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Rating action

Scope Ratings GmbH (Scope) has today affirmed the issuer rating of A/Stable on Compagnie Générale des Etablissements Michelin SCA (Michelin). Concurrently, the S-1 short-term debt rating and A senior unsecured debt rating have also been affirmed.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

The issuer rating reflects Michelin’s strong business risk profile (assessed at A-) as a leading global premium tyre manufacturer with a high share of replacement business (less volatile than OEMs business), coupled with strong geographical diversification, a good product range, global brand recognition and solid know-how in the development of innovative products, enabling relatively stable EBITDA margins in the 17%-20% range over time. The issuer rating is supported by an even stronger financial risk profile (assessed at AA-), characterised by generally low leverage with debt/EBITDA of around 1.0x. Ratings upside is deemed limited for the time being due to potential usage of financial headroom.

Business risk profile: A- (unchanged). Michelin’s business risk profile reflects its leading position as a premium tyre manufacturer. Its market share in the global tyre market has been stable at around 14%-15% in recent years, and Scope does not expect it to deteriorate. The company is exposed to a number of cyclical - yet uncorrelated - end-market industries such as automotive, mining, construction and aviation. However, this exposure is counterbalanced by Michelin’s significant share of sales in the replacement market, with a low dependence on original equipment sales, as well as an increasing share of the non-tyre business to 17% of sales as of 2024. Michelin’s global presence and wide product range of tyres contribute to diversification. Additionally, Michelin benefits from stable profitability of around 17%-20% (EBITDA margin), global brand recognition and solid know-how in the development of innovative products (ESG factor: credit positive), which is especially relevant for the premium segments.

In 2024, Michelin’s revenues declined -4% primarily driven by lower volumes specialty tyres and Original Equipment (OE) sales, partly a reflection of Michelin’s selective approach. Scope-adjusted EBITDA* remained broadly stable at EUR 5.1bn, while EBITDA margin moderately improved to close to 19% thanks to favourable mix. Going forward, Scope expects EBITDA margin to remain around 19% amid a slow topline growth (assumed flat in 2025, low single-digit percentage afterwards). Such solid margins are supported by an improving product mix – e.g. the share of 18-inch plus diameter tyres in Michelin-branded sales continued to increase up to 65% in 2024 - and the impact from restructuring initiatives (since October 2023, Michelin has announced eleven capacity adjustments globally), despite currently soft and volatile market demand for most products. The risks associated with US tariffs are substantially mitigated, as approximately 70% of Michelin’s products sold in the United States are produced domestically. This figure rises to 90% when including production in Canada and Mexico.

Financial risk profile: AA- (revised from A+). The assessment is driven by continued strong credit metrics, including a debt/EBITDA stable at 0.9x in 2024 and an improved cash flow cover expected to remain around 40%. Scope expects debt/EBITDA to remain close to 1.0x over time, thanks to gradually improving EBITDA. In February 2024, Michelin announced a EUR 1.0bn share buy-back programme until 2026 (EUR 500m already executed in 2024), as there is no interest in further deleveraging. The leverage assessment includes a headroom for unexpected large negative working capital swings - such as in 2022 - or more intense M&A activity (excluding large multi-billion size deals). With reduced interests of around EUR 60m in 2024 from changing the debt denomination currency into USD at its Mexican subsidiary, EBITDA interest cover improved to over 30x in 2024 (2023: 16x) and Scope anticipates interest cover to remain very strong over time at around 20x amid interest assumed at EUR 240m to 260m per year. Free operating cash flow (FOCF)/debt decreased in 2024 but remained at a strong level of 38% (compared to 55% in 2023). Changes in working capital had a marginally positive impact, close to EUR 0.1bn, compared to approximately EUR 1.0bn inflows in 2023. Scope anticipates the cash flow coverage to average 40% in the medium term, assuming capex is maintained at a similar level of around 8% of revenues, ranging from EUR 2.3bn to EUR 2.4bn annually. Scope also assumes the absence of significant acquisitions, but rather bolt-on deals of around EUR 300m per year as well as dividends of around EUR 1.0bn per year, considering that Michelin targets a payout ratio of close to 50% of net income.

