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Sibur to Strengthen Strategic Direction of its Tyre Holding

(Clacton, U.K./Tyres & Accessories) Sibur-Russian Tires’ (SRT) current restructuring programme brings with it a lot challenges.

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Hundreds of millions have already been invested, meaning some of the company’s figures are in the red.

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Talking to Tyres & Accessories, SRT’s new director for strategy and business development explains what the Russian market leader is aiming for and where the company is looking for assistance. There is even the possibility that the company could be the subject of a merger talks.

According to Igor Karavajev, director for strategy and business development at Sibur-Russian Tires, increasing the tyre manufacturer’s competitiveness is of utmost importance at the moment. Although SRT still supplies 39.6% (SRT figures) of the Russian tyre market with its products, competitors Nizhnekamskshina (30%) and Amtel-Vredestein (22.6%) are not far behind.

With Western products becoming increasingly important to the Russian tyre market, Sibur (parent company of SRT) has been strongly investing in the production facilities of the newly spun-off Sibur-Russian Tires. In total $350 million has been invested of which $200 million alone was allotted to the building of a new truck tyre factory in Yaroslavl where SRT already operates a facility, says Karavajev.

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SRT has put particular emphasis on the production of truck tyres, following recommendations made by consultant Roland Berger two years ago. By 2008 the factory is expected to capable of producing about a million high quality commercial tyres annually, laying the basis for SRT’s new product strategy.

In Soviet times, Sibur was a traditional manufacturer of commercial tyres. It still has some very important OE customers like the Russian military, for example. And this is obviously a working relationship that SRT would like to hold onto. Today, producing those tyres is a “strategic choice.” At the same time the company is trying to shake off its image of being a budget tyre manufacturer.

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As a result, popular but unprofitable product lines have been taken off the market. “We cannot earn enough money to produce bad quality,” says the director describing SRT’s dilemma. Karavajev’s view is nobody wins when companies cut corners just to keep the price down. Besides, low cost strategies have to be supported by better quality programmes anyway, so why not focus on these?

For example, between 2003 and 2005 SRT had to reduce its annual output by 25.1% down to 13.4 million pieces. However, Karavajev has to admit that in Russia “demand is more sensitive to price than to quality; in Western Europe the trend’s rather the opposite way around.”

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The vast majority of capital expenditure is aimed at the production of tyres, which can be sold in the B segment of the market thus allowing for good margins for the manufacturer. The same product philosophy can be found with passenger car tyres where SRT is currently trying to establish its new Cordiant brand.

In the future Sibur-Russian Tires will seek to establish its own branded products in every segment of the Russian tyre market, even in the low-budget C segment of the market although this commitment – not investment – is down to the importance of these tyres on the Russian market in terms of quantity and not towards their profitability.

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According to a market study conducted by Nokian, the C segment of the Russian passenger car tyre market will still have a share of about 35% to 45%. However, truly un-branded tyres will cease to be sold, except to bodies like the military.

So, bearing in mind the costs involved in the strategic realignment of the company, an approach from a potential investor would not be unwelcome. Right now SRT only works in co-operation with Matador in Omsk where the manufacturers produce passenger car tyres together under the banner of a 50:50 joint venture.

“We are very pleased with our partners there,” Karavajev says. Nevertheless a potential co-investor for the new truck tyre facility in Yaroslavl, where construction work is just about to begin, would be welcomed.

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Product aims aside, the director sees “increasing the attractiveness of the business” to its investors as another strategic aim for the tyre manufacturer. At the moment there are good opportunities for potential investors, says Karavajev: “We are open to any kind of co-operation.” This even includes an acquisition by another market player, which “could be an aim” of SRT’s company strategy.

The director for strategy and business development won’t give any more details as to whether or not SRT has entered into negotiations with any companies as yet, but the company is certainly willing to consider potential candidates for whatever kind of future cooperation.

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