Another Step Forward: Trelleborg explains rationale behind recent acquisitions

Recent months have seen a flurry of expansion and acquisition activity at Trelleborg Wheel Systems. First the company enhanced its position in the European solid tyre market through the acquisition of Watts’ industrial tyre business towards the end of 2010 (it was officially finalised during February 2011). Then came the acquisition of the pneumatic tyre production lines at the former Hebei Starbright plant, which the company bought from Maine Tire in the US. Most recently the company launched its TMBlue eco-concept range at the SIMA show in Paris at the end of February. Tyres & Accessories was on hand to hear further details about the thinking behind the recent developments and noticed a significant nod in the direction of further expansion in the emerging markets.

The Hebei Starbright factory acquisition is the clearest sign yet of Trelleborg’s continued expansion drive. The word is that the other fast growing and increasingly large competitor that would have been interested in the purchase (Alliance Tire) didn’t need the extra capacity a potential purchase of the Chinese operation would have brought. This and some clever negotiation from Trelleborg is said to have left the way clear for the Italian-based tyre and wheel unit of the Swedish-based rubber and related products business to buy the factory.

So what does the acquisition bring? In short, lots of modern extra capacity in a location that is strategically valuable to an agro-industrial tyre company looking to increase its global reach. Not only does the new plant (in Xingtai, eastern China) offer access to the fast-growing Chinese OE market, but also to a domestic market where the fact that 60 per cent of farm work is still done by hand demonstrates there is enormous potentially in domestic replacement market too.

New Maximo brand

In addition to these strategic advantages, Trelleborg’s new Hebei, China plant provides the opportunity to produce a new-second line brand, which the firm calls “Maximo.” The factory’s industrialization plan reportedly includes both the production of cross-ply and radial tyres, according to local market demand, including a new agro industrial radial line and the Maximo range. In addition the company reports that it is investing in the process re-engineering of the existing manufacturing facilities along with the extensive Trelleborg marketing program for Asia has already started.

“The project represents an important step forward for our company in creating added value for our customers and in reinforcing our brand leading position as a specialist in agricultural solutions,” said Paolo Pompei, president of Agricultural and Forestry tyres. “There is huge potential in Asia for the development of agricultural mechanization. For example, today only 41 per cent of Chinese farm work is mechanized and there is a total 122 million hectares of arable land compared to the whole of Western Europe at 75 million hectares. The acquisition of the Xingtai
facility gives us a tremendous opportunity to contribute with our specialized agriculture expertise to grow the market mechanization level and raise the productivity of local farms significantly.”

The new second line Maximo radial line range is initially being pitched at tractors between 40 and 180 hp. According to Pompei, the product is expected to “strengthen Trelleborg’s market position in mature markets like Europe by giving our customers access to a wider portfolio of high quality products at different pricing points.”

Emerging markets key to expansion

Despite successfully purchasing Hebei only recently there are signs that this transaction could have been larger and that further acquisitions in or around Russia, South America or North America may be on their way. Talking to Tyres & Accessories, Maurizio Vischi, president of Trelleborg Wheel Systems, the business area responsible for producing industrial and agricultural tyres, said that company would have bough the solid tyre production capacity that is on the same site as its new Hebei agro-industrial pneumatic capacity too if owners Maine Tire hadn’t declined. Furthermore Vischi suggested that Trelleborg would be interested in renegotiating on this subject should the owners of the Maine Tire (the Ganz family) wish to reconsider.

Looking forward, emerging markets such as the BRIC countries are expected to drive growth for Trelleborg Wheel Systems over the next few years. In the Trelleborg Group’s 2010 annual report, Maurizio Vischi said “emerging markets as Brazil, China and Russia have begun to show more interest in high-tech products and products that generate value. This provides significant expansion potential through greater presence in these markets.” Vischi admitted that that Trelleborg expects only “restricted” growth in Western Europe and North America, where the business area already counts as “one of the principal players.”

Last year the Trelleborg Wheel Systems business generated net sales of SEK 2.99 billion (£293 million), 11 per cent of the company’s group total and approximately the same as net sales in 2009. Trelleborg notes, however, that the business unit’s organic sales rose seven per cent. Demand for industrial tyres improved gradually during the year while demand for agricultural tyres was weaker than in 2009, the company adds. Operating profit amounted to SEK 263 million (£25.8 million) in 2010, 10 per cent of the group total and a seven per cent year-on-year decrease. Trelleborg admits that weaker demand for agricultural tyres in the first part of the year impacted operating profit, however it claims that, excluding exchange rate effects, operating profit was actually slightly better than in 2009.

