Compagnie Generale des Etablissements Michelin SCA
PAR:ML
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
Abbvie Inc
NYSE:ABBV
|
Biotechnology
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Realty Income Corp
NYSE:O
|
Real Estate
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
27.28
38.37
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
Abbvie Inc
NYSE:ABBV
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Realty Income Corp
NYSE:O
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Compagnie Generale des Etablissements Michelin SCA
You don't have any saved screeners yet
Ladies and gentlemen, thank you very much for being here with us tonight. I am happy to welcome you for these full year 2018 results of Michelin.
As a matter of introduction, I'd like to say a few words to express that Michelin has enjoyed a very strong improvement of its operating results in 2018 that is an increase of 11% at constant exchange rates, in a context clearly that has been characterized by a drop on demand in China and a drop in demand of the global original equipment markets. This performance clearly confirms the Group's strategy that relies on the brand's presence in all segments of the tire market.
This year, for example, you will see that the truck and specialty activities have particularly contributed to our results. In 2018, we have confirmed this strategy through acquisitions that have clearly reinforced the Group's position throughout the world. For example and notably, the broadening and enlargement of our access to the North American market through the joint venture TBC with Sumitomo. The broadening of our product and service offers in the specialty domain with Camso and the expansion of our knowhow, thanks to the integration of the Fenner Group. In a market environment which will remain challenging in 2019, this strategy will certainly allow us to continue to improve Michelin results.
When it comes to the details on which Marc Henry will come back a bit later, just to mention that level of the segment operating income, which is the new word, a new name for operating income from recurring activities, is at the level of €2,775 million, up a very strong €304 million, at constant exchange rates clearly. Another point also is the free cash flow, very high level of structural free cash flow, close to €1.3 billion.
We will go in more details when it comes to the markets and the growth, but maybe I would like to mention again that the Truck tire sales in the second half has enjoyed a rebound. And the market share gains in the upper segment of the tire business has been strong for Michelin this year. We will see that the price-mix/raw materials effect added close to €300 million to the results, €286 to be very precise. And it confirms what we have always mentioned to you, the strong disciplined price management of the Group and a very strong positive mix. Also good news, the competitiveness drive stepped up in the second half. There were questions in the first half, we caught up in the second half, and at the end of the day, we were able to totally offset the higher cost of inflation.
Structural cash flow, as I said, is really clearly sustaining improvements of the past years. It means that we are now in a constant progress path. And to totally follow, we will recommend 2018 dividend of a level €3.70 per share, which represents a payout ratio of 36.4%.
Maybe just a look at what happened in the two periods of this year. At the end of the first half, volumes were really moderate, to say the least, but the price mix was strong, reflecting clearly the impact of price increases that we were able to pass through in the market in the previous periods. And in the second half, we noticed that the price mix remained robust, given the period of time we are talking about, and the volumes came up, which means that the Group was able to react strongly, notably in the last part of the year, which was reflection of the very-strong ability of the Michelin Group to react in certain circumstances of the market. Again, competitive gains have matched the inflation, absolutely equal figures, seems by chance, but it's not. And the segment operating income has been strong in the second half of the year, which at the end of the day will bring us up €304 million at constant exchange rate, which is a brilliant result.
Perhaps before I hand it over to the team -- I will come back of course for all the questions with have everybody here, just to mention that we are very proud at Michelin to really feel as a leader in sustainable development and mobility. It’s not a surprise to you I guess, but the few examples that you see on this chart, reflect exact what we are. Not only are the employees of Michelin proud and happy to work at Michelin but there are good reasons for that in their mind, because they say it so. Not only are we recognized Carbon Disclosure Project, we are in the A List now in 2018, but we also -- to able to launch tremendous projects like sustainable natural rubber platform, which I think is a pure example of what has to be done in our business. And of course, you won’t be surprised if I still insist on the -- circulating on this strategy, and of course our leadership in the performance over time concept, which I think is something absolutely key and strategic for Michelin.
Well, having said that, ladies and gentlemen, I'd be happy to hand it over to Marc Henry, who will go in more details notably on the financials of the year, and then hand it over to Florent for the guidance, which I think seems quite natural. And I will come back afterwards of course for all the questions. Thank you very much.
Good afternoon.
So, let's go through this quite nice performance of an increase of €304 million at constant exchange rate of our segment operating income. First thing of course, as usual, our markets in 2018 have been so helpful, I would say with the sharp slowdown in Passenger car and Truck tire in H2, and of course the sustain growth in Specialty. For Passenger car, you of course, notice on the graph that we had a drop in the second half, specifically linked to the OE shop slowdown globally, of course, very strongly in China, clearly in Europe, and to a lesser extent in North America that was more in the first half of the year. In the meantime, a cooling demand in 16-inch and below tires, and a sustained growth 10% -- 9%, sorry for 18-inch and above tires. Chinese market slowed down, of course, clearly.
When you look to track, there are lot of similarities in a way. OE was very strong, but outside of that, there was a dampening along the year, mainly slowing down demand in Asia and in particular in China. Meanwhile, there was a strong demand in North America, linked by the fleet needs to renew their truck parts -- truck feet linked to the shortage of drivers. In Passenger car and Truck of course, the markets were shopping impacted by the weakening of some occurrences, mainly Turkey, Brazil, Argentina, Russia and so on, which of course had a negative impact on markets.
On the contrary, Specialty enjoyed the strong 6% growth, of course pulled by mining tires whether the demand was up 10%. We’ll go in a bit detail later on. Off-road tire early was up quite strong, specifically in construction, slowing down in agricultural in H2. And two-wheel and aircraft were still strong.
What is to be noticed is that our strategy which is to be -- have an accelerated presence around the world, and you can see the ratio between Europe 39% of our sales; North America including Mexico, 35%; the rest of the world, 26%. And in the meantime, to be present on all segments and all tire and services application around the world, of course, it's giving for us kind of a material hedge on our bottom line because of course we are able to take advantage of increasing parts of the markets while some may be decreasing. This year is a perfect example of the fact that our strategy is working and is working extremely well.
