Compagnie Générale des Établissements Michelin Société en commandite par actions ($ML)

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

Thank you very much. Good evening, ladies and gentlemen. So I will have the pleasure to share with you our sales figures for the first quarter of 2026 and try to give a little bit of color about our business going forward. For this meeting, I am accompanied by Benedicte Bonnechose, who is going to take over as the Group CFO from June 1, but I will handle the presentation. So first, the quarter -- the first quarter of 2026 have started slightly better than what we were expecting. The group is posting stable revenue at ISO ForEx. We have 3% growth in the volumes sold at the Michelin brand in all our replacement markets across all our business segments. The 3 M&A operations that we have announced at the end of 2025, early 2026 are going well on completion and 2 acquisitions has been already closed at the moment I'm speaking. The Cooley Group is integrated for 2 months over the first quarter and Flexitallic will be integrated in the group figures from the 1st of April. Nevertheless, the context in the Middle East has dispelled a shadow over the year to go. And at this stage, it is very difficult for us to assess the precise impact on our businesses, except one certainty, which is the increasing cost of energy and raw material, which is going to impact our costs. But in this context, we have not changed our guidance for the full year. And I will come back at the end of the meeting over the elements that lead us to maintain this guidance. Looking first at the market, the market in the first quarter of 2026 were negative as expected, particularly the original equipment market. The passenger car tire market overall is negative, OE being down by 4%, mostly driven by the scale down of incentive in China and a market which is as well decreasing in North America, stable in Europe, but with a mix which is positive in terms of electrification as the European market is posting positive growth in OE for electric vehicles. The replacement market is stable overall. We have nevertheless to keep in mind that the minus 3% in Europe and the minus 7% in North America are mostly driven by 2025 Q1 and Q2 anticipated from importers in the respective areas in Europe due to the antidumping inquiries made by the European Commission and in North America due to the perspective of the tariff. So 2025 figures have been, as you know, very distorted by the non-pool businesses. And that's why these 2 markets are posting negative figures. On the other hand, the Chinese market is growing by 9% over the first quarter. I do not mention it, but the 2-wheel market is slightly growing as well in most of the areas. Regarding transportation, so truck and buses businesses, as expected, the original equipment market is negative, minus 3% mostly driven by North America, where the market is at minus 19%. It is in the continuation of what has happened during the last half of 2025. And when we look forward, although we see that the orders of new vehicles have started to increase in North America, there is still a quite important backlog of inventories of tractor inventories at the dealership that will take a few months to be fully absorbed by the market. So for the time being, the growth of sell-out of vehicle is absorbed not by the production of new vehicles, but mostly by construction of already vehicles that are already in that. North America -- South American market is as well highly impacted, minus 16% over the quarter. On the replacement side, plus 3% overall, plus 7% in Europe, minus 12% in North America. In North America, it's mostly the consequence of the tariff that has led to a surge in import during the first 2 quarter of 2025. In Europe, the market is quite segregated between the pool and non-pool market. The growth of 7% is mostly triggered by the non-pool market or the import. We have as well to keep in mind that Jan and February was flagged with some difficult weather condition in North America that has impacted, by the way, both passenger car, light truck and tire market. On the specialty side, Beyond Road, so agro, we see a recovery in small machine segment, particularly in Europe and North America. But high-power tractors market is still depressed at OE. Replacement market is recovering slightly in the different zones. The infrastructure market is posting more favorable trend. Material handling is stable. Mining market is growing at a modest pace, but with a slight decrease in inventory of mining companies, but still growing. And the aircraft market was positive over the quarter. So having this element in mind, as I mentioned, the group posted a stable revenue at a constant exchange rate, but the exchange rate is weighting heavily on our top line, minus EUR 355 million or minus 5.4% of which 70% is coming from the U.S. dollar. Volume. So first, in terms of scope, we have the positive effect of the integration of the Cooley Group for 2 months, which is offset by the impact of the disposal of our compact line activities to the CEAT group, which explains a very, let's say, small scope effect over the first quarter. Our volumes have lost 1.4% over the quarter and taking into account the strong growth in the replacement market for the Michelin brand at plus 3%. And it's mostly triggered, and we will see the detail later on by the original equipment market, both in transportation and consumer businesses. Price/mix is positive 1.1% as planned the