(AOF) – Michelin and IDI today announced the signing of an agreement under which Michelin would acquire 100% of Flex Composite Group (FCG) for an enterprise value of 700 million euros. This European leader in high-tech fabrics and films with applications in highly technical markets such as marine, supercars and electric vehicles, sports or construction masters a wide range of polymer composite solutions, adjacent to those already developed by Michelin.
The company has 400 employees. It operates mainly in Europe, in fast-growing markets driven in particular by dynamic demand for high-end customers.
In 2022, FCG achieved a turnover of 202 million euros. Over the 2015-2022 period, the company achieved average organic growth of 11%, with an EBITDA margin of 25 to 30%.
The agreement would allow Michelin and FCG to create a leader in high-tech fabrics and films. This acquisition is fully in line with the Michelin in Motion 2030 plan.
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Key points
– World leader in tires with 1/5th of the market, born in 1889;
– Group organized into three divisions generating €28.6 billion in sales: automotive (49%), road transport (26%) and specialty activities – mining, agriculture, construction, aircraft, etc.;
– 3/4 of activity in the replacement tire market, less cyclical than original equipment and less sensitive to the health of car manufacturers;
– Business model based on 3 pillars: in the tire, around the tire with connectivity and beyond the tire (flexible, biosourced composites, 3D printing and hydrogen mobility);
– Partnership limited by shares controlled by the founding family (4% of the capital and 5.17% of the voting rights), Barbara Dalibard chairing the 11-member supervisory board and Florent Menegaux chairing the management;
– Healthy balance sheet, rated A – debt ratio of 25.6% – but negative free cash flow of €180 million due to cost inflation penalizing working capital.
Challenges
– 2030 strategy: annual increase of 5% in sales and return on invested capital of more than 10.5% from 2023, decline towards 70% of tires in revenues, the rest coming from applications, hydrogen mobility systems and connected, fleet management, precision polymers, etc.;
– Innovation strategy led by the president:
– responding to 3 challenges – additive manufacturing, flexible composites and hydrogen mobility, – based on 5 pillars: R&D (€700 million per year in 9 centres), external partnerships, in research (300) or strategic (Enviro, Vabios, addUp, Pyrowave), co-design with customers, internal innovation (100,000 ideas per year of progress and innovation coming from employees) and the incubation program,
– resulting in a 1/3 of sales made in products or services less than three years old;
– “Planet” environmental strategy validated by the SBTi, aiming for total carbon neutrality by 2050 and supported by the Movin’On global ecosystem
– intermediate objective: in 2030: 50% vs. 2010,
– offer of tires that protect the environment by using recycled materials (46% in 2030 and 100% in 2050) and sustainable materials (30% in 2022),
– support for electric and hydrogen mobility via Symbio, a joint venture with Faurecia,
– “4 R” circular economy (Reduce, Reuse, Renew, Recycle), boosted by breakthrough technologies in partnership (Carbios, Enviro, Pyrowave, etc.);
– Strengthening of the world’s No. 1 position in tires for electric vehicles.
Challenges
– Waiting for a buyer for the activities in Russia, stopped in March 2022;
– Inflation in energy, shipping and raw materials (rubber, carbon blacks and oil derivatives, i.e. 1/3 of purchases): negative impact on cash flow and costs, at a record level of 2 €.7bn, but unit margin maintained via price increases;
– Resumption of business growth after the year-end stall;
– Homogenization of markets, contrasting in 2022: sharp increase in non-tire activities, decline in tire sales due to the Russian-Ukrainian conflict and health restrictions in China;
– After 20.5% growth in sales, 2023 objective of stable operating profit at €3.2 billion and free cash flow before acquisitions of +€1.6 billion;
Negotiations with builders
On average, equipment manufacturers represent between 60 and 85% of the manufacturing cost of a vehicle. According to the Federation of Vehicle Equipment Industries (Fiev), negotiations are very tense with manufacturers regarding the passing on of increased costs. The price increases concern both electronic components, raw materials, such as steel, nickel, lithium or palladium, energy and transport. Equipment manufacturers mainly negotiate with Stellantis and Renault to set up indices to pass on increases. They are also betting on innovation, differentiation, upgrading and internationalization.