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Michelin Reports 36% Drop in 2006 Net Profit

French tyre maker Michelin said Thursday that net profit for 2006 fell 36% from a year earlier, squeezed by restructuring charges and high raw material costs.

Michelin, Europe's largest tyre company by sales, reported that net income fell to 572 million euros ($748 million) from 889 million euros ($1.16 billion) in 2005 despite price increases to customers.

The 2006 figure was well below the consensus estimate of 645 million euros ($844 million).

Operating margin -- a key financial indicator for Michelin -- contracted to 8.2% from 8.8%, beating the company's own projection of a margin of about 8%.

Michelin also said it expects "tangible" increases in sales and operating margin in 2007, and aims to achieve a 10% operating margin by 2010.

Its bottom line was hit by nonrecurring charges of 220 million euros ($288 million), chiefly reflecting restructuring costs related to the closure of plants in Canada and Nigeria.

This was partly offset by a gain of 100 million euros ($131 million) from the sale of Michelin's shareholding of about 1% in French car maker PSA Peugeot-Citroen.

Operating profit before nonrecurring items fell by 2.2% to 1.34 billion euros ($1.75 billion) from 1.37 billion euros ($1.79 billion).

Rising external costs shaved 824 million euros ($1.08 billion) from Michelin's operating profit last year, including 740 million euros ($968 million) due to a rise in raw material prices. Michelin had predicted a raw material price impact of 800 million euros ($1.05 billion) last fall.

Revenue rose by 5.1% to 16.38 billion euros ($21.43 billion) from 15.59 billion euros ($20.39 billion) thanks to higher selling prices and increased sales of higher-value tyres.

Cost-cutting measures also helped to limit the negative impact of higher costs, Michelin said.

Speaking to reporters Thursday, chief financial officer Jean-Dominique Senard said Michelin wants to reduce its costs by 1.5 billion euros ($1.96 billion) to 1.7 billion euros ($2.22 billion) through 2012 as a way to strengthen its competitive position and improve profitability.

The company plans to pay a dividend of 1.45 euros ($1.90) per share, up 7.4% from last year's payout.

In early trading on the Paris stock exchange Thursday, shares of Michelin were up 3.5% to 77.60 euros ($101.52).