Compagnie Generale des Etablissements Michelin SCA

PAR:ML

Earnings Call Transcript 2018-Q3

[Jean-Dominique Senard]

Thank you very much. Good evening, everybody. I am here, as mentioned, with Florent, Yves Chapot and Marc Henry and the IR team to discuss with you the figures for the third quarter and give you some perspective for the end of the year. I really apologize for the inconvenience of this short notice. But given this, the studies that we have conducted on the market environment, we thought it was our clear duty to share with you some information not only on the Q3 but our perspective for the end of the year. I would like to recall the guidance that we had given the market for 2018. Remember, all of you, for volumes, we were announcing growth in line with the market. When it comes to operating income from recurring activities at constant exchange rates, we mentioned it would be above the one of 2017, and we also announced the structural free cash flow above EUR 1.1 billion. The message tonight is to revise downwards the market scenarios for 2018, and we will go in more detail for that. We want to refine the EBIT guidance and to confirm the structural free cash flow guidance. The third quarter net sales are clearly up on favorable prior-year comparatives, with a plus 3.4% price-mix-volume effect, as expected, in a weakening environment late in the period. This plus 3.4% price-mix-volume effect breaks down in a plus 2.9% volume and a plus 0.5% price-mix, which is very strong and in line with expectations. We clearly have to announce a downward revision of passenger car and truck markets. This is what we experienced with a substantial slowdown at the end of third quarter, and we expect that for the fourth quarter, basically, as you know, due to a drop in the passenger car OE market, in the 3 major markets, by the way, North America, United States, Europe and China. In China, we have clearly experienced a general slowdown in the country, in the truck and passenger car replacement market. During that time, we clearly privileged the effective management of the unit margin in passenger car and truck. We experienced some volume declines due to price increase to offset currency depreciations in emerging markets. That was the case notably in Turkey, Mexico, Russia, Argentina. But we enjoyed, on the other hand, sustained market share gains in passenger car and light truck beyond 18 inches and also in the specialty markets. We want today to refine the guidance around volumes and EBIT, and what we sent to you as a message is that we expect today a slight increase in volumes over the full year and an EBIT growth of at least EUR 200 million excluding currency effects. We have a competitiveness plan expected to offset inflation over the year and a net neutral price-mix/raw materials effect over the second half of the year. This compares with the annual progress of the operating results of Michelin in 2017, to which we add, of course, the contribution of Fenner. In other words, given the assumptions of today on foreign exchange impact on the full year and the scenario of growth that we will go into more details now, it means that the floor considered for our operating result on recurring activities would be at EUR 2,660,000,000. This is the floor and takes into account the assumptions that we just discussed. In the same time, we confirm clearly a strong structural free cash flow beyond EUR 1.1 billion. So at that stage, we will go in more detail. I will hand it over to Marc Henry. And then we will, at the end of the presentation, take all your questions. Feel free then to intervene. Marc, it's yours.

[Marc Henry, EVP & CFO]

