Michelin Cie Gen Unsp/Adr

Ladies and gentlemen, welcome to the Michelin Conference Call. I now hand over to Mr. Yves Chapeau, General Manager and Group CFO. Sir, please go ahead.

Thank you very much. Good evening, ladies and gentlemen. I'm very pleased to have the opportunity to present our 2024 Q3 sales performance and our updated guidance for the full year 2024. Before entering into the numbers, I would like to come back on the unprecedented succession of events and headwinds that we are facing since the end of 2023. First, exacerbated geopolitical tension with conflict in the Middle East, heading to disruptions in maritime shipping, the increasing numbers of tariffs and export controls rules which are triggering more and more complex supply chain to manage and sometimes is heavily perturbating these supply chains. We have as well the impact of an increasing number of regulation that is disturbing sometimes customer choices, such as the EV regulation or the withdrawing of EV incentives in some regions. Furthermore, some of these regulations are far to be stabilized and are weighing down on our European manufacturing companies' level playing field. I will just take two examples. EUDR, the European Union deforestation regulation, which was supposed to be enforced from 2025, January 1st, and that is now under discussion for a potential delay of one year, less than three months before the due date of implementation. Another example is CSRD, which is the new non-financial reporting regulation. Here also, that should start 1st of January in 2024, but the first reporting will be in the beginning of 2025. At the moment I'm speaking, nearly half of the European countries have not translated this directive into their own regulation, which can create distortions between companies depending on the country where they are headquartered. On the business side, we are seeing a sluggish economic context with consumer demand in China, particularly triggered by the lower mileage driven by consumers. Residential construction is depressed in large markets such as Europe or China, and some mining investments are postponed due to the global demand falling. On top of these elements, we are also seeing some Post-COVID demand normalization, agricultural commodity prices decreasing, so impacting farmers' net income and leading to contraction in tractors and machines in regional equipment markets. New passenger car vehicle mix, which is softening. Consumers are looking for more and more basics models, particularly in the U.S. markets. And I was already mentioning mileage driven by passenger car in China that has dropped as consumers tend to choose high-speed train for long-distance trips. So in this context, the group is strengthening its value-driven strategy, reinforcing its 3P model. And for that purpose, we can rely on our three key assets, the highly engaged and talented teams a powerful and widely recognized brand, our innovation leadership and our unique research and development and industrial capabilities able to bring innovation at scale, and the excellency in the market-defined product and services and the quality of our offers. Of course, we are looking thanks to these four key assets to create value, of course, with tires, but as well around tires in services and experience for our connected solutions for fleets, our distribution and e-retail activities, either franchise or company-owned, and our lifestyle activities with the famous machine star for restaurants that are now completed by the machine keys for hotels. And beyond tires, we are leveraging our material science research and development and manufacturing capabilities to grow in polymer composite solutions, in ceilings, conveyor belts and hoses, engineering film and fabrics, and engineered polymers in a very diversified range of applications. Now, looking at the tire market, they were supported during the first nine months by replacement selling and by an increase of Asian imports in American, Americas, and EMEA, but penalized by very strong original equipment down cycles across every segment and gradual destocking in mining. Q3 market has evolved within the range that we have shared with you at the end of July with some very contrasted trends. In passenger car and light truck tires market, Q3 was at plus 1%, and year-to-date we are at plus 2%. Replacement markets were during Q3 at plus 3, with an increase in non-pool and a good start of the winter season, but with a surprising decrease of the Chinese replacement market, when original equipment was down by 6%, Europe by 9%, North America by 5%, China minus 3%, the weak local demand being compensated by an increase of vehicle exports, and Asia outside China at minus 8%. In the truck and bus tires market outside China, we are here to date at plus 2% with a replacement at plus 3% and original equipment at minus 6%. And this trend has been exacerbated during the Q3 with the OE at minus 7%, with very strong drop in Europe, minus 23%. North America, minus 14%, while it was partially compensated by increase of OE market in South America. And replacement is at plus three. If we look over the year, it's mostly driven by an increase of imports, and partly Asian imports in North America. For speciality, although some fundamentals are positive, but the demand is impacted partly for mining by the inventory drawdown. The beyond road markets are globally depressed with a very strong drop in original equipment for agriculture and infrastructure and construction with a double-digit market drop during the quarter. On the other hand, tools markets have recovered. Aircraft post a slight increase after a very strong 2023, thanks to the rebound of Chinese domestic traffic. And in polymer composite solutions, the demand is normalizing along the value chain after a very strong 2023, particularly in the conveyor belt market. So in this context, our sales during the third quarter have been hit by deteriorating OE market across all the segments, partially offset by strong mix improvement. So our sales dropped by 4.2% at the historical Forex at 5.4 at the current Forex during Q3. We have a slight scope effect plus 0.2. The volume decrease by 7.1% that we can share between original equipment minus 19% across all the segments when replacement is at minus 1.8% across the board. We post a very strong mix effect, price mix effect with price becoming positive at plus 0.6% during the quarter, thanks to the end of unfavorable