Michelin Net Income Falls 53.8%

Michelin has reported that group sales fell 2.9 per cent in 2008, and 16 per cent in the final quarter. Net income fell 53.8 per cent, to 357 million euros in 2008 compared with 774 million euros in 2007. The financial come against a backdrop of spiralling tyre unit sales volumes (down 2.9 per cent for the year, falling a huge 16 per cent in the fourth quarter). However, when calculated at constant exchange rates, net sales reportedly grew 1.1 per cent in 2008. Either way, operating margin took a real beating falling 4.2 percentage points to 5.6 per cent in 2008.

In response to the figures, Forbes reported “investors sent shares of Michelin up 0.7 per cent, or 20 euro cents to 31.16 euros. Like Pirelli just a few days earlier, Michelin announced that it will work on enhancing plant flexibility, with an emphasis on driving further expansion in the new, high growth potential markets. In order to face the challenges that the “difficult” market is presenting, the company will cut capital expenditure to around 700 million euros.

Michel Rollier, managing partner, commented: “In response to the prevailing bearish outlook for the coming months, Michelin is strengthening the management of its production programs in order to increase plant flexibility, tighten inventory management and optimize cash. We have decided to reduce our capital spending substantially in 2009 while maintaining the key orientations of our mid-term strategy. We will further enhance our competitiveness, strengthen our leadership without compromising the value of our products and broaden our footprint in the growth regions. This way, we’ll be ready to rebound as soon as the markets recover.”

Michelin’s financial planning is based on the assumption that tyre markets will remain behind 2008 levels for the first half of 2009, before stabilising and “firming up as replacement market inventories are replenished and business activity begins to recover.”