Michelin couv courteGB

Operating Income: year-on-year change by business segment (in € million)
Cost control and continuing commitment
to research
At 31%, gross margin was down slightly on 2003. This decline
flowed from a slight increase in cost of sales, due, in particular, to
the rise in raw material costs. However, the 2.7% reduction in
selling and administrative costs and overheads compared with
2003 is evidence of the significant efforts made by the Group to
control costs since these costs are mainly denominated in euros,
and did not benefit from the weakening of the dollar against
the euro.
Emphasis on cost control did not reduce
Michelin’s commitment to R&D
At 4.3% of net sales, R&D expenditure remains among the
highest in the tire industry. In 2004, Michelin spent €674 million
on R&D. The 5.1% reduction on 2003 reflects the impact of
exchange rate movements, but also demonstrates the Group’s
intention to continue its policy of a rational allocation of the
amounts it devotes each year to technology and innovation as
well as natural changes to do with the lifecycle of the projects.
This significant and continuing investment demonstrates in a
very tangible manner the resources allocated to one of the
Table of comparison of earnings by function
in € million
2004 % 2003 %
Net sales before tax 15,689 100 15,370 100
Cost of sales* 10,819 69.0 10,559 68.7
Gross Margin 4,869 31.0 4,811 31.3
Commercial and administrative
costs and overheads 3,570 22.8 3,668 23.9
Operating Income 1,299 8.3 1,143 7.4
Net income 527 3.4 329 2.1
*The cost of sales includes logistics and research expenses.
Strategy • Fundamentals • Businesses • Résultats Earnings
2004 Group Earnings analysis
Operating Income Operating Margin (as a % of net sales)
2004 2003 2004-2003 2004 2003
% of total % of total
Passenger Car-Light Truck 731 56.3% 664 51.1 % + 10.1% 9.7% 8.8 %
Truck 548 42.2% 521 40.1 % + 5.2% 13.0% 12.4 %
Other Businesses* 20 1.5% (42) (3.3 %) (146.6%) 0.4% (0.9 %)
Total Group 1,299 100.0% 1,143 100.0% + 13.7% 8.3% 7.4%
*The Other Businesses include Specialty Tires, tire Distribution, Ground Linkage Systems, Wheels, Publishing, ViaMichelin, Michelin Lifestyle and miscellaneous operations. All account for less
than 10% of Consolidated Net Sales. The level of profit expected from these operations are below that of industrial operations.
Group’s main strategic goal: remaining the most innovative
player in the tire, suspension systems and mobility assistance
services sectors.
Table of research and development spending
in € million
2004 2003 2002
Research
and Development spending 674 710 704
As a % of net sales 4.3% 4.6% 4.5%
Change (5.1%) + 0.9% + 0.3%
Year-on-year net sales change + 2.1% (1.8%) (0.8%)
Net income up 60% at €527 million
(€515 million Group share)
• Net interest income/loss for 2004 was a net loss of
€213 million. This represented a 5.2% improvement on the
previous year, due chiefly to exchange rate movements and the
reduction in the Group’s debt: the average cost of debt fell
slightly to 6% compared with 6.1% in 2003.
• The €206 million net non-recurring expense, compared with
net non-recurring income of €19 million in 2003, comprised
mainly:
- restructuring provisions amounting to €55.3 million (compared
with €192 million in 2003), including €21.3 million in respect
of the early retirement plan (Plan de Retraite Progressive: PRP)
implemented in France during the first year-half;
- a €108 million provision for the potential capital loss on the
planned disposal of shareholdings in the companies that make
up the Wheel business;
- €16 million “transition costs” in connection with the
agreement signed in August 2004 with the United Steel
Workers Of America (USWA) trade union concerning the
Uniroyal Goodrich plants in North America.
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