Michelin Cie Gen Unsp/Adr

Ladies and gentlemen, good evening. Good morning for those of you that are in different time zones. Yves Chappot and myself are very happy to present our Michelin 2024 annual results. Before we enter into more details about the performance in the past year, I just wanted to resume on our Michelin Motion Strategy 2030 because we are really deploying it. If you look at what is on your screen, on the left side is the basis, the foundation of what we are building on. Highly engaged team, a recognized and very powerful brand. a very strong innovation leadership and unique R&D and industrial capabilities, and excellent market-defining products and services. With this foundation, we can not only excel in tires, but we can also expand the reach of machine offerings into services and experiences, and in the polymer composite solutions. So if we come back on tires, we are addressing all mobility usages through better products. One example of that is today, 65% of our passenger car Michelin sales are on 18-inch plus seat diameters. If I now zoom in services and experiences, we are leveraging our customer intimacy for enhanced consumer experience. And we are turning the usage data into unique insights for fleets. And you should know that every day, 1.6 billion kilometers are created with real-life usage data. And if we look at polymer composite solutions, we are leveraging our unique mastery of materials to differentiate on mission-critical applications for growing and diversified B2B markets. The latest example of that is in conveyor beds. We are right now selling our power save line, and that line is saving 40% of energy consumption. These are a few examples of our Mission in Motion Strategy 2030 deployment. Now, let's go back to 2024. If we were to summarize it, it's in the title, we have been winning where we think it matters. If we look at the different segments, if we look at segment one, we have been growing sales in 18 inch plus and in all season and winter segment. And we have the latest new generation of Alpine 7 that has been launched. And we are continuing developing our share with the cross-climate range. And we are reinforcing our technological edge, especially on AI and data management. And one example of that is the partnership we have initiated with Brembo, who is a leading force in the braking systems for cars. If we look at the segment two, our operating margin is still under well development, good development, and it has been improving sharply in 2024, and we are on our journey to meet our target objective by 2026, and of course, our ambitions for 2030. Our industrial adaptation in terms of footprint, is well on track and sometimes in advance. If we zoom in on segment three, in mining, we have been gaining volumes in 63-inch, and we're also gaining in most of our core markets, gaining volumes and share in North America, South America, China, Eastern Asia. And in Beyond Road, we are now focusing on the restructuring of our activities into the segments where we really want to be successful. And that's why we have decided to exit the compact line bias segment. And you've seen the announcements of the forecasted sale of that activity to an Indian company named SEAT. All of that translates into our 3P metric in terms of people. Our engagement rate still progresses, and we are now reaching almost 85% engagement rate, which is really impressive. in the top league in terms of engagement. In terms of profit, we have solid results with €3.4 billion segment operating income and a strong cash flow generation of €2.2 billion. And we are at the same time pursuing our efforts to have less impact in the planet. And we have now in our products 31% renewable and recycled content in all our offering on average. For 2024, we have decided that we would propose to our shareholders a 1.38 euro dividend per share, which corresponds to a 52% payout ratio. So we are what we have said we are in the 50% ballpark payout ratio. And for 2025, our guidance is very simple. In the I would say exciting environment we operate in. We are proposing to progress in term of segment operating income and we also want to deliver a strong cash flow in excess of 1.7 billion euro without excluding acquisition. So before moving into the question sessions, I leave the floor to Yves is going to give you more details.

So, good evening, ladies and gentlemen. To enter a little bit in details, I would like to share with you an assessment of our performance at 360°, starting with our environmental action plan. It deploys mainly on three areas. First, our climate plan, which has been enhanced, and we have more ambition than what we declared in the past toward 2030, and it has been validated by the SBTI. In 2024, concretely, our CO2 emission scope 1 and 2, so coming either from the production of energy or the purchase of energy, has decreased by 13% versus 2023. When we look at resources, our water withdrawal has decreased by 7.7% overall. And as mentioned by Florent, the rate of renewable and recycled rates has increased by three points versus 2023, from 28% to 31%. Last, in terms of biodiversity, our mainstay in our industry is natural rubber. And at the end of the year, 2024, 98% of the natural rubber we purchase is access deforestation free, according to the EDR, the European regulation that has been postponed by one year, but that will have been enforced from January 2026. All these indicators are of course embedded in our new sustainability report that will be published with our URD early April according to the European CSRD. Looking now at our performance in terms of people, First, I will rebound on Florence's comment about engagement. Our engagement rate at 84.7, increased by 1.2 points versus 23, which is probably one of the largest improvements we've recorded in recent years. At the same time, concrete proof of this engagement is that 57% of our employees subscribe to our shareholder plan, which is four points above 2022, and which is one of the highest rates in the market. Another element which is very important for us is the fact that versus 2021, in 2024, 17% of the managers, we have 17% more managers versus 2021 that have begun their career as manufacturing operators. And last but not least, we have announced early 2024 that we are looking to implement living wage threshold for all our employees across the group. And this engagement has been certified by Fair Wage Network at the beginning of 2024. So now moving to, let's say, more the profit