Annual ReportAnnual Report - KU LeuvenMichelin manufactures and sells tires for almost every kind of vehicle: aircraft, passenger cars, bicycles, earthmovers and agricultural vehicles,

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Annual ReportAnnual Report

Contents

Letter from Edouard Michelin 3

Highlights of the Michelin Group 4

The Group's key figures 10

Michelin and its shareholders 12

People within Michelin 16

Tires and the environment 20

Michelin and motor racing 24

Managing Partners’ report 26

The economic situation 26

The worldwide tire industry in 2000 27

Michelin and its markets 30

Michelin's economic and financial performance 40

Research and development 45

Prospects for 2001 47

Compagnie Générale des Etablissements Michelin 48

Proposals 49

Auditors’ general report 52on the annual financial statement

Auditors’ special report 53on agreements regulated by law

Auditors’ special reports 54on operations concerning capital stock

Supervisory Board’s report 56

Consolidated financial statements 57

Auditors' report on the consolidated 78financial statements

Company financial statements 79

Compagnie Générale des Etablissements MichelinMichelin et Cie – Société en commandite par actions, capital stock € 269 431 746Registered office : 12, cours Sablon, CLERMONT-FERRAND, France855 200 887 R.C.S. : Clermont-Ferrand

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This document is a translation. The original, which is in French, is the authoritative version.

For over a hundred years now, Michelin has furthered people's ability to commute, to travel

and to transport goods.

From detachable bicycle tires to the invention of the radial, from environ-

mentally-friendly tires to the recent revolutionary PAX System, Michelin has always been at the forefront of innovation in every tire category and has met the requirements of increasingly demanding motorists for

better performance, safety, comfort, respect for the environment and fair costs.

Michelin manufactures and sells tires for almost every kind of vehicle:aircraft, passenger cars, bicycles, earthmovers and agricultural vehicles,

trucks, motorcycles and even the American space shuttle.

With over 18 million publications sold every year, in both printed and electronicform, Michelin is also there to guide travellers on business or leisure trips.

Michelin has almost 130,000 employees worldwide serving its customerswith passion and expertise.

The Michelin name is also synonymous with a passion for motor vehiclesand motor racing. Its achievements speak for themselves, as the Group has now more than 120 driver and constructor World Championship titles.

This year Michelin has decided to take its passion for motor racing one step

further and re-enter the world of Formula 1 racing.

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Profile

Edouard Michelin

François Michelin

René Zingraff

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MANAGINGPARTNERS

Associés commandités(General Partners)

Edouard Michelin

François Michelin

René Zingraff

Société auxiliaire de Gestion «S.A.G.E.S.»

Conseil de surveillance (Supervisory Board)

Eric Bourdais de CharbonnièrePresident

François Grappotte

Pierre Michelin

Grégoire Puiseux

Edouard de Royère

Commissaires aux Comptes (Statutory Auditors)

Stéphane Marie

Dominique Paul

Jacques Zaks, Deputy of Mr. Marie

Pierre Dufils, Deputy of Mr. Paul

“ Dear Shareholders,Ten years after acquiring Uniroyal - BFGoodrich, the year 2000 is a milestone in the history of the company.The Group is now established on a worldwide scale. Its sales are balanced between Europe and North America.It has established a solid relationship with all the manufacturers in the automotive and transport industry:one in three new vehicles in the world leaves the factory fitted with Michelin tires.Michelin is universally recognized as the leading brand in the tire industry in terms of innovation and qualityand the Group has a portfolio of other brands which enables it to meet the needs of all users, as well as the professionals in the distribution sector, across a wide range of performance levels and prices.

But I would like to insist on the fact that the company also demonstrated in 2000 its ability to achieve the bestfinancial performance in the whole tire industry, in a context that was significantly more difficult than expected,while gaining market shares at an increasing rate.These good results and the dynamic growth behind them are undoubtedly due to several strategic choices whichproved to be crucial:

• the focus on quality and innovation in both products and services• growth targeted on the most buoyant and profitable markets, in both original equipment and replacement,

without sacrificing our ability to present an offering covering all the market segments• particular emphasis in the last few years on the efficiency of our system for taking orders and delivering

quickly to customers• the development of new financial management steering tools in all our operational entities• a controlled policy of improving our productivity and competitiveness across all the geographical zones in

anticipation of market difficulties.

The sectorial information that we are providing this year will help you to better understand this strategy, to assessthe quality of the Group's financial fundamentals, to follow our drive for long-term, profitable growth and toappreciate the company's efforts to improve its ability to deal with the fluctuations in the economic situation. With an operating margin of 7.6 % in 2000, the Group proved that it was capable of overcoming an economic environment threatened by significant rises in the cost of raw materials, the weakness of the Euro,a fall in sales of winter tires due to a very mild winter and, above all, the downturn in the truck tire market inNorth America. Despite a difficult environment, we are aiming for continued growth of our operating margin in2001, with a target of 10% which we still intend to achieve by 2005.

We are convinced that the tire industry in the next few years will be marked by several structural features thatwill favor the Michelin Group:

• the growing importance of brands with an established image in terms of quality, because safety will increasingly be a main concern of road users

• progressive introduction of PAX System on the new passenger car platforms, in response to growing demandfor safety and the necessity of upgrading passenger cars with new performance levels and new designs in order to reduce their environmental impact. In this field, our partnership with Goodyear andPirelli is a major asset

• a move to radials in the professional tire markets in Asia and South America, which goes hand in hand with the improvement of road infrastructures and the emergence of a personal vehicle market

• the growing need for expertise in suspension systems to meet manufacturers' requirements in the fields of road performance, braking distances, noise reduction and energy consumption

• lastly, the fact that road users are beginning to look for new services in order to make mobility an increasingly pleasant and friendly experience.

All the progress already achieved and the dynamism of our current teams give us every confidence in our ability to prepare for the future and strengthen our leadership. In closing, allow me to insist on the cultural and human unity of the Michelin Group all over the world. This is surely one of our major assets and one that few large worldwide groups can legitimately claim to have today.

For Michelin, this unity has been built up over many years, in a Group culture based on a passion for productsand for innovation as well as a respect for people and their need for mobility.

Thank you for your trust in us.

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Letter from Edouard Michelin

Sales operationsin over 170 countries

Nearly 80 production sites in 5 continents

Average number of employees in 2000

Highlights of the Michelin Group

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128,122

844,000tires

61,000inner tubes

over4 million kilometers ofof cable(2.5 millionmiles)

96,000 wheels

75,000 mapsand guides

36,200 products marketed

World tire market

Market share of main competitors:

Daily output:

Source: Rubber & Plastics News (sept. 2000) based on 1999 sales


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Michelin 19.4 %

Bridgestone 19.4 %

Goodyear 16.6 %

Sumitomo 4.9 %

Continental 7.1 %

Pirelli 3.9 %

Yokohama 3.5 %

Others 25.2 %

NHTSA recallIn North America, NHTSA, the American roadsafety agency, asked Firestone to recall over6.5 million potentially faulty tires. Thanks tothe swift mobilization of the entire industry,the tires were replaced within the space of a few months. All of the Group's plants producing 4x4 tires worldwide took an activepart in supplying the tires. This recall madeconsumers aware of the importance of tires inthe safety of their vehicles.

In 2000 the X-One Urban tire was launched in Europe and the X-One Grand Routier was launched in North America. These tires represent

a major innovation in extra-wide singletruck tire sets toreplace twinned tires,thus reducing rollingresistance.

Bibendum was voted the world's best

logo by an international panel set up

by the Financial Times and Report

on Business, a Canadian magazine and

composed of eminent celebrities in the

arts, design and communication world.

The award is a source of pride for the

Group's staff and gives further emphasis

to the strength and appeal of the

MICHELIN brand worldwide.

X-ONE


Key eventsin 2000

Bibendum, the world's best logo

Safety

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Michelin signed a joint venture agreementwith Goodyear for the development andpromotion of PAX System. Goodyear andPirelli, with whom an agreement had beensigned in 1999, are now firmly convinced thatPAX System will be the standard for the tireindustry of the future. The three manufac-turers account for almost 50% of the tiressupplied to the world automobile marketand are working in close collaboration withautomobile manufacturers to introduce thisnew standard, which will bring them mobilityand high performance.

Launch of Rubbernetwork.com

Development and promotion of PAX system

Joint venture

A market place on the InternetIn conjunction with five other tire industry players(Continental, Cooper, Goodyear, Pirelli andSumitomo Rubber), Michelin announced the deve-lopment of a business forum on the Internet. Anindependent company, Rubbernetwork.com, wasset up as a common platform supporting purchasesand procurement of the 6 Groups. It will enable itsmembers, whose annual purchases of raw materials,equipment, goods and services total more than 50billion dollars, to improve their supply chain effi-ciency and make substantial savings on purchases.


