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5. J. Eberspaecher GmbH & Co. KG Business Report FY ended Dec. 2016

J. Eberspaecher GmbH & Co. KG Business Report FY ended Dec. 2016

Factors
1) Net Sales
-The Company’s sales for the fiscal year ended December 31, 2016 decreased by 1.1% from the previous year to EUR 4,323.6 million. The decrease in sales was caused primarily due to a decline in the Exhaust Technology division, specifically because of weakening sales in the North American market. This decrease was partially offset by increased revenue from the Czech Republic, France and China as well as from increased sales from commercial customers in Germany.

2) Exhaust Technology division
-The Company’s Exhaust Technology division had sales of EUR 3,778.2 million in the fiscal year ended December 31, 2016, a decrease of 1.7% from the previous year. Sales decreased due to economic slowdown in North America, particularly in the commercial vehicle market. Increased sales in Europe partially offset this decrease.

3) Climate Control Systems division
-Sales in the Climate Control Systems division in the fiscal year ended December 31, 2016 increased by 5.6% over the previous year to EUR 498.7 million. Sales increased across all product groups in the division including fuel operated heaters, electrical heaters, and bus air-conditioning systems.

4) Automotive Controls division
-The Automotive Controls division had sales of EUR 46.6 million in the fiscal year ended December 31, 2016, a decrease of 12.4% from the previous year. The decline is due to decreasing unit numbers of first-generation switches and energy storage systems that are currently transitioning into the next-generation products.

Acquisitions

-The Company has acquired a majority stake in the Canadian company Vecture Inc. In the future, Eberspaecher Vecture Inc. will offer battery management products for industrial applications, medical technology and vehicles. The Company holds 80% of the shares, while the Vecture founders retain 20%. With this investment, the Company further expands its electronics business within the Automotive Controls division. Vecture's extensive expertise in the development and production of battery management systems, and of complete energy storage systems, facilitates further expansion to the supplier's vehicle electronics portfolio. Additionally, existing Company electronic products for the North American market will be produced by Eberspaecher Vecture in the future. (From a press release on September 15, 2016)

-Taking effect retroactively from July 1, 2016, the Company has acquired the Paul Rauschert Steinbach GmbH production plant in Hermsdorf, Thuringia. The site is now a new Eberspaecher catem GmbH & Co. KG facility which will manufacture PTC heating elements. (From a press release on July 4, 2016)

Recent Developments

-The Company’s subsidiary, Eberspaecher Suetrak GmbH & Co. KG announced that it has intensified its activities in Brazil. Beginning in July 2016, bus air conditioning systems for the South American market will be manufactured in Sorocaba, Brazil. Production will take place within the existing exhaust technology plant, which occupies approximately 1,500 square meters. (From a press release on June 16, 2016)

Contracts

-The Company’s Eberspaecher Suetrak subsidiary has procured two new orders in Saudi Arabia and Qatar with EARADAT and Nasser Bin Khaled (NBK). The two transport service providers are fitting a total of 102 of their EvoBus buses with the AC 644 air-conditioning system, which is specifically adapted to the harsh desert conditions. With such a major order, Eberspaecher Suetrak is furthering its reputation as a global system fitter for bus air-conditioning systems and is developing its connections in the Middle East. (From a press release on July 22, 2016)

R&D Structure

-The Company has approximately 700 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
• Neunkirchen, Germany
• Schwaebisch Gmuend, Germany
• Hermsdorf, Germany
• Herxheim, Germany
• Renningen, Germany
• Landau, Germany
• Concord, Canada
• Paris, France
• Novi, U.S.
• Shanghai, China

R&D Activities

-In 2016, the Company's R&D activities focused on the following products and projects:
Exhaust Technology division

• Technologies such as gasoline particulate filters and DPF/SCR systems for diesel engines to meet the Euro 6c emission standard
• Exhaust system electric acoustic system to actively cancel or alter sounds for the aftermarket
• Lightweight construction technologies

Climate Control Systems division

• Fuel-operated heating systems, specifically in areas of modular development
• Next-generation Hydronic pre-heater system
• Next-generation high-voltage vehicle heater
• Roof-mounted air-conditioning system for buses

Automotive Controls division

• Fast power storage systems
• Solutions for vehicle electric system stabilization
• Specialized ECUs for the Climate Control Systems and Exhaust Technology divisions

