Compagnie Generale des Etablissements Michelin SCA
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Compagnie Generale des Etablissements Michelin SCA
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[Foreign Language]
Okay. So ladies and gentlemen, sorry for this interruption, which was due to a technical problem out of our reach. So I was commenting the Slide 3. So we have seen in the Q1 a sharp decrease of the road market: both in passenger car and light truck, by 15%; in trucks, 17%; and specialties have been a bit more contrasted with some sector that has been heavily impacted, such the aviation and some domain that are more resilient, such surplus mining and agriculture replacement.In this context, our sales have been down by 8.3%, reflecting a contraction of our volume by 11.7% on the quarter, but by 21% on the sole month of March. I remind you that, for example, in Western Europe, most of the countries went to isolation, to lockdown from mid-March.We have been helped by a 2% price/mix effect, which is mostly a mix effect, and 1% net increase in our scope of consolidation, mostly due to the first time inclusion on the Q1 of Multistrada and Masternaut.Facing the crisis, the group has implemented a strong measure to mitigate the financial impact of this crisis. First, we have shift to -- from a monthly to a weekly monitoring of our supply and demand management and our inventory management. We have decided to reduce our capital expenditure for 2020 by EUR 500 million. We have proposed -- will propose to our shareholders meeting end of June a reduction in the dividend to be paid by EUR 333 million, and we have decided to suspend the share buyback program, except for the firm commitments outstanding for 2020. And of course, we are considering -- we are reducing overhead costs in the different areas of the company.In this context, we have -- as I said earlier, we are not able anymore to provide any guidance for the market. So we have focused our attention on managing the liquidity of the company, and we have conducted stress tests with different hypotheses, going from an overall decrease in volume by 20% for the full year up to a decrease in volume by 35% for the full year. And in both case, in all the case, the group has sufficient cash and cash equivalent position to go through the crisis, to weather the crisis without drawing down our back-up line.So moving more in detail about the market. You see here, particularly for the passenger car and light truck segment and the truck segment, the evolution worldwide by regions and by month because we believe it was important to show you how the market has behaved over the period. And you see, for example, that during the 2 first months of the year, the market was slightly decreasing in passenger car by 6% in Jan, 13% in Feb, mostly pulling down -- pulled down by the China effect. China was in the middle of the crisis at that time. And of course, the effect in March on European and North American market, which has been much more pronounced, respectively, minus 24%, minus 22%.You observe the same phenomenon in the truck business. And last, we can mention that you see the slow recovery of the market in China in March, both for passenger car and light truck activities and truck activities.On the specialty side, as I said earlier, some markets, such constructions, aircraft, are heavily impacted or agriculture OE. But some market are more resilient and particularly the surface mining and agricultural replacement market.So during the quarter, so our sales have been down by 8.3%, landing at EUR 5.3 billion. A positive perimeter effect, EUR 59 million, 1%; an important volume effect, minus 11.7%, which weighed heavily on the turnover of the quarter by EUR 677 million; and a price/mix effect, 2%, EUR 117 million, of which 1.9% is a mix; the price effect being neutral, taking in consideration that due to the fact that raw material prices have been oriented downwards for the past few months. We have implemented, of course, clauses, adjustment prices clauses for the market where we have such clauses. And we have been able to hold firm on our pricing in the other activities. And we had a slight currency effect, mostly the appreciation of the dollar and the depreciation of mostly South American currencies.Looking at the evolution quarter-per-quarter. I will not focus too much time on this slide, just to mention that if you look on a longer period, 5 quarter, the group is able to generate, on a regular basis, 2 points of price/mix effect, which demonstrate the firmness of our pricing policy and the strength of the MICHELIN brand.Looking now at the sales per segment. So you observed for SR1, automotive- and distribution-associated decrease in sales by 7% in a market that has been down by 15%. Our volume has decreased by 10.5%, and we have been able to better [indiscernible] the market due to the market share gains in 18-inch and above on original equipment and replacement market.On the SR2, our sales have been down by 12% in a market that has been self-decreasing by 17%. So here also, our strong price discipline has allowed us to partially mitigate -- very partially mitigate the volume effect. And on