Michelin sales up 20.8% to 17.9 billion euros, operating margin now 9.5%

Compagnie Generale des Etablissements Michelin has announced that the tyre major’s sales shot up 20.8 per cent in 2010, while operating income swelled to 1.695 billion euros, representing a 9.5 per cent operating margin. Net income totalled 1.049 billion euros. According to Michelin the growth was driven by a 13.4 per cent increase in sales volumes, led by the group’s global presence and the rebound in mature markets. However managing partner Michel Rollier warned investors “In light of our capital expenditure commitments and the increase in raw materials costs, free cash flow is expected to be temporarily negative in 2011.” Nevertheless, Michelin confirmed its objective of generating positive free cash flow over the entire 2011-2015 period.

The manufacturer also sought to emphasise its “responsive pricing policy” in the face of rising raw materials costs; sustained productivity gains and cost discipline; not to mention “robust free cash flow.” At the same time the company proposed a dividend of 1.78 euros subject to approval.

Commenting on the group’s performance, Michel Rollier said: “For Michelin, 2010 was a year of strong growth, enhanced manufacturing flexibility and historically high margins. In recent years, we have laid the foundations for a new phase of dynamic growth, built on the dedication and professionalism of our teams, the value of our brands and a clearly strengthened balance sheet. Leveraging these improvements, Michelin has embarked on a new phase of faster growth, supported by an unprecedented capital expenditure program, and aims to increase its sales volumes by at least 6.5 per cent in 2011. In response to the sharp increase in raw materials costs, the group will maintain its dynamic pricing policy and, barring any major change in the economic environment, expects to see an increase in operating income in 2011.”

With consolidated net sales amounting to 17,891 million, turnover was up 20.8 per cent compared with 2009. The 13.4 per cent improvement in sales volumes together with a 1.7 per cent gain from the price mix is said to have reflected the faster growth in original equipment volumes than in the replacement segment.

However higher raw materials prices reportedly reduced operating income (which was 1.695 billion euros in 2010) by 544 million euros. (See separate article for more on how rising raw materials costs are impacting tyre makers) Free cash flow stood at a positive 426 million euros for the year, despite a strong rebound in business, higher raw materials costs, an upswing in capital expenditure to 1.1 billion euros and a prepaid contribution to pension plans totalling 270 million euros.

The company also pointed out that its 1.2 billion euros rights issue held in 2010 has mainly been used to pay down debts: “gearing declined to 20 per cent at 31 December 2010, while net debt was reduced to 1.629 billion, from 2.931 billion at year-end 2009.

Michelin target 6.5 per cent volume growth in 2011

Michelin aims to drive at least a 6.5 per cent increase in unit sales, in line with the 2011-2015 growth targets. The firm expects to report higher operating income in 2011, despite the cost of stepping up its presence in new markets (around 150 million euros in temporary outlays for production start-ups, sales and marketing operations and advertising).

Related news:

• Rollier proposes Senard as successor at Michelin

• Prices rises announced for Michelin’s European portfolio