Thank you, Jean-Dominique, and good evening to all of you. To precise slightly what Jean-Dominique has already said, of course, in passenger car and light truck, our global assumption for the year would be a market being between 0.5% and 0.7% versus 1.5%, 1.8% that we estimated earlier. This is, of course, linked to the OE sharp slowdown in global industry market, as mentioned by Jean-Dominique. You know that in Europe, due to WLTP norms, it was also accelerated. It's also in replacement market, the cooling demand in 16 and below tires while keeping some sustained growth in 18-inch and a slowdown that we experienced in the third quarter of the Chinese market very clearly. On top of that, as mentioned by Jean-Dominique, we passed on current -- I mean, high price hikes in front of the currency depreciation in those specific markets. And of course, this impacted the market but also our sales. Truck would be also touched by the Chinese uncertainties, where we used to think that truck could be in -- growing 0.5% to 1%. We think it will be more in the minus 1.5%, minus 2% linked to OE and RT markets, dampened by the slowing activities and demand in Asia, and I would say largely in China but also noticeable in other countries. As said also, there is still an interesting growth, slight growth in markets like Europe, North America and South America. And same impact on markets for currency depreciation. As also mentioned, our specialty tires remains with a market that is growing 6% to 7%, with probably a slight decrease of the OE market for ag tires. We have detailed also slightly our scenario. What to be said is typically that we see our net impacts of price-mix versus raw mat to be stable in the second half. So it's slightly better than what we said. We revised a bit our raw material assumption. But at the end, what is important to say is that we have a little bit better net impact on price-mix and raw mat. Our competitiveness plan would deliver a progress at the level of inflation. We will discuss that a bit later on as well. Currency, roughly minus EUR 218 million, and our standard effective tax rate as mentioned. Now let's get back to the 9-months sales. For the third quarter, we got I think that was a great performance, actually. And you know that globally, at the end of the third quarter, our volume went up 1%. Our price-mix was strong, up 2.2%. Change in scope of 0.7%, making a growth globally of about another -- by 3.9%, which is very good, reaching a EUR 17,036,000,000 dampened, of course, by the currency impact of EUR 819 million, reaching EUR 16,217,000,000. If we go in details for the Q3, I think Q3 was very good once more because volume went up 2.9%. The price-mix was positive 0.5%, and I think it's slightly better than expected. And the change of scope in consolidation linked to Fenner, of course, 3.4% on the quarter, meaning a 6.8% increase of our turnover outside currency impacts. So we reached then EUR 5,699,000,000, out of which minus EUR 84 million due to currency effect reaching EUR 5,615,000,000. To be noticed, of course, the price-mix that is positive, where the mix is 1%; and price, slightly negative of 0.5% which is, as we mentioned many times, linked to the raw material clauses effect, specifically on OE and mining. When you look to the firm in over the quarters on Slide 8, you can see how important is the growth. I would like to highlight specifically that if you compare to 2016, so excluding all the effects linked to the price increases of 2017, roughly in Q1 versus Q1 2016 is a 5% growth; in Q2, a 2.6% growth; in Q3, 3.9% growth. So the group is in a growth mode, as you can see, with a price-mix that is very strong, as detailed in this slide. On Slide 9, we -- you have a short summary of the passenger, the first sector, second sector and third sector. Maybe to precise a little bit in the first sector, net sales reaching EUR 8,332,000,000, out of which the currency impacts 5% negatively. The perimeter impacts 2% negatively, linked to the TCi that is now a JV -- in a JV with SCOA, as you know, and the volume price-mix of plus 1%. For the second sector, the currency impacts negatively 5%. Volume price-mix, up 2%. And the third sector, currency impacts negatively by minus 6%. Perimeter, linked to Fenner, of course, plus 10%. And volume price-mix, up 11%. In detail, in Slide 10, you can see that we are continuing in the same trend as half -- midyear to grow our 18 inches above volumes, slightly above the market this year. And it's, of course, showing that our customer are valuing our MICHELIN brands very clearly. And same thing, we could -- you could see that the mining tire markets are continuing to generate growth for Michelin and will continue to generate growth in the 7% range next year. Fenner integration is proceeding as planned. We do confirm that we should reach GBP 60 million of synergies by end of 2021. And I would say, today, we are putting in place those synergies with a very good, I would say, spirit, between the 2 companies. We want also to confirm our competitiveness plan of EUR 1.2 billion savings over the 2017-2020 period. And maybe just to go into a bit more detail. As you know, that the first half, we had a negative EUR 42 million impact on our bottom line. We will have a positive H2 impact estimated around EUR 40 million. Despite the slowdown in demand, you all know that, of course, in our plans, it's much easier to extract competitivity when you are in a fast -- I mean, a growing mode than when you are in a slightly flattish period, which is what we globally experienced at Michelin. Second, I think we need to mention that we experienced this year, and it will not be the same thing every year, a stronger inflation on energy and logistics costs, which are linked to energy also, for around EUR 40 million, so which means that outside of this increase of -- we would have stabilized, I would say, our inflation at around EUR 250 million. When you look at what we see -- foresee for the years 2019 and '20, we should be able to extract a positive impact on competitiveness versus inflation. Maybe to give you a little bit of a preliminary 2019 scenario, just to give you an idea of the passenger car and light truck. We feel could grow about 1.5%, so better than this year, of course, which was a low par, with the 18 inch and above growing at least 10% due to, in particular, a slight upturn of the Chinese replacement market that we see coming. Trucks would be around 0, linked also to China, and specialty is growing still at a nice level of 4% to 5%. We -- as I mentioned, we would continue to have this faster deployment of the competitiveness plan, a bit like we did it in the second half, of course. And we remind you that around EUR 150 million of additional EBIT would be done through Fenner and Camso, including the first synergies, of course. Our currency at that stage are expected to be slightly favorable, but I think it may change quite a bit during the next year. As a reminder, we'd like to remind you that one of the very strong performance of Michelin remains is a strong structural free cash flow that we will deliver in 2018 and continue to deliver to reach our '20 targets. Thank you very much. And now with all the team here, we are ready to answer all your questions.

