Compagnie Générale des Établissements Michelin Société en commandite par actions (ML) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Michelin conference call. I now hand over to Mr. Yves Chapot, General Manager; and Group CFO. Gentlemen, go ahead.

Hello. Good evening, everyone. So I'm very pleased to welcome you for this quarterly self disclosure. I will start directly by the key message. Although we have been operating in a weak market, overall, our sales were up by 7.4% during the quarter, thanks particularly to our premium positioning. During our last publication, in February, we have announced that we are anticipating lower sales selling markets in Q1 2023. As the first quarter of 2022 was characterized by strong inflation and supply disruptions exacerbated at the end of the quarter by the conflict in Ukraine. On the other hand, in 2023 as supply chain has improved, we have observed that the distributors tend to reduce the inventory and overall selling market tendency were below sell-out market. The passenger and light truck market are down by 3%, impacted by replacement demand in Europe and North America when original equipment market were slightly positive, but still well below the 2019 or even 2017 level. Truck tire markets outside China declined by 2% with robust original equipment sales which have more than offset by slowing RT demand, mainly in Europe and North America. Specialty markets remained strong, especially in mining and aircraft while constructions and two-wheels have been showing weaker tendencies. Nontarget are expanding in general decision, industrial mining, energy, fleet services. Our consolidated sales rose by 7.4%, reaching EUR 7 billion over the period, with a 6.6% decline in volume, stemming primarily from weaker passenger car and truck selling demand, of which approximately 25% is related to Eastern Europe. 12.3% price increase, price-mix effect, reflecting the group product quality and performance. Our growth in High Value segment and our strong mining tire sales have more than offset the unfavorable original equipment replacement mix. I would like to also highlight our 15% growth in non-tire segments, both in high-tech materials and fleet services and then a slight gain in currency mainly due to the U.S. dollar. Finally, we confirm our guidance for 2023 both for our segment operating income and our free cash flow -- before merger and acquisition. So you can see in this chart that our Q1 market has been trading rather in the lower range of our forecast that we shared last February. As in the Passenger car and light truck markets was down by 3% over the quarter with slightly positive plus 1%. European and North American original equipment market respectively, grew by 14% and 8%, thanks to OEM's overall supply chain improvement. And also, we must acknowledge it favorable comparison with Q1 2022. On contrary in China, original equipment has been decreased by 14% as new vehicle inventory were high at the end of 2022 and new car incentives have been reduced by the authorities. On the replacement side, for passenger car and light truck markets were overall down by 4% with a complete geographical opposite picture than for OE China market grew by 3%, led by the return in mobility after several lockdowns in 2022. When European and North American market, effectively decreased by 14% and 4% as dealers are looking to reduce the inventory in a more favorable supply environment. Truck and bus market, excluding China, has contracted by 2% with a robust OE market and shy replacement market Original equipment is very strong, demand is very strong in Europe and North America at plus 10% and plus 9% with strong truck purchase ahead of the introduction of several new emission standards in the years to come. Non-tire market expansion in main segment, general industrial, mining, energy and fleet services. For the replacement market in truck, they were characterized by a contraction, both in Europe and North America as both fleet and dealers, were looking to reduce their inventories. On the specialty market side, which is not on this slide, agriculture market are still trending upwards. -- supported by original equipment demand and with, let's say, the support of persistently high commodity prices. When the construction market on the other hand is being affected by the slowdown in homebuilding impacted by rising interest rates. Mining demand, particularly in the iron ore remain high, with the sustainable growth of mining operations and ongoing inventory rebuilding. two-tires the demand is slowing from high prior comparative year primarily due to extensive inventory buildup, particularly in the bicycle tire segment. And the aircraft tire show a strong rising demand, still of favorable comparative, but lift by a return to pre-COVID passenger traffic on the particularly in domestic flight in China but also in the international flights overall. So looking at our first quarter sales, you can observe that we have a limited scope effect and that the main effects are primarily the volumes. The decline was 6.6% with a particularly unfavorable comparison with the first quarter of 2022, which show heavy inventory rebuilding. The decline is also stemmed from the general climate of economic uncertainty, which the group is maintaining its strategy, focused on creating value by targeting the most -- the high-value segments. The termination of our operation in Russia as of March 15, 2022, accounted for around 25% of our total volume decline during the first quarter of 2023. Price-mix is up, and that's probably the main element by 12.3% including a very strong price effect of 11.2%, which reflects both the full impact of 2022 price increase, a slight price increase early 2023 and the adjustment prices related to our index businesses. Our mix effect is contributing positively, 1.1%. It reflects the sustained growth in the proportion of 18-inch and larger tire in automotive segment sales and higher mining tire sales. These favorable factors were partially offset by an unfavorable shift in the OE replacement business mix, practically in all the business segments. And last, most important for my [indiscernible] fact that a 15% growth of non-tire sales translate in a 0.7 point of good growth in sales, reflecting the robust gains in the Fenner operation and the Michelin Connected Mobility businesses. So larger currency effect accounts for EUR 54 