Michelin Cie Gen Unsp/Adr

Ladies and gentlemen, welcome to the Michelin 2024 First Half Results Conference Call. I now hand over to Mr. Spolin-Menigault, Chief Executive Officer, and Mr. Yves Chappot, General Manager and Group CFO. Gentlemen, please go ahead.

Thank you. Good morning and good evening to everyone. Yves Chappot and myself are very pleased to host you for Mid-Year Results. Before unveiling these results, I would like to start by emphasizing our key Michelin in motion strategy. We are building a worldwide leader in life-changing composites and experiences. And for that, we leverage four key differentiating assets across enlarged playgrounds. The assets, you can see them on your screen. Of course, highly engaged and talented teams, a powerful and widely recognized brand, strong innovation leadership and unique R&D and industrial capabilities, and defining products and services. All of that into enlarged playgrounds. Of course, you have our historic activities in tires, but now you have services and experiences on a wide range of activities and our polymer composite solutions As shared during our latest CND, our wide variety of destination markets ensures our performance resilience. We operate in different market verticals that you see on your screen, and we have balanced activities across three worldwide geographies. ensures the resilience of our performance. So without further delays, we are pleased to share our strong performance in the first semester. Starts with our segment operating income reaching 13.2% of sales in H1 with a strong cash flow generation. So we have operated in a tire market supported by high inflows of budget tires across the entire world with a group value-driven approach generated a strong increase in mix. We have generated a strong operating income from 13.2% of sales compared to 12.1 in H1 2023, and we have a strong cash flow generation before acquisition of $669 million, driven by discipline, budget, business management. If I zoom in into the market environment, the tire selling markets were positive in the period, but inflated by very high export of Asian tires into replacement markets. OE markets have been sharply down in business-to-business and are gradually deteriorating in business-to-consumer. Our polymer composite solutions markets are temporarily soft relative to a first half 2023 comparative. Our groups focus on value-accretive segments and regions translate into a strong 1.9% mixed improvement. more than offsetting the negative price effect from indexation closures in contractual businesses. Our sales ended at $13.5 billion, down 3.1%, excluding the currency effect. And now zoom in into our operational performance. In automotive, we have enjoyed further growth in operating margin, despite the negative impact of indexation closures. and supported by a strong and continuous mix improvement. Low transportation, strong margin recovery with price and mix benefiting from targeted market approach, and growing contribution from connected solutions. In the specialty segment, we have a high 16.8 margin in adverse contexts from weak OE, especially in agricultural or construction, and price indexation closes. High prior year comparative in mining and polymer composite solution. Overall, we had a favorable operating cost across all business lines in terms of raw materials, energy, and sea freight. Then if I tell a little bit of free cash flow performance, our segment EBDA, has reached 2.8 billion or 20.4% of our sales, up 1.6 points versus the first half 2023. And our working capital has been benefiting from efficient inventory management and software volume. Overall, we maintain our 2024 guidance with segment operating income exceeding 3.5 billion at constant exchange rate and a free cash flow exceeding $1.5 billion before acquisition. I now hand over to Yves Chappot, who is going to give you further details.

