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5. Faurecia S.A. Business Report FY ended Dec. 2017

Faurecia S.A. Business Report FY ended Dec. 2017

Factors

1) Net Sales
-The Company’s sales for the fiscal year ended December 31, 2017, totaled EUR 20,181.7 million, an increase of 7.9% over the previous year. Net sales increased across all areas, including all three business groups, as well as catalytic converter monoliths. These gains were partially offset by negative currency translation effects and the divestiture of the Company’s Fountain Inn facility.

2) Operating Income
-In the fiscal year ended December 31, 2017, the Company’s operating income increased by 20.6% compared to the previous year to EUR 1,170.3 million. Operating income had increased across all of the Company’s operating regions. Increases in Europe and North America were attributed to improved industrial efficiency and organic growth. Gains in Asia were due to growth in the region, while the increase in operating income in South America reflected restructurings and consolidation of businesses in the region.

3) Automotive Seating
-Sales in the Company’s Automotive Seating business group increased by 8.0% in the fiscal year ended December 31, 2017 to EUR 7,132.9 million. Primary contributing factors include improved sales to PSA Peugeot Citroen in Europe and to Ford in North America. The ramp-up of the Company’s new assembly site in Lozorno, Slovakia helped supply demand for Volkwagen’s SUVs and crossover models.

4) Clean Mobility
-The Company’s Clean Mobility business group’s sales totaled EUR 7,712.7 million in the fiscal year ended December 31, 2017, an increase of 5.8% from the previous year. The group’s growth was driven by increased sales to Cummins due to the Company’s new Nitro technology. Increased sales from catalytic converter monoliths further assisted the group’s gains.

5) Interior Systems
-The Company’s Interior Systems business group had sales of EUR 5,336.1 million in the fiscal year ended December 31, 2017, an increase of 10.9% over the previous year. Growth was driven by the consolidation of two joint ventures, as well as organic growth in Europe, Asia and South America. The business group was negatively affected by the divestment of the Fountain Inn facility.

Restructuring

-The Company announced that its Emissions Control Technologies has reoriented its strategy to become the Clean Mobility business group to align with the industry megatrends and boost its long term growth. The Clean Mobility business group has the clear objective of leading the transition of the mobility value chain towards cleaner solutions. For example, the Company is working with Clean Air Asia in Asia. It has also recently completed the purchase of Amminex to accelerate the deployment of an efficient nitrogen oxide reduction system for cars and commercial vehicles. (From a press release on January 23, 2017)

-In July 2016, Plastic Omnium announced that it has completed the acquisition of the Company's Exterior Systems business for an enterprise value of EUR 665 million. (From a press release on July 29, 2016)

Acquisitions

-The Company announced an investment in the American startup Alsentis, further reinforcing its technology expertise in smart surfaces. Alsentis is specialized in capacitive sensor technology and HMI, enabling a unique and reliable haptic experience incorporating new materials and complex geometries. (From a press release on December 11, 2017)

-The Company announced the finalization of the acquisition of a majority stake in Jiangxi Coagent Electronics Co., Ltd, which will be renamed Faurecia Coagent Electronics S&T Co., Ltd. The Company acquired the majority stake through an investment of RMB 1.45 billion. The joint venture will develop integrated and innovative in-vehicle infotainment solutions. The partnership between the Company and Parrot Automotive is expected to create beneficial synergies for the joint venture. (From a press release on November 6, 2017)

-The Company acquired exclusive access to the intellectual property and process knowledge of composite hydrogen tanks from STELIA Aerospace Composites. With the support of STELIA Aerospace Composites, the Company is able to design, industrialize and commercialize high-pressure hydrogen tanks made of carbon fiber composites for fuel cell electric vehicles. This acquisition complements the investment that the Company recently made in Ad-Venta, a specialist in pressure valves for hydrogen storage. (From a press release on May 15, 2017)

-The Company reached a partnership agreement with TactoTek. Through the investment in the Finnish startup, the Company is strengthening its expertise and technological offerings in smart surfaces. TactoTek provides solutions for Injection Molded Structural Electronics (IMSE): integrating printed circuitry and electronic components into 3D injection molded plastics. (From a press release on February 21, 2017)

Joint Ventures

-The Company announced its new joint venture with Liuzhou Wuling Industry Co.Ltd, named Faurecia Liuzhou Automotive Interior Co., Ltd. Faurecia Liuzhou is capitalized at CNY 150 million, evenly divided between the two companies. The joint venture will develop and manufacture automotive interior products including instrument panels, center consoles, door panels and acoustic products to SAIC-GM-Wuling affiliated brands and other customers. Located in Liuzhou, the joint venture aims to reach annual sales of CNY 1.3 billion by 2022 across three plants. The new joint venture follows the agreement signed in July 2017 between the Company and Wuling Industry, covering seating operations. (From a press release on November 29, 2017)

-The Company announced a new joint venture with the Chinese OEM, BYD. The Company will have a 70% stake in Shenzhen Faurecia Automotive Parts Co., Ltd., while BYD will own 30%. Shenzhen Faurecia aims to develop and manufacture advanced seating solutions for BYD-affiliated OEM brands. The strategic partnership will bring together BYD’s seating production activities in Shenzhen, Xi’an and Changsha. Sales generated by this new company are expected to reach RMB 2.4 billion by 2020. (From a press release on October 31, 2017)