million or 0.8%. If you look by segment, so you see that the sales in the Automotive segment rose by 6.2%, so reaching nearly EUR 3.5 billion for the quarter. The volume declined by over the period in markets that were overall down by 3%. OE volumes sold held steadily during the quarter as the upturn in business, particularly in Europe, offset the slowdown in China caused by the cutback in government incentives and high automakers inventory. The replacement demand decline, particularly in Europe, it was hurt by the economic environment and a certain amount of consumer hesitation, more than 1/3 of the decrease in volume is stemmed from the termination of our operating operation in Russia, where the group exposure was greater in the automotive segment. And the segment sales were boosted by the price increase introduced in the replacement market throughout 2022 and in January 2023 to offset inflation factors and the application of price induction clauses in the Original Equipment segment. We have also a very positive mix effect, which has been partially offset by the OERC mix. On the Growth Transportation segment, so our sales grew by 1.3% in -- so as I said, market, except China, were down by 2%. So the volume contracted by 8.9%, reflecting the decreased freight demand as supply chain return to normal pace and our ongoing deployment of our strategy, focusing on the division value market segment. The OE business continued to expand over the quarter, supported by some vehicle prebuy ahead of the introduction of new environmental standards in the diverse regions. The mix in the segments were particularly negatively impacted by the OE and RT mix as original equipment demand were more buoyant than the replacement demand. Regarding the specialty business, so the growth was 16.4% with volume down by 3.7%. As I said earlier, this segment was strongly driven by the growth in mining and in aircraft tires, when, on the other hand, the Beyond Road and two-wheel businesses were impacted by particularly the contraction of the -- contraction and the two-wheel businesses. So before moving to the full year guidance, I would like to remind you several points, Michelin is overall exposed to a wide variety of underlying businesses and geographical segments. Our exposure to the original equipment automotive is limited to 10% of our sales. When consumers driven segments such replacement market for two-wheels or four-wheels vehicles represent 42%. Transportation and Fleet Services amount for 26% with the cyclicality of the truck business is amortized by the people transportation segment and fleet services. The specialties represent 18% of our sales with a large diversity of activities such agriculture, construction, on-site logistics, defense mobility, material handling. And last, our high-tech material business represents 4% of our sales. So it's important to look at the group through these lenses and also to look at our geographical footprint between the Americas, Europe and Africa, India, Middle East and Asia. I would like also to draw your attention on the completion of an Important Deal for our Michelin connected fleet activity with the closing of joining Michelin both as a financial partner and a shareholder in Watea. Watea by Michelin is aiming to facilitate light commercial vehicle fleets decarbonation by solving the pain points experienced by the fleet in this transition. This business has been incubated within the Michelin Innovation Lab for the past two years. And this is typically in our view, an example of the group capability to create value by leveraging the group assets and also joining force with a strategic partner, and we are very pleased to welcome [ Credit Agricole ] as a shareholder and partner in watea. Another example is related to the high-tech materials segment, where we are also demonstrating our ability to create value by leveraging Michelin research and development and innovation capabilities and partnering with other companies. Symbio in which we invested, we started to invest in 2014 has benefited from Michelin research to develop state-of-the-art fuel cells for the light and heavy commercial vehicles. With our association with Faurecia, we have created -- we have boosted the company and the company will be able to open its first fuel cell giga factory in Saint-Fons in France, in the south of Leon who should be able to further accelerate this course with the entrance of Stellantis equity investments in Symbio. So in both cases, Watea and Symbio, I believe that Michelin shows its ability to create and crystallize value for its shareholders. Moving to the guidance. We have not fundamentally changed the market scenario in the main three market segments -- as we mentioned earlier, 2022 seasonality was a little bit abnormal by some aspects when there was a period where supply was still very painful. There was a lot of inflators, which is mainly the story of the first half for the first nine months of 2022. And of course, 2023 will have to be looked in comparison with 2022. So for passenger car and light truck, we believe the market should overall land between minus 2% and plus 2%. Truck segment should be in the same range with also a contrasted profile between original equipment and replacement, -- and we also maintain our growth range for the specialty businesses between minus 1% and plus 3%. Our guidance is unchanged with the segment operating income at constant foreign exchange rates above EUR 3.2 billion and free cash flow, excluding merger and acquisition, above EUR 1.6 billion. We expect our volumes to trend between -- to trend between minus 4% and flat for 2023. Cost inflators should range between EUR 400 million to EUR 900 million. As of today, we should land maybe close to the lower part of the range. Nevertheless, the volatility of energy prices, particularly in Europe since February 2022 lead us to be prudent. Although inflators such as raw material, transportation should improve during the second half of the year when we expect some inflators such as labor cost and with the potential risk of energy to remain energy will nevertheless remain above historical trends. Our target is still to generate a positive economic equation, so between price-mix and inflators. And last, we have not changed our capital expenditure anticipation for the full year. So that will be all for my presentation, and I'm here to answer your questions.

