Full Year 2024 Compagnie Générale des Établissements Michelin Société en commandite par actions Earnings Call
Ladies and gentlemen, good evening.
Good morning for those of you that are in different time zone.
You have to appoint and myself are very happy to present, our missed in 'twenty 'twenty four annual results.
Before we enter into more details about the performance.
The.
In the past year.
I just wanted to resume on obviously in motion strategy 2030, because we are really.
Deploying it.
If you look at.
What is on your screen.
On the left side is the basis the foundation of what we are building on highly engaged team.
Recognize and very powerful brand, a very strong innovation leadership, and a unique R&D and industrial capabilities.
And excellent market defining products and services.
With this foundation, we can not only excel in tires, but we can also expand the reach of <unk> offerings into services and experiences.
In the podium at competitive solutions.
So if we come back on tires, we are addressing all mobility use azure through better products.
One example of that is today, 65% of our passenger car.
Michigan citizens.
It is our own 18 inch plus C diameters.
You're fine now.
Zooming in services and experiences we are leveraging our customer intimacy for enhanced consumer experience and we are turning the usage data into unique insights for fleet.
And you should know that every day, one 6 billion kilometers.
Created with real life usage data.
And if we look at pretty American was it solutions, we are leveraging our unique mastery of materials to differentiate on mission critical applications for growing and diversified b to b markets.
The latest example of that is in conveyor bed.
We are.
Right now selling a.
Ill say a line.
And that line is saving 40 per cent of energy consumption.
These are a few example of our Michigan and motion strategy twenty-three deployment now.
Go back to 'twenty 'twenty four.
To summarize it it's in the title it's a we've been winning where we think it matters.
If we look at the different segments, if we look at Sigma one.
We have been growing says in 18 inch close and are in our all season and the winter a segment and we have the latest a new generation of Alpine Tayo.
Alpine seven that has been launched and we are continuing developing our share in with the cross climate Ranch and we are reinforcing our technological edge, especially on the AI and data management and one example of that is the partnership we have initiatives with the brand go Oh.
Leading our thoughts in our braking systems for cars.
If we look at the segment too.
Our operating margin is still and Oh well.
While development a good development and it has been improving a sharply in 2024 and we are on our journey to meet our targets objectives by 2026 and of course, our ambitions for 'twenty three.
Our industrial AR.
Adaptation.
In terms of footprint is well on track and sometimes in advance.
If we look if we zoom in on segment three.
In mining we have been engaging in gaming volumes in 63 inch and we also gaining in most of our core markets are.
Gaming volumes and sure.
North America, South America, China Eastern Asia.
And in beyond road, we are now focusing on the restructuring of our activities into the segments, where we really want to be.
Be a successful and that's why we have decided to exit the compact line bias segment.
And you've seen the announcements of this.
The forecast the seller of that activity.
Speaker Change: To and Indian company named Seth.
Speaker Change: What does that translate into a R. M. Three P metric in terms of people our engagement rate.
Speaker Change: The progress and we are now reaching 84, almost 85% engagement.
Speaker Change: Engagement rate, which is.
Speaker Change: Really.
Speaker Change: In the top league in terms of engagement in terms of profit and we have a solid result, with a $3 4 billion Euro of segment operating income and.
Speaker Change: Strong cash flow generation of $2 2 billion Bureau.
Speaker Change: And we all at the same time pursuing our effort to have a less impact in the planet and we have now in our product a 31% renewable and recycle.
Speaker Change: In all our offering on average.
Speaker Change: That.
Speaker Change: For 'twenty 'twenty four we have decided that we would propose to our shareholders.
Speaker Change: 138 euro dividend per share.
Speaker Change: Which corresponds to a 52% payout ratio. So we are what we have said we are in the.
Speaker Change: 50% of a ballpark payout ratio.
Speaker Change: And for 2025 I got the answer is very simple and.
Speaker Change: I would say.
Speaker Change: Exciting environment. We are operating we are we are proposing to.
Speaker Change: Progress in Talbot segment operating income and we also want to deliver a strong cash flow in excess of $1 7 billion euro without excluding occasion.
Speaker Change: So before.
Speaker Change: Being into the question.
Speaker Change: Sessions I leave the floor to.
Speaker Change: What are you going to give you more details.
Speaker Change: So good evening, ladies and gentlemen to until a little bit in detail I would like to share with you.
Speaker Change: An assessment of our performance at 360 degree starting with our our Onvia on tour.
Speaker Change: Our action plan.
Speaker Change: Is deployed mainly on three areas felt our climate.
Speaker Change: <unk> plan, which has been and then.
Speaker Change: And we have more ambition that what we declared in the past towards 2030 and it has been validated by the DTI.
Speaker Change: In 'twenty 'twenty four can quickly our SKU to emission scope, one and two so coming either from the production of energy or the purchase of energy as decreased by 13%. This was 2023.
Speaker Change: When we look at our resources.
Speaker Change: Our water withdraw wall has decreased by seven 7% overall.
Speaker Change: And I've mentioned by floor the rate of renewable and recycled rate increase.
Speaker Change: <unk> increased by three points versus 2020 free from 28% to 31%.
Speaker Change: Last in terms of biodiversity, our main stake in our industry is a natural rubber.
Speaker Change: And at the end of the Yale 2024, 98% of the natural rubber we purchase he says deforestation free according to the U D R.
Speaker Change: Open regulation.
Speaker Change: That has been postponed by one year the debt we'll have reinforced.
Speaker Change: From a January 2026.
Speaker Change: All these indicators are cost embedded in our new sustainability report to be published with our U R. E L. He Peru, according to the European She SRT.
Speaker Change: Looking now at our performance in terms of people.
Speaker Change: The first that will rebound on Florence comment about engagement, our engagement rate at $84 seven increased by 1212.
Speaker Change: Points versus 'twenty, three which is a probably one of the largest improvement we recall in the recent years.
At the same time.
Speaker Change: The concrete proof of this engagement is at 57% of our employees subscribe to our shareholder plan.
Speaker Change: Which is 4.0 move 2022.
Speaker Change: And which is a one of the highest rate in the in the market.
Speaker Change: Another element, which is very important for US is the fact that versus 2021 and 2024.
