By Liz White, ERJ staff
Paris-Groupe Michelin had a strong operating performance for the first half year-in contrast to the market, which is generally down, the group said. The French tyre maker had a rise in net income of 5.5 percent to Euro 386 million, on consolidated net sales of Euro 7490 million, a 0.1 percent rise over H1 2004.
Michelin said tyre markets were "generally down compared to the exceptionally strong first half 2004." But the group said the strength of Michelin's price mix (+5.1 percent), coupled with its tight control over costs, enabled it to maintain operating income before non-recurring items at last year's high level.
In fact, Michelin stressed, the group "not only managed to compensate for a -3.6 percent decline in sales volumes, but also for the escalation in raw material costs that turned out to be more severe than in the first half 2004."
For the second half of 2005, Michelin said it expects continuing raw material price rises, but is confident that with productivity gains and tight cost control, it will achieve its targets, specifically of improving operating margin in 2005 compared to 2004.
For Michelin, currency effects had a negative impact of -1.0 percent on net sales, as a result of the strength of the Euro versus the dollar: at constant exchange rates, net sales were up 1.1 percent, Michelin said. Volumes dropped 3.6 percent, "largely due to declining European markets, even if a slight pick-up was visible in Q2," the group added. But Michelin's positive price-mix raised volumes by 5.1 percent at constant exchange rates.
Michelin pointed out that it has continued a policy of increasing prices to compensate for rising raw material costs-across all product lines and geographies, in original equipment as well as in replacement. And the group said all these have held up, "with the exception of certain European markets for passenger/light truck tyres, where the Group had to face very aggressive competition. "
According to Michelin's results statement, the first half sales reflect sharp contrasts in tyre markets. In Europe, the passenger/light truck replacement sector was "helped by better conditions in Q2 in a dull macroeconomic climate."
Sales in Europe declined by -0.8 percent compared to H1 2004, which had seen a 6 percent rise from advance purchases in France in anticipation of price increases to compensate for the cost of used tyre recycling.
Michelin's sales decline exceeds that of the market, because of the size of the Group's positions in the countries hardest hit by the decline of their market, the statement commented. The Group added that its pricing policy to combat raw material cost increases "was affected by the aggressive price campaigns launched locally by certain competitors."
In North America, Michelin said, the market is up +3.3 percent year-on-year and long-term trends are unchanged, with a significant strengthening of the high-performance VZ and 4x4 SUV segments. Sales of Michelin and BF Goodrich branded tyres grew at a faster pace, while private brands slowed.
In China, the tyre market saw a sharp rise, while in Japan the market was down. In addition, newcomers to the ASEAN scene are taking advantage of lower custom duties within the region. Sales of Michelin-brand tyres "continue to increase at a very fast pace in China," the group said.
Michelin predicts tyre markets growing for the second half compared to the relatively weak H2 04. The replacement truck tyre market in Europe is now expected to lose 3 percent year-on-year, and not grow 1 percent as formerly predicted. This follows an unprecedented 8 percent drop durign H1 2005 in the overall European replacement market for truck tyres, Michelin said, with the group suffering a slightly larger drop than the market.
The group also sees continuing escalation in raw material costs by about 14 or 15 percent for FY 2005-initially the increase was expected to be 13 percent.
In this context, Michelin reaffirms its policy of increasing prices, in line with the strategy implemented in the recent years. Michelin now anticipates its operating margin before non-recurring items to improve in 2005 compared to 2004.