Michelin Cie Gen Unsp/Adr

Good afternoon to everyone. Thank you for joining us, Yves Chapeau and myself, for our yearly presentation of our 2021 results. To start with, I would like to share with you my pride on behalf of our associates that have delivered in this very challenging environment of 2021 what I consider as being solid and resilient numbers. Our Michelin Group delivered an operating income of almost 3 billion Euro, 2.97, and a margin back in line with 2019 level at 12.5%, knowing that if you take out the exchange rate, that margin has been sharply enhanced. So in the midst of the persistent health crisis with disrupted supply chains and sharply rising costs, our group continued to focus on protecting its employees and once again demonstrated the strength and the resilience of its business model. The sales are up 16.3% to almost 24 billion Euro with a segment operating income of almost 3 billion Euro or 12.5% of sales. If we zoom in to that revenue increase, we can see that the tire volumes were up almost 12% and the non-tire sales almost 8%. We had a favorable OE replacement mix in the automotive segment with market share gains in 18-inch and above, confirming the group's technological leadership in that domain. We had dynamic price management all year long in the non-indexed businesses, leveraging our brand pricing power and offsetting all cost inflation factors. The specialty business was hit harder by labor shortages, supply chain disruptions, and cost inflation, hence the performance of segment three. We've been able to generate a 1.5 billion Euro in free cash flow before acquisition, or 1.8 billion in structural free cash flow terms, adjusted for higher raw material costs. Our group performance in 2021 was in line with our Michelin motion strategy plan with the objective set for 2030 for each of its three pillars, people, profit, planet. We had the percentage of women in management positions increased to almost 29%, 28.9% exactly. We had an ongoing integration of acquired companies going very smoothly and very well, generating an additional 41 million synergies, Euro synergies, and bringing the annualized total to 122 million Euro synergies. We had the sustained deployment of the simplification and the competitiveness plans. And we generated a 10.3 solid return on capital employed. Our environmental commitments have strengthened with the signing of the Race to Zero Agreement, wrapping up into a net income of 1.8845 million Euro for the year. with the proposed dividend of 4.5 euro per share. I think I misread the net income. The net income was 1,845,000,000 for the year and with the proposed dividend that would be proposed at the Charleroi meeting at 4.5 euro per share. If we zoom in to 2021, we need to recognize that the business environment has been and remains very disrupted. And 2022, we anticipate, will be probably as disrupted as 2021. On the left of your screen, you can see the challenges we've been facing. And on the right, our response. We had in front of the unstable health situation, we deployed a very strict health protocol that reduced, unfortunately, the productivity by 1%. We vaccinated ourselves more than 35,000 people within Michelin and their families, especially in Asia, excluding China. We faced a very strong transportation crisis with maritime shipping, shortages of truck drivers, shortages of containers, many issues. Out of that, we had four days of production lost in total, group-wide, due to delayed deliveries. We had 15 simultaneous emergency operation centres on average, where normally we have 2.3 per quarter. There, we had almost 15 per day, with peaks up to 50. We had sharp increase in cost, raw materials, logistics, energy, et cetera. And they're resulting in 1.2 additional costs in our panel that has been more than offset by the three price increases and the positive mix effect in 2021. We had very acute labor shortages in different parts of the world, especially in mature countries. There we had the workforce attrition and hiring difficulties, and we have adjusted our work practices and reinforced our attractiveness. As I said, all of you, 2022, will most certainly be very disrupted as well, but Michelin is very solid and I'm sure and I'm convinced we will steer through those disruption in the same manner as 2021. Now I leave the floor to Yves who will tell you our results.

