Michelin Cie Gen Unsp/Adr

Ladies and gentlemen, welcome to the Michelin 2025 first quarter sales conference call. I will now hand over to Mr. Yves Chapeau, General Manager and Group CFO. Please go ahead, sir.

Thank you. Good evening, ladies and gentlemen. Following the publication of our first quarter sales data, I will try during the next 15 to 20 minutes to give you some colors about these figures and then to project ourselves over the full year. First, when we look at the global tire market, they have been demonstrating very different patterns during the first quarter of 2025. Original equipment market have dropped across all business segments, with the exception of the passenger car tire original equipment market in China, which was supported by government subsidy. If we look at Europe and North America, both passenger car, truck and bus, and agriculture's original equivalent market stepped down at a double-digit pace. Minus 13% for PCLC European OE market, minus 12% for truck tire OE market, minus 14% for truck tire oil market in North America. And that has heavily impacted our top line, obviously. The second element is that replacement markets have posted limited growth in the context of tariff announcement and some import anticipation. So in Europe, You see that the passenger car market grew by 6% in North America by 1%. In China, on the contrary, due to a very shy construction trend, the market decreased by 1%. And as far as the truck market is concerned, outside China, where we have a very limited presence, the market grew by 1% for replacement in Europe and decreased by 3%. In North America, we have to keep in mind that during the first half of 2024, there was a huge inflow of tires coming from Southeast Asia in the U.S. in anticipation of tariffs that have been implemented in September last year. Specialties in the specialties market, all other markets like mining, aircraft, and in some aspects, polymer composite solutions are posted as a stable or slight growth outcomes. So that's basically the situation of the market. And in this context, our sales decreased by 1.9% in value at 6.5 billion euro for the first quarter, with three major effects. The first one is a volume decrease by 7.3%, mostly due to the drop of our original equivalent market sales across all business segments. The second effect is a very strong price effect of 2.3%, of which nearly 40% is coming from indexation closes, and 60% to the aging impact of inflation, such EUDR on some raw material price increase that we had anticipated at the end of 2024. And the last effect is a strong mixed effect of 2.5%, due to both favorable business, market, brand, and, of course, product mix. Overall, when we look at our volume, our sales dropped by nearly 20% in original equipment across all segments, and when in replacement, the sales volume were slightly growing. Looking at the top line for the different reporting segments, you see clearly a very different pattern between B2C and B2B activity. SR1 achieved revenue growth despite negative volume effect, and thanks to the replacement sales, which were positive for our global brand business, and a strong mixed enrichment On top of that, our two-wheel business posted a double-digit growth during the first quarter of 2025. In the second segment of transportation, truckers, buses, the sales were hit by the sharp decrease in original occupant volume in Europe and North America. In replacement, our volume has increased in the key geographies like Europe, North and South America, and we have even been able to regain market share in the replacement market in this geography. You can observe that the second segment benefited from the largest price-mix effect among the three segments due to both positive market mix between OE and And due also to the strong price actions that has been taken during the second half and the whole year of 24, but particularly in the second half. The reporting segment number three sales are down by 7.3%, of which 9.6% are coming from volumes. primarily due to our beyond-road activity. Original equipment markets have sharply decreased in agriculture. Mining sales are stable, and the one-off effect of 2024 are clearly behind us for mining. Aircraft tire sales are progressing well, and our polymer composite solution sales are nearly stable despite adverse conditions in some end markets such as the conveyor belt or the marine activities. So now looking forward for the full year, we are living obviously in an environment that has never been so volatile and unpredictable. So we are expecting a slight improvement in OE markets for SR1 in H2 versus H2 2024, which was already starting to decrease, and stable replacement market in SR1. Truck tire market should post a positive trend in H2 due to a favorable comparison with the second half of 2024. We have seen these markets dropping already since July last year. And replacement truck tire market should post a positive outcome in the second half of the year. Of course, these hypotheses are subject to the evolution of global GDP in the context that you know very well. On the speciality side, we are not expecting major change in H2 versus H1, just taking into account that original equipment market have started to drop sharply at the end of Q2 last year, so with the H2 data were heavily penalized both in construction and agriculture in the second half of 2024. I mentioned already 2025 is characterized by its unpredictability and its volatility. And in such environment, the group is more than ever relying on its innovation capabilities. This is translated by a lot of product renewal across the different tire product lines. So as you can see on this slide, on the passenger car business or SR1, we have two major range renewal in the off-road segment, the BF Woodridge CO3, which is already ranked number one by Tire Rack in the all-terrain segment. In, let's say, the core of the market, the Michelin Primacy 5, which has been called Tire of the Year and received a Tire Technology Award. This product is generating 18% additional mileage versus its predecessor. In truck-tire, we have launched a very important product line, the machine X-Line NRG, with very important fuel savings, 0.6 liters per 100 kilometers, all the capability provided by a machine-connected fleet, which help the fleet to reduce their cost and improve their efficiency. In the same segment, we are pleased to launch a new generation of retread tires, so Michelin Remix 2, which will offer to its customer a minus 23% total cost of ownership versus a single tire life. That illustrates very well the commitment of the company for already a long time to the circular economy. In specialty, I will mention two major innovations, new products. One with the Michelin X-Crane 2, which is improving its load capacity versus the previous range by 8%. And this activity, this product, is a key asset to answer safety and efficiency demands in the construction and infrastructure segments. And last, the Michelin Cerex BIB2 with a minus 45% ground pressure, which is decreasing ground compaction, therefore improving the outcome of the land thanks to the Ultraflex technology. Beyond this product plan renewal, the group continues to partner with OEMs to offer the best tire with the best balance of performance. And you have here a sample of the recent homologation in the diverse the vehicle segments and these innovations and these new homologations are as well supported by data and artificial intelligence innovation first with the machine smartware algorithm which helps drivers to predict the moment they will need to change their tires thanks to Algorithm and software that are 100% machine-owned. And the partnership with the Brembo in order to improve braking capabilities and therefore the safety of passengers thanks to digital connection between the data provided by our algorithm, our understanding of the tire behavior and road.