SR3, our sales have been down by 7%, thanks to the solid price/mix and the resilience of particularly the surface mining market and the replacement market, taking into account that all the specialty tire segment, such construction, aircraft tires, original equipment for agriculture have been impacted by the crisis.So in this context, we have -- we took initiative in order to limit the impact of the crisis on our segment operating net income and our free cash flow. These measures are described on the right side of the slide. So as I said earlier, we moved to a weekly monitoring of our business. We have decided to cut capital expenditure by EUR 500 million, reduce the dividend by EUR 330 million, suspend the share buyback program, except for the firm commitments taken in 2020. And we have implemented cost reduction program, postponing unnecessary expenses, freezing wage increases, except, of course, in regions where commitment has been already made earlier in the year, and holding very firm on our pricing policy and trying to benefit from the mix of market. And of course, we will have -- we will try to benefit from the raw material price impact.On the other hand, so the stress test we have conducted were based on the hypothesis -- 2 hypotheses. We have, of course, several hypotheses, but, let's say, in the range of minus EUR 20 million to minus EUR 35 million. And as you can see in both case, with a very strong impact on the first semester. In the first case, we estimate that our volume can be down by 32% on the first semester and only by 10% on the second semester. And so the -- it will lead to an overall volume effect of 20% over the year. And even the worst-case scenario, with minus 42% in H1 and minus 27% in H2.In this context, or even in the worst-case scenario, we have given the strength of our rating. We have looked at our ability to go through the situation, and we will not need to redo on our confirmed back-up lines in both case.As presented during our 2019 annual results, you have here the maturity of our debt in the future. You observe that, of course, we have the EUR 1.5 billion back-up line that we should not be -- should be not necessarily to use. We don't have any major downpayment from our bonds program before the first half of 2022. And as of yesterday, the group was holding EUR 2.3 billion in cash and cash equivalents. So we believe that we have the resources to go through the scenarios that we have presented to you earlier. In -- so the group has the treasury on hand. But also, we have been able -- thanks to our both long-term and short-term rating, we have been able, since March 1, to issue around EUR 1 billion in commercial paper with an average maturity of 7.5 months, which is the demonstration of our credibility on the commercial paper market.So as I said earlier in the call, we are not in a position to provide any guidance for the market. We are monitoring the situation week-by-week. So it will not be relevant to present a scenario that we consider as [indiscernible] for 2020. I just would like to share with you some data of proxy that can reflect on, let's say, advanced indicators that can reflect on the situation.So you see week-by-week, on the left side, in term of road transportation, the activity generated by the customers that are using our EFFITRAILER offer. And that's their weekly mileage. So you see clearly the drop in the month -- second half of the month of March. And on the base 100, which was the second week of January, the road traffic regarding this category of customer is today estimated at 77%.On the other side, you see also related to the production of our factories, tire factories in China. Based on a 100 base in the second week of January, which was a few weeks before Chinese New Year, we have just recovered the similar level of activity in the past week after the drop that you have seen earlier in -- end of Jan and, of course, during the month of February.So as a conclusion, I would like to say that the group is facing a very severe crisis whose duration and impact is still uncertain. We have adapt our steering to the situation, and we moved to a very more agile clearing of our activity. We first focused on the essential, which is protecting our teams and, of course, safeguarding the liquidity of the company. We have based these stress tests, which demonstrates our ability to wait through the crisis. And of course, during the next disclosure, which will be at the end of July, we should be able to share with you more detailed scenario for the full year.So thank you for your attention, and I think we have now time to take some questions.
[Operator Instructions] So we have a first question from Martino De Ambroggi from Equita SIM.
The first question is on sensitivity. You have presented a stress test with minus 20%, 35% of volumes. Just to have a rough idea, very broadly, what is the level of declining sales guaranteeing breakeven at operating level? Just to have a rough idea in the current environment.And the second question's still on the stress test. If you present minus 20%, minus 35%, is it because minus 20% is the base case scenario that we should take into account? Or it's just a financial exercise?
