Good First Half Results For Michelin – “Challenging” Next Six Months Forecast
Michelin has released its figures for the first half of the year and they show improvements over the same period for 2001. Turnover rose by 1.4 per cent to 7.
8 billion Euros (1H 2001; 7.71 bn) in what Michelin describes as “globally depressed” markets and operating profits were up 16 per cent to 569.6 million Euros (490.
9 m). At first sight, the net profit figure of 254.1 million Euros is disappointing; 31.
2 per cent down on the figure for 1H last year. However, last year’s figure included the proceeds of Michelin’s sale of a 2.8 per cent stake in car manufacturer PSA; when this is factored out of the equation, net profits showed a healthy increase of 279 per cent.
These encouraging results are largely due to Michelin’s on-going restructuring programme, which saw debts reduced by one billion Euros in 1H, with a consequent saving in interest charges. Michelin also managed to improve its operating margins by one point, to 7.3 per cent of net sales.
Other positive factors included a reduction in raw material costs of 6 per cent, an increase in volumes of 1.5 per cent, a reduced level of company taxation and better prices in some markets. On the downside, currency fluctuations had a negative impact of 1.
1 per cent. Passenger Car Tyres Michelin describes the mature car tyre replacement markets (Western Europe and North America) as “stable at best”. In Western Europe, Michelin has benefited by focusing its efforts on the more profitable segments, such as high performance and 4×4, where it achieved increases of 11 per cent and 15 per cent respectively.
This improved product mix means fewer sales for Michelin in the less profitable “bread and butter” tyre segment. The company notes that the winter tyre market has risen by 26 per cent, although the vast majority of winter tyre sales occur in the second half of the year. When it comes to OE sales, again Michelin has concentrated on the high performance and 4×4 sectors, where its sales are up “significantly”.
This refocusing on the more profitable sectors has led to an overall OE sales decline of nearly 11 per cent for Michelin group tyres. The North American car tyre replacement market is down 0.8 per cent, although June saw a 17 per cent fall, mostly in the SUV market.
This sounds drastic, but it must be remembered that the June 2001 figures were artificially inflated, as this was the onth that saw the beginning of the recall of 13 million Firestone tyres by Ford. Michelin says that it has gained market share and improved the product mix. In the OE sector, Michelin’s sales have outperformed the market average, particularly in the high performance and SUV sectors.
South of the border, things are not so good, with many South American countries in various stages of recession or economic crisis. Michelin describes the drop in sales which it has suffered in this region as “sizeable”, but the company puts much of this down to its deliberate policy of reducing exports to this region, plus a refusal to lower its prices. Sales in Asia were buoyant and Michelin singled out the Chinese market as the star of the show.
This success, says the company, is due to its multi-brand strategy and the “excellent complementarity” between the Michelin and Warrior brands. Truck Tyres The Western European truck tyre replacement market is down 3.5 per cent, while that in Eastern Europe is growing as radialisation increases.
The European truck tyre OE market is down 7.1 per cent year on year, which is less than Michelin anticipated. Indeed, the second quarter saw sales increase by 3.
7 per cent, compared with Q2 2001. While there was a decline in sales of new trucks in Western Europe, there were strong export sales to the Middle East, Asia and Russia, from which Michelin benefited. In North America, the truck tyre replacement market showed an increase of 3.
8 per cent. However, it should be pointed out that the market in 1H 2001 fell by 11 per cent. Michelin says that it regained much of the market share lost during this period and, another plus is that the price increases on Michelin and BFGoodrich tyres, imposed in March, appear to be sticking.
The OE market is enjoying something of a revival, after nearly two years of falling sales. The main reason for this is forthcoming legislation (due in October) on nitrous oxide emissions; many fleet owners are purchasing new trucks in advance in order to comply with the new laws and Michelin has increased its market share. As might be expected, the sorry state of many South American economies has impacted on the truck, and therefore truck tyre, business.
Michelin foresees the crisis in Argentina spreading even further, to Venezuela, Chile and Brazil. As with car tyres, Michelin has stood firm on pricing, which has led to a fall in market share. Things are better in Asian markets and Michelin claims “very significant gains” in the Thai and Australian markets.
However, China is the star of the show – the country makes up 40 per cent of the Asian market – and Michelin says that it achieved “a remarkable sales performance” in both OE and replacement markets, both of which are growing rapidly. The Outlook Before going on to discuss Michelin’s thoughts on the future, the sales split by product segment for the first six months is interesting. Passenger car and light truck tyre sales account for just over 51 per cent of turnover, but almost 63 per cent of group operating profits.
Figures for the truck tyre sector are; turnover 24.7 per cent, operating profits 37.7 per cent.
A third sector, called by Michelin “other activities”, accounts for just under 30 per cent of turnover but has a small, negative effect on operating profits. This shows the importance of the car segment and also illustrates the success of Michelin’s strategy in aiming for the more profitable sectors while still being present on the mass market. So what lies ahead? Finance Director Michel Rollier is obviously pleased at the results, especially the debt reduction, but he counselled caution when looking towards the second half of the year, saying that any further weakness in the Dollar could have an adverse effect on business.
Likewise, he expressed concern over further possible deterioration in South America. “For the second half, the group is still anticipating a challenging and uncertain environment” was the summing up. Despite this caution, Michelin is raising its annual operating margin as a percentage of net sales from 6.
7 – 7.4 to 7.0 – 7.
4, adding the caveat that this is assuming no further deterioration in raw material prices and exchange rates. It would appear that investors like the way things are going at Michelin as its share price rose by 3.9 per cent on the Paris stock market.
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