Michelin Cie Gen Unsp/Adr

Ladies and gentlemen, welcome to the Michelin Conference Call. I now hand over to Mr. Florent Menegault, Chief Executive Officer, and Mr. Yves Chappell, General Manager and Group CFO. Gentlemen, please go ahead.

Good evening, ladies and gentlemen. Thank you for joining us tonight for our semester results. In a highly volatile environment that I am sure everyone has noticed, I would like to emphasize the very solid profile of our group. What we can see on the slide is that we have a very engaged and agile team. We have an 85 engagement rate in 2025, which puts us in a very good position in terms of engagement. We have the ability to cope with crisis quickly and to adapt. and we also have a very strong innovative background. We have built over time robust financials, a high level of profitability and cash generation, and a strong balance sheet. All major agencies rating at A-level, with Scope and Moody's reaffirming their notation a few weeks ago. Our local-to-local sourcing strategy pays dividends, especially in this time. 70% of our U.S. sales is produced in the U.S., and the same U.S. sales, 90% of the same U.S. sales is USMCA compliant. Our business profile is very balanced, both in terms of destination markets and geographies, and this participates to our resilience in turbulent times. We are evolving in a very challenging and unpredictable context. First, public regulations that are amounting, appearing everywhere. We have duties, UDR, taxes, and all in all, these new duties, taxes, regulations have a negative impact of more than 100 million on our group results in the first semester of 2025. Forex as well and I'm referring mainly to the US dollar euro exchange rate is evolving very quickly and we started the year with a positive FX assumption for 2025 and now we see a negative impact with a euro appreciating sharply versus most currencies especially the US dollar. We also have risk on global growth and the consequence of economic and geopolitical uncertainty. Businesses hate uncertainties in the context. But we have taken actions to manage risk and to seize opportunities. We have adapted and stabilized our way to play. We have now exited from most of the least accretive areas and this adjustment is mostly behind us. We have a clear OE positioning, working with the right partners and other fair contractual conditions. We have optimized our manufacturing footprint. We have done a lot over the past two years. Twelve activity closures have been announced, and we are pursuing with two announcements over the past quarter. We are starting to see the benefits of it, both in terms of loading and in terms of financials. We also have a sharp steering mode in the short term, agility in adjusting our spending to the current context, both in OPEX and CAPEX. And in the medium term, we continue to invest in the drivers of our differentiation. I mean, two of them, one is digitalization and two is innovation. And thanks to our actions and despite numerous uncertainties, we are maintaining our financial ambitions for the year 2025 in the absence of any further deterioration in the economic environment in the second semester of 2025. A lot of unexpected events will occur across the world and will affect the general economy and our markets in a positive or a negative way in the year to go. We have and we are solid on our fundamentals and determined to leverage every opportunity. What you can see on the screen now is our performance in a 360 mode. As you are aware, at Michelin, we always look at the group's performance from a combined perspective, people, profit, and planet. On the people side, we have made strong improvement in terms of safety. and also in terms of retention rate for employees with less than two years seniority. And you see the rate has improved. That shows the ability of our group to retain its new talents. In terms of profit, we have generated 1.5 billion segment operating income, which is a solid H1. If you consider the strong headwinds, and it is in line with our sequencing of our profit generation for the year. This year should be more back-end loaded. In terms of free cash flow, you see almost at the equilibrium, we have returned to a seasonal pattern of cash flow generation with a strong increase in working capital requirements in the first half of the year. In terms of planets, you see we have had a strong reduction in our CO2 emissions, minus 15%, mostly driven by our progress initiatives in that respect. And it's across all our activities. As a reminder, our climate-related ambitions have been validated by SBTI. And the second metric to emphasize our progress there is around Water withdrawal, you see, it has diminished by 11%. Thanks to, again, the numerous actions taken into our plans, we have just obtained a AAA from the Carbon Declosure Project, CDP, rewarding our group's commitment towards climate change, water security, and supplier engagement. And now I'll leave the floor for more details with Yves.

