December 11, 2017, 01:07 / Business / Interviews and profiles

Jean-Dominique Senard: Michelin plant in Davydov is 100% loaded

President of the Michelin Group Jean-Dominique Senard on the reorganization of the group, the delights of life in the provinces and the synergy of restaurant guides with the production of tires Alexander Gubsky

Jean-Dominique Senard, President of Michelin / Maxim Stulov / Vedomosti

The second largest tire manufacturer in the world, Michelin, continues to increase global sales (in the first nine months of 2017 they grew by 9% to 16.4 billion euros), and the profitability of the French group will be the envy of many industrial companies (12.6% in the first half of 2017 G.). Michelin produces tires for all types of transport - from bicycles and motorcycles to agricultural machinery and aircraft, and sales are well balanced geographically: about 70% are in North America and Europe, 30% in Asia, Latin America and other countries.

But competition in the tire market is becoming increasingly intense: in recent years, China has become the largest tire manufacturer on the planet, hosting 70% of global production while consuming only 40%, Michelin President Jean-Dominique Senard told banking analysts in July of this year. Over the past five years, the share of Chinese truck tire manufacturers in Europe has grown from 5 to 29%, Senard added. “We must respond to this, we must be competitive,” said the Michelin president.

So this spring Senard announced a reorganization of the group, which employs more than 110,000 people. Michelin will create 10 regional divisions, whose managers will have more freedom in sales and marketing, 14 business units, each of which will be responsible for a specific product category, and eight operational directorates, formed by functionality: “Production”, “Purchasing”, “Supply chain management” and so on.

Jean-Dominique Senard

President of the Michelin Group Born on January 1, 1953 in Neuilly-sur-Seine (France). Graduated from Hautes Etudes Commerciales1979Started working for Total1987Moved to Saint-Gobain1996CFO, then President of Pechiney SA2005Moved to Michelin as CFO2012Appointed President of Michelin

In an interview with Vedomosti, Senard explained what the goals of the reorganization are and why, as a result, the company’s tire and publishing businesses will gain greater synergy.

– Michelin’s global sales are growing steadily, profitability is above 10%. Why did you start reorganizing the group?

– We need to evolve to be more flexible, more reactive, able to respond to change faster. And our customers expect us to provide them with increasingly personalized mobility services. It is a platitude that remains true: the client must remain the focus of our attention, because it is the client who gives us orders. We needed a new organization to be as effective as possible.

The result should be satisfied customers and employees alike. Because employees are our second pillar on which the company rests. Employees must have enough authority and responsibility to act flexibly, but within the framework of an overall and clearly defined strategy.

We are consistently implementing a strategy that provides us with both geographic and product diversification: the company is present in all [tire] segments. Geographic diversification is very important because economic cycles vary from region to region. Product diversification, too, since only 40% of our production falls on the B2C segment, and the rest is B2B: tires for trucks, agricultural machinery, aircraft, etc. That is, we cover all segments related to mobility.

I announced the reorganization and new organizational structure of the group in March of this year. A lot of work has already been done, some regions - including Russia - have moved forward very significantly.

– The new structure of the Michelin group includes 10 regions. Which one did Russia join?

– To Eastern Europe, the capital of this region is Moscow. I spent two days with the Michelin team in Moscow and I see that here the ideas of our reorganization have been felt and are moving in the right direction.

But it is important to understand that the reorganization does not affect the core values of Michelin, the reason for our existence remains the same: to provide people with long-term mobility services. By providing this, the group must demonstrate economic, technological, social development.

– About technological development. The new Michelin structure includes eight operational directorates, including Research and Development and Service Technology Development.

– The logic of our new organization is to provide greater freedom and responsibility to directors of regional divisions in sales. There is a big restructuring here - if earlier we talked about “products”, now we are talking about “clients”. Directors are now also responsible for marketing products for various categories of clients.

Although it is clear that we have a global production plan. Our industrial pole includes production and R&D.

– How many research centers does Michelin currently have in the world?

- There are several of them. The largest and most famous is in France. There is in North America, because we have a very good presence in the region: North America gives Michelin 35% of its business, and we are doing significant development there. We have research centers in Japan, Thailand, China, and India. We also have a laboratory in Russia. The local aspect of research is very important when there is local production. Because it allows you to understand what exactly is required under given [operating] conditions. And from these local nodes a single global network is formed, which functions as a single and global network.

Right place

– Michelin produces tires for all types of transport – from bicycles and motorcycles to agricultural machinery and aircraft. But which segment seems to you the most promising?

– I don’t know whether this will surprise you or not, but today I don’t know a single segment of our business about which I can say that it is the “most promising” for Michelin. Let's take Russia, for example. Why am I so confident in the prospects of this region? Because we are successful here in almost all segments.

