Michelin Cie Gen Unsp/Adr

Ladies and gentlemen, good afternoon and good evening. Thank you for joining us for our Michelin's first half 2026 results presentation. For this presentation and Q&A session, I am pleased to be with Benedicte de Bonchose, our new CFO. In a context still highly uncertain, shaped by mixed macroeconomic signals, geopolitical tensions, evolving trade dynamics, strong currency headwinds, I am pleased to report that Michelin delivered a solid first half performance. This performance confirms the strength of our fundamentals. A powerful Michelin brand, the resilience of our business model, our tight operational steering, the quality of our business portfolio, and the relevance of our long-term strategy, Michelin In Motion 2030. I will start with some key messages for the first half and our outlook for 2026, then Benedict will take you through our markets, our financial performance, our cash generation, our outlook, and our guidance. Let me start with our first semester performance. What you see on the screen, and if you're aware to summarize it, I would qualify it as solid. Solid in terms of financial performance, as our slight revenue growth translated into a significant segment operating income progression of over 100 million euro at constant forex and scope versus, of course, the first half of 2025. Solid in tire activities as our Michelin brand posted material growth and gain share in most replacement markets. It reflects our customers' trust, the quality of our product, the strength of our distribution, and the relevance of our value proposition. Q2 marked a turning point. We are back to growing in tires. Solid In-Polymer Composite Solutions. We are now integrating our three acquisitions announced in January, Kool-Aid Group and Flexitalik closed in H1 and Tex-Tex closed in July 1st. These transactions are fully aligned with our strategy to build a broader, more diversified and more resilient portfolio of high-value polymer composite activities. All together, they will increase polymer composite solutions revenue by 35% on a full year basis. In summary, our first half was marked by solid execution, disciplined steering, continued brand momentum and strategic progress. Our world may be chaotic. Our assets are well grounded and grounded and weatherproof. Storm after storm, crisis after crisis, our strategy proves to be effective as it increases the resilience of our group. In 2026, we are growing both in tires and in entire businesses. Operating in an uncertain and chaotic environment has become our new normal. We see uncertainty in demand, in global trade, in exchange rates, in cost of raw materials, energy, and in geopolitical environment. In particular, the conflict in the Middle East has created additional risk around energy, logistics, raw materials, and demand. In this context, Michelin's ability to deliver is supported by four unique and differentiating strengths. First, of course, our teams. Our results are made possible by the engagement, agility and expertise of Michelin teams all around the world. Their ability to adapt, to serve customers and to execute transformation projects is a decisive competitive advantage. Second, innovation. Michelin's innovation is not limited to tyres. We are developing new materials, new polymer technologies, digital twins, data-driven services and solutions to help customers improve their operational performance. Innovation is at the heart of our competitiveness and remains a key driver of our 2030 ambition. Third, our Michelin brand, now worth over 10 billion USD, is recognized and trusted all around the world. Our first half growth in Michelin brand replacement sales shows that, even in uncertain conditions, customers continue to value performance, reliability and trust. And at last, fourth, product and services. Our innovation pipeline remains very strong. We continue to launch products that improve performance for customers with a focus on safety, longevity, energy efficiency, and sustainability. These strengths enable us to keep moving toward our Michelin in Motion 2030 ambitions and to confirm our 2026 guidance. At Michelin, we assess our performance through a balanced lens, people, profit and planet. Let me share with you some examples of our achievements in each of these pillars over the first semester. People, as you can see on the screen, we progressed in recognition and attractiveness. Michelin has been ranked seventh European most innovative company in Fortune's 2026 ranking. We also stood out in inclusion and fairness as we obtained the Universal Fair Pay Check certificate from the Fair Pay Innovation Lab, which recognizes gender equitable compensation on a global scale. Profit. On top of the segment operating income I mentioned earlier, our group delivered a positive free cash flow of €282 million, a strong improvement compared with the first half of 2025. We continued to reduce our environmental footprint. Water withdrawal decreased by 8% compared with the first half of 2025, and CO2 emissions on Scope 1 and 2 declined by 9%. These improvements reflect the many initiatives deployed across our sites and operations. In short, Michelin delivered a balanced first half performance, financially resilient, socially responsible, and environmentally committed. I now hand over to Bénédicte for more details.