Good evening, ladies and gentlemen. So I'm going to drive you through our results for the semester and the guidance for the full year. So first, regarding the market, I just want to remind that when we speak about OE volumes, it's linked to the production of vehicles and the sales of tires to produce vehicles. And the replacement volumes are the sell-in markets, so the sales from manufacturers to distributors or the imports in a given country for non-local production. So you see first that the passenger car and light work segment, we have a complex picture between original equipment and replacement with a sharp drop of original equipment sales market in Europe and North America. plagued by consumer confidence, questions about the pace of electrification in some countries, and, of course, the impact of incentives on these electrifications. On the other hand, the market in China was pulled by incentives and by exports and grew by 10%. On the replacement market, the market grew by 3% overall, plus 5% in Europe, plus 2% in North America, and 0% in China. In Europe and North America, we believe that the market is mostly pulled by anticipation in the inclusion of anti-dumping inquiry in Europe and the threat of strong tariffs, particularly from Asian countries in the U.S. On the two-wheel market, the market now is at a pace which is quite coherent between sell-in and sell-out, and the market grew steadily in the first semester. On the truck and bus market, you see as well that the original market are down in Europe and North America. In truck and bus, we focus only on the regions where We have a significant market share, so basically it's Europe and the Americas. In North America, the 19% is even worse if we look at Class VIII vehicles, so the widest, the biggest tractors. And it's mostly due to the accumulation of inventory by OEMs over the past three years. when at the same time the new U.S. administration decided to postpone some environmental regulation that would have triggered anticipated purchase from the fleet. And on top of that, in the current environmental context, the fleets are hesitating to invest in new vehicles because of a lack of visibility and uncertainties. So the market has been down already since July, August last year, and it has continued over the first semester. On the replacement market, I will probably do the same comment on the passenger car. The market grew by 4%, but we observe very strong movement of imports, particularly in North America, from the tier 3 brands from Asia. probably as well in anticipation of some tariffs over the countries of exportation. Overall, when we look at distributors in both passenger car and truck tires, they seem to be a bit overstocked looking at the budget brands. But looking at our own brands, we consider that we are at a healthy level both in Europe and North America across both segments. On the speciality side, the picture has not considerably changed versus last year. We are still seeing mining replacement in the entire aircraft growing at a steady pace. mining and replacement tires for beyond-route tires at, let's say, low single-digit pace. At the same time, the original equipment market for agriculture, infrastructure is still down. It's probably the third semester in a row. And we believe that probably during the second half of the year, the market will have probably bottomed. The composite polymer solution show overall stable evolutions over the semester. Now looking at the bridge of our cells. So first you observe that the cells are down by 3.4% at current foreign exchange rate. Given the 200 million, so 1.5 points of currency effect, the sales are down by 1.9% at ISO Forex. So maybe before I detail the different elements of the bridge, I would like to do a preliminary statement. As the Open Union has opened an investigation into statement or answer to question about pricing during public earning calls, although limited to Europe, will not comment on pricing matters. And we maintain that we are complying with the competition rules and we are actively defending our case. But given the circumstance, we will not detail, for example, the breakdown between price and mix and we will not enter about detail about the pricing. So, the different elements. You see, of course, the volume effect, which is minus 6.1%. Basically, if you look overall at the group level, it's minus 18 for original equipment and minus 1.2 for replacement. You see that the entire business are contributing positively, plus 0.2% at the group level. And we benefit from a strong price-mix effect driven both by price. We benefit from the indexation clauses following 2024 raw material cost increase and mix both with the product, brand, and market mix. which is obviously positive due to the big difference between original equipment and replacement market evolutions. Looking now at the evolution of our volumes and to give you a little bit more flavor about this volume evolution, so you see that overall original equipment account for 85% of the total volume decline mainly in truck and agricultural markets when some targeted business segments are generating growth. So in original equipment, we are as well penalized for passenger car in RS1 by customer and vehicle mix, which is unfavorable, versus the market. On the replacement market, the machine brand is flat, and the loss of volume is mostly coming from other brands, such as Corsa, for example, in Indonesia, or Unirail in the US. Looking at the second segment, so transportation, you observe a sharp drop of OE on heavy vehicles, particularly the Class 8 I mentioned in North