with the braking systems of the vehicles.

Last, for our polymer composite solution activities, we are actively accelerating innovation synergies for mission-critical application. You can see here on this slide a wide range of widespread of ceiling applications from an airplane. from the flight deck panel to cargo compartments, more detectors, or hydraulic control anti-ice valves. So our ceiling division is present on the very different parts of the airplane. At the same time, we are addressing fugitive emissions from petrochemical industry. thanks to PFAS-free seeding solutions that we are starting to launch in the market during 2025. And last, I would like to mention Resicare, our subsidiary working on non-toxic resins and glues, which soon will start to build its first industrial facility to produce critical biosource molecules. So in this time of turbulence, we consider that the group has a very strong profile. First, we have very agile and engaged teams with an engagement rate of nearly 85% in 2024. We have demonstrated our agility to cope with different crises, the last one being the Red Sea crisis at the beginning of 2024. in order to re-resource and redirect some of our containers. Overall, we have a very solid balance sheet with, over the last five years, cash generation, which was systematically above 1.7 billion euros per year, gearing at 17% at the end of 2024, and a rating which is now consistent across all rating agencies with A at Fitch, S&P Global, Scopes, and A2 at Moody's. S&P Global and Fitch Ratings have upgraded our rating in the last month. From a supply chain structure standpoint and looking particularly at the U.S. market, which represents 30% of our sales, 70% of what we sell in the U.S.A. is coming from, is built in the U.S.A. And this percentage is going up to 85% if we include Canada. And 70% of what we build, tires that we build in the U.S.A. are sold in the U.S.A. So it means that 30% are exported, and it's mostly mining tires that are exported to Canada, to South America, and to Australia for our mining customers. Last, the group profile is pretty balanced, both in terms of geographies between North America, Europe, and the rest of the world. We have as well strong balance between our different businesses. exposure to OE versus more consumer driven or GDP driven or commodities driven business segments. So the context, we are well aware that the context is increasingly uncertain. And in this context, we consider that Most of the tendencies that we have indicated during the first of the yearly call of 2024 in February are still present. Some of them, of course, are confirmed, such the uncertainties into the tariff, but as well the fact that our mining and wind are now behind us, or our manufacturing roadmap which is now strongly implemented, as well as our strong product plan. Some risks are increasing due to the uncertainties with the tariff and the underlying growth of some destination markets, but it's more or less a macroeconomic risk. We believe that some of the EU markets will start to reverse in the second half, maybe not at the pace we were expecting at the beginning of the year, but the trend is here in some geography, less in some others like North America. So having computed all these elements, we have decided to maintain our guidance for the full year. So we expect to generate at ISO 4x segment operating income, which was above the one we published in 2024, and the free cash flow above 1.7 billion euros for the full year before, of course, merger and acquisition. So, after these few comments, I suggest that we open the Q&A session.