[Operator Instructions] The first question is from Giulio Pescatore from BNP Paribas Exane.

The first one on the guidance, you clearly adjusted the inflation target for this year. but you haven't adjusted the operating profit target and you still expect net price-mix to be slightly above the inflator. So are you anticipating some pressure on pricing? Is that how we should read the change in the guidance? And then the second question on FX. Can you just help us frame how much do you expect FX to be a headwind as we progress towards the year based on today's expectations, obviously.

First, I correct your question. We did not change the guidance. We changed some elements of the circumstances around the guidance, but we do not change the guidance. And traditionally, at the end of Q1, we think that it's not -- we should not change the guidance because it's very early during the year. The seasonality of the business is slightly stronger during the end of the summer and the fall. So it's far too early to modify the guidance. We are not expecting any, let's say, across the board, the price change. Of course, we have our index business that we updated according to the evolution of the index that we have contractualized with our customers. So no change at this stage of the year. first, because it's too early. And second, we have no formal elements to modify our guidance.

Understood. Can I just follow up on that rapidly. You are lowering the inflation headwind, but you're still saying the net price-mix versus inflators will be only slightly positive, right? So by initial test, you're expecting today lower than previously expected price mix, which is, I guess, a reflection of cost. But is that the right way to think about it?

No, we believe that we should have a strong -- we have generated already more than 11% of price effect during the first quarter. So of course, the comparison along the year will modify this effect. Our last price increase was in January 1. So mechanically, if we do not change the price at the end of the year, we should not have any more price effect. But on the other hand, we'll have the mix effect, which is positive, although the original equipment and replacement mix is slightly negative. And that's how you should read it. Regarding the currency effect, which was positive in Q1. I don't have a crystal ball about -- regarding the currencies, it should normally turn negative as the evolution of the currency if the currency stay for the full year at the level they are today. our guidance, I remind you, Giulio, is for segment operating income is before FX.

The next question is from Pierre Quemener from Stifel.

A couple of questions. I heard that Michelin in some regions and some reference have started to slightly scale back their pricing. I'm not aware of that, but I would be happy to have a clarification at this stage. Are you -- have you started anywhere in any segment, any region to start and scale back on the pricing. As a follow-up, I would say -- I would ask you that do you still -- do you think that the mix should remain positive all through the year? And that the overall price-mix could land somewhere between 3.5% to 4% as a consequence of that, what that has been done last year and the slight increase that have been made in early January, if I remember correctly. And last question, if I may, would be on volumes, which would be, in my view, the make or break year for 2023. They have been done significantly for some quarters. Do you expect any pickup in H2. And into the second quarter, would you say that the first indication are pointing for a slightly positive volumes or volumes should still be trending downwards or be less than in the first quarter.

