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February 13, 2018 12:00 AM

Michelin reports growth amid reorganisation, high materials costs

Shahrzad Pourriahi
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    Clermont-Ferrand, France – Groupe Michelin has reported growth both in operating income and sales during 2017, despite currency and raw materials headwinds as well as the launch of a major reorganisation.

    The French group’s net sales stood at €21.9 billion for the year, up 5.0% from 2016, according to a company press release 12 Feb.

    This was attributed to a number of factors, including a €543-million increase from the 2.6% growth in volumes and a €668-million or 3.2% increase from the “favourable price-mix effect”.

    Consolidated operating income from recurring activities amounted to €2.74 billion, 12.5% of net sales. This was up nearly 13% compared with the €2.69 billion in 2016.

    However, non-recurring activities, mainly the costs related to the reorganisation of the group, had a €111-million negative impact on income.

    These, according to Michelin, were partially off-set by gains on changes to the health coverage plan in the US and to the pension plan in the UK.

    A €738-million negative impact by higher raw materials prices was “almost entirely” covered by the management of the price mix, Michelin said.

    The French group said that its net income came in at a “historically high” €1.69 billion.

    Commenting on the figures, Michelin CEO Jean-Dominique Senard said the company was pursuing “the acquisitions that will support its ambitions for growth and value creation,” but did not give further details.

    In terms of outlook, Michelin expects “modest growth” for passenger car/Light truck and truck tire markets during 2018.

    The mining tire, agricultural original equipment and earthmover original equipment markets should remain buoyant, the company added.

    Michelin also projects an estimated €50‑€100 million increase in raw materials prices this year, which it will handle through price management.

    Additionally, based on January 2018 exchange rates, the currency effect will likely reduce full-year operating income from recurring activities by around €300 million.

    In terms of segment performance, net sales in the passenger car/light truck tires unit rose by 3.1% in 2017, to €12.47 billion during the year. Operating income for the segment, however, fell 2% to €1.55 billion.

    Michelin attributed the decline to “unfavourable” currency effects.

    The group, however, said it sustained market share gains in 18-inch and larger tires, with a 19% growth.

    The truck tires segment performed less well with a 14.3% decline in operating income at €497 million. This is despite a 26% growth in sales at €6.12 billion.

    According to Michelin, the drop was a result of adverse currency effect, the priority focus on preserving unit margins and a 2% decrease in volumes over the year.

    The increase in raw materials costs, Michelin said, was offset by price management and improved product mix.

    Michelin’s speciality tires, including earthmover, farm, two-wheel and aircraft tires, grew 18.4% in 2017, hitting sales of €3.35 billion, compared to €2.83 billion the year before.

    Operating income for the segment rose to €693 million, versus a reported €527 million in 2016.

    The improvement was attributed to a 16% growth in volumes, led by the sustained rebound in demand for the mining tires and the sharp upturn in earthmover and agricultural OE sales.

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