mix -- the price effect is minus 0.8%. It's mostly due to the effect of raw material prices adjustments as raw material prices have started to decrease during the second half of 2025. Mechanically, we have the adjustments for around 30% of our revenue and as well some measures that were taken that have started already during the second half of 2025 in order to adjust our competitivity. The mix is positive, plus 1.9%. It includes both the very positive -- the constant effect of our growth in 18-inch and above at the Michelin brand, which now represents 69% of our global volumes at the Michelin brand, both OE and RT for the consumer segment as well as a positive mix effect between original equipment and replacement market. Non-tire sales are stable at ISO scope and currency and the ForEx have been already commented. So that's the first time that we are presenting our actual figures through our new reporting segment. So the first time that you see the Polymer Composite Solutions segment published separately. And I will start by this segment, which is posting 5.1% growth overall, which is basically the only segment posting positive revenue over the quarter, which demonstrates the relevance of our strategy, of course, with the help of the inclusion of the Cooley Group plus which contribute 10 points to the revenue growth. And I will later on do a zoom on this business segment. Consumer volume are growing by 1.3% with a contrasted situation between original equipment where our volume have globally decreased in line with the market, probably less than the market in China, a little bit more than the market in North America due to the different fitment and the segment of vehicles where we are present. The replacement market on the other hand are very positive, particularly at the Michelin brand. But at the same time, we are still losing ground on the Tier 3 segment, both in Europe and North America and in some elements as well in Asia. 2-wheel post strong growth over different geographies, including China. The Transportation segment is showing, it's not a surprise, the strongest decline in volume due to the contraction of our sales in the original equipment, particularly in North and South America. Replacement sales are positive in Europe and decreasing in North America and South America. In the specialties, you see a volume growth of 2.5%, thanks to mining and aircraft, but as well stabilizing Beyond Road activity at ISO Scope as the disposal of our compact line business is in the scope effect. Despite -- so Beyond Road is stabilizing the situation despite a challenging situation in agro trucks and material handling. Moving now on the higher performance overall at the group level. So you see that most of the 100% of the volume lost is coming from original equipment, mostly equally shared between truck and bus and passenger cars with a slight decrease in agro. And on the other hand, the replacement volumes are stable with growth of 3% in Michelin brand and volume lost in the Tier 2 and partly Tier 3 brands over the quarter. So as far as the Polymer Composite Solutions is concerned, so we have -- we will share with you the situation of the market, not by end market, but by product. In the Sealing business, we recorded a very strong performance and particularly in hydraulic applications. The coated fabrics and films are growing as well, thanks to business development Beyond the Marine application, which was the main -- which is still the main destination market for this product. And the belting market is posting a slight growth particularly in general industrial and aeronautics applications. On the other hand, the conveyor belt market or heavy conveyor belt, particularly the one that are servicing the mining market are declining, particularly in Australia. And on top of that, we have an industrial maintenance in a site that takes 3 months instead of 1, and that has weighted on the performance of this division in this geography. But overall, we are seeing a solid growth in Sealing and Coated Fabrics with a slight setback in Conveyors. As we are coming -- we are zooming on this -- on the PCS activity, I just would like to remind you the figure that was shared during the last Capital Markets Day in 2024 and that we have updated at that time, it was a comparison between 2018 and 2025 -- 2023, though it's updated with 2025. So basically, you can see 2 things on this graph. First, 2028 (sic) [2018], which was the first year of integration of Fenner. So it's Fenner joined the Michelin Group in May 2028 (sic) [2018]. The Fenner activities were generating EUR 820 million of sales, not including Solesis the medical application activity that has been later on sold and put in a joint venture with the North American private equity company. And this activity should in the 2025 pro forma represent EUR 1.7 billion. So it's a compounded organic growth of 3% and, let's say, growth generated by acquisition, which is of a similar order of magnitude. At the same time, in 2018, the operating margin of this activity was 11.5%, and it would have been 15% in 2025. You see as well that the portfolio of activity has evolved over the period in 2018, 2/3 of the businesses was mostly conveyors, 1/3 is ceiling, 30% or 25% ceiling and the rest was belting. We have now an activity which is much more balanced. Conveyor belt is still a very important activity, but it has been balanced with the growth of the ceiling and mostly the coated fabrics and films, thanks to the different acquisition