HUAYU Automotive Systems Company Limited Business Report FY ended Dec. 2017

Financial overview

(million CNY)
FY ended Dec. 31, 2017 FY ended Dec. 31, 2016 Rate of change Factors
Sales 140,487.25 124,295.81 13.76% -Sales of major products increased.
Operating profit 10,305.08 9,413.63 9.47% -
Ordinary profit 10,492.28 9,860.78 6.40%
Net profit 9,130.86 8,582.33 6.39%

Share Acquisition

-HUAYU Automotive Systems Company Limited announced on March 29, 2018, that the company has completed a 50%-share acquisition in Shanghai Koito Automotive Lamp Co., Ltd., and made it a wholly-owned subsidiary, renaming it Huayu Vision Technology (Shanghai) Co., Ltd. Huayu Vision Technology (Shanghai) has been included in HUAYU Automotive Systems’ consolidated statement as of March 1, 2018. It plans to upgrade its business framework from existing automotive lighting products to automotive lighting information systems and visual perception systems. (From a corporate announcement on March 29, 2018)

-HUAYU Automotive Systems Company Limited announced on September 29, 2017, a plan to purchase a total of 50% shares in Shanghai Koito Automotive Lamp Co., Ltd. from Koito Manufacturing Co., Ltd. and Toyota Tsusho Corporation at the cost of Chinese yuan (CNY) 17.2 billion. Shanghai Koito Automotive Lamp, which used to be owned 50% by HUAYU Automotive, 45% by Koito Manufacturing, and 5% by Toyota Tsusho, will become a wholly-owned subsidiary of HUAYU Automotive after the share purchase. Shanghai Koito Automotive Lamp was established in 1989 with a registered capital of CNY 7.4 billion. It works on research and development and production of automotive lamps. Its main customers are SAIC-VW, SAIC-GM, Changan Automotive Group, FAW-VW, SAIC Motor Passenger Vehicle, Dongfeng Nissan, and Dongfeng Passenger Vehicle. As of 2016, it has the total assets of CNY 5.2 billion and generates sales of CNY 9.83 billion. (From a corporate announcement on September 29, 2017)

-On December 29, 2016, HUAYU Automotive Systems Company Limited announced that Huayu Automotive System (Shanghai) Co., Ltd., its wholly owned subsidiary will invest CNY 120 million to acquire a 30% stake in Hubei Hangpeng Chemical Power Technology. An agreement on the deal was signed with Hubei Hangpeng Chemical Power Technology and its shareholders, including Hubei Aerospace Institute of Chemical Technology and Aerospace Hi-Tech (Suzhou) Venture Capital Management Co., Ltd. Hubei Hangpeng Chemical Power Technology is capitalized at CNY 68 million. It mainly develops, produces, sells, imports, and exports automotive airbag products, inflators, gas generators, emergency oxygen tanks, aerospace equipment, chemical equipment, and automated systems for industrial use. During the period between January and November 2016, Hubei Hangpeng Chemical Power Technology generated CNY 285.11 million in sales and CNY 19.45 million in net profit. (From an announcement by the company on January 3, 2017)

Strategic Cooperation
-HUAYU Automotive Systems Company Limited has reached an agreement with the government of Baoshan District, Shanghai, to work together intensively on the development of the new energy vehicle industry and signed a memorandum regarding the strategic alliance on April 4, 2018. The two parties are to join hands to launch two projects, the constructions of a Huayu Magna E drive system plant and a Huayu drive motor plant, ahead of its original plan, in the Bashan Industrial Park. (From some releases on April 4, 2018)

-HUAYU Automotive Systems Company Limited held a ceremony to sign an intelligent manufacturing strategy contract. Its group companies, Shanghai GKN Drive Shaft Co., Ltd., Shanghai Koito Automotive Lamp Co., Ltd., and Huayu Automotive Electric System Co., Ltd. participated in the event as the first sets of group companies which are recognized as benchmarks of China’s Industry 4.0 initiatives. HUAYU Automotive System will focus more on the construction of its information infrastructure and build HIT (Hasco Intelligent Transformation) platform for manufacturing information to gain the ability to digitalize information. The HIT platform has two main components, PaaS cloud platform and IoT digital cloud. The use of low-cost smart sensors will also allow the company to introduce closed loop operation for the ecosystem. HUAYU Automotive System is strengthening its partnership with Huawei, a telecommunications equipment maker, in the area of HIT platform infrastructure and related equipment, with SAP, a business software provider, in the area of Enterprise Resource Planning (ERP) and Warehouse Management System (WMS), with Siemens in the area of Product Lifecycle Management (PLM), with GE in the area of Manufacturing Operation Management (MOM) and with Seeburger in the area of Electric Data Interchange (EDI), to jointly build the HIT platform. The automotive system company intends to introduce single HIT platform so that it can use the platform at its 50 plants, cover 200 systems, link 500,000 sensors and handle 200TB information in three years. (From a press release on May 8, 2017)

