Raw material costs hit Michelin 2003 earnings

By Patrick Raleigh, ERJ On-line news editor

Paris-Groupe Michelin has posted a 6.7-percent drop in operating income to Euro1143 million, on 2003 sales of Euro15 370 million, 1.8 percent lower than the previous year.

Michelin blamed the lower earnings mainly on a 21-percent surge in raw material costs, which added around Euro320 million to costs. Healthcare, transportation, and currency factors added another Euro200 million to extra costs, said a 24 Feb group statement.

The performance equated to an operating margin of 7.4 percent, or 7.7 percent excluding the impact of consolidating the Viborg tyre distribution business, Michelin noted. This compared to an operating margin of 7.8 percent last year.

Michelin highlighted gains on a number of fronts during 2003, including a further improvements in product mix, a 3.7-percent rise in sales volumes expressed in tonnes, and lower finished goods inventories.

Passenger car and light truck tyres, which represented almost 49 percent of Michelin's net sales total, posted an operating margin of 8.9 percent, compared to 9.6 percent in 2002.

Michelin linked the lower profitability to its North American operations, which faced 20-percent higher raw materials costs, extra medical costs and sluggishness in the 4X4 vehicle market, combined with a strong Euro.

The group truck tyre's business represented around 26 percent of group sales, and posted an operating margin of 13.1 percent, compared to 12.3 percent the previous year.

The improvement was based on higher sales volume, cost controls and success in implementing price increases, according to the French tyre maker.

Michelin's other activities segment-principally speciality tyres, distribution, wheels and publications-posted a loss of Euro42.4 million in 2003.