Naturally, this is the segment of commercial vehicles and heavy trucks. Fleet owners are becoming more and more discerning, more demanding, they are thinking about how to reduce the costs of maintaining their fleet of vehicles, how to modernize it; thinking about how to reduce the burden on the environment.

We are growing in the mining tire segment – we are specialists here.

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And what wonderful prospects we have in the agricultural tire segment in Russia! The planet's population is constantly growing, people need to be fed, and Russia has 17 million square meters. km of territory, most of which can be used for agricultural production. We also have excellent developments in this segment. For example, the low-pressure technology of Michelin [agricultural] tires can significantly reduce the impact on the soil and thereby increase crop yields.

Once upon a time we started in Russia with tires for passenger and commercial vehicles, today our business is much broader and larger than just these two segments.

– Michelin was the first foreign company to create tire production in Russia. Your plant in the Moscow region has been operating since 2004 and is capable of producing up to 2 million summer and winter passenger tires per year under the Michelin and BFGoodrich brands. What is the current workload of the enterprise?

– The Michelin plant in Davydov is fully loaded – 100%.

– So the crisis in Russia is over for you?

– Of course, there was a drop in sales and occupancy. But it was a good moment to modernize production and reform the team. Yesterday I visited our plant and was very pleased to feel the cheerful spirit of the team and to see that they are focused on the future.

– Is everything produced in Davydov sold in Russia or do you export something? Continental, for example, last year exported more than 30% of tires produced at its plant in Kaluga; this year the share of exports will drop to 13%.

– We export about 20–30% of what is produced in Russia – this share is floating and depends on the market situation.

– Two thirds of the tires produced by Michelin in the world are sold at retail and only a third are supplied to factories for the original equipment of cars. What is the proportion in Russia?

– In Russia, the share of retail is even higher – this is the main market for us.

– And there is no desire to make money on the recovering Russian automobile market, to increase supplies to car factories?

- Eat. And we accompany the growth of Russian industry in this segment. But we must take into account the current workload of our plant in Davydov and the fact that it is part of our chain of plants in Europe, which together form a product line. Now we cannot [increase the supply of tires for original equipment], and there is no decision on this issue yet.

New Horizons

– Cars with internal combustion engines are being replaced by electric cars, plug-in cars and self-driving cars. Does this change anything for Michelin?

– This opens up new horizons for us and allows us to demonstrate our technological potential. After all, we are a company that develops high-tech materials and provides long-term mobility services. The more sophisticated cars become—electric, autonomous—the more important tires become. For example, Michelin tires allow electric vehicles to significantly increase mileage on a single charge - compared to tires from other manufacturers. Tires for self-driving cars will be an even more important element, which is why the [Michelin Vision wheel concept of the future] includes the ability to be connected to the car.

"Wheel of the Future" Vision printed on a 3D printer

Realistic Michelin dream

Every year Michelin invests 700 million euros in the development of new products and technologies, and the company has more than 6,000 researchers around the world. In June of this year, at the Movin' On festival in Montreal, Michelin presented the concept of the “wheel of the future” called Vision. Such a wheel, according to the French company, will not have to be inflated, it will be made from degradable biomaterials and will be able to communicate with the car. “This is not a fantastic product, but a completely realistic one, with which we want to show our vision of the future,” explains Jean-Dominique Senard. – This wheel concentrates the developments of our group, including social aspects. The Vision protector is 3D printed; We are already very strong in metal 3D printing, and here the protector is made of 100% biodegradable material. This wheel has an alveolar structure inspired by nature and is able to maintain a connection with the car. We are developing all technologies presented in Vision. This is not a product that will go into production tomorrow, but it is a realistic dream.” “It’s too early to say when this wheel will hit the ground,” adds the Michelin president. “I won’t give an exact time frame, but in recent years I have noticed that innovations often become reality faster than people initially think.”

– Over the past couple of years, Michelin has bought the Brazilian two-wheeler tire manufacturer Levorin, technology companies NexTraq and Sascar. Can you explain the logic behind the acquisitions your company is carrying out?

– Growth through the purchase of other enterprises is quite natural for Michelin; the company has always done this. Despite the fact that we prefer organic growth - through the development of our own production facilities.

We carry out acquisitions if we see that the acquired company can bring something to Michelin. I am very pleased with our investment in Brazil - the purchase of Levorin.

Our other acquisitions relate to the provision of services, primarily digital ones. This should allow our group to dramatically accelerate the creation of digital services for our clients, primarily those with a fleet of cars. But also for private buyers, since digital services make it possible to provide fast and personalized services to both corporate and private clients. To do this, we acquired NexTraq in North America, Sascar in Brazil and two other smaller companies. And I am very pleased with how our Russian team is developing digital services - wisely and with great creativity.

