Michelin has today issued its 2003 financial results, which included full year net income of €329 million, 46.5% down on the previous year. Michelin put the deterioration down to exceptional cost increases associated with raw materials price raises, increased healthcare provision and currency effects.

However, the result was broadly in line with analysts’ expectations and group operating margin in 2003 held up at 7.4% against 7.8% in 2002. Net group sales in 2003 were just 1.8% lower than in 2002 at €15.37 billion.

Excluding the impact of Viborg consolidation, the company said operating margin was 7.7%. Michelin said that the amortization over one single year of the goodwill related to the acquisition of Viborg amounted to €306 million.

Michelin maintained that it was able to show resilience in the face of cost increases and strengthen its global footprint.

“Our 2003 results do not fully reflect all the efforts accomplished and the improvements achieved within our company. We operated in reasonably good tyre markets, achieved significant gains in productivity, dynamic growth and a strengthened global footprint. Unfortunately, our teams’ internal improvements were rubbed out by the unprecedented inflation in external costs.

“Higher raw materials, in particular, but also increased expenses related to healthcare, transportation costs and currency fluctuations cost us close to 520 million euros in operating income, at constant sales volumes. This inflationary environment may persist in 2004, which reinforces Michelin’s resolve to further improve its ‘all terrain capabilities’, i.e. its ability to anticipate and react in the face of a difficult environment. Now more than ever, we look to the future with confidence,” said Managing Partner Edouard Michelin in a statement.

Michelin said that in 2003, the company improved its global footprint: financial investments totalled 229 million euros, against 62 million euros in 2002, with a focus on high growth potential regions. The largest operations were the purchase of minority interests in Poland and China. The year was also marked by strategic moves in Asia: in South Korea Michelin concluded a partnership agreement with Hankook Tire and acquired a 2.5% stake in its share capital. In India, a source of potentially strong growth for the truck radial tyre market, Michelin entered into an agreement with Apollo Tyres, the country’s largest truck tyre manufacturer.

Michelin has an estimated share of the world tyre market of a little under 20%, just ahead of Bridgestone and Goodyear, making it global market leader. The company’s strategy is currently focused upon developing its presence in emerging markets with strong growth potential and in supplying high performance, higher value tyres in developed markets. In 2002, the company stopped supplying GM in Europe because of GM’s emphasis on lower price.

Suggested further reading:
Tyres: trends, companies, market forecasts to 2006 – 2nd edition