Paolo Merloni’s interview to the weekly magazine Itogi

Energetic People

 

In its “StartUp” section, Itogi keeps talking about the most successful and charismatic entrepreneurs, who have created their businesses from the ground up. Meet Paolo Merloni, Chairman of the Board of Directors, Ariston Thermo, who knows how to mix business and politics without damaging either of the two.

 

They say that talent skips a generation. Like, this is why many businessmen are reluctant to pass the baton to the youth. The big Italian Merloni family is an exception. Three of its generations work in the family business. 45-years-old Paolo Merloni is engaged in production of water heating equipment – the business established by his grandfather Aristide and taken up by his father. In his interview to Itogi he talks about the DNA a true businessman should have.

 

Mr. Merloni, when somebody mentions Ariston in Russia, everybody thinks of refrigerators, washing machines and stoves. As far as I know, this brand is now almost history. What does your company do then?

 

I will start from early days because it will be easier to understand. In 1930s, my grandfather Aristide Merloni opened the factory for production of industrial scales “Industrie Merloni” in his native town and employed six workers. Aristide was successful in business and soon became number one among manufacturers of scales. Then the war began and production was curtailed so my grandfather returned to business only in 1950s. At the time, he started producing tanks for liquefied gas – high-concentration energy source, which replaced traditional firewood in rural Italy. Where there is gas, there is a kitchen.

Initially, he added gas water heaters, ovens and cooking stoves to the product range, then refrigerators and freezers, and then they gradually developed production of washing machines and dishwashers, the full range of major appliances.

He invented the Ariston brand back in 1960s, ‘ariston’ is a beautiful word, which means ‘the best’ in Greek and sounds similar to his first name. In 1970, there were created several divisions by areas of business with one of those, Merloni Termosanitari, producing MTS (Merloni Termosanitari) water heaters in Italy. My father Francesco Merloni got down to developing that business.

Upon becoming the European leader in water heating systems in 1980, MTS expanded into the market of heating systems. It started producing boilers. And in 2009 Merloni Termosanitari changed its name for Ariston Thermo Group.

Indesit, headed by one of the Merloni family branches, has until recently used the Ariston brand for its household appliances range. However, we in fact produce water heaters and heating equipment. Ariston Thermo has 19 plants in 10 countries including Italy, Switzerland, Belgium, France, Russia, China and others. We have 48 representative offices in 29 countries and sell our products in more than 150 countries. Last year our sales revenue amounted to a record-breaking 1.32 billion euro with net profits of 50 million. We currently have no debts. By the end of 2008, our debt amounted to some 150 million euro.

 

Are you the principal and only shareholder?

 

No, in fact, my father's family including me is the principal shareholder and owns about 85% of shares. There are also other members of the large Merloni family that participate in the capital, for instance, my uncle and aunt. They have about 15%. So today it is safe to say that Ariston Thermo is a 100% family business. In the past two well-known international banks, BNP Paribas and Intesa San Paolo, were our shareholders for a few years. We have bought their shares recently; however, it does not mean that company owners have separated themselves from investors. To put it figuratively, we are ready to give access to share capital via direct package sale and going public any time.

 

Entrepreneurs usually have a good memory of how they made their first money. When did you put your first euro in your pocket?

 

My first lira, I'd say. Being a businessman, my father has always been my role model, so I have learnt a lot from him. When I was a kid, we often discussed the company and its problems at home. It is a normal thing to talk about in a family of entrepreneurs! So, when I was 14, I asked my father to let me work at his factory during the summer break. I gave up going to the seashore for a month to work as a usual labourer. I woke up early and was at my work place by 8. It was then that I earned a little bit of money, but for me it was a great experience in the first place.

 

What about your first million euro?

 

Like I said, Ariston Thermo is a family company. I do not care about the dividends we get as shareholders as much as I do about what the company can give each of its employees. We have 6,700 people working for us, so in a way as business owners we are responsible for almost 7 thousand families. This is what I care much more about rather than the million I earn as dividends.

 

You joined Ariston Thermo in 1996 as an ordinary employee. How has the business changed during the past twenty years?

 

Here is what it looks like in numbers. In 2001 the company's turnover was 450 million euro, meaning less than one third of our current results. In 2005 we passed the one billion mark. I became the CEO in 2004 and the Chairman two years ago.

 

Who was your boss until 2011?

 

My father Francesco Merloni was the chairman. Now being the Honorary Chairman, he takes interest in the company's business and is partially involved into the work process. Being a professional engineer, he is fascinated by the technical part: the production and the machines. Besides, he has a wealth of knowledge to offer as he has worked at the company for more than 60 years. He is the person who developed our major principles and values and he heavily promoted them together with my grandfather.

 

How hard was it for you during the 2008 crisis?

