|
(22/10/2003) COMPAGNIE GENERALE DES ETABLISSEMENTS MICHELIN : Nine months 2003 net sales:11.1 billion euros, +
October 22, 2003
Group sales volumes expressed in tons increased by 3%, in contrasted tire
markets.
Although the Passenger Car and Light Truck tire replacement market continues
to post strong growth in Europe, it remains below its 2002 level in North
America. Passenger Car and Light Truck original equipment markets are down
in both regions. Truck tire markets are slightly up.
As far as full year operating margin is concerned, Michelin remains confident
that it should be able to offset a significant proportion of the strong negative
impact resulting from the sharp increase in its raw material consumption costs.
At constant scope of consolidation, this could translate into an operating
margin slightly below that of 2002, which stood at 7.8%.
| (in EUR million) | 9 months to September 2003 | 9 months to September 2002 | | Consolidated net sales | 11,148.7 | 11,686.2 | | Excluding the impact of | N/A | 10,665.1a | | exchange rate variations | | | | | 3rdquarter 2003 | 3rdquarter 2002 | | | 3,800.5 | 3,865.2 | | Excluding the impact of | N/A | 3,627.3 | | exchange rate variations | | |
| | YTD 9 months 2003 | YTD 9 months 2003 | 3rdquarter 2003 | 3rdquarter 2003 | | | Total change | Total change | Total change | Total change | | | (9 months, 03/ 9 months, 02) | (9 months, 03/ 9 months, 02) | (3rdquarter 03/3rd quarter 02) | (3rdquarter 03/3rd quarter 02) | | | In EUR million | Accrued % | In EUR million | Accrued % | | | - 537.4 | - 4.6% | - 64.7 | - 1.7% | | Of which exchange rates : | - 1,021.0 | - 8.7% | - 237.9 | - 6.2% | | Volumes : | + 262.8 | + 2.5% | + 95.5 | + 2.6% | | Price/Mix : | + 220.8 | + 2.0% | + 77.7 | + 2.1% | | Scope of consolidation : | 0 | 0% | 0 | 0% |
a Net sales for the first 9 months of 2002 recalculated at September 30, 2003, exchange rates
1. Analysis of the impacts on the change in net sales
Sales volume expressed in tons is up compared to the first nine months of 2003. Excluding the impact of
currency fluctuations, net sales are up 4.5%, but down -4.6% at current exchange rates. Note:
- The positive impact (+2.5%) of higher sales volumes.
- The positive price / mix effect of +2.0% at constant exchange rates.
- The negative impact (-8.7%) of exchange rates. As already noted in the last few months of 2002
and since the start of 2003, this is mostly related to North and South American currencies.
- Lastly, absence of change in the Group scope of consolidation compared to the first nine months
of 2002. Although the acquisition of the European tire distribution activities of Viborg is effective since
March 31, 2003, and although these activities will be consolidated as of April 1, the current due
diligence process had yet to be completed at end September. As a result, Viborg - which is in the
process of being merged into Euromaster - will only appear in the 4
th
quarter consolidated accounts of
the financial year.
2. Evolution of World Tire Markets
Tire markets for the third quarter were globally in line with Group expectations as adjusted at end July.
They appeared very contrasted, with a high monthly volatility.
| Pass. Car & Light Truck | Replacement mkt | OE mkt | Michelin estimations FY 2003 | | (In units) | Accrued 9 m. 2003 | Accrued 9 m. 2003 | | | Total | NA | NA | Globally stable tire markets | | Europec | + 6.3% | - 6.1% | RT: up 2 to 3%; slightly more if | | | | | good winter tire sell-out; | | | | | OE: down 3% | | North Americaa | - 0.3% | - 4.1% | RT: flat; | | | | | OE: - 4 to 5% | | South America | NA | NA | ND | | Asia | NA | NA | Continued growth in China |
NA: Not Available
ND: Not Disclosed
| Truck | Replacement mkt | OE mkt | Michelin estimations 2003 | | (In units) | Accrued 9 m. 2003 | Accrued 9 m. 2003 | | | Total | NA | NA | Markets slightly up | | Europeb | + 4.2% | + 3.4%c | WE RT: 1%+; | | | | | OE (power units): 2%+ | | North Americad | + 1.1%e | + 0.3% | RT: stable to +1%; | | | | | OE: +5% | | South America | NA | NA | ND | | Asia | NA | NA | ND |
NB: Third quarter tire markets should be viewed in light of the key factors which had characterized the
third quarter 2002 (compared to the same period in 2001).
c Western (15 main markets) and Eastern Europe (excl. Community of Independent States)
a United States, Canada and Mexico
b Western Europe (15 main markets)
c Power units market
d United States, Canada and Mexico
e Radial + bias tire market
- in Europe
The Passenger Car and Light Truck tire replacement market is up 6.3% in the first nine months
of the year, against a 6% or so rise in the first half. The third quarter posts sustained growth (+7%,
after +11% in Q1 and +1.7% in Q2), mostly fuelled by a 15% increase in winter tire ‘sell-in' sales.
