The difference between the 19% growth in Michelin’s quarterly turnover and the 0.5% increase in volume sales gives the measure of both the increase in costs and the group’s ability to pass them on to its selling prices.
Admittedly, a 3.4% exchange rate effect linked to the rise in the greenback, a slight scope effect (0.5%) and growth in activities excluding tires (0.7%) partially played a role, but the essential to the growth of the group’s income is to be credited to the move upmarket, the “mix” effect for 1.6% and above all the price effect for 11.9%. “This helped offset the cost increase” explained Yves Chapot, the financial director during the analyst conference.
After a fairly dynamic start to the year, logistical disruptions affected production and supplies in March. For example, the European factories were closed for three days, the disorganization in transport also affected the specialty tire division, particularly for the mines, where the production sites in Spain and the United States are far from the delivery areas in Australia, Latin America and South Africa.
Despite these difficulties and an original equipment market (sales to manufacturers to equip new cars) which is still very weak due to declining automobile production due to the shortage of semiconductors, the group is maintaining its forecasts of a segment operating income of more than 3.2 billion euros at constant exchange rates and structural free cash flow of more than 1.2 billion, despite growth in the tire market which will be rather at the lower end of the expected ranges at the beginning of the year.
2.4 billion cost increase over the year
The rise in costs, which was expected around 1.2 billion in February when the annual results were published, should reach 2.4 billion due to the war in Ukraine and the surge in raw material prices it is causing. “We are able to cope with inflation with the price increases already announced and the effect of the indexation clauses from which we will benefit in the second half of the year” indicated Yves Chapot. In particular, in specialty tyres, the most profitable segment, the logistical disruptions should be resolved from June onwards with a positive effect on volumes. To this will be added a positive annual price indexation effect from July.
The market reacted well to this publication (the share gained more than 3%) and especially to these prospects which reflect the pricing power of the tire manufacturer. The only risk would be that price increases affect Bibendum’s market share. Yves Chapot showed himself to be quite confident in this regard, indicating that his competitors were also applying price increases.
RLB