Compagnie Générale des Établissements Michelin Société en commandite par actions (ML) Earnings Call Transcript
March 13, 2023
Earnings Call Speaker Segments
Hello, everyone, and welcome to Michelin Capital Markets Day. My name is [ Asha Sampat ], I'm a journalist. I'm delighted to be here with you all today. We are live from Clermont-Ferrand. I'm not alone. Joining me on the set. We have Florent Menegaux on my right, the CEO of Michelin. Hello Florent, how are you?
Hello Asha. Hello, everyone.
All right. And we have Yves Chapot, who is the General Manager and CFO, hello Eve.
Hello Asha.
Right. It's good to be here today. But why are we here, Eve? Good question.
So this Capital Market Day, which was initially planned in November last year, hence updating you on our progress in deploying our 2030 Michelin in Motion strategy.
And we are looking forward to learn more about it. So, let me turn to you Florent. So the last Capital Markets Day was in April 2021. And at that time, if I remember, the growth strategy was 2030 plan named Michelin in Motion was revealed. So today, we're going to go through a little bit -- have some update on the deployment of this strategic plan, and together with members of the Executive Committee, who will be here on the set, in a couple of minutes later on. So we will look at some of the highlights, the key topics in 3 fields of activity, which many of you know With tire, Around tire and Beyond tire. But before we jump into the heart of the different topics, let's probably step back for a moment, and look at what happens since 2021, and I'm sure, a lot happened. What can you say, what were the main changes that have resulted from this very tough period.
2021 was only 2 years ago, and so much has happened since then, uncertainty and unpredictability have become the new normal. A good reason to the group today. Since our global environment evolves in so many unexpected directions, and certainly, at a faster pace than expected. Let me point out some of them. With recent events, we are now confronted with a new reality, the world's fragmentation, new and enhanced geopolitical tensions or risks call, in many cases, for more local presence and reduce dependency across certain geographies. I would also highlight the deep change in the relation to work that has materialized in North America and Europe, on top of workforce shortages for some specific jobs in some parts of the world.
All right, and relating to the relation to work that you've mentioned, we can think about the truck drivers and industrial jobs. As example, of this great resignation. So, you also mentioned some of the transformations that happened at a faster pace than you expect it actually probably tell us which ones?
The environmental awareness has dramatically increased in the society, catalyzed by a recent succession of abnormal weather events. People everywhere around the world have experienced or witnessed very concretely major droughts, hurricanes, floods, et cetera. These multiple phenomena have called for faster actions, leading to new regulations. Think about the green deal in Europe or the inflation Reduction Act in the U.S. This rise in environmental awareness is also challenging corporation's CO2 emission reduction road maps. From another angle, the need to switch to 100% sustainable materials in our industry has become imperative. At the same time, this search in environmental awareness has accelerated the electrification of mobility. Think about China in 2022, almost 30% of new cars sold were electric being BEV or hybrid. It's huge.
I agree. And we can see these transformations, these accelerations in so many different industries, but how do these transformation impact your strategic plan, Michelin in Motion?
Concretely, it increases the necessity to deploy further our local to local strategy. It also reinforces our determination to grow Around and Beyond tire. I'm talking about services dedicated to fleet on one side, and high-tech materials on the other. Here, it is key to understand that our growth is directly nurtured by our Michelin distinctive capabilities. In services to fleets, we leverage our unrevolved understanding of vehicle usage acquired through tire business. We enhance it by technologies such as AI, computer vision, et cetera. In high-tech materials, we leverage our deep mastery of material sciences and complex industrial processes to develop objects and engineered materials required for highly demanding applications, in various domains such as aerospace, health care or other industries.
All right. So it seems to me like the ongoing technological acceleration is clearly shaping your differentiation, if I may say, is it the right way to look at it?
Yes, Asha. We leverage technologies and science to increase our leadership and differentiate from competition, both in terms of performance and sustainability. The more the world requires long-lasting products made of more sustainable materials, the more Michelin's offer is relevant and the more our group has opportunities to grow.
Right. So let's look at the financials in this context. So how do we read, what happened in 2021 and 2022?
Over the past 2 years, our group has released solid financial results. This is the best demonstration of the relevance of our value-creating strategy. Over 2021 and 2022, we have been able to offset record cost inflation of over EUR 3.9 billion, with a strong pricing discipline while further enriching our product mix and growing our non-tire activities. When we look ahead, we are on track to achieve our 2023 goals communicated during our 2021 Capital Markets Day, despite a very challenging environment.
Right. So on track to achieve the 2023 targets, but now what about 2030 ambitions to grow your sales by an average of 5% a year, and to reach the 20% to 30% of non-tire revenues.
Part of our growth in the past 5 years was fueled by a dynamic M&A activity. We will continue with this momentum in the years to come to deliver our growth ambition. In the last 5 years, we've acquired several companies for over EUR 4 billion. The main ones being Fenner, Camso, Multistrada and Masternaut. We've also set up and developed 3 significant joint ventures, one in the tire space with TBC, our wholesale distribution channel in the U.S. and two, in Beyond tire with Solesis in health care and Symbio in hydrogen mobility. On top of that, when our vocation is not to hold the assets, we have leveraged our IP with many partners such as Enviro, Carbios, et cetera. I think, our track record is excellent with these new businesses -- with these business as a successful integration, we already see new developments resulting from innovation synergies. They are hitting markets now, and increasing our differentiation. This gives us full confidence in the delivery of our growth strategy Around and Beyond tire, while maintaining our leadership in tire.
Fantastic. Thank you, Florent. Thank you, Yves. I'll see you later on. But right now, we move to look at the other sessions with -- we welcome in a few seconds Scott and Eric in the With tire session. And with me -- joining me on the set, we have Scott Clark, the VP for Automotive businesses. Hi, Scott and Eric Vinesse, the VP for Research and Development. It's great to have me both.
Great to be here.
Fantastic. So Florent just spoke about -- he mentioned quite a lot of things. But one of the things, that I heard is about this all sustainable approach, which is really at the heart of what Michelin is doing business. I think, Scott tell us what it means in practice in the tire business itself.
Sure. Asha, what Eric and I would like to share today is how we bring to life our all sustainable approach, as the foundation of our leadership in product performance and in our operations. Let me begin with passenger car tires. Obviously, the big revolution underway and I spoke about it in our last Capital Market Day presentation is the electrification of the vehicle park and the focus on all things becoming sustainable. Both of these inflections create a significant opportunity for Michelin. Electric vehicles are already an important part of our OE tire sales, as we have nearly 300 OEM obligations across 55 brands. By 2025, we'll begin to see the impact of this OE business in the replacement market, pulled by a significantly higher loyalty rate on electric vehicles compared to ICE vehicles, as we've seen in several consumer studies.
Right? So EV, definitely a game changer in the sector. What does it imply for a tire maker?
Well, Asha, we are uniquely positioned to benefit from the technological challenge created by electric vehicles, on tire performance. Most of you know electric vehicles are more demanding on tires, as they require low rolling resistance for battery range, along with durability and long wear life to withstand the extra weight and torque of an electric vehicle. The ability to deliver both of these performances simultaneously without trading off other critical performances is technically very complex, and it's a key and clear differentiating strength of Michelin. This challenge is becoming increasingly visible to our OE partners and will become visible to BEV owners in the replacement market as well. Our testing across a wide range of BEVs shows that Michelin offers at least a 20% wear life advantage versus premium competitors while delivering industry-leading rolling resistance. And this is a key reason, why our OE share on BEVs is substantially higher than our ICE share and within the premium subsegment of BEVs that we target, our share is 3.5x higher than our average OE share. And, as we add the demands of increased sustainability, such as higher levels of recycled content in our tires, it's going to be even more difficult for many tire manufacturers to meet both the tire performance and sustainability demands. This, once again, places a premium on Michelin's capabilities to do what we do best, which is to leverage our technological leadership to provide unparalleled performances without compromises.
Right. So passengers car. Now what about Road Transportation?
On the Road Transport market, as the global population continues to expand and the demand for goods increases, we'll continue to see market growth. We'll also see a strong global push to decarbonize Road Transportation through new regulations. Again, this inflection will play into our strengths and help us to create more value both for Michelin and our partners by bundling and exploiting our leadership in tires, connected services and the circular economy. A recent example is how we've developed in partnership with major OEMs, the Michelin X Incity EV tire for the rapidly growing European electric urban bus segment, which will quadruple in size between now and 2026. Our capabilities and strengths will help us create value by improving the uptime and operating cost of fleets, while helping them achieve their sustainability objectives.
Fantastic, very clear on the Road Transportation. Now what about specialties tires probably, let's start with mining.
Sure, Asha. For specialty tires, I'd like to really focus on 2 valuable segments, mining, as you mentioned, and agriculture tires, in mining, the huge need for EV batteries, solar panels and fuel cells will increase the need for mineral and metal extraction by 25%, in the coming years. However, there'll be a demand and a need to do that work with the highest sustainability standards. And once again, this is an opportunity for Michelin to reinforce our leadership in helping mines operate in the most efficient and the most sustainable way possible. Through our Michelin better mining approach, which bundles our product advantages with service and sustainability offers. Three great examples are the new 57-inch tire for dumpers, which is 100 kilograms lighter than the previous generation and offers the best ton per kilometer ratio to in the market. The Michelin specialty materials recovery cutting and shredding facility in Chile, which will play a key role in helping recycle mining tires. And the success of MEMS, our connected mining tires, which help improve mine safety and effectively add 3.5 days of increased productivity due to reduced downtime. Our MEMS system is found in 60% of our mining tires in service today.
