Michelin Cie Gen Unsp/Adr

Good evening to everyone, or good afternoon. Thank you for joining us for our annual results presentation. I'm with Yves Chapeau, the co-partner, and we'll spend an hour with you. Let me start first with our sales, that we're up 20.2% in 2022. And Michelin, in a very, I would say, hectic environment, has delivered an operating income of 3.4 billion euros, which is in line with our guidance. So amid market turbulence and a highly inflationary context, Michelin's sales increased to 28.6 billion euros. and the segment operating income, as I just said, has reached 3.4 billion euros. The pre-cash flow was punctually impacted by inflation and the year-end trade timing, and we will have ample explanation later on. Over the 2019 to 2022 period, the Group has demonstrated the resilience of its business model. Coming back to Last year events, the sales were up 20.2%, lifted by the firm pricing discipline and the fast-growing non-tire sales. The tire markets were up slightly in 2022, supported mainly by OE from a low comparison basis and sustained demand in truck and mining markets. The tire sales volume were down, mainly impacted by the conflict in Ukraine, the COVID consequences in China, and reflecting as well the group priority to maintain the margin per unit. The price mix effect came to 13.7%, demonstrating the group's determination to offset all cost inflators. Non-tire sales grew by 22% at constant exchange rate, confirming their strong momentum. And finally, we had a 6.2% positive currency effect, led mainly by the US dollar. Our segment operating income totaled 3.4 billion euros, or 11.9% of our sales, driven by the dynamic pricing management and mixed effects. The pricing maintained unique margin integrity, offsetting a record $2.7 billion in higher costs, which is really an unprecedented rise in 2022. Operating margin reflected a 1.2 dilutive effect from price increases, and each reporting segment contributed to improved segment operating income with specialties, RS3, our segment 3 margin, reaching 16.2% in H2 2022. The reported free cash flow before acquisitions was minus 104 million. The structural free cash flow was 378 million, down from the revised guidance we gave a few months ago. with a one-off impact of inflation on working capital. The reducing structural free cash flow was down 500 million, and the Q4 has been penalized by two events, one purchasing cut and the stronger December sales. And that's equal to 300 million down on our free cash flow. All of that will be offset by a timing effect in the Q1 2023. That's why we say it was punctual. But Yves will come back in more details on this. The overall group performance improved in line with the Machine in Motion 2030 strategy plan, which sits on three main pillars, people, profit, and planet, and managing the best equilibrium of those three pillars at the same time. Our net income reached 2 billion euros. The dividend has been set and will be proposed at the AGM at 1.25 per share. And looking at the projected environment in 2023, we've taken a conservative stance at the year that just started. That's why we have a conservative guidance of €3.2 billion in the segment operating income at constant exchange rates and in excess of €1.6 billion in the reported free cash flow before acquisitions. Once again, this is a conservative stance. If we rewind a little bit over the period, what has happened between the results 2019 up to the results in 2022? In the first three columns, you see the effect of volume, price mix, and basically cost of inflation. You've seen the unprecedented swing in the price mix effect with the cost inflation. And that was offset by volume down, mainly due to Ukraine, China, and the determination to make sure that we offset every cost to protect our margin per unit. And then, of course, we have improved our performance, and that's what explains the major increase we had in our full year results. industrial performance, SG&A performance, and all performances in every type of businesses that were driven even through this unprecedented crisis period we went through over the past three years. So I just want to take the opportunity to congratulate all our teams that really did a fantastic job during this period. Now I leave the floor to Yves that will give you greater details on our results.