“While demand in the agricultural segment remained weak in 2010, the recovery in the industrial segment was strong. In both segments, raw materials prices rose dramatically,” said Vischi. “Despite this, the business area succeeded in maintaining its historically high profitability, an EBITDA margin of 12 per cent, thanks to continued focus on implementing measures to offset these price increases.”

Maurizio Vischi added that both the industrial and agricultural tyre segments “remain highly attractive” due to favourable macroeconomic trends such as rapid population growth, greater demand for biofuels and the global rise in the need for transport. He reports the Trelleborg Wheel Systems business area” continues to further develop its leading positions through organic growth and strategic acquisitions,” such as the Watts Group acquisition late last year.

In fact the company’s success could be growing faster than the financials figures alone demonstrate. In the extra-large (XL) part of the agricultural market, where the company has transitioned its brand from the well-known Pirelli moniker to the Trelleborg name, the company reports that it has doubled market share during the last five years, despite the marketing disruption of the name change.

Trelleborg launches the TM Blue sustainability concept

Following the announcement relating to the acquisition of Watts Industrial Tyres and of new production capacity in Hebei, China, Trelleborg Wheel Systems launched a new agricultural tyre concept centring on sustainability, productivity and lower fuel consumption. The TM Blue concept reportedly results from “advanced tyre engineering and enhanced production processes to decrease the use of natural resources and environmental impact while boosting the farm productivity.” But for purposes of the press conference at the SIMA agricultural equipment show in Paris on 22 February, Trelleborg presented a tyre that was literally blue to emphasise its point. But the concept is nothing to do with the colour of the rubber (which may have been green if the company wanted to convey the same message to the UK public). Instead it is all about improving the efficiency of land machinery, which reduces emissions and has the dual effect of cutting fuel costs, and protecting soil from unnecessary compaction, which increases crop yields and in turn helps farmers’ bottom lines.

“We challenge our organization daily to look for environmentally friendly approaches that improve the performance and efficiency of our products and solutions” said Lorenzo Ciferri, marketing director of agricultural and forestry tyres at Trelleborg. “The mission of the TM Blue concept is to move from the traditional theme of low soil compaction to an advanced overall respect for the earth. This enables farmers to benefit from our caring for the environment and can mean real savings in their pocket through increased productivity and lowered fuel consumption.”

Trelleborg’s TM Blue concept respects the structure of the soil by minimizing mechanical damage caused by compression and bad or wrong tillage. This is achieved with tyres designed for extra wide footprint, carcass deflection capability and the consequent overall pressure distribution on the field. The tyre is also said to allow the soil to return to its original state as an organic reactor that is capable of absorbing air-bound nutrients, recycling crop residues and retaining water to ensure high crop yields in the short, medium and long term.

The tyres are characterized by its inter-lug terracing that is designed to give “excellent self-cleaning properties, a higher traction capability under torque conditions and less soil transfer to roads.”

Not just a 2,550 euro fuel saving

On a 260 hp tract in a road application, TM Blue can reportedly save up to 3,000 litres of fuel which means about 2,550 euros per year, compared to the average performance of the market (reference sizes 710/70 R42 – 600/70 R30).

However, while the product is said to have had an overall, the production process with which the tyres have been manufactured has also had the blue treatment. “TM Blue is not just about the tyre itself but also the Blue manufacturing process,” said Marco D’Angelo, industrial director of agricultural and forestry. “Significant investment has been made into several projects to reduce energy consumption and to prevent the risk of environmental contamination and includes the use of environmentally-friendly extender oils throughout our production process.”

Improved manufacturing is also reported to have saved 1.5 billion litres of water, 10 per cent of steam and power consumption – all while seeing a 20 per cent increase in waste material recycling.

Combine the long-term intentions of Trelleborg’s TM Blue approach and its economic/strategic decisions to extend the business’ reach into China and beyond and the company’s intentions are clear. For Trelleborg the recent moves are simply the first part of “another step forward” all of which implies that there are likely to be further developments on the horizon.

Related news:

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• Maine Industrial to Close Plant, Ganz Returning

• Maine Industrial Tire Wins GPX Solid Tyre Bid