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

Good afternoon and good evening. As a CEO, I wanted to introduce this conference and stand in front of you at this challenging moment for Michelin. On Monday last week, we issued a profit warning. It came late in the year and with unexpected magnitude. I fully recognize it. I owe you clarity to help you understand what led us to warn this way. I won't elaborate much on the highly uncertain business context. You are fully aware of it. My purpose today is to share more of what is specific to us. First thing, until we got September financial results, we were in line with our expectations. But September business took a hit and forced us to drastically adjust the year-end forecast. What hit us had mostly to do with our North American business, which represents around 40% of our group sales. Two major causes. The first one, we decided to stop our operations with the largest tire wholesaler in the U.S. as of 1st of July. This decision led to important volumes missing in Q3 versus last year, as we have been redirecting sales flows to other wholesalers. This one-off transition period should be behind us by year-end. Second, we lost market share due to the positioning of our offerings. We passed price increases at OE to restructure our margin and on replacement markets to offset cost inflators starting with raw materials first, then EUDR and then tariffs. This resulted in a decrease of our market share over Q3. For the replacement market, we took the lessons. We have already taken steps to regain these lost shares. Now if we consider the current situation from a broader perspective, it results from a combination of our strategy being implemented and the context in which we operate. Our Michelin emotion 2030 strategy is being deployed. And I have no doubt that it will lead to substantial value creation for the company and for our shareholders. Deploying our strategy leads to resolute decisions and actions, and I take full accountability for these decisions, even though some of them conflicted with the current context. Let me give you a few examples. We exited several value-destroying market segments, which logically led to negative volume impact. In parallel, we restructured our pricing conditions with OEMs to reach a better balance. We have done it over the past 2.5 years, margin got restored and volumes got rebalanced as well. Context-wise, these 2 key measures came at an unfortunate time because there are negative volume impact accumulated with the widespread drop of OE demand across industries passenger car, truck, agriculture and construction. This resulted in low-utilization rates for our plants and low absorption of our fixed cost, which negatively impacted our segment operating income. Another example, we restructured and we are still restructuring our manufacturing footprint and global capacity to adjust to a transformed competitive environment and to prepare for the future. We announced 12 activity closures in the past 2 years. This is a lot in a very short time, and it penalized our financials before we will get the benefits from now onwards. Last example, we were resolute on passing through cost inflators to the market to properly value our technologies. In a market disturbed by overcapacity and low overall demand, this was detrimental to the competitiveness of our offers on the replacement market. These examples show how some strategy-led decisions have interfered with context. Let's be clear, I have no regret in driving those changes as they are making Michelin stronger and prepare it for the upcoming demand when OE markets rebound and vehicle fleets are renewed. On the operational front, our teams are reacting and fighting in this context with numerous successes to name just a couple. In Q3, specifically, besides North America, group tire sales have posted growth in volume. In China, we have been able to tune our positioning last year, and we will deliver double-digit growth in 2025. Our group has solid fundamentals, remains highly profitable and generates significant cash flow. Our balance sheet is strong and provides us with independence and room for maneuver. Our cash generation in 2025 is sufficient and will allow us to complete our share buyback program. As a conclusion, Michelin is emerging stronger from the current turmoil. We are looking ahead to 2026 with confidence. Thank you for your attention and your long-lasting support. I now hand over to Yves for details on our sales development and our outlook for the near term.

