Michelin Cie Gen Unsp/Adr

Good afternoon and good evening. As a CEO, I wanted to introduce this conference and stand in front of you at this challenging moment for Mishnah. On Monday last week, we issued a profit warning. It came late in the year and with unexpected magnitude. I fully recognize it. I owe you clarity to help you understand what led us to warn this way. I won't elaborate much on the highly uncertain business context, you are fully aware of it. My purpose today is to share more of what is specific to us. First thing, until we got September financial results, we were in line with our expectations. But September business took a hit and forced us to drastically adjust the year-end forecast. What hit us had mostly to do with our North American business, which represents around 40% of our group sales. Two major causes. The first one, we decided to stop our operations with the largest tire wholesaler in the US as of 1st of July. This decision led to important volumes missing in Q3 versus last year. as we have been redirecting sales flows to other wholesalers. This one-off transition period should be behind us by year-end. Second, we lost market share due to the positioning of our offerings. We passed price increases at OE to restructure our margin and on replacement markets to offset cost inflators, starting with raw materials first, then EUDR, and then tariffs. This resulted in a decrease of a market share over Q3. For the replacement market, we took the lessons, we have already taken steps to regain these lost shares. Now, if we consider the current situation from a broader perspective, it results from a combination of our strategy being implemented and the context in which we operate. Our Michelin Emotion 2030 strategy is being deployed, and I have no doubt that it will lead to substantial value creation for the company and for our shareholders. Deploying a strategy leads to resolute decisions and actions, and I take full accountability for these decisions, even though some of them conflicted with the current context. Let me give you a few examples. We exited several value-destroying market segments, which logically led to negative volume impact. In parallel, we restructured our pricing conditions with OEMs to reach a better balance. We have done it over the past two and a half years. Margins got restored and volumes got rebalanced as well. Context-wise, these two key measures came at an unfortunate time because their negative volume impact cumulated with the widespread drop of OE demand across industries, passenger car, truck, agriculture, and construction. This resulted in low utilization rates for our plants and low absorption of our fixed cost, which negatively impacted our segment operating income. Another example. We restructured and we are still restructuring our manufacturing footprint and global capacity to adjust to a transformed competitive environment and to prepare for the future. We announced 12 activity closures in the past two years. This is a lot in a very short time and it penalized our financials before we will get the benefits from now onwards. Last example, we were resolute on passing through cost inflators to the market to properly value our technologies. In a market disturbed by overcapacity and low overall demand, this was detrimental to the competitiveness of our offers on the replacement market. These examples show how some strategy-led decisions have interfered with context. Let's be clear, I have no regret in driving those changes as they are making Michelin stronger and prepare it for the upcoming demand when OE markets rebounds and vehicle fleets are renewed. On the operational front, our teams are reacting and fighting in this context with numerous successes, to name just a couple. In Q3 specifically, besides North America, group tire sales have posted growth in volume. In China, we have been able to tune our positioning last year and we will deliver double-digit growth in 2025. Our group has solid fundamentals, remains highly profitable and generates significant cash flow. Our balance sheet is strong and provides us with independence and room for maneuver. Our cash generation in 2025 is sufficient and will allow us to complete our share buyback program. As a conclusion, Michelin is emerging stronger from the current turmoil. We are looking ahead to 2026 with confidence. Thank you for your attention and your long-lasting support. I now hand over to Yves for details on our sales development and our outlook for the near term.