America, when replacement sales are stable and we observe that the Michelin brand is keeping its share of line in these segments. And on the specialities, strong drop in OE, mostly triggered by agriculture and infrastructure businesses. A drop in replacement, which is mostly coming from other brands such as the Camso brand, for example, when at the same time, Machine replacement, for example, is growing in replacement in agro as well as in mining and aviation. Now moving to the bridge of the segment operating income. So at the end of the semester, our segment operating income at Constant Forex is at 1.5 billion Euro, representing 11.3% margin. We have nearly 50 million Euro of negative currency effect, mostly triggered by the evolution of the US dollar during the second quarter. And looking at the other elements, so scope effect is not meaningful during the semester. The important volume effect is due at two-thirds by the margin effect driven by the volume, one-third due to the inability to absorb the fixed cost linked to this volume drop, which is penalizing, of course, the level of capacity utilization in our factories. The price mix represents nearly 500 million euro. And looking now at raw materials and manufacturing and logistics. So in raw materials, you have mostly the effect of the increase of the raw materials during the second half of 2024. For example, the natural rubber, the butadiene stay at a pretty high level still basically the month of March it has started to drop after the beginning of April and in these 240 million you have nearly 63 million euros which is coming from the tariffs implemented in North America. When we look at the manufacturing and logistics costs it includes nearly 50 million linked to EUDR so the implementation the The premium we pay on natural rubber, although we have decided to implement, according to the directive, to purchase EUDR natural rubber, the European Parliament decided to postpone this regulation at the very end of last year. And in this context, it's extremely difficult to replicate this cost to our customers. And during the first semester, we had some positive effect of the start of some positive effect of the restructuration. But due to the fact that we are running at a lower capacity than planned, this effect is not fully visible. yet in our PML. You see that SG&A are well managed because 23 million represents less than inflation just on the payroll on the SG&As. And we observe a positive contribution of an entire business over the semester. Now looking at the profitability across segments. They are, it's not a surprise, the segment which is the most impacted by the drop in volume is mostly the second segment where volumes are dragged down by the original equipment market itself, minus 9.3%. So consequently, it has a huge impact on the operating margin of this segment. The first segment is showing stronger resilience, thanks to a very positive mixed effect, both market and product and brand effect. And in the IS3, we land at 14.5%, so it's nearly 100 million, more than 100 million, less than last year, but with a very contrasted situation, strong drop in the beyond road, profitability due to the original equipment effect and the same impact of factory capacity utilization, but with a growing contribution from mining and aircraft tires. Looking now at the cash generation, we end the year with nearly zero cash flow minus 100 million at the end of the semester, not the year. Our EBTDA is globally in line, 18.6%, nearly 19% with the level of the previous years in percentage. Of course, penalized by volumes slightly impacted in absolute value. We are now back to, let's say, the usual seasonality where our working capital is growing during the first semester, in reality growing until the end of August, and then decreasing during the four last months of the year, and particularly at the end of June 2025. we have in the 1.2 billion increase in change in working capital. You have nearly 250 million, 60 million linked to inventories, which is shared between volumes, two-thirds, and price, one-third. A count receivable also increased, and here there is a one-off effect, which is due to the change of our distribution scheme in North America. At the end of last year, we were... still working with ATD, but with a very constraint credit facilities. And when we decided to switch, to stop, to work with ATD during the first half of this year, we are of course working with other customers that are benefiting from, let's say, better conditions. Other elements like CAPEX or restructuring taxes are quite consistent with the previous year. We just have to notice that in the GV and other financial asset variations, we have nearly 90 million euros, 100 million dollars of dividends paid by our joint venture TBC following the disposal of the MIDAS franchise in North America. At the end of June 2025, our debt has slightly decreased versus June 2024, 300 million. Of course, versus the end of the year, it has increased mostly because of the dividend paid at the end of May. And we have a gearing at 22.2%, so slightly better than last year at the same period. And I will not further comment on the agency rating, as Florence already explained, that we have a 4A rating for our long-term debt by all the agencies. So looking in order to try to give you some colors about our guidance, we are in an unpredictable and extremely volatile environment. So when we look at the first segment, passenger car and light truck, we believe the overall year should land between minus 2 and plus 1%. with probably a slightly, comparing H2 to H1, worse