New Companies

-On November 24, 2017, Yanfeng Hainachuan Automotive Trim Systems Cangzhou Co., Ltd. began operating in Cangzhou Economic Development Zone. Yanfeng Hainachuan Automotive Trim Systems Cangzhou is the 7th plant of Yanfeng Hainachuan Automotive Trim Systems Co., Ltd. It was built on a site of 106,666 square meters with the total investment of Chinese yuan (CNY) 750 million. Its main products are interior parts for sports utility vehicles (SUVs) produced at Beijing Hyundai Motor Co., Ltd.’s plant in Cangzhou and for Beijing Benz Automotive Co., Ltd. and Tianjin FAW Xiali Automobile Co., Ltd. The new plant is expected to generate sales of CNY 2.5 billion and pay CNY 200 million in tax. (From some releases on November 25, 2017)

-On October 19, 2017, Huayu Automotive Systems Company Limited announced a plan to establish a new firm tentatively named Magna Huayu E-drive System Co., Ltd. jointly with Magna (Taicang) Automotive Technology Co., Ltd., a subsidiary of Magna International Inc. The new joint venture is going to have a registered capital of Chinese yuan (CNY) 200 million, which is owned 50.1% by Huayu Automotive Systems and 49.9% by Magna (Taicang) Automotive Technology. It designs, develops, manufactures, assembles and sells electric drive systems for new energy vehicles. Huayu Automotive Systems will be the controlling shareholder of the newly-established company. In 2020, Magna Huayu E-drive System is going to start production and supply of e-drive systems for Modular Electric Platform, which is modular MEB architecture for electric vehicles developed by Volkswagen AG. Another subsidiary of Huayu Automotive Systems, Huayu Automotive Electric Systems Co., Ltd., is also going to supply drive motor components for the e-drive systems for the MEB platform, which the new company is going to produce. (From a corporate announcement on October 19, 2017)

Come into Operation

-Huayu Continental Brake Systems (Chongqing) Co., Ltd., a joint venture established by Continental Automotive and the Company on an equal basis, officially began its operation on May 18, 2017. The joint company was built on a site of more than 80,000 square meters in the Chongqing Liang Jiang New Area Yufu Industrial Zone with a capital investment exceeding Chinese yuan (CNY) 6 million. It produces parts and components for automotive brakes, such as brake calipers, vacuum boosters, and electrically-powered parking brakes. (From a press releases on May 18, 2017)

-Yanfeng Automotive Interiors officially opened its new manufacturing facility on January 19 in Chattanooga, Tennessee to support Volkswagen’s plant there. This new facility represents an investment of USD 55 million. Yanfeng's new Chattanooga facility manufactures interior components, including floor consoles, instrument panels and trunk trim for the Volkswagen Atlas, which entered series production in December of 2016. The Atlas is Volkswagen's largest vehicle, offering space for seven adults and their luggage. Engineered from Volkswagen's Modular Transverse Matrix (MQB) architecture, the Atlas is 198.3 inches long, 77.9 inches wide, and 69.6 inches high. Volkswagen Chattanooga is in the ramp-up phase of the Atlas development and is in the middle of a major hiring phase. Volkswagen added 400 workers in the last two quarters of 2016 and is hiring an additional 500 workers in the first two quarters of 2017. (VW press release from January 19, 2017)

R&D Expenditure

(in million CNY)
FY ended Dec. 31, 2017 FY ended Dec. 31, 2016 FY ended Dec. 31, 2015
R&D Expenditure 2,533.66 2,445.35 1,539.73
Ratio of R&D expenses to operating income 1.80% 1.97% 1.69%

R&D Facility

-As of the end of 2017, the Company has 306 R&D, manufacturing and service bases. It has 89 manufacturing (including R&D) bases in the United States, Germany, Thailand, Russia, Australia, the Czech Republic, Slovakia, India, Mexico, Canada, South Africa, Japan, Spain, Italy, Brazil and other countries.

