Michelin reports higher profits in ‘unfavourable’ market conditions

Clermont-Ferrand, France – Michelin Group has delivered a strong performance in 2023 with profits up amid “adverse market conditions and currencies”.

The French group saw segment operating income rise 5% year-on-year to €3.6bn, on a marginally lower sales of €28.3 billion, Michelin announced 12 Feb.

“Highly favourbale price-mix” helped increase operating income by nearly €1.5 billion, offsetting the €1 billion negative effects of cost of acquisitions, volumes decline, underutilisation and currency impact.

Michelin also noted a €545 million negative impact of industrial restructuring projects in Germany and the US.

Earnings (EBITDA) were up 4% at €5.5bn or 19.4% of sales, reflecting a €1 billion reduction in working capital, driven by a decline in both inventory volumes and value.

The French group also noted a positive €200 million contribution from JVs and associates, notably its TBC distribution JV in the US.

In terms of revenue, tire sales were particularly impacted by "unfavourable market conditions", including a 2.9% negative currency effect and a 4.7% decline in volumes.

The decline in the volume, Michelin explained, stemmed from “extensive destocking across every segment and value chain”.

The destocking was driven by the uncertain economic environment and soaring interest rates, which prompted dealers and business customers to “drastically draw down inventory and reduce their standard stock levels.”

The volume decline was partially offset by an increase in sales in the group’s proprietary dealership networks, Michelin added.

On a positive note, revenue was improved by a 5.7% increase from the price-mix effect.

According to Michelin, the group benefitted from a €1.3-billion positive price effect, comprising €1.1 billion in the first half and €156 million in the second.

The gains, it said, were the result of “the full-year impact of the price increases introduced in 2022 and early 2023” to cover cost of inflation for raw materials, freight, energy and payroll.

The smaller second-half contribution was due to the 2022 second-half comparison basis, and the deferred impact on certain activities of raw materials-based.

Michelin also noted a positive €337 million mix effect in sales, as the group focused on high-value products and larger tires.

In terms of markets, the original equipment tire business grew in most segments,  while the replacement tire business faced “massive destocking”, which Michelin said is "now considered complete".

Non-tire sales, Michelin said, were up 10% or €146m, adding 0.5% to consolidated 2023 sales growth.

In particular, conveyors, fine dining and travel services, and fleet connected mobility solutions saw growth, while Michelin continued the integration of the recently acquired Flex Composite Group (FCG).

For 2024, the group expects to deliver “above €3.5 billion” in segment operating income in “stable global markets”, and more than €1.5 billion in free cash flow before acquisitions.