And you mentioned agriculture, Scott.
Absolutely. When it comes to agriculture, tracks are a great example of a successful acquisition for Michelin. Thanks to the acquisition of Camso, Michelin is able to provide our customers with comprehensive premium solutions for both tires and track systems for tractors. The truck segment is consistently growing at a 10% rate and is a brand-new business for us, which offers major advantages in terms of environmental protection and productivity increase. The yield of a track is 5% better than a regular tractor, while reducing soil compaction and allowing better access to the fields. This great business also resulted in synergies delivered 1 year ahead of our target. So it's a true acquisition success story.
Fantastic. Great to hear. And let me remind you that we will take a few questions after this session With tire. But now let me turn to Eric. So Eric, tell me, how do you reach this level of performance and technically, what does it mean? What did it take?
Yes. Well, Asha several levers at play here. First, we are doubling down on our research efforts to continuously increase our advantage in tire durability and very much in wear performance, so as to reduce material consumption for the same but even better capabilities. These are areas where our material expertise has helped us establish a strong and historical leadership. For example, just over the past decade, we have filed over 300 patents, covering entirely new generations of elastomeric materials with very unique performance attributes. And this effort is still going on, is just we're still projecting it into the future. And it shows, for example, as a result, we saw in the 2022 ADAX study that the Michelin passenger car tires when compared to the average competitive set, wears out 30% less rapidly than our competitors. And this is, of course, very important from several points of view. First of all, from an environmental impact, but also from a competitive advantage standpoint. And it is especially true with the growth in BEV, battery electric vehicle, that being heavier wear tires out faster, about 20% on average more than internal combustion engine vehicles, ICEs.
Right. So I understand that wear performance is absolutely critical. But what about rolling resistance?
Absolutely. This is a second very important component of our environmental impact. And it is an area where material expertise is also key to our leadership in sustainability. And, this is because reducing rolling resistance has multiple benefits. It limits fuel consumption and CO2 emissions on ICE vehicles. But also even for BEVs, it has a big effect because it impacts battery range directly. Now over the past 20 years, we have improved the energy efficiency of our passenger car and truck tires by more than 20% overall. And that's of course, without any compromise on safety or the longevity of our products. And for our best-performing products, those gains even go further up to 40%. So there again, we've got hundreds of patents that have been filed for materials and reinforcing plies and complex metallic cables and textile cords that really distinguish our tires efficiency and lightweight. And on that, but we're also projecting ourselves in the future, and we have committed that by 2030, we will improve the energy efficiency of our products by an additional 10% versus 2020.
Great to hear. So quite clear, Eric, but how does this product performance apply to B2B?
It also has very big applications in B2B. Today, more than ever, our customers are looking to us to help them achieve, of course, more productive operations. That's always been the case. But, even more today, and they're also looking to us to help them reduce their environmental footprint. Let me give you a few examples. In truck, for example, the Michelin tire stands out for its reliability and its durability, leveraging the Michelin casing that allows running up to 1 million kilometers, and that thanks to its highest standard of robustness. The impact is very direct. It lowers the cost per kilometer by 40% and the use of natural resources by 70%, if you take a recap tire compared to building a new tire. Finally, our pioneering work of the past 15 years in designing complex 3D features for our trades is enabling our truck tires to achieve drastically longer-lasting performances. All these technologies put together, contribute to improving overall performance while reducing downtime and maintenance operations for the fleet. So in summary, there's no doubt today that harnessing for good, the significant changes that we see in the world around us requires distinctive innovation capabilities. And really, this creates tremendous opportunities for us for Michelin to reinforce our leadership in developing sustainable solutions for our planet and through high-technology material innovation.
Right. But Eric, you mentioned the quantity of natural resources that are being tapped. What about the sustainability of those materials?
Yes. This is a very important point. We are committed to delivering 100% sustainable material rates, in all our tires by 2050. And we set an intermediate target for 2030 of 40%. And we're already in motion towards this achievement. But let me step back just a minute to give a definition. At Michelin, when we talk about sustainable material, what we mean is a material that is recycled or bio source and that can be renewed over the lifetime of a human being. That's what we mean, when we talk about sustainable materials. We are committed to integrating sustainable materials on a very large scale in all of our products, while at the same time maintaining the outstanding product performance levels that are really unique to Michelin. And we're already showing concrete progress in that direction.
And now, beyond the sustainable material rate, how does sustainability translate into the life cycle of a tire?
Yes, of course. Sustainability and sustainable material rate is one part of a bigger equation, which is a life cycle analysis of the tire. So, we have to look at everything that goes into the creation and the use of the tire, starting with the sourcing of our raw materials, the production and the transportation of the tires, the performance of our tires were in use and even the end-of-life recycling. So we're embracing this notion of eco-conception, based on life cycle analysis. So that -- by the end of 2023, every new tire that we'll be starting in the development phase will be eco-designed, using the full life cycle impact analysis and reduction targets, of course. So, we are continuously working on every component and every life stage of our tires, in order to reduce our global impact on the environment, for real and for the long term to make our tires truly all sustainable.
And there is a lot of work to do there. But Scott, maybe any other major stakes that we should be looking at?
Yes, there certainly are Asha. I'd like to talk about how we're leveraging technology, data and digital solutions to really transform our industrial operations. And, when I talk about transforming, it's really about helping us to improve productivity, sustainability and the experience of our employees. Several examples. We will nearly triple the number of robots we're using in our factories between 2021 and 2025. These robots will help us improve our cost competitiveness while improving the experience for our employees. As we use robots to do some of the most physically challenging and difficult jobs. We're also increasingly using digital devices and sensors with more than 8,000 digital initiatives across our plants to increase productivity, anticipate machine maintenance, mitigate waste generation and better monitor energy consumption. Creating what we consider to be a win-win-win, better experience for our employees, improve cost competitiveness and better energy efficiency as well. Over 10 years, we will realize hundreds of millions of euros of industrial gains, thanks to the digital initiatives across our plants. Another great example is in the area of quality inspection. A process unique to Michelin, is that we individually inspect every tire before it leaves our plan. This is a critical step in the process that when done by a human requires high concentration in very repetitive gestures. Today, more than 2,000 Michelin employees carry out this task. 15 years of research has enabled us to patent new technology that combines AI with 3D cameras allowing us to thoroughly, more reliably and more efficiently inspect every tire. Again, thanks to this unique technology, we improved the employee experience while improving the end product for our customers.
Fantastic, quite impressive. We also hear about shifting curing presses to electric. I think that's important, right?
Yes, Asha, technology, in general, is critical in helping us achieve our environmental objective of net zero emissions by 2050. Electric presses, as you mentioned, is a key technology, that will help us reduce both CO2 emissions and energy consumption. The curing process today generates 25% of our total energy consumption. That's why we've been working on electric curing presses for 15 years. And installed our first electric presses in 2013. Electric curing has an energy yield that is 6 to 8x higher than steam, generating 2 different benefits, reduced CO2 emissions and very significant energy savings. That's why we're accelerating our investments to electrify our curing presses with a priority on Europe. Actually, we're more than doubling our annual investment in order to capture more quickly the energy and environmental gains coming from this unique and patented electric press technology.
Fantastic. Thank you, Scott. Thank you, Eric. And, I think, we have a couple of minutes, of course, to take a few of your questions. So probably we'll start with this first one coming from all the way from Steve Pereira from Societe Generale. Hello there, you have a question? Let's hear it.
It's Steve from SocGen. Great. You mentioned a higher loyalty rate with bad tires specifically. Could you maybe talk a bit more about that?
Sure. we see already that and consumers who own electric vehicle see already, the tires play a very critical role in the performance of the vehicle, huge impact on battery life. We've talked about the fact that electric vehicles consume tires at a 20% faster rate than an ICE vehicle. And so, whether we talk about consumer forums, whether we talk about consumer studies that have been done, J.D. Power in the U.S. we see that because consumers understand the important role that a tire plays in an electric vehicle, they tend to be more loyal to the original fitment that came on that vehicle. And so that's clearly what we're seeing so far. Again, it's early days. Remember, electric vehicles represent about 1.5% of the total population of vehicles in the world today. So we're still learning, but all indications so far is that certainly, there's a higher loyalty rate on electric vehicles.
Next question, Philipp Koenig from Goldman Sachs.
You're mentioning sort of the use of sustainable materials. What are you hearing from your customers? Are they putting off preference because clearly, they also have their internal targets of obviously moving towards carbon neutrality. I'm just wondering if that sort of gives you an edge, when you have some discussions about the contracts with your customers in the mining and ag space.
Great question. Maybe I'll take it and then Eric, you might want to add to it. But clearly, yes, we are seeing our customers, particularly our OE customers who are -- the whole world is awakened to the importance of sustainability and sustainable materials. So yes, there's tremendous focus on that today. Quite honestly, I think, everyone is still trying to align on definitions and standards and so forth. So, there's still a lot of volatility. But clearly, what we know and what Eric explained, our leadership in materials and our position and our leadership in sustainability, all the trends we're seeing play in our favor. And, we think that this will increasingly be a point of differentiation for us, given our material expertise, Eric?
