Michelin boosted by recovery in mature markets

Michelin boosted by recovery in mature markets

A bounceback in its mature markets helped Michelin record net sales of €17.891bn and boost its dividend for the first time in two years, as Michel Rollier set the timetable for his successor as chief executive.

The tyre maker’s net profit of €1.049bn was 15 per cent above market expectations and returned the group to the pre-crisis levels of 2007.

“Michelin has embarked on a new phase of faster growth, supported by an unprecedented capital expenditure programme, and aims to increase its sales volumes by at least 6.5 per cent in 2011,” Mr Rollier said.

Michelin, which is the world’s second largest tyre company, sought to address the effect the rising cost of rubber would have on business.

Although the company said the rising cost of raw materials would have a €1.5bn impact on operating income in 2011, price increases of between 4 and 7.5 per cent in its European market would help offset three quarters of the hit.

Analysts at JPMorgan Cazenove warned that another round of increases could be required if raw material prices continued to rise.

However Gaetan Toulemonde, analyst at Deutsche Bank, said booming industry demand would help offset the problem.

“The trend of this industry is volume growth of 3 per cent. Last year demand grew by 15 per cent, so any tyre company knows it can pass on increases and will sell its product.”

Net sales in Europe, Michelin’s biggest market, were up 13.8 per cent to €7.682bn, while in North America and Mexico they grew by 23.1 per cent to €6.148bn.

Yet while Michelin saw a rebound in its European and US markets, it noted that demand for original tyres was lower than 2007 levels.

It is looking to emerging markets, where sales grew by 32.7 per cent, for future growth.

Last year Michelin announced €1.6bn capital expenditure for 2011, with the vast majority focused on three new plants it is building in China, India and Brazil which will start producing in 2012.

“The emerging market expansion plans represent a meaningful start,” said an analyst at JPMorgan Cazenove.

Meawhile Mr Rollier said he wanted to promote Jean-Dominique Senard, who joined Michelin as chief financial officer in 2005, to the position of managing partner as the first step to securing his succession. Mr Senard’s appointment will be presented for a shareholder vote at the annual meeting in May.

If elected it will be the first time a non-family member leads Michelin, founded in 1889 and still headquartered at its original Clermont-Ferrand site.

Mr Rollier, 67, said he will remain at the head of the company for at least eighteen months. “We want to make sure that the transition goes well,” he said.

As part of the succession the group is also handing greater powers to the board, amending the 122-year-old structure which makes its managing partners virtually unassailable and gives them far greater powers over strategy. In return they are liable for the company’s debts.

In future the supervisory board, which currently has only an advisory role on nominations, will have the power to approve or veto the appointment of managing partners. In addition, these partners will hold a limited mandate of just four years, which will have to be renewed and approved by the board.

Michelin’s net debt narrowed from €2.931bn to €1.629bn. The company raised its dividend from €1.00 in 2009 to €1.78. Diluted earnings per share were up from €0.69 in 2009 to €6.64.