Okay. So on the prices, our price effect in Q1 was above 11%. So we cannot -- I don't know how someone can find that we have started to scale back prices. It's probably true that as we are going to come to, let's say, a more normative environment from the inflation standpoint. We are going to manage our price as we did, let's say, before 2020. So we really adjust price either up or down on a more targeted or, let's say, surgical manner in order to look at our competitivity in the different segments, but there will be no price let's say, across the board price to scale back, redoes. The price-mix for the full year, so it's -- it will be a very strange year with probably as inflation is stabilizing. We have very strong price effect on Q1, and then it should gradually go down along the year. Blending, you mentioned a figure which should not be too far from a price effect, about 3% to 4% for the full year. But honestly, it's very early to anticipate that. Regarding volumes, when we communicate our full year 2022 results, we want the fact that 2023 will start with a negative first quarter because first in 2022, until, let's say, end of Feb, we still have -- or mid-March, we still have sales in Russia. We stopped our operation in Russia 15th of March 2022 and on the minus 6.6%, it accounts for one quarter. Second, we knew that in 2022, distributors have been running to get inventories as the overall supply chain was not very stable, was still very hectic. And as the supply has been, let's say, coming back to a more standard level. When we look, for example, at the timing, the delay to transport the containers from Asia to Europe or from Europe to North America, it has nearly come back to pre-COVID-19 level. So we knew that with this circumstance, dealers will probably look at reducing the inventories. On top of that, it's a region like in Europe, there was probably a little bit too much winter tire in inventory at the end of the season. So that was practically anticipated. When we look at the future sales quarter-by-quarter, of course, you will have a favorable and unfavorable effect. Favorable effect will be in Q2, let's say, for probably 2/3 of Q2 in 2022 most of Tier 1 cities in China were locked down. And the unfavorable effect is that we have, let's say, a rebound in our mining sales from July onwards last year when in the first half of the year, we still compare to weaker sales in mining. That's why for the time being, our lending, as we said, is between minus 4% and 0. If you shoot in the middle, you will probably -- can give you probably some months with a slight growth, some months at nearly 0 growth. And that's probably all what I can share with you at this stage of the year.

The next question is from Martino De Ambroggi from Equita.

I'm sorry to bother you on the previous question. But just to summarize, if I understood correctly. You are revising downwards the inflation cost by EUR 200 million, EUR 300 million. You are not reducing prices, if not for tactical adjustments. So if you are not revising upwards the guidance, I clearly understand your cautious approach, but is it maybe entirely due to the negative ForEx effect or just to summarize what you provided us in the previous questions.

As I said, the segment operating income guidance is before ForEx effect. So of course, there will be some negative ForEx effect as we expect if partially if the euro dollar stay at the current level, there will be a negative ForEx effect ahead of us. Nevertheless, what -- coming back to the segment operating income before ForEx effect. We have slightly revised our inflators down. But don't forget that since basically end of 2021, early 2022. The energy prices have been extremely volatile. We are hedging part of our purchase but we can be exposed to, let's say, a spike in energy prices as we have seen in August, September 2022 that's where we land our prudence. And then, of course, as I said to your predecessor, we have only a 3-month in be behind us. And traditionally we do not change except if there was an exceptional event we do not change our guidance at this stage of the year. We prefer to wait and to have the full picture of the first half of the year and eventually adjust our guidance in July if we have a good reason to do so.

The second question is on net working capital. So what is your underlying assumption in your EUR 1.6 billion free cash flow guidance and how it is going in after Q1? And the last question is on the underperformance in the car sector volumes because even if we adjusted for a weaker Eastern European country's contribution. You are still underperforming by a couple of percentage points the reference market. So what are the reasons for such a performance?

Now regarding the working capital and the free cash flow, we don't communicate P&L and cash flow statement quarterly. But what I can tell you is that the effect that we shared with you at the end of 2022. The fact that... [Technical Difficulty]

Ladies and gentlemen, Please hold the line. Conference call will resume shortly.

Hello, do you hear it?

Yes.

Okay. So we have an issue with our first line. So I have switched to another line. So I don't know when we work out.

Well, trying to answer to the net working capital question.

Okay. So as I said, the net working capital have been the effect that we shared with you at the end of 2022 has been confirmed by our -- the free cash flow that we have generated in the first quarter. So the shift of around EUR 300 million from Q4 to Q1 has been actually verified in our figures.

And the performance in the car sector volumes?

Yes. So sorry. So I do not understand that you got for the full -- for my whole answer. As I said, in the passenger car entire segment, the effect of Russia accounts for 1/3 of the volume effect. It was 25% for one quarter or the whole group, it's 1/3 for the first segment. And regarding the volumes, I was commenting that we have also decided to focus on high-value segments. And now in 18-inch and above represented 58% of our Michelin original equipment and replacement sales for the first quarter five points above the third quarter of 2022. At the same time, we must acknowledge that this segment, like SR2 as well, has been impacted by a negative OE replacement market effect.

