Michelin confident of meeting ambitious objectives
In the last Michelin Annual and Sustainable Development Report that group managing partners Michel Rollier and Jean-Dominique Senard will jointly present, the two leaders of the French company commented on a 2011 punctuated by the start of the tyre maker’s new four-year business plan and rocketing commodity prices. For this year they share that growth is anticipated in emerging markets and North America, while Europe will most likely deliver more modest results. Rollier also expressed his “full and absolute” confidence in his successor, who is expected to take over sole leadership in May.
“In 2011, Michelin deployed its ambitious new 2011- 2015 business plan, which is designed to drive a new phase of dramatic growth,” commented Rollier. “We’ve completed its first year with a remarkable performance in an environment that varied widely as the months went by. Markets expanded in every region, but after a buoyant first half, car and light truck tyre demand slipped back in line with its long-term trends. In the summer, the replacement truck tyre market started a steep decline, particularly in Southern Europe. On the upside, demand for specialty tyres was and remains very strong, notably in the mining and farm industries.
“However, the most striking event of the year was the unprecedented run-up in commodity prices, especially natural rubber, which represented a record 1.75 billion euros in additional costs for Michelin,” the managing partner added. “Nevertheless, our operating income exceeded 1.9 billion euros, or 9.4 per cent of net sales, which topped 20 billion euros after gaining almost 16 per cent. Our net income rose by 39 per cent to a record high 1.46 billion euros, which has enabled us to recommend that shareholders at the May 11, 2012 Annual Meeting approve the payment of a dividend of 2.10 euros per share, compared with 1.78 euros last year.” Senard emphasised that Michelin’s “robust sales growth” was led by “a solid marketing and sales performance, with a 6.7 per cent increase in volumes, and a very firm, highly responsive pricing policy that brought in two billion euros.”
25% sales volume growth by 2015
Senard shared that Michelin is “aiming for at least a 25 per cent increase in sales volumes over the 2011-2015 period, operating income of around 2.5 billion euros in 2015, positive free cash flow over the period and a return on capital employed of more than nine per cent each year.” The company will also invest around two billion euros a year over this period. “These are ambitious objectives, but we are confident in our ability to meet them,” he added. In the shorter term, Michelin anticipates mixed performance. “Growth is expected to continue in 2012 in the new markets and in North America, but trends will be less favourable in Europe,” Michel Rollier explained. “We expect to see less of an impact from commodities, of around 300-350 million euros for Michelin. We will maintain our strong capital expenditure program, at around 1.9 billion euros. In this environment, we aim to hold sales volumes steady, while generating higher operating income and positive free cash flow. Volumes will return to growth in 2013.”
Rollier believes Michelin has “profoundly changed” over the past six years. By this he means the French tyre maker has not only grown more efficient and productive, it has also become more agile and offensive, capable of aligning itself very quickly around shared objectives. “It has restored its margins and balance sheet, and is responding to emerging issues and challenges through the Michelin Performance and Responsibility process, which is celebrating its tenth anniversary in 2012 and still demonstrating its strength and vitality every day,” he stated. The managing partner highlights three of Michelin’s greatest competitive strengths as being the Michelin brand, with accounts for 70 per cent of the company’s sales, the tyre maker’s leadership in every specialty radial market, and the company’s “effective” geographic balance between the developed markets of Europe and North America and the emerging growth regions.
“There can only be one boss”
As is now widely known, Michel Rollier intends to step down as managing partner in mid-2012, at which time Senard will take over sole leadership. “Jean-Dominique was elected Managing General Partner last May, and since then we’ve worked together to prepare my succession,” Rollier commented. “The transition is now ensured. Michelin is geared up to meet the many challenges that are sure to arise in our new phase of dynamic growth. I will therefore recommend to shareholders at the May 11, 2012 Annual Meeting that I leave office at that date. If this recommendation is approved, from that day forward, Jean-Dominique will lead the group alone, as chairman, which I think is a good thing. In a company, there can be only one boss, and one boss alone.
“In the eight years that Jean-Dominique has been working alongside me, I’ve come to appreciate his strategic qualities, ability to manage operations and natural team leadership,” Rollier continued. “I know that he will be an excellent chairman and that he will continue to proudly express Michelin’s values and ambitions. He has my full and absolute confidence.”
Michelin’s Annual and Sustainable Development Report 2011 can be downloaded here.