Good evening, good afternoon everyone. So, as we did already for one year, I will start by a global picture of our performance. As you remember, we measure our performance according to our three pillars, and we deliver overall a strong performance in the three pillars. First, regarding people, we have now, as Florent mentioned, close to 29% of managerial position occupied by women, which is an improvement of 0.7 points versus last year. We have a management rate of 80%, slightly decreasing versus 2020, but still at a pretty high level. And we have a slight deterioration of our TCRR, our labor incidence ratio, by 0.1. I remind you that our long-term target is to reach a TCRR below 0.50. It's mostly due to supply chain disruptions and the fact that our operations in the factory were probably in 2021 less smooth than in previous years. Regarding profit, Florent already commented the operating margin and the free cash flow. I will mention the ROCI, the return on capital employed, which is at 10.3%, an improvement of 30 basic points versus 2019, and very close to our long-term target for 2023 and beyond. Regarding planet, zooming the CO2 emission for scope one and two. our own operations emissions, they have decreased versus the previous years, and we are at minus 29% versus 2010, which is the basis that we are using for the science-based initiative. And in 2019, which was the last comparable year, we were at minus 26%, so we have improved during 2021. Our IMAP, which is a The composite index of our overall environmental performance in the factories, including not only CO2 emission, but also water consumption, solvents consumption or waste, has improved by seven, close to eight points versus 2019, which is the last comparable year in terms of activity. Just as an example, our water withdrawal has been reduced by 7% during 2021. And last, you know that one of our key challenge is to improve the sustainable material rate, which is the percentage of the raw materials that are either coming from renewable or recycled sources. We have improved by one point between 2020 and 2021, reaching 29% and on our road to our target, which is 40% by 2030. Coming now back to the business and the operations, let's speak about the market. So of course, in 2021, we face a sharp rebound versus 2020, led by the upturn in the economic activity, the mobility, and also the needs of the different players to rebuild their inventories. Passenger car and light truck businesses tires volume grew by 9% overall global market, but which is still 4% below 2019. And if you look more precisely, in fact, the replacement market was mostly at 2019 level where the original equipment market is still 15% below 2019. All the regions have, of course, contributed to this growth. North America, Europe were more buoyant than China because the market in China has already recovered during the second last of 2020. The truck market is up by 4%. Here also with a very contrasted picture, but still below 2019 by 3%. So contrasted picture between Europe and North America who are posting sharp growth. when China, because of the implementation of norms, new norms for vehicles, have seen the original equipment market dropping sharply from April 21. And all the specialities markets, all in one, grew by 10%, with a very dynamic market in construction, agriculture, material handling, led by the rebound of activity. The aircraft market is also rebounding. And mining and the two wheels are showing, let's say, more moderate growth. Having all these figures in mind, let's look at our revenue growth. So overall, our revenue grew by 16.3%, including currency exchange rate, which was negative mostly during the first half or most nine months of the year. The 18.2% growth at ISO currency rate was mostly due, of course, to the Vaughan effect, plus 11.8%. Price mix grew by 6.1%, with price itself growing by 4.5%. And not tire business were growing by 7.7%, contributed by 0.4% to the overall group revenue growth. Our operating income, as Florent mentioned, landed at €2,966,000,000, which is very close to the €3 billion we reached in 2019. But in the meantime, of course, currency has moved. Prices have been increased. So our operating margin, which is 12.5%, will have been 13.6% at ISO currency and at ISO price than in 2019. When you look at the bridge, of course, the volume is considerable, nearly 1.4 billion. The most important is that we were able to face very strong inflators. mostly balanced between raw material on one side and other factors such as logistics, energy, shipping costs on the other half. And all together, we were able to cover all these costs thanks to our price and mixed effect by €55 million at the end of the year. SG&A grew by €181 million but it's an improvement of 70 million versus 2019. Looking at the performance by sectors, of course, you see very clearly that the passenger car and light trucks of the rs1 segment is posting a very strong performance reflected first in the growth of revenue nearly 19 percent and of course the growth of operating margin which is now at 13.7 percent that was mostly due of course to the growth in volume but also to the mix effect very strong mix effect between of course premium tires 18 inch and above and of course, the