Now, back to numbers. Sales are up 4.1% excluding ForEx, supported by the group expansion. Of course, external growth, up €267 million; organic growth, €195 million; and of course, a very strong price mix of 2%, bringing us €444 million, while the currency impact is quite strong negative €838 million that you know of, of course linked to mainly the USD impact of last year's second half. And this year on top of that the currency of some of the market I was mentioning.
When you look at this through quarters, of course, it's important to see that our last quarter, despite quite strong comparables in Q4 last year, was positive, while the markets were in a difficult situation for Passenger car, as we said, in China and in OE. These volumes were also better than anticipated inside the market that is really what we described back in October.
So, our performance was good in the fourth quarter volume wise. And in the same time, you can see that price mix was up averaging 1% during the second half, which means that the pricing in average for Michelin products was maintained as at the level that we reached in the second half of last year, which is a remarkable performance and of course which is bringing this price mix/raw mat advantage that we can see here on these figures with an operating result of segments up €304 millions, 11% at constant exchange rate. You can see that of course the main contributor is the price mix/raw mat, up €286 million, with a quite strong mix actually, €189 million, made as usual by the Passenger car replacement and OE product mix, 18-inch and above and so on, made also by somewhat positive OE-RT mix in the last quarter and of course a very positive third segment of Mining mix. Our volumes and the scope and the new country that we -- the new company that we consolidated brought €113 million. I think it's quite interesting to see the contribution in particular of Fenner inside those 56, which is up 63. And I'm very happy to tell you that the contribution of Fenner today is above what we felt we would get in our business, M&A business, which is quite remarkable and not very usual, I would say. So, thank you for that from our friends of Fenner.
Our competitiveness plan was equal to inflation, which was quite important, knowing that inflation grew €38 million versus last year. And then, we had also as in some years, some start-up cost. But, remember that we restarted again, for example, our small shop of ultra large tires in the U.S. and also our Mexican plant was -- is just on the verge of starting.
Of course, currency impact, €271 million negative linked to the currency I described. This is another way to show that in H2, we maintained our firm pricing. That's what you can see here, when you look -- just look at the price mix. This is format. Of course, we were absolutely flat in the second half, which is what of course we wanted to drive the business into and that's what we achieved. But, I think it's a clear also sign that we put a lot of efforts to drive our business with key of course levels that we share together.
Now, if we look at the sectors, Passenger car reached €11,341 million. You can see that if you compare the operating margin at constant exchange rates was stable, in a declining market. So, I would say, it's a good result. It was a large effort by the team to reach stable operating margin within declining market and somewhat declining volumes as well. The good news I think -- and that's for the 2018 would be really recognized as a B2B, I guess year is that Truck that came back and I think with very strong operating margin, at 9.7% when you exclude at constant exchange rate, which is of course 1.6 points above last year. And you know that there's a strong competition in the truck market and we are happy to see Truck being back in the 9 to 13% range of operating margin that we aim and of course the sub-sector reaching 20.2% at constant exchange rate of 19.6%, still a very strong operating margin and of course operating income, close to €1 billion, so probably next year I guess. So, this is I think a very good strength of Michelin, B2B business is bringing those results in the year as the B2C market is a bit weaker.
Nevertheless, in a weaker B2C market, the 18-inch and above grew 9%. So, you saw the market slightly negative and still the 18-inch and above growing 9%. So, that's where you need to be of course. And we overgrew the market by 1 point this year, which I think it's also very important to notice. Another little number, our 18-inch and above sales at the Michelin brand is 39% of our total sale at the Michelin brand in a market that is roughly19%. So, you can see how much Michelin [ph] is overrepresented as being of course a premium brand in this market. That's what you should expect and that's what we are.
Of course, we are the premium brand in sports and premium and luxury brands. To be clear, we've gained market share at every OEMs of premium and luxury of course car brands in 2018. And we have been awarded increasingly sales account in many of those accounts. So, this is something that is continuing to be seen.
In the second sectors, of course, the volumes were driven by product and services dynamic. I think in product, to mention the Michelin Agilis CrossClimate, so the light truck product that has been chosen by many fleets because it's for them finally something that they would -- will have to use to avoid to switch the tires for winter and summer. And that's something that has been highly recommended by many fleets. And of course, we see also deployment of our telematic solution, reaching 850,000 vehicles around the world, this telematic solution from Sascar being extended to the rest of South America to Mexico and to Europe.
One point that everybody is interested into is of course what's going in mining tire. It has been a very nice engine of growth of Michelin, where are we? First of all, I think what is very important to notice is that there is -- as we many time said, there's absolutely no over inventory by any customers as we speak. Actually, we try to deliver what they need, but it's not above what they need. So, you would not find any area with more than let's say four months of inventory. Second, of course, you can see with those curves that after an inventory drawdown, we enjoy the strong growth and now we are back to normal I would say growth rates between 4% and 5% as we mentioned, which would still be of course important. I think in this area, you can imagine that we overgrow the market somewhat.
As I said, Fenner was a success -- is a successful integration and our growth -- the growth is exceeding our business plan target, specifically in the conveyor belt solution but also in the order product. And I think it's just proving that this acquisition makes a lot of sense for the future of Michelin.
We also have developed a full package of connected tire solution in every tire range. You -- we just are coming from the mining, so you know that we have the system that allows us to do the maintenance and to help the mine to get the most of the what they can get out of their tires in the large mines, but we have also the launch of the Zen@Terra, which is a way to get the pressure increase or decrease versus where the tractor if it is in the fields or in the road, and so on and7 so on. We have large pallets of connected tire solutions, to mention also the Passenger car Track Connect, which has been the first system to be really marketed in the world for passenger.
Let's have a look on the competitiveness plan. I think, of course, we had the second half that was pretty strong with the positive between our gains versus installation of €42 millions. Of course, it was done with a lot of efforts from our industry teams. We knew that we would get more competitiveness done versus last year in the second half that was written, I would say in the way the second half of 2017 was done, but it was very, very good and at the expected level.
