20 January 2015 Europe Equity Research Consumer Discretionary / Automobiles & Components

European Automotive Suppliers Research Analysts INDUSTRY PRIMER Alexander Haissl 44 20 7888 8507 [email protected] China: Benefiting from regulation - Valeo best Mike Dean 44 20 7883 2371 positioned [email protected] Fei Teng ■ Suppliers are the main beneficiaries of Chinese regulation: Outlook for 44 20 7883 9978 [email protected] European auto suppliers in China remains solid, as regulation (CO2 reduction, NCAP) largely benefits Western and Japanese manufacturers. Jonathan Hurn, CFA 44 20 7883 4532 Key components for Powertrain applications are likely to see the fastest [email protected] growth owing to further tightening of regulation and meaningful ramp up of Specialist Sales: Andrew Bell new engine plants, in particular Western and Japanese producers. Valeo 44 20 7888 0479 (OP) stands out, as high investment over the last few years will start to pay [email protected] off. This report provides detailed analysis of the potential for European suppliers and their strategies. ■ Key technologies controlled by Western and Japanese suppliers: Key technologies are controlled by Western and Japanese companies, as JVs as well as domestic players largely act in lower value add areas. Chinese producers have been more active in M&A over the last few years, but mainly in the lower value end products (Interior). ■ New engine platforms coming on stream: The ramp up of new engine platforms by major western OEMs and their JVs is key for the growth in powertrain content. Given tightening regulation towards 2020, engines will have more content (like turbochargers). For premium OEMs like BMW or Mercedes, the ramp up of new engine plants in China was a major step, as engine production was previously confined to Germany. ■ Valeo (OP) best positioned in China: Valeo has been the most aggressive among its peers in terms of capacity expansion, which reflects its higher order intake. We think consensus expectations for Valeo are too low (top line and margin) and therefore see the biggest upside surprise from its exposure to China. Moreover, we see Continental (OP – Credit Suisse Europe Focus List stock) as the main beneficiary of secular growth in China (mainly Powertrain). We transfer primary coverage of Autoliv to Fei Teng. Figure 1: European supplier summary Company CS Rating CS TP Price Market cap €m Free float EV/EBITDA (15E) Continental O €208.0 €188.7 36,333 54.0% 7.10 Valeo O €126.0 €114.9 8,896 97.6% 5.58 Faurecia O €37.0 €32.9 4,087 48.5% 4.22 GKN O 410.0p 355.9p 7,549 99.6% 6.61 Autoliv N $108.0 $102.1 7,888 99.9% 8.66 Leoni N €52.9 €52.9 1,655 99.9% 5.11 Elringklinger U €25.1 €29.5 1,855 45.4% 8.48 Rheinmetall U €35.6 €36.4 1,409 96.6% 5.56 Source: Credit Suisse estimates, Thomson Reuters as of 16 January

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

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20 January 2015 Key charts

Figure 2: China sales exposure by company (2014E) Figure 3: Foreign OEMs vs. local OEMs 2014

18.0% 16% 100% 16.0% 90% 13% 14.0% 12% 13% 80% 12% 11% 70% 12.0% 10% 10% 60% 10.0% 50% 8.0% 40% 6.0% 30% 4.0% 20% 2.0% 10% 0.0% 0%

China sales as % of total Foreign OEMs/JVs Domestic OEMs

For GKN & Rheinmetall, represents proportionate share of JV Source: Credit Suisse research contribution Source: Credit Suisse estimates

Figure 4: China: New engine plants 2013-2016E Figure 5: Wage inflation in China to trigger automation 800,000 30% YoY change in manufacturing 700,000 wages 600,000 25% 500,000 20% 400,000 300,000 15% 200,000 100,000 10% 0

5%

0%

New engine plants units capacity

1985 1981 1983 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 1979 Source: Full list and all details to be found under Figure 21, Credit Source: China NBS, Credit Suisse research Suisse estimates

Figure 6: Sales growth versus capacity growth (CAGR Figure 7: Valeo likely to surprise to the upside in China 2010-2013) 4.0% 60.0% 30.0% increasing sales per employee 2.0% 50.0% 25.0% 0.0% -2.0% 40.0% 20.0%

-4.0% 30.0% 15.0% -6.0% 20.0% 10.0% -8.0% falling sales per employee -10.0% 10.0% 5.0%

-12.0% 0.0% 0.0% -14.0% 2010 2011 2012 2013 1Q14 1H14 9m142014e2015e2016e2017e

Delta sales growth - headcount growth OE sales growth Market growth Outperformance (rhs)

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse estimates

European Automotive Suppliers 2 20 January 2015 Table of contents

Key charts 2 China—stock implications 5 China—upside and downside risks 7 Overall sector 7 Key risks per company 7 Global supplier valuation table 10 Credit Suisse versus consensus 11 Emission regulations converging to Europe 12 Safety regulations—step up in 2018 15 Ramp up of new engine and OEM plants 18 List of new engine platforms 18 New OEM platform ramp up to accelerate 20 Competitive landscape 21 Overview of global and domestic competition 21 Major Chinese players and JVs 22 HASCO—most involved with European suppliers 22 Fawer Automotive Parts Limited Company 23 Beijing Hainachuan Automotive Parts Company Limited (BHAP) 24 Other major domestic players —Wanxiang Qianchao 24 Selected Chinese M&A 28 Growth outlook—Valeo's investments to pay off 29 China accounts for 10-15% of sector sales 29 Implications of strong capacity growth 30 Valeo much more aggressive on expansion in China versus Continental 30 Valeo (VLOF.PA) 36 Continental (CONG.DE) 48 Faurecia (EPED.PA) 61 Autoliv (ALV.N) 73 Leoni (LEOGn.DE) 85 GKN (GKN.L) 96 Rheinmetall (RHMG.DE) 101 Elringklinger (ZILGn.DE) 113 LMC global production forecast 123

European Automotive Suppliers 3 20 January 2015 Executive Summary

Executive summary: Background and analysis Over the last couple of months, the financial community has become increasingly concerned about the impact of exposure to China on the auto suppliers. In the first section of this report, we explore the positive effect from tightening regulation on European companies as well as the ramp up of new engine plants over the next few years. In the second section, we focus on individual growth prospects and why high investment over the past few years will eventually pay off in the form of accelerated growth (versus the market) as well as margin improvement. Company strategies vary widely when it comes to investments in China; therefore, we think it is important to understand the differences in strategy.

Western companies are the main beneficiaries from regulation: The outlook for European suppliers in China remains solid, as Western and Japanese companies are the main beneficiaries from regulation (CO2 targets, NCAP) and energy-efficient related incentives. Key technologies, like for powertrain, are mainly controlled by Western companies and it seems unlikely that domestic players are able to catch up in terms of quality or technology in the near term. We expect Powertrain to see the fastest growth owing to its meaningful content growth combined with new engine plants. New engine platforms coming on stream: Over the next 1-2 years, Western and Japanese suppliers as well as domestic OEMs are ramping up meaningful new engine capacity. We estimate that this capacity could be in the range of 1.5-2.0 million units. For companies like BMW (starting in 2016), this is the first engine plant in China and volumes will increase incrementally. In addition to higher production volumes, the content of the powertrain is different, given the higher degree of downsizing and optimizing (for example, turbocharging). Thus, sales growth for powertrain applications should increase disproportionally (volume plus content). Past investment dictates future growth and margin potential: Significant capacity expansion (reflection of order bookings) will continue to support overall sector sales growth in coming years. Moreover, this capacity expansion is also the most important indicator for margin development. The biggest delta of capacity growth versus sales growth is visible for Valeo – very large capacity expansion resulted in falling sales per employee thereby impacting margins, in our view. However, realisation of high order backlog is likely to reverse this trend (sales outgrowing headcount growth). Our analysis also shows that, for Faurecia and Leoni, headcount outgrew sales between 2010-2013, which should boost sales and margin progression. Valeo outstanding—sales and margins likely to surprise: Valeo is moving into a 'harvesting' period in China, as high investments (function of order intake) will start to pay off. We see upside surprise for sales growth as well as margins. We forecast average sales growth throughout 2017 of ~27% versus company indication of ~19%. Contrary to the market view, we see margins moving up due to better utilisation rates (increasing revenues per employee) as well as better operating leverage (brownfield versus greenfield expansion). Key risk—slowing volumes as costs are on the rise: Near-term lower production volumes (cyclical risk) are the key risk as companies prepared their cost base for high growth with the ramp up of new plants. Given cost inflation of almost 15% annually, a meaningful slowdown in volumes could lead to material margin compression. In order to tackle the issue of labour cost inflation, we expect the degree of automation to increase disproportionally. However, given increasing content growth (ramp up of new engine plants) we see the likelihood of such a scenario as low at this point.

European Automotive Suppliers 4 20 January 2015 China—stock implications Valeo – OP TP €126 – best positioned in China, high investment to pay off The market underestimates sales growth and margin potential in China, in our view. High investment over the last few years (reflecting a strong order intake) should result in average sales growth of ~27% over the next few years, which is above company guidance of ~19% (sales to double every four years). As the investment cycle is slowing in China, utilization and therefore leverage is set to improve which will improve margins. Thus, Valeo is moving into a 'harvesting' period in China. Overall, we believe the business is not well understood by the market and is, therefore, undervalued. Continental – OP TP €208 (Credit Suisse European and Global Focus Lists) – strong position to benefit from secular trend We expect growth for Conti's operations in China to remain solid with average sales growth of ~15% within reach (sales CAGR 2010-2014e of 18.9%). In the past, the company has indicated that sales in China could reach €10bn beyond 2020 from €4bn in 2014, which implies 14% CAGR, assuming €10bn in 2021. From a product perspective, we see the fastest growth for Powertrain, as it should benefit from the ramp up in new engine platforms in particular for Western companies, like BMW, Daimler or Volkswagen. However, our analysis shows that Conti has been less aggressive versus Valeo when it comes to capacity expansion; thus we see growth rates below Valeo. Faurecia – OP TP €37 – growth in China expected to remain strong – further JVs could provide more business upside. We expect strong growth in China to continue with average annual growth rates of ~15% until 2018. Product mix in China is more favourable versus the group level with 50% stemming from Emissions Control Technologies and 36% from Automotive seating divisions. We also see more potential upside with regards to further JVs, as these benefit from the OEM networks. In April 2013, Faurecia signed a 50/50 JV with Chang'an to supply interior products. Total revenues of €210m by 2020 are guided by the company which is almost 10% of current sales generated in China, highlighting the potential of such JVs. Autoliv – N TP $108 – mature, structurally pressured business with reduced growth potential until CNCAP regulations tighten in 2018 Organic sales growth has declined steadily over the last four quarters, most recently just 3.8% of growth in 3Q14 against production growth of 6.0%. Lacklustre development of safety content is an ongoing problem: Autoliv says it will have grown its share of sales to Chinese local OEMs to 23% in 2014, but these same OEMs are the most reluctant to increase the amount of safety features in their cars. Average safety content per vehicle in China has changed little over the last 4-5 years, and safety regulations in China still trail Europe, and are unlikely to catch up until 2018. Meanwhile, we estimate that total personnel costs have been increasing faster than revenues since 2011, putting pressure on margins.

European Automotive Suppliers 5 20 January 2015

Leoni – N TP €52.9 – solid execution should secure earnings for the next two years, longer-term benefits from hybridisation and electrical content growth Leoni occupies a low-market-share, high-growth position in the Chinese automotive cables industry, dealing almost exclusively with European and US OEMs. This makes it easier to operate 100% subsidiaries and create a streamlined strategic process benefiting its execution-driven business model. Historically solid ramp-up execution (stark contrast to Mexico plant) should continue at two upcoming facilities serving premium OEMs. Order backlog is in place so this should support c. 15-20% revenue growth until 2016E, with margins rising as project cycles enter the post-ramp-up 'harvesting' phase. Further out, content growth trends benefit from emissions regulations, with hybrid engines requiring 20% more cable content than combustion engines. GKN – OP, TP 410p – well positioned in China GKN was one of the earliest companies to set up a foreign invested JV in China for automotive components. Alongside HUAYU, GKN set up 'Shanghai GKN HUAYU Driveline Systems' (SDS) in September 1988. SDS operations in China are wide ranging and include five manufacturing plants (including three in Shanghai) and a JV in Chong Qing with China Changan Automobile Group, (est. 2006) to manufacture and assemble small-sized drive shafts. GKN also has a JV with Henan Zhongyuan Engine Fittings Stock Company, to supply cylinder liners domestically and for export to engine manufacturers. China represents GKN's highest margin automotive geography with profits margins of c15%+ in our view. This puts its ahead of other key geographies including the US (c10%), Europe (c6-7%) and Japan (c5%). Customer exposure for GKN in China is c60% global OEMs and c40% domestic. Rheinmetall – UP TP €35.6 – JV-driven business provides upside, but overall not enough to be more constructive RHM strategy in China differs from the rest of our coverage, as ~95% of sales stem from its JVs with HASCO (60% owned by SAIC). This JV allows RHM to take advantage of HASCO's network in China, making GM and VW its largest customers. Moreover, we see upside for its wholly-owned units, which are still in the ramp-up process. On the one hand, we see the JVs as a good option to enter the market; on the other hand, it also makes RHM heavily dependent on one partner. Outlook for RHM's operations in China remain favourable, but the overall impact on the stock is limited given the size and structure of the business. ElringKlinger – UP TP €25.1 – selective mid-term growth opportunities As a niche player, EK's growth in China is more selective versus other companies. EK recorded double-digit sales growth over the last couple of years, which we expect to continue (but still at the lower end of covered companies). With new engine platforms coming on stream from Western companies in particular, we see the opportunity for EK to benefit from higher turbocharging penetration. In our view, content for EK's turbocharged engines (specialty gaskets plus shielding components) is meaningfully higher versus traditional engines. However, near-term upside seems limited.

European Automotive Suppliers 6 20 January 2015 China—upside and downside risks Overall sector Key upside risks include:

■ Regulation on emission reduction could be tightened further in the form of increased subsidies on energy efficient cars (hybrid and electric cars), for which content per powertrain is disproportionally high ■ Tighter regulation on active and passive safety (CNCAP) ■ Cyclical uplift in overall production volumes

Key downside risks include:

■ Delaying the emission standards (like Euro 5) ■ Meaningful market slowdown could delay content growth (active and passive safety, powertrain upgrades) ■ Labour cost inflation combined with slowing volumes could create meaningful margin pressure

Key risks per company Valeo Key upside risks include:

■ Sales growth surprises to the upside given significant capacity build up ■ Profits grow disproportionally high as capacity growth slows while sales growth accelerates (better utilisation and leverage) Key downside risks include:

■ Market weakness (cyclical) could delay content growth (structural) ■ Significant capacity growth combined with slowing volumes could meaningful weigh on margins, as the cost base is prepared for strong growth. This impacts on Valeo more than on its peers given its strong capacity growth (order intake) Continental Key upside risks include: ■ Powertrain growth could accelerate driven by new engine plant ramp up; in our view Continental could be more aggressive with regards to expansion

■ Expansion of Hefei tyre plant to improve cost structure Key downside risks include: ■ Less investment in the past versus peers could lead to growth underperformance ■ Tyre business could suffer from oversupply given meaningful expansion from competitors

European Automotive Suppliers 7 20 January 2015

Faurecia Key upside risks include: ■ Additional JVs could offer more upside at relatively low risks/costs ■ Consolidation in fragmented markets could improve pricing Key downside risks include: ■ Slowing production volumes could lead to disproportionally high price pressure in fragmented markets (like interior and exterior) – intensifying competition ■ Increased competition of higher margin Emission Controls, which accounts for ~50% of sales in China Autoliv Key upside risks include:

■ Accelerated tightening of CNCAP testing standards drives increased safety content

■ Awareness and penetration of active safety features achieve faster pace of growth than in Europe or North America Key downside risks include:

■ Delay or too few improvements to CNCAP safety testing standards

■ Cost inflation puts pressure on margins if volumes grow too slowly Leoni Key upside risks include:

■ Low market share so potential for order bookings from OEMs to which currently Leoni has no exposure

■ Increased penetration of electric/hybrid powertrains which require more cable content Key downside risks include:

■ Cost overruns in plant ramp-up execution, such as in Mexico

■ The need to share profits in a JV to grow sales to certain OEMs GKN Key upside risks include:

■ Benefits to mix from increasing AWD – Currently representing c27% of Driveline sales AWD continues to gain market share as customers look for increased safety and OEMs can generate higher margins. GKN is a market leader in AWD with China a key and growing AWD market.

■ Globally, 2020 represents the next emission target across many geographies including China. Increasing the efficiency of the Powertrain is a one of the main methods to reduce vehicle emissions. We estimate c53% of GKN group revenue is derived from auto operations selling into the global powertrain market.

European Automotive Suppliers 8 20 January 2015

Key downside risks include:

■ Margin erosion – with the current level of 15% being unsustainable. GKN has always acknowledged that margins are likely to come down over the medium term with the challenge being to bring margins up in other parts of the business to help offset this.

■ Risks to China volumes – GKN automotive (both Driveline and Automotive) has grown at an average 8% 2011A-14E. Within this China has been a major contributor with growth +27% YoY in H1 2014 for example. A sharp fall in China volumes in FY15 and its associated higher margin will have a detrimental impact on divisional performance and ultimately mix. Rheinmetall Key upside risks include:

■ Greater leveraging from the network of its JV partner, HASCO

■ Incremental business for wholly-owned units, which are still in start-up phase Key downside risks include:

■ Overly dependent on HASCO JV

■ Higher market fragmentation ElringKlinger Key upside risks include:

■ Most upside is for turbocharged engines, as content is higher for ElringKlinger (specialty gaskets and shielding technology) ■ Expanding product portfolio Key downside risks include:

■ As a niche player, it is more difficult to acquire new business on standalone base ■ Intensified competition on new projects (like speciality gaskets or shielding technology) could lead to pricing pressure

European Automotive Suppliers 9 20 January 2015 Global supplier valuation table

Figure 8: Global auto supplier valuation table Price Mkt cap CS CS TP €m Rating European Suppliers € € EV/EBITDA EV/EBIT P/E 2013 2014E 2015E 2016E 2013 2014E 2015E 2016E 2013 2014E 2015E 2016E Autoliv $102.1 7,888 N $108.0 8.99 9.57 8.66 7.80 11.65 11.87 11.60 10.40 17.64 18.12 17.09 15.19 Continental 188.7 36,333 O 208.0 8.22 8.01 7.10 6.39 11.21 10.56 9.37 8.31 16.59 14.04 11.90 10.34 Elringklinger 29.5 1,855 U 25.1 9.57 9.31 8.48 7.59 14.10 13.69 12.08 10.46 17.60 17.25 14.96 12.69 Faurecia 32.9 4,087 O 37.0 5.52 4.95 4.22 3.64 10.98 8.94 7.05 5.73 41.75 18.19 10.50 7.79 GKN 355.9p 7,549 O 410.0p 7.23 7.10 6.61 6.01 11.06 10.93 9.92 8.71 12.60 12.75 11.82 10.44 Leoni 52.9 1,655 N 52.9 7.12 6.12 5.11 4.44 10.18 9.18 7.43 6.15 15.69 12.03 8.86 7.16 Rheinmetall 35.6 1,409 U 35.6 7.91 7.80 5.56 5.06 22.87 19.25 10.09 8.92 47.43 34.81 11.12 9.04 Valeo 114.9 8,896 O 126.0 7.16 6.41 5.58 4.82 12.21 11.07 9.11 7.49 19.60 15.33 11.64 9.37 Average 7.72 7.41 6.41 5.72 13.03 11.94 9.58 8.27 23.61 17.81 12.24 10.25

US Suppliers $ $ EV/EBITDA EV/EBIT P/E 2013 2014E 2015E 2016E 2013 2014E 2015E 2016E 2013 2014E 2015E 2016E American Axle 22.46 1,444 N 24.0 7.16 5.90 5.29 5.20 12.43 9.69 8.05 8.31 12.84 10.10 7.65 7.65 BorgWarner 51.44 9,928 N 62.0 9.94 8.84 8.15 7.15 13.58 11.38 10.68 9.18 17.77 15.83 14.24 12.83 Delphi 67.65 17,001 O 82.0 8.99 8.26 7.61 6.76 11.63 10.70 9.73 8.61 15.39 13.42 12.05 10.36 Lear 96.42 6,486 O 114.0 7.57 6.19 4.85 4.53 10.51 8.24 6.31 5.83 16.30 12.13 9.84 8.63 Magna 102.99 18,215 O 121.0 7.24 6.57 6.02 5.38 11.36 9.07 8.36 7.36 14.73 11.81 10.03 7.98 TRW 102.96 9,668 N 105.0 6.69 6.44 6.09 5.55 8.99 8.72 8.14 7.36 14.94 13.34 12.67 11.27 Average 7.93 7.03 6.34 5.76 11.41 9.63 8.54 7.78 15.33 12.77 11.08 9.79

Japan Suppliers ¥ ¥ EV/EBITDA EV/EBIT P/E FY14 FY15E FY16E FY17E FY14 FY15E FY16E FY17E FY14 FY15E FY16E FY17E Aisin Seiki 4,115.0 8,685 O 5,050 4.12 3.97 3.61 3.37 7.71 7.67 6.77 6.08 12.88 13.20 11.06 10.01 Calsonic Kansei 626.0 1,225 N 600 3.57 3.51 3.29 3.12 6.39 6.35 5.75 5.26 6.71 9.39 8.39 7.62 Denso 5,402.0 34,206 O 6,750 7.82 7.46 6.72 6.17 11.90 11.92 10.42 9.36 14.97 15.66 13.59 12.20 Exedy 2,848.0 991 O 3,450 4.31 3.99 3.54 3.21 7.02 6.66 5.81 5.15 11.14 11.84 9.86 8.73 Keihin 1,793.0 950 N 1,850 3.52 3.03 2.82 2.69 6.17 5.27 4.85 4.49 10.82 11.21 9.47 8.84 Musashi Seimitsu 2,217.0 495 O 2,750 4.82 4.36 3.96 3.68 12.01 8.58 7.35 6.43 10.13 9.88 8.64 6.92 NGK Spark Plug 3,510.0 5,620 N 3,350 11.73 9.00 7.75 7.15 14.35 11.07 9.55 8.85 23.36 18.39 14.69 13.83 Takata 1,643.0 979 N 2,600 3.00 2.77 2.53 2.35 5.01 4.54 4.12 3.76 12.26 -6.43 7.08 6.43 Tokai Rika 2,543.0 1,716 N 2,250 4.74 4.45 4.19 3.96 7.23 7.03 6.60 6.22 13.33 12.12 11.52 10.47 Toyoda Gosei 2,443.0 2,275 U 2,250 3.55 3.66 3.48 3.33 6.68 7.32 6.81 6.36 12.06 14.37 12.65 11.71 Toyota Industries 6,040.0 14,096 O 6,100 11.55 10.65 9.79 8.99 23.55 20.96 18.11 15.75 20.63 16.35 13.74 11.42 Average 5.70 5.17 4.70 4.36 9.82 8.85 7.83 7.07 13.48 11.45 10.97 9.84

