Michelin eyes continued growth outside of tires

CLERMONT-FERRAND, France—Michelin, which up until a few years ago was focused almost exclusively on tires, anticipates deriving up to 20 percent of its annual revenue from non-tire manufacturing-related activities by 2030, company executives said during the firm's recent Markets Day presentations.

In fiscal 2023, Michelin generated roughly 5 percent of its annual sales of $30.6 billion—roughly $1.5 billion—from the sale of polymer composite solutions (belts and engineered rubber products, primarily) under the Fenner business and 11 percent from connected solutions, retail and wholesale distribution activities and its lifestyle business unit.

Michelin said growing the non-tire side of its business would be supported in the coming years by "value-accretive" merger and acquisition activity.

The company's largest drive in this direction was in 2018 with its acquisition of UK-based conveyor-belt manufacturer Fenner P.L.C.

In 2021, Michelin acquired AirCaptif, a startup in the field of ultralight inflatable insulation solutions for industry or health care, a move in line with Michelin's stated goal of diversification.

In 2023, Michelin—looking "to become a global leader in high-tech engineered fabrics and films"—acquired Paris-based Flex Composite Group for more than $764 million. The company posted sales of $202.5 million in 2022.

These acquisitions and other moves tie in strongly with the "Michelin in Motion" corporate strategy unveiled in 2021.

"... The Michelin in Motion strategy … will guide the Group through to 2030," Chairman Florent Menegaux said to the investment community during the recent Markets Day presentation, in becoming a "true high-tech" company.

"Of course, the Group will continue to be a world key player in tires, the ultimate composite and the fruit of our intimate know-how in materials," Menegaux said.

"At the same time, Michelin will further leverage its proficiency in material's combination and their application for the most tech-demanding, growth-oriented markets, far beyond mobility: healthcare, aerospace, marine, industry or construction. ... We are building a world-leading manufacturer of life-changing composites and experiences."

Revenue generated by the Polymer Composite Solutions business, as this amalgam of non-tire activities is now known, is expected to grow 14 percent by 2030 to roughly $1.5 billion (at 2024 exchange rates).

Shorter term, Michelin is projecting pre-tax operating income (EBITDA) growth of over 5.5 percent annually through 2026, a rate of growth that should improve the earnings ratio by nearly a point and a half to 14 percent of sales, according to Yve Chapot, chief financial officer.

To reach this goal, Michelin is shooting to increase capacity-utilization rates (industrial loading) in its consumer and commercial tire activities nine points, to 82 percent, by 2026, Chapot said, pointing to four "strategic levers" the company is counting on:

• Increased "local-to-local" manufacturing;
• Value-driven production mix;
• Reduced environmental impact; and
• Talent attraction and retention.

Seen globally, this tact would increase manufacturing capacities in South America (to 10 percent of Michelin's global capacity from 8 percent) and Asia (to 23 percent from 22 percent), while reducing capacities in Europe (to 36 percent from 38 percent)—where Michelin has announced plant closures and downsizing at three plants in Germany—and North America (to 31 percent from 32 percent), where the firm's plant in Ardmore, Okla., is scheduled to shut in 2025.

Michelin also is targeting cuts in SG&A expenses (to 53.5 percent of revenue from 58 percent) and reducing inventories by close to $550 million while keeping capital spending at or slightly above current levels (roughly $2.2 billion to $2.6 billion).

Chapot noted Michelin breaks down its CapEx spending into four brackets globally:

Around 40 percent of that amount relates to recurring investments to maintain manufacturing footprint "in a good shape" and improve the factories as a "good place to work".

Another 40 percent of investments are related to the firm's competitiveness, which includes local-to-local strategy and the evolution of product mix.

The remainder will be invested in the non-tire segment and the decarbonization of the firm's operations.

Mergers and acquisitions will be integral to Michelin's achieving its growth goals, Chapot said, noting that the company looks at a number of criteria when evaluating a potential M&A candidate, including strategic fit; parental advantage of Michelin; value-accretive to group; and cultural fit.

The company also takes into consideration R&D synergies; strong balance sheet; human leadership model; and operational excellence.