Compagnie Generale des Etablissements Michelin SCA

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Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, welcome to the Michelin conference call. The conference call will be conducted by Mr. Florent Menegaux, Chief Executive Officer. You are able to download the presentation from Michelin corporate website. I now hand over to Mr. Florent Menegaux. Sir, please go ahead.

[Florent Menegaux]

Thank you. Good morning, good evening to everyone. Thank you for joining our Q1 sales. And I do would like first to start with just a quick note. Normally, this call should have been handled by Yves Chapot. Unfortunately, due to unexpected personal circumstances, he will not be able to be with us today. So you will have to deal with me, and I hope it will be okay. So -- and I will do my best. The first element in the quarter, if we move directly to what were the key events for this Q1 2021. First of all, strong rebound in sales, up 8.3% at constant exchange rate and lifted by the recovery in mainly all the markets everywhere. We did this in market circumstances where we have major supply chain disruptions and still persistent health-related restrictions. So we need to remember that we are still in a very challenging environment right now. The passenger car, light truck and truck market rose by 9% and 20%, respectively. The specialty markets saw rebound, impaired by the agricultural construction and the 2-wheel tire businesses. And the demand rebounded sharply in China across every market, returning to near 2019 levels. So in this market environment, we achieved a little bit in excess of EUR 5.4 billion in sales, up reported 2.3% after a negative 6% currency effect. We had a 7.5% growth in tire volumes with, in particular, a consideration of the group's positions in passenger car and light truck replacement markets and gains in the specialty businesses. We increased our tire prices as the firm price discipline in response to higher raw materials and logistic costs offset the negative impact of indexation clauses. We had a sustained shift upmarket in the product mix with market share gains in the Michelin-branded 18-inch and larger tires, dampened by an unfavorable business mix. And we had stable sales in the non-tire business, which were adversely impacted by the falloff in demand in the restaurant and the travel guide segments. During this quarter, Michelin has opened up the capital of its subsidiary, Solesis, to step up its expansion in healthcare markets. This is a strong demonstration of our group's ability to capture the value of its high-tech materials businesses. And we have -- we will show in our accounts the disposal gain, which will be around EUR 130 million to the consolidated net income. During its Capital Market Day, our group presented its Michelin in Motion sustainable growth ambition for 2030. And we have -- and we are confirming our guidance for 2021. If we move now to the market circumstances. Here on your graph, you will see that overall, we had strong growth in Q1 driven by the global economic recovery despite still high level of uncertainty due to the COVID-19 pandemic and the various serious disruption it's created in the upstream supply chain. We have various issues coming from shortage of digital components, containers and many issues like that. In passenger car, the Q1 2021 experienced some growth, but it's still below 2019 level. We had a strong acceleration of the growth in March on a very favorable basis of comparison. And China drives most of the growth, notably in OE. And in passenger car, we saw some disruptions related to the upstream supply chain due to the electronic components, which led the OEMs to shut down some production lines. In truck, the Q1 is near the 2019 level. Europe and North America are above 2019 level, and China OE market has been boosted by the implementation of the new China CIS regulation in July 2021. For specialties, the market growth is still expected to be between 8% to 12% in 2021 full year, with a stronger growth in ag construction and material handling. If we now move to our bridge. This is the decomposition of our movement between Q1 2021 and Q1 2020. So the Q1 sales are at 5.4 -- in excess of EUR 5.4 billion, up 2.3% versus Q1 2020, heavily impacted by, you can see on the graph, the currency effect. The organic growth of 8.3% was driven by strong volume growth and a robust price/mix effect despite the adverse effect of the index business, of which 0.3% is the price effect. The non-tire business sales are flat in Q1 2021 -- yes, in Q1 2021, resulting from slight growth in service and solutions and high-tech materials and offset by the decline in restaurant and travel guide segments. If we now move to the analysis by segment. You see that every segment of reporting were significantly impacted by a negative ForEx effect. If we look at the passenger car segment, the SR1, the volume growth and the market share gains in 18-inch plus have offset the negative indexation clauses impact, mainly at OE. For the segment 2, we have had a volume effect and a robust price mix in line with our selective market approach and the strong performance of the Michelin brand. And there, you have to remember that for this segment, we are under-indexed in the Chinese market compared to other markets and there was a very strong market growth in China during the quarter. And for the segment 3, we have seen a strong growth and