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5. Magna International Inc. Business Report FY ended Dec. 2018

Magna International Inc. Business Report FY ended Dec. 2018

Factors
1) Net Sales
-The Company’s sales in the fiscal year ended December 31, 2018 increased by 11.6% over the previous year to USD 40,827 million. The increase in sales was primarily due to the launch of new programs, specifically in the Complete Vehicles, Body Exteriors & Structures and Seating Systems segments. Another source contributing to the increase in sales was positive currency translation effects for the year.

2) Body Exteriors & Structures
-The Body Exteriors & Structures segment had sales of USD 17,527 million in the fiscal year ended December 31, 2018, an increase of 5.5% over the previous year. The launch of new programs since 2017, including the Jeep Cherokee, Jeep Wrangler, Chevrolet Equinox, GMC Terrain, Ford Expedition and Lincoln Navigator contributed to the increase in sales. A USD 157 million increase in sales was due to foreign currency translation effects. The gains in the segment were partially offset by overall decreases in production volumes of other programs and customer price decreases.

3) Power & Vision
-During the fiscal year ended December 31, 2018, the Power & Visions segment’s sales increased by 6.0% to USD 12,321 million. Segment sales increased due to the launch of new programs, including the GMC Sierra, Chevrolet Silverado, Chevrolet Traverse, Buick Enclave, BMW X3, Porsche Cayenne, Jeep Wrangler, and dual-clutch transmissions for BMW and Daimler models. The segment’s sales also increased by USD 249 million due to foreign currency translation effects. The acquisition of a facility also contributed USD 23 million in sales to the segment. These gains were partially offset by changes in production volumes of other programs and customer price concessions.

4) Seating Systems
-The Seating Systems segment had sales of USD 5,548 million in the fiscal year ended December 31, 2018, an increase of 6.2% over the previous year. One factor contributing to the increase in sales was the launch of several programs including the Ford Expedition, Lincoln Navigator, BMW X5, Lynk & Co. 01 and 02, Chevrolet Traverse and Buick Enclave. The increase in sales were partially offset by a number of factors such as the end of production on various programs, the divestiture of a facility, change in production volumes, customer price concessions, and negative foreign currency translation effects.

5) Complete Vehicles
-Sales in the Complete Vehicles segment increased by 69.7% in the fiscal year ended December 31, 2018 to USD 6,018 million. The increase in sales was primarily due to the launch of three vehicle programs in the Jaguar E-Pace, Jaguar I-Pace and BMW 5 Series. A sales increase of USD 250 million was also due to positive currency translation effects.

Acquisitions

-The Company signed an agreement to acquire VIZA Geca SL, a Spanish supplier of seating products and systems such as seat structures, floor-latch systems and folding seats. VIZA had sales of EUR 125 million in 2017. The acquisition is expected to close by the end of the first quarter 2019. VIZA’s current customers include VW, PSA and Renault-Nissan. Once the deal is approved, the Company will add VIZA’s facilities in Spain, the Czech Republic, Morocco and Mexico, welcoming over 1,100 employees. (From a press release on December 18, 2018)

-The Company has signed a deal to acquire Haptronik, further investing in advanced motion-control software and adding to the Company’s leadership in mechatronics products. Haptronik is a technology company that specializes in software which controls the motion of mechatronic products. Based in Dresden, Germany, the company develops algorithms that enhance motion control and the touch and feel of power systems such as doors and liftgates. The deal is expected to be finalized in the first quarter of 2019. (From a press release on October 25, 2018)

-The Company has signed a deal to acquire OLSA S.p.A., which will expand its lighting capabilities and enable it to design, engineer and manufacture headlamps, tail lamps and other lighting products in every key region of the world. With a value of approximately EUR 230 million, the transaction is expected to be finalized before the end of 2018. OLSA, with headquarters in Turin, Italy, supplies lighting products to customers that include Volkswagen, BMW, Daimler and FCA. The company employs approximately 2,500 people and maintains manufacturing operations in Italy, Poland, Brazil, China and Mexico. With the acquisition of OLSA, Magna will have a total of 11 lighting manufacturing facilities and two engineering centers globally. (From a press release on June 28, 2018)

