MICHELIN(Compagnie Generale des Etablissements Michelin S.C.A.) Business Report FY ended Dec. 2019

Financial Overview

(in million EUR)
  FY ended Dec. 31, 2019 FY ended Dec. 31, 2018 Rate of change (%) Factors
Overall
Sales 24,135 22,028 9.6 1)
Operating income 3,009 2,775 8.4 2)
Automotive & related distribution
Sales 11,851 11,332 4.6 3)
Operating income 1,321 1,295 2.0 -
Road transportation & related distribution
Sales 6,448 6,378 1.1 4)
Operating income 597 612 (2.5) -


Factors
1) Net Sales
-The Company’s net sales for the fiscal year ended December 31, 2019 increased by 9.6% from the previous year to EUR 24,135 million. A 1.2% decline in volumes, especially in the passenger car, light truck and truck segments, led to a decrease in sales. This was offset by a positive price-mix effect focused on the Company’s premium strategy, increasing sales by 2.2%, a positive currency effect increasing sales by 1.8%, and a change in scope of consolidation which increased sales by 6.8% due to the acquisition of Fenner, Camso, Multistrada and Masternaut.

2) Operating Income
-The Company’s operating income totaled EUR 3,009 million for the fiscal year ended December 31, 2019, an increase of 8.4% over the previous year. One factor leading to the increase in operating income was the increased scope of consolidation due to the acquisition of Fenner, Camso, Multistrada and Masternaut. Positive price-mix effects, savings from competitiveness gains and favorable currency exchange effects all further increased sales. These income gains were partially offset by decreased sales volumes, increased costs, and increased depreciation and amortization expenses.

3) Automotive sales
-Sales from the Company’s Automotive tire and related distribution segment in the fiscal year ended December 31, 2019 increased by 4.6% from the previous year to EUR 11,851 million. Sales increased despite a decline in sales volume and an increase in raw material costs due to positive price-mix effects and the acquisition of Multistrada. In particular, the increased proportion of sales in 18-inch and larger tires contributed to the segment’s growth.

4) Road transportation tires
-In the fiscal year ended December 31, 2019, the Company’s Road transportation and related distribution segment had sales of EUR 6,448 million, an increase of 1.1% from the previous year. The combination of positive price-mix effects and changes in the scope of consolidation offset decreased sales from a contraction in sales volumes.

Acquisitions

Multi-step acquisition of Multistrada
-The Company has signed an agreement to acquire 80% of PT Multistrada Arah Sarana TBK (Multistrada), a tire manufacturer based in Indonesia. Multistrada has a production capacity of more than 180 thousand tons, consisting of 11 million passenger car tires, 9 million two-wheel tires and 250 thousand truck tires. The Company will pay USD 439 million for the acquisition. In addition, through the transaction the Company will acquire a 20% stake in the retailer PT Penta Artha Impressi, which will boost the marketing and sales of Company brands in Indonesia. (From a press release on January 22, 2019)

-The Company has acquired 88% of PT Multistrada Arah Sarana TBK (“Multistrada”), a tire manufacturer based in Indonesia, for USD 480 million. The transaction was completed in line with the terms announced on January 22, 2019. With a production capacity of more than 180 thousand tons, Multistrada generated net sales of USD 281 million in 2017. With this transaction, whereby the Company will also gain a 20% stake in the successful retailer PT Penta Artha Impressi and 50 hectares of available land, the Company will strengthen its presence in the highly promising Indonesian market by acquiring two powerful local brands in Achiles and Corsa, and a very competitive local plant with immediately available production capacity. Leveraging its technical expertise, with limited new investment, the Company will gradually convert production from Tier 3 passenger car tires to Tier 2 Company brands, thereby allowing more Tier 1 production at other Asian plants and supporting growth in demand for Tier 2 volumes in Europe, North America and Asia. (From a press release on March 8, 2019)

-The Company now holds 99.64% of the share capital of leading Indonesian tire manufacturer Multistrada Arah Sarana following a successful public offer. In line with its strategy, the Company acquired 87.59% of Multistrada on March 8, 2019. As Multistrada is a publicly listed company, and pursuant to Indonesian regulations, the Company launched a public offer for the remaining outstanding shares, at the same price per share as that offered for the 87.59% stake. The transaction enabled the Company to acquire an additional 12.05% of the share capital, bringing its interest in Multistrada to 99.64%. In total, the Company paid USD 545 million for the acquisition. (From a press release on June 19, 2019)

