Brembo: Accounting, Finance & Control

Dasciani Andrea 825705
De Paoli Andrea 899725
Farina Jacopo 899204
Fontana Jacopo 898985
Galli Luca 892495
Ghezzi Davide 899894
Accounting, Finance & Control
Project work
Academic year 2017/2018

2All the data are expressed in thousand euro
INDEX
1. DESCRIPTION OF THE COMPANY………………………………………………………..... 3
1.1. Short history ……………………………………………………………………………….. 3
1.2. Macro analysis: PESTE ……………………………………………………………………. 3
1.3. Micro analysis: Porter’s Five Forces ………………………………………………………. 4
1.4. SWOT analysis …………………………………………………………………….............. 5
2. FINANCIAL ANALYSIS ……………………………………………………………………… 5
2.1. Preliminary analysis ……………………………………………………………………….. 5
2.2. Trend analysis ……………………………………………………………………............... 7
2.2.1. Shareholders’ perspective …………………………………………………………... 7
2.2.2. Stakeholders’ perspective …………………………………………………............. 10
2.3. Inter-firm analysis ………………………………………………………………………... 12
3. RELATIVE VALUATION …………………………………………………………………… 15
3.1. Identification of Brembo’s value drivers ………………………………………………… 15
3.2. Definition of comparable companies …………………………………………….............. 15
3.3. Definition, analysis and application of multiples…...…………………………….............. 16
4. CONCLUSIONS ……………………………………………………………………………… 17
5. REFERENCES ………………………………………………………………………………... 18

1. DESCRIPTION OF THE COMPANY
1.1 SHORT HISTORY
Brembo is the world leader and acknowledged innovator of the brake disc technology for automotive
vehicles. It currently operates in 15 countries on 3 continents (Europe, Asia and America), through
its production and business sites, and employs over 9.000 people worldwide.
Brembo’s reference market is represented by the most important manufacturers of cars, motorbikes,
commercial vehicles and racing cars and motorbikes. The company operates in both the original
equipment market and the aftermarket. Its range of products for car and commercial vehicle
applications includes brake discs, brake calipers, the side-wheel module and, increasingly often, the
complete braking system, including integrated engineering services that back the development of new
models produced by Brembo’s customers.
Constant focus on innovation, as well as
technological and process development, factors
that have always been fundamental to Brembo’s
philosophy, have earned the Group a strong
international leadership position in the research,
design and production of high-performance
braking systems for a wide range of road and
racing vehicles.
1.2 MACRO ANALISYS: PESTE ANALYSIS
In order to contextualize the performances of the company and to try to analyze scenarios where
Brembo operated during the last four years, we will briefly analyze the macro context. Looking at the
three main areas Brembo operates in, the Eurozone registered a significant growth in the GDP. This
result is due mainly to a decrease in oil price and an increasing ease in get financed. The US registered
an increasing GDP, confirming their economic stability. Finally, Chinese economy registered huge
growth, even if during 2016 had the slowest one of the last 6 years, mainly due to financial sector
turmoil. Moving our attention to the political scenario, we can say that Brembo operated in a very
54%
3%2%
1%
40%
Shareholders
Nuova Fourb SRL
Brembo S.P.A.
Columbia Acorn Int’l
Caceis Bank France
Others
Chart 1.1 - Shareholders

instable environment. Ecologically speaking, the firm had to deal with the new legislations of some
regions derived from the Paris Treaty of 2015. Moreover, the green factor became more important in
the eyes of customers. In addition to this social trend, we can highlight another one: people were
increasingly interested in differentiating from each other by buying the best and most trendy products,
in almost every industry. From a technological point of view, we can appreciate a huge innovation
process during the last years. New technologies affected both the society and the companies. Firms
had to innovate their operations in order to be always competitive in their markets. Furthermore,
governments encouraged digitalization through a set of fiscal benefits for companies which innovate
more. Investigating more precisely the automotive industry, we can summarize the vehicle evolution
in few general trends: electrification, advanced driver assistance systems (ADAS), autonomous
driving, low environmental impact, and connectivity.
1.3 MICRO ANALYSIS: PORTER’S FIVE FORCES MODEL
Now we will analyze the competitive arena where Brembo moves using the Porter’s five forces
model.
As we can see in the exhibit, one of the main problems which affect Brembo’s profitability, is the
suppliers’ bargaining power. Indeed, Brembo collaborates with over than 4,800 suppliers, but only
few of these are strategically relevant and qualified. Components, which come from the latter ones,
have a huge impact on the final product, so they are very important and it is not so easy to replace
them maintaining high performances. Another point we have to consider, is the medium level of
competition in the high-performance brake system industry. This is due to a low product
differentiation compensated by the low number of competitors. Fortunately, we can assume that both
the buyers’ bargaining power and the substitutes’ threats are low, due to Brembo’s premium value
and to the indispensability of company’s products to achieve high performances.
Level of competition: MEDIUM
- Low product differentiation
- Low number of competitors
- High Scale economies
- High R&D costs
Threat of new entrants: LOW
- High entry barriers
- Low vertical integration of car –
manufacturer
Buyers’ bargaining power: LOW
- Low product substitutability
- Few competitors on the market
- Importance in the final product
- Low buyers’ price-sensitiveness
Threat of substitute: LOW
- No substitute products
Suppliers’ bargaining power: HIGH
- Suppliers of technically sophisticated
components
- Low number of qualified suppliers
- Long-term relationships (partnerships)
Chart 1.2 – Porter’s Five Forces model