that has been done in the past years. We are still expecting to close the last of the 3 deals announced earlier, the TexTech company, let's say, during around midyear. So now looking forward for the full year of 2026. At this stage and being after 1 quarter, we did not change the outlook for the full year tire market, which is basically stable market, softer in H1 than in H2 and particularly softer in original equipment, both, by the way, for passenger car and light truck and trucks during the first half of the year versus the second half. And for the specialties so we think that the market should be around 0 both for consumers and transportation overall OE plus RT. Specialties should post a slight growth given the positive trend of mining and aircraft. Again, this outlook has been -- is the same that the one we shared with you at the end of -- at the beginning mid-February and excluding a potential systemic impact on the demand following the conflict in the Middle East. So now looking to the situation in the Middle East. First, in the areas, we have mostly commercial operations. We employ around 100 -- a little bit less than 100 employees in sales. We don't have any tire manufacturing activity in the regions. And we operate 2 joint venture in Saudi Arabia, one in -- which is the machine commercial operation and one which is in the sealing activity of our Polymer Composite Solution, which is servicing the oil and gas industry. Altogether, the region represents less than 1% of the group sales. And we have set up crisis sales very quickly at the end of very early March in order to monitor the situation, follow potential disruption for regional customer deliveries look for alternative commercial routes to serve these customers and of course, monitor our upstream supply chain resilience. So as I mentioned earlier, at this stage, it's very difficult to predict precisely the consequence of the conflict. It will depend on the duration and the extent of the conflict. But for the time being, we are working on an assumption which is translate in oil price at around $100 per barrel for -- till the end of the year. So with this assumption in mind, we know one thing for sure is that we'll have to face inflation. You remember that when we start the year, we were expecting a tailwind of EUR 400 million on the raw material. This tailwind will be at least -- probably at least completely wipe out by inflation in raw material and energy and logistics. So we estimate that with the scenario that I'm sharing with you, we should have to be around at least EUR 400 million of additional cost, of which 3/4 are related to raw material and 25% related to energy and logistics. Why only 25% of energy? Because half of our energy cost energy purchase are already secured since the beginning of the year. So that what we know for sure. What is much more difficult to assess is the potential impact on the demand, on the tire demand, maybe first on original equipment and maybe then on replacement. Today, we don't have any sign of slowdown in many markets. But the more we will progress during the year, the more we'll see risk, particularly if the conflict is not stopping at any moment. The other element, which is as well difficult to anticipate, although we are monitoring very closely with our crisis sales is the potential disruption of raw material supply. Again, at this stage, we have a reasonable visibility of our supply till the end of June. But beyond that, it's extremely difficult given the fact that nobody knows how long and how far this conflict will continue. So obviously, it will -- all these elements will have an impact on, let's say, put some pressure on our margin and our free cash flow. The free cash flow is both for the margin, but as well inflation is contributing to, let's say, the ballooning of our working capital. But at this stage, with the structural levers, so the way we manage the operations, the fact that we are vertically integrated in some areas, particularly in synthetic rubber in some other products as well, the localization of our operations and our proven margin resilience in, let's say, recent similar or very volatile environment, all that lead us to maintain our guidance. So our guidance, I remind to generate segment operating income at ISO scope and ISO ForEx above the one we generated in 2025 and free cash flow above EUR 1.6 billion. In this highly volatile and unpredictable environment, I would like as well to insist on the strength of the group and the fact that we are holding the cap on our strategy. First, we continue in 2026 to launch a new product to further enhance our innovation leadership. Second, we continue as well to work and to improve our efficiency. In Europe, we have recently announced that we have sold and closed the remaining of our U.K. retail distribution operations for light vehicles. And we have recently announced the consolidation of our agriculture track activity factories from 2 factories to 1 factory in North America, which lead to the close of one of the factory in order to improve the competitiveness of our operation. And last, I remind that we have maintained our dividend per share for 2025 versus 2024, which lead to a dividend yield of 4.9%. And the group has started with the help of banks to complete EUR 750 million share buyback program that has been launched in the second half of February and that should be executed by the end of November. So having shared all these elements, I think it's time now to open the Q&A session.