Korea Suppliers ₩ ₩ EV/EBITDA EV/EBIT P/E 2013 2014E 2015E 2016E 2013 2014E 2015E 2016E 2013 2014E 2015E 2016E Hyundai Mobis 265,500 20,250 O 358,000 6.93 6.83 6.40 5.97 8.25 8.15 7.55 7.01 7.55 7.14 6.57 6.20 Hyundai Wia 183,000 3,899 O 242,000 8.30 7.58 7.02 6.74 10.29 9.59 9.24 8.99 11.28 10.45 9.82 9.47 Mando 170,000 1,251 O 221,000 10.26 5.67 5.77 18.82 7.44 7.33 25.61 8.00 7.33 Average 7.61 8.22 6.37 6.16 9.27 12.19 8.08 7.78 9.42 14.40 8.13 7.67

European Tyres € € EV/EBITDA EV/EBIT P/E 2013 2014E 2015E 2016E 2013 2014E 2015E 2016E 2013 2014E 2015E 2016E Continental 188.7 36,333 O 208.0 8.22 8.01 7.10 6.39 11.21 10.56 9.37 8.31 16.59 14.04 11.90 10.34 Michelin 77.2 14,331 N 80.0 5.34 5.17 4.78 4.41 7.85 7.82 7.29 6.77 13.14 11.24 9.95 9.07 Nokian 20.4 2,717 N 25.0 5.47 6.44 5.98 5.73 8.38 9.81 8.64 7.97 14.65 12.64 11.13 10.27 Pirelli 11.4 5,525 O 14.2 6.28 5.79 4.94 4.51 8.49 7.70 6.39 5.78 18.22 13.79 9.70 8.45 Average 6.33 6.35 5.70 5.26 8.98 8.97 7.92 7.21 15.65 12.93 10.67 9.53 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 10 20 January 2015 Credit Suisse versus consensus

Figure 9: Credit Suisse estimates vs. Reuters consensus Sales EBITDA EBIT EPS 2013 2014E 2015E 2016E 2013 2014E 2015E 2016E 2013 2014E 2015E 2016E 2013 2014E 2015E 2016E Autoliv ($) - CS 8,803 9,272 9,886 10,657 1,047 984 1,088 1,208 808 794 812 906 5.82 5.67 6.01 6.76 Autoliv ($) - IBES 9,249 9,620 10,180 1,094 1,220 1,322 801 893 985 5.80 6.58 7.50 CS vs. IBES +0.2% +2.8% +4.7% -10.1% -10.8% -8.7% -0.9% -9.1% -8.0% -2.3% -8.7% -9.8% Continental - CS 33,331 34,396 36,354 39,242 4,930 5,065 5,859 6,513 3,699 3,962 4,431 5,000 9.62 12.23 15.27 17.57 Continental - IBES 34,527 37,481 39,573 5,321 5,969 6,362 3,714 4,276 4,574 12.70 13.89 15.16 CS vs. IBES -0.4% -3.0% -0.8% -4.8% -1.8% +2.4% +6.7% +3.6% +9.3% -3.7% +9.9% +15.9% Elringklinger - CS 1,175 1,283 1,363 1,471 241 243 267 298 165 165 187 216 1.66 1.70 1.96 2.31 Elringklinger - IBES 1,291 1,372 1,463 244 266 289 166 186 206 1.79 1.94 2.19 CS vs. IBES -0.7% -0.7% +0.5% -0.6% +0.4% +2.8% -0.6% +0.9% +4.7% -5.2% +0.7% +5.3% Faurecia - CS 18,029 18,602 19,733 21,233 1,070 1,194 1,400 1,625 538 662 838 1,032 0.79 1.81 3.14 4.23 Faurecia - IBES 18,549 19,705 20,816 1,168 1,357 1,526 620 771 906 1.74 2.64 3.43 CS vs. IBES +0.3% +0.1% +2.0% +2.3% +3.2% +6.5% +6.6% +8.8% +13.9% +4.5% +18.9% +23.3% GKN (£) - CS 7,594 7,425 7,922 8,637 896 913 981 1,079 586 593 654 744 0.28 0.28 0.30 0.34 GKN (£) - IBES 7,342 7,596 7,986 886 931 1,008 630 665 739 0.27 0.28 0.31 CS vs. IBES +1.1% +4.3% +8.2% +3.1% +5.3% +7.1% -5.8% -1.7% +0.8% +3.5% +7.6% +11.7% Leoni - CS 3,918 4,096 4,426 4,884 284 330 396 456 163 209 272 329 3.23 4.21 5.72 7.08 Leoni - IBES 4,095 4,420 4,818 316 379 446 188 246 304 3.63 4.87 6.34 CS vs. IBES +0.0% +0.1% +1.4% +4.7% +4.5% +2.1% +11.2% +10.6% +8.0% +16.0% +17.3% +11.6% Rheinmetall - CS 4,613 4,619 4,892 5,191 293 303 433 475 81 108 226 255 0.76 1.02 3.20 3.94 Rheinmetall - IBES 4,634 4,918 5,168 328 464 515 126 257 304 1.03 3.68 4.51 CS vs. IBES -0.3% -0.5% +0.4% -7.5% -6.7% -7.9% -13.9% -12.0% -16.1% -0.6% -12.9% -12.7% Valeo - CS 11,662 12,683 13,916 15,541 1,327 1,514 1,740 2,013 766 876 1,065 1,295 5.71 7.30 9.61 11.95 Valeo - IBES 12,699 13,867 15,132 1,476 1,663 1,837 859 991 1,130 7.16 8.44 9.70 CS vs. IBES -0.1% +0.3% +2.7% +2.6% +4.6% +9.5% +2.1% +7.5% +14.7% +2.0% +13.9% +23.2% Source: Credit Suisse estimates, Continental excluding Veyance, Company data, Thomson Reuters

European Automotive Suppliers 11 20 January 2015 Emission regulations converging to Europe Pollution levels are extremely high The high level of regulatory activity to reduce vehicle emissions comes in the light of exceptionally high levels of atmospheric pollution in Chinese cities. By the Ministry of Environmental Protection's (MEP) own preferred measure of pollution, the average PM2.5 content in Shanghai is 3.8x that of London, and Beijing is 5.6x. In early 2014, the Ministry of Industry and Information Technology (MIIT) published the proposal for Phase 4 passenger vehicle emission regulations covering 2016-20, tracking notably closer to European 2020 target than the previous Phase 3 policy. By 2020, China plans to achieve a fleet fuel consumption of 4.9 l/100km (117 gCO2/km).

Figure 10: Pollution levels in main Chinese cities are 3-6x higher than Europe City Average daily PM2.5 (µg/m3) Average maximum PM2.5 (µg/m3) Beijing 90 646 Shanghai 61 421 Guangzhou 52 421 Tianjin 96 394

For comparison London 16 Frankfurt 18 Paris 17 New York 14 Source: MEP, EEA, EPA

China 2020 targets require 32% reduction from 2013 actual levels vs. 25% in Europe On a progression basis, the 2020 regulations in China are more difficult to reach than the European regulations. From 2013-2020, the average new car emission needs to be reduced by 32%, compared with a reduction of 25% required in Europe to reach 95 g/km. Potentially, the powertrain-driven structural growth factor could be a bigger tailwind in China than in Europe.

Figure 11: Progression of global CO2 emission regulations 250 US EU China Japan 200

150 China : 117 Japan : 105 US : 93

g(CO2)/km 100 EU : 95

50 Solid lines: historical performance Dashed lines: enacted targets Dotted lines: proposed targets 0 2000 2005 2010 2015 2020 2025

Source: ICCT

European Automotive Suppliers 12 20 January 2015

Figure 12: Progression towards 2020 targets—Europe vs. China

Average fleet CO2 2015 regulation 2020 regulation Reduction 2013-20 Reduction 2015-20 g/km 2013 g/km g/km g/km g/km China 171 168 117 -31.6% -30.4% Europe 127 125 95 -25.2% -24.0% Source: ICCT, Credit Suisse research Demand for powertrain components should be on a strong structural footing, and given the ramp-up of engine plants by European OEMs with integrated turbochargers, we expect volume development for JV-exposed powertrain suppliers to be significant. Technologically inferior local OEMs could struggle to meet these regulations, and eventually these companies may be significant drivers of powertrain content growth, as they start from a low base. We have already seen increasing interest from Chinese OEMs on powertrain components – with Valeo reporting a higher proportion of order bookings from local OEMs than in reported sales. Subsidies for 'New Energy Vehicles' Another significant contributor to China's pollution reduction plan will be incentives for electric and hybrid cars and aggressive EV infrastructure development. A new scheme for 'New Energy Vehicle' subsidies was announced in December 2014 to replace the current scheme, which ends in 2015. The government's target is 5 million new energy vehicles on the road by 2020 and the government has announced that 30% of all government- purchased cars by 2016 will be new energy vehicles.

Figure 13: Six main classifications of 'New Energy Vehicles' Hybrid electric vehicle Fuel cell electric vehicle Battery electric vehicle Hydrogen engine vehicles Plug-in hybrid electric vehicle Natural gas vehicles Source: Credit Suisse research Sales of new energy vehicles rose almost 4x YoY in 2014 to 60,000 according to CAAM, still behind the rate needed to achieve 5m vehicles by 2020. Infrastructure improvements alongside a subsidy push should continue to support growth, albeit off a low base. Hybrid and electric powertrain content is normally 2-3x the content in internal combustion engines so growth in electric vehicles can disproportionately drive growth in electric powertrain components. However, in our view, volumes are too low for EV components to be profitable and we expect combustion engines to remain the primary powertrain technology for the foreseeable future. The renewed subsidy policy for 2016-20 offers: RMB 55,000 subsidy for battery electric vehicles produced in China RMB 30,000 subsidy for plug-in hybrid electric vehicles produced in China Expanded eligibility of buses with RMB 500,000 subsidy Slower rate of subsidy decline: 5% cut in 2014 vs. previously announced 10% cut; 10% cut in 2015 vs. previously announced 20% cut, 10% cuts in 2017 and 2019 Certain models are eligible for 10% sales tax exemptions until 2017 The push to improve infrastructure and availability also gathered pace during 2014: Beijing constructed 35,700 charging posts + 2 hydrogen stations 88 cities were eligible for electric vehicle subsidies from 25 in 2012 Infrastructure targeting 200k poles (1,800 stations) from 12,000 poles (352 stations) by 2020

European Automotive Suppliers 13 20 January 2015

License plate restrictions promote use of electric/hybrid cars On top of subsidies and tax breaks for electric cars, capping license plate restrictions in cities also encourages purchases of electric vehicles, which are usually exempt from license plate caps or have priority over combustion engine vehicles.

Figure 14: License plate restrictions in Chinese cities City Since Quota Potential cities Shanghai 1994 120,000 Hangzhou Beijing 2011 150,000 Shijiazhuang Guiyang 2011 24,000 + additional Chengdu Guangzhou 2012 120,000 Chongqing Tianjin 2013 100,000 Qingdao Hangzhou 2014 80,000 Wuhan Shenzhen 2014 100,000 Source: Credit Suisse research, CAAM Commercial vehicle regulations are disjointed, offering few tailwinds Heavy-duty diesel emissions are regulated under a regime equivalent to European standards (Euro 4,5,6) but two generations behind. However, implementations of heavy- duty emissions regulations have been difficult, with the most recent implementation of National Stage 4 (NS4 – Euro 4 equivalent) rules enacted 30 months later than intended due to fuel quality concerns. Specifically, the lack of nationally-available low-sulphur diesel fuel was cited as the main cause. The successor policy, NS5, originally penned for implementation at the start of 2013, has now been delayed indefinitely. The lack of enforcement coupled with lack of proper diesel fuel processing and distribution infrastructure means stringent commercial vehicle emissions standards still looks some way off. 10 ppm sulphur diesel, which is a requirement under Euro 5 standards, should be phased in by the end of 2017 according to China's State Council, which paves the way for Euro 5 standard to be implemented by 2017 at the earliest, a full eight years later than in Europe. There is clearly less structural tailwind from commercial vehicle emissions regulations, and European suppliers have little exposure to commercial vehicle powertrain.

European Automotive Suppliers 14 20 January 2015 Safety regulations—step up in 2018 China-NCAP to reach EuroNCAP passive safety standard by 2018 Upside on safety regulations is high, with China a relative laggard to Europe and North America on safety content. The Chinese NCAP testing standard (CNCAP) was introduced in 2006 with limited credibility given the low hurdles, poor transparency and poor participation from automakers. Three revisions later, its newer, stricter version tests a wider range of crash types and at raised crash speeds. Whilst not yet comparable to EuroNCAP, CNCAP's credibility has improved and is an increasing factor in deciding car purchases.

Figure 15: Development of China-NCAP 2006 Established Introduction of full-width frontal impact barrier at 50km/h 2009 1st revision Additional assessment of child restraints Additional assessment of rear side passenger crash 2012 2nd revision Increase in dummies' injury score thresholds Main frontal offset impact speed increased from 56 to 64 km/h Addition of rear occupant evaluation element Re-adjust star classification Increase active safety / ESC score 2015 3rd (minor) revision Increase difficulty of evaluation system, increased by ~ 1 star Increase strictness of whiplash test Adjust frontal crash occupant protection assessment - thorax assessment indicators co-ordinated with international NCAP; adjust assessment of rear occupant impact Adjust scoring for safety content, increased scoring for ESC, seat belt reminder & child seating scoring to be phased out as national regulations start to apply Expand assessment to include vehicle fires 2018 China-NCAP passive safety regulations catch up to EuroNCAP, will include more significant changes Follow EuroNCAP in introducing world-SID dummy in side-impact testing Plans to introduce pole impact test, likely to be the same 75° angle as in EuroNCAP Plans to implement active safety into evaluation system, in particular AEB Study of pedestrian protection, effectiveness of active safety and protection mechanisms Study of an increased number of crash types, such as vehicle roll, rear crash, and commercial vehicle crash Study of safety in new-energy vehicles Source: C-NCAP, Credit Suisse research Minor revisions in 2015 increase the difficulty of the rewards by one star and make small adjustments to crash tests. Following this, the big step up should come in 2018 when the CNCAP system intends to become equivalent to the EuroNCAP systems on passive safety. The current proposals for 2018 includes tests for side-impact and pole-impact crashes, which have been standard in EuroNCAP tests for some time. Pedestrian protection will also become a factor, as well as recognition of active safety features.

European Automotive Suppliers 15 20 January 2015

NCAP tightening should drive content growth, but may be slow before 2018 Passive safety content per vehicle (CPV) in China has been rather subdued in the last 3-4 years at around $200, a fact which has been unfavourable for Autoliv in terms of structural content growth. From 2009-13, CPV growth in China has been +2.4% CAGR, slower than the global rate of +3.6% CAGR. The level of content per vehicle is around 30% lower compared with Europe and the US, though compared to other EM countries, China's CPV sits near where it should, based on relative economic development (Figure 17). A higher mix of premium vehicles probably skews the number to the upside, while a large fraction of cars also still sell with no airbags as standard.

Figure 16: China average safety content ($ per vehicle) has grown very slowly 500 China CAGR: +2.4% Global CAGR: +3.6% 400

300 300 300 260 250 260 220 200 200 200 200 200

100

0 2009 2010 2011 2012 2013

China Global

Source: Autoliv data Nevertheless, the trajectory is clearly an upward relationship with economic development and traffic safety a serious issue—traffic fatalities are very high in China, at 133 deaths per 100,000 vehicles vs. 7 per 100,000 in Germany/US. Low safety content is a problem that can be addressed by OEMs over time, but an initial challenge is that consumers' safety consciousness is low compared with the rest of the world (see below).

Figure 17: Passive safety content per vehicle ($) vs. GDP Figure 18: Traffic fatalities per 100,000 vehicles vs. safety per capita ($) content 600 250

500 India Germany 200 USA 400 Japan 150

300 China South korea Thailand 100 Thailand 200 China Brazil Indonesia Brazil Indonesia 50 100 South korea India USA Japan Germany 0 0 0 10,000 20,000 30,000 40,000 50,000 60,000 0 100 200 300 400 500 GDP/capita PPP ($) Safety content per vehicle ($)

Source: Autoliv data, World Bank Source: WHO (road deaths adjusted for reporting differences)

European Automotive Suppliers 16 20 January 2015

Consumers' safety consciousness has upside Chinese motorists have some of the lowest seat belt wearing rates in the world—a good measure of traffic safety awareness. Though seat belt wearing has been mandated since 2004 for all occupants, it is barely enforced other than for front riders on expressways and largely ignored in most urban areas. There is even a market for devices which prevent seat belt warnings (Figure 20).

Figure 19: Seat-belt wearing rate (front) Figure 20: Motorists actively tamper with seatbelt buckles 120%

100% 93% 96% 88% 82% 85% 77% 80% 70%

60% 56% 50%

40% 33%

20%

0%

USA

Brazil

China

Japan

Korea

Russia

Turkey

Thailand Germany Indonesia Source: WHO Source: Car News China In our view, China is not yet a market where safety features are near the top of most consumers' priorities when purchasing a car, and are not as high as in Europe or North America. A lack of education may be one factor, in a country where widespread car ownership is a fairly recent phenomenon. Regulations can address poor safety features over the coming years, but the NCAP system alone cannot force carmakers to increase safety content beyond what consumers want, an uneasy outlook for a company like Autoliv. Any change in consumer behaviour could be slow unless driven by OEMs by proactively increasing safety content. However, there is a significant market for no-frills vehicles catering to marginal price-sensitive buyers, particularly cars built by domestic OEMs. These buyers remain less sensitive to safety content and domestic OEMs therefore remain reluctant to improve safety content. Therefore, we do not see an acceleration of growth of safety content until CNCAP tightens in 2018.

European Automotive Suppliers 17 20 January 2015 Ramp up of new engine and OEM plants The major driver for growth in China is likely to be key powertrain components given the regulations to reduce CO2 emissions. In our view, the best way to track volume growth is the start of new engine platforms. Over the next one to two years, Western and Japanese, well as domestic, OEMs will be ramping up meaningful new engine capacity. We estimate that just this new capacity will be in the range of 1.5-2.0 million units. For a few companies, like BMW, this new capacity will be the first engine production platforms outside their domestic production (for BMW, in Germany). In addition to incremental volumes, the content of these new engines will be higher, as powertrains will be downsized and optimized (eg, turbocharger). List of new engine platforms Volkswagen In August 2013, Volkswagen commissioned its new engine plant in Changchun. The Volkswagen FAW Engine (Dalian) Co., Ltd. plant will produce the latest generation of EA888 engines. The plant has the first flexible production line in China for the 1.8-litre and 2.0 litre versions of the EA888 engines. The EA888 Gen 3 engine is the first engine built in China to comply with Euro VI emission standard. First-phase capacity is 300,000 engines. In a second phase, capacity was indicated to increase to 450,000 engines by 2014. Daimler In November 2013, Mercedes-Benz opened its new engine plant at Beijing Benz Automotive Corporation (BBAC). Total investment was around €400m. The plant will produce four- and six-cylinder engines with annual capacity of 250,000 units in the initial phase. It is the first ever engine plant for Mercedes-Benz outside Germany. The plant will serve passenger cars at BBAC and Mercedes-Benz vans produced locally at the joint venture Fujian Benz Automotive Co., Ltd (FBAC). BMW In August 2013, BMW Brilliance held a foundation laying ceremony for its new engine plant in Tiexi District, Shenyang City. The first phase of the new engine plant started construction in 2013 and will start production in 2016 with capacity of 400,000 units per year, which will supply local production models. Since 2012, crankshaft, camshaft and conrod have already been produced locally in the current powertrain in Shenyang. GM In 2014, GM announced that it would invest some $12bn in China (GM's JVs) between 2014 and 2017. This expansion plan includes the opening of five new manufacturing facilities—four vehicle assembly plants and one powertrain plant. Opening is expected by the end of 2015. Annual powertrain capacity is some 450,000 engines. Ford In mid-2013, Ford started production at its new engine plant in the south-western Chongqing Municipality. The new plant is run by Chang'an Ford Mazda Automobile Co., Ltd (CFMA). The new plant has annual capacity of 450,000 engines and will increase total capacity to 750,000 engines. With a total investment of $500m, initial production will be the 1.5-litre naturally aspirating four-cylinder and the 1.0-litre three-cylinder Ecoboost.

European Automotive Suppliers 18 20 January 2015

Peugeot Dongfeng-Peugeot Citroen Automobile Company (DPCA) announced the start of construction of its new engine plant in Xiangyang in March 2011. Post-expansion, capacity will increase from 640,000 engines to 1.2mn engines. Construction is expected to be completed in 2015. Moreover, Chang'an Peugeot (CAPSA) started production at its new Shenzhen plant in 2013 for Euro 5 and Euro 6 engines. Production capacity is expected to increase from 200,000 engines in 2013 up to 500,000 (after competition of phase 3). The engine is a 1.6-litre Turbo Direct injection. FAW and Ecomotors In May 2014, FAW's engine subsidiary First Auto Works Jinqye Engine Company (FAW JY) announced that it would form a JV with EcoMotors Inc. FAW is fully funding the building of the commercial-scale plant with total investments in excess of $200m, retaining 51% in the JV. EM will have a 49% stake. Preparation for the manufacturing is expected to begin in late 2014 at the new facility. Estimated production capacity in 2015 is 100,000 engines. Zhongding Power and Ecomotors In September 2013, Zhongding Power and EcoMotors announced the closing of a commercial agreement to produce the opoc® engine. Zhongding Power is one of the largest automotive component conglomerates in China. CAPEX is above $200m with annual capacity of about 150,000 engines. High-volume production was indicated to have begun in 2014. Geely In March 2013, Geely announced plans to build a new engine plant in the coastal city of Ningbo in Eastern China's Zhejiang province. Completion is expected by the end of 2015. According to Xinhua News, the output is 700,000 units of turbocharged engines in addition to 300,000 units of advanced high-performance transmissions. Jaguar Land Rover In June 2014, Jaguar Land Rover announced plans for a potential new engine plant in China. No details are available yet.