Thank you, Florent. Good evening, ladies and gentlemen. So I will drive you through our sales of the third quarter and, of course, the bridges related to our new full year guidance. So regarding first the context, if we look at the sell-in market at the end of September, they posted a slight growth in the segment one, plus 2% in OE, plus 1% in replacement. We have already commented in the past that the replacement market was mostly driven by flow of imports before the implementation of tariffs as well as the flow of imports in Europe before the implementation of duties for anti-dumping that the European Commission is expecting to officialize by the end of the year. During the Q3, we have seen more or less the same trend, a little bit more dynamic original equipment market. And regarding the replacement market, the selling was probably better in Europe, and it's clearly the import from China because it has been expected that the tariff following the anti-dumping measures will be implemented probably with a retroactive effect from 1st of October, and a negative minus 4% replacement market in the U.S., probably the consequence of the implementation of tariffs from the third quarter. On the truck side, the market is still very negative in original equipment, minus 4%. You note that the European market is nearly flat. We recorded a slight recovery in Q3. When the North American market is still very negative at minus 20%, it was minus 24% for Q3 and even worse if we look at the Class 8 segment. On the replacement side, the market is at plus 4%. Here also probably triggered by the growth of imported brands, both in Europe and North America. As far as the specialties are concerned, the mining business is steady. The Beyond Road continued to show a negative trend in OE, particularly driven by agro and the North American agro market is partially impacted by the implementation of tariff for the import of soya in China from U.S. Replacement market posted a slight growth and the other markets, such aircraft and polymer composite solutions are growing slightly as well. So that translates in an overall decrease of our volume by 4.4% at the end of the 9 months, 2.3% coming from the currency and 2.1% from our activity, meaningless scope effect, volume minus 5.5%, price/mix plus 3.2% and equally shared between price and mix and non-tire business, which contributed positively to our sales at the end of the 9 months. Zooming now on the third quarter. So you observed that besides the currency, the trend is very similar with the 6 previous months. The currency effect is huge, minus 4%, mostly driven by the USD. And as far as the other elements are concerned, meaningless scope effect, minus 4.5% of volume. And Florent has commented it, it's, in fact, nearly minus 10% in North America and slightly growing volume in the rest of the world. Price/mix is less favorable, plus 1% in mix, plus 0.5% in price. The mix effect is exacerbated by the regional mix effect as traditionally, our North American business posted a higher margin than the average of the group. And non-tire business contributed by 0.3 points to the group growth in the third quarter. Now zooming on the volume. Here, you have the picture of the first 6 months on the left and third quarter on the right of that slide. As you can see, our volume dropped during Q3, mostly in North America. So it represents nearly 5 points of our volume lost during the quarter, mostly triggered in SR1 by the wholesale shift that was explained by Florent and in SR2 by the original equipment drop. We are seeing as well a negative trend or negative outlook of fleets in the U.S. with the level of freight, and we are included in the deck, in the annexes slide with a trend of the freight. We are seeing the freight at a very low level in North America for the third quarter. If I look at the rest of the world, so OE outside North America is at minus -- slightly minus 1% for the group, here mostly driven by the beyond-road activities and replacement post a positive without North America, positive volume thanks to our mining business, our aircraft business, 2-wheels and the China region. So now zooming on the guidance for segment operating income for the full year. So versus our previous guidance, which was issued at the end of July, so we dropped the guidance from above EUR 3.4 billion to in between EUR 2.6 billion and EUR 3 billion. Basically, and we provide here some range, which help you to understand why we have communicated on such a wide range at this stage of the year. We have still the unknown of what is going to happen in North America and on the truck original equipment, which is not only North America, it's Europe as well. The Brazilian market has been heavily impacted by the 50% tariff implemented by U.S. and its weight down on the overall economy and the volume of freight. Regarding the mix -- price/mix, so we expect price to be slightly positive during the Q4, but the mix is impacted by the geographical mix as well by the implementation of the tariff -- sorry, and of the EUDR. Raw materials should have a positive effect, but we have less -- I mean, we have less unknown. Regarding the raw material, it's pretty consistent with the hypothesis we had at the end of July. And regarding operating performance, it will be impacted from the tariff, from raw material, cost of goods sold and as well as operating efficiency, because our factories are running with quite a low level of activity. Year-to-date, we were at around 74% for SR1, 72% for SR2, our agriculture tire factory are running below 50% and our construction and earth-mover around 73%. So its impact as well the efficiency of the factory, not only the fixed cost absorption. And there might be some upside on the SG&A side. That's why we have put a range between EUR 0 million and EUR 100 million. Now looking at the bridge, what should be the bridge at the end of the year versus 2024. So most of the loss will come from the volume. And in the volume, we have, let's say, 2/3 of volumes and 1/3 of fixed cost absorptions. Price/mix should partially but not totally compensated the volume effect. In the raw material, we have -- which is pretty consistent, again, with our previous expectations, we have around -- close to EUR 100 million of EUDR effect. In the operational performance, so in the -- in our supply, logistics and manufacturing costs, we had the impact of tariffs. We assume that for the -- let's say, since first quarter of 2025 till the end of the first half of 2026, we will have around EUR 500 million of additional tariff cash out, EUR 300 million should impact our P&L in 2025 and around EUR 200 million at the beginning in the first half of 2026. And we expect the currency effect to be in the range of minus EUR 180 million, minus EUR 200 million at the end of the year with an average euro-dollar parity at 1.13. And here, again, to explain the range of SOI landing, we try to help you to clarify this landing. On the volume side, our expectation today is to be at minus 3% during the fourth quarter. But depending on the evolution of the contractor, it can move between minus 1% and minus 5%. There is as well some volatility in the mix and a little bit on the prices. And we consider as well that there is some uncertainty on the operational performance and others. So clearly, there is some opportunities. Our product plan, we have renewed a large part of our offer in truck tire this year. We have launched a few new iconic range in passenger car tire, the Primacy 5, new CrossClimate 3, the CrossClimate 3 Sport. So it's clearly an opportunity. Our dynamic in China as well as an opportunity and we believe that we have room for improvement in the management of our SG&A as well. On the other hand, tariffs are still an uncertainty. Till yesterday, we were not clear about a 25% duty on the truck that has been decided from 1st of November by the U.S. We did not know if it's included or not the part, and if it was included or not USMCA product. In fact, we have learned yesterday that it does not include USMCA product. We have as well the trend of the original equipment market are still uncertainties. And we have the question mark on the risk side about the GDP evolution and the consumer behavior in North America. And the pace of recovery of the OE truck market in Europe, which seems in Q4, slower than in Q3. So all of that give you this EUR 400 million range uncertainty. If I look at the market on the Q4, here you have for each market, the 9 first months and our Q4 expectations. On SR1, we noticed on our side, a little late start of the winter season in Europe. And probably on the original equipment side, we will have a basis of comparison in China, which will be less favorable as the Chinese government started to implement incentive for acquisition of BEV and agreed of the third quarter 2025. On the truck side, OE should still be very negative, particularly driven by North and South America. And the replacement side should be negative as the market -- the selling market, after the tariff implementation and potentially the implementation of -- after the tariff implementation in North America. On the specialty side, we don't notice a huge change in the market evolution versus the 9 first months. So as mentioned, we updated our guidance for our segment operating income one week ago with probably less -- we're less pessimistic on the free cash flow than on the segment operating income because we are managing our CapEx in the lower range -- in the lower part of our range of CapEx for the year, which means around EUR 2 billion. And we are going to as well record positive contribution from our working capital, particularly on the inventory side and the positive contribution of our joint venture, as it was already the case during the first half of the year. Now looking for 2026. So of course, we will tune our guidance in February with the full '25 full-year disclosure. But we already know that we'll not be able to achieve our '26 ambition that was shared during the Capital Market Day to reach EUR 4.2 billion at 2023 ForEx and 14% operating margin. What we already know regarding 2026, probably 2 negative impact the tariff that I mentioned, we should have an additional EUR 200 million and a negative impact on the price side, coming from the raw material clauses adjustments. But on the other hand, we'll have some tailwinds, the raw material that will -- whose prices are further declining. The -- most of the restructuring savings should be achieved by the end of 2026. As at the time we are speaking, most of the announcement made has been concretely achieved. I mean that the factories have stopped operations, except the two last ones that we announced during the first half of this year. We shall see a further SG&A improvement and hopefully, a slight volume improvement at ISO market condition. On the free cash flow front, we maintain our ambition to deliver EUR 5.5 billion of free cash flow over 3 years before acquisition, thanks to some effort on our CapEx, the continuous improvement of our inventory and our working capital. So in this context and following Florent's comments, confident in our cash generation will speed up our share buyback program with an additional EUR 400 million that we are going to implement by the end of this year. So basically, that's all for the presentation, and I think we can now open the Q&A session.

