FRANCE – Tyre maker Michelin says it is “sound” despite announcing a 2.9 billion euro deficit in its pension and other post-retirement benefit plans.

It says it is meeting the local minimum funding requirements and that cash flows largely cover payouts.

In its 2002 earnings report, Michelin gives the breakdown of plan assets and their returns according to country. The plan assets for the group for 2002 total 3.8 billion euros. Returns for the year were negative at minus 7% - the expected return for the group’s assets was +8%.

The company commented: “Despite the sharp fall in stock market prices over the last three years, the 10-year average annual return on plan assets has exceeded average returns determined at the start of each year, and used to determine periodic pension cost.”

Contributions last year came to 346.9 million euros – a result of two exceptional contributions in the US and in Spain following a change in Spanish funding regulations.

Michelin is confident that cash flows “largely covers the cash-out related to the deferred non externalised liabilities”.

“The group is therefore sound,” says Michelin.

Despite Michelin’s claims, however, Michelin still remains on negative credit watch by Standard and Poor’s as a result of its unfunded post-retirement liabilities. S&P will complete its review over the next two months to decide whether to downgrade Michelin by one notch to BBB.

Michelin was one of a group of European companies placed on negative credit watch by the ratings agency recently.

Dresdner Kleinwort Wasserstein believes that the downgrade may occur, although it says in note: “A change in outlook to negative may be more appropriate.”

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