impact of contractual clauses, which has weighed down on our price mix during the first half, and a very strong mix at plus 2.3%, of which nearly a third is due to a positive market mix between original equipment and replacement, and two-thirds to the product mix. Non-tire activities were stable over the trimester, the quarter, with composite polymer solutions slightly declining, and a good trend in terms of services. Foreign exchange rate is still negative, 84 million, or minus 2% during Q3. Year-to-date, our sales are down at minus 4.6%, of which 1.2% is coming from the currencies. Volume at minus 5.3, share between OE minus 10% and replacement minus 3.9%. So you can see that over the year, although the original equipment sales are worsening, but the replacement cells are recovering quarter after quarter. Our price mix is at plus 1.7%, of which the mix is at plus 2%, so year-to-date prices are still negative due to the effect of contractual indexation close during the first half, and we have a strong mix at plus 2%. And the non-tires activities are nearly stable at minus 0.2. So when we break down this performance by business segment, we can say overall that our group cells have been penalized by the original equipment down cycles across the three segments and some contextual headwinds in specialities. Overall, our operating margin has been preserved. For SR1, year-to-date, we are at minus 2.4, which volume is at minus 2.4. Machine replacement cells are flat overall at the end of September, with 18-inch and above tires going at a nearly double-digit year-to-date. Price was impacted by a contractual close, and particularly in the first half of the year, and operating margin is slightly improving at the end of the quarter. For SR2, our year-to-date sales are at minus 4.6 percent, of which the volume at minus 5.5, with the double-digit drop of original equipment volumes in Q3, and the consequence of a chosen focus strategy on replacement markets contributing to a sharp improvement of our segment operating margin. SR3 posted a minus 9.1% sales figure year-to-date. minus 11.6% on the Q3, which is obviously weighting down on the segment margin. And I would like to zoom on our SR3 cells, which are reflecting both an original equipment down cycle and some contextual headwinds, particularly in beyond road and mining. So overall, our year-to-date sales have dropped by nearly nine points over the first nine months of the year, of which six points is coming from beyond-road activities and three points from mining. In beyond-road, we can say that four points from these six can be attributed to the drop of the original equipment market, particularly in agriculture and infrastructure. The construction replacement cells are as well dropping by one point, so present one point of the overall sales of the segments. And when some other miscellaneous segments are as well contributing negatively by one point. On the mining side, the overall drop is representing three points for the segment. Two of these points are coming from tightening export control measures, and one point coming from certain inventory reduction at some mines. Some key customers have reduced their inventory by 40%. during the first nine months of the year, and the stop of mining operation in Central America. On the mining side, we consider that it's really contextual wind, given the fact that if we look for core business, which mostly have mines operations in North America, South America, and Asia Pacific, so Australia, Indonesia, China, our sales are growing by the equivalent of one point in these regions. So having shared with you the sales and the top-line performance, I would like now to zoom on our 2024 guidance. So our guidance has been built on the following market assumptions. These market assumptions have not changed for passenger car and light truck and truck and bus tires. They have been softened by four specialties. On PCLT, we should lend between plus and minus 2% with the demand pursuing is declined during Q4. And replacement should partially compensate probably with a better, partially with a better winter season in Europe based on what we are seeing till now. Truck and bus and tires outside China should land in the same range of plus two, minus two, with the massive reduction of OE volumes in North America and in Europe, partially compensated by a slight growth driven by underlying goods transportation demands, but as well by massive imports from Asia and North America in H1, which is normalizing gradually during the second half of the year. Regarding specialties, we have reduced our market expectations from a range which was initially between zero and minus four to something between minus one and minus five. mostly due to the continuation of what I shared with you for the first nine months. There is no reason at this stage of the year that there is a dramatic change in the evolution of this market for the last quarter. So taking into account these hypotheses, we expect an overall volume to lend between minus four and minus six percent for the year. Our operating performance net of inflation should be positive, and we are betting on the fact that our capex cash-out assumptions will remain in the range of 2.2 to 2.4 billion euro, similar to the one that we share during our Q2 communication. So based on these assumptions, it has led us to fine-tune our guidance slightly downward for our segment operating income, which would be around 3.4 billion euro at historical foreign exchange rate. This is mostly due to the worse volume effect on original equipment and challenging operating margin in SR3. And on the other end, we slightly upgrade our free cash flow guidance for the full year. It should land above 1.7 billion euro. Despite the lower EBITDA contribution, we have better managed our working capital, inventory, accounts receivable, despite some inflationary effect in the value of inventory coming from natural rubber and butadiene, and as well from lower financial costs and interest paid versus 2023. So one indicator is improving, one is slightly degradating versus our previous guidance. So I just remind you that we have generally a strong seasonality in October, November, with December, which is a lower month of the year volume-wise. So this guidance is, of course, centered based on all the information available as of today. Having shared with you this information, I believe that we can now open the Q&A session.

