Michelin Group Announces Financial Report for the First Half of 2009

Affected by the significant decline in tire demand in the global market (except China), sales volume fell by 23%, of which the decline in the original tire business was particularly significant, followed by the card and passenger car tire business.

The extremely excellent product price mix brought a positive impact of 9.6%, reflecting the ability of the Michelin brand to resist declines in the business and the Group’s firm pricing strategy.

Excluding non-recurring items, operating profit was 282 million euros, a drop of 60.2%. This was due to the decline in sales and the decrease in capacity utilization.

Due to the use of efficient working capital (especially inventory) management and a dramatic reduction of capital expenditures from 500 million euros in the first half of 2008 to 319 million euros, the company's operations generated 575 million euros of free cash flow.

“Continuing the sharp decline in the global tire market, Michelin has responded quickly and efficiently, strengthened internal management, and deployed a production adjustment plan,” said Mr. He Liye, a managing partner of the company, “as part of this response. The company has also launched projects to reduce working hours in several countries in order to implement a production restructuring plan to make Michelin more competitive.As for the business environment, product inventory has now returned to a more normal state, but also In the coming months, although the decline in raw material prices will be conducive to improving profits in the second half of the year, we will continue to maintain efficient management. In the second half of the year, the Michelin Group will continue to commit Positive cash flow, in order to continue to maintain a good business indicators.Our team's focus and participation, as well as our various measures to improve the market response ability will ensure that Michelin can survive the current crisis and become more than ever before powerful."

1 Compared with December 31, 2008

2 Cash flow from business activities less cash flow from investment activities

3 Period-end data

* Calculate only the radial tire market

** After deducting the CIS market, a decrease of 6.5%

First-half net sales and performance data

Net sales

In the first half of the year, net sales amounted to 7.134 billion euros, which was calculated at the current exchange rate and was 13.4% lower than the first half of 2008. The drop in data reflects the decline in sales caused by a sharp contraction in market demand, which was partially offset by the positive effect of 9.6% of the product price mix. Thanks to the excellent resistance of the Michelin brand and the favorable replacement/preparation of the original tire market, in the first half of 2009, the company’s price policy was maintained and the product mix continued to develop at a high level. As the appreciation of the US dollar and the Chinese yuan against the Euro offset the depreciation of the British pound and the Brazilian currency, the effect of the exchange rate on the performance was positive at 2.9%.

Operating results

The operating margin before deducting non-recurring items was 4.0%, which was a decrease of 4.6 percentage points from the first half of 2008. In the first half of 2009, operating profit after deducting non-recurring items was 282 million euros, a year-on-year drop of 60.2%, reflecting the drop in sales (EUR 875 million) and the extremely negative impact of the inefficient use of the Group's capacity. The impact of raw material prices was extremely unfavorable in 2008, and it has begun to fall back in 2009. However, it still has an impact on operating profit, which resulted in a reduction of operating profit of 117 million euros in the first half of 2009. On the positive side, the favorable product price mix effect contributed 608 million euros to current operating income. After taking into account the restructuring costs of 292 million euros (the French factory specialization plan and the restructuring of manufacturing and sales organizations in North America), the company’s net loss for the first half of 2009 totaled 122 million euros.

Net financial position

The Group generated 575 million euros of free cash flow in the first half of 2009, compared with a negative 445 million euros in free cash flow a year ago. The above improvement mainly comes from the fact that inventory during the statistical period was reduced by 580 million euros – this is mainly due to the timely deployment of flexible capacity projects from the second quarter and the decline in raw material prices. The generation of free cash flow also benefits from the inherent benefits of the business transformation project and shortens the sales repayment period. In addition, capital expenditures were significantly reduced to 319 million euros, compared with 500 million euros in the same period of 2008, and this move did not affect the Group’s continued expansion in emerging markets. Therefore, the company's asset-liability ratio at June 30, 2009 was 75%, an improvement of 9 percentage points from December 31, 2008. The combined net debt totaled 3,818 million euros, a decrease of 445 million euros over the same period. The dividend reinvestment plan launched for the first time this year has attracted more than half of the investors, allowing the group to save 80 million euros in cash.

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