Pirelli agrees €222m Russia production deal

Pirelli, the Italian premium tyremaker, and its Russian joint venture partner have agreed a production deal worth €222m, giving them a 20 per cent share of the Russian market for premium winter tyres.

The deal, which sees Pirelli and its partner Russian Technologies buying a factory, is part of Pirelli’s plans to move production capabilities to fast-growing economies. It has recently moved some production to China.
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The joint venture involves an investment of €200m from 2012 to 2014 aimed at increasing plant capacity.

Sales are forecast to grow from €300m in 2012 to more than €500m in 2014. At present, Pirelli has only a commercial agreement in Russia with annual sales of about €45m.

Pirelli, the world’s fifth-largest tyremaker by sales, said its focus at the Kirov plant in Russia would be higher-margin winter tyres, in particular the premium tyres with studs, or “studdable tyres” that are popular there and across the former Soviet Union.

“Once the start-up phase is over, profitability is expected to be double-digit from 2013,” Pirelli said.
The agreement signed on Monday with Sibur Holding sees the transfer to Pirelli and Russian Technologies of the Kirov plant with a production capacity of 7m tyres. This capacity could be increased to 11m by 2014.

The transfer of these assets would be equal to a total cost of €222m divided equally between the partners with a payment of €55m in 2011 and €167m in 2012, Pirelli said.

Pirelli also has the option to increase its stake in the joint venture to 75 per cent from 50 per cent over the next three years via a put and call option.