So thank you, Martino. Regarding the second question, I will let you answer yourself to the question. As I said, we have such a volatile environment with the crisis, which duration and impact is extremely difficult to assess. And the profile, for example, of the -- of both of the lockdown and the way countries are exiting from the lockdown is very different. We have seen, for example, in China, very contracted situation from one region to another. So we cannot draw conclusions from what has happened in China between February and March and project it on the rest of the world. So that's why we are present. And we will not go beyond what we have presented this evening without, let's say, giving a new guidance.Regarding your first question, we have took these 2 -- we have shown you these 2 hypotheses that are a little bit severe impact. Just to remind you, in 2009, the group volume had decreased by 14%. So just to give you the kind of -- consider that we have taken scenarios that are extremely severe in order to effect the crisis that the group has probably not seen since the end of the Second World War.
All right. If I may, just a follow-up on the pricing. Aren't you worried about the risk? The discipline could disappear in such a crisis.
We don't -- no, we are not worried. We have a policy. We have, on one side, long-term contracts with some customers with raw material clause adjustment, and we are applying it. And on the other hand, we continue to stick to our policy that has, I think, demonstrated very strong results in the past years to hold firm of -- on our pricing, thanks to the quality of our product, of our offer and the performance of our product.
So we have another question from Gaetan Toulemonde from Deutsch Bank.
I have a few questions. I'll try to be very quick on each of them. When you mentioned that you expect a higher volume drop-through on the volume effect of the operating level, traditionally, it's approximately 40%. What is the guidance you are giving us? Are you -- 45%, order of magnitude or worse than that?
The drop-through is, of course, very -- it's more difficult to assess in such an environment because, of course, we have fixed costs and variable costs, but there is steps in our variable costs. So we consider that the drop-through will be higher than, let's say, traditional circumstances. When you have volumes like in March dropping by 21%, the drop-through is not -- in the past, you used to consider that 1 point of volume was around, let's say, EUR 100 million or EUR 110 million. You have probably to add around EUR 20 million when you are, let's say, seeing such a scale of volume effect.Maybe, Gaetan, to complete, we have also taken consideration that operating a factory in -- with the virus still being a threat around us means that you have to implement social distancation (sic) [ distancing ] measures, to provide protecting devices to your employees, and it has a cost.
Okay. That's very helpful. Now against that, you probably have savings on transportation, marketing, G&A, raw materials. I've done my own estimate on raw materials. I end up with something like EUR 350 million. Is it something -- I know there is a lag effect and so on, but is it something which makes sense? And you mentioned in your statement that you expect some overhead cost savings. I mean it's only 1 question, but can you help us to offset a little bit the negative volume effect with different measures? Just to get an idea to do proper estimate.
Yes. So first, we have been prudent on that side because we have, for example, taken the decision very [indiscernible] to stop our European production mid-March. You have to know, for example, that some of the raw materials that have been delivered end of March or in April have been ordered earlier during the year. I'm thinking about natural rubber. You have at least a 3-month lag, at least for Europe and North America. So it means that you do not -- there is a lag between the time you purchase a raw material, and this raw material is translating in the cost of goods sold. That's why we have this prudence.Regarding SG&A, honestly, we are adjusting our monitoring week-after-week. And it's probably too early to provide you detailed figures. We will do it during the Q2 presentation. You have also to take in consideration that in our SG&A, we have sometimes provisions for doubtful account receivables. And we are in an environment where we have seen, early this year, the bankruptcy of a wholesaler in Germany, with potential consequences on this model company in Italy. So we are also prudent on that side.
Okay. I think you want me to attend the first half results presentation. My last question, you helped us on the gross cash position, but I know it's just revenue. Is it possible to get an idea of the net debt situation at the end of March, April or whatever compared to the end of last year, which was EUR 5.2 billion?
It's not too far from last year.