YVES CHAPPOT Good morning and good evening, everyone. So beyond the strong business performance that were highlighted by Florent, the group is continuing to deliver and to continue to create value on the people and planet dimensions as well. As it is illustrated on this slide, we have continuously improved in the number of women in managerial position by nearly one point at 36.6% 30.6%, sorry. And we have also slightly improved our performance in terms of safety with a total K incident rate at one. Our ambition being during the year to go I will come back on the profit dimension later on. And on the planet, two key indicators where we are very proud of what has been achieved by our team, reduction of the CO2 emissions scope 1 and 2, so either the energy that we purchase or the energy that we produce by 7.2% versus H1 2023. and a reduction in water withdrawal by 6.3% versus the first semester of 2023. A very important event as well for our team regarding the planet, our CO2, our greenhouse gas reduction targets have been validated by the SBTI and has been considered as compatible with the Paris Agreement of 2020. an increase in average temperature by 1.5 degree by the end of the century versus pre-industrial world. So now, looking at the markets. Markets have been distorted by very strong inflows of budget tires, mostly in passenger car and light truck and truck for replacement. Overall, the passenger car market has grew by 3% during the semester, which, in fact, is hiding a decrease of 1% for original equipment and an increase of 4% for replacement. The decrease of 1% in original equipment has been specifically strong in Europe, with the market ending at minus 5% when China was at plus 5%, mostly pulled by the export of vehicles. And on the replacement side, Although both Europe and America are posting respectively plus 6% and plus 4%, it was mostly the selling market was mostly driven by the import of tires from Asia. On the track side, we are seeing exactly a phenomenon which is very similar. Market overall at plus 2%, but with the OE at minus 5, with a strong decrease in sales Europe minus 17, and North America minus 9% for original equipment, when South America was rebounding after a very low 2023. And on the replacement side, the market is at plus 4, mostly pulled by the strong performance of North America, plus 17%, the top of which most of the growth is coming from the import of tires, particularly from Thailand, in anticipation of potential duties that were effectively adopted, but that will be enforced only from September onward. On the speciality side, the mining market, the consumption of tires is growing slightly, but mining on one side is decreasing their inventories. And we are also seeing in parallel, if I look at the off-highway transportation, a strong drop of original equipment markets in agriculture, construction, and material handling. While replacement is more resilient, but we have to keep in mind that in this market, original equipment and replacement are, let's say, waiting nearly for the same amount of these markets. Aircraft is still growing, and the two-wheels market is also recovering after a very poor 2023. Now, looking at our sales, so you observe that our sales were down by 3.1% at ISO 4X. The scope effect is mostly coming from FTG. The volume effect at minus 4.4% is very strong in specialties, minus 72%, mostly driven by the beyond road regional equipment and some mining adjustments linked to inventory adjustments and less sales in Central Asia. Transportation, so SR2 at minus 4.7% and automotive at minus 1.9% with a strong Mix effect at plus 1.9 when the price effect at minus 0.8 is mostly coming from the application of raw material and energy clauses in our contractual business. Non-tire are flat, but with a high level of comparative for during the first half of 2023. and currencies are weighting negatively on our top line, mostly coming from currencies such as Turkish Lira, the Japanese Yen, the Chilean pesos, or the Chinese Yuan. Sorry. So looking now at the segment operating income, like for like, our segment operating income increased by 100 million euros, which is an outstanding performance. So if I eliminate both the currency and the scope effect, it's plus $100 million, and it's plus $127 million if I exclude only the currencies. It's probably a record high operating margin at 13.2%, 110 basis points over the first half of 2023, with a volume which is weighting negatively at $325 million. A very strong mixed effect of $189 million compensates the effect of the closings on the price side. And we benefit from a strong tailwind related to raw material, energy, transportation of nearly $450 million. SG&A are increasing by 100 million, mostly driven by inflation and labor cost inflation. And non-tires has a slightly negative contribution on that bridge due to a combination of multiple factors, but mostly the decrease of the volumes in the conveyor belt businesses, which is, let's say, a contractual effect. Now looking at the performance by segment, you can observe that despite volume being down by 1.9%, RS1 increase in segment operating income by 5.6% with an increase in margin of 1.1 point. RS2 is showing a very strong recovery from 5% operating margin to 9.2%. It's a main contributor to the group improvement in the segment operating income. And here also, despite volume drop by 4.7%, revenue growth by 3.9%. Of course, the segment is impacted by the closest, particularly on the original equipment, but our team has been able to strongly valorize our offer, both at OEM and fleet, And we benefit in this segment from positive market and geographical mix. It's important to notice that this segment does not yet benefit from the consequence of the footprint decision that we announced end of 2023 and early 2024. It should start to pay off in 2025. RS3 with volumes down by 7.9%, 7.2% is of course impacted, but is still posting margin at nearly 17%, which is in line with our ceiling threshold for this segment. The cash flow generation in this context is positive for the first half of the year. Generally, before we started to enter into a more volatile environment with the COVID in 2020, but before this period, our cash flow was around 100 million during the first half, so we post 669 million, mostly coming from a very strong EBITDA at 20.4%. A change in working capital, which is, of course, negative. It's linked to the seasonality of our working capital, and the group is a particularly building inventories