On the other hand, the ‘sell-out' market exhibited a somewhat different trend, since winter tire sales
to end-users usually only start in October and are heavily dependent on weather conditions. Market
long-term trends, i.e. declining mass market and growing high performance and 4x4 segments, are
unchanged.
Michelin maintains its estimated 2 to 3% growth in the European passenger car and light truck
replacement tire market for the full year, but the figure could be revised upwards if winter tire ‘sell-out'
sales are good.
The Passenger Car and Light Truck Original Equipment market continued to shrink in the third
quarter, in line with the trend started in April (- 6.1% YTD compared to - 5.1% in the first half and
-8.3% for the third quarter alone). On the other hand, progression towards upper range and better-equipped
vehicles continues. As some car manufacturers have announced production increases in the
fourth quarter, following signs of improved car sales noticed in some European countries, one could
witness positive market growth in Q4, though the full year market should be down some 3% on
2002.
- In Truck replacement, the Western European market is up 4.2% year-on-year and 2.7% in the third
quarter. The third quarter increase is due to positive growth in September, while the rest of the
period shows slower growth than in the first half of the year. This was expected as part of the
growth in the first six months of 2003 was driven by advanced purchasing, ahead of price increases
effective in the third quarter announced by a number of players, including Michelin.
As a result, Michelin forecasts market growth above 1% for the full year.
The Truck Original Equipment market (power units) is up 3.4% year-on-year. However, there
again, one should remember comparison elements: after a very depressed first quarter, the market
had gradually recovered in 2002, a year which had been particularly weak (-17% down on first
quarter 2001). However, exports of new trucks outside of Europe show signs of improvement. Taking
this into consideration and truck manufacturers expectations of a more positive trend in the coming
months, Michelin tables on a full year original equipment (power units) tire market more than 2%
above 2002.
By contrast, Truck Original Equipment (trailers) sales continued to erode, as a result of the financial
difficulties experienced by several European trailer manufacturers.
- in North America
The Passenger Car and Light Truck Tire Replacement market is down -0.3% year-on-year,
against a -3.1% decline at end June. The mechanical growth of the SUV tire segment (up 13% in Q3
2003, whereas it was down 22% in Q3 2002) and the progression of the mass-market tire segments
largely account for the 3
rd
quarter market increase. On a year to date basis, long-term trends remain
unchanged, with an improved market-mix: SUV and performance tire segments continue and grow
whereas mass-market is down 5% on 2002.
As a result, Michelin expects the Passenger Car and Light Truck tire replacement market to be flat for
the full financial year 2003.
On the Passenger Car and Light Truck Original Equipment market, the -3.8% downward trend
observed in the first half deepened, down -4.1% at end September. On the other hand, as in the
case of the replacement market, the SUV and High Performance segments continued to outperform
the market. On a full year basis, the market should be down some 4 to 5% on 2002.
In Truck, the replacement market slowed down, as expected, in the 3
rd
quarter. As of September
30, it is up a bare 1.1%, against +3% in the first half. This erosion recorded in the third quarter can
be attributed in part to sales drives by various players which boosted sales in June. The market
remains however 3% short of its 9 months 2000 level. For the full year, Michelin tables on a market
up close to 1%.
- In Original Equipment, the market shows an aggregate 0.3% increase. One should remember that
the 3
rd
quarter 2002 had benefited from advance purchases of ‘Class 8' trucks ahead of the
introduction of new emission standards effective 1 October, 2002. The trailer market continued to
grow in line with the trend witnessed in the first six months. Michelin expects the market to improve
in the 4
th
quarter given current indications by truck and trailer manufacturers of a planned increase in
both ‘Class 8' trucks and trailers production. As a result, on a full year basis, the original equipment
truck tire market could be up close to 5%.
- In South America, the economic climate is showing signs of slight improvement, especially in
Argentina. South American currencies remain however down on the Euro, on a year-on-year
comparison (- 29% for the Brazilian real).
- In Asia, the situation varies widely from country to country.
In China, the third largest market behind Japan and South Korea, Passenger Car and Light Truck tire
replacement markets have enjoyed the same dynamic growth as in recent years. The Japanese
Replacement market, by contrast, continues to stagnate. Passenger Car and Light Truck Original
Equipment markets are also showing buoyant growth in China and in South Korea. In Japan, the
export business remains high.