In the end, the firm could not care about the threat of new entrants thanks to the high entry barriers
of the industry.
1.4 SWOT ANALYSIS
Now we can resume the two-previous analysis pointing out the most important peculiarities about
Brembo’s environment. Specifically, we apply the SWOT analysis in order to highlight the strengths
and weaknesses (micro universe) and the opportunities and threats (macro universe).
2. FINANCIAL ANALYSIS
We are now interested in analysing Brembo’s performances over the last four years.
This is the path we followed: first, we looked at the last four annual reports to identify the most
important events to be included in the preliminary analysis, next we analysed internal performances
within the period assuming a shareholder’s perspective and then the performances related with the
stakeholder’s perspective. In ultimate analysis, we compared these performances with the ones of a
direct competitor to understand Brembo’s position within its market.
2.1 PRELIMARY ANALYSIS
Looking at the annual report of 2013, 2014, 2015 and 2016, we collected all the key events,
highlighting their natures, in order to link them to the company’s performances over the four years.
STRENGTHS
- Brand awareness and recognition
- Market leadership
- Innovation technology (R&D, universities, projects)
- Continuous improvement & always learning 
skilled workforce
- High vertical integration  economies of scale
- Absence of actual substitute products
- High importance in the final product
- International company  good differentiation of risk
OPPORTUNITIES
- Changes in motorsport rules
- Increasing overall trend of automotive
industry
- CETA trade agreement
- Industry 4.0
- Green  Paris treaty
- New employment laws (e.g. Job’s Act)
WEAKNESSES
- High bargaining power of strategic
suppliers (low concentration and high
level of know how  spin-off risk)
- Low product differentiation
THREATS
- Changes in motorsport rules
- Difficult management of market
instability due to low flexibility
- New disruptive innovations
Chart 1.3 – SWOT analysis

Merger / Acquisition / Divesture Investment Financing policy Accounting standard change New Product
2013 • 13.1 - 6th August: Brembo S.p.A. acquired full control of Brembo Nanjing Brake Systems Co. Ltd.
• 13.2 - 16th September: the Group acquired full control of Brembo Argentina S.A.
• 13.3 - China: completion of the new production hub in Nanjing, including a foundry, a facility and R&D
centre.
• 13.4 - International expansion strategy: Brembo started investments in the American region amounted to
€115 million by renewing and expanding the industrial hubs in Homer (US) and São Paulo (Brazil).
• 13.5 - To Shareholders allocation of a gross dividend of 0,40€ per ordinary share outstanding at ex-coupon
date, consequently excluding own shares, for a total amount of €26.015 thousand.
• 13.6 - Net financial debt at the end of the year was €320.489 thousand, compared to €320.694 thousand at 31
December 2012 decreased by 205.000€ (-0,001%).
• 13.7 - Application of IAS 19 (2011) which prescribes the accounting and disclosure for employee benefits.
The Standard requires an entity to recognize: (a) a liability when an employee has provided service in
exchange for employee benefits to be paid in the future; (b) an expense when the entity consumes the economic
benefit arising from service provided by an employee in exchange for employee benefits.
2014 • 14.1 - 11th March: the voluntary winding up of Brembo UK Ltd. was completed.
• 14.2 - 21st July: the company Brembo Russia LLC. was established and wholly owned by the parent Brembo
S.p.A.
• 14.3 - A new investment plan was launched, for a total expenditure of €34 million, aimed at building and
starting up a new plant in Niepolomice (Poland).
• 14.4 - Introduction in the Automotive market of a ground-breaking cast-iron light disc.
• 14.5 - To Shareholders a gross dividend of €0.50 per ordinary share, for a total amount of €32.519 thousand.
• 14.6 - Net financial debt at the end of the year was €270.387 thousand, decreased by €50.102 thousand (-
15,6%) by comparing with the previous year.
• 14.7 - IFRS 11 introduction: if companies are considered joint ventures according to the new standard
definitions, they must be accounted for using the equity method. The nature of the business of the Group’s joint
ventures falls within the scope of the Group’s operations and should thus be included in the Group’s operating
performance.
2015 • 15.1 - 30th April: Brembo through its controlled Sabelt S.p.A. divested its 70% stake in Belt & Buckle S.r.o.
• 15.2 - 12th June: the Group divested the subsidiary Sabelt S.p.A.
• 15.3 - US: the Group started the construction of a cast-iron foundry in Michigan, close to the Homer facilities,
amounted to €74 million which will allow the Group to start a vertical integration process of its production
capacity in the United States as well.
• 15.4 - Mexico: opening of a new foundry and a plant for the processing and assembly of aluminium callipers
near Monterrey. The investment has required €32 million.
• 15.5 - To Shareholders allocation of a gross dividend of €0.60 per ordinary share and upon the 20th
anniversary from the listing of the Company, an extraordinary dividend of €0.2 per each share excluding own
shares for a total amount of €52.030 thousand.
• 15.6 - Net financial debt at the end of the year was €160.688 thousand, decreased by €109.699 thousand (-
40,6%) by comparing with the previous year.
2016 • 16.1 - 19th May: closing of the acquisition of a 66% stake in Asimco Meilian Braking System (Langfang)
Co.Ltd.
• 16.2 - Mexico: a new plant was officially opened in Escobedo for the manufacture and assembly of brake
callipers.
• 16.3 - To Shareholders allocation of a gross dividend of €0.80 per ordinary share excluding own shares, for
a total amount of 52.030 thousand €.
• 16.4 - Net financial debt at the end of the accounting period was €195.677 thousand, increased by €34.989
(+21,8%) thousand by comparing with 2015.