PAX System is an assembly of four integral components: the wheel, the tire, thesupport and the pressure detector. With its new bead anchoring system and short,taut sidewalls, PAX System deflects less than a traditional tire. It offers a better,faster response to input from the driver, notably when taking bends. Thanks to thenew system of anchoring the tire to the wheel rim and the presence of a flexiblesupport inside the tire, PAX System offers a host of advantages. In particular, it can continue to run when a puncture occurs, without damaging the rim-tireassembly and without jeopardizing the safety of vehicle occupants. This is becausethe tire cannot come off the rim. The support plays the role that was formerlyplayed by air pressure. To inform drivers that they have a puncture, PAX Systemdesigners have fitted each tire with a pressure detector that will indicate anyabnormal loss of pressure.

PAX System

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Safety, passion and thrills

Products, systems, services for each customer

Thermal shock and extreme loads

Two-wheelslight truck

Earthmover

Aircraft


Michelin

activitiesPassenger car and

Performance,safety, profitability

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Improve reliability, reduce costs

Optimizing the way the tire works

Efficiency and protectionof soil and crops

Truck

Suspension systems

Travel publications

Agricultural

Information updateddaily

Group Brands

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Evolution of net income (as a % of sales)

96 97 98 99 00

4.45.2

4.6

1.3

2.82.4

Former accountingmethods

New accountingmethods

Evolution of operating income(as a % of sales)

96 97 98 99 00

1960 1965 1970 1975 1980 1985 1990 1995 2000

9.89.0

8.6

9.0

7.6

8.8

Others

North America

Europe

Net sales 15,396 13,763

Operating income 1,162 1,207Financial income (314) (238)

Extraordinary income (76) (353)

Consolidated net income 438 325of which attributable to Michelin Group 399 283

Dividend per share (in euros) 0.80 0.71Tax credit excluded

Sales volume since 1960 (tonnage)on the basis of 1960 = 100

Highlights of the income statement

1,200

1,000

800

600

400

200

0

The Group's

Key Figures


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1999PRO FORMA

2000

(in millions of euros)

Segment reporting

2000 sales by geographic area

Evolution of sales (in millions of euros)

96 97 98 99 00

10,481

12,14912,486

15,396

13,763

Net investment (in millions of euros)

96 97 98 99 00

626

817

1,090 1,1341,0911,003

Debt/equity ratio (%)

96 97 98 99 00

131

65 65

88

119113

Cash flow (as a % of sales)

96 97 98 99 00

11.710.6 10.0

11.2

9.2

11.2

2000 sales by activity

13,763

47.4 %

39.0 %

7.1 %

3.9 %

2.6 %

Europe

North America

Asia

South America

Others

Passenger Carand

Light Truck Tires

TruckTires

Other Activities

Inter-sectoreliminations

7,686

4,0934,807

- 1,191

Total : 15,396

Former accountingmethods

New accountingmethods

(in millions of euros)


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Share price annual extremes

and trading volumes

Michelin share price / CAC 40

index comparison

Michelin share price / World Tire index /

MSCI index comparison

(based on Nov 90 = 100)

Michelin share in euros

Michelin

CAC 40

MichelinWorld Tire index

MSCI AutomotivePrice index

share performance

Evolution of the share price

Michelin and its shareholders

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Extremes (in euros)

Volumes (in millions of shares)

CAC 40 index in points

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

Simplified Organization Chart of the Group

Compagnie Financière Michelin

(Switzerland)

Industrial, sales and research companies

outside France

Manufacture Française

des PneumatiquesMichelin (France)

Other industrial and commercial companies

in France

Pardevi(France)

Shareholding in Peugeot

S.A.

Compagnie Générale des Etablissements Michelin (France)

Nominal value 2 eurosQuotation Premier Marché

de la Bourse de ParisMinimum tradable 1

number of shares

Sicovam Code 12126Indices CAC 40 and Eurostoxx 100

MONEP group maintained

Market capitalization on December 31, 2000 5,193,296,904 euros

Float on December 31, 2000 97.1 % of the total shares

(after deduction of 3,853,675 shares held by Michelin)

500,000

Michelin share

fact sheet

Shares traded per day, on average

Dividend per share (tax credit included)

Net earnings per share


Net earnings per share and dividend per share

A liquid asset

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(in euros)

94 95 96 97 98 99 00

3.67

1.82

3.70

4.32

3.89

1.15

2.96

0.750.52

0.630.87 0.96

1.07 1.20


Michelin has strengthened its communication with its shareholders

and the financial community in order to help them better understand

the Group and its strategy.

Communication with the shareholders

and the financial community

Letter to the shareholders

Since all the shares are registered stocks, Michelin is able to send each of its 200,000 shareholders the information they require, as well as all of the necessary documents to enable them to take advantage of theirright to vote at the Annual General Meeting.

In 2000, each of the C.G.E.M. shareholders received:

• A letter dated March 20, concerning 1999 financial results, along with acopy of the consolidated financial statements.

• An invitation to the Shareholders’ Annual General Meeting on May 26,along with the texts of the resolutions proposed and proxies/forms forvoting by correspondence.

• The Annual Report, sent out on April 19.

• The post Shareholders’ Annual General Meeting letter from Mr. EdouardMichelin dated June 13, reiterating the key points of the strategy followedand confirming the Group's objectives for the next five years.

• The Semi-Annual letter of September 20, commenting on the Group'sactivity and results in the first half 2000 and explaining the factors whichled to a reduction in the margins initially forecast for the year.

Shareholders’ meeting in Paris, November 2000

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Up coming important dates

• Announcement of first quarter

2001 net sales April 25, 2001

• Shareholders’ Annual General Meeting May 18, 2001

• 2001 half year results July 30, 2001

• Shareholders’ meeting in Paris September 2001

• Announcement of third quarter 2001 net sales October 24, 2001

• ACTIONARIA convention November 16-17, 2001

• Announcement of full year 2001 net sales February 6, 2002

Realizing how individual shareholders appreciate direct exchange with the company, the Managing Partners have decided to meet them personally in order to speak about the company's strategy and results. They have therefore set up a program for meetings with the company's shareholders. The firstmeeting was held at the Palais des Congrès in Paris on November 18, 2000. Mr. Edouard Michelinwas accompanied by several members of the Group's Executive Council.

ACTIONARIA conventionFor the third year running, Michelin took part in the ACTIONARIA convention in Paris where the booth was visited by a large number of shareholders.

SHAREHOLDER SERVICES Jacques-Henri Thonier12, cours Sablon 63000 Clermont-Ferrand,France Tel.: + 33 473 98 59 00 Fax: + 33 473 98 59 04

Toll-free number forFrance: 0 800 00 02 22

INVESTOR RELATIONSEric Le CorrePlace des Carmes-Déchaux63000 Clermont-FerrandTel.: + 33 473 32 77 92

+ 33 145 66 10 04 Fax: + 33 473 32 27 16

Internet : www.michelin.com

Individual shareholders' meetings

In 2000, the Group continued and extended its financial communication initiatives towards investors, analysts and financial journalists. Over 100 meetingsand/or “one-to-ones” were organized with more than 400 different institutionalinvestors, all either current or potential Group shareholders. The Group took theopportunity of its first half sales announcement to institute quarterly conference calls.

Roadshows were organized in more than 11 different countries in Europe, the United States and Asia.Michelin continued its communication seminars for investors and financial analysts which started in 1999. Two one-day seminars, one in Europe and the other in the United States, enabled nearly 50 investors and financial analysts to meet the Group's operational teams and better understand its marketsand strategy.

Meetings with institutional shareholders

and financial analysts

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People within Michelin

The Michelin Group pays particularlyclose attention to recruiting, with acentralized process that helps to gua-rantee the quality of the people chosen.Recruiting takes advantage of the new

technologies to offer the possibility of applying for jobs on-line. This has helped to increase the number of candidates significantly, as well asspeeding up the recruiting process.

recruiting,training and career management

at the heart of the Group's creed

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With nearly 130,000 people all over the world and an

industrial presence in around twenty countries, the cultural and

social diversity of people is vitally important in the Michelin Group.

The company's growth requirements worldwide need people ready to

handle extremely varied missions. In this context, their qualities, the

richness of the career paths proposed and a varied range of missions

are all essential aspects.

Recruiting, training and career management are at the heart of the

Michelin Group's creed.

The development of people is also anessential factor for the Group. TheGroup's various schools provide anextensive training program coveringsales, marketing and tire technologies.These training courses help to increasethe Group's employees' awareness oftopics which are useful in their variousprofessions and enable them to share acommon culture.The Michelin Group is known for itshighly effective career management.The organization and professionalism

of the Personnel Department enablegenuine employee mobility, in bothfunctional and geographical terms.In the year 2000, there was extensiverecruiting in research and develop-ment, IT, marketing, sales and financialmanagement throughout the Group,with over 400 managers (Master’sdegree and above) and 1,000 personnel(high school diploma + further training)newly recruited worldwide.

Key figures 2000

Recruiting per professional group

Employees

Technicians

Managers

2001 will also be a year involving significant recruitment

in research and development, IT, information systems,

internal auditing, manufacturing and financial management.

A n n u a l r e p o r t 2 0 0 0 17


4,360

1,602

400


The quality of the dialogue with employees isone of the key points in the management ofcompanies. What is Michelin ‘s approach ?