Second point, of course, remember that our SG&A was a bit -- competitiveness plan was a bit low. We gained €83 million at the end of the year, which is also very strong and linked with a very good management of course that we did specifically in the last part of the year.
Of course, this is exactly in line with our €1.2 billion competitiveness plan that we launched back in 2016, and which should deliver what is supposed to in 2020.
We also continued the effort to adapt the Michelin’s manufacturing footprint. Of course, with expansion of plant with Mexico one, expansion in Asia with our synthetic rubber plant in Indonesia, with also the acquisition of Multistrada in Indonesia, which we bring as some local Tier 2 Asian capacity that we were lacking, and we mentioned that many times with you, and same thing with some restructuring in Europe with the announcement of the UK Dundee plant closure by 2021.
We of course continue to invest to create value with -- one point I would like to say, we many times mentioned to you that we wanted to invest with reduction of costs of investment to create given capacity of tires. That's what you can see, the reduction that we have been able to put on our investment level is showing that. Of course, we will see some increase in a year to come, linked to the acquisition of Fenner and Camso.
Our free cash flow also -- structural free cash flow has been stronger and is growing also year-after-year. Remember, last year, we added a few points that were specific to 2015, some cash that were linked to 2016 that came only in 2017, and some payments that we made early 2018 linked to the fact that last year, the 31st of December was Sunday. So, at the end, if you correct that, you would have seen of course an increase of roughly €100 million in 2018 and some I would say, more nicest way to grow. But at the end, it's very clear that it's a growth year-after-year in our ability to generate cash flow. Of course, that's pretty important. That's why by the way you notice that with all those quite interesting acquisitions that we have been doing and debt that has been increasing by roughly €3 billion, rating agencies have kept the A minus rating for Michelin.
As far as cash is concerned, of course, we are on road to our 2020 objectives. They need to be corrected somewhat due to the IFRS 16 impact. You know that operational lease [ph] will have to be treated as a financial debt, meaning that our cash flow will grow by the amount of the operational lease that we have been experiencing. So, that's why roughly our free cash flow will be above what it is today by €150 million, plus some increase of course of objectives. So, that means that our free cash flow would be above €1,450 million, this year of course.
Last point, of course, value creation, which is strongly linked to the cash flow generation. Of course, we are in line with our 15% ROCE objective. Let's just remind you that the 15% ROCE objective was set up by Jean-Dominique before any kind of acquisition back in 2012, at a point where we had no goodwill. So, we expect -- and we had made the statement before of course. So, this objective is excluding goodwill from acquisitions. When you look at where we are today, 2018, we are at 14% because of course of the increase of bottom line of Michelin and because of, of course, the management of the corporate tax rate. Of course, it's coming from different area, the U.S. tax rate reduction, which is of course positive, but also the fact that our backbone investment that we have done back in 2011, 2012 in the U.S., in Brazil, in China are now bringing very positive results. And then our tax rate is positively of course impacted by the fact that we can eat I would say some different tax assets generated at that time.
So, I would say that we are well in line to reach our 2020 objective, I guess. And as mentioned by the Jean-Dominique also, our dividend would be proposed to the general assembly to be at the level up to €3.70 per share, payout ratio of 36.4%, which I think is a good way to thank our good shareholders. Thank you very much.
And now, it's to Florent.
Thank you, Marc.
We are clearly living now a very special moment. As you all know, these are the last results -- Michelin results for Jean-Dominique Senard. And in the Michelin team, we are very proud to leave those 2018 results, which are a very strong testimony to all the leadership of Jean-Dominique and very good health of our Company. So, to Jean-Dominique, all the Michelin team will say very strong thank you to you. And as you're going to see, 2019 guidance will be very similar to the 2018 guidance, which is a very resilient guidance and very strong and very positive for Michelin.
The first element is to say that 2018 has been witnessing a fast deployment of the Group strategy. We are convinced that our strategy is very relevant and it's very strong. And we see a lot of people starting to pay a lot of interest to what we are doing, internal strategy. And you can see here, many activities of the Group as undertaken in 2018 and 2019, I'm sure will be a very strong continuation of our strategy.
As far as the market environment for 2019, we still think the market will still be very volatile and uncertain. In Passenger and Light Truck we think we will enjoy a moderate growth, mainly due to still slowdown in the vehicle manufacturer market in China principally, which has rippling effect into Europe and to a lesser extent and moderate growth in North America.
For replacements, we think we will see a stable demand in mature markets and back to growth in China and emerging countries. As far as the mix effect in passenger car, which you know is very important to our results, we still foresee 20-inch plus and growing at very strong pace, 10% market growth.
In the commercial activities, truck activities, it will all depend on what will happen in the Chinese market. As you all know, the Chinese market is 50% of the worldwide market. And therefore, what happens in China has consequences on the worldwide market. We still think the demand will be strong in mature countries, but we still have a question mark for China. And that's why our forecast for the truck market is a slight decrease or moderate, very moderate growth for 2019. As far as the specialty markets are concerned, we still foresee growth in mining, off-road or two-wheel and aircraft. We still see growth in the market to the tune between 3% to 5%.
So, in this market environment, our scenario for 2019 is the following. We anticipate raw materials to slightly increasing cost for value for us of around €100 million. We anticipate the currency effect to be slightly positive, especially when you look at it compared to last year, because last year, beginning of the year, we had a very negative currency effect. We see our tax rate to continue to improve due to what Marc has mentioned. The net impact of changes in the price mix/raw material prices, as you know, we have very strict pricing discipline, all over the group, will be positive for next year and our competitiveness plan will pursue and as it has delivered in 2018, we think the competitiveness plan against inflation will be positive for 2019.
