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.

Thank you. Good evening, everybody. My first question is on the specialty, which in the specialty division, which in the second half recorded 11.6% return on sales. Just to understand what is your expectation for the current year? And if I do the math correctly, including the motto, which I should... Correct me if I'm wrong. Half a billion of sales with low single-digit return on sales. Profitability, including motor, would have been lower than 10%. So this is my first question.

Beyond two-wheel, I think you probably need to revise your calculation because actually 2024 has been a record year for two-wheel activity. So... And then for the segment three, what we give as more detailed the situation. Mining, we had a lot of one-off in 2024 and we expect 2025 not to have those one-off and therefore the structural underlying activity in mining should be much better in 2025. In Beyond Road, We have some restructuring to do, and the OE market, as Yves mentioned, should recover towards, at best, the end of 2025, presumably early 2026. So that's why we don't forecast what segment 3 is going to be, which we expect mining to be doing. Much better aircraft to be very strong and we expect beyond road to recover slightly. However, we would not be completely in safe place before 2026.

Thank you. Back to the motto, I was looking at last year adjustment compared to the last year results and now restated. And at least last year seemed to be quite low, the profitability for the motto. May I ask you more or less what could be taken into account for this division?

When you say last year, you're talking 2023? Yes. 2023, yes, it was a difficult year for two-wheel because of the reason we had a lot of destocking. Right after COVID, you had a lot of stocking happening everywhere, and it took two years to purge that. So it started in 2021, and it took two years to purge. So 2023, you had a lot of stocking, and the performance was not strong. In 2024, the performance has been much better. And actually, for this activity, 2024 has been a record year.

Okay, thank you. And just a very follow-up on the guidance, the steel tariffs and these kind of things are at least what is already effective is included in your guidance?

What is already effective but implemented is in the guidance. The rest is we have to wait for what will happen. Thank you.

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

Hi. Good evening, everyone, and thanks for taking my questions. The first one, I really just want to try and understand, you know, what is built into the floor of the guidance and what the potential, you know, upsides are. So, I mean, on the scenarios next year in terms of volumes where passenger car, truck, end of the year in a negative, that's kind of the lower end, does that already include some expected disruption from tariffs? And then similarly in the specialty part, given how easy the comp is, for it to be negative, would that be a further step down in absolute volumes rather than simply stabilising at the current levels?

So... So... The question about conservatism in the guide, our aim with our team is to over-deliver on what we commit to. So I leave you to judge whether it's conservatism or not. Now, about the tariff and... Michelin over the past five years has weathered many different storms and we've always come came with solid results so we have to wait and see what is the real happening in terms of tariffs before we can make any forecast. Today, we don't know. So at this stage, we have just put in the guidance what we know for sure. And the rest is speculation, basically.

Thank you. My second question, Florian, I listened to your appearance in the Senate committee, and the interesting disclosure, I think, was that the production cost that you have today in Europe is almost twice that there is in Asia. Even if you aren't directly competing with the Chinese brands in a lot of the premium markets, does that impact the pricing power of the businesses? you know, in Europe, if we have cost inflation and natural rubber prices going up, or, you know, is there still ability to price? And, you know, also, I guess, do you have capacity in the right types of tyre production in Southeast Asia to potentially export into Europe, even if those are, you know, just done as a temporary measure?

So in Europe... To summarize on a worldwide basis, we were net exporter out of Europe and net importer in the rest of the world. Right now, what I've said is because of the cost structure in Europe, we cannot be in that position anymore. Hence, what we have done in restructuring, reshaping the production capacities is Are we done with all of it? I think we have done a substantial portion of it and the effect will be seen. It takes a while before we will get the full benefit and we will start to see some benefit next year and in the following years that will improve our cost structure in Europe and therefore our competitive activity. The pricing power is a different subject. Today, our brand is very strong. Our customers believe in our product. They trust our brand. They like the performance of our product. And that dictates the pricing ability we have. So I don't relate directly the cost to the pricing because we – We have been building a very strong consumer and customer relationship, whether it's in Europe or in any other part of the world.

