Michelin: 50% Sales Volume Growth by 2020

A desire to accelerate corporate growth has prompted Michelin to launch a 1.2 billion euro capital increase aimed at existing shareholders. Through this capital increase the French tyre maker also aims to enhance its credit rating, access to financing and financial flexibility.

″Global tyre markets are set to expand rapidly in the coming years,” commented managing partner Michel Rollier regarding the transaction. “We expect to see faster growth in emerging markets, along with increasing demand for tyres that address sustainable development issues more effectively. That’s why we’ve decided to speed up our own pace of expansion, with the unflagging support of our teams, in order to strengthen our position as global market leader.

“By raising annual capital expenditure to around 1.6 billion euros in 2011 and for at least the next four years, we will consolidate our technological leadership, make our global brand even more powerful and ensure that our production facilities in developed countries remain competitive,” Rollier added. “We will also give a new dimension to our development in high growth countries, building on the projects already underway. This capital increase will enable the group to implement its accelerated growth plan, creating substantial added value over time.”

The company’s announcement has apparently taken investors by surprise, and on September 28 shares in Michelin declined 8.1 per cent to 60 euros per share, the largest decrease amongst companies included in Euronext Paris’ CAC-40 index. The lower share price following the announcement is nevertheless significantly above that set by Michelin for the new shares to be issued. Shareholders are entitled to two new shares for every 11 shares they currently hold, with a price of 45 euros attached to each new share. The subscription period for the new shares will run from September 30 to the close of trading on October 13, 2010. Settlement and delivery of the new shares will take place on 25 October 2010 and they will start trading on that date.

Specific objectives outlined by Michelin in connection with the capital increase are a 25 per cent increase in sales volume by 2015 and a 50 per cent increase by 2020, an operating income (before non-recurring items) of “well over” 2 billion euros by 2015, a more than nine per cent sustainable return on capital employed, the generation of “significant” positive free cash flow plus a dividend payout ratio of around 30 per cent throughout the 2010 to 2015 period. Growth plans previously made public along with the company’s 2009 financial year results include doubling passenger car and light commercial vehicle tyre capacity in growth regions by 2012 and increasing truck tyre capacity there by 40 per cent during the same timeframe. The company’s mid-term objectives also include increasing sales in high-growth markets from the 2009 figure of 32 per cent of the total to 40 per cent.