Michelin reports 4% increase in sales for first nine months

Nov. 2, 2007

Groupe Michelin reported its consolidated net sales were up 4%, to 12.6 billion euro, for the first nine months of 2007.

Other highlights of the company's quarterly financial announcement include:

* For the first nine months of 2007, Michelin’s sales volumes posted nearly 3% year-on-year growth.

* After a 3.6% increase for the first six months of the year, this growth continued at a somewhat slower pace in the third quarter (+ 1.4%): Passenger car and light truck replacement business was

impacted by less supportive European and North American markets throughout the quarter, while the U.S. truck tire segment was affected as truck OEM activity experienced a sharp decline.

* The price/mix effect was maintained at a high level, above 4%.

* The currency impact was strongly negative at -3%, mainly due to further euro appreciation versus the U.S. dollar.

Michelin reported:

During the third quarter 2007, original equipment truck tire market dynamics continued in Europe, Asia and South America; similarly, passenger car and light truck tire markets were supportive, both in

the mature countries and in Asia and South America, reflecting a continuous rise of living standards and strong economic growth in those two regions. Passenger car and light truck and truck

replacement markets recorded weak growth at best in Europe as well as in North America: Europe’s winter segments of passenger car and light truck replacement markets were not as dynamic as in 2006; truck tire operations were affected by a bearish economic environment in the United States and somewhat slower growth in Western Europe.

The Group confirms its estimation of a moderate cost burden increase of around 60 million euro for raw material costs over the full year 2007 versus 2006. The latest round of price increases for a

number of raw materials, including natural rubber and oil, will not impact the Group’s 2007 results.

Against this background, Michelin confirms that fiscal 2007 should post a substantial improvement relative to financial year 2006. Full-year operating margin before non-recurring items is therefore

expected to approach the first year-half level.

In Europe:

* Passenger car and light truck replacement markets were stable in the first nine months of 2007, resulting from sharp differences between Western Europe (down - 1.4%) and Eastern Europe (up + 5.2%) with continued strong growth. German and Scandinavian markets were impacted by winter market performance below 2006 levels when growth had been especially strong.

Further segment mix enrichment was achieved as the S & T mass segment slipped 6.0% at September’s end, while strong growth was recorded in the V & Z (+ 7%), and SUV (+ 12.5%) segments.

* Truck replacement markets posted satisfactory growth of approximately 4% over the first nine months of the year versus the same period of 2006, even though demand slackened with flat

growth recorded in the third quarter. This largely resulted from a less supportive economic environment, although Eastern European economies continued to post positive trends.

* Passenger car and light truck original equipment markets grew a sharp + 3.7% in the first nine months of 2007, stimulated in particular by the OEMs operating in Eastern Europe.

* In truck original equipment, the buoyancy of the power unit market was confirmed with 11% growth over the first nine months of 2007 (+15% in the third quarter 2007 alone versus the same period in 2006). This change was mainly driven by sustained Eastern European OEM

business performance and by exports.

* The trailer The trailer market growth also remained impressive (+20% year-on-year in the third quarter 2007).

In North America:

* Passenger car and light truck replacement markets recorded modest + 1.4% growth over the first nine months of the year; imports from Asia remained at a high level. Recent U.S. economic developments, and more specifically the subprime market crisis, has not, so far, altered the driving habits of American households.

* Radial truck tire replacement (new tires) markets were down more than 4% year-on-year over the region in the first 9 months of 2007: market slackness, largely related to a lackluster economic environment and a slowdown in road transportation activity over a number of months, was experienced in all three countries of the region, and more acutely in Canada, due to Canadian dollar appreciation versus the U.S. dollar. It is notable that a sharp year-on-year reduction in Asian imports has been recorded.

* The retread market was down 1.6%.

* The Passenger car and light truck original equipment market rose a significant + 5.4% in the third quarter 2007 compared with the third quarter of 2006. As a result, this market was only down 1.8% over the first nine months of 2007. This recent upturn was an achievement of

America’s Big Three, which all posted performance improvements.

* Truck original equipment markets fell a sharp 29% versus the first nine months of 2006. This trend is fully aligned to Group estimates published early in the year.

Other regions:

* In Asia, global passenger car and light truck replacement markets growth was nearly 3%, although sharp differences were noted from country to country: China still posted very strong growth (nearly 20%), while Japan suffered from a sharply declining winter market; the region’s other markets were globally stable. On the original equipment front, vigorous +11.1% growth was maintained.

Radial truck original equipment and replacement markets continued to grow strongly (+ 7.3%), mainly driven by local supply and continued adoption of radial tire technology (up two points versus last year). The Australian market grew more than 20%, which largely benefited

imports from Asia. China was also up a strong +10%, while Thailand benefited from adoption of radial tire technology by the original equipment market. This contrasted with sharp decline on the Japanese market.

* South America’s passenger car and light truck replacement market was up a modest + 0.9% over the first nine months of the year versus the same period of 2006. Imports from Asia stabilized around last year’s level. The very strong growth recorded in the original equipment market was due to widespread access to bank loans and extremely attractive interest rates.

