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

Ladies and gentlemen, welcome to the Michelin conference call. As a reminder on your telephone during the Q&A session. I will now hand over to Mr. Florent Menegaux, Chief Executive Officer; and Mr. Yves Chapot, General Manager and Group CFO. Gentlemen, please go ahead.

Thank you. Good evening, good morning, and good afternoon to all. and I are very pleased to welcome you to our half year results. So without further introduction, I will start directly by saying that Michelin has delivered sales growth of 5.9% in the first semester. And has increased its segment operating income by 11.4% over the semester on adverse markets. The free cash flow before M&A reached EUR 922 million. And I'm pleased to tell you that we have revised our guidance upwards on both segment operating income and free cash flow. So if we enter into more details, the sales up by 5.9% to EUR 14.1 billion. We are lifted by a pricing discipline and the fast-growing non-tire sales. The tire markets were flat in passenger car and decreasing in trucks, supported by OE, but penalized by the strong destocking from distribution and B2B fleets. The tire sales volumes were down by 3.7%, reflecting market dynamics and group's parity on value accretive segments. Our price/mix effect reached 9.4%, recognizing the value of our offers, and we recorded net positive mix despite adverse OE/RT sales development. Our non-tire sales grew by 17% at constant exchange rate, fueling our group growth. The currency effect turned negative at minus 1% due to the depreciation of most currencies against the Euro. Our segment operating income increased by 11.4% to EUR 1.7 billion, reflecting the -- our value steering, our value management of -- and the value management has been offsetting the cost inflation and the negative impact of volumes. The Auto and Specialties segments have increased their performance. The road transportation is facing negative OE/RT mix. Their volumes were heavily impacted and the plant loading and the fixed cost absorption has suffered from that. We had a strong price mix effect benefiting from sustained product mix enrichment. And the pricing policy and lagged effect of indexation clauses. The Specialty segment, the segment 3, operating margin has been reaching 18.3% coming back to where it used to be, supported by dynamic mining, aircraft and high-tech materials businesses. Our free cash flow before acquisitions reached EUR 922 million, driven by tight business steering. Of course, it benefited from our EBITDA reaching EUR 2.6 billion or 18.8% of our sales. The working capital has been benefiting from the tight inventory management and the cash recovery we carried over from the Q4 of 2022. And our positive cash generation from TBC, including the divestment of some company-owned retail network in the U.S. The fourth point is our growth beyond mobility has been accelerating with the FCG Flexible Composite Group acquisition in line with our group ambition to become a key player in polymer composite solutions. And I was telling you, our 2023 guidance has been revised upwards with a segment operating income, we forecast to be in excess of EUR 3.4 billion at constant exchange rate. And our free cash flow before acquisition in excess of EUR 2 billion. If I now come back to the resilience of our business model, and I think sometimes we forget that we are not strictly an automotive supplier. Of course, it is true when we say we are an automotive supplier, but we cannot summarize our activities to this. We see on the chart, you see on your screen, that our dealings with auto OEMs only represent 9% of our revenue. The rest of our revenue is generated in various market segments with different cyclicalities. Coming back on our strategy, Michelin Motion 2030. We want to expand the reach of our know-how to other sectors. We see on the chart, on the top right, our new activity, the polymer composite solution. And with our recent FCG acquisitions, we will get to the final -- when we will get the final approval of the regulatory authorities, to acquire FCG. This overall sector, including FCG, will represent 5% of our revenue. And this segment is growing faster than the rest of the group. And the share of these activities is therefore going to grow within our revenue. If we now move to conclude into our introduction. There. If you see on your screen at the core of our strategy, Michelin in Motion 2030, we want to leverage our deep innovation capabilities that feed our group leadership in the chosen targeted end market. We operate in. So you see on the left, what are these deep innovation capabilities and on the right on the screens where we operate. From the tire businesses, we have core businesses, ranging from passenger car, both with the OEMs and mainly on replacement down to 2-wheel or aircraft. On the services to fleet, we have three main offer, Michelin Connected Fleet, which offers a blend of different services, digital services to fleet -- we have our hire as-a-service operations where basically we lease our tire and we manage the tire on behalf of our customers. And then we have our recent new activity, Watea by Michelin. Aiming at helping fleets to move to electric mobility. And then we have our third element, which correspond to our beyond tire activity, our polymer composite solutions. And you see there, we have four main businesses there, the sealing technologies, the building solutions, the engineer fabrics and films where FCG fits and the engineer polymer. Let me now leave the mic to Yves, who is going to detail you our performance.