2.2 TREND ANALYSIS
Within the trend analysis, profitability and liquidity indexes are discussed: the analysis is focused on
the 4 years described above and, in some cases, even values of 2012 are taken into account to have a
starting point to be compared with the value of the other periods.
2.2.1 SHAREHOLDERS’ PERSPECTIVE
We began our profitability analysis taking into account the Payout Ratio. We compared it with the
annual gross dividend per share, to understand how Brembo rewards its shareholders and how much
this action impacts on its economic results.
Payout Ratio
Brembo’s dividend policy establishes a distribution of the net profit for each ordinary share,
excluding its own shares. Looking at the annual reports, we highlight that, despite dividends per
shares’ trend is strictly positive, PR’s trend is irregular over time.
On one hand, we can link the growth of the dividends per share to the decisions
taken during the general assemblies (endogenous); the only positive ∆ of the
indicator (in the year 2015) is due to the event number 15.5. On the other, we can
explain PR’s overall negative trend looking at the denominator: Net Profit.
Net profit & Revenues
The chart shows a steady increase of net
profit. Looking for the causes in the
Financial Statements, we can appreciate
how revenues’ trend is constantly positive
thanks to the well differentiating and
international strategy of the firm (shown by
events: 13.1, 13.2, 14.2, 14.4, 16.1).
This point affects directly net profit but, if
we dig in deeper, we can highlight another
issue: comparing the values of each year
with the one of the 2012 (%i) we can point
out that the Net Profit’s growth rate is much
higher than the Revenues one.
This means that the costs grew less than proportionally to the sales over the four analyzed years.
Indeed, looking at the single cost items in the P&L account, we can see for example that the interest
expenses decreased by 29,92% between 2012 and 2016, while the maximum growth rate (57,39%)
PR
2013 29,2%
2014 25,2%
2015 28,3%
2016 21,6%
Net Profit (%i) 14,35% 65,78% 136,32% 209,12%
Revenues (%i) 12,78% 29,86% 49,30% 64,12%
77,845 € 89,016 € 129,054 € 183,962 € 240,632 €
1,388,637 €
1,566,143 €
1,803,335 €
2,073,246 €
2,279,096 €
€-
€500,000
€1,000,000
€1,500,000
€2,000,000
€2,500,000
2012 2013 2014 2015 2016
Net Profit & Revenues
𝑖 ∈ [2013; 2016]
Chart 2.1 – Net profit & Revenues
%𝑖 =
𝑉𝑎𝑙𝑢𝑒𝑖 − 𝑉𝑎𝑙𝑢𝑒2012
𝑉𝑎𝑙𝑢𝑒2012
Table 2.1 – PR

occurred for the purchase of raw materials, consumables and goods. Broadly speaking, the average
growth rate of the total of costs (including taxes) was 12,93% per year, far away from the average
increase of the Revenues (16,03%). This good management of costs can be linked on one hand to the
investment made by the company in new technologies and in new plants in order to vertical integrate
its production, and on the other hand to the divestures of not profitable subsidiaries (look at events:
13.3, 13.4, 14.1, 14.3, 15.1, 15.2, 15.3, 15.4, 16.2). Now we pass to consider the components of the
leverage formula.
Debts/Equity
We started analyzing D/E to find out if Brembo
changed its financing policy during the period. In
the 4 years of analysis, there is a general growth in
both debt and equity. The D/E ratio decreased
progressively: indeed, equity’s growth rate is
higher and higher than debt’s one (thanks to the
always greater share value, because no more
shares have been issued during the period).
Specifically, the total liabilities slightly decreased in 2015 (as we can see in 15.6), then raised again
in 2016. The decreasing trend of D/E follows the overall trend of the Italian market: in order to bear
a sustainable and less risky growth, firms are more and more basing their finance on equity, giving
back excessive debts (in accordance with the European instructions). Now we focus on the trend of
the financial expenditures to see if they followed the same development.
r
Analyzing this indicator, we can judge the financial governance. We can observe
that this indicator is not stable: between 2013 and 2015 TPL decreased (see in the
events: 13.6, 14.6, 15.6) which led to a lower risk of Brembo, driving to lower
interests on debt (reducing net financial expenses more proportionally than TPL).
Within 2016 we can see an increase of the indicator due to the event 16.4 for the
opposite logic. Anyway, we have to highlight that the indicator is always positive: this means that
financial expenses are higher than financial revenues and for this reason we used r instead of r* in
the leverage formula.
ROE & ROA
The company's effective management is characterized by the ownership of a large number of fixed
assets and the fulfilment of direct investments to increase the long-term profitability.
2013 2,12%
2014 1,42%
2015 0,87%
2016 1,42%
𝐷
𝐸
=
𝑇𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐸𝑞𝑢𝑖𝑡𝑦
𝑟 =
𝐹𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝑐𝑜𝑠𝑡𝑠 − 𝐹𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒𝑠
𝑇𝑃𝐿
Chart 2.2 – D/E
Table 2.2 – r
2.0
3
1.80
1.30
1.23
1
1.3
1.6
1.9
2.2
2013 2014 2015 2016
D/E

