Michelin Cie Gen Unsp/Adr

Good evening. Yves Chappot and myself are very happy to welcome you to our 2023 annual results presentation. And as you are going to see, then our results are very solid. I'm very pleased to report that Michelin has delivered a high segment operating income despite adverse market conditions and currencies. we have been demonstrating again the quality of our business model while improving people engagement and accelerating our sustainability roadmap. This reflects our group strategy to capture the full value of our differentiated offers and solutions that are designed to meet increasingly demanding customer requirements. Our sales have been flattish at 28.3 billion, but they were up 2% at constant exchange rates, with mix and price offsetting unfavorable market conditions. Our non-tire sales were up 10%. So if we zoom in on our revenue, The tire sales in markets were globally flat, but with an adverse mix and with OE growing in most segments and replacement facing massive destocking. The tire sales volumes were down 4.7%, reflecting our group's strategy of prioritizing markets and segments that do appreciate our unique value proposition. Our price and mix effects were up 5.7%, of which 1.2% was the mix, pooled by both products and geographies. Our non-tire sales were up 10%, which means around 146 million euros at constant scope of consolidation. And by the way, I'm happy to report that in the integration of our latest acquisition, Flexible Composite Group is well on track. We had this year a negative 2.9% adverse exchange rate effect as most currencies declined against the euro. If we now look at our segment operating income, it reached an all-time high of 3.6 billion euro. And the margins were up 0.7 points, 70 basis points, to 12.6% of our sales. The price effect was lifted by the lagged impact of 2022 adjustments. We had a substantial mixed effect resulting from market and segment targeting, combined with our group's enhanced value proposition. We improved operating performance and offsetting cost inflation factors. Our free cash flow before acquisition was at 3.3 billion euro, reflecting improving EBDA and a sharp reduction in working capital. Our EBITDA was up 4%, sorry about that, at 5.5 billion, or 94% of our sales. We had a 1 billion euro reduction in working capital, and that was driven mainly by the decline in both inventory volumes and value. We had a positive 200 million euro contribution from JVs and associates, notably the TBC distribution JV we have in the US. Our ROKI reached 11.4% and was up 60 basis points, reflecting our intrinsic performance and our active portfolio management. Our net income was stable at €2 billion, despite the inclusion of €600 million of our provision for our industrial restructuring. And that's why we propose a dividend of 1.35 euro per share that will be submitted to our shareholder meeting in the month of May. And that represents an 8% increase versus 2022. As we had a strong cash flow generation and we can accommodate our investment and our acquisitions, we will also propose a share buyback program which could be worth up to €1 billion over the period 2024-2026. And as it comes to the 2024 guidance, We would guide on an excess of 3.5 billion euro for the segment operating income at constant exchange rates. And we will guide at 1.5 billion euro for the reported free cash flow before acquisitions. And sometimes it's good to zoom back on what we have achieved. And I'm very pleased by the overall performance of our group over the years. If you start from 2007 up to 2023, you look at the green bars, this is our segment operating income. If you look at the blue bars, it will be our free cash flow generation. And what you will see, we have been, regarding our segment operating income, constantly increasing, despite, and that's the red dots, the sharp fluctuations of our volumes, because we are constantly improving our return on every... of our activities. And our cash flow generation is gradually moving to new levels, on average at 1.5 billion, where it used to be below 1 billion in the year past. So this is a very strong testimony to all the efforts all our employees are making every day, all the efforts all our people are inputting to develop Mishnah. And now I leave the floor to Yves that will induce you to more details about our performance in 2023.

