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5. Mahle GmbH Business Report FY ended Dec. 2015

Mahle GmbH Business Report FY ended Dec. 2015

Factors
1) Sales
-The Company’s sales in the fiscal year ended December 31, 2015 increased by 15.5% from the previous year to reach the highest figure in the Company’s history at EUR 11,486.1 million. Factors leading to the increase in sales include acquisitions, which contributed EUR 720 million; positive effects from currency exchange rates, contributing EUR 625 million; and organic sales growth of 2.0%.

2) Engine Systems and Components
-The Engine Systems and Components business unit had sales of EUR 2,698.1 million in the fiscal year ended December 31, 2015, an increase of 6.7% from the previous year. Excluding the positive effect of exchange rates, sales in the business unit remained relatively the same. Demand for steel pistons increased significantly, with the Company developing additional production capacity in European locations to adjust. Also, demand for assembled camshafts and valves rose during the year.

3) Filtration and Engine Peripherals
-Sales for the Filtration and Engine Peripherals business unit in the fiscal year ended December 31, 2015 increased by 10.8% to EUR 2,196.0 million. Excluding exchange rate effects, the business unit grew by 2.2%. Growth in the business unit was driven by increased demand of cylinder head covers, oil pumps, oil separators, and fuel filters.

4) Thermal Management
-The Company’s Thermal Management business unit grew by 20.5% in the fiscal year ended December 31, 2015 to EUR 3,761.2 million. The primary driver of the sales increase came from the acquisition of the Delphi Thermal business unit. Excluding both acquisition and currency exchange effects, sales in the business unit increased by 3.1%, due to growing demand for improved air conditioning systems and efficient thermal management solutions for the vehicle’s powertrain.

Acquisitions

-The Company announced that it has acquired the thermal business of Delphi Automotive PLC as of July 1, 2015, for approximately USD 727 million, thus expanding its Thermal Management business unit. Thirteen Delphi Thermal production plants and three major research and development centers have now been added to the Company approximately 150 production locations. As a result of the takeover, roughly 7,500 employees of Delphi Thermal will join the Company. In a subsequent step, the Company intends to acquire the joint venture Shanghai Delphi Automotive Air-Conditioning System Co. Ltd. (SDAAC) located in China. The negotiating partners expect this transaction to be concluded in 2016. (From a press release on July 1, 2015)

-Mahle Japan Ltd., a subsidiary of the Company, announced that it has completed a tender offer bid (TOB) for common shares of Kokusan Denki Co., Ltd., a mechatronics company. The TOB commenced on May 1, 2015 and ended on June 16, 2015, marking the success of its public takeover bid. Through the TOB, Mahle Japan will raise its voting share of Kokusan Denki to 90.12% from 39.09% effective June 23, 2015. Kokusan Denki will be fully integrated in the Company as the "Electric Drives and Applications 2" profit center. (From a press release on June 17, 2015)

-The Company acquired all shares in Amovis GmbH, thereby driving forward its strategic commitment in the field of clean technology. The acquisition is retroactively effective as of January 1, 2015. Amovis, based in Berlin, currently employs 25 people, and has expertise in intelligent exhaust gas heat recovery using the Organic Rankine Cycle (ORC). ORC systems are an advanced development of the steam cycle, in which the waste heat from combustion engines is not released unused into the environment via the exhaust gas, but used to generate electrical or mechanical energy. This creates the potential to reduce fuel consumption in commercial vehicles by up to 4%, thus contributing to a significant reduction in CO2. (From a press release on May 5, 2015)

Contracts

-The Company announced that it has delivered its one millionth steel piston to Renault less than a year after launching production. Renault’s 1.5- and 1.6-liter diesel engines are the first diesel units for passenger cars worldwide to come equipped with steel pistons. The Company’s Monotherm pistons reduce friction in the engine while improving thermodynamics, effectively boosting fuel efficiency by approximately 3%. Fully automatic assembly lines installed at the Rottweil plant began production in 2014. Production is also expected to launch at a location in Izmir, Turkey before the end of 2015. Over two million steel pistons are expected to roll off the lines in 2016. (From a press release on October 27, 2015)