Thank you. Ladies and gentlemen, if you wish to ask a question, please press star and 1 on your phone keypad. Please ask your question in English. The first question is from Thomas Besson of Kepler Chevreux. Please go ahead.

Thank you very much. Good evening. I have three questions, please. First, could you explain the decline in SR1 volumes in Q3 in a context that was relatively supportive for replacement demand for the industry, notably in Europe and North America? Second question, should we assume that Q3 price mix was the peak for 24, or do you see further room for improvement in Q4? And lastly, could you give us some indications about your current estimates of the impact of French exceptional taxes on your 24-25 P&L and cash flow, please?

Okay. Thank you, Thomas, for this question. First, regarding the volume decline in Q3, that's true that the overall replacement market was supportive. although partially nurtured by the growth of non-pool brands in North America and in Europe. In North America, just to keep in mind that tariffs have been reduced for some passenger car imports from Asia, I think at least from Thailand. But the main... Let's say impact on the volume on tier 3 was the original equipment volumes. I share with you the 19% of our overall OE volume drop across all the reporting segments. probably exacerbated in SR2 and partly in SR3, but it's, say, in the double-digit drop for SR1 as well. Regarding the Q3 price mix, what is the peak, and do we see further room for improvement? Let's say at the end, It's always difficult to guess what will be the balance, and particularly the balance between OE and RT. But assuming we will have the same mix, the effect in Q4 should not be too far from the one that we shared with you on Q3. The last question is, so when you say exceptional taxes, I suppose that you mean the tax law in France? Yes. So as you know, for the time being, we are working, the information we have are only a project that has been shared with the parliament. So based on the project that has been shared by the governments, we are speaking on a few dozens of million euros. But of course, the jury is still out and we will have probably the final number at the end of December. It will depend on the amendments that can be added by the by the Chamber during the budget discussion. Thank you very much.