Good evening, ladies and gentlemen, good afternoon. For following for introduction, I will try to provide you some more details about our H1 performance and our full year guidance. Let's start with the 360 view on our performance during the first semester. And this performance is very solid across the board, either we speak about people or profit or planet. On the people side, we have further improved our diversity, particularly the gender diversity with now 29.7% of women in managerial positions. We have also improved our total case incident rate, so we improve the safety of our operations from our employees' point of view, and it's with an enlarged scope of employees than in 2022. On the profit side, I will zoom afterwards, but I mean all the indicators are green. And on the planet side, we have chosen to highlight two important KPIs. First, our Scope 1 and 2 CO2 emission that has been reduced by 14% on a 12 months rolling basis. And our water consumptions, which has been reduced by 11% on the same period. Moving now to the financial performance. I will start with the description of where the market stands during the first half of the year. So in 2023, first half of 2023, the market has been very -- have demonstrated very contrasted pattern depending on whether we speak about the business segment. the OE/RT market or the geographies. In a nutshell, you see that over the semester, passenger car and light truck tire market has been overall flat. But with -- on a 9% increase in original equipment and a 2% decrease in replacement. And this 2% decrease has been mainly focused on Western Europe and the Americas. When continents, regions of China have seen their market increasing. The Passenger car. So passenger car is roughly in line or slightly better than what we expected at least for the quarter. Regarding truck, it's another story. The market has shown lower performance than what we expected during the quarter, they were even below the ranges, the lower range that we shared with you at the beginning of the year. The market has been down by 4% overall with an original equipment at plus 9% and replacement at 0%. But with also a very strong decrease in some markets, such Western Europe. And it's mostly due in both case, to destocking an activity that has been pretty resilient if we look at miles driven in the U.S., for example, for passenger car or fuel consumption in Europe, which is a good proxy of, let's say, mobility. On the truck side, we are seeing the final demand or slow maybe a little bit more timid with, for example, tone and kilometer transported in the U.S. at minus 0.8%, but not a massive evolution. But what we have seen mostly is a massive destocking both distributors and at fleets for the truck tire market. We consider that the destocking is nearly probably finished for passenger car and light truck tires. We still probably continue until the end of the Q3 for truck tires. So in these conditions, our revenue has been increasing by 5.9%, reaching EUR 14.1 billion. And you see that besides a very small scope effect due to the acquisition of CPS in our conveyor belt activity. Our volumes -- our sales have been negatively impacted by the volume, minus 3.7%. In this volume, we must always keep in mind that Russia is accounting for 1.1%. So without Russia, the volume loss has been only 2.7%. An important price and mix effect, which is coming from mostly three drivers. The first one is the full year effect of the increase -- the price increase that we implemented during the first half of 2022. The second one is the increase -- the price increase that we implemented 1st of January 2023. And the third one is the effect with the lag of the raw material cost adjustments for all our contracted businesses. non-tire grew by 17%, contributing to 0.8% at the group -- of the group sales. And we have started to see negative currency effect, 1 point over the period. Looking now at our segment operating income. So it raised by 11.4% nearly twice the pace of our sales improvement and is reaching EUR 1.7 billion. Our segment operating income increased by nearly 1 point at constant exchange rate, reaching 12.4% for the semester. It's an improvement at constant exchange rate of EUR 235 million. which has been only EUR 170 million. If we take into account EUR 74 million, if we take into account the negative effect of the forex. In volume, we have an important drop-through effect due to a negative fixed cost absorption as our sales has been down by 3.7%, but our production has been gone down by nearly 10% over the semester. Raw material prices has continued to increase over the semester in our cost of goods sold, but is stabilizing at the end of the semester. When other inflators like energy for the beginning of the semester or other operating costs or wages, labor costs are still increasing. Our mix is impacted, which is EUR 47 million is impacted by the negative OE and RT mix across all the segments. We still have a very positive product mix in the SR1, but we have a negative mix in all the segment and particularly in the SR2 and some extending [ this offering ]. And we should also note that our price effect include the compensation of the ForEx for some currency, such the Turkish lira or the Argentinian pesos for nearly EUR 19 million. So the price mix, raw material and manufacturing and logistics is extremely favorable over the semester. Non-tire business are also contributing positively to the growth of our operating income. Looking now at our performance segment by segment. SR1 performance has improved. The sales of SR1 are increasing by 6.4% with a volume effect of minus 2%, which is exactly the weight of Russia in our 2022 versus 2023 volume effect. So without Russia, SR1 sales has been volume-wise, flat. The operating income is improving by 10.7%, thanks to our market share gain in, let's say, growing 18-inch and above segments. Which is now accounting for 59% of the Michelin brand sales on the semester up by 5 points versus the first semester of 2022. The second segment, the Transportation segment, I've seen is the sales heavily penalized by the volumes, minus 8%, mainly from replacement in Europe, heavily impacted by the destocking, and also it's penalized by the unfavorable market mix and of course, fixed cost absorption under absorptions which has impacted directly the margin -- the operating margin of the segment lending at 5% for the first half. SR3 is in line with our expectation. I remind you that we are looking to generate an operating income above 17%. We are 18.3% over the semester, an improvement of nearly 500 basis points versus last year. It's supported by very dynamic sales in both mining, aircraft tires, and our high-tech material businesses, including the conveyor belt, the ceiling and the belting or precision polymers activities. Beyond Road activities, such agriculture, construction, material handling are a little bit more impacted by the destocking and the OE and RT mix as well. Our free cash flow is probably the record free cash flow for first semester at EUR 922 million before acquisition. It's first driven by a EUR 200 million improvement in EBITDA, which reached 18.8% over the semester. Tight management of our working capital. Generally, the working capital tends to increase over the first semester. And of course, in line with our expectations, CapEx and the other elements of the free cash flow are in line with our forecast. The free cash flow