Okay, thank you very much, sir. Ladies and gentlemen, if you wish to ask a question, please press star and one on your telephone keypad. Please ask your question in English. The first question comes from Harry Martin of Bernstein.

Hi, good evening. Thank you. The first question I have, just on the guidance, you have the caveat in the The presentation is set assuming that trade tariffs and regulations as known of the date of the release. So I just wanted to clarify that the targets are achievable assuming the 25% car parts tariff comes in from the beginning of May and that all of those tariffs stay in place for the full year. The second one, if I can ask about pricing in the replacement market. I mean, clearly in the U.S. there's a coming situation where players with zero local production need to put through significant price increases. You have the choice between matching those or pricing lower and gaining some volume share. I understand if you don't want to disclose what the price increases are, but can you help just help us understand the framework for how you'll decide which segments and by how much you'll raise pricing? And then a final question, just on the agricultural tire business, you mentioned in the report some signs of tapering of the decline at the end of the quarter. So what are those signs and what is the outlook in ag for the rest of the year? Thank you.

Thank you, Harry. So of course, the guidance has been built with the information we knew about the tariff. But as you have seen, the information are moving practically every week. So for the time being, I will not elaborate furthermore. We have taken account what we knew as of today. And of course, I mentioned the agility of our team and the empowerment of our team because we consider that we have... Our teams have all the elements based on facts and not necessarily on speech or declaration to adjust and to demonstrate their agility. We have already made sure, for example, that some flows, either raw material or some components between some countries have been redirected. for example, between U.S. and China, U.S. to China, or minimize in the other way in order to protect ourselves. Regarding prices, of course, the question you mentioned is... First, I will not answer specifically on the prices. What is important for us is to understand... and again, it will be done when we will know what is going to be implemented in reality, is what is our position versus our competitors. First, primarily our premium competitors, but as well, it can have an impact on non-pool brands that are important. So here also, we will be very pragmatic and see what will be the impact, because the magnitude of the impact yet is not fully known. And I think at this stage, for me, it's too early to comment on any position, either price increase or not, depending on the competitive environment. tires are concerned. We have seen a daily... The original equipment market has been dropping very sharply in OE. It's a most double-digit decrease. We are nearly at... minus 25% in OE for the year to date. And we expect a full year landing rather in the minus 10, minus 12. It's of course linked to the season, the summer season. But for the time being, it's our expectation regarding the market in ag.

Thank you very much.

The next question, sir, is from Akshat Kakar of J.P. Morgan.

Thank you, Akshat, from J.P. Morgan. Three questions from me, please. The first one on volume, you clearly highlighted in the release that the minus 7% at the group level was driven by OE. Could you just quickly remind us on what proportion of overall sales are linked to OE versus replacement? And as of today, what are your current expectations for volume development in the first half versus the second half? Omishlin, please. The second question is on inflators and cost inflation in 2025. Could you just share your current assumptions on raw materials, inflation from sustainable sourcing, transportation, or labor as a total bucket? How should we think about cost inflation in 2025, please? And the last one on FX and your 2025 outlook. There's obviously increased volatility in currency markets and between different currency pairs. Could you just help us understand the main translational and transactional exposures that you have and how are you thinking about the profit impact for this year, please? Thank you.

Okay.

