Michelin Cie Gen Unsp/Adr

Good morning, good afternoon and good evening to all of you. Thank you for joining us for our annual presentation of our results. Yves and I are very pleased to welcome you and to tell you first that this meeting is carried under very strict compliance to our safety rules, especially in this moment where the sanitary measures are very strict. But once again, thank you for joining us. So, of course, I'm sure all of you have noticed, we have spent the year 2020 in very, very exceptional conditions. So, in this environment, let me tell you that our group successfully protected its employees, maintained its business continuity throughout the year, while supporting vastly its host communities, starting from suppliers, customers, people, and our communities surrounding us. We experienced a steep drop in markets over the year, and our segment operating income came to almost 1.9 billion euros, which is a 37% decline reflecting the COVID-19 crisis impact on our operations. In this segment operating income, actually the drop in volume created a specific condition, and Yves will come back on this. We've been able to generate a 2 billion euro structural free cash flow reflecting the very strict discipline on cash management during the crisis and an exceptionally low level of year-end inventories, which was a little bit unexpected, following the sustained recovery in demand in the second half of the year. The group is continuing to deploy its strategy, despite the environment, with the successful integration of its recent acquisitions, and by expanding its business in new areas of growth. At the end, we generated 625 million euros in net income, and we recommend to the shareholding structure a dividend of 2.3 euros per share. During 2020, in this very exceptional period, we set very clearly and very soon, very early last year, two priorities. The first one was to protect employees and associate health and safety while ensuring the business continuity of our operations. I think we did that very successfully. And while we were doing that, we have deployed our expertise and our capabilities to support, associate customers, suppliers, and surrounding communities by donating more than 3 million masks, innovating and producing visors, masks, positioning cushions, air cushions, and more for the medical community. At the same time, we continued to improve our competitiveness structurally, driving these competitiveness measures with the strict respect of our people and our territories. So we wrapped up production with Multistrada in Indonesia and our Leon plant in Mexico. We restructured our European footprint with the closure of Dundee, La Roche-Orion and Bamber, unfortunately. But at the same time, we did this in a most responsible manner and we committed to revitalize and repurposing the closed site and with a very strict and exhaustive individual support for all the people implied or concerned by this plant restructuring. At the same times, we launched for, let's say, staff of people, the Simply Plan, which is to streamline processes and improve efficiency in our SG&A functions and continuing our improvement in industrial efficiency, which is a constant effort over the past decade, especially by spinning up our digital manufacturing effort. We created... in a social responsibility manner, an innovative and co-construction and social dialogue, extensive social dialogue process, supported by a framework agreement, and we reaffirmed a commitment to developing new high-value segments and businesses in France, which can be a good example with the launch of the Parc Cattarou in France, and I'm sure we will have to come back on this project later on. Now, let me leave the floor to Yves, who is going to pursue our conversation.

Thank you, Florent. So before entering into the detail of our financial and business performance, we would like to share with you a broader perspective of our 2020 results, which reflect our sustainable development model. Looking at our results through three perspectives, the first one being the people, we have progressed in terms of diversity. 28.2% of managers and supervisors are now women, which is an improvement by 0.8 points versus 2019. And the engagement rate of the mission group employees has improved by 2 points at 83%. Looking now through the, let's say, shareholder perspective, our operating margin has landed at 1.9 billion, 9.2% of the sales. Of course, less than in 2019. But at the same time, the group has been able to generate 2 billion euros of structural free cash flow. And last, I would like to comment the environmental actions that we are taking, particularly in our factories, but also beyond the factories. Within the scope 1 and 2, we have emitted 2.5 million tons of CO2 in 2020, which is decreased by 16% versus 2019. which is more than the decrease of our volume, which is 14%. So we have improved the overall efficiency of our systems. And the machine and the environmental footprint have been stabilized at 48.9 points, which reflects beyond CO2 emissions, the consumption of energy, the water consumption, the quantity of waste. And despite all the disruptions, linked to the closure and the reopening of the factories, we have been able to stabilize this indicator. Now going through the annual results, the financial results, I will start by the market. So in the Q4, in the second half, you will observe that passenger car