Speaker Change: 17% of the managers we.
Speaker Change: We have 17% more managers versus 2021 does that began deck out yeah as manufacturing operators.
Speaker Change: And last but not least.
Speaker Change: We have announced early 2024 that we are looking to implement living wage freeze.
Speaker Change: Threshold for all of our employees across the group.
Speaker Change: And this engagement has been certified by a fair wage network.
Speaker Change: At the beginning of 2024.
Speaker Change: So now moving to let's say more the profit performance, let's speak about the markets.
Speaker Change: In 2020 for the market to where in the sell in market that we're publishing well pretty distorted by inflows of bridgette tire bulfinch passenger car and light trucks and truck tires.
Speaker Change: Some of these inflows were made in anticipation of a the.
Speaker Change: The potential tariff like a truck tire in the first half of the year in North America in the U S coming from Thailand, all in the second half of the prospect of the implementation of the UDR the deforestation regulation in Europe push some Asian pro.
Speaker Change: So to anticipate and push titles.
Speaker Change: To walk there.
Speaker Change: The distributors.
Speaker Change: Of the implementation of this regulation.
Speaker Change: So that as.
Speaker Change: Modified a little bit of the profile of the of the market.
Speaker Change: And at the same times.
Speaker Change: All across the different segments, so in passenger car and truck, but as well in the specialties market.
Speaker Change: From the second half of the year, we have seen most of the original equipment market.
Speaker Change: Dropping.
Speaker Change: And overall passenger car tire market grew by 2% over 2024.
Speaker Change: The original equipment at minus two and replacement at plus four and the drop of original equipment is mainly concentrated on the second half of the year in.
Speaker Change: In truck tires, the market grew by 1% with who we are down by 7%. This figure four tracheal exclude China market and replacement increasing by 3%.
Speaker Change: The Chinese market itself.
Speaker Change: <unk> decreased by 5%.
Speaker Change: <unk>, which is an important given the size of the market and the capacity installed in this in this country.
Speaker Change: The mining market a slightly decrease.
Speaker Change: Not because of the conception, but because of most of the mining operators.
Speaker Change: Reduce their inventories and we consider that the at the end of the year. They have been let's say at a more normative level than at the beginning of the year.
Speaker Change: In the specialty tier we have.
Speaker Change: <unk> seen a very sharp drop in agriculture, and construction, particularly in the original equipment replacement, where are let's say more stable or slightly growing particularly in metro market.
Speaker Change: We for I agree Charles has been down by 20%.
Speaker Change: In construction, it's minus 15%.
Speaker Change: So this market has been severely impacted by the original equipment.
Speaker Change: Ah self.
Speaker Change: At the same times, we have seen a matter you are not link also a little bit soft when aircraft chaos as.
Speaker Change: <unk> continued to grow.
Speaker Change: You will not get you know as a recover.
Speaker Change: After two years of over stocking and Destocking.
And putting their complete solution that's been overall.
Speaker Change: Slightly smooth in the 2024.
Speaker Change: So in that context, our self well down by three 1% Idaho exchange rates.
Speaker Change: With an important volume decreased by five 1%.
Speaker Change: Price mix at play.
This too with a very strong.
Speaker Change: Mix effect of one 9% over the year, both coming from the enrichment of our product mix, but as well from the different evolution between replacement and original equipment market.
Speaker Change: Non tire market. It has been overall stable if we consider that the scope effect is coming from the STG.
Speaker Change: And we have been impacted negatively by the currency minus one point.
Speaker Change: Which leads us to end the year with the sales of $27 2 billion Euro.
Speaker Change: Okay.
Speaker Change: I want to zoom in on the first segment, especially segment our self.
And if you look.
Speaker Change:
Passenger car sales have been our sales have been volumes had been minus 1.7 truck minus six and the specialty segments. The arris free minus nine.
Speaker Change: From this nine points of the decrease seven are coming from our beyond road activity construction material handling agriculture, which creek water is basically coming from original equipment.
Speaker Change: And the remaining quarter from the replacement, particularly in construction.
On the mining side, which represent around 25% of the overall specialty business volume decrease.
Speaker Change: In fact, if we easily.
Speaker Change: Our growth in.
Speaker Change: South America, North America and Asia.
Speaker Change: Asia, particularly in Australia, Indonesia.
Speaker Change: In fact, most of the of the volume lost are coming mostly from Destocking from some customers.
Speaker Change: Such Anglo American in South Africa, the stop of our mining operations in Panama copper mining.
Speaker Change: And the implementation of a more stringent export.
Speaker Change: Export control measure of.
Speaker Change: To work, particularly central Asian countries.
Speaker Change: Yeah.
Speaker Change: In terms of operating margin so the group.
Speaker Change: Idaho exchange rates succeed despite the very important volume.
Speaker Change: Lost to stabilize its operating margin at 12, 6%.
Speaker Change: The 70 million guarantee effect at.
Speaker Change: Our current Forex, it's 12.4.
Speaker Change: And looking at the different effect of this bridge so the $28 million of the Scoop contribution is mostly coming from the STG, It's a free quarter of the year basically.
Speaker Change: The volume the Eugene.
Speaker Change: Victor volume is basically two felt coming from the loss of volume and margin and one third coming from the under absorption of fixed.
Speaker Change: Cost in the factories.
Speaker Change: We have a very strong price mix of plus four and was 38 million.
Speaker Change: Of which most is coming from.
Speaker Change: The second half of the year run from about $50 million at the end of the first half of this effect was plus 84.
Speaker Change: Raw material costs are positively contribute to the to this bridge with a very positive effect in the first half had a negative effect in the second half.
As well as the manufacturing and <unk> costs, which are nearly neutral over the year, but were strongly positive during the first half with the decrease of energy and logistic costs.
Speaker Change: And.
Speaker Change: For example, the maritime shipping.
Speaker Change: <unk> cost in the first half when is the second the second half.
Speaker Change: The impact of inflation.
Speaker Change: As a kid our manufacturing operations.
Speaker Change: SG&A grew basically according to the pace of inflation with our slower growth in the second half of the year than in the first half.
Speaker Change: Non tire of contribution is slightly negative due to very high.
Speaker Change: 2020, a free basis.
Speaker Change: And indeed, although.
