Michelin couv courteGB

Please refer to the section devoted to all factors impacting 2004
accounts (description of switch to new accounting practices and
reconciliation tables as between the two sets of accounting
standards). This expands on the information that was published on
January 20, 2005 in the course of a dedicated conference
organized for the benefit of investors and financial analysts.
Please note that the Group’s industrial and operational fundamentals
are in no way altered by the switch to a new set of accounting
standards whose main purpose is to deliver a standard measurement
instrument in lieu of previously existing national accounting
standards.
Review of the key factors impacting switch
to IFRS standards for Michelin Group
(in € million)
Statement of income
Financial Year 2004
French Gapp* IFRS Standards*
Net Sales 15,689 15,048
Operating Income 1,299
Operating Margin
Operating result **
8.3%
before non-recurring items
Operating Margin
- 1,303
before non-recurring items 8.65%
Operating result 1,239
Operating Margin 8.2%
Net Result
Balance Sheet
To December 31, 2004
527 654
Shareholder’s Funds 4,677 3,546
Net debt 3,224 3,295
Net debt /
Shareholder’s Funds (“gearing”) 69% 93%
*Audited.
**Operating income has been stated after non-recurring items. For the sake of clarity and
to facilitate an analysis of its accounts, Michelin has also decided to publish its operating
income before non-recurring items.
Michelin’s economic performance (in € million)
Economic performance
Since 1993, Michelin has evaluated its economic performance
by measuring the actual return on capital employed (economic
capital + debt) in relation to the target it has set itself.
Michelin compares the difference between the cost of standard
financial resources allocated to capital invested – the target rate
– and net income after tax plus interest – the actual rate.
To this effect, the Group allocates to each asset standard financial
resources consisting of shareholders’ equity (“economic capital”)
and debt in proportion to the nature of the risk associated with
the asset. The change in the level of risk over time is taken into
account by basing the calculation on the net book value of
assets after depreciation and amortization.
Michelin has set as its target a high after-tax return on economic
capital of 15%, based on euro interest rates. Using this overall
target as a starting point, separate targets are then set for each
currency, taking into account differences in interest rates and risks.
In 2004, these allocations of resources were reviewed to take
better account of the increasing weight of employee benefits.
The table below shows the results obtained in 2004 with the old
and new methods. The average required rate of return on capital
was 16.3% in 2004 on the basis of the new method. It would
have been 16.5% on the basis of the old method. The impact
of this change therefore appears limited.
In 2004, using the new method, the actual rate was 8.3%,
1 point below the target rate.
2004 2004 2003 2002 2001 2000
new method
“Standard” Economic capital 4,570 4,191 4,250 4,495 4,592 4,430
Average weighted cost of Economic capital 15.9% 16.1% 15.7% 15.4% 16.0% 16.3%
“Standard” Financial Debt 6,249 4,345 4,544 4,974 5,226 5,183
Weighted average cost of debt 4.5% 4.8% 4.3% 4.8% 6.1% 7.2%
Capital employed 10,819 8,537 8,794 9,470 9,818 9,613
Target RAROC 9.3% 10.4% 9.8% 9.8% 10.7% 11.4%
Net income after tax 527 527 329 614 314 438
Interest expense 365 235 244 283 351 358
Actual RAROC 8.3% 8.9% 6.5% 9.5% 6.8% 8.3 %