We believe our principal competitive strengths include the following:
Excellence and technological innovation. We operate in a highly competitive industry that demands a high level of technological innovation. We are recognized in our industry for our focus on the development and application of new technologies. Since 1978, we have owned a proprietary technology center in Brazil. In 2008, we opened a new technology center in the city of Jundiaí in the State of São Paulo, which we believe is one of the largest and most well-equipped technology centers in Latin America for the development of components and solution packages for internal combustion engines. Our technology center in Jundiaí is a world-class center in piston rings and cylinder liners’ technology. In addition to research and development activities that were developed at our previous technology centers, we expanded our projects in the following areas: cylinder liners, connecting rods and power cells (comprised of cylinder liners, piston, rings, connecting rods, bushings and pins); engineering, development, improvement and engine testing services for our customers through our internal division called MAHLE Power Train, or MPT, air and liquid filtering systems, activated coal canisters and valve trains, among other products. We exchange technologies through the interaction between our technology center and other technology centers of the MAHLE Group. This exchange contributes to the sophistication and improvement of our products and services, thereby assisting us to meet the requirements of our global customers. We have also developed technologies for components of combustion engines, in line with recent global demand trends for smaller and lighter engines, which are cost-effective and environmentally efficient, including components for engines of bio-fueled vehicles. We believe that these new technologies allow us to continue to provide components that assist our customers meet recently reduced greenhouse gas emission targets. We also provide development, improvement and engine testing services to our customers through our MPT unit.
Large portfolio of products with integrated and customized solutions. We have a large product portfolio, having offered approximately 71,000 different items in 2013. We provide parts as well as fully integrated and customized solution packages to meet specific requirements of our principal customers. As a result, we believe we are the preferred business partner and supplier of our customers. Our work starts from the conception and engineering of our products to their manufacturing, which gives us the opportunity to develop new products, improve existing ones and anticipate solutions. Consequently, we maintain strong relationships with our customers, which we believe is an important competitive advantage and a key factor for our ability to maintain and improve our market share.
Diversification of markets. We seek to balance our market mix between the OEM and aftermarket segments, both in the domestic and international markets, in order to offset any fluctuations in such segments and markets and to stabilize our profit margins throughout time. As a result, any sales retractions in the OEM segment, for example, can be gradually offset by additional sales in the aftermarket segment and any retractions in our export sales can be offset by an increase in Brazilian sales, as has recently occurred. In addition, our customer base is well diversified, thus decreasing our exposure to any specific customer. In 2013, none of our customers represented more than 10% of our annual net revenue for that year.
Leadership and brand recognition. We believe that the MAHLE brand and the products related to it are associated with high quality, high technology and excellent performance of engine components both to our direct customers (i.e., automakers and spare parts distributors) and the end consumers of our products (i.e., vehicle purchasers), which can be supported by the fact that we have been chosen “Company of the Year” by Exame magazine, a renowned Brazilian business periodical, three times - most recently in 2003. We have also received a number of excellence awards from our customers and have been able to increase our sales volume to our principal customers in the domestic market in recent years, which we believe is a sign of our strong brand recognition.
Financial strength. We have a solid financial structure that gives us the flexibility to benefit from new strategic and expansion opportunities without compromising our liquidity. Historically, we have had low levels of net indebtedness. Recently, however, our indebtedness has been above historic levels due to loans we have obtained from BNDES at attractive rates and maturities. Our business has provided EBITDA margins that are higher than the average EBITDA margins in our sector, both in Brazil and abroad, which, together with our strong cash generation and our low net indebtedness levels, has allowed us to make strategic moves, continuously invest in the research and development of our products and technologies and provide attractive returns to our shareholders.
Experienced and committed management team and controlling shareholder group. Our management is comprised of experienced and highly qualified professionals with a proven track record in the automotive and autoparts industry. Many of our senior officers have more than ten years of experience in our group. Our management has a proven track record in integrating companies we have acquired, which, in recent years, has allowed us to implement an effective acquisitive strategy to enable us to grow our business in an opportunistic manner. We also capitalize on the expertise of the MAHLE Group, which is present in the principal automotive markets worldwide, thereby allowing us to offer products and services to a larger customer base and benefit from cooperation opportunities to conduct research projects for the joint development of new products. As part of the MAHLE Group, we are also able to offer training opportunities to our employees in other technology centers of the MAHLE Group around the world, contributing to the continuous technological improvement of our products and services.