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

Thank you. A couple of questions, please. Could you comment, please, on the impact of the cost savings on the restructuring measures you're taking? particularly in the plant shutdown in Germany, impacting the second half this year and next year. Second, with regards to the challenging volume environment, is this in a way accelerating your cost savings plans for 2025 to be able to maintain guidance next year? And three, I was wondering if you could comment also on the balance between price, mix, raw materials in the second half of the year. Directionally, how do you think about that second half price mix, Ross? Thank you.

Okay. Thank you, Ross. So, regarding the cost measures, in part with the restructuring measures that we have taken at the end of 2023 and early 2024, Partially for the second segment, for the reporting segment number two, so truck and transportation, we have announced four factory or activity closure. Two of these factories have stopped their production in the very recent day. Our truck and bus tire workshop in Poland as well as one of our two German factories. And the other ones, the other German factory and our Chinese operation, should start production during the course of 2025. So it means that we will have a very marginal impact on term of cost savings on the end of 2024. that most of the impact will be shown in 2025 and, of course, first half of 2026. The second question was on price mix versus raw material on H2. So we had raw material and overall inflators such as energy, transportation, were positively, were decreasing during the first half. They have started to increase in our cost of goods sold since the month of July. But simultaneously, we have seen the raw material closures adjustment either stopping to deteriorate or, for some of them, starting to contribute positively. So there is always some time lag between this inflationary impact and the raw material and the energy closes price adjustments. But overall, for the full year, we should be positive. We have been very positive, of course, in H1. We will be probably slightly around zero or negative in H2, and it will gradually improve over the month.

Thank you. Thank you very much.

The next question is from Harry Martin of Bernstein. Please go ahead.

Hi, Yves. The first question I had is just a clarification on the RS3, the comments in the mining business about the onerous export control obligations. Could you give a little bit more colour here? Is that related to China and the export measures that they've been putting in? was that having an impact in the first half as well on the volume decline? I know it's only just been sort of pulled out specifically in your slides, but any sort of additional color you have and the visibility of the timeline that can start recovery. And then the second question, um despite the yeah the full year guide coming down on ebit you've taken up the free cash flow guidance um you know the leverage um on the balance sheet will be even lower well below one times at the end of the year so i mean what is the latest expectation on further cash returns beyond what you've got in place at the moment thank you very much okay so regarding export control measures

It has nothing to do with China. It's simply the fact that following the conflict in Eastern Europe, there is some increasing measures that are taken by North American and European countries that is leading us not only to stop to export in some countries, but to make sure that our distributors or our customers in other countries, in third-party countries, are not reporting towards these markets. So I'm not going to comment on a topic that can be politically sensitive, but that's just the fact that we are enforcing our entire supply chain to make sure that there is no indirect re-export in markets that are under sanction by the North American or European authorities. Regarding cash return, so just for your information, we have already completed the half of our share buyback program by the day I'm speaking with you, by today. So we have already buyback around $500 million of our shares during the first nine months or ten months. And at this moment, there is no reason to modify the three-year program that we have shared with you at the beginning of the year. Okay, understood. And the consequence of the share buyback that we have implemented, knowing that simultaneously we have opened a program to facilitate the acquisition of shares by our employees, will lead us to reduce our number of shares by around 1.2% at the end of the year.

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

Good evening, everyone, and thanks for taking my question. My first question was on the price mix that you already answered. My second one is on the inventory in mining. Do you expect an inventory rebuild in mining maybe already in the first part of 2025 or And if I may, I know that it could be too early to ask, but do you see three coups beyond road volumes bottling up, and maybe should we expect a more normalized trend from now on? And my second question is a confirmation on the previous call. Do you still confirm for SR2 margins between 9% and 10% by year-end? Thank you very much.