and light track markets are back in line with the 2019 level. the truck-tire markets have been growing on the second half and particularly during the last quarter. When the speciality markets have been hit by the decline in mining, aircraft markets have been already down since the end of the first quarter and at the same time we have observed the rebound of the two-wheel and the agriculture markets particularly in replacement during the second half of the year. Replacement market regarding passenger car and light work, replacement market has been down by 11% over the year, when original equipment has decreased by 17%, which shows, let's say, the resilience of replacement for individual vehicles. Regarding the truck business, while the replacement market was down by 10%, the truck market has been slightly growing at the worldwide level, but it was mainly pulled by the Chinese original equipment market, which grew by 30% during the year. In this context, our sales have been down by 15%, so the main volume is obviously the volume effect. nearly 3.4 billion euros at minus 14%. The second most important effect is the currency exchange rate effect, which is mostly, which mostly happened in the second half of the year, which weighed 2.6 points on our turnover. And then we have recalled the positive price mix effect of plus 1.2% or 300 million over the year with a mix effect which was positive by 0.8 point. So in 2020, we have carefully managed the price mix material balance. enhancing the mix and reducing our cost in order to absorb as much as possible the impact of the volume decline. The impact of the volume decline has been huge, 1.7 billion euros versus 2019. Of course, linked to the sharp drop of the market during the second quarter, mostly during the second quarter, and the inability to absorb the fixed cost during that period. We have a very positive price mix and raw material effect of close to 580 million euros which has been already positive at the end of the first half of 260 and we have been able to have also a positive price mix effect of 318 million during the second half. And of course, you see the impact, the SG&A cost reduction that we have been able to implement during the year of 240 million. And we have isolated in a separate line the COVID-19 measures that we took both in our factories and in our offices in order to protect our employees. the purchase of masks, of the production of hydroalcoholic gel, but also all the measures to clean the areas, participate in the factories when at the moment of the shift change. So overall the group of aerating margin has been at 9.2% with a strong performance on the second half where this ratio was at 14.1%. Looking at the distribution of these results per segment, you will observe that although during the first half of the year the speciality has been pretty resilient, in the second half we have benefits from a robust upturn in the automotive and road transportation segments. Overall, if we look overall over the year, the SR1, the automotive segment, has a slightly better resilience than B2B activities with a drop in operating margin of 2.8 points versus 3.7, 3.9 points for the B2B segment. As we mentioned, we have globally pretty well managed our free cash flow. Despite a very sharp drop of the EBITDA by 1.1 billion euros, we have been able to more than compensate these negative headwinds through very decisive measures regarding our working capital, which has a positive impact of more than 750 million euros. and of course the measures that we have taken in order to better manage our capital expenditures which in terms of cash has a cash impact of 400 million euros. Coming back on the working capital, we have managed let's say a structural decline of our inventory in line with the plan that we have launched in 2019 in order to overall reduce our inventory by 500 million by 2025. But at the same time, we have exceptionally low inventory level at the end of the year for an amount that we assess to be around 400 million euros, which is mostly due to a much faster than expected recovery in the demand. So despite the crisis, Michelin is continuously investing into its future. And I would like now to zoom on two dimensions, the durable material and the mobility electrification. Sorry, I missed the chapter on the debt. Thanks to the strong free cash flow generation, we have been able to decrease our debt by 1.6 billion euro. And we have at the end of 2020 a gearing ratio which is now at 28%. And this strong financial position has been confirmed and reaffirmed by all the rating agencies at the end of the year, which have all confirmed our rating with a stable outlook. So, coming back to the area we are investing in and including during the crisis, I would like to zoom on the durable material. One of the main challenges our industry will encounter is to increase the share of sustainable material in our production. By sustainable material, we mean either reuse, like retreading, renewable, like natural rubber, or recycle the material. And we have invested particularly in 2020 in several startups. I mentioned Enviro and Pyrowave, where we invest during the first half in order to leverage these technologies. And one example is the factory that we are going to build in Chile. in order to recycle, thanks to Enviro technology, which is based on Paralife, in order to recycle earthmover tires. And this factory should be operating