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5. ElringKlinger AG Business Report FY ended Dec. 2016

ElringKlinger AG Business Report FY ended Dec. 2016

Factors
1) Net Sales
-In the fiscal year ended December 31, 2016, the Company’s net sales increased by 3.3% to EUR 1,557.4 million. Excluding currency and acquisition effects, the Company had organic growth of 4.7%. Negative currency translation effects decreased sales by 2.5% while acquisitions contributed a gain of 0.8% to the Company’s sales. The Company saw gains across all regions of operations, with the Asia Pacific and Rest of Europe regions particularly showing strength.

2) Original Equipment segment sales
-Sales in the Company’s Original Equipment segment increased by 3.1% in the fiscal year ended December 31, 2016 to EUR 1,294.3 million. Overall, the segment’s increased sales were due to growing demand for lightweight, high-performance plastic products. Sales in the Lightweighting/Elastomer Technology and Specialty Gaskets grew significantly, while the Cylinder-head Gaskets division’s sales declined.

Acquisitions

-The Company announced a transaction to acquire a strategic interest of 27% in the engineering company hofer AG. The transaction also encompasses a 53% majority interest of ElringKlinger in the hofer powertrain products GmbH subsidiary operating in the Nurtingen-based group of companies. The purchase price of the entire transaction is in the double-digit million euro range and will be settled subsequent to closing, which will take place no earlier than January 1, 2017. As from closing date, the subsidiary will be fully consolidated within the Company. hofer AG is an expert system developer in the automotive industry, focusing on drivetrain systems as well as measuring, testing, and installation technology. Through the transaction, the Company will benefit in the development and production of alternative drive technologies, focusing specifically on small-series production within the sports and luxury car segment. The group's portfolio will also include expertise in the field of transmission systems, electric engine, electronics and software. (From a press release on October 27, 2016)

Contracts

-The Company received an order from an U.S. automaker for the supply of cockpit cross-car beams. The lightweight structural components made of metal and polymer will be fitted to the next generation of vehicles. The contract covers a triple-digit million euro volume over five years. Production is scheduled to begin in 2017. A new production plant in close proximity to the customer's site will be established for the purpose of fulfilling the order and supporting optimized supply chain aspects. (From a press release on November 30, 2016)

-The Company has received a high-volume serial-production order from Brose Fahrzeugteile GmbH & Co. KG. The contract covers the supply of door module carriers made of organo sheets, which are to be fitted to compact-class vehicles manufactured by a global car maker. The order will run until 2024 and is worth more than EUR 100 million. Production in Europe is scheduled to commence in Hungary at the end of 2017, which will be followed by the start of serial production in China and Mexico in 2018. While the production sites in Hungary and Mexico are to be expanded, a new plant is to be established in China to accommodate the order. (From a press release on June 7, 2016)

Awards

-The Company announced that it was named a General Motors (GM) Supplier of the Year 2015, marking the sixth time that it has won this award. (From a press release on March 31, 2016)

Note: Figures include capitalized research and development costs.

R&D Structure

-As of December 31, 2016, the Company has 570 employees working in research and development.

Technological Alliance

-The Company and Sensor-Technik Wiedemann GmbH (STW), based in Kaufbeuren, Germany, have agreed to collaborate on the development and manufacture of lithium-ion battery modules and systems. The companies will be unveiling their first products at the 2016 Hannover Messe. The first products to be born out of the partnership are battery modules with optional cooling and integrated electronic cell monitoring for 24- and 48-volt applications, or up to 1,000 volts in series. A standardized Company battery module kit comprising battery modules and a battery management system from STW’s mBMS range is also in the process of being integrated. In addition, there are plans to produce standardized battery systems for voltage levels between 24 and 1,000 V. The products are to be used in stationary accumulator systems, forklifts, electrified road and commercial vehicles, and mobile machinery as well as in maritime applications and e-scooters. (From a press release on April 19, 2016)

Product Development

-The Company's lightweighting activities and developments included the following:

• Organo sheets: A lightweight fiber-reinforced composite made of woven fibers embedded in a thermoplastic matrix which provides improved resilience and rigidity; Can be used in vehicle body, battery mounting, and seat pan applications. Series production is expected to begin in 2017.
• Lighter underbody paneling material: A material based on compressed textiles which reduces noise, vibration levels, air resistance, and improves the vehicle’s aerodynamic performance.

-The Company's activities and developments involving E-Mobility included the following:

• Battery cells: The Company is working with a Chinese partner in developing cells for a battery module for electric vehicles.
• Fuel cells: The Company is engaged in long-term projects in the development of both low-temperature proton exchange membrane fuel cells (PEMFC) and high-temperature solid oxide fuel cells (SOFC).

Patents

-In 2016, the Company applied for a total of 68 new patents.

-Approximately 90% of the Company’s capital expenditures in the fiscal year ended December 31, 2016 was invested in the Original Equipment segment.

Investments in Germany

-The Company’s investment projects in Germany during the fiscal year ended December 31, 2016 included the following:

• Construction of a new logistics center for the Lightweighting/Elastomer Technology Division in Dettingen, Germany; work began in July 2016
• Production machinery for the Specialty Gaskets facility in Gelting
• Production machinery for the Shielding Technology facility in Langenzenn
• Production equipment for the Engineering Plastics segment plant in Bietigheim-Bissingen.

Investments outside Germany

-The Company’s investment projects outside Germany during the fiscal year ended December 31, 2016 included the following:

• Initialization of a new plant in Kecskemet, Hungary, with construction to begin in 2017
• Expansion of operations at the plant in Nantiat France
• Production machinery to produce lightweight underbody components made from glass-fiber reinforced thermoplastics at Buford, U.S., and Toluca, Mexico
• Optimization and production start-up at the facility in Southfield, U.S.
• Production machinery for the production plant in Changchun, China

-The Company announced that it has established a new plant in Bursa, Turkey. The plant will focus primarily on the production of thermal shielding systems and specialty gaskets. Spanning approximately 10,500 square meters, the new plant was built over a period of 12 months. It encompasses production and logistics areas as well as a three-storied office complex and a tool engineering facility. The Company currently employs approximately 170 people in Turkey. (From a press release on November 21, 2016)


-The Company has officially opened a new plant in Suzhou, which includes a state-of-the-art production facility as well as a new administration building, canteen, and staff rooms. Products made at the plant include lightweight plastic components. The Company built a new high-tech plant covering an area of around 67,000 square meters. The new building is approximately 30,000 square meters in size, with three-quarters of the area being allocated to manufacturing operations. The plant expects to increase its workforce from 370 to 500 employees by 2020. (From a press release on June 8, 2016)