more benign scenario in raw material prices as well as foreign exchange rates will allow us to

compensate for

 a lower contribution from volume growth, approximately 30 million euro, coming from the

Industrial Business

The positive 15 million euro difference will finance higher investments in Premium growth, a market which is confirmed growing three times as fast as non-Premium, as we increase our marketing

initiatives in relation to

 F1 partnership activation,

 Premium retail and equity expansion projects with trade marketing activities and dealers support, and

 Premium and Prestige car dealers relationships, such as co-marketing activities and marketing partnerships

And now I leave the floor to Mr. Sala.

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Maurizio Sala - Pirelli & C. SpA – Head of Group Planning and Control

SLIDE 17: KEY TYRE RESULTS

Thank you Mr. Tronchetti, and good evening everyone.

The second quarter results of the tyre business continue along the profitable growth path started with

1Q, posting mid-single digit organic growth and 2 percentage points in Ebit margin growth.

Despite foreign exchange volatility and uneven growth profiles of regions and channels, these solid results make us confident we can reach our full year targets.

 Price/Mix was the main driver of top-line growth, +6% yoy, improving sequentially from 1Q due to strong development of Premium volumes – almost +21% - and a balanced approach to pricing.

 This allowed to mitigate the forex headwind on sales, -9.4% yoy, stemming from our business in

South America as well as Russia and Middle-East Africa.

 Volumes were stable in 2Q, with an outperformance of Europe, North America and Asia Pacific, compensating for decline in South America, concentrated in our OE channel and Industrial

Business.

 This leads to the overall sales figure being down 3.6%.

Quality organic growth and efficiency improvement allowed us to increase profitability by almost 23 million euro bringing our tyre margin to 15.2% of sales, 15.6% before restructuring.

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SLIDE 18: PIRELLI TYRE OPERATING PERFORMANCE

Let us now turn to analyzing the internal levers which brought about a profitability of 229.1 million euro in 2Q 2014, an increase of 11.1% yoy:

 The effectiveness of our value strategy translated into a 31.5 million euro net gain deriving from: o 54 million euro price/mix growth, and o a small raw material benefit, 6 million euro despite 28.3 million euro foreign exchange translation headwind.

Efficiencies, 21 million euro in 2Q, neutralized the quarterly impact of cost inflation and totaled nearly

49 million euro in 1H 2014, slightly above the pro-quota of our yearly target of 90 million euro.

Additionally, we increased our investment in Premium growth by 10 million euro in the first half of 2014, related to the mentioned marketing activities and retail support.

SLIDE 19: CONSUMER BUSINESS: PIRELLI PERFORMANCE

Our overall performance in 2Q rests mainly on the results of our Consumer business, worth 77% of tyre sales and showing organic growth of approximately 10% yoy.

This was achieved on the back of an improving price/mix momentum, +5.8% in the quarter, as we kept a value-driven approach to pricing and grew sales in:

 the Premium segment – with volumes up 20.9% - now worth nearly 56% of sales (+6pp yoy)

 in Mature markets, characterized by higher unit prices, now 57% of total sales (+4pp yoy)

 and in the Replacement channel: +1pp yoy at 74%.

Even after a heavy 8.3% negative impact of foreign exchange rates, Consumer sales were up 1.8% yoy.

Quality topline growth allowed for a strong increase in Ebit margin, at 16.1% before restructuring costs,

+3.2 percentage points as compared with the second quarter of 2013.

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SLIDE 20: INDUSTRIAL BUSINESS: PIRELLI PERFORMANCE

The results of our Industrial Business reflect a relevant impact of foreign exchange devaluation and a market slowdown in specific regions and product segments.

Foreign exchange devaluation translated in a 12.4% negative impact on sales, which decreased by a total of 18.1% in the second quarter.

This was partially offset by an improvement in price/mix, +6.5% yoy and better than the first quarter of

2014, as we executed price increases in Emerging Markets and introduced our renewed product and service offering.

Volumes were down by 12.2%, discounting an unfavorable comparison base - +20.6% in 2Q 2013 – a reduction in the lower added value X-ply segment (-20% yoy) and a contraction in Original Equipment manufacturing in South America.

Despite these factors, profitability was slightly up as compared with 1Q 2014 and Ebit margin stayed at

14% before restructuring costs, in line with our full year Guidance.

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SLIDE 21: EFFICIENCIES

Our commitment to efficiency is confirmed.

