Michelin Cie Gen Unsp/Adr

Good evening, ladies and gentlemen. I'm very happy to share with you our group sales figure for the third quarter of 2023 and update you regarding our full year of guidance. So as you have probably seen in the presentation and in the press release, our sales are up 2% at €21.2 billion. despite soft volumes and forex headwinds, supported by our mixed enhancements, our non-tire activities, and our brand and technological leadership. The markets for the first nine months are shaped by inventory drawdowns. particularly in Europe and North America for passenger car and truck tires, particularly, and also beyond road tires. If we look overall, passenger car and light truck tire market are stable overall at the end of the nine months with the robust regional equipment demand in most regions, slightly upset by negative replacement demand dampened by the stocking in Europe and America. The demand for 19-inch and larger tires is still expanding, and we consider that inventory levels are back to normal in most regions except for winter tires in Europe. Truck tires outside China dropped 5% due to the substantial dealer and B2B fleet inventory reduction. Both in Europe and North America, original equipment demand is still robust. And of course, the destocking is impacting the replacement market. And we estimate that the destocking should be over by the end of the year. Specialty tires markets are dynamic in mining, aircraft, and in original equipment for agriculture tires. They are softer in construction, replacement for agriculture, and of course, two-wheel tires. Non-tire markets are up in most segments. both in fleet services, mining, energy, and stable in general industry applications. Our sales are up by 2% at the end of the nine months. And if we look at the different effect, so first two free sales are stable, excluding the currency effect. But if we look overall for the nine months, the volumes are down by 3.6%. reflecting mostly the market distorting and our group priorities on value-created segments. The price effects stood at 6.2%, confirming the recognized value for our product and solutions and the impact of price indexation closes from 2022. The mix effects reached 1%, reflecting our position in the 19-inch and larger passenger car tire segments, and a favorable geomix, partially offset by an adverse original equipment replacement market mix across businesses. Non-tire sales are up by 13% at concentration rates, fueling the good growth, and we are seeing a negative currency effect of 2.6% year-to-date, 5.5% for the sole Q3. We continue to grow around and beyond tires, and the growth in polymer composite solution will accelerate with the end of September closing of flex composite group acquisition that will drive higher our group sales from Q4 onwards. And to come back on the 23 guidance, we confirm our guidance regarding the segmental parity income, and I will come back to that at the end of the presentation. and we revised the board, our guidance for free cash flow. When we look now at the market, the selling market, you will see that there were above our estimation for passenger car and light truck. and below our estimation for truck tires during the third quarter. At the end, passenger car and light truck tires market is slightly above 2023 and 2022, sorry. And the truck and bus tires are far below 2022, minus 5% in average, of course, excluding China. Looking now at the bridge of our assets from 2022 to 2023, year-to-date, so we have a slight scope effect of 79 million, a negative volume effect at minus 3.6%, which weighs 750 million, a strong positive price mix effect of 1.5 billion. Altogether, it's 7.2%. 6.2 of which being price effect and 1% the mix. The entire businesses are contributing for 0.6 points and the currency effect is negative at 2.6. So we are landing at 21.2 billion euros at the end of the third quarter. Looking now only at the third quarter sales, you will see that they are down 5% versus last year. Outside the currency effect, I mean, in a nutshell, volume is neutralized by price mix. So the sales are stable at constant section rates. And of course, the quarter has been penalized by the currency uh you have to keep in mind that uh q3 uh 2022 uh for example the us dollar was at its peak uh versus the euro and overall if we look practically all the currency except the brazilian real are depreciated against the euro during the third quarter of 2022. When we look at our sales by segment, so you will observe that year-to-date SL1 sales are up 3.6 percent, of which the volume is minus one. And the segment is, of course, impacted by a strong negative forex on the third quarter. but we have said growth are under the price effect and the product mix enrichment, which is more than offsetting the effect of the distribution dystopian. And we are of course benefiting from the market share growth in 18 inch and above tires that are now accounting for 60% of the machine brand tire sales for the first nine months of the year. up five points versus the first nine months