Nemak S.A. Business Report FY ended Dec. 2016

Financial Overview

(in million MXN)

	FY ended Dec. 31, 2016	FY ended Dec. 31, 2015	Rate of Change (%)	Factors
Net Sales	79,244	70,891	11.8	1)
Operating Income	8,684	7,398	17.4	2)

Factors
1) Net Sales
-The Company’s sales increased by 11.8% to MXN 79,244 million in the fiscal year ended December 31, 2016. The primary driver for the increase in sales was the depreciation of the Peso during the year. This increased sales, despite a slight decline in sales volume due to decreased production of a U.S. OEM mid-size car platform.

2) Operating Income
-The Company’s operating income for the fiscal year ended December 31, 2016 totaled MXN 8,684 million, an increase of 17.4% over the previous year. The increase in operating income was due to depreciation of the peso and improved efficiency across production facilities.

Acquisitions

-The Company announced that it has successfully completed the acquisition of Cevher Dokum Sanayii A.S., a supplier of complex aluminum automotive castings based in Izmir, Turkey. Cevher Dokum exports most of its production to the European market, generating revenues of USD 70 million in 2015. (From a press release on November 1, 2016)

Awards

-The Company was recognized by the Ford Motor Company as a top-performing global supplier with a World Excellence Award. (From a press release on May 24, 2016)

R&D Structure

-The Company has ten Product Development Centers, located in Austria, Canada, Germany, Poland, Spain, China, Mexico and the U.S.

R&D Activities

-The Company’s research activities focus on enhancing vehicle efficiency through improvements to the powertrain and the vehicle’s body. Specific areas of focus include the following:
Alloy Systems
-High performance alloys for high powered engines
-Mechanical properties and microstructural predictions
-Body structural casting technologies
-Thin walls in cylinder heads

Complex Geometries
-3D printing for advanced powertrain prototypes
-Inorganic binders

Powertrain Component Integration
-Turbo housing integration to cylinder heads
-Range extender and aluminium electric motor components

Surface Treatment Technologies
-Bore coating
-Surface treatment for thermal efficiency
-Body structural casting technologies

-Processes such as Semi-Permanent Molding (SPM) for cylinder heads, Low-Pressure Precision Sand (LPPS) and High Pressure Die Casting (HPDC) for cylinder blocks enable the Company to operate more efficiently and manufacture higher quality products.

Capital Expenditure

(in million MXN)

	FY ended Dec. 31, 2016	FY ended Dec. 31, 2015	FY ended Dec. 31, 2014
Overall	10,164	7,253	4,471

General Investments

-The Company announced that it is investing USD 60 million in several facilities through 2017 as it prepares for more than 20 new programs set to begin production in the next year. Company executive Tom Bair said the Company’s growth is being driven by a shift to eight-, nine-, and ten-speed transmissions among OEMs. (From a Mexico-Now article on December 6, 2016)

Investments in Mexico

-In 2016, the Company made progress in the construction of two new production facilities at Monterrey Mexico. The Company is expected to invest USD 287 million in the development of both facilities. One facility will be dedicated towards providing in-house machining services, while the other will utilize high-pressure die casting to produce aluminum components. Both facilities are expected to begin operations in 2017.

Investments outside Mexico

-In 2016, the Company began construction of a new plant in Slovakia, which will feature high-pressure die casting technology. The plant will manufacture structural components and is expected to begin operations in late 2017. The Company has invested USD 54 million into the plant’s construction so far.