Awards

-The Company’s Engine Systems and Components business unit received the 2015 Automotive News PACE Award for its Evotec 2 lightweight piston for gasoline engines. (From news releases issued by multiple sources on April 20, 2015)

-The Company's components and systems are featured on nine of the ten engines recently named to the Ward's list of 10 Best Engines for 2015. Company products featured on the 2015 award-winning engines include piston systems and cylinder components, valve-train, air-management, liquid-management and thermal-management systems. The nine engines that feature Company components are listed below:

• 6.2-L OHV V8 (Chevrolet Corvette Stingray)
• 6.2-L Supercharged OHV V8 (Dodge Challenger SRT Hellcat)
• 1.0-L Turbocharged DOHC 3-cyl. (Ford Fiesta)
• 100-kW Fuel Cell (Hyundai Tucson FCV)
• 1.5-L Turbocharged DOHC 3-cyl. (Mini Cooper)
• 3.0-L Turbodiesel DOHC V6 (Ram 1500 EcoDiesel)
• 2.0-L Turbocharged DOHC H4 (Subaru WRX)
• 1.8-L Turbocharged DOHC 4-cyl. (Volkswagen Golf)
• 2.0-L Turbocharged DOHC 4-cyl. (Volvo S60)

(From a press release on January 15, 2015)

-The EUR 657 million invested in research and development is approximately 5.7% of the Company's sales for the fiscal year ended December 31, 2015.

R&D Structure

-As of December 31, 2015, the Company has approximately 6,000 employees working in research and development.

-As of December 31, 2015, the Company has 15 major research and development centers, as well as twelve competence centers.

Product Development

Gasoline engine pistons
-The Company continued its development of pistons for gasoline engines with the latest generation of Evolite and Evotec pistons. The Evolite pistons reduce CO2 emissions by approximately 0.5 g/km, while the Evotec pistons are highly resistant to pressure and heat. Compared to previous generations, both pistons are approximately 15% lighter, have lower frictional losses and higher strength.

Integrated charge air subcooling system (iCAS)
-The Company developed the integrated charge air subcooling system which incorporates air conditioning into the engine cooling and charge air cooling system. The iCAS system first conventionally precools the air, then directs the air through the iCAS heat exchanger. This air is cooled by a dedicated circuit coupled to the air conditioning system. This process increases the amount of charge air supplied and improves the torque of a downsized gasoline advantage by up to 19%.

Cabin air filters
-The Company is currently developing an air filter that will absorb over 95% of respirable fine particles compared to the 60% of particles that are absorbed by current cabin air filters.

Thermoelectric heat pump for lithium-ion batteries
-The Company has developed a thermoelectric heat pump for lithium-ion batteries as an alternative to conventional battery temperature control methods.

Compressed natural gas (CNG) engine
-Using its own downsized three-cylinder engine as a base, the Company is in the process of developing a compressed natural gas (CNG) version of the engine. The engine is expected to provide over 130 kW of power and 286 Nm of torque, and will have 30% less CO2 emissions versus comparable gasoline engines. At rated power, the engine also has a specific consumption of 247 grams per kilowatt hour.

-The Company’s capital expenditure on tangible fixed assets in Europe amounted to 47%, or approximately EUR 265 million of the total capital expenditures during the fiscal year ended December 31, 2015. Spending was focused primarily on eastern European locations, which included the ramp-up of thermal management facilities in the region. In addition, the Company invested in projects related to the production of pistons and assembled camshafts.

-The Company’s capital expenditures in North America consisted of 25%, or approximately EUR 141 million of the Company’s total capital expenditures. Investments went towards the construction of new plants, merging of locations in Mexico, and establishment of a new air conditioning compressor business.

-In the Asia Pacific region, the Company’s invested 21%, or approximately EUR 118 million of its total capital expenditures. Investments included the expansion of existing plants in South Korea, the construction of a plant in Shiyan, China, and the opening of a thermal management production facility in Chengdu, China.