a positive price effect, offset by negative ForEx, negative some index close business and the business mix. So there in this segment, the mining grew, but they grew -- this segment grew at a lower pace than other activities in this segment, which explains why the mix was relatively less than what you could anticipate. If we now move to what we disclosed during our Capital Market Day. If you remember, there, we presented our 5 ecosystems that were identified to be around and beyond tires. We have, of course, service and solutions with the aim of innovating to capture every new opportunity in the IoT and the emerging technologies. And then we have the whole sphere of high-tech materials where Michelin has a lot of expertise, know-how and technical skills. And there, we have mainly 4 segments today: the high-tech flexible composite with the medical hydrogen and 3D metal printing, which are the most developed business at this stage. If we look at our growth in the coming years, it will be in this blue activities and in this green activity, where we have a very strong ambition, which you can see on the right of your screen, where we want to be significant players in those segments. If we now zoom on to Solesis, which was part of the rated news right after the CMD. What you have seen is we have made a deal with -- a new partnership to accelerate the growth of this company. This company has 3 main business. And the ambition is to become a leading, innovating and manufacturing partner in cell therapy, bio resolvable and regenerative medicine. And there, we want to be a Tier 2 supplier to OEMs in that sphere. And we have thought that we didn't have all the skills to be able to help Solesis to grow at the pace it deserves, and that's why we came with this partner. So we want to bring Michelin's powerful R&D in polymers in the medical space as quickly as possible, and we want to have a high positioning in the right markets with the right partners, which -- and the latest announcement we've made is a clear illustration of that, and we want to accelerate the pace of our growth in these segments. So Altaris is the partner we have chosen, and we have announced our strong intention to join forces to speed up the growth of Solesis. The operation consists of opening up the capital of Solesis to Altaris, which acquires 51% of Solesis. And it's -- we have a tight and efficient governance sets. We have -- we bring strong ledge in terms of the technical space, and Altaris brings a very extensive knowledge in the medical markets. And we have a strong R&D partnership between Michelin and Solesis. So this operation values Solesis at $475 million, has no cash impact for the group as the cash contributed by Altaris will remain with Solesis to finance its growth. And will have a positive impact in 2021 net income estimated, as I told you in my introduction, at around EUR 130 million. And it will be below the share -- the segment operating income. If we look at the guidance now, we have led the market to what we -- to the hypothesis we had set in the beginning of the year. What is very important is we are still operating in a very challenging and uncertain environment. So we keep our 2021 market outlook unchanged versus what we announced in February. We will have strong rebound driven by global economic recovery, but we still anticipate it will not be back at 2019 levels. The chip shortages, for example, is penalizing heavily in the OE business. And nobody clearly knows when the OEMs will resume production to their full level, which has a clear impact, for example, on this. But there are many disruption right now in the upstream supply chain. And we have to keep in mind that in the second semester, the basis of our comparison will be tougher, especially in China because China went back on to strong growth in 2020. So if we look at our scenario now, we have left the scenario, what it was in February. Maybe on the net price/mix raw materials because I know, for some of you, there is a concern about the evolution of raw materials, prices and the logistic costs. We still keep this knowing that in the -- our estimate is that in the first semester, the net price/mix raw materials will be neutral and will be slightly positive in H2. And we still keep our very tight pricing policy in this environment, saying that we will offset any adverse costs that we will incur into our prices.We are experiencing a strong input cost increase through raw materials on one side and logistics on the other side as the shortage of container, boats, trucks and the prices and logistics are rising. Plus, we have many disruptions. The Suez channel has been one of them. But we have many, many disruptions, which are leading to increased cost into our -- as an input to us. We ambition in 2021 to grow in line with the market and to generate a slightly positive net price/mix versus raw materials as I was telling you. And the currencies are still expected to weigh in our segment operating income. There's a high variability of the U.S. dollar right now. And therefore, our guidance remains unchanged with what you can see on the screen with the segment operating income at constant exchange rates in excess of EUR 2.5 billion and a structural free cash flow at around EUR 1 billion. So thank you very much for your attention. And now we can move to all the questions you may have.

[Operator]

[Operator Instructions] We have a first question from Tom Narayan from RBC.