Figure 21: Overview of new engine plants in China Company Start of production Location Volume Comment BMW 2016 Shenyang 400,000 construction started 2013 Mercedes late 2013 Beijing 250,000 also supplies to Fujian-Benz JV Volkswagen Aug-13 Changchun 300,000 first phase is 300,000; from mid-2014 capacity will increase to 450,000 GM Opening end of 2015 Shenyang 450,000 phase III with annual output of 300,000 cars and 450,000 engines Ford Mid-2013 Chongqing 450,000 expansion increased capacity to 750,000 Dongfeng-Peugeot Citroen Automobile Company (DPCA) Completed 2015 Xiangyang 560,000 started construction march 2011 Chang'an Peugeot (CAPSA) 2013 Shenzhen 200,000 ramp up to 500,000 (after phase 3) from 200,000 in 2013 capacity GAC Fiat 2012 Changsha 220,000 FAW and EcoMotors 2015 Jinzhong City 100,000 EcoMotors - total CAPEX $200m Geely Completed end of 2015 Ningbo 700,000 Total investments of around $398m Jaguar Land Rover Changshu No more details available Zhongding Power and EcoMotors 2014 Anhui 150,000 total capex above $200m Source: Company data, Credit Suisse research

European Automotive Suppliers 19 20 January 2015

New OEM platform ramp up to accelerate Our analysis shows that the ramp up of new OEM platforms likely accelerates meaningfully in the next two-to-three years. Assuming a ramp-up period of some two years, the peak in terms of new model volumes would be around 2017.

Figure 22: Total China OEM platform ramp up Figure 23: Western JV OEM platform ramp up

60 16 15 53 14 13 50 12 12 11 38 40 36 10 9 8 28 28 30 8 7 7

20 6 20 14 4 12 4 10 8 2 2 2 2 0

0 0

2011 2012 2013 2014

2011 2012 2013 2014

2015E 2016E 2017E 2018E 2019E 2020E 2021E

2016E 2017E 2018E 2019E 2020E 2021E 2015E Source: LMC, Credit Suisse estimates Source: LMC, Credit Suisse estimates

European Automotive Suppliers 20 20 January 2015 Competitive landscape Overview of global and domestic competition The market in China is highly fragmented but, as the majority of European players are positioned in the upper end with regards to quality and technology, competition is overall similar to the rest of the world. Figure 24 shows main global as well as local competitors by company.

Figure 24: Overview of competitive landscape by global and domestic players Company Global player Domestic player Valeo Powertrain Transmission systems Luk, Valeo, ZF Sachs Harbin Dongang Auto Engine Co., Ltd, Changchun Yidong Clutch Co., Ltd Electrical systems Denso, Bosch Fawer Automotive Parts Limited Company, Weifu High- Technology Group Co., Ltd, Yuchai Machinery (Guangxi) Group Co., Ltd. ASIMCO Technologies Thermal systems Denso, Halla, Visteon, Delphi Fawer Automotive Parts Limited Company, Comfort&Driving Assistance Bosch, Conti, Kostal, Tokai Rika, Panasonic Beijing Hainachuan Automotive Parts Co., Ltd Visibility systems Bosch, Denso, Koito, Magnetti Marelli Continental Chassis & Safety Bosch, Aisin, Advics, TRW, Denso, Hella, Delphi Wanxiang Qianchao Co., Ltd., SAAC, APG Powertrain Bosch, Aisin, Denso, Delphi, Valeo Fawer Automotive Parts Limited Company, Weifu High- Technology Group Co., Ltd (Bosch FV) Interior Denso, Nippon Seiki, Denso, Clarion, Mobis, Panasonic Changchun Faway Automobile Components Co., Ltd, Dongfeng Electronic Technology Co., Ltd, Shanghai Feilo Co., Ltd Faurecia Interior Yanfeng, JCI, Mobis, Calsonic Kansei Beijing Hainachuan Automotive Parts Co., Ltd, HUAYU Automotive seating JCI, Lear, Magna Changchun Faway Automobile Components Co., Ltd, Beijing Hainachuan Automotive Parts Co., Ltd, Guangzhou Automobile Group Component Co., Ltd, Shanghai Jiao Yun Group Co., Ltd Exterior Magna, HBPO, Plastic Omnium Guangzhou Automobile Group Component Co., Ltd Emissions Control Tenneco, Sango, Sejong, Lihe, Calsonic Kansei BYD (integrated supplier) Autoliv Takata, TRW, Delphi, KSS, Tokai Rika, Toyoda Gosei Jinheng Automotive Safety, China Automotive Systems Inc., Fawer Automotive Parts, Beijing Hainachuan Leoni Yazaki, Delphi, Lear, Sumitomo Electric, Furukawa China Auto Electronics Group, China Feilo, Beijing Force Automotive Wire, Beijing Hainachuan Rheinmetall Mahle, Federal Mogul Hunan Jiangnan Red Arrow Co., Ltd, Anqing Huanxin Co., Ltd (also Federal Mogul JV partner) ElringKlinger DANA, Federal Mogul Source: Company data, Credit Suisse research

European Automotive Suppliers 21 20 January 2015 Major Chinese players and JVs HASCO—most involved with European suppliers Key data HASCO (HUAYU Automotive Systems Co., Ltd) Ownership: Shanghai Automotive Industry Corporation (SAIC) owns 60.1% via SSASAC (Shanghai state-owned Assets Supervision and Administration Commission) Major JVs with Western and Japanese companies (not full list)

■ Shanghai Automotive Brake Systems Co., Ltd: ownership 51% HASCO and 49% Continental. Products: calliper, actuation, wheel cylinder, anti-lock-brake systems (ABS).

■ Shanghai Valeo Automotive Electrical Systems Co., Ltd: ownership 50% HASCO and 50% Valeo. Main products: starters and actuators for passenger cars, light trucks and diesel engines; production capacity to reach 15 million units in 2015. Main customers: SVW on Passat, Tiguan, Lavida, Polo, Touran, SGM on Buick, Sail, Cruze, Cadillac, Excelle GT, FVW on Bora, Audi, Golf, Magotan, Sagitar, BHMC on Elantra, Verna, SMC on Roewe, and MG; moreover, the company also delivers products to FAW car, DPCA, Great Wall, Chang'an Ford, BYD, Chery, JAC, Mazda as well as engineering machine manufacturers like Shanghai Diesel and Weifang Diesel.

■ Kolbenschmidt Pierburg Shanghai Nonferrous Components Co., Ltd: ownership 50% HASCO and 50% KS ATAG GmbH (Rheinmetall). Products: engine blocks, cylinder heads, intake manifold modules and exhaust gas recycling. Largest customers: SVW, SGM, SAIC, SGMW, FAW-VW, DPCA, Volkswagen (DE) and Volvo.

■ Kolbenschmidt Shanghai Piston Co., Ltd.: 50% HASCO and 50% Kolbenschmidt- Pierburg (Rheinmetall). Products: aluminium allow pistons. Main customers: SGM, SVW, VWPT, FAW-VW, VWFEDL, SMC, SDES, SFH, SGMW, Chang'an-Ford- Mazda, Dongfeng Nissan, DPCA, Dongfeng Cummins and Wuxi Parkins.

■ Shanghai GKN Drive Shaft Co., Ltd: ownership: 50% GKN Driveline International GmbH, 35% HASCO, 10% SDIC High Tech Investment Co., Ltd and 5% Bank of Communications Co, Ltd. Shanghai Branch. Products: manufacturing of constant velocity (CV) and propshafts, as well as eccentric shafts, turbine shafts; supply to most domestic OEMs with market share of up to 50%.

■ Shanghai GKN Drive Sales Co., Ltd.

■ Shanghai Sachs Powertrain Components Systems Co., Ltd: ownership 50% HASCO and 50% ZF Sachs AG Germany. Products: clutch and torque, and clutch main. Customers: SVW, SGM,SAIC, SGMW, FAW, FAW-VW, Ford, Beijing Jeep, JMC, Chery, and SAME. Torque converter main customers: SGM and ZFTS

■ ZF Shanghai Steering Co., Ltd: JV HASCO and ZFLS (ZF Sachs). Main products: hydraulic power steering gear, steering column and electronic steering. Main customers: SVW, SGM, SGMW, SMC, FAW-VW, BMW Brilliance, Chang'an Ford Mazda, DPCS, Great Wall, Jiangling Ford, Haima and SEM.

■ Shanghai TRW automotive safety systems Co., Ltd: JV with TRW. Main products: automotive safety belts and airbags. Customers: Chang'an Ford, Shanghai GM, SAIC, Volkswagen, Beijing Benz, and Anhui Chery.

European Automotive Suppliers 22 20 January 2015

■ Federal-Mogul Shanghai Bearing Co., Ltd: JV with Federal Mogul. Products: bearings, bushings and thrust washers for cars, trucks and internal combustion engines. Main customers: Shanghai Volkswagen, Shanghai General Motors, Shanghai Diesel Engine, Shanghai Gear Works, Wuxi Huayuan Kaima, Chongqing Cummins, Shenyang Mitsubishi, Jiangsu Nanya, Beijing Jeep, Liuzhou Wuling, Jingan Leopard, Tianjin Dafa, and Fujian Power.

■ Federal-Mogul Shanghai Compound Material Co., Ltd.

■ Shanghai Sanden Behr Automotive Air Conditioning Co., Ltd: JV with HASCO, Sanden Corporation, Behr GbH and Shanghai Longhua Industry Co., Ltd. Products: air conditioning systems and compressors.

Fawer Automotive Parts Limited Company Ownership: 25% FAW, 16% Jilin Tianyi Investment and 14% Ningbo Huaxing Electronic Co., Ltd Major JVs with Western and Japanese companies (not full list)

■ FAW-ZEXEL Climate Control Systems Co., Ltd: JV with Fawer, Valeo Systems Termiques and Itochu. ■ Liaoyang K.S. Automotive Spring Co., Ltd: JV with Fawer, ThyssenKrupp Hoesch and A.P.A. Group (Italy); Chinese investor holds 40%. Products include: various coil springs, stabiliser bars and torsion bars. Main customers: FAW, FAW-VW, Jin-Bei-GM, SAIC, Dongfeng and Liuzhou Automobile. ■ ThyssenKrupp Presta Fawer: JV with Fawer (40%) and ThyssenKrupp (60%). Products: steering columns. Main customers: FAW-VW, SAIC-Cerhy and FAW Truck. ■ Fawer Visteon Climate Control Systems (Changchun) Company Ltd.: JV with Visteon and Fawer (50/50). Main customers and products: radiator series for Jetta, Bora and Audi made by FAW/VW; Radiator series for LRFmand Besturn made by FAW; HVAC for Mazda model year 2009 made by FAW; and radiator for Vizi of Tianjin FAW Xiali Motor. ■ TRW Fawer Automobile Safety System (Changchun) Co., Ltd: JV with Fawer (40%) and TRW (60%). Main customers: Red Flag, Jilin van, Audi, Bora, Beijing Jeep, Jinbei GM and Jinbei M1. ■ Tianjin Fawer Denso Air-Conditioner Co., Ltd: JV with Fawer (40%) and Denso (60%). Main products: air conditioner and HVAC moulding parts. Main customers: mainly FAW-Toyota limousine and SUVs.

European Automotive Suppliers 23 20 January 2015

Beijing Hainachuan Automotive Parts Company Limited (BHAP) Ownership: 60% owned by BAIC, 40% by Beijing Industrial Development and Investment Management Limited (fully owned subsidiary of Beijing State-Owned Management Co Ltd). Major JVs with Western and Japanese companies (not full list)

■ Tenneco (51%) and BHAP (49%). Emission control systems, shock absorbers. ■ Plastic Omnium (60%) and BHAP (40%). ■ Autoliv (51%) and BHAP (49%). ■ Lear (50%) and BHAP (50%). Automotive wiring harnesses, electronics, tyre pressure monitor and security. ■ Johnson Controls. Main seat frame production for Beijing-Hyundai, Beijing-Benz. ■ Visteon and BHAP. Air conditioning systems. ■ BorgWarner (80%) and BHAP (20%). Torque management systems and all-wheel drive solutions.

Other major domestic players —Wanxiang Qianchao Key data

■ Founded in July 1969 ■ Ownership: 51% stake by Wanxiang Group private company (which also owns 3.7% of GAC) ■ 32 manufacturing groups and 10 module plants, 33 main subsidiaries, which are all 100% owned ■ Products: drive shafts/axles/transmissions, steering columns, brake systems, shock absorbers, wiper motors ■ Main customers: FAW-VW, CAPSA, Hainan/Mazda, SGMW, Chang'an Suzuki, GAC- Fiat, Beijing Benz, Tianjin Auto-Toyota, Nanjin-Iveco, Liuzhou/Haifei-Isuzu ■ Key financial data: sales RMB9.26bn and EBIT RMB635m (both 2013)

European Automotive Suppliers 24

EuropeanAutomotive Suppliers Figure 25: HASCO JV relationship map

GKN Rheinmetall Continental

50% 49%

50% 50%

Shanghai GKN 10% by SDIC & 5% by Shanghai Bank of communication KPSNC KSSP Drive Shaft Shanghai. In GKN Automotive Brake

50% 50% 51% 35% HASCO

50% 50% 50%

Federal-Mogul Shanghai Sachs Koito Automotive Shanghai Valeo Federal-Mogul Shanghai Power Lamp Co.Ltd AES Shanghai Bearing Compound Material

45% 50% 50%

Federal- Koito ZF Valeo Mogul

20 January20 2015

Source: Company data, Credit Suisse research

25

EuropeanAutomotive Suppliers Figure 26: Fawer Automotive Parts JV relationship map

ZF TRW ThyssenKrupp

51% 60% 55% 60%

TRW Faw Com Thyssen Krupp Presta ZF Fawer Chassis TRW Fawer ASS Co. Vehicle Steering Co. Fawer Co. Ltd. Tech Co. Ltd. Ltd. Ltd.

49% 40% 45% 40%

FAWER

40% 40% 50% 51%

Tianjin FAW Denso Air- VW FAW Platform Co. Fawer Viston Climate FAW Tokico Shock Conditioner Co. Ltd Ltd Control System. Absorber Co. Ltd.

60% 60% 50% 49%

DENSO VW Visteon Hitachi

20 January20 2015

Source: Company data, Credit Suisse research

26

EuropeanAutomotive Suppli Figure 27: Beijing Hainachuan JV relationship map

China Automotive Borgwarner System

ers

50% 80%

Great Genesis Borg Warner-BHAP

50% 20%

51% Tenneco- 49% 49% 51% Tenneco Lear-BHAP Lear BHAP BHAP

40% 49%

Plastic Omnium Auto Beijing Automotive Inergy Safety

60% 51%

Plastic Autoliv Omnium

20 January20 2015

Source: Company data, Credit Suisse research

27

20 January 2015 Selected Chinese M&A Over the past two years, Chinese companies have been increasingly active in M&A outside China. However, as shown in Figure 28, acquisitions largely took place in rather lower value-add areas, like interiors. In addition, Chinese companies signed two JVs with US and European companies, with the largest deal being JCE with Yangfeng and also Rheinmetall and HASCO. Johnson Control JV with Yanfeng (HASCO) In May 2014, Johnson Controls (JCI) agreed to sell its auto interior business to a joint venture it was forming with a unit (Yanfeng) of China's biggest automaker, SAIC. JCI will contribute $3bn in revenues to the JV, giving it a 30% stake. The newly formed company is estimated to have combined revenues of $7.5bn with a global market share of 15% (50% larger than the next largest competitor). Market share in China is estimated at 25%. JCI will keep a small portion of its interior business due to existing relationships. The deal is expected to close in the first half of 2015. JCI also announced the sale of its headliner and sun visor business to an affiliate of Atlas Holdings LLC, a private equity firm. Rheinmetall JV with HASCO In July 2014, Rheinmetall announced the formation of a 50/50 JV with HASCO (majority owned by SAIC) to bring in its aluminium casting business (engine blocks). KS Aluminium-Technologie employs around 900 people and generated sales of ~€200m in 2013.

Figure 28: Selected M&A deals with involved Chinese players Acquirer Target Target HQ Segment Year Ningbo Huaxiang HIB Trim Parts Germany Decorative interior trim 2013 Consortium of Chinese IEE Luxembourg Safety sensors 2013 investors Waxiang Group A123 US Battery Technology 2013 Bohong Wescast Industries Canada Castings (exhaust manifolds) 2012 Hebei Lingyun Industrial Kiekert Germany Hatches and actuators 2012 Citic KSM Castings Germany Light metal castings 2011 Ningbo Huaxiang Sellner Germany Decorative interior trim 2011 Joyson Holding Preh Germany Electronics/switches 2011 BHAP Inalfa Netherlands Roof systems 2011 CQLT Saargummi Germany Rubber sealings 2011

Recent JVs Chinese partner Global partner Segment Year HASCO Rheinmetall 50/50 JV Germany Aluminium casting (engine blocks) 2014 Yanfeng (HASCO) JV with JCI keeping 70% US Interior 2014 Source: Company data, Credit Suisse research

European Automotive Suppliers 28 20 January 2015 Growth outlook—Valeo's investments to pay off Sales growth and earnings prospects (associated risks for the bears) remain a key discussion point regarding exposure to China in the financial community. In the following section, we outline the different growth strategies (CAPEX, standalone growth or via JVs) in China. Moreover, we analyse margin prospects after the sector experienced meaningful capacity growth. China accounts for 10-15% of sector sales Over the past few years, European suppliers enjoyed average sales growth in excess of >20% (CAGR 2010-2014E) in China. Although the cyclical outlook (overall production growth) remains uncertain in the near term, the key question to us is which companies can capture the highest growth rates as a function of recent investments (order intake).

Figure 29: China exposure by company (2014E) Figure 30: China sales growth (CAGR 2010-14E) 18.0% 30.0% 28.3% 16% 24.7% 16.0% 23.1% 13% 25.0% 14.0% 12% 13% 18.9% 18.9% 12% 11% 20.0% 17.1% 17.3% 12.0% 10% 10% 14.7% 10.0% 15.0% 8.0% 10.0% 6.0% 5.0% 4.0% 2.0% 0.0% 0.0%

China sales as % of total Sales CAGR2010-2014e

Source: Company data, Credit Suisse estimates *ElringKlinger growth reflects Asian and includes Marusan acquisition Source: Company data, Credit Suisse estimates

Figure 31: OEM split (foreign versus domestic) and main customers Company Foreign OEMs/JVs Domestic OEMs Main customers Continental 70% 30% VW and GM Valeo 80% 20% All major Western OEMs, BYD Auto, Chery, Geely/Volvo, SAIC, Great Wall Faurecia 95% 5% VW, PSA, MG, Ford, Nissan, BMW Autoliv 80% 20% VW, GM, Ford, Geely Rheinmetall 95% 5% VW, GM, Chang'an-Ford-Mazda, Dongfeng Cummins ElringKlinger 50% 50% GM, VW, Daimler, DangSheng Leoni 95% 5% Mercedes, VW, BMW, GM, Geely, Brilliance GKN 60% 40% VW, GM, Ford, Daimler Source: Company data, Credit Suisse research

European Automotive Suppliers 29 20 January 2015

Implications of strong capacity growth Overall, data on exposure to China for a few companies are limited. Thus, we focus on the following metrics in order to assess further growth:

■ Headcount growth which drives capacity growth

■ Greenfield projects

■ Brownfield expansion For the majority of companies, there are not enough details available on headcount in China; therefore, we take Asia as a proxy for those where sufficient data are not available. For Faurecia and Leoni, we take China, as sufficient data could be found. Conclusion

■ Sales growth slower than capacity growth: Valeo, Faurecia and Leoni recorded sales growth below capacity growth, which results in declining sales per employee (lower utilisation); however, capacity growth is a function of order intake, so we argue that high capacity growth, for Valeo in particular, is a function of strong order intake

■ Sales growth above capacity growth: Continental, Autoliv, GKN and ElringKlinger recorded sales growth above capacity growth, resulting in increasing sales per employee. In our view, this is also a reflection of more brownfield rather than greenfield expansion projects.

Figure 32: Sales growth versus capacity growth Figure 33: Delta sales growth versus headcount growth (CAGR 2010-13) 35.0% 4.0% increasing sales per employee 30.0% 2.0% 25.0% 0.0% 20.0% 15.0% -2.0% 10.0% -4.0% 5.0% -6.0% 0.0% -8.0% falling sales per employee -10.0% -12.0% -14.0%

Sales CAGR 2010-2013 Headcount CAGR 2010-2013 Delta sales growth - headcount growth

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research Valeo much more aggressive on expansion in China versus Continental In the following section, we analyse different strategies of Valeo and Conti and why we believe outlook for Valeo in China is stronger, given significantly higher investments over the past few years. Valeo—high investments likely to pay off in coming years

■ Material greenfield expansion: We estimate that Valeo has spent around RMB1bn (€137m) CAPEX per year in China. The company is currently operating 26 manufacturing sites in China with four new openings in 2014. In 2013, Valeo added another four sites vs. three new sites in 2011-12 (combined). Moreover, three plant extensions were completed in 2013. Expansion was driven in particular by the Powertrain unit (Pudong of Shanghai, Nanjing, Wuci and Sechon) In our view, CAPEX is a reflection of strong order intake with average book to bill of 2.7x for the period 2010-2014E.

European Automotive Suppliers 30 20 January 2015

Figure 34: Valeo—development of capacity Figure 35: Valeo—development of China capacity 140 30 26 120 3 4 4 4 25 3 22 3 100 31 31 41 44 48 Africa 20 18 29 Asia 80 11 11 15 8 8 8 12 11 7 South America 60 13 14 13 12 15 13 North America 10 14 15 14 13 Eastern Europe 40 5 Western Europe 52 49 20 42 42 42 39 0 2012 2013 2014 0 2008 2009 2010 2011 2012 2013 Number of sites China (year end)

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research

Figure 36: We estimate Conti invested on average €130m annually in China automotive activities In €m unless otherwise stated Estimates of Conti China Total CAPEX 5 years € 1,000 Hefei tire plant € 300 ContiTech € 50 Automotive € 650 Automotive per year € 130

2014e sales (automotive only) € 3,300 Source: Company data, Credit Suisse estimates

Figure 37: We estimate Valeo invested on average €137m annually in China Estimates of Valeo China Annual CAPEX RMB million CNY 1,000 Annual CAPEX EUR million € 137

2014e sales EUR million € 1,704 Source: Company data, Credit Suisse estimates

Figure 38: Valeo capacity additions peaked Period sqm added of which China New plants of which China Extensions Growth CAPEX CAPEX per sqm (€) 2011-2013 320,000 not available 11 7 31 730 2,280 1H14 107,000 75,000 5 not available 2 118 1,099 in progress 99,000 50,000 5 not available 8 Source: Company data, Credit Suisse research

■ Sales growth likely exceeds market expectations: Between 2010-2013, Valeo recorded OE sales growth of ~28% outgrowing the market by 14% on average. Outperformance has accelerated during 2014 with 9M14 growth of 32% vs. the market at 9%. Going forward, Valeo expects sales to double every four years, which implies growth of c.19% annually. However, our analysis of order intake and capacity growth shows that growth rates should be in the range of ~27% CAGR 2013-17E.

European Automotive Suppliers 31 20 January 2015

■ Margins to improve on better utilisation/leverage: We expect margins in China to improve due to better operating leverage (adding more lines in existing facilities) and better utilisation rates. As Valeo does not report the number of employees separately, we take the Asia region as a proxy. The number of employees showed 2010-2013 CAGR of 26% vs. sales CAGR of 19%, resulting in falling revenues per employee (both figures for entire Asia). As sales growth in China was much higher vs. the Asia region, we believe that number of employees increased disproportionally high.

