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Brembo boss says brake maker's strong growth will continue

Issued at 2016-06-18



Italian brake manufacturer Brembo's profits are growing at a faster rate than its sales. It finished 2015 with earnings before interest and taxes up 41 percent to 251 million euros on a sales growth of 15 percent to 2.1 billion euros. The trend continued in the first quarter of this year with EBIT up 42 percent to 84.0 million euros on a 9.6 percent revenue rise to 563.6 million euros. Longtime chairman Alberto Bombassei says Brembo's growth spurt isn't over. He explained why in a recent interview with Automotive News Europe Correspondent John Stanley.

Where is Brembo in the marketplace now and where do you want to be?

Despite the financial crisis in 2009, Brembo has grown consistently. We are where we wanted to be, probably a bit ahead, in all the sectors where we operate. Our profitability has increased significantly more than sales, which is proof of our ability to optimize our production processes. We haven't finished growing. Our significant cash generation puts us in a strong position to embark on a new cycle of investments to support that growth.

What are your top markets?

The best markets for us in recent years have been the United States, Europe, notably Germany, and to a lesser extent China. But in China sales are growing quite fast, despite the recent slowdown in economic growth there. We are quite satisfied about our Chinese position. At the geographical level, we are achieving good growth in almost all the areas in which we operate. Germany is our second largest national market, accounting for about 23 percent of our revenue. Sales there last year were up 11 percent, while UK sales grew by 16 percent. Our largest market today is North America, covering the USA, Canada and Mexico, which accounts for 29 percent of our revenues. Here sales rose 30 percent. South American sales were weaker, partly due to currency issues. Our main Asian markets were strong, with China up 29 percent, India by 26 percent and Japan by 39 percent.

Who are you customers in China?

Typically, is it the transplants of our North American and European customers – Daimler, for instance, which is continuing to do well in China. Very recently we also started signing contracts with some local Chinese producers. Our penetration may be low but it is growing.

What are you doing to expand in China?

Last September we acquired a 66 percent stake in ASIMCO Meilian Braking Systems, a company producing braking discs in the Beijing area, which is about to begin operation under our management. With a JV [joint venture] we can supply directly to Chinese-owned and non-Chinese companies in China. We are continuing to expand our production in China for the simple reason that we have fulfilled the capacity of our existing plant. We are not forgetting that China, despite the crisis, is a market of more than 22 million cars per year, so there is huge potential for Brembo there despite the current slump.

Why are you so bullish about China?

We believe that the rush for quality products has started in China and it is time for us to show up with a full display of products. Up to now we've been doing only brake discs and some commercial vehicle calipers in China. But now some of our customers are relocating production based on a worldwide model and platform in the three regions of the world, Europe, the U.S. and China. They are considering them as a single market, with new models launched simultaneously in the three regions – we saw it with the Mercedes C class, for instance. So this new approach gives us a good opportunity to expand our presence.

What opportunities do you see in North America?

A few years ago we selected America to become a second "domestic" market for Brembo. It's been our No. 1 market over the past four years and still offers a lot of opportunity. Car sales in the U.S. are around 17 million units per year and they are not growing too much. But at the same time, Brembo is still far from being the largest supplier in the upper segment, so there is huge ground left for us to cover in North America. That's why we've invested in a brand new foundry in Homer, Michigan. At the same time, a lot of our customers are putting production into Mexico now, and we're investing in a brand new aluminum factory for calipers serving that part of the market. The first casting from that plant is imminent.

Brembo has built its reputation on racing and high-performance vehicles. How do you translate that to the mass market without diluting the brand?

Last year we celebrated our 40th anniversary in racing. Back in 1975 Enzo Ferrari invited us to supply discs. We couldn't say no, that would have been crazy. But Mr. Ferrari also had a reputation for being a difficult person to work for. However, we accepted this challenge, at a time when we had just eight people in our r&d department. Building on motor sport has been good for Brembo for two main reasons. First, we established a reputation as a winning company with the customer base. Second, internally our people got training in how to solve problems quickly, because a racecar driver does not accept any excuse, either you win or you're out. This was a hard lesson, but for us that translated into supplying the best cars, like the Porsche, then Ferrari, Maserati, Lamborghini and all the others needing high-performance calipers. There is a lot of passion and technical expertise in our industry, and our association with racing strengthens that, so it has been an important training school for us.

How has it helped you win volume customers?

Through racing we learned lesson how to produce mass volume brake discs. So it is through this association that today by we are the biggest producer worldwide – last year more than 60 million brake discs. And we owe a lot of our success to our customers because they have been very exacting, sometimes imposing, but we learned a lot working shoulder to shoulder with them, especially the big technically capable companies, in Germany particularly.

The supplier industry is consolidating. Will Brembo seek to grow through acquisitions?

We have made acquisitions in our history, but only very specific ones. Finding companies compatible with Brembo is not easy, given our DNA. When Bosch was selling its foundation brake division a few years ago we were invited to take a look but we declined because it did not fit with our DNA. We made an acquisition in England of AP Racing and we're happy with that and we have done other acquisitions as well, but mainly we're committed to growing through continuous investment and organic growth.

Bombassei: "We haven't finished growing. Our significant cash generation puts us in a strong position to embark on a new cycle of investments to support that growth.

 

What about forming partnerships?

Cooperation is a good thing in this industry. You can share expertise and create new products and new opportunities without acquiring or merging. Putting together a braking system for an upscale sedan these days requires the cooperation of four to five different braking companies: one for the ESC [electronic stability control], one for the pedal module, one for the foundation braking system, one for integration, and the carmaker itself. We are very well respected within this oligopoly, which is the car brake industry.

Brembo has had to battle against counterfeit parts in China. What progress have you made here?

If you see the glass half empty, you have to consider that it is bad that in Asia, and particularly in some markets like Indonesia and Taiwan, there are tons of counterfeited Brembo products. But if you compare Brembo with Louis Vuitton, there are a lot of copies around the world and that is the price of success sometimes. Honestly, in Asia we are now having some good success. We have won several lawsuits there and a lot of counterfeited Brembo products have been crushed. Still, if you go to Turkey, for instance, you can see a plastic cover resembling our caliper and you can buy it for 2 euros on Alibaba. They resemble the shape of a Brembo caliper and are red in color. We try to stop them. But every time you are successful in killing one another one emerges.

 

Takata has been hit by a massive recall of its airbags. How does Brembo protect itself again recalls?

Brakes are very exposed, being a safety item, one of a few active safety devices. The airbag only inflates slightly before or slightly after a crash but with brakes you should avoid the crash in the first place. The standards of the industry are high today and there are many checks and quality controls they have to pass before they are sold. Nevertheless, no one can say that something could never occur, even to us, and this is why we are fully insured for product liability, of course. Racing provides an important lesson. Some years ago one of our adverts said: "Every weekend we play with fire." That's not just a reference to the glowing discs on racecars. We play with risk because if there's a brake failure during a Formula One event 1 billion people will see – so our reputation is on the line.

John Stanley - Automotive News Europe


Source: Automotive News



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