has been positively impacted by to, let's say, nonrecurring effect. First, the EUR 300 million slide from the Q4 2022 to the Q1 2023, as we have explained at the end of 2022. And the cash collected from TBC, including a shareholder loan reimbursement plus a payment from the proceeds generated from the company-owned retail network disposal to Mavis. All that represents EUR 256 million. So even if we discount these two one-off effects, our free cash flow is positive at nearly EUR 400 million over the semester which is again a record high performance. This contributes, of course, to the fact that our debt is stable as we have nearly been able to finance our dividend through the free cash flow generated during the first semester. We have one other EUR 52 million of M&A, including two operations in our Polymer Composite division and EUR 50 million coming from the fact that we sold our Russian subsidiary early June. And we have to abandon the -- let's say, intragroup loans, which is considered as a negative cash effect for the group. Altogether, the event in Russia, besides, of course, the operating -- the sales and the operating margin impact. As cost of the group, nearly EUR 200 million, EUR 150 million were accounted in 2022 and EUR 50 million during the first half of 2023. In this context, our gearing is stable, nearly stable versus the end of the year, improving by 3 points versus the June 2022, and our rating agencies has been stable. This slide to demonstrate the ability of the group to increase its margin and its cash generation across the business cycles. Will have probably to be two consecutive years of negative volume effect, while the group will be able to improve its performance both from the segment operating income and the free cash flow. Before moving to the guidance, we just would like to make a focus on our merger and acquisition portfolio management. Within our Michelin in Motion 2030 strategy, we are more and more actively managing our business portfolio, which is also a way to show and to demonstrate the group ability to create value around and beyond tires, although some of these activities have been sometimes acquired at a higher multiple than the group core multiple. During the first half of the year, we have concluded, although the closing will happen in the -- probably in the third or the first -- fourth quarter, the acquisition of FCG Flex Composite Group, which is going to help us to create the leader in engineering fabrics and films, both in Europe and in North America. We have acquired a company in simulation called Canopy simulation, which is feeding the group artificial intelligence capabilities in engineering and development. We have acquired [indiscernible], which is the Michelin connected fleet distribution company in Italy. And we have concluded the deal with [NVR] and Ota around the development of a company which is aiming to create the leader in tire recycling in Europe through paralysis in order to generate recycled oil and recycled carbon black in Europe. On the other hand, besides, of course, the disposal of our Russian activities, we have seen the entrance in SYMBIO capital of Stellantis. Which put a valuation of SYMBIO of nearly EUR 900 million in enterprise value. The disposal of the retail businesses of TBC for $525 million and the proceeds generated to its shareholders. And the entrance of [indiscernible] in Watea, which has been also -- which is for us a way to boost Watea growth in the future and also a recognition of the group know-hows in terms of leveraging is -- know-hows in terms of understanding road usage and selling insights to fleets in order to improve their operations. So now let's move to our 2023 full year guidance that we have revised upward following first reassessments of the market. So regarding passenger car and light truck tires market, as I mentioned earlier, we consider that destocking is nearly achieved. Of course, looking forward, Q3 and Q4 will see different patterns because in Q3 last year, we've seen the rebound of, for example, the OE market in China and then the cool down during the Q4 when the COVID-19 strike again. So we'll have some comparisons basis that will be very different during the two coming quarters. But we are expecting overall that overall passenger car and light truck market should be either flat or slightly decreasing over the year, so between minus 3% and 0%. Truck- tire outside China should continue to see a destocking on the replacement side, at least till the end of the third quarter. in the context of economic uncertainties. On the other hand, we see that particularly in Europe, OEMs order book are still very robust, and we should continue to see this slight imbalance between original equipment and replacement during the second half of the year. All in one, we consider that if we put aside China we have revised onwards our overall market forecast, which include, of course, part of what has been done during -- been achieved during Q2 to between minus 1% and minus 4%. Specialties should be nearly flat plus if we look overall, we still have to see a strong demand in mining and aircraft. Aircraft due to the recovery of the commercial market, particularly in the Western world. Mining is still holding very strong, although we have a very high comparison basis for the second half of 2022. Beyond tire, we expect a slight growth in agriculture, but it will be offset by lower demand in material lending and construction with the same phenomenon of destocking in these segments. Which is a bit the case also in 2-wheels. After the COVID, there was a surge in demand in 2-wheels, both in OE and replacement. And for example, we are still seeing high level of inventory, for example, in bicycle, which is going to slightly depress the market for the year to go. So in that context, we update our scenario. We consider that the volume will be probably lower than what we expected at the beginning of the year. I'll remind you, H1 was at minus 3.7%. We consider that H2 will see an improvement but will not fully compensate the impact of H1. Cost inflation, we consider it should be -- still we should have still around EUR 200 million of inflation over the year, if we look at all inflation. After nearly EUR 560 million of inflation during the first half. It means that we'll start to see some deflation or interim cost reduction in our cost of goods sold during the second year, but it might not fully compensate the inflation that we have seen during the first half. So overall, we should generate a positive mix between net price mix and cost inflation factors. Our CapEx are probably going to land at a lower range of the range that we shared with you at the beginning of the year, around EUR 2.2 billion. And in this context, our segment operating income showed at constant exchange rate be above EUR 3.4 billion. And our free cash flow, including FX should be above EUR 2 billion. I must add that we expect to have -- we have a EUR 60 million negative ForEx effect during the first half of the year. This figure will probably increase during the second half, we do not have a crystal ball regarding currencies. But if we just take the currencies at the end of H1, and we use it as a reference for the second half, we should see a negative ForEx of nearly EUR 200 million on our segment operating income during the second half of the year. So thank you very much for your attention, and we can now move to a Q&A session.