performance. Let's first speak about the market. In 2024, the market and the sell-in market that we are publishing were pretty distorted by inflows of budget tires, both in passenger car and light trucks and truck tires. Some of these inflows were made in anticipation or either potential tariffs like truck tire in the first half of the year in North America, in the U.S., coming from Thailand. Or in the second half, the prospect of the implementation of the EUDR, the Deforestation Regulation in Europe, pushed some Asian producers to anticipate and push tires toward their distributors ahead of the implementation of this regulation. So that has modified a little bit the profile of the market. And at the same time, all across the different segments, so in passenger car, in truck, but as well in the speciality markets, from the second half of the year, we have seen most of the original equipment market dropping. And overall, passenger car tire market has grew by 2% over 2024, with original equipment at minus 2 and replacement at plus 4. And the drop of original equipment is mainly concentrated on the second half of the year. In truck tire, the market grew by 1%, with OE down by 7%. This figure for truck tire is good, China market, and replacement increasing by 3%. The Chinese market itself has decreased by 5%, which is important given the size of the market and the capacity installed in this country. The mining market has slightly decreased, not because of the consumption, but because most of the mining operators have reduced their inventories. And we consider that at the end of the year, they have been, let's say, at a more normative level than at the beginning of the year. In the specialities, we have seen a very sharp drop. in agriculture and construction, particularly in the original equipment. Replacements were, let's say, more stable or slightly growing, particularly in mature markets. OE for agriculture has been down by 20%. In construction, it's minus 15%. So this market has been severely impacted by the original equipment sales. At the same time, we have seen material handling also a little bit soft when aircraft tires continue to grow. Two-wheel market is now recovered after two years of overstocking and destocking. And the polymer composite solution has been overall slightly smooth in 2024. So in that context, our sales were down by 3.1% at ISO exchange rates with an important volume decrease by 5.1%. A price mix plus two with a very strong mix effect of 1.9% over the year. both coming from the enrichment of our product mix, but as well from the different evolution between replacement and original equipment market. Non-tire market has been overall stable if we consider that the scope effect is coming from FCG. And we have been impacted negatively by the currency, minus one point, which lead us to end the year with sales of 27.2 billion euro. I want now to zoom on the third segment, the speciality segment sales. And if you look, Passenger car failures have been, our sets have been, volumes have been minus 1.7, truck minus 6, and the specialty segments, the RS3, minus 9. From these 9 points of decrease, 7 are coming from our beyond road activity, construction, material handling, agriculture, of which 3 quarters is basically coming from original equipments. and the remaining quarter from the replacement, particularly in construction. On the mining side, which represents around 25% of the overall specialty business volume decrease, in fact, if we isolate our growth in South America, North America, and Asia, particularly Australia, Indonesia, In fact, most of the volume lost are coming mostly from destocking from some customers, such Anglo-American in South Africa, the stop of mining operations in Panama, copper mining, and the implementation of more stringent export control measures toward particularly Central Asian countries. In term of operating margin, so the group at ISO exchange rate succeed despite the very important volume lost to stabilize its operating margin at 12.6%. With the 70 million currency effect at current Forex, it's 12.4%. And looking at the different effect of this bridge, so the 28 million of the scope contribution is mostly coming from FTG. It's a free quarter of the year, basically. The volume, the huge effect of volume is basically two-thirds coming from the loss of volume in margin and one-third coming from the under-absorption of fixed cost in the factories. We have a very strong price mix of plus 438 million, of which most is coming from the second half of the year, around 350 million. At the end of the first half, this effect was plus 84. Raw material costs positively contribute to this bridge, with a very positive effect in the first half and a negative effect in the second half, as well as manufacturing and log costs, which are nearly neutral over the year, but were strongly positive during the first half with the decrease of energy and logistic costs. For example, the maritime shipping cost in the first half when in the second half the impact of inflation has altered our manufacturing operations. LG&A grew basically according to the pace of inflation with a slower growth in the second half of the year than in the first half. Non-tier contribution is slightly negative due to very high 2023 basis. And in the other, you will mostly find the effect of variable bonus from one year to another. So this year, it's positive because we'll have less bonuses than in the 2023. Looking at this performance by business segment, I would like first to mention that we have reclassified the two-wheel business, which is more B2C, so a consumer business, along with the passenger car business. So the first segment now includes both passenger car and two-wheel. And overall, this segment has been able to maintain its operating margin at 13.1% versus 13.2% in 2023. The main improvement is coming from the second segment, the transportation business, which despite very strong negative volume, I've seen mostly coming from the original equipment sales and the fact that they have repositioned their priorities on areas where we can really create value. So they have benefited from a very strong and positive pricing policy, as well with the contribution of machine-connected mobilities, which is positively contributing to this activity. Last, our SR3 performance, which is the operating margin decreasing by 2.7 points, have been penalized by the performance of our mining and beyond-road activities, and particularly the beyond-road activities, which