Other acquisitions
-The Company has signed an agreement to acquire the entire share capital of Masternaut, one of the largest European telematics providers. Masternaut operates primarily in France and the UK. It provides a technical platform equipped with the latest technology and offers on-board telematics solutions to optimize vehicle fleet management and monitoring. The acquisition will speed up the development of the Company’s Services & Solutions business for light vehicles and support the booming fleet market and enable Masternaut to roll out its offering across the whole of Europe by taking advantage of the Company network's geographical coverage. (From a press release on May 16, 2019)

Restructuring

-The Company announced its plan to close the La Roche-sur-Yon plant. It had invested EUR 70 million in this plant under the Skipper project, but it did not produce the expected results due to the structural transformation of the premium truck tire market in Europe and overseas. The priority of the Company’s management is to support each of the 619 employees for their future career. The Company will propose to the social partners to start the negotiation of an agreement on a support scheme for employees favoring voluntary mobility as soon as possible in order to avoid forced departures. As part of this negotiation, the Company will offer secured internal and external mobility schemes in addition to an early retirement program. Beyond its legal obligations in terms of revitalization, the Company is committed to setting up an innovative initiative to transform the site, allowing for the development of sustainable activities, which will serve the interests of the town, the department, and the region. To finance this operation, the Company will record a provision of approximately EUR 120 million in non-recurring expenses in its consolidated financial statements as of December 31, 2019. (From a press release on October 10, 2019)

-The Company announced its decision to cease its activities at Bamberg, Germany. The Bamberg site primarily manufactures premium 16-inch passenger car tires. Since 2013, the Company has invested EUR 60 million to address market development and gradually adapt the site’s production. However, these efforts, combined with the commitment of the teams, can no longer compensate for the structural transformation of the passenger car tire market in Europe. The priority of the Company is now to provide the 858 employees of the factory and the Bamberg region with the most effective support possible to face the consequences of this difficult decision. The Company will implement a complete and personalized support program for each of the factory’s employees, including the use of a transfer company, assistance for retirement as well as internal and external mobility. (From a press release on September 25, 2019)

Joint Ventures

Symbio joint venture between the Company and Faurecia
-The Company and Faurecia announced the signature of a MoU to create a joint venture bringing together all of the Company’s fuel cell related activities - including its subsidiary Symbio - with those of Faurecia. The two companies aim to create a world leader in hydrogen fuel cell systems through combining existing and complementary assets from both partners in the joint venture. Symbio, a Faurecia Michelin hydrogen company, will be owned equally by the two companies. This French joint venture, built around a unique ecosystem, will develop, produce and market hydrogen fuel cell systems for light vehicles, utility vehicles, trucks and other applications. The Company’s contribution will be the activities of Symbio as a supplier of hydrogen fuel cell systems associated with a range of digital services, as well as research and development and production activities. Faurecia will contribute the technological fuel cell expertise it has developed through a strategic partnership with the CEA, its industrial know-how and its strategic relationships with car manufacturers. (From a press release on March 11, 2019)

-Symbio aims to achieve an annual production of 20,000 StackPack fuel cell systems by 2025 and 200,000 StackPacks by 2030. It looks to fulfill these goals with support from the Company and a future joint venture with the Faurecia. The StackPack comprises a hydrogen fuel cell and key components to prolong its lifetime and optimize both its compactness and integration in vehicles. Symbio is well-equipped to take on the hydrogen mobility market, thanks to a standardized product range, cost-effective set-up enabling production for several carmakers and proven expertise in hydrogen mobility development across Europe. Symbio will help car manufacturers reduce the development time and cost of their hydrogen vehicles across several market segments at the same time. (From a press release on September 10, 2019)

-The European Commission approved the acquisition of joint control of Symbio by Faurecia Exhaust International and Spika, all of which are based in France. Symbio assembles and supplies hydrogen fuel cell systems for the automotive sector. Faurecia Exhaust International is exclusively controlled by Peugeot SA (France), the parent company of the PSA Group. Spika is a wholly owned subsidiary of the Company. The Commission concluded that the proposed acquisition would not give rise to competition concerns given its very limited impact on the market structure, in particular PSA's lack of sufficient market power in respect of private and light commercial vehicles. In addition, since Symbio is already part of the Company, the transaction will not result in any change in regards to the possibility of overlapping activities between Symbio and the Company. (From a press release on November 13, 2019)

