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5. Eberspaecher Gruppe GmbH & Co. KG Business Report FY ended Dec. 2019

Eberspaecher Gruppe GmbH & Co. KG Business Report FY ended Dec. 2019

Factors
1) Net Sales
-The Company’s sales for the fiscal year ended December 31, 2019 increased by 7.7% from the previous year to EUR 4,965.6 million. The increase in sales was primarily due to the initial consolidation of a Portuguese company in the Exhaust Technology Division, as well as the consolidation of two companies in the Climate Control Systems Division in China and France.

2) Exhaust Technology division
-The Company’s Exhaust Technology division had sales of EUR 4,394.9 million in the fiscal year ended December 31, 2019, an increase of 8.1% from the previous year. The increase in sales resulted from increased sales volumes in the Chinese market as well as increased volumes from passenger vehicle technology plants in Portugal and Romania. The division’s sales in North America declined compared to the previous year due to the loss of a follow-up order from a major customer and declining demand for passenger vehicles.

3) Climate Control Systems division
-Sales in the Climate Control Systems Division in the fiscal year ended December 31, 2019 increased by 2.9% from the previous year to EUR 506.0 million. Sales from the division’s Fuel Operated Heaters business units declined significantly year-over-year. However, the decreased sales from that business unit were offset by growing revenue in the Special Markets, Bus & Coach, and especially Electrical Heaters business units.

4) Automotive Controls division
-The Automotive Controls Division had sales of EUR 64.6 million in the fiscal year ended December 31, 2019, an increase of 19.4% from the previous year. The increase in sales came from increased revenue due to production ramp-ups for supercap-modules and glow plug control modules.

Joint Ventures

-The Company’s subsidiary, Eberspaecher Exhaust Technology International, and Sharda Motor Industries Ltd. signed an agreement for a 50:50 joint venture. In order to comply with the highest emission standard, Bharat Stage VI, the new joint venture will develop, produce and sell exhaust aftertreatment systems for Indian commercial vehicle manufacturers. The products will be utilized in trucks and buses from 2020 onwards. Two new technology plants will be launched for initial production, one in Pune and the other in Northern India. The first exhaust systems will be manufactured in the second half of 2019. (From a press release on February 25, 2019)

Contracts

-The Company developed innovative heating concepts for StreetScooter GmbH - a subsidiary of Deutsche Post. The next-generation WORK XL, the largest electric transporter van in StreetScooter’s portfolio, can be equipped with electrical high-voltage heaters or ethanol heaters. Depending on the requirements, the WORK XL is equipped with electric motors and lithium-ion batteries with varying performance levels. The version with a double battery pack and thus greater battery capacity uses a Company electrical high-voltage heater. This solution has been specifically developed for hybrid and electric vehicles and provides reliable, intrinsically safe heating using PTC technology. The WORK XL variant with lower battery capacity is equipped with a Company ethanol heater (2 kW) based on the Airtronic 2 air heater. (From a press release on December 10, 2019)

-The Company announced that campervan manufacturer Westfalia has chosen to use its heating systems in the latest iteration of its James Cook model. The fourth-generation camper is equipped with Hydronic S3 Economy as standard equipment. The Hydronic S3 Economy Diesel heater, which is controlled via CI-BUS, forms the basis of this heating design. For trips to colder regions, the James Cook can be fitted with the optional Westfalia 4-Season Comfort Package, which includes the Plugtronic electrical heater. When the engine is not running, the heater can be plugged into a power grid (230V) at a campground during the night. (From a press release on September 19, 2019)

-The Company will equip over 40 electric buses from the leading manufacturers BYD and Golden Dragon with the roof-mounted air-conditioning system AC 136 AE HP. The electrically driven air-conditioning solution has been specially tailored to the requirements of hybrid and electric buses. Thanks to its reversible refrigerant circuit, it combines cooling and heating functions in a single device. In addition, the system utilizes a 100% fresh air supply. Bus manufacturers additionally benefit from diagnostics-capable components, a brushless fan and the system’s modular design, which enables quick and easy installation. (From a press release on March 4, 2019)

Outlook

-Due to the effects of the COVID-19 pandemic, the Company expects that its revenue and earnings will decrease in the fiscal year ending December 31, 2020.

 
-The Company aims to invest an average of 7% of its net revenue each year in research and development.

R&D Structure

-The Company has approximately 900 experts working in research and development across its various divisions.

