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5. Rheinmetall Automotive AG (Formerly KSPG AG) Business Report FY ended Dec. 2017

Rheinmetall Automotive AG (Formerly KSPG AG) Business Report FY ended Dec. 2017

Factors
1) Net Sales
-The Company’s net sales in the fiscal year ended December 31, 2017 increased by 7.7% over the previous year to EUR 2,861 million. Excluding currency effects, sales increased by 7.9% during the year.

2) Mechatronics
-In the fiscal year ended December 31, 2017, sales in the Company's Mechatronics division increased by 8.7% over the previous year to EUR 1,621 million. Sales of commercial diesel systems primarily increased in EGR products. As for solenoid valves, sales for Chinese customers mainly increased.

3) Hardparts
-Sales in the Company’s Hardparts division totaled EUR 968 million in the fiscal year ended December 31, 2017, an increase of 5.1% from the previous year. Under market recovery, sales increased in pistons along with steady demand for large engines as well as in bearings for India and North America.

Business Partnership

-The Company announced that its technology group, represented by Rheinmetall Landsysteme, has joined forces with Paravan, a market leader in drive-by-wire technologies, to cooperate in the field of autonomous driving. The partners plan to design and develop semi and fully automatic platforms for military and dual-use applications as well as civilian emergency response vehicles. This pioneering cooperation agreement lays the groundwork for the rapid development of automated, and future autonomous systems. Representatives of the two companies have signed a wide-ranging agreement covering cooperation both at home and abroad. Established in 2005, Paravan has been developing drive-by-wire control technologies for over 15 years. This technology is a crucial prerequisite for future autonomous driving at the highest level (level 5), where no driver is necessary. (From a press release on October 4, 2017)

-The Company announced that KS Kolbenschmidt GmbH, Neckarsulm, Germany, a part of the Company, has signed a license agreement with the Chinese automotive industry supplier ZYNP Corporation, Mengzhou. The agreement covers the production and marketing of commercial vehicle steel pistons for the Chinese market. Under the agreement, ZYNP will also manufacture and market in China steel pistons under the brand name KS Kolbenschmidt. Customer specific development of the respective piston models will be solely in the hands of KS Kolbenschmidt. ZYNP produces exclusively in China and, with a cylinder liner world market share of 16 percent. ZYNP has sales locations in the USA, Europe, and Russia. Founded in 1958, it employs a workforce of 11,000 and generates annual sales of around EUR 570 million. (From a press release on May 12, 2017)

Joint Ventures

-ZYNP KS Automotive New Power Systems Co., Ltd., a joint company established by ZYNP Corporation and KS Kolbenschmidt, one of the group companies of the Company, in Mengzhou, China, began constructing a new plant with an annual production capacity of 1.8 million units of steel pistons for China-6 engines. The total investment is Chinese yuan (CNY) 1.43 billion. The new plant will be equipped with six world’s leading intelligent automatic production lines. The first-phase construction will require eight months. The second-phase construction will complete in 2020. When completed, its sales are expected to reach CNY 2 billion. From a press release of ZYNP on July 6, 2017)

New Company

-The Company announced that its spun-off subsidiary, the 3D printing specialist Neuss-based Solidteq is now entering the market under its new name and offering its expertise to third-party customers, too, especially from the automotive and mechanical engineering sectors. For meanwhile six years, the Company has through its subsidiary Pierburg specialized in Selective Laser Melting (SLM) . In 2016, Solidteq was spun off as a start-up so as to be able to market its products to external customers also. The Company converges its experience in 3D printing and machining with extensive expertise in prototype development and simulation. At the formnext fair in Frankfurt, the company is currently displaying its innovative solutions for 3D printing in metal. (From a press release on November 14, 2017)

Contracts

-The Company announced that it has booked additional orders in various product segments with a total value of around EUR 200 million. The Company is delivering aluminum pistons for a six-cylinder gasoline engine. It is produced at Usti nad Labem, Czech Republic. For a three-cylinder gasoline engine, Rheinmetall Chinese joint venture KSHP is the sole supplier of pistons worth a total of over EUR 30 million. Group-affiliate KS Gleitlager GmbH was recently awarded a contract for components of a four-cylinder diesel unit. The affiliate will as from 2020 be supplying the main and connecting-rod bearings as well as thrust washers. Pierburg GmbH will produce divert-air valves worth a total EUR 7 million at the German Lower Rhine plant for installation in a six-cylinder gasoline engine. Pierburg Mikuni Pump Technology will launch series production of a recirculating-water pump with a lifetime sales volume of over EUR 5 million. (From a press release on April 25, 2018)