– Michelin has historically purchased natural rubber from third-party producers, but recently announced the creation of its own Hevea plantations in Africa and Indonesia. Why?

– Access to raw materials is a strategic issue; we have a long-term program to provide the group with raw materials. From Africa and Indonesia we receive natural rubber - the raw material we need in production. (But in general, 200 different materials are used in tire production.)

Africa is our historical region, we export natural rubber from Cote d'Ivoire and Ghana, and now we will produce it there. In Indonesia, we have done many wonderful projects with the World Wildlife Fund, and now we have planted Hevea trees on 50,000 hectares in Sumatra. That is, for us, this project pursues two goals: on the one hand, we obtain a source of natural raw materials, on the other hand, we fulfill a social mission - we increase the area of forests, create 16,000 jobs.

– Michelin had a successful Challenge Bibendum festival, which was held in different cities of the planet. This year it was replaced by a new event - Movin' On. Why?

– Challenge Bibendum was a very successful event, but it was held every three years in different cities around the world and was too tied to Michelin. We wanted to create an annual event dedicated to new mobility. In which not only automakers would participate, but also mayors of large cities, researchers and scientists, banks, insurance companies - everyone who takes part in the formation of new long-term mobility. Thus was born Movin' On, the first "edition" of which was very successful in June of this year in Montreal, and next year we planned Movin' On there - in an even larger format.

Michelin stars

– The Gault & Millau guide, which competes with the Red Michelin Guide, presented its first edition on Moscow restaurants and hotels in November. Will Michelin ever start rating Russian restaurants and hotels?

– The Red Guide has earned worldwide fame for its objectivity, and the Michelin star has become synonymous with exclusivity. All regions of the planet deserve to be described by a guide, including Russia. But this, firstly, is a matter of distributing our efforts and timing, and secondly, we come to a region or city when we feel that we have someone to support and that our efforts will be appreciated. There is no reason for the Michelin Red Guide not to come to Moscow.

“But my understanding is that the Michelin guide's business model is that you only create a local publication if you know you can make money selling it. Which in the case of Moscow is problematic, especially considering that reference books and guidebooks are migrating from paper to digital.

Michelin SCA

Tire manufacturer, publisher of maps, restaurant and tourist guides
Shareholders (Thomson Reuters data): almost all shares in free float, the largest institutional investor is Templeton Investment Counsel (6.77%).
Capitalization – 22.4 billion euros.
Financial indicators (first half of 2017):
revenue – 11.1 billion euros,
net profit – 863 million euros.
In 2016, the company produced 187 million tires, and the network of dealer and service centers includes 4,300 points.

– Yes, we make money by selling guides, but I have no doubt that we have readers in Moscow. And gastronomy in the country is developing very well.

– There is no date yet for the arrival of the Michelin Red Guide in Russia?

- Not yet. We will announce when we are ready.

– As the president of Michelin, are you also responsible for the Michelin guides?

– Michelin Guides are part of the Michelin Group. I am a guarantor of the absolute independence of guides and their choice, but I myself do not participate in the choice.

– As Michelin's tire business grows, the share of guide sales in the company's total turnover is becoming smaller and smaller...

– Yes, this is a small share in turnover, but a huge contribution to the image! Especially now, when we are talking about new mobility: gastronomy, travel - all this works great for the image of the Michelin group.

– So, despite the fact that the contribution of the publishing business to the overall turnover of the group is less and less, you are not going to stop publishing Michelin guides?

– I can assure you that this is a key business for us and we are under no circumstances going to stop it!

– But the site viamichelin.com is obviously outdated, it requires investment and new technologies.

– The digital technologies we are currently investing in will also be used for guides. These processes are moving very quickly, and the digital services that we will offer in the coming years will pleasantly surprise you.

Life in the provinces

– Michelin is a global company operating all over the world. Is it difficult to manage it from Clermont-Ferrand, a city of 150,000 people?

– I am happy that we are not in Paris, but in Clermont-Ferrand, from where our group has been successfully managed for 128 years. Firstly, I am proud to lead a company from the city in which it was born: heritage is a very important matter. Secondly, we have a special atmosphere at our headquarters - dynamic and international, because many managers come to Clermont-Ferrand from other countries and most of them travel a lot.

– And there are no problems with attracting young talents to the province?

– This problem existed a few years ago, but is now disappearing. The fact is that the quality of life in a beautiful provincial city is beginning to attract more and more people. I see this in my managers: for them, life in Paris is no longer the goal of life, and they understand what they can enjoy in the provinces. And I myself have tasted the charm of life in a small city: there is nothing more pleasant than returning from a metropolis to Clermont-Ferrand, where everything is nearby, there are no traffic jams, where you are close to nature... I assure you, all this greatly stimulates the brain activity of a leader (laughs).

Vladimir Shtanov participated in the preparation of the interview