[Operator Instructions] The first question is from Thomas Besson of Kepler Cheuvreux.

It's Thomas from Kepler Cheuvreux. I have a couple of questions, please. I mean you have just said that you're going to implement EUR 400 million incremental buyback. Could you update us on where you were -- I think you had launched a plan last February EUR 1 billion, down EUR 500 million last year, and you were supposed to do EUR 250 million this year. Do you therefore mean you're going to do EUR 250 million plus EUR 400 million or EUR 400 million on top of the EUR 250 million you had in mind? And could you indicate whether we may assume as well that you will maintain dividend given the strength -- the confirmed strengths of your cash generation and also confirmed asset disposals? So that's the first question on capital returns. The second question really is about the relative lack of visibility you still seem to have and allowing us to better understand what drives your relative performance versus end market compared with some of your peers. So I mean, you gave us a very wide range at the end of October for Q4. And we have seen Michelin over the last 2, 3 years, showing almost consistently decent underperformance versus the end market in the SR1, for instance. In 2025, you seem to largely underperform in SR2. We've seen Continental issue a reverse warning while you were issuing a warning, with them having as well some exposure to the truck market, you mentioned as a key reason for your warning. So my second question is basically, why don't you have more visibility? And could you help us understanding when we should expect Michelin to be closer to its end markets in its various segments?