Truck tire markets, both in the replacement (+ 12.1%) and original equipment segments (+30.5%), remained healthy due to a dynamic agrifoods business, especially soya bean culture (whose prices rose significantly compared to previous years’ levels) and to a more

flexible money lending environment, which helped operators renew their truck fleets. Also, the level of imports from Asia stabilized after a sharp increase recorded in 2006.

Key changes in the specialty tire markets

* Earthmover: world demand was sustained, except for civil engineering in the United States, which was down significantly. Despite the gradual production increases by most tire manufacturers, all market needs are still not being met, especially in the mine and quarry segments.

* Agricultural: the increase in original equipment manufacturer demand was confirmed, especially for large and powerful tractors (150 hp and beyond). Tire replacement markets remained slightly down versus 2006.

* Two-Wheel: the principal motorcycle markets continued to grow versus 2006.

* Aircraft: all markets and segments experienced sustained growth; the radial tire segment is clearly experiencing a significant imbalance between tire manufacturer supply and airline


Raw material cost trends

During the first nine months of the year, the cost of raw material procurements was globally in line with Group assumptions previously communicated, although a certain inflationary trend was observed in

the last few weeks on natural rubber and oil prices.

Change in Michelin sales

During the first nine months of 2007, net sales rose 4% versus the same period of 2006.

The increase resulted from the following factors:

* +2.9% positive volume impact mainly due to truck tire sales (despite some slowdown in the third quarter) and specialty tire sales, while passenger car and light truck tire sales

increased more moderately;

* +4.2% continued very positive price/mix effect, reflecting the impact at the beginning of the year of price increases principally implemented in the second half 2006 and further brand and segment mix enrichment. As the Group had indicated, the positive price effect

was less marked in the third quarter;

* -3% negative currency impact, resulting mainly from the depreciation relative to the euro of the U.S. dollar (-7.4%), the Canadian dollar (-5.1%), the Mexican peso (-7.7%), the Japanese yen (-10.1%) and the South African rand (-14.4%).

Passenger car and light truck tire and related distribution

In Europe, the Group further strengthened its positions in the replacement market, in both Western and Eastern Europe, across segments. The brand mix benefited from good Michelin brand sales performance, translating into further unit sales price increases.

Original Equipment sales growth was in line with markets.

In North America, Michelin’s replacement sales growth was slightly below market growth across the region and the Michelin brand globally retained its positions.

Average unit sales prices posted significant increases, partly owing to the full impact of price increases passed in October 2006 and partly to brand and segment mix improvements.

In original equipment, Group sales were in line with the market.

In Asia, replacement sales were up, driven by good Michelin brand sales performance across the region reflecting brand mix enrichment. Growth remained strong in China, Pacific Rim, Korea and India.

Conversely, business in Japan was hurt by a late start to the winter season. Overall, Michelin sales were in line with markets in that part of the globe.

In South America, Michelin’s replacement sales were in line with the market.

In Africa and the Middle-East, Group sales experienced sustained growth, outpacing market growth in many countries.

Truck tire and related distribution

In Europe, in a supportive environment, Michelin further increased its market share in Eastern Europe. Group replacement sales, however, were limited by fully stretched industrial capacity, which did not enable it to satisfy all demand.

Price increases implemented during the first half stuck. The sales of tires benefiting from state-of-the-art « Michelin Durable technologies posted significant success, which once more confirmed market need for high-value added products.

Retread business was brisk over the quarter.

Original equipment sales volumes rose sharply, but, in a booming market, Michelin was not able to meet all customer requirements, translating into a slight erosion of its positions.

In North America, in what remained a declining replacement market, Michelin further strengthened its positions. This

performance was mainly due to the strong share of Michelin brand tires in overall sales (reflecting brand mix enrichment) and to brisk business with the larger truck fleets.

Unit sales prices improved, supported by the price increases implemented in 2006 and at the end of the first half 2007.

In a declining market, the Group’s eetread operations were again strengthened. The acquisition of Oliver Rubber announced by the Group will further enrich Michelin’s commercial retread offering.

In original equipment, Group sales declined less than the market. The Group is backed by long-term partnerships forged with most of its OEM customers.

In Asia, Group sales were largely supported by fine commercial performance especially in China (where Michelin continued to build its positions) and in the Pacific Rim despite unfavorable trend changes in Japan and Taiwan.

Retread operations continued to post sustained growth rates.

In South America, in both the original equipment and replacement segments, Group sales grew in line with market

trends, and the mitigated performance recorded in Brazil was offset by Group dynamic sales in the Spanish-speaking countries.

Speciality tire

Earthmover: net sales rose sharply in the first nine months of 2007, supported by price increases implemented in 2006 and by capacity increases, especially in the surface mine segment and despite

the slowdown noted in the US civil engineering industry.

Agricultural: thanks to an improvement in customer satisfaction rate and new product launches, net sales rose sharply and the Group enhanced its radial tire positions in both the original equipment and

Replacement segments.

Two-Wheel: net sales were boosted by an increase in sales volume thanks to successful introduction of Michelin Pilot Road 2 new radial tire ranges for motorcycles.

Aircraft: capacity increases were brought on stream and new contracts were signed with airlines, translating into a substantial increase in sales.