Thierry Coudurier : Let's start with the factsrather than ideas. Michelin is one of theonly French groups to be genuinely interna-tional. We have sales operations in seventycountries and production sites in more thantwenty countries. Obviously, in such condi-tions, to maintain and enhance the neces-sary dialogue with employees, we have to take into account the specific features of each of the countries. These specific features may be historical or cultural, aswell as legal. It is up to us to adapt, byalways making it our goal to defend theinterests of our customers, our shareholdersand our employees. The company's compe-titiveness, and therefore its future, dependon these three groups. Our dialogue mustbe genuine and effective.

How is the dialogue with your employees organized in concrete terms?

Th. C. : What is essential is the existence of direct dialogue between managementand employees. By this, I mean spontaneous,informal dialogue at all levels of the compa-ny. All the managers at Michelin are awareof the importance of such dialogue andmake every effort to facilitate it, whether bysetting up structures for exchanging viewsor by carrying out perception surveys withinthe company. Let me give you an example:from 1997 to 1998, two surveys concerningemployees' expectations were carried out in 14 countries among 55,000 Michelinemployees. This research tool is an excellentmeans of finding out more about the expec-tations of our employees, so much so thatwe will be launching another survey of thistype in the next few months.

However, for diverse reasons, this directdialogue may not appear to be sufficient.Employees may consider that they requiretrade union representation: they haveevery right to do so and we respect this. Ifthis right were not respected, we would ofcourse act to set things right. I personallyensure that this is the case.

In France, employee dialogue is handled viathe trade unions. What do you think aboutthis situation?

Th. C. : We do not have to have an opinionabout the situations we encounter, wesimply have to take them into account. InNorth America, in certain plants, much ofthe employee dialogue goes through theunions. In other plants, there are no unions because, quite simply, theemployees don't want any.A good example is Canada. The CanadianAuto Workers union has been trying sincethe beginning of the 1970s to get estab-lished in the Group's factories. To do so,the union has to achieve majority supportin a ballot of the employees. There havebeen twelve ballots so far and they haveall yielded the same result: refusal of tradeunion representation and choice of directdialogue with the management.

Are you pleased with this result?

Th. C. : We take note of it. A thirteenthvote was held recently and we will respectthe result whatever it may be. There is thelaw and it is our duty to apply it.Concerning the role of trade unions, Iwould like to underline that they can beextremely constructive. In Spain, forexample, the quality of the relations thatwe have with them - even if relations aresometimes tense - has enabled us to signagreements concerning managementplanning of the workforce, bringingyounger people into the workforce andflexibility. The unions involved could not besuspected of having been too subservient.

I would like to insist on this point: tradeunion tradition also varies widely fromone country to the next. Unions insouthern Europe are not the same as theirGerman, Japanese or American counter-parts. Once again, we have to take into account all the specific national andregional features.

Is there such a thing as a "French exception"in terms of employee dialogue?

Th. C. : Doubtless, but in the same way thatthere is a Japanese exception, a Canadianexception or a Polish exception. TheFrench exception, in my opinion, is due tothe low level of support of the unions,estimated at under 5%, and the fact thatthe law gives them rights whatever theirlevel of support, which is not the case inother countries. Does that rule out establi-shing a long-term relationship with theunions ? The answer is no, even if it needsto be underlined that dialogue betweenthe social partners in France has beendifficult in the past. I believe that thewhole year of negotiation concerning the 35-hour work week showed that, inthis area, nothing is cast in stone. It shouldbe pointed out that the negotiationsabout the 35-hour work week led toagreements ratified by a large majority ofthe employees in several of the Group'sFrench companies like Kleber, PneusLaurent and Euromaster. In total, morethan 7,000 French employees werecovered by a 35-hour agreement on January 1, 2001.

Is there a "Michelin exception" ?

Th. C. : The Michelin exception is the sameas for all genuinely global companies. We have 130,000 employees. Each of oursales and industrial operations representsa special case. And we try to maintainsatisfactory dialogue with all employeeseverywhere.

Human relations anddialogue

with our people in a global GroupThierry Coudurier,Head of Personnel for the Group

A n n u a l r e p o r t 2 0 0 018

International mobility has been a well-esta-blished practice in personnel managementfor many years. Expatriation favors creativity,responsiveness and adaptability in peopleand teams by sharing skills and cultures. Italso helps to spread and strengthen theGroup's values.

There may be several reasons for expatriation.

One of the prime reasons is to enable peopleto acquire international experience from apersonal development point of view: 12 % ofthe management staff are expatriates.Michelin is particularly seeking to develop themobility of young management staff (10% ofthe expatriates are under 30 and nearly 50%are under 40).

In other cases, expatriates contribute to deve-lopment in their host country by providingspecific expertise to fill a gap in skills andtrain the local teams. The Group calls on bothmanagement staff and technicians for this.

Also, when Michelin sets up operations in anew country, there are expatriates whose mis-sion is to help with starting up the new entityfor the first few years, training the local teamsor easing the integration of the company intothe Group, when it involves an acquisition.

The Personnel Department monitors peopleduring their missions abroad to ensure smoothcareer management and a comfortable returnto the home country.

Global awareness :

a strategic choiceTo improve its understanding of the enormous variety of local realities and

integrate this into its worldwide strategy, Michelin is developing the international

awareness of the people working in the Group.

Key figures

• A strong feeling of belonging: 80 % of employees say that they are proud to belong to the Group.

• Low personnel turnover at 2.1 % (excluding retirements).

• A culture based on mobility: Michelin management staff change their position or profession every 4 years on average.

• 4% of the Group's total payroll expenses is devoted to training.

• Michelin is one of the five leading French companies in terms of thenumber of expatriates: expatriations take place between around twentyhome countries and about sixty host countries.


A n n u a l r e p o r t 2 0 0 0 19

Tires and the environment

Because the motor vehicle provides mobility and freedom, it has been afabulous vector of economic and social development ever since it arrivedon the scene. Today, it has to satisfy the growing requirements of the21st century, namely safety and the environment. The tire contributesfundamentally to this mobility and also contributes to the safetyof users and to the protection of the environment.

The Group has chosen to deal with the problem of the environment by analyzing the life cycle of the tire (rawmaterials - manufacture - use - end of life cycle) with adual objective: ensuring a long-term view of its activitywhile meeting the requirements of its customers.

Michelin is a member of WBCSD(World Business Council for

Sustainable Development) - a group of150 international companies who sharethe same commitment to durable deve-

lopment, which means protection ofthe environment, social equity and

economic growth.

As a complex, composite product, thetire requires the implementation of avery wide range of techniques andmaterials which play an important rolein its performance: metal and textilereinforcements, natural and syntheticrubbers, strengthening fillers, curing

and protection agents. In order to inno-vate and control the quality of thematerials that it uses, and to meet pro-curement requirements, Michelinmanufactures or transforms many ofthem itself.

Ecological corridor to

preserve animal and

plant species

1

Michelin's environmental approach

The raw materials for the tire

Natural rubber, the basic ingredient of a tire, is grown on 25,000 hectares of rubber plan-tations in Brazil and Nigeria to meet local production requirements. The objectives ofthese plantations are improved knowledge and quality of natural rubber, optimizationof yields and a long tree life span, while maintaining the areas planted.

Located in the Nordeste region, 200 km south of Salvador, along the Atlantic coast, theBahia plantation covers 10,000 hectares, of which 5,000 hectares are planted with rubber trees.Alongside the rubber trees, the plantation also contains food crops like coffee and cocoato bolster the region's agricultural activity.

In order to protect the Atlantic forest, a program has been launched in collaboration with an NGO,the BioBrazil foundation, affiliated with the Wildlife Conservation Society of the New YorkZoological Society:

• creation of ecological areas to help protect animal and plant species,• surveys of these species for scientific publications,• improvement of the local people's awareness through a range of initiatives including environ-

mental education programs in schools,• collaboration with universities including the University of Miami in the United States.

The Michelin site at Bassens,which manufactures syntheticelastomers, has been involvedsince 1996 in an initiative tosignificantly reduce its emis-sions of VOCs (volatile organiccompounds). In 2000, this siteopened up a VOC incineratorcapable of eliminating 85% ofthe atmospheric waste gene-rated by the finishing work-shop (an average of 1,000

tons per year) for an invest-ment of 19MF (of which 2MFwere cofinanced by Ademe,the French Agency for theEnvironment and EnergyControl).

The Michelin natural rubber plantation at Bahia – Brazil

A n n u a l r e p o r t 2 0 0 020

To control and reduce the environmentalimpact of its industrial activity, theMichelin Group is continuing to imple-ment its environmental management sys-tem and has begun a program to achieveISO 14001 certification of its industrialsites. This program, launched in 1999,aims to obtain certification of theGroup's main industrial sites (more than60) by the end of 2002.

During the year 2000, 12 sites were certi-fied worldwide, including car and trucktire production plants and the Group'stwo synthetic elastomer productionplants (Bassens near Bordeaux in Franceand Louisville, Kentucky, USA). The truckretreading activity, which is environ-mentally friendly because it prolongs thelife span of the tire, is included in thiscertification program.