The next question is from Jose Asumendi from JPMorgan.

Three quick questions, please. The first one, can you maybe comment a little bit around volumes for the second quarter on a group level? Do you think there is a chance to -- that these volumes will turn positive on a year-on-year basis? That's a bit more short term. Medium-term questions, two of them, please. Can you comment which cost inflation categories led you to reduce the negative impact guidance for the year, which one surprised you a little bit more positive, which ones led you to change the guidance in that sense. And then as you look through the year, I'd love to understand a bit better. I'm sure you're managing levels of activity across the different plants in Europe or in the U.S. Can you just give us some examples of some of the actions or activities you've been doing to maybe lower the level of activity to contain costs in a relatively negative volume environment in the first quarter. Hopefully, you heard me, you still there? [Technical Difficult]

My apologies. The conference will resume shortly.

Do you hear me?

Yes, we can.

Okay. Coming back to volume on Q2. We expect the volume to be either flat or slightly positive during the quarter with probably a different geographical pattern than on the first quarter. We are obviously expecting a rebound versus 2022 in China, and probably still, because in 2022, there was still some let's say, inventory rebuilding and maybe some purchase anticipation due to price increase from distribution in Europe and North America. So probably a little bit more shy demand in North America and Europe. Moving to your second question related to cost inflation categories in fact the 2 areas where we are seeing cost inflators easing is transportation and particularly maritime shipping and raw materials. Looking at the main material that we are purchasing such natural rubber, synthetic rubber or [ detergent ]. We are seeing effectively price easing versus what we have seen last year on the other hand, if you look overall, versus pre COVID-19. So if we compare the raw material costs versus 2019, they are still significantly above 2019. -- and your last question, I'm sorry, because there was issues with the phone, I did not catch it up completely.

I was trying to ask around how you're managing the levels of activity across the plants in Europe and North America in a relatively I would say, challenging but not fantastic credit volume environment, how are you managing levels of activity to be able to reduce the fixed costs in the first half of the year?

We are managing -- first, we are trying to -- we are sticking to our local to local sourcing strategy. And of course, we are adapting the level of activity to the demand in the various regions. Sometimes, we are canceling the shift during the weekend. And we are trying also -- first, we try also to be prudent in our own inventory, and we are adopting, let's say, a structural -- local measures depending on the different -- the context but for your information, our level of activity even in Q1 2023 was above the level of activity we had in our factory during the last quarter of 2022.

The next question is from Sanjay Bhagwani from Citi.

I have got three questions as well. My first one is on the follow-up to Jose's question on Q2 volumes. So if I understood it correctly, Q2 volumes, you see it as flattish or slightly positive. And I understood it correctly that the China is where you see a good momentum. But on the Europe and the U.S., what do you see? Because Q1 right now is, for example, impacted by East Europe, as you mentioned, and also by de-stocking. So are you seeing this de-stocking trend continuing into Q2 or slowing down? So yes, if you could provide some more color on the volume trend for Europe and North America on Q2? That is my first question.

Okay. Yes, we believe that there will be still some destocking. In North America, for example, we know that dealers have been heavily loaded with the Asian imports, which have -- where there was a huge inflows since the summer of 2022. So we believe that there'll still be some de-stocking. But at the same time, we know that the original equipment market should be probably -- and of course, different business segment more dynamic than the replacement market.

That's very, very helpful. And in Europe, also, you basically see the benefits from -- for example, in Q2 last year, you did not have the East Europe in comp. So that's also the tailwind right?

Yes, you are right.

And yes, my second question is on free cash flow on H1. So I think you mentioned that there's already a receivables recovery of something around EUR 300 million in quarter 1. So is it fair to say that the free cash flow in H1 could be actually better than the normal seasonally free cash flow given this EUR 300 million is a tailwind. And also, I think you mentioned about last year, there's somewhere around EUR 1 billion of cash flow profits because of the higher cost of inventory. So yes, if you could provide some color on free cash flow in H1?