[Jean-Dominique Senard]

Thank you, Marc. So maybe we can pass the floor to the lines, and please feel free.

[Operator]

[Operator Instructions] We have the first question from Mr. Kai Mueller from Bank of America Merrill Lynch.

[Kai Alexander Mueller, Associate and Analyst]

Maybe the first one is, can you just clarify a little bit how this deterioration happened throughout the third quarter? Because obviously, you come out today, you said it was in late Q3 where you've seen the volumes significantly impacted. And can you give us a little bit of sense of what's sort of your real underlying assumptions are for China and the other regions going into Q4 in terms of volumes?

[Jean-Dominique Senard]

Okay. In general, the signals that we got date back to late September. I would say the second half of September, which is rather recent. We -- in front of these signals, we were sort of decided to undertake a few studies to go in depth to understand what the market was really, I would say, incurring. And this is why we are today speaking to you because the prospect for the fourth quarter, the results -- or the results that we got, the studies that we have conducted. So perhaps, into more detail, maybe you would like to take over. But again, the signals for us have been extremely recent and really occurring at the end of the third quarter. Those would be at the end of September.

[Marc Henry, EVP & CFO]

Yes. And maybe to give you an insight. We -- if we were to look at the September -- the first half of the month, we expected a growth in September versus last year because the regional sales clearly above last year, and we saw a clear stop in second half. At the end, I would say our September month was close to last year, or slightly below, I'd say. So that's what we saw. Second, I would say for what we see in the Q4, if you compared to what we have till -- end of Q3 and what we foresee for the end of the year, we forecast, we think the market could be minus 0.5%, minus 0.6% in the third quarter -- in the last quarter for passenger car and probably minus 4%, minus 5% for truck in the last quarter. For specialty, it's very similar to the other -- to the rest of year, outside, as I mentioned, for the OE in ag, which is experiencing some slight decrease.

[Kai Alexander Mueller, Associate and Analyst]

Okay. You've singled out or you just specifically mentioned China. How much is China of that development? And how much are also other markets for you?

[Marc Henry, EVP & CFO]

China is a big part of it. I would say in passenger car, the 2 markets that have been hit is OE, and you know all the details. For example, in September, you can -- you know we give you also some figures. OE in Europe was minus 6%. OE in China, minus 7%. That's the point. In -- globally in China, we have minus 7%, as I said. And in truck, what's interesting to notice, we are more in the minus 8%, 9% in China. This is linked also to an overbuoyant market last year linked to change of regulations. But we see also that in Southeast Asia, for example, some slowdown. So as I said, truck still remains positive in Europe, in North America, South America mainly through OE. And that's the figure that we released also today with the monthly figures, I mean. So it's -- last part of the truck is Asia.

[Jean-Dominique Senard]

That gives you the bulk of the details we are now publishing in the same time because we are giving you the markets so you can refer to the figures and details on the -- what have been published now by Michelin.

[Marc Henry, EVP & CFO]

Yes.

[Kai Alexander Mueller, Associate and Analyst]

May I have one quick follow-up? Just I know you don't talk about profitability at this stage. But if we think about the EBIT guidance refinement, how you say, or the downgrade, and you're saying you have a floor of now EUR 2.66 billion, do we need to think about the majority of this being in Q4 given that Q3 actually progressed well until mid-September?

[Marc Henry, EVP & CFO]

I mean, at the end, we publish the figures by -- on a half year. So you know that by giving you the EUR 2.66 billion, you know the half -- the minimum half year...