[Gautam Narayan, Assistant Vice President]

Tom Narayan, RBC. I hope everything is okay with you. First, on SR1. The premium auto OEMs reported very strong pricing in Q1, notably Mercedes and BMW. And I think it's been helped by the semiconductor shortages making them push out higher-margin vehicles in Q1 and better pricing. Given that you perhaps might over-index on premium auto OEMs, just wondering if you experienced pricing uplift at your SR1 OE exposure. Secondly -- second question, on SR1, the U.S. Federal Highway Administration released its 12-month vehicle miles traveled through February. And I know it's a little stale and COVID was rising in the U.S. at that point, but the data does show very little recovery in miles driven. I was just wondering if you could share any more updated data that could corroborate what you said before that miles driven will eventually recover. The concern here, of course, is are we going to rebase to a lower level permanently because of increased working from home and other factors. And then lastly, on SR4, the Solesis, could you give us a little more detail on how you leverage Michelin's core competencies there? The concern here is that the customer base is brand new to Michelin. At least with hydrogen, you can leverage existing customers. I know you mentioned R&D and polymer, but maybe you could just flesh this out a little for us.

[Florent Menegaux]

Yes. Thank you, full combo of questions. So the first one about the premium OEMs pricing. The fact these are nice customers, have a very clear distinction between the purchasing department and the selling department. So the fact that they are able to extract higher prices has not come through their processing department. So at this stage, we have -- but on a more serious note, we have long-term contracts and our price are not fixed. But the -- they're not that variable. But in the OEMs, we sell technology. And therefore, we price for technology. So we have partnerships with the OEMs on technology. One of them is on electric vehicles where we sell at a premium for electric vehicles because we have a differentiated technology. That's what they buy. But it doesn't fluctuate because the OEMs here and there are able to sell at slightly higher prices. Plus, we have indexed contracts for fluctuation of raw materials. So we don't have here -- and they have benefits from what the OEMs are able to extract for their vehicles. As far as SR1 and miles traveled, yes, we have seen the same thing. So we still have to remember that in the United States, notably, and Canada, so in North America, the COVID is still there. So the economy is projecting to be buoyant because of the massive injection of recovery financial plans, but the COVID is still present. So we see, for example, for our plants, we still have some disruption because of contact cases on COVID and things like that, even though we see less COVID cases. So we think the miles traveled will increase gradually towards the second semester and the end of the year. And the last element you need to take into consideration is there is, in the market for tires, there is a replenishment effect of the inventory at the dealership. And right now, the inventory levels at dealerships is at low level because there is not enough supply of tires available right now for the U.S. market. So that's why we keep our forecast for the U.S. market in SR1.And as far as SR4 is concerned, Solesis, the core competencies of Michelin is basically assembling flexible composites. So we have a very strong science and Solesis before being acquired of Michelin was assembling existing technology in the market. With Michelin, we are able to develop the next generation of product that Solesis will be able to bring to OEMs that are in the medical space. And that's -- what you have described is actually true. That's why we went with Altaris as we didn't know enough about the medical -- the health market, we went with Altaris, who is a specialist of the health market and is going to help us identifying all the potential customers for Solesis that will be eager to get our technology. So that's -- this is -- the strong link is related to our technical skills and knowhow. It's in polymer, but more so it's in flexible composite. And we have a unique capability there that is very interesting for this space. Thank you. Next question.

[Operator]

Next question from Gabriel Adler from Citi.

[Gabriel M. Adler, Research Analyst]

My first question is on volumes. You mentioned that you're seeing some impacts from low inventory at dealers and restocking. And I think in your March market release, you also referenced some prebuy effect supporting volumes. So my question is whether you can please elaborate on how significant these 2 impacts of prebuying and restocking or on strong volume data that we saw in Q1 and whether that could soften as we move through the year. My second question is on price. I believe your price was negatively impacted by that delayed OE indexation. Could you quantify that impact perhaps so we can better understand how much price could accelerate from Q2 when the OE indexation improves and also your tire price increases and replacement starts to come into effect?And my final and third question is on SR3. In the press release, you mentioned the mining tire market showing size of improvements in March. Has this improvement continued into April? And is this improvement positive surprise compared to your expectations of mining? Or is it developing in line with expectations?