Restructuring

-Lordstown Seating Systems, a Company subsidiary, announced it will cut 120 jobs as it begins idling operations at its plant in Ohio while it awaits to see if GM will allocate a new vehicle to the Lordstown plant itself. Lordstown Seating originally employed 600 workers, but the final 180 employees will be unemployed when it shuts down in tandem with GM’s Lordstown plant closure. In a statement, Lordstown Seating said, “Should General Motors allocate a future product to Lordstown Assembly, we would hope to be selected as the seat supplier, which may allow us to recall a significant number of employees.” (From multiple sources on December 31, 2018)

-The Company’s Powertrain unit has signed an agreement to sell its global Fluid Pressure & Controls (FP&C) business to Hanon Systems, a South Korea-based global supplier of thermal and energy management systems. The sale price is approximately USD 1.23 billion, before the assumption of net debt and pension liabilities, with the transaction expected to close in the first quarter of 2019. The Company’s global FP&C business, which specializes in mechanical and electronic pumps, electronic cooling fans, and other components, had USD 1.4 billion in sales in 2017. Approximately 4,200 employees across 10 facilities in North America, Europe and Asia will transition to Hanon Systems. The Company’s powertrain business will continue to perform as a full-system supplier of transmission and other driveline-related systems. (From a press release on September 20, 2018)

Joint Ventures

-The Company and Altran Technologies, a global leader in engineering, research and development services, have launched a joint venture in Casablanca, Morocco. Both companies each hold 50% of the joint venture MG2, which offers vehicle engineering services as Morocco develops as an export-focused production base. Approximately 500 engineers from the two companies will initially staff the joint venture. (From a press release on October 2, 2018)

-The Company’s Magna Electronics business unit and Rohinni have formed a joint venture to produce ultra-thin micro LED lighting solutions that are brighter, lighter and more energy-efficient than alternative technologies, including OLED. The joint venture, Magna Rohinni Automotive, combines the Company’s electronics and software expertise with exclusive use of Rohinni's lighting technology in mobility industries. Rohinni's thin-film micro and mini LEDs creates new possibilities for design and product differentiation. The joint venture, which will be based in Holly, Michigan, will be able to bring micro and mini LED-based products to market more quickly and cost effectively. (From a press release on August 28, 2018)

-The Company intends to form two new joint ventures with Beijing Electric Vehicle Co. Ltd (BJEV) for complete vehicle manufacturing and the engineering of electric vehicles. BJEV, a subsidiary of the BAIC Group for electric cars, and the Company gathered to sign term sheets for the new joint ventures. The Company and BJEV will work with authorities to implement legally binding joint-venture agreements which will govern the operations of these two joint ventures. The engineering and manufacturing joint ventures are expected to take over an existing BAIC manufacturing facility in Zhenjiang, Jiangsu Province, where the first production vehicles are planned for 2020. The plant has an annual production capacity of 180,000 units. The joint venture will initially manufacture the models of ARCFOX, BJEV’s high-end vehicle brand. The joint ventures will also offer engineering and complete vehicle manufacturing capacity to other potential customers. (From a press release on June 18, 2018)

-The Company announced the formation of a joint venture between itself and Beijing Hainachuan Automotive Parts (BHAP) has already won new door module business for a German OEM in China. To accommodate the new business and meet the demands of the Chinese automotive industry, the joint venture partners will establish a new facility in Beijing. The joint venture and production facility would allow the Company and BHAP to further expand their presence in China, specifically Beijing, while attracting new customers and strengthening relationships with current ones. Production within the facility is scheduled to begin in 2021 and is expected to generate over 100 new jobs. (From a press release on April 26, 2018)

-The Company has entered into a joint venture with GAC Component (GACC), a subsidiary of GAC, to begin production of composite liftgates for a global automaker's crossover vehicle starting in late 2018. The joint venture will work out of a new 55,900 square-foot facility located in Changsha, China, with an approximate initial workforce of 116 employees. (From a press release on April 2, 2018)

