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.

Yeah, so maybe I will start by your last question, Martino. We expect this EBIT effect to continue in the years to come. If you look in the past, we have an incremental improvement of 18-inch and above sales at the Michelin brand of between 3 to 5 points per year, which translates to 100 million. Of course, you cannot read it directly in our P&L or in our bridges because in the mix, don't forget that you have other effects linked to other business lines. OERT market mix, and of course, some geographical mix effect. But I can confirm you that we consider that it's let's say mix improvement should continue in the years to come. We look year after year at the fitment that we are awarded in original equipment, and we can see that the fitment we are currently going awarded for vehicles that will start production in 2025 or 2026 is still improving. Regarding the overall price effect, so you are right on Q2 or Q3, we have an overall positive price of around 2%, 2.1% exactly, which is linked partially to the price increase we implemented first of Jan. but also from some, let's say, indexation closes. And we consider that in Q4, price effect will probably be flat versus last year. The full year forex effect, and we have already mentioned that it should be negative on the second half of the year. It has been, I don't know what will be the dollar value in the last two months of the year, but we knew already that USD was at its peak in August and September 2022. uh so the the q3 have seen probably the worst of this negative effect and if the the different currency were stable from where they are now we can estimate that by the end of the year only 2024 this this Forex effect will probably flatten.

Okay, Eva, if I may, if I remember correctly, you mentioned 200 million at EBIT level, negative in the second alpha. This is what I was referring to. Yeah, yeah.

That I can confirm. If we look at the forecast we did in July regarding the forex, we are still in line with this forecast.

Okay, thank you very much.

The next question is from Giulio Pescatore with BNP Paribas Exxon. Please go ahead.

Thanks for taking my question. The first one on the mix expansion, I was just curious to know how much do you think of the mix expansion of the last year was driven by the mix of the market improving and how much has been driven by you gaining market share? And as we look ahead, how much of the further expansion do you think will be driven by the share of 18 inches and 19 inches growing in the market and how much do you expect to be gaining market share within that premium space? The second question on raw material costs, we have recently seen raw material prices once again move upwards. Do you see scope for further price increases and if this trend should continue? Maybe one last question on the guidance. I mean, given the assumptions you are making, it does appear that the 3.4 is fairly conservative. Can you just maybe share what expectations do you have for volume drop through in the second half and maybe the same for mix, please? Thank you.

So maybe for the mix expansion, we are, I can confirm you that we are gaining market share in 18 and above since 2017. We are constantly gain, steadily gain market share. How much it represents in the overall impact on the BIT? Honestly, we don't look at that. We don't segregate between market on one side and market share gain in the EBIT improvement. Raw material cost. They are up and down. Brutadien is really down. The natural rubber was probably at one of its lowest, but a slight rebound. And let's say all related materials are fluctuating. For the time being, we have not seen any, let's say, reason for further price increase. But if at one stage we see that raw materials are further increasing, we will, of course, contemplate it. Regarding the SOI guidance, maybe you have not completely read what we wrote, but we don't say 3.4. We say above 3.4. So I don't think even the overall market context that it's a conservative guidance. We are pretty active with the conferences at this stage.

Okay. Thank you. Thank you.

The next question is from Jose Azumendi from JP Morgan. Please go ahead.

Thank you. A couple of questions, please. I was wondering if you could go back a bit to the volume guidance within SR3 and explain a little bit more the trend that we saw in the third quarter, the full year guidance on volume in specialty. What were you expecting for the fourth quarter? And then the second question, completely unrelated to calling cycles, et cetera, which I think is quite difficult to do. Can you maybe explain what are the biggest improvement actions or efficiency improvement actions they're taking across SO1 and SO2 to improve the profitability on a 12-month view.