perspective on H2 than H1, mostly driven by the fact that, for example, in China, in the second half of last year, the government has started already to implement incentives, so the basis of comparison will not be as favorable as this year. So we believe that the market should be slightly down in H2 on OE. On replacement, we expect the market to be overall flat, probably with less sales of less non-pooled brand flows on one hand, and as well a higher comparison basis in 2024. For example, in Europe in 2024, we benefit from a relatively good winter season, which might not be necessarily the case in 2025. As far as the truck and bus segment is concerned, we expect the market to slightly rebound in Europe, but we believe that the North American will still be OE cells will still be depressed over the second semester. And on the replacements, a little bit the same picture with the market stable versus the second half of last year. Speciality, no major change. At one stage, we believe that both agricultural and construction infrastructure, original equipment market will probably reach a bottom. And we rather expect a rebound in 2026 of this market than in the second half of 2025. Now, before coming back to the guidance, I would like to share with you the fact that despite these hazardous conditions, we are determined to fight and enhance our customer value proposition thanks to several levers. The first one is obviously our product plan. We have major new product launch during 2025. I just took two example here in the first segment, the new cross-climate free, which is initiating a new segment with a cross-climate sport segment. and in the transportation industry, the Michelin Eclin Grip D, which will give plus 20% of mileage and plus 20% of rolling resistance to the end user. Looking now at the volumes in the mining, we are now starting to see the hour cells rebounding, so we expect the second half to be significantly above the first half of the year. And in Beyond Road as well, we are observing some segment of the market where sales should stabilize during the second half. Now to give you some other perspective, our presence in China, we have been in China now for nearly 46 years commercially and nearly 30 years from a manufacturing standpoint. China represents roughly 6% of the group sales. We have 6,000 employees. Five factories, including our polymer composite solution factories, an R&D center, which is here to serve the local market, and particularly the local OEMs. And we are engineering a premium first position in a premium tire market share, both in OE and RT, on the first segment. The Michelin brand in China has very strong awareness, 89%, nearly the level we have in some Western European countries. And our sales are supported by a strong franchise program, Tire Plus, with 1,700 service centers across the country. We have as well a very strong position with leading domestic OEMs. that we serve in China, Geely, BYD, SAIC, Xiaomi, Neo, Xiaopeng, Lyoto, and more as well. In terms of innovation and ability of the group to offer the best compromise of performance versus our competitors, I would like to come back on the last publication from ADAC. ADAC summarized in the last June all the studies they have done on tire abrasion since 2022. And looking at real usage with convoy of vehicles across a very large number of dimensions, Michelin stands far ahead of its premium competitors in terms of abrasion. quantity of particles emitted for 1,000 kilometers. So we are in average 27% better than our premium competitors and 18% better than the first of these premium competitors. And ADAC mentioned that Michelin continues to offer by far the lowest aversion rate where at the same time we offer the best balance of performance when you look at energy efficiency, mileage, safety, handling capabilities, and noise. Last, in composite polymer solution, as you know, we have acquired in the recent year different activities, generally exposed to different markets than the automotive. And I just want to share with you two examples where our research and development capabilities allow these companies to accelerate their synergy for their mission-critical applications. In, for example, the gangway bill, so for trains or metro, machine technology enhance the durability, the tear and the UV resistance, and the soundproofing of the vehicles. And in another application, which is linked to expansion tanks for energy supply, we are able to improve the continuity and the security of the product and avoid any contamination thanks to the materials that we introduce in these products. So that's another element which gives us confidence in our ability to further grow in these business segments. So now looking to the full year, as Florent mentioned, we are in a very erratic environment, both from the tariff, the overall economic perspective and the foreign exchange rate. So we have, in the absence of any further deterioration in this economic environment during the second half of the year, our outlook for the full year remains unchanged, with segment operating income above the one of 2024 at ISO Forex and a free cash flow above 1.7 billion euros before M&A, but at current Forex. And in this context, we are going to pursue and to implement from the 1st of August the second trench of our share buyback program to be completed by the end of the year with the program of €250 million, which is consistent with the announcement we made in February 2024 with the €1 billion share buyback over three years. Thank you very much for your attention, and I think now we can move to the Q&A session.

