GRUPO KUO, S.A.B. de C.V. (Formerly DESC, SA. De CV) Business Report FY ended Dec. 2016

Financial Overview

(in million MXN)
FY ended Dec. 31, 2016 FY ended Dec. 31, 2015 Rate of Change
Net Sales 21,618 19,621 10.2 1)
Operating Income 2,443 2,337 4.5 2)
-Transmissions SBU sales 4,296 3,849 11.6 3)
-Aftermarket SBU sales 2,862 2,516 13.8 4)
Sector Sales 7,158 6,366 12.4 -

1) Net Sales
-The Company’s net sales for the fiscal year ended December 31, 2016 increased by 10.2% over the previous year to MXN 21,618 million. The increased sales came from higher sales volumes across all of the Company’s Strategic Business Units.

2) Operating Income
-Operating income increased by 4.5% in the fiscal year ended December 31, 2016 to MXN 2,443 million. Increased sales volumes and improved pricing across all Strategic Business Units contributed to the improvement in income.

3) Transmissions SBU sales
-Sales for the Company’s Transmissions SBU increased by 11.6% to MXN 4,296 million in the fiscal year ended December 31, 2016. Increased demand, specifically of high-performance components and dual-clutch transmissions, drove increased sales in the Transmissions Strategic Business Unit.

4) Aftermarket SBU sales
-The Aftermarket SBU had sales of MXN 2,862 million in the fiscal year ended December 31, 2016, an increase of 13.8% from the previous year. The increase in sales was caused by increased demand in Mexico for aftermarket components.

Joint Ventures

-The Company announced that it has closed the transaction in which it contributes its emulsion rubber and nitrile businesses located in Mexico and China to Dynasol, a 50:50 joint venture with Spain-based Repsol. For the transaction, Repsol contributes its chemical accelerators business, located in Spain. The transaction was done to strengthen the partnership between the two companies in the joint venture. As a result of the closing, the Company will receive approximately USD 70 million. The resulting company will target the high-performance tire, asphalt modifier, adhesive and compound market segments, as well as viscosity modifiers, non-woven materials and medical applications, increasing its global market presence across the synthetic rubber segment via high value-added products. 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. Based on 2014 figures, the new entity's revenues are expected to total approximately USD 700 million, with a production capacity of over 500,000 tons. (From a press release on October 1, 2015)


-In 2015, the Company signed contracts for future deliveries of next-generation dual clutch transmission technology which is currently under development.

R&D Facilities

-The Company’s Transmissions Strategic Business Unit has research and development facilities in Belgium and Mexico.

R&D Activities

-In 2016, the Company announced that it is planning to invest USD 270 million in capital expenditures through 2018. Part of this expenditure will be used in the development of the Company’s dual clutch transmissions project, as well as for the tooling of current products and development of new applications. (From a press release on July 25, 2016)

-The Company is in the process of designing and prototyping next-generation dual clutch transmission technology due to the signing of a new contract for the delivery of the technology.

-With the strengthening of the Company’s Dynasol joint venture through the contribution of the Company’s emulsion rubber and nitrile businesses in Mexico and China, respectively, the Company has begun to place a larger focus on the development of high-performance tires.

Capital Expenditures

(in million MXN)
FY ended Dec. 31, 2016 FY ended Dec. 31, 2015 FY ended Dec. 31, 2014
Automotive 365 296 270
Chemical 227 78 651
Consumer 871 960 935
Others 1 3 63
Excluding Joint Ventures (269) (411) (960)
Total 1,196 925 959

Investment Activities

-Investments made related to the Company’s automotive sector include integration of the Company’s engine product lines, improvements in its brakes and pistons facilities, and development of its high performance tire segment.

-In October 2016, the Company formally opened a new manufacturing facility in Zedelgem, Belgium, for its Transmissions Strategic Business Unit. The new facility is 8,000 square meters, and features engineering offices, test laboratories and manufacturing operations. The plant is designed to allow for additional expansion in the future, doubling its current footprint if necessary. (From a press release on October 25, 2016)

-In 2015, the Company’s Transmissions SBU completed its investment in production capacity to manufacture six-speed manual transmissions for the new Chevrolet Camaro and Mustang Shelby GT350. Production for the transmissions began in the middle of 2015.

-In 2015, the Company invested in infrastructure to produce transmission components for Daimler and CNH.