We have a question from Kai Mueller from Bank of America.
I think the first one, basically on your volumes, you said don't translate China into the European market. But maybe -- we're almost through April now. What is sort of your first experience with the European and North American market? Is it almost a complete write-off? Or is there still some sales that are happening that you see through some outlets? And then do you think as soon as May gets back, how do you see that curve developing? And I think in particular, with regards to the fact that, I think, a couple of consumers are still driving on winter tires and possibly do that switchover then on a delayed stage than before. That's my first question.And then the second point is you've now showed, obviously, the tire or the driving activity has obviously come to a halt under the lockdown. Have you got any indications possibly also from your dealership networks when we start seeing a pickup again? If there've been talks about people using private transportations more frequently versus public transportations that, that could help with regards to your volume pickup in the second half that driving activity drives that.And then as the last question -- is -- can you just give us color again? You obviously said aerospace going -- the airline business is going down. How big is that in your SR3? Just so we have a bit of an idea how insignificant the impact could be.
Okay. So for the first question, regarding Europe and North America, it depends on the country. Some countries have applied lockdown measures more severely than others. If I take a country like France, the dealership that we have still opened were mostly some dealers that we are servicing B2B activities, such trucks, because as you have seen in the presentation, there was not a complete collapse of the truck business because trucks have to deliver goods and particularly for the cities. What we observed also is that it seems -- but it's very early. It seems that after the reopening of some countries, I'm thinking about Germany last week, of course, people are exiting from the lockdown with winter tires. So they will have, let's say, a very short time frame to switch back to their summer tire. So it might trigger some peak of activities there, but we should be very prudent. On the other hand, you have, in some countries, and I'm thinking about North America, a lot of people that have been laid off. So probably going to tighten their belt and be very cautious about discretionary spending.Regarding the activity on the dealership networks, the -- one of our first priority to help our dealers, franchisees, our partners to operate within the -- this COVID-19 fright. So with the right level of sanitary measures, that will bring back customers in their point-of-sales because consumers have to feel at ease and to feel safe to go...[Technical Difficulties]
Ladies and gentlemen, we have a little technical problem. So we are going to continue the Q&A session. [Operator Instructions]
Okay. So next question.
So we have a next question from Thomas Besson.
It's Thomas Besson at Kepler Cheuvreux. I will start with a question on mix, please. Can you comment on what you anticipate for the full year in terms of OE replacement mix, knowing that these lockdown periods effectively affect as well replacement more than in normal downturns?My second question is about 2021 versus 2020. Can you comment both on the flexibility you have in terms of CapEx? You've talked about cutting CapEx by EUR 500 million this year. What kind of CapEx do you need in '21? And it goes along with what kind of volumes do you expect versus 2020? So if you were to see minus 20% or minus 35%, would you expect to recover the large portion of that in '21? Or would it take 2, 3, 4 years?And last question, there has been several acquisitions in the last 3 years. Is there a risk that we see a relatively large write-down on some of them at the interim stage?
Okay. So thank you, Thomas. The mix -- OE RT mix will be -- was probably favorable. Anyway, in any, let's say, major crisis situation, people will have the tendency to postpone the purchase of new vehicle, either for professional or consumers, but they will continue to invest in their existing vehicle. So we expect a mix that should be favorable from this standpoint.Regarding 2021, honestly, we have not yet looked at this market, at market hypothesis. We have taken measures to reduce our CapEx in 2020 based on the scenario we have for the time being. We will update it during the coming weeks and months. Before 2021, we'll try to continue to manage in a very agile way our capital expenditure in order to be able to initiate some important projects if the market were rebounding faster. At that stage, it's probably too early to build a vision on 2021.Regarding your last question, we have made some acquisition in our reference -- universal reference documents. There is a description of the different -- the IAS 36 tests that have been done. We have some, let's say, material headroom for most of the cash-generating units in the -- different cash-generating units of the company. And we'll, of course, reupdate this test at the end of the semester, but mostly at the end of the year, to take in consideration, of course, a potential reset of 2020 on the market. But also, we'll wait because we need to be able to rebuild long-term hypothesis that are today extremely difficult to rebuild in such a circumstance.