-The Company and Faurecia formalized the creation of Symbio, a Faurecia Michelin Hydrogen Company, as a joint venture combining all their hydrogen fuel cell dedicated activities, with the aim of becoming a world leader in hydrogen mobility. This joint venture is tasked with developing, producing and marketing hydrogen fuel cell systems for light vehicles, commercial vehicles and trucks. The Company and Faurecia will initially invest EUR 140 million in the joint venture in order to accelerate the development of next-generation fuel cells, launch mass production and increase business in Europe, China and the U.S. Symbio aims to capture 25% market share and achieve a turnover of around EUR 1.5 billion by 2030. (From a press release on November 21, 2019)

Other joint ventures
-The Company, Continental and Smag announced the creation of a joint venture specializing in the development and deployment of a technological solution for mapping sustainability practices in the supply chain of natural rubber: Rubberway. The joint venture is due to begin business before the end of 2019. Rubberway is a technological solution that maps and assesses practices and risks regarding environmental issues, social affairs, and corporate social responsibility governance throughout the natural-rubber industry, from rubber-processing plants downstream to plantations upstream. Rubberway will provide tire manufacturers with the collected data and enable them to identify and improve sustainability in the natural rubber chain. In this joint venture, the Company is bringing the rights of use and exploitation, as well as its user experience. Continental’s investment in the joint venture will open up the path to wider use of the application by other tire-makers and car-parts manufacturers. Smag is sharing all its technological and sector-specific expertise in digital solutions for agriculture. (From a press release on September 12, 2019)

Recent Developments

-On November 5, Ford and Webasto revealed the Mustang Lithium, an ultra-high-performance battery electric Mustang fastback prototype. The Mustang Lithium build is not only a one-off prototype to showcase electrification, but also a testbed for battery and thermal management technologies that Webasto and Ford are creating for the growing e-mobility automotive segment. The Mustang Lithium uses a Phi-Power dual-core electric motor and dual power inverters, all powered by an 800-volt Webasto battery system with EVDrive Technology that can discharge a mega-watt of electrical energy. Its powertrain generates more than 1,000 ft-lbs of torque and more than 900 hp. The Mustang Lithium uses a Calimer-version of the Getrag MT82 6-speed manual transmission with billet internals to handle the 1,000 ft-lbs of torque. Ford Performance half shafts and Super 8.8 Torsen differential help supply power to the road via lightweight Forgeline wheels with Michelin Pilot Sport 4S tires. (Ford press release on November 5, 2019)

Contracts

-BMW announced that it has chosen the Company’s Michelin Pilot Sport 4S tires as original equipment for the press launch of the BMW X3 M and X4 M models. The Pilot Sport 4S tires includes technologies such as multi-compound treads and aramid-fiber reinforced casing.

-On May 20, the Company’s subsidiary, Nihon Michelin Tire Co., Ltd. announced that Michelin Pilot Sport 4S passenger car tires have been adopted as original equipment for the Lexus RC F. The Pilot Sport 4S is the flagship of the Company’s Pilot Sport series tires developed for sports cars and high performance vehicles. The Pilot Sport 4S tire features a stable contact area, high adhesion, and a Premium Touch sidewall design. (From an article in the Nikkan Jidosha Shimbun on May 22, 2019)

-Ford announced that the all-new 2020 Ford Explorer is the first SUV in the world to offer Michelin Selfseal tires as standard on Explorer Platinum and Explorer Limited Hybrid four-wheel-drive models, and optional on Explorer Limited two-wheel-drive and four-wheel-drive models. Michelin Selfseal tires are lined with an environmentally friendly rubber sealant designed to seal 90% of tread punctures from nails and screws up to a quarter-inch in diameter, slowing the loss of air pressure to less than 15 pounds per square inch per week. (From a press release on March 12, 2019)

Awards

-At the Tire Technology Expo 2019 in Germany on March 8, 2019, a global panel of 31 tire industry experts voted the Company as the Tire Manufacturer of the Year, due to its environmental initiatives, product innovations and work on enhancing used tire performance.

R&D Expenditure

(in million EUR)
  FY ended Dec. 31, 2019 FY ended Dec. 31, 2018 FY ended Dec. 31, 2017
Overall 687 648 641

R&D Structure

-As of December 31, 2019, the Company has approximately 6,000 employees working in research and development.

-The Company's strategy for research and development is focused around three themes:

  • The vehicle of the future, featuring concepts such as fuel-cell vehicles and autonomous vehicles.
  • Mobility of the future, focusing on integrating tire solutions into intelligent transportation systems and trends such as ride- and car-sharing
  • The reinvention of urban mobility.

 

R&D Activities

-On September 26, 2019, the Company, IFP Energies nouvelles, and Axen announced that they would construct the first industrial-scale plant prototype to produce butadiene from bioethanol. The plant prototype highlights the commitment between the three partners to reduce the environmental impact of manufacturing through the development of a biosourced synthetic rubber industry.