That leads to a guidance of volumes, we anticipate for 2019 the Michelin volume to grow in line with the market. We will follow strictly our pricing discipline, especially in this very volatile environment. It is, we think, crucial to our performance. Our segment operating income at constant exchange rate, excluding the benefit of the results of acquisitions would be above 2018. So, in this very volatile environment, it will be a very strong achievement. And we think Camso and Fenner will deliver €150 million of additional profit. And our structural free cash flow, as Marc mentioned, will be in excess of €1.4 billion, taking into consideration the new IFRS 16 regarding the way you [indiscernible]. That accounts for €150 million so you will have to make the adjustment. But that's also in line with our 2020 projection.
So, based on that, I will leave the floor now to Jean-Dominique by saying a very strong thank from the Michelin team to Jean-Dominique.
Thank you very much, Florent. Thank you for your kind words. Before we go to the Q&A session, I would just like to mention that nothing of that would have been possible without an incredibly strong team, without the incredible links that we had together, Florent and the rest of the team, Yves, Marc Henry and all the executive committee. I want to tell you that because this strong, genuine, transparent and loyal team, nothing would have been possible. So, thank you for that.
And now, if you wish so, I'll be more than happy to open the Q&A session. Understand there will be people in the room and on the line, and I would probably start in the room. So, ladies first, if you may.
[Foreign Language] You're adjusting your industrial footprint. There are closures in Europe. Are there closures in the UK linked to Brexit? And generally speaking, is it part of history to close European sites, so to be closer to the emerging markets?
Competitiveness issues of plant in Europe is a key question. We have always done our best to upgrade the plants in Europe, so that remains very competitive and strong industrial base. But, this also goes through some decisions, which are hard. And tough I can tell you, it's probably the most difficult decision a CEO has to take, when we have to decide that a plant can no longer be competitive because of the huge investments that it would need to power it in the future. So, at some point, you have to anticipate that and you have to treat people well. And this I think is what we have done in the last decision we took at Dundee.
Now, it's absolutely clear that again and again everything must be done to create competitiveness basis in Europe. And we will carry on in the future and are absolutely sure, Florent and the team will carry on this effort. It's not easy, it's not done, but we are going towards this situation. And I really hope that it will occur in a rather short future.
So, there we are. The investments that we are creating in other areas of the world are absolutely in this view to serve the local markets. If we do not do so, the cost of logistics and supply chain become just overwhelming. And we still have a tremendous effort within Michelin to get it right. The news is that there is strong potential. The only thing is that we need to move fast. And all the investments that we have been doing in our operations recently, follow two directions. One, in emerging countries new markets, create capacities, so that we can serve the markets and we still have road to go. New plants in Mexico, our plants in China, India, Brazil, all these new plants are now really ramping up very well. Our acquisitions by the way are bringing also some new capacities in Vietnam and Sri Lanka. That Camso and other activities through Fenner all across the globe.
Well then, that's the first move. We need to be very close to our markets and we need to grow to make sure we can follow these local markets. And when it comes to Europe, notably and mature countries like North America, when we have to invest to create the capacities for the high-value products, so that they can really be competitive in this area, this is what we are following, and we have followed four years I think for the good of everybody. Maybe Florent you would like to state something.
Just two comments. One is, the Dundee situation had nothing to do with the Brexit; and two is, we are still constant in our strategies, transcend west, develop east. So, this is what drives us.
Yes. You are absolutely right, Florent. I forgot to mention that the Brexit was just absolutely no -- not at all in the way of decision we made. It's absolutely clear.
And maybe in term of amount, we still invest a lot in Europe, you would be amazed to see the ratio, actually. I mean, we invest a lot in Europe and North America, in mature countries to maintain our plants and to develop the new products that need to be manufactured in those plants. So, it's not -- we are really investing a lot in those plants.
Thank you. Thomas?
Thank you, Jean-Dominique. It’s Thomas Besson at Kepler Cheuvreux. I have two topic please. The first one is acquisitions. Firstly, I'd like to have more details on the positive impact of acquisitions in H2, which suggests a much bigger impact for 2019, the €150 million you flag, if we consider the 60 plus for Fenner in H2 plus the synergies of everything together. And second, on this same topic of acquisitions, I'd like to get an update on your side in terms of whether there is a plan for further acquisitions or whether you're done now. I think, you executed four deals in 13 months. I think, we are all impacted by the figures Fenner, but we'd like to see a digestions of these acquisitions I guess.
The second point is the first two segments. So, I mean, Truck tire margins have been spectacular in the second half. So, I'd like to know if that's an indication for 2019 Truck tire margin or whether it was short-term gains from the implementation of the Chinese duties? And second, the Passenger car margins, I believe were a disappointing if we take into the account the fact that you deconsolidated some distribution. So, your margins particularly declined even with the like-for-like comparison, while your 18-inches interest plus volumes increased better than the market. So, what do you need to do to have higher passenger car margins in 2019. So, that's a lot of questions.
Yes, quite a few. I will just start and then of course I will hand it to Florent and Marc for the questions about 2019. I mean it's more relevant that they can answer these questions. When it comes to acquisitions, thank you for mentioning that we did rather big job in 2018, without forgetting that in the same time we reorganized the group index, which when you think of it, been an incredible performance from the teams. We reorganized Michelin, starting 1st January, 2018 in a way that is totally different than what it was before. And as a matter of fact, I think that the figures show that it proves success and that's going to push us forward in the future with certainty. When it comes to acquisitions, I won't come back on all the deals that we’ve made, never forget also the last one that was announced recently in Indonesia, which is going to be a brilliant development of the Group.
Well, yes, I mean as far as I'm concerned, I think we have done the big job. We have been very cautious about the financial structure of the Group moving on. And by the way, as Marc said, rating agencies maintained A minus for us, which I think is absolutely illustrative of what I just said. We will remain quite, I would say, pragmatic. But, it is true that we have some work to do to make sure that all these new acquisitions are properly integrated within Michelin. I'm not worried at all by the way, because as I said, the Camso team is honestly incredibly close to us. It has just joined us now because the acquisition was finalized at the end of last year, very last days. And the Fenner team is just brilliant and bringing yet higher results than what we had in the business planned at the time of acquisition, which is, as Marc Henry said, rather special situation. We look very positive for the future. And I will let perhaps Florent mention the case. And then, I will answer your other question on truck and bus...