So good evening, everyone. Before moving to the detail of the financial performance, as Laura mentioned, the group has delivered very solid performance in 2023. But beyond the profit side that we'll detail later on, I would like also to show you how we perform on the people and the planet areas. On the people side, you see here three indicators. All are improving. The percentage of women in managerial position has improved by 1.2 points in 2023. The total case of incident rates, which reflect the safety at work of our employee, is at 1.01 per 200,000 hours of work. So it's 0.06 points versus 2022. And our employee engagement is at a all-time high at 83.5%, one point above 2022. On the planet side, the Group is decreasing its footprint on its operations. Our CO2 Scope 1 and 2 emissions, so the emissions due to the production of energy or the purchase of energy from our factories, has decreased by 6% during 2022. with a lot of drivers, electrification of our processes, access to more sustainable energy sources, and improvement of the efficiency of our processes. The water withdrawal has been decreasing by 10% during the year, thanks also to a lot of initiatives taken in the different group sites. the share of renewable and recycled material rates has decreased by two points, from 30 to 28 percent, and it mostly reflects an evolution in the weight of our different business segments. our truck and bus and specialty businesses weight versus our passenger car businesses has decreased. And this is the activities that are using the most natural rubber, which explain this decrease of two point in our renewable and recycled material rates. But in parallel, the group has continuously improved its usage of particularly recycled material. and it does not impair our ability to reach 40% of sustainable, renewable and recycled material rate by 2030. So now zooming on our business and financial performance, let's have a look on the markets. At the end of the year, the passenger car and light truck markets have slightly increased by 2% with a rather favorable fourth quarter, mostly driven by the original equipment market, which increased by 9% when replacement markets has been basically flat. On the truck and bus side, The market has decreased outside China. The market has decreased by 4%, which reflects a slight increase in OE by 1% and a decrease in the replacement market by 5%. Looking at specialities markets, they are, let's say, negative or slightly negative, around zero, with very contrasted situation. Some markets have been hurt by some cyclicality issues or some crisis, for example, the construction market in a lot of developing countries and developed markets. Agriculture also is down, material handling is slightly decreasing, and tools has been also a market impacted after two, three years of booming after the COVID. On the other hand, the aircraft market has recovered. If we look at, for example, the commercial airlines market has recovered its 2019 level, and the mining market is increasing gradually as a single digit. low single-digit rate. So in terms of sales, as Laurent mentioned, at constant exchange rate, our sales has grown by 2 percent. with a negative impact of volume, 4.7%, but a positive impact of price and mix, 5.7%. Non-tire businesses contributed to 0.5% of our overall growth. And currency is massively negative, 800 million, or minus 2.9%, of which 83% occurred during the second half of the year. Now, looking at the translation of that in operating income, so despite very negative forex, as I mentioned, the segment operating income of the group is at a whole time high, at nearly 3.6 billion euro. And if you look at the way this SOI has been built over the year, in fact, if you exclude the effect of the currencies, our SOI has increased by 470 million, half during the first year and half during the second year. Looking now at the net improvement including currency, so plus 176 million, you see that the price mix has, let's say, more than compensated the negative volume effect at minus 700 million. when raw material, manufacturing, logistics performance and SG&A has been still slightly negative. Some entrants where prices were decreasing, such as raw materials. We have also seen a decrease of energy, but on the other hand, we have been seeing some increase in labour costs on some services. and non-tire businesses contributed 6 million to this improvement. Now looking at the performance segment per segment, you see that the segment number one, the automotive market, post record high operating margin at 13.7%, mostly driven by the mix improvement. Our sales of 18-inch and above tires at the Michelin brand reached 61% of our total sales in value versus 56% in 2022. On the truck and bus market or transportation market, both long distance and urban, you see a decrease in the operating margin of 2.1%, mostly driven by a massive destocking in distribution and fleets, a mix which was very negative between original equipment and replacement market. But at the same time, if you remember well, the group posted 5% operating margin at the end of the first half. It means that the second half was already at 8%, which is nearly the level of the full year 2022. So this activity had recovered during the second half. Speciality businesses post a 16.5% operating margin, 1.6 points above 2022, mostly driving by the mining demand and some segments of the aircraft businesses that have been growing sharply. On the other hand, most of our beyond roads activities plus the two wheels businesses were negatively contributing to the growth and has been suffering during the year. And the segment three is probably is the segment which has been the most impacted by the currency and particularly the US dollar evolution over the second half of 2023. Our free cash flow here also is at a whole time high at 3 billion euro. You see that we have generated 19.4% EBITDA at 5.5 billion. Change in working capital has been contributing heavily to this cash generation. Nearly 1 billion euros, of which 775 are coming from inventory, of which one quarter is nearly coming from prices effect and three quarters from the volume effect. And it reflects the way our teams have improved in managing our S&OP processes, sales and operation processes, and monitor our inventory. Taxes and interest paid during the year reached nearly 1 billion, of which 776 million are taxes paid to governments. Our capex were in line with our expectation. And I would like also to underline the strong performance of our joint ventures, particularly TBC, which has contributed positively to our cash generation, a little bit more than 200 million euros over the year. And of course, we acquired FCG for a little bit more than 700 million euros. Plus, we have started to more actively manage our portfolio of activities, which leads us to spend 666 million euros in acquisitions. So this strong cash generation has allowed us to decrease our debt by nearly €1 billion over the year. We spend, of course, a dividend