Conti lags Valeo's growth as a result of lower investments

■ Brownfield expansion—assets skewed towards Chassis & Safety: Our analysis shows that Conti's exposure is more skewed towards Chassis & Safety in Asia (China) versus the group level. We estimate that Chassis & Safety accounts for ~42% (group level 36%) and Powertrain for 31% (group level 31%). Conti currently operates 27 facilities in China (production and R&D), of which nine are for Chassis & Safety (including 1 JV), four for Powertrain, six for Interior and eight for the Rubber unit (one tyre plant in Hebei and 7 for ContiTech). The number of plants increased from 22 in 2011 to 27, with five additions coming from Chassis & Safety and one for Tyres (Hefei). For Powertrain, Conti announced the expansion of the Changchun plant in December 2013. We estimate that Conti has spent around €1bn CAPEX in China over the past five years, of which €300m was for its new tyre plant in Hefei. Assuming €50m for ContiTech, we estimate annual investments of €130m for its automotive unit. This €130m average CAPEX is in line with Valeo but on estimated automotive sales in China of €3.3bn vs. Valeo at €1.7bn. Thus, the investment rate is almost double at Valeo versus Conti in China (purely automotive).

Figure 39: Conti's business in China is skewed towards Figure 40: Conti—brownfield expansion in China Chassis & Safety, 2014 30

25 7 7 28% ContiTech 31% 20 1 1 7 7 Tyre Powertrain 6 6 15 0 Interior Chassis&Safety 1 6 Powertrain Interior 6 4 4 10 Chassis & Safety JV 1 1 4 4 Chassis & Safety 5 8 8 42% 5 4 0 2010 2011 2012 2013

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse research

■ Lower investments translate in lower growth: Sales CAGR in China stood at an estimated 18.9% for the period 2010-2014E. The company indicated in the past that sales in China would reach €10bn beyond 2020. Assuming €10bn in 2021, this would imply a CAGR of ~14%, which is significantly below our ~27% CAGR for Valeo. In our view, lower growth rates for Conti in China are a function of lower investments (order bookings).

European Automotive Suppliers 32 20 January 2015

Faurecia—Solid growth in China

■ Business skewed towards Emissions Controls Technologies: Overall, the business model is driven by fully consolidated companies that account for ~90% of regional sales with the remaining ~10% stemming largely from its JV with Geely/Limin. The regional mix is favourable with ~50% of revenues coming from Emissions Controls Technologies and ~36% from Automotive Seating. Sales CAGR stood at ~23% for the period 2010-2014E.

Figure 41: Faurecia—Emissions Controls Technologies Figure 42: Sales growth of ~15% achievable in coming ~50% of business, 2014E years (2010-18E) 4500 >4000 4000 3% 11% 3500 Emissions Control >3000 3000 Technologies 2500 2300 Automotive Seating 2000 2000 50% 1500 Interior Systems 1500 1200 1000 1000 36% Automotive Exteriors 500 0 2010 2011 2012 2013 2014e 2016e 2018e

China Sales

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

■ Growth rates of ~15% achievable in coming years: During its CMD in China on 11 November 2014, Faurecia indicated revenues above €3bn for 2016 and above €4bn for 2018, which implies average growth of around 15% annually in the coming years. In our view, these targets seem realistic given new capacity coming on stream across all units. The number of plants for Automotive seating will expand from 10 in 2014 to 17 in 2017. Moreover, Emissions Controls Technologies will ramp up three new plants till 2017. Incremental revenue potential could come from new JVs.

■ Utilisation likely to improve: Since 2010, capacity growth (number of employees) recorded a CAGR of 28% vs. sales growth of 26%, leading to falling revenues per employee. Taking company guidance on headcount development, headcount growth is falling to a CAGR of ~11% for the period 2013-2017E, which is below sales growth of ~15% of the same period. Therefore utilisation (sales per employee) is likely going to improve.

Figure 43: Faurecia—sales growth lagging capacity Figure 44: Faurecia—better utilisation to support margins growth (2010-13) in coming years (2010-17E) 28.0% 27.7% 18000 16900 CAGR 2013-17e ~11% 16000 27.5% 13900 14000 12000 10985 27.0% CAGR 2010-13 ~28% 10000 26.5% 8000 5271 26.0% 6000 26.0% 4000 2000 25.5% 0 2010 2013 2015 2017 25.0% Sales CAGR 2010-2013 Employee CAGR 2010-2013 Number of employees

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse estimates

European Automotive Suppliers 33 20 January 2015

Autoliv—new investments focus on cost savings

■ The most recent new investment was a $50m textile facility in Jiangsu, which brought textile weaving in-house in China for the first time. Before this, there was a $33m investment in a propellant chemical facility that reduced dependency on external suppliers of gas generants. In 2010, airbag cushion production was also brought in- house. The theme has consistently been to increase vertical integration, which in our view is a positive and proactive strategy to reduce costs, and should deliver bottom-line benefits from 2015 onwards, according to the company. These cost reductions are even more necessary now due to falling organic sales growth and rising labour costs. ■ No new investment announcements have been made since June 2013; we think this reflects the maturity of the business cycle that Autoliv is experiencing. A letter of intent was signed with Great Wall Motor in early 2014 agreeing to build a new airbag plant though there have been no further developments since. Figure 45: Autoliv vertical integration steps in China Year Vertical integration 2014 Textile weaving 2013 Propellant / gas generant 2010 Airbag cushions 2004 Airbag inflators & electronics 1996 Seatbelt webbing Source: Company data, Credit Suisse research

Leoni—China investment cycle entering harvesting phase

■ Growth driven by order bookings and projects in China should enter a more profitable phase post the two ramp ups in Northern China. As long as ramp-up execution remains solid, as it has done in the past, revenue growth should come in at 15-20% until 2016E with improving profitability. ■ Post-2016, Leoni's low market share presents opportunities for new contracts that can extend its rapid sales growth. Sales should continue to be dominated by JVs. An increase in powertrain content, particularly hybridisation and electrification, requires higher cable content per vehicle, creating a structural growth element from tightening emissions regulations and electric vehicle incentives.

Rheinmetall—growth is JV (HASCO) driven

■ Strategy is JV driven. RHM's strategy in China differs from the rest of our coverage, as the company generates c.96% of sales in China via its JVs with HASCO. Sales CAGR in 2010-2014E stood at ~25%. In our view, the JV structure is the best option for RHM, as it allows the company to take advantage of HASCO's network. Key customers are VW and GM. ■ Outlook solid. At its 2013 CMD, RHM indicated that it would grow sales by 2.5x versus its 2012 base, which implies c.25% growth per year. The targets seem achievable given the solid outlook of VW and GM.

European Automotive Suppliers 34 20 January 2015

Figure 46: Rheinmetall—sales growth is JV driven Figure 47: Rheinmetall—JVs account for ~96% of sales, 2014E 700

CAGR 2010-2014e ~25% 600 4%

500 27% 400 KPSNC WFOEs KSSP/PHP 300 JVs WFOEs 200 69% 100

0 2010 2011 2012 2013 2014e

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

ElringKlinger—niche player with selected growth opportunities

■ Strategy of wholly owned-business: Technological leader EK's strategy in China is focused on fully consolidated entities (fully consolidated entities). In 2009, EK acquired an additional 10% stake in Changchun ElringKlinger Ltd and now holds 88% in the entity. IP protection is key for EK. ■ Sales growth outpacing capacity growth: We estimate sales CAGR in 2010-2013 in Asia at 17% vs. capacity growth at 15% (like-for-like base adjusted for consolidation effects), which implies rising revenues per employee (supporting margins). We see growth opportunities in the coming years in particular for powertrain content growth in the form of turbocharged engines.

European Automotive Suppliers 35 20 January 2015

Europe / France Auto Parts & Equipment

Valeo (VLOF.PA) Rating OUTPERFORM*

Price (16 Jan 15, Eu) 114.90 Target price (Eu) 126.00¹ Market cap. (Eu m) 9,130.25 Best positioned in China—market Enterprise value (Eu m) 9,606.0 underestimates sales/margin prospects

*Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ■ Outlook—best growth prospects: The market likely underestimates strong ¹Target price is for 12 months. growth and margin improvement for Valeo in China. We forecast OE sales

Research Analysts CAGR 2013-17 of ~27%, which puts us well ahead of company guidance of Alexander Haissl c.19% growth annually. Growth is supported by high order backlog (which 44 20 7888 8507 also reflects higher CAPEX). We expect margins to improve due to better [email protected] utilization and strong top-line growth (operating leverage). Mike Dean 44 20 7883 2371 ■ Market position—most aggressive expansion: Over the past few years, [email protected] Valeo has been the most aggressive player with regards to expansion and Fei Teng order winnings, now operating 26 plants, out of which 4 were added in 2014 44 20 7883 9978 [email protected] alone. It holds a leading position in all key components, which we expect to Specialist Sales: Andrew Bell be sustained in the coming years. 44 20 7888 0479 [email protected] ■ Risks: Major risks at this stage include overall production volumes in China (cyclical part) and a delay of content growth (engine upgrades for example). However, risks for potential engine upgrade delays in our view seem limited given major OEMs are ramping up their new engine plants. ■ Impact—market underestimates potential: The consensus likely underestimates the potential in two ways. First, on much stronger top-line growth and second, on margin potential. ■ Valuation—OP with target price of €126: We expect accelerated earnings and free cash flow growth to drive further re-rating. Our target price is based on a 2015 EV/EBITDA of 5.3x and Credit Suisse HOLT®.

Share price performance Financial and valuation metrics

Year 12/13A 12/14E 12/15E 12/16E Revenue (Eu m) 11,662.0 12,682.9 13,915.8 15,540.5 99 EBITDA (Eu m) 1,327.00 1,513.93 1,740.11 2,012.64 79 Adjusted Net Income (Eu m) 439.00 561.50 739.03 918.86 59 CS adj. EPS (Eu) 5.71 7.30 9.61 11.95 39 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Prev. EPS (Eu) — — — — Price Price relative ROIC (%) 21.96 20.99 22.76 24.81 P/E (adj., x) 20.12 15.73 11.95 9.61 The price relative chart measures performance against the P/E rel. (%) 146.6 112.8 94.1 84.6 CAC 40 INDEX which closed at 4379.62 on 16/01/15 EV/EBITDA 7.1 6.3 5.4 4.5 On 16/01/15 the spot exchange rate was €1./Eu 1. - Eu .87/US$1 Dividend (12/14E, Eu) 2.30 IC (12/14E, Eu m) 3,393.52

Performance Over 1M 3M 12M Dividend yield (%) 2.0 EV/IC 2.8 Absolute (%) 12.4 35.1 32.0 Net debt (12/14E, Eu m) 475.7 Current WACC 8.20 Net debt/equity (12/14E, %) 16.3 Free float (%) 98.24

Relative (%) 9.1 27.8 30.8

BV/share (12/14E, Eu) 35.7 Number of shares (m) 79.46 Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates.

European Automotive Suppliers 36 20 January 2015

Valeo VLOF.PA Price (16 Jan 15): Eu114.90, Rating: OUTPERFORM, Target Price: Eu126.00 Income statement (Eu m) 12/13A 12/14E 12/15E 12/16E Per share data 12/13A 12/14E 12/15E 12/16E Revenue (Eu m) 11,662.0 12,682.9 13,915.8 15,540.5 No. of shares (wtd avg) 77 77 77 77 EBITDA 1,327 1,514 1,740 2,013 CS adj. EPS (Eu) 5.71 7.30 9.61 11.95 Depr. & amort. (561) (638) (675) (718) Prev. EPS (Eu) — — — — EBIT (Eu) 766 876 1,065 1,295 Dividend (Eu) 1.70 2.30 2.90 3.20 Net interest exp. (98) (92) (84) (76) Div yield 1.48 2.00 2.52 2.79 Associates 26 40 25 27 Dividend payout ratio 29.77 31.49 30.17 26.77 Other adj, (46) (35) (35) (35) Free cash flow per share 9.91 9.06 11.65 13.53 PBT (Eu) 648 789 971 1,211 (Eu) Income taxes (113) (148) (194) (242) Key ratios and 12/13A 12/14E 12/15E 12/16E Profit after tax 535 641 777 969 valuation Minorities (29) (30) (38) (50) Growth (%) Preferred dividends — — — — Sales (0.8) 8.8 9.7 11.7 Associates & other (67) (50) — — EBIT 5.7 14.4 21.6 21.6 Net profit 439 561 739 919 Net profit 17.7 27.9 31.6 24.3 Other NPAT adjustments — — — — EPS 15.7 27.9 31.6 24.3 Reported net income 439 561 739 919 Margins (%) EBITDA margin 11.4 11.9 12.5 13.0 Cash flow (Eu) 12/13A 12/14E 12/15E 12/16E EBIT margin 6.6 6.9 7.7 8.3 EBIT 766 876 1,065 1,295 Pretax margin 5.6 6.2 7.0 7.8 Net interest (98) (92) (84) (76) Net margin 3.8 4.4 5.3 5.9 Cash taxes paid (144) (148) (194) (242) Valuation metrics (x) Change in working capital 252 (27) (22) (43) EV/sales 0.81 0.76 0.67 0.58 Other cash & non-cash items 551 720 784 821 EV/EBITDA 7.1 6.3 5.4 4.5 Cash flow from operations 1,327 1,329 1,549 1,754 EV/EBIT 12.4 11.0 8.8 7.0 CAPEX (565) (632) (653) (714) P/E 20.1 15.7 12.0 9.6 Free cashflow adj. — — — — P/B 3.7 3.2 2.7 2.2 Free cash flow to the firm 762 697 896 1,040 Asset turnover 1.3 1.3 1.4 1.4 Acquisitions (5) (107) — — ROE analysis (%) Divestments 173 6 — — ROE stated-return on 19.8 21.9 24.5 25.2 Other investment/(outflows) (321) (391) (351) (392) equityROIC 22.0 21.0 22.8 24.8 Cash flow from investments (718) (1,124) (1,004) (1,106) Interest burden 0.85 0.90 0.91 0.94 Net share issue/(repurchase) 53 (71) — — Tax rate 19.4 20.0 20.0 20.0 Dividends paid (129) (131) (177) (223) Financial leverage 0.78 0.68 0.53 0.35 Issuance (retirement) of debt (379) — (111) (337) Credit ratios (%) Other 247 (127) (8) 226 Net debt/equity 13.9 16.3 6.4 (2.1) Cash flow from financing (208) (329) (296) (334) Net debt/EBITDA 0.27 0.31 0.13 (0.04) activitiesEffect of exchange rates (10) — — — Interest coverage ratio 7.8 9.5 12.7 17.0 Changes in Net Cash/Debt 391 (124) 249 315 . Net debt at start 743 352 476 227 Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities Change in net debt (391) 124 (249) (315) (EUROPE) LTD. Estimates. Net debt at end 352 476 227 (88)

Balance sheet (Eu m) 12/13A 12/14E 12/15E 12/16E Assets Cash and cash equivalents 1,500 1,376 1,514 1,492 Accounts receivable 1,460 1,650 1,809 2,051 99 Inventory 810 880 960 1,088 79 Other current assets 472 472 472 472 Total current assets 4,242 4,378 4,756 5,103 59 Total fixed assets 2,080 2,252 2,426 2,639 39 Intangible assets and goodwill 2,039 2,181 2,337 2,511 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Investment securities — — — — Other assets 511 683 683 683 Price Price relative Total assets 8,872 9,495 10,201 10,937 Liabilities The price relative chart measures performance against the CAC 40 INDEX which Accounts payable 2,347 2,580 2,797 3,124 closed at 4379.62 on 16/01/15 Short-term debt 253 253 253 253 On 16/01/15 the spot exchange rate was €1./Eu 1. - Eu .87/US$1 Other short term liabilities 1,296 1,296 1,296 1,296 Total current liabilities 3,896 4,129 4,346 4,673 Long-term debt 1,491 1,491 1,380 1,043 Other liabilities 957 957 957 957 Total liabilities 6,344 6,577 6,683 6,673 Shareholders' equity 2,381 2,741 3,303 3,999 Minority interest 147 177 215 265 Total equity & liabilities 8,872 9,495 10,201 10,937 Net debt (Eu m) 352 476 227 (88)

European Automotive Suppliers 37 20 January 2015 Valeo—China Business overview Valeo currently operates 26 sites in China with a total of 15,000 employees. We estimate sales in China at €1.7bn or 13% of group sales. However, order intake of €4.5bn (Credit Suisse estimate) represents 27% already; thus, we forecast book to bill of 2.6x for the full year.

Figure 48: Valeo revenue split by region (2013) Figure 49: Order intake by region (2014E)

France Europe 11% 10% 14% Other European countries and Africa North America 14% North America 40% South America 5% South America 27% 43% China Asia 18% China 17% Asia ex China 2%

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse estimates

Financials Between 2010 to 2013, Valeo recorded OE sales growth of some 28% on average thereby outgrowing the market by 14% on average. Outperformance has accelerated during 2014 at 23%. Going forward, the company expects sales to double every four years, which implies growth of c.19% annually. However, this outlook seems overly conservative given strong order intake since 2011 with book to bill close to 3x for 2011-2013. We forecast OE sales CAGR of ~27% in 2013-2017, which puts us ahead of Valeo's guidance of around ~19%. Our forecast is backed by high order backlog (assuming 5-year average contract). Our forecast implies that Valeo will outperform production by 19pts. With regards to OEMs, Valeo is experiencing a meaningful shift towards Chinese OEMs. Currently, Chinese OEMs represent <20% of revenues generated in China, but already ~30% of order intake. Between 2011 and 2013, Valeo added seven new plants in China out of which four were added in 2013 (additional three extensions). Four new sites will be added in 2014 and four new additional projects (not quantified by Valeo) will be added in 2015 and beyond. We estimate that Valeo spends around RMB1bn CAPEX in China (€137m) annually. Taking our CAPEX estimate for China over the past few years, this is in line with Conti's automotive investments over the past five years. However, we estimate that Conti's automotive unit currently generates already ~€3.3bn in China vs.~ €1.7bn of Valeo.

European Automotive Suppliers 38 20 January 2015

Figure 50: Order intake suggests higher growth than Figure 51: We forecast Chinese sales to grow ~27% CAGR company guides in 2013-2017 6000 3.5 60.0% 30.0%

5000 3.0 50.0% 25.0% 2.5 4000 40.0% 20.0% 2.0 3000 30.0% 15.0% 1.5 2000 20.0% 10.0% 1.0

1000 0.5 10.0% 5.0%

0 0.0 0.0% 0.0% 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e 2010 2011 2012 2013 1Q14 1H14 9m142014e2015e2016e2017e

Order intake Sales Book to bill (rhs) OE sales growth Market growth Outperformance (rhs)

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 52: Financials Financials Sales 2014e € million 1704 Sales CAGR 2010-2014e 28.3% Guidance double sales every four years (implied CAGR) ~19% CAGR 2013-2017e (Credit Suisse estimate) 26.9%

Share Chinese OEMs as % of sales <20% Share Chinese OEMs as % of intake ~30%

Headcount 15000 Source: Company data, Credit Suisse estimates

Figure 53: Capacity additions peaked Period sqm added of which China New plants of which China Extensions Growth CAPEX CAPEX per sqm (€) 2011-2013 320000 not available 11 7 31 730 2280 1H14 107000 75000 5 not available 2 118 1099 in progress 99000 50000 5 not available 8 Source: Company data, Credit Suisse research

Figure 54: Development: number of plants Figure 55: China: number of plants 140 30 26 4 4 4 25 120 3 3 22 3 31 31 Africa 100 41 44 48 20 18 29 Asia 80 11 11 8 15 12 11 8 8 7 South America 13 14 13 60 12 15 13 North America 10 14 15 14 13 40 Eastern Europe 5 52 49 Western Europe 20 42 42 42 39 0 2012 2013 2014 0 2008 2009 2010 2011 2012 2013 Number of sites China (year end)

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research

European Automotive Suppliers 39 20 January 2015

Figure 56: Sales per employee Asia € '000 Figure 57: Capacity growth outpacing sales growth 180.0 30.0% 25.9% 160.0 25.0% 140.0 19.3% 120.0 20.0% 18.3% 100.0 15.0% 80.0 60.0 10.0% 40.0 5.0% 20.0 0.0 0.0% 2009 2010 2011 2012 2013 Sales Asia Employees Asia Number of plants Asia

Asia revenues per employee € '000 CAGR 2010-2013

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research

Competitive landscape For Valeo, the competitive landscape in China is similar to the rest of the world. The few domestic suppliers that we mention in our analysis (Figure 58) are unlikely to gain more meaningful market share from Valeo due to technology and quality issues. Valeo's market positions are as follow: Electrical Systems #1, Wipers #1, Inclement Driving Assistance Systems #1, Thermal systems #2, Transmission #2, Lighting #2, Comfort & Driving Assistance Systems #2.

