Clermont-Ferrand, France – Group Michelin has seen its first half results significantly impacted by the Covid pandemic and the ensuing slow demand.
The French tire maker posted 78% year-on-year lower operating income at €310 million or 3.3% of sales in the first six months of the year, compared to €1.43 billion registered the year before.
Sales for the period fell 20.6% to €9.35 billion, due mainly to a 22.4% decrease in volumes, caused by “worldwide collapse in tire demand,” Michelin announced 27 July.
Overall, the group reported a net loss of €137 million for the period, down from €844 million reported in the first half of 2019.
The French group linked the substantial decrease in operating income to a €1.5 billion decline in sales caused by a sharp drop in volumes.
Sales volumes, it said, fell “due to the health crisis, a deep fixed cost shortfall and a loss of industrial productivity,” which were partly offset by government-backed furlough grants.
Other factors negatively impacting operating income included a €77 million decrease from Covid-19-related expenditure, including the cost of purchasing and producing masks and hand sanitiser.
Price-mix effect still delivered a positive combined total of €217 million during the period, while lower cost of raw materials contributed €44 million to the income.
Michelin also posted a €3 million increase in operating income from the consolidation of Indonesian tire maker Masternaut and Multistrada and the removal of BookaTable, it said.
In addition, the tire & rubber company said it saved €192 million through a reduction in SG&A expense as part of its cost-cutting measures during Covid.
Breaking down performance by segments,Michelin said in its passenger car and light truck segment, OE demand dropped after vehicle manufacturers suspended production. The replacement market also saw “a historic collapse” due to travel restrictions.
Segment sales fell 22.3% to €4.4 billion during the first six months of the year, reflecting a 24.3% decline in volumes.
Sales dropped in all regions, including North America, Europe and China which saw 21%, 19% and 15% declines respectively.
Segment operating income went into negative territory at €35 million, down from €585 million reported a year before. Operating margin stood at -0.8%.
In truck tires, Michelin said OE demand had started its expected cyclical downturn when the health crisis pushed it into a steeper decline.
Replacement markets, it added, were hit hard by the sharp decrease in demand for freight services.
The second quarter, however, saw a very strong 45% rebound in OE demand in China, bringing sales figures for the region to the positive territory by 6% in the first half.
The segment’s reported operating income of negative €30 million, down from €279 million in 2019, with operating margin of negative 1.3%.
The speciality segment, which represents mining, agriculture and construction, two-wheel and aircraft tires, performed relatively stronger than other Michelin businesses in the first half, with sales down 14.3% year-on-year to €2.5 billion in the first half.
The decrease primarily reflected the 15.0% drop in volumes, led above all by the construction tire segment and the OE business as a whole.
Segment operating income fell 35% to €375 million, according to Michelin.
Despite the weak overall results, Michelin said it is in a good financial position to weather the ‘intense and unprecedented’ crisis, supported by its diversified offering.
“The group has undertaken all the measures needed to secure the sustainability of its operations and attenuate the financial impact of the economic slowdown,” said Florent Menegaux, chief executive officer.
As for the 2020 outlook, Michelin said it expected global tire demand to be “impacted in the second half of the year by the economic recession ensuing from the pandemic.”
Passenger car and Light truck tire markets are expected to decline by 15% to 20% over the year and Truck tire markets by between 13% and 17%, Michelin said.
Michelin also anticipates its speciality segment to contract by 13% to 17% despite the segment’s “relative resilience”.
Barring any new systemic impact from Covid-19, Michelin aims to deliver full-year operating income in excess of €1.2 billion and structural free cash flow of more than €500 million.
Michelin, however, noted that it is “still a highly uncertain market scenario.”
Based on the trends observed to date, the group said it expected business to return to 2019 levels in the second half of 2022.