PARIS - Europe's biggest tiremaker Michelin unveiled a slide in 2003 profits on Tuesday due to ballooning rubber costs, a strong euro and a one-off takeover charge, and predicted a rocky road ahead.
Net income fell to 318 million euros ($399.2 million) from 581 million due to a hefty goodwill charge linked to its purchase of tire retailer Viborg, while operating profit fell 6.7 percent to 1.14 billion euros.
Chairman Edouard Michelin said he was "vigilant" for 2004. He declined to give firm forecasts, but said he was braced for more pain on the costs front although he expected global tire markets to grow around 1 percent to 2 percent.
"The operating environment is going to remain very difficult this year," said one London-based analyst. "I think the market had been looking for a punchy improvement, and Michelin's conservatism has tempered the enthusiasm."
Michelin predicted a "mid single digit rise" in overall raw material prices after a 21 percent jump in 2003, adding rubber costs could rise as much as 10 percent to 15 percent this year.
Michelin said net profit was hit by a 306 million euro goodwill charge linked to the firm's acquisition of loss-making Danish retailer Viborg and a 182 million euro charge for restructuring, mostly in Spain.
But Michelin said it had cut its pension and healthcare costs by tweaking its systems in the United States and Japan, for which it booked a one-off gain of 282 million euros, keeping its bottom line above analyst forecasts.
Soaring raw material costs, a strong euro and higher transport costs took a 520 million euro bite out of operating profit, trimming operating margin to 7.4 percent from 7.8 percent.
Michelin said it had limited the impact of costs and currency by selling more tires, and by increasing the share it sells to the more lucrative replacement market.
Thirteen analysts polled by Reuters had predicted on average net profit of 95 million euros, operating profit of 1.12 billion and an operating margin of 7.4 percent.
Deutsche Bank autos analyst Gaeten Toulemonde said the results were strong and kept a "buy" rating on the stock.
The company, also known for the star ratings it awards to upscale French restaurants, proposed an unchanged dividend of 0.93 euros for 2003.
The company, which makes 35 percent of its sales in the United States, is expecting the dollar to gain slightly against the euro to an average of $1.20 this year.
Michelin's cautious outlook echoed recent signals from rivals.
Japan's Bridgestone Corp., which vies with Michelin and U.S.-based Goodyear for world tire supremacy, last week reported a doubling in 2003 net profit but forecast a decline this year, citing a strong yen, higher rubber prices and reduced output after a fire swept through one of its plants.
Edouard Michelin said the firm was on the offensive despite tough conditions, noting it had boosted investment by 30 percent in 2003 and aimed to pump at least one billion euros into the business this year as it seeks to expand outside its traditional strongholds of Europe and north America.
The company bought 15 percent of India's Apollo Tyres in November and said it planned to increase its presence in China, Thailand, Russia, Mexico, Brazil and eastern Europe.