Speaker Change: You will mostly find the effect of valuable bonus from one year to another so this year, it's a positive.
Speaker Change: Positive because we will have a less.
Speaker Change: Bonuses than in the 2023.
Speaker Change: Looking at this performance by our business segment I would like first to mention that we have reclassified the two wheel business, which is more b to b to C. So a consumer business and how long with the.
Speaker Change: Centrica business. So the first segment no include booth.
Sandra: Sandra carrying two wheel.
Sandra: And overall this segment has been able to maintain its operating margin at 13, 1% versus 13 point too.
Sandra: In 2023.
Sandra: The main improvement is coming from the second segment the transportation business.
Sandra: Which despite very strong negative volume.
Sandra: Seen are mostly coming from the originally coupon sales.
Sandra: And the fact that they have to reposition.
Sandra: Their priorities on the areas, where we can really create value.
Sandra: So they have benefited from a very strong and.
Sandra: Positive pricing policy as well with the contribution of a machine connected mobility.
Sandra: Which positively contributing to this activity.
Sandra: Last our cell free performance, which she is oh parroting margin decreasing by $2 seven.
Sandra: I've been penalized by the performance of our mining and beyond road activities and particularly the beyond road activities.
Sandra: Which has been impacted favorably by the original equipment market.
Sandra: Correct.
Sandra: So facing the situation I would just like to remind that the group.
Sandra: In the past 18 months since basically October 2020 free.
Sandra: We have announced nine capacity adjustments plus the disposal of our compact line businesses in the construction business is by US construction business is in Sri Lanka.
Sandra: Altogether these nine operations.
Sandra: Contributing to our.
Sandra: We drove all of 10% of our standout passenger car tire capacity.
Sandra: And 15% of our truck tire radial truck tire capacity in the world.
Sandra: And in parallel the group is of course contributing to exited weight on the digitalization and the artificial intelligence roadmap, particularly in the manufacturing where we all know.
Sandra: Starting to get very concrete.
Sandra: Contribution.
Sandra: From these projects.
Sandra: Okay.
Okay.
Sandra: As we might expect a question about <unk>.
Sandra: The tariff and our situation, particularly North America and in the U S. I just would like to remind that Michigan is I started is manufacturing.
Sandra: The implementation in the USA 50 years ago in 1974.
Sandra: And we operate no 35 manufacturing sites in the U S of which 20 tire related sites and 15th 15 coming from the composite body mass solution Division.
Sandra: We employ 20000 people in other than U S.
Sandra: And machine has been.
Sandra: While it did several oh was related to the way we are managing an hour.
Sandra: The people management system, the last one coming from Forbes in 2024.
Sandra: USA represent one third of the group sales.
Sandra: And these weren't sort of group sales.
Sandra: Procure by 70% of local production so U S production servicing.
The U S market at.
Sandra: At the same times, we should not forget that.
Sandra: For example, our mining facility in South Carolina is exporting more than 80% of its project Cheyenne everywhere in the world.
Sandra: In America, but as well in South North America and Asia.
Sandra: Well, that's basically a way to share with you that we have a very strong local to local strategy.
Sandra: And it's a concrete example of the way we are operating in the largest.
Sandra: Market for the group.
Sandra: No moving toward more let's say cash.
Sandra: Consideration.
Sandra: Our free cash flow performance is a second.
Sandra: Performance in the group you story after our.
Sandra: 2023.
Sandra: As we learned with a $2 2 billion euro.
Sandra: Free cash flow at the end of 'twenty four.
Sandra: Mostly coming from a very strong EBITDA at 19, 7%.
Sandra: The $5 three nearly $5 4 billion euro.
Sandra: And thanks to a very good management of our working capital with the despite.
Sandra: Inflation in the inventories at the end of the Yale with UDR implementation natural rubber and beat again price inflation, we have been able to decrease the overall value of our inventory by 165 million Europe.
Sandra: At the same times, we have seen a decrease in our financial costs.
Sandra: And some improvement in the way we are managing our capital expenditure.
Sandra: So.
Sandra: Overall, we are very satisfied with this free cash flow contribution.
Sandra:
Sandra: Which represent a cash conversion ratio above 40%.
Sandra: Our real key despite the impact of our segment operating income.
Sandra: Kris and a lower contribution from the JV and associates versus 2020 free.
Sandra: As in 2020 free we recall the sales of our half of our stake in <unk> and these investments by our Tvs tea joint venture in North America of its retail companion Division, we have been able to maintain our free cash flow above the our raw.
Sandra: Key.
Sandra: Move the 10th of a 10.5% threshold.
Sandra: Defined in 2020.
Sandra: So all of that Hello is to keep a very strong balance sheet with.
Sandra: A very slight decrease of our net financial debt by one of the nearly $170 million and gearing at 16, 7%.
Sandra: All our rating having been confirmed and maintained by the rating agencies.
Sandra: Okay.
Sandra: No, let's look at our 2025 and our guidance.
Sandra: Our 2025 markets are plagued with a lot of uncertainties.
Sandra:
Sandra: And looking at both passenger car and truck tire market overall, we consider that this market will be either flattish or slightly positive.
Sandra: But with two very different patterns versus 2024.
Sandra: First we are expecting a different seasonality between the first half in the second half.
Sandra: We consider that the first half both for passenger car tires and truck tires original equipment market will continue to be depressed during the first half of the Yale and we are expecting at.
Sandra: At least for truck tire and probably as well for passenger car tire rebound during the second half of the year.
Sandra: When at the same times, we should we called a slight growth in the replacement market.
Sandra: So that will be their taser to different pattern versus.
Sandra: In 2024.
Sandra: We are also expecting to with market mining aircraft and polymer composite solution to recall the slide roof.
Sandra: In our beyond tire activity.
Joel: Joel constructions.
Joel: We think that original equipment will continue to be depressed.
Joel: During most of the Yale we might recall the rebound, but it is a.
Joel: Very last months of 2025, when we look at let's say by cycle.
Joel: We consider that we should recover.
Joel: Volume growth in <unk>.
Joel: For example, in agriculture, and construction, but most probably end of 2025.
Joel: Early 2026.
Joel: So in this very uncertain context.
Joel: The market that will remain.
Joel: Volatile.