Okay. So, the plan for further acquisition in 2019, so it is true that 2018 has been somewhat exceptional because a lot of acquisitions came to fruition. Sometimes, it takes several years for deal be concluded. And 2018, we've been very successful in concluding deals that were initiated sometimes earlier.
As far as 2019 is concerned, the Group is still very sound financially. And therefore, we have room to seize opportunities. Now, we have a very strong strategy. So, we will not go everywhere, as you've seen with Fenner, Camso, Multistrada and the other ones, they are perfect strategic fit. So, we have -- yes, we have a plan for 2019. We just have to make sure that we managerially succeed in our conclusion, in our acquisitions, integration, and then we probably will go forward. That's for that. And for synergies, maybe Marc can mention for the H2 performance.
Yes. But before he is there, I think you will understand that we are reasonable people and that Florent is as reasonable as I was. Just to make clear that it shouldn't change.
As far as synergy is concerned, of course, we have a detailed plan at Fenner after seven months or eight months now of working with the Fenner team to generate those synergies. So, they are till 2021 in the order flow [ph] what we have announced. Of course, we are starting to implement them in 2019. As far as the one of Camso, they are being worked right now. So, it’s still on paper, which is as we speak, but the teams are working together. So, I cannot commit for them. At the end, the €150 million, it's -- let's say that we would like to be in the over-delivering our results. So, let's say, it's a reasonable amount to take care in our objectives. And our goal is to over-deliver our objectives, as we tried to be doing over the years.
As far as Truck tire margins are concerned, very clear. We have a very quick strategy in a very oversupplied market. It’s pointless to chase volume at the expense of profitability. So, we have very strict pricing discipline in Truck tires that will continue for as long as this market environment is there. And it’s a very strong actually testimony of the quality of our product, because even in this very unbalanced market situation, we are still able to generate improved margins. And as far as Passenger car, Yves can...
Yes. As far as Passenger car is concerned, you have noticed that we have, in fact, the same operating margin in percentage for business in ForEx. And TCi deconsolidation has been pretty limited, because it concerns only the share -- the volumes of competitive brands sold by TCi. Regarding 2019, we have announced price increase, some have been implemented 1st of December in North America and in Europe, in other areas. We have announced the price increase to cover the [indiscernible] prices in January ‘19.
Anyway, the stability of operating margin is linked to the fact that marketing is below, of course, the volumes were slightly negative, and maintaining excluding currency impact, the operating is quite a good result in such an environment, I would say.
By the way, small details, the deconsolidation of the TC distribution business in the U.S., both dilutive and not relative [ph] maybe strange for you but that’s was the case, so it was not help, I would say. It was just the reverse.
I think we need to go on the line. I’ll come back to you. Don't worry, Gaetan, but there is a question on the line, and we need to just go back and forth. Please go ahead.
Yes. We have a question on the line from Raghav Gupta from Citigroup. Please go ahead sir.
Thank you. Good evening, gentlemen, when I look at slide 13 of the deck, it shows your market share gain slowing in the greater than or equal to 18-inch tire segment. Can you just talk a little bit about your expectations here in 2019 and beyond, please?
Yes, of course. Yves would like to speak about...
Actually, let's remember, we were neck-to-neck with the market in the first half and we are 2 points above in the second half. So, I would say the dynamic is there. And we were neck to neck in the first half because of last year when we got the price increases. If you remember, we had the extremely strong first quarter growth, selling growth in 18-inch above, if I remember correctly 35%. So, of course, it was needed to be swallowed in a comparison for the first half. So, I would say, let's see that our normal way of running in the second half, the 2 points above the market is what we are used to, and we should do that, at least that or better. It's also -- it has been reduced also because of the OE volumes reduction.
Yes. You're right, exactly. Gaetan, it's your turn.
Gaetan Toulemonde, Deutsche Bank. I want to come back on pricing. Some of your competitors last week mentioned some pricing pressure, especially mentioning Europe. So, can you update us a little bit on your view on that because you mentioned in your presentation price mix should be higher than raw materials, so it could be linked to the mix. So, can you give us an update on the pricing and the environment?
Yes. Our competitors are very active in term of prices and we are not, is very clear. So, we have said in this market environment, it is pointless to chase prices for volume, pointless. And by the way, our 2018 results show that.
Yes. I think the internal discipline within the Michelin will remain. This is one of the key of our management fulltime.
I have a second question is to put back last October conference call in prospective, in the end, your final result is approximately €100 million more, that's what you get it for. If we concentrate on the fourth quarter, it's approximately 15% higher. So, can you explain us a little bit, what surprised you positively over the last few months? I know that there's some division like the truck and buses which have done a little bit better. But, can you help us to have better idea on those numbers?
I'll give you a few clues, and then the team will complement. When we made the statement, and I was clearly accountable for that, it was absolutely necessary given the signals that we were having from the markets. And honestly, August and September were showing a situation where there was a risk that we would be heading south in some areas, and it was absolutely our responsibility to mention to the market that there was this reason. By the way, we mentioned it in a rather soft way, I may say. So, even though you may not have the same feeling as we have, but we were very moderate in the explanation or what could happen.
Now, I can tell you when that sort of situation arises, it is our view and mission that we just can’t sit there and wait for things to happen. We need to react. And this is what we did by the way. We reacted in every front. We -- our teams in sales have been incredibly powerful during that period of time, without I would say sacrificing profitability, as you understand. We have been incredibly strong in our costs, I would say management, extremely disciplined. So, we had no bad surprises.
On the contrary, we made a tremendous effort and a sustainable effort. It's not just one go. I know that 2019 will be the same -- in the same framework. So, in a nutshell, I would say, and you could complement what I said to the Group said, stood and reacted. We had tool, we couldn’t sit there with the situation which was sort of grey, it is not exactly the mood in which we are happy to be. And we did what we had to do to make sure that at the end of the day, we delivered what we had to deliver. Yes, the end of the year was in a much better shape honestly. But at the time when we made this statement, we just didn't know.