[Florent Menegaux]

Thank you. So as far as the prebuying is concerned and the overall inventory levels, the overall market right now is in short supply from the tire manufacturers. So it means that the capabilities of the dealers to buy inventory in advance of a price increase is very little. So we are not experiencing very high selling due to price increase into the dealers on every market where we measure. So we have, at this stage, We are not seeing a major sell-in due to prebuy. And what I'm telling you is comforted by what we see in April. If we look at the prices and the index close, we don't disclose precisely the impact of the index business. What I can tell you is the index business, we had negative closes. But it's very complex to answer your question because some anniversaries of these closures are happening in the different period of the year. But what we can say basically is the major impact has been with vehicle manufacturer in March. And we have seen some impact, but you will see some impact popping up in the Q2 as well because it depends on the anniversary of the index close. Now as far as the SR3 and the mining. Yes, we have seen precisely what you're mentioning, which is that the mining activity ramping up slightly above the expectation. But we -- that's why we have put in SR3 a wide range of market fluctuation because we know it could be -- it is recovering slightly, and we see that the higher inventory in -- with our main customers is still diminishing. So it means that consumption is getting better. It is not buoyant, but it is improving slightly. And probably slightly above the minimum level that we were set in the beginning of the year. Thank you. Next question.

[Operator]

Your next question is from Thomas Besson from Kepler Cheuvreux.

[Thomas Besson, Head of Automobile Sector]

It's Thomas from Kepler Cheuvreux. I have 3 quick questions as well, please. First, on Solesis, I'd like to understand 2 things. First, why you're not taking the cash out of the business if you're selling the majority of it? And second, whether the capital gain will be tax and not growth rates. Second question, on the volume assumptions that you've kept for the year, I understand that there's a lot of uncertainties. But what seems to come out at least in trucks and to some extent in the other segments is possibly higher than the trend, even if the Chinese H2 comp is effectively coming. Could you discuss that? And notably, how Michelin performance in trucks in H2 could completely dissociate from maybe a less positive market development, but a more positive development for you once we see better European recovery and U.S. recovery? And then third and last question, could you talk about your ability to price up in original equipment, given the current environment because of shortage and/or because of electrification?

[Florent Menegaux]

Okay. Thank you, Thomas. So on the Solesis and the cash and the tax, to my knowledge, we've done some studies and we have used a scheme so that there is a minimum taxation on the -- this deal. As far as the cash, we have made the decision that to keep the cash within Solesis because we know part of the growth with Altaris will be to grow through acquisitions to have complements of either technologies or market access. So we have decided to say that, as Michelin, in terms of cash, is doing okay at this stage, we have said we want to give Solesis all the ability to grow. That's why we have decided to leave the cash within Solesis so that it will -- it gives Solesis the ability to grow through acquisitions. Now of course, that cash -- there is a financial scheme so that cash will not be sitting there, waiting for nothing. So I'm sure [ Edouard ] and his team will give you some more details if you want on this. As far as the volume assumption in the market, especially in SR2, remember that right now, most of the growth in SR2 is coming from Asia. And there is a rebound happening also in U.S. and Europe. But the main activity is the rebound is coming in China. And there, we have an adverse mix effect because we are really under-indexed in China.We see the market in truck gaining momentum. But at this stage, we are capped in our growth by our ability to produce all the tires needed because we still have many disruptions in our production capabilities. So that's why we are confident in our market assumptions, even there are still many disruptions, but we see some recovery happening. It is still fragile because of the COVID is still there. We have to remember that South America is really in big pain. India is totally in disarray. So there are many areas of the world that are not out of the wood with this. Plus, we have many supply chain disruptions because of COVID and related effects. So that's why we anticipate to be fully able to replenish inventory and to supply all the demand towards the end of the year and not really before. That's why we have made this assumption in terms of volumes. Now as far as pricing up, we have a strong ability to price up. As I was telling, we are selling technology. So on electric vehicles, we have a strong ability to price up because our technology is differentiated and is very appreciated by the OEMs. Plus, we are selective with the OEMs we choose to work with, because again, we don't sell just a piece of stuff round and black. We sell technology. And we are -- so -- and when we are not able to price up according to our technology, we don't bid for the business. We have made this choice. So we have selected, it is by vehicle, by vehicle manufacturer, by type of vehicles and type of technology we can sell. So we have a very detailed action plan that tells us where we want to play and where we don't want to play. Right now, around the world, the situation varies a lot. In Asia, they are very eager to buy technology. And there, we are able to command very interesting margins. If we go to North America, it is different. The type of vehicle in North America are very demanding for tires. And therefore, we have an edge there. And in Europe, it's a battlefield where everyone is trying to conquer some [ fitments ]. And there, we are very selective in our approach in where we play. But we have an ability to price up because our OE business, even though it is helping our replacement business overall, has to be positive in results. Okay, if we move to the next question.