ahead of the winter season. And generally, we have a strong inflow of cash during the last three months of the year. So it's a moderate increase of working capital thanks to the business steering. The other elements are in line with our expectations. I just want to highlight the positive contribution of our joint ventures, mostly coming from CBC 100 million dividend, which was paid during the first quarter. Our gearing has improved. Our net debt has decreased versus the 30th of June 2023 by nearly 400 million, knowing that if you look at the bridge the construction of the net debt. We have already booked during the first half the full effect of the share buyback, although only 50% of this program has been done at the end of last week. So the gearing is solid at 23.9%. It mechanically increased always at the end of June versus the end of December. and maybe the main event of the semester is the upgrade of our long-term debt by Moody's from A3 to A2, and the notation by Scope, which is a European rating agency, who started to note our debt and rate us at A. So a very, very positive and very healthy balance sheet at the end of the semester. Before moving to our full-year guidance, I would like to come back on some aspects of our strategy that we have highlighted during our last Capital Market Day, our value approach. It can be summarized by the sentence that we want to win where it matters. We are looking to maximize the value creation for our customers as well as for of other stakeholders. At Original Equipment, we are relying, as Flora mentioned in her introduction, on very strong innovation, brand power, very strong partnership with some of these customers, and the loyalty that is generating on the replacement market. So we try to maximize the value creation on these segments as well. And on the replacement, we are trying to focus on value-accretive segments, which are not necessarily the ones that are today the biggest in volume, but it's generally segments of the market that are growing faster than the average of their segments. Typically, high-power tractors in agriculture with large tires or tracks, or, of course, the premium 18-inch and above tires within the SR1 segment. So some concrete example of this strategy, looking at the three reporting segments, starting by SR1, our share of 18-inch and above tires at the Michelin brand, both in replacement and original equipment, has increased by an increment of five points during the semester, as we did for the last three or four or five years. which contribute generally over a year nearly 100 million of sustainable mixed effect impact on our EBIT. And this segment of the market, 18 inches above, we're growing by 12% during the semester. On SR2, the choose and focus strategy has led the teams to focus on mostly Europe and the Americas to have a more targeted approach in the other regions, or to look at some niche where we can really create value, for example, for dandruff goods in some regions such as China, for example. So we are looking to capture markets that represent 50% of the market value, although it's less in volume, which are characterized by fleet looking at premium suppliers, tech-oriented, so with a strong contribution of our connected mobility offers, and fleets that are also looking at their environmental impact and are looking to lower their environmental impact. Regarding SR3, you see several examples of business segments from material lending to mining to high-tech agricultural tracks. or conveyors, as well as marine inflatable boats, where, thanks to the technological leadership of the group, we can offer different products that are very differentiated from the competition and that are contributing to our customers' performance and value creation. So this example shows that when we are looking to win where it matters, we have in all the three reporting segments very concrete examples of this strategy. Now, looking forward for the second half of the year, we have not changed our hypothesis regarding the passenger car, light truck, and truck market outside China. We consider that these markets will probably evolve in a range of minus 2% or plus 2% versus last year. Probably two inflections versus the first half of the year. We should see a lower impact on the Asian imports, particularly, for example, for truck tire replacement in North America in the second half. And in all the markets, we are seeing an erosion of OE volumes that have, let's say, gradually increase over the second quarter and should continue during the second half of the year. We should not forget that in the previous years, the original equipment market, particularly in truck, has been impacted by the anticipation on the regulations, particularly linked to the emissions of the vehicles. In specialities, we have lower our market hypothesis from, let's say, a range around zero to something between zero and minus four. Mining tires, the demand remains there fundamentally, but we observe a gradual stock reduction at customer level along the year. It's not dramatic. It's just, let's say, a reduction of some weeks. We are not speaking in months. The beyond tire market will be flat on replacement, but very negatively impacted on the regional equipment, particularly in agriculture and construction. Two wheels is a more seasonal business, so second half is waiting less than first half. And aircraft, we should come back to normal growth versus the pre-COVID reference base. And in polymer composite solutions, overall markets are soft across verticals. mostly because 2023 was a very high reference base. And we are also observing some destocking across industries. So based with this hypothesis, we have a slightly lower down our volume hypothesis for the year in a range of minus two to minus five. We consider that our operating performance net of inflation should be slightly positive. Of course, it was strongly positive during the first half, but the tailwind that we observe in raw material of energy will, of course, erode and maybe become negative, particularly for some raw materials such as butadiene or natural rubber. Our CAPEX hypotheses are in line with what we have announced at the beginning of the year, so there is no fundamental reason to modify guidance, and we are confident that we should achieve a segment of parity income above 3.5 billion euros and a free cash flow before acquisition above 1.5 billion euros. Having said that, I think, Florent, we can start with the Q&A session. Thank you, Yves.