So I will give you some elements to answer, and then Yves will complement. So as far as the dividend for the end of this year, we have a dividend policy, and we have no reason to change that dividend policy. And of course, this is a discussion we will have with our Board, and we will discuss the details early next year. As far as the buyback, it's on top of what we have done already. And we had done around a little bit in excess of EUR 750 million and the EUR 400 million comes on top of that. Now the underperformance of our competition, and you mentioned Continental, we have several leads to that. As I was explaining, we have been undertaking a heavy restructuring of our plants. That has weighed a lot in our results in 2025, especially in the segment 2, on the truck operations because we had to ramp down and ramp up some activities. Our competition didn't have to do the same thing. The second restructuring we have done is our structural pricing at OE and especially in North America, where we were over-indexed in market share at -- with OEMs in North America, and our prices were not at the adequate level. So we have done what we had to do on price, but in a market that has reversed sharply certainly, it has created some issue, and we've lost share with those OEMs. Half of those share loss were expected and not wanted, but we were anticipating those, half were not expected. I think we have adequate margins now at OE, and we just have to wait for the market to get back to a more normal level. And of course, the market share loss has been opportunities for our competition. Of course, now under what conditions they took them is down to them. Now we are also in terms of business, we have a big activity in Beyond Road. Beyond Road, especially in agricultural, agricultural in North America is heavily depressed. And we have 2 activities now. We have trucks systems and trucks. And we have a high performing for high-power tractors in North America. Right now, this business is heavily depressed. I don't think our competition has the same exposure to that business. And for us, it is still an area of focus to restructure our go-to-market and what we do with this business. And especially the OE portion in ag is heavily depressed. So these are some elements to help you understand why we have seen this difference in performance versus our competition. And maybe Yves, if you want to add on the thing [indiscernible].

Maybe on the visibility, why it's not higher at the end of October for Q4?

I mean we have had so many surprises since the beginning of this year. So I prefer that we stay cautious on what we can expect. Maybe we'll have good news. Maybe we'll have bad news. I don't know. I mean, really, this year has been really intense in terms of surprises.

Yes, just an illustration, our South American operations were trending very well during the first, let's say, 8 months. And then the decision of 50% implementation of tariff from U.S. have completely turned the market upside down.

So really -- yes, so I wish I would have the clever glasses from others that are able to predict what will happen in the Q4.

The next question is from Harry Martin of Bernstein.

I'll start with a question on the U.S. on the volume side. I mean, can you help us understand what the immediate production actions that you're taking in some of the plants like the Truck and Bus segment in the U.S., where original equipment production is set to be down double digits for many more months before getting better? And then a related question to this is, should we expect that the SOI drop-through on volumes this year to be slightly better than normal given that the declines in 2025, a focus in North America where cost flexibility is usually higher than somewhere like Europe. And then the second question, just about the pricing in the U.S. I mean you have a long track record of pricing, cost inflation and Florent, as you mentioned, the ability to earn a price for your technology. So it's been surprising from the outside that it's been pricing stepping backwards in Q3. How much of this environment do you think is transitory around dealers buying those cheaper tires ahead of the tariffs coming in, overcapacity? And should we expect a full price pass-through of that sort of roughly EUR 300 million of tariff costs in the medium term?

So some element of answers and I will leave the rest to Yves. So on the U.S. volume, we are a net importer of truck tires in the U.S. from various parts of the world. So in the low level of markets, what we are doing is we are loading better our plants in the U.S. But it takes a while to adjust the global flows so that we reduce the imports from other countries to load better our plants. We will have this effect -- we have better effect of this happening in the fourth quarter and going on in 2026. So the U.S. volumes are heavily depressed because -- but it's -- we consider that as temporary because we think the OE truck product producers have built inventories in preparation of a new legislation, new regulation on engines in the U.S. That regulation has been postponed. So it means that the truck OEMs have excess inventories of trucks on the yard, and they have to purge that, but that is temporary. So that -- this is depressing further the volume, but we think it's not structural to the market. Now when you assess the pricing environment and when you look at what is happening also in the market, when we look at how the market is assessed, it's based on sell-in activities and sell-in has been mainly driven by cheap imports from Asia into North America in anticipation of tariffs. So the market has been artificially inflated by this phenomenon. It happened -- the same thing happened also in Europe and in other parts of the world. So as far as the pricing environment, our price premium continues to be what it used to be. In the long run, either the entire industry accepts to drop their margins or that will go into the market. When it will happen, I don't know. We've tried our bit. And then on the drop-through and...