favorable original equipment replacement mix in most of the region, but particularly in Europe and North America. The second segment grew also pretty well, 16%, and is showing a four-point improvement in this operating margin, which is now, let's say, closing the gap to the 10% target assigned to this segment, thanks to the robust demand, both in Europe and North America, and a specific focus on targeted high-value segment. The third segment has been growing less, 11.4%, due mostly to disturbance in the supply chain, and I will come back on that. And the operating margin has probably suffered the most, posting 13%, which is a decrease versus 2020. This segment was probably the most impacted by, of course, operation distributions, labor shortage in our factory, particularly in our North American factory. but also inbound and outbound shipping and logistics operations. These segments use a lot of natural rubber coming from Asia. Most of our factories are based in Europe and North America. We have also a strong base in Sri Lanka for the beyond road activities. And in both ways, our operations were strongly disrupted. In terms of overall financial, We are at the end of 2021, we are posting 18.6% gearing ratio. which showed the ability of the group within two years. We have basically cut the debt, the net debt by half since December 19. And within two years, the group has been able to weather the crisis, reduce its debt and absorb the company that we have acquired. So we have been able to digest financially our 4 billion euro acquisition that we made in 2018 and 2019. And this performance has been confirmed by the rating agencies who have confirmed our A- status for long-term debt and A-2 for short-term debt. Of course, this performance has been achieved thanks to the 1.4 billion in free cash flow after M&A. mostly supported by EBITDA, which is now at 19.7%. Of course, an increase in working capital by 824 million, of which 320 million is coming from the price effect, so that is reflected in the cost of the raw material in inventory and the finished product, but also the account receivable. And, of course, most of this networking capital increase has been coming from inventory. And then you will see that the group has, of course, seen an increase in the tax and interest paid. Capital expenditure cash-wise is now at $1.4 billion, but we have been able to invest around $1.7 billion during the year, and we have less acquisition in 2020. than in the previous years. So at the end of, if we look before acquisition, we post a 1.5 billion, nearly 1.5 billion free cash flow And if you have to add that to the 2020 free cash flow, the group has generated 3.5 billion euros of free cash flow for a four-year program of 6.3, if you include the 2022 and 2023 targets that have been shared during our capital market days. Return on capital employed, that is now including all the elements of our capital employed, all the assets, including the assets due to the company consolidated by equity. but also the result of these companies has improved from 6% in 2020 to 10.3% and now is nearly at the level we want to constantly deliver over 2023 to 2030 period. As far as CAPEX is concerned, You see very clearly that the group is investing nearly 1.8 billion euro per year. That's a trend we have between 2016 and 2019. And that was what we have communicated repeatedly in 2019 during Capital Market Day and again in last year. in April last year. So you see very clearly that in 2020 and 2021, we are not able to reach the level of CapEx that we want to achieve in order to sustain our growth in the targeted segment, but also to make sure that our factories are working with the good level of services and a very good level of operation. So we will probably have to increase our capex in 2022 and 2023 in order to compensate the capex that we have not engaged in the two recent years, which means that we will probably have a capex of around 2.1, 2.2 billion euro in 2022 and 2023. But that's only a catch up effect of the previous years. So now looking to, I would like to do before moving to the guidance, we want to focus on the three ZOOM. The first one is electric vehicle that we are seeing as a strong opportunity for the group, including for not only for our hydrogen venture, but also for a core tire business. because Michelin offers the best trade-off in terms of performance for an EV vehicle, taking into account vehicle range, tread life of the tires, but also the noise and the load performance, because electric vehicles tend to be heavier than ICE vehicles. And that's why we have a strong leadership in the different geography with OEMs in the United States, with a lot of newcomers in this industry, but also in China and in Europe. So we partner with a lot of OEMs involved in electrification. And our OE BEV, so battery electrified vehicle market share, will sustainably be twice as high as our total original equipment market share. Now moving to a second topic, which is the tyre road wear particle. Michelin has a considerable competitive advantage without compromising safety and other performance. And you have here on the left of this slide the result of a study that has been published by ADAC, which is the German Automotive