2 _59 2023 UNIVERSAL REGISTRATION DOCUMENT_MICHELIN 2 RISK MANAGEMENT Risk factors specific to Michelin, description and related management systems Risk 6 – Mergers and acquisitions Risk factors The main risk factors inherent in the Group’s M&A activities are as follows: ● risk of overestimating the value of the target; ● pre-existing risks at the target company, such as ethical, tax, environmental, legal, product liability and cyber risks; ● risk that expected synergies may not be achieved; ● risk of losing key employees; ● risk of strategic misalignment with a joint venture partner. Specific nature of the risk The Group has defined a strategic model organized around three growth drivers: with tires, around tires and beyond tires. These drivers are supported by Michelin’s core business and expertise in polymer-based composites, the accelerating pace of digitalization and the commitment to enhancing the customer experience. Acquisitions help us achieve our strategic goals and we have stepped up our efforts in this area since 2014, by acquiring Sascar, Camso, Fenner, Multistrada, Masternaut and FCG, and creating various joint ventures including TBC with Sumitomo Corporation, Symbio with Forvia and Stellantis, AddUp with Fives and Solesis with Altaris. Our ability to meet our goals depends on the success of these acquisitions and alliances. Governance and risk management response A governance system has been set up to manage the portfolio of M&A projects, supported by a specific governance system for each project, under the responsibility of the Managers, supported by the Mergers & Acquisitions (M&A) Department. The M&A process was significantly overhauled in 2021, with full effect from 2022. For each project, the risk of overestimating the value of the target is attenuated by using a variety of valuation methods (EBITDA multiples, discounted cash flow, ratios on similar deals) and comparing their results, sometimes with the support of an advisory bank. M&A projects exceeding €50 million in enterprise value are submitted to the Supervisory Board for comment. Each acquisition is subject to thorough due diligence with the support of internal and/or external specialists, so as to identify all the risks in the acquired company. Post-acquisition internal audits are performed for all material acquisitions. An integration plan led by an integration project manager is designed and implemented under the supervision of a member of the Group Executive Committee. The results are reported using an appropriate procedure and are communicated to the Supervisory Board twice a year. Impact 7 – Environmental effects of our products Impact factors Through its potentially negative environmental externalities, Michelin could possibly have an impact on the planet and on its own stakeholders. Michelin is committed to acting as a leading enabler of sustainable development and mobility. This means clearly identifying and effectively managing the environmental impacts inherent in its business operations, including the impact of products and services during the in-use phase. The main impact factors are: ● Scope 3 carbon emissions from the use of sold products; ● the generation of tire and road wear particles (TRWPs); ● the impact of end-of-life treatment of sold products; ● tire rolling noise. Today, societal expectations regarding climate change are rising and regulatory frameworks are tightening, particularly as concerns pollution, where, in the case of TRWPs, the scientific contours are still incomplete. In this environment, the above impact factors can translate into risk factors both for the Group and for the tire industry as a whole. Specific nature of the impact Environmental impacts are inherent to the tire itself, particularly during the in-use and end-of-life phases. Governance and impact management response The Environmental Governance body is tasked with managing environmental risks and impacts, including the effects of using our products (see Risk 1 above). As a tire manufacturer that assesses the environmental impact of its products throughout their life cycles, from raw materials to end-of-life, Michelin carefully analyzes any potential impacts from its tires during the in-use phase. The main levers used by the Group to manage these impacts are: ● reducing tire rolling resistance during the design phase, which helps to improve vehicle fuel efficiency, which in turn reduces carbon emissions during the in-use phase. This process is supported by the systematic use of life cycle assessments, performed product by product, and the deployment of ecodesign practices; ● reducing abrasion, by leveraging the Group’s materials expertise and a long-standing design strategy focused on optimizing materials use. Moreover, by funding both in-house and external research programs, the Group is helping to deepen its understanding of the potential impacts of TRWPs, so as to develop new materials capable of attenuating them;
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