by 2023. At the same time, the Paralife technology will start up a demonstrator in one of our factories in France by 2023 equally. Electrification is for us a no-brainer. We consider that it's a main lever to make the mobility cleaner over the years. And that's why we consider that from a tire perspective, the electric vehicles are tightening the technological challenge for tire makers. as these vehicles are contributing with some performance like range, interior noise or the weight of the battery that are pretty heavy. So in this framework we believe that the share of EV in the total market will probably multiply by three by 2025 from 12% in 2020 to 30% in 2025. And we believe at Michelin that we are very well placed to sustain this increase in demand. We have an overall market share in an electric vehicle and original equipment, which is 1.5 times our average market share at original equipment. We believe that our technology will benefit to us both on the original equipment and the replacement market. And an illustration of this strength of the group is the e-Primacy tire that we launched in 2020 and this e-Primacy is ensuring the trend toward the mobility electrification first by reducing the rolling resistance by 27% compared to the category average which translates either in fuel saving of 0.2 liters per 100 kilometers or in longer autonomy, longer range by 7% for an electric vehicle. and of course it contributes in the case of internal combustion engine to decrease the CO2 emission by 174 kg on a lifetime of a tyre. Moving now to the future and particularly to 2021, I would like first to comment the hypothesis on which we have built our 2021 guidance. Since, let's say, the publication of our last year results in July, we have come on that we believe that, of course, the market will recover, but it will take time. And we believe that we should get back to our 2019 level during the second half of 2022. So 2020 has been a very deep crisis, but we are seeing that A lot of perturbation is occurring beyond the sanitary impact, the short-term impact of the crisis, particularly in different supply chains, such for example the chips in the automotive industry. So we believe it will take two years to recover the pre-crisis level. Our assessment is that the passenger car and light truck market should grow by a range between 6% to 10%. It will be also very depending on the geographical mix of these markets. We expect a strong recovery in regional equipment, but it's threatened by the ship shortage. On the replacement market, despite in some regions remaining measures that are taken to limit mobility, we believe the demand will overall rebound and we should come back to pre-crisis level in 2022. The truck market should see also a recovery between 4 and 8%, driven mostly by North America and Europe on original equipment, while China is expecting to decline or to stabilize after a strong 2020. And we also believe that there will be a strong rebound on the replacement market, driven by the freight activity in the different regions. Regarding the specialty, it's probably the segment where we expect the sharpest rebound, between 8% to 12%, mining demand recovery being slightly penalized by a slowdown in coal extractions. but very sustained demand for iron ore. Beyond roads, so agriculture construction should continue to grow and to accelerate with a strong demand recovery both at original equipment and replacement. And we believe that tourism will also sustain growth when the aircraft businesses will be, markets will be of course impacted by the consequence of the grounding of the airlines. So based on this hypothesis, our 2021 scenario is based on volume that should grow in line with markets. Slight positive price-mix raw material effect at a very, very strong, historically strong effect in 2020. We should have, of course, a negative impact of raw material prices and custom duties. and currency effect which will be negative in the continuity of the second half of the year. We are also expecting to pursue our synergy extraction following that we have achieved over the past two years, aiming to reach 60% of the synergies we assessed during the acquisition of Fener, Camso and Multistrada by the end of 2021 and according to our plan. So based on this hypothesis and on that scenario, we believe that we should be able to generate at a constant exchange rate a segment operating income above 2.5 billion euros. and a structural free cash flow of around 1 billion euros. And last, I would like to invite you to join us on April 8 for a digitally organized event, which will be our next Capital Market Days, where we will uncover our strategic plan, our new strategic plan for the 10 years to come. along with our growth and value creation objective. And of course, the levers for continually improving our competitivity and the financial commitment and ESG goals for 2023 and beyond. Thank you very much. And now I hand the floor to Florent for the Q&A session.

Thank you, Yves. Just before we enter into the questions, I just wanted to, first of all, express to all our Michelin associates all my pride and all my thanks for what they did in 2020. In these exceptional circumstances, they did exceptional and they behaved exceptionally well. So thank you to all of you if you're listening. And really, Michelin is what it is because of you. And now we can... We can open the question and session.