2 Manufacture of the tire

ARANDA DE DUERO SITE (SPAIN) : This site of 2,200 people wascertified ISO 14001 in July 2000. This indicates clearly that its pro-duction of tires and wheels respects the environment.A covered waste area has been built with retention basins and allthe fire protection systems necessary to prevent pollution. Theconditions for access are clearly defined and the storage instruc-tions are very strict.Selective sorting of waste has been practiced for many years by allthe personnel. This makes it easier to recycle waste, thus helpingto protect the environment.

Michelin sites respect the environment

A n n u a l r e p o r t 2 0 0 0 21


VALLADOLID SITE (SPAIN) : To avoid the risk of pollution inthe event of accidental leakage or spillage, liquid productsare stored on retention basins. The site is ISO 14001-certifiedsince the end of 1999.

Aranda de duero site (Spain)

Bird of the Itatiaia forest

ITATIAIA (BRAZIL) : The Itatiaiaretreading plant in Brazil is locatedclose to a forest that has been preserved.ISO 14001-certified since December2000, the site makes every effort notto disturb its environment: a filtersystem has been set up on the courseof the rainwater as it leaves the plant.

Use is the stage in the tire's life cyclewhere safety and the environment areparticularly important. This is why theMichelin Group has spent many yearsseeking technical innovations in variousareas:• reducing rolling resistance to cut

vehicles' fuel consumption, • extending the life span of tires, • reducing the noise due to contact

between the tire and the road surface,etc.

But the phase of use does not just involvethe vehicle and the tire manufacturer:Users also have to be aware of their shareof responsibility in the conditions inwhich the vehicle is used, which arecrucial for the life span of the tire and its overall environmental performance.This is why, every year, in collaborationwith the highway companies, theMichelin Group organizes operations toraise users' awareness concerning tirepressures.


NEW GENERATION OF ENERGY TRUCK TIRES : the new A2Energy generation of truck tires reduces vehicles' fuelconsumption by nearly 6% (performance measured by the UTAC, Union Technique de l’Automobile, duMotocycle et du Cycle, among others).

X-ONE TRUCK : this concept aims to replace twinned tires on vehicles with a single tire. This solution notablyreduces the rolling resistance, thus reducing fuelconsumption as well as cutting emissions into the atmos-phere.

MACH-X-BIB RANGE OF AGRICULTURAL TIRES : theMachXBib range of agricultural tires was designed to pro-tect the agricultural structure of the soil and the crops inplace, while transmitting the total power of tractors, evenunder heavy loads. Thanks to rounded shoulders, a largeair volume and the width of its surface in contact with theground, it compacts the soil less and significantly reducesrutting.

3 Use

Reducing vehicles' fuel consumption

Protecting the soil

A n n u a l r e p o r t 2 0 0 022

Le Mans Track

4 The end of the tire life cycleAt the end of its life cycle, the tire can become either a raw material or a source of energy.As a raw material, it can be used in the manufacture of rubber-based products like road sur-faces or synthetic floor coverings; as an energy source, it can be used as fuel on a par withgood-quality coal. To recycle unreusable worn tires, the Michelin Group is participating inthe development of several recycling processes.

Cement manufacturing, one of the sectors

used by the Michelin Group for recycling

As heavy consumers of energy, cement works use worn tires as fuel. The organic elementsand minerals resulting from combustion are introduced into the cement manufacturingprocess and help to produce cements of excellent quality

AGREEMENT WITH BLUE CIRCLE : Michelin has signed an agreement with the Britishcement company Blue Circle to recycle used tires as an energy source: the tires will part-ly replace coal. Within the next three years, Blue Circle plans to burn nearly half the 39.5million used tires collected each year in Great Britain.

COLLABORATION WITH SIAM CEMENT : Thanks to the collaboration of Michelin SiamGroup and Siam Cement since 1999, all the used tires and waste rubber from the MichelinSiam Group's factories have been burned as fuel in Siam Cement's plants. The totalweight of the used tires and rubber waste recycled in 2000 amounted to 1,533 tons.


A n n u a l r e p o r t 2 0 0 0 23

Since 1998, the vehicles participating in the Challenge Bibendum have made substantial progress:

• Fuel consumption has been cut by 8% on the bestpetrol-driven vehicles and 10% on diesel vehicles.The hybrid models consume 15% less and theLPG vehicles even achieve 20% reductions.

• Compared with the average car currently run-ning in Europe (8 years old), the vehicles withinternal combustion engines emit 10 times lessharmful gases and make half the noise.

• CO2 emissions by the diesel vehicles are less than140g/km. The problem of particle emissions isdealt with efficiently by particle filters.

• The improvement of lithium batteries now giveselectric vehicles an operating range of more than200 km while generating very little noise.

• Hybrid vehicles have proved that they can com-bine autonomy, performance and low emissionsin towns. In mixed use, their CO2 emissionsamount to less than 100g/km.

• Handling and acceleration have improved overallcompared with the values measured in 1998,when the first edition was organized.

In 2001, the third edition of the ChallengeBibendum will be organized in California.

challengeThe Challenge Bibendum, a new-generation motor raceBringing together the players in theautomotive industry who want to demonstrate

their commitment to the protection of the envi-ronment, the Challenge Bibendum enables each

company's performance to be compared in termsof promotion of new energy sources and solutionsto environmental problems such as reducing fuelconsumption, gas emissions and noise pollution.

The vehicle's performance is tested on an 800 kmroute between Clermont-Ferrand and Paris, with arange of trials on the circuits at Le Mans andMagny-Cours. The vehicles taking part are assessedfrom the point of view of noise, autonomy, fuelconsumption, pollution, acceleration, handling,regularity and design.

Michelin and motor racing

all the cars in the first nine places were equipped withMichelin tires!

2000 season

Successon all frontsThe Le Mans 24-hour race:

trophies in all fields.

World rally

triumph at theWorld 500cc Championship:Michelin celebratedits 250th victory inMay 2000.

Moto

A n n u a l r e p o r t 2 0 0 024

challenge and a new tool for the MICHELIN brand

Why this return to Formula 1 after fourteen years' absence? What was behind this decision? First and foremost, for a long time now a number of racing teamshave been asking us to return to motor racing. When our first part-ners, BMW-Williams and Toyota, contacted us and asked us to jointhem, we realized that Michelin's return to Formula 1 would alsoprovide an opportunity to make our technological leadershipknown and consolidate Michelin's image and position on the high-performance market.

Which teams are you going to equip with your tires and are yousatisfied with these choices? We will be equipping four teams: BMW-Williams F1, Jaguar Racing,Prost-Acer, European Minardi and Benetton-Renault Sport. Theseteams all have highly competent, hard-working technicians and weare very much looking forward to working with them in the future.

Do you think that your long absence from Formula 1 will prove ahandicap? Yes, obviously. Although we've been preparing our return for over ayear now, it wasn't possible to carry out tests on the majority of theWorld Championship tracks. Moreover, all the tests were carriedout with previous generation chassis. If we add to this the fact thatnew legislation now only allows teams to take two types of tiresonto each track, it is likely that 2001 will principally be a seasonwhere we gain extra experience.

Is it possible, however, to draw on Michelin's past experience inFormula 1? Not at all. Today, everything is different. Apart from the introduc-tion of grooves, tire sizes have also changed, the regulations havebeen revised and technological progress has been made. So we needto be ready to meet a considerable technical challenge.

What advantages do you have on your side today to tackle thisreturn to Formula 1?Firstly, we were not idle during the period when we were not in-volved in F1, far from it. The various championships won in otherleading-edge disciplines, such as rallies and 500 cc motorbikeraces, have convinced us that we have a good basic formula andknowledge of automobile sport. Moreover, over the past year we

have spent considerable time preparing for the event. Our two testvehicles covered over 10,000 km in 2000, which is a lot to usualstandards. We have been able to learn from this experience andmaintain our know-how.

How important are tires for the success of Formula 1?Extremely important! Along with aerodynamics, chassis design, thetalent of a racing driver and the power and characteristics of an engine,tires are one of the most important elements in the creation of a poten-tially successful "package". If you make a mistake with tires, everythingelse will be in vain.Having said that,if aerodynamics are poor and if youare slow, you destroy your tires. This is why there was a difference of one-and-a-half seconds between Ferrari and MacLaren and the other com-petitors in 2000. Our challenge is to reduce this gap.

Michelin has a reputation for innovation. The first time theCompany entered Formula 1, it revolutionized the sport with theintroduction of the radial tires. Should we expect some othersignificant innovations this time round? Unfortunately, you do not invent something like the radial everyfive years! Nevertheless, we hope to introduce some progressivetechnology in the coming months. I'm also pleased to hear from theracing drivers themselves that they do not merely considerMichelin tires as new Formula 1 tires but feel they have their own,distinctive character.

How many people will be working in the Michelin F1 department? About twenty people will be working on this project, but that doesnot include the Research and Development Department which willbe making a significant contribution.

For what length of time is Michelin committed to Formula 1? This is a long-term commitment.

Pierre Dupasquier reveals the implications of Michelin's involvement in motor racing.

Michelin and motor racing

Formula 1: Another worldwide

A n n u a l r e p o r t 2 0 0 0 25

Ladies and Gentlemen,The Company's annual report for the 2000 financial year is as follows:

The Economic Situation

Managing Partner’s report May 18, 2001 Annual meeting of shareholders

Mainindustrializedcountries

3.0 %

1999 2000(est.)