R&D Facilities

-The Company has research and development facilities in the following locations:

• Esslingen, Germany
• Hermsdorf, Germany
• Herxheim, Germany
• Renningen, Germany
• Landau, Germany
• Concord, Canada
• Novi, Michigan, U.S.
• Shanghai, China

-The Company announced the official opening of the Asia Test Center in Shanghai. The new center bundles the Company’s exhaust technology testing expertise and prototyping operations for customers in Asia. The new test center spans 3,800 square meters and houses a prototype shop and the possibility to test exhaust systems from material and component level to system level for passenger cars and commercial vehicles. The Test Center is directly attached to the existing Company site in Shanghai, Jiading, where over 400 employees develop and manufacture exhaust systems. Besides technologies for future emission standards, demand is growing for low noise and high sound quality exhaust systems in Asian markets. The center has vehicle level acoustic testing capabilities in a semi-anechoic room. (From a press release on January 16, 2019)
 

R&D Activities

-In 2019, the Company’s R&D activities focused on the following products and projects:
Exhaust Technology Division

• New components and systems to affect thermal management for exhaust-gas aftertreatment applications
• Modular exhaust valves which can improve muffling and exhaust-emission conversion
• Modern exhaust-gas aftertreatment systems specifically for the Chinese and Indian markets.

Climate Control Systems Division

• Airtronic 3 third-generation air heater for light commercial and commercial vehicles
• Small water heaters for passenger cars and light commercial vehicles
• Hydronic S3 InCat water heater with integrated catalytic converters with integrated catalytic converter
• Expansion of functions of EasyStart Web end user application for vehicle climate control
• A group-wide digital connectivity platform which links components in special vehicles such as auxiliary batteries and vehicle heaters
• High-voltage coolant heaters
• PTC ceramics for use in high-voltage and low-voltage products
• Roof-mounted air conditioning systems for buses and coaches

Automotive Controls Division

• Secure switches for use in autonomous vehicles
• High-voltage PTC heater for electric and hybrid vehicles
• Further development of software for automotive battery solutions

Technological Alliance

-The Company announced a collaboration with Startup Autobahn to identify suitable startups through the existing Startup Autobahn network. At the Esslingen headquarters, a team of creative minds named Next Shed advises internal and external venture teams and offers the necessary industrial infrastructure, networks and expertise to the contacts established through Startup Autobahn. The opportunities for cooperation with the technology companies can range from pilot projects and co-development through to investments. The work fields extend beyond the Company’s core areas of heating and cooling. They are on the lookout for partners for innovative mobility solutions and mobile energy storage systems. (From a press release on November 5, 2019)

Product Development

Systems for Rinspeed MetroSnap concept vehicle
-The Company provides thermal management, connectivity, and electronic switch systems for Rinspeed’s MetroSnap, which will debut at CES 2020. An additional Energy Storage System from the Company which is independent of the traction battery enables the MetroSnap to have an autonomous energy supply. The combination of a space-saving split air-conditioning system and the latest generation of electric air heaters ensures comfortable temperatures in the passenger compartment. The Company’s cooling and heating containers provide the necessary temperature for storing goods. An advantage provided by the MetroSnap is that fleet operators can use the Company’s app to view important system information, control the temperature, or use GPS tracking to check the location of the vehicle and the Energy Storage System’s charge level. High-performance switches from the ADSS family (Autonomous Drive Safety Switches) ensure the safety required in autonomous traffic. (From a press release on December 5, 2019)

Engine-independent vehicle heaters
-The Company’s engine-independent vehicle heaters provide a solution for low outdoor temperatures and move beyond a purely comfort-oriented feature towards an ecologically necessary component in vehicle thermal management. The fuel-operated Hydronic S3 InCat heater prevents the vehicle engine from starting up and, independently of the engine, warms the interior with significantly lower fuel consumption.  The catalytic converter is completely integrated into the water heater and eliminates almost all carbon monoxide and hydrocarbon emissions. The heater also heats the battery. A CO2-neutral solution for purely electrically powered vehicles comes in the form of ethanol heaters. The Company offers these based on its water and air heaters. Ethanol heaters provide the necessary heat for heating the vehicle interior and the battery, without energy from the vehicle battery, thus providing an ecological solution that does not impact the electrical range of electric vehicles. A new generation of ethanol heaters (2 kW) based on the Airtronic 2 air heater is currently being deployed in the new WORK XL from StreetScooter GmbH. (From a press release on November 7, 2019)

AC 136 HP CO2 roof-mounted air-conditioning system for buses
-The Company will present the new AC 136 HP CO2 roof-mounted air-conditioning system at Busworld Europe in Brussels. It is specifically designed for the environmentally friendly and safe refrigerant R744 (carbon dioxide). Based on the concept of the proven predecessor version, the AC 136 HP CO2 is tailored to the requirements of hybrid and electric buses: Due to its reversible refrigeration circuit, the heat pump technology enables various cooling and heating outputs of up to 22 kilowatts in one system, ensuring proper heating and cooling of the passenger compartment. Electric heat pumps draw their heat with a high Coefficent of Performance value from the ambient air. In addition, CO2 allows the heat pumps to operate in lower temperature ranges than chemically produced refrigerants. Thus, the AC 136 HP CO2 requires no additional electric heating load from the bus when used at temperatures as low as negative 15 degrees Celsius. (From a press release on October 10, 2019)