[Jean-Dominique Senard]

For the second half.

[Marc Henry, EVP & CFO]

For the second half. That's all.

[Jean-Dominique Senard]

That's it.

[Kai Alexander Mueller, Associate and Analyst]

Okay. I just wondered a bit more in Q4 than Q3. But okay, that's fine.

[Operator]

Next question from Raghav Gupta from Citigroup.

[Raghav Gupta-Chaudhary]

Just a follow-up on Kai's question there and on the impact on Q4 and also EBIT. When I look at the guidance, you're saying EUR 200 million at constant currency improvement in EBIT. That takes me to around EUR 2.942 billion. And when I look at Slide 5, you show net impact of price and raw materials as kind of essentially plus EUR 260 million. So implicitly, kind of you seem to be guiding to -- and when I also look at the 1% volume increase that you've seen in the first 9 months of the year, it looks like a quite negative expectation for the fourth quarter from a volume perspective. But you're saying it's only going to be down between 0.4% and 0.5%. What am I missing in terms of the EBIT bridge? I appreciate the wording of your guidance is at least EUR 200 million above last year at constant currency, but I just wanted to try and square that please.

[Marc Henry, EVP & CFO]

I think it's a -- you understand that globally, we are at 1% of volume growth end of Q3. We say a slight increase, so slight mean between 0 and 1%. So of course, we would see that probably -- at this stage today, we see probably a slightly negative growth in the fourth quarter.

[Jean-Dominique Senard]

Yes. I'm afraid that it's difficult for us, as you can imagine, to go into more details. But I think we try to, as I said, to refine the guidance because it's a very positive result. By the way, you made your calculations up to EUR 2.942 billion. That's your calculation. But if that is the case, it is an incredibly high result for the group for the year, and I need just to mention that. So -- but I'm sorry. I'm afraid we can't go beyond what Marc Henry just gave you in terms of details. We're trying to refine it as -- refine it.

[Marc Henry, EVP & CFO]

Yes. You have the net price-mix on raw mat that you know. We said that the -- of course, the competitiveness versus inflation. You need to think of the fact that, of course, we have an increase of depreciation each year, about EUR 50 million. Don't forget that. And so all in all, you should find your way.

[Raghav Gupta-Chaudhary]

Okay. Fine. And I'll have a look at that. And just on SL1 volumes. Can you remind us what proportion of SL1 is greater than 18-inch and above? And then a follow-on from that, what's the margin differential between those tires and those that are less than 18 inches, please?

[Jean-Dominique Senard]

Yves Chapot will take the points.

[Yves Chapot, President]

Yes, 18-inch and above, original equipment and replacement represents around 36% of our total volumes.

[Raghav Gupta-Chaudhary]

And in replacement, if you can give that?

[Yves Chapot, President]

Is this the number that...

[Marc Henry, EVP & CFO]

It's a mixture of OE and RT. Of course, you can imagine that OE is a -- has a higher ratio. We said roughly above 50%. And RT is, of course, at the lower ratio.

[Jean-Dominique Senard]

And that will change over time, of course.

[Marc Henry, EVP & CFO]

Of course.

[Raghav Gupta-Chaudhary]

And, sorry, I thought you said, 36%. Just in the, pardon me, for the 36%...

[Marc Henry, EVP & CFO]

No. 36% is the average OE and RT for 2017, actually. And globally, you can think that OE is above -- overall 50%, between 50% and 60%, actually. And that RT is, of course, below.

[Raghav Gupta-Chaudhary]

Understood. And the margin differential, if I may try?

[Marc Henry, EVP & CFO]

Between what? OE and RT?

[Raghav Gupta-Chaudhary]

No, no, no. Between 18 inch and above and those that are less than 18 inch.

[Marc Henry, EVP & CFO]

We told you many times that the 14 inch is a few euro per tire, and the 24 inch is probably something around 100 or something. So that -- you have a vast variety of margin, as you know.

[Operator]

Next question from Thomas Besson from Kepler Cheuvreux.