Thank you. Volume guidance. First, I have mentioned that when we compare year on year, we have to be careful because in the mining business, for example, at its record sales during the Q3 of 2022. So although volumes were pretty high, because don't forget that I should come back on that on 2022 during Q3, it was the moment where there was the unlocking of the bottlenecks for example in maritime shipping which translates for us in significant exportations from our North American and European manufacturing basis. So the comparison versus last year is on an unfavorable basis. We know that also, nevertheless, this market, as well as the original equipment for agriculture, for example, and the aircraft market, are growing positively. On the other hand, there is some markets that are depressed, such replacement for agriculture and construction, the construction industry being heavily penalized by the raising interest rates And if I look at Europe, the slowdown in the number of opening of new construction sites and buildings and housing. Profitability improvement drivers in SR1 and SR2 is concentrating on value-operative segments. So it's mixed effect. And of course, working on the competitivity of our operations, both from a manufacturing standpoint, but also says the general and administration costs as we did in the past. And we are continuously working with our team, leveraging also technology, such as artificial intelligence, and improving, let's say, our operations. Okay. Thanks.

The next question is from Sanjay Bhagwani from CT. Please go ahead.

Thank you very much for taking my question as well. I have two questions. First one is a follow-up to Julia's question. So if I understood it correctly, the guidance for greater than $3.4 billion is conservative, and you are comfortable with the current consensus level, which is somewhere around, I think, slightly over $3.6 billion. And related to that, on the other line item in the EBIT bridge, how should we think about that given the upgrade in the free cash flow guidance? So that is my first question. And second one is on if you could provide some early impressions on 24, like how should we think of some of the key items such as volumes, price mix, raw materials? particularly for the volumes, given that SR1 seems to be inflecting now. So would you see that the destocking in SR2 finishes in choke quarter form? So any such color on 24 will be very helpful. Thank you.

I will rebound on the answer, on your first question on the answer I already gave you. to Julio, our guidance is guidance above threshold. This threshold for EVIT is at 3.4 billion, and for the time being, we are comfortable with the consensus. Regarding the free cash flow, you understand that there is some one-off or a little bit of reverse effect of what happened in 2022 in our free cash flow, particularly the impact of inflation on the working capital and particularly inventory. On top of that, we have been more agile in managing our inventory over the year. And we are confident in our ability to lend where we were expecting to lend in terms of inventory volume by the end of the year. I will not come back on the dividend policy I mentioned. we are committed to gradually increase our dividend up to a 50% payout ratio while looking at our next results by including one-off effect or non-recurring effect in order to have a smooth evolution of the dividend instead of up and down. lead to the fluctuation of the net results, which is again influenced by some non-recurring effects. Regarding 2024, it's a little bit early and I will invite you to join us on the 12th of February next year. But we believe that inventory destocking in SR2 should should be finished by the end of Q4. And we hope that in Europe, winter inventory will also be stopped by distributors. 2024 should probably see a better balance between original equipment and replacement markets in favor of the second, what I can share with you. And regarding inflation, it may be a little bit too early to say. We have not yet seen any surge in energy or raw material prices that is alarming us at this stage, but we are closely monitoring all the in order to maintain and improve our banking.

Thank you. That's very helpful.

The next question is from Michael Jacks with Bank of America. Please go ahead.

Good evening. Thanks for taking my questions. I just have two. Firstly, just going back on the guidance. you reduced your volume guide by around two percentage points versus the midpoint from two to negative four, negative two to negative four, which I guess at a 45% drop through equates to around a 250 million euro headwind to operating income. And at the same time, you cut your cost inflation guide to around 100 million, or it's 100 million better than expected. So on a net basis, I guess that would imply an EBIT deterioration of around 150 million euros versus your expectation at the first half earnings. Is that a correct way to interpret this or is there another moving part here that I'm missing?

I'm not sure I fully follow your calculation. We have for sure maybe slightly less optimistic lending figures regarding the volume. Take also in account that if we look on the first nine months, we have further reduced our production than ourselves. So it's weight on our fixed cost assertion. On the other end, our price effect and the impact of raw material and inflators is improving, if I may say, versus our Q2, end of Q2 expectations. So all in all, we are, these effects are compensating each other.