This long-term orientation contributed to increasing
the trend of the ROE within the years of analysis. In
addition, the shown growth trend in revenues and
the higher efficiency, linked to vertical integration
process, affected positively this indicator.
Furthermore, this positive trend is due to the
continued gain of ROA as shown in the Table 2.2.
ROA and ROS, in fact, follow a positive trend too: this means that increased revenues
overcompensate the growth of assets due to 13.1, 13.2, 13.3, 13.4, 14.2, 14.3, 15.1, 15.3, 15.4, 16.2
(Assets Turnover decreased over the last two years). We can certainly say that assets grew more than
revenues, even if they grew less than equity. That could be explained pointing out that Brembo
retained more and more earnings to face with these large investments. We can see that revenues rose
in particular in 2016 (+9.9%) compared to the previous year thanks to the changes of Group’s
structure: during this period, Brembo acquired Asimco Meilian Braking System (event 16.1),
recording in the automotive business +12.3%. It is important to say that revenues increased less than
proportionally than profits (as we explained
previously in the paragraph Net profit & Revenues);
therefore, ROS has a strong growing trend which
affects positively ROA, and broadly the good
patterns of ROE.
Ke
Moving our attention from the analysis of leverage formula we analysed the cost of equity capital of
the firm in order to understand how much Brembo remunerates its shareholders for the risk they take
by providing capital to the firm. We computed Ke using the following formula:
𝑟𝑓 is the risk-free rate and represents the theoretical return of an investment with no risk. We
considered as a proxy for this item the German 30Y bund. 𝑟 𝑚 is the market return and provides the
return on theoretical market portfolio which contains all the stocks in the market. Since Brembo
operates worldwide we select for this component the value of the Dow Jones Global Index equal to
6,52% (annualized returns of 5 years). 𝛽𝐿 is a measure of the Brembo’s stock volatility compared to
2013 2014 2015 2016
ROA 9,35% 11,88% 15,86% 16,67%
ROS 7,75% 9,90% 12,12% 14,37%
AT 120,56% 120,02% 130,84% 116,01%
𝐾𝑒 = 𝑟𝑓 + 𝛽𝐿 × (𝑟 𝑚 − 𝑟𝑓) 2013 2014 2015 2016
rf 2,5% 0,9% 1,1% 1,2%
rm 6,5% 6,5% 6,5% 6,5%
BetaL 0,49 0,91 0,60 0,73
Table 2.4 – rf, rm, BetaL
20.7%
24.1%
26.8% 27.3%
4.5%
6.0%
4.3% 5.1%
3%
10%
17%
24%
31%
2013 2014 2015 2016
ROE & Ke
ROE Ke Chart 2.3 – ROE & Ke
Table 2.3 – ROA, ROS & AT

the overall market movements. Starting from the historical weekly values of Brembo’s and Dow
Jones Global’s stocks we computed the covariance of these two items for each week within the years
of analysis. Then we calculated the variance of only Dow Jones Global stock values and finally we
estimated 𝛽𝐿 as the ratio between the covariance and the variance just figured out. The values assumed
by 𝛽𝐿 are always lower than 1, as evidence of the fact that the firm’s stock is less volatile than the
reference market. As we can see in the Chart 2.3 Ke has a steady shape. It is useful and significant to
figure out how the curve of ROE is always highly above the curve of Ke. This means that Brembo
has been always able to repay its investors thanks to its well management, and for this reason
shareholders preferred investing their money in Brembo than in another company.
s
The last index of the leverage formula does not show a particular trend; the values
that it assumed over years can be considered almost constant. As proof of this point
we can identify a nearly constant value of the tax rate (22%). This value is a little
lower in 2013 (15%) because of the highest value of the item “deferred taxes” within
the period, explaining the peak of the indicator s.
In the end, we have to point out that ROE calculated through the leverage formula is equal to ROE
calculated with the “traditional” formula Net Profit/Equity (max divergence in 2013 = 0,02%). It
underlines the accuracy in the calculation of all the indicators of the formula.
2.2.2 STAKEHOLDERS’ PERSPECTIVE
In order to consider the stakeholders’ point of view, we decided to look at the liquidity analysis and
at the absolute indicator EVA. Thus, aims at verifying Brembo’s solvability, both in the short-term
and in the long-term, and the value created by the company. This is very useful for stakeholders (in
particular for suppliers and banks) because they are mainly interested in the solvability of Brembo
and in the capability of the firm to generate value for them.
Short-term Liquidity Analysis
For the short-term liquidity analysis, we took in
account Current Ratio (CR) and Acid Test. As we can
see from the Chart 2.4, CR value is always above the
minimum threshold 1,0. This means that current
liabilities are always covered by total current assets,
so, according to this indicator, the company has a
good liquidity situation in the short-term.
s
2013 85,28%
2014 78,25%
2015 75,55%
2016 77,07%
Table 2.5 – s
1.11
1.25 1.28
1.21
0.73
0.88 0.88
0.84
0.6
0.8
1.0
1.2
1.4
2013 2014 2015 2016
Short term liquidity analysis
CURRENT RATIO ACID TEST
Chart 2.4 – Short term liquidity analysis