[Thomas Besson, Head of Automobile Sector]

It's Thomas Besson. I have 3 quick questions, please. Firstly, on your decision to speak tonight, I'd like you to explain us really why you decided that. Because practically, you keep your guidance and the market overall will punish your share price because it's going to be viewed as a profit warning while it's not. But -- so I'd like to understand why you communicate tonight rather than, as planned, Monday evening? Even if I understand completely that you have perceived weakening market development since mid-September, I would say almost like every player exposed directly or indirectly to the automotive industry. That's the first.

[Jean-Dominique Senard]

Okay. I will answer that point. It's very clear. It's all about regulations. I'm sorry to tell you that we are totally constrained to give this information to the market because the current regulations impose us as soon as we have very clear views on what has to be seen in the coming months to disclose that to the market. So I would have -- sorry. I apologize on the short notice. And again, I would have really done it differently if that was possible, but the regulations constrains us to do so. And I'm awfully sorry, but that's what we had to, do and there's no other answer.

[Thomas Besson, Head of Automobile Sector]

Okay. That was not for the short notice, more for the perception given that the guidance is guiding that [ for it all ].

[Jean-Dominique Senard]

Well, if your perception is what it is. If you say so, the market will understand it exactly the same way. I mean, it is exactly what we want to sell -- to send as a message to the community here. There is no alarm. There is no issue. The guidance is what it is. We just refined it because there are some questions in the market today about what's happening in the volumes. We have this view. We published tonight the volumes on the different markets, and so we said we have to have a global conversation with you. It was clearly, I will say, constrained due to regulations. And by the way, the -- obviously, in the past weeks, we noticed that the consensus in the market was very, very high. And despite all the messages that we could send, nobody was really changing in the market. So at some point, it's our duty to just send the message that honestly, the consensus was not at a reasonable level given what we see today. So I mean, it's perhaps excess of transparency. But I'd rather do it that way, and that's why I'm here in front of you discussing the matter with all my team because I think it's my duty to do so. There is no alarm, no warning, nothing. If the market sees it differently, well, I guess the market will react very soon positively.

[Thomas Besson, Head of Automobile Sector]

Okay. Clear. Can you confirm the timing of the Camso production, is still for some time in November?

[Jean-Dominique Senard]

Yes. Well, the legal aspects are being run through today in the different countries on the currency -- I would say, the antitrust regulations. And we think it would...

[Marc Henry, EVP & CFO]

Middle of December.

[Jean-Dominique Senard]

Middle of December. Yes, right. That's what we have in mind today. We will have it full speed for the whole year.

[Marc Henry, EVP & CFO]

Next year.

[Jean-Dominique Senard]

In 2019, yes.

[Thomas Besson, Head of Automobile Sector]

Last question. And apologies in advance for that one. You are going to be at 0 on your net cost savings. So slightly below the hoped achievement. But you seem to be comfortable with the idea that we'll at 50 plus in the next couple of years. So does it implicitly suggest that you're going to get back into some [ planned cohorts ] in 2019, 2020? Or are you assuming a more favorable environment in terms of top line growth that will allow you to have better cost saving?

[Marc Henry, EVP & CFO]

So maybe just to remind you that what has been -- we will be, at the end of this year, very close to our EUR 300 million a year, as you see on the screen, on Slide, I think it's 13. What has been a bit more hitting us this year and was not expected is, of course, an increase of energy and logistics costs, about EUR 40 million this year. So basically, our action plans are just delivering. But inflation was a bit higher due to those, just 2 events. Most probably, energy costs will not continue to rise and double next year. So the inflation will be lowered. And with our plans, of course, we should be able to generate, again, a positive in 2019 and 2020, as we mentioned it on the Slide 13.

[Florent Menegaux, General Managing Partner]

So -- and maybe to pursue on Marc's comment. We also have been caught by surprise by this sudden and brutal market decline in some part of the world, and therefore, it take us some time to adjust our factory set-up. And for that, we will not be caught by surprise early next year. But we -- for us, we have the time to adjust by the end of the quarter 4, and then -- that would not be the case for next year. But if that is -- the situation in the market has also sent us a very strong wake-up call in the organization to remind us that competitivity would absolute be crucial in any case to protect us against adverse market conditions, and therefore, we are putting -- we are reenergizing if we need be our actions in that sector, and you will not be surprised of our commitment towards competitivity in the months to come.