2001(forecast)

4.3 %

3.3 %

SoutheastAsia

3.2 %

1999 2000(est.)

2001(forecast)

5.7 %

3.9 %

Centraland EasternEurope

1.1 %

1999 2000(est.)

2001(forecast)

5.5 %

3.6 %

LatinAmerica0 %

1999 2000(est.)

2001(forecast)

3.7% 3.7 %

Growth of Gross Domestic Product (G.D.P.)

In 2000, the world economy showedexceptional growth of more than 4%. USGross Domestic Product (G.D.P.) grewby over 5%, while the European Union regis-tered growth of 3.2% and Japan made amodest return to positive growth, withslightly less than 2%.

However, the escalation in oil prices, whichwere more than 30 dollars a barrel for much ofthe year, adversely affected companies' pro-duction costs as well as fuel prices. Combinedwith the weakness of the Euro, this situationled the European Central Bank to raise its inte-rest rates several times. Meanwhile, theAmerican Federal Reserve fought to preventstrong economic growth and a considerabledecrease in unemployment from pushing upwage costs and inflation.

In the United States, these more restrictivemonetary policies began to have a slowingeffect on growth at the end of the year.

In Europe, the growth in the euro zonebrought unemployment down significantly.Inflation, however, rose again slightly.

In Japan, domestic consumption remained

low in value terms and prices continued to

fall. At nearly 5%, unemployment reached

its highest level in 50 years. At the same

time, the Tokyo Stock Exchange lost almost

one third of its value in 2000. Lastly, the high

level of the yen did nothing to improve the

situation.

In the rest of Asia, the recovery which began

in 1999 was confirmed in 2000. All the coun-

tries hit by the financial crisis in 1997 re-

sumed steady growth apart from the

Philippines.

Except for Argentina, South American coun-

tries reported a return to growth in 2000,

with Brazilian and Chilean G.D.P. up by 4%

and 5.6% respectively. This continent

appears to have succeeded in partially over-

coming its great vulnerability to external

financial shocks. Its exports grew by 20% in

2000 and it appears to have returned to

"single digit" inflation.

Sources : OCDE, Consensus Forecast

A n n u a l r e p o r t 2 0 0 026

The global tire market for passenger carsand light trucks grew by 3%, while the truck tire market (vehicles over 6 tons)reported growth of 0.5%.

Three quarters of this market is a replacementmarket, with "original equipment" tire sales toautomobile manufacturers only accountingfor one quarter of the total market (20% in thecase of truck manufacturers).

Passenger Car and Light Truck tires representmore than 60% of the global tire market, withnet sales estimated at 42 billion US dollars andover 900 million tires sold each year. In 2000,very strong disparities between market seg-ments and geographic zones were observed.

In the replacement market, growth was drivenabove all by North America (+4.5%) and parti-cularly by the "SUV" (Sport Utility Vehicles)tire segment, which grew by nearly 20%.

In Asia and South America, growth remainedmoderate. The European market was slightlyup (1%), but there were sharp contrasts: thetop-of-the-line V/Z and SUV segments postedvery strong growth, but the market shrank inthe S/T speed index segments. The winter tiresegment, meanwhile, suffered from unusuallymild weather in Western Europe.

The overall trend in the original equipmentmarkets was positive, despite clear signs of aslowdown at the end of the year, particularlyin North America.

Total production of light vehicles in NorthAmerica (17.2 million units) was scarcelyhigher than in 1999, which represented anall-time record. In Europe, the originalequipment tire market recorded growth ofaround 2% (16.5 million light vehiclesproduced).

In Asia, the growth of the Japanese marketremained low, but the other Asian markets,grew very fast, particularly Thailand andKorea, although they have not yet returned to the levels that were reported before theAsian crash in 1998.

In South America, the upturn in the Brazilianoriginal equipment market was very strong, atover 20%, with 1.5 million vehicles produced.

Truck tires (vehicles over 6 tons) representslightly more than 25% of the global tiremarket, with sales estimated at 19 billion USdollars and more than 90 million tires soldevery year. In this market, the year 2000 alsoshowed sharp contrasts.

Overall, the replacement markets, whichaccount for over 80% of the truck tire marketin volume terms, were stable or even slightly

The Worldwide Tire Industry in 2000

The tire market

in millions of units

0

50

100

150

200

250

300

350

400

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

North AmericaEuropeJapan

Rest of AsiaRest of the worldSouth America

A n n u a l r e p o r t 2 0 0 0 27

Managing Partners’ report

up. In Europe, the market was stable overall.In North America, the new tire market wasdown by just under 1%, while the retreadmarket fell by 9%. In South America, therewas 4% growth. The Asian market, mean-while, saw moderate expansion, also boostedby an increase in radialization in the Chineseand Thai markets.

In the original equipment segment, vehicleproduction in Europe rose by 10% comparedto 1999, reflecting the very high level ofexports by European manufacturers whotook advantage of the weak euro. However, inNorth America, the original equipment tiremarket fell back sharply in the second half of the year. After very strong growth at thebeginning of the year, boosted by manufac-turers building up very large stocks of newtruck tires, this brutal readjustment led to a40% fall in the fourth quarter compared to the same period 1999. In South America, themarket bounced back strongly (+ 30%) fromits low level recorded the previous year.

Earthmover tires represent just under 6% of the global tire market, with sales estimatedat 4 billion US dollars. This market is still along way from being totally radialized: thegreater the sensitivity of users to cost per mileprice, the higher the level of radialization. Itexceeded over 75% for large earthmover tires.

After a difficult year in 1999, this market grewby approximately 2% in 2000.

The original equipment market, whichdecreased by 7 % last year, recovered stronglyin North America and more so in Europethanks to the weakness of the euro. Certainworldwide manufacturers even transferredpart of their production to the EuropeanUnion to take advantage of the favorableeuro-dollar exchange rate. In Asia, however,the original equipment market remaineddepressed throughout the year.

At the same time, the replacement market wasslightly up. The buoyancy of ore prices, parti-cularly copper, enabled the major miningcompanies to improve their results and thuscontinue their investment programs. Thepublic works sector also registered growth,particularly in Europe, because of the projectsthat had to be undertaken after the storms inDecember 1999.

Two-wheel tires (motorcycle, scooter, bicycle)account for almost 4.5% of the worldwide tiremarket, with sales estimated at 3 billion USdollars.

The motorcycle leisure market is mainlyconcentrated in Western Europe, NorthAmerica and Japan. Except in Japan, it recor-

The Car and Truck Industry in 2000

The automotive industry experienced another year of growth, with a 3.3% increase in sales worldwide to56 million new light vehicles. Sales in the United States reached the record level of 17.4 million light vehicles, up 2.7% from 1999. In Western Europe, passenger car sales were down 2% to 14.7 million. In2000, Asia continued the recovery which began in 1999.

Truck sales were contrasted: in the USA, after 3 years of strong growth, the second half of the year wasmarked by a spectacular fall in sales of nearly 20% for very heavy ("class 8") trucks. At the same time,European manufacturers' sales continued to grow, up 4% from the previous year. Their exports grew byeven more.

A n n u a l r e p o r t 2 0 0 028

ded strong growth due to the favorable econo-mic situation, and the extension of car drivinglicences in Europe to cover 125 cc motorcyclesand motocross in the United States.

The scooter market, meanwhile, is in a periodof flux. Although globally stable, it showssharp contrasts: sales of small (50 cc) scootersare declining and big scooters (400-500 cc)with large engines are attracting both formermotorcyclists and consumers who are interes-ted in a two-wheeled vehicle but do not wantto switch to a motorbike.

In 2000, the mountain-bike market achievedmaturity and stabilized. This market is nowbased on a core of loyal fans generally interes-ted in top-of-the-line products. These trendsare encountered all over the world. The"cyclosport" market, meanwhile, recordedstrong growth, particularly in the UnitedStates with the success of American cyclists in the Tour de France. This market is alsogrowing in Europe. Lastly, the "urban" marketis expanding, though mainly in NorthernEurope (Germany, the Netherlands, Denmark).

Agricultural tires (agricultural tractors, fores-try vehicles, etc.) represent slightly less than3% of the worldwide market, with estimatedsales of around 2 billion US dollars.

Tires for agricultural drive wheels (90% of thetotal market) registered a very slight increasein 2000 compared to the previous year. InWestern Europe, a market where radialsaccount for nearly 75%, sales of originalequipment tires rose by 3.8%, whereas thereplacement market remained stable. InNorth America, with 25% radialization, thegrowth in original equipment was more signi-ficant at 6.5%, but this came after a 30% dropin 1999. The replacement market, meanwhile,shrank by 3.8%. Lastly, in Central Europe andthe countries of the ex-USSR, although the

original equipment market declined, thereplacement market remained stable.

The worldwide market for aircraft tires repre-sents slightly more than 450 million dollars orapproximately 0.5% of the total tire market.Sales in 2000 rose by 2 to 3%, reflecting a rela-tively stable annual growth rate. The con-firmed success of Airbus sales in the originalequipment market helped to increaseMichelin’s market share of radial aircraft tireswhich still only represent 15% of the world-wide aircraft tire market.