And now we are all ears to your questions.

Thank you, sir. Ladies and gentlemen, if you wish to ask a question, please press star and one on your phone keypad. Please ask your questions in English. The first question comes from Harry Martin of Bernstein.

Good evening, everyone. So I'll ask one question on the passenger tire business and then one on RS2. So in RS1, I wondered if you could confirm whether the um the the the five percentage points of uh improvement in the 18-inch timex means year-on-year growth in uh in that segment in the premium segment and on your estimates does that mean that you gain share um either on value or volume um and then on the margin recovery in rs2 i mean you presented the plan at the cmd to get the rs2 margins back to above 10 but the speed of improvement here is really notable in the context of the OE weakness and the Asian imports into the U.S. as well. So could you give some more color on the drivers of that margin improvement? And it sounds like fleet management solutions are contributing, so any color on how significant those are would be really useful. Thank you.

Okay, so I will start. So in RS1, yes, we have seen... sharp improvement in the overall content of our sales into a higher mix. Now, in relative terms, the markets are moving, so overall we are pleased with the way it develops. And I would not comment further on this. And on the RS2, there are stronger drivers. Of course, Of course, all the plans we have detailed about how we plan to restructure that activity by what Yves has explained, winning where it matters. We have only focused on where we can demonstrate our performance and where we have willingness to pay for our performance by our customers. That includes OE, that includes replacement markets, we will further see some improvement in this market due to the restructuring of our overall capacities that we don't see yet because right now we are not as efficient as we could be because we are moving down some production in some plants while ramping up and industrializing in other plants to offset the remaining margins. So we are sure that we are confident that the segment two will get to the performance expected. Now, of course, I know it's tempting to always look at improvement in a linear manner, but unfortunately we cannot reach that performance All the time, we would like, if we can, do it, we will do it, but things cannot go to the sky all the time. But we are confident in our ability to deliver our commitment.

And it's mostly for RS2, the main driver is the chosen focus, so the focus on either the geography or the business segments, and also a very positive contribution of our connected fleet businesses, which is very now accretive to this segment operating margin.

Through that, we can demonstrate the performance of our offer. Next question. Very clear, thank you. Thank you.

The next question is from Monica Bosio of Intesa San Paolo.

Yes, good evening, and thanks for taking my questions. I have two. Can you give us an update on the dealer's inventory situation for the different segments? And the second one, I suppose that the minus 0.8% negative pricing is entirely attributable to the indexation. Should we expect the same effect in second half or maybe will indexation be neutral? And on top of this, a plus 1.9% mix effect is a very remarkable achievement. Would you see these results as repeatable in second alts, and should we still expect from price mix a drop through overall in the region of 55% in the second alts? Thank you very much.