 

It is rather about 2009, as in 2008 we had good results… Our revenue dropped, yet our net income grew. At the same time, I would not say that the crisis had much impact on us. We are in water heating equipment production, so our products and services are among the living essentials. These are not luxury goods, and not another T-shirt you are thinking of buying while having hundreds already. You need hot water every time you want to take a shower. Our business is essential for people’s daily living, so during the crisis the demand declined marginally. Besides, note that we are a global player with the most extensive sales network. As a result, our turnover dropped by 9% in 2009, but grew by 10% during the following year, so we quickly won back what we had lost.

 

Are you present on the US market? It went through a real apocalypse, so people had more important things to care about rather than water heaters…

 

Our major market is Europe. We sell our products in all developed and developing countries except Korea, Japan and USA. First of all, our industry’s growth rate is not exactly impressive there. Secondly, we produce a different range of products. Unlike us, those countries use hot air to heat premises, not water. This is why we expand to other markets including Italy, Switzerland, France, Russia and China. Chinese and Russian markets are equally important for us.

 

Have you ever been to Russia?

 

When I joined Ariston in 1995, developing markets including Russia were in my field of responsibility. At the time I had to come to your country for a week every month.

 

What were your impressions from those visits?

 

I was tantalized by Russia; I have always known that your country offered great opportunities. The past twenty years have seen significant changes in the perception of business, vision and way of thinking. Within a short period your country managed to catch up with the rest of the world. In the 90s when we were launching our business in Russia, we felt like pioneers, but right now we have a more structured and informed concept of how to operate on your market.

What really impressed me in early days of me being acquainted with your country was the level of inefficient energy consumption, the splurge. Just try to understand that energy efficiency is written in my DNA! Our mantra is ‘produce water heating systems that deliver comfort and energy efficiency without harming the environment.’ This is where our 2020 goal comes from: pass an 80-percent mark in energy efficiency. Today we are at some 35%.

But let’s go back to Russia – huge pipes with heat leaking into the atmosphere caught my eye at the time. Total ineffectiveness. But that was 20 years ago.

 

You are interested in politics. Russian businessmen prefer to avoid politics for a number of reasons. What is the distinction interest in politics and interference?

 

Our family is closely related to politics. My father was a member of the Parliament, minister in Giuliano Amato’s and Carlo Azeglio Ciampi’s governments. However, it had no impact on our business. I constantly follow political news in Italy, Europe and all over the world. This helps me understand how the situation may influence our business, where we should invest and where not. However one must not mix politics and business. Anything like this is bad for both politicians and business people.

 

Does your family know Berlusconi personally?

 

Yes, it does. Many years ago, when Berlusconi was not yet a politician, he worked in construction business and bought heating and water heating products from our company. This is why we have known him for many years.

 

Do you think he has made a mistake becoming a politician without breaking ties with business?

 

Let me tell you a story. Some time ago, we had a private aircraft that we owned on a parity basis with Berlusconi. Once he came to my father and said, “Francesco, I do not like how the plane is painted, it looks old. I want to repaint it. It will look great!”. My father agreed. Sometime later Berlusconi brought the repainted aircraft with a huge logo of his company on its tail. My father was shocked: “We own it 50/50, so why does it have your logo on it?” Silvio replied, “I know, but it was me who paid for painting!” I think this situation describes him very well. I think he was a much better businessperson than a politician…

 

What mistakes do you think the current authorities make?

 

As you know, it is much easier to speak than do. Especially when it comes to politics. Everything is different in a company because a company, after all, is not a democracy. At the end of the day, somebody has to make a decision. In politics, conventionally speaking, everybody wants to be the football team’s coach.

I think the authorities must exercise more efforts in giving private companies more room for development. This is about industry regulations. I am not talking about the market without rules, but about market relations regulated by common sense. For instance, Europe is currently witnessing an increase in social expenditure along with a tax increase. Naturally, social expenses are sometimes justified… However, the time we live in right now requires more stimulation of the private sector to make investments. This is the private sector that drives progress and ensures the biggest returns. Let market players compete with each other, competition is the best driver of development.

 

You are a member of the big Italian production family, besides, not the first generation of it. What drives you personally?

 

As the head of the company and one of its owners, I pursue the goal of keeping our leading position in the industry and boosting our share. It is difficult to say right now, how big we will be by 2020. Our long-term objectives are not about numbers and results, but goals and areas of development. What does it mean to raise the bar in energy efficiency? It does not only mean to invest in production and R&D, but also to try and communicate this message to the customers so they understand our goal.

It’s not even something that difficult, but rather a personal challenge. A positive challenge. I try to think positively, otherwise I would not be able to become a businessperson and continue our family business.

 

Published on Itogi weekly magazine, n°33, 19th August 2013, pp. 24-27.

 

 

Click here to read the online article (in Russian language).