Raw Material Costs Hit Michelin’s 2003 Figures

Michelin has released its 2003 year-end figures. These show net sales of 15.4 billion euro (down 1.8 per cent on 2002), although sales volume (in tons) rose by 3.7 per cent. Operating income was down 6.7 per cent, to 1.143 billion euro and net income was down 47 per cent, to 329 million euro. The main impact on the figures came from sharply-increasing raw material costs, which rose by 21 per cent (in US$) during the year. Currency fluctuations and several one-off extraordinary items also had a negative effect on the figures.

Analysts regard the figures as in-line with their expectations and Michelin itself points to a number of plus points in a year beset by what the company describes as “exceptional increases in external costs”. The first of these is an operating margin of 7.4 per cent (2002: 7.8 per cent) and Michelin believes that it is still on course to achieve an operating margin of 10 per cent in 2005. The company has also reduced debt in 2003 by 378 million euro to 3.4 billion.

Edouard Michelin says that the 2003 results “do not fully reflect all the efforts accomplished and the improvements achieved within our company”, citing gains in productivity, dynamic growth and what he calls “a strengthened global footprint”, all of which were wiped out by material costs, currency fluctuations, rising healthcare costs etc. These, says Edouard Michelin, knocked around 520 million euro off last year’s operating income and he warned that raw material costs would continue to rise this year, with natural rubber costs rising by 10-15 per cent. One other cost unique to Michelin in 2003 was the consolidation of the Viborg chain, which was estimated to cause a loss of 15 million euro.

The “strengthened global footprint” mentioned by Edouard Michelin would indeed appear to be a fact, as Michelin’s investment figure for 2003 was 1.2 billion euro; 30 per cent more than the previous year. Michelin estimates that tyre industry growth up to 2007 will be split 50/50 between emerging markets and developed markets, with a unit growth in each of some 50 million tyres. As such, Michelin is focusing on the emerging markets and, during last year, manufacturing capacities were selectively increased in Mexico, Brazil, Asia and Eastern Europe, with investments being made in Poland, China, South Korea and India.

China especially is a growth area for Michelin, with sales of the Michelin and Warrior brands of passenger car tyres rising by 30 per cent. Analysts estimate that Michelin has a five per cent share of the Chinese truck tyre market and a share of the radial passenger tyre market of between 20-25 per cent. Overall, say the experts, China now accounts for some three per cent of Michelin’s sales. Globally, Michelin claims a 19.2 per cent share of the worldwide tyre market.