[Operator]

Next question from Jose Asumendi from JPMorgan.

[José Maria Asumendi, Head of the European Automotive Team]

It's Jose from JPMorgan. And yes, my best wishes also to Yves. Three questions, please. The first one, from volumes. And simply, if you could comment a little bit whether the momentum you're seeing in the second quarter for SR1 and SR2, whether it's better than what we saw in Q1. With regards to volumes also, SR3 senior printed volume growth of around 6% in Q1. I think you're guiding for 8% to 12% on a full year basis. I guess we should be going for the lower end of the growth range. If you could comment a little bit on the acceleration of SR3 volumes, please.Second question with regards to pricing. Can you run us through, please, the price increases you've done on SR1 and SR2 so far? And the third simple question is consensus, I think, is looking at roughly EUR 2.6 billion operating margin. I'm aware this is not an earnings call, but are you comfortable with that kind of level or very comfortable with that EUR 2.6 billion operating margin level?

[Florent Menegaux]

Okay. Thank you and I appreciate the notion of the subtleties of the qualitative -- on my comments. So on the volumes, yes, Q2 will be better than Q1 because we'll be comparing to Q2 2020. So in comparison, in Q2, we will experience a strong growth in Q2 mechanically because of what has happened in 2020. We have to remember that the worst Q2 since World War II was in 2020 and the best quarter was happening in the second semester in 2020 as well. So we have experienced the worst and the best in the same year. So yes, Q2 will be better than Q1 in SR1 and SR2 mechanically, in terms of growth. As far as SR3 is concerned, I was telling you, we see a slight acceleration. Now what does it mean between the range between 8% and 12%. If I start to tell you it's more to the minimum or more to the maximum, I would be -- I would narrow the range. At this stage, we see right now some positive information. We see a slight acceleration. But it is not sufficient. There are too many uncertainties right now to be able to say definitely where we'll be in the range of 8% to 12%.As far as pricing, I think we did -- it varies from region to region, and we passed the price increase to offset the induced cost that we were projecting starting of the year. We have stated, I think, on memory -- on average, I think it was up to 3% in passenger car during the -- and then it was, in truck, it was between 3% and 4%, depending on the regions of the world with a price cover effective 1st of April, where the passenger car was effective 1st of March. So and then in -- we passed also in the non-indexed activities in agricultural, construction, mining, et cetera. For the index business, it's indexed. We -- now our policy and our strategy, and I'm very firm on this is, we will pass all the induced cost to the market, whether it's logistics or whether it's raw materials because we have no way of optimizing this. So there, you will see that we will stick to that policy during the year. As far as the EUR 2.6 billion, this is our best estimate at this stage. We said it's in excess of EUR 2.5 billion at our guidance. And at this stage, we don't see why to change it at this stage. Of course, as the year goes, I think we will be more and more precise.

[Operator]

Next question from Victoria Greer from Morgan Stanley.

[Victoria Anne Greer, Vice President]

A few from me, please. Firstly, you talked a lot about the inventory rebuild, which is still going on at the dealership level. Could you talk about a bit about inventories at the Michelin level? I guess probably you're not really able to rebuild very much of your own inventories at this point. And on capacity utilization, should we still think about you running at as close to 100% as you can get? And how much is your capacity being affected by the various COVID measures? So yes, there -- that's the first one. If you could talk a bit about inventory at the Michelin level. Secondly, could you tell us a bit about what you see happening with imports, Asia imports coming into North America, but also into Europe. Obviously, in North America, we have the tariffs. But this time last year, you had quite a lot of disruption for the Asian imports into Europe also. Do you think that, that is normalizing yet? And then the third thing, you talked a bit about ability to price through on raw materials. That seems very clear. But on natural rubber, specifically, are you seeing anything structural that you might be concerned about, whether that is shortages or, yes, reports that we always get about disease affecting the trees and so on. Is there anything structural we should think about for natural rubber supply?