Thank you, Florent. Good evening, ladies and gentlemen. So, I will drive you through our sales of the third quarter and, of course, the bridges related to our new full-year guidance. So, regarding first the context, if we look at the selling market at the end of September, they posted a slight growth in the segment one. plus 2% in OE, plus 1% in replacement. We have already commented in the past that the replacement market was mostly driven by the flow of imports before the implementation of tariffs, as well as the flow of imports in Europe before the implementation of duties for anti-dumping that the European Commission is expecting to implement. officialized by the end of the year. During the Q3, we have seen more or less the same trend, a little bit more dynamic original equipment market and regarding the replacement market, the selling was probably better in Europe and it's clearly the import from China. because it has been expected that the tariff following the anti-dumping measures will be implemented probably with a retroactive effect from 1st of October. And the negative minus 4% replacement market in the US, probably the consequence now of the implementation of tariffs from the third quarter. On the truck side, The market is still very negative in original equipment, minus 4. You note that the European market is nearly flat. We record a slight recovery in Q3. When the North American market is still very negative at minus 20, it was minus 24 for Q3, and even worse if we look at the Class 8 segment. On the replacement side, the market is at plus four here also probably triggered by the growth of imported brands both in europe and north america as far as the specialities are concerned the mining business is steady the beyond road continue to show a negative trend in oe particularly driven by agro and the North American agro-market is partially impacted by the implementation of tariff for the import of soya in China from US. Replacement market post a slight growth and the other markets such aircraft and polymer composite solutions are growing slightly as well. So that translates in an overall decrease of our volume by 4.4% at the end of the nine months, 2.3% coming from the currency and 2.1% from our activity. Meaningless scope effect, volume minus 5.5%, price mix plus 3.2% and equally share between price and mix. an entire business which contributes positively to ourselves at the end of the nine months. Zooming now on the third quarter, so you observe that beside the currency, the trend is very similar with the six previous months. The currency effect is huge, minus 4%, mostly driven by the USD. And as far as the other elements are concerned, meaningless scope effect, minus 4.5% of volume, and Florent has commented it, it's in fact nearly minus 10% in North America, and a slightly growing volume in the rest of the world. Price mix is less favorable, plus 1% in mix, plus 0.5 in price. The mix effect is exacerbated by the regional mix effect, as traditionally our North American business posted a higher margin than the average of the group. And the entire business contributed by 0.3 points to the group growth in the third quarter. No zooming on the volume. Here you have the picture of the first six months on the left and the third quarter on the right of that slide. As you can see, our volume dropped during Q3, mostly in North America. So it represents nearly five points of our volume lost during the quarter. mostly triggered in SR1 by the wool cell shift that was explained by Florent, and in SR2 by the original equipment drop. We are seeing as well negative trend or negative outlook of the fleets in the U.S. with the level of freight. And we are included in the deck in the annexes slide with the trend of the freight. We are seeing the freight at very low level in North America for the third quarter. If I look at the rest of the world, so OE outside North America is at slightly minus one for the group. Here mostly driven by the beyond road activities and replacement post positive without North America, positive volume thanks to our mining business, our aircraft business, two wheels and the China region. So now, zooming on the guidance for segmental parity income for the full year. So versus our previous guidance, which was issued at the end of July, so we dropped the guidance from above 3.4 to in between 2.6 and 3 billion euros. Basically, and we provide here some range which help you to... to understand why we have communicated on such a wide range at this stage of the year. We have still the unknown of what is going to happen in North America and on the truck original equipment, which is not only North America, it's Europe as well. The Brazilian market has been really impacted by the 50% tariff implemented by the U.S. and its weight down on the overall economy and the volume of freight. Regarding the price mix, so we expect price to be slightly positive during the Q4, but the mix is impacted by the geographical mix as well by the implementation of the tariff and of the EODR. Raw material should have a positive effect, but we have less unknown regarding the raw material. It's pretty consistent with the hypothesis we had at the end of July. And regarding operating performance, it will be impacted from the tariff, from raw material, cost of goods sold, and as well as operating efficiency. Because our factories are running with quite a low level of activity. Year to date, we were at around 74% for SR1, 72% for SR2. Our agriculture tire factory are running below 50%. And our construction and earth mover run 73%. So it's impact as well the efficiency of the factory, not only the fixed cost absorption. And there might be some upside