Joel: We intend to hold on our 2013 GAAP.
Joel: And on the strengths and the key assets that floor mentioned he needs to.
Joel: Slide the quality of our team the strength of our brands, our innovation potential and the quality and the performance of our product and services.
Joel: Therefore, we will continue to to grow to try to grow on the area, where we can create value and where it matters.
Joel: So that's very will continue on this on this journey.
Joel: While at the same time accelerating our product renewal and product innovation.
Joel: We have a lot of new launch new product launch plan in the in 2025.
Joel: Primacy.
Joel: The new primacy five range has been already announced.
Joel: In passenger car, but there will be other announcements.
Joel: Later on in truck tires, we have our new remix re trading.
Joel: Over in Europe, New ranges plan, both in Europe, and North America, and as well in the construction and agriculture, we have new new product that are going to be launched.
Joel: In 2025.
Joel: We will push you have called the growth of our.
Joel: Michigan connected mobility activities and polymer composite solutions.
Joel: Solutions.
Joel: And we want to to continue to achieve our industrial footprint or whatnot.
Joel: <unk> been following the announcement made in 2023 and 'twenty 'twenty four.
Joel: So with all these costs in cards in hand.
Joel: We are looking as Laura mentioned to deliver a higher.
Joel: Segment operating income at Idaho Ah Forex.
Joel: <unk> 2024, and we are well as well aiming to improve to deliver our free cash flow above $1 7 billion Euro.
Joel: Before any merger and acquisition.
Joel: The transaction.
Joel: So it's thank you for listening to this presentation and I think now that we can open the Q&A session.
Joel: Thank you.
Joel: Ladies and gentlemen, if you wish to ask a question. Please press star one on your phone keypad. Please ask your question in English.
Joel: First question is.
Joel: Marty.
Joel: Please go ahead.
Joel: Yeah.
Joel: Thank you.
Joel: Everybody.
Joel: My first question is on the specialty which in the specialty division, which in.
Joel: The second also recorded 11 points.
Joel: 6% right on those sales.
Joel: I'm just.
Joel: Just to understand what is your expectation for the current year.
Joel: If I do the math correctly.
Joel: Including the motto.
Joel: Chip I should.
Correct me, if I'm wrong how's the ability on those sales are with low single digit rate on wholesale so.
Joel: Profitability, including multiple they've been lower than 10%. So this is my first question.
Joel: Beyond the two Wheeler.
Joel: I think you probably need to revise your calculation because actually 2024 has been a record year because your fortuitous active.
Joel: Activity so on.
Joel: And then for the.
Joel: Segment three.
Joel: But we he was more detailed the nutrition mining we had a lot of one off in 'twenty.
Joel: 'twenty 'twenty four and we expect 2025 not to have those one off and therefore are there any structural underlying activity in mining should be a much better in 2025 and beyond road.
We have some restructuring to do and the OE market as you've mentioned.
Joel: Should recover to all see at best at the end of 2025.
Joel: Presumably a early 2026, so that's why.
Joel: We don't forecast what segments or is it going to be which we expect mining to be a.
Joel: Much better.
Joel: Aircraft to be a very strong and we expect.
Joel: Beyond road to recover slightly however, we would not be a completely safe.
Joel: Place before 2026.
Joel: Thank you.
Joel: Back to the Lotto I was looking at last year, the adjustment compared to the last year results and I'll restate it.
Joel: And at least last year seem to be quite a lot of profitability for the month of May I ask you more or less what could be taken into account for this division.
Joel: When you say last year you took in 2023, yeah. In 2000 22023, yes, it was difficult year for far too weird because of the reason I'm talking we had a lot of destocking.
Joel: Right. After Covid, you had a lot of stocking happening everywhere and it took two years to purge that so it started in 2021 and it took two years to purchase or 'twenty to 'twenty three.
Joel: You had a lot of destocking in the performance wasn't as strong in 2024, the performance as Mitchell has been much better and actually.
Joel: This activity in two.
Joel: 2024 has been a record year.
Joel: Okay, and just a very follow up on the guidance.
Joel: The steel tariffs and these kind of things.
Joel: At least what is already effective as are included in your guidance.
Joel: What is already effective.
Joel: Implemented is in the guidance. The rest is a we have to wait for us.
Joel: What will happen.
Joel: Thank you.
Speaker Change: The next question is from Harry Martin of Bernstein. Please go ahead.
Joel: Yeah.
Speaker Change: Good evening everyone.
Thanks for taking my questions. So the first one I really just wanted to try and understand.
Speaker Change: What is built into the floor of the guidance.
Speaker Change: Potential upsides.
Speaker Change: I mean on the the scenario is next year in tons volumes Wap passenger car truck.
Speaker Change: And the year and a negative that's the kind of the lower end.
Speaker Change: Does that already include some expected disruption from tariffs and then similarly in the specialty part given how easy the compares for it to be negative.
Speaker Change: The step down in absolute volumes, rather than simply stabilizing at the current levels.
Speaker Change: So.
Speaker Change: So.
Speaker Change: The question that comes out.
Speaker Change: Conservatism.
Speaker Change: And the guide.
Speaker Change: We are aim with our team is to.
Speaker Change: Although the lever on the on what we are.
Speaker Change: What we commit to so I'll leave you to judge whether it's collateral calls.
Speaker Change: Not now.
Speaker Change: About the tariffs and.
Speaker Change: Mitch now over the past five years as weather many different storms.
Speaker Change: And we've always come came with solid results. So.
Speaker Change:
Speaker Change: We have to wait and see what the reader.
Speaker Change: Turning in terms of tariffs before we can make any forecast today, we we don't know so at this stage, we just put in the <unk>.
Speaker Change: Guidance, what we what we know.
Speaker Change: For sure and the rest is a speculation basically.
Speaker Change: Yeah.
Speaker Change: Okay. Thank you.
Speaker Change: My second question on Florida, I listen to your parents and the.
Speaker Change: The Senate Committee on.
Speaker Change: Yes.
Speaker Change: The interesting disclosure I think was that the production costs that you have today in Europe is almost twice that there is in Asia.
Speaker Change: Even if you aren't directly competing with the Chinese brands and a lot of the premium markets.