[Florent Menegaux]

Thank you. As far as the inventories for Michelin are concerned, we are not in a capacity yet to put the inventories of finished products to the normalcy level. We are still under stock right now in finished products. In raw materials, it varies from raw material to raw material. The Suez channel, we were starting to recover our natural rubber inventories when the boat went -- was stuck in the middle of the channel, which has disrupted a lot of our upstream supply chain. So in terms of finished products, sorry, semi-finished, we are slightly recovering our inventories, but we are still overall at Michelin. And there, we have not been in the capacity yet to replenish the inventory properly. Now if you translate that financially, but we see the rising costs happening in the inventory levels. So we are not at the normative level in terms of overall volume of inventory, but we see the rising costs happening in those inventories. In terms of capacity utilization, it's exactly like you said. We have -- on all the capacity that we can use, we are really trying to go to the maximum utilization rate. But we are not in capacity yet to be at full capacity because we have plenty of issues. We have COVID cases. We have the COVID sanitary protocol. We have also a lot of disruption in upstream supply chain. So for example, in passenger car plants, in the first quarter, we had 6 days of where we could have produced -- where we could not produce because of lack of -- shortage of raw materials of various types. That's one example. So in terms of capacity utilization, we are not yet in a stable environment. And it's -- this is true in every type of production capacity. In terms of imports, it has slowed down in North America. We are not seeing yet in Europe a massive influx of import. So at this stage, we don't see imports being a major disrupting factor right now in the market. Except that, as there are a lot of disruption in the upstream supply chain, sometimes -- the one that has the tire can set the -- so we should not read again too many things on what the flows are showing right now in the market. And then in terms of natural rubber, the natural rubber price was too low and has been too low for too long now. And now it is back to around 1.8 -- I think it's EUR 1.85 right now per kg. And we think it is coming back to more normal levels. And you have to remember that every time on this, when the raw materials costs are rising, it is an advantage to the premium players and especially for Michelin because we have a much greater capacity to price up than many of our competitors coming from Asia. So structurally, we project that natural rubber should be at a higher price than what it has been over the past 2 years. But of course, we don't decide it. It's the market that decides it. But there are no structural either in terms of number of trees or market demand that justifies the market -- the -- that affect our forecast of the natural rubber price should be at a higher level than what it is -- what it has been in the last 3 years. Next question.

[Operator]

Next question from Michael Jacks from Bank of America.

[Michael Shawn Jacks, Director and Head of SA Research & Industrials]

I just have 2 follow-up ones, please. The first one in SR1, given the premiumization effect we've seen at some of the OEMs in Q1 and the fact that replacement higher market growth and OE market growth looks to have been close to parity in Q1, can you please elaborate a little bit on the unfavorable business mix that was alluded to for SR1 and quantify that mix impact, please? And then the second question in relation to SR2, just a follow-up on the truck tires. I guess, with Michelin being capped in its ability to supply the higher truck tire demand, some competitors somewhere are obviously able to fill this gap, particularly in Q1. And given that this is going to extend for you until the end of the year, what's the risk of some more permanent market share losses here?

[Florent Menegaux]

Yes. So on your first question on the SR1 and the premiumization and the mix impact. So the -- we had a brand mix, adverse brand mix effect in the first -- in this segment in the first quarter. So nothing structural. It's because we have grown in other brands faster than on the Michelin brand. But it's nothing structural. It's because we had inventory. And right now, in Michelin, sometimes we cannot grow to the -- as strongly as what we would like because of many disruptions that we have in our production capacity right now. So that's -- on SR1, that's the main impact. It's a brand mix that has been slightly less, and we had favorable OE replacement mix and we had very favorable 18-inch plus mix. But again, don't read too much in the quarter because this mix effect, we have nothing alarming and nothing structural that we see at this stage on this. On SR2, the question about sustainability of shares. First of all, our strategy is to say, in this way too oversupplied market, we are very selective. So our approach is we want to extract the value for our technology in this segment rather than chasing market share. But to answer specifically to your questions, at this stage, we -- there are some -- we are not able to supply all the demand that is happening. However, we don't think we are losing structural market share. The main share that we lose today in the SR2 is due to the country mix, what I was explaining you between China and the rest of the world. So we are not alarmed by this at this stage.

