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5. Tenneco Inc. Business Report FY ended Dec. 2017

Tenneco Inc. Business Report FY ended Dec. 2017

Factors
1) Net Sales
-The Company’s net sales for the fiscal year ended December 31, 2017 was USD 9,274 million, a 7.8% increase over the previous year. Excluding the effect of currency and substrate sales, sales increased by 6.8% from 2016. The increase in sales was primarily caused by increased original equipment sales volumes across all vehicle categories in all regions, as well as new platforms primarily in North America and Europe. Increased aftermarket Ride Performance sales in the Europe, South America and the Asia Pacific regions were offset by decreased aftermarket revenues in the Clean Air division as a whole, as well as lower revenues in the Ride Performance division in North America.

2) Clean Air division sales
-In the fiscal year ended December 31, 2017, sales for the Company’s Clean Air division increased by 6.9% to USD 6,517 million. In North America, sales increased by USD 104 million due to stronger OE light vehicle, commercial truck, off-highway, and other vehicle sales along with new platforms. In the Europe and South America region, sales volumes contributed a gain of USD 222 million due to improved sales across all vehicle segments, partially offset by lower aftermarket sales in Europe. Finally, increased sales of USD 97 million in the Asia Pacific region were driven by increased OE light vehicle and commercial truck sales in China and India combined with increased off-highway and other vehicle revenue in Japan. These gains were partially offset by lower OE light vehicle sales in Australia. In addition, currency effects increased sales by USD 52 million.

3) Ride Performance division sales
-Sales for the Company’s Ride Performance division in the fiscal year ended December 31, 2017 totaled USD 2,757 million, an increase of 9.0% over the previous year. Sales in North America decreased by USD 25 million due to lower aftermarket volumes, though it was partially offset by increased OE light vehicle and commercial truck sales and new platforms. In the Company’s Europe and South America region, sales increased by USD 122 million due to higher volumes across all segment and new platforms in Europe. The Asia Pacific region had increased sales of USD 72 million due to increased OE light vehicle volumes in China and India and higher aftermarket sales. These gains were partially offset by lower sales in Australia. Currency effects increased sales by USD 30 million.

Restructuring

-In June 2017, the Company closed its Clean Air manufacturing plant in O’Sullivan Beach, Australia due to the ending of vehicle production in the country by GM and Toyota.

Recent Developments

-In September, the Company will break ground on a USD 23 million customer center in Northville Township, Michigan, with plans to employ 400 people within five years. The three-story, 100,000-square-foot building will house the Company’s North American sales force and support personnel from other departments, including finance and information technology. Construction is scheduled to complete in late 2018. Approximately 300 employees who now work at facilities in Monroe and Grass Lake, Michigan, will be transferred to the new building. (From Detroit Free Press article on August 28, 2017)

-The Company expanded its continuously variable semi-active suspension (CVSA) technology to the North American SUV market. CVSA technology adjusts the damper in milliseconds based on changing road conditions. The technology is featured on more than 40 vehicle models globally. (From a press release on June 29, 2017)

Contracts

Clean Air
-At the 2017 North American Commercial Vehicle truck show in Atlanta, Georgia, U.S., the Company announced that it will supply full aftertreatment systems for Detroit Diesel’s DD5 and DD8 medium-duty engines. These engines are on Freightliner models including the M2 106, 108SD and 114SD. The aftertreatment systems provided by the Company include complete SCR systems, mufflers and pipes. (From a press release on September 25, 2017)

-The Company announced that it is supplying full Clean Air systems for the Land Rover Discovery. The Company supplies its latest SCR technologies, diesel particulate filter and muffler systems for the Discovery. The systems for the Discovery will be manufactured at the Company’s plant in Merthyr Tydfil, South Wales, UK. (From a press release on May 18, 2017)

-The Company announced that it supplies clean air technologies on the all-new Daimler NRM engine family, which is featured on the 2016 E-Class, C-Class and 2017 S-Class global platforms. According to Daimler, the four-cylinder diesel engine delivers around 13% lower fuel consumption and CO2 emissions, with all aftertreatment technologies configured directly onto the engine in a close-coupled position to enable greater fuel economy. (From a press release on January 10, 2017)

Ride Control
-The Company announced that its Multi-Tuned Valve (MTV) suspension technology is featured on the new Peugeot 3008 SUV, which was named 2017 European Car of the Year. The MTV valve technology offers improved damper performance and durability compared to conventional passive valve designs and enables the optimum balance between body control and driver comfort. This clamped-disc, full-displacement valve system is engineered to provide a wide range of shock absorber tuning options, excellent noise characteristics and performance benefits for every road environment. (From a press release on May 25, 2017)

Awards

-The Company was named Diversity Supplier of the Year by FCA US. FCA US honored 16 North American supplier partners that showed an extraordinary commitment to innovation, quality, warranty, cost, delivery and the FCA Foundational Principles. (From a press release on May 4, 2017)

-The Company was recognized with an Excellent Supplier Diversity award from Toyota Motor North America, Inc. This award marked the third consecutive year that the Company received the award for excellence in supplier diversity. (From a press release on April 11, 2017)

Outlook

-In the fiscal year ending December 31, 2018, the Company expects that its organic net sales will increase by 5%. The Company expects organic growth between 6% and 8% in the fiscal year ending December 31, 2019, and organic growth between 5% and 7% in the fiscal year ending December 31, 2020.

-In the fiscal year ended December 31, 2017, the Company invested USD 21 million towards the research, design and development of new or unproven products and processes, and USD 128 million of its total R&D expenses for the application of existing products and processes to vehicle platforms. Finally, the remaining USD 9 million was invested in improvements and enhancements to current products and processes.

R&D Facilities

-As of December 31, 2017, 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.

Product Development

Products shown at 2017 North American Commercial Vehicle Show
-The Company announced that it will present its latest ride performance and clean air solutions that reduce emissions, improved fuel economy and enhance vehicle performance at the 2017 North American Commercial Vehicle Show in Atlanta, Georgia. The Company will showcase a full range of cabin dampers, axel damper and seat dampers. In addition, the Company will present the newest member of the XNOx technology family, XNOx Liquid Urea Selective Catalytic Reduction (SCR). (From a press release on September 25, 2017)

Next-generation electronic valves
-At IAA 2017, the Company announced the launch of its next generation of electronic valves used in low-pressure exhaust gas recirculation, cylinder deactivation and acoustic tuning applications. The valve uses a dynamic flap control which enables it to generate optimal pressure conditions while also providing it with a fail-safe measure in the case of a failure. The valves also use a modular design, which provides flexibility for any engine architecture. Specific applications for the electronic valves include engine sound management, exhaust gas recirculation, energy recovery and cylinder deactivation support. (From a press release on September 13, 2017)

DRiV digital suspension technology with unique damper system
-The Company introduced DRiV, a digital suspension technology that features a unique damper system that is cost-effective and easy-to-integrate, while reducing shake and bounce. DRiV utilizes a modular design and does not need a complex ECU, as electronics, sensors and software controls are located directly in the damper. The system also features a simplified gateway module, which provides cybersecurity and communication with the vehicle’s existing CAN bus. DRiV has software algorithms that can provide up to 16 damping force profiles, which enables greater control of damper performance. (From a press release on June 29, 2017)

Outlook

-The Company expects to invest between USD 380 million and USD 410 million in capital expenditures in the fiscal year ending December 31, 2018.

Investments outside U.S.

-In 2017, the Company expanded its operations in Puebla, Mexico and expanded manufacturing capacity in Cangzhou, China. The Company also expanded production in its facility in Gliwice, Poland due to increasing demand for aftermarket ride control products.