Matt Espe: Sanctions didn’t influence our business in Russia

Matt Espe: Sanctions didn’t influence our business in Russia
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According to the President of Armstrong World Industries, Matt Espe, anti-Russian sanctions haven’t influenced the activity of the company in Russia so far.


The President of Armstrong World Industries, Matt Espe, answers our magazine’s questions.

— Mr. Espe, how does American business feel in Russia today?
— The market is a bit of a challenge currently. We are tied to the broader construction market, but the economy doesn’t show such sustainability indices as we would like to see. So our activity in Russia doesn’t bring the capitalization that it could have brought.
Nevertheless, even within a relatively weak opportunity, when the potential of our development is not full-scale, we are growing our share of the suspended ceilings market: now it is over a third of the total Russian market. By investing in Russia, we are able to differentiate ourselves, to compete more effectively and expand our coverage in some sectors. And we haven’t regretted it, keeping in mind that the business environment will get better with time.

— What prevents your American colleagues in the construction business from coming to Russia more actively: lack of information, great distance, the opacity of the Russian market, the current US administration’s attitude towards Russia or something else?
— It is always hard to explain what a competition does. I’d rather speak in my own voice. We see an opportunity here. And we have invested aggressively because of our relatively large share. I think it’s more difficult for a competition with lower share to be able to justify the same investment. We think by investing in a facility like this, we hope to put a sort of competitive barrier for a competition even considering entering.
Thus, having invested in production assets on the territory of the Russian Federation [in June, Armstrong World Industries opened their own plant producing suspended ceilings from mineral fiber with a capacity of more than 20 million m2 a year in the economic zone “Alabuga” in the Republic of Tatarstan;, the total investment is 3.6 bln rubles – Ed.], we hope to have created a kind of a barrier against additional competitors.
— But it didn’t happen at once. It’s over 20 years that Armstrong World Industries has been present in the Russian market, since 1993, but the first plant was built only this year. Could you, please, comment on how come that it took you so long?
— Vic (Vic Grizzle, CEO of Armstrong World Industries- Ed.) and I have worked for the company for only a four or five years. And since we joined the company, we made a plan, and the decision to build a plant in Russia was taken rather soon. Everything was realized in a very short period of time.

— Attending the construction exhibition CONEXPO in Las-Vegas, we are always wide-eyed at the quality of American construction materials. It is a good example for our producers. Your plant uses source materials of Russian production – clay, perlite, pulp (cellulose), amylopectin and other stuff. Does it mean that the quality meets international standards, unlike mineral wool of Russian production, which you do not use as yet?

— The question about mineral wool is last to do with its quality as it does the kind of the wool they are making. We are going to switch to fiberglass, which we’ll get from the leading international producer KNAUF Insulation. This primary material is Russian, from Stupino, in the Moscow region. Now we are testing the product. We have very strict standards on source material quality. Every batch we use is carefully checked to see if it corresponds with our standards. Multiple tests are being carried out in the course of which we define the best.
Our Russian plant is at the initial stage of production. We deliberately choose more expensive primary materials (such as KNAUF production) in order to keep our long-standing reputation and our quality. At the same time we continue to study the market carefully and choose Russian analogs of raw materials which correspond the company’s standards.

— The exchange-rate of Russian ruble has changed up and down since last autumn. In ruble equivalent sales may be good, but if you calculate in dollars and euro it is not so exciting. How does your company respond to such volatility in the ruble? Does it influence the final price of the product?

— Last year, ruble-dollar exchange rate fluctuations became a big challenge for us. The thing is that the plant didn’t enter its operational stage, and all expenses were in euro, so we had to respond to this situation with a higher price in rubles.

It was also a big challenge for Russian customers: they had to pay higher and higher inflation. Now, as our local production is put into operation, and we switch more of our materials to local producers, we have a kind of natural hedging. That is, we’ve got the opportunity to create stability and take some price factors under control. So, the price for our clients will be steadier.

— Do you feel any pressure from the US Presidential administration or Congress in connection with the active development of your business in Russia? I mean Barack Obama’s attitude towards Russia and his policy of toughening sanctions. As I know, American business is very disciplined in relation to the country’s authorities…
— Yes, we are disciplined, but we do not feel any pressure either from the President’s administration or any other branch of power of the United States of America, as it relates to our business here. I can say that sanctions didn’t affect our business in America or in Russia. Sometimes political processes and business processes work in parallel, and sometimes they do not come into contact so much. Our responsibility is business, not politics. And we are focused on it.

— What else, besides business, do you like in Russia, Mr. Espe?
— I think, it’s an excellent question! You know, I like a lot of things. The cities are beautiful, impressive architecture. Wonderful cuisine – by the way, it’s too much food, I’d say (smiling). And of course, the marvelous people.

— Thank you, Mr. President. And good luck in all your business projects!

Alexander Gusev, Alexei Andreev