Tigar Benefits From Michelin’s Commitment

Tigar, based in the Serbian town of Pirot, has a domestic market share of about 52 per cent. This strong foothold on the local market is at least partly due to technological support and know-how supplied by Michelin. At the same time the privately owned company sells a significant proportion of its annual production (3.2 million tyres) abroad. In particular France and the UK are important export markets for Tigar. Currently there are certain restructuring measures taking place in the company, which could also affect the future of the Tigar brand in the Michelin Corporation as well as the future of the factory itself.

Prospera Securities, one of Serbia’s leading investment companies, has suggested that the complex holding structure the company is part of is one of the issues that has to be addressed in the near future in order to help Tigar becoming a long-term success. Prospera thus recommends restructuring less efficient parts of the Tigar group. This could probably only happen with committed investors from abroad.

Another alternative would be to simply sell these parts relieving the remaining parts of the group from disproportional financial burdens.

Today the Tigar group is run by the holding company “Tigar a.d.” in Pirot. Tigar a.d. holds majority stakes in all of its subsidiaries like Tigar Rubber Technical Goods, Tigar Rubber Footwear or Tigar Trade. 35 per cent of Tigar holding still belongs to the state of Serbia. The only exception to the ownership structure is the tyre manufacturer “Tigar MH” which is also based in Pirot. Tigar MH is one of four manufacturing companies under the roof of the Tigar group.

Only this year Michelin, together with the International Finance Corporation (IFC) – a World Bank group company which mainly promotes small private companies in less developed countries – has taken over the majority of Tigar MH, the tyre manufacturing arm of the Tigar holding. The takeover was announced last year; today Michelin and the IFC own 50.6 per cent of Tigar MH which has been operated since January 2003 as a joint venture between the Tigar holding and its Western partners. Following an agreement between these partners, Michelin is very likely to directly take over another 19 per cent of Tigar MH in 2007, writes Prospera Securities in its report on the Tigar group.

After that Tigar a.d. will only hold 30 per cent of the tyre manufacturer, its former subsidiary Tigar MH.
At the same time the money from selling more Tigar MH shares to Michelin could be used for the above mentioned restructuring measures or for other new and promising projects. In Serbia for example there is the “Tigar Free Zone” which is named after the group which will retain all its rights in it even in the future.

More than 130 companies are based in this special trade zone. Tigar MH owns 70 per cent of the Tigar Free Zone. Another new project is the construction of a scrap tyre recycling facility by Tigar MH in which £3.2 million will be invested. The holding company could get involved in this or other projects, recommends Prospera Securities.

Last year Tigar a.d. increased its turnover up to £94.1 million. Tyre production alone was responsible for about 80 per cent (£74.4 million) of this turnover. Compared to 2004, turnover of the group increased by 12 per cent. Unfortunately there are no figures available on the most recent development of the Tigar tyre arm, but it can be expected that Tigar MH has experienced an above-average development in terms of sales and turnover within the group as it is generally seen as the outperformer of the group.

A major part of the group’s turnover was generated on export markets: 67.6 per cent or £63.6 million. The holding has even been given the “Best Exporter in Serbia” award recently and was even able to increase its overall exports more than its turnover. Most of the Tigar group’s exports are sold on EU markets where Serbia would like to join as a member. However, it is unlikely the country will join the European Union anytime soon.

The company within the group which has the most intensive export business is tyre manufacturer Tigar MH. 78 per cent of Tigar’s tyre production – 2.5 million out of an annual production of 3.2 million units – go abroad. It is quite obvious that Tigar MH’s export business is strongly facilitated by Michelin’s help as strategic investor. Since the tyre manufacturer in the Tigar group began operating as a joint venture in 2003, the partners have invested up to £30.5 million into the modernisation of the production facility in Pirot, following a 5-year-plan.

Because Tigar MH is cooperating with Michelin and the IFC it, has learnt, (writes Prospera Securities) to keep costs on a tight leash. Since then, costs per tyre have gone down continuously. Furthermore, the tyre manufacturer has implemented a system improving energy efficiency in tyre production. Developed with assistance from the University of Nis, the programme has generated cost savings of up to £950,000 in the first year already.

The quantity of tyres coming to the UK or other Western European markets is not known, however, the volumes must be considerable because Michelin sometimes uses the Tigar brand as a house brand in the Euromaster chain. Tigar also operates a dense and exclusive distribution network in Serbia and Montenegro with 80 outlets, three regional distribution offices as well as two central warehouses.