[Operator Instructions] The first question is from Michael Jacks of Bank of America.

I have two. The first one is on indexation. When should we expect to see the first major impacts of the lower raw mat costs? And is the timing going to be different between SR 1, 2 and 3? Could you perhaps just provide a little bit of steer on the potential magnitude of the indexation adjustments that are needed at current spot raw material prices? And could you also then please remind us what proportion of total group sales are indexed and then one additional question, please, just on the employee bonus effects for 2023. Can you just remind us how that will impact the bridge in the second half of the year and whether or not it's included in the cost inflation guide or in SG&A?

Yes, I will take a portion of the question and then if Yves will complete. So as far as the bonuses management bonuses are concerned, we have raised the bonus provision because we anticipate our results to be better than what we had envisioned previously. And it will -- and now -- so we have upgraded, of course, our forecast, including a better provision for management and -- sorry, general bonuses indexed on the group. As far as the indexation closes between SR1, SR2 and SR3, they vary a lot. We have -- it's business by business. everyone has contracts. It varies from quarterly review to semester review to yearly review. It depends. But on average, you can consider that it takes 6 months before it applies. Now due to our forecast, we anticipate that in the second semester, the impact of index close and all of that has been included in our forecast, of course, will be not major. And it will be more significant in the first semester of 2024. And maybe about the proportion?

So overall, our index business represent around 30% of our sales it's slightly below that for SR1 and SR2 and there is a higher exposure to index business in SR3. You can consider that it's around 60% to 70% indexed in SR3. And of course, as Florent mentioned, we have different kind of clauses in reference depending on the contract. So generally, there is a lag between 6 to 9 months, depending on the contract. We are expecting neutral or slightly negative impact on the Q3 and a little bit more negative on the Q4. But overall, we are not speaking about huge amount for the second half.

