Michelin Analysis

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01/12/2011
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finance| Michelin financial analysis|

Michelin Company Profile
Michelin is a tire producing company created in 1863 by the Michelin brothers. Originally based in Clermont Ferrand, the company is now located in more than 170 countries and owns 84 production site all around the world. Even if their core business is the production of tires they diversified their activities in 1900 with the first Michelin map & guides and extend their knowledge for special sector with new type of tires such as plane tire for instance. Michelin is the second leader of tire market after Bridgestone. In 2010, they had a turnover of 17 891 millions € with an increase of 20% from 2009.

Michelin is on the stock exchange market since 1951 which means the company can increase their equity thanks to investors and at the same time stay secure and independent. In 2010, Michelin launches its biggest increase of equity introducing 27.2 million of new shares for a total amount of 1.2 billion euros helping to finance its development cost estimated at 1.6 billion euros.

They have 3 major products families :
* Production of tourism tyres
* Production of truck tyres
* Others specialties (tyre for airplane, space shuttle, maps & guides, GPS…)

We can see that their core business is the tire market with more than 86% of their activities. Geographically, their major market is Europe with 49.9% of their revenues (7.7 billion euros) followed by North America with 34.4% and other regions with 22.7%. Michelin’s major market which is Europe has been declining by 7.5% between 2005 and 2010 whereas North America gains 1.7% and 5.8% for the others regions as emerging countries. Through the years and to extend their activities worldwide, Michelin has developed new brands. Michelin and BF Goodrich are the two worldwide brands, established in many countries. Then, Michelin also developed regional brands such as Kleber, Uniroyal, Warrior with a strong presence respectively in Europe, North America and China. Added to these brands, Michelins created few distribution brands as Euromaster, TCI, respectively in Europe and North America.

I. Market analysis
Michelin is represented in two different markets:
* Market of new tire
This market is especially dealing with car manufacturer through partnership. For instance, Michelin has an old partnership with Citroën which is buying big quantities of tires in order to be set up directly on their production chain. In this market, Michelin is very dependent from the car manufacturer’s market and fluctuate according to the increase or decrease of new car sales. In 2010, this market has been increasing by 15% thanks firstly to the revival of the car industry in the Western countries, mostly helped by country states and secondly to the growth of exportation to emerging countries. * Market of replacement

This market is linked with retailers, as they buy and sell tires in stores to replace a defective one. This market is less dangerous for Michelin as it is almost constant and represents ¾ of tires production market. Concerning the replacement market, products are distributed via dealerships and replacement service centers. This is done either via Michelin’s own distribution brands (Euromaster in Europe and TCI in North America), but also using brand partnerships and franchises to be present in 27 countries all over the world. Equipment repartition per segment| Car segment| Truck segment| Original equipment| 28.10%| 17.40%|

Replacement equipment| 71.90%| 82.60%|
In 2010, the replacement market has increased by 9% in the segment of tourism and van tires in Europe with the increase of the demand for special winter tire due to severe weather condition last winter.

II. Competition
Michelin operates in a very competitive market with several competitors, either from Europe or emerging countries. The four main producers are Bridgestone, Michelin,...
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