of nearly €900 million. We have some translation adjustments and we have also made a specific contribution loan to our pension fund in the UK in order to prepare the buying process. Our gearing ratio landed at 18.3% and most of our ratings have been confirmed by the three rating agencies. We already mentioned our return on capital employee, which is also at the record at 11.4%. In 2021, when we launched our Michelin in Motion 2030 ambition, we have mentioned that our objective was to generate 10.5% ROCI at least over the cycle. And that has been in 2023 the case at 11.4%, mostly thanks to the NOPAT, the Net Operating Profit After Tax, which has reached 9.5% of our sales in 2023 versus 8.5% in 2022. We had also an asset turnover ratio which has been sustainably above 2019 level. And in 2023, of course, the contribution of our equity accounted companies fostered by our active portfolio management has contributed to this improvement in the ROKI. So now in terms of shareholder return, as Laurent mentioned, we are going to propose to the next shareholder meeting a dividend of 1.35 euro cents per share. which represent nearly 49% of our reported net income, and which is in line with the targets that we shared with you during the Capital Market Day in 2021. To complement this dividend, we will launch a share buyback program worth up to one million euros over three years, which is triggered by the fact that financially there is no interest to further deliver the company. The group has a very sound financial balance sheet and will continue to generate cash. Our next, if we look at the duration of our gross financial debt, is around nine years. Our next bonds payment is planned for September 2025. So we consider that we have room to buy back some of our shares during the next three years. So before moving to the 2024 guidance, just some reminder of probably one of the fundamental reasons why the group is able to generate such robust performance. It's first and foremost because of the wide diversity of the destination markets that we are serving. The automotive original equipment market, which is probably one of the most cyclical businesses with some specialty tires businesses, represent 10% of our sales. Transportation, so truck and buses, both long distance and urban transportation, around 20%. Specialty tires that are mostly driven by the evolution of commodities, both mining but also agricultural commodities, represent 18% of our global sales. Polymer composite solutions, so what we used to call beyond tires activity, represent 5%. And even within our three, let's say, traditional tire segment, the share of services, either fleet services, distribution, and lifestyles, represents 11% of our sales. And last, the replacement sales for automotive, both four wheels and two wheels, represents 36% of our sales. So it's a distribution which is well balanced between services, replacement, original equipment, and more, let's say, business-to-business activities. On the geographical standpoint, North America is our largest contributor at 39%. Europe represents 35% of our global sales, and the rest of the world, 26%. Zooming now on the acquisition of FCG. So we have acquired the company at the end of September 2023. So we have now passed the 100 days of first days of integration. And this integration is well on track. We are able to confirm the 21 million run rate EBIT synergy by 2028. We have created within the group a specific business line dedicated to composite fabrics and films, and the teams have started already to generate some synergies. Of course, very short-term synergies has been already implemented during the first 100 days, but we want to combine Michelin unique R&D capabilities with SCG's strong customer intimacy and mastering of the manufacturing of its manufacturing processes and understanding of the manufacturing processes of its customers. And all these elements are confirming the figure that we share with you in September at the acquisition. So now moving to the guidance, maybe some words on the evolution of the market. So at this time of the year, it's always very difficult to predict how the markets are going to behave. But let's say overall, we believe that the overall market should be selling market somewhere flat. with probably a positive mix effect with a slight increase in replacement and a decline in original equipment, and that all across the three segments. The pattern of the market will not, let's say during the year, will not massively change versus 2023. For passenger car and light truck tire market, we believe that OE should slightly decrease in demand, mitigated by some restocking by OEMs, particularly in North America. In replacement, we believe that even if market overall might be soft, the continuous mix enrichment will provide us opportunities for growth in this segment. For truck and bus, we think that the main event will be a rebalancing between original equipment and the replacement market. And as now the destocking has been done both at the transportation companies and at distributors, we think that we might have a slight growth driven by underlying transportation demand. Specialities here also, when we consolidate, we believe that overall it should be somewhere flattish. Mining tires, there is still some strong fundamental demands that are holding high. Market might be a little bit impacted by minor stock fluctuations. Beyond road, we also consider a slight growth across replacement, while original equipment cells will turn negative. The two wheels market will probably need sometimes to further consolidate after the boom of the two years following the COVID crisis. And the aircraft tire market should normalize after the very strong 2023 growth, which lead this market to be back at the pre-COVID level. So having integrated all these elements, we believe that the assumption that we took in order to build our 2024 budget was based on a volume slightly negative between 0 and minus 2. Probably slightly positive operating performance net of inflation. So by operating performance, we include, of course, operation, mix, price versus inflators. In the inflator, some are probably going down, but some will maintain, will probably continue to grow. Labor costs or services inflators might still be here next year. And we believe that overall inflation should not be too far from zero. Our capex cash out should be nearly at the level or slightly above the level of 2023. So therefore we are guiding with a segment operating income above 3.5 billion euro and a free cash flow above 1.5 billion euro. I just remind you that of course we have generated 3 billion euro free cash flow in 2023, but after nearly zero in 2022. So now the group is tending towards generating Of course, taking into account there will be no major fluctuation in raw material and energy, which will impact, of course, the price of our inventories. But we consider that the group should generate constantly a free cash flow above 1.5 billion in 2024.

Excellent.