03 Risk management Risk factors specific to Michelin, description and related management systems Risk 8 – Mergers and acquisitions Risk factors The main risk factors inherent in the Group’s merger and acquisition (M&A) activities are as follows: n risk of overestimating the value of the target; n pre-existing risks at the target company, such as ethical, tax, environmental, legal, product liability and cyber risks; n risk that expected synergies may not be achieved; n risk of losing key employees; n risk of strategic misalignment with a joint venture partner. Specific nature of the risk The Group has defined a strategic model built on its core tire manufacturing business and expertise in polymer-based composites, and supported by the accelerating pace of digitalization. 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 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 structure is in place to manage the entire portfolio of M&A and disposal projects, along with separate governance committees dedicated to each project, under the responsibility of the Managers and supported by the Mergers and 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, including an analysis of the climate change vulnerabilities of the target’s footprint, with the support of internal and/or external specialists, so as to identify all the risks in the acquired company. Postacquisition 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. In the case of acquisitions exceeding €50 million in value, the results are reported using an appropriate procedure and are communicated to the Supervisory Board twice a year. Risk 9 – Lack of employer attractiveness/employee retention Risk factors Employees are the primary driver of our success and play a critical role in fulfilling our ambitions. At a time of shifting attitudes to work, particularly in the manufacturing industry, this risk could be manifested in hiring difficulties, high employee turnover, a lack of experience in certain key positions, and the possible loss of knowledge or skills over the longer term. Specific nature of the risk The Group's tire manufacturing business is highly capital-intensive. As a result, the production plants are often in operation 24/7, giving rise to workplace constraints that may reduce both the appeal of these jobs and the retention of employees trained in them in certain mature regions or markets where the Group has sited its production operations, and in certain local labor markets. In addition, the creation of shared services centers, particularly for administrative and digital technology processes, may expose the Group to a competitive talent war. Governance and risk management response This risk factor is overseen by the Governance Committee for the “Managing people and social cohesion” risk family, which is chaired by the Executive Vice President, Personnel, a member of the Group Executive Committee. It also comprises the management team of the Corporate Personnel Department and representatives of the Manufacturing Department and the Corporate Sustainable Development and Impact Department. All seven personnel management policies are helping to improve the Group’s employer appeal and employee retention For further details, see section 4.8 of the Sustainability Statement in this document. More specifically, a number of levers have been or are being deployed to reduce the Group's exposure to this risk: n highly agile compensation policies aligned with local conditions. At the same time, Michelin pays close attention to ensuring fairness among its country organizations by offering every employee profit-sharing initiatives and compensation components linked to its worldwide performance (Group bonus, employee share ownership plan); n a best practices sharing network, covering, for example, initiatives in certain plants to improve the onboarding and training process during an employee’s first year on the job; n a proactive approach to an adequate wage and a universal social protection floor, which is also helping to strengthen the employer brand and employee pride in working for the Group; n in addition, in the Manufacturing Department, a dedicated team has been tasked since 2023 with defining and rolling out the vision and strategy for the People component (talent development, expertise and skills, diversity and inclusion, team engagement, improving the employee experience). It is supported by a network of relay officers in the operating regions, close to the ground, to gain greater understanding of local conditions and listen more attentively to employee needs. This issue is one of the Manufacturing Department’s six priorities. 165 2024 UNIVERSAL REGISTRATION DOCUMENT_MICHELIN
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