Understood. Thank you. Second question, on the truck segment, you flagged ongoing destocking through Q4. Volumes are down significantly versus 2022 levels, but it would still appear that replacement tire market levels are still trending quite well above pre-COVID levels. Do you have any view on whether or not this level is sustainable, or could there potentially be a further normalization in this segment?

for the time being we are not seeing looking at the sellout let's say dramatic evolution in sellout we are looking at ton transporters or gas constructions depending on the market and the regions so although there was some slowdown in some areas but overall we don't see a drop in sell-out as the drop we have seen in selling for the first nine months, particularly in replacement markets in Europe and North America. So that's true that if we look at the truck and bus tire market outside China, it's still slightly above 2019. I think it's mostly driven by original equipment. Taking account that in original equipment for trucks there is some effect due to change in regulation and particularly new norms that are going to be implemented starting from January 2024 that has an effect on the new vehicles in 2023. So that's why next year we rather expect a mix between OE and RT that will be in favor of replacement.

Understood. And then one last question, if I may. Can you perhaps just be a little bit more explicit for the second half of this year on what the likely impact in the EBIT bridge is likely to be from the bonus performance bonus accrual, especially given that you've now raised the cash flow guidance. Does that now mean that the performance bonus element is going to be even higher than what was expected?

It's included in our forecast, so it's taken into account in our guidance.

All right, thank you. And you can't give any sort of indication of what the other line item is? in the EBIT bridge is likely to come out at for H2?

No, because in the other line, I think there is, of course, the bonus that you mentioned, or the variable pay, but there is also other effects. Sometimes some are compensating each other. But at this stage, I can tell you that we have taken into account all these effects in our forecast, and therefore in the of our guidance.

Understood. Thank you very much. Thank you, Michael.

The next question is from Christoph Laskawi from Deutsche Bank. Please go ahead.

Good evening. Thank you for taking my questions as well. It's not a lot left. Just would like to come back to your Q4 pricing comment. You said Q4 pricing is likely flat. due to the indexation in oe oe should be down so i take it the replacement uh it should be positive so thank you for could you comment if that is the case across the regions or also products and then also related to pricing do you see any competitor currently trying to use pricing as a tool to improve their volumes at least to some degree in premium Or is the selling rate still so low that in the end, even if you would try to use pricing as a tool, there is not much to gain and hence everyone is still very rational. Thank you.

So I believe that you know our position. I don't often comment about our competitors, but there is probably not much to gain in playing with prices in a need-based market. And given the dynamic of the market, between sell-in and sell-out. I forgot, I'm sorry. The first part of your question, sorry, I forgot it.

No worries. That was just on your Q4 pricing comment. Yes, on the pricing. Yes, sorry.

Yeah, so we have first our index business. We don't have exactly the same closes because we don't have exactly the same raw materials depending on the category of product. Some closes are updated every quarter. Some every half year. So don't forget that 1st of January, we have increased our price on the replacement market. So all in one, we consider that Q4 price effect should be probably flat or very close to zero.

Thank you. And one brief follow up, if I may, just on your comments that de-stocking. probably is done by year end. Do you see dealers probably accelerating the ordering a bit because of the volatility in the oil price or is it just a normalization of inventories and more or less back to normal?

i think dealers are with interest rates rising are probably more prudent they were probably they have accumulated probably too much inventories when price of tires were increasing quarter after quarter and well there was also some scarcity in the market on top of that in some regions I think some dealers have been burning their fingers with Tier 3 and Tier 4 tires that were floating during the second half of last year, and particularly during the Q3. And they have a painful journey to reduce their inventory because at the same time, the same products were arriving which were ordered later during that year. The same products were arriving in their respective markets at lower prices. So we believe that the dealers are more rational. They are trying, and particularly if we look in Europe with the winter season that we have known last year with the mild weather that we had up to now, I think dealers are very prudent in the replenishment of their inventories. Thank you.

As a reminder, if you wish to register for a question, please press star 1 on your telephone. The next question is from Thomas Besson from Kepler. Please go ahead.

Thank you very much, Thomas. I have a couple of questions that will deviate a bit from the revenues because I think we've gone into a lot of details already. The first one would be on your plans for CMD next year. Could you confirm that you still have one and indicate what we should expect in terms of content. Is it fair to expect new mid-term targets and an update of your 2030 vision during this CMD? That would be the first question. And the second, I think it's clear that you anticipate pricing to tend towards zero by the end. We've seen price mix in 2023 sufficiently strong to help you compensate not just for the small increase in raw mass but also help you with wage increase and energy inflation. When we look at 24, when we look at 25, it seems that we may have, again, relatively higher inflation than we had for a very long time. Do you think it will be possible for you and your peers to keep offsetting part of this wage and energy inflation through price mix, or do you think you'll have to find other ways to offset it? Thank you.

