Raw Materials
Bridgestone Corporation has announced that it has begun raising tyre prices by around 5 per cent in Asia, Oceania, the Middle East, Africa and Russia to offset the rising cost of natural rubber and other raw materials. The price increases vary by product and by market and largely apply to radial and bias tyres for passenger cars, light trucks, trucks and buses sold under the Bridgestone and Firestone brands.
For Pirelli the current year is on schedule in the face of good sales and earnings. Higher prices for raw materials won’t burden Pirelli’s results before the new year. Talking to TYRES & ACCESSORIES at the SEMA show in Las Vegas, Dr. Francesco Gori, Managing Director of the Pirelli Tyre Sector, again affirms the good business in the USA. For the second time in a row Pirelli will end a year making a profit on the biggest tyre market in the world. This is even more remarkable, because Pirelli has just opened its MIRS-plant in Rome, Georgia, for which the company has incurred launch costs. During the last years the Italian company was pleased with an annual sales growth of about 20 per cent. This was partly because of the OE business Pirelli undertakes with car makers Ford and Chrysler. But not only that, the tyre maker has gained ground also on the replacement market after the sell-out through mass merchandisers has been stopped. In Latin America Gori expects Pirelli to be clearly number one ahead of Goodyear, whose Mexican activities structurally belong to the North American business (Nafta). The prospects are rather good that Pirelli will generate sales of more than 3 billion euro during this year solely with tyres; during last year this economic indicator stood at 2.857 billion euro. Exact figures concerning third quarter performance will be published on November 11.
Goodyear is to re-state its financial results for the years 1998-2002 and for the first two quarters of this year. This is due to the implementation of a new accounting system in 1999 and errors in inter-company billing systems. The adjustments will not affect Goodyear’s cash position, nor its access to credit facilities. Another effect is that Goodyear is providing estimated 3Q results, rather than a detailed announcement. The estimate is for a loss of between $90-$115 million on sales of $3.9 billion and this figure includes rationalisation charges of $56 million for a factory closure and employment reductions in North America and Europe.
A number of tyre companies have published financial results for the first half of the year, with figures varying from not-so-good to impressive. These are analysed in detail in the magazine, but some brief highlights are as follows:
Michelin: Sales were down 6 per cent to 7.348 billion Euro, but excluding currency effects, this would be a rise of 4.4 per cent. Operating profit rose one per cent to 578 million Euro and net income was 165 million Euro; below what was expected, but this was almost entirely due to charges of 178 million Euro for restructuring in Spain, where 1,200 jobs will go over the next three years.
At an analyst meeting, Michelin executives were extremely cautious concerning the outlook for the rest of the year, forecasting a drop in volume for the second half and only a slight improvement in the impact of currency fluctuations. Other obstacles to improvement are the continuing high costs of raw materials and the continuing losses of the recently-acquired Viborg chain. The acquisition was a major factor in the 0.1 billion Euro increase in Michelin’s debt, to 3.9 billion Euro.
Goodyear: Second quarter (Q2) figures reveal that the company lost $73.6 million, compared to a net income in Q2 last year of $28.9 m. Sales were up nearly 8 per cent at $3.8 billion (3.5 bn), but volumes were down half a million units to 52.8 million pieces. The single most important factor in the deterioration of operating performance was an increase in raw material costs of around, $124 million, said Goodyear, even though this was offset in part by cost reductions, improved price and mix and a positive currency translation benefit of some $9 million.
The net loss for the first six months of the year was $236.9 million (1H 2002: $34.3 million loss). The 2003 figures included a rationalisation charge of $78.6 million to cater for staff reductions, while the 2002 figures were boosted by an income benefit of around £10 million as a result of the Ford tyre replacement programme. Sales for the first six months of 2003 reached $7.3 billion; 7.6 per cent up on the 1H 2002 figure of $6.8 billion. Tyre unit volume was down at 105.4 million units (106.3 m).
Continental: 2Q results exceeded the forecasts of industry experts. Compared with 2Q 2002, turnover was down 3.4 per cent to 2.825 billion Euro (2.925 bn), but operating income rose 11.3 per cent to 216 million Euro (194 m), against a forecast of 187 million Euro.
Of the four divisions, Car Tyres, Truck Tyres and Continental Automotive Systems (CAS) all showed slight reductions in turnover compared with 2Q last year, while ContiTech was up slightly. When it came to operating income, however, Truck Tyres was the only sector to show a decrease, while the best performance came from Car Tyres, which posted a 44.2 per cent improvement.