The Chinese radial Truck tire market posts growth trends almost as strong as in 2002, but the
Japanese replacement market is down about 7% on the first nine months of 2002 (itself some 5%
lower than the same quarter levels for 2001).
- The Middle-East and African region benefited in the third quarter from a further improvement in
Turkey's economic health and from the associated pick up in sales.
3. Evolution by Michelin business segment
| Net sales | 9 months to September 2003 | var9 m 2003/ 9 m 2002 (in %) | | | (in E million) | | | Group | 11,148.7 | - 4.6% | | Passenger Car & Light truck | 5,545.7 | - 6.8% | | Truck | 2,927.9 | - 0.4% | | Other activities | 3,266.9 | - 4.8% | | Inter-sector eliminations | (591.8) | |
Sales volume variations (change in %, 9 months to September 2003/ 9 months to September 2002)
| | Total | Replacement | Original Equipmenta | | Group (in tonsb) | + 3.1% | + 3.7% | + 1.8% | | Passenger Car & Light Truck | - 0.3% | + 2.0% | - 5.5% | | (in units sold) | | | | | Truck (in units soldc) | + 3.5% | + 5.0% | + 0.2% | | Other tire activities (in tons) | + 1.6% | + 0.8% | + 3.6% |
a Original equipment : sales to vehicle manufacturers
b Refers to the sale of tire products. Distribution, maps and guides and suspension systems sales not included.
c Number of new tires
3.1 Passenger Car & Light Truck
This segment benefited from sustained price increases as well as from further improvement in the product
and category mix. Excluding the impact of currency fluctuations, the segment's net sales are up more than
3% year-on-year.
| Passenger Car/ Light Truck | Total | Replacement | Replacement | Original | Original | | (in units sold) | | | Market | Equipment | Equipment | | 9 months to September 2003 | | | | | Market | | Total | - 0.3% | 2% | N/A | - 5.5% | N/A | | Europec | - 2.5% | + 4.5% | + 6.3% | - 14.8% | - 6.1% | | North Americad | - 1.3% | - 1.6% | - 0.3% | - 0.5% | - 4.1% | | Other geographical arease | + 11.1% | + 7.4% | N/A | + 19.5% | N/A |
In European replacement, the increase in sales volumes of +4.5% year-on-year is lower than that of
the market owing to the two following factors. In the 1
st
quarter, market growth was driven mainly by
competitor promotional campaigns which Michelin did not follow. Furthermore, in Eastern Europe,
the Group resolved to favor a steady cash-in in euros, raising prices in order to compensate for the
depreciation of local currencies. In the 3
rd
quarter, Michelin gained market share in winter tires in
Germany, Austria and Switzerland. However, higher than expected demand for its new Alpin range in
Europe exceeded Group's anticipation. This led to product shortages and an unsatisfactory order fill
rate, especially in Eastern Europe.
On a positive note however, Michelin's product and category mix improved further over the nine-
month period, with a strong progression in VZ and 4x4 tire sales, when compared with the same
period of 2002.
In North America, sales are down 1.6% compared to the first nine months of 2002. The mass
market and the H-rated tire segments where the Group lost market share in July and August account
for most of this decline. Conversely, the launch in September of the Michelin HydroEdge(tm) range in
the mass-market segment and a new generation MXVH4 in the H-rated segment recorded a strong
success. On a nine-month basis, the mix as well as the net unit price continued to improve.
In South America, as in 2002, the successive price increases in local currency terms have helped
offset the decline in net sales.
In Asia, the Group pursues its focused growth policy centered on high added value segments.
In China, sales continued to outperform the market: net Michelin and Warrior branded tire sales grew
by more than 30%. Net sales in Thailand were not affected by the Group's strategy of reducing the
relative importance of the light truck segment and delivering a better product mix.
- In European Original Equipment, non-renewal, from August 2002, of the supply contract with
General Motors Europe, contributed to a sizeable contraction of the sales volumes for the first 9
months of 2003 (-14.8%). This will however be gradually offset in the second half as Michelin pursues
its long-term effort to strike a better balance between Original Equipment and Replacement markets
and improve the quality of the product mix.
Similarly, in North America, despite a bear market, Michelin further enhanced its mix. As evidenced
in 2002 and throughout the current year, Group sales clearly outpaced the market and additional
significant market share gains have been achieved in the ‘SUV' and ‘Performance' segments.
c Western (15 main markets) and Eastern Europe (excl. Community of Independent States)
d United States, Canada and Mexico
e Asia, South America, Africa and Middle East
3.2 Truck
Net sales were down 0.4% year-on-year. This slight decline is due to highly unfavorable exchange rates.