Yes, maybe on the drop-through, so Harry, you clearly see it very well the -- our North American operation has been much more impacted in Q3 than during the first 6 months. Accordingly, we have lowered the capacity utilization in the U.S., where we have the higher -- probably a higher fixed costs so the less fixed cost absorption. So that's why we are probably -- we have recorded a higher drop-through in this year. Conversely, when the market will rebound and we'll be able to reload our U.S. factory, it will have a positive effect on the drop-through.

The next question is from Akshat Kacker of JPMorgan.

Akshat from JPMorgan. I have 3 quick ones, please. The first one on the overall inventory situation in passenger car and trucks. I think you have frequently highlighted the high inventories of budget tires and anticipation of those anti-dumping or import duties in different regions. Could you just talk about how those overall inventory levels look like in these different markets? And how long do you think it could take to normalize that based on current sell-out trends? And if you still expect continued low fixed cost absorption and low-capacity utilization going into the first half of next year? Just trying to understand the overall inventory situation for your business. The second question is on the underlying profitability in the second half of this year. And thanks for explaining all the negative surprises that you've had in the last months, specifically. So when I think about all the actions that you mentioned, you've talked about inventory management. You've talked about sequential price actions. You have talked about low fixed cost absorption. And I know it's very difficult to answer, but can you quantify the extent of one-off that you are seeing in the second half of this year, which should not carry into 2026, please? Those are the 2 questions.

As far as the quantification, I have my personal calculator on my left. So I will leave Yves to answer on this. So as far as inventories levels, if we look at our inventory level is adequate at Michelin brand, adequate to low level, so we are well placed. Unfortunately, inventory levels at the dealerships are at a high level, almost everywhere because of -- especially in the Americas and Europe, because of this phenomenon of the flow of budget tires in every categories. So now how long it will take to purge? Several months. We don't know. It depends on the level of activity overall. So back to what Yves was mentioning, for example, if I look at the U.S. Right now, the tons to be hold in the U.S. is decreasing. So this is not helping to purge excess inventory. So we just have to wait for the economy to stabilize further and to be at a higher level. If we look at South America, Yves mentioned it very well, it was -- the economy was growing nicely up until -- in our business as well was growing nicely up until the 1st of July, and then suddenly in July, a change in the tariff. And suddenly, the economy in South America is having more difficulties. So of course, it has rippling effect on the truck activity. In passenger car, what we see is the overall mileage driven is steady on the world, slightly growing, but steady. What is the real phenomena on passenger car is the aging of the vehicle park, that is aging very fast. So how long these phenomenons -- those phenomenons are going to last? I don't know because we consider that what is happening right now is not normal. These are not normal market conditions. And then on the underlying earnings and the quantification is pretty tricky.

Yes, it's very difficult to quantify what we can call one-offs because it's -- we are more facing a very volatile environment. We -- and as you have seen during the presentation, every element of the bridge have some -- of course, the volume wider and the COGS because of the tariff as well wider, but every element of the bridge had some element of uncertainties. So we are more trying to build up our forecast on risk and opportunities based on the central scenario. And then it's very difficult today to decipher what we'll have. We know, for example, that there will be some element will have positive effect in 2026. I was mentioning the raw material cost. On the other hand, we know that the tariff started during Q2 and Q3, implemented mostly starting from Q3. And so it will have a ripple effect over the first half of 2026. And hopefully, at one stage, it will start to normalize, providing they will not be renegotiation of the USMCA agreement. So that's the world we are living in as of today.

Just as I was listening to Yves, something came to my mind is that, for example, if I look at truck, in 2025, especially in the first semester, we had to -- in the first 9 months, we had additional cost due to the restructuring of our plants. And we had the ramp down and ramping up. So this could be considered as a one-off. But since this summer, we know that we have to reshuffle some of our flows because of what is happening in the U.S. and in other parts of the world. So suddenly, those one-offs are going to be offset positive one-off. The benefit of restructuring is going to be offset by additional costs just to reshuffle our flows. So that's why it's tricky to answer more precisely on this.

