Hanon Systems Corp. (Formerly Halla Visteon Climate Control) Business Report FY ended Dec. 2014

Financial Overview (Consolidated)

(in million KRW)
FY ended Dec. 31, 2014 FY ended Dec. 31, 2013 Rate of
change (%)
Sales 5,454,949 5,189,355 5.1
Operating income 370,316 363,535 1.9
Net income 290,448 312,103 (6.9)

Transfer of Shares

-Visteon Corporation announced that it has entered into an agreement to sell its approximately 70 percent ownership interest in Halla Visteon Climate Control Corp. (HVCC) to an affiliate of Hahn & Company – a South Korea-based private equity company – and Hankook Tire Co. Ltd. for approximately USD 3.6 billion. The transaction is expected to be completed in the first half of 2015. (From a press release on December 17, 2014)

Contracts

<Hyundai>
-The Company is supplying an array of technologies to support the world's first mass-produced hydrogen fuel cell electric vehicle manufactured by Hyundai Motor Group. Introduced in Europe in 2013, the ix35, also known as the Tucson, is slated for a limited U.S. distribution this spring. Products supplied by HVCC on the Tucson compact crossover SUV include a centrifugal air compressor, coolant heater, high-voltage cooling module and positive temperature coefficient (PTC) heater, and an HVAC system with an electric compressor. (From a press release on February 21, 2014)

Acquisitions

-In August 2014, the Company announced that it has completed the acquisition of the automotive thermal and emissions product line of Cooper-Standard Automotive Inc., a subsidiary of Cooper-Standard Holdings Inc., in a cash transaction valued at USD 46million. The transaction was announced by both companies in June 2014. Products acquired include exhaust gas recirculation modules (EGRs), electronic coolant pumps and valves, electronic wastegate actuators and electronic throttle bodies. (From a press release on August 1, 2014)

-In June 2014, the Company announced the company has reached an agreement to acquire an ownership stake in Japan Climate Systems (JCS) Nanjing of 51 percent and become the majority shareholder. The cash transaction, valued at USD 6.4 million (KRW 6.5 billion), is expected to be finished in the third quarter of 2014. JCS Nanjing manufactures heat exchangers for automotive applications. Japan Climate Systems (JCS) currently has an ownership structure evenly distributed among HVCC, Mazda and Panasonic. (From a press release on June 3, 2014)

Production

-In May 2014, the Company announced that it has produced its 100 millionth compressor. The company first succeeded in developing a compressor in 1991, becoming the first company to do so in Korea. Mass production of compressors began in October 1991, and production is carried out at six plants in Korea, China, India, Thailand and Europe. (From a press release on May 13, 2014)

Awards

-In December 2014, the Company has been honored by Fiat Chrysler Automobiles (FCA) Group in Asia Pacific with the 2013 Supplier of the Year award in the electrical export category. HVCC currently supplies thermal management components to FCA on various vehicles. (From a press release on December 10, 2014)

-In March 2014, the Company was granted the Quality Excellence Award from Volvo Cars for its high performances in terms of product quality, production processes, and delivery systems. (From a press release on March 25, 2014)

R&D

R&D Expenditure

(in million KRW)
  FY ended Dec. 31, 2014
(Consolidated)
FY ended Dec. 31, 2013
(Consolidated)
FY ended Dec. 31, 2012
(Non-consolidated)
Amount 247,051 210,355 67,719
% of sales 4.5% 4.1% 3.1%

R&D Structure

-The Company established its Technology center in Daejeon, South Korea.

-The Company has R&D facilities in the following location:
  • Korea: 1 facility
  • Europe: 2 facilities
  • Americas: 1 facility

R&D Activities

-The Company began mass-producing its high-efficiency heat-pump systems for electric vehicles during 2014. Revenues from the sale of these pump systems reached KRW 4.6 billion in the same year. The advanced pump system, which was developed jointly with Hyundai Motor, can extend the range of an electric vehicle with the heater on by over 20 percent. It also reduces energy consumption by 30 to 60 percent. Halla Visteon Climate Control expects that annual revenues from the sales of the heat pump systems will climb to KRW 37 billion by 2017. (From a press release on April 14, 2015)

-The Company will debut its integrated climate control technology called HV iCool at the Seoul Motor Show that will be held from April 3 through April 12, 2015. HV iCool combines the heating, ventilation and air conditioning (HVAC) system, a compressor, and a condenser into a single unit. This integrated unit is 20 to 30 percent lighter than existing solutions, and improves driving range of electric vehicles by over 30 percent. (From a press release on April 3, 2015)

-The Company has developed a new heat pump system for electric vehicles. Unlike a conventional electric heater, which only uses power supplied from the battery to heat the cabin, heat pumps draw heat from external air, thereby reducing power consumption. HVCC's new heat pump system also utilizes the waste heat recycled from the vehicle's motor and inverter as an additional heat source, further extending the vehicle's drive range by decreasing the power drain on the battery. With this innovation, waste heat is harvested by the heat pump to support the vehicle's heating system and meet the desired cabin temperature, even in challenging sub-zero temperatures. This function helps dramatically reduce the vehicle's energy consumption and increases the driving range on a single battery charge by more than 20 percent. HVCC's heat pump system is in production on several vehicles sold globally and will be showcased at the Seoul Motor Show in April 2015. (From a press release on March 9, 2015)

-The Company and Hyundai Motor have jointly developed centrifugal air-conditioning compressors for fuel cell vehicles (FCVs). Existing compressors require 10 kW of power, while the new centrifugal air compressor requires only 7.5 kW. The new compressor also offers a significant noise reduction over conventional products. Its noise level is more than 25 dB lower at high speed revolution of 42,000 rpm. (From a press release on June 17, 2014)