Excluding that impact, sales volumes went up +3.5% in units sold and a better original equipment /
replacement mix together with higher unit prices enabled this business to post a strong growth.
| Truck | Total | Replacementa | Replacement | Original | Original | | (in units sold) | | | Market | Equipment | Equipment | | 9 months to September 2003 | | | | | Market | | Total | + 3.5% | + 5.0% | N/A | + 0.2% | N/A | | Europe | + 2.8% | + 5.5% | + 4.2%b | - 1%c | + 3.4%d | | North America | + 3.3% | + 7.7% | + 1.1%e | - 4.6% | + 0.3% | | Other geographical arease | + 4.8% | + 2.5% | N/A | + 22.5% | N/A |
In European Replacement, Michelin new tire sales and market share increased compared with the
same period last year. The analysis of the third quarter sales performance needs to be made in light of
the market bias created by a transfer to the first half of some sales which would normally have
occurred in the third quarter, as price increases announced in the second quarter and due to be
effective in the summer induced advance purchases.
In North America, the transport industry continued facing a challenging and difficult environment.
However, as in the first half, Group sales again outperformed the market. One should nevertheless
remember that Michelin's sales volumes and market share are still below 2000 levels. In retread,
further progress has been achieved in a market which is down 1.4%.
In South America, price increases which have been introduced in 2002 and early 2003 are holding
up.
In Asia, Michelin's sales of radial tires were up again in the first nine months, especially in China, in
line with the upward trend recorded for the last 2 years.
- In European Original equipment, the trailer segment declined further, although at a slower pace
than in the first half. This explains why Group sales are slacker than the market.
In North America, the Group's overall market share in original equipment is down slightly for the first
nine months. Pick up in trailer segment sales, however, drove market growth, a factor which was not
to the Group's advantage since it is stronger on the power units segment than on this one.
3.3 Other activities
At EUR 3.27 billion, this reporting segment's net sales are down 4.8% on the first nine months of 2002.
US dollar depreciation to the tune of 17% against the euro (after a 3.4% depreciation over the first nine
months of 2002) continues to erode the dollar denominated net sales of this segment. This is particularly
true for TCI and Earthmover sales after conversion as they are mostly US dollar denominated - and also for
Aircraft sales, since the US dollar is the reference currency for most commercial transactions.
With respect to retailing, Euromaster net sales improved gradually throughout the 9 months to end-
September, mainly driven by retail activities in light vehicles and commercial business vehicles. In North
America, TCI net sales are also up both on a quarterly and on a year-to-date basis, driven by strong
growth in its small tire distribution segment as well as retread manufacturing.
a New tires
b Western Europe
c Sales power units + trailers
d Power units market
e Radial + bias truck market USA+ Canada + Mexico
In Earthmover tires, sales volumes were up in recovering markets, notably on the original equipment side.
However, as in the first half, the depreciation of the dollar continued to impact net sales severely.
Agricultural tires have been affected by the decline in the European replacement market caused the heat
wave that hit Europe during the summer as well as the consecutive drought.
Despite an increase in sales volumes, the Aircraft tire business has been penalized by the depreciation of
the US dollar against the euro and by the adverse environment of the airline industry. As far as Two-wheel
tires are concerned, supply difficulties adversely affected the sales volumes despite a growing
demand for Michelin radial motorbike tires. Lastly, the Wheel manufacturing business has continued to
suffer from production over-capacity in steel wheels in the European market. In January 2003, the Group
announced a set of measures aimed at reorganizing this business; these are currently being implemented.
4. Third quarter
| Net sales | 3rd quarter 2003 | varQ3 2003/ Q3 2002 (in %) | | | (in E million) | | | Group | 3,800.5 | - 1.7% | | Passenger Car & Light truck | 1,912.6 | - 2.1% | | Truck | 1,024.4 | 2% | | Other activities | 1,089.5 | - 3.5% | | Inter-sector eliminations | (226.0) | |
Sales volumes variations (% change, Q3 2003/ Q3 2002)
| | Total | Replacement | Original Equipmenta | | Group (in tonsb) | + 3.1% | + 4.2% | + 0.3% | | Passenger Car & Light Truck | + 1.4% | + 4.3% | - 6.1% | | (in units sold) | | | | | Truck (in units soldc) | + 2.1% | + 2.9% | 0% | | Other tire activities (in tons) | + 0.3% | + 0.1% | + 0.9% |
| | Total | Replacement | Original Equipmenta | | Group (in tonsb) | + 3.1% | + 4.2% | + 0.3% | | Passenger Car & Light Truck | + 1.4% | + 4.3% | - 6.1% | | (in units sold) | | | | | Truck (in units soldc) | + 2.1% | + 2.9% | 0% | | Other tire activities (in tons) | + 0.3% | + 0.1% | + 0.9% |
a Original equipment: sales to vehicle manufacturers
b Refers to the sale of tire products. Distribution, maps and guides and suspension systems sales not included.