-KS Kolbenschmidt, a subsidiary of the Company, has just been awarded its first contract for pistons featuring the latest Liteks 4 technology. The order has a lifetime value of over EUR 47 million. The customer is a joint venture between a major international automaker and a leading group of companies in China. The components are destined for a new 4-cylinder gas engine with 1.5-liter displacement and an output of almost 150 kilowatts. Production scheduled to start in autumn 2021. The lightweight pistons will be manufactured at the newly built piston plant in Chongqing, which belongs to the Group’s Chinese joint venture company Kolbenschmidt Huayu Piston (KSHP). The piston rings are sourced from Kolbenschmidt’s alliance partner Riken, and will be shipped out to the OEM fully assembled. Production of the piston rings will take place at the Kolbenschmidt/Riken joint venture plant in Wuhan. (From a press release on March 22, 2018)

-The Company announced that its Pierburg subsidiary received an order from the Southern California vehicle maker, Karma Automotive, to supply coolant pumps for its Revero plug-in electric hybrid vehicle (PHEV), which is sold in the U.S. and Canada. The coolant pumps will be delivered in a smaller version (CWA 50, 50 watts) and a larger one (CWA 100, 100 watts). The coolant pumps are being manufactured at Pierburg's location in Hartha, Germany. Pierburg’s pumps are used for a variety of functions, from cooling the charge air on turbochargers to the main coolant circuit on internal combustion engines. In hybrid and electric vehicles, the pumps handle such functions as cooling or temperature-control of electric drivelines, batteries, DC-DC converters, and power electronics. (From a press release on January 30, 2018)

-The Company announced that through its group subsidiary Pierburg, Rheinmetall Automotive been awarded by a Chinese-American engine manufacturer an order with a life-time volume worth over EUR 71 million. The Beijing-based manufacturer has ordered electronically controlled back-pressure valves for truck engines of 12 and 13 Liters displacement. Developed by Pierburg, the valves will be going into production as from 2019 in Pierburg's Chinese plant in Kunshan. (From a press release on December 7, 2017)

-The Company announced that through its group subsidiary Pierburg, Rheinmetall Automotive has won a strategically significant contract awarded by a major OEM in Southeast Asia. For this German auto-industry supplier, it is the first order for Southeast Asia. The order covers divert-air valves and has a lifetime value of EUR 7.7 million. Shipments will start as from the end of 2018. The divert-air valves will be produced at Pierburg's Lower-Rhine plant in Neuss. (From a press release on November 15, 2017)

-The Company’s research and development activities focuses on reducing emissions and improving fuel economy through advances in both combustion engines and electric drives.

R&D Employees

R&D Activities

-The Company announced that Solidteq, a Rheinmetall Automotive company, is making its debut and displaying innovative solutions for 3D printing with metallic materials intended specifically for the automotive and mechanical engineering sectors, at AMX (Additive Manufacturing Expo) in Lucerne, Switzerland. The exhibits will chiefly be reflecting the Company's broad value-adding chain, specifically the four project phases offered from a single source by this start-up: from planning via the development of a 3D model and printing to mechanical finishing and quality assurance of the workpieces. (From a press release on February 8, 2018)

Product Development

Solenoid Valve
-The Company announced that its group company Pierburg has developed a solenoid valve that shuts off the oil cooling of the pistons when needed. It has already gone into series production. Piston cooling is usually effected by nozzles spraying the oil flow from the engine oil pump into an interior coolant passage of the piston to allow any excess heat to be dissipated. When the new solenoid valve is switched on, the flow of oil leading to the nozzles is interrupted.The new solenoid valve has been developed on the basis of already existing valves for controlling variable oil pumps and is small and lightweight thanks to simulation-aided actuator design and optimized flow geometries. It can therefore be mounted at various points, for example, in the housing of the oil filter module or in the engine block. (From a press release on April 5, 2018)

Secondary Air Blower
-The Company announced that its group company Pierburg developed the associated secondary air blower and provided it with a speed-controlled motor. The latter allows secondary air injection across a much wider engine map range and hence, at any given point in time, the precise air mass required for accelerating converter heat-up is injected into the exhaust system. Through the secondary air pump, the new air blower not only accelerates catalytic converter heat-up, it lowers electric energy consumption and emissions. It thus helps many engines to comply with such standards as EU 6.2, RDE, SULEV 20 or Beijing 6. (From a press release on March 13, 2018)

Wastegate Actuator
-The Company informed that Pierburg's newly engineered wastegate actuator allows direct activation of the wastegate valve by being mounted on the hot turbine housing. Thermal insulation from the housing combined with efficient temperature control of the coolant prevent actuator overheating under all operating conditions. Additionally, the 12-V DC motor is cooled to such a degree that motor load can be stepped up with the advantages of a lower gear ratio between motor and actuator shaft and a higher actuating torque. For system validation, prototypes were produced and tested on the company's test benches over 500 operating hours on a new gasoline engine shortly to go into series production. (From a press release on March 6, 2018)

