The ANNOTICO Report

Indesit, previously Merloni Elettrodomestici, has been one of Italy's
biggest success stories in recent years. Coming from 8% of the European
domestic-appliance market four years ago to nearly 16% now, it's breathing
down the neck of sector leaders Electrolux and Bosch, and could soon
overtake both.

Vittorio Merloni, is a boss with a (Richard) Bransonesque profile in Italy.
His family now has interests in manufacturing, factory construction and
energy in an empire that turns over €7 billion, and appears to be replacing
Fiat as Italy's iconic industrial powerhouse.

His father, who was a founder of the Italian Christian Democrat party,
started a firm that made weighing scales and gas bottles. From gas bottles
to kitchen hobs, explains Merloni, was but a short step. Since then,
Vittorio, the youngest of three sons, has built the family firm into a
white-goods giant selling 14m appliances a year with Ariston (named after
his father Aristide), Indesit (bought in 1985), France's Scholtes (bought
in 1989) and Russia's Stinol (bought in 1999) among its vanguard of brands.

Silvio Berlusconi, at one time was Merloni's advertising agent.

The Andrew Davidson Interview:
Italy's politest billionaire turns up the heat

Indesit chairman Vittorio Merloni bought Hotpoint to make his company a top
contender.
Next he wants to overtake Bosch and Electrolux

FOR a billionaire with a sizeable chunk of European business under his
belt, Vittorio Merloni is a surprisingly hesitant figure. Short, lean,
bespectacled and courteous in manner, the 71- year-old chairman of Indesit,
the Italian white-goods manufacturer, likes to apologise.

"I am sorry my English is not so good," he frowns, struggling to find an
expression when I ask about profits at the €3.2 billion (£2.2 billion)
turnover firm. They went down in the last quarter reported, but for
Merloni, a man who famously builds for the long term, that dip gets little
more than a shrug.

"Every competitor has the same problems — raw materials increase very high.
But we have the best performance in profitability and growth."

Indesit, previously Merloni Elettrodomestici until it changed its name to
its best-known brand in January, has been one of Italy's biggest success
stories in recent years. Coming from 8% of the European domestic-appliance
market four years ago to nearly 16% now, it's breathing down the neck of
sector leaders Electrolux and Bosch, and could soon overtake both.

That leap was fuelled by the acquisition of Peterborough-based General
Domestic Appliances in 2001, giving Merloni control of the Hotpoint, Creda
and Cannon brands, and a 28% share of the UK white-goods market. It was
another step in a remarkable journey for Merloni, a boss with a
Bransonesque profile in his home country. His family now has interests in
manufacturing, factory construction and energy in an empire that turns over
€7 billion, and appears to be replacing Fiat as Italy's iconic industrial
powerhouse. But it's the integration of Indesit with its new UK hub — which
generates a third of group turnover — that has preoccupied Merloni since
2002.

It is the base he felt his group needed to keep on top of developing
trends, and it has provided the key brands to dominate sales in this
country, where the Indesit chairman is an increasingly visible figure. The
night before we met, he had been at a Buckingham Palace banquet with "your
Prince Carlo". He has even bought himself a house in Mayfair, to add to the
ones he already has in Milan, Rome, Sardinia, New York, and Fabriano (west
of Ancona, in Italy's Marche region, where the family firm was founded). He
is, by nature, a collector. He also has a lot of cars, including three
Ferraris. "But I am selling the Ferraris," he smiles. "They are too
dangerous for someone my age. I have a black Bentley now. That is better, I
think."

With his awkward English and rumpled Mr Punch face, Merloni is easy to
underestimate, but he's not shy of acquiring what he likes — cars, homes
and companies. That sense of ambitious pragmatism is a key trait. His
father started a firm that made weighing scales and gas bottles. From gas
bottles to kitchen hobs, explains Merloni, was but a short step. Since
then, Vittorio, the youngest of three sons, has built the family firm into
a white-goods giant selling 14m appliances a year with Ariston (named after
his father Aristide), Indesit (bought in 1985), France's Scholtes (bought
in 1989) and Russia's Stinol (bought in 1999) among its vanguard of brands.
Further expansion, through the usual Merloni mix of growth and acquisition,
is expected across eastern Europe and in China, where it uses the Little
Swan brand in a joint venture. Just as impressively, Merloni seems to have
managed the transition from family firm to professionally managed group
without the usual heartache and fallout. His elder brothers run their own
businesses outside Indesit — one makes white goods for other brands. His
own children keep their interests separate.

Merloni holds 42% of the shares in Indesit, which was listed on the Milan
stock market in 1987; other family members have 18%. But Vittorio aside,
none holds an executive position. "You cannot put the family in control day
by day," says Merloni. "How could I change a CEO if he was my son?
Impossible."