Yes, absolutely, Scott. That's correct. What we've seen is we started working on sustainable materials, quite a long time ago, well over 10 years ago. We'll start working on butadiene for example, which is petrol source today, but we're looking at projecting to transform to biosource. And at the time, really, there was not much activity outside of us. And even 3 years ago, when we announced our commitment to reaching 100% sustainable materials by 2050. Not many people were -- seem to be into this. But over the past 3 years, we've seen a huge acceleration, and all the knowledge and the work that we've accumulated over the past 10 years put us really in a good position to answer that need that is growing extremely fast.
And, if I could just add one other thing that Eric mentioned, the life cycle analysis that we do now when developing our products, that's very valuable to our customers. So they understand the end-to-end impact, what we've designed and what we're bringing to them as a product.
Brilliant. Next question, Michael Jacks, Bank of America.
Perhaps, just touching on what was mentioned earlier in terms of the synergies for the Camso acquisition being delivered 1 year ahead of schedule. Are you perhaps, able to provide any sort of quantitative metrics on that. I know when the business was first acquired, it was making revenue of about EUR 1.2 billion a year, and I think, about EUR 100 million in EBIT. Are you able to give us a sense for how this has progressed, since the time of acquisition.
Well, in terms of quantitative, I'm not probably the best fit to do that, but I can certainly talk about, where the synergies have come from. We've seen a lot of synergies, both in terms of how we go to market, sharing our sales organizations, integrating our sales organizations, in terms of product development, in terms of materials and so forth. So we've seen commercial go-to-market synergies. We've seen, obviously, purchasing synergies and development and manufacturing synergies. And so, we're excited by the fact that we've realized those synergies, a year earlier than we originally had anticipated.
Yes. And we've really been able to put our knowledge on our development side and our material side to raise the performance of the products with very strong Tier 2 products today.
Yes. Thank you. Thank you to both. We have another question from Sanjay Bhagwani from Citi.
I've got two questions as well. The first one is on the EV tire. Maybe could you please provide some color on what the price gap between the EV tires has been for, let's say, like around 3 years ago, when OEMs were just starting with the EVs what is what is now. And how sustainable, do you think the price gap between EVs versus combustion engine looks for the next 3 to 5 years? That's my first question.
Great. Yes, I would say, over 3 years, we haven't seen a dramatic shift in the price of EV tires. I think if anything, quite frankly, OE customers and consumers, there's still a lot of learning, that's going on about EV vehicles, their impact on tires. And quite frankly, I think that if anything, we'll see the price gap grow as people understand how critical the role is in the tire. The fact that EVs consume tires at a 20% faster rate than an ICE vehicle. The fact that, I think, both the rolling resistance impact that you can have when you change tires. And I think, as both the OEs become honestly more attuned to that in the end consumer. I think if anything, we'll be able to differentiate even more our leadership and valorize it, even more than we do today. So, I think there's a lot more learning that's going to take place over the next 3 or 4 years, when we see the size of the EV business to grow.
Absolutely. Thank you, Scott. From that insight. Next question, Ross MacDonald from Morgan Stanley.
You've made -- you have a commendable lead, I should say, in terms of tire abrasion performance versus your peers. I'm just curious, if you feel there's a lot more scope for gains in that sphere. And then in addition, whether there is any challenges with bio-based tires in terms of tire operation characteristics that you may want to call out at this time.
Yes. So two points there. Yes, there's a lot more to be gained in terms of improvement, in terms of the operation rate of tires. We're already working on the next generation of technologies. The fact that we are integrated and stream doing and developing our research on our own elastomers, give us a key advantage there, in terms of bringing solutions that can really make a breakthrough providing the benefits in terms of operation, but at the same time, continuing to progress on rolling resistance and all the other performances of the product. Now going to sustainable materials. Basically, our approach is to look for biosource materials and recycled materials that are in nature, able to bring -- to maintain the performance of our product or help us improve it. So, this is why it's very important that the research that we started again, 10 years ago, has been focused on identifying what are the right technologies that will allow us not only to replace the current materials, but to do it while preserving the Michelin very strong performance differentiation that we have, and bringing all the benefits to our customers.
All right. Maybe we have time for one final question this time. We'll take a question from Christoph Laskawi from Deutsche Bank.
There will be one on the supply chain for sustainable materials. Will that be a local-for-local approach, if possible? And do you expect the improved share or higher share of sustainable materials to simplify supply chains overall going forward?
Well, it's going to be different. And of course, because we're talking about waste, the best way to use waste and recycle waste and valorize it, is going to be working locally. But clearly, it's going to be a change with new supply chains emerging, new ways to work upstream, new ways to valorize this waste. And basically, it's going to be a big transformation. And that's why the 2050 target, even though it sounds like it's far away, it's such a large and deep transformation that's ahead of us, that it is a realistic target to get the whole ecosystem to move in that direction.
Fantastic. Thank you very much for the great questions. And thank you, Scott. And we will move to our next session Around tires as we welcome Lorraine Frega.
And Eric is still there with me, and we welcome Lorraine Frega. Lorraine, you are in charge of Around tire businesses as well as the strategic and innovation for the group. So me, and I think for many people, Michelin means tire. So, while you claim to have this legitimacy Around tires, probably just give us some flavor, put some color around it. What does it mean?
Absolutely, Asha. Well, I often get the question of whether Michelin has turned into a software company or is developing [indiscernible] vehicle. We're not. But we have definitely chosen to play in fields where our historical know-how makes us extremely relevant. Let's remember that we at Michelin, we've been delivering services to our customers for more than a century now, and we've been understanding, how fleets operate daily vehicles and tires are used, how vehicles are maintained. And finally, what keeps roads and drivers safe. And thanks to this unique know-how about usage, we are developing today, a suite of solutions that puts digital capabilities at the service of fleet's daily operations, whether -- they simply need emergency road assistance, tire services like mechanical repair or whether fleets want a tire as a service contract. However, they choose to entrust us with a more sophisticated range of sensor-based services that bring them insights and key enablers, so that they can say fuel, optimize battery charging, get uptime, good drivers for safe driving and more. And in the past couple of years, our customers, well, they have confirmed, that we have a strong legitimacy in this space. They've entrusted us with more than 1.2 million vehicles under contract. And it's that legitimacy that drove us to start regrouping our connected services to fleets from Sascar, NexTraq and Masternaut under 1 single brand, which is Michelin Connected Fleet.
All right. So we obviously understand this legitimacy, which is obviously based on your rich history. So let's talk business. So how does this legimacy now translate into growth?
Well Asha, I have to say that since our last Capital Markets Day, Around tires activities have developed pretty well. 2 years ago, I told you, if you remember that we would grow our business from EUR 0.6 billion of revenue to EUR 0.7 billion revenue by 2023. And today, I'm happy to tell you that we have already reached this revenue in 2022. It means 1 year earlier. We've launched more than 90 service offers last year, and Michelin Connected Fleets have grown over 10%. And what this actually demonstrates is the fact that the more we develop, the more we crystallize synergies from the acquisitions that we've made over the past few years. We are now able to open new geographies quickly, with a low breakeven point. Let me take the opening of our South Africa Michelin Connected Fleet operation, for instance. We combined the digital platform and heavy vehicle offers at Sascar, together with the customer support capabilities of Masternaut. And 6 months later, our South African customers were getting 24/7 assistants in English from people in their own time zone.
Fantastic. Brilliant. So Lorraine -- probably tell us how tires and service offers generate synergies?
Sure. That's a great question. We also have demonstrated synergies with our historical tire business. In Brazil, for example, Michelin sells a Multi-Energy Z tire that can bring truck fleets about 4.5% energy savings, thanks to its low rolling resistance. When we combine that tire with a Sascar offer, that delivers typically 4.5% energy savings by helping drivers reduce idle engine time, harsh braking or speeding, our customers can realize more than 9% fuel savings and the equivalent CO2 emissions. While benefiting at the same time from increased safety and improve productivity. I think, that's a great example of how we combine connected fleet services with high-performance tires and tire management, and how we create complementary financial, social and ecological value. And it's for all these reasons that Michelin Connected Fleet is now one of our Around tire key business pillars that's growing fast with a run rate EBITDA that will be accretive for the group.
Great. Thank you, Lorraine. So maybe, Eric, can you tell us what does it require in terms of R&D and data science resources?
Yes, absolutely, Asha. Well, alongside the development of connected services to fleet, we're also becoming experts at what we call contextualized mobility data, and let me explain. Because this really is the way that we are going to be able to move to new added value services. Thanks to our existing activities and our partnership, we have access to a growing amount of data. And actually, this growth is pretty much exponential. Of course, needless to say, we process all this with high respect for privacy and for confidentiality. Now, after that our thousands of R&D experts and bring to bear, a unique understanding of the interactions between the tires, the road, the vehicles, but also very importantly, the driver behaviors. And this is what defines the contextualization. It gives us a rare ability to understand the context in which this data has emerged and what it means, so that we can derive insights from vehicles and tires.
And now in real life, right, how do you intend to use and leverage the stability?