-The Company has developed a new heater module consisting of a hot-water heater system and a thin-walled positive temperature coefficient (PTC) heater. The integration will reduce installation space by 42 percent and cut down on product weight by 10 percent. The company has already completed exploratory development and is now working on turning the technology into a practical business solution for gasoline-engine vehicles, diesel-engine vehicles and hybrid-electric vehicles. (From a press release on April 23, 2014)

Recent Achievements in R&D

Product Achievements
Air-conditioning load reduction system using CO2 sensors -Air circulation control systems using CO2 sensors
-Improved fuel efficiency; and enhanced cooling, heating, dehumidification and ventilation performances
-The company has been acquiring and currently is applying for a number of patents in and outside Korea
Compact HVAC -Has been in mass-production
-The company has been acquiring and currently is applying for a number of patents in and outside Korea
Air delivery system for fuel cell vehicle -Has been in mass-production
-The company has been acquiring and currently is applying for a number of patents in and outside Korea
Front end module with pedestrian protection
-Has been in mass-production
-The company has been acquiring and currently is applying for a number of patents in and outside Korea
Design of high voltage fan and inverter for fuel cell vehicle -Has been in mass-production
-The company has been acquiring and currently is applying for a number of patents in and outside Korea
Heat pump system for EV -Has been in mass-production
-The company has been acquiring and currently is applying for a number of patents in and outside Korea
Metal seal fitting -Has been in mass-production
-The company has been acquiring and currently is applying for a number of patents in and outside Korea
Magnesium alloy pulley -Plans to start mass production
-The company has been acquiring and currently is applying for a number of patents in and outside Korea
Air mix door for electric vehicles -Plans to start mass production
-The company has been acquiring and currently is applying for a number of patents in and outside Korea
Cold storage evaporator -Plans to start mass production
-The company has been acquiring and currently is applying for a number of patents in and outside Korea
Hybrid heater core -Plans to start mass production
-The company has been acquiring and currently is applying for a number of patents in and outside Korea
Composite air conditioning system -Plans to start mass production
-The company has been acquiring and currently is applying for a number of patents in and outside Korea

Investment Activities

Capital Investment Plans

<India>
-In March 2015, ・派e Company announced the start of production at its new facility in Sanand, in the state of Gujarat, India. The Gujarat facility will support the company's growing business with global vehicle manufacturers and cater to the requirements of OEMs in the state of Gujarat and western India. The facility has approximately 8,890 square meters (95,691 square feet) of manufacturing space and the capacity to produce 2 million units consisting of heat exchangers; heating, ventilation and air conditioning (HVAC) modules; and air conditioning lines. HVCC has the ability to double its capacity at this facility based on business needs. (From a press release on March 11, 2015)

<Brazil>
-In August 2014, ・派e Company announced the opening of its first manufacturing facility in South America. The new plant in Atibaia, in the state of Sao Paulo, Brazil, assembles heating, ventilation and air conditioning (HVAC) components for automakers in the region. The new facility, HVCC Climatizacoes do Brasil Industria e Comercio Ltda., has 3,000 square meters (approximately 32,000 square feet) of manufacturing space, with room for expansion based on business needs. Production began in early June, with an initial staffing level of 40 employees. (From a press release on August 13, 2014)

<Czech Republic>
-In November 2014, the Company has announced the opening of a new production hall at its Halla Visteon Autopal, s.r.o. manufacturing facility in Hluk, Czech Republic. The expansion will increase the plant's capacity by approximately 30 percent by adding an additional 7,330 square meters (nearly 79,000 square feet) of manufacturing space to the existing 37,230 square meters (nearly 401,000 square feet) of floor space. Production is scheduled to begin in the first quarter of 2015. This is the second expansion at Hluk since HVCC was established in 2013. The first expansion, completed last year, added 8,000 square meters (about 86,000 square feet). Employing approximately 450 people, the plant in Hluk currently produces powertrain cooling components including air- and water-cooled charge air coolers, low-temperature radiators and exhaust gas recirculation (EGR) coolers, for major European automakers. (From a press release on November 4, 2014)

<Mexico>
-In September 2014, the Company announced the opening of its first manufacturing facility in South America. The new plant in Atibaia, in the state of Sao Paulo, Brazil, assembles heating, ventilation and air conditioning (HVAC) components for automakers in the region. The new facility, HVCC Climatizacoes do Brasil Industria e Comercio Ltda., has 3,000 square meters (approximately 32,000 square feet) of manufacturing space, with room for expansion based on business needs. Production began in early June, with an initial staffing level of 40 employees. (From a press release on August 13, 2014)

Capital Investments in FY ended Dec. 31, 2014

Division Type of investment Purpose of the investment Invested amount
(in billion KRW)
Project period
Automotive air conditioning systems Additional facility -Expanding production capacity 89.4 Jan. 2014 -
Dec. 2014
New facility with automated lines -Producing products for new car models
-Cutting costs
-Improving productivity
177.3 Jan. 2014 -
Dec. 2014
Total   266.7 -

Capital Investments for FY ending Dec. 31, 2015 and After

Division Type of investment Purpose of the investment Amount of investment
(in billion KRW)
FY2015 FY2016 FY2017
Automotive air conditioning systems Additional facility -Expanding production capacity 307.5 102.5 102.5 102.5
New facility with automated lines -Producing products for new car models
-Cutting costs
-Improving productivity
461.4 153.8 153.8 153.8
Total 768.9 256.3 256.3 256.3