Speaker Change: That impact the pricing power of the business in Europe, we have cost inflation in natural rubber prices going up or.
Speaker Change: Is that still the ability to price and also I guess do you have capacity in the right types of.
Speaker Change: Tire production in southeast Asia to potentially export into Europe, even if there is.
Speaker Change: Just kind of a temporary measure.
Speaker Change:
Speaker Change: So in your.
Speaker Change: Hmm.
Speaker Change: To summarize on a worldwide basis.
Speaker Change: We were net exporter out of Europe, and net importer and the rest of the world.
Speaker Change: Right now what I've said is because of the cost structure in Europe, we cannot be in that position anymore.
Speaker Change: Hence what we have done in restructuring reshaping the production capacities.
Speaker Change: We are done with all of it I think we have done a substantial portion of it and the effect will be seen it.
Speaker Change: It takes a while before this oh, we will get the full benefit and we will start to see some benefit next year and in the following years that will.
Speaker Change: Improve the.
Speaker Change: Our cost structure in Europe, and therefore are competitive activity.
Speaker Change: The pricing power is a different subject.
Speaker Change:
Speaker Change: Today, all Brown is very strong our customers.
Speaker Change: Believing our product they trust our brands they trust and they like the performance of our product and that's.
Speaker Change: Dictates the pricing ability, we have so I don't relate directly the cost to the pricing because we.
Speaker Change: We have been building, a very strong consumer and customer relationship.
Speaker Change: Whether it's in Europe or in any other part of the world.
Speaker Change: Great. Thank you very much.
Speaker Change: The next question is from Thomas.
Speaker Change: Oh sure.
Speaker Change: Please go ahead.
Speaker Change: Thank you very much.
Speaker Change: I would start with a question on the you anticipation for volume recovery for specialty in 2026.
Speaker Change: Your confidence in meeting your 2026 targets while it goes those are seems to have lost confidence, but the first question.
Speaker Change: If you want to answer I have a lot of confidence in 2020 six but ER.
Speaker Change: Some details with you Yeah I mentioned that are in our speciality we have very two very different situation, where the mining activity where in 2024 were impacted by let's say one off effect and there is no reason that this activity does not recover even starting in 2020.
William: Five volume, it's probably this is William.
William: On the Billboard activity don't keep in mind that our for the agriculture of construction infrastructure business nearly half of their business is coming from original equipment and the other half from replacement given the cyclicality of the original equipment market, which is.
William: Do for example link for agriculture to Farmers' revenues.
William: And some of the venues where very high partly after the war in Ukraine, which inflated a lot of agriculture commodities.
William: Down since.
William: Two years and it impacted us market, but when you look.
William: Overall, the past 15 years, you have this kind of cycle of <unk>.
William: Every 18, two year 18 months two years, so we expect that.
William: Normally, especially T original equipment market should be supportive.
William: In our.
William: He's a very loss of 2025 or <unk> in 2026.
William: Now overall I take a rebound on the.
William: Answer on specialty too.
William: 'twenty 'twenty four is being really a.
William: Unusual with the very sharp decline in OE in almost every market we operate in tires.
William: Passenger car truck.
William: Beyond road agricultural metal handling et cetera.
William: If I take passenger car.
The mileage driven in the world is very stable slightly increasing therefore, as we have seen a very sharp we drop in volume. It means that replacement has been somewhat slightly boosted.
William: It means that he could park is aging.
William: And it cannot H forever. So that's why we say we think there is a lot of confusion in the buyers of cars right now and we think.
William: We anticipate that will.
William: Be the case in the first semester in 2025 still and we should expect a recovery in 2020 or the.
William: The second half of 2025.
William: When we look at truck and truck situation is we think that there has been there we've seen a massive destocking across all industries around the world in 2024.
William: This destocking has happened we think in 2025.
William: Economy.
William: Behaves the almost the same way as 2024, we are going to see some better activity for truck tire truck.
William: Chuck.
William: And therefore, we anticipate that the truck, especially in North America, and the truck OEM will recover in the second semester and therefore, we would benefit from that.
William: Thank you.
Speaker Change: Can I ask you what we should assume for 2025 and 2026 in terms of cost savings all restructuring benefits of the various actions you've mentioned.
William: The capacity reduction.
William: Understood.
William: Passenger cars and trucks and the solos.
William: Our construction equipment business.
William: Oh, so restructuring basically we believe that we should get to the full benefits within.
William: Let's say between two two and three years. So you will have a nearly a half in 2025.
William: And then there's a whole between the 2026 and early 2027.
William:
Lisa: So Lisa if I look in terms of.
Lisa: In 2025, it would be around 120 million plus.
Lisa: Regarding the transaction.
Lisa: <unk> ready to Sri Lanka, It would be a transaction in three steps.
Lisa: When we will have the closing will get.
Lisa: Let's say free quarter of the amount.
Lisa: That we are expecting the new lever free per yard, where we will lease the brand came through.
Lisa: To the buyer and you will.
Lisa: There will be a lump sum at the end of these three years and in the meantime, we have also some inventories that we have to sell to the to the buyer.
Lisa: So basically you will have a I think on that transaction of around 225 million you were at $1 50 of cash coming from.
Lisa: 2020 in 2025 and the rest in the following years and of course in terms of.
Lisa: The improvement in operating margin.
Lisa: It will it will follow this space.
Because as we have the inventory destocking.
Lisa: For them.
Lisa: Probably the next 12 to 18 months.
Lisa:
Lisa: We'll have the full effect.
Lisa: By probably mid 2026.
Lisa: Oh end of 2026.
Lisa: Thank you. Thank you last question is are you.
Execute to the health of your share buyback.
Lisa: Sure.
Lisa: But the message was that it was a planned sportswear T sport with respect to logistics.
Lisa: Given the strong cash generation with hot again in 'twenty for each ought to assume that you may find the largest buyback in 'twenty five.
Lisa: Is it fair to assume that you may have noticed more Oh. This is no acquisition comes out during 2025.
Lisa: So right now as we speak we stick to the plan, we said 1 billion in three years.
Lisa: And we have already done 500 million, but at this stage, it's too early to say something else.
Lisa: Thank you very much.
Speaker Change: The next question is from Monica Basel of India.
Please go ahead.