Well, the way to do it is what we aim at, is to build with this expertise, a suite of high precision algorithm to address the various specific needs of different drivers. Let's look at a few examples, for example, the owners of electric cars. They need to know how fast their tires will wear out, especially on those high torque, high load vehicles. If I take light commercial vehicles, it's about 20% faster wear rate that you have rather than what you would have on an ICE vehicle. But, it also varies very greatly according to driving styles, to usage factors and things such as loading, for example, which has a big impact. So for their safety, it's imperative that drivers have reliable predictive information that tells them, when to get their tires checked or even to get them replaced. Now let's take another example, the case of truck fleet. They can make substantial savings with precise insights, on the health and the wear status of their tires. Did you realize that truck tires often remove their tires when they have 5-millimeter or even more remaining tread depth. And that really that's a shame. Its a shame in terms of cost, but it's also a shame in terms of wasting material, especially because we know that running all the way down to 3-millimeter is perfectly safe, if you have high-quality tires. And the impact is big. It represents about 15% tire cost difference that could be saved every year for our customers. And in addition, fully exploiting the remaining tread depth thanks to our algorithm, also allows our customers to sell fuel because when you're operating as the tread depth of the tire goes down, the rolling resistance gets better. So you're getting more of the best phase of lowering resistance of your tires. So it's very advantageous. Now we have many more of these specific use cases in areas such as mining, airplanes or metros, where our know-how can make a difference in terms of the bottom line, but also in terms of CO2 reduction and the safety of people.
Thank you, Eric. But just very briefly, Lauren, back to you. We start hearing a little bit about your Watèa offer, right, certain types of fleets, maybe some insight on that.
Well, you know Asha, it's in our DNA to be giving people a better way forward. And today, many small light commercial vehicle fleets really struggle to transition to clean energies and to keep operating in what we call low emission zones. Which vehicle do you choose, how to finance it, how to make sure that charging infrastructure is available. And seeing these challenges, it became pretty quickly obvious that we could bring them, what they miss to transition to zero carbon mobility. We could bring them a unique and comprehensive solution. And that's how Watèa was born less than 2 years ago, in our Michelin incubators. Watèa brings a unique turnkey solution to electric LCVs that need the combination of an electric vehicle, a financing solution and a burden of services. And these services, they range from advising fleet managers on which technology suits best -- which vehicle sorry, to how to access a network of fully qualified charging stations. Our promise basically is that no vehicle ever runs out of battery, that's minimizing costs and downtime. Our competitive differentiation is linked to the fact that Watèa can leverage many of the Michelin Group assets. Efficient tires, but also a strong service networks with operational boots on the ground, top-notch telematics capabilities and a fine understanding of hydrogen stacks. Another thing we work on is battery range prediction. Today, van drivers will they rely on range predictions that are often very inaccurate, and it's not surprising, given that the range of a battery can be divided by 2, depending on criteria such as broad gradient, temperature, driving style load and even simple things like how the batteries charge. Our Watèa algorithm today has already a much better accuracy on range prediction than the vehicle native signal. And the good thing is that the prediction improves day after day and vehicle after vehicle. Is this differentiation that has enabled Watèa to capture a 10% market share in the high-growth segment of electric last mile delivery in France. And it's convinced the French bank, Credit Agricole, to take a 30% equity stake in the company to support their ambitions in sustainable mobility.
And, I believe that this is just the beginning of a thrilling business journey. Lorraine, I have one more question for you. Just remind our audience that we'll take a few questions, so you can start preparing your questions. But before that, just let's take a quick step back, Lorraine, so how would you qualify today where you stand with you Around tires business development and perspectives?
Well, as I would say that growth and synergies Around tires are really getting material. And our businesses have become central to the global value that Michelin is bringing to our fleet customers. We now leverage a very powerful brand, Michelin Connected Fleets, and we have developed a signature that mixes cutting-edge digital capabilities with very operational routes, and this enables us to deliver insights for people who need actionable solutions, not just for data.
Great. Thank you, Lorraine. And Eric, so we'll take a few questions. So waiting for some of your questions. I also have some questions coming up straight away here. Maybe we'll start with this one. The Around tire business are known to be less capital-intensive than tires -- probably, could you elaborate on the contribution to the overall value creation? What can you say about that, Lorraine?
Sure, absolutely. I would say that those businesses eventually will be value accretive for the group. Today, they're already accretive in terms of gross margins. And within our portfolio of activities, we already have some parts that have very strong EBITDA. It's the case of our Brazilian Michelin Connected Fleet operations, for example. And our other assets, such as Michelin Connected Fleets Europe, or North America are targeting the same level of margin contribution. When you think about the investment, the CapEx in these activities. What's very interesting is that it's extremely modular because it's mostly devices. So it tends to follow very closely the development of the business with rather short payback. So eventually, these businesses will be value accretive for the group.
Fantastic. Thank you, Lorraine. And I think we have a question coming up from Philipp Koenig, Goldman Sachs.
Yes. I just have a question. Your dealer network must clearly play a role, when you think about sort of the data parts and the connection to your customers, and you probably have one of the largest dealer networks and connections out there within the industry. Can you maybe just share a bit how you leverage that and how you see yourself maybe a bit advantage compared to some competitors who do not have the -- who do not have that scale.
Well, absolutely, Philipp, I think you're spot on. It's true that we have more than 7,000 points of services throughout the world, whether in close partnership or in franchise or fully owned, for example, like it's the case with the Euromaster network. And you're right to say that when you develop Around tire, in particular in connected solutions, you need dealer networks for different things. First, you need to get IoTs installed in the vehicles. And so here, obviously, they play a strong role. But then -- and that's very particular to the positioning of Michelin Connected Fleets. We believe that it's not about insights, not about the raw data. It's not about smart insight. It's actually helping the fleets go from insight to actions. And to go from insight to action meaning that you have a signal saying, for example, that your tire is slightly deflated, they need to be able to digitally connect to service providers, and then route your fleets to trusted partners. And that's where we believe that -- the fact that we have this very large footprint is going to be and is already, a very strong advantage for us.
Thank you, Lorraine. All right. This question is on the data collection. So collecting data, what for? Are you able to collect and analyze data from the tire behavior, driving behavior or road safety that really actually helps you to develop better tires.
It does. And I'll hand it over to Eric our specialist.
Absolutely. Thanks, Lorraine, yes. So yes, absolutely. Knowing the tire has a big effect on predicting how the vehicle and the tires are going to behave in real operation. If you know your tire, you can -- and you know the environment through the data that it's operating in, then you can make very accurate prediction of how fast is it going to wear. Is it affected by the loading that you have, if you start loosing air, how fast is this going to happen? What is the wear profile going to look like. Lorraine was talking earlier about the example of calculating the autonomy of your vehicle, of your electric vehicle, how long is it going to run? If you know what tire you have, if you have data from the vehicle, you can help project very accurately what's going to happen. And to do that, you really need to understand the entire functioning of the system. The characteristics of the tire, the usage conditions and how those two interact and how they function with the vehicle. So it's really having this full view and having, in our case, worked on tire/vehicle performance for decades that gives us this strong position to be able to develop more meaningful, more relevant algorithms and prediction of performance for the good of our customers and for the planet.
Lorraine, do you want to add something there? Or are you good?
I think it was perfect and what we hope and this is one of the mission that we've given our team is to make sure that the better services we deliver, the more data we get. The more data we get, the more I would say, smart we get in terms of designing tires and services and vice versa. And it becomes a virtuous loop that has already started.
Fantastic. So thank you to both. Eric, you stay with me, still. And Lorraine, thank you very much as we welcome for the next session, Maude Portigliatti Beyond Tires.
And we are back and this time, we have Maude Portigliatti, who is in charge of High-Tech Materials business. Maude, it's great to have you. How are you?
I'm fine. Thank you, Asha.
Fantastic. So we had a lot earlier, so we understood the rationale behind Michelin's ambition around tires. But High-Tech Materials look quite further away from the Group's core business. So how should we read this area of growth? Are we talking about diversification?
To be short, the answer to your question is no. We are not diversifying, but we are growing by adjacency. As a matter of fact, Michelin is just leveraging its distensive capability to combine materials in order to create game-changing products in other markets. And this know-how has been developed and applied to tiers for more than 130 years. And the good news is that we are now perfectly positioned to valorize it Beyond Tires.
All right. So probably, could you be more specific about your ambition, maybe explain how you plan to provide better visibility and the performance of these businesses?
Yes. As you know, by 2030, Michelin wants to have a significant part of its revenue around and beyond tires with the ambition to reach 20% to 30% of the Group's revenue. And Florent explained earlier that this business development will further reinforce the Group's resilience and at the same time, accelerate its growth and improve its margin and valuation. In the first place, Michelin's revenues will increase through next position to targeted high-value, fast-growing and sustainable markets. Sustainable because they rely on long-term trends. And doing so, we will become less dependent on cyclical businesses and amplify our non-purely automotive activities. In terms of growth, part of it will come from the organic development of our businesses. In 2022, they already grew by more than 20%. Another part will result from a dynamic M&A strategy and since 2018, we have become quite experienced at targeting, acquiring, integrating and valorizing companies, thanks to our deep innovation impact. I'm talking about business performance now. Visibility is limited today, as Beyond Tires revenue is below 5% of Group sales. But as soon as it becomes material, we will structure a dedicated first segment.