The results achieved in the first semester, 54% of the FY 2014 target, build upon our track record of the last few years.

Our long-term plan envisages savings of approximately 350 mln euro, accumulating savings of 1% on sales each year, equally spread over 4 years.

More than 50% of the over 49 million euro savings achieved in the first half regarded raw materials,

where we worked on

 De-complexity, with a raw material portfolio streamlining and component standardization, and

 Waste/scrap reduction

The remainder are related to

 Productivity improvement through de-complexity across plant (production planning of finished and semi-finished products), adoption of common best practices and cell organization

 Allocation to low cost countries by fully exploiting Truck delocalization and more competitive exports from locations with devalued currencies.

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SLIDE 22: 2014 RAW MATERIALS GUIDANCE

Now, briefly on raw materials, increased visibility on the P&L for 2014 leads us to update our guidance.

Maintaining a degree of cautiousness, we now expect natural rubber prices to average 2,100 dollars per ton in 2014, implying a slight increase from current spot prices.

We still expect Brent oil at about 110 $/barrel, while butadiene is now expected at an average of 1,030 euro per ton.

The impact of foreign exchange is now seen at a negative 170 million euro, for a total raw material headwind of 35 million euro on 2014 Ebit, or 40 million euro better than previously assumed.

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Questions and Answers

Philip Watkins - Citigroup - Analyst

Yes, good evening. And thank you for taking my questions. Just firstly, in terms of the guidance, it looks like it was a good second quarter for you. The winter tire market looks like it's shaping up quite well from what I hear from your comments and your peers. And I was just wondering if the guidance

EUR 850 million was perhaps a bit conservative, or is there anything I need to take into account? That was my first question. And I'll ask the second one after.

Marco Tronchetti Provera - Pirelli & C. SpA - Chairman and CEO

Okay. Thank you. So, I think we slightly changed the guidance because of different mix between industrial and passenger car tires.

But, we confirm we can deliver the targets we have set at the end of last year, thanks mostly to the better mix we have achieved everywhere and thanks to the investments we are making in the marketing structure, where we are having very good results in a pull through effect on replacement with the premium in car tires.

Philip Watkins - Citigroup - Analyst

Thank you. And the second question was on the ownership structure and Rosneft. I don't know if you might be able to elaborate at all on why the lawyers said that you wouldn't be affected by sanctions. I never thought you would be, quite frankly, but because it's a small shareholder. But, I just wanted to understand what specifically they said, why you wouldn't be encompassed by these potential risks.

Thank you.

Marco Tronchetti Provera - Pirelli & C SpA - Chairman & CEO

Just because there are around a number of information that are not driven by correct analyses of the sanctions, we asked an opinion in order to deliver the answer that we knew was there to answer those because of the governance of the Company is not affected by the shareholder structure at Camfin level.

But, anyhow, we wanted to have a formal answer by an American law firm just to make all our investor confident and comfortable.

Martino DeAmbroggi - Equita - Analyst

Thank you. Good evening, everybody. First question is on pricing environment, if you could split your comments between standard and premium products. I don't know if it's possible by region, but just to understand if there is additional pressure on the standard that could affect the standard performance because, at the end, consumer performance in terms of volumes was essentially driven by premium, while standards were down quite significantly in the second quarter.

Marco Tronchetti Provera - Pirelli & C SpA - Chairman & CEO

I will ask Mr. Borgo to give the answer. As a general answer, the situation is so well balanced that we confirm the price effect by year end to be slightly negative, but full under control and no negative effect on the high end, where we are protecting thanks to the launch of new platforms or prices. So, the

18 effects on prices are in the high end offset by the launch of new product platform. But, anyhow, I leave the floor to Mr. Borgo.

Gregorio Borgo - Pirelli & C SpA - General Manager, Operations

So, good evening as well from my side. I think the price environment is overall flat with a different situation in the various areas.

In Europe, USA, and China, we see a slight decrease of the industry that is giving part of the raw material advantage to the value chain. But, as Mr. Tronchetti said before, it is a region where premium mix is so high that we are more than compensating the price by a higher mix. So, all in all, the average unit price is increasing.

Of course, in Russia and Latin America, pricing is balanced in Russia and Latin America, where the content of the premium is lower. The pricing is balancing the ForEx situation. So, basically, we are able in the market to keep the pricing or even slightly increase the pricing in Latin America.