Monica Basel: Good evening and thanks for taking my question I will ask a one on one at a time the first class b on the agenda.
Monica Basel: Our restructuring so the net cash impact on the free cash flow from the restructuring actions.
Monica Basel: You have indicated before the savings of 120 plots.
Monica Basel: Our 2025.
Monica Basel: I'm just wondering if you can give us some indication on the free cash flow side instead of all the net cash impact.
Monica Basel: Yeah.
Monica Basel: The net cash impact is in the range of $3 $50 million to $400 million in 2025, most of the cash impact in 2025 and 2026, there was already some cash impact.
Monica Basel: One 170 million in the in 2024, but most of it is coming next year.
Monica Basel: Oh yeah.
Speaker Change: D in for Andrew.
Monica Basel: 'twenty sorry can you repeat please.
Monica Basel: Yeah.
Speaker Change: 52, 4 million of cash out related to worst fluctuation in 2025.
Speaker Change: Okay perfect. Thank you.
Monica Basel: And.
Monica Basel: Good question Matt.
Monica Basel: On them.
Monica Basel: UDR, that's still a while UDR has been postponed by one year.
Monica Basel: Maybe I'm wrong about that this could provide the Asian play, yes, we did still competitive cost advantage.
Monica Basel: Just wondering if you share my view and if you can give us some highlights on your market share evolution in that one and that's a cute going for a while.
Monica Basel: And that's.
Monica Basel: That's the second question. Thank you.
Monica Basel: So.
Monica Basel: E D. R has been postponed at the end of November.
Monica Basel: And it was it was supposed to be enforceable for the first of January So of course, we were ready. So now we are we have and 100% UDR compliant.
Monica Basel: Our way of.
Monica Basel: So seeing our natural rubber.
Monica Basel: Now.
Monica Basel: Asian competitors, we don't know what they will be doing we don't really compete in the same league.
Monica Basel: So we don't anticipate this to have a major effect on the them nor us.
Monica Basel: This difference.
Speaker Change: Okay, Thanks share evolution.
Monica Basel: And I saw one.
Monica Basel: If you look at it as all one.
Monica Basel: Basically in OA.
Monica Basel: It's been tough on us because we are on platforms that were on that.
Monica Basel: We have we have chosen some platforms and those are the ones that are not really selling right now, but we are confident that they would be selling.
Monica Basel: So right now in the OE and says I want one.
Monica Basel: We are oh sure as a temporarily suffered.
Monica Basel: In replacement.
Monica Basel: Where it matters Oh sure has been okay.
Monica Basel: Perfect. Thank you very much and very last.
Monica Basel: He's on.
Monica Basel: Just housekeeping there.
Speaker Change: If you can give us some rough indication on the raw material headwinds for 2025.
Monica Basel: And the potential gas on the Forex. Thank you.
Yeah.
Monica Basel: Yeah. So the overall raw material headwinds, we are today assessing it at around $250 million a year.
Monica Basel: <unk>.
Monica Basel: Of which 1 million is coming from U D R.
Monica Basel: As we have decided not to.
Monica Basel:
Monica Basel: Come back on our UDR policy, because we have started to supply you with factories in September with UDR certified natural rubber.
Monica Basel: The Trojans either you've been Oh authority decided to postpone the regulation, but we're already and we'd consider it doesn't make sense to stop to buy UDR and to restart.
Monica Basel: Next September.
Monica Basel: So we stick to what we have.
Monica Basel: We have decided and.
Monica Basel: We consider that it's also a question of accountability versus.
Monica Basel: The all the value chain.
Monica Basel: Because you have to imagine that.
Monica Basel: Upstream a lot of people of work in order to be ready to comply with this regulation.
Monica Basel: So basically.
Monica Basel: Around the 100 million about one 250 of overall raw material headwinds.
Monica Basel: Okay.
Monica Basel: You can imagine that some forex, it's a little bit more challenging to them.
Monica Basel: But before I guess are we have as I mentioned earlier, we have.
Monica Basel: The one third of our sales in USA.
Monica Basel: Nearly 40% over sales in USD.
Monica Basel: So generally when the.
Monica Basel: Our overall structural position related to U S dollar as long.
Monica Basel: As of course, there is.
Monica Basel: Any impact on for example, European or Asian operations, who are purchasing raw materials that our underlying on USD, but at the same time. So we are very stronger revenues in U S dollars.
Monica Basel: So we don't make a lot of of.
Monica Basel: Of course, we are making some some forecast assumptions related to the to the Forex the Forex basically out of the footprint. We have is the footprint, we have our customers I'm not going to move.
Monica Basel: So.
Monica Basel: What we generally communicate is at one sense of valuation of the allows us as the.
Monica Basel: Euro represents roughly $30 million.
Monica Basel: Euro in in operating margin.
Monica Basel: Thank you very much very clear thank.
Monica Basel: Thank you.
Monica Basel: Yeah.
Monica Basel: Excuse me.
Speaker Change: In the interest of time, please limit yourself to one Max two.
Monica Basel: Two questions only.
Monica Basel: Person. Thank you.
Monica Basel: Next question is from Jose.
Monica Basel: J P. Morgan. Please go ahead.
Speaker Change: Good evening.
Speaker Change: Couple of topics place the first one on capacity in a very impressive only although work you're doing there to take down capacity in a different sub segments.
Speaker Change: <unk>.
Speaker Change: Do you foresee to take additional capacity costs beyond what you have already announced.
Speaker Change: Strategically as I need to take down capacity more in different segments and unrelated to this place what is the the year on year.
Speaker Change: Net cost savings you are targeting in 'twenty five on this capacity walk and then second for me you know once that stands out on a mission and that's for sure.
Speaker Change: Your daughter companies.
Speaker Change: Hi.
Speaker Change: And you know you have been describing the different moving parts within our subsidiary when do you expect this division to start finally, turning the corner I always difficult because there are so many end markets.
Speaker Change: Is there a point in that you're seeing in the year, we will start seeing that growth came back in.
Speaker Change: And very briefly if you could just simply point what are the biggest levers to get to that 80% plus margin I guess is volume obviously.
Speaker Change: But you know anything you can you can highlight thank you.