c Number of new tires
c Western (15 main markets) and Eastern Europe (excl. Community of Independent States)
d United States, Canada and Mexico
e Asia, South America, Africa and Middle East
| Truck | Total | Replacementa | Replacement | Original | Original | | (in units sold) | | | Market | Equipment | Equipment | | Q3 2003 | | | | | Market | | Total | + 2.1% | + 2.9% | N/A | 0% | N/A | | Europe | - 1.8% | - 2.4% | + 2.7%b | - 0.6%c | + 1.4%d | | North America | + 2.5% | + 7.3% | - 2.0%e | - 6.4% | - 5.9% | | Other geographical arease | + 7.4% | 5% | N/A | + 25.1% | N/A |
5. Prospects for the full financial year
As far as full year operating margin is concerned, Michelin remains confident that it should be able to
offset a significant proportion of the strong negative impact resulting from the sharp increase in its raw
material consumption costs.
Taking into account:
- the sharp increase in raw material purchase costs since the summer of 2002 (+13% in US$ H2 2002/
H2 2001 and +20% in US$ H1 2003/ H1 2002)
- and the 4-6 months lag time between the purchase of raw materials and their consumption;
Michelin is now in a position to estimate the full year 2003 impact of raw materials prices on its income
statement when compared to 2002. It should translate into an increase of approximately USD 350 million,
at constant exchange rates and scope of consolidation, in the Group's operating expenses, i.e. + 20% on
2002. Most of the burden is supported by the North American operating units, as the dollar increase in
raw material prices they are faced with is not compensated for by the depreciation of the US currency
against the euro.
Given internal progresses, and based on the current operating environment, Michelin could achieve, at
constant scope of consolidation, an operating margin slightly below that of 2002, which stood at 7.8%.
As previously noted, the Viborg distribution business will be consolidated in the 4
th
quarter, retroactively as
of April 1, 2003. As a result, full year Group consolidated net sales should increase by some EUR 300
million on 2002. The estimated operating loss for the 9 months of consolidation should be in the 20-40
EUR million range. Note that Viborg first quarter losses are included in the estimated EUR 300 million
goodwill that was made public at end-July.
* * *
Compagnie Financière Michelin
For the nine months ended September 30, 2003, Compagnie Financière Michelin (CFM) ‘s net sales
amounted to EUR 11.34 billion, down 4.5% on last year. At constant exchange rates, by contrast, net
sales expressed in euros are up 4.5%. In so far as Compagnie Générale des Etablissements Michelin has
almost the same scope of activities as Compagnie Financière Michelin, the qualitative comments on net
sales apply to CFM as well.
* * *
Full year 2003 net sales will be published on Thursday February 12, 2004, after the close of the
Paris Bourse (5.30 pm Paris time). It will be followed, as usual, by a conference call.
Full year 2003 earnings will be published on Tuesday February 24, 2004, before the Paris Bourse
opens.
a New tires
b Western Europe
c Sales power units + trailers
d Power units market
e Radial + bias truck market USA+ Canada + Mexico
Questions / answers
1. Third quarter tire markets were contrasted ones. Are there any specific factors that
should be looked at?
Third quarter tire markets should be viewed in light of the following key factors which already
characterized the third quarter 2002 (as compared to the same period in 2001):
- -6.5% decline in the North American Passenger Car and Light Truck tire replacement market as a
result of the sharp drop in the SUV market segment (-21.7%, note the bias due the exceptional
growth in Q3 2001 associated with the second Firestone recall),
- Strong growth in the 2002 European Passenger Car and Light Truck tire replacement market,
mainly accounted for by a 15% increase in the winter tire segment.
- A sharp surge in the North American radial Truck tire original equipment market, driven by
advance purchases of 'Class 8' trucks further to the introduction of new emission standards that
became effective in the US in October 2002.
- The marked increase of the Original Equipment markets for Passenger Car and Light Truck tires
both in Europe (+5.8%) and in North America (+9.2%) in 2002.
2. Michelin underperformed the North American Passenger Car and Light Truck
replacement market in the third quarter. What happened?
After having declined respectively -5.4% and -0.9% in the first and second quarters, the North
American Passenger Car and Light Truck replacement tire market is up +5% in the third quarter. As a
result, on a year to date basis, the market is close to its 2002 level (-0.3%). Third quarter monthly
variation was however high, and September growth should be viewed in light of an extra selling/
shipping day when compared to September 2002, together with traditional selling campaigns by tire
manufacturers.