And what we can say is on particularly on the truck side, we have rightsized our manufacturing set up, and it is now in condition to be able to better react to an uplift in volume, partly when the original equipment market will start to rebound.

Just one quick clarification. Have you built in any bonus provision release in the second half of the year within your guidance, please?

Yes. Yes.

The next question is from Monica Bosio of Intesa Sanpaolo.

I have three, if I may. The first one is on SR2. In the first half, the margins for SR2 set at 5.5%. We know that the company does not guide at the divisional level. But on the back of the fixed cost absorption, which I can imagine is very low, in H2, can we imagine an operating loss for the SR2 division in the second half of 2025? Or are you still confident on the back of the restructuring that the division could achieve the breakeven? The second question is on the potential savings from restructuring. We should see another batch in the fourth quarter. But can you also provide us any indication for 2026? And very last is on the Beyond Road tires. I know it's difficult to answer. The visibility is very poor. But what is your outlook for 2026 across the quarters? For example, could we expect that positive volume trend Beyond-Road tires already in the second quarter? Or do you see volumes turning positive only from the second part of 2026? Just your flavor.

Okay. So we do not anticipate at this stage operating losses in the second half of 2025 for SR2. We had, in the first semester, some restructuring cost plus low volume, but we don't anticipate that. And restructuring, of course, has helped. And as Yves mentioned, we have speed up some restructuring. So we'll have the benefit sooner in our bottom line. So seen from today, we do not anticipate operating losses in SR2. Now I will answer on the Beyond Road. Beyond Road typically, so looking at this very interesting environment we are in. Because of sudden change in the tariffs between U.S. and China, China has started to stop buying American soybeans. Unfortunately, American soybeans, they are very large farms using very heavy tractors, and they consume a lot of truck systems. So now would it last? I don't know. Will those farmers find other markets than China? I don't know. It depends on the relationship between U.S. and China. Now unless something changes there, we don't foresee a rebound in the agricultural activities in the near term. So really -- and we are over-indexed in truck systems. We have a very high market share in truck systems. And the truck systems only work on heavy tractors, especially in the U.S. and same for some of our technical tires in agriculture. So our -- so far, our discussions with our specialized teams on this tell us maybe in H2 2026, maybe, but really you see things are moving very fast, and we don't know. It's difficult to have a good visibility. But you're right, for Beyond Road, these are very important markets and very, very lucrative markets.

That's for Beyond Road. For the overall SR3, taking into account the growth in aircraft and in mining, we should be at a flat volume very soon and growing volume probably in first half of 2026 because of the other activities. As far as -- regarding your question, about restructuring, we have -- we expect full savings of EUR 200 million over 2025, of which at the end of September, we have already recorded EUR 120 million, EUR 130 million. So we should have a further EUR 70 million in Q4 and a little bit -- probably a little bit more than EUR 100 million additional full year 2026.

If I may just a quick follow-up on the North American ag activities. On the back of the scenario, are you planning any further restructuring in this case, in Beyond Road tires? Or are you just waiting and see what's going to happen?

We are reengineering heavily our business activities in the Beyond Road in general, and we will let you know when we have made a decision.

And we completed during the quarter, the sales of our bias tires and small trucks activity to the CEAT group.

The next question is from Martino De Ambroggi of Equita.

Three questions, focusing on free cash flow. You mentioned Yves, CapEx will go down. Could you remind us what is your best estimate for '25 and '26? This is the first. And the second always on free cash flow, is the cash out for restructuring. If I remember correctly, you mentioned EUR 400 million in the previous call for '25. What could be your assumption for '26? And the last question is on the pricing. So I know very well, you don't make any more specific comment on prices. But could you elaborate a general comment on what is the pricing at sector level considering the low volume environment? Is there any big change that you see in the landscape? Or everything is similar to what used to be in the past?

On pricing, we will make no comment on the -- even on the landscape or we have said what we had to say on prices. Maybe for the CapEx...

For the free cash flow. So the CapEx, we will land probably slightly above EUR 2 billion. You know that we have a range between EUR 2 billion and EUR 2.4 billion. We were nearly between EUR 2.1 billion and EUR 2.2 billion last year. So we are piloting at the lower part of the range. And it should be similar in 2026, given the context we are operating in. On the restructuring side, we are expecting -- the figure has not changed, the EUR 400 million for 2025 is still relevant. And for 2026, it should be lower, probably around EUR 300 million.