You will see in the exhibit of the presentation, the -- traditionally, at the end of H1, we are posting a slightly negative free cash flow. I think the average between 2015 and 2022 was minus 1 -- between minus 1, between minus 2 and 1, slightly probably inflated by the abnormal free cash flow in 2021 and 2022. So therefore, we can expect the free cash flow, the first half to be somewhere, let's say, nil or 0 based on the fact that we had at least for the first quarter, we record a better working capital pattern than in the previous years. .

Sure. Sorry, I think the line dropped. So this could be close to 0 this time, is what you're saying?

Sorry, I did not hear you.

Sorry, the line actually broke for a little bit. So then you said this time better, so you said near 0. Is that what you said? .

Yes.

Yes. And yes. And my final question is to come back again on the raw material inflation guidance. So if I understand it correctly, the previous guidance was somewhere around EUR 600 million to EUR 1.2 billion, somewhere around EUR 900 million at midpoint. And now you are saying this could be somewhere around EUR 400 million to EUR 900 million. But as things stand now, you are seeing it more towards the lower end, is that -- have I understood this correctly?

Yes, that's correct. But don't forget that although we can plan or anticipate the raw material inflation or the transportation cost relatively well because we have several months of inventories, there is some costs that might be more volatile, such for example, energy crisis.

Sure. So if energy prices are not like if they stay as it is now, then we basically see the raw material inflation could be maybe somewhere around EUR 400 million to EUR 500 million below of what you are expecting in your guidance that you provided with full year results? Is that a fair conclusion?

Yes. In fact, we lower our -- first is not our guidance. It's the, let's say, the context of our guidance. So first, we lower the overall inflators anticipation. As I said earlier, mostly due to transportation and raw material costs that are easing Keeping in mind, as I said, that raw material costs, although they are -- they will be leading are still far above the 2019 level.

The next question is from Thomas Besson from Kepler Chevreux.

I have a couple of questions, please. I'd like to start with the tailwinds we have seen you get from the SR3 business from indexation. Could you discuss how long we should still expect to see such tailwinds and when it's going to add the opposite be a headwind for that business. Is that fair to think that it may happen H2 '23, that would be the first question. The second, is it possible to have a comment on the expected earnings season in '23. You have managed to well balance your earnings in previous years. Last year, was a bit different. Should we expect kind of near of '22 and '23 with a stronger first half and a weaker second half? Or do you think the two half will be balanced. And lastly, I would like to give it a try. Is it possible to have any update on the status of your M&A plans today?

Obviously, I will not answer to your last question except if I had the concrete operation to share with you, but in this case, we'll do a specific call. So coming back to your first question. So indexation in all index business, by the way, not only in SR3 should probably have some tailwinds during the second half of the year, but we should have also -- there will be the reverse of the tailwinds during the second half of the year, but we'll have the tailwinds from the input cost. So overall, it should be neutral. Regarding the earning seasonality for the time being, that's our view, it should be pretty balanced between the two semesters. Don't forget that generally in our industry, we tend to have stronger H2 than H1 because of the volume, because of the of the seasonality of the business. We have generally very strong sales in between, let's say, August, starting August in North America until the month of November. So for the time being, our expectation is to have, let's say, balanced earnings in terms of segment operating income between the two half.

The next question is from Philipp Koenig from Goldman Sachs.

The first one is on the volume drop-through, should we consider the negative volume that you're sort of predicting in your guidance, should we assume a normal drop through of EUR 120 million, EUR 130 million per percentage point? Or is it different this year given sort of the capacity utilization may be a bit lower. Any color there would be helpful. And the second question is just you've done now EUR 800 million of price mix in the first quarter. And as things stand today, you mentioned you're rather on EUR 400 million to EUR 500 million on the cost. You should obviously have more pricing in the coming quarters. So last year, you had around EUR 500 million price-mix against inflation. Is it fair to say that as things stand today, the benefits of price against cost should rather be higher?

Okay. So regarding the volume drop-through, yes, we generally have a drop-through. It depends from one year to another, but it's nearly between EUR 110 million to EUR 130 million, depending, of course, of the basis of reference. So you should probably take this assumption. So price-mix was very strong in Q1. As I said, there will be some headwind in the second half with maybe some negative indexation on some businesses last year, we have, as you said, a positive effect of EUR 500 million. we expect this effect to still be positive, probably to at least to offset the volume -- the negative volume effect we started the year with a strong negative volume effect. It will, let's say, be gradually will gradually improve in the year. And we should see that take the effect compensating. But at the end of the day, our objective, first, our great strategically is to retain the mix effect. And of course, to manage the price effect in order that we hedge inflation.