And everything is included in our guidance.

Just a technical question then just on the bonus effect. Is that included in the cost guidance of EUR 200 million? Or does that sit in SG&A?

Yes, it's included in the guidance of segment operating income.

Next question is from Sanjay Bhagwani of Citi .

I've got three questions as well. Like two of them are actually a follow-up to my question. So my first one is on the volume drop through. I think you mentioned that's the reason why this is higher in first half is because the product dropped more, particularly in SR2 than the sales. So could you maybe provide some color on will this actually be normalizing by end of the year? So should we maybe think more of like, let's say, for the full year volume drop-through of 40% to 45%? Or any color on that would be helpful. Then my second question is on -- a follow-up to my question on the other line item. So is it fair to say that now you are going to be achieving more than what you had targeted. So the headwind from the other line item could be more for the full year? And yes, any more color on that will be very helpful. And finally, on pricing for the full year. So if I understood it correctly, index portion, not a big impact in H2 of this lower raw material cost? And can you please reconfirm that the replace -- the pricing methods on the replacement tire has not changed much as well? So maybe just trying to ascertain maybe a large part of this reduced cost inflation guidance directly close into the earnings? Those are my questions.

I will start with the pricing and the pricing volume ongoing question. And then Yves will answer on the drop-through and the other line item. So on the pricing and volume, the market is now under heavy destocking. There is no point of trying to push some additional volume into inventories at this period of time. So we have no intention to change our pricing policy. And everything is included in our forecast. We just want to make sure that we valorize the quality of our product and service offerings rather than trying to chase volume all of that. What we foresee is in terms of volume in the second semester is that the destocking in passenger car is probably -- the inventory level in passenger car are probably at the adequate level, except in Europe, in winter, where there is still excess inventory in winter tires in Europe. But in the rest of the world, it's at an appropriate level. We anticipate still in terms of volumes of destocking in Q3 in truck tires overall. Because we have to remember that there are three layers of inventories in the truck sector. You have the dealership in the fleet and also in the equipment that are idle when the economy is down. And so it takes more time in truck to absorb the excess inventory. And then again, in pricing, we think we are priced dynamically according to the value of our products. Now for the drop-through, maybe Yves and the other line item.

So regarding the [through] first, of course, if you look at the two bridges, you'll see a 66% drop through. In reality, the drop through is 52% in the first half of the year. Because our inventory has been also our own company-owned distribution companies has been also destocking during the first half, so their sell-out were better than the group selling. So it means that our manufacturers sales has been slightly decreasing more than the 3.7%. It has been partially compensated by the distribution sell-out performance. and this 50% should become around 45% on the second half. Last year, we had the peak of inventory during the summer, and we had to slow down sharply our operations and our production during the second half. As we have been from a manufacturing standpoint in a healthy situation at the end of H1, we should not have this such effect in the second half. Regarding the other line items, in fact, in the other line items, we include the movement as we did last year and the year before regarding the bonuses in order not to distort the way we can read the performance in terms of manufacturing or SG&A. So we should see similar or slightly bigger effect on the second half regarding the first half because last year, we underperformed our objective. So it penalizes the second half provision that we for the digital. But that's in fact, overall, our forecast include when we build our forecast, we build our guidance, it includes the impact of bonuses or this kind of effect on our overall performance.

Thank you very helpful. So just to confirm, for H2, the other line item, are similar or just slightly more -- is that correct?

Higher than the first half, yes.

The next question is from Jose Asumendi of JPMorgan.

The first one, I wanted to navigate a little bit away from the profit bridge discussion that we always end up having. I was just wondering if you could talk a little bit around the capacity expansion actions you're taking in China. If you could just take us a little through where you're expanding capacity where you are training capacity in SR1 or SR2 on a global basis? That will be the first one. Second, I'd love to hear a little bit more around when you plan to give us an update with regards to the margin targets. You're making good progress in SR1 and SR3, SR2 will come over time. But when do you expect to revise it again the margin targets? Is this a 2023 discussion? Or is it little bit more like 2024 and then finally, back to the bridge, I just wanted to confirm, in your guidance for '23, are you expecting a positive or a negative volume contribution in the second half of the year?

