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5. Tenneco Inc. Business Report FY ended Dec. 2016

Tenneco Inc. Business Report FY ended Dec. 2016

Factors
1) Net Sales
-The Company’s net sales for the fiscal year ended December 31, 2016 was USD 8,599 million, a 4.8% increase over the previous year. Excluding the effect of currency and substrate sales, sales increased by 6.8% from 2015. The increase in sales was primarily caused by increased OE light vehicle volumes overall, new vehicle platforms, and increased commercial truck sales in the Clean Air division. These gains were partially offset by lower aftermarket sales in North America and lower sales in commercial truck and off-highway segments of the Ride Performance division.

2) Clean Air division sales
-In the fiscal year ended December 31, 2016, sales for the Company’s Clean Air division increased by 6.0% to USD 6,069 million. In North America, sales increased due to stronger OE light vehicle sales and new platforms while being partially offset by lower commercial vehicle, off-highway and aftermarket revenue. In the Europe, South America and India regions, increased sales were caused by an overall increase in demand across all segments. Finally, increased sales in the Asia Pacific region were driven by sales increases across all segments. In addition, negative currency effects caused a loss of USD 140 million in the division overall.

3) Ride Performance division sales
-Sales for the Company’s Ride Performance division in the fiscal year ended December 31, 2016 totaled USD 2,530 million, an increase of 1.8% over the previous year. Sales in North America decreased due to lower volumes in all vehicle segments, despite a favorable mix of products. In the Company’s Europe, South America and India region, sales increased due to higher volumes of light vehicles and aftermarket sales, which were partially offset by decreased commercial truck and off-highway revenues. The Asia Pacific region also had increased sales due to increased OE light vehicle volumes. Negative currency effects caused losses of USD 90 million in the division.

Restructuring

-In March 2016, the Company divested its manufacturing facility in Gijon, Spain to a German private equity fund Quantum Capital Partners A.G. Based on a three year manufacturing agreement made between the two parties, Quantum Capital Partners will serve as a supplier to the Company.

Contracts

Clean Air
-The Company is supplying the 2016 Ford F-650/F-750 medium duty trucks. These commercial-grade trucks are currently in production and feature Ford’s exclusive 6.7-liter Power Stroke diesel and 6.8-liter V10 gasoline engines. The Company is providing the full exhaust system for both engines, including the selective catalytic reduction (SCR) aftertreatment system for the Power Stroke diesel engine, as well as engineered elastomer leaf spring eye bushings. In 2015, the Company began production in a new facility in Jeffersonville, Indiana to manufacture the emissions control systems, which also includes components produced in the Company’s facilities in Ligonier, Indiana, and Seward, Nebraska. Product engineering and development for both emissions control systems was conducted at the Company’s global clean air engineering center in Grass Lake, Michigan. The engineered elastomer bushings were developed at the Company’s technical center in Milan, Ohio, and manufactured in Reynosa, Mexico. (From a press release on September 21, 2016)

-The Company is supplying the emission control system on the all-new 2016 Lexus RX luxury crossover platform, currently in production. The Company is supplying both hot- and cold-end components, including the front pipe assembly, Y-pipe, underbody converter, muffler and tailpipe assemblies. Product engineering and development was conducted by the Company working closely with Toyota engineering locally in Japan. The Company produces the emission control system at its manufacturing facility in Cambridge, Ontario, Canada, with final vehicle assembly occurring at Lexus’ assembly plant in Cambridge. (From a press release on February 8, 2016)

Ride Control
-The Company announced that it is supplying its Monroe Intelligent Suspension as part of the Adaptive M Suspension option on the new BMW 3 Series. The Company currently supplies continuously variable semi-active suspension (CVSAe) dampers to BMW for its 1 Series, 2 Series, 3 Series, 4 Series and X3 models. The CVSAe dampers are engineered at Tenneco Innovacion in Ermua, Spain and produced at the Company’s advanced manufacturing facility, also in Ermua. (From a press release on March 30, 2016)

-Infiniti is launching the Company’s continuously variable semi-active suspension (CVSAe) technology on its 2016 Q50 sedan and all-new Q60 coupe as part of the vehicle’s Dynamic Digital Suspension system (DSS). Infiniti is the first Japanese luxury brand to choose CVSAe dampers. CVSAe for the Infiniti Q50 and Q60 are being produced at the Company’s manufacturing facility in Ermua, Spain. (From a press release on March 30, 2016)

-The Company is supplying the newly launched Renault Talisman D-segment sedan with its continuously variable semi-active (CVSAe) suspension, part of the Company’s Monroe Intelligent Suspension portfolio. The CVSAe technology is available as an option within Renault’s Multi-Sense system. (From a press release on March 29, 2016)

Awards

-The Company received an Award of Excellence from Toyota Motor Corporation for its exhaust systems. (From a press release on March 16, 2016)

-General Motors recognized the Company as a 2015 Supplier of the Year award winner. (From a press release on March 10, 2016)

Outlook

-The Company expects that its net sales will increase by approximately 5% in the fiscal year ending December 31, 2017. Furthermore, the Company expects that its growth in the fiscal years ending December 31, 2018 and 2019 will surpass automotive industry production by 3% to 5%.

-In the fiscal year ended December 31, 2016, the Company invested USD 15 million towards the research, design and development of new or unproven products and processes. The Company invested USD 128 million of its total R&D expenses for the application of existing products and processes to vehicle platforms. Finally, the remaining USD 11 million was invested in improvements and enhancements to current products and processes.

R&D Facilities

-As of December 31, 2016, the Company’s Clean Air segment operates five engineering and technical facilities globally, while its Ride Performance segment operates seven engineering and technical facilities. In addition, both segments share three other research and development facilities.

-In 2016, the Company expanded its testing capabilities in Zwickau, Germany.

-The Company announced the expansion of its technical center in Japan. Located in Yokohama, the facility provides engineering and product development services including a full range of product testing capabilities. The technical center supports the Company’s full line of Clean Air and Ride Performance products for applications including light vehicles, commercial trucks and off-highway equipment. The 6,800-square-meter facility currently has 18 employees including engineering and testing personnel. (From a press release on April 22, 2016)

Outlook

-The Company expects to invest between USD 360 million and 390 million in capital expenditures in the fiscal year ending December 31, 2017.

Investments in U.S.

-The Company announced plans to open a new Clean Air manufacturing plant in Spring Hill, Tennessee, U.S., to support programs for General Motors. The 117,000-square-foot facility, located near GM's Spring Hill assembly plant, is scheduled to begin production in late 2016 and will be the Company’s second facility in the state, joining its Clean Air plant in Smithville which employs 650 people. The new facility will employ approximately 20 people when it opens, but will gradually grow to approximately 175 employees by 2019. (From a press release on August 11, 2016)

-The Company announced the opening of a new Clean Air manufacturing plant in Lansing, Michigan, U.S., to support General Motors and its crossover vehicle platform. The 70,000-square-foot facility is responsible for sequencing exhaust assemblies manufactured at the Company's Litchfield, Michigan plant for the GMC Acadia, Buick Enclave, and Chevrolet Traverse models assembled at GM's Lansing plant. (From a press release on August 4, 2016)

Investments outside U.S.

-In 2016, the Company expanded its manufacturing facilities in Puebla, Mexico and Birmingham, UK.