Maybe to complement to what Jean-Dominique said. First, in the U.S., everybody has been caught by surprise by the rising volume and the market volume in quarter four. We were expecting that rise many months before, didn't happen. That's why when we discussed end of August about our forecasted results, we could not anticipate as sharp rebound. We did not understand and as I understand our competition didn't either. But, we benefited because that enabled us to run smoothly towards the end of the year. And the second element is, we had adjusted our forecast to acknowledge the volatility of the market and that has enabled our plants to operate in full efficiency toward the end of the year. That's why in Q4 both elements created very strong profit.
And this is the way we reacted because it's not only just go forward and sell but we reacted in industrial -- exactly the way industrial management. And as you could see, the performance of our competitive plant has getting incredibly strong in second half. That has a lot also. And when I say cost, when I say all that, that’s included in my mind. But, you're absolutely right, the performance of our industry in the second half has been brilliant, I would say very brilliant in the last quarter. And that's the key.
I hope that helps, Gaetan. There is a question on line, and then I will go back in the room. Please go ahead.
Yes. We have a question from a Jose Asumendi from JPMorgan. Please go ahead, sir.
Thank you very much. Jose, JPMorgan. Couple of items please. Can you talk a bit more around the acceleration of this cost savings that you have done, I think very correctly accelerated in the second half 2018 versus the first half? What kind of momentum should we expect into 2019? Should we expect first half stronger 2019 versus second half year-on-year? And can you talk a bit maybe which category SG&A rose or manufacturing cost savings are going to vis-à-vis surprise you more? And then, second point is, can you -- gentlemen can you maybe kindly just go back a little bit to SR1 [ph] and talk a bit about the work the company is still needs to execute a little bit more medium term to reiterate the margins? It looks like there is more work to be done there. Just what are the three big buckets that raise the margin higher over the coming years? Thank you.
Okay. I think a few questions there, maybe Yves will take the first and then the follow-up. The first is very important because it's all about our cost savings plans, which are not short-term but long-term. And Yves notably is in-charge of the follow-up at the top level of Group. So, he may make a few comments there.
So, as I mentioned by Jean-Dominique, the Group has reacted really strongly when we realized that there were some certainties regarding the second half of the year. And in order to safeguard the overall performance of the Group, we have implemented measures within the Group in order to safeguard, particularly on the structural side. On the other side of course, as it was said before, by better monitoring our forecast we have been able to deliver better industry or manufacturing performance in the second half.
Regarding 2019, we intend to continue on this trend to say fine tune and improve the way we manage our supply chain and our manufacturing capacities on one side. And to try to beat the inflation we have to say that in 2018 we are probably surprised by the level of cost of energy, and the cost of transportation including managing freight during the first half of the year. And we expect, let's say, more friendly environment from this time point in 2019…
Our rhythm of progress should be the same; the level of inflation will be probably less.
Which at the end of the day, makes it positive for us during the 2019. Just before you get to the second question, Florent, maybe you can pick up. You have to understand and we still assess that we have gap to close in terms of G&A in the Group compared to in that domain of competitors. This gap is significant. The good news is that we have it in mind. We know how to tackle it. We have made huge investments in our systems throughout the year. I recall, again, I remember that we every year in our P&L we have close to €100 million, which are linked to these huge programs of restating and reshuffling all our IT and process in the Group which is tremendous. We are carrying it in our P&L every year. But, it's going to come to an end at some point. And we will at that be extremely more agile and able to reduce our G&A cost. We have a huge program at the top level of the Group, Yves is in-charge, and we will cover the gap. So, it's part of our structural I would say strategy. In the same way as we have some gaps in the level of our inventories, we have a gap in our G&A and this is not covered. As long as it's not covered, we won't be cool. And this is what we are acting today. And in the last part of the year, we clearly accelerated the process. Maybe you would like to pick-up on the...
As far SR1 [ph] margins are concerned, of course SR1 representing roughly half of the group, it should benefit from all the measures regarding competitiveness that Jean-Dominique just mentioned. I already mentioned that we implement price increase end of December -- in December and January to cover at the end price wise. And last of course, we continue to beat on the mix effect, both on original equipment and replacement that should contribute to the improvement of SR1 margin.
Okay. Thank you very much. I think that covers the questions. Now, please, in the room, there's another…
Ashik Kurian from Jefferies. First question is just a follow-on from Gaetan’s. Was it just the U.S. that surprised you in Q4? And if you can maybe help us understand what's going on in the U.S. market? Was the sudden improvement in volumes just purely on the sell-in side or did the same dynamics happen on the sell-out side as well? And also, does it reflect on any of the changes in the wholesale distribution side that you see and that maybe there's been a stronger than expected destocking in the market? So, if you can share your latest thoughts on what's going on in the U.S. market, that would be helpful.
For many months in the U.S., we could not truly understand the market dynamics, because they were in contradiction with the overall economic activities. And we were looking at the average mileage pursued by both trucks and light truck, et cetera. And all the indicators were positive. And we didn't see the market picking up. Hopefully, at some point the destocking -- there obviously has been some destocking effect. To what extent is that, we’ve not captured that properly, but we were not the only one. I saw some of our American colleagues that were caught by surprise exactly the same way at the same time. So, the market was unusually slow for the dynamic of the market. And then, it went back up. And I think the destocking effect today is over. And therefore, we have recaptured the normal growth of the market due to the real indicators, which is mileage we run, the number of cars, et cetera.
There is no increase of inventory by dealers, because as we have been caught by surprise. We are struggling to deliver tiles as they needed. So, there is no re-inventory of tiles in North America so as we speak.
Exactly. And the good news is that with the joint venture that we have now implemented during the year, we have a much broader scope to understand what's going in the market. And I think that's going to help us tremendously in the coming months to capture the moves and sets it out. But the situation is what it is. Yves described it absolutely perfectly.
