In 2019, the SBS Group continued implementing its strategy, which has two main objectives: To develop both of the Group's companies based on their individual circumstances and market conditions. And to strengthen the Group's capital base by focusing efforts on earnings and working capital.
In 2019, SBS Friction saw the largest progress and realised record-high earnings and strengthened its position in both the global aftermarket and the OEM market.
SBS Automotive's earnings were pressured by substantial changes in the European aftermarket and decreasing demand; however, SBS Automotive's earnings were in line with expectations based on the difficult market conditions.
The strategic priorities of the two companies reflect their special position and the dynamics in their markets:
FOCUS IN SBS AUTOMOTIVE
SBS Automotive is primarily a distribution company with a comprehensive sourcing platform where products are sourced from manufacturers in i.a. China, transported to Europe, packaged, stocked and sold to a wide spectrum of distributors and purchasing groups. SBS Automotive creates value for its customers through high reliability of delivery and a broad product mix covering several price points and trademarks, including SBS' own brand NK and private labels.
Particular focus is given to the open aftermarket in Europe where consolidation among distributors and wholesalers is increasing, while minor wholesalers find it increasingly difficult to survive. The end users' behaviour has also changed; for instance, on-line spare part trade is growing. SBS Automotive's response to the development is primarily to focus on the largest and most robust distributors, wholesalers and e-commerce platforms in each market and align product range and services to the more complex needs of these customers.
Strategic focus areas:
- More partnerships with leading players in each market
- Market expansion, also in Europe's neighbouring regions
- Expansion of the product portfolio
- Optimisation of supply chain and sourcing to reduce complexity, costs and capital tied up in working capital
FOCUS IN SBS FRICTION
SBS Friction is a production company with its own technology platform. The company is one of the few large global suppliers in a niche market. In Europe, SBS Friction is the absolute market leader in the open aftermarket with its strong premium brand, SBS; and its position in Asia, North and South America is expanding. In the OEM market, SBS Friction has been approved by a number of potential customers, and it has a considerable pipeline of potential projects.
In the aftermarket, strategic focus areas include:
- Development of new brake products and related products
- Geographical expansion, particularly in Asia
- Continued strengthening of the SBS trademark
- High delivery performance and quality
In the OEM market, strategic focus areas include:
- Development of the friction technology
- Innovation in the form of new linings
- Quality control and reliability of delivery
Optimisation is a key factor in both companies' strategies:
Supply chain: Optimisation of the supply chain plays an important role in SBS Automotive in particular in relation to optimising the comprehensive sourcing platform, improvements of internal inventory and logistics flow and improved delivery concepts i.a. based on digital trade.
Automation and lean: SBS Friction focuses on increased automation of production by introducing new technology, new processes and intensive use of lean. The efforts should lead to continued improvements to strengthen SBS Friction's
competitiveness and meet the high-quality requirements of the customers.
Digitisation and IT: A new business system was implemented in SBS Friction and the Group's shared functions in 2019. The system supports operations, and a number of processes are being optimised to make the most of the system. Experience must be gained from the system before it is rolled out to the rest of the Group (the Automotive division). Both companies also use digital tools to handle product data, trade with customers and suppliers, etc.
REDUCTION OF DEBT
It is still a strategic focus area to ensure a long-term, sustainable and stable financial basis for the SBS Group.
In 2017, the SBS Group entered into a credit agreement with the Group's banks. In June 2019, the agreement was extended by an additional two years so that it now covers the expected financing requirements for the Group's activities and plans up until April 2022.
Equity was still negative following the large write-downs on the Notox assets sold in 2009 and 2015. At year end, equity amounted to a negative DKK 145 million compared to a negative DKK 150 million in 2018. Operations and earnings according to the strategy plan are still expected to gradually contribute to strengthening the capital base.
At year end, net interest-bearing debt amounted to DKK 512 million against DKK 403 million in 2018. The increase is partially due to the implementation of the financial reporting standard IFRS 16, which increased the interest-bearing debt by DKK 38 million, and a large, short-term amount tied up in inventories of easily marketable finished goods. These inventories will be reduced on an ongoing basis in 2020 to reduce the debt. Despite the increase in 2019, the SBS Group has reduced the net interest-bearing debt, including subordinate loan capital, by 25% or DKK 172 million since 2012.