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Pirelli to ‘Change Pace’ in Russia

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At the Nov. 6 presentation of its 2013-2017 Industrial Plan in London, Pirelli & C. SpA chairman and chief executive officer Marco Tronchetti Provera spoke of the need for a “change of pace” in its activities in Russia, noting that “we’re running late with our start-up plan.” The Russian market situation, and what Pirelli intends to do there, was then explained in greater detail by Gregorio Borgo, Pirelli’s general manager operations.

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Borgo said the Russian market has “moved in a different direction from what we expected” and Pirelli’s programme there was not sufficiently deployed to compensate for the shortfall that occurred. “The Russian economy has slowed down and 2013 GDP growth is just 1.8% compared to an initial estimate of 3.4%,” Borgo elaborated. “So basically, the goal was half of what we estimated. This has impacted the automotive business. In 2013, new car registrations decreased by approximately 5%. The tire business is expected to decrease by approximately 3.5%, but with a very unexpected mix.”

While the overall tire market has only decreased around 3.5%, Borgo related that the ‘A’ brand segment in Russia – a market mainly occupied by premium European brands – has dropped some 12.5% in favor of the cheaper ‘B’ brands. Compounding this for Pirelli was a slower than anticipated rollout of its Russian-market ranges. “Pirelli’s performance, even if partially justified by the deteriorated economic context, was not in line with our expectation,” the general manager operations stated. “We launched three new winter tire lines, two of them are studded and specific to the Russian market. But despite great effort by the factory and the R&D [department], they (the ranges) are still to be completed.”

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As part of the aforementioned change of pace in Russia, Pirelli will now complete the 60-size studded product line by mid-2014 and introduce a new ‘Nordic friction’ product dedicated to the Russian and Nordic markets in 2015, and commence a number of homologations with international vehicle manufacturers; Borgo shared that Pirelli already supplies Renault/Dacia in Russia and was “close to starting” with Daimler, while Volkswagen and Ford supply should start next year and supply to Nissan in 2015. Pirelli also intends to accelerate its multi-channel coverage and aims to have more than 700 point of sale stores within 2014 and better coverage in car dealerships.

“This change of pace in the plan must quickly bring Russia back to a level of profitability,” Borgo added. “We expect a positive EBIT of around mid-single digit from 2014 and double-digit from 2016.” Russian market revenue is expected to grow from €240 million this year (down from €244 million in 2012) to €280 million next year and €370 million in 2016. (Tyres & Accessories)

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