A n n u a l r e p o r t 2 0 0 0 29


Passenger Car and Light Truck Tires

Unit sales of the Michelin Group's passen-ger car and light truck tires increased bynearly 4.5% compared to 1999, notably inthe replacement market, where growth wasalmost 8%.

Sales of this activity amounted to 7.7 billioneuros, representing 50% of Michelin's totalsales.

In the replacement markets, in Europe, theGroup implemented a multi-brand policywhich included the launch of new rangesunder the BFGoodrich brand, the renewalof the high-performance ranges and a price

repositioning policy in certain segments. Asa result, sales have increased by over 4% glo-bally in volume terms and more than 40% inthe segment involving very high-perfor-mance tires with V/Z speed indices.

In the North American replacement market,sales increased by over 10% for the secondconsecutive year. The additional sales gene-rated by the Firestone product recallamounted to more than 2 million tires, orone-third of the Group's growth.

The 4*4 Diamaris tire

New products

Marketing of many new tire ranges under the Michelin brand: New tires were marketed in the top-of-the-line segment (Pilot Primacy and Pilot Exalto), in the 4X4 SUV segment(4x4 Synchrone, 4x4 Diamaris) and in the winter segment (Maxi Ice, Agilis 41 Snow-Ice and Agilis 51 Snow-Ice).Kléber has also completed its range with Viaxer, and the summer Passenger Car offering under theBFGoodrich brand has also been renewed.

Launch of the SUV rangeCross Terrain SUV, the first product range specifically designed for SUVs, was launched. The Cross TerrainSUV has already been chosen by a large number of manufacturers as the original equipment for some ofthe most popular vehicles for consumers in this category, including the Ford Explorer, the Acura MDX andthe Yukon Denali (GM).

Colored tires from the BFGoodrich brandMichelin has introduced a new way of buying tires by allowing customers to design their own customizedScorcher T/A colored tires on the BFGoodrich brand's site. Customers can choose two different colorsfrom a palette of eight and then place them in various positions on the tread. The tires are thenmanufactured and delivered in 4 to 8 weeks.

Michelin and its Markets

A n n u a l r e p o r t 2 0 0 030

In South America, Michelin successfullycontinued its penetration of the Brazilianreplacement market, with 10% marketshare gained in 3 years.

In Asia, sales increased in the high added-value segments, contributing to the im-proved profitability of the product line.

In the original equipment market, theGroup's sales were voluntarily reduced andwere concentrated on the H/V/Z and 4X4segments.

In terms of investment, the product linecontinued its extensive program to adaptits European and American industrial facili-

ties to changingmarket require-

ments, such as the conversion of produc-tion to large-dimension and top-of-the-linetires. A project to double capacity was alsolaunched in Thailand at the Laem Chabangfactory, specialized in manufacture of tiresfor passenger cars and light trucks.

Michelin is pursuing its strategy of targetedgrowth which is based on the followingelements: a multi-brand approach linked to appropriate consumer segmentation,marketing focus on high-growth and high-profit segments (SUV, "performance" tires,winter tires), development of suitable part-nerships with the various players in thedistribution sector and a global approach tocover vehicle manufacturers who are ori-ginal equipment customers, and improve-ment of the supply chain and cost reduction.

Variation in passenger car and light truck tire sales (in volume)

Total as of 12/31/00 Total as of 12/31/99

Original equipment Replacement Total Original equipment Replacement Total

Total -1.75% +7.7% +4.4% -0.7% +4.9% +2.9%Europe +0.8% +4.2% +2.8% -4.3% -0.3% -2%

North America -9.4% +11.6% +5.5% +2.8% +10.3% +8%

Many awards in 2000

Michelin once again won the majority of the awards granted by the JD Power Institute which recognizesthe products which have been most highly appreciated by consumers with its JD Power CustomerSatisfaction Awards. Michelin came first in all the categories (original equipment, replacement, passengercars, light trucks and 4x4). Since the inclusion in 1989 of tires in the products competing for the awards,Michelin has won 26 of the 34 awards given.

Uniroyal was rated number 2 in JD Power's replacement tire rankings, just behind Michelin. The deploy-ment of its range of "self-sealant" tires led to several awards for its technology and the Winter NailGardand the Laredo HD/H with NailGard tires have been very much of a commercial success. The Tiger PawWinter NailGard, meanwhile, has introduced auto-sealant technology into the winter segment.

JD PowerAwards

A n n u a l r e p o r t 2 0 0 0 31


Truck Tires

Unit sales of Michelin Group truck tiresrose by 4.4% compared to 1999, particu-larly in the replacement market where theincrease was nearly 6%.

Sales of the truck activity were 4.1 billioneuros, representing 27% of Michelin'stotal sales.

In the replacement market in Europe,although Michelin brand sales remainedstable compared with the 1999 period,sales of other brands increased by 5.6%,notably in Central Europe. In NorthAmerica, the Group gained more than 1.5point of market share, with sales growingby 4.9% under the Michelin brand andmore than 20% under the BFGoodrichbrand. In South America, the rise was5.1%. In Asia, sales of Michelin radial tiresincreased by 8.7% in Japan and 19% in therest of this region. Business took off inChina, and strong growth and good per-formance were reported in Thailand,Korea and Taiwan. In Africa and theMiddle East, volumes were up by 10%,close to 1998 levels.

In retreading, sales in Europe grew by 8%,mainly due to the Remix brand (hotretreading). Sales of tread (cold retrea-ding) to franchised retreaders increasedby 65% in North America where (theGroup's estimated market share is nowover 8%) and by 200% in South America.

In the original equipment segment, saleswere up 1.7%. The Group gained 1.3 pointin terms of market share worldwide.

Several new innovative products providingsignificantly higher performance werelaunched in 2000: in North America, the X-One, marketed in partnership withFreightliner, can be used to replace dual tire sets on drive and load axles, thus savingspace and reducing weight. The XDA HT andthe XDE-MS have also been launched inNorth America to back up the Energy range.They offer 30% higher mileage. In Europe, theXDA 2 Energy was a genuine commercialsuccess: this "green" tire provides fuel savingsof 6 % compared to its predecessor, and itswear resistance means that its life span is 25%longer. The snow and ice ranges were renewedsimultaneously in Europe, North America andJapan with the XDW Ice-Grip.

Retreading of a truck tire

A n n u a l r e p o r t 2 0 0 032

Michelin continued to develop technicaland marketing partnerships with the lea-ding manufacturers in order to maintainthe strong position of its brand. The Groupalso continued developing its retreadingoffer to meet the growing demand formanagement of tire requirements "fromcradle to grave". Michelin is increasinglybecoming a supplier of integrated sys-tems. Lastly, as in its Passenger Car tireactivity, Michelin is implementing a multi-brand policy.

The truck product line will continue togrow profitably in Central Europe, SouthAmerica and Asia. In the latter continentin particular, annual growth is expectedover 10% for the Michelin brand. Thisactivity's industrial policy is based onoptimization of assets allocated to trucktires (notably through marginal invest-ment), systematic application of the bestpractices observed inside the Group andworldwide management of capabilities tomaximize flexibility.

Variation of truck tire sales (in volume)

Total as of 12/31/00 Total as of 12/31/99

Original equipment Replacement Total Original equipment Replacement Total

Total +1.7% +5.9% +4.4% +9.5% +4.3% +6.1%Europe +11.8% +1.7% +5.8% +2.1% +2.1% +2.1%

North America -15.8% +6% -3.7% +21.7% +10.6% +15.3%

A European Call Center

In April 2000, Michelin moved to strengthen its service offering for fleet operators by setting up a European call center as part of the Michelin Euro Assist program. Now, 7 days a week and 24 hours a day, wherever they may be in the 15 major European countries, customers can dial a single number ata single standard cost and receive assistance within 2 hours of their call.This service is an essential complement for customers who are increasingly looking to Michelin for themanagement of all their tire requirements.

XDR tire for giant

vehicle

A n n u a l r e p o r t 2 0 0 0 33


Other Activities

For the fifth consecutive year, sales of theGroup's earthmover tires, expressed in tons,showed strong growth. Only in Asia did theyshow a decrease. After a mediocre year in 1999,original equipment sales recovered signifi-cantly. The European original equipment mar-ket showed by far the strongest growth in 2000and Michelin’s large market share in Europe isone of the reasons for these good results.Replacement sales, meanwhile, grew at a ratelower than that of original equipment. TheGroup's market share is up everywhere, bybetween 1 and 2 points depending on the geo-graphic region.

Analysis of the sales by region showscontrasted results. Although sales in Asiadecreased compared to 1999, they grew eve-rywhere else: in Australasia, North Americabut above all very significantly in Africa, theMiddle East, Europe and in South America.

The Group continued its investment programin North America at the Lexington plantwhich was inaugurated in 1999. This plant isspecialized in the production of large andextra-large earthmover tires, particularly 63"tires whose sales grew once again. At thesame time, investment in research and deve-lopment was maintained at a high level forboth products and manufacturing processes.