Okay. So we have Kai Mueller back for the question.
We went through the first question, but then I think I dropped. Basically, I assume as you were answering the second. There were 2 parts. The one was the tire demand in terms of pickup in driving activity, if you think there is some validity to that because we've heard a couple of companies talk about this. And then the second one was in that second half, on your price/mix, you -- obviously, you said it's a bigger benefit. Can you give us some sort of magnitude we can work with for your price/mix versus raw mats to get a sense of that magnitude that you're expecting?
Yes. So for the last point, the price/mix should be positive. You see the price/mix effect over 5 quarter. Knowing that, as I said, we have the impact of the raw material crisis, which -- raw material price decrease, which has an impact on the contracted business where we have raw material clauses adjustments, which represent a little bit around 30% of our total sales. But overall, we have been able -- you see an average to generate a 2% price/mix effect if you look at the 5 last quarter.Regarding vehicle mileage, we are monitoring our business units in charge of these activities, monitoring the traffic in a lot of cities. So we are seeing very contrasted situation. We are comparing one year-over-year, week-per-week the evolution of the traffic. For example, the traffic in city [indiscernible] Singapore was, I think, around 30% or 40% of the traffic it was last year during same weeks of March. Contrary, the traffic in Barcelona was at less than 10% of the same week of last year. So we are very present. There is, of course, some behavior that have been mentioned, particularly in China, mentioning that consumer tend to prefer individual transportation needs because of the, let's say, health risk. But we cannot make such a generality over knowing that, for example, in some countries, companies and governments will continue to promote working from home for the people that can -- who can exercise their activity without going to their factories or working premises.
Okay. And the magnification, the EBIT impact on that raw mats versus price/mix, if you're willing to share anything?
It will be positive over the year, but we, at this stage, given it's a quarterly disclosure, we don't enter into this level of detail.
Okay. We have another question from José Asumendi from JPMorgan.
It's José, JPMorgan. Just -- I wanted to go through your assumptions on volumes down 20% for the year or 35%. Do you think you can generate cash first half and second half in both scenarios? That will be the first question. Or if you could comment on a full year basis your confidence on generating cash on both scenarios and if you could specify also for the first half.Second question, can you talk a little bit about -- around working capital? How much of an inflow could it be in 2020? And if you can please take us back to the last financial crisis. What happened with working capital? And if you could share any of the magnitudes there.
So thank you, José. Well, the 2 scenario has been really conduct to assess our ability to manage the liquidity risk of the company. So at this stage of the year, we are not going to disclose the detailed impact on the [ OS ] segment operating income or free cash flow.Regarding working capital, we have to -- I think this crisis is pretty different than the last one, where we have a rather extremely positive working capital effect in the sense that there is mostly 2 elements to manage: one that can be in our hand, which is inventory; the other one is, of course, the situation of the customers and the risk to have a peak in overviews in account receivables. So that's why we have -- without entering into the details of the stress test, we have taken, we believe, very quite conservative and prudent hypotheses regarding potential risk on both customers that might have to go to bankruptcy or look for protection, such chapter 11 or equivalent. And of course, the increase of overdues, which is at this stage of the -- we are still at the beginning of the crisis, particularly for Europe and North America. We have not seen a huge, let's say, impact for the time being in China, but we have preferred to take prudent assumptions regarding working capital, particularly looking at the receivable part.
So we have another question from Henning Cosman from HSBC.