Looking at Acid Test, we pointed out how its value is constantly below the minimum threshold 1,0.
This means that current assets highly depend on inventory, since total current liabilities are growing
more than proportionally compared to the numerator. This is not necessarily a problem, because
inventories are related with Brembo’s manufacturing nature, but they represent the most critical
aspect that reduces the solvency of the company in the short-term. Checking the lead time of
Brembo’s brake systems we have noticed that it is 3-4 weeks. Considering that they use a MTO
approach we can certainly say that all inventories will generate cash flows in few months, confirming
that the company has no liquidity problems in the short-term.
Long-Term Liquidity Analysis
In a long-term perspective, we decided to calculate
and analyse the Cash Flow Adequacy. This indicator
shows growing values overtime, as a testimony of
Brembo’s improvement in long-term solvency.
Indeed, CFFO grew over the years thanks to the good
market performances of the company. On the other
hand, total non-current liabilities stopped growing in
2015, with a sharp drop that is directly related to the
peak of cash flow adequacy recorded in the same year.
Analysing the second level of this indicator, we observe generally steady values of dividend pay-out
ratio and reinvestments and so these measures
cannot be considered the causes of the variability
of the indicator. Another matter is the long-term
debt coverage: as we can see from Table 2.7 there
is an important decline in the long-term debt
(specially in 2015) due to a debt-repayment
policy (see event 13.6, 14.6, 15.6, 16.4), while the
CFFO, as said, grew.
In the end, we can affirm that Brembo is capable to solve its long-term debts and also to repay its
total non-current liabilities in even less than one year.
EVA
To conclude the analysis from the stakeholders’ point of view we chose to consider the absolute
indicator EVA. Starting from the Net Operating Profit After Taxes (NOPAT) we subtracted the
product between the WACC and the Capital Employed (Total Assets – Current Liabilities) to
calculate the indicator. For the computation of the WACC we used the following formula:
2013 2014 2015 2016
Long-Term debt coverage 1,22 1,00 0,57 0,47
Long-term debt 250.328€ 271.079€ 211.886€ 210.659€
CFFO 204.891€ 271.979€ 369.276€ 451.195€
2013 2014 2015 2016
Cash Flow Adequacy 66,11% 78,01% 134,38% 145,29%
CFFO 204.891€ 271.979€ 369.276€ 451.195€
Total non current liabilities 309.938€ 348.655€ 274.804€ 310.552€
0.66
0.78
1.34
1.45
0.6
0.8
1
1.2
1.4
1.6
2013 2014 2015 2016
Cash Flow Adequacy
Table 2.6 – Cash flow adequacy
Chart 2.5 – Cash flow adequacy
Table 2.7 – Long term debt coverage

𝑾𝑨𝑪𝑪 =
𝑬
𝑫 + 𝑬
× 𝑲 𝒆 +
𝑫
𝑫 + 𝑬
× 𝑲 𝒅 × (𝟏 − 𝒕 𝒄) 2013 2014 2015 2016
NOPAT 103.558 € 139.644 € 189.842 € 252.390 €
EBIT 121.439 € 178.449 € 251.282 € 327.464 €
WACC 7,6% 8,8% 5,2% 7,1%
Capital employed 739.145 € 884.985 € 962.351 € 1.192.862 €
E is the shareholders’ equity, D represents the financial debts and Ke is the cost of equity capital
introduced previously. Kd is calculated as the ratio between the financial expenses and the financial
debts while the component tc of the tax shield is the ratio between the value of taxes and EBT.
The Chart 2.6 shows an increasing trend of the indicator EVA which is every year widely positive
showing that the NOPAT can remunerate the cost of capital. Particularly, between 2014 and 2015,
we can highlight a strong increase of this economic indicator. On one hand this fact is due to a
significant growth of EBIT that, joined with a nearly constant value of the tax rate, impacts positively
the value of NOPAT (+35%). On the other hand, we can underline a relevant decline of the WACC
due to the reduction of the long-term financial debts which decreases the value of Kd (from 15% to
9%). It is worthwhile underling how also little variations of WACC may strongly affect EVA’s shape
because of the company’s will to be more and more vertical integrated, increasing consequently the
value of assets and of capital employed (see events 13.1, 13.2, 13.3, 13.4, 14.1, 14.2, 14.3, 15.3, 15.4,
16.1, 16.2). On the contrary, the increase of EVA
between the last two years is not due to the WACC
drop (which instead increased), but to the huge
growth of NOPAT equal to 32,9%. From an overall
point of view, we can assert that Brembo, within
these four years, produced value from the funds
invested in it and confirmed the profitability of
company’s new projects and the quality of the
management and ordinary activities.
2.3 INTER-FIRM ANALYSIS
Finalized the trend analysis under the two perspectives, we are now interested in comparing Brembo
with a direct competitor. This analysis has to be done in order to assess Brembo’s performances, not
only highlighting its own trend in absolute terms (like the previous analysis), but also giving an idea
of the positioning of the firm within its target market through a benchmarking. We opted for a
competitive benchmarking, rather than a sectorial one, because we think that it is better to compare
Brembo with the best of the direct competitors since it is the market leader.
Table 2.8 – EVA
47,356 €
61,957 €
139,368 €
168,164 €
40,000 €
80,000 €
120,000 €
160,000 €
200,000 €
2013 2014 2015 2016
EVA
Chart 2.6 - EVA