Great. So this is good to hear. So at this stage, probably we could come back for a second to speak about the differentiation, really explain which types of business are you really talking about.
Yes, sure. I've brought my sample. So in simple words, our strategic asset is our ability to bring to market innovations, combining materials into solution for very, very demanding application. Based on this, we have designed a portfolio of businesses, structured by families of unique products or components serving many high value markets. This portfolio is made of 2 main areas. First, there is a domain of flexible composite products actually close to the tire, which are microscopic objects combining rubber and polymer coatings with various textile and metallic reinforcements. This domain includes conveyors, belts, hoses, coated fabrics, inflatable structures for -- and applications in general industry, aerospace, energy, agriculture, food. And we are already very active in this domain based on the business acquired Fenner, some bolt-on acquisition and the French start-up, AirCaptif. Second, is the domain of the technical materials based on engineered polymers. We are able to design engineered polymers and compounds for tires through the arrangement of different polymer phases and fillers at very microscopic scale. And this expertise can be transposed to high-value engineered polymers in various fields, formulary digestives and resin, polymeric and textile materials for medical application and active membranes for energy as an example.
All right. So you came with the samples, that's great. So thank you, Maude. Maybe I think, Eric, what I understood, you correct me if I'm wrong. So there's this mastery of materials associated also with the ability to industrialize it at large scale. So what -- do you have a secret recipe.
Well, great recipes are very hard to master, but they can be easy to explain. That's the case. Really what sets us apart in that regard is our ability to truly innovate by orchestrating very different expertise altogether. In the high-technology materials, in industrial processes and in product design, and to do it, while leveraging cutting-edge simulation and measurement techniques. Our simulation and measurement capabilities are very essential. They span all the way from the molecular level, the very fine description of matter, all the way to the characterization of the finished product operating in the field. And because we have this whole chain from the elementary to the final product, this allows us to identify and select the material properties that are most attuned to the specific conditions that are encountered in real usage. Now I also talked about process and process knowledge for its part allows us to integrate the scalability and the mastery of the most critical material transformation mechanisms that happen when you're actually making the tire during the manufacturing phase. And if you look at this product, process, material and modeling, the greater the number of these expertise are, they play simultaneously in order to create differentiation, the closest we are to fully activating our core capabilities.
Great. Thank you. Thank you, Eric. Maybe Maude, some concrete examples, if you may, that illustrate really how you create a competitive advantage and establish your position in High-Tech Materials, both organic and external growth.
Of course. So since 2018, the activities acquired from Fenner around belting, conveyors, coated fabrics, ceiling have been integrated into the Michelin ecosystem. And in line with our ambition to boost the organic growth, concrete application of the technical synergies between Michelin research capabilities and belting activities are already turning into market opportunities. Let's take an example, another sample, another one. In the world of conveyors for distribution centers. We have leveraged some tire technologies to introduce a new product replacing the O-Rings, and that's a revolution. It delivers 4x greater roller to roller poor transfer without tension decay over the life of the belt. And this allows for conveyor design that can carry more with less motors, which translates to cost savings in belting, maintenance and energy. And Michelin has also sustained a very dynamic roadmap of inorganic growth through selected bolt-on acquisitions, such as Fabri Cote in 2020, a producer of rubber coated fabrics for aerospace application, Lumsden in 2021 or CPS in 2022.
All right.
So that was full flexible composites. Now what about engineered polymers. Well, for engineered polymers, let us take, Solesis, as an example, of our achievements. In engineered polymers, Solesis was a medical branch of Fenner, when acquired by Michelin in 2018. And in 2021, we decided to open part of its capital to Altaris. Altaris being a private equity specialized in health care. This strategy was designed to accelerate Solesis' development in cardiologic implant, drug release and cell and gene therapy markets. Altaris provides a broad access to health care specialists and foster the inorganic growth of Solesis. For example, this led to Solesis seeing end of 2022, the acquisition of Polyzen. Polyzen is a leading developer and manufacturer of polymer-based film and coating technologies for the medical device and biopharmaceutical industries. And now talking valuation. When Michelin acquired Fenner for $1.7 billion, Solesis accounted for 8% of its revenue. And only 3 years down the road, Solesis was valued at $475 million. In a nutshell, Solesis illustrates our ability to actively manage our M&A portfolio, both lying with the right partners and crystallizing the value along the way.
All right. So thank you. So on top of your partnership with Altaris, I have in mind that you manage an R&D agreement with Solesis. So Eric probably, give us a sense of what it means and what it's about and actually what synergies were you able to achieve.
Yes, you're absolutely right, Asha. In parallel of our equity partnership, our research and development agreement has been signed between Solesis and Michelin in order to continue the development of biocompatible and bioresorbable polymers. And clear synergies have emerged from this association of Solesis expertise in biology health care applications, together with Michelin mastery of polymer science. Michelin capabilities in molecular modeling and physical chemical analysis like the simulation aspect that I was talking about earlier, have been applied with multiple benefits. First of all, the use of simulation allows us for reducing the validation time for a new polymer implant technology. And we think that's going to be by up to 50%. So very significant gains from having that understanding and that modeling and testing capability. Secondly, is the physical chemical analysis of drug delivery mechanisms and our ability to design polymer structures is helping identify very innovative biomaterials pathways, which really have the potential to significantly increase drug release efficiency and efficacy, overtime. And finally, our knowledge of polymerization process, again, we go back to the process dimension, it is used to facilitate the scalability of new versions of Solesis' biopolymers. And that can allow us to achieve shorter synthesis time and very, very importantly, reduce variability. At the same time, it actually goes both ways. Solesis' advanced expertise in biology is also helping Michelin deepen its understanding of biocompatible materials. A very important domain you must admit on our journey towards 100% of sustainable materials.
Fantastic. So the Michelin science goes way beyond what one might think? So let's probably move to another area, Maude, where the group is involved, which is hydrogen mobility. So what are the updates on this front?
Yes. So since the launch of our joint venture, Symbio in 2019, it has gone through a very rapid technical and industrial expansion, a broad portfolio of fuel cell system of various power is under development. And Symbio has a strong customer pipeline, including Stellantis for their first hydrogen light commercial vehicles, Safran and GCK for heavy vehicles and Gosan for logistic transportation. In June 2022, Symbio and Schaeffler created Innoplate, a joint venture located in France and dedicated to produce fuel cell bipolar plates, a strategic component. In parallel, Symbio is building its world class factory in Saint-Fons, France. And this flagship is one of the biggest fuel cell factory in Europe. It will start producing in 6 months from now and reach 50,000 systems, annually by 2026. Symbio leadership has also been recognized by very significant funding from France and Europe and this will fast-forward Symbio's industrialization, while bringing its total manufacturing capacity to 100,000 systems per year. It will enable the creation of 1,000 jobs and contribute to the building of a strong hydrogen ecosystem in Europe. And finally, as you might know, we are under exclusive negotiations with Stellantis for an equity partnership. The arrival in Symbio capital of such a pioneer and frontrunner in hydrogen mobility will catalyze a tremendous industrial momentum that has already been built.
All right. That's great to hear. We will take a few questions for -- I hope you have questions for Eric and Maude. But before that, maybe Maude, if you have a final comment before we take a few of them.
Well, okay, if people were to bear in mind only one thing, it is that over the last few years, we have demonstrated our ability to select and nurture promising organic initiatives and to integrate carefully chosen acquisitions. And today, Michelin High-Tech Materials is on track toward a leadership position in businesses that are very, very consistent with our DNA.
Great. And I think we have questions coming up. The question comes from -- Deutsche Bank. Christoph Laskawi, let's listen to him.
Two questions, if I may, for the non-tire business. The first one on Symbio, you have highlighted that Stellantis is looking to buy into the business. Is there a risk that you have in the end, an exclusivity with Stellantis for the passenger car side of that business? Or are you still willing and allowed if they buy into supply other OEMs outside of the Stellantis group? And then the second question would be, just in general, on the non-tire business and versus the plans that you have initiated, the previous CMD. Did the inflation, the macro environment over the last years changed the end markets dramatically in any way to accelerate or actually risk the development that you foresee until 2030.
So for the first question, I would say we don't envision to restrict Symbio to Stellantis business at all. Stellantis themselves, they are interested in very broad Symbio, able to serve not only automotive, light commercial vehicle, but also heavy trucks or even off-the-road vehicle. So no exclusivity at all. This is an equity partnership that aims at, I would say, boosting Symbio, but without any exclusivity. That's very important. It's a big market in front of Symbio. So for the second question on the macro economic environment. Yes, I would say that the two last years, in fact, reinforced the vision we had of the High-Tech Materials. We saw -- and we saw that with the activity we have, that those markets are very resilient plus they are very diverse. And for example, we grew over 25% in 2022 compared to 2021. So really, the last trends we saw in the market reinforce the vision we had. And we are very motivated for the future without any change of our strategy.
All right. I hope that answers the question. We take the next one coming from Pierre-Yves Quemener, Stifel.