[Thomas Besson, Head of Automobile Sector]

Okay. Just to follow-up, to finish, if I may. If the EUR 500 million inflation ends up being more than EUR 600 million, are we going to see a net positive from competitiveness in 2019, 2020, please?

[Marc Henry, EVP & CFO]

Yes, yes. That's what you see, Thomas, on Slide 13. I mentioned it just 2 minutes ago. You have the positive effect, it's linked to the fact that we foresee the inflation on energy and logistics not being there forever. It's clear, in energy, you cannot -- with a slowdown of the global world activity, you can make whatever forecast of pricing for it. But globally, we -- I do not expect -- we do not expect it to continue to grow next year. It will remain high but not continuing to grow. So that would be -- would generate in comparison, of course, a positive effect because you have not this energy inflation that we see today.

[Thomas Besson, Head of Automobile Sector]

So maybe I should say it differently. If inflation continues and it's higher than you think, is the plan to generate a net cost savings of EUR 50 million per annum or more? Or would you accelerate the competitiveness? That's the question, Marc.

[Jean-Dominique Senard]

Yes, I think the answer was very clear in Florent's wording. We are going -- but let me be very clear. I mean, don't worry about that. I think Florent was extremely clear and transparent on that.

[Operator]

Next question from Henning Cosman from HSBC.

[Henning Cosman, Analyst]

I'm looking at your press release from the 13th of September, and you're saying you had reviewed the main external factors. And you're also addressing the slowdown in the Chinese market, but you're saying that would be offset by a stronger European market. So I just want to come back again to what's changed as compared to a month ago? I understand you were saying there was a sudden decline. But equally, it sounds like you had already identified the sharp slowdown in China as of the 13th of December. So it seems like incrementally, the slowdown has occurred in Europe. Is that a wrong interpretation? Or what's exactly changed and where mostly, in your mind?

[Florent Menegaux, General Managing Partner]

Yes. It's a correct interpretation. It's kind of a domino effect, especially in the OE market. As you know, Europe was exporting also toward North America and China. And the Chinese situation, not improving, has had a repercussion on the European market. On top of that, it was difficult for us in the beginning of September to assess what was the big stocking effect that happened in the Europe end market due to the change in the regulation in the WLTP regulation, and it was actually much more stocking effect due to that regulation. And you know it's stopped -- it was enforced by the 1st of September, and we have seen in the numbers happening, and big manufacturers in Europe slowing down very sharply in September towards the end of the month, which we could not truly assess at that time. The magnitude was difficult to assess.

[Henning Cosman, Analyst]

Okay. I understand. Yes, I understand. Please, can we, maybe on a positive note, discuss a potential -- well, I always think there's a bit of discrepancy between your 2020 free cash flow guidance and the 2020 EBIT guidance. Would you mind reminding us again why the free cash flow seems maybe a bit more conservative than the EBIT guidance? If you were to make a walk down, I think you could end up with quite a bit more free cash flow. Can you remind us why you might be more conservative on the free cash flow?

[Marc Henry, EVP & CFO]

First of all, I'll remind you that the free cash flow is in absolute value whatever currency is because it's very difficult to explain the -- in part, the exchange rate effect in working capital. So we put an absolute value in free cash flow, whatever happens, I would say. Of course, our -- when you look to our EBIT bridge, of course, markets are key. They are determinant into, of course, the bottom line. And second, of course, exchange rate effects in the EBIT bridge, we have a relative guidance, a relative vision of what could be our operating results at the end of 2020. For the free cash flow, we have to put an absolute value. So of course, you understand why there is a difference between the 2. It's just coming from those 2 points.

[Henning Cosman, Analyst]

Okay. Great. And then maybe finally, just on the specialty division. I think 3 or 4 conference calls ago, Jean-Dominique had said he could imagine the profitability in the business to go back to what's peak relatively soon. Would you mind giving us an update on that?

[Marc Henry, EVP & CFO]

With Fenner and Camso, it won't be difficult.

[Henning Cosman, Analyst]

And in constant parameter?

[Marc Henry, EVP & CFO]

Because they will be all put in the subsector. So -- but you -- we can certainly see that with the half year, Fenner, of this year, we'll be stopping to be close to this expectation probably.