Thank you. So on the dealer's inventory, of course it varies, but In a nutshell, we see in passenger car, we see the stocks at the norm across all the regions. In winter, we have seen additional selling sales in the beginning of the first semester as we started the year with very low inventory in the winter in Europe. So we see that. In truck tires, the stocks are at norm all across everywhere. And in mining, we see a slow decrease, especially with some customers that had put some excess inventories. So all across, what we see is a slight decrease. In terms of pricing for Q2, then I would do just a remark on this. We receive conflicting inputs from the market authorities that tell us we need to disclose as much, answer as much questions that are asked on this. And the European Commission that tells us we should not basically disclose any type of information. So I can only be, and even I, can only be very vague on this. and said we have no chance, and we expect overall second semester comparable to what we have done in the first semester, but we cannot comment further. And that is true for every question on this. We will just repeat the statement. And maybe for the remaining question on the mix.

To complete on the price, on the Q2, the negative pricing is entirely attributable to the indexation.

Yeah, yeah.

No other effect. Regarding the mix, yeah, we are expecting a mix which will be maybe even better because we think that the market mix between replacement and original equipment will be more favorable in the second half, as we are seeing OE market deteriorating. And we should globally probably compensate the volume effect that are linked to this market deterioration on the original equipment.

And there are plenty of mix. We have product mix, segment mix, geographic mix, OERT mix. many different mixes, but we expect things to be steady.

OK, thank you very clear. If I may, taking pricing comparable to the first half and maybe a better mix in the second half, should we still expect a price drop through on price mix at 55% or maybe it could be higher?

Monica, the price effect, the low proof for price is 100%. The low proof for mix, if you look on the first half, is around 70%. Yeah. And historically, it has moved between 50% to 70%. Okay.

Thank you very much. Thank you very much.

Thank you. Next question. The next question, Sarah, is from Michael Jackson, Bank of America.

Hi, good evening. Thank you for taking my questions as well. Firstly, what was the contribution from logistics in the manufacturing and logistics tailwind that was realized in the first half? And now that you have concluded your annual shipping negotiations, can you give us some guidance on your expectations for transport costs for H2 and into the first half of 25? That's my first question. And I'll stop there and ask my second question afterwards, if that's okay.

Yes. So we don't disclose that detailed information, but of course we had, but I can tell you that we have positive maritime logistics, maritime freight cost input, and we think that will remain as we have plenty of contract renegotiation that have been signed, and so we are confident in our ability to enjoy this renegotiated maritime freight.

And maybe what we can add is that at the beginning of the year, we are concerned about the potential effect of the Red Sea crisis. In fact, it has not led to inflationary costs related to the shipping.

That's helpful. Thank you. And then my second question on the SR3 segment, it seems like the drop-through rate there was particularly high. I know you don't disclose that separately, but could you perhaps just provide a little bit more analysis on that? Is that comment fair? And what are your expectations there for H2? And then I have one more question, if I may.

Yes, SR2 has been high. SR3, sorry, not SR2. SR3. SR3 has been high, but mostly because we have seen, as I mentioned, original equipment market, particularly for construction, material handling, and agriculture. Some very big OEMs are announcing restructuration, very sharp volume drop. have announced sharp volume drop during the first half. And it has its market where each market is different, but in average, you could consider that in this kind of market, weight is around 40% to 50% of the market, when replacement is around between 50% to 60%. So that's a segment where The volume impact is important, which leads to this higher drop-through.

Thank you. And then my final question, are you observing any other market distortions or impacts from the import of budget tires? Is there any trading down that's become visible? And do you worry yet that the price gap between premium and budget segments is getting too wide?