of 2022. The truck tire sales, so SR2 sales, are down by 4.3%. So the sales are obviously penalized by lower volume, mainly from replacement market, impacting by the distorting distribution. And an unfavorable original equipment replacement mix. We have positive embedded price effect and double digit growth in service to fleet. The third segment is up year-to-date by 5.4%. The sales growth is driven by embedded price effect and dynamic aircraft and mining activities, but unfavorable comparison basis for mining in H2, which recorded its higher performance during the third quarter and the overall second half of 2022. Beyond-world activities are focusing on value-creative segments, weighting on volume but improving margin. And high-tech materials sales are up 13%. I want also to draw your attention that this segment is the most impacted by the currency effect as it's probably the business segment which is the most exposed to the USD. Before moving to the footer of guidance, I would like to come back of some of our fundamental competitive advantage. The first one is our leadership, technological and brand leadership in high-value and increasingly demanding market segments across the different business segments. If you look in the first segment, passenger car tires, we are accelerating in 18-inch and above segments, fostered by electrification. We are recording 12% growth year-on-year, and as I already said, 60% of our Michelin-brand self OE NRT are now 18-inch and above tires, improving by five points versus 2022. But if you look at the progressions in 2015, it has been impressive. Overall, this continuously contributes to a sustainable accretion in our mixed impact that we can estimate at around 1 million euros per year. On the specialities, we are winning where we are able to create value for our customers. In 2023, we have seen the launch of the first agile tire for the world's largest loader. We are growing sharply in agriculture both in trucks and in high-power tractors, which represent 50% of the agriculture market value. And looking at the transportation segment, I will focus on our work to play on the most demanding customers, both on the geographical but also the business segment, which represents The free business segment is straight on that slide, which represents 50% of the market value, will contribute to the recovery of the SR2 segment operating income in the quarter to come. This leadership is also recognized by the press and by the test, looking at recent publication regarding all season and winter tires, Michelin offers both the Cross Climate 2 and the Cross Climate 2 SUV, as well as the Pilot Alpine 5 SUV, has been recognized in most of the tests shown on that slide as the leader in that category with sustainable performance and the balance of performance between behavioral performance on snow and dry roads, along with strong performance in terms of endurance and abrasion. Electrification is also a key opportunity for the group. We are a natural leader with our premium BEV thanks to our technological hedge that has been recognized in the ADAC study published in December 2021 and updated in April 2022. And all Michelin tires are already meeting the EV requirements. In 2023, in the first nine months, we have seen the number of BEV models with Michelin treatments increase by 28%. Our market share in original equipment is two times higher for BEV premium versus the original equipment total market share. And with Michelin is an attractive choice on the replacement market, considering the strong relative rates on our brand. and our specific value positioning. And we estimate that by 2026, this would translate in replacement in probably more than 5 million tires to be sold and about 10 million tires by 2028 on the replacement market worldwide. and last i would like to come back on the flex composite group acquisition the closing has been done on the 27th of september 2023 it's a strong steps towards machine because ambitions to become a key player in polymer composite solutions and during the first week of the integration. FCG has been combined with our existing assets in coated fabrics to create composite fabrics and finish business lines. We have already realized 2 million euros in synergies from refinancing FCG debt and from January 24 onwards, we should see the first synergies both on the cost side, the insurance contract, for example, but as well on the first cross-selling synergy. In 2023, besides, of course, the acquisition cash out of €700 million, SCG should contribute to the group sales on the last quarter by €50 million and to our EBIT by €12 million. So moving now to the guidance, as we are entering the last month of 2023, we are generally narrowing our hypothesis, particularly on the market scenario. Overall, we are betting that 2023 will end with a slight market improvement in passenger car and light truck tires, which is reflected in our range of plus one, minus one, versus minus three to plus zero in last July. And you see that we are expecting an H123 growth to revert in H2 on