ANNUAL REPORT 2017

MARKET REPORT

Feintool finds ideal framework conditions for continuing to operate successfully on the market. This is due to the ongoing global economic upturn and, in particular, the good situation in the automotive industry, Feintool's largest customer group. At the same time, this situation is dominated by changes that open up new opportunities for Feintool.

Rising global economic growth offers Feintool an excellent starting point: In 2017 global growth rose by 3.6 percent according to the International Monetary Fund, and the organization expects an increase of 3.7 percent in 2018. Above all, Feintool's largest customer group, the automotive industry, continues to grow. According to the market research agency LMC Automotive, worldwide production of cars with a gross weight of up to 3.5 tons grew by roughly 2.4 percent relative to the previous year. In Feintool's core markets of Europe and Japan, they increased by 3.4 percent or 5.2 percent. In China, by contrast, automobile production only reported a relatively slight increase of 1.4 percent, while it declined by 8.1 percent in the US. Nevertheless, Feintool was able to gain market share in these last two countries and thus continue to grow, due in particular to growth in the important SUV segment (USA: +1%, China +46%, global +14.1%) and in the area of all-wheel-drive vehicles (USA +0.4%, global +4.4%). This is due to Feintool's strengths, particularly in an environment defined by consolidation and cost pressure. Finally, fineblanking technology offers solutions to increase efficiency – while maintaining or even increasing quality.

Upswing and change

The ongoing economic development suggests that 2018 will also be a successful year for Feintool. Market analyses by BMI Research and the Center for Automotive Research (CAR) at the University of Duisberg-Essen predict that global passenger car sales will continue to grow dynamically in 2018. At the same time, the automotive industry is undergoing radical change, which will lead to long-term shifts in coming years. Trends toward hybrids and electric drives, CO2 reduction and lightweight construction, car sharing, autonomous driving, networking and increasing cost pressure in production are determining market developments.

Alternative drives

OEMs have increasingly focused their development efforts on electrification for several years now. This is partly due to ambitious political objectives: In the EU, for example, CO2 fleet emissions are to be reduced by a further 30 percent by 2030 compared to the targets for 2021. Several countries, most recently India, have announced that they intend to ban pure combustion engine vehicles in their respective markets by a time horizon from 2025 or 2030.

On the way to complete electrification of private transport, a large part of the new vehicles will include hybrid tech-nology. While the global share of production of hybrid drives for passenger cars and light commercial vehicles of up to 3.5 tons in 2017 was 3.3 percent, this figure will rise to well over 11 percent by 2022 according to LMC Automotive. In its report "The Electric Car Tipping Point," the Boston Consulting Group expects a market share of 18 percent for hybrids by 2025. By 2030, this share is expected to have risen to 34 percent.

This development is positive for Feintool in several regards.

– Hybrid systems always include an internal combustion engine as well as an automatic transmission and additionally system-specific, rotationally-symmetric, mechanical components. This opens up numerous sales opportunities for Feintool.

– The electrification of the powertrain offers new possibilities for Feintool in innovative components. In development projects – also in cooperation with suppliers and customers – Feintool is working on fineblanking technology for new components.

– Increasing electrification will boost the global production of components with volumes that were previously too small and thus too uneconomical for Feintool technology, for example, components for battery cooling or for hydrogen cells. Their increasing production volume predestines them for Feintool's production processes.

Despite the progressing electrification, the internal combustion engine will continue to account for the majority of the production volume in coming years. According to LMC Automotive, the production share of pure gasoline, diesel and gas drives in cars of up to 3.5 tons will be 94.4 percent in 2018. Over the next five years, it is expected to decline continuously. According to the forecast, however, it will still be 84.2 percent in 2023. This means that the demand for fineblanking and forming parts, also in their current form, will remain at a high level.

Energy efficiency and lightweight construction

For some years, the automotive industry has been experiencing a trend towards lightweight construction in order to reduce CO2 emissions. This makes components in automobiles smaller, lighter and at the same time more stable. As they become more complex to produce as a result, there are numerous opportunities for Feintool and fineblanking technology, which is impressive thanks to its high precision and cost-effectiveness.