Several new products were launched in 2000:63" tires which were marketed for the full yearfor the first time; the XDR which is well on theway to becoming the tire of reference in its mar-ket; the 65 series which was introduced for origi-

nal equipment in 2000 and is intended for arti-culated dumper trucks; and the XZSL for com-pact machines which was very well received.Michelin intends to pursue its efforts toconsolidate its positions in the mining sector,radialize the earthmover and handling mar-kets and develop its positions in originalequipment, particularly in the infrastructure,quarrying and handling sectors.

In 2000, in the two-wheel tire sector (motor-cycles, scooters, bicycles), motorcycle salesrose significantly. There were significant gainsin market share in both the original equip-ment and replacement markets. For thesecond year running, the Group was declaredthe best tire supplier by BMW Motorcycles.Michelin has now clearly regained its techno-logical leadership in motorcycle tires and all the new lines (Pilot and Commander) have performed well. In the bicycle tiresector, production has been concentrated onthe top-of-the-line products.

In 2000, sales of Michelin's agricultural tiresgrew at a much higher rate than the marketwith strong growth in sales of the Stomilbrand. In both cases, the Group has gainedmarket shares (36% in original equipmentand 40% in replacement) in a difficult marketcontext involving demand for highly sophisti-cated products, with considerable pressureon prices. In North America, although origi-nal equipment sales rose by 50% compared to1999, they nevertheless remained low. In thismarket, which is only 25% radialized, theGroup took advantage of both its top-of-the-line productsand the Michelin brand'sadvanced technology, aswell as the BFGoodrichbrand's cross-ply struc-ture. American farmersare accustomed to thissort of tire, even onhigh-power vehicles, it is therefore importantfor the Group to proposea multi-brand, multi-product offering.

MACH X Bibagricultural tire

A n n u a l r e p o r t 2 0 0 034

XDR tire for giant vehicle

Several new products were launched in2000: the ForeXBib, a radial tire for fores-try vehicles, and the MachXBib, a high-power tire for ploughing designed for theEuropean market.

Michelin intends to continue its growth in this sector while seeking to make itmore profitable and durable. To do so, it will continue optimizing its industrialfacilities for agricultural tires, reconfigu-ring the supply chain and improving its sales force dedicated to this activity by taking advantage of the multi-brandoffering. The Group will also supportinitiatives to make the most of technologyand innovation, while continuing itsefforts to improve all-weather mobility of agricultural vehicles and reduce soilcompaction, which are major areas ofconcern to farmers.

In the worldwide aircraft tire market, salesgrew at a much faster pace than the overallmarket. This performance is linked to thebuoyancy of the North American market,strong growth in Asia and healthy develop-ment of activity in Europe, mainly driven byan improvement in the cross-ply offering.Cross-ply tires still account for 85% of theworldwide aircraft tire market, with thechange to radial tires only taking placewhen new aircraft are put on the market(Airbus range, Boeing 777, etc.). In theseconditions, it is important for the Group tobe capable of providing its customers (andparticularly airlines) with a comprehensiveoffering which meets all their requirements.

Michelin has continued the modernizationof its American plant in Norwood, whichmanufactures conventional tires, and hassupported the development of the retrea-ding workshop in Thailand, where monthlyproduction has nearly tripled in the last year.Michelin has also significantly increased itssmaller aircraft tire production capacity.

In the antivibration activity, whenever it isin a position to provide its customers withgenuine added value in technological terms,Michelin seeks to establish technical and/orfinancial partnerships. In July 2000, Michelinannounced the creation of a Woco MichelinAVS joint venture, combining the anti-vibra-tion activities of Michelin and Woco. Thispartnership led to the creation of the fifth lar-gest European player in the sector, with 10%market share. The same type of approach ledto an agreement with the Japanese companyKinugawa (now Toyo AVS) which enabledthem to win a large slice of the vibration sys-tems work on Renault-Nissan's future plat-form B. In partnership with VallourecComposants Automobiles, Michelin is conti-nuing to develop a new generation of rearaxles called Evax.

In the wheel manufacturing sector, theGroup announced its intention to create acompany in France to set up ad hoc finan-cial partnerships to fulfill the requirementsof its customers who want worldwide sup-pliers.

Lastly, the Group continued to extend itspresence in the tire/wheel assembly sectorin Europe in response to the trend towardsoutsourcing of this activity by car and truckmanufacturers. At the end of 2000, Michelinwas number one in Europe in this sectorand its activity represented more than halfthe European market.

Michelin is also a majorplayer in distribution inEurope thanks to itsEuromaster net-work. In 1999,the Group acqui-red Tire Centers

LLC (TCI) in

New generationrear axleEVAX

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the United States. One of the goals of thisoperation was to strengthen its presencein the truck tire retreading market, sincethis is a key element in its strategy as aprovider of solutions for vehicle fleets.

Euromaster is present in both the light andheavy vehicle markets. In the heavy vehiclemarket, Euromaster is increasingly posi-tioning itself as a genuine supplier of tiresolutions, developing tailored offeringswhich may extend to the outsourcing ofcertain customers' tires. In the consumerlight vehicle market, the company's retail

offering (sales of batteriesand accessories) improvedquantitatively and qualita-tively in specialized outlets.

Euromaster is focusing itsefforts on three main areas:specialization in the truckand light vehicle markets;development and marketingof products and serviceswhich are innovative; anddevelopment on a Europeanscale of economical, high-performance informationsystems, which enable thecompany to take advantage

of the scale effects in all the relevant sectors(purchasing, central services, etc.).

The specialization of the outlets (light or heavyvehicles), which position the offer on rapidmaintenance, enables a higher rate of trafficrenewal than the tire offering on its own.

For Tire Centers LLC (TCI), 2000 was its firstfull financial year as part of the MichelinGroup. TCI is present in three activities: the sale of truck and earthmover tires andaccompanying services, wholesale distri-bution of Passenger Car and Light Truck tiresand truck tire retreading. Tire Centers worked

The Tire Distribution Market

The tire distribution market for consumer "light vehicles" has remained buoyant by rapidly evolvingtowards more complete service offerings, with the development of maintenance packages and a moreindividual approach to customers.

The light vehicle fleet market, meanwhile, is undergoing thorough change because of the concentrationof the major players and outsourcing of corporate fleets.

The demand for tires for heavy vehicles remains globally stable. The trend towards direct managementof large fleets by vehicle manufacturers has accelerated. At the same time, major fleets are increasinglylooking for a genuine mobility offering with guaranteed conditions.

Euromaster new center

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to optimize its positioning in order to developprofitable and durable growth in 2001 andbeyond. TCI continues to seek acquisitionswhich will extend its coverage in terms ofservices to fleets and improve its profitability.

TCI is the largest franchisee of MRTI(Michelin Retread Technologies Inc.) inNorth America. It owns 13 truck tire retrea-ding plants in 11 states. The company alsocompleted the implementation of BibTread,a high-performance system for managingretreading workshops. At the same time, TCIsuccessfully launched a distribution pro-gram called T3 (“T” for TCI and “3” for thecommitments to choice, added value andservice). This program, which is intended forassociated dealers, comprises a portfolio ofbranded tires at attractive prices, high-quality logistical support, national warrantycoverage, display units, promotional mate-rial, specific signage, advertising back-up,training, customer credit, insurance and aninternet site. More than 130 dealers signedup for this program in 2000 and TCI hopes toattract a hundred more in 2001.

With regard to Tourism services, althoughthe maps and guides activity represents lessthan 1% of Michelin's sales, it is an essential

vector of the Group's image. In 2000, over 120 new references were added to the cata-logue. The number of guides sold worldwide is on the rise.

The year 2000 marked the centennial of the"Michelin Guide", the Tourism Services’ firstproduct created in 1900. There was also thelaunch in France of the revamped GreenGuide collection (24 regional guides) and thecreation of Michelin Travel.com, a subsidiarydevoted to the development of on-line pro-ducts, with the aim of accelerating theGroup's offering in this field.

The Centennial of both the TravelPublications and of the Michelin Guideproved to be an exceptional year in termsof increase in sales and of the success ofthe new products launched on a highlycompetitive market.

In the components activity, the Group'snatural rubber activity developed satisfac-torily in Brazil with the opening of approxi-mately a thousand extra hectares on the E. Michelin plantation. Nearly 85% of thisplantation is now productive. In total, over100,000 new trees were planted on theGroup's plantations in 2000, thus contri-

A n n u a l r e p o r t 2 0 0 0 37


The Centennial of the Michelin Guide

On the occasion of the centennial of its flagship product, the Guide Rouge France, Michelin Editions desVoyages introduced several new features. Descriptive texts of two or threelines accompany each of the 10,000 establishments selected in the MichelinGuide. This new feature is designed to help readers, by adding a friendliertouch to the information given by the Guide’s famous symbols. Readers are

given a better idea of the atmosphere or the decor of theestablishment and therefore can make a more informed choice.The 110 establishments which appeared in the first edition of theGuide in 1900, and which were still included in the 2000 edition,were specially designated by a specific pictogram. The 2000edition included a facsimile of the first Michelin Guide from 1900.This guide was particularly well received by readers. More than850,000 copies of the Red Guide were printed in 2000. Its salesgrew by 58% and its market share was up by 10 points.