Yeah, so we start by your last question. Yes, we should have an SR2 margin in the range of 9% by the end of the year, or even slightly above that. So we confirm that the SR2 margin has improved and continues to improve over the year. Regarding inventory and mining, we do not necessarily expect restocking, which would not be necessary for mine operations, but we rather expect a better alignment between extraction from the mines, tires utilized, and tires purchased by the mines. On top of that, we should not have any more the negative impact of the export control measures that we took during 2024. So it should lead to a positive orientation of our mining volume next year. Okay. Regarding Beyond Road, yes, I wanted to answer to this, to your second question. We believe that original equipment, you know, beyond road, there is a lot of market where original equipment markets are representing nearly 50% of the overall market. It's a case for agriculture. It's a case for some construction equipment as well. It depends on the usage intensities of these vehicles. We believe that we should remain shy at least during the first half. It will, of course, depend particularly for agriculture of the commodity prices and farmer net income. But we believe that overall the first half of 2025 will probably be very tough. And we might, but it will also depend on what is going to happen on the political side. We might see some rebound either in agriculture, either in construction during the second half of 2025. At one moment, we can expect that residential constructions, there is the bubble burst in China on one side and also some depressed market in Europe due to increasing interest rates. And with the central bank, interest rates policy easing down, at one moment it will have an impact on these investment-driven businesses.

Got it. Thank you very much. Very clear. Thank you.

Thank you.

The next question is from George Gallier of Goldman Sachs. Please go ahead.

Yeah, good evening, and thank you for taking my questions. The first question I had was just a sort of clarification on the mix. I believe at an industry level, 75% to 80% of RS1 tires are replacements. Can you just remind us, for Michelin, what is the ratio of replacement to OE tires today and the volume impact that you're seeing from the lower OE production? The second question I had was with respect to the market share developments in RS1. In the deck, you mentioned stable market share. Can you just describe what is happening to your overall market share in RS1 year to date? And then finally, if we look at the last 10 years, in general, your second half earnings have typically been stronger than the first half. But for this year, your new guide suggests a fairly large sequential decline. You mentioned a potential pickup in residential construction towards the back end of next year. But what confidence can you give us that earnings won't continue to deteriorate in 2025, given the numerous industry headwinds that you've cited during your presentation? Thank you.

So first on the mix between original equipment and replacement, we don't give a detailed figure by segments. Let's say volume-wise, it's in favor of replacement for SR1 and SR2. It's much more balanced for SR3 for beyond-road activities. And the mining business is mostly replacement businesses. Our market share in SR1 has stabilized and overall, if I look since 2017, has increased in 18-inch and above tires, so in the premium segments. Overall, our overall market share has been decreasing, particularly because of the commodization of the 17-inch and below markets in Europe, in Asia, in China. The North American market as well has seen some tear down over the years. So balance between H1 and H2, it's very, if prices are stable and if the, the overall, let's say, market trends are stable. That's true that we are generally over-indexed on H2 than H1. It's due to the very strong seasonality between, let's say, September and November, particularly in northern hemisphere markets where there is a winter season. Nevertheless, if we look at this year, In H1, we benefit from deflation in raw material, energy, and some, let's say, entry costs that were going down, while at the same time, we were able to hold on our prices. And of course, we have seen some impact of the raw material and energy indexation closes, but with some lag. We can expect 2025. It's always difficult one year ahead to guess what is going to happen in the second half of next year, but we can expect next year that we'll go back to, let's say, a more traditional pattern with a weaker H1 than H2 in terms of both sales and operating margin contribution.

Great, thank you.

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

Hi, good evening. Thank you for taking my questions as well. I'd like to come back on the SR3 volumes that are subject to these export controls. A couple of questions on that, please. Are you comfortable that you have now managed to identify and curtail all third-party sales that have found their way into these markets? Secondly, does the two points of tonnage decline reflect the full impact of this now? Should we consider these volumes or this impact to be permanent? And can you share any color on the relative sort of revenue and profit value of these sales if they're any different from the rest of the segment? Thank you.

