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5. CIE Automotive, S.A. Business Report FY ended Dec. 2015

CIE Automotive, S.A. Business Report FY ended Dec. 2015

Recent Years

Factors
1) Net Sales
-The Company’s net sales for the fiscal year ended December 31, 2015 increased by 19.1% to EUR 2,631.5 million. The increase was boosted by the first full year of consolidation of 100% of Autometal and the companies comprising the Mahindra CIE operations. Improved sales in the Company’s Automotive business unit also contributed to the increase in sales.

2) Automotive business unit sales
-The Automotive business unit had sales of EUR 2,106.5 million in the fiscal year ended December 31, 2015, an increase of 9.9% from the previous year. The increase in sales was driven by strong performance in European and NAFTA, as well as favorable exchange rate trends.

Acquisitions

-In March 2015, the Company, through its subsidiary CIE Berriz, acquired the remaining 50% of CIE Automotive Hispamoldes, making it the sole owner of the Company.

-In April 2014, the Company acquired a 100% share of its Brazilian subsidiary, CIE Autometal.

-In January 2014, the Company signed an acquisition agreement for the remaining 50% of the French Group, Advanced Comfort Systems - ACS, by purchasing their shares in RS Automotive N.V., the ACS holding company, for EUR 10.7 million. The formalization of the acquisition agreement is expected by the end of February 2014. The Company's entry in ACS took place in September 2009 and was a step into quality passenger comfort elements in vehicles, which includes products like roof, window, concealment and loading systems. ACS has 5 production plants located in France, Spain, China, Romania and Mexico, and a staff of 442 workers. In 2013, the company had a total turnover of EUR 67 million. Its main clients include Nissan, PSA, Renault, General Motors and Opel. (From a press release on January 28, 2014)

-In 2012, Autometal S.A., a subsidiary of the Company, acquired 65% of Century Plastics LLC in the United States for USD 23.5 million (EUR 18.7 million) with a later option on the remaining 35%. Century Plastics specializes in the production of interior plastic components. Net sales of Century Plastics in 2012 totaled USD 68.6 million (EUR 53.3 million).

Joint Ventures

-In June 2013, the Company and the Mahindra Group announced the signing of a global alliance agreement between Mahindra's automotive component businesses (held under its Systech Sector) and CIE Automotive (also involving its subsidiary Autometal). The agreement will see the formation of a global automotive component supply network with combined annual sales of approximately INR 15000 crores / USD 3 billion with operations in North America, South America, Europe and Asia held through listed businesses in Spain, Brazil and India. As part of the transaction, the Company will acquire from Mahindra Group a stake in its listed and unlisted companies belonging to Systech Automotive Component business while the Company will contribute its forging businesses in Spain and Lithuania and together consolidate all companies under Mahindra Forgings Ltd. which was rechristened Mahindra CIE.

-The Company and Grupo Antolin-Irausa, S.A. created a new joint venture in Valasske Mezirici, Czech Republic, called Antolin-CIE Czech Republic s.r.o. in 2013. The main purpose of the plant is to manufacture and sell metallic structures and subassemblies for car seats. Antolin-CIE Czech Republic was created with a working capital of EUR 1 million. Grupo Antolin Irausa owns 70% of the joint venture while the Company owns the remaining 30%. (From a press release on February 25, 2013)

-In 2012, the Company's subsidiary in Brazil, Autometal S.A. signed a joint venture agreement with Donghua Automotive Industrial in China with the goal of enhancing crankshaft production. Under the agreement, Autometal invested CNY 140 million (EUR 17 million) of equity in Nanjing Automotive Forging Co. Ltd., giving it 50% ownership of the joint venture. Nanjing Forging had net sales of CNY 290 million (EUR 34 million) in 2012.

-In 2011, the Company announced that it will form a new joint venture with the Russian firm Avtocom and the Spanish company Doga in Russia. The new company, Doga Avtocom CIE Ltd (DAC), will produce components and systems for windshield cleaning and wiping for the automotive sector. Avtocom will own 50% of the share capital of the new joint venture, while the Company – through its joint venture with Ekarpen, CIE Automotive Nuevos Mercados, S.L.– and Doga shall each own 25% of the share capital of DAC, respectively. The initial share capital of this company will be RUB 40 million (EUR 1 million). The final investment in the project is estimated at RUB 400 million (EUR 10 million). (From a press release on October 4, 2011)

-In 2011, the Company and Spain-based Grupo Hispamoldes formalized an agreement to create a joint venture, with each company contributing fifty percent of the share capital. The first project focuses on automotive plastic components technology through the development of a manufacturing plant for the injection of plastic parts. This project relies on an initial investment of EUR 1.1 million. The plant, which is expected to be fully operational by the beginning of October 2011, will be located in the Tangier free zone in Morocco. This joint venture will promote a second project also located at the same center in Tangier, consisting of the development of a production facility to manufacture injection molds. The implementation of this second initiative is expected at the end of 2011. (From a press release on June 7, 2011)

Recent Developments

-At the beginning of 2015, the Company completed the integration of all of the companies which comprised Mahindra CIE.