Great. Thank you very much.

The next question is from Thomas Besson of Kepler-Chevreux. Please go ahead.

Thank you very much. I would start with a question your anticipation for volume recovery for specialty tasks in 2026, as I noted your confidence in meeting your 2026 targets, while Consonjus seems to have lost that confidence. The first question.

Yves, you want to answer? I have a lot of confidence in 2026, but some details with Yves.

I mentioned that in speciality we have two very different situations. We have the mining activity where in 2024 we are impacted by a one-off effect and there is no reason that this activity does not recover even starting in 2025 its previous volume. On the beyond road activity, keep in mind that for the agriculture of construction infrastructure business, nearly half of the business is coming from original equipment and the other half from replacement. Given the cyclicality of the original equipment market, which is due, for example, link for agriculture to farmers' revenues, and farmers revenues were very high, partly after the war in Ukraine, which inflated a lot of agricultural commodities, are down since the past two years, and it's impacted this market. But when you look overall the past 15 years, you have this kind of cycle of every 18 months, two years. So we expect that Normally, specialty original equipment market should be supportive in either the very last of 2025 or in 2026.

Now, overall, I take a rebound on Yves' answer on specialty to... 2024 has been really... Unusual with a very sharp decline in OE in almost every market we operate in tires. Passenger car, truck, beyond road, agricultural, material handling, etc. If I take passenger car, the mileage driven in the world is very stable, slightly increasing. Therefore, as we have seen a very sharp OE drop, in volume, it means that replacement has been somewhat slightly boosted, but it means that the vehicle part is aging. And it cannot age forever. So that's why we think there is a lot of confusion in the buyers of cars right now. And we anticipate that will be the case in the first semester in 2025 still. And we should expect a recovery in the second half of 2025. When we look at truck, in truck, the situation is we think that there has been a, we have seen a massive destructing across all industries around the world in 2024. As the destructing has happened, we think in 2025, if the economy behaves almost the same way as 2024, we are going to see some better activities for truck tires. And therefore, we anticipate that the truck, especially in North America, the truck OEM will recover in the second semester. And therefore, we will benefit from that.

Thank you. Can I ask you what we should assume for 2025 and 2026 in terms of cost savings or restructuring benefits of the various actions you've mentioned in terms of the capacity reduction? in standard passenger tires in trucks and the sale of your construction equipment business.

So, restructuring, basically, we believe that we should get the full benefits within, let's say, between two and three years. So, you will have nearly half in 2025. and another half between 2026 and early 2027. So if I look in terms of 2025, it should be around 120 million plus. Regarding the transaction related to Sri Lanka, it will be a transaction in three steps. When we will have the closing, we'll get, let's say, three-quarters of the amount that we are expecting. Then you'll have a three-year period where we will lease the brand Camso to the buyer, and there will be a lump sum at the end of these three years. And in the meantime, we have also some inventories that we have to sell to the buyer. So basically, you will have, I think, on a transaction of around $225 million, you will have $150 of cash coming in 2025 and the rest in the following years. And of course, in terms of... improvement in operating margin, it will follow this pace because as we have the inventory destocking for the, let's say, probably the next 12 to 18 months, we'll have the full effect by probably mid-2026 or end of 2026.

Thank you. Last question, please. You executed half of your share buyback in 24. I think the message initially was that it was a plan for 24, 25, 26. Given the strong cash generation we've had again in 24, is it fair to assume that you may finalize this buyback in 25? And is it fair to assume that you may announce more of this if no acquisition comes out during 2025.

So right now, as we speak, we stick to the plan. We said one billion in three years. And we've already done 500 million. But at this stage, it's too early to say something else. Thank you very much.

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

Good evening and thanks for taking my question. I will ask one at a time. The first question is on the restructuring, so the net cash impact on the free cash flow from the restructuring actions. So you have indicated that for the savings 120 plus for 2025, I'm just wondering if you can give us some indication on the free cash flow side in terms of net cash impact.

The net cash impact is in the range of 350 to 400 million in 2025. Most of the cash impact is in 2025 and 2026. There was already some cash impact around 170 million in 2024, but most of it is coming next year.