On the price? I will restate what I've just said. We will not comment further because until we have a clear understanding of what the market regulators expect versus what the European Commission expects. On the market distortions, we see that happening especially in emerging countries, South America, Africa, and Middle East. Southeast Asia, where there, it's very significant. Now, does it change the landscape? Structurally, not, because we think it's just an influx of an inventory buildup. We don't anticipate structural market distortion linked to that.

And one part of the market is destruction. For example, for truck tire, we have seen imports growing by 90% in the U.S., imports from Thailand, because there is already tariffs between China and U.S. for truck tires. And rumors of potential implementation of tariffs for tires coming from Thailand and Southeast Asia has led to an inflow which is completely artificial

Ninety percent is never seen.

Yeah. This inflow will be absorbed by the sellout probably in the next six to 12 months.

This inventory buildup will fade down in the second semester, and it will take some time to be purged.

That's helpful, Carlos. Thank you very much.

The next question, gentlemen, is from Jose Azumendi of J.P. Morgan.

Thank you very much. Two questions, please. If you could please help us a little bit with the profit bridge expectations across the three categories, ROMAT, manufacturing and logistics, and SG&A. Directionally, how do we think about them into the second half of the year? And second, can you help us a bit with your restructuring cash outflows in 2024 and maybe 2025, which should reflect on the work you're doing to improve the capacity and the loading of your plants in Europe? Thank you very much.

So, Rick, I will start with the first part of your question. For the second half, raw material should be slightly inservable. As we have seen already, slight increase in natural rubber and the anticipation of the implementation of EUDR, which is the Open Union Deforestation Regulation. that will lead to all the tire manufacturers trying to buy a natural rubber to pay a slight premium to get this certification. Logistics will be favorable, partly the sea freight. And overall for the year, we consider that energy will be favorable. The only element which will remain defavorable is the labor cost, both in the cost of goods sold and the SG&A. Regarding the effect of restructuring in our free cash flow, in fact, overall, we consider that we should have around between 200 and 250 million euros for the full year. of cash outflows for the restructuration that has been announced. So that's in line with what we have announced during the previous calls.

Thank you very much.

Thank you. Thank you, Rossi.

The next question is from Martino de Ambrogi of Equita.

Thank you very much. Good evening, everybody. The first question is on mix at group level. I clearly understand it is composed by several different effects, but what is the most important contributor? One question. And am I right in assuming that 18 inches and above was one of the most important contributors and probably this year can be even higher than the significantly higher than the 100 million that you expect on a yearly basis? This is my first question.

Okay, so we don't disclose the mix effect by business segment, but what I can tell you is that the mix effect has been positive across the three segments. Because as Florent already mentioned, we have the product mix, we have the geographical mix, for example, particularly favorable for SRS2. And we have the brand mix that also is impacting in the market mix between original equipment and replacement. So across all the segment, we are seeing a positive mix. And as far as mix effect on SR1, I will stick to the figure that I mentioned of roughly 100 million accretion per year on YBIT, because that's one element of the mix, but not the only one that contributes to our mix improvement.

Okay. Thank you, Yves. And the second is on track again. Could we consider 10% return on sales achievable this year, or we need the effects of the actions you already announced, which will be visible next year?

Of course, as I mentioned during the presentation, the improvement that you have seen in the first half does not include any effect from the footprint decision that we took since October last year. So we should have a further improvement in 2025. Where we will land exactly in 2024, honestly, we are already very close to 10%. We should be somewhere probably between 9% and 10%.

OK, thank you.

The next question is from Thomas Besson of Kepler.

Hello, good evening. I hope you can hear me. Sorry, I'm outside on the cell phone, so I hope you can hear me. Yes. Okay, great. Could you please help us understanding how much of the H1 volume decline is linked with your more selective policy and how much it may continue to weigh on your relative volumes in the second half of 2025, please?

Yes, so on this, whether it will continue in H2 and in 2025, yes, there will be a portion of selection that will gradually move, because we are also paging down in some markets gradually. We don't make sharp movements with that. Now, in the volume decline, there are market effects, selection policy effect, consider its own half-half effect.

Okay, thank you very much.

