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5. Plastic Omnium S.A. Business Report FY ended Dec. 2016

Plastic Omnium S.A. Business Report FY ended Dec. 2016

Factors
1) Net Sales
-In the fiscal year ended December 31, 2016, the Company’s consolidated net sales was EUR 5,857.3 million, an increase of 16.9% over the previous year. Sales benefited from a positive currency translation effect of EUR 125 million, as well as a positive consolidation scope effect of EUR 413 million primarily as a result of the Company’s acquisition of Faurecia’s Exterior Systems business. Organic sales increased in all of the Company’s operating regions.

2) Automotive Division Sales
-The Company’s Automotive Division had consolidated net sales of EUR 5,488.3 million in the fiscal year ended December 31, 2016, an increase of 18.7% over the previous year. The increase in sales was driven by increased orders; an increase in production capacity in Mexico, the UK, and China; and success in the Company’s innovative products portfolio. Specifically, sales in Europe benefited by the growth in sales of SCR systems, while sales in North America benefited from the strength of SUV sales in the region. The Company’s business in Asia increased due to increased production capacity in the region from its prior investments.

-The Company has three major joint ventures:

• HBPO: The joint venture is owned in equal proportions by the Company, Hella and Mahle-Behr. HBPO is a leading manufacturer of front-end modules and has a network of 21 assembly plants. HBPO contributed revenue of 670 million EUR in 2016.
• Yanfeng Plastic Omnium Automotive Exterior Systems (YFPO): The joint venture is 49.95%-owned by the Company. YFPO is China's leading manufacturer of auto exterior components. YFPO employs approximately 3,400 people in its development center and 17 plants in China. It's revenue contribution stood at 372 million EUR in 2016.
• BPO: The Turkish company is a 50/50 joint venture owned by the Company and BPlas, a Turkish company which focuses on plastic processing and surface decoration primarily for the automotive market. The joint venture is the leading Turkish manufacturer of exterior body parts. Its 2016 revenue contribution stood at 36 million EUR.
  
  

Faurecia Exterior Systems Acquisition Chronology

-The Company executed the SPA (Sale & Purchase Agreement) for the purchase of Faurecia’s Automotive Exteriors business. The procedures with the employee representatives were completed. The transaction must now be submitted to the European Commission and to other relevant competition authorities. Faurecia’s Automotive Exteriors business, which includes bumpers and front-end modules, includes 22 industrial sites in Germany, France, Spain, Slovakia, and North and South America. Half of the revenue, or approximately EUR 2 billion, is generated in Germany, where the Company has no bumper production site. The acquisition is being concluded for an enterprise value of EUR 665 million and should be finalized in the second half of 2016. (From a press release on April 19, 2016)

-The European Commission approved the sale of Faurecia Automotive Exteriors to the Company, subject to a commitment from the Company to divest the entirety of the bumper business in France, a site in Spain, and the Front End Module business in Germany. This business represents sales of EUR 700 million. The closure of the deal is due to take place on July 29, 2016 for the entire perimeter sold by Faurecia. (From a press release on July 11, 2016)

-The Company announced that in accordance with the European Commission's decision to require the Company to divest assets included in the acquisition of Faurecia Auto Exterior, the Company received a binding offer from Flex-N-Gate to acquire the 7 affected sites (4 in France, 1 in Spain and 2 in Germany), for an enterprise value of EUR 200 million. This proposed transaction must undergo the procedures relating to the staff representation bodies in the countries concerned, and obtain the authorizations from the European Commission and the competent competition authorities. The transaction is expected to be finalized in 2017. (From a press release on December 23, 2016)

Divestitures

-The Company announced that it has received a binding offer from the Germany-based Mutares Group for acquisition of its heavy duty truck business. The Company's former business related to the design and manufacture of body and structural parts for the heavy duty truck industry has 5 sites in France, 2 sites in China, and one each in Germany and Mexico. Its revenue in 2015 totaled EUR 190 million and represented approximately 2% of the Group's pro forma revenue. The Company is now focused on body and structural components and modules for light vehicles, a market in which it has become a leader with a 15% market share after the recent acquisition of Faurecia's Exterior Systems' business. This proposed transaction is expected to be finalized in 2017. (From a press release on November 18, 2016)

Contracts

-The Company won the following orders in 2016:

• Contract with NextEV in China to provide bumpers, fenders, tailgates and spoilers for electric vehicles
• Contract with Lucid Motors to provide bumpers, tailgates and body panels for electric vehicles
• Contracts with four automakers to provide fuel systems for eight plug-in hybrid vehicle models
• Contract with Mercedes-Benz to provide bumpers for the Mercedes Class S
• Contract with Audi to provide bumpers for the Audi A6
• Contract with Porsche to provide a mobile spoiler

-In the fiscal year ended December 31, 2016, the Company had 160 successful product launches.