[Operator Instructions] First question is from Stephen Benhamou, Bank of America.

I have 2 questions. The first one is regarding your pricing. Can you please give us more color regarding your pricing strategy? And so I understand that you basically adopted a more aggressive pricing strategy to boost market share gains, notably in the U.S. So do you expect overall a negative pricing for the year? And if not, how do you intend to increase prices without weighing on volumes? So this is my first question. The second question is regarding your expectation for the cost inflation. So you indicate at least EUR 400 million that includes raw mat, energy and logistics. But what about wage inflation? And is it a gross or net impact post mitigation measures? And basically, what's the phasing of those EUR 400 million cost inflation between H1 and H2?

Okay. So thank you, Stephen, for your question. So regarding the pricing strategy, as you know, I'm not going to comment our forward pricing strategy as there is currently an investigation from the European Commission on that topic. What I can simply tell you is that we have on one side, the index business, and I will not comment on it because it's quite mechanical. But it has an impact, and I will come back on that. And on the other hand, we are -- we have implemented a transformation within the group in order to manage our pricing in a more and more agile manner, which lead us sometimes to -- even in the same category to adjust the price at some SKUs upward and some other SKUs on board. What I can already tell you is that there was already some price increase announced and implemented, for example, in Europe 1st of May, it has been communicated on the market recently because we are still -- we are already seeing some element of inflation, particularly the energy or the transportation cost, maritime shipping, just to mention it or even in non-transportation. And so we -- the answer regarding the balance between price and market share and competitivity, let's say, is all is in the quality of the execution by the team. And I believe that since the last quarter of 2025, our team have demonstrated their ability to grow in our market share in -- particularly in the replacement market, thanks to a very agile pricing strategy. Regarding inflation, for the time being, it's mostly energy and raw material that are impacting us. We have not computed any wage inflation at this stage. But it's something that might happen in the second half if the situation is worsening. Nevertheless, and regarding the phasing, most of the phasing, of course, will be on H2. But we are still seeing -- we are already seeing actually an element that are going directly in the P&L, such as transportation, the impact of inflation. Of course, all the elements that are contributing to the production cost, so either raw materials or energy in the production cost. Energy represents 2.5% of our group sales overall will be -- will impact our P&L probably most in the second half we have 4 months of inventory between raw materials, semifinished and finished products. So generally, you can count on 4 to 6 months lag between the increase of these costs and the inflation in our cost of goods sold.

And regarding the gross or net impact?

It's a gross impact. It's a gross impact.

Okay. And did you quantify your mitigation measures?

Of course, we quantify it. But what I can tell you is that we are -- as I said, you can classify our business into 2 categories. The business which is midterm contract with an index, indexation clauses, there will be a mechanical lag effect between the inflation, the increase of cost of goods sold and the increase of price. So this part will not probably be fully hedged over 2026. For the rest, it's a journey. We have demonstrated our ability in the past to hedge our cost.

Next question is from Akshat Kacker, JPMorgan.

Akshat from JPMorgan. I have 3 questions, please. The first one on volumes, a very good beat in Q1 versus expectations. Could you just tell us if you're already seeing signs of prebuys, specifically in March? We have seen some very strong industry data coming out from March. Have you seen any signs of strong dealer buying ahead of those price increases? Or are there any signs of sell-in activity looking different at the start of Q2? That's the first question. The second question is on the trucks business. We can clearly see that the truck market in North America could be inflecting from very low levels and the comparables look very easy starting from Q2. But on the other side, replacement volumes have been at high levels. You have high inventories. So how are you thinking about overall truck volumes from here for the rest of the year in 2026, please? And the last one, coming back to cost sensitivity of the conflict. Is the EUR 400 million number a second half impact for this year? Is that how we should think about it? And what have you really built into that EUR 400 million? Is it only the direct impact from synthetic rubber and carbon black and you haven't considered broader inflation in steel, chemicals, supply chain, et cetera? Just trying to understand the big buckets within that EUR 400 million, please.