Okay, so maybe I will start with the second part of your question, Thomas. So, of course, we have seen, we have benefits in 2023 from also the price lag of the index to business. And in 2024 and 2025, we will, if we have to deal with inflation, we will find a way to translate it in our pricing as we need to pass through these additional costs to the market. And I can just, you can trust us as we have been pretty consistent in the past years in the way we manage our price across all the different businesses. We will, of course, decide the price. I mentioned the mix effect on which we could benefit in particular in SCR1. Probably a slightly positive, rather positive market mix effect as 2022, as well as 2023, has been impacted by a very negative, if I say, original equipment volume versus replacement. So we should see a rebalance of these two markets in the next two years. So that's probably, and on top of that, we continue to work on our competitiveness. Regarding the CMD next year, the idea is of course to share with you the first, the outcome of the first three years of our 10 years plan that we have shared in 2021 and to open the door for the next, the following three years till 2026. And on top of that, we would like also to spend some time in order to better illustrate because it will be, we will host you in our research and development center in Clermont-Ferrand in order to better illustrate with you the group capabilities and how we will unleash our R&D capabilities in TIER, around TIER and beyond TIER.

Great. Thank you, Elachi.

The next question is from Ross McDonald with Morgan Stanley. Please go ahead.

Yes, thank you. Good evening. Given we've touched on a lot of the revenue line items, maybe I could jump back to slide seven on the mixed comments. So firstly, just curious around this 12% CAGR that you're commenting on in high-value tires. Do you see that growth profile change as fairly consistent over the coming five years, or is that back-end loaded in terms of the growth in high-value tires? And maybe if you could just comment on strategically how the group is positioned in terms of machinery and the need to do more capex and retooling to capture that growth market. And then second final question, just curious on this 100 million sustainable mixed benefit from higher-value tires. Are you making any assumptions within this guidance around the replacement cycle for electric vehicle tires, or is this purely based on the margin profile of higher-value, larger rim-sized tires? Thanks.

So I will answer first to the second part of your question. As you are right, it's based on the margin profile on 18-inch, 19-inch, and 20 and above inches there in our global cells. Of course, it's partially driven by electrification, but it's becoming difficult to sort out, particularly in the replacement market. the volumes that are ultimately fitted in an electric vehicle versus on the ICE. We know it perfectly in OE. It's much more difficult. It's more, let's say, an hypothesis that we can do on the replacement, except for the OEMs with whom we are selling marked tires. um regarding the growth of in high value segments it's of course driven by our our performance in terms of our product performance the fact that we have invested over the past years in equipment in order to have our factories able to produce this range of tires, and that every new capacity that we are installing, such as the one we recently installed in Mexico, for example, are all capable to produce up to 22, 23 inch if necessary. And we continue, of course, to invest in our factories upgrade our processes in order to improve both our ability to build the tires needed by the market, but also to improve the performance, the intrinsic performance of our offer.

Thanks, Yves. I guess if I could ask that first question slightly differently. You don't see significant upside to the current level of capex in 23 moving into 2024 as being necessary to capture this growth market in terms of retooling. Would that be fair?

No. If there is an area where we continue to grow our capex, it's everything which is related to the decarbonization of our value chain, both in terms of energy but also in terms of uh the materials that we are we are using to build our tires you know that we are committed to increase our share of sustainable materials either biosource or recycled materials up to 40 by 2030. We are coming basically from 25% a few years ago. Last year, we were already at 30%. And if necessary, we continue to invest in order to weigh this ratio. As the decarbonization for us is not only a question of energy, but it's also a question of the materials that we are using to produce our type.

Thank you. The next question, the last question, sorry, is from Pierre Cominer with CIFLR. Please go ahead. Pierre Cominer, your line is open.

So maybe it was the last question. Okay, so maybe we can end the meeting there. So Ross had the last question and I am, thank you for your attention and we'll be happy to meet with you on, if I remember well, the 12th of February for our full year disclosure. Thank you very much and enjoy your evening. Bye-bye.