Thank you, Florent. Good evening, everyone. To rebound on Florent's introduction, I will start to share with you an holistic view of the group achievements in 2022. I will later zoom on the profit KPIs that I will cover in detail in my presentation. But looking at the people and the planet KPIs, you can see that we have reached all our targets in 2022. On the people side, The percentage of women in management improved by 0.5 points to reach 29.4%. Our associate engagement improved by 3 points versus 2021 to reach 83%. And we have seen the number of labor-related accidents decreasing in ratio from 1.29 to 1.07%. On the planet side, our scope 1 and 2 CO2 emissions, so basically the energy we produce or the energy we purchase, have been decreasing by 17% thanks to partially production reduction, but also efficiency improvement. And our ability to source renewable electricity in several countries in 2022, 52% of the electricity we purchase is from a renewable origin. And it's an increase of 10 points versus 21%. And you can see that both the IMET, or the environmental impact of our factories, and the sustainable material rate has also improved versus 2021. So moving to the activity, I will start by sharing with you the situation of tire markets around the world in a year that has been heavily perturbed by both the conflict in Ukraine and also the outbreaks and the lockdown due to the COVID-19. Passenger car and light truck tire markets landed one point above 2021, but still below 2019. Thanks to a dynamic OE market, the OE market grew by 7%, but is 8% below 2019, and a sluggish replacement market which decreased slightly by 1%. The seasonality by market has been very contrasted. OE market was below 2019 during the first half, minus 1, and has seen a sharp rebound in the second half, plus 15. On the other side, the replacement market which is overall back to 2019 level, have seen a sharp drop in the Q4, minus 11%. This phenomenon is both due to poor winter season, particularly in Europe and also in North America, but mostly to the destocking in distribution. Distributors have received important quantities of budget-pair brands during Q3. Truck and bus market is down by 4%. If we exclude China, the market is up 7% versus 2021. It is mostly due to the original occupant market, which is down 19%, but up 12% if we exclude the Chinese market. I remind you that in 2021, the China 6 norms have led to massive new vehicle purchase from fleets, when 2022 has been penalized by COVID lockdowns and outbreaks. European and North American markets are well-oriented as lack of drivers and strong demand in freight constitute a strong incentive for fleets to renew their vehicles. The replacement market is up 1% globally and 6% outside China, led by strong freight demands all along the year. In specialties, market has been overall well-oriented, pulled by the demand in mining, the recovery of commercial aviation in Europe and North America, and a strong demand in material handling and corveillon belts. Construction and agriculture offer a more contrasted picture according to the different segments and geographies. So in this market, our sales reached a new record at 28.6 billion euros. Volumes were down by 2% for the full year, with a better Q4 than expected, minus 0.9% thanks to SR2 and SR3, when our SR1 sales have been down by 4.1% in Q4. And also, we have seen a better sell-out than sell-in in our distribution entities. We benefited from a scope effect, mostly driven by Alupno integration. Price mix reached 3.25 billion euros, of which 3 billion is coming from price effect of 12.8%, when mix contributed to the 8 of nearly 200 million euros. The price effect was 11.4% during the last quarter, with the lag effect of raw material adjustments on our long-term contract businesses. Non-tire businesses overall grew by 22% and contributed by 1 point to our overall turnover improvement. Lastly, we benefited from a strong tailwind from Forex, including a 5.5% effect in the last quarter. In this context, our segment operating income increased by 430 million, of which 184 million is due to Forex effect, and nearly 250 million is coming from the progress of the company. Volumes effect was negatively high due to a sharp slowdown of our activity in the last quarter. If our overall sales were done by 2%, our selling tire volumes were done by 3%, And our tire production was done by 5.8% with sharp reduction in the last quarter in order to manage our inventory level. Price and mix have more than offset all our inflators. In these inflators, you can see that raw materials accounted by nearly 1.2 billion euros. Logistics, 600 million. Energy, nearly half a billion. And labor costs, 200 million euros. The non-tire activities, high-tech materials, mobility experience, and fleet management contributed to 26% of our segment operating income improvement, although they account only for around 5% of our sales. Other effects are a sum of different amounts, of which the most important is the reduction in variable pay, as we have not reached our free cash flow targets. Looking at the performance by segment, I think there is three key takeaways. The first one is you can see that all segments contributed to our segment operating income improvement. Second one is that the dilutive effect due to the price increase represents nearly 120 basic points when the overall group operating margin has only reduced by 60 basic points between 2021 and 2022. And the third message