So volume environment, SL1. Roughly 20% of our cells in volume are OE and 80% in replacement. Proportions are very close in SR2. Of course, it varies from one period to another, but it's a range of 20%, 25% OE, 75% to 80% replacement. And in agriculture, for example, it can be up to 50-50%. construction as well. Contrary in mining or aircraft, regional equipment has a very minor share of the global market. I have mentioned we are expecting the replacement market to stay either stable or post a slight growth. In the current GDP context, we are not expecting a huge growth of replacement market in the second half. We're expecting a slight recovery in truck tire original equipment market in the second half, particularly in Europe. Probably later on either at the very end of the year or early 2026 in North America. And the overall OE market in the specialities should probably start to grow not only in 2026. From that standpoint, we are consistent with what we have shared during our 2024 full-year call. Regarding inflation, so we were betting on a raw material increase of around 200 million euros for the full year, of which half is coming from UDR, so the European regulation regarding deforestation, and roughly a similar amount on the other elements such as logistics and labor costs. Of course, you have probably seen that some raw material have posted a sharp drop following the U.S. administration tariff announcement early April. That's a case of natural rubber, which price dropped by 30 cents in basically one week. But it will have consequence only on our cost of goods sold probably during the last four months of the year, given the shipping time and the our inventory structure. In the current context, we might have, let's say, less inflators partially in the second half than expected than what we expected at the beginning of the year.

The next question.

I'm not sure I I understand the third question.

Just the FX impact on profits. How are you thinking about transactional and translational exporters for the business?

Yeah. So all transaction FX are hedged within the company. The economic or the strategic edging exposure is mostly due to the US dollar so due to our let's say strong presence in let's say US based markets partially compensated by the fact that 60 to 70% of the raw material we are acquiring are quoted in USD So in all-in-one, we consider that one cent of variation of the USD is triggering 30 million euro of EBIT variation.

That's very helpful. Thank you.

The next question is from Michael Fondokidis of Odo.

Yes, hi Michael from Odo. So two questions on my side. First, could you help us understand better how do you see the year in terms of earnings seasonality between H1 and H2? And has this changed compared to the 45-55 that you mentioned in February and that could include or exclude FX? Just tell us. And second question, sorry to come back on the pricing environment, notably in the U.S., but Goodyear announced a few days ago a plus-four, plus-six percent increase in U.S. and Canada, and they said it was linked to rising costs, given what you just said, and that your footprint and tariff exposure does not look very different versus them. Question is, do you see similar pressure on your cost, and does the need to follow them or not necessarily? And more generally, maybe how should we think about the price component for Michelin in the coming quarter versus the plus 2.3 that we saw in Q1? Thank you.

Thank you, Michael. Seasonality of our results between the two semesters should come back. From that standpoint, 2024 was an abnormal year. We'll come back to, let's say, pre-2023 pattern with a very stronger second semester versus the first semester. Generally, the normal pattern is 45% H1, 55% H2. It might be 33, 57, but we will be globally in this range. Regarding prices, so we have already posted a very strong price effect in our Q1 sales. As I mentioned, 40% of it is coming from the raw material indexation clauses in our long-term contracts, and 60% is coming from price increase that has been implemented during all over 2024, but particularly during the last months of 2024, when we have seen some inflators, the one due to UDR, but not only. I just remind you that the price of butadiene and natural rubber has constantly grew over 2024. So it will translate in the cost of goods sold, at least in the first half of 2025. I will not comment on our competitors' decision. On our side, of course, our policy has been very clear, but if there is an inflator that we are obliged to be, we will do our best to manage it and to pass it through to the market. I have no, I will not comment on any of our competitors.

Okay, thank you.

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

Yes, good afternoon and thanks for taking my questions. The first one is again on volumes. The decrease in volumes was rather strong in the first quarter. Should we expect the volumes will keep negative also in the second quarter, maybe with some volume recovery in some areas? Just a check on this side, if you can. The second is an out-of-keeping question as for indexation close that inflated the price effect. Should we expect... How long should we expect to see the indexation close? Still in the second quarter and then no more? Or any highlights would be useful. And the very last is on the restructuring actions you are implementing. I remember that in the last call, You highlighted 120 million of savings. Is there any change on this side? Are you accelerating or are you expecting these savings could be more back and loaded? Thank you very much.

