Amtel-Vredestein First Half Revenues up 22 per cent

Describing itself as Europe’s fourth largest tyre producer, Amtel-Vredestein (AV) has announced first-half results showing sales of $350 million, up 22 per cent from £286 million in 2005. Gross profit improved 43 per cent from $56 to $80 million in the first half, up 22 per cent in the second quarter compared with the first three months of the year. However, Amtel-Vredestein’s first half net losses totalled $15 million against the $1 million profit at the same time last year. Most of the losses were acquired during the first quarter, with net losses decreasing to $5 million in the second quarter, write AK&M analysts. In the same period net revenue from Passenger Car Tyres grew 52 per cent from $135 million to $205 million in the first half and now represents 59 per cent of total sales.

Management expects the second half of 2006 to be stronger due to the seasonality of the tyre business. However, high raw materials costs and expenses resulting from further expansions and acquisitions during the second half of 2006 will continue to put some further pressure on earnings. The company estimates its net sales will be over $800 million for the full year 2006, with a further increase in gross profit margin to 23.5 per cent. AV-TO, the company’s retail subsidiary is expected to contribute approximately $62 million to sales in 2006. These projections exclude the impact of recently announced acquisitions of the Moscow Tyre Plant and auto parts distributor, Pigma.

AV put the performance down to “exceptionally strong” passenger car tyre revenues – up 52 per cent to $205 million in 2005. The $350 million of net sales in the first half of 2006 was attributed to a 35 per cent increase in unit sales of Amtel tyres in Russia and a 12 per cent increase in unit sales of Vredestein tyres in Europe.

The company’s ongoing strategy to grow premium and value segments and eliminate discount and non-branded segment sales is said to be making strong headway. Total A segment (premium) sales grew 324 per cent; B segment (second line) sales grew 18 per cent and C segment sales declined as planned by 23 per cent.

Interestingly AV reports that is has “somewhat insulated itself from raw materials cost rises.” This has apparently been achieved through product mix development as the company moves up the value chain from C to A and B segment production. But the improvement is so marked compared with other tyre manufacturers some observers are asking if there is another reason why the company has avoided the raw material price hits suffered by most companies.

AV claims that, in real terms, the consumption of raw materials in Russia was reduced by 7 per cent from $121 million in the first half 2005 to $112 million in the first half 2006 due to this strategic shift in product mix. Premium, technology-rich tyres are lighter and require less raw materials in their construction, the company explains.

The company’s Russian operations achieved a $37 million reduction in costs of sales. This was largely due to the disposal of its facilities in Volgograd and Krasnoyarsk at the end of 2005 — which contributed to a 44 per cent decrease in labour costs in Russia from $30 million in the first half 2005 to $17 million in the first half 2006.

AV-TO, the company’s retail subsidiary contributed $2 million in losses (on a stand alone basis) to the company in the first half. Since the majority of the tyre retailers recently acquired by AV-TO were not consolidated until late in the period, it contributed only $15 million to sales in the first half of the year. Approximately $8 million of these sales were tyres sold at retail — of which $2 million, or 25 per cent were Amtel-Vredestein brands. $7 million, or 47 per cent, of these sales were other products and services. AV-TO expenses are expected to remain disproportionately high versus revenues until the subsidiary integrates and re-brands all of its tyre retail stores in Q4 2006 and Q1 2007.

“In spite of increases in raw materials costs, expenses from our retail unit and other pressure on earnings, we achieved our stated objectives in the first half of 2006: to grow sales and market share for our premium brands, as well as expand our retail and distribution business while carefully managing cash flow. Future sustainable profitability will be an inevitable result of the aggressive steps we have taken in 2005 and 2006 to transform our business into a leading premium tyre producer, distributor and retailer,” said CEO Alexei Gurin.