Speaker Change: So I think in terms of capacity additional cuts. It's we have done as you mentioned a lot I think we just have to make sure that those.
Speaker Change: Go to to completion and after that of course, we're constantly reassessing our capacity and we look at the structural capacity versus what is happening.
Speaker Change: Right now the year on year cost saving I think I imagined, it's around 120 million for 2025.
Speaker Change: And then on this all three delivers to I think mining really is performing.
Speaker Change: Performing <unk>.
Speaker Change: Well and the one off.
Speaker Change: Should stay one off and therefore 25 should be much better.
Speaker Change: And we don't have a growth issue in mining provided there is no additional war because we remember that the.
Speaker Change: The war in Ukraine has.
Speaker Change:
Speaker Change: Cut a lot of our growth in mining and are now in beyond road.
Speaker Change: As we say the restructuring we have.
Speaker Change: Reshaped, what where we want to play.
Speaker Change: But through the sale of.
Speaker Change: Some of our compact line by us activities and the rest of the restructuring and beyond road will take slightly more time, and we should see the effect.
Speaker Change: More in 2026% in 2025.
Speaker Change: And then aircraft it's.
Speaker Change: It's very strong.
Speaker Change: Thank you.
Speaker Change: The next question is from.
Speaker Change: George Gallier of Goldman Sachs. Please go ahead.
Speaker Change: Yes. Thank you for taking my questions I really just had one question which was around Capex.
Speaker Change: Firstly could you just clarify what youre assuming for Capex in your free cash flow guidance for 2025, and then in light of yesterday's interview, which was published in the financial Titans should we think about any incremental investment in North America, specifically the U S b.
Speaker Change: In the U R substitutional.
Speaker Change: Investments in other parts of the world.
Speaker Change: These investments actually be incremental relative to your previous planning assumptions. Thank you.
Speaker Change: So we I will answer the second part of your question and he will give you some.
Speaker Change: And so it was on the on the Capex for 2025 so.
Speaker Change: What I said in the financial times is.
Speaker Change: Looking at the evolution of the tariffs across.
Speaker Change: Across the World are of course, we have a structural investment plan.
Speaker Change: For the.
Speaker Change: Decade, two to come.
Speaker Change: So we can based on what we see happening and whether it becomes a structural we can reach.
Speaker Change: Hum.
Speaker Change:
Speaker Change: These are modular investment so we can reallocate investment.
Speaker Change: To optimize the return on that investment so that that's what I said.
Speaker Change: We're not we have not said that because of the suppose tariff we are going to massively shift our investment towards the U S. We have said we have an investment plan for the next decade based on that we can reallocate priorities. According to what we see happening structurally not.
Speaker Change: Announced.
Speaker Change: Complement.
Speaker Change: We have a capex strategy, which is based on a three to five year plan, we were in a heavy industry, where we cannot just.
Speaker Change: Move Capex from one site to another or one country to another like that.
Speaker Change: So it should obey to a long term strategy and we have announced during our last two <unk> that we are intending to spend around $2 2 billion in the next years.
Speaker Change: Which by the way.
Speaker Change: 18% for example in 2024 and this proportion will probably be the same for the coming years is linked to sustainability targets.
Speaker Change: Target either linked to the <unk>.
Speaker Change: <unk>, well being or a decarbonization road maps search or electrification of our curing our workshops or the let's say.
Speaker Change: Water withdraw wall.
Speaker Change: Roadmap, including the rate the improvement improvement in the rate of recycle and renewable material. So $2 2 billion is a range that we take.
Speaker Change: Taking.
Speaker Change: He put disease for our free cash flow.
Speaker Change: Our guidance for 2025.
Speaker Change: Alright, thank you.
Speaker Change: The next question is from Michael Jacks of Bank of America. Please go ahead.
Michael Jacks: Hi, good evening, Thanks for taking my questions as well I'll try to get straight to the point. My first question should we expect Michigan to continue to underperform the broader HR, one an ASR to tire markets in 2025 or might that and get to a point of stabilization.
Michael Jacks: My second question is just on the Soi guidance, if we annualized run rate for <unk>.
Came in somewhere around three 1% to $3 2 billion annualize.
Speaker Change: Annualize that and so the 25 guidance implies at least a $200 million improvement on that level could you. Please give us a sense for the main building blocks that you're looking at and to help achieve that because it doesn't appear at first glance at it could be coming from volumes and so the only thing I can kind of surmise is that it's going to come from better.
Speaker Change: Mining volumes and so can you confirm that the margin in mining is stronger than the underlying margin in the other businesses in that shortly.
And then maybe just one final question just to add to that how do you see the saving of segment operating income in 2025 between H, one and H two thank you.
Speaker Change: Okay. So.
Speaker Change: End of <unk>.
Speaker Change: In underperforming markets.
Speaker Change: Again I consider there is nothing truly structural in our share loss in the second one.
Speaker Change: And we had some platform that did not perform well but.
Speaker Change: Those platform, we are sure will perform well in.
Speaker Change: In the in the future. So so we see those.
Speaker Change: Things as temporary and not structural and in replacement now at 65% of our volume in the second one to one.
Speaker Change: 18 inch plus and that's a growing segment and we are growing at the pace or faster than the market pace, we anticipate that this.
Speaker Change: What we have seen for the past few years will not be the case in the next few years.
Speaker Change: And maybe even for the two regarding the guidance the guidance have been built on the <unk> put this is that we should have is some rebounds in volume in the second half coming from original equipment.
Speaker Change: So I said to a sound one.
Speaker Change: And at the same times, we have a computer.
Speaker Change: A reference.
Speaker Change: The vessels 'twenty 'twenty, four which is b completely reverse so basically we expect 45% to around 45% of the segment operating income to come from the first half and 55 on the second half which is by the way if you look at our historical results.
Speaker Change: The normal patterns of.
Speaker Change: In a normal year, if I can use this terminology.
Speaker Change: And but we should have the complete reverse.
Speaker Change: Seasonality.
Speaker Change: Between H, one N issue than in.
Speaker Change: 2024.
Speaker Change: Thank you and then may be just very broadly speaking the implied cost of around 200 million.
Speaker Change: In the guide for this year is that driven by better mining expectation of volume growth on a full year basis or is there something else that's going to contribute to that.