Okay. Thank you, Monica. To come back to your first question, Volumes should turn positive in the second half, and we expect that volumes will still be negative in Q2, but in a lower trend than in Q1. So to share with you a figure for the time being, we expect maybe minus 2, minus 3 in Q2, and positive volume outcomes during the second half. I did not mention it during the call, but we have seen an improvement in the volume trend between January, February, and March. And we expect that to continue over the following month. As a price effect and indexation is concerned, As we mentioned, we noticed it last year, we have very strong inflators, particularly in butadiene, some raw materials such as butadiene, such natural rubber, by EUDR regulation, which will probably lead to nearly 180 of indexation impact over the full year, of which two-thirds will occur during H1 and one-third in H2.

Perfect. Thank you very much.

Thank you. Thank you, Monica.

The next question comes from Thomas Besson of Kepler.

Thank you very much. I have a couple of questions as well. Firstly, could you confirm that you effectively said your OE volumes were down 20% in Q1 overall?

Yes, yeah. At group level? Yeah, at group level, yeah.

Okay, so can you really explain that a bit more partially for the SR1 because your geographic weighted exposure and the OE replacement exposure you suggest should not have driven such a big decline? Do you have a specifically negative client mix on top of the geographic mix or? Why were your volumes down so much specifically in SR1? Were you particularly exposed to Stellantis or Tesla or other makers that happened to have cut production more than the others?

Yes, so it's a bit of both. We have, of course, the geographic mix as we were historically more heavily exposed to North American and European OE markets. But as well, as you mentioned, we have a combination of customer mix and model mix. So as we mentioned in the past, we have been probably overexposed to some OEMs, particularly on electric vehicles, that have sold less than expected during the first quarter. But we have primarily a strong mix regarding customer mix, You mentioned Stellantis, but we can mention as well Ford or Hyundai and, of course, Tesla as well.

Okay, thank you very much. Last question. On the non-tar business, we were used to see this business growing. I think your view and the reason why you've grown it is because it's supposed to grow mid to high single digits annually. When do you expect this business to start being positive again? Should we see that during this year or should we expect next year for the turnaround? Thank you.

First, I recall that the non-tire business has been posting very high growth between 2018 and 2023. The first year where sales have stalled was in 2024 and in the first quarter of 2025. We expect a form of recovery probably starting in the second half of the year, but this activity for us is still very relative in terms of operating margin, and it's including relative for the third reporting segment, and not only at the group level.

Thank you very much. Thank you, Thomas.

The next question is from Martino D'Ambrogi of Equita.

Thank you. Good evening, everybody. The first question is on the tariffs, just to double check. I clearly understand the picture is still foggy, but in the worst case scenario, would you need the sizeable adjustment in your footprint and in case by how much and how quickly could you increase your capacity in the US if needed?

I don't know what you mean, a sizeable adjustment in the footprint, but as I mentioned, we have 35 factories in the U.S. Twenty of them are related to our entire business, and 70% of what we sell in the U.S. is produced in the U.S. And in the remaining 30%, you have half of it coming from Canada, one-sixth coming from Mexico, and the rest from the rest of the world. We are in a business where we transform materials, so building a tire factory is not a question of months. It's a question of years. So there is, I mean, there is no rationality in... There will be no rationality in... adjusting our footprint. What we can do is at the current footprint to better optimize our flows between our area of production versus our area of sales. Don't forget as well that in order to be effective, we have large manufacturing operation. You need some factory specialization. don't produce every tire in all the factories. And even within a certain segment, for example, passenger car or in agriculture or mining, you will produce some tires in some factories and some others in another one. So basically, we consider that we have a very robust footprint. Our Asian factories are at... mostly addressing Asian markets. Our European factories are addressing the European market. In South America, we have very strong local production, both for agriculture, truck, and passenger car tire, as well as the earth mover. And we have, as I said, a very strong footprint in North America. So there is no reason to adjust, even if it will have been possible, There is no reason to adjust massively our footprint. We are already very, what we say, local to local.

Okay. Thank you, Yves. And the second is on the 18 inches and above, which grew again to 67%. Could you just very roughly split how much is in the U.S.? And I suppose this business is all local for local.

We don't disclose this data by geography. What we can just say is that due to the size of the vehicle, the mix is richer in terms of tire size in North America than in Europe or in Asia. But the trend, if you look by geography, the trend of mix enrichment is growing in a similar way in all regions.

