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5. Rheinmetall Automotive AG (Formerly KSPG AG) Business Report FY ended Dec. 2015

Rheinmetall Automotive AG (Formerly KSPG AG) Business Report FY ended Dec. 2015

Factors
1) Net Sales
-The Company’s net sales in the fiscal year ended December 31, 2015 increased by 5.9% over the previous year to EUR 2,592 million. Excluding positive currency effects, sales grew by approximately 4%, which surpassed the growth in the automotive industry during the year.

2) Mechatronics
-Sales of the Mechatronics division grew by 9.7% to EUR 1,450 million in the fiscal year ended December 31, 2015. Growth was caused by higher demand of products that aid in the reduction of CO2 and other harmful emissions. In the Automotive Emissions Systems business unit, exhaust gas flaps, divert-air valves, and pneumatic converters all increased. However, sales of radiator modules decreased compared to the previous year.

-With the need for reduction in CO2 emissions, sales of variable oil pumps, electrical water circulation pumps, and electrical water pumps grew substantially compared to the previous year.

3) Hardparts
-The Company’s Hardparts division had sales of EUR 952 million in the fiscal year ended December 31, 2015, an increase of 1.9% over the previous year. Sales of small-bore pistons declined, in part due to market-related declines in Brazil and weakness in commercial vehicle and off-highway vehicle markets. Sales of large-bore pistons increased primarily because of the start-up of a new production company in China. Finally, sales of bearings remained level from the previous year.

Joint Ventures

-On April 22, 2015, Kolbenschmidt Pierburg Shanghai Nonferrous Components Co., Ltd. and Shanghai Cosmopolitan Automobile Accessory Co., Ltd. in the HUAYU Automotive Systems Group, signed a contract to integrate the two companies' die-casting operations. Kolbenschmidt Pierburg Shanghai Nonferrous Components is a 50-50 joint venture between HUAYU Automotive Systems and the Company. (From a press release on April 22, 2015)

Business Partnership

-KS Kolbenschmidt GmbH, a division of the Company, and Riken Corporation announced that they are forming a global strategic alliance for the sales, engineering and development of power cylinder systems. KS Kolbenschmidt and Riken are building on their already existing partnership to include cooperation in China, where they have signed a Letter of Intent to form a piston ring joint venture based at an existing Riken facility in Wuhan, Hubei Province. KS Kolbenschmidt and Riken will be coordinating and combining their regional sales, engineering and technical support functions to optimize power cylinder system solutions for their joint, global OEM customer base. (From a press release on April 27, 2015)

Contracts

-The Company was awarded a follow-up order from a major commercial vehicle manufacturer to supply its newest-generation steel piston assemblies. The contract, which will run until 2019, is worth EUR 150 million. Series production is scheduled to start in the first quarter of 2017. The contract comprises the entire piston assembly consisting of pistons, piston pins, retaining rings, piston rings, and liners. The units are destined for commercial vehicle engines manufactured to the latest Euro 6 emission standards, intended for operation in Europe and NAFTA. Shipments will be made locally, with the pistons for the customer's European plants being made in Neckarsulm, Germany, while the North American locations are being supplied from Kolbenschmidt de Mexico. (From a press release on December 1, 2015)

-The Company has been awarded several major contracts for variable oil pumps. The contracts placed by European, U.S. and Japanese OEMs are worth a total EUR 245 million over their lifetimes. Work on the first pump contract placed with the Company’s subsidiary, Pierburg, will commence by the end of 2015, with further SOPs scheduled for the next three years. Manufacturing locations where the pumps will be shipped are the Pierburg plants in France, Italy, and Mexico. (From a press release on November 20, 2015)

-The Company announced that it has booked major orders from two prominent automobile makers for its emission reduction components. The two orders will add up to over EUR 300 million in sales during the lifetime of the contracts. The products ordered include exhaust-gas flaps for a large European automaker and exhaust gas recirculation modules for a customer in the U.S. The exhaust-gas flaps will be produced by Pierburg s.r.o. in the Czech Republic starting in 2017. Production of the exhaust gas recirculation modules also begins in 2017, at KSPG Automotive India Private Ltd in India. Both projects are set to run until 2022. (From a press release on September 8, 2015)

-The Company’s future development activities will continue to focus on optimizing components for combustion engines. However, with stricter regulations on fuel consumption and emissions, the Company has also dedicated efforts in reducing component weight and developing components for use in hybrid and electric vehicles.

-At the IAA Frankfurt Motor Show 2015, the Company provided a presentation for potential areas of component optimization as part of its “Road to 95” campaign, to meet emission requirements regulated by the European Union. In the presentation, the Company demonstrated that fuel savings of up to 13% could be achieved by the use of its products.

R&D Employees

Product Development

Electronic control throttle body
-The Company announced its new electronic control throttle body. The throttle body adjusts the torque and controls the idle speed at the driver's request. The actuator of the throttle body can control the intake management systems of diesel and gasoline engines. In addition, it can drive the EGR valves and other components of exhaust gas aftertreatment systems. (From news releases issued by multiple sources on June 15, 2015)

Coolant pump for 48V systems
-The Company presented a new coolant pump designed for 48-volt systems at the IAA Frankfurt Motor Show 2015. The new pump is an example of how the Company’s product development has been driven not only by increased output requirements but also by the need for components suited for hybrid and electrified vehicles.

Tandem pump module
-In order to simplify the engine structure, more companies have displayed interest in components that provide a combination of different pump functions. For example, the Company designed a tandem pump module which combines a vacuum pump and variable oil pump. The tandem pump won a major contract from a customer in the NAFTA region in 2015.

Electric turbocharger
-Due to the developing global trend of turbocharged gasoline engines, the Company began development of an electric turbocharger to provide temporary support for convention exhaust gas turbochargers.

Mechatronics Division
-In the fiscal year ended December 31, 2015, the Company invested EUR 81 million in the Mechatronics division, a decrease of EUR 8 million from the previous fiscal year. Most of the investment was focused on capacity expansions for new customer projects. These included increases in production of exhaust gas recirculation valves, exhaust gas flaps, variable oil pumps, and electrical water pumps.

Hardparts Division
-The Company invested EUR 72 million in capital expenditures in its Hardparts division during the fiscal year ended December 31, 2015. The Company focused on capacity expansion for steel pistons, site expansions in the Czech Republic and the U.S., and restructuring and localization of other programs.