Business Partnerships

-The Company is partnering with May Mobility, an Ann Arbor, Michigan startup which manufactures self-driving shuttles, to retrofit and scale up May Mobility's fleet of low-speed electric micro shuttles set to launch in the U.S. market. The initial fleet of vehicles will debut on June 26, 2018 with May Mobility's first commercial deployment taking place in Detroit, Michigan. The Company will install custom doors, panoramic moonroofs, sensors, and Drive-by-Wire upfitting to convert the vehicles into an autonomous-ready state. May Mobility will continue to further retrofit the vehicles with its proprietary technology stack to navigate complex urban and residential environments. Partnering with developers, urban planners and municipalities, May Mobility intends to offer on-demand services by 2019 and expand its suite of vehicles and services as customer demand grows. (From a press release on June 13, 2018)

-The Company and Lyft announced a multi-year collaboration in which the companies will jointly fund, develop, and manufacture self-driving systems. In addition, the Company will invest USD 200 million in Lyft equity. This partnership will benefit from data generated by the five billion miles traveled per year on the Lyft network. Co-developed self-driving systems can be deployed on Lyft's own ridesharing network and for the entire automotive industry. (From a press release on March 14, 2018)

Recent Developments

-Invest Lithuania informed that the Company has recently begun their selection process of potential partners in Lithuania, with dozens of companies on their prospective list. An estimated 50 companies manufacture parts and components for light or heavy vehicles and agricultural machinery in Lithuania. Approximately half of them have the potential to become the Company’s partners. (From Invest Lithuania media release on June 6, 2018)

Contracts

-The Company won additional seating business from BMW as it opened a new seating facility in Chomutov, Czech Republic. The Company launched its first-ever seating business and facility with BMW in 2017. The plant in Chomutov is expected to start production by the end of 2018 and will supply seating systems in various configurations for several BMW models. The 6,000-square-meter plant has the capacity to produce more than 360,000 seat sets annually. (From a press release on October 11, 2018)

-The Company has secured its first production contract to supply the newly-developed Comfort+ door latch to a European OEM. The Company designed the Comfort+ door latch to address the feel of a car's door when opening and closing, and the quietness of the cabin. The Comfort+ door latch replaces sliding friction with rolling friction within the mechanics of the door latch, which significantly reduces the efforts required to open and close a car door and results in a smooth, consistent feel. Comfort+ opening efforts are reduced by an average of 40% to 60% compared to traditional latches, allowing automakers to increase sealing around the door to create a quieter cabin. (From a press release on May 23, 2018)

-The Company and partner Innoviz Technologies announced that they will supply the BMW Group with solid-state LiDAR for upcoming autonomous vehicle production platforms. The new-business award represents one of the first in the auto industry to include solid-state LiDAR for serial production, which will support autonomous driving up to SAE Levels 4 and 5. The solid-state LiDAR generates a 3D point cloud in real time of the vehicle's surroundings, pairing it with a complete computer vision software stack and algorithms to turn 3D vision into critical driving insights. (From a press release on April 26, 2018)

-The Company displayed its growing range of active aerodynamic systems at the North American International Auto Show in Detroit, with an active air dam launching on the 2019 Ram 1500 pickup truck. The 2019 Ram 1500 is the first high-volume vehicle to feature an active air dam. The Ram's active aero systems are driven by smart actuators and power systems developed in-house by Magna's closures unit. (From a press release on January 17, 2018)

Awards

-On May 31, 2018, the Company’s subsidiary, Magna (Fuzhou) Automotive Seating Co., Ltd., received the 2017 excellent supplier award from Fujian Benz. The Company currently supplies second-row seating for the V-Class luxury van. (From a press release on June 11, 2018)

-The Company won two GM Supplier of the Year awards for its lighting and driveline performance technologies. One example of lighting technology supplied by the Company is the D-Optic LED headlamp, an industry-first that uses multiple high-power LEDs, which debuted on the 2018 Chevrolet Traverse. In driveline technology, the Company supplies GM with products such as the single-speed Actimax transfer case, two-speed Ultimax transfer case, electronic limited slip differential and Actimax beveloid transfer case. (From a press release on April 27, 2018)

R&D Expenditure

-In the fiscal year ended December 31, 2018, the Company’s research and development costs charged to expense was approximately USD 588 million, an increase over the USD 522 million in the previous year.