Okay. And net working capital, is there any specific trend we should be aware of?

No, net working capital, we have 2 -- I will comment on 2 aggregates. First, on the receivable, we have a slight negative effect of our mix in the U.S. because of the change of wholesaler and that impacts slightly negatively our term of payment. But overall -- if I look at the overall working capital, our inventory are going down because we -- it was something that we shared during the CMD last year. We have a plan to better manage our inventory looking at the full process from the forecast from the sales team up to the way we are managing our inventory in our warehouse as well as the way we deploy our inventory over a given territory. Having said that, the only downside we can have on the inventory side is the impact of the tariff in the cost -- in the inventory level in the price, which is slightly negative. But on the other hand, there is currently a decrease in raw material prices, which should lend to a decrease of inventory price as well.

The next question is from Michael Aspinall of Jefferies.

Can I just go back to SR1. You mentioned the competition you saw in SR1 in the report that it mainly affected Tier 2 tire brands. Can you just remind us what your split is to the Michelin and non-Michelin brands? And did you see the kind of same types of competition in -- at the Michelin brand? Or was it mostly in Tier 2?

In terms of volume, 85% of what we sell is Michelin brand in terms of volumes. The rest is mainly Tier 2 and a little bit of Tier 3. Tier 3 really very intense competition. So right now, for example, our Union Royal brand that plays in the bottom of Tier 2 and top of Tier 3 is imported from Indonesia or we export from Indonesia to the U.S. So we are looking at how we can adapt the flows. And that -- for example, that brand was sold through the wholesaler, mainly through the wholesaler, that we have decided to cancel. So of course, we have to rechannel that brand into other wholesale channels. And the competition in Tier 2 is intense. In Tier 1, it's less -- the Tier 1 market is more stable, even though now there is a big push from the Tier 4, Tier 3, especially in the U.S., that is weighing a little bit on the Tier 1 proportion. But I think it's more short-term things than structural. Long term, I don't foresee a major change in that. However, in Europe, Europe had more Tier 1 proportion than Tier 2 and Tier 3. And now it's getting more into levels of what we see in other parts of the world.

Okay. And just the second one on the distribution model. It sounds like -- I mean, I think there was a question earlier as to how much or what kind of things we could think about as being one-off change in distribution sounds like something you probably won't do every year kind of going forward. Maybe you can kind of help us with how much the change in distribution impacted volumes in 3Q or 4Q or the year?

It's a main driver of the volume loss in SR1 in North America, and it's a one-off because we are not changing wholesaler every year.

It's every 20 years.

It's every 20, years, yes.

The next question is from Michael Foundoukidis of ODDO BHF.

A few questions left on my side. First, to come back on ATD, I mean, it was a move that was planned by you probably since at least a few quarters. So could you give us more color on what exactly went wrong? Was it more challenging to get dealers to switch from ATD to NTW? Is it something like that? So that's the first question. Second question, and sorry to insist on Q4, but this uncertainty you're mentioning and you're referring to is probably affecting a lot of companies, especially in autos. We could have expected tires to be somewhat less impacted, even considering trucks or ag exposure. So I know it's a bit of an oversimplification, but based on full year guidance or even the implied H2, your SOI runs at around, let's say, EUR 200 million per month. We have only 2 months left and you're talking about EUR 400 million uncertainty over Q4. So what does it mean for the last 2 months, maybe a view on October, which is almost done? That's the second question. And maybe last, could you clarify your views on M&A in this context. Any change in terms of mindset or not at all?

Okay. So on the first question on ATD, the decision has not been planned several quarters before. The situation with ATD has deteriorated when they went Chapter 11, and they did not notify us in advance on this. And after that, we have reassessed our relationship with ATD, and we came to the conclusion that we could not continue with this type of wholesale channel for -- to promote our Michelin brand. So yes, we have decided then, but it was really a decision that was made late in the first semester. And then we discussed -- it was made by our U.S. teams that they said, we don't foresee how we could improve the situation with ATD. So we said, okay, if you want to make the decision, we will follow you, and they've made the decision. Then of course, that business has to be rechanneled through 2 other wholesaler mainly, it's NTW and U.S. Venture. With U.S. Venture, it's going according and with NTW, it's slower than what we were anticipating and expecting. But of course, it's a big flow to rechannel, so that's why -- but we think that movement will be over by the end of the year. Now if I look at the M&A ambitions in this context, our strategy is clear. We -- there is an M&A portion in our strategy. But as I always say to succeed in an M&A transaction is we have to have a buyer. We are clearly a buyer. We have to have a seller and you have to agree on the price. And so far, we have not been able to have the 3 according to what I just said. Now number two and then Yves will complement. We have been surprised by September. And what we have seen happening in our September results, we had started to see the tariff effect. We started to see a lot of input costs happening plus the pricing environment where we know we cannot pass the input cost. So we said, okay, now that was a surprise we had in the September results. That's why for the remainder of the year, we have said, we just have to relook at what we should expect.