So thank you, Akshat. For the time being, we have not seen any significant prebuy over the first quarter in any of the regions where we are operating. So we have not, let's say, meaningful volumes that can be interpreted as a prebuy from distributors. But that's something that we are obviously monitoring very closely as we are monitoring every month the sell-in and the sell-out as well the sale of our product to end users by distributors. For the truck market, it's a bit reflected in the slide that I present for the full year market. Of course, we are starting -- we will start partly on OE to compare ourselves with data that were, let's say, at historical low level, particularly on the original equipment since the month of April, May 2025. As I mentioned, I will comment mostly the original equipment market and particularly the North American, which is weighting heavily on our OE performance because we have seen the European market slightly rebounding since the last quarter of 2025. In OE, we consider that although we have seen an increase in the order of new vehicles, we consider that the market will probably need another 3 to 4 months to flush out the over inventory of vehicles that has been built up by the OEMs in the past 2 years. So it's very probable that over Q2 and even early Q3, we are not going to see a sharp increase in order of tire by OEMs because they are still selling vehicles that have been produced earlier. As far as the cost and the duration of the conflict, the EUR 400 million are obviously mostly on H2. But as I mentioned, we are already seeing some very concrete inflation measures, for example, in transportation. And we have -- the assessment we did was so at least EUR 400 million, probably EUR 300 million on raw material, EUR 100 million shared between energy and transportation. And on the EUR 400 million of raw material, we are looking at all raw materials. So of course, it's synthetic rubbers, a lot of chemicals products, resins, but you can -- if you look at the SICOM data, you will see that the natural rubber price as well started to slightly increase. So we take in consideration all the elements of the different raw materials that we are acquiring.

Next question is from Harry Martin, Bernstein.

Harry, are you online?

Harry Martin, your line is open.

So maybe we can switch to the next one and eventually call Harry later on.

Next question is from Thomas Besson, Kepler Cheuvreux.

I have a few questions as well, if that's okay, I'll ask them one by one. First is, could you say a few words about your North American business? Last year, you had a horrific Q3, then a much better Q4. In Q1, there's been a lot of weather-related elements or one-off things. Do you see the state of your North American business in the first half of 2026 more aligned with Q4 or Q3 on an underlying basis, please?

So do you want to answer question by question. No, no, but I can answer to this one first. So I will say that Q1 2026 was a little bit in between Q3 and Q4 2025. The -- all the OE markets are negative in the U.S. and in North America, both for consumer vehicles or professional vehicles. And I remind that the replacement market in 2025 was boosted by the anticipation of the tariff. So it's still a market which is, let's say, in between the 2 quarters -- last quarter of 2025.

To follow up a bit on Akshat's question earlier. Could you talk about the April trading? I understand March has been a very strong month after a relatively soft start of the year. Do we continue to see a dynamic momentum in April? Or do you now see any anticipation from dealers of future price increases? Or is it still -- are they still pretending nothing is happening?

As far as I know, I don't see -- we have not seen a huge anticipation of dealers on future price increase, if price are -- now if price increases are announced. The magnitude of the price increase is not huge for what have been announced in Europe, for example. And I think I will not comment in April on the -- when we look at our own figures, we have as well to be careful because 2025 in April, we have a difficult momentum in Europe.

Do you have any update to give us on the European Commission China treatment that was delayed from December? Is it still expected for Q2? Do you expect any retroactive action?

So we expect the antidumping measures to be announced at the end of the quarter -- of this quarter, so the Q2 quarter. We do not expect any retroactive implementation. And that's at this stage is the information that we have in hand, yes. The tariff on the -- due to antidumping in Europe for passenger car tire probably from July or the end of June onward.

Next question is from Harry Martin, Bernstein.

Can you hear me now?

Yes, better Harry. Yes, we hear you clearly.

Great. The first one, as you mentioned, historically, Michelin has been able to pass on raw material costs without major EBIT impact. So I wondered why this time would be any different. I'm thinking if you see any differences in price premiums, market positions, mix that we need to be aware of or whether it all goes well, you should at least be able to recover a good amount of the inflation over time. And then the second question I had, in the release, you talked about expanding market share in the 18-inch and above segment. I'd like to hear some more color on which markets you see those share gains coming in which vehicle types, what price points within 18-inch and above, you're having the most success there would be useful.