higher basis comparison, mainly in China. On the other hand, the replacement market proved to be more resilient than expected in Q3, mainly in North America. On the truck market, we have seen that during Q3, we have slightly overestimated the market evolution, and we consider that although original equipment should remain robust, despite a few supply disruptions, replacement market demand will be soft during the, remain soft during the Q4 with some additional discounting actions. So altogether, we believe that the market should land in a range of minus four to minus six by the end of the year. And re-arming specialties, We are approximately in the same range as in the previous expectations. Strong demand in mining, tires, and aircraft. Tool is penalized by a high inventory level, mainly in bicycles, and be on-road with the constructed evolution between original equipment and replacement both in agriculture and construction. So all these elements lead us to consider that we should land the year with the volume effect of roughly a minus 4%. Cost inflation, that should be between zero and 200 million euro. But the net price mix versus cost inflation factor, which will remain strongly positive, and the cash out capex, which is unchanged, at 2.2 billion. So taking all that in consideration, we confirm our segment operating income at constant exchange rate guidance, which would be above 3.4 billion euro. And we have upgraded our free cash flow forecast, which was previously above 2 billion euro, and that should be now above 2.3 billion euro. mainly based on the fact that we have a lower volume than expected, so that should improve the working capital conceptions, and as well as the lower cost per unit in our inventory valorization. On top of that, you are aware that in 2023, there was some one-off in our free cash flow, such the cash back we received from our joint venture, TBC, following the disposal of its retail division. I would like also to take this opportunity to come back on our capital allocation policy. So you are probably aware that the group has initiated a consultation on October 19 in Germany with our labor unions concerning a free industrial site. and we have received a question about the potential impact of the scenario envisaged on our net income. First, I would like to make it clear that the consultation between Missing Germany and its social partners are going on, and that no decision has been made at this time. At the same time, so it gives me the opportunity to come back to be more specific on our capital allocation policy. As you know, we have communicated in the past our policy on dividends in order with the objective to gradually achieve a payoff ratio of 50% of net profit. Year on year, the net profit is impacted by different kinds of non-recurring events that are impacting the net income, up or down. uh as for example last year we had the negative impact of the russian our exit and the closure of our russian operations we have also positive impact such the one i mentioned regarding the the return of capital from our joint venture on TBC. But these non-recurring events are not reflecting any material change in the intrinsic performance or value of the company, which is recognized through the segment operating income. So if these non-recurring events were to have a significant impact on our net profit, Outside, of course, of the systemic crisis, of course, we will take steps to ensure that they do not cause the value of the dividend to fluctuate too much. So we stick to our policy of going towards 60% payout ratio that will, along with the advice of our supervisory board, we will propose to the and smooth evolution, which might be independent from the fluctuation of non-recurring impact in our net results. So, having shared with you this guidance, we can now open the Q&A session.

Ladies and gentlemen, if you wish to ask a question, please press star 1. on your telephone keypad. Please ask questions in English. The first question is from Martino D'Ambrogi with Equita. Please go ahead.

Thank you. Good evening, everybody. My first question is on prices, because if I remember correctly, in your last call, Ivi, you mentioned that prices were expected to be flat in the second half. So I was wondering if you could confirm it considering Q3 they were up 2% so that means they should start to become negative in Q4. This is my first question. The second one is on the Forex effect in the operating profit guidance because also For this, if I remember correctly, you mentioned the 200 million negative impact in the second half of the year, following 61 in the first half. But this was based on the Forex rates at that time that you disclosed it. And the third question is on the slide number seven. Because you are presenting a mixed impact in excess of 100 million at EBIT level, I suppose this is referred to the past few years, but my question is if this could be an impact also foreseeable for the next few years, if I understand correctly, this comes from the 18 inches and above contribution. Thank you.