is that SR3 is nearly reaching 50% in SOI at the end of the year and was at 16.2% in the second half of the year. Our free cash flow is landing at minus 104 million before M&A and after the financing of our joint venture and has been heavily impacted by the inflation and the seasonality of our transactions. Most of the increase in inventory, more than 1 billion euros, is due to inflation. We landed with the same level of inventory in finished product than in 2021, but with slightly higher raw material and semi-finished inventory to compensate for the disruptions in procurement all along the year. Inflation impacted our accounts receivable as well, and better sales than expected in the last months have contributed also to an increase in accounts receivable. As we sharply reduced production and raw material purchasing during Q4, our account payable landed despite inflation at a level which is slightly ahead of 2021, but lower than what we were expecting initially. These last two effects are temporary, and we are already seeing an improvement in free cash flow versus standard years in the first month of 2023. And as mentioned in our previous call, CAPEX are catching up after the decision to reduce them in 2020 and the challenge we encounter in order to restart the CAPEX in 2021. The other elements contributing to the free cash flow, interest costs, taxes, are in line with our forecast. Looking now at the evolution of our net financial debt, you see that the net financial debt increased and mostly pulled by the payment of dividend, share buyback. We buy 120 million of our shares during 2022, but stay at a very healthy level with a gearing at 25%. At the same time, all our credit ratings, short-term and long-term, have been renewed by the rating agencies. Looking now at the return on capital employed, which is one of our strategic KPIs, you can notice that despite inflation, which heavily impacted our capital employed, the rocky return on capital employed improved by 50 basic points over 2022, thanks to a better asset turnover ratio and a slight reduction of our NOPAT due to the price increase. 10.8% is above the target we have set for the group within our machine-in-motion strategy and is above our weighted average cost of capital, which has been constantly the case since 2019, except, of course, in 2020. It shows the ability of the group to create value even in this highly inflationary environment. Our next results has progressed by 164 million. Also interest rates increased way down on our financial results. And we must remind that in 2022, we have recorded more than 160 million euros of provision due to the stop of our operation in Russia. when at the same time in 2021, we have recorded a strong positive result for the sales of 51% of Solesis, our medical subsidiary. Therefore, earnings per share increased by 9% in 2022, and we are proposing a dividend increase by 11%, in line with our target to gradually reach 50% payout ratio. It represents a yield of 4.8% for shareholders who have acquired machine share in the last day of 2022, or 4.38% for shareholders who invested at the average 2022 share price. We will pursue our share-by-back program, aiming to neutralize the effect of employee shareholderships program. Moving now to the guidance, we first build our 23 guidance with the assumption that market will be stable or slightly around zero. Some markets will be slightly positive, but we'll have fundamentally a very different seasonality, a different market mix, and a different geographical mix than 2022. I remind you that 2022 has been marked by an unprecedented volatility. We expect a strong decrease in the first quarter, looking at the market, followed by a rebound in the second quarter. We are also expecting more dynamic OE markets versus replacement, and probably a rebound in China from the second quarter. So with these market abstractions, we have built our budget with conservative sales volumes due to all the uncertainties around us and with an inflation in between 600 million to 1.2 billion euros. This funnel may appear wide, but I just remind you that last year at the same period we were betting on an inflation of 1.2 billion and we land at 2.7 billion at the end of the year. We are looking to compensate this inflation with our pricing and retain the mixed effect for the company. Our CAPEX should reach between 2.2 to 2.4 billion to continue the catch-up of 2020 and 2021, integrating also some inflation in CAPEX with some components such as semiconductors, and also the necessity to accelerate our energy transition, particularly in Europe, and our digital manufacturing effort. You will see in the appendix that if we calculate the average capex between 2020 and 2022, you will find 1.8 billion euros, which is the exact similar figure of our capital expenditure in average between 2016 and 2019. But of course, the distribution between the different years is pretty different. In conclusion, we are aiming to generate a segment operating income above 3.2 billion euros at constant exchange rate and a free cash flow above 1.6 billion euros. We have decided to abandon the notion of structural free cash flow, which was relevant when we were coping only with raw material prices increase and to guide on free cash flow before M&A and after financing our joint venture that you can directly read in our financial statement. I thank you for your attention, and I think that now it's time to take your questions.

Thank you, Yves.