In this way, we can understand if Brembo is maintaining its competitive advantage or if it is erasing
over the years and if the overall growth trend is linked to a general growth of the industry or if it is
Brembo that is outperforming. Indeed, we decided to make a three years analysis because we thought
that referring not only to the last year, we can have a wider overview of the changes of position
overtime.We compared Brembo with Nissin Kogyo Co. Ltd., a Japanese firm listed on the Tokyo
Stock Exchange. Nissin is one of the best (and few) direct competitors of Brembo to be listed,
specialized in manufacturing of full braking systems. To understand attractiveness from a
shareholders’ perspective, we first compared ROE and Net Profit.
As we can see from the charts Brembo showed a steady growth and general better values of the
indicators taken into account. Nissin’s indicators are generally lower, except for a significant peak
occurred in 2015, which has brought ROE closer to Brembo’s, and Net Profit even higher. However,
we must consider that in 2015 Nissin changed its accounting principles from JGAAP (Japanese
Generally Accepted Accounting Principles) to IFRS, reclassifying its entire Financial Statement. In
particular, Nissin transferred part of its automotive brake control business unit to a joint venture
company (Nissin’s equity interest is 49%) established with Autoliv Inc. and, according to IFRS, the
Group classified this business unit as a discontinued operation. This point affects positively the P&L
account at the Net Profit level, but negatively the EBIT, as we can see in the following charts.
Chart 2.8 – Net profit
Chart 2.9 – Revenues Chart 2.10 – EBIT
Chart 2.7 – ROE
1,803,335 €
2,073,246 €
2,279,096 €
1,895,947 €
1,488,362 €
1,487,554 €
1,300,000 €
1,600,000 €
1,900,000 €
2,200,000 €
2014 2015 2016
Revenues
178,449 €
251,282 €
327,464 €
146,326 €
66,476 €
109,437 €
50,000 €
150,000 €
250,000 €
350,000 €
2014 2015 2016
EBIT
24.06%
26.76% 27.27%
9.44%
22.59%
5.53%
5%
15%
25%
35%
2014 2015 2016
ROE
129,054 €
183,962 €
240,632 €
86,927 €
337,046 €
85,213 €
50,000 €
150,000 €
250,000 €
350,000 €
2014 2015 2016
Net Profit
1,803,335 € 2,073,246 €
2,279,096 €
1,750,717 €
1,307,228 €
1,391,458 €1,200,000 €
1,600,000 €
2,000,000 €
2,400,000 €
2014 2015 2016
Revenues
129,054 €
183,962 €
240,632 €
80,268 €
296,028 €
79,708 €
60,000 €
210,000 €
360,000 €
2014 2015 2016
Net Profit
178,449 €
251,282 €
327,464 €
135,117 € 58,386 €
102,367 €
30,000 €
230,000 €
430,000 €
2014 2015 2016
EBIT

Indeed, we can observe a positive peak in Net Profit and ROE in 2015, simultaneously with the
negative result of Revenues and EBIT in the same year. In 2016, we can point out how Brembo
continues to be more profitable, confirming his positive trend both in Revenues and EBIT. These
absolute indicators should be read considering the smaller size of Nissin but, as a matter of fact,
within the three years Brembo increased all of them, while Nissin’s trend is clearly negative. This
indication proves that Brembo succeeded in maintaining a very high position in his market overtime,
showing good adaptability in a competitive environment, maybe erasing profits from competitors.
Moving to the liquidity analysis, we compared the Current Ratio and the Cash Flow Adequacy as
indicators of liquidity in short and long-term respectively, pointing out a quite different situation
between the two firms. The Current Ratio of Nissin is generally very high, even higher than 3 in
2016. However, the Cash Flow Adequacy does not follow the same trend, recording a peak of 3.20
in 2015, then decreasing sharply in the following year. This highlights a solid situation in the short
term, but not so long-term oriented. On the other hand, Brembo is more solid, with a lower but very
stable Current Ratio over the years, and a growing Cash Flow Adequacy. This is due to the large
investments aimed at stabilizing long-term financial position of the company, even if it’s undeniable
that Brembo appears a bit riskier in the short-term.
Resuming, liquidity analysis shows how Nissin has
an excellent current solvability, while Brembo is
more long-term oriented and more financially
reliable. In conclusion, we wanted to compare all
the indicators of the leverage formula of 2016.
From a first sight, Brembo performed better in
ROA* and worse in r* (they are adjusted since we
would have a negative r for Nissin). This means
that the operational management was better while
the financial was worse than Nissin’s, due to the
different size of the debts of Nissin (much lower to
2016 Brembo Nissin
Net Profit 240.632 € 79.708 €
Equity 882.310 € 1.440.493 €
EBIT 327.464 € 102.367 €
Total assets 1.964.524 € 1.800.970 €
Financial costs 51.523 € 377 €
Financial revenues 36.156 € 14.409 €
Total liabilities 1.082.214 € 360.477 €
EBT 312.208 € 107.392 €
ROE 27,3% 5,5%
ROA* 18,5% 6,5%
r* 4,8% 0,1%
D/E 1,23 0,25
s 77,1% 69,4%
ROE leverage formula 27,3% 5,6%
0.78
1.34 1.45
1.80
3.20
1.07
0.50
1.50
2.50
3.50
2014 2015 2016
Cash Flow Adequacy
Chart 2.11 – Current ratio Chart 2.12 – Cash flow adequacy
1.25 1.28 1.21
2.86
2.50
3.35
0.50
1.50
2.50
3.50
2014 2015 2016
Current Ratio
Table 2.9 – Benchmarking

