Michelin: H1 performance ‘in line with objectives’, net income down 45% yoy
Upon announcing first half 2013 results, Michelin voiced its expectation that mature markets will continue their recovery from last year’s weakness in the remainder of the year, while expansion should be seen in emerging markets. Should this trend play out, the French manufacturer sees itself in good stead to achieve its projected full-year volumes. This is all well and good, however Michelin’s reportage of its latest results said little about the first-half bottom line, which is markedly down on the same time last year.
“Michelin’s first-half performance was in line with the 2013 objectives and attests to the Group’s continuous improvement as it moves forward in its New Phase of Dynamic Growth,” stated chief executive officer Jean Dominique Senard. “The Group confirms its objectives for 2013, with the target of reporting stable operating income before non-recurring items, a more than ten per cent return on capital employed and positive free cash flow.”
Net sales amounted to €10,159 million in first six months of 2013, only a jot down on the €10,706 million earned in the first half of last year. Volumes decreased by 1.5 per cent in weaker markets during the first quarter but showed signs of improvement in the second. Sales were lower across the company’s three product areas – car and light truck net sales decreased 3.3 per cent in H1 2013 to €5.3 billion, net sales in the truck tyre segment decreased 4.5 per cent year-on-year to €3.1 billion and net specialty tyre sales dropped 11.3 per cent to €1.7 billion.
The price-mix pushed net sales down by €242 million, or 2.3 per cent. Michelin says this reflects the €281 million negative impact from contractual price reductions based on raw materials indexation clauses and its price repositioning efforts in certain tyre sizes. It also comprised a positive €39 million impact from changes to the sales mix led by Michelin’s premium strategy in the 17-inch and larger passenger car tyre segment – Michelin reports above market average sales for these products in all its major regional replacement markets. The negative 1.4 per cent currency effect, which reduced net sales by €143 million, resulted from the stronger euro.
Consolidated operating income before non-recurring items amounted to €1,153 million or 11.3 per cent of net sales in the first six months of 2013, down from €1,320 million and 12.3 per cent result in first-half 2012. Car and light truck tyre operating income and margin decreased 5.3 to €550 million and 10.3 per cent respectively. Truck tyre operating income declined to €203 million while operating margin rose 0.1 per cent year-on-year to 6.5 per cent. Net specialty tyre operating income dropped 24.5 per cent to €400 million and margin narrowed to 23.3 per cent in the first half of this year.
Non-recurring expenses stood at €250 million for the period, corresponding to the restructuring costs generated by current projects that “aim to improve the competitiveness of manufacturing operations”; during the first half of the year, Michelin announced it would close its Joué-lès-Tours plant in France and end truck tyre production in Algeria and Columbia.
As expected, the unfavourable €242 million impact of the price-mix was almost entirely offset by a €206 million decline in raw materials costs. The €127 million in gains from the competitiveness plan were in line with Michelin’s annual objectives and absorbed much of the €146 million increase in production and other costs. Operating income also reflected the €59 million negative impact of the decline in volumes, the €37 million in outlays to drive growth (start-up costs, the new business process management program and expenses in the new markets) and the €49-million negative currency effect. In all, net income for the period came to €507 million, 44.5 per cent less than the €915 million achieved a year earlier.
Outlook
In the second half, the impact of lower raw materials prices are expected to gain momentum, adding around €350 million to Michelin’s full-year operating income. As a result, and given that prices are likely to remain stable at first-half levels, Michelin expects second-half consolidated operating margin to benefit from the impact of lower raw materials costs, which are expected to offset the price-mix effect.
During the remaining six months of the year, several projects from Michelin’s capital expenditure programme will bear fruit; these include its truck tyre factory in India, which is expected to manufacture its first tyre in July 2013, and the mining tyre factory in the US, which should be ready by the end of the year. Plans to increase passenger car and light truck tyre production in China and Brazil are also scheduled for this year.
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