As the macro-economic environment remains challenging in North America, third quarter market
recovery was mainly driven by mass market segment growth, even though, on a year to date basis,
the mass market continues to post a significant downward trend (-5% on 2002 levels). Third quarter
market growth was also fuelled by the SUV tire segment mechanical rebound.
Even though Michelin underperformed the market in July and August, it clearly outperformed in
September in all market segments. The successful August launch of the new HydroEdge(tm) range in
the mass market segment and a new generation MXVH4 range in the H-rated segment clearly
demonstrate that quality and value-added products make a difference to the end-user. Throughout
the quarter and since the start of the year, both product mix and revenues per unit improved
significantly on last year's. Quality of its market share is of significant importance to Michelin, as it
clearly leads to a better profitability.
3. The European Passenger Car and Light Truck tire replacement market was very
strong in the third quarter. Why is that? Where does Michelin stand?
The European Passenger Car and Light Truck replacement tire market was up 7% in the third quarter,
posting a significant acceleration on 2
nd
quarter performance (up 1.7% on Q2 2002). Market growth
was strong in winter tires (+15%), Southern and Eastern Europe. From a market segment perspective,
long-term trends remained unchanged, i.e. declining mass market and growing high performance and
SUV tire segments.
However, winter tires make up most of the market in the 2
nd
half of the year, especially in Germany,
Austria, Switzerland and Eastern Europe. Third quarter winter tire sales are ' sell-in ' sales (sales to
dealers building up inventories), since winter tire sales to end-users ('sell-out') usually only start in
October and are heavily dependent on weather conditions.
Higher than expected demand for Michelin's new Alpin range in Europe - which received the highest
marks in ADAC's (Allgemeiner Deutscher Automobil Club, Germany's largest automobile club) winter
tire test ratings - exceeded Group's anticipation. This led to product shortages and an unsatisfactory
order fill rate, especially in Eastern Europe. As a result, third quarter Group winter tire sales
underperformed the market despite market share gains in Germany, Austria and Switzerland.
4. Viborg will only be consolidated by year-end. Since April you have entered into a
plan to turn this business around. Where do you stand today?
Preliminary findings of the in-depth post acquisition due diligence carried out since Euromaster took
control over Viborg on April 1 made it necessary to take restructuring measures. Viborg's financial and
operational situation had sharply deteriorated in the second half of 2002 and the first quarter of
2003; this translated into significant operational losses and into 2002 net sales being down 12% on
2001.
An ambitious merger plan into Euromaster has been decided. It intends to refocus Viborg on its core
business, fully integrate the company in Euromaster's network with one single management; exploit
synergies between both networks in areas such as logistics, procurement or administration; improve
the management of fixed and current assets. ‘MasterPlan 2004' has now started and several
restructuring measures have already been announced covering administrative and logistic synergies in
various European countries.
As far as net sales are concerned, the erosion has been stopped. After first quarter sales down 16%
on first quarter 2002, sales volume gradually picked up. September sales were flat when compared
with a year ago.
The post acquisition due diligence should be completed in the next few weeks.
5. As in the first half, 3
rd
quarter net sales have suffered from the appreciation of the euro
against the US dollar. How sensitive is Michelin to the US dollar?
Michelin is relatively dollar neutral in a stable situation.
The Group earns slightly less than 50% of its net sales outside of Europe, with 35% of net sales being
earned in North America. The majority of its raw materials, however, is purchased either in dollars, or
using the US dollar as a currency base, or in other currencies that are tied to the dollar. Part of these
raw materials is consumed in Europe. Moreover, North America is a profitable zone: the Group
consolidates in euros its profits generated in dollars.
A drop in the dollar/euro exchange rate has the following effects:
- On net sales:
- an immediate negative impact on net sales in dollars
- On profits:
- an immediate negative impact on the conversion of North American results;
- an immediate negative impact on sales realized in dollars from Europe and Asia;
- an impact on the cost structure through a drop in raw material prices in Europe. This impact is
delayed because of a lag time effect on Michelin's supply structure (the average time period
between the purchase of raw material and its inclusion in the cost of goods sold is of 4 to 6
months).
In a stable situation and when considered globally, this effect is relatively neutral at the operating
level, having a slightly positive effect on margins if any effect at all, with net sales growing more slowly than net income in this case.
Nevertheless, when taking into account the lag time effect in the cost structure of the Group, any
drop in the US dollar/euro exchange rate has a negative initial effect on profits.
6. Raw material prices stayed high throughout the year so far. What are the
consequences for Michelin?