So there is no difference on the profit value of these sales versus the rest of the segments. We consider that we have took during the first half the decision and very early during the year for some of these markets. the decision that we needed to take. Will it have a permanent impact? Of course, we are not looking in 2025 to come back to these markets because some of these markets are definitively under sanctions and we are We are committed to make sure that there is no indirect sales in this market, but there will be no more negative effect, knowing that on the other hand, if we look at the rest of our mining business, outside these events, it was growing in 2024.

Thank you. And then if I could just ask two additional questions just related to guidance for the year. Could you give us a little bit of steer in terms of the expected raw material headwind for H2? Would a headwind somewhere in the region of 100 million be a reasonable estimate? And then secondly, given that guidance has been cut or downgraded, I would imagine that the management incentive provision would need to be adjusted as well. So could you give us a sense on the ballpark of sort of positive tailwind from that in the bridge for H2? Thank you.

So for the raw material, the figure you mentioned is pretty accurate. And we expect 100 million headwind during H2. And, of course, as one of the two key indicators will not be reached, it will weigh down on our bonus, and it has not been yet corrected. It was not impacted in our first half results. But, of course, the fact that we decreased the reserve of the provision for these bonuses will impact positively the second half EBIT.

Okay. And then just to clarify, does the new guidance already take that into consideration?

Yeah, yeah. It's included in the guidance, of course. Yeah. Okay. Super. Thank you very much, Yves. Thank you, Michael.

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

Good evening. Thank you for taking my questions. I'd like to ask a follow-up question to George's volume question on SR1. You elaborated that, obviously, in 17 inches and below. You gave share and you gained share in 18 inches plus. In the next couple of quarters ahead, call it 25, do you expect that to level out at some point or should we continue to expect basically an underperformance versus the market and you giving overall share? And then on the SR3, If I take your comments on potential for next year, is it fair to assume that you do not currently see immediate need to address the footprint or restructure that division with regards to the volumes, having in mind that you obviously idled capacity at least according to press release later in the year? Thank you.

Okay. So regarding SR1, we are set to continue to grow in the segment where we can create value both for our customers and our shareholders. So at this stage, 18-inch and above tires represent 64% of the Michelin sales during the first nine months of the year. It is every year growing at an incremental pace of three to five point. And obviously, at one stage, the weight of this segment will be such that it will have a overall positive impact on our overall market share. But that also depends on what will be the pace of commoditization some sizes, but we believe that we are continuing to focus on the segment of the market where we can create value. Regarding any footprint decision, we don't take footprint decision based on, let's say, contractual loading or performance issues. We are looking at that topic from a structural standpoint. And don't forget that in SR3, we are addressing quite cyclical markets. Agriculture and construction, for example, are cyclical by nature. Mining is less cyclical. So when we look at our overall capacity, We look, of course, at the current loading, but we also look at what should be the loading, what should be the capacity available to address the market when it is at, let's say, in the other side of the cycle. Thank you.

The next question.

The next question is from Michael Aspinall of Jefferies. Please go ahead.

Thanks. G'day, Yves. Would you expect Michelin, just thinking about EDR being pushed back, would you expect Michelin to see a benefit in Europe as that's implemented from either a market share or pricing power perspective?

For the time being, I will be very transparent with you. We are rather seeing... let's say the inconsistency and the disturbance coming from the fact that this regulation was probably implemented too fast without any, let's say, proper method and tools to facilitate the implementation. We are, of course, supporting let's say, more transparency and traceability in the value chain, particularly for natural rubber as it is a product coming from, it's an agriculture-based product. We are also fighting against deforestation. We are also operating some of these activities in South America, in Indonesia, or food joint venture with local partners in Western Africa and Thailand in order to set the right standard in terms of sustainable farming and sustainable natural rubber. Will it ultimately lead to, let's say, gain of market share premium manufacturers, including Michelin, over time. At the end of the day, it will depend on the consumers and the willingness to buy and to pay for premium products.

Okay. And then just one kind of more clarification, one simple one. What's your latest estimate of the currency effects?