Yes. Pierre with Stifel. Just to have a rough idea, you said that the High-Tech business was less than 5% of the Group sales. Are you around EUR 1.2 billion, EUR 1.3 billion in sales at the end of 2022. And as a follow-up, regarding the profitability of that business, are you accretive to Michelin overall margin at the EBIT level?
Yes. So end of 2022, we were at EUR 1.1 billion sales. So very close from what was announced for 2023 during our Capital Market Day in '21. So yes, we are around those 4% to 5%. And profitability-wise, we are very close to the SAS-free profitability. Typically, the EBIT margin of the business we are speaking about are around 15% to 20%. So yes, it's accretive for the Group, and it is meant to be accretive for the group in the future.
Next question coming from Michael Jacks, Bank of America.
It's actually a follow-up from the first question from Christoph, and maybe just asked another way, we've seen that OEMs tend to be quite cautious when awarding business to suppliers that have competing OEMs and shareholders, particularly in Japan with a risk to suppliers. My question is what sort of assurances could you provide to these competing OEMs to make them comfortable enough to award business to Symbio?
Well, in this hydrogen mobility, this is a world of alliance, for sure. And now Stellantis being a shareholder of Symbio, won't have access to the market, to the information of the customers. It is under discussion right now, the governance of the future JV. So really, we will provide this insurance that Stellantis will be only a shareholder and no information will be shared to Stellantis, regarding the other customers. And as I said, for example, for truck, heavy truck, this is not in the where-to-play of Stellantis today, and it will be a huge opportunity for Symbio.
All right. Okay. Maybe we'll have time, just one final question, and we take it from Sanjay Bhagwani from Citi.
Just coming back on Symbio. I think in June last year, you also announced this joint venture between Symbio and Solesis called Innoplate. And I suppose the purpose of that JV is also to produce the bipolar plates for the hydrogen solutions. And I think in Symbio also today, you mentioned that it's going to be making bipolar plates. So could you please maybe explain the difference between these 2 businesses and probably Symbio includes much broader set of components. Is that right?
Yes, of course. So the bipolar plate is very -- a key component for the fuel cell. And Symbio's strategy is to be as integrated as possible, vertically, because it will be a key differentiator compared to the Symbio competitors. So Symbio wants to be integrated in bipolar plate. And they also want to be integrated in what we call MEA that is the heart of the fuel cell. So for bipolar plate, we decided to share the investment with Schaeffler, and this is a production JV that will produce only for Symbio and for Schaeffler. And for MEA, we decided to directly integrate this activity into Symbio. So no competition here. It's only a way to integrate, while sharing the cost of this integration with Schaeffler.
Great. Brilliant, I think that's all the time we have for this session. Thank you for the great questions. Thank you, Eric and Maude, as we move to our final session, the conclusion, and we take a few questions after that. So with Yves and Florent.
And we are back on the set. Joining me again, Yves and Florent. So it has been a lot of information here and lots of interesting questions here. So we've learned a lot about the Group's activities with the different business lines. So now Yves, maybe we'll start with this first question. So we understood the business strategy of many of the Group achievements since your last Capital Markets Day in 2021, 2 years ago. Now what about the financials against the ambitions that you presented back then. So can you tell us a few words, it's about that.
I will. Thank you, Asha. Well, at our 2021 Capital Market Day, we committed on 4 KPIs towards 2023. Of course, much more beyond for 2030, but for 2023 4 KPIs, sales, segment operating income, free cash flow and return on capital employed. Regarding sales in April 2021, we expected to go back to 2019 level by the second half of 2022 with -- we assume at that time, 2023 being the first normal year in the post-COVID environment, reaching sales around EUR 24 billion. It went completely another way since we reported sales of EUR 28.6 billion in 2022 despite volumes down by 6% versus 2019. This sharp revenue increase was mainly driven by substantial price hikes to offset the EUR 3.9 billion cost that Florent mentioned as inflators that we have to bear during this period, along with the continuous mix and bridge enrichment. As far as segment operating income is concerned, we committed to deliver segment operating income in 2023 of EUR 3.3 billion at January '21 exchange rates. 2022 was actually already at EUR 3.4 billion, supported by our price discipline, richer mix, competitiveness measures regarding industrial footprint, manufacturing processes, SG&A and the contribution from our non-tire businesses. Maybe a word on operating margin in percentage. In a very inflationary period that we already know, we still have to protect our margin in Europe per unit, not in percentage of sales. Over 2021 and 2022, inflation had a huge dilutive effect on our margin that we estimate of around 1.7 points, which means that 11.9% operating margin of 2022 should be read at 13.6% on a comparable basis. If we restate the dilution effect from each reporting segments, each of them has already reached, in 2022, the target that we have set for 2023 at the last CMD.
All right. So that answer quite clear the question, but what about cash and return on capital employed?
As regard to free cash flow, our goal was, over the period of 4 years from 2020 to 2023, to deliver EUR 6.3 billion of free cash flow. We actually already delivered EUR 4.2 billion in the first 3 years between 2020 and 2022, including a EUR 1 billion negative impact of inflation on our working capital in 2022. We have also decided to simplify and guide on reported free cash flow in the future before M&A and no longer on a structural free cash flow. The last major KPI and probably the most important for me is the return on capital employed. Here, we committed to deliver a return on capital employed of 10.5%, starting from 2023, coming from 10% in 2019. In 2022, we posted 10.8%. We are ahead of our target for 2023.
All right. Yves, could you probably expand on your policy on shareholder return?
Sure. Let's start, first, with the dividend. We maintain them even in terms of crisis, and we have improved recently our proposition of payout ratio to 44% in 2022 with a plan to gradually increase this payout ratio to 50% towards 2030. On top of dividend, we stick to a yearly anti-dilutive share buyback programs to offset the impact to employee share plans.
All right. And now you often refer to your strategy as leading on these 3 very key pillars that are people, profit and planet. Now how would you qualify them?
You're right. Our strategic scorecard is made of 12 ambitions, split across people, profit and planet. We are making strong progress towards our 2030 ambition. And let me mention few topics. Talking about people, our people-focused ambitions, we are encouraged by the level of engagement of our employees. Look at our 2022 global survey, fulfilled by over 106,000 employees, whereas we are getting out of 3 totally abnormal years in terms of environment. 88% of them expressed they were proud to be part of Michelin and the engagement rate has increased by 3 points versus 2021, reaching 83%. People commitment and trust in the company and in the future, these are our main reason to believe that we are going to succeed in our ambition.
All right. And maybe when I listened to the different members of the executive committee earlier, so I understand that part of your growth actually will be achieved through M&A. So what can you share with us to give the investors who are watching us, to give them confidence in your ability to achieve such an ambitious M&A plan.
So in merger and acquisition, we are mainly talking around -- about Around & Beyond Tire businesses, which we plan to grow, up to 20% to 30% of Group sales by 2030. Over the past 5 years, we have been able to design various M&A patterns to support our strategy. We've been very agile in managing our portfolio in and out and Maude or Lorraine have given several examples to ensure the best strategic fit and capital allocation. Basically, we have 3 way in approach regarding M&A. First, we will own 100% of the capital that when we want to internalize the know-how of the targets and its market access. The objective there is to foster the value of the whole company by leveraging our own distinctive capabilities around material science, product design or industrial processes. Just a word on synergies. It is important for investors to understand that beyond the cost synergies that we are committed to deliver and extract within the first 2 years, the main stake for us is to reach deep innovation synergies which are very powerful, but actually materialize from the year 3 onwards. This is the kind of synergy more described earlier when talking about the O-Rings, light belt, commercialized by Fenner. In summary, when we buy out a company, we chase mid- to long-term synergies, which materialize through product mix enrichment dedicated to high-end products on fast-growing and highly profitable niches.
And you mentioned various M&A patterns, I mean, apart from full acquisitions. So can you expand.
First, we -- and it's quite -- new for Michelin in the past 5 years, we have opened several joint venture at 50-50 or close to that. Maude mentioned the example of Solesis, our medical business when we opened up the capital to Altaris, which is a private equity or U.S.-based private equity specialized in health care. Here, the purpose was really to speed up Solesis' growth by leveraging Altaris intimacy with the sector, while keeping strong tires with the company through an R&D agreement that has been described by Eric, previously. And finally, we may take a minority stake in selected company or start-up. For instance, when we want to partner on innovation in an asset-light manner, illustrations are -- so Enviro on sustainable materials, where we do not reach to finance or operate the entire -- the whole business model. But where we claim valuable IP, related to material science and process.
So there's some kind of M&A agility that fits the strategy. So -- but in practice, tell us about your track record in this field.
So actually, our M&A track record over the past 5 years is quite impressive. And this gives us confidence in our ability to pursue our strategy. We have demonstrated that Michelin is good at integrating, acquire companies from both a cultural and the managerial standpoint. We have also shown our ability to assess synergies prior to a deal then to achieve them. And let me give you an example in 2022, the bottom line impact of Fenner, Camso and Multistrada synergies, which EUR 145 million, right in line with our plan. On top of that, we have demonstrated our ability to step up businesses, embedded in the company or acquire or to ally with the right partners by selecting the right M&A pattern and improving the Group return on capital employed. Last but not least, in Around & Beyond Tire business, we are now getting the expected value of this deep innovation synergies delivered, thanks to several breakthrough in R&D, industrial process, innovation and new data intelligence capabilities.