Figure 58: Valeo—Overview competitive landscape China Valeo Global domestic Powertrain Transmission systems Luk, Valeo, ZF Sachs Harbin Dongang Auto Engine Co., Ltd, Changchun Yidong Clutch Co., Ltd Electrical systems Denso, Bosch Fawer Automotive Parts Limited Company, Weifu High-Technology Group Co., Ltd, Yuchai Machinery (Guangxi) Group Co., Ltd. ASIMCO Technologies Thermal systems Denso, Halla, Visteon, Delphi Fawer Automotive Parts Limited Company, Comfort & Driving Bosch, Conti, Kostal, Tokai Rika, Panasonic Beijing Hainachuan Automotive Parts Co., Ltd Assistance Visibility Systems Lighting systems Koito, Magnetti Marelli Wiper systems Bosch Denso Shanghai SIIC Transportation Electric Co.,Ltd Source: Company data, Credit Suisse research Major JV with Huayu in Shanghai Valeo's JV with Huayu is 50/50. Its Shanghai PES is the most important plant, as it is Valeo's largest plant worldwide. Key data of Shanghai PES  Set up in 1995  #1 in China with >25% market share  2,000 employees  >10m machines manufactured in 2013  Sales x5 since 2005

European Automotive Suppliers 40 20 January 2015

Figure 59: Valeo Chinese subsidiaries Company Voting rights Interest Guangzhou Valeo Engine Cooling Co. Ltd 100% 100% Shenyang Valeo Pyeong-Hwa Transmission Systems Co. Ltd. 100% 50% Taizhou Valeo-Wenling Automotive Systems Co. Ltd. 100% 100% Valeo Auto Parts Trading (Shanghai) Co. Ltd. 100% 100% Valeo AutomotiveAir Conditioning Hubei Co. Ltd. 100% 100% Valeo Automotive Transmissions Systems (Nanjing) Co. Ltd 100% 100% Valeo Engine Cooling (Foshan) Co. Ltd. 100% 100% Valeo Engine Cooling (Shashi) co. Ltd 100% 100% Valeo Compressor (Changchun) Co. Ltd 100% 100% Valeo Interior Controls (Shenzhen) Co. Ltd 100% 100% Valeo Management (Beijing) Co. Ltd 100% 100% Valeo Management (Shanghai) Co. Ltd 100% 100% Guangzhou Niles Electronics Co. Ltd, 100% 100% Guangzhou Niles Trading Co. Ltd 100% 100% Foshan Ichikoh Valeo Auto Lighting Systems Co. Ltd 85% 90% Hubei Valeo Autolighting Co. Ltd. 85% 90% Valeo Lighting Hubei Technical Center Co. Ltd 85% 90% Shenyang ValeoAuto Lighting Co. Ltd 85% 90% Wuhu Valeo Automotive Lighting Systems 80% 72% Nanjing Valeo Clutch Co. Ltd 75% 55% Tianjin Valeo Xinyue Auto Parts Co. Ltd 60% 60% Valeo Shanghai Automotive Electric Motors & Wiper Systems Co. Ltd 55% 55% Fuzhou Niles Electronics Co. Ltd 51% 51% Shanghai Valeo Automotive Electrical Systems Co. Ltd. 50% 50% Huada Automotive Air Conditioner Co. Ltd 45% 45% Faw-Valeo Climate Control Systems Co. Ltd 37% 37% Valeo Automotive Security Systems (Wuxi) Co. Ltd Source: Company data, Credit Suisse research

Recent investments

Figure 60: Material expansion in Powertrain Location Year Division Product Pudong of Shanghai 2014 Powertrain Electric Systems Shenyang 2014 Powertrain Transmissions Jinzhou 2014 Thermal Thermal Engine Tianjin 2014 Thermal Climate Control Wuhu 2013 Visibility Lighting Shenyang 2013 Visibility Lighting Wuxi 2013 Powertrain Nanjing (extension) 2013 Powertrain Transmissions Wuhan (extension) 2013 Visibility Lighting Foshan (extension) 2013 Visibility Lighting Guangzhou 2012 Comfort & Driving Assistance Interior Control Source: Company data, Credit Suisse research

European Automotive Suppliers 41 20 January 2015 Valuation and key risks Our valuation is based on two equally weighted methodologies to capture long- and short- term earnings potential:

■ 2015 EV/EBITDA: To capture near-term earnings potential, we take our 2015 EBITDA estimate and, based on historical data and peer group comparison, apply a multiple of 5.3x, which is at the top of the trading range in 2010-2013; owing to the above-sector earnings growth that we expect, the premium multiple should be sustained and expand further; this model yields a fair value of €114.0.

Figure 61: Our model yields a fair value of €114.0 per share Assumptions 2015e EBITDA 1765 Multiples 2010-2013 Avg. 3.0x High 5.3x Low 2.4x

Assumed multiple 5.3x vs. avg 77.2% vs. high 0.0% vs. low 125.5% EV 9363.5 Equity adjustments 598.6 Equity value 8764.0 Number of shares (m) 76.9 per share (€) 114.0 Source: Credit Suisse estimates; Note: EBITDA includes JVs

■ The Credit Suisse HOLT® tool yields a warranted price per share of €201.2, which applies a discount rate of 4.7% for the explicit period. However, for our target price, we apply a rate of 6.5%, as we think the company's risk premium and therefore cost of capital are higher. Key potential upside risks:

■ Stronger-than-expected sales growth

■ Strong margin expansion and operating leverage

■ Quicker market penetration of key products Key potential downside risks:

■ Longer-than-expected margin recovery of visibility division

■ Higher-than-expected cost inflation given 56% of headcount already in low-cost countries

■ Disproportionally high increase in R&D

European Automotive Suppliers 42 20 January 2015

Credit Suisse HOLT® valuation Credit Suisse forecasts for 2014-2018 The CFROI® chart (Figure 62) reflects our forecasts for sales, margins and returns. Based on our assumptions, HOLT calculates an average CFROI of 9.4% for 2014-2018. HOLT incorporates a discount rate of 4.7% for the explicit period of five years. Based on our explicit forecasts, HOLT calculates asset growth of 4.4% in 2014, which is expected to stay stable by 2018. HOLT assumptions beyond a five-year window Beyond the five-year window, HOLT assumes the CFROI and discount rate fade to 6%, while asset growth fades to 2.5%, incorporating the economic reality of competition and causing higher returns and growth to regress to the mean. HOLT yields a warranted value of €201.2 per share, with the explicit forecast representing 13% of the total EV and the terminal forecast accounting for 87%.

European Automotive Suppliers 43 20 January 2015

Figure 62: HOLT® valuation—warranted price €201.2

VALEO SA (VLOF)

Current Price: EUR 114.25 Warranted Price: EUR 201.16 Valuation date: 16-Jan-15

Sales Growth (parallel % point change to forecasts) Dec 12A Dec 13A Dec 14E Dec 15E Dec 16E

in EUR -2.0% -1.0% 0.0% 1.0% 2.0% Sales Growth, % 8.2 3.0 4.7 9.7 11.7 EBITDA Mgn, % 10.5 10.9 11.9 12.5 13.0 -2.0% 15% 24% 34% 44% 56% Asset Turns, x 0.78 0.8 0.8 0.8 0.9

-1.0% 34% 44% 55% 67% 79% CFROI®, % 5.3 6.4 7.3 8.7 10.1 Disc Rate, % 6.5 5.3 4.7 4.7 4.7 0.0% 53% 64% 76% 89% 103%

Asset Grth, % 0.7 0.0 4.4 3.4 2.5 to to forecasts) 1.0% 71% 84% 97% 111% 127% Value/Cost, x 0.7 1.1 1.3 1.3 1.2

Economic PE, x 13.4 17.0 18.2 14.6 11.8 2.0% 90% 104% 118% 134% 150%

EBITDA MarginEBITDA (parallel % point change Leverage, % 48.4 33.0 22.8 21.7 19.0

More than Sales Growth (%) More than 10% Within 10% 35 10% upside downside 30 25 20 15 CFROI & Discount Rate (in %) 10 5 12 0 -5 10 -10 8 -15 -20 6 2009 2011 2013 2015 2017 4 2 EBITDA Margin 16 0 14 -2 12 -4 10 2009 2011 2013 2015 2017 Historical CFROI Historical Transaction CFROI 8 Forecast CFROI Forecast CFROI 6

HOLT HOLT - Credit Analyst Data Suisse Scenario 4 2 Asset Growth (in %) 0 14 2009 2011 2013 2015 2017 12 10 Asset Turns (x) 8 1.0 0.9 6 0.8 4 0.7 2 0.6 0 0.5 0.4 -2 2009 2011 2013 2015 2017 0.3 0.2 Historical Asset Growth Rate Forecast Growth 0.1 Forecast Growth RAGR 0.0 2009 2011 2013 2015 2017

Source: Credit Suisse HOLT®. CFROI and HOLTare trademarks or registered trademarks of Credit Suisse Group AG or its affiliates in the United States and other countries. For display purposes, these charts have been capped as follows. CFROI levels are kept within 0% and 35%.

Source: Company data, Credit Suisse HOLT®

European Automotive Suppliers 44 20 January 2015

Financial statements

Figure 63: Income statement €m unless stated 2013 2014E 2015E 2016E 2017E Sales 11662.0 12682.9 13915.8 15540.5 17281.1 Cost of sales -9653.0 -10457.1 -11368.3 -12575.7 -13873.3 Gross margin 2009.0 2225.9 2547.5 2964.8 3407.8 % of sales 17.2% 17.6% 18.3% 19.1% 19.7% Operating costs -1243.0 -1349.5 -1482.2 -1669.7 -1852.2 Operating margin 766.0 876.4 1065.3 1295.1 1555.6 % of sales 6.6% 6.9% 7.7% 8.3% 9.0% Operating margin incl. JV 6.8% 7.2% 7.8% 8.5% 9.2% Other income and expenses -67.0 -50.0 0.0 0.0 0.0 Operating income 699.0 826.4 1065.3 1295.1 1555.6 Interest expense -107.0 -102.0 -94.0 -86.0 -78.0 Interest income 9.0 10.0 10.0 10.0 10.0 Other financial income and expenses -46.0 -35.0 -35.0 -35.0 -35.0 Share in net earnings of associates 26.0 40.0 25.0 27.0 30.0 Income before taxes 581.0 739.4 971.3 1211.1 1482.6 Income taxes -113.0 -147.9 -194.3 -242.2 -296.5 Effective tax rate -19.4% 20.0% 20.0% 20.0% 20.0% Income from continued operations 468.0 591.5 777.0 968.9 1186.1 Net income 468.0 591.5 777.0 968.9 1186.1 Attributable to: • Owners of the Company 439.0 561.5 739.0 918.9 1126.1 • Non-controlling interests 29.0 30.0 38.0 50.0 60.0

Weighted average number of shares 76.873 76.873 76.873 76.873 76.873 Diluted number of shares 76.873 76.873 76.873 76.873 76.873

Earnings per share: • Basic earnings per share (in euros) 5.71 7.30 9.61 11.95 14.65 • Diluted earnings per share (in euros) 5.71 7.30 9.61 11.95 14.65

DPS 1.70 2.30 2.90 3.20 3.50 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 45 20 January 2015

Figure 64: Balance sheet €m unless stated 2013 2014E 2015E 2016E 2017E Goodwill 1210.0 1210.0 1210.0 1210.0 1210.0 Other intangible assets 829.0 971.0 1126.9 1301.0 1494.5 Property, plant and equipment 2080.0 2252.5 2425.5 2639.5 2947.2 Investments in associates 201.0 201.0 201.0 201.0 201.0 Other non-current financial assets 72.0 244.0 244.0 244.0 244.0 Deferred tax assets 238.0 238.0 238.0 238.0 238.0 Non-current assets 4630.0 5116.5 5445.4 5833.4 6334.7 Inventories, net 810.0 880.0 960.2 1087.8 1261.5 Accounts and notes receivable, net 1460.0 1650.0 1809.0 2051.3 2298.4 Other current assets 402.0 402.0 402.0 402.0 402.0 Taxes recoverable 33.0 33.0 33.0 33.0 33.0 Other current financial assets 35.0 35.0 35.0 35.0 35.0 Cash and cash equivalents 1500.0 1376.3 1514.4 1492.0 1689.9 Assets held for sale 2.0 2.0 2.0 2.0 2.0 Current assets 4242.0 4378.3 4755.7 5103.2 5721.8 Total assets 8872.0 9494.8 10201.1 10936.6 12056.6

Shareholders equity 2381.0 2740.8 3303.0 3999.0 4879.1 Non-controlling interests 147.0 177.0 215.0 265.0 325.0 Total equity 2528.0 2917.8 3518.0 4264.0 5204.1 Provisions for pensions 710.0 710.0 710.0 710.0 710.0 Other provisions 190.0 190.0 190.0 190.0 190.0 Long-term debt 1491.0 1491.0 1380.0 1043.0 873.0 Other financial liabilities 7.0 7.0 7.0 7.0 7.0 Subsidies and grants 24.0 24.0 24.0 24.0 24.0 Deferred tax liabilities 26.0 26.0 26.0 26.0 26.0 Non-current liabilities 2448.0 2448.0 2337.0 2000.0 1830.0 Accounts and notes payable 2347.0 2580.0 2797.1 3123.6 3473.5 Provisions for pensions benefits - current portion 68.0 68.0 68.0 68.0 68.0 Other provisions 155.0 155.0 155.0 155.0 155.0 Subsidies and grants 13.0 13.0 13.0 13.0 13.0 Taxes payable 52.0 52.0 52.0 52.0 52.0 Other current liabilities 879.0 879.0 879.0 879.0 879.0 Current portion of long 108.0 108.0 108.0 108.0 108.0 Other financial liabilities 21.0 21.0 21.0 21.0 21.0 Short-term debt 253.0 253.0 253.0 253.0 253.0 Liabilities held for sale 0.0 0.0 0.0 0.0 0.0 Current liabilities 3896.0 4129.0 4346.1 4672.6 5022.5 Total equity and liabilities 8872.0 9494.8 10201.1 10936.6 12056.6 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 46 20 January 2015

Figure 65: Cash flow statement €m unless stated 2013 2014E 2015E 2016E 2017E Gross cash flow 1219.0 1503.9 1765.1 2039.6 2337.5 Income taxes paid -144.0 -147.9 -194.3 -242.2 -296.5 Changes in working capital 252.0 -27.0 -22.2 -43.4 -70.9 Operating cash flow 1327.0 1329.1 1548.7 1754.1 1970.2

CAPEX PPE -565.0 -632.5 -653.1 -714.0 -817.7 Investments intangibles -310.0 -319.6 -350.7 -391.6 -435.5 Others 157.0 -172.0 0.0 0.0 0.0 Cash flow from investments -718.0 -1124.1 -1003.7 -1105.6 -1253.2

Dividend payments -115.0 -130.7 -176.8 -222.9 -246.0 Others -444.0 -198.0 -230.0 -448.0 -273.0 Financing cash flow -559.0 -328.7 -406.8 -670.9 -519.0

FX -10.0 0.0 0.0 0.0 0.0 Change in cash and equivalent 40.0 -123.7 138.1 -22.5 197.9 Net cash and equivalent at the beginning of the year 1460.0 1500.0 1376.3 1514.4 1492.0 Net cash and equivalent at the end of the year 1500.0 1376.3 1514.4 1492.0 1689.9 Source: Company data, Credit Suisse estimates

Figure 66: Divisional estimates €m unless stated 2013 2014E 2015E 2016E 2017E Sales Powertrain 3161.0 3348.5 3677.0 4118.2 4627.8 Thermal systems 3372.0 3618.2 3927.0 4329.5 4778.8 Comfort driving&Assistance 2238.0 2289.1 2561.4 2909.4 3281.6 Visibility systems 2967.0 3529.4 3855.5 4285.1 4706.0 Other -76.0 -102.3 -105.2 -101.7 -113.1 Total 11662.0 12682.9 13915.8 15540.5 17281.1

EBITDA Powertrain 351.0 429.9 486.9 564.2 653.8 Thermal systems 394.0 420.5 470.4 536.0 609.6 Comfort driving&Assistance 294.0 339.1 384.3 441.5 503.1 Visibility systems 298.0 347.5 400.9 471.8 541.1 Other 19.0 16.9 22.7 26.2 30.0 Total 1356.0 1553.9 1765.1 2039.6 2337.5

EBITDA margin Powertrain 11.1% 12.8% 13.2% 13.7% 14.1% Thermal systems 11.7% 11.6% 12.0% 12.4% 12.8% Comfort driving&Assistance 13.1% 14.8% 15.0% 15.2% 15.3% Visibility systems 10.0% 9.8% 10.4% 11.0% 11.5% Other -25.0% -16.5% -21.5% -25.7% -26.5% Total 11.6% 12.3% 12.7% 13.1% 13.5% Source: EBITDA incl. at equity income, Company data, Credit Suisse estimates

European Automotive Suppliers 47 20 January 2015

Europe / Germany Auto Parts & Equipment

Continental (CONG.DE) Rating OUTPERFORM* FOCUS LIST STOCK Price (16 Jan 15, Eu) 188.70 Target price (Eu) 208.00¹ Market cap. (Eu m) 37,741.13 Growth in China to remain solid Enterprise value (Eu m) 40,862.9

■ Outlook—benefitting from secular trends: Growth in China is likely to *Stock ratings are relative to the coverage universe in each remain at elevated levels in the coming years (we estimate ~15% CAGR) analyst's or each team's respective sector. driven in particular by Conti's strong position in Powertrain, which likely ¹Target price is for 12 months. enjoys meaningful tailwinds from regulation and a ramp up of new engine Research Analysts platforms. However, we believe Conti has been less aggressive with regards Alexander Haissl to new capacity build up in its automotive unit versus Valeo (sales CAGR 44 20 7888 8507 [email protected] ~27% in 2013-2017E). Mike Dean ■ Market position—strong in Powertrain: The market for Conti's key 44 20 7883 2371 [email protected] applications in Powertrain as well as Chassis & Safety are largely dominated Fei Teng by global competitors. From our perspective, it is unlikely that Chinese 44 20 7883 9978 producers will be able to gain meaningful market share given technological [email protected] advantage of Western players. Specialist Sales: Andrew Bell 44 20 7888 0479 ■ Risks: In the near term, we believe that the main risk remains lower overall [email protected] production volumes (cyclical), as a more meaningful positive impact from Powertrain content growth (structural) likely kicks in from 2016 onwards with new engine plants coming on stream. Overall, risks versus market expectations seem skewed to the upside, as the market likely underestimates Powertrain (PT) content growth. ■ Valuation: We maintain our positive view, as we see significant upside potential for the stock, as automotive (PT) is not reflected in the current valuation. Given improved margin and cash flow generation, we expect Conti to re-rate further. Our target price of €208 is based on our 2015 EV/EBITDA estimate of 7.2x and Credit Suisse HOLT.

Share price performance Financial and valuation metrics

Year 12/13A 12/14E 12/15E 12/16E 182 Revenue (Eu m) 33,331.0 34,395.6 36,354.2 39,242.2 EBITDA (Eu m) 4,930.10 5,064.67 5,859.21 6,512.81 132 Adjusted Net Income (Eu m) 1,923.10 2,445.52 3,054.14 3,514.75 CS adj. EPS (Eu) 9.62 12.23 15.27 17.57 82 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Prev. EPS (Eu) — — — — Price Price relative ROIC (%) 21.70 21.90 21.97 23.47 P/E (adj., x) 19.61 15.43 12.36 10.74 The price relative chart measures performance against the P/E rel. (%) 142.8 114.2 100.6 95.9 DEUTSCHE BORSE DAX INDEX which closed at 10167.77 on EV/EBITDA 8.6 8.1 6.7 5.7 16/01/15 On 16/01/15 the spot exchange rate was €1./Eu 1. - Dividend (12/14E, Eu) 3.30 IC (12/14E, Eu m) 14,474.48 Eu .87/US$1 Dividend yield (%) 1.7 EV/IC 2.8

Performance Over 1M 3M 12M Net debt (12/14E, Eu m) 3,121.8 Current WACC 8.00 Absolute (%) 8.7 24.1 14.5 Net debt/equity (12/14E, %) 27.5 Free float (%) 54.00 BV/share (12/14E, Eu) 60.7 Number of shares (m) 200.01 Relative (%) 5.4 16.8 13.3

Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates.

European Automotive Suppliers 48 20 January 2015

Continental CONG.DE Price (16 Jan 15): Eu188.70, Rating: OUTPERFORM, Target Price: Eu208.00 Income statement (Eu m) 12/13A 12/14E 12/15E 12/16E Per share data 12/13A 12/14E 12/15E 12/16E Revenue (Eu m) 33,331.0 34,395.6 36,354.2 39,242.2 No. of shares (wtd avg) 200 200 200 200 EBITDA 4,930 5,065 5,859 6,513 CS adj. EPS (Eu) 9.62 12.23 15.27 17.57 Depr. & amort. (1,704) (1,594) (1,428) (1,513) Prev. EPS (Eu) — — — — EBIT (Eu) 3,699 3,962 4,431 5,000 Dividend (Eu) 2.50 3.30 4.00 4.30 Net interest exp. (442) (172) (139) (87) Div yield 1.32 1.75 2.12 2.28 Associates 38 5 40 40 Dividend payout ratio 25.98 26.98 26.19 24.47 Other adj, (835) (631) (140) (140) Free cash flow per share 8.49 10.54 12.45 13.82 PBT (Eu) 2,459 3,163 4,192 4,813 (Eu) Income taxes (450) (633) (1,048) (1,203) Key ratios and 12/13A 12/14E 12/15E 12/16E Profit after tax 2,010 2,531 3,144 3,610 valuation Minorities (87) (85) (90) (95) Growth (%) Preferred dividends — — — — Sales — 3.2 5.7 7.9 Associates & other — — — — EBIT — 7.1 11.8 12.8 Net profit 1,923 2,446 3,054 3,515 Net profit — 27.2 24.9 15.1 Other NPAT adjustments — — — — EPS — 10.1 15.5 15.1 Reported net income 1,923 2,446 3,054 3,515 Margins (%) EBITDA margin 14.8 14.7 16.1 16.6 Cash flow (Eu) 12/13A 12/14E 12/15E 12/16E EBIT margin 11.1 11.5 12.2 12.7 EBIT 3,699 3,962 4,431 5,000 Pretax margin 7.4 9.2 11.5 12.3 Net interest (534) (312) (279) (227) Net margin 5.8 7.1 8.4 9.0 Cash taxes paid (805) (633) (1,048) (1,203) Valuation metrics (x) Change in working capital (4) (188) (152) (309) EV/sales 1.3 1.2 1.1 0.9 Other cash & non-cash items 1,366 1,266 1,468 1,553 EV/EBITDA 8.6 8.1 6.7 5.7 Cash flow from operations 3,722 4,095 4,421 4,814 EV/EBIT 11.4 10.3 8.8 7.4 CAPEX (2,024) (1,987) (1,931) (2,051) P/E 19.6 15.4 12.4 10.7 Free cashflow adj. — — — — P/B 3.7 3.1 2.6 2.2 Free cash flow to the firm 1,698 2,109 2,490 2,763 Asset turnover 1.2 1.2 1.2 1.3 Acquisitions (154) (121) — — ROE analysis (%) Divestments 274 — — — ROE stated-return on — 21.9 22.9 22.1 Other investment/(outflows) — — — — equityROIC 21.7 21.9 22.0 23.5 Cash flow from investments (1,904) (2,108) (1,931) (2,051) Interest burden 0.66 0.80 0.95 0.96 Net share issue/(repurchase) (63) — — — Tax rate 18.3 20.0 25.0 25.0 Dividends paid (450) (500) (660) (800) Financial leverage 0.65 0.51 0.32 0.18 Issuance (retirement) of debt — — — — Credit ratios (%) Other (5,837) — — — Net debt/equity 49.4 27.5 9.3 (4.0) Cash flow from financing (6,349) (500) (660) (800) Net debt/EBITDA 0.93 0.62 0.22 (0.10) activitiesEffect of exchange rates (78) — — — Interest coverage ratio 8.4 23.0 32.0 57.7 Changes in Net Cash/Debt (4,609) 1,487 1,830 1,963 . Net debt at start — 4,609 3,122 1,292 Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities Change in net debt 4,609 (1,487) (1,830) (1,963) (EUROPE) LTD. Estimates. Net debt at end 4,609 3,122 1,292 (671)

Balance sheet (Eu m) 12/13A 12/14E 12/15E 12/16E Assets Cash and cash equivalents 2,045 3,069 3,316 3,709 182 Accounts receivable 5,316 5,435 5,744 6,200 Inventory 2,831 3,050 3,163 3,414 Other current assets 1,060 1,060 1,060 1,060 132 Total current assets 11,251 12,613 13,282 14,383 Total fixed assets 7,728 8,232 8,734 9,272 82 Intangible assets and goodwill 6,079 5,930 5,930 5,930 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Investment securities 65 65 65 65 Other assets 1,698 1,698 1,698 1,698 Price Price relative Total assets 26,821 28,539 29,710 31,348 Liabilities The price relative chart measures performance against the DEUTSCHE BORSE Accounts payable 5,184 5,335 5,605 6,004 DAX INDEX which closed at 10167.77 on 16/01/15 Short-term debt 1,596 1,133 1,133 1,133 On 16/01/15 the spot exchange rate was €1./Eu 1. - Eu .87/US$1 Other short term liabilities 2,847 2,847 2,847 2,847 Total current liabilities 9,628 9,315 9,585 9,984 Long-term debt 5,057 5,057 3,474 1,904 Other liabilities 2,813 2,813 2,813 2,813 Total liabilities 17,499 17,186 15,873 14,702 Shareholders' equity 9,011 10,957 13,351 16,066 Minority interest 311 396 486 581 Total equity & liabilities 26,821 28,539 29,710 31,348 Net debt (Eu m) 4,609 3,122 1,292 (671)

European Automotive Suppliers 49 20 January 2015 Continental—China Business overview Conti's automotive business generates c.25% of divisional revenues in Asia, out of which China accounts for c.50%, South Korea for 27% and Japan for 14% of Asian-related revenues. On a group level, we estimate that c.75% of total China-related revenues stem from the automotive unit while rubber only generates 25% of group sales in China.