Thank you, Florent. Good evening and good afternoon, ladies and gentlemen. I will have the pleasure to guide you through our H1 results, starting with the tyre market's evolution during the first semester. Overall, OE markets remained weak while replacement was resilient, but the picture was very contrasted between regions. In passenger car, OE market was down 3%, dragged down by China, where domestic demand was less dynamic than in 2025 because incentives for new vehicle purchases have become less generous. Europe and North America remained stable overall despite pressures from the broader economic environment, such as tariffs and the conflict in the Middle East. Replacement market grew by around 1%. On the one hand, it benefited from China with positive macroeconomics and the replacement effect of the many new vehicles delivered over recent years. On the other hand, the North American market declined, reflecting the progressive reduction of the surplus stock of Asian tyres built up in 2025. Europe was slightly down as well, with ups and downs due to swings of import flows. I am taking the opportunity here to remind you that in Europe, anti-dumping measures on passenger car tires produced in China came into force on July 8, with rates averaging 24 to 45% on the high end. In trucks, the market excluding China was down 2%. North American demand remained depressed in cumulative terms, but the month of June has turned positive, which is a long-expected turning point. After several months of favorable orders for new trucks, production is set to accelerate. In Europe, demand maintained good momentum on a low comparison base, and in South America, the Brazilian market was penalized by a difficult economic situation, limiting CAIA's investment and by competition for truck imports from Asia. In replacement, the market grew by 2%. Europe posted an increase reflecting resilient freight demand and stronger imports. In South America, demand rose strongly, driven by the combined effect of high imports and mechanical compensation for the decline in the oil market. The North American market fell sharply by 13% due to lower imports, difficult weather conditions early in the year, and a soft freight demand. In specialties, the situation is very contrasted. Mining markets remained well-oriented thanks to solid structural demand. In aircraft, the year started very strongly until the crisis broke out in the Middle East, which limited demand in the commercial segment in the second quarter. But overall, the semester was positive. Beyond Road showed a very mixed picture. In agriculture, replacement markets grew slightly, but OE remains depressed, especially in the high power segment in North America. Infrastructure was positive, both OE and replacement, in the continuation of 2025. Material handling was flat, with replacement compensating for the decline in OE. Finally, the demand in defense posted growth. Moving to group revenue now, we have reached 12.7 billion euros in the first half. Reported revenue declined by 2.6% due to currency headwinds. At constant exchange rates, revenue was actually up by 0.5%, demonstrating the resilience of our business model in a still challenging market environment. Looking at the bridge, Scope contributed positively by €90 million, reflecting the acquisition of Coulee Group and Flexitalic, partly offset by the disposal of Compact Line activities to SEAT completed last year. Volumes were down 0.9%, mainly reflecting lower original equipment demand and lower sales of Tier 3 brands. This was partly offset by the strong performance of the Michelin brand in replacement. A word about the trend. Along the semester, we saw an improvement in sales momentum in Q2 versus Q1, with June posting significant growth. Price Mix remained a strong contributor, adding €115 million. Behind this figure, mix was particularly strong at plus 1.8%, driven by continued premiumization, a richer product mix with larger rim size and a favorable channel mix with replacement outperforming OE. The negative pricing effect mainly reflects the impact of indexed contracts linked to low raw material costs in 2025 and our dynamic pricing approach. This overshadows price increases implemented in Q2 to offset cost inflators triggered by the Middle East conflict. Non-tire businesses had a modest negative impact of €21 million due mainly to weak demand in conveyors, partly masking the good performance of other polymer composite solution businesses on a comparable basis. Finally, currencies had a very significant negative impact of more than 400 million euros, largely driven by the depreciation of the US dollar against the euro. In summary, H1 revenue growth at constant exchange rates was supported by mix, mission-bound strength and targeted acquisition, with sales gaining momentum over the semester. Zooming now on the detailed view of volume performance, this slide shows how the 0.9% decline results from two opposing trends. While replacement outperformed, driven by machine-bound strength, original equipment remained challenging. In OE, the group continued to face weaker markets, especially in truck North and South America. In passenger car, sales failed to recover due to weak demand. An unfavorable mix of automakers and vehicle models in some regions. In