It's Henning from HSBC. If I may, I still think I haven't completely understood your scenario analysis and whether you think you actually realistically end up between the minus 20% and minus 35% or if this is really just a stress test, right? That's my first question. I think that's not really clear to many people.If I do take the minus 20% and minus 35% and assume the EUR 130 million drop-through you mentioned earlier to Gaetan's question, I end up with the volume-related EBIT shortfall year-over-year between EUR 2.5 billion and EUR 4.5 billion. And considering what you said about price/mix versus raw material, I'm just wondering if you're really uncomfortable with the current consensus level of 1.8? I guess it must be difficult to bridge with a negative starting point of EUR 1.5 billion after volume. So if you could just sort of help me understand if you want to outright dismiss the current consensus level or if there's a remote chance to get into that region.And finally, if I may, we were all quite hopeful, I think, for the new savings plan as I know you were executing the restructuring plan of your predecessors, and 2021 was going to be the first year of the new savings plan. Is it possible to comment a little bit on whether you think it's still going to be possible to pursue what you were hoping for or if that's going to be a lot more difficult from what you're seeing today?
So thank you, Henning. The first question is purely a stress test. It's a liquidity stress test. And that's for the only purpose of this presentation to share with you and to share with you that the fact that the group has a means to wait through the crisis.Well, regarding your assumption, I will let you comment, and it's not my role to comment the consensus. So I will let you do your own math based on the -- your own assumptions of the market. And regarding the last question, the saving plan, we are executing the plan that we have announced end of 2018 and during the course of 2019 as we have planned to do it.
Okay. If I may follow-up just very briefly. So you -- there is a possibility that your volume will be less negative than minus 20%, yes?
Honestly, I'm not able to provide you what we call as [ centered ] assumptions, market assumptions for 2020 given the extreme volatility. Hypothesis can change from one week to another. If the -- if all European and North American countries are existing through the lockdown smoothly and there is no -- another spike of the sanitary crisis, it might be better. If there is -- if the crisis is -- duration is longer, we -- it might be worse. So honestly, too far too early to give you a [ centered ] scenario. We'll try to do it during the Q2 presentations.
So we have another question from Victoria Greer from Morgan Stanley.
Can you hear me okay?
Yes.
I wanted to ask a bit more about what you're seeing from dealerships. You talked obviously about some bankruptcies that had been happening in -- before all of this. And obviously, they do all work on very thin margins. What is your conversation going on right now with the dealers around restarting? And also, what are your conversation on pricing? And could you talk a bit about what you think the inventories are like at the dealer level and around where replacement volumes in North America and Europe are tracking in April?And then secondly, I just wanted to ask a bit more around detail on trends in specialty. I think I asked earlier about the trends, obviously, on the airplane tire side. Unsurprisingly, I -- and I guess that is -- that's [ staying ] very sharply, but mining seems to be holding up a bit better. Could you talk us through the differences in those markets?
Okay. Okay. Thank you, Victoria. Well, regarding what we are seeing from the dealership, as I said earlier, a very contrasted situation. First, we are trying to help our dealers to resume their operations and to resume safely in order to provide consumers confidence that can -- they can have their vehicle and their tire maintained in healthy and safe conditions. Well, I have mentioned the bankruptcy of 1 operator in Germany earlier this year. We have exchanged with some customers, which are facing liquidity risk. And we have a discussion with each of them in order to see how we can work together through this difficult period.Regarding inventories, maybe except in some European countries where there was, end of last year, a little bit of winter tire inventories, we have seen overall distribution destocking over the past month. So we believe the inventory situation is pretty healthy as distributors.Last, for specialties, as I said, we have -- if I look at the mining activity, surface mining, in some regions, it's all very contrasted. The mines are shut down in South Africa, but it's considered as a national interest in Australia. So we can have very contrasted situation from one region to another.We mentioned the aircraft tire division. Of course, all commercial airlines are mostly stopped. Most of them are stopped. I think the traffic is less than 10% than it was a year ago. Nevertheless, we have some other activities, I'm thinking about -- we are providing tires to the Air Forces in some European or North American market, which are a bit more resilient.Agriculture, I mentioned, is still -- particularly for replacement, is decreasing, but far less than the original equipment or than the construction business.
And then do you have any information now on where replacement volumes are tracking for April in North America and Europe?
We have -- we start to have a guess on our own figures, but it's -- we don't have many market figures. And I think it will not be the time to disclose this kind of data.