Okay. So as far as the capacity expansion is we have to be very clear. There is no capacity expansion in truck and that was our policy for a few years now. In passenger car, we expand capacities. Mainly in Asia and in North America, where our markets are very good and where we -- today, we are net importers and we want to -- local-to-local strategy. We want to make sure that our capacities are located where the markets are. And when we put new capacity. It's, first of all, with 100% electric curing for the environment and also, it's in 18, 19-inch and above capabilities so that we make sure that we can chase the mix. So and then we also have expansion. We have announced a new expansion in truck tires for agricultural in North America. And we have right now, we are having some productivity improvement, which may lead to marginal capacities everywhere around the world. As far as the margin targets for what they will be, we will have -- we had made a commitment for 3 years from 2020 to 2023. So in 2024, we will have a Capital Market Day where we will discuss together our new commitments for the year to come, and we will rewind what we have been achieving. So it will be done in 2024.And maybe for the last question...

Yes. The volume effect should still be negative in the second half, less than the first half. hopefully, but we are still betting on a negative volume effect. You see that our overall volume range is now between minus 2% and minus 4%. We're at minus 3.7% on the first half. If we want to lend, let's say, just in the middle of the range, you can assume that we should be slightly around 2%, minus 2% during the second half.

[Operator Instructions] The next question comes from Ross MacDonald of Morgan Stanley.

Three questions, if I may. Firstly, just on the EBIT guidance for 2023 over EUR 3.4 billion and the over EUR 2 billion free cash flow guidance, can I just check the assumptions you're making underlying that guidance? Is this based on minus 4% volumes, but with the implicit assumption that there's no price cuts in the second half. I think if I understand your previous comments correctly, you're saying we should assume no SR1 price cuts with this new guidance? Secondly, on the free cash flow outlook, specifically, if we assume that you hit this EUR 2 billion free cash flow target, can I check if you have any short-term plans to return some of that extra cash to shareholders potentially via a share buyback program? And then lastly, on asset disposals. Obviously, some of the first half free cash flow beat is helped by asset disposals. Could you maybe comment on how you're thinking about your retail portfolio after that transaction, whether that's been rightsized at this point or if there's scope for more disposals in the future?

Okay. I will take some part and Yves will take other parts of your question. First, as far as returning to shareholders. We have a policy there where we have been very explicit. We favor dividends, and we are gradually increasing the dividend policy. We will have the discussion after the year end of 2023. To see how do we allocate cash, depending on where we are and how our strategy is developing. As far as in our guidance, in our EBIT guidance and the cash flow guidance, we have included every -- all the assumptions, whether pricing policy, the indexation clause, the additional bonus, we have put everything in it. But we won't go into details about how we are going to manage but basically, I have been very clear in the beginning saying that in terms of pricing policy, we don't see in a heavy destocking environment, why we should try to add smart others in selling where we would just displace inventories without probably structurally gaining anything. So at this stage, we don't -- we have a dynamic pricing policy that has proven very efficient, and we will continue on that policy. Maybe, Yves, if you can...

Maybe on the -- so regarding -- there was some asset disposal in our JV in North America. Just to give you a little bit of background we enter into this JV with Sumitomo Corporation in 2018. At that time, we injected a little bit more than EUR 600 million in the JV because most of the assets was coming from our partner. And the aim of the JV was to build the second largest wholesaler in the U.S. market. That we have done that. And the JV is still running this asset, which is called NTW. Part of that, this JV is also operating two franchise, very successful franchise program. One is Midas and the other one is big O. And last, the JV is also operating wholesales in Mexico and having some import activities in the North American market. And from the beginning, we knew that we wanted to dispose off the retail -- the company-owned retail activities, which were diluted from a rookie standpoint, and simply, we have not been able to achieve it earlier because in the meantime, we have 3 -- 2 years, 2.5 years with COVID-19 and a lot of, let's say, external events. It has been made possible it's a project that has taken nearly 1 year. It has been achieved during the second half. And now basically, we get back nearly at the end of the semester. We get back nearly 60%. 60% of the cash that we injected in 2018, but we still have on top of that, the asset, which is key for our market access in the North American and the U.S. market, which is, for us, our most important market in terms of size. So we simply, let's say, deploy our strategy. we already said that we were not contemplating further investing in company-owned retail, at least in store in brick-and-mortar retail activities. If we might have some other divestments in the future, but it will be highly connected to the strategy and what I described as a more active management of our business portfolio in order to move towards, let's say, higher value or more performing business segment. And the last question. So in the EBIT guidance. So Florent mentioned the price, and we have no planned price cuts across the board and particularly in SR1. There will be some mechanical effect of some raw material clause particularly at the end of the semester. And we indicate you a range regarding the volumes. Generally, at this stage of the year, you can try to -- you can bet on the middle of the range. until we give you a little bit more indication in the future. But again, everything is included in our forecast.