-On July 2017, the Company announced a plan to set up a new joint venture with Dongfeng Motor Parts And Components Group Co., Ltd. to explore a new opportunity in clean mobility. The establishment of the joint venture will broaden their existing alliance in the area of automotive interior components. The purpose of the new company is to provide Dongfeng’s passenger and commercial vehicle brands with advanced clean mobility system solutions. They will build the company in Xiangyang, Hubei, anticipating an operational launch in 2018. The new company is expected to generate sales of CNY 1.2 billion in 2021. (From a press release on July 5, 2017)

Business Partnership

-On September 2017, the Company renewed its partnership contract with Lectra for its Automotive Seating business group. The business group aims to double its production volume by making use of advanced technologies. The renewal of the contract with Lectra will ideally allow the Company’s manufacturing processes to advance towards Industry 4.0. Standardizing Lectra’s Vector seat fabric cutting solutions will lead to improvement throughout the business group’s fabric cutting facilities. (From some releases on September 28, 2017)

-ZF Friedrichshafen AG (ZF), a German automotive parts supplier, announced that it has signed a strategic partnership agreement for the development of autonomous driving technologies with the Company. The two companies will cooperate in the development of integrated safety systems for autonomous vehicles, and advanced safety technologies for cockpits of the future. Through cooperation with the Company, which has strength in automotive interior parts, ZF is aiming to develop flexible and comfortable interiors that are equipped with advanced safety technology. The partners will develop seats that integrate many safety devices, recline and rotate, and efficiently switch from automatic to manual mode operation. They will also develop network connection and other functions that are required for future vehicle interiors. The partnership will not involve capital and is solely for knowledge exchanges and cooperative work. (From an article in the Nikkan Jidosha Shimbun on May 9, 2017)

Contracts

-The Company won a contract to retrofit 20,000 buses and commercial vehicles in Seoul using its Amminex technology. As part of the Seoul Metropolitan Air Pollution Management Project, the Company will provide its DeNOx solution through a supply agreement with two partners - ILJIN and CleanEarth – who both have contracts with the Ministry of Environment in South Korea. Amminex, a Danish technology company acquired by the Company in 2016, is the only supplier able to propose this Ammonia Storage and Delivery System (ASDS) technology. ASDS is a new solution for NOx reduction which has been proven to reduce NOx emissions by as much as 99%. Amminex also offers real-time emission monitoring of all ASDS-equipped vehicles. This provides cities with data to manage their fleet. In order to support this project, the Company will set up a cartridge refilling station and a distribution network in South Korea. (From a press release on June 26, 2017)

-The Company announced that it supplies some products for the Peugeot 3008, the 2017 European Car of the Year. These products include:

• Complete front and rear seats, with an optional massage system for front seats
• Acoustics, sound-proofing and carpeting
• Seat mechanisms and headrests for easy adjustments
• Selective catalytic reduction system

The Company’s products are also on the Alfa Romeo Giulia and the Citroen C3. (From a press release on March 6, 2017)

Outlook

-In the fiscal year ending December 31, 2018, the Company expects to have sales growth of at least 7% or five percentage points above worldwide automotive production. The Company is also aiming towards an operating margin of at least 7% of sales.

*1: Restated according to IFRS5.

R&D Structure

-The Company has 6,000 engineers and technicians working in 30 R&D centers across 11 countries.

R&D Facilities

-In November 2017, the Company inaugurated its new China and Asia Pacific R&D Center in the Eureka Industrial Park in Minhang, Shanghai. The Company will employ 620 employees, including 350 engineers, at the 45,000-square-meter center to develop clean air technologies for passenger cars and commercial vehicles. (From a press release on November 29, 2017)

-The Company opened a new technical center in Silicon Valley, U.S. to strengthen its relationships with automakers, innovative startups, leading universities and new actors in the mobility sector. The Company will accelerate its startup scouting activities locally and build a technology platform for its Smart Life on Board and Sustainable Mobility innovation ecosystems. The center will host one of the Company’s Artificial Intelligence teams. The Company has been active in the region and has forged strong ties locally, with entities such as Stanford University and the world's largest startup accelerator, Plug and Play. (From a press release on November 10, 2017)

-The Company announced that it inaugurated its new South Korea headquarters and technical Center in Seoul. The Company invested around EUR 28 million to integrate its three Business Groups (Clean Mobility, Seating, and Interiors), a testing and prototype center and an exhibition center in a 8,075-square-meter building. (From a press release on May 23, 2017)

R&D Activities

-CEA (French Alternative Energies and Atomic Energy Commission) announced that the Company signed a five year agreement with the commission to collaborate in a research and development program of fuel cell stack technologies. The Company will benefit from more than two decades of CEA research and expertise in fuel cell stacks and key components such as bipolar plates. Combined with the Company’s expertise in fluid dynamics and catalysis, the Group will be able to develop, mass-produce and commercialize a high performance fuel cell stack. (From a press release on September 13, 2017)