the first half, machine-bound sales in replacement increased by 5% in tonnage, a strong performance in the context of relatively modest market growth. This was driven by several factors. The strength of our product offering, the success of recent launches such as Mission Primacy 5 Energy, continued growth in 18-inch and larger tires, and good momentum in key markets such as Europe, China, and North America. Regarding Tier 2, brand sales remained flat, while Tier 3 brand sales declined, challenged by strong import flows from Asia, which resulted in high inventory levels in distribution in some regions, particularly Europe and North America. Turning now to profitability, segment operating income reached 1.45 billion euros, representing an operating margin of 11.4%, an improvement of 0.3 points versus last year. At constant scope and FX, SOI rose by 103 million euros, or 7%, reflecting strong operational execution. Looking at the bridge, lower volumes had a limited 38 million euros drag, as improved plant utilization helped contain fixed cost absorption. Price mix contributed 78 million euros, driven by primalization and a favorable shift to replacement and larger rim size. Raw materials delivered a substantial €199 million tailwind following the decline in raw material prices during 2025. This was partly offset by €130 million higher manufacturing and logistics costs, including tariff and inflationary pressures. Finally, currencies reduced segment operating income by €114 million Despite the FX headwind, margin improved versus H1 2025, underlining the resilience of our model. Looking now at the business segments. Consumer delivered resilient performance with revenue increasing by 0.7% at constant exchange rates and an operating margin improving to 12.5%. Volumes growth was supported by automotive replacements and two wheel cells. Machine brand performance was strong in replacements, notably in Europe and China, and market share improved in North America. Transportation posted a revenue of 2.8 billion euros. This segment continued to face difficult market conditions in the first half, leading to lower revenue and margin pressure. However, Profitability improved slightly with a gain of 0.3 points thanks to better fixed cost absorption following the restructuring of our manufacturing footprint. Specialties revenue reached 2.2 billion euros, demonstrating continued resilience with a 1.1% increase at constant exchange rates and a solid operating margin of 14.1%. Mining and aircraft delivered strong growth, while agriculture OE remains depressed. Infrastructure and defense showed encouraging signs of improvement. Polymer composite solutions maintained strong momentum, posting 16% revenue growth driven by recent acquisition. While operating margin was affected by difficult market conditions in conveyors, the segment continued to deliver attractive profitability and remained accretive to the group's overall performance. Overall, the group achieved 0.5% revenue growth at constant exchange rates alongside a 0.3 points increase in margin. Now, I would like to give you more details regarding the performance of our polymer composite solutions business. You probably remember that it is made up of four main product categories. Conveyors that accounted for almost 40% of our revenues this semester, ceiling, coated fabrics and film, and belting. Out of these four categories, three posted good performance. Ceiling recorded strong growth, supported by momentum in hydraulic, gas compression and aerospace applications. In addition, the integration of flexitellics from April has been supporting this positive trend and will be fully visible in the results of the second semester. Coated fabrics and films growth was driven by the diversification of applications beyond maritime and the recovery of niche automotive solutions such as impregnated carbon fabrics. The integration of Coule Group from February is progressing quickly, which enables the teams to focus on the business. Belting posted growth, supported by resilient industrial markets, air and food handling solutions, or bearing liners in aeronautics. On the flip side, conveyors had to cope with a low demand cycle this semester, with Australia impacted by weak construction activity in China, and North America penalized by destocking and cash management at some distributors and industrial customers. Overall, we expect a sequential improvement in the operating margin of this segment in the second semester, with a rebalancing of our business portfolio resulting from the three acquisitions. Moving now to cash generation. You know that in the tyre industry, the pattern is very seasonal, with most of the cash being generated in the second semester of the year. In H1, starting from an EBDA of 2.4 billion euros, a 19.1% of sales, the group was able to generate a positive free cash flow of 282 million euros over the period. To do so in an inflationary context, we had to steer very closely our operation, especially our working capital and capex. We did not cancel or postpone any major projects, and we are maintaining a capex ambition of around 2 billion euros for the year. M&A accounts for around €600 million over the period, with the closing of Coulee and FlexItaly. The closing of TexTech will impact the