Technologies shown at North American Commercial Vehicle Show
-The Company will exhibit smart emission control systems and efficient, powerful thermal management solutions at the North American Commercial Vehicle (NACV) Show. Based on tunnel mixer technology, the operating window of the mixing device has been extended with respect to urea conversion performance. This allows the Company to offer single path systems such as Inline or U-shape for a wider number of applications, providing benefits in terms of serviceability and cost. With its exhaust manifold for commercial vehicles, the company offers another development for complying with current and future emission guidelines, especially those concerning low-NOx requirements. The second generation of the fuel-operated Airtronic can be used in a variety of commercial vehicles. The third generation of the Hydronic water heater features an increased heat output efficiency with a compact and robust design. With their wide range of outputs, Hydronic systems are suitable for many different vehicles from small delivery vans to heavy-duty trucks. (From a press release on September 5, 2019)

Technologies shown at Busworld 2019
-The Company is presenting innovative solutions for comfortable cooling, heating and ventilation of buses whatever their size and drive type at Busworld 2019. With the new electric roof-mounted air-conditioning system AC 136 HP CO2, the Company is introducing an environmentally friendly heating and cooling solution for hybrid and electric buses. It is specially designed to use the natural refrigerant carbon dioxide and will be available from 2021. It is also introducing the Airtronic L3 Commercial diesel version air heater, which will be available from autumn 2020 and is suitable for use in mini- and midibuses, amongst others. The Company’s exhibit will also show the new Hydronic L3 water heater for large buses available from 2021. With a heat output from 16 to 35 kW, the third-generation water heater is more compact and even lighter water heater compared to its predecessor and is suitable for use in different climate zones. (From a press release on August 15, 2019)

Electronic switch systems
-The Company has developed electronic switch systems which offer strong reliability and robust, series-proven design. The semiconductor-based and redundant safety switch will be used in autonomous level 4 vehicles. Series production of the switch will begin in fall 2019. The semiconductor switch connects and disconnects 12V partial power grids in hybrid and electric vehicles in the event of overvoltage, undervoltage or short circuits. This ensures that safety-relevant functions are safeguarded within less than 100 microseconds. For autonomous driving, the Company’s electronics experts offer comprehensive expertise in switching currents and intelligent power distribution in the vehicle’s power grid. (From a press release on July 25, 2019)

Programmable control units
-The Company has developed a Programmable Control Unit (PCU) for additional vehicle functions. Thanks to its relay plug-in housing with a 6.3 mm flat connector, the PCU can be used in various vehicle types. The PCU also meets interior environmental requirements (IP40) and is validated to LV 124. The compact control unit provides interior lighting dimming in passenger cars and commercial vehicles and even guarantees increased safety on the road as a reverse warning system. Depending on the requirements, the micro controller can also be programmed for other applications, vehicle types and, in the future, for the visual perception of autonomously moving cars. With the CAN/LIN variant, the compact unit can also be used as a gateway. (From a press release on June 3, 2019)

-In the fiscal year ended December 31, 2019, the Company invested EUR 149.2 million in property, plant and equipment. The investment was distributed across the Company’s three business divisions as follows:

• EUR 98.6 million was invested in the Exhaust Technology Division, primarily for the expansion of production capacity at various locations.
• EUR 46.6 million was invested in the Climate Control Systems Division, for the expansion of production capacities and for the division’s new production facility in Hermsdorf, Germany.
• EUR 4.0 million was invested in the Automotive Controls Division and the Company’s central service units.

-The Company expects its investments in the fiscal year ended December 31, 2020 to decrease compared to the previous year as it is currently postponing and avoiding significant investments due to the COVID-19 pandemic.

Investments in Germany

-In 2019, the Company began transferring its manufacturing operations of PTC stones at its Hermsdorf location to a newly constructed facility. Production at the new facility began during the year.

Investments outside Germany

<Asia>
-The Company expanded its production capacities of electrical heaters across multiple facilities in Asia to meet regional demand.

<Portugal and Romania>
-The Company’s Exhaust Technology Division plants in Oradea, Romania and Tondela, Portugal, which began operations in 2016 and 2017, respectively, significantly increased their production volumes in the fiscal year ended December 31, 2019.

<India>
-The Company announced that it is expanding production capacities for bus air-conditioning systems in Bangalore, India. By moving into a new, modernized plant, the Company will double its production capacity. The approximately 6,000 square meters will offer space for the production and assembly of additional product lines in addition to logistics space. In the near future, it plans to produce electric air-conditioning systems for hybrid and electric buses in Bangalore. Up to 7,000 bus air-conditioning systems can be manufactured annually at the plant, which will be sold throughout Asia. The site currently employs approximately 100 people. (From a press release on September 5, 2019)

<Mexico>
-The Company is investing in a component plant for exhaust technology in Saltillo, Mexico, to service existing and future contracts in the NAFTA market. The 15,000-square-meter facility will produce complete exhaust systems as well as components such as particulate filters and catalytic converters for passenger cars and commercial vehicles. The building is due to be completed in late summer with the first products expected to roll off the production line by the end of 2019. Located in the immediate vicinity of major OEMs, the new plant is situated approximately 300 kilometers southwest of the U.S. border. (From a press release on May 9, 2019)