-The Company announced that it is joining the leading cluster MAI Carbon of the Incorporated Society of Carbon Composites based at the Augsburg (Germany) Innovation Park to develop manufacturing processes capable of reaching automotive cycle times for the mass production of composite parts. The proximity of German premium OEMs and internationally recognized partners such as the Institute of Textile Engineering Augsburg, the Fraunhofer Institute IGCV, the German Aerospace Centre (DLR) and the University of Augsburg creates an opportunity for the Company to take the lead in the mass production of structural and semi-structural composite parts for the automotive industry. The Company is already a leading member of the FORCE consortium in France which has the aim of producing low cost carbon fiber for the automotive industry. (From a press release on May 15, 2017)

Technological Alliance

-The Company announced the signing of a research partnership with the Indian Institute of Science (IISc). The two parties will conduct collaborative research to develop new technologies and solutions in three areas: online air quality monitoring, data analysis and algorithms for driver behavior, and artificial intelligence for industrial design. (From a press release on November 15, 2017)

-Mahle announced that it will collaborate with the Company for the development of innovative interior thermal management technologies for future mobility solutions. The Company will bring its unique expertise as a full interior system integrator, while Mahle will add its holistic thermal expertise for passenger comfort and energy efficiency. The two companies have already identified several potential collaboration fields addressing topics such as air distribution, air conditioning integration solutions for electric vehicles and the mutual development of personalized thermal management for the cockpit of the future. (From a press release on October 10, 2017)

-ZF announced that it and the Company are unveiling the initial results of their collaboration as well as future plans. By introducing their new seat concept at their booths during IAA 2017, the two companies are shaping the trend toward a versatile, comfortable, and safer interior. A long-term road map will define additional milestones regarding integrated safety for future passenger car interiors. The goal of the cooperation between ZF and the Company is “Cockpit 2025” which will help support the transition from assisted and automated driving to fully autonomous driving at levels 3 and higher. (From a press release on September 19, 2017)

Product Development

Products shown at CES 2018
-The Company announced that it will reveal major disruptive innovations for a personalized and safe on-board experience in the versatile, connected and predictive Cockpit of the Future at CES 2018 in Las Vegas. The Group will also showcase digital services for health and wellness and for smarter and cleaner cities. Among the technologies and services highlighted for Smart Life on Board and Sustainable Mobility are: A fully integrated cockpit of the future demonstrating versatile architecture and smart systems for a safe and personalized user experience across different driving modes; A connected seat cover incorporating sensors for health and wellness data monitoring; An individualized infotainment system which utilizes voice recognition into Parrot Automotive’s multi-platform system. (From a press release on November 16, 2017)

Technologies in strategic areas of focus
The Company announced that it will demonstrate how it is accelerating new and disruptive technologies in its two strategic areas of focus – Sustainable Mobility and Smart Life on Board. Among the technologies highlighted for the Cockpit of the Future include the following:

• An advanced versatile seat structure developed in partnership with ZF.
• A morphing instrument panel, an optimal display surface for either navigation or entertainment.
• An infotainment solution with Parrot Automotive, which showcases the combined expertise of Parrot Automotive in electronics and software and the Company’s expertise smart surfaces integration.
• An ASDS air quality solution which is a retrofit solution to reduce nitrogen oxide emissions by up to 90% in diesel buses.
• Powertrain electrification technologies for battery electric vehicles and fuel cell vehicles which use composite materials. (From a press release on September 6, 2017)

Patents

-In the fiscal year ended December 31, 2017, the Company filed approximately 577 patents, including 330 first filings.

Investments outside France

-The Company announced that it will establish its fifteenth manufacturing plant in Mexico in San Jose Iturbide. The USD 48 million facility will utilize Industry 4.0 manufacturing strategies to produce exhaust systems. The initial workforce of 200 employees will increase to 700 employees as the plant reaches full production capacity. (From a Mexico-Now article on October 18, 2017)

-The Company announced that it will open new production lines at a plant located in Huejotzingo, Puebla, in central Mexico. The Company is investing USD 200 million in Mexico to update and expand most of its 15 facilities in the country, with the Huejotzingo expansion being the most significant. The project will create 300 new jobs to manufacture seats for several automakers, including Audi. Expansion plans for all three business groups operating in Mexico will result in 1,800 new jobs in the coming months for its exhaust systems, interiors and seating businesses. (From a Mexico-Now article on May 12, 2017)


-In July 2017, the Company opened a new seating plant in Morocco. The Company invested MAD 170 million in the new 12,800-square-meter site, leading to the creation of 1,300 jobs with an additional 500 future potential employees. The plant has a daily production output of 10,000 leather and fabric seat covers, which are used in models including the Peugeot 3008 and 5008. (From a press release on July 13, 2017)


-The Company’s Clean Mobility business group announced that it will invest more than USD 4 million to establish and equip a new 137,500-square-foot production facility in Fort Wayne, Indiana which will open in 2018. The business group employs more than 1,800 workers at three locations in Columbus and plans to fill 144 engineering and production positions at the new Fort Wayne facility at the end of 2017. (IEDC press release on March 9, 2017)