Thank you, sir. Ladies and gentlemen, if you wish to ask a question, please press star and 1 on your telephone keypad. We kindly ask you to ask two questions only per analyst or investor. And please to ask your questions in English. First question is from Harry Martin of Bernstein.

Yes, good evening, everyone, and thanks for taking my question. So the first one, just on the full year guidance, so the H1 EBIT decline was $282 million. You're still maintaining the guide for flat EBIT for the full year, so you need to reverse that decline with around 18% year-on-year growth in EBIT and H2. So how can we get comfortable with that, given there's limited volume growth in the second half? Would you be able to lay out some of the largest buckets within that step up in the second half? And then the second question, a strategic one on the truck and bus segment, just with some of the performance this year. I mean, this segment is margin dilutive versus the average dilutive. in any year, not just the past year. It's more cyclical, seemingly more exposed to Chinese competition. So my question really is what are the reasons to stay in that segment at all? What are the parts of it that are still attractive even when you get these past years as well? So thank you very much.

So two elements to understand. First, the normal seasonality of the market is that the second semester is more weighted versus the first semester in terms of because vehicles are equipping themselves for the winter season especially in the b2b area so it means that normally it's logical that we have more volume and margins in the second semester versus the first semester. Then we mentioned the fact that we have made a lot of restructuring, and those restructuring will pay dividend in the second semester. You have, for example, we have also advanced some closures, so you will see the full benefit of that in the second semester. And as Yves mentioned, We have made the assumption, seeing from where we are today, with all the reasons mentioned, the profitability in the second semester should be much better than what it is in the first semester. However, there are many hypotheses that could change because of the environment. So we have made hypotheses on tariffs. We have made hypotheses on many things. But, of course, in the second semester, for external reasons, we may be impacted, but today we don't know. Now, as far as the truck business, the fundamentals of the truck business now are sound. We have made the restructuring. I'm sure you've noticed over the past two years we have addressed the excess capacity we had, and we have also streamlined the market where we were selling. Of course, it has weighed on our volumes. However, we think now we are in the appropriate conditions. Now, we have a cyclicality in this business, especially in OE, that is today hampering the profitability in that segment, but we think it's exceptional. Yves mentioned the truck OEMs have built inventory of trucks over the past few years in anticipation of a regulation that was postponed at the last minute. So now we are dealing with an excess inventory of trucks, but we have All the reasons in North America, we were expecting things to improve by the second semester. It would probably be in the first semester of 2026. However, we see in Europe, the OEMs truck are getting better. So that's what we anticipate. And in replacement, all of what we have done is paying dividends. So the profitability should improve in the second semester and structurally will improve because we have made this restructuring of our assets of production. So for those reasons, also figure that in the second semester, we will have less issues in terms of fixed cost absorptions than we had in the first semester. So for all these reasons, this is what we are doing. Now, we cannot divest from the truck business because we share the semi-finished product. We have dedicated plans for especially mixing for truck and it would be very difficult to separate them from the passenger car activities.

There is another element of comfort, which is the fact that during the first half of the year, minus 240 million effect on raw material, that should be nearly neutral on the second half. As the raw material prices have started to drop in April, and it should lead to a very positive effect in the last four months or last quarter of the year.

Very clear. Thank you.

The next question is from Akshat Kakkar of JP Morgan.

Thank you for taking my question. A couple of questions, please. The first one on the volume development in the business. Could you please share your current outlook for the full year that supports your full year earnings view as of today? Do you still expect volumes in the full year to be down 2% to 3% or should we be thinking about a more negative number? And within that volume outlook, could you confirm that within passenger cars, on the replacement side of the business, do you expect to be in line with the market in the second half or do you expect to underperform in the second half, please? The second question is on tariffs and your strategy in response to those tariffs. Could you just tell us and give us some more details on how tariffs have impacted the business from a cost perspective in the first half of the year? And if you have changed your pricing strategy in any of your business segments going in the second half, please. Thank you.

So, I will leave on tariff to give you more details about what we're doing, except on pricing because we will not make any comments on pricing. On the volume outlook, we anticipate that especially the big selling that happened in Tier 3 product Of course, all regions will stop in the second semester. It should have a positive effect for us. Now, we have shown that we have also exceptional products that have been launched. CrossClimate 3, Primacy 5, CrossClimate Sport. Those are really market-defining products that should have a positive impact on our volume. So we anticipate globally that our volume should be steady versus the second semester of last year. That's the hypothesis we made. And on tariff?

Yeah, in which this hypothesis leads to nearly minus 3% over the year. given the performance of the first semester. On the tariff, the impact of the tariff during the first half was, in terms of cash, minus 125 million, and in terms of P&L, minus 63 or 64 million. Why I make the distinction? some of these tariffs are still in our inventory and will be booked in the P&L when we will sell the related product. Our expectation, so I'm not comment on the strategy, but our expectation with the knowledge of the moment is that the full year effect of the tariff on our P&L should be around 200 million. one-third in H1, two-thirds in H2.

Based on what we know today.

Based on the knowledge we had, let's say, yesterday morning. Yesterday morning. Understood. Thank you.

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

Thank you. Good evening, everybody. The first question is on free cash flow, because Eva, you mentioned that the guidance remains with the current Forex. So I was wondering if there is any Forex translation benefit on this guidance and the other components, the main components for the free cash flow in terms of working capital if you can remind us capex for the full year and if there is any restructuring cash out to be taken into account in the current full year guidance and the second is on tariffs because you just mentioned 200 million impact for tariffs so excluding forex Does it mean that you would be able to offset these 200 million since you are confirming the guidance or I'm missing something?