Right. Thank you, Yves. So Florent, so we've heard a lot of -- shared a lot of facts and figures and lots of information. And it seems that you're quite on track to achieve your 2023 targets, but not just that, but also the 2030 ambition. So -- and there a lots of people watching us today, what would you like them to keep in mind about Michelin, about the Group.
Well, Asha, my first message today is that despite a very challenging environment, very challenging and uncertain environment that we have experienced over the past 2 years, we have delivered a high performance. These achievements, not only give us confidence in our ability to navigate the new trends that are developing around the world, but they demonstrate the relevance of our strategy. Where some see threats and constraints in these challenging circumstances, we, at Michelin, decide to see opportunities. We are convinced that our differentiation will be and will become more and more recognized.
And speaking about differentiation. So I think it's really the innovation capabilities that seems to be the common denominator that feeds all your activities, correct me if I'm wrong.
No, you're not. So yes, it is clearly visible today with the presence of Eric Vinesse in my place for almost all the intervention, he's our Head of R&D, and that says a lot about the synergies we want to develop. In all our activities, we leverage technologies that we have developed through our presence in the tire space, but that can be applied to many more end markets at a high value premium. Here, I think, it is important for our audience to realize Michelin is not just a tire company. We've never been so, by the way. I'd rather look at us as a deep tech company able to address many high-end market verticals. And within this framework, we trust that our future success will come from our ability to further improve our tire activities, structural performance on the one hand, and to genuinely manage the markets that we are able to address around and beyond tire on the other hand.
That's quite clear. Thank you, Florent. Maybe I will take a few questions in a couple of seconds. Maybe just one last comment before we open the Q&A.
Yes. The last one would be with Yves, I would like first to thank Scott, Maude, Eric, Lorraine for their participation today, they've been very explicit and help us understand better our business. And on top of that, I would like to recognize all our Michelin teams who contribute every day to making our Michelin adventure a reality. And for our audience, I'm happy to announce that we will host an in-person Capital Markets Day in 2024 where we will reveal our next medium-term goals towards 2026.
Exciting. So looking forward to that. Thank you, Florent. Maybe we'll open the Q&A now, and I will take this first question. And the first question is related really to come back on the planet ambitions. Yves, I think that's your field.
Yes. So coming to the planet ambition, we have a clear roadmap toward with decarbonation and to reduce by 50% by 2030, our CO2 emission and we have secured the capital expenditure to do so. Scott mentioned the press electrification, for example. Sustainable material is also very important. It has been mentioned by Eric and Maude and Scott. We are already able -- it has been shown to produce homologated tires at scale with more than 50% of sustainable materials. This shows that we are making strides along with our partners and suppliers. And finally, on top of these KPIs, we have committed on reducing our environmental externalities and there was -- here also we have beaten our ambition. Based on the CO2 reference cost of EUR 120 per tonne. Today, on the European market, the CO2 is at EUR 100 per tonne. We decreased our externalities by nearly EUR 100 million since 2019 to EUR 493 million, well below our 2023 target.
Fantastic. And we take a question from Thomas Besson, Kepler Cheuvreux.
A couple, please. Firstly, as you mentioned during the various presentation, inflation has been substantially higher than you anticipated when you set up the plan, meaning that to get to 20% plus of revenues for new activities, you're going to have to have substantially higher absolute revenues, meaning you're going to have to acquire substantially more revenues probably at a higher cost. Could you make any comments on this? And on the average kind of acquisition you plan to make in terms of size, is it going to be 5 or 10 mid-sized acquisitions? Or would it be 1 big one? That's the first question.
Okay. Maybe I will take this one. It can be both. We are not looking at different -- we are looking at different alternatives to reach our target. But you rightly mentioned the fact that 20% is more challenging because, of course, with the inflation, our revenue has grown a lot. We're looking -- we are investigating many different opportunities right now. And of course, we are very cautious about the decisions we make in that, when it comes to M&A. And keep in mind that we constantly want to make sure that we deliver on our value creation and our ROCE of at least 10.5%. So that's what drives us. And Yves would be better describing that, but we don't want to -- when making acquisitions, whether small or big, we don't want to degrade too much our financial ratings.
Great. Thank you, Florent. Maybe Yves, if you want to add.
That was very clear.
Fantastic to have answers to your question. We take the next one from Philipp Koenig, Goldman Sachs.
Just -- my question is sort of on the capital allocation. I mean -- and especially on the CapEx. So you mentioned earlier that you see different ways of investing, whether that's sort of clear acquisition or via JVs. How do you see sort of your CapEx evolving as you sort of supported JVs via financing and CapEx spend over the next couple of years as you aim for those 20% to 30% diversification by the end of the decade.
So, first, Philipp, CapEx and JV financing are 2 different things. Some of our JV needs financing because they are in, let's say, in scale-up mode. On the other hand, some of our JV also returning us cash as it happens, for example, with TBC in 2021. Regarding the CapEx, we have probably seen three period. Before COVID, we were on the trend of spending around EUR 1.9 billion per year. Of course, 2020, we have been able to take some hard decision that has some consequences on 2021. And we are really catching up between 2022 and 2023. That's why we have slightly increased the CapEx for these 2 years. Let's say, beyond the EUR 2 billion. Looking forward, we can -- there is at least 2 things that we can share. The first one is that, inflation is not only impacting operating costs. It's also impacting CapEx and we have estimation, depending on the category of, let's say, inflationary pressure of around 15% on the CapEx at least in 2022. And second, we have particularly, our sustainability and decarbonation roadmap that will deserve probably more investments. Scott mentioned, press electrification, you can imagine that in the current environment of energy prices in Europe, we are looking at maybe accelerating our investments because first, these investments at a certain level of electricity or gas price are extremely profitable. They are generating a good payback. And on top of that, they are necessary on our roadmap towards zero emission by 2050.
Right. Thank you. Thank you, Yves. The next one coming from Steve Pereira, Societe Generale.
I just wanted to know a bit more about Beyond Tires. So are you happy with the current verticals you're in? And is it more growth coming from expanding within those existing verticals like conveyor belts, hoses, et cetera. And what proportion of growth is being fueled by entering new verticals.
We didn't capture the end of the question.
Just the end of the question, maybe, Steve, if you could repeat the connection was not very clear.
The question really is, is growth in Beyond Tires being fueled by entering new verticals? Or is that by gaining existing -- getting more customers within the existing verticals like conveyer belts and hoses, et cetera?
It's -- again, it's both. We are looking into new verticals and new type of customers within these verticals. So we are looking in both directions, right?
But if I can complete, we are looking, and I think more than Eric has explained it. We are looking at verticals, where thanks to our material science, our process knowledge, we can improve the performance of the product of the company we acquire in order to make them extract more value or acquire more market share in their respective domain.
The little belt was shown by Maude earlier, is the perfect example of that. It looks like a belt, but it's actually a revolution in the belting of conveyors and for Amazons of this world, et cetera. It is a real revolution.
Thank you to both. Next question, Bank of America, Michael Jacks.
I have 1 follow-up question and then another question. The first one is just to clarify. Thank you for sharing the synergy extraction number for Fenner, Camso and Multistrada. I just wanted to clarify, is the EUR 145 million number that you mentioned a revenue or operating profit equivalent. And then my second question is just more in broad terms on the M&A strategy. How do you think about managing the increased organizational complexity that comes with the diversification path that Michelin is on, particularly in terms of management time and focus, and are you at all worried that this path could potentially see Michelin become more of a conglomerate structure in the future?
The synergies of EUR 145 million is -- EUR 145 million on the net results after tax for the company.
And for managing the complexity, we've been preparing ourselves for a long time now. And we realize there is going to be complexity, our tire business is very integrated. The way we manage these new businesses Around & Beyond tires is very different where we have more entities with more autonomy. We have also when we make acquisitions, we also acquire very talented people as well. And if you look at Fenner, all the managers that were in charge of those businesses, the 5 businesses of Fenner at the time, are still in charge. And very likewise in Camso in various businesses, we also acquired talent. So now the bulk -- it's not -- we are not becoming conglomerate because again, Maude was mentioning it several times, we're looking at adjacencies to our core know-how and Eric was mentioning what is our core know-how, whether it's on microscopic level or a macroscopic level, we have a deep understanding of polymers, and we are deep tech companies, engineering our knowledge of usage, using leveraging technology or we are developing a new platform for polymers in different formats.
All right. We take a follow-up question from Thomas Besson, Kepler Cheuvreux.
I actually have 2 follow-up questions. I'll ask them right now because this way, I'm sure I can ask them. First, CapEx, I mean, I understand that CapEx is higher in '23, '24 because it was lower in previous years. Can you just give us an idea on whether it drops after '24 or whether it stays at '22, '23 levels, so eventually even goes up depending on the acquisitions. And then I'd like to come back to the creation of SR4, eventually at one point, once you made this acquisition. Do you view that as a value creative mode, do you think it's going to help the market better assess what you're doing with it and therefore lift eventually or multiple or maybe to follow up with as Michael Jacks was saying, is there not a risk that financially you're perceived as a conglomerate because for the time being, despite the success of your acquisitions, your multiples have decreased rather than increase?