Awards

-The Company announced that it has received the “Global Contribution Award” from Toyota Motor Corporation. The Company also received the “Superior” Value Improvement Award. This is the second year in a row that the Company has received an award from Toyota, following its Superior Quality Performance award in 2015. (From a press release on February 29, 2016)

Outlook

-The Company expects to reach EUR 8 billion of consolidated revenue in 2020 versus EUR 5 billion in 2015. The Company introduced its growth and innovation strategy for the 2016-2020 period at its "Investor Day" presentation. Based on orders already secured, the Company expects to service 19% of the bumper market and 25% of fuel systems in 2020. The Company is developing innovative lightweighting solutions with plastic, composite and carbon fiber body parts, and fuel tanks for plug-in hybrid vehicles and SCR emissions control systems. Revenue from these product lines will total EUR 1.4 billion in 2020. The Company will invest EUR 2.5 billion over the 2016-2020 period to respond to future market requirements. The Company will invest 6% of its revenue each year in research and development, position itself to design the vehicle exterior body parts, and become an integrated manufacturer for all propulsion energy systems. (From a press release on December 13, 2016)

R&D Structure

-As of December 31, 2016, the Company has 2,000 engineers working across 23 research and development centers around the world.

R&D Facilities

-The Group is launching the construction of an advanced research center, Δ-Deltatech, focused on new energies. Based in Brussels, the facility will require a EUR 50 million investment and will employ 200 engineers. It is scheduled to open in 2019. (From a press release on September 29, 2016)

-The Company's 23 research and development centers are located across the world as follows:

• Europe and Africa: 12
• Asia: 7
• North America: 2
• South America: 2

Technological Alliance

-In 2016, the Company signed a partnership agreement with Elbit Systems, an Israel-based international electronics company, to form a startup called POCellTech. POCellTech will focus on the research and development of fuel cells and supercapacitors. The total investment into the company is EUR 16 million, with the Company owning 20% in the partnership.

-The Company is collaborating with various entities in the research and development of fuel cells including the French Alternative Energies and Atomic Energy Commission (CEA), the Massachusetts Institute of Technology (MIT) in the U.S., the Israel Institute of Technology (Technion) and the Technical University of Denmark (DTU).

R&D Activities

-The Company is focusing its research on solutions that reduce carbon dioxide and nitrogen oxide emissions through improvements in systems that directly affect emissions, or by making components lighter and more aerodynamic.

Product Development

Plastic fuel tank for plug-in hybrid vehicles
-The Company is introducing a new-generation plastic fuel tank for plug-in hybrid vehicles. The plastic tank, featuring new INWIN technology, is 40% lighter than the metal model currently fitted on the majority of plug-in hybrid vehicles. It is designed to withstand the pressure created by fuel vapor when the vehicle is in electric-drive mode over long periods of time. The technology developed by the Company is covered by 163 patents. An initial tank will be delivered in December 2016 for Hyundai's plug-in hybrid vehicles in South Korea. By 2018, seven additional models for three other automakers in Asia and Europe will be fitted with the new tank. (From a press release on June 13, 2016)

LightAir bumper concept
-The Company presented the LightAir bumper concept, which is designed to reduce aerodynamic drag, reduce carbon emissions, and allow for increased design freedom and integrated electronic and mechatronic systems. The LightAir concept includes both passive side grills and active aerodynamic systems that can adjust a lower spoiler and other air grills. LightAir also uses reduced-density materials and a new front-end architecture to reduce its overhang and its weight by 10%.

Composite tailgate technologies
-The Company has two technologies for composite tailgates under development. Higate Premium is comprised of a composite frame reinforced with recycled carbon fibers which provides superior mechanical performance. Its lower density results in a potential weight reduction of up to six kilograms compared to a standard metal tailgate. Higate Access aims to provide an economic solution for A-segment and B-segment vehicles.

DINOx Compact SCR system
-The Company is developing DINOx Compact, a Selective Catalytic Reduction (SCR) system which incorporates the electronic control unit and all related sensors into a single module. It optimizes AdBlue dosing, heating and sensing functions in a single system to maximize the performance-to-cost ratio. DINOx Compact is compatible with both blow-molded and injection-molded fuel tanks.

Prototype hydrogen storage system
-At the 2016 Paris Automotive Show, as evidence of its work in the hydrogen and fuel cell vehicle fields, the Company presented a high-pressure hydrogen storage prototype capable of providing a long vehicle range with an estimated refuel time of three minutes.

Patents

-In 2016, the Company filed 141 patents. As of December 31, 2016, the Company manages a total of approximately 3,900 patents.

Investments outside France

-The Company announced an investment plan of USD 650 million, aiming at increasing its industrial footprint, diversifying the portfolio of customers and developing innovative products and solutions in North America. Additionally, two new manufacturing facilities are under construction in Mexico. Leon will start production in the middle of 2016 to deliver fuel systems to General Motors and Daimler, while the San Luis Potosi facility will start delivering exterior components to General Motors in the middle of 2017, and will supply components to Daimler. These new production facilities will help increase market share, with an objective to reach 10% of the bumpers segment and 37% of the fuel systems segment by 2019. (From a press release on January 11, 2016)


-In June 2016, the Company completed construction of an Auto Exterior plant in Warrington, UK, which began in the first half of 2015. The plant produces exterior body parts for Jaguar Land Rover. As of December 31, 2016, the Company has invested a total of EUR 80.8 million into the plant.

-The Company plans to develop the following new manufacturing facilities in the future: