Higher volumes, demand help Michelin income growth in 2016

Clermont-Ferrand, France –  Higher volumes and a rebound in demand in China and Europe have helped Michelin register growth in operating income for the full year 2016, the French tire-maker announced on 14 Feb.

Net sales for full fiscal year 2016 fell by 1.4% to €20 billion, while operating income from recurring activities rose 3.7% to €2.7 billion. Net income rose from €1.16 billion to €1.66 billion in 2016.

“2016 represented a successful milestone in our strategic roadmap,” said CEO Jean-Dominique Senard, adding that 2017 was expected to be “another year of growth, in line with the group's 2020 objectives.”

In 2017, Michelin expects tire markets to track the trends observed in late 2016, in particular with the upturn in mining tire sales.

“The year will also see an increase in raw materials costs, for an estimated impact of approximately €900 million,” said Michelin.

In response to the cost pressure, Michelin said it will “agilely manage prices so as to hold unit margins firm in businesses not subject to indexation clauses.”

For the full year 2016, volumes were generally up 2.1%, with a 3% growth in passenger car and light truck tires, 1% growth in truck tires and a 1% decline in specialty businesses, which includes earthmover, farm, aircraft and two-wheeler tires.

Sales for passenger car and light vehicle tires rose 0.6% to €12.1 billion, while the segment’s operating income on recurring activities rose 14% to €1.58 billion.

The mix effect remained “favourable” for this segment, said Michelin. This was driven by strong sales of the new Michelin CrossClimate and Michelin Pilot Sport 4S lines.

The decline in raw materials costs, added the French tire-maker, was “only partially attenuated by price adjustments, of which a little less than half reflected the application of indexation clauses in original equipment contracts.”

The company said it continued to improve “competitiveness” throughout the year, “albeit at a slower pace in the second half due to production scalebacks at a small number of plants.”

Net sales in the truck tires & related distribution segment declined 4.2% at €5.96 billion while operating income from recurring activities fell 10% to €580 million.

In this segment, said Michelin, the “favourable” trend in raw materials costs “was not enough to offset the full impact of price repositionings and strong growth in sales of intermediate tires.”

Michelin noted that there had been “production cutbacks at certain plants in the second half” as well as industrial optimisation projects and cost discipline.

In speciality businesses, net sales dropped to €2.83 billion in 2016 compared to €2.94 billion the year before. Operating income from recurring activities fell 3.8% to €527 million for the full year. In this segment, said Michelin, “a particular rebound” has been observed in the fourth quarter.

Commenting on the markets for passenger car and light vehicle tires, the Michelin statement said original equipment demand in Europe rose by 3% overall during the year. The figure reflects a sustained 4% increase in Western Europe, despite the slowdown in car sales in the second half of the year, and a steep 12% drop in Eastern Europe.

The North American market stabilised at a high level, with a 1% increase, in line with registrations.  Demand in Asia, excluding India, ended the year up 7% overall.

“The Chinese market remained buoyant, with a 14% increase led by the government's compact car purchase incentives and the popularity of SUV models,” said Michelin.

Elsewhere in Asia, markets saw decline in demand with 2% in Japan, 7% in South Korea and 2% in the ASEAN nations.

Markets in South America continued the sharp decline, losing 12% over the year.

However, said Michelin, first signs of improvement emerged in the final quarter in Argentina and Brazil which was up 6%.

In the truck tire business, OE demand in Europe was up 1% despite a slowdown in the second half.

The 1% gain in Western Europe reflected both a downward trend in the semi-truck segment and growth in trailer tires.

The North American market fell 19% in 2016, which Michelin said was expected, "given the renewal of the local truck fleet observed in recent years."

Demand for radial and bias tires in Asia, excluding India, increased by 6% in 2016, as growth in China, up 9%, offset declines in Japan and Thailand.

"Chinese demand has been rebounding since the autumn due to the arrival of new market entrants and the application of new axle load and truck size rules," added Michelin.

The South American ended the year down 17%m although demand in Brazil "began to show some signs of improvement in the last two months," Michelin added.