[Jean-Dominique Senard]

I was probably in a very good mood that day, but I can't recall exactly the wording. But okay, I admit that probably I said that. But anyway, it's very, very high globally. I can tell you. And it's an exceptional performance of Michelin in this domain. And by the way, by reinforcing it, it is the way Marc said, we are really heading for a brilliant future there. So we're extremely confident on that.

[Marc Henry, EVP & CFO]

Let's remember our volume growth in the subsector for the tire, as far as tires are concerned, is plus 9%. So I think it just highlights the potential of this division in the future. Because let's remind us that when we went through the downturn, a lot of the downturn was linked to our mining customers who had a lot of inventory, has started to, of course, make inventory drawdowns, and needed less tires. I can assure you that with a very good vision and visibility that we have on our -- with -- on the inventory of our mining customers that we share together to have a lean supply chain, I would say, there is absolutely no inventory buildup at that moment. And that every tire that we produce is quite quickly mounted on a truck. So we will not experience those reduction of volumes linked to inventory drawdown in the mining activity, which I think is good. And you have certainly noticed also that in August, we announced that we produced again in our -- in the shop and the plants that we have in the North America, doing mining tires. And this will, of course, allow us to experience a nice growth next year.

[Jean-Dominique Senard]

Right. And then when, again, I think of up to -- you mentioned at the beginning of your questions, well, given the global figure we have now in mind with Fenner, I think my statement would probably be close to be right. So we'll see that.

[Henning Cosman, Analyst]

And nice growth implies that in your mind, you'll be outperforming the specialty with the market growth that you've put on Slide 14 of 4% to 5%. Do you think you'll be above that, right?

[Jean-Dominique Senard]

Yes, absolutely clear.

[Operator]

Next question from Ashik Kurian from Jefferies.

[Ashik Kurian, Equity Analyst]

I've got 2 clarifications and 1 question. First is the EUR 2.66 billion floor that you mentioned. Does that include the EUR 40 million from Fenner?

[Marc Henry, EVP & CFO]

Yes. Yes, it does.

[Jean-Dominique Senard]

Yes.

[Ashik Kurian, Equity Analyst]

Okay. And then on your volume guidance, just slightly though, just to confirm. You're saying your Q4 volumes would imply it's down 3%, right? That is the floor that you have at the group level for fourth quarter volumes?

[Marc Henry, EVP & CFO]

No, I said that we would be end of -- at the end of the year, between 0 and 1%. So that mean a volume that would be between minus 1.5% and minus 1%, something like that in the fourth quarter.

[Ashik Kurian, Equity Analyst]

Okay. Sorry I didn't hear that properly before. And the question is, though you've kind of given us a bit of a volume outlook on 2019, what the cost savings would be. Any initial thoughts on what the pricing for 2019 could be because you probably see a raw material headwind and on-spot rates for '19, I know there's price increases announced in the U.S. and also with emerging markets. But what is the likelihood -- or is there any scope to increase prices in Europe given the tough backdrop of -- could we see another year that's maybe negative price raw materials scenario in '19?

[Florent Menegaux, General Managing Partner]

We have to very clear that we have said to you several times that, we will privilege margin per unit, and even if it's at the expense of some volume. But -- so we've done that in the countries where we had a very strong decrease in the currency in those markets. But we also see the evolution of raw materials, and you will see that we are -- we will be very active on the -- keeping our promise on strengthening our margin by unit.

[Operator]

[Operator Instructions] We have a new question from Mr. Pierre-Yves Quéméner from MainFirst.

[Pierre-Yves Quéméner]

Pierre-Yves Quéméner of MainFirst speaking. Just 2 follow-ups on what has been said, to be very clear. Just, just a quick one on this one, will you be in line with the market next year? This is your goal, your intention despite the fact that you need to protect your per unit margin? Do you intend to grow in line with the market?

[Marc Henry, EVP & CFO]

Of course, that's the intention.

[Pierre-Yves Quéméner]

Okay. Because some of your other competitors have also protected margins, protecting margins, but that come at the expense of volume, and then they can -- significantly underperform. So that's a good point.