Figure 67: China accounts for c.50% of Asia automotive Figure 68: China revenues skewed towards automotive, sales, 2014E 2014E

11% 25%

14% China 48% South Korea Automotive Japan Rubber Other

27% 75%

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Product portfolio skewed towards Chassis & Safety On a group level, some 36% of automotive sales are coming from Conti's Chassis & Safety unit while Powertrain generates some 31%. Our calculation shows that in Asia the mix is more skewed towards Chassis & Safety, which we estimate contributes 42% to sales revenue. Powertrain in Asia is similar to the group level. However, we estimate that Interior in Asia accounts for 28% vs. the group level of 33%, which in our view reflects less contributions from Commercial Vehicles & Aftermarket in Asia (part of Interior unit).

Figure 69: Group Automotive split by division (2013) Figure 70: Asian Automotive split by division (2013)

28% 33% 31% 31% Powertrain Powertrain Chassis&Safety Chassis&Safety Interior Interior

36% 42%

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse estimates

European Automotive Suppliers 50 20 January 2015

Financials  Sales in China were indicated by Continental to be roughly €4bn in 2014 or 11.6% of group  We estimate total headcount post recent expansion at 22,000  We estimate sales CAGR in 2010-14 at 18.9%, assuming €4bn in 2014  In 2014, management indicated that annual revenues in China will grow to €10bn after 2020; assuming that Conti will reach €10bn in 2021 implies 14% CAGR in 2014-21  Over the past five years, the company has invested c.€1bn in China, including the tire plant in Hefei; we estimate that Conti's automotive unit invested some €650m over past five years or €130m annually.  Investments in China are expected to remain at the same level; management indicated at least €1bn CAPEX in the coming five years including tire expansion at Hefei to 8mn units from 4mn units.

Figure 71: Financial data Conti China Financial data Sales 2014e € million €4,000 As % of Group sales 11.6% Estimated headcount 2014e 22000 Sales CAGR 2010-2014e 18.9% Sales target beyond 2020 € million €10,000 Implied CAGR 2014-2021e (assuming €10bn in 2021) 14.0% CAPEX past 5 years €1,000 CAPEX coming 5 years at least €1,000 Source: Company data, Credit Suisse estimates

Figure 72: Development of plants (production/R&D) in Figure 73: Distribution of plants (2013 based on number China of plants) 30

25 7 7 ContiTech 26% Chassis & Safety 20 30% 7 7 Tyre Chassis & Safety JV 6 6 15 Interior Powertrain 6 Powertrain Interior 6 4 4 4% 10 Chassis & Safety JV Tyre 1 1 4% 4 4 Chassis & Safety ContiTech 5 8 8 22% 15% 5 4 0 2010 2011 2012 2013

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research

Competitive landscape Overall the competitive landscape in China is very similar to the rest of the world, as the market for Conti's key products is dominated by global rather than local players. Chassis & Safety: In addition to the global players, we see Wanxiang Qianchao Co., SAAC and APG as local competitors. Powertrain: Local competitors include Weifu High-Technology Group Co., Ltd (Bosch JV) and Fawer Automotive Parts Limited Company. Interior: Changchun Faway Automobile Components Co., Ltd., Dongfeng Electronic Technology Co., Ltd. and Shanghai Feilo Co., Ltd.

European Automotive Suppliers 51 20 January 2015

Figure 74: Overview of competitive landscape Division Global player Domestic player Chassis & Safety Bosch, Aisin, Advics, TRW, Denso, Hella, Delphi Wanxiang Qianchao Co., Ltd., SAAC, APG Powertrain Bosch, Aisin, Denso, Delphi, Valeo Fawer Automotive Parts Limited Company, Weifu High- Technology Group Co., Ltd (Bosch FV) Interior Denso, Nippon Seiki, Denso, Clarion, Mobis, Panasonic Changchun Faway Automobile Components Co., Ltd, Dongfeng Electronic Technology Co., Ltd, Shanghai Feilo Co., Ltd Source: Company data, Credit Suisse research Only one major JV with HASCO With the opening of the Wuhu expansion in October 2014, Conti is now operating 22 manufacturing facilities in China with the majority of them fully owned and controlled. Its major JV in the country is with HASCO (Continental Brake Systems Shanghai Co., Ltd, Shanghai Automotive Brake Systems Co., Ltd). Products produced in the JV are front and rear axle calliper, rear axle brakes hoses, electronic parking brakes and electronic vacuum pump solutions. In addition to the HASCO JV, Continental Automotive Wuhu Co., Ltd, is not fully owned by Conti. The share Conti has accounts for 88.2%, with the remaining stake owned by WEDA Construction General Corporation.

Figure 75: Overview of Conti's main subsidiaries and associated companies Continental Share of capital Partner Changshu ContiTech Trading Ltd 100% Continental Automotive Changchun Co. Ltd 100% Continental Automotive Holding (Shanghai) Co., Ltd 100% Continental Automotive Jinan Co. Ltd 100% Continental Automotive Systems (Shanghai) Co., Ltd 100% Continental Automotive Systems (Tianjin) Co., Ltd 100% Continental Automotive Systems Changshu Co., Ltd 100% Continental Tires (China) Co., Ltd 100% Continental Tires (Shanghai) Co., Ltd 100% ContiTech China Rubber & Plastics Technology 100% ContiTech Printing Blanket Shanghai Ltd. 100% ContiTech Shanghai Rubber & Plastics Technology Ltd. 100% ContiTech Tianjin Conveyor Belt Ltd 100% Omitech Automotive Technology Co. Ltd 100% Synerject Motorcycle Systems Changchun Co., Ltd 100% Synerject Taiwan Co., Ltd 100% Continental Brake Systems (Shanghai) Co., Ltd 51% HASCO Continental Automotive Wuhu Co., Ltd 88% WEDA Construction General Corporation Continental Automotive Corporation (Lianyungang) Co., Ltd 60% Phoenix Shanxi Conveyor Beld Co., Ltd 52% German Phoenix and two Chinese partners Lu An Mining Group Co., Ltd and Jincheng Anthracite Group Co. Ltd Benecke Changchun Auto Trim (Zhangjiagang) co. Ltd 51% Jiangsu Changshun Group ContiTech Fluid Shanghai Co., Ltd 51% Liang Yi ContiTech Grand Ocean Fluid (Changchun) Co., Ltd 51% Grand Ocean

Associated companies Shanghai Automotive Brake Systems Co., Ltd 49% HASCO Source: Company data, Credit Suisse research

European Automotive Suppliers 52 20 January 2015

Main facilities

Continental Automotive (Changchun) Co., Ltd  Established in 1995, one of Conti's first plants in China  Total headcount of 3,700 employees  Recent investment of RMB54m in powertrain expansion

Continental Automotive Wuhu Co., Ltd  Established in 1995; it was Conti's first plant in China  Total headcount of 4,000 (post expansion on Credit Suisse estimates)  Recent investment in a €33m expansion (plant two) dedicated to Interior  Continental Automotive Wuhu Co., Ltd is 88.19% owned by Continental; the remaining stake is held by WEDA Construction General Corporation.

Recent investments October 2014—Wuhu Interior expansion: Conti opened its second plant in Wuhu, Continental Interior (Wuhu). The initial investment was €33m for land and building with the new plant being fully in operation in 1Q15. The most recent opening is Conti's 22nd manufacturing location in China. The total land of the new plant is 120,000 sqm with initial floor space of 46,000 square metres. Key products will be instrumentation and driver HMI. By the end of 2015, the new plant will employ 1,500 employees. Some 42 production lines will be installed by end of 2015. December 2013—Changchun Powertrain expansion: Beginning of December 2013, Conti announced the opening of the Changchun plant expansion (number one). Total investments will be RMB54m, which will add four new production lines of the Powertrain division. Production will be dedicated to Injector and High Temperature Sensors. Capacity will reach 35.8m units by 2016. September 2013—Changshu Electronic Parking Brake expansion: Conti opened the Changshu plant expansion. Total CAPEX was €36m for production of Electronic Parking Brake (EPB). Having opened in 2008, Conti's Chassis & Safety plant in Changshu produces hydraulic brake systems (front and rear callipers), drum brakes and brake actuation products. The products are supplied to eleven OEMs in Asia, including 45% being exported to Japan and Korea. The workforce should reach 2,250 post expansion with capacity to increase around 30%.

European Automotive Suppliers 53 20 January 2015 Valuation and key risks Our valuation is based on two methodologies, equally weighted, to capture long-term as well as short-term earnings potential, and results in a target price of €208:  2015 EV/EBITDA: To capture near-term earnings potential, we take our 2015 EBITDA estimate and apply a multiple of 7.2x, which is ~6% below the peak recorded during 2010-2013 and 41% above the average for the same period; owing to the above-sector earnings growth we expect, the premium multiple should be sustained and expanded further; this model yields a fair value of €193.9 per share.

Figure 76: Model yields fair value of €193.9 €m unless otherwise stated Assumptions 2015E EBITDA ] 5899 avg 5.1x high 7.7x low 4.0x

Assumed multiple 7.2x vs. avg 41% vs. high -6% vs. low 80% EV 42592 Equity adjustments 3817 Equity value 38776 Number of shares 200.0 per share (€) 193.9 Source: Company data, Credit Suisse estimates; EBITDA includes JVs  The Credit Suisse HOLT tool yields a warranted price per share of €314.5, which is based on a 4% discount rate. However, to reflect higher risk premiums (cost of capital), we apply a 5.7% discount when calculating our target price. Key potential upside risks:  Stronger-than-expected volume growth in tyres  Margin expansion in tyres  Quicker market penetration of key products for the automotive unit Key potential downside risks:  Rising rubber prices (tightening of the market), which would lead to a margin squeeze (temporary as costs flow through the P&L earlier)  Potential share overhang owing to a further reduction in the Schaeffler stake  Declining volumes in tyre and automotive

European Automotive Suppliers 54 20 January 2015

Credit Suisse HOLT Credit Suisse forecasts for 2014-2018 The CFROI® chart (Figure 77) is a reflection of our forecasts for sales, margins and returns. Based on our assumptions, Credit Suisse HOLT calculates an average CFROI of 12.0% for 2014-2018. HOLT incorporates a discount rate of 4.0% for the explicit period of five years. Based on our explicit forecasts, HOLT calculates asset growth of 8.1% in 2014, which is expected to decline to 5.8% by 2018. HOLT assumptions beyond a five-year window Beyond the five-year window, HOLT assumes the CFROI and discount rate fade to 6%, while asset growth fades to 2.5%, incorporating the economic reality of competition and causing higher returns and growth to regress to the mean. HOLT yields a warranted value of €314.5 per share, with the explicit forecast representing 16% of the total EV and the terminal forecast accounting for 84%.

European Automotive Suppliers 55 20 January 2015

Figure 77: HOLT valuation—warranted price €314.5

CONTINENTAL AG (CONG)

Current Price: EUR 185.20 Warranted Price: EUR 314.54 Valuation date: 16-Jan-15

Sales Growth (parallel % point change to forecasts) Dec 12A Dec 13A Dec 14E Dec 15E Dec 16E

in EUR -2.0% -1.0% 0.0% 1.0% 2.0% Sales Growth, % 7.3 1.8 3.2 5.7 7.9 EBITDA Mgn, % 14.2 15.0 14.7 16.1 16.6 -2.0% 16% 28% 41% 56% 72% Asset Turns, x 0.95 0.9 0.9 0.9 0.9

-1.0% 28% 41% 56% 71% 88% CFROI®, % 11.9 13.2 11.1 11.1 11.9 Disc Rate, % 5.9 4.8 4.0 4.0 4.0 0.0% 41% 55% 70% 86% 104%

Asset Grth, % 8.4 2.0 8.1 4.2 4.2 to to forecasts) 1.0% 53% 68% 84% 101% 120% Value/Cost, x 1.3 1.8 1.8 1.7 1.5

Economic PE, x 10.9 13.7 16.6 15.2 13.0 2.0% 66% 81% 98% 116% 136%

EBITDA MarginEBITDA (parallel % point change Leverage, % 40.2 24.2 17.7 14.1 10.6

More than Sales Growth (%) More than 10% Within 10% 40 10% upside downside 30

20 CFROI & Discount Rate (in %) 10 16 0 14 -10 12 -20 10 2009 2011 2013 2015 2017 8 6 EBITDA Margin 20 4 18 2 16 14 0 12 2009 2011 2013 2015 2017 Historical CFROI Historical Transaction CFROI 10 8 Forecast CFROI Forecast CFROI

HOLT HOLT - Credit Analyst Data Suisse Scenario 6 4 Asset Growth (in %) 2 0 12 2009 2011 2013 2015 2017 10 8 Asset Turns (x) 1.2 6 1.0 4

2 0.8

0 0.6

-2 0.4 2009 2011 2013 2015 2017 0.2 Historical Asset Growth Rate Forecast Growth Forecast Growth RAGR 0.0 2009 2011 2013 2015 2017

Source: Credit Suisse HOLT®. CFROI and HOLTare trademarks or registered trademarks of Credit Suisse Group AG or its affiliates in the United States and other countries .

Source: Credit Suisse HOLT

European Automotive Suppliers 56 20 January 2015

Financial statements

Figure 78: Income statement (all data excluding Veyance acquisition) €m unless stated 2013 2014E 2015E 2016E 2017E Sales 33331.0 34395.6 36354.2 39242.2 42018.1 Cost of sales -25529.4 -26140.6 -27265.7 -29431.6 -31513.6 Gross profit 7801.6 8254.9 9088.6 9810.5 10504.5 Gross margin 23% 24% 25% 25% 25% EBITDA 5095.0 5227.7 5899.2 6552.8 7155.4 D&A, PPA, other special items 1831.3 1752.1 1428.4 1513.2 1608.9 PPA 370.7 198.3 0.0 0.0 0.0 of which pure D&A 1358.5 1395.8 1428.4 1513.2 1608.9 of which impairments 126.7 158.0 0.0 0.0 0.0 EBIT reported 3263.7 3475.5 4470.8 5039.6 5546.5 EBIT adjustments 0.0 0.0 0.0 0.0 0.0 Impairment losses 126.7 0.0 0.0 0.0 0.0 PPA 370.7 198.3 0.0 0.0 0.0 Others -24.6 293.1 0.0 0.0 0.0 EBIT adjusted 3736.5 3966.9 4470.8 5039.6 5546.5 Interest income 29.1 39.0 39.0 39.0 39.0 Interest expense -833.4 -351.4 -317.6 -265.6 -209.5 Net interest expense -804.3 -312.4 -278.6 -226.6 -170.5 Earnings before taxes 2459.4 3163.1 4192.2 4813.0 5376.0 Income tax expense -449.6 -632.6 -1048.0 -1203.2 -1344.0 Tax rate 0.2 0.2 0.3 0.3 0.3 Net income 2009.8 2530.5 3144.1 3609.7 4032.0 Non-controlling interests -86.7 -85.0 -90.0 -95.0 -100.0 Net income attributable to the shareholders of the parent 1923.1 2445.5 3054.1 3514.7 3932.0

Basic earnings per share in € 9.62 12.23 15.27 17.57 19.66 Diluted earnings per share in € 9.62 12.23 15.27 17.57 19.66 EBITDA and EBIT including at-equity income Source: Company data, Credit Suisse estimates

European Automotive Suppliers 57 20 January 2015

Figure 79: Balance sheet (all data excluding Veyance acquisition) €m unless stated 2013 2014E 2015E 2016E 2017E Assets Goodwill 5520.9 5520.9 5520.9 5520.9 5520.9 Other intangible assets 557.7 409.4 409.4 409.4 409.4 PPE 7728.0 8232.2 8734.4 9271.9 9847.1 Investment property 20.4 20.4 20.4 20.4 20.4 Investments in at-equity accounted investees 450.0 450.0 450.0 450.0 450.0 Other investments 7.9 7.9 7.9 7.9 7.9 Deferred tax assets 928.4 928.4 928.4 928.4 928.4 Defined benefit assets 6.0 6.0 6.0 6.0 6.0 Long-term derivative instruments 285.1 285.1 285.1 285.1 285.1 Other long-term financial assets 45.0 45.0 45.0 45.0 45.0 Other long-term assets 20.1 20.1 20.1 20.1 20.1 Non-current assets 15569.5 15925.4 16427.6 16965.1 17540.3 Inventories 2830.9 3050.0 3162.8 3414.1 3655.6 Trade accounts receivable 5315.8 5434.5 5744.0 6200.3 6638.9 Other short-term financial assets 336.2 336.2 336.2 336.2 336.2 Other short-term assets 601.2 601.2 601.2 601.2 601.2 Income tax receivables 69.3 69.3 69.3 69.3 69.3 Short-term derivative instruments 18.3 18.3 18.3 18.3 18.3 Cash and cash equivalent 2044.8 3068.9 3315.8 3709.0 4179.8 Assets held for sale 34.8 34.8 34.8 34.8 34.8 Current assets 11251.3 12613.2 13282.4 14383.1 15534.0 Total assets 26820.8 28538.6 29710.0 31348.3 33074.3

Total equity and liabilities Equity attributable to shareholders of parent 9011.2 10956.7 13350.8 16065.5 19137.5 Non-controlling interest 311.0 396.0 486.0 581.0 681.0 Total equity 9322.2 11352.7 13836.8 16646.5 19818.5 Provisions for pension 2391.1 2391.1 2391.1 2391.1 2391.1 Deferred tax liabilities 113.2 113.2 113.2 113.2 113.2 Long-term provisions 266.9 266.9 266.9 266.9 266.9 Long-term portion of indebtedness 5041.2 5041.2 3458.2 1888.2 59.2 Other long-term financial liabilities 16.2 16.2 16.2 16.2 16.2 Other long-term liabilities 42.2 42.2 42.2 42.2 42.2 Non-current liabilities 7870.8 7870.8 6287.8 4717.8 2888.8 Trade accounts payable 4596.3 4746.6 5016.9 5415.4 5798.5 Income tax payables 588.2 588.2 588.2 588.2 588.2 Short-term provisions 631.1 631.1 631.1 631.1 631.1 Indebtedness 1596.3 1133.3 1133.3 1133.3 1133.3 Other short-term financial liabilities 1448.0 1448.0 1448.0 1448.0 1448.0 Other short-term liabilities 767.9 767.9 767.9 767.9 767.9 Liabilities held for sale 0.0 0.0 0.0 0.0 0.0 Current liabilities 9627.8 9315.1 9585.4 9983.9 10367.0 Total equity and liabilities 26820.8 28538.6 29710.0 31348.3 33074.3 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 58 20 January 2015

Figure 80: Cash flow statement (all data excluding Veyance acquisition) €m unless otherwise stated 2013 2014E 2015E 2016E 2017E Net income 2009.8 2530.5 3144.1 3609.7 4032.0 Income tax expense 449.6 632.6 1048.0 1203.2 1344.0 Net interest expense 804.3 312.4 278.6 226.6 170.5 EBIT 3263.7 3475.5 4470.8 5039.6 5546.5 Interest paid -565.1 -351.4 -317.6 -265.6 -209.5 Interest received 30.8 39.0 39.0 39.0 39.0 Income tax paid -805.4 -632.6 -1048.0 -1203.2 -1344.0 Dividends received 37.9 5.0 40.0 40.0 40.0 D&A, amortization and reversal of impairment losses 1831.3 1752.1 1428.4 1513.2 1608.9 Income from at equity -46.3 -5.0 -40.0 -40.0 -40.0 Gains from the disposal of assets, companies and business -86.9 0.0 0.0 0.0 0.0 operations Other non-cash items -2.4 0.0 0.0 0.0 0.0 Changes in 0.0 0.0 0.0 0.0 0.0 Inventories 67.9 -219.1 -112.8 -251.2 -241.5 Trade accounts receivables -451.6 -118.7 -309.5 -456.3 -438.6 Notes sold 0.0 0.0 0.0 0.0 0.0 Trade accounts payable 379.8 150.3 270.3 398.5 383.1 Pension and similar obligations -8.2 0.0 0.0 0.0 0.0 Other assets and liabilities 76.3 0.0 0.0 0.0 0.0 Operating cash flow 3721.8 4095.1 4420.5 4813.9 5343.9

Proceeds on the disposal of PPE 27.2 0.0 0.0 0.0 0.0 CAPEX PPE -1980.7 -1936.6 -1930.6 -2050.8 -2184.0 CAPEX intangible assets -42.9 -50.0 0.0 0.0 0.0 Proceeds on the disposal of companies a 246.9 0.0 0.0 0.0 0.0 Acquisition of companies -154.0 -121.4 0.0 0.0 0.0 Interest bearing advances 0.0 0.0 0.0 0.0 0.0 Cash flow from investing activities -1903.5 -2108.0 -1930.6 -2050.8 -2184.0

Free cash flow before financing 1818.3 1987.1 2489.9 2763.2 3159.8

Changes in short-term debt -339.1 -463.0 0.0 0.0 0.0 Proceeds from the issuance of long-term debt 4082.3 0.0 -1583.0 -1570.0 -1829.0 Principal repayments on long-term debt -5276.6 0.0 0.0 0.0 0.0 Step acquisitions -48.5 0.0 0.0 0.0 0.0 Dividends paid -450.0 -500.0 -660.0 -800.0 -860.0 Dividends paid to non-controlling interests -62.7 0.0 0.0 0.0 0.0 Cash from first time consolidation of subsidiaries 1.7 0.0 0.0 0.0 0.0 Cash flow from financing -2092.9 -963.0 -2243.0 -2370.0 -2689.0

