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5. Leoni AG Business Report FY ended Dec. 2015

Leoni AG Business Report FY ended Dec. 2015

Factors
1) Net Sales

-The consolidated sales of the Company rose by almost 10% to EUR 4.5 billion in 2015. The Company recorded increased demand from the international automotive industry and in many other industrial business of importance to the Company. Only the infrastructure and petrochemicals business showed weakness. Alongside organic growth, positive exchange-rate effects made a substantial contribution to sales growth. The amount of business increased by just over 11% to EUR 2.67 billion in the Wiring Systems Division and by almost 8% to EUR 1.83 billion in the Wire & Cable Solutions Division.

2) EBIT

-EBIT contracted from EUR 182.5 million to EUR 151.3 million. The decline was principally attributable to higher-than-planned expenses relating to a number of new projects of the Wiring Systems Division that led to a major shortfall in earnings in the third and fourth quarters.

3) Wiring Systems Sales

-The external sales of the Wiring Systems Division rose by around 11% or EUR 268.6 million to EUR 2,668.2 million in 2015. Thanks to a persistently good level of demand for cable harness and wiring systems from the global automotive industry, the division generated growth of EUR 148.8 million from its own resources. Positive foreign exchange effects contributed EUR 119.1 million to sales growth. The changes in the price of copper resulted in slight gain of EUR 0.7 million. Broken down by region, business in the EMEA region grew by 12.5% to EUR 1,914.9 million and in the Americas by 20.5% to EUR 341.6 million, while declining by just under 1% to EUR 411.7 million in Asia.

4) Wire & Cable Solutions Sales

-The external sales of the Wire & Cable Solutions Division rose by around 8% year on year or EUR 130.9 million to EUR 1,834.7 million in 2015. The division generated growth of EUR 76.7 million from its own resources. Changes in exchange rates had a positive effect of EUR 126.6 million. By contrast, the lower copper price diminished sales by EUR 72.4 million. Broken down by region, increases were realized throughout; the growth in Asia and the Americas was attributable in full to positive exchange-rate effects. The amount of business in the EMEA region rose by around 3% to EUR 1,030.9 million. The Company generated a gain of just under 13% to EUR 408.3 million in Asia and one of 17% to EUR 395.5 in the Americas.

Contracts

-The Company announced that it will supply wiring harnesses for future Volvo Cars models. This is the first order from the Swedish car manufacturer. The order comprises the production of several harnesses like for underbody, tunnel, doors, roof and bumpers. (From a press release on December 17, 2015)

-The Company announced that it has received its first wiring systems order from Hyundai Motor Company. The Korean car manufacturer awarded a double-digit million euro sales volume over a six year period to the Company. The Company obtained the project to equip a mid-size car model from December 2016 with a front body cable harness. One factor which contributed to the Company winning the contract was the fact that its cable harness production site was in a logistically close environment to the customer plant in the Czech Republic. The Company will deliver between 130,000 and 160,000 front body harnesses per year. (From a press release on January 20, 2015)

Joint ventures

-The Company announced that it has agreed a joint venture with China's Beijing Hainachuan Automotive Parts Co Ltd (BHAP). It provides that the Company will sell 50 percent of the shares in its wiring systems plant in Langfang (Hebei Province) to BHAP. This plant has to date exclusively been making cable harnesses for the car ranges of Beijing Benz Automotive Co Ltd (BBAC), the joint venture between Daimler AG and its Chinese partner BAIC. (From a press release on September 18, 2015)

Outlook

Overall

-The Company forecasts consolidated sales of EUR 4.4 billion for the fiscal year ending December 31, 2016. It also expects its consolidated EBIT will probably dip to EUR 105 million in 2016.

Wiring Systems Division

-Sales for the Company's Wiring Systems Division in the fiscal year ending December 31, 2016 are expected to EUR 2.6 billion. The Wiring System Division's earnings before interest and taxes will, today's perspective, amount to about EUR 30 million.

Wire & Cable Solutions Division

-The Company estimates that the Wire & Cables Solutions Division will generate sales of about EUR 1.8 billion in 2016. The division's EBIT should amount to about EUR 75 million in 2016.

R&D Facilities

Wiring Systems Division

-The Wiring Systems Division operates development centers in, among other countries, China, Germany, France, the U.K., Slovakia, South Korea and the U. S. The Division's head office department in Kitzingen performs additional development work and provides project-related support. In 2015, the Company expanded their R&D capacity particularly in Asia-with the focal areas of China and South Korea. The Company also expanded their development facility in Slovakia.

Wire & Cable Solutions Division
-The Wire & Cable Solutions Division operates development centers mainly in Germany and Switzerland.