So 350 in 400 in 2020. Sorry, can you repeat, please?

Yeah, 350 to 400 million of cash out related to restructuring in 2025.

Okay, perfect. Thank you. And my second question is on the UDR. So UDR has been postponed by one year. Maybe I'm wrong, but this could provide the Asian players with a still competitive cost advantage. I'm just wondering if you share my view and if you can give us some highlights on your market shares evolution in SR1 and SR2 going forward. And that's the second question.

Thank you. EUDR has been postponed at the end of November, and it was supposed to be in force for the first of January. So, of course, we were ready. So now we have a 100% EUDR compliant way of sourcing our network rubber. Asian competitors, we don't know what they will be doing. We don't really compete in the same league. So we don't anticipate this to have a major effect on them nor us. This difference. Okay. Market share evolution in SR1. If you look at SR1, basically in OE... It's been tough on us because we are on platforms that we have chosen some platforms and those are the ones that are not really selling right now, but we are confident that they will be selling. So right now in OE and segment one, we share has temporarily suffered. In replacement, Where it matters, our share has been okay.

Perfect. Thank you very much. And the very last is on just housekeeping. If you can give us some rough indication on the raw material headwinds for 2025 and the potential gas on the forex. Thank you.

Yes, so the overall raw material headwinds, we are today assessing it at around 250 million euros, of which 100 million is coming from EUDR. as we have decided not to come back on our EODR policy because we have started to supply our factories in September with EODR certified natural rubber. Fortunately, the European authority decided to postpone the regulation, but we were ready. And we consider it doesn't make sense to stop to buy EUDR and to restart next September. So we stick to what we have decided. And we consider that it's also a question of accountability versus all the value chain, because you have to imagine that upstream, a lot of people have worked in order to be ready to comply with this regulation. So basically around 100 million about 250 of overall raw material.

Perfect.

I can imagine that on Forex it's a little bit more challenging to... But the Forex, we have, as I mentioned earlier, we have... One third of our sales in USA, nearly 40% of our sales in USD. So generally, when our overall structural position related to US dollar is long, Of course, there is an impact on, for example, European or Asian operations who are purchasing raw materials that are underlying on USD. But at the same time, we have very strong revenues in US dollars. So we don't make a lot of money. Of course, we are making some forecast assumptions related to the Forex. But the Forex, basically, the footprint we have is the footprint we have. Our customers are not going to move. So what we generally communicate is that one cent of variation of dollars versus euros represents roughly 30 million euros in operating margins.

Thank you very much. Very clear. Thank you.

Excuse me. This is the operator. In the interest of time, please limit yourself to one maximum two questions only per person. Thank you. The next question is from Jose Assumendi of JP Morgan. Please go ahead.

A couple of topics, please. On capacity, I'm, you know, very impressed with all the work we're doing there to take down capacity in the different sub-segments. Do you foresee to take additional capacity cuts beyond what you have already announced? Strategically, is there a need to take down capacity more in different sub-segments? And related to this, please, what is the year-on-year net cost savings you are targeting in 2025 from this capacity work? And then second, for me, you know, what stands out on mission investors or your entire company, so to say, SAF3. And, you know, you have been describing the different, you know, moving parts within SAF3. When do you expect this division to start finally turning the corner? I know it's difficult because there are so many end markets. Is there a point in time you think in the year we will start seeing that growth coming back? And very briefly, if you could just simply point, what are the biggest levers to get to that 80% plus margin? I guess it's volume, obviously. but anything you can highlight. Thank you.

So I think in terms of capacity, additional cuts, we have done, as you mentioned, a lot. I think we just have to make sure that those go to completion. And after that, of course, we are constantly reassessing our capacity, and we look at structural capacity versus what is happening right now. The year-on-year cost of it, I think... I mentioned it.

It's around $120 million for 2025.