Yes. And maybe to give a little bit more color on that question, Michael, so I refer to the Slide #8 of the presentation. Don't forget that October and November are among the 4 best months in terms of operating margin for the group with March and September. So we have this seasonality effect. You know that traditionally, we have a far better segment operating income in H2 than in H1 because we have September, October, November, that are very critical months. The September sales in themselves were not too bad versus what we expected and versus last year, but it comes with a margin deterioration explained by mostly North America -- only North America with the consequence in terms of fixed cost absorption and mix that we have been describing.

Very helpful. Maybe just one last one, I could sneak in. On the share buyback program, could you just clarify very precisely what is new from the, let's say, EUR 750 million that you have done already and the EUR 1 billion program that you had, if I'm not wrong, could you clarify if there's something new on that?

So we have announced in Feb 2024, EUR 1 billion program over 3 years. We completed EUR 500 million last year. We completed EUR 265 million by mid-October or early October. It's the one that we announced in -- at the end of July, and we will complete it with an additional EUR 400 million by the end of the year.

So that's EUR 150 million incremental versus the EUR 1 billion, or it EUR 250 million plus EUR 400 million, still remaining?

Incremental versus the EUR 1 billion and within 2 years instead of 3 years.

The next question is from Christoph Laskawi of Deutsche Bank.

The first one, sorry to come back to that market share. You commented that you are basically trying to get market shares back. Could you just remind us on the main levers for that? Is it just a normalization of distribution? Or are you planning to use the raw material tailwind next year to reposition brands a bit versus competition? And then when could we expect that to materialize? The second one just on the winter tires, you commented a relatively slow start to the winter tire season. Now peers have commented that they actually saw quite a decent start. Is that basically due to brand-specific inventory levels at dealers or any other points that you would highlight? And then sorry for a clarification question also on the share buyback program because my line was bad when you just answered it. Did you say EUR 400 million incremental to the EUR 1 billion or just EUR 165 million incremental?

We just said -- okay, so I leave the math to -- so we will do EUR 400 million on top of what has been -- on top of what we have done already and we have done EUR 500 million next -- last year and EUR 265 million this year. So you add EUR 400 million to that, EUR 500 million plus EUR 265 million, plus EUR 400 million. Now on the winter and Continental. Continental has outsmart us in the pre-winter stocking season. And they've taken the remaining available space from the huge influx of cheap imports from Asia. So we -- the winter is not over, and we are very well positioned because we have very good product. And so the winter is not over yet, but they have been better than us in the preseason of winter. So now long-term regaining shares, we have launched really excellent product. Primacy 5 mentioned by Yves, CrossClimate 3 is excellent. CrossClimate Sport, CrossClimate 3 Sport is really defining a new category. So all of that will contribute to regaining some position in terms of shares. And those launches have just happened. So we just have to wait and CrossClimate is already showing very good signs in terms of sales. Now of course, the pricing on replacement, I have been very clear, and we had to reposition our prices because we became less competitive in the market. We have started to do it, and it will have the effect that our price premium really doesn't change in the market. So we look at our competitiveness all the time. And I'm confident we will get back to normal levels. We have a very strong signal happening in China, where we have done this and it had paid very strong dividend, and we are back to growth in China.

As a follow-up to that. Maybe we highlighted pricing to be still slightly positive in Q4, I think. But since you now started to implement those repositioning measures that obviously would see a fading into '26 then, right, also considering the comp base in '25?

The thing is moving so fast that you cannot say what will happen in 2026 at this stage. We'll see. And even in 2025, we'll see.

And we don't comment further future price decisions.

I think this was the last question. So thank you very much for attending. And thank you for your commitment.

Thank you very much. Have a nice evening.