Okay, and very last, if you could remind us what is the drop through of volumes today and also price mix based on the first quarter trends that you expect for the full year.

Yeah, the drop through volume is around 50%. Okay, and price mix?

Price is 100% and mix, well, we say around 60, 70%.

Okay, also due to the existing trends in mix is always 60, 70.

Yeah, the mix effect, there is a little bit, there is cost associated to mix enrichments due to the fact that you produce shorter series you have more dimensional change to organize, and some of the products are more complex to build.

Okay. Thank you. Thank you, Martino.

The next question is from Stéphane Behamois of BNP Paribas Exxon.

Yes, thanks for taking my question. Actually, I just have one remaining question regarding the shareholder reward policy. So given the volatile environment and the limited visibility going forward, should we expect the shareholder reward policy to be adjusted to preserve the cash generation? It seems that the pace of the share buyback has sharply slowed down in Q1. So what should we expect for the coming quarters? Thank you.

OK. We are sticking to the commitment that we took in February 2024. We have announced €1 billion share buyback over three years. All of it has been done in 2024. And when we will be ready, we will announce the next steps in 2025 and 2026.

Okay, but for the current program of 1 billion euros, should we expect the pace of share buyback to accelerate in the coming quarters, or this will depend on the market environment?

I don't know what you mean by the pace of share buyback. We have said, okay, we've done half last year. We know that we have another half to do between 2025 and 2026. And when we'll be ready, we'll announce it.

Okay. Thank you.

The next question is from Ross McDonald of Citi.

Yes, evening. Thanks for taking my questions. Three for me, please. Firstly, on dealer inventories, obviously ahead of the U.S. tires. You mentioned, Yves, a lot of budget tires entering the U.S. Just be curious in terms of Tier 1 dealer inventories, how you see that situation changing. and given your local footprint, whether you've put less stock into the dealers versus Tier 1 peers ahead of tariffs. Second question is on seasonality within SR1 specifically. Thank you for the comments at the group level in terms of the EBIT split. Just given the strong price mix in SR1 in Q1 and the strong channel mix, should we assume higher margins in the first half for SR1 specifically? versus the second half and then finally just a very quick one linked to Harry's question on US market shares specifically on the budget brands you obviously have a budget offering or a non Michelin branded offering could you maybe comment on the competitiveness of those products versus Asian imports now we have tariffs and I know you follow this value over volume strategy but would you be willing to grow in that segment to take market share thank you

So, regarding inventory, they are overall and across the US, but as well in other regions, they are in the norms regarding our product. And we are at this stage, we are not concerned by the level of inventory at dealers or even at fit, for example, for SR2. The seasonality of the group, is probably even more exacerbated for SR1, because I did not mention it, but for example, the ag business for replacement or the two-wheel business, they are stronger in, let's say, in the spring and in summer, where we have very strong SR1 and SR2 sales on the replacement market between August and October, then November. So what I mentioned for the overall group is relevant for AlphaOne as well. So our tier two brands, we have different, of course, we have a multi-brand offer in North America. Part of this offer is produced locally. Part is imported from Indonesia. So we will, if needed, we'll adjust our policy. And overall, I mean, in the U.S., there is a lot of imports of tier 3 and tier 4 brands, mostly from Asia, and in the market. So we'll have to deal with the situation depending on what tariff will be at the end implemented for which countries.

Thanks, Eve.

Could I maybe just follow up very quickly on that final point on the tariff uncertainty, I guess? There's been some confusion, I think, in terms of these tariffs, whether they relate just to original equipment or original equipment and placement, because obviously some of the motor tyres, I think, attract a lower level. Could you just clarify, is your understanding that those tariffs will be on both replacement and original equipment products?

Thank you. What we have understood is that for the time being, and as most of our footprint is in North America and particularly in Canada, is that due to the fact that most of these products are in the USMCA agreement, they are not in the scope of the tariff. Of course, the tariff applies both on the vehicles and on the replacement of some parts of the vehicles for the other countries.

Thank you.

The next question is from Christoph of Deutsche Bank.