So, we think as well that, because we see a better outlook in the second half, as Mr. Tronchetti mentioned before, thanks of the switch of the seasonal market to winter, we feel as well lower pressure on prices. And because the stock, generally speaking, is much lower than a year ago and we had a quite successful winter pre-booking, where, all in all, we are at 25% higher than a year ago.

Martino DeAmbroggi - Equita - Analyst

Okay. Thank you. The second question is on Russia. I saw in your slide number 11 you are reducing the projection for the revenues, while improving the EBIT margin guidance. If you could elaborate a bit more on this, if it's possible to have a more precise indication. Thank you.

Marco Tronchetti Provera - Pirelli & C SpA - Chairman & CEO

So, the -- in Russia, now, we are profiting of the improvement we had in the factories in terms of new industrialization and the product mix we are launching in the market.

This is now matching more and more with a better distribution we have in the country, thanks to the agreements we made at the regional level with distribution and big players and thanks also to the support of Rosneft, we are starting distributing with them. This year, we'll have just five or six point of sales. But, it's helping us in making agreements with the wholesalers at the regional level.

And also, the OE level, we are benefiting of the mix of products we have and of the local production.

So, all in all, we are accelerating the turnaround of the last year results. And that's why we are confident that, in an environment that is not positive at all, the mix of products and the distribution channel we have opened provide us better performances than expected.

Martino DeAmbroggi - Equita - Analyst

Okay. If I may, my last question is on the search of an Asian partner that you mentioned in previous conference and presentations, just to know if there is any step forward in this search.

Marco Tronchetti Provera - Pirelli & C SpA - Chairman & CEO

Yes, we continue, and we are in touch with some players. And we are going deep into this matter.

There is nothing consistent we can open to the market. But, we see that, looking forward, an

19 integration in industrial business is convenient for both parties to take into account some very good players, that is players in Asia, and has already good market there.

And so, we are going ahead, nothing urgent, something that has to be analyzed well before being deployed, but we continue consistently this analysis. And we are very attractive because of the markets we cover and because of the technology that we handle today.

Massimo Vecchio - Mediobanca - Analyst

Yes, good afternoon. Two questions from my side, if I may. The first one is on CapEx, EUR144 million spent in the first half. The industrial plan was looking, if I'm not wrong to something like EUR400 million. I was wondering if you can give an indication of where you can end up at the end of the year.

EUR260 million spend in the second half in the current scenario seems quite a lot. But, of course, there may be some projects that justify that.

Second question is on the Steel Cord disposal, if you can give us an update on when you expect the closing after you got approval from the antitrust in Europe. Thanks.

Marco Tronchetti Provera - Pirelli & C SpA - Chairman & CEO

The Steel Cord transaction is going ahead as it was planned. And before year end, between end

November and December, we should finalize the deal. Everything is in line. And there are no surprises.

For the investment rate, we have a target around EUR380 million by year end. And considering the seasonality, we are on track with this target. So, there are no delays. And all is focused in new plant.

And the CapEx we are more and more going close to the depreciation as it was planned and we -- as we had in the first quarter. But, we will remain in line with the targets.

Niels Fehre - HSBC - Analyst

Yes, thanks for taking my question. I just have two questions. On the premium business, on slide 6, you show here the organic growth rates per region. If I compare them to the first quarter, I see that

Europe in the second quarter significantly cooled down versus the first quarter. The first quarter was up

16%, now in second quarter only at 10% probably.

But, on the flip side, NAFTA improved a lot from 7% in Q1 to something like 14% in the second quarter to arrive at 12% for H1. Can you elaborate here probably what are the different -- the reason for the different trends in the different regions, Europe versus NAFTA, in terms of premium growth? So, that would be my first question.

The second one is then for the full year. Having achieved now more than 20% premium growth in terms of volumes in the first half, I'm wondering why you are guiding only for 16% growth in the full year with a strong -- with probably a strong winter tire season ahead of us. Is that probably too cautious, or what's the reason here why we should see premium cooling down a lot in the second half versus the first half? Thanks.

Marco Tronchetti Provera - Pirelli & C SpA - Chairman & CEO

Thank you. There are two reasons to answer to your questions. The first is that, second quarter of last year in Europe, there was a recovery on the premium segment. And first quarter was very low level.

So, that growth as a comparison base, that is different.

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And looking forward, second half, third and fourth quarter last year were better. And so, the comparison base, again, is much in favor of last year in the third and fourth quarter. And that's why the second quarter has been so performing because the comparison base was lower.

Niels Fehre - HSBC - Analyst

And on the US as well, or -- ?