be less risky and have more cash disposal as usual in Japan). In addition, D/E ratio is under the value
1 only for Nissin, so it was not able to exploit benefits of a “more than 1” D/E even if in both cases,
the terms (ROA*-r*) was positive. Looking at the indicator s, we can link the little difference between
the firms to the different taxation and to the high discontinuing operations of Nissin. Finally, we can
see through the ROE that Brembo globally outperformed confirming to be the market leader, even if
we must underline the different size of the two firms and the different risk management.
3. RELATIVE VALUATION
In this section, our objective is to assess Brembo’s value applying the relative valuation approach,
going through the following steps:
3.1 IDENTIFICATION OF BREMBO’S VALUE DRIVERS
First of all, we pointed out Brembo’s value drivers. Considering the “Carta dei Valori” of the
company, we can resume them in this statement: Brembo’s value is generated by a “continuous
attention to details, which leads to high performance, innovative and stylish products, and allows to
create strong partnerships with valuable firms worldwide and a considerable customer satisfaction (in
a customer-based perspective)”.
3.2 DEFINITION OF COMPARABLE COMPANIES
We looked for some comparable companies within different industries: first we searched similar
listed companies belonging to the car components sector, whose products are associated with high
performances and are very appreciated and recognized by final consumers of the supply chain (cars).
Then we focused on companies of different industries (i.e. technology and leisure), characterized by
the same value drivers. The comparable companies found are the following:
• Sogefi S.p.A.: Italian engine systems and suspension components company that supplies lots of
valuable car manufacturer firms worldwide.
• Continental AG: German automotive manufacturing company, specialized in tires.
• GKN plc: British multinational automotive and aerospace components company which creates
high performances solutions.
• Intel Corp.: American multinational specialized in manufacturing of semiconductor chips and
recognized as one of the leader in its industry.
• Foxconn International Holdings Ltd.: Multinational electronics manufacturing company,
headquartered in Taiwan. It supplies Apple and other big international companies.
• Nissin Kogyo CO. Ltd.: Japanese automotive parts company specialized in manufacturing of
braking systems.
Selected Non-selected

• Shimano, Inc.: Japanese multinational manufacturer of cycling components and fishing tackles
that are embedded in the high-end products.
• Pininfarina S.p.A.: Italian car design firm and coachbuilder specialist which signs lots of design
projects for very valuable car makers.
We have to point out that Pininfarina and Shimano were excluded during the calculation of multiples.
We decided to keep out Pininfarina because of the strategic decision they made of classifying several
assets as held for sales, that leads to negative EBIT and EBITDA. Then, Shimano was excluded
because of its very different D/E ratio and of its very high cash and other liquidity disposal, that
together caused a negative NFP. This factor made Shimano an outlier in the calculation of five
multiples out of six. Regarding the remaining comparable, we can say that everyone, more or less, is
as risky as Brembo (almost βL ≈ Brembo’s βL). Only two companies are riskier: Foxconn has  equal
to 1,2, but this is linked to the instability of the Taiwanese market; Sogefi has even a higher value of
, but this is strictly related to the little size of the company and the too high D/E ratio equal to 4,86.
3.3 DEFINITION, ANALYSIS AND APPLICATION OF MULTIPLES
During the calculation, we selected the following multiples
EV / Sales This is the quickest indicator; we considered it because sales are a quite reliable proxy
of the market power in a B2B environment
EV / EBIT We consider it instead of EV/EBITDA because this latter considers only the operating
activities, excluding the impact of DA which is of relevant importance in comparable
industries
EV / EBITDA We excluded this multiple for the reason explained above and because it leads to an
Enterprise Value of Brembo similar to the one given by EV/Sales
EV/ (BV of debt
+ BV of Equity)
Comparable companies are supposed to have similar risk and the same value drivers,
and so their financial positions should be similar. However, we dropped it because the
D/E ratio of Brembo results too different from the average of the comparable
P / EPS Since comparable companies are supposed to have similar return on equity (due to a
similar value of β), this multiple could be a good proxy. However, we decided not to
consider it because the variance is too high
E/ BV of Equity As EV/ (BV of debt + BV of Equity), it could well represent the company’s value from
the Equity side, but, in this case, we have used it
N.B. Share prices considered are referred to the market value of them on 30th
of December since the 31st
was Saturday and so the stock exchange was closed.
* for the computing, we considered the “management basis” values instead of the “statutory basis”
values because the first ones, even if they are non-GAAP measures, “assess operating performance on a
consistent basis, which gives a fairer assessment of the underlying performance of the business” (as
explained in GKN’s 2016 annual report). In addition, “statutory basis” values would have been outliers.
Table 3.1 – Multiples