And in China, Marc was mentioning to me, it is right. We have observed because there we have better catchers to measure sell-in, sell-out and this type…
We have destocking from Michelin in the activity. So, therefore, that’s way in 2019 we are positive, because we saw the destocking in 2018.
A quick follow-up, did you increase your market share in the U.S. in 2018, and is the expectation that you will continue to further increase market share in the U.S. in 2019?
We have not disclosed our share for a reason, but in the U.S. we are very happy with what we're doing.
Thank you.
That's the perfect way.
And we have been happier in Europe.
That's for sure, absolutely for sure. Okay. Thank for the question. Now, perhaps a question on the line before we go back.
So, we have a question from Mr. Henning Cosman from HSBC. Please go ahead, sir.
Hi. Good afternoon. Please, can I clarify the first question on the net efficiencies versus inflation. I think, we have been talking originally about €200 million net savings by 2020. You mentioned it a few times now, trying to beat inflation and so on. Are we still looking for those €200 million by 2020, which of course would imply a significant acceleration? That's my first question. And then secondly, on volumes, I'm struggling to understand a little bit why you're saying only to grow in line with markets. Of course, you're trying to beat or the ambition is to beat the high growth in 18-inch, which represents 40% of 75%. So, to be in line with SR1 for example would imply a decline in Q2 where you've just acquired this capacity. I think in truck your ambition should be to outgrow flat as well with being underrepresented in China, as for your thinking yourself, you mentioned your ambition is to outperform the 3 to 5 anyway. So, could you just please put in perspective a little bit why your overall ambition is only to grow in line with the market?
Okay. Maybe -- so the first question is on cost program. And I think Marc, you could pick up.
Okay. If you remember, our cost program was to be above €1.2 billion on four years, so above 300 on every year. You've seen that we’ve been -- last year clearly in this 300 plus, this year clearly in this 300 plus. So, that we -- on the savings side, it's okay. For the inflation side, last year we delivered a very positive; this year, it was neck to neck because of increased inflation. Let's remember, the next year we will see a reduction in some of the energy cost, which will reopen the differential. So, I would say, when we did this objective, of course we knew what we would do in terms of cost reduction. Inflation, something is in our hand, like for example salary inflation, so we are exactly online. But outside inflation, it’s not totally in our hand, as you may imagine. So, let's say it was a bit too high this year. We'll get probably an opening, clear opening next year, this year in 2019 of course. And we'll see what the balance will be. But, we're still in the goal to generate €50 million every year, of course. And let's say if inflation drops a bit for energy, we might be slightly above.
And by the way, when I look to the past, we were right to increase quite significantly our program. Remember, when we moved up from €1 billion to €1.2 billion in less years, we were at risk not to deliver but we are delivering that. So, the good news is that we were right to do so; for the rest, I think doing really our best. When it comes to your other question…
The guidance on volume.
Yes. The guidance on volumes. Yes.
So, why do we guide volumes just in-line with the market? Two main factors, one is we are still in a very volatile environment. And therefore, being able to chase the markets where they are, at the moment where they are, is already a very strong performance. And the second answer is, we are still in many activities in a diversified market. In these oversupply market, chasing volume at the expense of margins is a bad decision. That's why we only guide for volume in line with the market.
And of course, our goal is to over-deliver…
Of course, under promise, over deliver.
If you can…
If we can. But it is still a great achievement.
But you still wouldn't disagree if I can just say that you wouldn't disagree with the assessment I made for every individual segment, would you?
Remember that you spoke in Passenger cars, the 18-inch and above, there is also volume in 16-inch and below. At the end the balance is difficult because you know you need 16-inch and below, of course, Tier 1 players are globally losing volume at a speed that is slightly higher than the market. And you know that. I mean and everybody knows that. And it’s not always easy.
It's happening now. So, that's why this transition period is structured for the Group because we need to make sure that we can offset this trend on 16 inches and beyond -- I'm sorry, below with the 18 inches and beyond, which is a tough task. I mean, it's not the easiest thing to do. And absolutely for that thing we've stabilized in three to four years, but for the time being, we have to execute this transition and look for a profitable growth, that's clear. So, I think that's really answers why we are stating that. I think, it makes sense honestly.
Okay. Well, thank you for the question. I guess there is no other questions on line, as we speak. But, in the room, yes, there is.
Thank you. Christian Schubert [ph] from German newspaper, Frankfurter Allgemeine. I've seen -- when I look at your debt that your debt increased quite strongly. I know you made acquisitions. Will you stay in that ballpark concerning your debt in the closer future? And the second question would be on investment. Your investment has been going down since 2014, correctly each year. Will you continue to bring it down? And the third question, if you allow me, how will you split up your time Mr. Senard? How will you split up your time till May? And because everybody talks about CEO salaries, how will this reflect on your salary, while you have these two jobs at the same time?
Yes. So, I will make it simple as possible. I’ll answer immediately the second -- the last question. You understand that we -- I am in a transition period, very clearly, and I'm handing over the Group to the future team. Everything is now ready, my successor, Yves Chapot, the executive committee all this is anticipated and well done, I have to say. You can dream about the smoothest transition, that’s what we’re living today. It’s just brilliant for the Group and for the sake of the progress of Michelin. It's just easy.
And as far as I'm concerned, you can be absolutely sure that when it comes to my compensation for 2019, the governance of the Group, as is already stated, by the way, we’ll take that into account to make sure that it is not -- it is impacted by the fact that I spend some days with another appointment. So, you can be absolutely sure, and it has already been stated, and I am personally extremely keen to make sure that it happens. Okay. I think it is clear.
You will spend more in -- till May than in Michelin…
I don't know. I certainly get involved, but I make sure that I will -- I am accountable for everything that’s happening in Michelin until the 12th of May. So, that's the way it happens.
And we have started the handover for more than a year now. So, many activities also have already been transferred.
