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Michelin sticks to 2015 financial targets

By Mathieu Rosemain
Bloomberg News

Michelin announced Tuesday it is sticking with earnings targets for 2015 as it predicts volume will rise this year and first-half spending on supplies such as rubber will decline.

Michelin shares rose to a four-month high after pledging to maintain “margin discipline, which preserves a positive balance between pricing policy and raw-materials costs.”

The manufacturer will probably achieve its $1.37 billion cost-savings goal for 2016, Chief Executive Officer Jean-Dominique Senard said.

The tire maker is adding factories in emerging markets such as Brazil, China and India, as well as in the U.S., where demand for cars is forecast to rise. At the same time it’s reducing costs in Europe, including cutting jobs in France, as the region’s automotive sales linger at a two-decade low. Michelin, which slashed net debt 87 percent last year, plans to raise operating profit to $3.96 billion by next year.

“The group doesn’t have any debt now,” Senard said. “It’s a historic event. This gives us greater flexibility,” and the company is open to acquisitions, “probably in Asia.”

Michelin shares have gained 13 percent in the past year, valuing the company at $20.9 billion.

Operating profit excluding one-time items dropped 7.8 percent last year to $3.05 billion, Michelin said in a statement. Sales fell 5.7 percent to $27.6 billion. The company plans to raise the dividend 4.1 percent to $3.42 a share.

The financial measure called structural free cash flow, excluding one-time effects and raw-material costs, increased 25 percent to $1.02 billion and the return on capital employed totaled 11.9 percent.

Declines in spending on raw materials will generate a $410 million gain in the first half of this year, Senard said. Structural free cash flow will exceed $684 million in 2014, and return on capital employed will be maintained at more than 11 percent, the company said. Michelin is basing its 2015 targets on average currency exchange rates for 2012, the CEO said.

Earnings last year were reduced by $314 million because of the euro’s gains against currencies such as the Brazilian real and South African rand. That was less than the $342 million cut that Michelin forecast in October. Including a gain of $554 million from raw-material price declines, free cash flow rose 7.3 percent to $1.57 billion.

Michelin said it plans to sell 3 percent more tires this year, in line with the global industry.


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