financials of the second semester. Looking at now the net debt, you can see that our gearing has increased slightly versus last year, going from 22% to 26% at the end of June 2026, reflecting mainly the recent acquisition. These financial strengths give us the flexibility to pursue a balanced capital allocation policy. Investing in the business, financing targeted acquisitions, maintaining an attractive shareholder return and preserving a strong balance sheet. In 2026, around 1.7 billion euros will be returned to shareholders, including 944 million euros of dividends paid in May and around 750 million euros share buyback, of which 300 million euros were already executed at the end of June. The group continues to benefit from strong long-term credit ratings. All major agencies reaffirm the group rating of A with stable outlook during the first semester. Now moving to 2026 outlook. I will start first by sharing our vision of the tire markets. In passenger car, we see the situation weakening slightly in the second semester. OE markets should be more negative in H2 than they were in H1. Except China that is expected to remain negative, but to a lesser extent than in H1, all other regions are showing a downward trend. Replacement markets should be similar to H1 at best. The main change here is China, where the strong growth posted in H1 should normalize. In trucks, the situation is contrasted. We are confident that oil markets will improve, driven by the recovery in North America. After the strong pre-order of the first semester and EPA 27 still expected to be a catalyst, tire markets should post significant growth in H2. The situation should be more stable in Europe. Replacement markets should be close to H1, maybe slightly below, due to some normalization of the demand in Europe. In specialties, mining demand is expected to be slightly more supportive sequentially as the inventory situation is very sound. Aircraft markets depend on the geopolitical situation, but the outlook is positive at this stage. And regarding beyond road, infrastructure and defense should be growing while material handling and agriculture look contrasted. At AG OE especially, the market is stuck in a historically long downturn and there are no signs of a short-term rebound. So before moving to our guidance, I would like to briefly come back to the Middle East situation as shared in our first quarter release and the way we qualified it. As a reminder, in Q1 we shared a scenario to illustrate the potential impact of a prolonged conflict. The scenario considered was based on a Brent oil price around US$100 per barrel for the rest of the year, along with the related effects on raw material, energy and logistic costs. Looking at the first half actuals, the situation has evolved almost in line with the assumptions. Demand has remained resilient overall and we managed to ensure business continuity toward our customers as well as our supply in raw materials. However, the geopolitical environment remains highly uncertain and triggers high volatility, as illustrated by the swings in Brent price. For this reason, we keep our assumptions broadly unchanged, including the Brent scenario, rather than assuming a normalisation that cannot yet be taken for granted. Based on these assumptions, we continue to estimate that a prolonged disruption could generate around 400 million euros of additional cost inflation, mainly through raw materials, energy and logistics. We are steering along this scenario in an agile way, in close contact with each of our markets, and leveraging our brand premium on a skew-by-skew basis thanks to our precision pricing approach. As you are aware, Michelin has a proven track record of performing well in these environments. Our crisis management process remains in place, while our vertical integration, local for local footprints, and disciplined pricing and mix management help mitigate risk and protect profitability. Finally, based on our solid first-half performance and despite the continued uncertainties surrounding currencies and the geopolitical environment, we are confirming our full-year guidance. We continue to expect segment operating income at constant exchange rates and scope to exceed 2025 levels. We also reaffirm our objective of generating more than €1.6 billion in free cash flow before M&A. Looking ahead, we remain committed to delivering attractive shareholder returns through a balanced capital allocation policy, combining a sustainable dividend with the ongoing share buyback program. Before we get into the Q&A session, I would like to conclude by sharing with you the schedule of our upcoming financial milestone. In particular, I wish to inform you that the date for our next Capital Market Day has been set. It will take place on May 28th in 2027. This concludes the presentation. Thank you for your attention. And together with Florent, we are now ready to take your questions.

Ladies and gentlemen, if you wish to ask a question, please press star one on your phone keypad. Please ask your question in English. Please limit yourself to two questions only. If you have additional questions, we kindly ask that you rejoin the Q&A queue to allow time for other analysts. The first question is from Martino de Ambrogi with Equita. Please go ahead.