Okay. So regarding our ability to pass the raw material effect in the EBIT, we have as always to keep in mind that we have this lag effect for the index business, which play negatively when raw material prices are increasing and positively when it's stabilizing or decreasing. That's the first element that you have to keep in mind. And so we will not -- probably not fully compensate the full effect of inflation in at least on raw material in 2026 some part of it at least for the index business will be to recover in 2027. The difference versus the past -- if you mentioned, for example, what happened after the war in Ukraine or the start of the war in Ukraine is probably that we are now already at a high level of raw material prices versus the situation we had before -- I remember after 2020, price went down. There will be -- there was some cooling down of prices in the end of 2024, 2025. But the question is the ability of the market to accept the level of price that this kind of inflation may come in. So that's the question more on the affordability side. Regarding our market share, our market share gain in the consumer segment, particularly in the 18-inch tires. But on the replacement tires, I want as well to share with you that we have as well gained market share in some segments below 18-inch. So in terms of market, it cover, let's say, mostly all the markets in Asia, in Europe, maybe in a lesser extent in North America. And when you speak about the vehicle, if I take the Chinese market, it happened that I was in China last week. We are quite successful with local OEMs and partly with electric vehicles. So that's where we are gaining market share, particularly in -- for the OE market.

Next question is from Monica Bosio, Intesa Sanpaolo.

I have 2 questions. The first is, I know it's difficult to answer, but during the last call, the company anticipated a slightly positive volumes trend overall in the second quarter and still a light growth for 2026. I know it's difficult to answer as the macro scenario is evolving, but are you still confirming a positive volumes trend for the second quarter? And if yes, maybe if you can give us some flavor across consumers, transportation and specialties and if you are still confirming positive growth in volumes in 2026. My second question is on polymer composites. I admit I do not very well the segment, but what is the company ability in passing through the raw material cost increases in these divisions? Any insights could be helpful. And the very last is just a check. Can you split again the EUR 400 million of growth headwinds between raw mat, energy and other items?

Okay. Thank you very much, Monica. I will take your question in the last order. So the EUR 400 million of headwind following the war in the Middle East is 75%, so around EUR 300 million in raw material and EUR 100 million between energy and transportation costs. Regarding Polymer Composite Solutions, we are in businesses except for the conveyor belt where the weight of the raw material in the production cost is far lower than the weight of raw material in the production cost of tires. So of course, if there is inflators, the companies that are operating this different business will -- depending on the respective weight because it can be very different between Sealing small belt or heavy conveyor belt, they will have to adjust their strategy. But it's really local and, let's say, local product-related operations. Regarding volumes, so of course, the beginning of the year and after the 2 first months, we were on track to deliver a slightly positive volume in 2026. We have announced that Q1 will be negative. Q2 probably around flat, flattish and Q3 positive. There is -- you mentioned it in your question, it's very difficult to answer. But on one side, there is element that are in favor of, let's say, confirming potential volume growth over the year. It's the fact that in Q2 and Q3 last year, we have suffered particularly Q2 in Europe, Q3 in North America. So we are going to have the basis for comparison, which will be more favorable. On the other hand, nobody knows at the moment I'm speaking, what will be the impact on the final demand, transportation, mileage driven by consumers when they are -- they have the sticker shock of the price of gas oil at the station or even the impact that the price of kerosene can have on the -- and even the availability potentially. So at this stage, I'm not in position to comment the impact of any of these elements on the final demand.

Next question is from Martino De Ambroggi, Equita.

The first question is on the supply chain, the raw mat and so on. What are -- where do you see the main risks for your supply chain today? And could you remind us what is the updated sensitivity to oil price, butadiene and natural rubber? And I have another follow-up later.

So I will probably give you a very, let's say, generic information. Geographically speaking, we are expecting more tense situation of the supply chain in Asia than in Europe and then in North America. So it's rather in this order. But as I said, it's very difficult to decipher where rupture can occur and how. Now looking at our -- so last year, we buy around more than EUR 5 billion of raw materials, of which 29% is natural rubber, 22% synthetic rubber and 21% fillers. So fillers is black carbon and silica. And the rest is shared between chemicals products, around 15%, steel coils 9% and textile. So that's basically the different source of our raw materials. So of course, there is some -- there is a direct sensitivity on the oil price. But some of the products we are using are just derivated from the long oil transformation value chain. So that's probably where it's most difficult to assess. And we know that when the butadiene price is increasing or the synthetic rubber prices are increasing, there is an indirect effect on the natural rubber because some manufacturers might switch from one nature of rubber to another, depending on the prices. So I will not try to give you a magic formula of translating with -- starting with dollar per barrel and translating million of euro of raw material costs. Keep in mind as well that we are a global company. All the raw materials are priced in dollars in USD, the underlying currency in the USD. And we are purchasing in euro, renminbi, Thai baht and as well Brazilian real and USD. So there is as well an effect on the currencies in our acquisition cost.