Yes. So the CapEx is -- well we can assume that they will probably stay stable for the years to come. So take 2023 as, let's say, as the basis because, again, if we want to accelerate our decarbonization roadmap and to cope with the local to local strategy with -- in a world that is becoming more and more fragmented, we make to make sure that we have the right capacity where our customers are based. To come back on the creation of SR4, we are sticking to higher IFRS style guide. So we need to have an activity which represent at least 10% of the Group sales. So we are not yet now. Well, I would like to mention maybe 3 things. First, we start to disclose some data about non-tire activity through the bridges that we are publishing every semester where you would see clearly the contribution of non-tire business, both on our sales and our operating margin. Second, SR4 has not to purpose to make a sort of sum of the parts because it is the contrary. We are not a conglomerate. The conglomerate is a company which is managing different business only on financials and...
He was speaking about the risk of being perceived as 1.
Yes. But I think that was the purpose of today's presentation and the presence of Eric during the 3 presentations in tires, Around & Beyond, show that there is a glue or, let's say, something that is connecting very closely all these businesses. So what we expect is that investors, while also seeing continuous improvement in the tire business, we'll see that the Group is able to create value beyond tires and around tires. The Solesis deal was an example, and there will be some probably other examples in the months or years to come, and the creation of an SR4 when we will be ready, should be the demonstration that we are able to create value beyond this.
Maybe I just want to stress this last point mentioned by Yves. When we incubate businesses, they carry when -- as soon as they go out, they carry a lot of value. So the issue is the multiples that we are ranking are wrong. It's not because our business is wrong. It is the way we are appreciated. But when we see Solesis, but we have other examples where when the business is valued either in a joint venture or elsewhere, it has very high multiples when it exits the added value that Michelin has brought to that business.
Okay. A couple of more minutes. Next question, Pierre-Yves coming from Stifel.
This is Pierre-Yves with Stifel. Three quick ones, please, to better gauge the capital allocation. The first one, if we aggregate both the CapEx spending, which would be roughly stable around the 2023 levels of EUR 2.3 billion roughly. And the funding to JVs, how much should we consider Michelin to spend going forward? That would be the first question. Second one is regarding the future M&A, what's your maximum firepower there if you were to make a big one, a big acquisition in one go without any new equity measure. And the last one would be on the payout ratio going forward. In 2021, you said you were contemplating a 50% payout ratio, starting in 2021. How should we think about the payout ratio going forward, starting on the earnings of 2023?
Okay. Three questions there. Who wants to start?
Okay, I will start. So for your information, the JV spending if we look, in average, over the past years, was an average for the group around EUR 50 million. So it's not a huge amount of money because these are JVs. So we have partners who are contributing equally to the financial needs of this company. And on top of that, as I mentioned, there is some JV that are, let's say, returning back cash to the company. Regarding future M&A, if I follow the -- if I look, for example, at our rating, our financial rating, we are currently A-, if I take Standard & Poor's without degrading substantially our rating. We can probably make acquisition, let's say, beyond EUR 5 billion. if there was an opportunity. I'm not saying that there is an opportunity, but if there was there was an opportunity...
If you could, it would be beyond...
So -- but that's the maximum firepower so it's probably beyond EUR 5 billion without impacting our current rating. And if we were accepting, let's say, on one notch downgrade, you can probably add few couple of EUR 1 billion. That's -- I mean that's not the key question for us. The question is, are we able to create value and maintain or improve the ROCE of the group, we're doing that. Regarding the payout ratio, in fact, maybe there was a misunderstanding on our side. Our intention is to reach 50%. We have also to take in account the progression of our net results and to have also a reasonable and gradual, smooth dividend increase in a framework where we have also to look at the remuneration of the other stakeholders. And that's the kind of discussion we had with Florent, with our Supervisory Board when we discuss about the proposition of the dividend will submit to the shareholders' meeting.
Thank you, Yves. Next question Himanshu Agarwal from Jefferies.
Himanshu from Jefferies. Sorry, coming back to the M&A. I just wanted to ask, do you -- at this stage, do you have any regional focus. Are you looking at Europe, North America or Asia. And in terms of the M&A, what is your preference? Is it like several small acquisitions or one big M&A, which do you think is easier to integrate? And lastly, are you looking at like an acquisition, something to complement like -- something in the same space as Fenner or are you looking at more from a software angle. Yes, if you can just give us some more details.
Okay. Thank you for those 3 questions. Our M&A scope is for Around & Beyond Tires. Of course, there is -- in Beyond Tires, we are addressing potentially a market of $300 billion. So there's many more potential than around tires because in Around Tires, we want, as explained by Lorraine, we play on the field where we add value, and we don't add value everywhere around tires, leveraging technology. So that limits a little bit our scope. Our preference is we don't have a preference. Both journeys are investigated, bigger acquisitions or a series of small acquisitions. We would look at opportunities. Always -- we always remind ourselves that in order to make an acquisition in front of a buyer, and we are potentially a buyer, you have to have a seller. And we have to agree on the price. So sometimes it's...
You have all the combinations.
The combination is -- that's when you can conclude the M&A. So that's why we're pursuing both journeys at the same time. And whether in terms of regional focus, what we see is in China, businesses are very expensive, extremely expensive. And it's difficult to assess the reality of our understanding of those businesses. if I look at Beyond Tires, in macroscopic and microscopic fields that mentioned by Maude. Western Europe, North America are probably the fields where we are looking more in terms of geographies yes.
And I think that's it, was there a follow-up question?
Okay, there was a question about the is it Fenner like or software like...
That's what I said, it's around tires, it will be more software-like and if it's Beyond Tires, it will be more Fenner-like and we will grow in both areas. More in Beyond Tires than in Around Tires.
Okay. And we take a question, we have Philipp Koenig from Goldman Sachs.
Just one follow-up question and maybe switching it a bit around in order to reach your diversification target of 20% to 30%, would you also consider any disposals maybe within the tire business to reach a diversification strategy earlier or is that nothing that you currently have on your mind?
Yves mentioned at the beginning that we are constantly managing in an active manner our portfolio. So we have done some -- we have sold some business, and we have acquired some businesses. In the tire space, selling will be more difficult because in tire space, it's a very integrated business. So selling in that space will be more difficult. But if we have opportunities and it makes sense strategically, we have no issue at selling businesses if it makes sense strategically.
Thank you, Florent. A couple of more minutes. Next question coming the time from Thomas Besson, Kepler Cheuvreux.
I have another follow-up, please. Is the market doesn't -- your stock properly -- would you, at one point, consider spinning off part of your assets the way Daimler separated its truck activities or the way Fiat in the past separated, sorry. I know it would put the target of 20% to 30% somewhere else. But in terms of value creation, is that an option? If say, in 5 years' time, you have acquired something and the market still doesn't fit somewhere than you do.
I think in your question, you've almost answered because if we do not succeed in re-rating Michelin through this, then we would consider any other avenue to make sure that those businesses are valorized and we are not impaired in our growth strategy because of valuations. So our balance sheet today is strong enough so that we can make one or several moves and -- for the near future. But again, we'll be looking at various opportunities. When I look at what we have done on hydrogen, for example, or when I look at what we have done with Solesis, things are very open in the way then those businesses can be valorized financially after that.
Right. Five more minutes. Next question is Steve Pereira, Societe Generale.
Just one more question from my side. How do you think about geopolitical risk? And can you maybe give us an update on your local to local strategy?
So on geopolitical risk, it is true that I was mentioning in my introduction the world's fragmentation. It's new. We've clearly exceeded since the events in Ukraine. We've clearly exceeded the happy globalization world and now we are entering into a world that is somewhat -- could be scary if we're not careful. So our strategy is looking at being as autonomous as possible by region, by major reasons. So we look at China, we look at the U.S., we look at Europe. We look at South America. So we've splitted the world in several regions, and we want to be as autonomous as possible by region in all our activities. Some of our -- we have, for example, grown some dependency on machinery, equipment from China. So we're looking into that to see how we could develop other part of the world to -- for our equipment. Not exiting China, but just balancing the risk to make sure that we have a good assessment of revenue and good assessment of our cost by region. So that in the event something was moving, we would -- the group will not suffer too much. We are truly a global company. And out of the CAC 40, we are the most exposed to the entire world because we are present in 174 countries. So we are very sensitive to this geopolitical risk. And we take now it's on the top of our strategic agenda to look at how we reshuffle some -- marginally some of our businesses, nothing radical, but we are more sensitive now, and we look at how we can rebalance things. So yes, we are very attentive to this subject.
Maybe, Yves you're happy with that, you want to answer something there. I think we are -- we've reached the end of our time together. Florent, Yves, thank you very much. Maybe one last word for you, Florent, if you want just to say.
Yes. I thank all the Michelin people, but I forgot to thank you, Asha for today. It was great. And really, Michelin is very, very strong, in a very, very challenging environment. But as we have a very optimistic view of this, we see opportunities in this challenging environment.
Fantastic. And the next Capital Market Day is next year, in-person.
In-person, 2024.
So it should be more exciting then.
Yes, provided there is no pandemic. No new pandemic.
Let's not use the word pandemic to finish the show right? Okay. Thank you very much, Florent. Thank you, Yves. And thank you to all the members of the committee, who are on the table here. I hope it was insightful for all of you. Thank you for your great questions. And see you next year. Goodbye.
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