Instead, the Merloni empire has proved a useful training ground for some of
Italy's top multinational executives, including Francesco Caio (Merloni's
chief executive from 1996 to 1999). Those inside the business describe it
as enterpreneurial, innovative and blessed with a surprisingly flat
hierarchy, mirroring the chairman's focus on both the product and, as you'd
expect in appearance-obsessed Italy, the brands. "He cares about the brands
and has a real feel for what they are," says Neil Tunstall, Indesit's UK
marketing director. "He's always asking us, are we making sure the product
strategy matches the brand strategy?"

Merloni, sitting in the offices of his London PR firm, says his
organisation's investment in research and development is the key to its
success.

"The family control is a big advantage as we don't have to think of
dividends year by year but can look at it from the point of view of
competitiveness tomorrow," he says. "So we invest 85% of our cashflow back
into the company. Others don't."

That, he adds, will become increasingly important as new technologies
change the products beyond recognition.

"Washing machines of 10 years ago and today are more or less the same. In
the next five years, in my view, they will be substantially different: new
technologies, new design, new materials, new performance. Innovation will
be the most important thing."

So will production. Merloni shrugs off worries that, as the market expands
eastwards, the major manufacturers will move production to cheaper
countries outside western Europe. "It's not just about labour but also
transport costs," he points out. Shipping cookers and dishwashers across
big distances is not economical. It's an issue to which he is sensitive
because the Merlonis have long claimed to be champions of community
responsibility. His father set up his firm in the Marche, outside the
industrial north of Italy, partly to stem the exodus of families from the
region. "He had seen people leave houses and never come back. He wanted to
stop that."

Merloni says he gets much of his drive from his father, who was a founder
of the Italian Christian Democrat party, and also from the times he grew up
in. "My parents were very severe, but I grew up in the worst period. I saw
the war directly from my window. So much was destroyed."

His elder brother Francesco wanted to follow their father into business and
politics. "It was a disaster," says Merloni. Business and politics are bad
mixers, he says, before adding that the only man who has managed it
recently in Italy is Silvio Berlusconi, who used to be Merloni's
advertising agent.

"I consider him a very good entrepreneur," he says, weighing the words
carefully.

And a good politician? Merloni laughs, but avoids giving an answer.

Others say that beneath the unassuming exterior, Merloni, who studied
economics at university, is not averse to calculated risk-taking. The
biggest gamble of all was the acquisition of Indesit, which in 1985 was a
far bigger operation than Merloni Elettrodomestici. Crucially, it gave
Merloni the springboard to push abroad before competition made expansion
too difficult. "We arrived just in time," he says, "before the gate was
closed." Another company, Merloni Progetti, which builds factories around
the world, gave him valuable experience of working abroad.

Other gambles have been less successful. Scholtes cookers in France has
proved tougher to integrate. "We stopped producing in France because it is
one of the most difficult countries to produce in," says Merloni. His plant
at Thionville, near Metz, now assembles rather than manufactures. "It's not
so easy if you buy French companies," he adds. "They like being leaders,
they are not so good at being subsidiaries."

He predicts that now the market outside America has consolidated to four
main rivals — Bosch, Electrolux, Indesit and the US manufacturer Whirlpool
— competing to acquire may no longer be cost-effective.

"Look at the car industry. They don't buy companies now, they do joint
ventures, linking together for one product or one country. If we continue
as before we will disappear. If we innovate and do joint ventures, then we
will get new markets."

That could include joint ventures in mature markets such as America, where
Indesit has a subsidiary "just to understand the market". But it has no
plans to compete seriously there. And his own future? He is 72 this month —
will he remain chairman for ever?

Till he dies, he says, then smiles. "You're thinking that if Mr Agnelli was
dead before the difficulty at Fiat, for him it would have been much better,
eh? But I never try to discover the future. My father died in a car crash.
Perhaps I have a plane crash . . ."

Anyway, he adds, he hopes one of his own children will become chairman
after him, maintaining the family interest. But he knows the bigger the
group gets, the more difficult it becomes to negotiate family involvement.
"That's why we changed the name from Merloni to Indesit," he says, "because
the company is surviving the family."

Finally, the interview over, he is apologising for his English again,
walking me out. And he holds the door for me at each doorway, waving me
through first. Quite the politest billionaire you could meet.

http://www.timesonline.co.uk/
article/0,,2095-1551747,00.html

The ANNOTICO Reports are Posted and Archived at:
<< www.ItaliaMia.com >> and
<< www.ItalyStL.com >>