Okay. Okay. Rather complicated. One housekeeping question because I remember in the previous call, you mentioned raw mat tailwind of EUR 400 million that today you are telling us they are erased by inflation -- cost inflation. But in the previous call, you also mentioned that the cost inflation was in the region of EUR 200 million. So I'm unable to match the figures if probably the cost inflation is much higher than EUR 400 million starting from the EUR 200 million that you commented or I don't know if I remember correctly, the EUR 200 million at the beginning of the year.

No. At the beginning of the year, the assumption was the following. We were expecting a EUR 400 million tailwind from raw mat and EUR 200 million headwind from other inflators. So everything, including salaries in some regions, energy, transportation. And now we are -- so these assumptions are still valid. But on top of that, we are going to get EUR 400 million tailwind -- headwind, of which EUR 300 million is coming from raw materials. So you can say that if it's confirmed, the net effect on raw material will be EUR 100 million versus last year and another EUR 100 million on energy and transportation. So the net effect of cost inflation outside raw material should be around EUR 300 million.

Next question is from Michael Foundoukidis, ODDO BHF.

A few questions also on my side. I will ask them one by one as well. Maybe first on the volumes, some clarification because I'm not sure I understood correctly what you said. You don't change your market scenarios versus what you indicated at the beginning of the year. Even you kind of upgrade them when we look at the charts. I mean some of the charts, both in OE and replacement seem a bit higher than where they were in February. which is a bit puzzling me, especially on the OE with S&P cutting estimates from flattish in February to minus 2 now. So how to reconciliate that? And how to reconciliate also the view that you're saying in the Middle East slide that you expect more negative -- I mean, negative tire demand, but still you don't change your market scenario? That's the first question.

Yes. Michael, we have not changed our outlook globally in terms of market, both for consumer and transportation.

I see the minus 2, plus 2 are the same, but some of the charts, I mean, where the points are higher. But even if we say that it didn't change, why doesn't it change despite you indicating that the Middle East issue will have a negative impact on volumes. And you're also saying that you cannot commit any more on the Q2 volumes improvement.

So what I said is that the hypothesis that we share with you in detail, the one that is in the Slide 13 is -- has been built without taking into account the potential systemic effect on the Middle East conflict on the final demand because for the time being, till the month of March, we have not seen a very different market picture than the one that we described at the 2025 yearly disclosure.

Okay. So guidance still embeds a slight volume growth?

Yes.

Okay. Then maybe a question on pricing and for Q2, probably indexation clauses will remain negative. in Q2. Do you think that replacement prices increase that you mentioned in the call are sufficient to, let's say, offset them and lead to breakeven on the pricing side? And second question on that side, too. On the mix side, do you expect to maintain this around, let's say, 2% for the full year?

So on the indexation clause, I will not mix the indexation clause that we have seen in Q1 that we've seen in Q2 that are due to the price of raw material of the second half of 2025 with the fact that we are going to probably see indexation clause playing in the other way in the very late part of the year because of raw material price increasing now, but that will translate later on in our cost of goods sold. And I will not mix that with the increase on the replacement market because again, we try to have a fair price policy. So we don't -- I'm not trying to overcompensate one market by the other. I mentioned very clearly that the over inflation triggered by the situation in the Middle East that is impacted -- that will impact our cost of goods sold on our index business in the second half will not be fully recovered by price adjustments because there is a time lag in the application or the tools. And regarding the mix, the mix was quite strong in the first half. It will depend on the, let's say, the weight of the recovery of the original equipment volumes. But as we can expect a slight rebalance between OE and RT, maybe we'll have a slightly lower mix effect in the second half.

Okay. Maybe a last one, more general to better understand your guidance. Since February, I would say that volumes are probably more negative than you assumed. Costs obviously are also. So how do you offset that in your guidance? I mean, probably pricing, of course, that's the number one. But is it only that? Is there anything else that we should have in mind to offset all those incremental headwinds that you have? Or was 2026 guidance in February very, very cautious? That's the last one.

Well, so your assumption is that, of course, the volume can be, let's say, less positive in the second half than what we were expecting in February. As well, we are going as well to offset that by the strong cost discipline. And as I mentioned at the end of the presentation, you know that we have implemented in the past 2 years, one of the largest restructuring plan that the group has ever implemented. We continue to work on our cost structure. We have downsized our distribution retail operations in the second -- in the U.K. for light vehicles in February. And we continue to work on improving our footprint. What we can say as well is that probably in this.