On pricing, we will not make comments. So you will have to make your own hypothesis. And on restructuring in 2025, we will have an impact on pricing. in EBIT of the full benefit of the restructuring of around 200 million in the P&L and in cash, the cash out will be around 400 million. Cash out.

And then you're on the details. So on the FX, for the free cash flow. First, the FX has a rather negative impact as the dollar, we are overall long in dollar in USD. as the US represents 30% of the group sales. Therefore, it means that our revenue and our profit in dollar and the cash generated in dollar is negatively impacted by the evolution of the dollar versus our functional currency, which is the euro. Restructurations, so Florent mentioned it's minus 400 million on the full year on the free cash flow. And in terms of working capital overall, we have probably at the end of the year, so as I mentioned already, between November and January, it's the moment of the year where we have the lowest working capital because our winter sales We have a strong seasonality of sales between September and October, August and November, I'd say. Therefore, inventories are at the lowest level and most of their accounts receivable of the peak of our sales have been paid by our customers. The only effect that we will have which is slightly negative on the overall free cash flow this year is due to what I mentioned during the presentation is the fact that we reorganized our sales in the first segment in North America, in the US, with the decision to stop to work with ATD and to redirect the volume to US Venture and NTW, which are benefiting from, I would say, normal payment term when ATD being under Chapter 11 during the second half of 2024 was managed differently.

Okay.

CAPEX should be in the same range or slightly below than last year, but very similar than last year. In the CAPEX, in contrary, there will be a positive effect on the FX due to the fact that part of our CAPEX are spent in dollar-based countries. Yeah, yeah. Thank you.

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

Yes, good afternoon and good evening, and thanks for taking my question. The first one is on the truck business. I understood that the second part should be much better in terms of margins and those volumes, hopefully, at least for Europe. But I'm still wondering, are you still confident in achieving... a sustainable margin of 10% in this division, which was your indication at the Capital Market Day. And I'm wondering, the restructuring actions should bring 200 million of net positive impact or 120 million? Just a clarification. And my second question is, On the segmental operating income, in the first half, the company had a negative impact from manufacturing and logistics of roughly $175 million. Can you give us a rough indication by year-end? Thank you very much, and if I may, a follow-up. Considering the current environment, do you see opportunities for M&A in the non-tire business? And if yes, any color would be really appreciated. Thank you very much.

So on our forecast for truck, yes, what we have shown during our Capital Market Day, this is what we are shooting for. Now, what I was explaining is that the current environment is truly exceptional, especially at OE in truck business. And based on what we know today, we think second semester will improve, but also in 2026, it will improve sharply. Now, your question gives me the opportunity to remind you as well that I forgot to mention that in the second semester, in the first semester of this year, we have incurred also dysfunctioning in terms of the industrial cost because of the restructuring. Because we have to make movements, we have to industrialize, we have run down, et cetera. And the fact that the plants that are especially in truck would be closed earlier, will have a bigger benefit in the second semester. And it will benefit mainly truck because that's where truck has been. That's where we have focused most of our restructuring. Apart from that, on the M&A opportunities, and then I will leave the industry to Yves. On the M&A, Michelin, to deploy its strategy, has an M&A chapter. But of course, I cannot tell you where we are. And of course, the current environment, In every turbulent environment, there are opportunities. However, I remind always everyone the fact that in order for a transaction to happen, you have to have a buyer. Vishna is a potential buyer. You have to have a seller. And that's not obvious and not evident every time. And then we have to agree on the price. And that's even more challenging. So we will see.

Okay, thank you.

The negative impact of 175 million on the manufacturing and sourcing logistics should be nearly slightly positive on the second half of the year. Because it's due to the fact that in the second half of the year, we should start to see more the benefits of the reorganization of our manufacturing footprint and we should have mechanically a better capacity utilization than on the first half. Of course, it's conditioned to the fact that there is no worsening in the overall economical environment. It's based on what we know today.

Okay, thank you. It's just a clarification. The positive impact from the restructuring in the second part could be quantified in 200 or 120 million. Sorry, I didn't get it.

No, it's 200 million for the year, for the full year. Okay, perfect. Thank you. And it's not only for SR2. It's for all the builder segments.

