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2018: in a challenging environment, €2,775 million in segment operating income*,
up €304 million or 11% at constant exchange rates
€1,274 million in structural free cash flow
2019: sustained growth in segment operating income, even before the additional contribution from acquisitions
- Sales up 4.1% at constant exchange rates.
- Volumes up 0.9%: after declining in the first quarter, volumes rose by 2% over the following nine months, in markets disrupted by the contraction in Chinese and original equipment Passenger car tire segment demand
- Sustained fast growth in the Specialty businesses.
- Further market share gains in the 18” and larger Passenger car tire segment.
- 7% rebound in Truck tire volumes in the second half.
- The price-mix/raw materials effect added a net €286 million, as expected.
- The price effect totaled €255 million, confirming disciplined price management.
- The mix effect was a very strong €189 million, led by the growth in 18’’ and larger tire sales, the Specialty businesses and the smaller percentage of OE business in the sales mix.
- Priority focus was maintained on protecting margins, particularly in markets impacted by steep currency declines against the euro.
- Unfavorable currency effect, totaling a negative €271 million.
- Competitiveness plan stepped up in the second half, lifting total savings to €317 million for the year and offsetting the impact of a higher inflation cost (up €38 million year-on-year).
- €1,274 million in structural free cash flow, confirming the Group’s commitment to improvement.
- Faster acquisitions-led growth (Fenner and Camso), in line with Group strategy, and greater access to the North American market (TBC joint venture).
- Proposed dividend of €3.70 per share, representing a payout of 36.4% of consolidated net income before non-recurring items.
In 2018, in a difficult economic environment, Michelin demonstrated its ability to increase operating income and sustain the improvements in structural free cash flow achieved in recent years. The year also saw faster deployment of the Group’s strategy, with the acquisitions of Fenner and Camso, and the creation of the TBC wholesaling joint venture in the United States. These transactions have strengthened the Group in key markets and provided new opportunities to create value.
In 2019, the Passenger car and Light truck tire markets are expected to be mixed, with modest growth in the Replacement segment and a contraction in the Original Equipment segment. Truck tire markets are expected to remain stable overall, given the decline in demand in China, while the Mining, Aircraft and Two-wheel tires markets should remain dynamic. Based on January 2019 exchange rates, the currency effect is expected to have a slightly favorable impact on segment operating income. The impact of raw materials costs is currently estimated at around a negative €100 million.
In this environment, Michelin's objectives for 2019 are: volume growth in line with global market trends; segment operating income exceeding the 2018 figure at constant exchange rates and before the estimated €150 million contribution from Fenner and Camso; and structural free cash flow of more than €1.45 billion.**
Year over year comparison
|(In € millions)||2018||2017|
|Segment operating income *1||2,775||2,742|
|Segment operating margin *1||12.6 %||12.5 %|
|Passenger car/Light truck tires and related distribution||11.6 %||12.3 %|
|Truck tires and related distribution||8.8 %||8.1 %|
|Specialty businesses||19.6 %||19.6 %|
|Operating income/(Loss) from non-recurring activities||-225||-111|
|Segment EBITDA *1||4,119||4,087|
|Gearing||31 %||6 %|
|Employee benefit obligations||3,850||3,969|
|Free cash flow *2||(2011)||+662|
|Structural free Cash flow *3||+1274||+1509|
|ROCE *4||14.0 %||13.0 %|
|Employees on payroll *5||117,400||114,100|
|Earnings per share||9.30 €||9.39 €|
|Dividend per share *6||3.70 €||3.55 €|
*1 Formerly known as operating income from recurring activities, segment operating income is the performance metric for the reporting segments. It is stated before the amortization of brands and customer lists recognized on the acquisition of the corresponding companies, which is included in other operating income and expenses. In 2018, amortization of acquired intangible assets amounted to €39 million for the year.
*2 Free cash flow: net cash from operating activities less net cash used in investing activities and net cash from other current financial assets, before distributions.
*3 Structural free cash flow: free cash flow before acquisitions, adjusted for the impact of changes in raw materials costs on trade payables, trade receivables and inventories.
*4 ROCE excluding goodwill, acquired intangible assets and associates & joint ventures. 2017 standard tax rate of 31%; 2018 standard tax rate of 26%.
*5 At period-end.
*6 2018 dividend to be submitted to shareholder approval at the Annual Meeting on May 17, 2019.