Compagnie Générale des Établissements Michelin Société en commandite par actions (MGDDF) Q4 2022 Earnings Call Transcript

For the period ending December 31, 2022

February 13, 2023 12:30 p.m. ET

Prepared Remarks

Questions and Answers

Call Participants

Prepared Remarks:

Florent Menegaux

Good evening to everyone, or good afternoon. Thank you for joining us for our annual results presentation. I'm with Yves Chapot the Co-Partner and we'll spend an hour with you. Let me start first with our sales that were up 20.2% in 2022 and which are in a very, I would say, hectic environment has delivered an operating income of €3.4 billion, which is inline with our guidance. So amid market turbulence and the highly inflationary context, Michelin sales increased to €28.6 billion and the segment operating income, as I just said, has reached €3.4 billion. The free cash flow was punctually impacted by inflation and the year end trade timing, and we will have ample explanation later on. Over 2019 to 2022 period, the Group has demonstrated the resilience of its business model. Coming back to last year events, the sales were up 20.2%, lifted by the firm pricing discipline and the fast growing non-tire sales. The tire markets were up slightly in 2022 supported mainly by OE from a low comparison basis and sustained demand in truck and mining markets. The tire sales volume were down mainly impacted by the conflict in Ukraine, the COVID consequences in China and reflecting as well the Group priority to maintain the margin per unit. The price mix effect came to 13.7%, demonstrating the Group's determination to offset all cost inflators. Non-tire sales grew by 22% at constant exchange rate, confirming their strong momentum. And finally, we had a 6.2% positive currency effect, led mainly by the US dollar.

Our segment operating income totaled €3.4 billion or 11.9% of our sales, driven by the dynamic pricing management and mix effect. The pricing maintained unit margin integrity offsetting a record €2.7 billion in higher costs, which is really an unprecedented rise in 2022. Operating margin reflected a 1.2 dilutive effect from price increases and each reporting segment contributed to improved segment operating income with specialties, RS3, our segment three margin, reaching 16.2% in H2 2022. The reported free cash flow before acquisitions was minus €104 million. The structural free cash flow was at €378 million, down from the revised guidance we gave a few months ago. With the one off impact of inflation on working capital, the reducing structural free cash flow was down €500 million and the Q4 has been penalized by two events, one purchasing cuts and the stronger December sales and that equal to €300 million down on our free cash flow. All of that will be offset by timing effect in the Q1 2023, that's why we say it was punctual. But Yves will come back in more details on this. The overall Group performance improved in line with Michelin Motion 2030 strategy plan and which sits on three main pillars; People, Profit and Planet, and managing the best equilibrium of those three pillars at the same time.