Michelin management optimistic for future profits

Although turnover decreased by 0.8 per cent in 2002, compared with previous year, the Michelin group outperformed even analysts highest expectations with an operating income of 1.225 billion Euros (which is 7.

8 per cent of turnover, and 18 per cent more than 2001). Net profit more than doubled to 614 million Euros. At the same time, management succeeded in reducing the debt mountain by more than one billion Euros – all within one year.

Consequently, Michelin continues to be the best-earning tyre company worldwide. The pension fund was allocated another 200 million Euros to cover liabilities, something which enabled Edouard Michelin to confirm that as far as pensions other post-retirement benefits were concerned: “Michelin’s situation is sound.”Throughout last year, Michelin’s management stressed several times that it would reach its planned operating income margin of between 7.

0 to 7.3 per cent. The actual result coming in at 7.

8 per cent was indeed a bonus. And an understandably-pleased Edouard Michelin stressed that the group would pursue further debt reduction, without focussing on zero debts. The group has many important opportunities coming up and will expand further, especially in Eastern Europe and Asia.

With passenger car and SUV tyres Michelin achieved a turnover of 7.947 billion Euros and an operating income of 764.8 million Euros (an operating margin of 9.

6 per cent). Some competitors might be able to meet this margin in relative figures, but more impressive are the results of truck tyres. Turnover was 3.

944 billion Euros, which gave an operating income of 484.8 million Euros (operating margin 12.3 per cent).

With these results Michelin puts its competitors in the shade, but despite all this good news even Michelin still has some ‘repair work’ to do. Earthmover tyres and wheels are both loss-makers, but compared with the bigger picture these losses are peanuts.Michelin boss Edouard Michelin and finance chief Michel Rollier gave an insight to the pension funds and their liabilities.

The funding is sufficient and in general much, much better than most of the big groups and tyre competitors. Reason enough for the management to stress that they are satisfied with the results and that they are very optimistic for the future, not merely for the next three months – considering what is going on in Iraq – but for the next three years. But, because of the current world political situation, the group has decided not to give any forecast for the year 2003.

Both managers also had to answer some critical questions regarding the Pax-System and also world politics, stressing that American consumers might boycott French products because of the attitude of the French government regarding Iraq. Edouard Michelin’s answer pointed to the fact that the introduction of ABS needed a very long time, but nowadays nobody can sell a new car without ABS. In the beginning, he continued, a car had only one airbag, but now has up to six; this is seen as normal.

The initial phase of Pax might have taken longer than expected by some observers, but he and the whole group remain very confident that this system will prevail.Regarding a possible boycott, Edouard Michelin said that, in America, his company behaves like an American company, in France like a French company and in Europe like a European company. Having said that, he pointed out that Michelin employs nearly 30,000 American people, that the brand is regarded as an American tyre brand and the Bibendum logo is the best-known logo in the world.

He does not believe that Michelin will be confronted with a boycott, but it is true, he added, that the next three months are full of uncertainty. However, for the next three years his group has many good reasons to remain very optimistic.Why is Michelin so successful during these extremely hard and difficult times? It might well be down to the combination of the company’s strategy and philosophy.

When Edouard Michelin says that the group has to strike a balance between the requirements/expectations of shareholders, clients, personnel and environments, then this is nothing new; everybody in top positions says the same. But, and this is the difference, not everybody is actually working to these guidelines. At the end of the year, many say thank you to the employees, telling them how great they are and give everything to shareholders or to themselves by way of stock options.

This might make the company weak, but fills their own pockets; meanwhile the same managers are blaming the economy and other circumstances which are supposedly out of their control when the company is suffering big losses. They should believe in their own core values, which means: without products, no customers, without customers, no results. Without motivated teams, no products; without products, no customers.

Without shareholders, no funds; without funds, no products. In general, it is easy as anyone can see, but you do not only have to say it, you have to do it. Edouard Michelin accepts and understands that he has to deal with many different issues day by day.

The company’s goal is to make everybody who has needs, wishes or expectations which have to be fulfilled, to understand what is a legitimate expectation/requirement and what the company can achieve. The better the communication is between all these people, the better the understanding and the readiness to compromise. klaus.