Michelin Group Announces 2016 Annual Financial Report Sales Growth of 2.1%
Michelin CEO Jean-Dominique Senard stated: “2016 is an important milestone on our strategic blueprint. Our performance is once again ahead of the market as a whole and we have achieved growth thanks to Michelin. Our brand strength is also the result of our dedication to innovation and our unremitting efforts. Our improvement in customer service and the success of mid-level products have all contributed to growth. We have developed a pricing policy based on our technological advantages, and we have continued to improve. The competitiveness has helped the Group achieve its financial goals set in early 2016. Looking ahead, 2017 is expected to become another growth year, which is also consistent with the Group's 2020 goals.â€
Michelin sales growth of 2.1% in 2016
In 2017, the tire market is expected to follow the trend of the end of 2016, especially the recovery of mining tire sales will continue. Raw material costs will rise in 2017, with predictable impacts of around 900 million euros. For this reason, Michelin will manage prices flexibly in order to expect the unit's gross margin to remain stable in the business areas that are not subject to index terms.
In this market environment, Michelin's goal in 2017 is to achieve sales growth synchronized with global market trends. The operating profit of current projects will reach or exceed 2016 levels (at a constant exchange rate) and the structural free cash flow will exceed 900 million euros. .
In 2016, based on the number of tires sold, the global demand for new trucks' original tyres and replacement tyres was reduced by 1%. The same decline has occurred in the retreaded tire market, which is particularly serious in Europe.
Although the European market experienced a decline in the second half of the year, demand still rose by 1% at the end of the year. The 1% increase in income in Western Europe reflects the decline in the semitrailer market and the upward trend in the trailer market, while the 3% increase in Eastern Europe is the first positive signal released by the long-lasting sluggish market.
In Asia (except India), demand for radial tires and bias tires rose by 6% in 2016, and China’s growth (up 9%) offset the downward trend in Japan (down 7%) and Thailand (down 3%). With the addition of new market participants and the application of the new axle load and truck model rules, Chinese demand has rebounded since autumn. In particular, the application of the new rules is expected to cause a wave of truck tire replacement market.
The South American market gradually stabilized in the second half of the year and year-end data showed a 17% decline. Although Brazil’s demand fell by 17% throughout the year, the last two months of data show that the situation has begun to improve.
Replacement of the tire market in Europe, the overall demand increased by 5%. Russia has seen a slow decline in the second half of the year. Due to the increase in the rated load per kilometer and the increase in the sale of low-priced tires in Asia, the demand in the Western European market suddenly rebounded by 6%, but this also has a great impact on the demand for retreaded tires. In Eastern Europe, the strong demand in the mid-tonal market has driven a 4% increase in revenue during the year.
At the end of the year, the data showed that North American demand remained stable. In the first half of the year, there was a wave of buying rushes before the new tariffs on Chinese tire imports were announced. However, due to the hesitation of consumers before the election and the decline of regional economic indicators, sales volume in the second half of the year saw a downward trend. Both arrived at the same level, so they were flat.
Demand for replacement of tires for radial tires and biased tires in Asia (except India) fell by 3%. In China, this demand has shrunk by 4% overall, but it was impacted by the explosive sales of online sales and the promotion of an economic stimulus plan that benefited the construction industry and infrastructure construction of the Chinese government, which saw a 2% improvement in the fourth quarter. For other regions, due to the impact of the overall economic environment, market demand fell by 1%, of which Thailand dropped significantly by 12% and Japan rose by 2%.
In South America, the radial tires and biased tire market continued to fluctuate. In 2016, it fell 1%, but in the last quarter, there was an inflection point (up 4%), of which Brazil (annually increased by 2% and the fourth quarter increased by 11%). And Argentina's growth is particularly prominent.
Michelin net sales table
Net sales of truck tires and related distributions reached 5.966 billion euros, compared to 6.229 billion euros in 2015. In 2016, the operating profit of recurring projects reached 580 million euros, or 9.7% of net sales, and this figure was reported in 2015 as 645 million euros and 10.4%.
The change in operating profit reflects the recovery in sales, which rose by 1% this year, and the total volume of truck tires fell by 1%. At a time when competition is unusually fierce in almost all regions, the favorable trend in raw material costs is not enough to offset the full impact of repricing and the strong growth in mid-tier tire sales. On the other hand, although some factories have reduced their production in the second half of the year, industry optimization projects and cost control still continue to bring benefits over the course of the year.
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