Any additional restructuring since February or any measures that you would add?

We announced, as I said, in February, we announced the closure of the sales and the closure of our retail distribution network in the U.K. for light vehicles, more than 100 point of sales. And we recently announced 2 weeks ago the closure of one factory for agro trucks in the U.S. and the merger of this factory with another one, transfer of the activity to another one, which is in a nearby area. On top of that, what we can say as well is that our volumes and our mix have been better in Q1 than what we were expecting early February.

Last question is from Ross MacDonald, Citi.

The first question, just on the mix benefits, obviously, quite strong in Q1 at plus 1.9%. Do you have any guide, Yves, you can give on the overall mix contribution for the full year 2026? And what sort of drop-through we should assume for that? It looks like on channel mix, tier mix and obviously, segment mix are all positive here. So how should we think about the overall mix benefit to revenues this year? The next question, and sorry to come back to the net price versus raw mats. But if I take a step back and just look at the bridge from last year, basically, the headwind was really on the raw mat and logistics side and obviously, price mix and volume kind of offset each other. If I think about my bridge for '26, and let's leave price mix and volume to one side, what is the message here even in terms of the aggregate raw mat headwind and the manufacturing and logistics headwind, i.e., how much do price mix and volume need to be positive to offset that to hit your guidance? If I understood correctly, we're basically wiping out the raw mat benefit for '26, and we have roughly EUR 300 million of manufacturing and logistics. But maybe if you could just split both of those buckets in terms of your assumptions for 2026, and then I can work back how much price mix and volume need to be to offset that. And then a final question. Obviously, oil is continuing to rise. We have the tariffs in the U.S. It sounds like industry pricing isn't moving up too much. How do you think about value over volume strategy in that context? Is there a benefit to Michelin going after some of the lower-end volume in the U.S. to protect volumes and fixed cost absorption this year? I'd just be curious how you think about leaning on your budget brands to maybe shore up some of the volume this year.

Maybe I will take your question in the reverse order, Ross. Starting with the last one. Overall, you know that the weight of the raw material and the energy cost and the transportation cost is respectively lower in premium brands or premium products than on entry product in budget product. So except if there was a massive, let's say, tier down market effect, generally, this kind of situation is more favorable for premium manufacturers like us. So that's what I can -- because the cheaper brands that are mostly imported from Asia will have to be first being in Asia, they could be impacted by inflation faster than in North America and Europe. And on top of that, they have to bear the extra cost of the transportation. So that's my first answer. Regarding the net -- assumed net price raw material versus in your bridge of 2026, as I said, we start the year -- at the start of the year, we're expecting the EUR 400 million tailwind on raw mat. And now we know that we have at least a EUR 300 million headwind, which is coming from the event in the Middle East. So net, it's still EUR 100 million tailwind. And on the loss of energy and other inflators, we are betting on EUR 200 million of inflation, on which we will have to wind the EUR 100 million coming from the impact of the Middle East country. Last, regarding the mix. So we have a strong mix. But if you look over the past years, we have a mix effect that continually translated around 1.5% which has moved around 1.5%, we are at 1.9% in the first quarter. I believe that's a reasonable assumption for the full year at 1.5% is probably the most relevant assumption that you can take.

Maybe if I can squeeze one more in just on the cost inflation point. Obviously, your analysis, it looks like the chart begins sort of late March, which would make sense. But would that imply there's maybe a further EUR 150 million, let's say, cost headwind into early 2027. How should we think -- I know it's still very early in 2026, but how should we think about the cost inflation that carries over into 2027 based on your analysis?

For sure, right. If the situation is lasting further, there will be a carryover in 2027. But let's take the situation quarter-by-quarter. Nobody knows, I have not looked at the news today when the almost straight to will be fully reopened. So I think I will not make any speculation, let's say, beyond one quarter. Thank you, Ross. And I believe it's the last question. So ladies and gentlemen, thank you very much for your attention. Our next meeting is scheduled with the Shareholders' Meeting on the 22nd of May. And I would like to take this opportunity of this last quarterly call on my side to thank you for your attention and to thank you for the very stimulating exchange we had in the past 8 years. So thank you very much, and I wish you a good evening. Bye-bye.

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