R&D Facilities

-On December 05, the Company announced the opening of a new mechatronics engineering center in Suzhou in Jiangsu Province, China. The center will focus on designing and developing mechatronic products, including the Company’s SmartAccess power door experience. The center will hire more than 100 new engineers, including specialists in hardware and software development. These new hires will join the current staff of 110 engineers, who are moving from the Company’s previous engineering center located in Kunshan. (From a press release on December 5, 2018)

-On April 10, 2018, the manufacturing and international trading area of the Suzhou Industrial Park held a ceremony to commemorate the signing of investment contracts regarding ten projects including a Company global research and development center for closure systems. The total investment in those projects is CNY 5 billion. The Company will build a global closure system R&D center in the industrial zone. By 2020, the Company is planning to increase the number of its researchers to 250. (From some releases on April 11, 2018)

Technological Alliance

-The Company and BAIC Group announced that they will jointly develop a next-generation smart electric vehicle architecture for the Chinese market. The Company’s Magna Steyr business unit was selected to be BAIC’s partner due to its innovative and cost-effective solutions throughout its complete vehicle manufacturing and engineering services and its full-scale electronic/electrical architecture and lightweight technologies. (From a press release on April 9, 2018)

Product development

Reconfigurable seating concept
-The Company unveiled a vehicle interior concept centered on flexible seating configurations, offering opportunities for new mobility and autonomous vehicle users. The Magna concept seat ecosystem includes three specific configurations. The Car Sharing and Cargo mode moves seats on long rails, allowing seats to slide up under the instrument panel for maximum space. The Long Road Trip mode allows campfire seating with swivel massage seats on long rails. The Autonomous Ride Sharing mode uses conference seating with swivel seats on long rails with signals that indicate which seat is available in a ride sharing vehicle. The Company designs seats at six R&D centers and manufactures seats at 50 locations around the globe. (From a press release on December 10, 2018)

Recyclable thermoplastic liftgates
-The Company offers automakers unique expertise in delivering recyclable thermoplastic liftgates, which provide up to 25% weight savings compared to steel and allow for broader design flexibility. The Company began producing thermoplastic liftgates in 1999 for a premium European automaker, followed by several more European launches. The Company signed two contracts in 2018 for thermoplastic liftgates on the 2019 Jeep Cherokee and 2019 Acura RDX. The Company will launch two more later this year in China. IHS Markit estimates the global SUV/compact SUV market will grow from 34 million units in 2018 to almost 43 million units by 2025. The Company sees a considerable growth opportunity to provide thermoplastic liftgates for this growing segment. (From a press release on August 30, 2018)

etelligentDrive System
-The Company announced its all-new 48-volt transfer case and an array of other 48-volt products. These products are designed to help automakers meet increasingly stringent global CO2 and fuel-economy regulations. The etelligentDrive eDS 48V High Performance System is one the first mild-hybrid transfer cases available to automakers. Additionally, the system is capable of four-wheel drive that can provide CO2 savings of up to 10% and better fuel efficiency compared to a two-wheel drive system. (From a press release on June 14, 2018)

3D surround view system for entry- and mid-level vehicles
-The Company and Renesas Electronics Corporation announced a new cost-efficient 3D surround view system designed for entry- and mid-range vehicles. The 3D surround view camera system adopts Renesas’ high-performance, low-power system-on-chip solution to provide a 360-degree panoramic view to assist drivers performing low speed operations. Drivers can adjust the view of their surroundings with a simple interface, while object detection alerts drivers about nearby obstacles. The system provides drivers a realistic 360-degree view of their environment, an upgrade to the bird’s-eye view offered by existing parking assist systems. Renesas’ system-on-chip minimizes integration time and development costs, making the system an easy, cost-efficient option for automakers. Several OEMs have expressed strong interest in the technology, including one European OEM which will be the first to integrate the 3D surround view system into a future vehicle. (From a press release on May 17, 2018)