[Jean-Dominique Senard]

Yes. But you know the specifics of Michelin, that we are exactly strategically aligned with what's happening in the market today. And by the way, we now have in the passenger car business the capacities that we can implement in the large-sized tires, which we did not have in the past year. So now it's paying off. So we are much more optimistic on that as we can be.

[Marc Henry, EVP & CFO]

And let's remember also, with the MICHELIN brand, we have the chance to experience a brand that is extremely well recognized by our consumers and customers. You would see in the presentation, there is an insight about it in China, for example. This, of course, is why our customers are attached, linked to our MICHELIN products. And so at the end, it's a good protection for us due to the image of the brand, the will -- the pull effect that we call, the will of our consumer to buy MICHELIN tires, specifically in 18-inch and above. That's what creates the volume and our growth in this area. So that's something that we enjoy, and we are probably the only one to enjoy.

[Pierre-Yves Quéméner]

Okay. So that's good to know. Another -- just a quick one, once again, on raw material and pricing. My understanding is that you might have already implemented price increases in September, not necessarily on raw mat, raw material, but to offset some melting currencies. Am I right to think that way?

[Marc Henry, EVP & CFO]

Yes, yes.

[Jean-Dominique Senard]

Oh, you are absolutely right. We went through dramatic price increases in some countries like Turkey, Argentina and Mexico. So they are absolutely clear, and we reacted very quickly.

[Pierre-Yves Quéméner]

Okay. And going into '19 now to finish up with. I suspect that there could be some raw mat inflation into 2019 given recent development on butadiene, et cetera, though natural rubber is going down. Do we have to compute something negative in to respect, the growth headwind?

[Marc Henry, EVP & CFO]

You would have probably to expect that the butadiene and the oil price will have an impact on both styrene butadiene rubber, so synthetic rubber and carbon black. So yes, there will be some specifically in -- I would say probably more in passenger car and agricultural products. The impact will be probably slightly higher than in other kind of products that are more using natural rubber, as you said. So that's it.

[Operator]

And now the last question from Mr. Edoardo Spina from Exane.

[Edoardo Spina, Analyst of Automotive & Financial Analyst]

It's about price and raw materials. We can see that the guidance for raw materials is a bit worse for the second half, so higher prices, let's say. Should we anticipate that you can increase prices in Europe, in U.S. and maybe that's also going to drive some market restocking from the dealers? Is that the correct way of thinking for the next few quarters?

[Florent Menegaux, General Managing Partner]

I think I can only repeat what I've said, which is we are there to make sure that our margins are unitized -- in line with our expectation. I think -- I don't think we can give more detail than that.

[Jean-Dominique Senard]

So that means that we will take every action necessary to make sure that, that happens. So I mean, you can be absolutely sure, we will be doing that for months and months now. I mean, you know our philosophy behind that. We never change. So I think take the clear conclusion that everything will be done.

[Edoardo Spina, Analyst of Automotive & Financial Analyst]

Okay. No, no. That's understood. Maybe you can follow up very quickly. It's about -- let's say if there is any impact on the level of stocks of the dealers because I -- if you can confirm if the volatility in the price of tires maybe puts pressure on the inventories and maybe that creates some volatility in the volume, can we correlate the price with the volumes at all at this stage? Or is it wrong?

[Marc Henry, EVP & CFO]

No, Edoardo, I don't think so. I mean, what we've seen clearly, and we mentioned it to you already, that in China, there has been a decrease of inventory, that's very clear, linked to probably uncertainties at dealers who were wondering what the economy would go and so forth and so forth. As I said, we do not see any inventory buildup in mining. We do not see any inventory buildup in most regions. Honestly, it's not the case because I think this are getting included. And let's be honest, also, supply chain for tire manufacturers is much better. I mean, they don't need to get high inventory to cope for deficiencies of the supply chain of the tire manufacturers. So let's -- I think there is a slight reduction in inventory more than any kind of inventory buildup at that stage.

[Jean-Dominique Senard]

Well, thank you very much, all of you, and thank you for having been on the line on such a short notice. We really appreciate. And I think you -- the takeaway of this call is that clearly, we are in good shape. We have given you some information so that you'll be able to refine your calculations and the prospects, and I hope that was helpful. So at that stage, I would like to thank you again and say bye-bye.