A n n u a l r e p o r t 2 0 0 038

buting to the regeneration of the "carbonsinks" represented by tropical forests, as well as to the development of renewableproducts.

In the field of synthetic rubbers, the twoplants at Bassens (France) and Louisville(United States) both achieved ISO 14001certifications, rewarding the performance ofthe Group's petrochemical plants in termsof protection of the environment. Also, anew production line with a capacity of40,000 tons/year was started up at Bassens,significantly increasing the Group's capabi-lity for producing high-tech elastomers.

In the textile reinforcements sector, workwas begun on an extension of the twistingshop at Olsztyn in Poland. In 2001, this willenable the Group to triple this workshop'sproduction compared to 1997 levels.

In August 1999, a fire destroyed the mixingworkshop at the Cuneo plant in Italy. 85% of its initial capacity was restored in2000 and this workshop will be back to fullcapacity in 2001. On other respects, theconstruction of the new mixing unit inSouth Carolina, started in 1999, is goingaccording to plan and should begin produc-tion in mid-2001. Although spectacular, thefire in January 2000 in one of the storageareas at the Cataroux plant in France did nothave any consequences on the environmentor on the Group's production capacity.

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Compagnie Financière Michelin

In 2000, Compagnie Financière Michelin continued to handle management of its holdingsin the various company affiliates, whose value rose by 378.7 million Swiss francs.

This increase was the result of the investments made: 258.6 million Swiss francs in Asia, 5.9million in South America, 6.3 million in Africa and 107.9 million in Europe.

Michelin's Economic and Financial Performance

In 2000, Michelin recorded 5.6% salesgrowth in volume terms, thus surpassingits initial target of 4%.SALESSales increase by 11.9%. Almost all of theGroup's activities contributed to thisincrease.

The weakness of the euro against the majorworld currencies and particularly againstthe dollar explains a favorable 6.9% parityeffect. The unfavorable 1.1% mix/priceeffect can mainly be attributed to the weak-ness of the winter tire markets in Europe andJapan in the second half of the year. Lastly,financial consolidation of the accounts thisyear includes consolidation over 12 monthsinstead of 8 of the Tire Centers LLC (TCI)company, and the removal from the Groupaccounts of Michelin AVS, as a result of itscontribution to the joint venture WocoMichelin AVS and Wolber.

OPERATING INCOMEOperating income amounted to 1162.5million euros compared to 1206.7 millioneuros pro forma for 1999. Given theincrease in sales, this means that theoperating margin decreased from 8.8%(pro forma 1999) to 7.6%.

The decrease in the operating margin hadfour main causes:

• The very high increase in the price of rawmaterials. The average purchase price ofthe raw materials increased by 8% fromone year to the next. This is largely due tothe rise in the price of oil and derived pro-ducts, representing 40% of raw materialscosts for the Group. Furthermore, after therise in the first half of 2000, natural rubberprices were on average 10% higher than in1999.

• Greater control by the Group of its inven-tories of finished products: on a compara-ble basis, inventories of finished productsincreased by 30.0 million euros comparedto 166.0 million euros in 1999. This trend,which is highly satisfactory from otherpoints of view, penalized the 2000 results,since the significant increase in inventoryin 1999 enabled greater absorption of fixedcosts.

• The euro's fall against the major worldcurrencies. This had a favorable effect onoperating income, but this effect was pro-portionally lower compared to the Group'ssales. It resulted therefore in an unfavo-rable effect on the operating margin.

Variation of net sales (millions of euros)2000 Q1 Q2 Q3 Q4

(00/99) (Q1 00/ (Q2 00/ (Q3 00/ (Q4 00/ Q1 99) Q2 99) Q3 99) Q4 99)

% % % % %Total variation 1,633 11.9 464 14.8 425 12.6 551 16.4 193 5

of which:

Parities 953 6.9 193 6.2 190 5.7 279 8.3 291 7.4

Volumes 818 5.6 364 11 150 4.2 178 4.9 126 3.0

Mix/price -164 -1.1 -144 -3.9 17 0.5 16 0.4 -53 -1.3

Scope 26 0.2 51 1.4 68 1.8 78 2 -171 -4.1

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The progress made by Michelin with strong,selective growth, and the start of implemen-tation of the productivity improvement plan inEurope helped to compensate for a significantportion of the negative effects discussed above.

However, these negative effects, (and parti-cularly the rise in raw materials prices), couldonly be totally absorbed by raising sellingprices. With the markets as they were, this was only possible in the second half of theyear, so the 2000 results only benefited veryslightly from them.

Regarding the operating income by sector ofactivity, the Passenger Car and Light Truck tireactivity, with 584 million euros, progressed by6.2% compared to 1999. However, the opera-ting margin of 7.6%, decreased by 0.8%. Therise in the prices of raw materials could only bepartially offset by the growth in sales, theimprovement in productivity gains and the tirefirst price increases.

The operating income of the truck tire activityamounted to 558 million euros, or 48% of theGroup's operating income. Down in absolutevalue terms compared to the previous year, it also showed a decrease in terms of themargin, although this remains one of the

highest levels in the industry. The causes arethe same as for the decrease in the margin ofthe passenger car tire activity, which wasaggravated by the downturn in the NorthAmerican truck original equipment market inthe second half of the year. Furthermore, theprice increases intended to compensate forthe increase in raw materials prices only tookeffect at the end of the financial year.

"Other activities" include the production andsales activities which represent individuallyless than 10% of consolidated sales (earth-mover tires, agricultural tires, two-wheel tires,aircraft tires, suspension systems which inclu-de wheel manufacture and tire/wheel assem-bly activities and Editions du voyage) and thedistribution activities (Euromaster in Europeand TCI in North America).

The results expected from these differentareas are highly variable, depending on thecapital invested. This is why the distributionactivities have by nature a lower operatingmargin than the activities using productionand research facilities. The poor sales ofwinter tires, linked to the light amount ofsnow in Europe, were a major factor behindthe reduction in the operating margin from 2% to 0.4%.

Michelin Financial Accounts

Michelin's accounts are presented in accordance with the new French regulations laid down byRèglement 99/02 du Comité de Réglementation Comptable. Since the change of frame of reference hasan effect on the income statement and the balance sheet, pro forma accounts have been drawn up forthe 1999 financial year to make the figures comparable.

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Operating income by sector of activity (millions of euros)

Net sales Operating Operatingincome margin

2000 2000/1999 2000 2000 1999In % of total In % of total

Car and Light Trucks 7,686 49.9 +17.0% 584 50.3 7.6% 8.4%

Trucks 4,093 26.6 +13.6% 558 48.0 13.6% 15.7%

Other activities 4,807 31.2 +7.7% 20 1.7 0.4% 2.0%

Inter-sector eliminations (1,190) (7.7) - - - - -

Group 15,396 100 +11.9% 1,162 100 7.6% 8.8%

Comparison of the results for the 1999 and 2000 financial years (in millions of euros) 2000

2000 % 1999 %

Net sales 15,396 100 13,763 100

Cost of sales 11,207 72.7 9,844 71.5

Gross profit 4,189 27.3 3,919 28.5

Selling, general and administrative expenses 3,027 19.7 2,712 19.7

Total operating expenses 14,234 92.4 12,556 91.2

Operating income 1,162 7.6 1,207 8.8

Financial expenses and revenues (314) (238)

Income from operations 848 969

Exceptional expenses and revenues (76) (353)

Income tax (291) (214)

Net income of fully consolidated companies 481 402

Share of income of companies consolidated by the equity method (1) 1

Allowance for depreciation of goodwill (42) (78)

Net income 438 325

of which attributable to Michelin Group 399 283

Whit respect to the statement of income by function, the operating charges areallocated between "Cost of sales" and"Commercial, administrative and generalcosts". In the presentation chosen byMichelin, the "cost of sales" entry includeslogistical costs and research costs. Thisinformation should enable better compa-rison of the Group's accounts with those ofits main international competitors.

At 72.8% of sales, "cost of sales" rose fasterthan sales, mainly due to the significant risein prices of raw materials which was never-theless partially offset by the productivitygains achieved by the Group. The grossmargin therefore amounted to 27.2%,slightly down from 1999. The "commercial,administrative and general costs" remainedstable (19.7%) as a percentage of sales. Itshould be underlined that they include allthe costs of the Group's activities.

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NET INCOMEAfter taking into account financial income,extraordinary expenses and revenue, depre-ciation of goodwill and taxes, net incomeamounted to 438.4 million euros comparedto 324.8 million euros in 1999 (pro forma).Net financial charges rose by 32.3% compa-red to 1999. This was due to the rise in interestrates and the increase in the Group's debt.Income tax amounted to 290.4 million euros,representing 39.9% of the net income before taxes.

EXCEPTIONAL EXPENSESThese expenses include the provisions forrestructuring of the Group in Mexico and thePhilippines.

INVESTMENTSThe Group's non-fi

Documents

Annual ReportAnnual Report - KU LeuvenMichelin manufactures and sells tires for almost every kind of vehicle: aircraft, passenger cars, bicycles, earthmovers and agricultural vehicles,