-On May 20, 2019, the Company acquired a 22.8% stake to create a public-private partnership in Hympulsion, whose aim is to create renewable powered mobility in the Auvergne-Rhone-Alpes region. As of the acquisition, Hympulsion is owned 49% by the Auvergne-Rhone-Alpes region and the Banque des Territoires and 51% by the Company, ENGIE, and Credit Agricole. Hympulsion aims to further the Zero Emission Valley project, a project to provide renewable hydrogen-powered mobility for corporate fleets, initially comprised of 1,000 vehicles and 20 refueling stations.

Technological Alliance

-More than 50% of the Company’s research partnerships are focused on materials development.

-The Automotive Research Association of India (ARAI) announced that it formed a Memorandum of Understanding (MoU) with Michelin India to encourage knowledge sharing, enhance general awareness of the transportation industry and drive forward collaborations in automotive technology projects in India. This strategic partnership includes several areas of collaboration such as vehicle dynamics, tire technologies, standardization and regulation, and training. (From a press release on December 18, 2019)

Product Development

Michelin X-Incity Energy Z tires for electric buses
-The Company will present the next MICHELIN X-Incity Energy Z at the Busworld exhibition in Brussels, the first tire in 275/70R 22.5 with an axle load of eight tons which will allow future generations of electric buses to increase their capacities. It can be fitted either on the driving axle or the steering axle. Its carcass is strengthened with special cables. The specific design of its tread and sidewall are optimized to bear the demands of city traffic, reduce noise and rolling resistance. Also, the use of the REGENION technology will ensure grip performance throughout its lifespan. (From a press release on October 17, 2019)

Michelin Road 5 GT tire

-In September 2019, the Company launched the Michelin Road 5 GT tire, developed to ensure high performance, stability and efficient braking, especially on wet surfaces. The tire was designed with additive metal manufacturing technology and feature sipes that change throughout the tire’s lifecycle to maintain its water-clearance capacity.

Michelin Uptis airless concept tire and Vision Concept tire shown at IAA 2019
-The Company announced that the European premiere for the Michelin Uptis tire will be held at IAA 2019. The close-to-production, airless concept tire combines almost infallible puncture protection with outstanding driving characteristics. The market launch of the Uptis is scheduled for 2024. The Company will also present the study of the airless, recyclable and 3-D-printer Vision Concept, on which the Uptis is based. The Uptis unique wheel-tire combination consists of a fixed unit made of aluminum, composite materials and rubber tread. The lightweight aluminum rim is inseparably connected to the profiled tread via flexible plastic spokes. Since the Uptis odes not need air pressure, it is more puncture-proof than conventional tires and offers a high degree of mobility and reliability. (From a press release on September 2, 2019)

Michelin Uptis airless concept tire
-The Company and GM presented a new generation of airless wheel technology, the Michelin Unique Puncture-proof Tire System (Uptis) Prototype. GM intends to develop this airless wheel assembly with the Company and aims to introduce it on passenger vehicles as early as 2024. GM will initiate real-world testing and validation of the Uptis Prototype on a Michigan test fleet of Chevrolet Bolt EVs later in 2019. Airless technology makes the Uptis Prototype eliminate flats and blowouts, offering a significant potential for raw material and waste reduction. (From a press release on June 4, 2019)

Patents

-In 2019, the Company filed 247 patents.

Capital Expenditure

(in million EUR)
  FY ended Dec. 31, 2019 FY ended Dec. 31, 2018* FY ended Dec. 31, 2017
Automotive and related distribution 897 882 1,024
Road transportation and related distribution 492 457 461
Specialty businesses and related distribution 412 329 286
Overall 1,801 1,669 1,771

*2018 figures have been restated and are no longer comparable with 2017 figures

-During the fiscal year ended December 31, 2019, the Company completed or continued the following investment projects:

  • Projects to increase capacity, improve productivity or refresh product lines for the Automotive tires operating segment in facilities located in Mexico, China, and Thailand.
  • Projects to increase capacity, improve productivity or refresh product lines for the Road Transportation tires operating segment in facilities located in Romania and Thailand.

Investments in France

-Symbio, a joint venture between the Company and Faurecia, announced that it will break ground for its French factory on March 10, 2020. The factory will produce 200,000 StackPack per year by 2030 and serve the global market for hydrogen mobility. It will be located in the Auvergne-Rhone-Alpes region. The local authorities in the Metropole de Lyon and the Auvergne-Rhone Alpes Region both supported the new facility. (From a press release on December 19, 2019)