As of June 30, 2003, raw materials represented 25.4% of Michelin's net sales and 36.3% of its cost
of goods sold. When considering the impact of a rise in raw material prices, it is important to note the
strong value-added contents of Michelin's tire products in comparison with those of competitors.
At end-June 2003, natural rubber represented 23% of the total cost of raw materials. Although the
rise in natural rubber prices was close to 65% in Singapore dollars for the period between January
and September, the price paid by the Group for this commodity increased by an average 24% in US$
when comparing the first 9 months of 2003 to the same period in 2002.
Synthetic rubber accounts for 29% of raw materials and carbon blacks 17%. Oil prices have remained
high since the start of the year (average price per barrel of Brent crude oil : 28.85 US$ for the first
nine months of 2003). It is however necessary to remember that the prices of these oil-derived
products are only partially correlated to crude oil prices. 15 percent of the price of Michelin's raw
materials is impacted in the short term (less than one year) by the price variation of oil and its
derivatives (styrene, butadiene, butyl, carbon blacks etc.).
The lag time effect between the purchase of raw materials and their consumption in the process of
production introduces a delay of 4 to 6 months between the variation of the spot price of these raw
materials and their translation into the cost of goods sold and operating margin of the Group.
As of end September, it is therefore possible to estimate the impact raw materials price increases
could have on Michelin's full year 2003 operating expenses, when compared to 2002. At constant
exchange rates and scope of consolidation, this is estimated to be a negative USD 350 million.
7. Raw material prices are up. Will you be able to compensate for these through
prices?
Tires are not commodities. Raw material prices are only one of the components that determine tire
prices. Michelin endeavors to fairly reflect in its prices the value-added qualities that its products bring
to clients.
The Group intends to continue with this approach, which contributes to improving profitability. It
therefore constantly assesses all opportunities available in the context of each specific market.
8. Michelin indicated at end-July that finished products inventories should go down in
the second half. Is this happening?
As indicated at end July, the seasonal structure of the tire business typically generates a build up in
finished products inventories in the 1
st
half of the year, and, conversely, leads to destocking in the
second half.
In this respect, the 1
st
half 2002 was atypical, as had been indicated at the time since there had been
no increase in inventories. By contrast, 2003 first half finished product inventories were back to the
normal seasonal pattern and translated, when compared to the first half of 2002, into a 1.1
percentage point improvement in the operating margin half-on-half.
At end July, Michelin indicated that the decline in inventories in the second half of 2003 should be of
the same order of magnitude as that of the second half 2002. At end September, Michelin is on track
with this target. 2
nd
half on 2
nd
half, the impact on the operating margin should not be significant,
and, therefore, full year on full year, one should record a positive impact on the margin, although
smaller than the one recorded in the first half.
* * *
Latest News
- October 14, 2003: Michelin achieves the best ratings in ADAC winter tire tests
At the ADAC
a
, TCS
b
and ÖAMTC
c
winter tire tests, all Michelin winter tires tested achieved the best
scores. ADAC, Europe's largest automobile club put 40 winter tires in the three most widely-used sizes
through a full resistance test. Results were published in the ADAC Motorwelt October 2003 issue and
all the Michelin winter tires tested achieved the best overall scores. These included the Michelin Alpin,
which received twice the ' highly recommended ' endorsement.
- 12 October 2003: trail-blazing finish to the season
Two new World Champion titles were added to Michelin's record: Valentino Rossi (Repsol Honda -
Michelin) in GP Motorbike, 12th consecutive title in the category and Neil Hodgson's Superbike (Fila
Ducati - Michelin).
In WRC Rallye, the Pilot title was still unsure but Michelin is bound to become Champion in the
carmaker category where Peugeot and Citroën are deploying incredible virtuosity.
In F1, the struggle was far more intense than in 2002. Though Michael Schumacher won the World
Champion Pilot title, Michelin-equipped pilot teams stepped 30 times on the podium out of 48
opportunities, and Kimi Raikkonen finished the season Vice-World Champion on Michelin-equipped
McLaren Mercedes.
- 7 October 2003: 1,400 shareholders met in Lyons
Some 1,400 shareholders attended the meeting held in Lyons on 7 October, to gain a deeper
understanding of Michelin and exchange with its managers. 3 themes were touched upon in greater
detail: international development, the environment, innovation and research. On these and other
themes, participants had a fruitful exchange which lasted a little over 2 and a half hours.
The next shareholders meeting will take place on 20 January 2004, at Carrousel du Louvre in Paris.