The next question is from Sanjay Bhagwani of Citi.

Hello, thank you very much for taking my question also. I have two questions left. The first one is coming back on the mixed drop-through Understand H1 has been strong at 70% this time. And I reckon you mentioned normally a range of 60 to 70%. So are you able to provide just some color on, because there are several moving variables here, like product mix, segment mix, geo mix, and OERT mix. Are you able to provide some color on which of these are, let's say, generally above average to this 60 to 70% range and which are below? The reason why I'm asking this question is because it can help us understand how the mixed O2 may look in H2, but also it can help us in bringing in some perspective for 25 and 26. That's my first question, and I'll just follow up with the next one, if that is okay?

Yeah, we'll answer to your first question first, Sanjay. On the second half, we are expecting a drop-through effect, let's say, in the range of that I already mentioned, between 50 to 70, knowing that we should have an increased mix effect overall on the market side. But as we mentioned already, when I say market, it's between original equipment and replacement. But there is also so many different mix effects that We are always, I don't want to give you a precise figure and more range, so we should be not too far from 70 and in the range, for sure about 50 and maybe close to 70. As far as 2026 targets, I do not have a crystal ball, but we are working to win where it matters. and winning white matters means that we are looking to a segment where we can create value for our customers. Our customers are ready, have a willingness to pay for our technology, our low rolling resistance performance, and should contribute constantly to our mix improvement over time. I saw the drop-through of 2026. I think, as I said, there is so many mix components in the mix that it will be hazardous to give you a precise figure for 2026.

What we can say is that in a structural overcapacity market, we think that what we're doing is the only right thing to do strategically.

Thank you very much. So maybe we can just assume 60 to 70% as it is now.

It's your bet.

And my second question is on the other line item. So because this other line item has been one of the key moving variable of the earnings for the last two years, So keeping in mind that let's say you meet your free cash flow target, would you see this other line item as a tailwind portfolio? Because last year this was, I suppose, a big headwind. And then if you are able to provide some color on the magnitude of how this may look like, assuming you're meeting your free cash flow targets, for example.

Sanjay, please authorize me to correct what you said. It's not a headwind or a tailwind. It's what the main element in the other items line is the effect of the group bonus that is paid to all group employees during the following year. So we book in advance, of course, the bonus that is going to be paid linked to the year where we deliver the performance, but the payment is occurring in the spring of the following year. So it's simply the consequence of a value-sharing scheme. So when we overperform during one year, we book the provision reserved to correspond to these bonuses. And when we underperform, it has a positive effect on the year EBIT.

Thank you.

Next question.

The last question, sir, is from Michael Aspinall of Jefferies.

Thanks. Good day and good evening from me. Just two quick ones. You mentioned tariffs may be coming for North America in September. Can you just talk to what effect you think that's going to have on the market in 2025 once that additional inventory is digested?

We have already seen some effect. What Yves described about the situation relative to Thailand and the tariff were different from what was anticipated, which led to a huge selling there. So there now the tariffs are lower than anticipated. So we think this excess inventory will take time to be purchased in the market now. What is the speed? We don't know yet.

Okay. And then just one more from me. I'm interested in your acquisition pipeline. I'm assuming you have both public and private companies in the pipeline. Are you still seeing attractive public listed targets in the current market, or have you seen private targets become more attractive relative to public-given equity markets?

What we still see in the market is that there are very high price expectations in M&A, whether it's public or private. And of course, we are following our strategy, but we won't do stupid things. Exactly what we said during the market day.

OK. So you're seeing high price expectations still in private markets as well?

So far, yes.

OK. Thank you.

Thank you. So I think we have a... It was the last question. We have finished all the questions. So thank you very much for your attendance. And... It's a renewed pleasure to present our results, and so we will see you in a few months from now. Thank you very much. Thank you very much. Bye-bye.

Ladies and gentlemen, this concludes today's Michelin Conference call. Thank you for your participation. You may now disconnect.