Product Development

New type of power Y-splitter

-The Company has developed a new type of power Y-splitter. The component ensures a safe and low-resistance connection of auxiliary units in a high-voltage wiring system. The Company has extended its range of high-voltage components to include a compact and robust product that simplifies the wiring of hybrid and electric vehicles. The new Y-splitter securely and in a space-saving way splits the power between two high-voltage units. For example, it will split the power between the air conditioning compressor and the electric heater. The component is currently set up for 800 volts. (From a press release on September 10, 2015)

Pyrotechnical switch

-The Company will, for the first time at the International Motor Show (IAA) in Frankfurt, publicly present a pyrotechnical switch that can be directly integrated in power distribution devices and pre-fuse boxes – and in fact without additional contact points and fastening components. In case of an accident, the new product will disconnect the power supply within 3 milliseconds to prevent short-circuiting. The Company's new pyrotechnical solution is linked to the car's airbag signal and responds so quickly that any deformation of the routing area and thus damage to the cable as a consequence of an impact can only occur after the current has already been switched off. This minimizes the risk of a short circuit, which could then result in a vehicle fire. The switch is especially well suited for use in vehicles where the battery is located in the rear and is connected to the engine compartment with a correspondingly long high power cable. (From a press release on August 20, 2015)

Automotive conductor made of copper with ultra-thin insulation

-The Company has further developed its range of automotive cables by introducing an automotive conductor made of copper with ultra-thin insulation. The new FLUY cables are insulated with a special PVC material, resulting in a minimal wall thickness of only 0.16 mm. This leads to a reduction of a single cable's diameter by 11 percent. When widely used in wiring systems this can reduce the diameter of the harness bundles by up to 15 percent. FLUY also lowers the weight of the individual cable by 7 percent. This amounts to up to 1.5 kg less in a mid-size passenger car if the majority of the wiring is made of these new generation cables. The Company has set up production capacities for the new product line in Europe, Asia and the Americas to be able to serve its customers globally. The first serial use is scheduled for 2017 for a premium brand car. (From a press release on July 17, 2015)

Investments in Germany

-The Company is beginning preparations for its "Factory of the Future", a modern facility that will develop and manufacture high-quality cables and conductors in Roth, Germany. An area of 48,000 square meters will be dedicated for the Company's buildings on the 134,000-square-meter site. The site will include a production facility, laboratory and development center, and training center. Construction is expected to begin in the middle of 2016, and complete in 2018. The Company will begin relocation of certain operations in early 2018 and is expecting to conclude relocation activities in early 2019. (From a press release on March 23, 2015)

Investments outside Germany

Paraguay
-The Company officially opened its first location in Paraguay. The facility located in San Lorenzo will manufacture wiring harnesses for several customers from both the commercial vehicles and the passenger car segment. Leoni is investing a total of EUR 12 million in the new building and equipment. With an area totaling about 28,000 square meters and a production space of almost 10,000 square meters (January 2016), the plant provides space for up to 1,000 employees when running at full capacity. Serial production has already started earlier this year. The company is already operating three wiring systems productions in Mexico and Brazil. The additional plant in Paraguay will deliver its products to customer plants in Brazil and Argentina. (From a press release on November 19, 2015)

China (Tieling, Liaoning Province)
-The Company announced that it has opened its fifth wiring systems factory in China. The facility located in Tieling, Liaoning Province will develop and manufacture products for several vehicle models of the company's new customer BMW Brilliance Automotive Ltd. The Company is investing a total of EUR 35 million in the new building and equipment in Tieling – with an area totaling more than 25,000 square meters, the plant provides space for up to 2,000 employees when running at full capacity. Serial production is scheduled to commence in early 2016. (From a press release on August 13, 2015)

Mexico and China (Panjin, Liaoning Province)
-The Company is strengthening its position in the markets of the Americas and Asia by expanding its capacity in Mexico and China. The new plant in Celaya, Guanajuato, Mexico has production space of about 6,300 square meters and will commence production of single-core automotive cables in June 2015. The Company is planning to spend about USD 7 million on plant and equipment in Mexico by yearend. The company is setting up a new plant for making standard automotive cables, with production space of about 8,000 square meters, in Panjin, Liaoning Province, China. The plant will manufacture single-core cables for automotive applications with cross sections ranging from 0.13 to 6 square millimeters. Production is scheduled to commence at the end of 2015. (From a press release on February 3, 2015)

Outlook

-The Company will probably be able to only reduce its expenditure to EUR 230 million in 2016 because the existing order backlog points to further growth in the subsequent years. In the Wiring System Division the Company has therefore budgeted for spending about EUR 135 million. This is intended to provide for the production capacity for current and new projects as well as model changes among our customers in the Americas, Asia, Eastern Europe and North Africa. The Wire & Cable Solutions Division will probably invest about EUR 80 million. Alongside construction of the Factory of the Future and other plans, the focus here will be on expanding capacity in Business Groups Automotive Cables, Industry & Healthcare as well as Communication & Infrastructure.