Liquidity: adequate (unchanged). Michelin’s liquidity profile remains solid, as indicated by projected liquidity ratios consistently above 200% and the backloaded distribution of debt maturities over time. Scope believes that the EUR 1.0bn bonds issued in May 2024 can be seen as an early refinancing of the EUR 750m bond maturing in September 2025.

Supplementary rating drivers: credit-neutral (unchanged). Scope has made no adjustments related to financial policy, peer group considerations, parent support, or governance and structure.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s expectation that Michelin will maintain a debt/EBITDA ratio of around 1.0x over the next few years, but could use its solid financial headroom to make major debt-financed acquisitions, which are not assumed in Scope’s forecasts over this period.

The upside scenario for the ratings and Outlook is:

• Debt/EBITDA remaining well below 1.0x on a sustained basis in the absence of larger debt-financed acquisitions.

The downside scenario for the ratings and Outlook is:

• Debt/EBITDA deteriorating to above 2.0x on a sustained basis.

Debt ratings

Compagnie Générale des Etablissements Michelin SCA (Michelin) is currently the sole entity issuing bonds and commercial paper within the group. Despite the absence of a formal explicit guarantee, Scope assumes a strong implicit guarantee from Michelin for its main subsidiaries Compagnie Financière Michelin SAS (which owns the vast majority of the worldwide group affiliates) and Compagnie Financière Michelin Suisse SA (which carries out treasury activities for the group) based on name identity, full ownership and operational integration. Consequently, Scope aligns the long-term issuer ratings and short-term debt ratings of these subsidiaries with those of Michelin.

Scope has affirmed the senior unsecured debt rating at A, the same level of the issuer rating.

Scope has also affirmed Michelin’s short-term debt rating at S-1. This rating is based on the underlying A/Stable issuer rating and reflects robust liquidity through internal and external sources, good standing in public and private debt markets and established banking relationships. Evidence for this comes in part from the group’s broad mix of committed long-term credit lines from different banks. The Group has in place several short-term debt programmes, including the EUR 2.5bn in French commercial paper (NEUCP), and the USD 700m US commercial paper programme (USCP).

Environmental, social and governance (ESG) factors

Scope considers product innovation as a positive ESG factor that strengthens the competitive position of the issuer. Michelin possesses solid expertise in developing innovative products, which, along with its strong brand recognition and reputation, enables it to remain a leading player in the evolving premium tyre segment. In Scope’s view, the company is well positioned to benefit from megatrends such as electrification, connectivity, and greener products. This is due to its substantial investments in tyres for electric vehicles, which require specialised engineering, as well as in recycling technologies and connected mobility solutions.

All rating actions and rated entities

Compagnie Générale des Etablissements Michelin SCA

Issuer rating: A/Stable, affirmation

Senior unsecured debt rating: A, affirmation

Short-term debt rating: S-1, affirmation

Compagnie Financière Michelin SAS

Issuer rating: A/Stable, affirmation

Short-term debt rating: S-1, affirmation

Compagnie Financière Michelin Suisse SA

Issuer rating: A/Stable, affirmation

Short-term debt rating: S-1, affirmation

*All credit metrics refer to Scope-adjusted figures

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 14 February 2025; Automotive Suppliers Rating Methodology, 2 April 2025), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Eugenio Piliego, Senior Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Compagnie Générale des Etablissements Michelin Credit Ratings/Outlook were first released by Scope Ratings on 28 November 2018. The Credit Ratings/Outlook were last updated on 12 July 2024.
The Compagnie Financière Michelin Credit Ratings/Outlook were first released by Scope Ratings on 28 November 2018. The Credit Ratings/Outlook were last updated on 12 July 2024.
The Compagnie Financière Michelin Suisse SAS Credit Ratings/Outlook were first released by Scope Ratings on 9 June 2021. The Credit Ratings/Outlook were last updated on 12 July 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use/exclusion of liability
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