The group’s operating margin was 7.6 per cent and, while the car tyre and truck tyre divisions were slightly below this (6.7 and 7.4 per cent). ContiTech and CAS achieved 8.5 and 9.0 per cent respectively. Industry analysts were pleased at the figures, saying that the group is exhibiting “improving internal dynamics and a favourable mix of businesses with some growth and some cash flow contributors.”
Trelleborg Wheel Systems: TWS achieved sales for the first half of the year of 1,470 million Swedish Kroner (SEK), or 160.2 million Euro. Operating profit was up 33 per cent to SEK 84 million (9.15 m Euro), compared with last year’s first half figure of SEK 63 million (6.87 m Euro). During the second quarter, turnover was SEK 713 million (77.7 m Euro) and operating profit was SEK 39 million (4.25 m Euro).
Operating profit was favourably affected by the company’s restructuring programme, an improved product mix and increased productivity. High raw material prices were partially offset by price increases, especially in farm tyres.
A fire at Vredestein’s raw materials warehouse at Enschede on Friday 22nd August was quickly brought under control by local fire brigades and the company fire brigade and personnel. As a result both the Vredestein production shop and the warehouse were saved and deliveries will not be affected.
Michelin has released financial figures for the first half of the year. Sales were down 6 per cent to 7.348 billion Euro, but excluding currency effects, this would be a rise of 4.4 per cent. Operating profit rose one per cent to 578 million Euro and net income was 165 million Euro; below what was expected, but this was almost entirely due to charges of 178 million Euro for restructuring in Spain. Truck tyre sales were better than expected, while car tyre revenues were worse. Michelin’s debt increased by 0.1 billion Euro to 3.9 billion, due largely to the acquisition of the Viborg chain.
Brunei Economic Development Board (BEDB) and ACI Corporation Ltd. have announced plans to develop a multi-billion dollar tyre recycling plant in Brunei. It is estimated that 1.82 million US dollars will be invested in the plant that will generate some 1200 jobs locally. ACI Corporation Ltd has developed a process that transforms scrap tyres and other suitable rubber products into valuable raw materials using a worldwide patented and proven cryogenic process. Brunei has been chosen as its Asian location for the processing hub. Apart from Asia, ACI also plans to build processing hubs in the United States and Middle East to ultimately process up to 60 percent daily of the one million tyres currently discarded in each of these regions.
Firestone Agricultural Tire Division in the USA has announced a price increase of 3 to 5 per cent on all Firestone brand agricultural, industrial and forestry tyres. A significant upward trend in raw materials costs necessitated the price increase, the second announced by Firestone in 2003. The price increase, which varies by product line, will be effective for all orders placed after September 1, 2003.
Bridgestone Corp. has begun raising tyre prices by between 3 and 5 per cent in Asia, Oceania, the Middle East and Africa to cover rising costs of raw materials. The increases will cover Bridgestone and Firestone radial and bias passenger, light truck, truck and bus tyres. Prices in the Japanese market will not be affected. Bridgestone has been implementing the price increases in stages since March 1 to compensate for the rising costs of raw materials, including natural rubber, synthetic rubber, carbon black and some chemical additives.
Michelin is expected to announce a small drop in sales to 15.54 billion Euro from 15.75 billion Euro. Analysts say this is likely to be due to the weak dollar. They also suggest that Michelin will increase prices to meet growing costs of oil-based raw materials. An announcement from Michelin is expected later today after the close of the stock market. Michelin’s full results are expected in two week’s time. The company’s share prices were pressured last Friday when Standard and Poor’s put the group on negative credit watch over unfunded pension liabilities. However they were given a 4.6 lift on Tuesday by good news from the auto sector suggesting a revival was under way.
Business newspapers in France and England are commenting on a paper from the french analysts Gaetan Toulemonde and Alexis Boyer both from DB Global Equities are recommending Michelin shares as a clear “buy”. The share price – at about 31 Euros at present – has, according to the analysts, the potential to rise to 50 Euros within 12 months. Michelin is seen by them as “the BMW in the tyre industry” with strong brands and an excellent brand strategy. It is expected that Michelin will announce in a press conference at the end of February a turnover for 2002 of about 15.7 bn Euro and an operating profit of 1.1 bn Euro. For this year the company is aiming for a turnover of more than 17 bn Euro and an operating profit of more than 1.2 bn Euro. The stock capitalisation at present is 4.6 bn Euro. Michelin’s strategy has been focused for years on a significantly improved product mix. 5 years ago 60% of all tyres produced were bread and butter tyres, but this proportion has been improved. Today, standard tyres account for about 45% and shortly this will come down to 40%. Under the leadership of Edouard Michelin, in recent years the Group has drafted its profit and loss expectations very precisely and has been able to achieve its goals. It is the declared target of the management to increase the operating profit from the current 7 to 7.5% to 10% from 2005. This is easier said than done and market conditions can change overnight; for example, a possible war with Iraq could lead to much higher oil prices and higher costs for all other raw materials. On the other hand the automotive suppliers are facing in North America extremely fierce competition and the automobile companies General Motors, Ford, and especially Chrysler, are trying to get their suppliers to subsidise them again by forcing them to reduce prices. In this climate it will become very difficult to increase prices, or even to ensure that recent price increases will stick.