Contracts

-In 2013, the Company's Autometal San Bernardo 1 plant in Brazil passed all of the tests given by Chery. Thus, the Company will be the supplier of hub caps for Chery's first vehicle model produced in Brazil.

Awards

-Awards which the Company won in 2015

Mid-term plan (2013-2017)

Targets for the fiscal year ended December 31, 2017

• Sales: More than EUR 3,000 million
• EBIT margin: More than 9%
• Net Dept to EBITDA ratio: Less than 1.5
• Accumulated Capital Expenditures (2013-2017): EUR 1,000 million

-The Company's focus is on making strategic products designed to reduce consumption, increase safety and comfort.
-The Company's 2013-2017 Business Plan is focused around achieving three objectives:

• Significantly increasing the Company’s presence in Asia
• Developing a growth strategy centered around greenfield projects
• Maintaining a solid financial position combined with a management model centered on value creation

R&D Structure

-The Company has 4 primary R&D centers and 3 support R&D centers worldwide.

Primary R&D locations:

• Bizkaia, Spain
• Figueira da Foz, Portugal
• Sao Paulo, Brazil
• Guanajuato, Mexico

Support R&D locations:

• Bressuire, France
• Targu Mures, Romania
• Valasske Mezirici, Czech Republic

-70% of the employees in the Company's R&D department are technical and design engineers.

-In 2015, the Company’s efforts in research and development focused primarily on projects and technologies for reducing vehicle weight, improving powertrain efficiency, and discovering new forms of propulsion and new manufacturing processes.

R&D Activities

Integrated electric drivetrain project
-As of 2013, the Company is involved in a research project titled ODIN, which stands for Optimized electric Drivetrain by Integration. As part of a consortium with other companies including Bosch, Fuchs, GKN Driveline, and Renault, the ODIN project is focused in developing integrated propulsion systems using high-speed electric engines. The goal of the ODIN project is to combine a next-generation gearbox, a high-speed electric engine, and embedded power electronics into a single system.

-The Company’s Automotive unit invested EUR 155 million in the fiscal year ended December 31, 2015. EUR 66 million was invested in new capacity and developing new factories, while the remaining EUR 89 million was invested in improving productivity and flexibility of existing facilities.

Investment Outside Spain

-In November 2015, the Company inaugurated a new factory in Togliatti, Russia, dedicated to the production of injection molded and machined aluminum parts.

-In 2013, the Company announced the construction of a new plant in Togliatti, Russia for the production of aluminum parts. The plant is located in close proximity to Renault-AvtoVAZ facilities and will produce aluminum parts for Renault's H4M engine. When completed, the plant is expected to produce 6,500 tons of aluminum parts per year and generate 230 jobs in the region.


-In July 2015, the Company inaugurated a new factory in Pernambuco, Brazil, which manufactures plastic parts for FCA and tier 1 suppliers.


-In 2014, the Company doubled the size of its factory in Nanjing, China, adding crankshaft manufacturing capability and enhancing its forging capabilities. It also launched the first electronic power steering machining plant to satisfy demand.


-In 2014, the Company is building 4 greenfield factories in the machining, forging, stamping and aluminium areas in Mexico. The new capacity will set the unit's direction to 2017.

-The Company's subsidiary, CIE Celaya, completed a 3,100-square-meter expansion to its facility in 2013. The expansion will house machinery used for the Company's new programs.

-The Company is in the process of developing a Greenfield hot forging plant in Mexico that will specialize in the manufacture of forged crankshafts. Construction began at the facility in Celaya in the first quarter of 2013. Crankshaft production is scheduled to begin in August 2014.


-In 2012, CIE LT Forge, a subsidiary of the Company in Lithuania, obtained official certification for its first crankshaft. CIE LT Forge launched its first production line of forging presses for crankshaft manufacturing.

Investment in Spain

-In November 2015, the Company inaugurated the fifth forged crankshaft manufacturing line at the CIE Galfor plant in Ourense, Spain.

-In December 2011, CIE Galfor, a subsidiary of the Company, inaugurated its fourth crankshaft production line. EUR 7 million was invested to develop the new production line. With this new line, annual production at the facility increased by one million units to a total of 3.2 million units in 2012.