Good evening. Thank you for taking my questions. Basically, follow-ups. The first one on volumes and your comments on Q2. Could you share also a bit more on the divisional performance? Do you see one or the other division actually improving stronger than the other into Q2? How does current trading look like? Is there more or less stability in the run rate that you expected? Or especially in North America, is there more volatility? And then the second point would be just on pricing. The split between indexation and replacement, should we expect that to be about the same in the coming quarters? Or did you raise prices during Q1? in some regions in replacement already and Then also related to the indexation and your comments on obviously raw materials coming down If that would be sticky at one point what we see that Flowing through indexation pricing instead early 26 or even later than that.

Thank you Yeah, we start by the last question your last point to Christophe if raw material comes down and it will probably not translate in indexation prices before early 2026, for the most part of our businesses. The volume outlook for the coming quarter, we are expecting maybe a better situation in SR3 due to the mining headwinds that we encountered in 2024 that are not read of us this year. So it can translate maybe if we want the analysis by segment by a better outlook in SR3, mostly due to this mining activity. The visibility on the second question was on the SR3 improvement. That's it.

There was actually for SR2 and SR1 as well, how you see the improvement in Q2 there. And is there a lot of volatility in demand that you're seeing in North America, or is it relatively stable also for other regions?

No, and the main area where the most volatile markets are original equipment markets, and particularly because it's triggered by a fleet's decision to acquire new vehicles, which in a context of uncertainties about GDP evolution, uncertainty about interest rates, can eventually slow down the decision made by the fleet. Another aspect in North America is that in the case some of the norms and regulations that were planned to be enforced in 2027 were postponed by the current administration. It might as well postpone the recovery of the original equipment truck tire market in the U.S. That will be the main certainty that we have as of today, on top of the general macro certainty.

Thank you. Just coming back to the pricing question again on replacement pricing, if you've raised in Q1 somewhere, and if we should assume the same split of annexation and replacement pricing in the coming quarters, if you could comment on that. Thank you.

I will not answer to the question forward-looking because, again, it will depend on what are the tariffs that are really being implemented and the one that has been dropped or exempted for any reason. Looking in the past, we have, as I said, adjusted our prices already at the end of 24 because we have seen some inflators arriving in our cost of goods rules. And I mentioned a few of them with some raw materials. And on top of that, We are trying to optimize and to have a precision pricing policy every quarter, depending on the situation of the market. So that's basically the only answer that I can give you at this stage.

Masoud, thank you. Thank you, Christophe.

The last question is from Michael Aspinall of Jefferies.

Thanks, Gideon. Just two quick ones. A quick follow-up on SR3. You mentioned it can be 50-50 OE and replacement, and that mining and aircraft have very low OE share. So does that imply that some of the other industries have a very high share of OE in SR3? I'm just wondering if that implies that ag and construction, say, has a very heavy skew to OE.

Yeah, the 50-50 I was mentioning mostly the ag and the construction activity. not the other SR3 segments, such as mining or aircraft, that are completely underbalanced in OE and overbalanced in replacement. For example, in mining, it's 90% replacement. In aircraft, it's mostly replacement due to the lifespan of the vehicles.

Cool. Yeah, that makes sense. And last one. Just wanted to get your thoughts on how you're thinking about acquisitions in the current environment, but uncertainties led valuations to drop. But I'm wondering if you think you have enough certainty in the economy and markets to be able to execute deals?

Of course. We are constantly looking at potential acquisition. We have shared with you during the Our last capital market day in May last year, the criteria were applying to assess the different opportunities. So these criteria have not changed. Of course, the overall economic uncertainty might lead us to be more prudent on the business plan that are proposed or offered by vendors that we build. Traditionally, we build our own business plan. based on our own capability and understanding of the market. But it might, as you mentioned, the current situation might also offer opportunities as we have a very strong balance sheet and we have demonstrated our ability to move quickly and integrate smartly the different activities that we acquire in the past six years.

Okay, great. Thank you. Thank you, Michael.

Gentlemen, there are no more questions registered at this time.

Thank you very much.

Thank you for listening to this session, and thank you for your attention. And we are looking forward to meeting with you along with Flora Minego at the end of July for our first half results presentation.

Thank you very much. Bye-bye.

Ladies and gentlemen, thank you for joining this conference call today, and thank you for your participation. You may now disconnect.