So we have another question from Ashik Kurian from Exane BNP Paribas.
I just have one question today. Just can you give your thoughts on how maybe in the few months or quarters post -- as we come off the lockdown, the market share in Europe and North America is going to [indiscernible], partly because one would expect the imports to maybe not be in great supply. Plus, with all the dealers that you are helping, the ones that have liquidity crises, one would assume that basically they still had a higher share [indiscernible]. So is it the expectation that in U.S. and Europe post these lockdowns, maybe we should see an increase in market share and plays [ recognition ]?
Yes. I'm not sure I -- we have a bit of hard time to understand you, Ashik. I'm sorry. But regarding the -- yes?
Can you tell me if it's better?
Yes. Yes, better.
Sorry, is this -- okay. So I was just asking whether you think your market share for plays recognition will improve post these lockdowns because, one, the availability of imports or the willingness of these dealers to buy imports might be less. Plus with all these dealers that you're helping out, trying to restart over the liquidity prices, is there a challenge to grow your market share?
We'll strive to grow our market share. The market -- the customer will decide. And we have good reason to believe that being close to our partners will be rewarding one day. We have been helping very actively, for example, our Chinese tire plus dealer to resume their operations. And it seems that we have slightly gained market share in China. But we shouldn't -- cannot go to conclusion across all the market, the segments and the geography on this example.
Maybe just a follow-up. I mean you've kind of commented that for SR2, even in these lockdowns, there is going to be some demand. Is there a ballpark figure in terms of like what percentage of the replacement market do you think will still -- would be needed during these lockdowns so that we can gauge what the floor in terms of the SR2 replacement demand in Europe and North America can be.
It's very difficult. We provide you -- I just provide you a snapshot, for example, for our EFFITRAILER offer in Europe where you see that the mileage driven in the very recent weeks were around 77% than it was at the beginning of the year. So it gives you an order of magnitude. But of course, it's evolving week-after-week, knowing that on the other hand, the original equipment market is more severely impacted. Maybe a last question?
Yes. We have a last question from Gungun Verma from Goldman Sachs.
It's Gungun from Goldman. I have one question left, please. I just want some clarification on the mix. So when I look at mix of first quarter, it's at 190 basis points. It's almost double the run rate that you've observed in the past few quarters. Just trying to understand if this step-up is perhaps due to regional mix or has the mix structurally improved. And if so, can we assume this 180, 190 basis point run rate to carry forward for the rest of the year?
Thank you, Gungun. In fact, the mix is -- in fact, it's threefold: there is original equipment; replacement mix; the market mix, which has been favorable. We have also the mix between the different LBs, the business lines within the [indiscernible], within the specialties, that has been rather favorable because of the resilience of the surface mining market. And of course, there is a product mix. And just as an indication, our share of 18-inch and above tires in SR1 has continued to grow by 2 points versus 2019 during the first quarter.
That's helpful. So when we think about the mix going forward, of course, like the regional mix will reverse, but you continue to gain share in 18 inches and above. So can we assume this run rate to continue? Or would we see more normalizations in the quarters to come?
Also, it's a bit difficult to guess because the balance between original and replacement market can move along the year. So that -- we believe that the overall price/mix effect, we have seen an overall effect of 2%, which is basically the average of the past 5 quarters. So can be, let's say, a relevant hypothesis. But you have to take in consideration that the -- there is one aspect of the mix that we don't master at all, which is the regional equipment and replacement markets behavior.Thank you very much. So I would like to thank you for your listening of this conference call. I apologize for the technical issues that we have encountered with our provider. And I would like also to send a message to one of you -- your community, Gaetan Toulemonde, who has been following the Michelin share for a very long time. And I believe although he made mention that he might want to come back to our [indiscernible] presentation, then it will be probably the last time he will attend to a conference -- a Michelin conference as a senior analyst and a very experienced analyst. So thank you, Gaetan, for the way you have followed us and challenge us over the years.
Ladies and gentlemen, thank you all for your participation, you may now disconnect.