First, we adjusted the Enterprise Value calculated through the asset-side multiples by subtracting
Brembo’s NFP to reach the correspondent Equity Value. Looking at the range, the lower boundary is
the value calculated with the E/Equity(BV), but it could not be considered a very reliable value
because of the different policies of capitalization even among companies of similar size. Regarding
the superior boundary, we can see that it is the one linked to the EBIT. In this case we can relate this
highest value to the fact that Brembo has a lower impact of depreciations on the operating profit.
Looking at the Brembo’s market value of equity at 30th
December 2016, we can see that it is between
the boundaries of the range, close to the superior threshold. This means that our valuation is reliable
even if the range is quite large. Another important aspect is that, at that moment, market was
addressing a very high value to Brembo, nearly exceeding the range. This fact is linked to the overall
increasing trend of performances of the company and its huge growth over the last years.
4. CONCLUSIONS
We decided to conclude the report with a short paragraph that highlights the outcomes of our analysis.
Our target was to have a clear, complete and deep overview of the financial situation of the chosen
company, Brembo. Starting from a broadly overview we could get an idea about the strength of
Brembo in its industry. After performing the several above analysis, we can say that our initial insight
was confirmed. The firm turned out to be solid and well managed both in an absolute perspective
(trend analysis) and in a relative point of view (inter-firm analysis). Both shareholders and
stakeholders can be deemed satisfied by the conduction of the company and they can continue to rely
on an excellent management overtime.
Asset side: Enterprise Value (EV) Equity side: Equity Value (E)
Multiple [x] EV/EBIT EV/EBITDA EV/(E + D) EV/SALES P/EPS E/Equity (BV)
Sogefi 14,98 7,31 1,01 0,71 30,07 1,54
Continental 13,69 9,25 1,55 1,38 13,10 2,49
Pininfarina -36,17 -700,71 0,84 2,57 1,65 1,19
Gkn (*) 15,61 10,60 1,35 1,28 23,52 2,63
Intel 17,23 9,31 1,90 3,54 16,26 2,67
Foxconn 15,32 4,86 0,92 0,61 0,29 1,37
Shimano -1,39 -0,68 -0,20 -0,28 1,95 0,26
Nissin 10,24 5,58 0,58 0,75 3,06 0,70
Average 14,51 7,82 1,22 1,38 14,38 1,90
Brembo 4.751.501.882 € 3.468.925.811 € 1.074.238.006 € 3.146.671.400 € 3.461.487.150 € 1.676.047.428 €
RANGE Brembo
(from fin. stat.)min max
E 1.676.047.428 € 3.909.919.882 € 3.840.105.875 €
NFP 841.582.000 €
EV 2.517.629.428 € 4.751.501.882 € 4.681.687.875 €
Table 3.2 – Comparable
Table 3.3 – E, NFP & EV
Grey lines and columns are not selected for the analysis

5. REFERENCES
Brembo
http://www.brembo.com/en
http://www.brembo.com/en/company/about/history
http://www.brembo.com/en/Reports/2013/Bilancio%202013%20UK_final.pdf
http://www.brembo.com/en/Reports/2014/Bilancio%20Brembo%202014%20UK%201w.pdf
http://www.brembo.com/en/Reports/2015/Brembo%202015%20UK.pdf
http://www.brembo.com/en/Reports/2016/Bilancio%20Brembo%202016%20UK%205.pdf
Ke
Arnabolodi, Azzone, Giorgino – Performance Measurement and Management for Engineers - AP
https://it.investing.com/rates-bonds/germany-30-year-bond-yield
S&P Dow Jones Indices LLC, Dow Jones Global Select Dividend Index
https://it.finance.yahoo.com/quote/BRE.MI/history?p=BRE.MI
https://it.finance.yahoo.com/quote/%5EDJGT/history?p=%5EDJGT
Nissin Kogyo
http://www.nissinkogyo.co.jp/en/
http://www.nissinkogyo.co.jp/investors/annual_report/Nisinkogyo%20AR%202014.pdf
http://www.nissinkogyo.co.jp/investors/annual_report/nisinkogyo%20ar%202015.pdf
http://www.nissinkogyo.co.jp/investors/annual_report/nissinkogyo%20ar%202016.pdf
Comparable Companies
http://www.sogefigroup.com/it/azionisti-investitori/bilanci-relazioni/2016/index.htm
https://it.finance.yahoo.com/quote/SO.MI/
http://report.conti-online.com/pages/service/download/download_en.html
https://it.finance.yahoo.com/quote/con.de?ltr=1
http://www.pininfarina.it/en/financial/annual_financial_reports/archive_120229/archive_151103.htm
https://it.finance.yahoo.com/quote/PINF.MI?p=PINF.MI
https://www.gkn.com/en/investors/results-centre/annual-reports/
https://it.finance.yahoo.com/quote/GKN.L?p=GKN.L
https://s21.q4cdn.com/600692695/files/doc_financials/interactive/2016/index.html
https://it.finance.yahoo.com/quote/INTC.MI?p=INTC.MI
http://www.shimano.com/en/ir/library/cms/contents/Summary%20of%20Financial%20Results%20FY2016.p
df
https://it.finance.yahoo.com/quote/SHM.F?p=SHM.F
http://www.foxconn.com/Files/annual_rpt_e/2016_annual_rpt_e.pdf
https://it.finance.yahoo.com/quote/2354.TW?p=2354.TW

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