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Pirelli reaps the rewards of investment in Russia

In the current economic climate, it is encouraging to see that Pirelli, a major Italian tyre manufacturer, is set to continue investing in Russia. This shows that even in difficult market conditions there are opportunities for investment.

Pirelli have a long history of expansion and foreign investment. Founded in Milan in 1872, the Italian firm have since been involved with everything from providing the tyres for the winner of the first French Grand Prix, to laying undersea cables between Long Island and Connecticut. In more recent times, they have continued to expand and diversify; the acquisition of Siemens energy sector companies in nine different countries in 1998 is a prime example.

Like any successful business, Pirelli have not been afraid to invest when they feel that the time is right. To this end, they have begun to invest heavily in Russia. In 2008, Rostec, a producer, developer and supplier of hi-tech industrial products, agreed to partner with Pirelli to establish tyre manufacturing in Russia. Since then, in 2010, Pirelli, Russian Technologies and Sibur Holding signed a Memorandum of Understanding (MoU) in Moscow to develop joint activities in Russia in the tyre and steelcord sectors, as well as to supply and produce technologically advanced synthetic rubber derivatives. At the end of October 2015, Pirelli also announced a MoU with Rosneft, a Russian oil and gas company, and Synthos, a Polish manufacturer of chemical raw materials. This latest development marks the next step towards the three multinational corporations together developing a synthetic rubber plant in Nakhodka, an important port for sea-trade in the Primorsky Krai region of East Russia.

The investments appear to be paying off. In a recent interview, Marco Tronchetti Provera, the CEO of Pirelli, stated that their facilities in Russia are currently working to full capacity, and there is a need for further expansion. Pirelli have also had to recognise the difficulties that they and many other companies face due to the current market conditions, and have worked to counteract them by successfully agreeing a comprehensive export credit insurance policy with the Russian Agency for Export Credit and Investment Insurance (EXIAR). As part of the agreement, shipments of Russian-made tyres to countries in the Commonwealth of Independent States will be insured.

Of course, Pirelli’s history of financial success has led to it attracting foreign investment. Pirelli, the world’s fifth-largest tire manufacturer, was bought this year by China National Chemical Corp (ChemChina), as part of a €7.3 billion deal. Nevertheless, Pirelli continue to go from strength to strength, having secured the contract to supply all Formula 1 tyres until 2019 and having reached profit margins for 2014 of €332 million.

With the Russian Grand Prix in its second year, the stage is set for Pirelli to capitalise further on its investments in Russia; in the words of Pirelli’s CEO Tronchetti Provera “we have already invested 450 million euros ($511 million) in the Russian economy and intend to continue”.

 

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