[Operator]

Next question from Giulio Pescatore from Exane.

[Giulio Arualdo Pescatore, Research Analyst]

So the first one on the logistic cost. I mean, could you help us quantify how much impact are you -- is built into your EUR 2.5 billion -- above EUR 2.5 billion guidance at this point? And are you seeing this impact accelerate? And if so, are you having to take some extra measures on cost to compensate for this unexpected headwind? And then a second question on the market share gains you mentioned for 18-inches and above. Maybe can you give us a bit more color on these market share gains. I mean were they particularly evident in Q1? And what are the drivers of this market share gains? Is it a higher share of electric vehicles or are you winning new customers? I mean, a bit more color on this would be much appreciated.

[Florent Menegaux]

Yes. So on the logistic costs, what I can tell you is that it is rising more that what we were anticipating beginning of the year. It will have 0 impact on our P&L towards the end of the year because, as I told you, our pricing policy is to make sure that we compensate. We have set this kind of cost that we cannot optimize. We are not going to change our transportation schemes or our maritime transportation scenario because here and there, there is some spot prices that are moving. Structurally, right now, there's a shortage of haulage whether in truck in -- for example, in North America, whether in maritime coming from Asia, it's mainly Asia towards Europe or North America. So we see that. And we have also, in terms of our logistics, because of the difficulty to find containers for natural rubber, we air ship natural rubber. That has -- air shipping is much more expensive than sea freight. So that's why -- but again, this will have -- seen from today, this will have no impact on our results guidance. As far as market share gains. The only thing I can precise to you is that today, last -- in 2020, 47% of our volumes in SR1 were in 18-inch plus. Now we are on a rhythm of 49%. So it is nicely and steadily increasing, and we sell more and more. And we are -- as we are growing globally our volume, this will give you an indication of what is the mix. Thank you.

[Operator]

Thank you. Next question from Edoardo Spina from HSBC.

[Edoardo Spina, Analyst of Automotive Research]

I have 2 quick questions. The first on price/mix net of raw materials. I understood from your earlier commentary that you expect the net price/mix of raw materials to be slightly negative in the first half and then positive in the second half. I just wanted to have confirmation of this, please. And the second question is on your targets for 2023. After that couple of weeks of your event, I just would find very helpful if you can comment on the EUR 3.3 billion SOI for 2023. My understanding is that, that is a floor target, meaning that you would like to deliver that and more. I just want to confirm that with you, if possible.

[Florent Menegaux]

Yes. So first of all, on price/mix, natural raw materials effect have stayed neutral in first H1 and slightly positive in H2, very simple. So not negative in H1 and slightly positive in H2. And the second thing is, yes, we confirm everything we have said to the Capital Market Day. And our target for 2023 has not changed, and we are working very hard towards that target.

[Operator]

There is no more question for the moment. [Operator Instructions] Next question from [indiscernible] from [ Equita ].

[Unknown Analyst]

Just a quick question. May I ask you which could be the ForEx impact on operating profit for the full year, if you estimate that figure? And the other question is on the drop-through of the price/mix on the operating profit of the 1Q, if you can give us just a bit more color on that figure.

[Florent Menegaux]

Okay. Thank you. Maybe, [ Edouard ], if you can answer to these 2 questions.

[Unknown Executive]

Yes, Florent. So the ForEx impact, as Florent mentioned, in the scenario is expected to be strongly negative. Now when we use the currency data end of March, we know that the impact of H2 should be softer than the H1 impact. Regarding the drop-through, the operating leverage, we consider that for the full year forecast, you can use a drop-through for the margin around EUR 110 million per point of growth.

[Operator]

Thank you. There is no more question. Mr. Menegaux, back to you for the conclusion.

[Florent Menegaux]

Very good. So thank you very much for your interest into Michelin. And we are in a better market environment than we were at the same time of the year last year. But we are still in a crisis environment, and it's very important that we all remember that it is very challenging right now in terms of steering this business in such an environment. But the Michelin fundamentals are very strong. And so thank you very much, and we will see you soon and hopefully towards the end of H1. Thank you very much.

[Operator]

Thank you. Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.