In-Line Valve for Modular System
-Pierburg has introduced a new in-line valve with a small footprint and engineered as part of a modular system. The new valve features compact design cuts out the normal shaft displacement between the input and output lines. This means the actuator requires no space outside of the coolant pipes, and hence the packaging within the vehicle is much more compact. Lower pressure losses allow reduced energy consumption by the pumps as well as significantly higher flow rates. Rounding off the new valve technology is a weight reduction of over 30 percent compared to conventional valves. (From a press release on February 27, 2018)

Motorized Throttle Valves
-The Company informed that its group company Pierburg has displayed a new generation of motorized throttle valves specifically suited for use in Euro 6 vehicles. Instead of the usual aluminum alloy, the housing is manufactured from a duromer which is combined with a newly developed plastic/metal hybrid throttle valve for cost and weight savings. The control valve in a duromer housing meets present customer demands regarding more aggressive media in the intake pipe, tighter EMC/ESD limits, as well as more frequent start/stops and higher operating temperatures. (From a press release on December 5, 2017)

Lightweight Piston for Gasoline Engines (Liteks-4)
-The Company announced that KS Kolbenschmidt in alliance with Riken develops custom-tailored piston assemblies with a high degree of friction reduction. Liteks-4, a lightweight piston developed for gasoline engines, is now ready for series production. For high-performance applications the piston can be supplied with ring carrier and cooling gallery. Test bench measurements followed by vehicle simulations have shown a CO2 reduction in the region of 1.7 percent on the NEDC cycle. Besides low weight, the emphasis on this generation has been focused on ambitious targets for friction losses. For the same engine load condition, the newest piston concept allows some ten percent reduction in piston weight compared with the predecessor generation. (From a press release on October 26, 2017)

Polymer Bearing for Crankshaft Applications (KS R53L1)
-The Company announced that its subsidiary KS Gleitlager has developed KS R53L1 polymer for wear-resistant crankshaft bearings. KS R53L1 is a polymer bearing further developed by KS Gleitlager for crankshaft applications. In the case of high mixed-friction, wear is reduced by up to 80 percent compared with first-generation polymer bearings. With its dynamic load capacity combined with the adaptability of the polymer layer, the bearing can be used as a crankshaft bearing on all mild or plug-in hybrids, gasoline or moderate-performance diesels - and in combination with low viscosity oils. For conrod applications, the manufacturer combines the new L1 polymer layer system with the more resilient R55 two-layer-material substrate. On medium- to high-duty gasoline engines, the new KS R55L1 provides the wear resistance required on full hybrids and low oil viscosity applications. (From a press release on October 12, 2017)

Electric Pump
-The Company announced that its acquired German company Pierburg has developed a compact innovative pump that works even without the intake pipe vacuum necessary until now. The electric pump is the first of its kind and will go into a customer’s series production in 2018. (From a press release on September 28, 2017)

EGR Valve for Low-Pressure Applications
-The Company informed that its group company Pierburg Group has developed a compact exhaust-gas recirculation (EGR) valve for low-pressure applications. The new component comes with the important advantage of a space saving layout combined with an indirect DC-motor. The EGR valve has been developed for use with car diesel engines yet, given its very good controllability in particular at minimum mass flow rates, it can also be used for lowering emissions and fuel consumption on gasoline engines. The compact design and its implementation as a so-called sandwich construction allow maximum flexibility under a wide variety of installation conditions. In addition, a newly developed sealing element has brought about a significant reduction in internal leakage. (From a press release on September 20, 2017)

Investments outside Germany

-The Company announced that Kolbenschmidt Shanghai Piston (KSSP) is adding a newly built plant in Chongqing to its production location structure in the automotive hub in southwest China. KSSP is a joint venture between KS Kolbenschmidt and HUAYU Automotive Systems. In its first expansion stage, the new location in Chongqing represents an investment of around 500 million RMB. Currently, the plant has a production area of 34,000 square meters. Fitted out with the latest technologies, it employs a workforce of 230 and, in its first year of operation, it will have a production capacity of 5 million pistons. (From a press release, on December 19, 2017)

Award

-Pierburg announced that it has been awarded Volvo Cars Quality Excellence (VQE). Conditions for receiving this award are outstanding supplier quality strictly monitored over 12 consecutive months, with the supplier required to maintain an exceptionally good rating in twelve supply chain segments. The winning Pierburg locations supply Volvo with solenoid valves, cooler modules, water pumps, and recirculating water pumps. (From a press release on March 28, 2017)