on the SG&A side. That's why we have put a range between zero and 100 million. Now, looking at the the bridge, what should be the bridge at the end of the year versus 2024? So most of the loss will come from the volume. And in the volume, we have, let's say, two thirds of volumes in one third of fiscal sanctions. Price mix should partially but not totally compensated the volume effect. In the raw material, which is pretty consistent, again, with our previous expectations, we have close to 100 million of EUDR effect. In the operational performance, so in our supply, logistics, and manufacturing cost, we had the impact of tariff. We assume that since the first quarter of 2025, till the end of the first half of 2026 we will have around 500 million euro of additional tariff cash out 300 million should impacted our pnl in 2025 and around 200 million at the beginning in the first half of 2026. And we expect the currency effect to be in the range of minus 180, minus 200 million at the end of the year with an average euro dollar parity at 1.13. And here again, to explain the range of the SOI landing, we try to help you to clarify this landing. On the volume side, our expectation today is to be at minus 3 during the fourth quarter. But depending on the evolution of the conjuncture, it can move between minus 1 and minus 5. There is as well some volatility in the mix and a little bit on the prices. And we consider as well that there is some uncertainty on the operational performance and others. So clearly there is some opportunities. Our product plan, we have renewed a large part of our offer in truck tire this year. We have launched... few new iconic range in passenger car tire, the Primacy 5, the new Cross Climate 3, the Cross Climate Sport. So it's clearly an opportunity. Our dynamic in China is as well an opportunity, and we believe that we have room for improvement in the management of our SG&E as well. On the other hand, tariffs are still an uncertainty. Until yesterday, we were not clear about the 25% duty on the trucks. that has been decided from 1st of November by the US. We did not know if it's included or not the parts, and if it was included or not USMCA product. In fact, we have learned yesterday that it does not include USMCA product. We have as well the trend of the original recuperated parquet. There are still uncertainties. And we have the question mark on the right side about the GDP evolution and the consumer behavior in North America and the pace of recovery of the OE truck market in Europe, which is in Q4 slower than in Q3. So all of that gives you this 400 million range uncertainty. If I look at the market on the Q4, here you have for each market the nine first months and our Q4 expectations. On SR1, we noticed on our side a little late start of the winter season in Europe. And probably on the regional equipment side, we will have a basis of comparison in China which will be less favorable as the Chinese government started to implement incentives for acquisition of BEV and hybrid at the end of the third quarter 2025. On the truck side, OE should still be very negative, particularly driven by North and South America. And the replacement side should be negative as the market, the selling market, after the tariff implementation and potentially the implementation of, after the tariff implementation in North America. On the specialty side, we don't notice huge change in the market evolution versus the nine first months. So, as mentioned, we updated our guidance for our segment operating income one week ago. We were probably less pessimistic on the free cash flow than on the segment operating income because we are managing our capex in the lower part of our range of capex for the year. which means around 2 billion euro and we are going to as well record positive contribution from our working capital particularly on the inventory side and the positive contribution of our joint venture as it was already the case during the first half of the year. Now looking for 2026. So, of course, we will tune our guidance in February with the full 25 full year disclosure. But we already know that we will not be able to achieve our 26 ambition that was shared during the capital market day to reach 4.2 billion euro at 2023 Forex and 14% operating margin. What we already know regarding 2026, probably two negative impacts. The tariff that I mentioned, we should have an additional $200 million. And a negative impact on the price side coming from the raw material closest adjustments. But on the other hand, we'll have some tailwinds, the raw material that will lose price that are further declining. Most of the restructuring saving should be achieved by the end of 2026. At the time we are speaking, Most of the announcement made has been concretely achieved. I mean that the factories have stopped operations except the two last ones that were announced during the first half of this year. We should see a further SG&A improvement and hopefully a slight volume improvement at ISO market conditions. On the free cash flow, front, we maintain our ambition to deliver 5.5 billion euros of free cash flow over three years before acquisition. Thanks to some effort on our capex, the continuous improvement of our inventory and our working capital. So in this context and following Florence's comments, confidence in our cash generation will speed up our share buyback program with an additional 400 million euro that we are going to implement by the end of this year. So basically that's all for the presentation and I think we can now open the Q&A session.

Danone, 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 Thomas Besson of Kepler Chevreux. Please go ahead.