The currency effect should continue to be negative during Q4. Yeah, it was negative in Q3 and it should be slightly negative as well in Q4. I don't have a crystal ball, so I don't expect, I'm not able to bet on the currencies. In the currency side, let's say we have two kinds of currency. We have some currencies that are securely decreasing month after month. and for which we are compensating that in the price side because we are increasing our price in these countries. This is countries where we are mostly operating as an importer because we don't have local production. And the rest is more, let's say, the mainstream currencies such as USD, Chinese Yuan, Japanese Yen, or GBP. And for the time being, of course, there will be the big effects What will be the output of the U.S. election on the USD versus euro? For me, it's far too early to guess.

Okay.

Thank you. Overall, we are betting currency having a yearly negative effect in the range of 100 million on our EBIT.

Okay. Great. Thanks for that.

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

Yes, thanks, Eve. It's Ross at Morgan Stanley. Quick question on the mining D-stock, which I think you expect to finish at the end of this year. You were talking about some miners taking volumes down 40% year-to-date. Is your guidance for SR3 based on the assumption that that mining D-stock takes inventories back to average levels by year-end, or... Are you now assuming that the destock takes inventories down below average levels?

We believe that the destocking has mostly already been done. Mining companies have been under pressure to improve their cash generation and reduce their working capital. So at this stage, we are not looking at further inventory changes massive inventory decrease. It was a question of adjustment in terms of weeks, not in terms of months of inventory.

Got it. Okay, that's clear. And then maybe just picking up on one of your comments on slide two around the weak new vehicle mix in North America and Europe. How should we think about your original equipment market share if that trend continues? I guess, are you seeing... OE volumes at Michelin fall in line with light vehicle production, or are you losing some share to lower mix OEMs on the original equipment side?

We have probably lost a little bit some shares for two reasons. First, we are probably over-indexed on electric vehicles in some markets, and as a mix between hybrid, ICE, and and electrics has not evolved at the pace we were initially expecting. It has penalized our market share in some of these markets. And of course, the fact that consumers, particularly that we get the feedback in North America that consumers are looking for vehicles with less options, and orienting their purchase towards less premium vehicles, so that we call lower trim. It has also weighed down on our market share in the original equipment market.

Got it. And then maybe a final one just on this point around Michelin sales now being 64% of group in SR1. How should we think longer term about the role of the sub-brands within Michelin going forward? Obviously, you have this high-value focus. Would you consider selling those sub-brands to enhance price mix further or Asian imports going forward to protect volume?

It's a good question. The 64% I mentioned was the share of premium, so 18% of Michelin brands' volumes, and not at all the share of Michelin brands within SR1. The share of Michelin brands within SR1 is slightly above 80%. Having said that, some of these brands, if I take BF Goodrich, for the off-road applications are considered as a premium brand, as Michelin for, let's say, other business segments. And some brands are addressing either what we call the quality segment, or the tier two, or the tier three segments. We are generally operating these brands as much as possible based on the local-to-local basis. And of course, These brands might have a lower operating margin than the machine brand, but we operate them on a completely different business model. For example, in the supply chain, it's not a make-to-order business model. It's not a store-and-sell business model, but it's a make-to-order business model. So at the end of the day, what we are looking for is a value creation in terms of ROCI, so return on capital employed. and not necessarily the margin. The margin might be lower, but the ROKI might be at the same level or sometimes higher for some of these brands. It really depends on the way you operate them. It's a question of business model and particularly supply chain model.

I guess just as a quick follow-up, can those tier three brands compete with the budget imports or is that too destructive to ROKI? at that point?

No, if I look in the past years, the division which is managing these brands is posting a very decent rookie, similar with the rest of the overall SR1. That's great. Thanks, Yves. Thank you very much.

That was the last question, Mr. Chapeau. Back to you for any closing remarks you may have.

Okay, so thank you very much for your attention, and we'll convey you for our full year results or presentation on February 12th, 2025. So thank you very much for your attention, and we expect to have some further contact with you before the end of the year, before meeting you for the full year presentation. Thank you very much. Have a good evening. Bye-bye.

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