And then on SR3, the levers to... I think mining really is performing very well, and the one-off should stay one-off, and therefore 2025 should be much better. And we don't have a growth issue in mining, provided there is no additional war, because we remember that the war in Ukraine has... cut a lot of our growth in mining. And now in Beyond Road, As we say, the restructuring, we have reshaped where we want to play through the sale of some of our compact line bias activities. And the rest of the restructuring in Beyond Road will take slightly more time. And we should see the effect more in 2026 than in 2025. And then aircraft is very strong. Thank you.

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

Yeah, thank you for taking my questions. I really just had one question, which was around CapEx. Firstly, could you just clarify what you're assuming for CapEx in your free cash flow guidance for 2025? And then in light of yesterday's interview, which was published in the Financial Times, Should we think about any incremental investments in North America or specifically the U.S. being in lieu or substitutional for investments in other parts of the world or could these investments actually be incremental relative to your previous planning assumptions? Thank you.

So I will answer the second part of your question and then Yves will give you some answers on the CAPEX for 2025. what I said in the Financial Times is looking at the evolution of tariffs across the world. Of course, we have a structural investment plan for the decade to come. So we can, based on what we see happening and whether it becomes structural, we can re- These are modular investments, so we can reallocate investments in order to optimize the return on that investment. So that's what I said. We have not said that because of the supposed tariff, we are going to massively shift our investment towards the U.S. We have said we have an investment plan for the next decade. Based on that, we can reallocate priorities according to what we see happening structurally, not announced.

We have a CapEx strategy which is based on a three to five years plan. We are in a heavy industry where we cannot just move CapEx from one site to another, one country to another like that. so it should obey to a long-term strategy. And we have announced during our last CMD that we are intending to spend around 2.2 billion in the next years, of which, by the way, 18%, for example, in 2024, and this proportion will probably be the same for the coming years, is linked to sustainability targets. either linked to the employees' well-being or decarbonization roadmaps, such electrification of our curing workshops or other, let's say, water withdrawal roadmaps, including the rate, the improvement in the rate of recycle and renewable material. So 2.2 billion is a range that we take in as an hypothesis for our free cash flow guidance for 2025. Very clear.

Thank you.

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

Hi, good evening. Thanks for taking my questions as well. I'll try to get straight to the point. My first question, should we expect Michelin to continue to underperform the broader SR1 and SR2 tire markets in 2025, or might that get to a point of stabilization? My second question is just on the SRI guidance. If we annualize the run rate for H2, claiming somewhere around 3.1 to 3.2 billion, if you were to annualize that, And so the 25 guidance implies at least a 200 million improvement on that level. Could you please give us a sense for the main building blocks that you're looking at to help achieve that? Because it doesn't appear at first glance that it would be coming from volumes. And so the only thing I can kind of surmise is that it's going to come from better mining volumes. And so, you know, can you confirm that the margin in mining is stronger than the underlying margin in the other businesses in SR3? And then maybe just one final question just to add to that. How do you see the saving of segment operating income in 2025 between H1 and H2? Thank you.

Okay, so underperforming markets. Again, I consider there is nothing truly structural in our share loss in segment one. We had some platform that did not perform well, but... Those platforms, we are sure, will perform well in the future. So we see those things as temporary and not structural. And in replacement now, as 65% of our volume in segment one are 18-inch plus, and that's a growing segment, and we are growing at the pace or faster than the market pace, we anticipate that this... What we have seen for the past few years will not be the case in the next few years.

So regarding the guidance, the guidance has been built on the hypothesis that we should have some rebounds in volume in the second half coming from original equipment for SR2, SR1. And at the same time, we have a reference versus 2024, which is completely reversed. So basically, we expect 45%, around 45% of the segment operating income to come from the first half and 55% on the second half. which is, by the way, if you look at our historical results, the normal patterns of normal year, if I can use this terminology. But we should have a complete reverse seasonality between H1 and H2 than in 2024. Thank you.

And then maybe just very broadly speaking, the implied growth of around 200 million in the guide for this year, is that driven by better mining, expectation of volume growth on a full year basis, or is there something else that's going to contribute to that?