-The Michigan Economic Development Corp. (MEDC) announced that Yanfeng Automotive Interiors will invest USD 8.45 million to build a new technical center and move its headquarters from Plymouth to Novi later this year. Approximately 280 employees are expected to move to the new location from Plymouth and its plant in Harrison Township. The MEDC had awarded the company USD 600,000 and said that Yangfeng was considering another one of the company’s facilities in Queretaro, Mexico for the investment. Yanfeng supplies instrument panels, cockpit systems, door panels, floor and overhead consoles, lighting, and decorative trim from 100 manufacturing plants and technical centers in 18 countries, with 11 facilities in Michigan. (From MEDC release on January 18, 2017)

New Product

-Yanfeng Automotive Interiors Systems Co., Ltd. (YFAI) and Leopold Kostal GmbH & Co. KG (Kostal) has presented at the Internationale Automobil-Ausstellung (IAA) 2017 in Frankfurt new smart interior surfaces: the Yanfeng-Kostal-Module (YaKoMo). In the module, modern interior design and high-quality, authentic 3D glass processing from YFAI meet innovative mechatronics and new human-machine-interface (HMI) solutions from KOSTAL. It enables the implementation of new operating concepts for tomorrow's mobility for demanding designs. (From some releases on September 15, 2017)

Investment in 2017

(in million CNY)
Project Budget Investment in 2017 Percentage of total input
MQB project of Shanghai Huizhong Automotive Manufacturing Co., Ltd. 213.04 74.29 82%
Technical center construction of Shanghai Huizhong Automotive Manufacturing Co., Ltd. 69.58 12.21 77%
Production line expansion of Shanghai Huizhong Automotive Manufacturing Co., Ltd. 269.29 189.21 86%
Plant construction of Shanghai Huizhong Automotive Manufacturing Co., Ltd. 230.07 87.84 89%
Headquarter renovation of Shanghai Tractor & Internal Combustion Engine Co., Ltd. 66.84 46.36 81%
Jiezhong plant construction and production capacity expansion project of Shanghai Tractor & Internal Combustion Engine Co., Ltd. 630.77 4.26 72%
Plant construction of Shanghai Union Automobile & Tractor Industry Trade Co., Ltd. 589.30 105.09 79%
Relocation phase III project of Shanghai Superior Die Technology Co., Ltd. 254.45 54.98 87%
Stamping expansion phase IV project of Shanghai Superior Die Technology Co., Ltd. 232.07 35.65 100%
Wuhan plant construction of Shanghai Superior Die Technology Co., Ltd. 479.51 167.98 61%
Welding phase III project in Jinqiao base of Shanghai Superior Die Technology Co., Ltd. 224.00 65.67 92%
Headquarter reconstruction project at Yanfeng Visteon 185.70 61.46 37%
Interior parts production line renovation project at Yanfeng Visteon 5,475.81 2,375.16 75%
Seat parts production line reconstruction project at Yanfeng Visteon 1,915.48 530.78 56%
Electronic parts production line reconstruction project at Yanfeng Visteon 318.28 85.82 82%
Automotive air conditioning compressor project of HUAYU Sanden Automotive Air Conditioning Co., Ltd. 1,000.00 218.48 41%
Plant construction in Hai'an at Shanghai Sandmann Foundry 1,203.99 40.60 44%

Technical Assistance Agreements

-On December 16, 2016, Sanden Huayu Automotive Air Conditioning Co., Ltd. signed an exclusive contract with the Sanden Holdings Group for the licensing-in of the BP-GEN3 electric compressor technology. The BP-GEN3 electric compressor is compact and lightweight, while achieving high efficiency for a wide range of applications. The compressor meets technical standards for Volkswagen's MQB platform and other technoloiges. In addition, Sanden Huayu Automotive Air Conditioning's SEE series electric compressors that were developed in-house by the company are scheduled to be mass produced, starting in 2017. (From news releases issued by multiple sources on January 11, 2017)