Change in cash and cash equivalent -274.6 1024.1 246.9 393.2 470.8 Cash and cash equivalent as at January 1 2397.2 2044.8 3068.9 3315.8 3709.0 FX impact -77.8 0.0 0.0 0.0 0.0 Cash and cash equivalents as at period-end 2044.8 3068.9 3315.8 3709.0 4179.8 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 59 20 January 2015

Figure 81: Divisional forecasts (all data excluding Veyance acquisition) €m unless stated 2013 2014E 2015E 2016E 2017E External Sales Chassis & Safety 7229.4 7421.9 7929.1 8744.4 9591.6 Power train 6195.0 6409.2 6851.3 7742.3 8548.6 Interior 6589.5 6906.9 7339.2 7902.6 8492.4 Tires 9567.9 9851.8 10251.7 10726.1 11130.9 ContiTech 3749.2 3805.8 3982.9 4126.8 4254.5 Others/Consolidation 0.0 0.0 0.0 0.0 0.0 Group 33331.0 34395.6 36354.2 39242.2 42018.1

EBITDA Chassis & Safety 990.2 1028.4 1146.4 1299.5 1473.6 Power train 650.2 438.6 779.3 992.3 1173.2 Interior 850.2 946.1 1049.3 1192.6 1330.9 Tires 2137.7 2347.1 2439.0 2584.6 2684.7 ContiTech 576.3 574.1 605.6 631.3 654.0 Others/Consolidation -109.6 -106.7 -120.4 -147.4 -161.0 Group 5095.0 5227.7 5899.2 6552.8 7155.4

EBIT Chassis & Safety 598.9 698.2 827.6 965.5 1107.3 Power train 179.5 -88.4 474.9 656.6 802.8 Interior 380.6 602.4 799.1 923.3 1041.4 Tires 1752.7 1913.1 1999.0 2129.6 2224.7 ContiTech 462.1 456.9 490.5 512.1 531.2 Others/Consolidation -110.1 -106.7 -120.4 -147.4 -161.0 Group 3263.7 3475.5 4470.8 5039.6 5546.5

EBIT adjusted Chassis & Safety 689.8 726.2 827.6 965.5 1107.3 Power train 317.9 262.6 474.9 656.6 802.8 Interior 585.3 703.8 799.1 923.3 1041.4 Tires 1790.7 1917.1 1999.0 2129.6 2224.7 ContiTech 465.3 463.9 490.5 512.1 531.2 Others/Consolidation -112.5 -106.7 -120.4 -147.4 -161.0 Group 3736.5 3966.9 4470.8 5039.6 5546.5 EBIDTA and EBIT incl. at equity income (company definition) Source: Company data, Credit Suisse estimate

European Automotive Suppliers 60 20 January 2015

Europe / France Auto Parts & Equipment

Faurecia (EPED.PA) Rating OUTPERFORM*

Price (16 Jan 15, Eu) 32.94 Target price (Eu) 37.00¹ Market cap. (Eu m) 4,082.72 China likely to remain solid Enterprise value (Eu m) 5,552.3

■ Outlook—double-digit growth to continue: We expect strong growth in *Stock ratings are relative to the coverage universe in each China to continue with average annual rates of ~15% throughout 2018. analyst's or each team's respective sector. Product mix in China is more favourable versus the group level with 50% ¹Target price is for 12 months. stemming from Emissions Control Technologies and 36% from Automotive Research Analysts seating divisions. We also see more upside potential with regards to further Alexander Haissl JVs in the coming years, as it allows Faurecia to benefit from OEM networks. 44 20 7888 8507 [email protected] ■ Market position—strong in Emission Controls: Faurecia holds a leading Mike Dean position in the Emission Controls market with ~27% share. With the top three 44 20 7883 2371 [email protected] players accounting for almost 50% of the market and limited risk from Fei Teng Chinese competitors, market dynamics are likely to remain favourable for 44 20 7883 9978 Faurecia's most important unit. Given higher market fragmentation for [email protected] Automotive Seating, the Interior and Exterior market positions are less Specialist Sales: Andrew Bell strong for these units, which is similar to other regions. 44 20 7888 0479 [email protected] ■ Risks: Slowing production volumes could lead to price pressure, in particular for more fragmented products such as interior and exterior. From a strategic perspective, further JVs could provide incremental volume opportunities. ■ Valuation: We maintain our Outperform rating and €37 target price, as we expect Faurecia to continue to surprise positively (Credit Suisse ~20% ahead of consensus on 2015-2016 EPS). Our target price is based on our 2015 EV/EBITDA estimate of 4.5x and Credit Suisse HOLT.

Share price performance Financial and valuation metrics

Year 12/13A 12/14E 12/15E 12/16E 31 Revenue (Eu m) 18,028.6 18,602.1 19,733.4 21,232.7 EBITDA (Eu m) 1,070.30 1,194.38 1,400.30 1,625.24 21 Adjusted Net Income (Eu m) 87.60 222.22 385.17 518.70 CS adj. EPS (Eu) 0.79 1.81 3.14 4.23 11 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Prev. EPS (Eu) — — — — Price Price relative ROIC (%) 13.17 14.69 16.13 18.64 P/E (adj., x) 41.77 18.17 10.49 7.79 The price relative chart measures performance against the P/E rel. (%) 304.4 130.3 82.5 68.5 CAC 40 INDEX which closed at 4379.62 on 16/01/15 EV/EBITDA 5.2 4.6 3.8 3.1 On 16/01/15 the spot exchange rate was €1./Eu 1. - Eu .87/US$1 Dividend (12/14E, Eu) 0.45 IC (12/14E, Eu m) 3,324.31

Performance Over 1M 3M 12M Dividend yield (%) 1.4 EV/IC 1.7 Absolute (%) 10.5 32.6 11.8 Net debt (12/14E, Eu m) 1,469.6 Current WACC 9.00 Net debt/equity (12/14E, %) 79.2 Free float (%) 54.25

Relative (%) 6.6 18.2 7.4 BV/share (12/14E, Eu) 12.8 Number of shares (m) 123.93

Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates.

European Automotive Suppliers 61 20 January 2015

Faurecia EPED.PA Price (16 Jan 15): Eu32.94, Rating: OUTPERFORM, Target Price: Eu37.00 Income statement (Eu m) 12/13A 12/14E 12/15E 12/16E Per share data 12/13A 12/14E 12/15E 12/16E Revenue (Eu m) 18,028.6 18,602.1 19,733.4 21,232.7 No. of shares (wtd avg) 111 123 123 123 EBITDA 1,070 1,194 1,400 1,625 CS adj. EPS (Eu) 0.79 1.81 3.14 4.23 Depr. & amort. (532) (533) (562) (593) Prev. EPS (Eu) — — — — EBIT (Eu) 538 662 838 1,032 Dividend (Eu) 0.30 0.45 0.60 0.70 Net interest exp. (188) (163) (153) (136) Div yield 0.91 1.37 1.82 2.12 Associates — — — — Dividend payout ratio 38.04 24.82 19.10 16.54 Other adj, (62) (50) (35) (35) Free cash flow per share 3.74 3.58 4.78 5.99 PBT (Eu) 288 449 650 861 (Eu) Income taxes (65) (117) (208) (276) Key ratios and 12/13A 12/14E 12/15E 12/16E Profit after tax 224 331 442 586 valuation Minorities (56) (55) (75) (87) Growth (%) Preferred dividends — — — — Sales 3.8 3.2 6.1 7.6 Associates & other (80) (54) 18 20 EBIT 4.3 22.9 26.7 23.2 Net profit 88 222 385 519 Net profit (39.0) 153.7 73.3 34.7 Other NPAT adjustments 3 — — — EPS (37.6) 129.8 73.3 34.7 Reported net income 91 222 385 519 Margins (%) EBITDA margin 5.9 6.4 7.1 7.7 Cash flow (Eu) 12/13A 12/14E 12/15E 12/16E EBIT margin 3.0 3.6 4.2 4.9 EBIT 538 662 838 1,032 Pretax margin 1.6 2.4 3.3 4.1 Net interest (188) (163) (153) (136) Net margin 0.5 1.2 2.0 2.4 Cash taxes paid (134) (117) (208) (276) Valuation metrics (x) Change in working capital 364 88 33 20 EV/sales 0.31 0.30 0.27 0.24 Other cash & non-cash items 346 429 545 578 EV/EBITDA 5.2 4.6 3.8 3.1 Cash flow from operations 927 898 1,056 1,219 EV/EBIT 10.4 8.4 6.4 5.0 CAPEX (512) (458) (470) (484) P/E 41.8 18.2 10.5 7.8 Free cashflow adj. — — — — P/B 2.6 2.6 2.1 1.7 Free cash flow to the firm 415 439 586 735 Asset turnover 2.2 2.2 2.2 2.4 Acquisitions — — — — ROE analysis (%) Divestments — — — — ROE stated-return on 7.6 15.0 22.2 24.4 Other investment/(outflows) (311) (316) (335) (361) equityROIC 13.2 14.7 16.1 18.6 Cash flow from investments (823) (775) (806) (845) Interest burden 0.54 0.68 0.78 0.83 Net share issue/(repurchase) 11 — — — Tax rate 32.8 31.0 32.0 32.0 Dividends paid — (37) (55) (74) Financial leverage 1.6 1.4 1.1 0.6 Issuance (retirement) of debt 75 — (101) (614) Credit ratios (%) Other 152 (28) 71 582 Net debt/equity 93.0 79.2 58.5 38.0 Cash flow from financing 238 (65) (85) (106) Net debt/EBITDA 1.4 1.2 0.9 0.6 activitiesEffect of exchange rates (28) — — — Interest coverage ratio 2.9 4.1 5.5 7.6 Changes in Net Cash/Debt 274 58 165 268 . Net debt at start 1,801 1,528 1,470 1,305 Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities Change in net debt (274) (58) (165) (268) (EUROPE) LTD. Estimates. Net debt at end 1,528 1,470 1,305 1,036

Balance sheet (Eu m) 12/13A 12/14E 12/15E 12/16E Assets Cash and cash equivalents 702 760 824 478 31 Accounts receivable 2,153 2,152 2,192 2,222 Inventory 1,123 1,083 1,040 1,000 Other current assets 9 9 9 9 21 Total current assets 3,987 4,004 4,065 3,709 Total fixed assets 2,028 2,133 2,236 2,342 11 Intangible assets and goodwill 1,983 2,120 2,260 2,406 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Investment securities — — — — Other assets 333 333 333 333 Price Price relative Total assets 8,331 8,590 8,894 8,790 Liabilities The price relative chart measures performance against the CAC 40 INDEX which Accounts payable 3,053 3,120 3,150 3,160 closed at 4379.62 on 16/01/15 Short-term debt 773 773 773 773 On 16/01/15 the spot exchange rate was €1./Eu 1. - Eu .87/US$1 Other short term liabilities 1,250 1,230 1,230 1,230 Total current liabilities 5,076 5,123 5,153 5,163 Long-term debt 1,309 1,309 1,208 593 Other liabilities 304 304 304 304 Total liabilities 6,688 6,735 6,664 6,060 Shareholders' equity 1,502 1,687 2,017 2,462 Minority interest 140 168 212 268 Total equity & liabilities 8,331 8,590 8,894 8,790 Net debt (Eu m) 1,528 1,470 1,305 1,036

European Automotive Suppliers 62 20 January 2015 Faurecia—China Business overview Within our coverage, Faurecia provides the most comprehensive set of data for Chinese operations (at its CMD on 11 November 2014). Sales in China in 2014 are expected at €2.3bn, which represents some 12.4% of group sales. We estimate that only €0.2bn of sales in China come from JVs; thus more than 90% of overall business is stemming from consolidated entities. With regards to product mix, business in China is more skewed towards Emissions Control Technologies (50%) and Automotive seating (36%), while Interior and Automotive Exteriors play a minor role.

Figure 82: Group sales split 2014E Figure 83: China sales split 2014E

3% 11% 11% Emissions Control Emissions Control Technologies Technologies 36% Automotive Seating Automotive Seating 25% 50% Interior Systems Interior Systems

36% Automotive Exteriors Automotive Exteriors

28%

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Brief business overview by division: Emissions Control Technologies—50% of sales: The first operation was in 1994 in Wuhan. In total, the unit is currently operating 16 plants, which are expected to increase to 18 plants by 2018. Total employees number 4,400 and the estimated market share 27%. Automotive Seating—36% of sales: The first operation was in 2002 in Changchun (Structures). Currently, the unit has 10 plants, which are expected to increase to 17 by 2018. Total employees number 4,900 and the estimated market share is 15% for Metal and 5% for Complete Seats. Interior—11% of sales: The first operation was in 2005 in Changchun. The unit operates 11 plants, headcount is 2,800 employees and the market share is 4%. Exteriors—3% of sales: The first operation was in 2011 in Changchun. The unit operates one plant with 550 employees and 2% market share.

Figure 84: Overview of China operations Division First operation Number of plants Sales 2014e €m employees market share Emissions Control Technologies 1994 Wuhan 16 1150 4400 27% Automotive Seating 2002: Changchun (Structures) 10 830 4900 15% MS Metal 2003: Wuhan (Complete seats) 5% MS 2004: Wuxi (Mechanism) Complete seat Interior Systems 2005: Changchun 11 260 2800 4% Automotive Exterior 2011: Changchun 1 80 550 2% Source: Company data, Credit Suisse estimates

European Automotive Suppliers 63 20 January 2015

Financials Sales in 2014 are guided at €2.3bn, which implies a CAGR 2010-2014 of 23% Guidance for 2016 sales is >€3bn and 2018 >€4bn; taking the lower end of the guidance this implies a CAGR of ~14% The number of plants is expected by the company to increase from 38 in 2014 to 55 in 2018; for Automotive Seating, the number of plants will increase from 10 to 17 and for Emissions Controls Technologies from 15 to 18

Figure 85: Faurecia China financial data based on guidance Financial data Sales guidance 2014 € 2,300 As % of group sales 12.4% Sales CAGR 2010-2014e 23.1% Sales guidance 2016e >€3bn Sales CAGR 2014-2016e 14.2% Sales guidance 2018e >€4bn Sales CAGR 2010-2018e 14.8% Headcount 2014 12800 Headcount 2017 16900 Number of plants 2014 38 Number of plants 2018 55 5YR CAPEX € 400 Source: Company data, Credit Suisse research Competitive landscape For Emissions Controls, Faurecia has a market share of 27% and is the market leader, followed by Tenneco and Sango. The top three players account for almost 50% of the total market. From domestic players, we see BYD (integrated supplier) as its main competitor. For Automotive seating, Faurecia's market share for complete seats is 5%, frames 13% and mechanism 16%. Its main global competitors are JCE, Lear and Magna. Local competitors are Changchun Faway Automobile Components Co., Ltd, Beijing Hainachuan Automotive Parts Co., Ltd, Guangzhou Automobile Group Component Co., Ltd, and Shanghai Jiao Yun Group Co.,Ltd. For Interior, the market share is 4%. Its global competitors are Yanfeng (JCI), Mobis, and Calsonic Kansei. Local competitors are Beijing Hainachuan Automotive Parts Co., Ltd and HUAYA. For Exterior, the market share is 2%. Global competitors are Magna, HBPO and Plastic Omnium and the local competitor is Guangzhou Automobile Group Component Co., Ltd

Figure 86: Competitive landscape Global player Domestic player Interior Yanfeng, JCI, Mobis, Calsonic Kansei Beijing Hainachuan Automotive Parts Co., Ltd, HUAYU Automotive seating JCI, Lear, Magna Changchun Faway Automobile Components Co., Ltd, Beijing Hainachuan Automotive Parts Co., Ltd, Guangzhou Automobile Group Component Co., Ltd, Shanghai Jiao Yun Group Co.,Ltd Exterior Magna, HBPO, Plastic Omnium Guangzhou Automobile Group Component Co.,Ltd Emissions Control Tenneco, Sango, Sejong, Lihe, Calsonic Kansei BYD (integrated supplier) Source: Company data, Credit Suisse research

European Automotive Suppliers 64 20 January 2015

JVs only a minor part (Geely/Limin and Chang'an main JVs) We estimate that revenues related to JVs account for only €200m vs. total sales in China of €2.3bn in 2014E. Faurecia's major JVs are with Geely/Limin and Chang'an.  Geely/Limin: In July 2010, Faurecia set up a strategic alliance with Geely and Limin to supply interior and exterior products to all Geely brands in China. Limin (established 1979) is the main supplier of Geely for interior and exterior products.  Chang'an: In April 2013, Faurecia and Chang'an signed a 50/50 joint venture, CSM Faurecia Automotive Systems Company Ltd (CFAS) for automotive interiors. Total planned investments are in excess of €35m. Products include instrument panels, door panels, centre consoles and cockpit modules. Sales have been indicated at €20m, €150m and €210m for 2016, 2018 and 2020.

Figure 87: Overview fully consolidated subsidiaries Fully consolidated Interest parent company Stake Faurecia Exhaust Systems Changchun Co., Ltd (ex-CLEC) 51% 100% Changchun Faurecia XUNYANG Automotive Seat Co. Ltd, (CFXAS) 60% 100% Faurecia -GSK (Wuhan) Automotive Seating Co., Ltd 51% 100% Faurecia (Wuxi) Seating Components Co., Ltd 100% 100% Faurecia Tongda Exhaust Systems Wuhan Co., Ltd (ex-TEEC) 50% 100% Faurecia Honghu Exhaust Systems Shanghai Co., Ltd 51% 100% Faurecia (Changchun) Automotive Systems Co., Ltd 100% 100% Faurecia Emissions Control Technologies Development (Shanghai) Co., Ltd 100% 100% Faurecia (Wuhan) Automotive Seating Co., Ltd 100% 100% Faurecia (Shanghai) Automotive Systems Co., Ltd 100% 100% Faurecia (Qingdao) Exhaust Systems Co., Ltd 100% 100% Faurecia (Wuhu) Exhaust Systems Co., Ltd 100% 100% Faurecia (China) Holding Co., Ltd 100% 100% Faurecia (Guangzhou) Automotive Systems Co., Ltd 100% 100% Faurecia Emissions Control Technologies (Shanghai) Co., Ltd 100% 100% Faurecia Emissions Control Technologies (Chongqing) Co., Ltd 73% 100% Faurecia Emissions Control Technologies (Yantai) Co., Ltd 100% 100% Faurecia (Chengdu) Emissions Control Technologies Co., Ltd 51% 100% Faurecia (Nanjing) Automotive Systems Co., Ltd 100% 100% Faurecia (Shenyang) Automotive Systems Co., Ltd 100% 100% Faurecia (Wuhan) Automotive Components Systems Co., Ltd 100% 100% Changchun Faurecia Xunyang Interior Systems Co., Ltd 60% 100% Chongqing Guangneng Faurecia Interior Systems Co., Ltd 50% 100% Chengdu Faurecia Limin Automotive Systems Co., Ltd 51% 100% Faurecia (Yancheng) Automotive Systems Co., Ltd 100% 100% Faurecia NHK (Xiangyang) Automotive Seating Co., Ltd 51% 100% Faurecia Emissions Control Technologies (Beijing) Co., Ltd 100% 100% Faurecia Emissions Control Technologies (Nanchang) Co., Ltd 51% 100% Faurecia Emissions Control Technologies (Ningbo) Co., Ltd 91% 100% Faurecia Emissions Control Technologies (Foshan) Co., Ltd 51% 100% Foshan Faurecia Xuyang Interior Systems Co., Ltd 60% 100% Faurecia Emissions Control Technologies (Ningbo Hangzhou) Co., Ltd 66% 100% Source: Company data, Credit Suisse research

European Automotive Suppliers 65 20 January 2015

Figure 88: Overview of JVs Companies accounted for at equity Interest parent company Stake JV partner Changchun Xuyang Faurecia Acoustics & Soft Trim Co., Ltd 40% 40% JV Changchun Xuyang Industry, Faurecia and Shanghai Auto Carpet factory Zhejiang Faurecia Limin Interior & Exterior Systems Co., Ltd 50% 50% Geely and Limin Changchun Huaxiang Faurecia Automotive Plastic 50% 50% JV partner Ningbo Huanzhong Plastic Components Co., Ltd Products Co., Ltd Xiangtan Faurecia Limin Interior & Exterior Systems Co., Ltd 50% 50% Geely and Limin Lanzhou Faurecia Limin Interior & Exterior Systems Co., Ltd 50% 50% Geely and Limin Jinan Faurecia Limin Interior & Exterior Systems Co., Ltd 50% 50% Geely and Limin Dongguan CSM Faurecia Automotive Systems Co., Ltd 50% 50% JV partner Chang'an Source: Company data, Credit Suisse research

European Automotive Suppliers 66 20 January 2015

Valuation and key risks Our valuation is based on two equally weighted methodologies to capture both the long- and short-term earnings potential:

■ 2015 EV/EBITDA: To capture near-term earnings potential, we take our 2015 EBITDA estimate and, based on historical data and peer group comparison, apply a multiple of 4.5x, which is ~8% below the peak recorded in 2010-2013 and 15% above the average for the same period; this model yields a fair value of €37.5 per share.

Figure 89: Our model yields a fair value of €37.5 per share €m unless stated Assumptions 2015E EBITDA 1400 Multiples 2010-2013 avg 3.9x high 4.9x low 2.7x

Assumed multiple 4.5x vs. avg 14.9% vs. high -8.3% vs. low 68.7% EV 6301 Equity adjustments 1705 Equity value 4596 Number of shares (m) 122.6 per share (euro) 37.5 Source: Company data, Credit Suisse estimates

■ The Credit Suisse HOLT tool yields a warranted price per share of €51.8, based on a discount rate of 5.6%. However, to reflect a higher risk premium (cost of capital), we apply a discount rate of 7% to derive our target price. Key potential upside risks:

■ Stronger-than-expected volume recovery, particularly in Europe

■ Consolidation in interior could structurally lift margins

■ Major new order wins Key potential downside risks:

■ Poor management execution (operationally and strategically)

■ Potential Peugeot stake reduction (albeit unlikely in our view)

■ Market share losses (loss of major orders)

European Automotive Suppliers 67 20 January 2015

Credit Suisse HOLT valuation Credit Suisse forecasts for 2014-2018 The CFROI chart (Figure 90) reflects our forecasts for sales, margins and returns. Based on our assumptions, HOLT calculates an average CFROI of 11.5% for 2014-2018. HOLT incorporates a discount rate of 5.6% for the explicit period of five years. Based on our explicit forecasts, HOLT calculates asset growth of 1.1% in 2014, which is expected to decline to 0.2% by 2018. HOLT assumptions beyond a five-year window Beyond the five-year window, HOLT assumes the CFROI and discount rate fade to 6%, while asset growth fades to 2.5%, incorporating the economic reality of competition and causing higher returns and growth to regress to the mean. HOLT yields a warranted value of €51.8 per share, with the explicit forecast representing 24% of the total EV and the terminal forecast accounting for 76%.

