REFILE-UPDATE 2-Michelin's profits hit by pricing and currency pressures

Tue Feb 11, 2014 4:51am EST

(Refiled to remove repetitious text in fifth paragraph)

* Michelin forecasts 3 pct sales volume gain

* Michelin says profit, outlook hit by forex and pricing

* Shares rise on dividend hike, strong cash flow

By Laurence Frost

PARIS, Feb 11 (Reuters) - Tyre maker Michelin has predicted a 3 percent rise in sales this year as it pushes ahead with an expansion into emerging markets, despite reporting a sharp drop in sales and profits in 2013 due to pricing pressures and unfavourable exchange rates.

The company reported a worse than expected 24 percent fall in net profits to 1.13 billion euros ($1.5 billion) on revenue down 5.7 percent at 20.25 billion euros in an "uneven market environment", the company said on Tuesday, but increased its dividend by 4 percent.

While pledging to increase full-year sales volumes, Chief Executive Jean-Dominique Senard acknowledged that drops in foreign exchange rates may upset plans to get operating profits up to 2.9 billion euros a year in 2015.

The company remained on track to meet the target only "based on average 2012 exchange rates", he said after reporting a 9.8 percent fall to 2.23 billion euros last year.

Foreign-exchange risk has been an inevitable consequence of its 2 billion-euro programme to expand into higher-growth markets, which last year saw Michelin open a new plant in Shenyang, China. Only 37 percent of group sales were euro-denominated in 2013.

Michelin nonetheless raised its proposed dividend to 2.50 euros per share, 10 cents more than it paid out last year on 2012 earnings.

Its shares were up 1.7 percent at 82.4 euros by 0926 GMT.

The company had already warned that operating income was likely to fall by about 100 million euros because of weakening foreign currencies including the Brazilian real and Japanese yen .

Last year's underlying operating margin was down 0.5 percentage ponts at 11 percent.

But free cash flow rose 7.3 percent to 1.154 billion euros, helped by a decline in raw material costs that Michelin expects to boost first-half earnings by a further 300 million euros. Net debt was slashed to 142 million euros from 1.053 billion.

"It's a really mixed bag," London-based Barclays analyst Kristina Church said.

Michelin's relatively upbeat message contrasts with caution from German rival Continental AG over 2014 pricing and material costs, Church said.

"But the fact they don't give any (operating profit) guidance suggests they're not convinced it will be up," she said.

The 2013 results fell short of the 1.37 billion euros in net income expected by analysts on sales of 20.42 billion euros, according to Thomson Reuters SmartEstimates.

Besides the 2.9 billion euro operating income goal, Michelin is targeting a return on capital of above 10 percent next year and margins of 10-12 percent in car tyres, 7-9 percent in truck tyres and 20-24 percent in specialty tyres for planes, earthmovers and mining equipment. ($1=0.7327 euros) (Additional reporting by Gilles Guillaume; Editing by Andrew Heavens and Greg Mahlich)

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