9th September 2009 - Brembo Brakes Reports First Half 2009 Results

Brembo’s BoD approved the Group’s results as of 30 June 2009.  Margins remained positive despite the decrease in turnover.  Net debt decreased by €42.2 million (-12.2%) compared to 31 March 2009.

Highlights of the half-year period:

Group’s Consolidated H1 2009 Results

Consolidated revenues of the Brembo Group for the first half of 2009 amounted to €404.2 million, down 28.8% compared to the same period of the previous year. On a like-for-like basis in terms of consolidation area, net sales decreased by 32.6%.

All sectors in which the Company operates are showing signs of distress. In particular, applications for commercial vehicles, following on the long growth trend that had characterised previous years, declined by 48.2%, compared to H1 2008. Car applications decreased 28% as they were affected not only by the difficult market situation, but also by the stock-cutting policies implemented by sales networks. Declines were also posted, albeit to a lesser extent, in the motorbike segment (-17.2%) and racing segment (-7.7%). The passive safety sector showed growth of 33.4% due to the change in the consolidation area.

The contraction was widespread in geographical terms, involving both European countries, particularly the United Kingdom (-35.8%), Germany (-34.7%), France (-33.4%), and Italy (-32.8%), and Asia (-22.2%) and the NAFTA area (-22.1%). Germany and the United Kingdom, which had reported the most significant declines in the first quarter of the year, showed some signs of improvement, posting smaller losses than in Q1. Brazil reported a growth of 2.3%. In the first six months of 2009, the cost of sales and other operating costs amounted to €261.8 million, representing 64.8% of turnover, compared to 66% in the previous year.

During the first six months of the year, the Company reported: capital gains of €3.9 million on the sale of 50% of Brembo Ceramic Brake Systems S.p.A. (€1.7 million during the previous year, tied to the disposal of several buildings in Italy); €4 million by way of compensation from a supplier; and €1.2 million subsidies for research investments (€1.1 million in 2008).

Personnel expenses amounted to €94.2 million (23.3% of sales) for the half-year, compared to €112.5 million in H1 2008 (19.8% of sales). The cost-cutting measures taken by the Company partially offset the decrease in sales volumes.

The workforce numbered 5,375 at June 30, 2009. On a like-for-like basis in terms of consolidation area, the number of employees fell by 831 (-14%) at 30 June 2008. Gross operating income amounted to €48.2 million (11.9% of sales) during the six months, down by 40.2% compared to the previous year.

The item “Depreciation, amortisation and impairment losses” amounted to €38.1 million in the first half of 2009, up by 31% compared to H1 2008. The increase in said item was due both to the significant investments undertaken in the second half of 2008 and to impairment losses (for an overall amount of €3.8 million) recognised on development costs, due to the discontinuation of some projects by clients, and on goodwill following the revision of the forecasts for a subsidiary.

Net operating income amounted to €10.1 million, or 2.5% of the Group’s sales. Interest expenses were €6.9 million during the half-year (€6.4 million in H1 2008) and consist of exchange losses of €0.7 million (compared to exchange gains of €1.1 million in H1 2008) and net interest expenses of €6.2 million (€7.5 million in H1 2008). The latter item benefited from a decrease in interest rates. Taxes are estimated to come to €4.3 million for the six months of the year (€13.5 million in H1 2008) due to the effect of IRAP (regional production tax) in Italy and to the recognition, on a prudential basis, of deferred tax assets. The period ended with a loss of €0.8 million.

Net debt amounted to €303.4 million at 30 June 2009, down from €345.6 million at 31 March 2009 and €337.4 million at 31 December 2008. The improvement in net financial position is the result of the  steps taken to reduce inventories and receivables and the downsizing of the investment policy in order to react to declining demand and shrinking margins.

The Second Quarter of 2009

The automotive market remains among those most severely affected by the recession; the first signs of recovery began to appear in the second quarter of 2009, though the market continued to post decreases compared to the same period of 2008.

Sales of goods and services amounted to €208.0 million in the second quarter, down by 29.4% compared to the previous year. On a like-for-like basis in terms of consolidation area, the decline was 31.9%.

In the second quarter, although demand remained weak, the Company began to reap the benefits of its cost-containment measures: gross operating income amounted to €31.0 million (14.9% of revenues, compared to 8.8% in the first quarter).

During the quarter, certain non-recurring items, which are discussed above in the commentary on the half-year, were recognized under the item “Other revenues and income”. Net of the above items, gross operating income was 11.1% of revenues.

Depreciation, amortisation and impairment losses increased sharply during the quarter to €21.2 million (+42.7% on the previous year), due in part to the impairment losses on development costs and goodwill discussed above. Net operating income amounted to €9.8 million (4.7% of revenues, compared to 0.2% in the first quarter). Net of the foregoing effects, net operating income was 2.7% of revenues.  The second quarter ended with a net income of €6.5 million (3.1% of revenues).

Significant Events After 30 June 2009

In July 2009, the Sanluis Group and the Brembo Group reached an agreement to close arbitration proceedings in the United States. On 19 August, Brembo International acquired 24% of Brembo Rassini S.A. de C.V. (currently Brembo Mexico Puebla S.A. de C.V.), in return for the sale of its equity interest in Fundimak S.A. de C.V. The transaction involved a net expenditure of $1.4 million.

On 31 July 2009, Brembo and Managing Director Mauro Pessi reached an agreement as to the consensual termination of the latter’s employment contract, under which he will resign from the position of Managing Director, as well as all other positions filled with Group companies, effective 31 August 2009. In connection with the foregoing, on 31 July 2009 the Board of Directors appointed Brembo’s Chairman, Alberto Bombassei, to the position of Managing Director effective 1 September 2009.

Outlook

Brembo continues with its cost-cutting policy and strict management of operating leverage, in order to limit the effects of the sharp decline in demand. The remainder of the year should witness signs of recovery, provided that the current indications of an improvement in the conditions of the markets on which the Group operates are confirmed. However, applications for commercial vehicles will continue to show distress, with possible recovery visible only in the coming year. The Group remains strongly committed to continuing with its international development plans, which focus in particular on China, India and Brazil.

Source: Brembo Brakes Press Release