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5. Tenneco Inc. Business Report FY ended Dec. 2018

Tenneco Inc. Business Report FY ended Dec. 2018

Factors
1) Net Sales
-The Company’s net sales for the fiscal year ended December 31, 2018 was USD 11,763 million, a 26.8% increase over the previous year. The primary factor for the increase in sales is the Company’s acquisition of Federal-Mogul, which increased sales by 20.3%. Excluding the effect of the Federal-Mogul acquisition, sales increased by 6.5% over the previous year. The increase in sales was due increased light vehicle sales volumes, increased general revenues across other vehicle segments and the introduction of new platforms.

2) Clean Air division sales
-In the fiscal year ended December 31, 2018, sales for the Company’s Clean Air division increased by 7.9% to USD 6,707 million. Increased sales volumes across all vehicle segments combined with new platforms contributed to the increased sales. The increase was partially offset by price reductions and the end of OE customer production in Australia. Currency translation effects contributed an additional USD 45 million for the segment.

3) Ride Performance division sales
-Sales for the Company’s Ride Performance division in the fiscal year ended December 31, 2018 totaled USD 1,949 million, an increase of 7.9% over the previous year. Increased sales volumes and new platforms generated an increase in sales of USD 138 million. The Ride Performance segment endured a loss of USD 4 million due to negative currency translation effects.

4) Aftermarket segment sales
-The Company’s Aftermarket segment’s sales decreased by 2.4% to USD 1,221 million in the fiscal year ended December 31, 2018. Lower sales volumes, unfavorable product mix decreased sales and unfavorable currency translation effects all contributed to decreased sales in the segment. These losses were partially offset by improved customer pricing.

5) Powertrain and Motorparts segment sales
-The Company’s Powertrain and Motorparts segment had sales of USD 1,112 million and USD 774 million, respectively, in the fiscal year ended December 31, 2018. The sales in the two segments stemmed from the Company’s acquisition of Federal-Mogul.

Acquisitions

-The Company has signed a definitive agreement to acquire Ohlins Racing (Ohlins), a Swedish technology company that develops premium suspension systems and components for the automotive and motorsport industries. The addition of Ohlins will accelerate the development of advanced original equipment (OE) intelligent suspension solutions, while also reducing time to market. It will also enhance the Company’s portfolio in broader mobility markets with the addition of Ohlins’ range of premium OE, automotive aftermarket and motorsports performance products. The acquisition is expected to close in the first quarter of 2019, subject to regulatory approvals and other customary closing conditions. Total consideration for this acquisition is approximately USD 160 million. (From a press release on November 15, 2018)

Acquisition of Federal-Mogul (Notes are in chronological order)
-The Company signed a definitive agreement to acquire Federal-Mogul. Federal-Mogul is being acquired from Icahn Enterprises for a total consideration of USD 5.4 billion to be funded through cash, Company equity and assumption of debt. The Company also announced its intention to separate the combined businesses into two independent, publicly traded companies through a tax-free spin-off to shareholders that will establish an aftermarket & ride performance company and a powertrain technology company. The acquisition is expected to close in the second half of 2018, subject to regulatory and shareholder approvals and other customary closing conditions, with the separation occurring in the second half of 2019. (From a press release on April 10, 2018)

-At its special meeting of stockholders held in September 12, 2018, the Company’s stockholders approved all of the proposals necessary to complete the acquisition of Federal-Mogul. All three proposals received the support of over 90% of the shares voted, including the proposal to issue stock for the acquisition of Federal-Mogul. During the meeting, the Company announced that it had received the regulatory approvals required to close, and that it expects the Federal-Mogul acquisition will close on October 1, 2018. (From a press release on September 12, 2018)

-The Company announced that it has completed its acquisition of Federal-Mogul. The closing precedes the planned separation of the combined businesses into two independent, publicly traded companies that will establish an Aftermarket and Ride Performance company and a Powertrain Technology company. The spin-off is expected to be complete in late 2019. (From a press release on October 1, 2018)