In order to accomplish our objectives and promote growth, we intend to advance the implementation of the following strategies:
Optimize our technological know-how by seeking innovative and increasingly sustainable solutions. The development and utilization of our technology center for the automotive industry, located in the city of Jundiaí in the State of São Paulo, has provided us with significant competitive advantages with respect to the improvement and development of components for internal combustion engines, as well as for automotive and industrial filters. We intend to continue investing in research and development through our technology center in Jundiaí, in an effort to anticipate market trends and needs, and create customized sustainable technology solutions for our customers, which we believe will allow us to further leverage our growth and increase our productivity and profit margins. In addition, we offer our customers advisory and consulting services in automotive engineering. Through our MPT division, we offer our customers, particularly automakers, a complete infrastructure for the research and development of engines and components through both: (1) integrated solutions with the development of virtual projects, using full simulation engine programs, simulation of specific components including valve train, crankshaft dynamics, and thermal management of engines and injection systems and (2) knowledge and analysis, not only of autoparts, but also of entire solution packages, thereby expanding our competitive advantages and those of our customers by predicting potential problems affecting their engines and the autoparts used in them and anticipating solutions.
Continue seeking productivity gains and cost efficiency to maintain our margins. It is common in our industry that autoparts supply agreements provide for the gradual decrease of the price of supplied products over the years. For this reason, we intend to continuously modernize our production processes by constantly reducing our costs and increasing our productivity in order to maintain and increase our margins. As a result of increased labor costs, we plan to intensify the use of automated production processes as they become economically feasible. We systematically monitor the evolution of our competitiveness through the quantitative analysis of our production process, as measured by productivity per employee, revenue per employee and labor costs versus revenue, which has given us the ability to increase our revenue without significant increases in costs and operating expenses. In an effort to achieve additional cost reductions and make environmentally conscious decisions, we continue to implement permanent corporate programs to reduce the cost of electricity and water, and to manage the solid waste resulting from our production processes.
Develop opportunities in the automotive industry and in complementary industrial sectors. We are constantly seeking opportunities for acquisitions and strategic partnerships in the markets where we operate with a view to achieving scale and productivity gains, particularly in Brazil and the Common Southern Market (MERCOSUR) region, where we will continue to strive to expand our market share by capitalizing on the anticipated growth trend projected for these markets. We continuously analyze the automotive industry to benefit from any opportunities in connection with products that may complement our activities and diversify our current product portfolio. We believe that opportunities for strategic acquisitions and partnerships may allow us to rapidly achieve further growth. For example, in the last years we completed the acquisition of (1) the bearing business of Dana Indústria Ltda. in the city of Gravataí in the State of Rio Grande do Sul; (2) EDIVAL Establecimientos Metalúrgicos S.A., or EDIVAL, a valve manufacturer in Argentina, and, more recently, (3) the Brazilian piston rings business formerly conducted by MBR. We also entered into a joint venture in the forged components segment, resulting in the establishment of our joint venture company MAHLE Forjas. We also believe that our ability to benefit from synergies resulting from the acquisition of new businesses and the formation of strategic partnerships will contribute to the growth of our activities and our margins. In addition, we seek opportunities outside the automotive industry, in industries where we may have applicable product technology and know-how. As such, we have entered into a partnership with MIBA Sinter Holding GmbH, or MIBA, an Austrian company, for the production of sintered components, thereby contributing to the increase of our share in the Brazilian market for sintered components.
Develop customized and integrated solutions seeking to strengthen our customer relationships. We intend to strengthen our relationships with our principal customers through the development of customized and integrated solutions, maintaining the technological excellence and confidentiality of our projects. As a result, we will seek to expand our range of products specially developed and supplied to individual customers, thus significantly contributing to the growth of our results and customer loyalty. In addition, we will continue to benefit from the business relationships of the MAHLE Group on a global level for prospecting new customers and strengthening our relationships with our current global customers.