The next section is from Philipp Koenig of Goldman Sachs.

I just want to come back to the $3.4 billion on the new SOI guidance. It does at the lower end of this still imply, a lower SOI in the second half than in the first half, where you did EUR 1.75 billion of segment operating income -- if I think about what you sort of laid out throughout this call, it seems like volumes are getting better, inventories are at more normalized levels. Pricing seems to be holding up. Are you planning to keep prices stable in the replacement market and those deflation when it comes to your costs. So is it fair to say that the EUR 3.4 billion is a fairly conservative assumption? And there's not really any reason why second half SOI could actually be better than the first half if we exclude the FX? Then my second question is on the working capital. You've obviously seen an improvement in the inventories in the first half. But if we think about the full year, do you expect working capital to be a tailwind compared to 2022? And then my last question is just coming back to the price mix, very simple for the second half. Do you expect price mix to be positive, neutral or maybe a slight negative.

Okay. So on the EBIT. Theoretically, you're right. H2 is normally in terms of seasonality, better than H1. Now, we operate for the past 3 years in very, very perturbated environment. So at this stage, we've taken our best assumption is we said we should be in excess of EUR 3.4 billion in terms of EBIT. I'm sure you can make your assumption. We think that -- that's why we say it's strictly above 3.4%. Fixed rate, center because the dollar is weakening against the euro right now. As far as the working capital, we continue with our tight inventory management, depending about how the market is stocking will -- the speed at which it will adjust, we may have better sales or not. It's very difficult to assess at this stage, especially in the truck tires, that's why we've taken in terms of cash flow as well. The best estimate of what we think we can achieve seen from today. And maybe Yves, If you want to...

To come back on the SOI guidance, H1 -- H2 versus H1, at historical exchange rate Don't forget that last year, we have a completely different pattern with a very low -- relatively low H1 performance and a very high H2. So we have to -- when you look at the progress year-on-year, you have to look at that. And at historical exchange rate, H2 should be better than H1. Of course, there will be the impact of the ForEx during the second half. Working capital should continue to improve. At least in value in the second half. When you look at working capital, you look at the balance sheet, so you look at the lending at the end of the year or the semester. Volume wise, we might land not too far from the volume we had in end of 2022, at least in finished product because we have a better sales in H4 last year than what we expected. But value-wise, we should see the impact of the raw material cost on the value of our inventories. And the price mix effect in H2 would be slightly better than what we have had in first semester. It depends on the index clause, which are going to affect the price. We consider that price should be nearly neutral over the second half. The mix -- product mix will continue to be the same. We are also expecting, let's say, a less negative OE and RT mix, and we should benefit from the effect of decrease in the cost of goods sold, partially in terms of raw material, transportation and in some aspect, energy, although it's a little bit more tricky to forecast. When at the same time, we are still seeing some inflators for example, on the labor cost side.

[Operator Instructions] The next question is from Thomas Besson of Kepler Sigal.

Thank you. I have two themes then, please. First, on M&A. Could you update us on whether you plan several midsized deals like the one you just announced or are eventually prepared to go for a more transformational larger deal and whether you effectively commit to the amount that have been discussed so far EUR 5 billion, EUR 10 billion maximum budget and therefore, [indiscernible] any potential new rate issue for acquisitions? And finally, on that topic, is it reasonable to assume that you're going to concentrate acquisitions slightly over 23%, 25% to increase your chances to meet your 2030 ambitions in terms of proportion of revenues outside home. And then the second topic I'd like to discuss much more simple. You're still showing SR3, including SR4, despite the growth of this future SR4, could you just give us a slightly more detailed view about how much it accounts in terms of revenues and margins, whether it's really different or not and whether you will separate that after your CMD in 2024 or whether we have to wait until it accounts for more than 10% of group revenues.

To the second question, I think you have in your question, there is the answer. We've been very clear saying that we will split segment 4, if it's significant in terms of -- if it's meaningful, basically, so if it's above 10% of the group revenue, that's when we will issue segment 4.