Restructuring

-The Company will close its original equipment (OE) ride control plants in Owen Sound, Ontario and Hartwell, Georgia as part of an initiative to realign its manufacturing footprint to enhance operational efficiency and respond to changing market conditions and capacity requirements. The Company expects to begin transferring current business primarily to its ride control facility in Kettering, Ohio, later in 2018. The Company expects to complete the closure of the two facilities near the end of the second quarter of 2020. The Company estimates that these restructuring actions will generate between USD 20 million and 25 million in annualized savings by the end of 2020. Restructuring and related charges are expected to be between USD 70 million and 85 million, with USD 20 million to 30 million occurring in the fourth quarter of 2018. (From a press release on October 26, 2018)

Contracts

-The Company announced that the all-new 2018 Volvo XC40 compact crossover SUV features its CVSAe adaptive suspension technology from its Monroe Intelligent Suspension portfolio. Launched on more than 40 vehicle models, the CVSAe semi-active suspension technology continuously senses road and driving conditions and independently adjusts damping levels in real-time to provide superior comfort and handling. The XC40 complements Volvo’s XC60 mid-size and XC90 full-size SUV models, both of which also feature the CVSAe suspension system. The Company will supply the CVSAe suspension technology for Volvo from its plant in Ermua, Spain. (From a press release on October 18, 2018)

-The Company will supply suspension technology for the Jaguar E-PACE compact SUV. The Company’s conventional front strut and rear shock absorber will be standard equipment on the E-PACE, while the Continuously Variable Semi-Active (CVSAe) suspension system from its Monroe Intelligent Suspension portfolio will be included in the adaptive dynamics package. The Company supplies the Jaguar E-PACE front strut and rear shock from its manufacturing facilities in Gliwice, Poland and Hodkovice, Czech Republic and the CVSAe suspension system from its facility in Ermua, Spain. (From a press release on September 26, 2018)

-The Company announced a deal to supply Daimler Trucks North America (DTNA) with Clevite controlled torque spring eye bushings for new Freightliner Cascadia class 8 tractors. The components are manufactured at the Company’s facility in Reynosa, Mexico. The Company’s patented controlled torque bushings feature high conical stiffness and low torsional breakaway designed that enable OEMs to assemble vehicle suspension systems at any preferred position. Controlled torque bushings are designed and engineered at the Company’s Clevite Elastomers plant in Milan, Ohio. (From a Mexico-Now article on January 17, 2018)

-The Company is supplying Suzuki with its Multi-Tuned Valve (MTV) suspension technology on the Swift Sport manufactured in Japan, as well as the Dzire compact-sedan passenger car produced in India by Maruti Suzuki India. The Company produces the suspension technology for the Dzire at its Bawal plant in India, and at its Gliwice and Hodkovice plants in Europe for the Swift Sport. The latest-generation Swift will feature front struts and rear dampers from the Company. (From a press release on January 16, 2018)

Outlook

-The Company’s expects that its net sales for the fiscal year ending December 31, 2019 will be between USD 18.2 and 18.4 billion.
 

-The Company’s investment into engineering, research and development increased by 29.1% in the fiscal year ended December 31, 2018 over the previous year, primarily due to the acquisition of Federal-Mogul.

R&D Facilities

-As of December 31, 2018, the Company has a total of 40 engineering and technical facilities. The Clean Air segment operates five facilities, the Ride Performance segment operates seven facilities, the Powertrain segment operates 14 facilities and the Motorparts segment operates 11 facilities. Furthermore, the Clean Air segment and Ride Performance segment share three engineering and technical facilities.

 
-The Company’s capital expenditures are primarily used for investments in new facilities, upgrading existing products, continuing new product launches, and improving and acquiring infrastructure and equipment.

-In the fiscal year ending December 31, 2019, the Company expects to invest between USD 730 and 780 million in capital expenditures.