For sure. Thank you very much. The next question comes from Thomas Besson of Cap Le Chevreau.

Thank you very much. I'll ask two questions, please. The first is on cash returns. I think you are confirming you're going to generate a billion seven of free cash flow. You have four A ratings, and it's difficult to see M&A in a turbulent amount. So why not go straight to 500 million share buyback in the second half with your share price lagging, rather than talking about just doing 250? That would be the first question. The second question is on the expected development of your SR1 volumes versus the market. You've lagged your main competitors in the last 18 months. Your performance improved, clearly, in Q2 versus Q1. Do you assume that Michelin's SR1 performance is going to be closer to the market in H2, or should we still expect you to be one or two points below the market? Thank you.

So on the SR1, on the share question, you know we measure market share on sell-in. meaning that tires sold by manufacturers to the retail or the wholesale distribution. You had a very heavy loading of Tier 3 brands, Tier 3, Tier 4 brands, all across the world. Very heavy loading. We anticipate that this heavy loading will stop in the second semester, which means that then suddenly the market... Vision of the share will change because of that. And we have very good product that have been just announced and launched in the first semester, and especially that they will affect the winter market. So we anticipate in the second semester to return to more normal view of our share. We are not really concerned by the share losses we have, especially at Michigan Brown. Things are, I would say, normal. OE is different. We have a vehicle mix, a customer mix slightly different. And also, your question gives you the opportunity to tell you that in China, we had some issues to fix some of the problems we had in terms of positioning and everything. what we were doing also on replacement market in China, that is over. We now are back to a good growth mode in China. And as far as the cash back, based on what we know today, we think it's 250 million is the right number. And, of course, if things change towards the second semester, then we will – take into consideration your remark about our balance sheet. Thank you, Paul.

The next question is from Steven Benamol of BNP Paribas Exane.

Yes, good evening. I just have one remaining question. It's about the guidance because I'm not sure how to reconcile the confirmed SOI guidance and the 100 million euros adjustment to provisions for bonuses. That would suggest, in my view, a bonus cut as fully objective won't be achieved. So can you please help us to understand the mechanics between this positive adjustment and the confirmed guidance? Thank you.

Very simple. The bonus is not triggered on the guidance. We have management bonuses that have objectives, and we know that we will not reach those objectives because of what we have done in the first semester. The objectives are well above the guidance, so that's why you may see a difference, but you cannot interpret the fact that you have that, and that doesn't give you a flavor on our ability to reach the guidance.

So just for, yeah, if management bonuses are not based on the guidance, so they are based on, I guess, long-term objectives. So can you please just elaborate a little bit more on how we should look at this other line in the EBIT bridge for H2?

We have management objectives. We have them on a long-term basis, but also on a yearly basis. And we fix those objectives for the year, managerially. And those objectives are well above the guidance. The guidance is something we commit to the market that is different from what we expect out of the management.

Thank you. So what we should expect for H2?

In terms of bonus, we have made the adjustment on the bonus that we needed to make. Okay.

Very good. Thank you.

The final question is from Christophe Lascavi of Deutsche Bank.

Good evening. Thank you for taking my question. It's actually just one clarification left. You said there's nothing obvious right now, but I think a couple of assets are coming to the market by next year. So if there's a right asset, would you be willing to do larger transactions as well, or is it something that you currently wouldn't consider? What do you mean by larger? A couple of billion, theoretically. In purchasing price.

Sorry, what do you mean by large transactions?

Large transactions in the sense that you would be willing to pay a couple of billions for one deal, or is that too big to even consider at the current state of the market?

We will not – I don't think we want to enter into this level of detail – for the M&A operations are rather confidential. So we have, you can do 2 billion in one transaction, but you can do it in three transactions of 700 million. So, in fact, we have been clear about where we want to go. It's mostly in composite polymer solutions. It has been shared with you during the capital market day last year. We have as well very strong and demanding criteria from a financial standpoint, which link to Florence's previous comment about the price. So it's not really the size of the transaction which matters. It is the transaction. Are we better apparent for the for the acquired activities and are we able to grow it and to create value with these acquisitions. It's not a question of the size of the transaction.

Understood. Thank you. Thank you.

Gentlemen, are there any more questions at this time? May I hand it back over to you for any closing remarks?

Well, thank you very much. I just want to remind everyone that our group fundamentals are very solid, and the external environment is less solid than Michelin. So thank you very much.

Thank you very much.

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