Groupe Michelin has released its first half financial results, showing stable operating income of 971 million euros for a 9.6% operating margin, with net sales up 21%.
Michelin says the figures are in line with its corporate ìroad map, revising its full year sales volumes objectives upwards – after 12.6% market growth in the first half – and reconfirming its profitability estimates. The company suggests market growth should accelerate in line with long-term trends by the end of the year, targeting an 8% growth in full-year sales volumes.
Michelin says it is ìdiligently pursuingî a pricing policy of passing on increased raw material prices, which have mitigated general sales growth in worldwide tire markets. Michelin expects to offset estimated additional full-year costs of around 1.8 billion euros. The impact of raw material prices on working capital requirement, which Michelin puts at ìapproximately 400 million to 500 million euros for the full year,î alongside the Groupe’s investment plans suggest free cash flow will be ìtemporarily negative in 2011î, according to the Groupe’s statement.
In the passenger and light truck segment Michelin’s OE results were buoyed by a record number of car registrations in South America, where the OE market expanded 8%, and a Chinese market that expanded 3% in spite of the termination of government-sponsored car buying incentives and the impact of the Japanese tsunami, which say Asian demand contract by 5% (excluding India). European and North American new vehicle sales growth in the first quarter was adversely affected in the second quarter by the impact of a lack of parts and components from Japan for OEMs, though Eastern European demand ìcontinued to rise sharply.î
In replacement markets, European demand was up 9% in the first half, supported by ìpartial dealer inventory rebuilding ahead of the announced early-year price increases and by very strong demand for winter tires.î North American demand was up 1% for the half, though record first quarter sales were pegged back by lower mileage as a result of higher fuel costs, according to Michelin. V and Z speed rated tires were particularly strong in the region.
Asian, sans Indian, markets rose 14% overall, though China reached 20%. The Japanese market expanded 15% as dealers restocked lost product after the earthquake/tsunami. South American replacement markets continued to expand, increasing by 10% overall, with the major Brazilian market growing by 7% despite higher interest rates.
Demand for Michelin’s radial truck tires recovered sharply during the year in every region, though the improvements in mature markets were more a reflection of 2010’s low base, particularly in the OE segment (up 17%). Europe for example expanded by 61%, lifted also by ìsustained exports of new trucks.î In North America too the market saw robust 66% growth, reflecting new vehicle purchases needed because of the high average age of tractor trucks (nine years).
In Asia (excluding India), demand fell by 10%, due mainly to a 12% contraction in China, a result of slowing construction-related businesses and tighter credit controls. In South America however, market expansion was driven by rising sales in advance of the introduction of new truck standards and by infrastructure development projects for the 2016 Olympic Games in Brazil.
Replacement markets around the world had similar growth in the range 9%-18%, with Asian markets at the lower end and European at the higher.
Michelin’s OTR segment grew on mining expansion, growing by more than 10%, led by renewed work on major projects and healthy demand for ore and energy. This also meant that supply chain constrictions are beginning to resurface. Agricultural product demand rose, while the increases in aircraft loads and passengers carried aided a sharp upturn in that segment, while military demand was stable.
Michelin’s increased passenger and light truck tire distribution, up 13.7% year on year, was helped by increased sales resulting from the solid performance of the brand and new products, the Pilot Super Sport and the BFGoodrich Rugged Terrain. Michelin also said net sales in the first half were lifted by the Groupe’s pricing policy, with a slightly positive mix effect reflecting the impact of the relative growth in OE and replacement sales and of the sustained improvement in the segment/speed rating mix. Michelin was overall helped by the increased demand for higher speed and larger UHP tires.
Operating income before non-recurring income and expenses rose to 535 million euros, compared with 497 million euros, though margins were slightly down to 10.2% of net sales, compared with 10.8% in first-half 2010; figures that compare favorably with certain other comparable brands.
Net sales in the truck and related distribution segment amounted to 3.27 billion euros, up 27.3% from first-half 2010. Sales volumes rose by 15.6%. However sharply rising raw materials costs were not fully offset by price increases during the first half, leaving operating income before non-recurring income and expenses at 115 million euros, or 3.5% of net sales, down from 4.9% in 2010.
Unfavorable currency exchange was a reason for this reduction, according to Michelin.
In the specialty businesses, the rise in net sales of 36.6% to 1.59 billion euros meant that operating income and margins improved at 321 euros million or 20.2% of net sales, compared with 199 million euros and 17.1% in the 2010 first half. The 29.1% increase in tonnage sold, the significant contribution from the OTR segment and the contractual clauses indexing prices to raw material prices amply offset the unfavorable currency effect, Michelin said. (Tyres & Accessories)