ICON RADAR
-The Company unveiled its ICON RADAR at the North American International Auto Show in Detroit. ICON RADAR incorporates advanced technology used by the U.S. military to provide precise detection, high resiliency and extensive range. The Company has been collaborating with technology startup Uhnder in engineering and product development to bring the technology to market in 2019. With a range of more than 300 meters, the ICON RADAR continuously scans the environment, tracking objects’ distance, height, depth and speed. The advanced radar technology can detect and track nearly 100 times more objects than competitive systems and individually classifies them. It is able to detect static objects such as guard rails, road debris and speed bumps, as well as moving objects such as vehicles, bicyclists, pedestrians and pets. With its compact size, ICON RADAR also allows greater flexibility in exterior design and can be easily integrated into an automaker's autonomous system or as part of the Company’s MAX4 autonomous vehicle platform. (From a press release on January 15, 2018)

Technologies showcased at CES 2018
-The Company will showcase key products in electrification, autonomy and mobility during CES 2018. Attendees will get an interactive glimpse into the car of the future in two ways: By using virtual reality technology, attendees experience firsthand how an autonomous vehicle works. Attendees can also design their own new mobility vehicle and take their bespoke design for a virtual test drive. In addition, the Company will showcase its latest electrification technology through its e1 demonstration concept vehicle. (From a press release on January 2, 2018)

Investment outside Canada

<U.S.>
-Magna Mirrors of America Inc., part of the Company’s Vision Systems unit, announced the construction of a 175,000-square-foot manufacturing and assembly facility at its Newaygo location. The project is expected to generate a total capital investment of USD 45 million. Magna Mirrors manufactures interior and exterior rearview mirrors with value-added features such as electronic displays and auto-dimming glass. (From Michigan Economic Development Corp. release on October 23, 2018)

-Bowling Green Metalforming LLC (BGM), a Company subsidiary, announced plans to invest USD 14.2 million for its sixth expansion since 2004. The project includes extensive modifications to its more than 1 million-square-foot building in Bowling Green to install a new 3,000-ton press. BGM specializes in manufacturing truck frame assemblies, engine cradles and suspension links and has more than 1,600 employees. (From Kentucky Cabinet for Economic Development release on July 2, 2018)

-The Company celebrated the grand opening of its seat manufacturing facility in Spartanburg County, South Carolina. For the first time in its history, the Company will supply seats to the BMW Group. At the opening event, officials also announced an expansion at the plant, which will add 25,000 square feet and an additional 130 jobs. In total, the Company will create 610 jobs at the 255,000-square-foot facility, where construction for the expansion is under way. (From a press release on March 26, 2018)

<UK>
-The Company has opened an aluminum casting facility in Telford, England, which will supply structural castings to Jaguar Land Rover. The new facility is approximately 225,000 square feet in area and is expected to employ 300 people. The new facility will feature the Company’s patented vacuum die-casting process. The advanced lightweight aluminum castings help maximize strength and stiffness and minimize weight, which improves fuel economy, safety and handling. As electrified and hybrid powertrains become more common in the automotive industry, high-pressure aluminum castings can be a key factor in reducing overall vehicle weight. (From a press release on May 8, 2018)

<Mexico>
-The Company’s Cosma subsidiary has opened a new manufacturing plant in San Luis Potosi, Mexico. The new plant is part of a USD 233 million investment into San Luis Potosi over the next few years. Cosma International produces a complete range of body-in-white solutions from small stampings up to fully assembled body-in-white modules, such as those for the Ford Fusion produced at the Hermosillo plant. Cosma also manufactures underneath body structures such as frame rails, floor pans, upper body pillars and body side systems. (From a Mexico-Now article on April 16, 2018)

<Germany>
-The Company launched a new composites center of excellence in Esslingen, Germany, to help European automakers meet increasingly stringent emissions requirements with lightweight structures and exterior components made of advanced materials. The center has a new 2,300-metric-ton Engel V-Duo press that is suited for thermoset compression molding of reinforced plastic or sheet molding compound materials. The center will primarily focus on developing structural components, such as vehicle subframes, and exterior body parts, such as door panels and hoods. Several European automakers are pursuing joint development projects with the Company at the new center. (From a press release on March 7, 2018)