And by the way, it's honestly a very, very short period of time.
And as far as the debt is concerned, your question, the key is cash flow generation. Therefore, we have mobilized all the Group towards generating the expected cash flow. That's the best way to replenish the capabilities of the Group. And if you do the math compared to the forecasted cash flow, you’re going to see the level of the debt of the Group is a matter of very short amount of time, because before we can regain every ability. And if you look also at the level of debt today in the Group, it is still at very low level. That's why the rating agencies had no chance to rate deformation.
As far as the investment, we told you several years before that we were driving, we were out of the heavy cycle of what we called the backbones investing massively to create the capacities in the regions where we needed to grow. So, yes, we have reduced our investment. However, Marc has mentioned that in the slide, there is in his forecast, we have disclosed 2019 forecast and 2020 expectation time of investment. And we grew up slightly due to the acquisition.
At the end, everything is including the cash flow objective of the Group, of course.
Right, absolutely. So, there is another question on the line coming back. Please go ahead.
Yes. We have a question on the line from Erwann Dagorne from Barclays. Please go ahead, sir.
Hey, good evening. Thank you for taking my questions. Three left on my side, please. So, the first one related to your China exposure. So, I think it would be great if you could remind us your OE replacement exposure by segment in China and your capacity to -- from the market in 2019? Secondly, when I look at the churn percent, the market doesn't believe at all in your capacity to deliver your 2020 including operating income target. So, what can you tell us tonight beyond the strong 2019 results, what could you show the market that you are still on track to deliver this 2020 target? And lastly, I know this is maybe not the right time to ask about buyback programs. But, especially your €4 billion M&A history over the last 12 months but it would be also good if you could share with us your thoughts about and an optimal level of leverage ratio that would need to be reached before potentially launching large-scale buyback. Thank you very much.
Okay. Perhaps on the first question and then I will leave -- Florent and the team answer on the second one. The Chinese exposure of the Group is strong, it's stronger than it was. We are increasing regularly our presence. I would say that it is of course much stronger in replacement than OE. But when you look at long-term trends, our presence in the OE market in China is growing. And that's the good news, because we grow in very profitable way in OE market, which is as we speak dropping, but it's for us more cyclical aspect than a structural evolution. So, we are making very strong in-roads in this market today. And honestly, if I may, say in a very profitable way. As we don't disclose regional results, I'm sorry, I can't go further. I can only be qualitative, but if you understand my words, it's a situation which we are very pleased.
And you know that total turnover of Michelin, the Chinese volumes are about 6%. And it's mainly Passenger car OE and RT, probably two-third RT, one-third, OE. So, that gives you a ballpark of what you wish.
Maybe for your other question about the 2020. Let's remember that the 2020 objective outside of any kind of acquisition was to grow Michelin results by roughly €200 million a year, excluding currency impact. If you look at 2017, 2018, we did the job, 150 last year or 157, if I recall correctly, and 250 this year, excluding Fenner. So, I think average €200 million. Bingo, we are there.
Now, of course, 2019 and 2020 needs to be delivered, but you can be sure, it's a goal of the measurement as a Company. That's the first thing. Now look, be careful, in the numbers, value that we gave was including or excluding currency impacts at 2016 currency. And if you look, we are the quite strongest, roughly 100 million last year, we have another 257 million this year. So you need to have -- the 350 million of currency impact on the absolute value of the number. So, all-in-all, what counts is the growth of operating results of the Michelin part, I would say before acquisition of €200 million a year. I can’t tell you it’s our goal, but of course, some time, we could be held by the market or not -- we see in the future.
Yes. I hope that the market will believe us someday. I know, it's long to gain credibility. So, doing our best.
As far as the last part of your question on the buyback program. We have heard this for many times now. And of course our cash flow generation has been strong. And as you mentioned, we have taken very interesting and strategic acquisition in 2018. But, we will during our Investor Day, early April, we will discuss this subject.
There is a meeting, which is already fixed starting in terms of the date, 4th of April. The 4th of April, we will, by the way Florent will and Yves and the rest of the team give you the prospects for the future. So, that's good. And I will be there by the way, because I like to make transition smooth. Okay. Are we done on the line now and in the room?
Well, thank you. If there is no other question, I think we can sort of -- yes, there's a last question, so it's very last perhaps on the line. And then please, we will -- it’s on the line, no, nothing? Yes, so, please go ahead on the line for the last question.
Yes. We have a question on the line from Raghav Gupta from Citigroup. Please go ahead.
Apology, gentlemen. I got cut off. I'll be very quick. And just to follow up on the question on the 18-inch tires, you talk openly about margin pressure on the sub 17-inch tires. Surely, it’s only a matter of time that you'll see greater competitive pressures on the high value added tires. Have you seen any evidence of share being taken from non-traditional premium and tire manufacturers, the main competitors for your Michelin branded tires? And if not, what are the barriers? I guess, that's the first one. Let me ask the second one also while I still have you Mr. March Henry, the volume dropped through, then would you expect that to return to the €84 million for every 1% increase in top line? Thank you very much.
Okay. For the drop-through, 80, yes that's how measures.
And as far as your first question about the margin pressure, we live in a very exciting industry where we have pricing pressure in every segment, every tire line, every market around the world. So, margin pressure, we have it in every segment. Now, as far as the high value segment, the willingness to pay premium in the high value segment is a little bit higher than the willingness to pay in the lower value segment. And so, therefore, it's not a question of pricing pressure, pricing pressure is everywhere. Our ability to valorize our technological offers is higher in the high value segment. And so far, it’s been -- we have always found a new way to generate margin.
Thank you anyway for the question. And now I think we can close the session, and just like to thank you for all these years of great attention to the Group. It’s the last time for me of course clearly to share with you the evolution of Michelin results. But, I have to thank you for the incredible attention that you all gave us during these years. And if I may, I can acknowledge the fact that I personally have learnt a lot by listening to you and reading from you. And I really acknowledge that and I would like to thank you for that. I really appreciate it. Thank you very much.