Product Development

AC 136 All Electric air conditioning system for electric buses
-Eberspaecher Suetrak, a subsidiary of the Company, announced on October 24, that it is presenting its efficient AC 136 All Electric (AE) air-conditioning system for electric and hybrid buses at this year’s Busworld India in Bengaluru from November 10-12, 2016. The AC 136 All Electric (AE) is a roof-mounted air-conditioning system customized for electric buses which is 50 kilograms lighter than its predecessor. Coming with the option of a 20 kW and 28 kW performance class, the AC 136 AE features a large number of similar components, has identical dimensions and is compatible with the complete product family. The Company will also introduce the AC 420 and AC 505 to the growing mini and medium bus market within the coming weeks. The compact and extremely lightweight construction will be introduced to the Indian market with the AC 420. The roof-mounted air-conditioning system is specially customized for mini buses with a power rating of 14 kW. The new lightweight AC 505 system, with its innovative flat-tube heat exchange technology, is a roof-mounted AC system for medium buses. This enables reduced fuel consumption and fewer emissions and makes the air-conditioning system environmentally friendly. (From a press release on October 24, 2016)

Hydronic S3 Economy pre-heater system
-The Company has developed the new Hydronic S3 Economy pre-heater system with intelligent peripheral devices. The third generation of the water heater features a robust construction with compact dimensions for optimum integration into the vehicle infrastructure. At only two kilograms, the Hydronic S3 Economy is lightweight and records an efficiency increase to 85%. (From a press release on August 10, 2016)

EasyFan pre-heater control unit
-The Company has developed a new control unit that makes operating pre-heaters more user-friendly and autonomous. EasyFan automatically adjusts vent and fan settings in the cabin, not only improving the operating comfort of pre-heating systems but also optimizing their efficiency. (From a press release on February 29, 2016)

-The Company’s investments in property, plant, and equipment totaled EUR 122.9 million in the fiscal year ended December 31, 2016. The investments were distributed across its three business divisions as follows:

• EUR 92.0 million was invested in the Exhaust Technology division, primarily for the expansion of production capacities at various locations.
• EUR 28.9 million was invested in the Climate Control Systems division for tools, adjustments in production capacities, and the new plant in Poland.
• EUR 2.0 million was invested in the Automotive Controls division for further production capacities at Landau, Germany.

Investments outside Germany

-The Company has opened a new exhaust technology factory in Oradea, Romania. The 27,500-square-meter plant was constructed over an area of approximately 11 hectares, which includes production and logistics areas as well as an office complex. The plant produces catalytic converters and silencers for European automobile manufacturers. By 2020, the plant plans to achieve an annual production capacity of 1.5 million mufflers and catalytic converters and up to 5 million pipes. (From a press release on October 6, 2016)


-The Company announced that it is expanding its production capacity for commercial vehicle exhaust systems in Brighton, Michigan. The plant is specifically designed for the production of vehicle exhaust systems that meet the EPA 2010 emissions standard and serves as a "center of excellence" for the Company's commercial vehicle business in North and South America. The facility, which more than tripled in area to 340,000 square feet, will bring the organization's three key processes of laser shell manufacturing, converter catalyst canning, and complex automated welding and assembly, under one roof. Customers will benefit from the synergies of having all of the Company's commercial vehicle support functions, including engineering, business development and design, adjacent to the manufacturing floor. The Company's after-treatment systems serve global heavy-duty commercial vehicle manufacturers throughout North America. (From a press release on October 4, 2016)

-In 2016, the Company completed the expansion of its plant in Brighton, Michigan, U.S., which produces commercial vehicle exhaust systems.


-The Company announced that newly won orders are necessitating the continued expansion of the European production capacity of the Exhaust Technology Division. Thus, the Company is investing in an additional component plant for exhaust technology in Tondela, Portugal. A production and logistics building is currently being built on 11.5 hectares of land in the Zona Industrial do Lagedo industrial area. The new site will supply the plants of European car makers in Spain, Portugal and Northern Morocco with hot end and cold end components for diesel and gasoline-powered vehicles. This includes exhaust systems, gasoline particulate filters and catalytic converters. Production is expected to start in the third quarter of 2017. By the end of 2017, the Company will create approximately 120 jobs at the plant. An expansion adding 500 jobs and an annual production capacity of 2.5 million exhaust components is planned by 2020. (From a press release on September 26, 2016)


-In the first half of 2016, the Company began series production of passenger vehicle exhaust systems at a new plant in Chongqing, China.