Speaker Change: It's a mix of our where we have when in the CMT. We expressed very clearly that we have four levers for operating margin improvement. The first one is a mix effect that is will continue and we should not forget that we are at 65% of 18 inch and above tires.
Speaker Change: Machine behind in 2024, plus four points versus 2020 free.
Speaker Change: And there is no reason that this trend will not continue.
Speaker Change: Second one is a competitivity measure that we already mentioned the third one is the contribution of the mining in the South is a free turned around and.
Speaker Change: The fourth one is of course the contribution of the entire activity both.
Speaker Change: Both machine connected mobility and composite solution Fortinet for a more complete solutions.
Speaker Change: That's very clear thank you.
Speaker Change: The next question is from Michael Aspinall of Jefferies. Please go ahead.
Michael Aspinall: Thanks, and good evening.
Speaker Change: Just one for me if I think back to the range you talked about.
Speaker Change: The 26, so I target mix was clearly the largest driver can you help us just think about the phasing of mixed benefits in 'twenty five 'twenty six to get to that $4 2 billion number and then also maybe more a qualitative kind of thought just how we can think about that makes us being within your control.
Speaker Change: Yeah.
Speaker Change: Well, what we see.
Speaker Change: So I'm not sure I rightly pick up the first part of your question, but.
Speaker Change: The there is a several mix.
Speaker Change: The ones that are under our control of the product mix.
Speaker Change: The mix related to.
Speaker Change: Our brand our different brands.
Speaker Change: Probably the one which is a little bit less on a short term under our control is the one between markets our business lines.
Speaker Change: So it has been there is a mix effect for example between original equipment and replacement.
Speaker Change: Was a very strong positively in 2024 of course, it will show a composition of the huge impact on the volume we had negatively on the OE side.
Speaker Change:
Speaker Change: So definitively the mix, which is related to our offers.
Speaker Change: <unk> is our hand, the mix relative to let's say short term market valuation.
Speaker Change: It is less under our control and.
Speaker Change: Amongst those mix segment mix.
Speaker Change: We expect to continue to grow our segment three versus the rest of the segments and the second one three is by far the most profitable ones. So it explains why we're confident now.
Speaker Change: 2026 commitment.
Speaker Change: Alright, thank you.
Christopher <unk>: The next question is from Christopher <unk> of Deutsche Bank. Please go ahead.
Speaker Change: Good evening. Thank you for taking my question is why is it just a follow up on the.
Christopher <unk>: Volume.
Christopher <unk>: Instead, he gave already.
Christopher <unk>: During the the statements that you made also on product rolled out in market distortions in 'twenty four.
Christopher <unk>: And.
Christopher <unk>: Your comment that the market share loss or nothing structural if should we consider your volumes in 'twenty, five or ready to be far closer aligned with the market again.
Christopher <unk>: Than it was in 'twenty, four and saw decent step up in that regard.
Speaker Change: Or are you unwilling to quantify this for now thank you.
Christopher <unk>: We expect in 2025 not to have all the.
Christopher <unk>: And fortunate effects that we had in 2024.
Christopher <unk>: But we are as the volume sold by the Oems gets back to a more a better level, we expect the platform on which we are.
Christopher <unk>: To be performing and on replacement and segment, while it's okay.
Segment, two we think what has happened in a refocusing on markets, where we want to play I think has been done.
Christopher <unk>: And segment three.
Christopher <unk>: Back to what we were saying, we we expect things to normalize it better. So we expect in 2025 not to have.
Christopher <unk>: All of them.
Christopher <unk>: Put in quotes surprises that we had in 2024 now something that Ive mentioned and that is sometimes not.
Christopher <unk>: That was sufficiently understood you had a lot of movement in inventories.
Christopher <unk>: Due to anticipation of movements in the tariff or things like that of regulation.
Christopher <unk>: Or penalties on them and therefore, we have seen especially in the tier three volumes a lot of movement of inventory around the world.
Christopher <unk>: We anticipate that in 2025, it will be we will have a better vision of what things are what is the state of tariffs penalties regulation et cetera, and therefore those.
Christopher <unk>: Flows that artificially boosted the market will be less a factor in 2025.
Christopher <unk>: Thank you.
Christopher <unk>: Oh interesting is if you look at our.
Speaker Change: Global worldwide competitor.
Speaker Change: They have a similar pattern to us in 2024, when we look at volumes.
Speaker Change: On the market.
Stefan: The last question is from Stefan minimal.
Speaker Change: Please go ahead.
Stefan minimal: Yes, thanks for taking my question.
Speaker Change: Just a follow up on.
Speaker Change: Our free cash flow guidance.
Speaker Change: I would assume that based on your Capex. It connects which is broadly in line with 2024 level.
Speaker Change: It would imply a working capital headwind comes after working capital.
Speaker Change: 25, I would ask you that.
Speaker Change: Okay.
Speaker Change: That translates into maybe a halo in lotteries am I right.
Speaker Change: You in some way you are right, but at the same times in the during the last CMT, We announced also that we have ambition to improve.
Speaker Change: Improve our overall working capital.
Speaker Change: We we are to quite a good level in terms of a payable.
Speaker Change: Payables and receivables, but we consider that a weekend, probably a run our business with a lower inventory. So we have proven that in 2020 free in 2024. So we are still.
Speaker Change: I'd say inventory reduction or improvement or better management.
Speaker Change: Our inventory.
Speaker Change: In 2025.
Speaker Change: And it will compensate the volume recovery that you were mentioning and maybe.
Speaker Change: To add to <unk> comment on.
Speaker Change: Mr. <unk> is.
Speaker Change: He is making structural progress and unfortunately in 2024, you cannot see it because we have done we haven't had a lot of headwinds in front of us, but those structural progress out there as soon as the market conditions.
Speaker Change:
Speaker Change: He's youre going to see the effect.
Speaker Change: Both on cash flow and our results.
Speaker Change: Thank you that's clear.
Speaker Change: Gentlemen, this was the last question back to you for any closing remarks.
Speaker Change: Well, thank you very much and.
Speaker Change: We wish all of US are nice 2025.
Speaker Change: Thank you very much bye bye.
Speaker Change: Ladies and gentlemen.
Speaker Change: Today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].