Association, which has more than 20 million members in Germany and some neighboring countries. And they did a study with a lot of different organizations. tire sizes to compare the abrasion and the particle emission per 1,000 of kilometer and per tire. And this study show very clearly that Michelin has a strong competitive edge over its premium competitors. If you look at the numbers for 1,000 kilometer, the tire is emitting per vehicle, 90 gram of particles, when the average of our premium competitor is at 125 grams, which is a huge difference, which is translating in a number of quantity of emission for the same service level, which is very different if you look at the entire vehicle park. Of course, this performance is not delivered at the expense of safety or rolling resistance, which are extremely important for the drivers. And if you look at our offers, and particularly our three different range that has been launched in 2021 and one which is coming in 2022, At each new generation of tyre range, so the E-Primacy, for example, we reduce the abrasion, the particle emission by 20%. The Cross Climate 2 is 13% generating emission less than its predecessor. And the Michelin Pilot Sport 5 is also improving by 20% its performance. Last, I would like to come back on the communication that we did during our capital market day, which consists to valorize our externalities. And we have decided to mostly focus on negative externalities and mostly CO2 emission, water consumption, and COV consumption. We have first decided to increase the CO2 cost per ton that we retain a figure of 58 euro per tons in April last year. In the meantime, the European market for CO2 quota have reached nearly 80, sometimes well above 80 euro per tons. And in order to to have coherent data internally because we use 100 euro per tonne as a way to measure the performance of our capital expenditure. So when we are doing project, we include CO2 emission in the calculation of the the profitability of the investments, we retain €100, which is a way to make sure that internally our teams will see the same figures. So it has, of course, this increase in euro per tonne, increase the overall value of our externalities to €506 million. And if you look at the different area, CO2 scope one and two, the scope three, excluding the suppression descriptions, the water, the volatile organic components were able to reduce according to our target, were able to reduce our externality. But that has been hedged by the impact of supply chain disruption in 2021, which at the end of the day will end at a similar level of externality at the end of 2021. But it doesn't change our 2023 target, which is still to decrease these externalities to 467 million euros. Thanks to the CAPEX and we are engaging every year close to 125 million Euro of CAPEX just to reduce our CO2 emission in the factories and in the supply chain. Moving now to 2022 guidance, let's look at the market evolution. So, of course, after the very sharp rebound of 2021, markets will probably come back to a more normal growth rate. We expect the passenger car and electric market to grow between 0% to 4% in 2022, betting on the fact that We think that original equipment market will probably gradually improve from the beginning of the second semester, and we'll see a sharp growth in the last part of the year. The replacement market will, let's say, grow at a normal level, knowing that in almost every regions, dealers have rebuilt their inventories. The truck market should grow between 3% to 7% if we exclude China, between 1% and 5% if we include China. The demand is very strong. A lot of OEMs have completed already their 2022 order books, and replacement will remain strong due to the activities, the general activity. The speciality should grow between 6% to 10%. We believe that mining tire will remain robust, but the operation will still be impacted by the sanitary crisis and the supply chain disruptions, at least during the first half of the year. Off-road will continue to grow as well as two wheels, and we expect aircraft to continue to grow, but with still very weak comparison. As far as the economics are concerned, we are expecting to grow in line with these market assumptions. We also expect the cost of raw material, custom duties, transportation and energy to be strongly negative. Strongly negative means probably in the same range of the inflation that we have faced in 2021, which was, I remind you, 1.2 billion euros. And our target is to offset this effect with our price and mix impact. So with this, taking account these assumptions, our segment operating income at let's say December 2020 exchange rate should be at least 3.2 billion euros. So that's our guidance for 2022. And we expect to generate a structural free cash flow above 1.2 billion euros, taking into account the fact that we have to increase our capital expenditures in order to catch up the investments that we have not been able to realize in the two previous years. Thank you for your attention. And now I will hand over to Florent to coordinate the Q&A session.

Thank you, Yves. So now the question and answer session is open. I think we have already people on the list for questions. So let's start with the first question from RBC.