It's a mix of... In the CMD, we expressed very clearly that we have four levers for operating margin improvement. The first one is a mixed effect that will continue. And we should not forget that we're at 65% of 18-inch and above tires at the Michelin brand in 2024, plus 4 points versus 2023. And there is no reason that this trend will not continue. The second one is a competitivity measure that we already mentioned. The third one is the contribution of the mining and the SR3 turnaround. And the fourth one is, of course, the contribution of non-tire activity, both machine-connected mobility and composite solution polymers, polymer composite solutions.

That's very clear. Thank you.

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

Thanks. Good evening, Florian. Just one for me. If I think back to the bridge you just talked about to the 26 SOI target, Nix was clearly the largest driver. Can you help us just think about the phasing of Nix benefits in 25 and 26 to get to that 4.2 billion number? And then also maybe more a qualitative kind of thought, just how we can think about that Nix as being within your control?

We can. So I'm not sure I rightly picked up the first part of your question, but there is several mix. The ones that are under control are the product mix, the mix related to our brands, our different brands. Probably the one which is a little bit less on the short term under our control is the one between markets or business lines. So, it has been very mixed effect, for example, between original equipment and replacement was very strong positively in 2024. Of course, it's also a compensation of the huge impact on the volume we had negatively on the OE side. So, definitively, the mix which is related to our offers is on our hand. the mix related to, let's say, short-term market variation is less under our control.

And amongst those mixed, the segment mix, we expect to continue to grow our segment three versus the rest of the segments. And the segment three is by far the most profitable one. So that explains why we are confident in our 2026 commitment. Thank you.

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

Good evening. Thank you for taking my question. It's just a follow-up on the volume answers that you gave already. Considering the statements that you made also on product rollout and market distortions in 24 and your comment that the market share loss is nothing structural, should we consider your volumes in 25 already to be far closer aligned with the market again than it was in 24. So decent step up in that regard, or are you unwilling to quantify this for now? Thank you.

We expect in 2025 not to have all the unfortunate effects that we had in 2024. At OE, as the volume sold by the OEMs gets back to a better level, we expect the platform on which we are to be performing. And on replacement, in segment one, it's okay. In segment two, we think what has happened and are refocusing on markets where we want to play, I think has been done. And in segment three, Back to what we were saying, we expect the things to normalize better. So we expect in 2025 not to have all the, quote-unquote, surprises that we had in 2024. Now, something that you've mentioned and that is sometimes not sufficiently understood. You had a lot of movement in inventories recently. due to anticipation of movements in tariffs or things like that, or regulation or penalties. And therefore, we have seen, especially in the Tier 3 volumes, a lot of movements of inventory around the world. We anticipate that in 2025, we will have a better vision of what is the state of tariffs, penalties, regulation, etc. And therefore, those flows that artificially boosted the markets will be less a factor in 2025. So interesting is if you look at our global worldwide competitor, they have a similar pattern to us in 2024 when we look at volumes and the market.

The last question is from Stéphane Benhamou of BNP Paribas Exxon. Please go ahead.

Yes, thanks for taking my question. Just to follow up on the free cash flow guidance, I would assume that based on your CAPEX experience, which is probably in line with 2024 level, this would imply a working capital headwind in terms of working capital in 2025. I would assume that the

volume recovery would translate into maybe a higher inventories am i right in some way you are right but at the same time in during the last cmd we announced also that we have ambition to improve our overall working capital we we are at a quite a good level in terms of payables and receivables, but we consider that we can probably run our business with lower inventory. So we have proven that in 2023 and 2024. So we have still, let's say, inventory reduction or improvement or better management of our inventory in 2025. And it should compensate the volume recovery that you were mentioning.

And maybe to add to Yves' comments on... Michelin is making structural progress. And unfortunately, in 2024, you cannot see it because we have had a lot of headwinds in front of us. But those structural progress are there. As soon as the market conditions... is you're going to see the effect both on cash flow and results.

Thank you.

Gentlemen, this was the last question. Back to you for any closing remarks you may have.

Well, thank you very much. And we wish all of us a nice 2025.

Thank you very much. Bye bye.