- 7 October 2003: Michelin will replace Citröen C5 recalled rims
Citroën has launched a preventive recall on steel rims equipping 180,000 saloon and station C5's sold
throughout the world and manufactured before 13 May 2003. An internal endurance study has
shown that there existed a risk of cracks appearing on the rim of vehicles with over 120,000
kilometers if used in tough conditions (continuous full-load driving). The rims, like those that will
replace them, will be made by Kronprinz, a Michelin Group subsidiary. Replacement will be made free
of cost in the Euromaster and Viborg network.
a Allgemeiner Deutscher Automobil Club, Germany's main automobile club.
b Swiss Touring Club
c Österreichischer Automobil-, Motorrad- und Touring Club, Austria's main automobile club
- From 24 to 26 September 2003, the 5th Challenge Bibendum accounted for progress
achieved in safety and pollution prevention technologies.
Challenge Bibendum 2003 was held in California, one of America's most environment-conscious
states. Some 500 journalists and participants were able to test and compare progress achieved in
sustainable mobility. The large variety of technologies and innovations presented, in such different
fields as clean fuels, noise control, etc, testify to the fact that it is possible to make mobility both safer
and more compatible with the rise in demand, while consuming less energy.
Challenge Bibendum 2004 will take place in Shanghai in China, in October 2004.
- 9 - 21 September 2003: Michelin at the Frankfurt Motor Show
The Frankfurt Motor Show received more than 1 million visitors this year, and they were able to
discover the latest innovations in the world automotive industry. Michelin, a key actor in the progress
of the automotive industry, was, of course, present.
The public was able to discover the Group's latest innovations as regards performance and extended
mobility (Michelin PAX System, Michelin Zero Pressure), and safety systems (pressure monitoring and
management, in a joint venture with TRW and Wabco) and the environment (Michelin Proxima, very
low rolling resistance tire). The public also discovered Michelin's new Pilot Alpin, as well as the new
Michelin Pilot Sport.
- 16 September 2003: XeoBib wins Gold Medal
On 16 September, Deutsche Allgemeine Gesellschaft's innovation commission for the Hanover
(Germany) Agrotechnica Exhibition awarded its Gold Medal to Michelin for its new agricultural tire,
XeoBib. The panel was made up of academics, consultants and farmers.
XeoBib is the first agricultural tire to run with pressure equal to, or lower than, 1 bar, and to be as
performing in the fields as on the road. It will be presented officially at Agritechnica in November and
marketed during Spring 2004 throughout Europe.
- 1 September 2003: Michelin invents the all-services-included tire
In an effort to continually improve life for motorists, Michelin launched OnWay in France, which brings
innovating and free services to the market.
A genuine ' travel companion', Michelin OnWay is proposed for all purchases of at least one Michelin
tire and involves three free services: tire damage guarantee in the event of a flat, theft or vandalism
(repair or compensation as the case may be); tire assistance (servicing in under one hour) and SOS
Direction service (route guiding assistance, advice to locate hotels and restaurants).
These services are accessible round the clock and the offer will be progressively extended to all of
Europe from 2004.
- 8 September 2003: Shareholders Advisory Committee meets to discuss improvements to
Michelin's Annual Report
On 8 September, the Shareholders Advisory Committee met for the 3rd time this year. The theme of
its work was to assess the possibility of improving the annual report and Group Shareholders' letters,
with a view to meet even better individual shareholder expectations.
Michelin shares are registered, and the annual report and letters to shareholders are therefore
systematically sent to all 220,000 Group shareholders, most of whom are individual shareholders
including some 79,000 employees.
- August 2003: Michelin introduces the all-new HydroEdge(tm) in North America
Early August, Michelin introduced the all-new HydroEdge(tm), a premium passenger car and minivan
tire for the North American mass market. The Michelin(R) HydroEdge(tm) tire is designed to excel in
many performance categories — scoring top marks in wet traction, maximum tread life and quiet ride
— while delivering outstanding hydroplaning resistance, exceptional everyday handling and the sleek
'look' of a sporty, high-performance tire. Customer response has been very good and sales have
proven very successful since its launch.
- 22 July 2003: Michelin produces its first tire in Russia
On 22 July, the first passenger car tire came out of the vulcanizing press at Michelin's Davydovo plant,
near Moscow. When reaching its normal cruising speed, from 2005, the new plant should produce
some 2 million tires a year. It will strengthen Michelin's foothold in Russia, which represents currently
some 10% of the European replacement passenger car - light truck market (or around 20 million
tires). Market projections show that this market should double by 2010.
Contacts
Eric Le Corre
+33 (0)1 45 66 10 04 / + 33 (0)4 73 32 77 92
eric.le-corre@fr.michelin.com
Laurent Cavard
+33 (0)4 73 32 18 02 / +33 (0)1 45 66 16 15
laurent.cavard@fr.michelin.com
* * *
For more information, visit the ' Investor relations ' section at www.michelin.com
Companynews
|