Okay. So the way you see it today basically is that it should offset the inflation plus the negative contribution from the volume at least from how it stands today? Is that correct?

It's what we try to achieve.

The next question is from Ross MacDonald from Morgan Stanley.

Ross at Morgan Stanley. First one is just on SR2 volumes. I'm just curious, obviously, there's quite a sharp slowdown in truck replacement demand. How confident are you that these truck volumes will inflect from these levels? And the first quarter is the trough? And then secondly, on non-tire sales, these grew 22% last year. it looks like they've decelerated to plus 15% in the first quarter. I know Beyond Tires is an area of focus for Michelin. So just like to understand if you see that as a slowdown or if that's the normal growth rate that we should be modeling moving forward? And then final question. You mentioned that you're sticking with the CapEx guidance for 2023. If volumes stay weak, how much room is there to ease off CapEx at this stage in the year to help lock in the free cash flow guide?

So regarding the U.S. truck data was quite weak in March. Don't forget that we are speaking about selling figures, particularly for the replacement market. It is a segment that has been heavily penalized in 2022 by supply chain disruptions. And as the supply has improved, what we are seeing basically is fleet and dealers reducing their inventory, reducing the safety inventory that they built during this tight supply chain environment. On the other hand, we are still seeing very buoyant original equipment demand, both in Europe and North America as let's say, more and more demanding governmental standards are pushing fleets to look for let's say, performance and particularly in rolling resistance and more efficient tires. As our non-tire sales growth is concerned, so we post 15% in Q1 2023, but it's 15% on top of the 22% growth in 2022. 2022, there was a partially price effect in these figures. It's obviously less the case in 2023. And what we are seeing both in the fleet management, what we call Michelin connected mobility and high-tech material is a very positive trend for the time being. As far as CapEx are concerned, we do not monitor CapEx as, let's say, an adjustment criteria. We are in an industry with, let's say, a long trend, where we need to steadily invest in order on one side to maintain our equipment, our factories in a good shape and on the other side, to accompanied the growth in terms of complexity, in terms of product performance and also to adapt our capacity regionally to the demand. So that's why we have not considered any adjustment as on top of that, we are now -- we have entered for the past few years in a period where we need also to invest in the decarbonation of our value chain, starting by our own operations. And we know that we -- it will require some CapEx in the years to come.

That's fair. So just that I understand on the CapEx point, I appreciate the maintenance CapEx is necessary, but you wouldn't ease off on the CapEx if the volumes decline further from here?

What we might do and is, of course, to adjust our capacity capital expenditures because we always have some marginal improvement marginal capacity increase in some regions. Of course, depending on the volume trends, we might, of course, adjust that part. But don't forget that nearly 1/3 of our CapEx is dedicated to maintaining our tools and equipment in a good shape. And we have also part of CapEx, which is linked to decarbonation, ergonomy, productivity, digital manufacturing. And on that area, we are not going to slow down our efforts.

The last question is from Himanshu Agarwal from Jefferies.

Himanshu from Jefferies. The first one I wanted to ask is on the dealer de-stocking. Can you tell us where we are in the de-stocking cycle? And when should we expect the sell-in to improve? And the second question, you have mentioned markets and volume-wise, are trending at the lower end of your expectations. Are you still comfortable with the midpoint of your minus 4% to 0% volume guidance for the full year '23.

So we expect, particularly in Europe and North America, destocking to continue during Q2. Don't forget that partially for the second segment, de-stocking is also -- we are also seeing de-stocking in fleet, not only distributors premises. So we expect de-stocking, yes, to continue. In some regions, we know that we are nearly back at normative level at the end of March. The picture might be different from one country or one region to another. But overall, we believe that there will still be some de-stocking during the second quarter. we generally communicate on the range at the beginning of the year. And generally, our range is a 4-point range. So here, we are minus 4 to 0-- for the time being, we are comfortable with the midpoint. If we were expecting to land either at the upper part or the lower part of the range, I will have indicated it to you during the call. So I think it's the last question. So thank you very much for your attention. And we are looking forward to meet you for our shareholders' meeting on the 12th of May in [ Zénith d'Auvergne ]. And of course, at the end of July, for the first half disclosures. So thank you very much, and I wish you all a good evening. Bye-bye.

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