Autonomous driving

2018 will be a key year for self-driving automobiles: Level 2 technology will continue to spread and the first vehicles will reach autonomy level 3. In a study, the management consultancy A.T. Kearney has found that: autonomous driving time – the minutes when the artificial intelligence of the on-board computer takes over the wheel – will reach 87 billion minutes by 2025. By 2030, cars could then already be on the road in "self-driving" mode for almost 1.9 trillion minutes worldwide. By 2035, it should be over 5.1 trillion minutes.

The greater autonomy also increases the complexity of the vehicles. For example, automatic transmissions are be-coming the standard, which represent an important sales market for Feintool. Likewise, all-wheel drive is increasingly finding its way into all vehicle classes, since it allows an extended control panel for autonomous applications, among other things. Feintool is also well positioned in these products to keep up with the trend and to help shape it.

Shared mobility

In all forecasts, the market for sharing services will grow strongly in the coming years. Here, it is not the vehicle, but rather the service of passenger transport that is sold. For example, market researchers at Frost and Sullivan expect the number of participants to grow by 16.4 percent per year between 2015 and 2025 – from around 7 million to to a global total of much more than 30 million users. The auditing and consulting firm PwC predicts that every third kilometer driven in Europe will be covered by sharing in 2030.

This implicitly means that fewer vehicles have to be registered in the corresponding areas at the same time and therefore fewer vehicles will tend to be sold. On closer inspection, however, this should be relativized. The following points underscore why the market for automobiles will continue to grow.

– During the same period, vehicles used for shared mobility services cover considerably longer distances than a private vehicle driven only by the owner. This means that the wear limit is reached earlier and a new vehicle has to replace the old one after a shorter period of time. PwC predicts that the number of new registrations per year in Europe could increase by one-third to more than 24 million cars by 2030. This is the only way to compensate for the additional wear and tear caused by car sharing.

– Consumers often do not see car sharing as a substitute for their own car, but as a complement. Example of Germany: In its report "Beyond the Car," the consulting firm Capgemini determined that every second German mobility offer such as car sharing is seen as complementary to one's own car.

– The individual mobilization of emerging markets is far from complete. PwC estimates that the growth markets from 2016 to 2023 will lead to an increase of 18.8 million vehicles in annual passenger car production.

It is important for Feintool to be present in all important production markets in this constellation or to be able to supply them very easily. The company's global presence close to customers will therefore be promoted both by means of strengthened key account management and the further expansion of its worldwide locations.

Networking

As autonomy increases, the digital networking of automobiles is likewise making great strides. The consulting firm Deloitte expects the European market for Connected Car Services (CCS) to grow more than eleven-fold by 2021 – from EUR 62 million in 2016 to an estimated EUR 715 million in 2021.

Thanks to the increase in autonomy and networking, drivers will be able to pursue other activities in the future, such as answering emails or watching movies. For this reason, vehicle interiors are expected to become even more versatile. This where Feintool comes in: Greater comfort goes hand in hand with, among other things, a finer seat adjustment mechanism so that drivers can easily change from a driving position to a working or relaxing position. This can be ideally achieved with fineblanking technology in large volumes.

Efficient production

The automotive industry is constantly expanding its model range in order to be able to serve customers in the best possible way. According to estimates by the US investment bank Merrill Lynch, newly introduced models will account for 21 percent of US car production annually between 2018 and 2021. Between 1998 and 2017, this rate was only 16 percent. The average service life of a model on the market is thus decreasing. Because model platforms are expensive, the pressure to standardize and keep their number low continues to increase. Basically, the automotive industry is under great cost pressure, which affects the entire supply chain from OEMs to parts suppliers. Fineblanking technology is an important lever for the precise and economic production of complex components in large quantities here.

Outlook

The forecasts show that Feintool is operating in a favorable market environment. The growth in automotive production and change in the industry will enable Feintool to gain additional market share in its core business and to develop new business sectors with a focus on the major trends. Against this background, Feintool is more than confident about the future.