Four years ago: In an interview at the Geneva Autoshow, Sam Gibara put forward his views. Goodyear had, according to him, the best people, the best distribution, the most cost-effective plants, the best products and – with its innovative EMT tyres – a three-year lead over its competitors. Within three years, he predicted, 75% of Goodyear tyres produced would be EMT tyres (in 2002, the actual figure was one million tyres). The IMPACT production process (Integrated Manufacturing Precision Assembled Cellular Technology) was held up as a revolutionary advance, guaranteeing predominance over the competition and an example of Goodyear’s technical leadership.
Business newspapers in France and England are commenting on a paper from the french analysts Gaetan Toulemonde and Alexis Boyer both from DB Global Equities are recommending Michelin shares as a clear “buy”. The share price – at about 31 Euros at present – has, according to the analysts, the potential to rise to 50 Euros within 12 months. Michelin is seen by them as “the BMW in the tyre industry” with strong brands and an excellent brand strategy. It is expected that Michelin will announce in a press conference at the end of February a turnover for 2002 of about 15.7 bn Euro and an operating profit of 1.1 bn Euro. For this year the company is aiming for a turnover of more than 17 bn Euro and an operating profit of more than 1.2 bn Euro. The stock capitalisation at present is 4.6 bn Euro.
Within less than a week our office has obtained eight links giving access to an electronic letter from Sam Gibara to all Goodyear associates. Gibara restated that as from the 1st January, Bob Keegan has taken over as CEO and that he remains as Chairman of the Group. Gibara looked back at the past year which he described as “marked by wins throughout Goodyear’s world” and he speaks of “foundations established for future success” and of “opportunities seized”, none of which would have been possible without the associates’ support. He adds, “You are making a difference and our company will prevail because of you.” With a degree of bitterness some of these associates said that Gibara had ultimately missed the opportunity to explain why the company is in such deep water. They point to the fact that Gibara has never shown any sign of admitting have made mistakes himself. Instead, it was always the economy, the environment, the exchange rate, the high costs of raw materials and so on. However, he has not convinced the associates, many of whom feel that it is a big mistake to play down big problems. The staff is willing to fight, but needs guidance. If indeed the company has the best brands, great distribution and the best people, why then is the company fighting with its back to the wall whilst its big competitors are making money?
Retreading appears to generate a dichotomy for U.K Government’s environmental “sustainability programme”. On the one hand, retreading a tyre obviously makes better use of the original materials and extends the life of the new tyre, thus creating a lesser demand on fossil fuels and an ultimately finite supply of some raw materials. On the other hand, like any other consumer product, a retread will still end up needing recycling at some time in its life; some call this deferred disposal, but it seems that not all the environmental lobbyists have recognised the fact that recycling only ever delays the ultimate disposal; it can rarely, if ever, offer a final solution but still plays a vital role in resource management. In the UK we already have a very high percentage of recovery and re-use of tyres, including a significant contribution from retreading. Gary Oliver, Chairman of the RMA Marketing and Communication Committee, explains further why he believes retreads are industry’s leading sustainable option. “The retreaders’ case goes something like this. If the market uses 200,000 tonnes of new tyres per annum, then over five years there will be a demand for 1,000,000 tonnes of new tyres. If 50% of those tyres are retreaded every year, then the demand for new tyres falls to 600,000 tonnes over five years, whilst retreading accounts for the other 400,000 tonnes. The fundamentals to sustainable development are thereby catered for; that waste is minimised from 1,000,000 tonnes to just 600,000 tonnes and scarce natural resources are conserved. The maths are simplistic, of course, but if the primary objective of best environmental practice is to minimise use of raw materials, retreading does this whilst also meeting the second best objective of re-use. It is non-sensical that in its recent Producer Responsibility paper the DTI – with the Environment Agency in support – took retreading out of the reprocessing calculations for waste tyres ignoring a real and positive contribution to sustainable practice and effective waste management. By taking us out of the picture simply because we do not fit the way they wish to work and measure their environment performance indicators, we are effectively excluded from any of the economic considerations and unable to contribute towards waste recovery.”
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