Italy's Brembo seeks growth on road, race track and in the skies

Tue Aug 5, 2014 3:42am EDT

* Brembo has already signed first aviation supply deal

* To announce deal with another Japanese motorbike firm soon

* Firm succeeds where other Italian manufacturers struggle

* Invests in R&D, manufactures on four continents

* North America likely to become top market this year

By Agnieszka Flak

MILAN, Aug 5 (Reuters) - Niki Lauda once won Formula One world championships with Brembo's brakes, while today Ferrari and Porsche use them on road and racing cars alike. Now the Italian firm is about to land another deal equipping top-end Japanese motorbikes, and plans to expand into aviation.

In a country where many manufacturers struggle to compete internationally, Brembo has used innovation, combined with production on four continents, to carve out a niche supplying brake discs and calipers to the high-performance motor industry.

The family-controlled company already supplies motorcycle makers, including three in Japan, and Deputy Chairman Matteo Tiraboschi said a deal with a fourth would be announced soon. While he declined to give details, a Kawasaki Heavy Industries spokesman confirmed the group would be using Brembo brakes.

With 70 percent of sales made by its car division and the rest almost evenly split between motorbikes, commercial vehicles and racing, Brembo expects to conclude by the year-end a certification process to supply the aviation industry, seen by analysts as a significant long-term revenue boost.

Brembo will first focus on supplying executive jets or helicopters rather than jumbo jets. However, it intends to branch out further, and hopes aviation will become one of its business pillars.

"There are many parallels between aerospace and the world of Formula One, allowing us to grow outside the automotive sector using the same skills, technology and materials," Tiraboschi told Reuters, adding that Brembo had already signed its first aviation supply contract, with details to be released by October.

Based in Bergamo, a historic town near Milan, the firm grew from a family-run mechanics' workshop in 1961 to a group with 7,600 staff and production ranging from Italy and eastern Europe to China, Brazil and the United States.

The group expanded as vehicles moved to discs and most abandoned the less efficient drum brakes. Its long involvement with Formula One racing began in the 1970s when Lauda won two world championships with Ferrari - the second after the Austrian suffered near fatal injuries in the 1976 German Grand Prix.

Formula One has made Brembo's brand famous among enthusiasts, although it has brought controversy too.

The Mercedes team, which is chaired by Lauda, criticised Brembo after title challenger Lewis Hamilton crashed heavily in a car using its brakes in qualifying for this year's German Grand Prix. Hamilton walked away with bruising, while Brembo and Mercedes said they were investigating the failure.

WEATHERING THE DOWNTURN

More than 120,000 Italian manufacturers have closed and 1.2 million industrial jobs have disappeared since the start of the century, according to business association Confindustria.

But Brembo has weathered the downturn and a slump in European car sales better than many peers, partly because of its focus on the premium segment and racing. Today car and motorbike manufacturers use Brembo's brand to boost the appeal of many of their products, and not just the top-of-the range models.

"Our continuous investment in innovation has paid off," Tiraboschi said. "Even during the crisis, that's the budget line we did not cut."

Brembo spends 5 percent of sales income each year on research and development - a department that employs a tenth of its staff - as it tries to stay ahead of competitors in the use of materials, performance, efficiency, comfort and style.

Here it contrasts to many fellow Italian manufacturers. Investment in research and technology in Italy is about half that of France and Germany as a proportion of economic output, and a third of the level in Sweden, according to the OECD.

Brembo's results keep beating analysts' forecasts, as they did last week when the firm released figures for the first half of this year and raised its guidance for all of 2014.

Its focus on exporting has also paid off. While the Italian economy languishes, its shares are up nearly 45 percent in the year to date, making it the highest gainer among Milan-listed mid-sized stocks..

JAPANESE MOTORBIKES

While a major supplier for bikes made by Harley Davidson of the United States, Germany's BMW and VW-owned Ducati at home, Brembo struggled to expand in the Japanese bike market, where manufacturers opted for cheaper products.

That changed when Japanese producers, worst hit when the bike market contracted, decided to pay for premium parts to beef up their offering and recover market share, Tiraboschi said.

Brembo signed a deal with Suzuki and Yamaha in 2012 and Honda a year later, with Kawasaki to follow soon.

Brembo's calipers, which are often red and branded with the group's name and made of aluminium, are visible through alloy wheels. Discs are mainly produced out of cast iron, although those supplied to Ferrari are made of carbon ceramics.

With a few exceptions such as Fiat, Italy lacks industrial giants that compete globally and depends largely on a pool of small and mid-sized manufacturers.

But Brembo makes virtue of its modest size. What makes it stand out from mass-market rival producers such as Continental and TRW is its "ability to work on tailor-made small-batch production", said Giorgio Iannella, an analyst at Kepler Cheuvreux. "Flexibility is at the heart of Brembo's leadership in its market niche."

Brembo shares have risen around 800 percent since a 40 percent stake was listed on the Milan bourse in July 1995 and the business is said to have made Alberto Bombassei, the current chairman and son of the group's founder, Emilio, a billionaire.

The Bombassei family still owns 53.5 percent of the company and has no desire to sell down its stake, Tiraboschi said.

While Germany and North America made up nearly half of its sales last year, in future Brembo hopes for an even spread between Asia, Europe and the Americas. It is placing new sites close to where its clients are to be flexible and cut costs.

"We want to be domestic in the Americas, Europe and Asia," Tiraboschi said.

The company has invested 600 million euros ($800 million)over the past five years in plants, and forecasts annual capital expenditure of 130-140 million euros for the next few years.

Brembo has recently expanded a plant in the U.S. state of Michigan, expecting North America to become its top market this year, and will also build a new cast iron foundry there.

While some Italian manufacturers complain of high borrowing costs, Tiraboschi said credit availability was not a problem for Brembo. Its financial position is solid but it may consider a private bond placement by early next year, he added. ($1 = 0.7448 Euros) (Additional reporting by Yoko Kubota in Tokyo; editing by David Stamp)

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