has been impacted severely by the original equipment market impact. So facing this situation, I would just like to remind that the group in the past 18 months, since basically October 2023, we have announced nine capacity adjustments plus the disposal of our compact line businesses and construction businesses, pious construction businesses in Sri Lanka. Altogether, these nine operations are contributing to a withdrawal of 10% of our standard passenger car tyre capacity and 15% of our radial track tyre capacity in the world. And in parallel, the group is, of course, continuing to accelerate on the digitalization and its artificial intelligence roadmap, particularly in manufacturing, where we are now starting to get very concrete contribution from these projects. As we might expect, a question about tariff and our situation, particularly in North America and in the U.S. I just would like to remind that Michelin has started its manufacturing implementation in the U.S.A. 50 years ago, in 1974. And we operate now 35 manufacturing sites in the U.S., of which 20 are tire-related sites and 15 coming from the composite polymer solution division. We employ 20,000 people in U.S., and Michelin has been awarded several awards related to the way we are managing and our people management system, the last one coming from Forbes in 2024. USA represents one-third of the group sales, and this one-third of group sales are procured by 70% of local production, so US production servicing US market. At the same time, we should not forget that, for example, our mining facility in South Carolina is exporting more than 80% of its production everywhere in the world. in America, but as well in South, North America, and Asia. That's basically a way to share with you that we have a very strong local-to-local strategy, and it's a concrete example of the way we are operating in the largest market for the group. Now, moving toward more, let's say, cash consideration, our free cash flow performance is the second best performance in the Group history after 2023, as we land with a €2.2 billion free cash flow at the end of 2024. mostly coming from a very strong EBITDA at 19.7%, 5.3, nearly 5.4 billion euros. And thanks to a very good management of our working capital, despite inflation in inventories at the end of the year, with EUDR implementation, natural rubber and butadiene price inflation, we have been able to decrease the overall value of our inventory by 165 million euros. At the same time, we have seen a decrease in our financial costs, and some improvement in the way we are managing our capital expenditure along the year. So overall, we are very satisfied with this free cash flow contribution, which represents a cash conversion ratio above 40%. Our rookie, despite the impact of segment operating income, decreased and lower contribution from GV and Associates versus 2023. And in 2023, we record the sales of half of our stake in Saint-Bio and the investments by our TBC joint venture in North America of its retail companion division. we have been able to maintain our free cash flow above our rocky above the 10.5% threshold defined in 2020. So all that allow us to keep a very strong balance sheet with a very slight decrease of our net financial debt by nearly 170 million. and a gearing at 16.7%. All our ratings have been confirmed and maintained by the rating agencies. Now let's look at 2025 and our guidance. Our 2025 markets are plagued with a lot of uncertainties. And looking at both passenger car and truck tire market overall, we consider that this market will be either flattish or slightly positive, but with two very different patterns versus 2024. First, we are expecting a different seasonality between the first half and the second half. We consider that the first half, both for passenger car tires and truck tires, original equipment market will continue to be depressed during the first half of the year. And we are expecting, at least for truck tires and probably as well for passenger car tires, a rebound during the second half of the year. When, at the same time, we should record a slight growth in replacement markets. So that will be, let's say, the two different patterns versus 2024. We are also expecting two-wheels markets, mining, aircraft, and polymer composite solutions to record slight growth. In our Beyond Tire activity, agricultural constructions, we think that original equipment will continue to be depressed during most of the year. We might record a rebound, but in the very last months of 2025, when we look at, let's say, past cycle, we consider that we should recover volume growth in OE, for example, in agriculture and construction, but most probably end of 2025 or early 2026. So in this very uncertain context, market that will remain volatile, we intend to hold on our 2030 cap. and on the strengths and the key assets that Florent mentioned in his third slide, the quality of our team, the strength of our brand, our innovation potential, and the quality and the performance of our product and services. Therefore, we will continue to try to grow on the area where we can create value and where it matters so that very we'll continue on this on this journey while at the same time accelerating our product renewal and product innovation we have a lot of new launch new product launch plan in in 2025 The new Primacy 5 range has been already announced in passenger car, but there will be other announcements later on. In truck tires, we have a new remix retreading offer in Europe. New ranges planned both in Europe and North America. And as well in construction and agriculture, we have new products that are going to be launched in 2025. We will pursue, of course, the growth of our machine-connected mobility activities and polymer composite solutions. And we want to continue to achieve our industrial footprint roadmap that has been following the announcements made in 2023 and 2024. So with all these cards in hand, we are looking, as Laurent mentioned, to deliver a higher segment operating income at ISO 4X versus 2024. And we are as well aiming to improve, to deliver a free cash flow above 1.7 billion euros before any merger and acquisition transaction. So thank you for listening to this presentation, and I think now that we can open the Q&A session.

Thank you. Ladies and gentlemen, if you wish to ask a question, please press star 1 on your phone keypad. Please ask your question in English. The first question is from Martino de Ambrogi of Equita. Please go ahead.