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5. GRUPO KUO, S.A.B. de C.V. (Formerly DESC, SA. De CV) Business Report FY ended Dec. 2014

GRUPO KUO, S.A.B. de C.V. (Formerly DESC, SA. De CV) Business Report FY ended Dec. 2014

Note: Figures are presented in accordance with new methods of accounting and valuation on joint ventures.

Factors
1) Automotive Sales
-Transmission business for FY ended Dec. 2014 increased by 6.0% year-on-year because of higher component requirements from Volvo Trucks and transmissions for the GM "Corvette" platform, in addition to higher demand of DCT (Dual clutch transmission) systems parts, which more than offset lower sales of pick-up transmissions.

Synthetic Rubber Business

-The Company and Spain-based Repsol have agreed to strengthen their existing partnership in Dynasol joint venture, which primarily produces synthetic rubber solutions. Since 1999, Grupo KUO and Repsol have been partners in the same proportion at Dynasol with production facilities located in Altamira, Mexico; Santander, Spain and Liaoning, China, production facility that will start operations at the end of the second quarter of 2015. As a result of this agreement, Grupo KUO will contribute to this joint venture its emulsion rubber and nitrile business located in Mexico (INSA), as well as its nitrile rubber business (INSA GPRO), whose plant in Nanjing, China, will begin operations at the end of the second quarter of 2015. Repsol will contribute its chemicals accelerators business, located in Spain (General Quimica). The joint venture will have its headquarters in Madrid, with operating facilities in Mexico, Spain and China, as well as a sales office in the United States. The new entity's proforma revenues, based on 2014 figures, would reach approximately USD 700 million, with a combined production capacity of over 500,000 tons. (From a press release on April 27, 2015)

Discontinued Operation

-On December 31, 2014, the Company decided to discontinue operations in its manual transmission business focused on the Indian market. As the transmission business strategy, the Company will focus on new high torque and technology developments, with a greater added value.

R&D Activities

-Major R&D activities in 2014,

• Capabilities in a new generation of dual clutch transmission (DCT)
• Manufacturing capabilities in components for Daimler and Volvo Trucks
• Preparation of producing of 6 speed manual transmissions for Chevrolet "Camaro" and Ford "Mustang"
• Development of 10 speed manual transmission for heavy-duty commercial trucks for Navistar
• Development of grade of rubber for high performance tires
• Development of second generation of Silica Master Batch product for high performance tire
• Development of automotive brake pad of emulsion synthetic rubber

Product Development

Emulsil: Silica Master Batch
-Industrias Negromex, S.A. de C.V. (INSA), a subsidiary of KUO Chemical division, was awarded by the Ministry of Economy of Mexico with the 2014 National Award in Technology, for the field of innovation of Emulsil: Silica Master Batch. This technology development began in 2006, and gave way to the stage of commercialization in 2011. Since then, INSA has commercialized the family of Emulsil degrees for 3 years for its application in high performance tires. Cooper Tires and Company, strategic partner, has sold more than 3 million tires produced with Emulsil; projections for 2015 indicate a number close to 5 million units. Followings are the advantages of using Emulsil in high performance tires compared to conventional ones.

• Rolling resistance: Reduced by 15%-25%
• Fuel consumption per kilometer: Reduced by 3%
• Electricity consumption in the compound mixing operations: Reduced by 30%

(From a press release on June 24, 2014)

Note: Figures are presented in accordance with new methods of accounting and valuation on joint ventures.