European Automotive Suppliers 68 20 January 2015

Figure 90: HOLT valuation—warranted price €51.8

FAURECIA SA (EPED)

Current Price: EUR 33.30 Warranted Price: EUR 51.77 Valuation date: 16-Jan-15

Sales Growth (parallel % point change to forecasts) Dec 12A Dec 13A Dec 14E Dec 15E Dec 16E

in EUR -2.0% -1.0% 0.0% 1.0% 2.0% Sales Growth, % 7.3 3.8 3.2 6.1 7.6 EBITDA Mgn, % 5.6 5.9 6.4 7.1 7.7 -2.0% -64% -54% -43% -31% -18% Asset Turns, x 1.94 2.0 2.0 2.1 2.3

-1.0% -20% -7% 6% 21% 37% CFROI®, % 6.7 7.5 8.1 10.0 12.6 Disc Rate, % 6.9 6.1 5.6 5.6 5.6 0.0% 24% 39% 55% 73% 91%

Asset Grth, % 13.2 -0.1 1.1 0.6 -3.5 to to forecasts) 1.0% 68% 86% 104% 124% 146% Value/Cost, x 0.9 1.3 1.5 1.4 1.4

Economic PE, x 13.8 17.9 18.3 14.3 11.1 2.0% 112% 132% 153% 176% 200%

EBITDA MarginEBITDA (parallel % point change Leverage, % 59.0 50.5 41.7 40.8 34.7

More than Sales Growth (%) More than 10% Within 10% 60 10% upside downside 50 40 30 CFROI & Discount Rate (in %) 20 10 16 0 14 -10 12 -20 -30 10 2009 2011 2013 2015 2017 8 6 EBITDA Margin 9 4 8 2 7 0 6 2009 2011 2013 2015 2017 5 Historical CFROI Historical Transaction CFROI 4

Forecast CFROI Forecast CFROI 3 HOLT HOLT - Credit Analyst Data Suisse Scenario 2 Asset Growth (in %) 1 0 20 2009 2011 2013 2015 2017

15 Asset Turns (x) 10 2.5 5 2.0 0 1.5 -5 1.0 -10 2009 2011 2013 2015 2017 0.5 Historical Asset Growth Rate Forecast Growth Forecast Growth RAGR 0.0 2009 2011 2013 2015 2017

Source: Credit Suisse HOLT®. CFROI and HOLTare trademarks or registered trademarks of Credit Suisse Group AG or its affiliates in the United States and other countries .

Source: Company data, Credit Suisse HOLT

European Automotive Suppliers 69 20 January 2015

Financial statements

Figure 91: Income statement €m unless stated 2013 2014E 2015E 2016E 2017E Sales 18,028.6 18,602.1 19,733.4 21,232.7 22,807.1 Cost Of Sales -16,636.1 -17,076.8 -18,010.6 -19,307.4 -20,670.7 Gross Profit 1,392.5 1,525.3 1,722.8 1,925.4 2,136.5 Gross Profit Margin 7.7% 8.2% 8.7% 9.1% 9.4% Operating costs -854.2 -863.8 -884.5 -893.0 -900.3 Operating profit 538.3 661.6 838.3 1,032.3 1,236.2 Net interest -187.9 -163.0 -153.0 -136.0 -121.0 Others -153.2 -120.0 -35.0 -35.0 -35.0 Pre-tax profit 197.2 378.6 650.3 861.3 1,080.2 Income taxes -64.7 -117.4 -208.1 -275.6 -345.7 Profit after tax 132.5 261.2 442.2 585.7 734.5 Share of net income of associates 14.0 16.0 18.0 20.0 22.0 Net income continued operations 146.5 277.2 460.2 605.7 756.5 Discontinued operations -3.1 0.0 0.0 0.0 0.0 Consolidated net income 143.4 277.2 460.2 605.7 756.5 Minorities -55.8 -55.0 -75.0 -87.0 -103.0 Net income for shareholders 87.6 222.2 385.2 518.7 653.5

Basic earnings (loss) per share (in €) 0.79 1.81 3.14 4.23 5.33 Diluted earnings (loss) per share (in €) 0.79 1.81 3.14 4.23 5.33

Weighted number of shares 111.1 122.6 122.6 122.6 122.6

Dividend per share 0.30 0.45 0.60 0.70 0.85 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 70 20 January 2015

Figure 92: Balance sheet €m unless stated 2013 2014E 2015E 2016E 2017E Goodwill 1,297.1 1,297.1 1,297.1 1,297.1 1,297.1 Intangible assets 686.2 822.4 962.9 1,108.9 1,261.6 Property, plant and equipment 2,027.9 2,133.5 2,236.5 2,342.5 2,447.5 Investments in associates 88.7 88.7 88.7 88.7 88.7 Other equity interests 13.9 13.9 13.9 13.9 13.9 Other non-current financial assets 49.4 49.4 49.4 49.4 49.4 Other non-current assets 18.9 18.9 18.9 18.9 18.9 Deferred tax assets 161.8 161.8 161.8 161.8 161.8 Total non-current assets 4,343.90 4,585.71 4,829.18 5,081.13 5,338.85 Inventories, net 1,123.4 1,083.4 1,040.0 1,000.0 1,074.1 Trade accounts receivables 1,680.7 1,680.0 1,720.0 1,750.0 1,800.0 Other operating receivables 288.1 288.1 288.1 288.1 288.1 Other receivables 184.2 184.2 184.2 184.2 184.2 Other current financial assets 8.7 8.7 8.7 8.7 8.7 Cash and cash equivalents 701.8 760.0 823.7 477.6 705.0 Total current assets 3,986.9 4,004.4 4,064.7 3,708.6 4,060.2 Assets held for sale 0.0 0.0 0.0 0.0 0.0 Total Assets 8,330.8 8,590.1 8,893.9 8,789.7 9,399.0

Shareholders Equity 1,501.8 1,687.2 2,017.3 2,462.4 3,030.1 Minority interest 140.5 167.5 212.5 267.5 338.5 Total shareholders equity 1,642.3 1,854.7 2,229.8 2,729.9 3,368.6 Total Long term provisions 283.5 283.5 283.5 283.5 283.5 Non current financial liabilities 1,308.8 1,308.8 1,207.5 593.2 533.8 Other non current liabilities 0.6 0.6 0.6 0.6 0.6 Deferred tax liabilities 19.6 19.6 19.6 19.6 19.6 Total non current liabilities 1,612.5 1,612.5 1,511.2 896.9 837.5 Short term provisions 223.2 203.2 203.2 203.2 203.2 Current financial liabilities 920.8 920.8 920.8 920.8 920.8 Prepayments from customers 169.4 169.4 169.4 169.4 169.4 Trade Payables 3,053.1 3,120.0 3,150.0 3,160.0 3,190.0 Accrued taxes and payroll costs 517.2 517.2 517.2 517.2 517.2 Sundry payables 192.3 192.3 192.3 192.3 192.3 Total Current Liabilities 5,076.0 5,122.9 5,152.9 5,162.9 5,192.9 Liabilities linked to assets held for sales 0.0 0.0 0.0 0.0 0.0 Total Equity & liabilities 8,330.8 8,590.1 8,893.9 8,789.7 9,399.0 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 71 20 January 2015

Figure 93: Cash flow statement €m unless stated 2013 2014E 2015E 2016E 2017E Operating cash flow ex working capital 563.0 810.0 1022.2 1198.6 1382.7 Change in working capital 364.4 87.6 33.4 20.0 -94.1 Operating cash flow 927.4 897.6 1055.6 1218.6 1288.5

CAPEX PPE -518.0 -468.8 -470.0 -483.9 -496.2 Other investing cash flow -304.9 -305.8 -335.5 -361.0 -387.7 Cash flow from investment activities -822.9 -774.6 -805.5 -844.9 -883.9

Dividend payments 0.0 -36.8 -55.2 -73.6 -85.8 Other financing cash flow 37.7 -28.00 -131.30 -646.30 -91.40 Cash flow from financing 37.7 -64.8 -186.5 -719.9 -177.2

Impact of exchange rate changes on cash and cash -27.7 0 0 0 0 equivalents Net flows from discontinued operations -40.7 0 0 0 0 Change in cash and equivalent 73.8 58.2 63.6 -346.1 227.4

Cash at the beginning of the period 628.0 701.8 760.0 823.7 477.6 Cash at the end of the period 701.8 760.0 823.7 477.6 705.0 Source: Company data, Credit Suisse estimates

Figure 94: Divisional estimates €m unless stated 2013 2014E 2015E 2016E 2017E Sales Automotive Seating 5,218.9 5,229.9 5,734.3 6,412.7 7,082.2 Emissions Control Technologies 6,350.5 6,689.8 7,148.8 7,694.4 8,294.2 Interior Systems 4,560.0 4,714.7 4,836.3 5,032.9 5,239.4 Automotive Exteriors 1,899.2 1,967.7 2,014.0 2,092.7 2,191.3 Total 18,028.6 18,602.1 19,733.4 21,232.7 22,807.1

EBIT Automotive Seating 217.4 224.1 314.7 391.3 466.9 Emissions Control Technologies 199.0 253.9 303.3 362.7 428.7 Interior Systems 84.0 133.0 155.2 191.1 228.8 Automotive Exteriors 37.9 50.6 65.1 87.3 111.8 Total 538.3 661.6 838.3 1,032.3 1,236.2 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 72 20 January 2015

Europe / Sweden Auto Parts & Equipment

Autoliv (ALV.N) Rating NEUTRAL*

Price (16 Jan 15, US$) 102.11 Target price (US$) 108.00¹ Market cap. (US$ m) 9,244.24 Slowing revenue growth and cost pressures Enterprise value (US$ m) 9,216.3 challenge profitability

*Stock ratings are relative to the coverage universe in each ■ Outlook—cost pressures rising with slowing revenue growth: Organic analyst's or each team's respective sector. ¹Target price is for 12 months. sales growth has decelerated from +44% to just +3.8% over the past four quarters. Deteriorating mix is cited as a problem but the company claims it is Research Analysts temporary. However, China's average safety content per vehicles has barely Fei Teng risen for the past four to five years, undermining the structural content 44 20 7883 9978 growth element critical for China outperformance. Wage inflation of 14% per [email protected] year over the past five years implies that total personnel costs have risen Alexander Haissl more than revenues for the past three years and will likely do so again in 44 20 7888 8507 [email protected] 2014. This pressures margins to the downside until sales growth can Mike Dean accelerate meaningfully again, likely only after the 2018 China-NCAP 44 20 7883 2371 revisions. [email protected] ■ Market position—mature player and market share leader: Autoliv already Specialist Sales: Andrew Bell supplies to almost all OEMs in China, including around 20% of sales to 44 20 7888 0479 [email protected] domestic OEMs, roughly the average of our coverage. However, domestic OEMs tend to be more reluctant to increase safety content. Competitors on

key products like airbags and seat belts are global players such as TRW and Takata, while domestic competitors are more involved in markets like steering wheels and tier 2 products like seat belt webbing and textiles. ■ Risks—safety content growth is challenging: The next significant step up in CNCAP safety standards is in 2018, which means the next three years could continue a trend of little increase in safety content. Also, on the consumer side, there seems to be a lack of demand for safety features, which encourages OEMs to hold back on adding safety content. ■ Impact—China structural growth not as certain as perceived: Increasing safety content per vehicle is the primary bull case for Chinese outperformance, but we think it is overestimated until at least until 2018. ■ Valuation—Neutral, target price $108: We value Autoliv on an equal- weighted average of 8.7x 2015 EV/EBITDA and our HOLT valuation. We are 3% above the consensus on sales and 9% below on EBIT for 2015. Share price performance Financial and valuation metrics

Year 12/13A 12/14E 12/15E 12/16E 105 Revenue (US$ m) 8,803.4 9,271.7 9,886.5 10,656.5 85 EBITDA (US$ m) 1,047.40 984.26 1,088.11 1,207.62 Adjusted Net Income (US$ m) 557.90 509.36 506.60 570.05 65 CS adj. EPS (US$) 5.82 5.67 6.01 6.76 Prev. EPS (US$) — — — — Price Price relative ROIC (%) 15.88 16.31 14.87 15.63 P/E (adj., x) 17.55 18.02 17.00 15.11 The price relative chart measures performance against the S&P P/E rel. (%) 94.4 103.9 105.7 105.5 500 INDEX which closed at 2019.42 on 16/01/15 EV/EBITDA 8.3 9.4 8.9 7.9 On 16/01/15 the spot exchange rate was US$1.16/Eu 1. - Eu .87/US$1 Dividend (12/14E, US$) 2.13 IC (12/14E, US$ m) 3,646.72

Performance Over 1M 3M 12M Dividend yield (%) 2.1 EV/IC 2.5 Absolute (%) -2.6 8.7 12.2 Net debt (12/14E, US$ m) -27.9 Current WACC 7.40 Net debt/equity (12/14E, %) -0.76 Free float (%) 91.34

Relative (%) -6.5 -5.8 7.8 BV/share (12/14E, US$) 40.8 Number of shares (m) 90.53

Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates.

European Automotive Suppliers 73 20 January 2015

Autoliv ALV.N Price (16 Jan 15): US$102.11, Rating: NEUTRAL, Target Price: US$108.00 Income statement (US$ m) 12/13A 12/14E 12/15E 12/16E Per share data 12/13A 12/14E 12/15E 12/16E Revenue (US$ m) 8,803.4 9,271.7 9,886.5 10,656.5 No. of shares (wtd avg) 96 90 84 84 EBITDA 1,047 984 1,088 1,208 CS adj. EPS (US$) 5.82 5.67 6.01 6.76 Depr. & amort. (286) (310) (326) (352) Prev. EPS (US$) — — — — EBIT (US$) 808 794 812 906 Dividend (US$) 2.00 2.13 2.24 2.54 Net interest exp. (29) (63) (63) (63) Div yield 1.96 2.09 2.20 2.49 Associates 7 8 8 8 Dividend payout ratio 34.38 37.58 37.32 37.61 Other adj, (6) (6) (6) (6) Free cash flow per share 4.72 3.09 3.43 3.72 PBT (US$) 781 733 751 845 (US$) Income taxes (244) (184) (224) (254) Key ratios and 12/13A 12/14E 12/15E 12/16E Profit after tax 537 549 527 591 valuation Minorities (4) (4) (4) (5) Growth (%) Preferred dividends — — — — Sales 6.5 5.3 6.6 7.8 Associates & other 25 (36) (16) (16) EBIT 0.7 (1.8) 2.3 11.6 Net profit 558 509 507 570 Net profit 0.7 (8.7) (0.5) 12.5 Other NPAT adjustments (72) (84) (34) (34) EPS (0.1) (2.6) 6.0 12.5 Reported net income 486 425 473 536 Margins (%) EBITDA margin 11.9 10.6 11.0 11.3 Cash flow (US$) 12/13A 12/14E 12/15E 12/16E EBIT margin 9.2 8.6 8.2 8.5 EBIT 808 794 812 906 Pretax margin 8.9 7.9 7.6 7.9 Net interest (29) (63) (63) (63) Net margin 6.3 5.5 5.1 5.3 Cash taxes paid — — — — Valuation metrics (x) Change in working capital (9) (59) (77) (102) EV/sales 0.99 0.99 0.98 0.90 Other cash & non-cash items 68 51 92 84 EV/EBITDA 8.3 9.4 8.9 7.9 Cash flow from operations 838 723 764 825 EV/EBIT 10.8 11.6 11.9 10.6 CAPEX (386) (445) (475) (512) P/E 17.6 18.0 17.0 15.1 Free cashflow adj. — — — — P/B 2.4 2.5 2.5 2.3 Free cash flow to the firm 452 278 289 313 Asset turnover 1.3 1.2 1.3 1.3 Acquisitions (2) — — — ROE analysis (%) Divestments 6 5 5 5 ROE stated-return on 12.5 11.1 13.5 15.2 Other investment/(outflows) 4 — — — equityROIC 15.9 16.3 14.9 15.6 Cash flow from investments (377) (440) (470) (507) Interest burden 0.97 0.92 0.92 0.93 Net share issue/(repurchase) (148) (560) (570) — Tax rate 33.3 30.0 32.0 32.0 Dividends paid (194) (194) (192) (218) Financial leverage 0.16 0.44 0.47 0.43 Issuance (retirement) of debt (4) 977 — — Credit ratios (%) Other 42 (977) — — Net debt/equity (12.5) (0.8) 13.0 9.2 Cash flow from financing (304) (755) (762) (218) Net debt/EBITDA (0.48) (0.03) 0.40 0.28 activitiesEffect of exchange rates (2) — — — Interest coverage ratio 27.9 12.6 12.9 14.4 Changes in Net Cash/Debt 155 (472) (468) 100 . Net debt at start (345) (500) (28) 440 Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities Change in net debt (155) 472 468 (100) (EUROPE) LTD. Estimates. Net debt at end (500) (28) 440 340

Balance sheet (US$ m) 12/13A 12/14E 12/15E 12/16E Assets Cash and cash equivalents 1,118 1,624 1,155 1,256 105 Accounts receivable 1,688 1,778 1,896 2,043 Inventory 662 700 750 806 85 Other current assets 232 232 232 232 Total current assets 3,700 4,334 4,034 4,337 65 Total fixed assets 1,336 1,483 1,641 1,809 Intangible assets and goodwill 1,687 1,670 1,655 1,642 Investment securities — — — — Other assets 259 259 259 259 Price Price relative Total assets 6,983 7,746 7,589 8,048 Liabilities The price relative chart measures performance against the S&P 500 INDEX which Accounts payable 1,200 1,270 1,360 1,461 closed at 2019.42 on 16/01/15 Short-term debt 339 68 68 68 On 16/01/15 the spot exchange rate was US$1.16/Eu 1. - Eu .87/US$1 Other short term liabilities 889 931 969 1,004 Total current liabilities 2,428 2,269 2,398 2,534 Long-term debt 279 1,528 1,528 1,528 Other liabilities 275 275 275 275 Total liabilities 2,983 4,072 4,200 4,336 Shareholders' equity 3,981 3,655 3,368 3,690 Minority interest 19 20 21 21 Total equity & liabilities 6,983 7,746 7,589 8,048 Net debt (US$ m) (500) (28) 440 340

European Automotive Suppliers 74 20 January 2015

Dependent on passive safety in China

Figure 95: Autoliv in China—key information Revenue (2013) $1,405.5m (16% of group) Market share (2013E) 35% (passive safety) CSe operating margin ~12% Subsidiaries structure 15 consolidated subsidiaries + 1 JV Employees (2013) 8,878 Facilities 12 manufacturing facilities Key products Airbags, seat belts, steering wheels, safety electronics Source: Company data, Credit Suisse estimates Regulatory progression should be supportive long-term China has substantially lagged European and North American regulators in implementing safety protocols. The Chinese C-NCAP testing framework was established only in 2006 and lacked credibility until it was significantly revised in 2012. A third set of revisions are due in 2015 before a bigger overhaul in 2018, which will likely include provisions for active safety. By 2018, C-NCAP plans to be equivalent to EuroNCAP on passive safety. Safety content per vehicle in China has remained unimpressive with seemingly little growth, particularly among the local OEMs (some cars sell with no airbags as standard). The safety content in China is around 25% lower than the global average of $260 per vehicle according to Autoliv. In the long term, we expect this to rise as safety competitiveness begins to take more precedence over price competitiveness.

Figure 96: China safety content per vehicle (CPV, $) has grown slower than globally 500 China CAGR: +2.4% Global CAGR: +3.6% 400

300 300 300 260 250 260 220 200 200 200 200 200

100

0 2009 2010 2011 2012 2013

China Global

Source: Autoliv data

China outperformance in downward trend, dragged by low-content local OEMs Revenues in China have grown at a CAGR of 40% since 2008, and Autoliv's market share in passive safety reached 35% in 2012. The pace of growth slowed in 2012 to just 12%, though new models helped boost it again in 2013 to 28%. In 9M14, sales growth slowed again to just 12%. As with other European auto suppliers, we think that profitability in the Chinese market is a few percentage points better than its global average, driven by cheaper labour costs (though this is rising) and an easier pricing environment.

European Automotive Suppliers 75 20 January 2015

Figure 97: China's revenue growth remains double digits Figure 98: China organic sales growth vs. auto production China revenue $m (lhs), growth rate (rhs) 1,600 100% 50% 86.9% 1,405.5 1,400 40% 80% 1,200 68.0% 1,097.6 1,085.2 981.9 30% 1,000 60% 813.0 800 20%

600 40% 484.0 28.1% 20.8% 10% 400 20% 11.8% 12.0% 0% 200 1.8% 4.6% 3.4% 1.8% 10.5% 4.3% 4.9% 23.2% 4.8% 5.5% -2.2% 0 0% -10% 2009 2010 2011 2012 2013 9M2014 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14

Revenue (lhs) Growth rate (rhs) Outperformance Organic sales growth Auto production growth

Source: Company data Source: Company data The most recent quarter in China highlights Autoliv's struggles to maintain its previous outperformance over auto production growth, with organic sales 220bps below the growth rate of the market. While irregular call-offs by customers slowed sales, we also think that Autoliv's attempts to gain more market share with local OEMs is proving detrimental to safety content growth. In 2012, 16% of China revenue came from Chinese OEMs, a figure that the company expects to have risen to 23% in 2014 (over 100% growth in sales). Increased partnerships with local OEMs may improve contract wins in the long term, but local OEMs are notorious for skimping on safety equipment, and were likely the driving factor causing the lower-than-expected sales in 3Q14.

Figure 99: Split of Autoliv China sales by OEM origin, Figure 100: Company estimate of split of China sales, 2012 2014

7% 7%

31% 18% 37% 20% European European Chinese Chinese US US Japanese Japanese Korean Korean

22% 19%

23% 16%

Source: Company data Source: Company data (company estimates)

Cost and pricing pressures versus supply chain integration A major margin burden now comes from wage inflation, wherein China is likely one of the regions with the fastest increasing wage costs for Autoliv. Autoliv itself reports wages rising between 10-15% per annum, and according the China NBS data, manufacturing wages have risen by a 14% CAGR in the five years prior to 2013. Factoring in underlying headcount growth, we find that since 2011, growth in personnel costs have in fact outstripped revenue growth. The most recent 2013 annual figures show personnel costs rose by 3.6% more than revenue, following a 13% difference in 2012 and 28% difference in 2011 (Figure 101).

European Automotive Suppliers 76 20 January 2015

Figure 101: China headcount growth plus wage inflation Figure 102: Revenue per employee—China vs. global vs. revenue growth 100% 180,000

80% 160,000

60%

140,000 40%

+ Wage inflation 20% 120,000

0% 2009 2010 2011 2012 2013 100,000 2009 2010 2011 2012 2013 China headcount growth Total personnel cost growth China revenue growth China revenue per employee Global revenue per employee

Source: Company data, NBS Source: Company data Relevant steps are being taken to address the impact of higher personnel costs. Figure 102 shows how the productivity per employee in China has risen at CAGR 14.4% in 2008- 13, while globally, it has fallen -2.2% CAGR in the same period. This suggests that (1) increased workforce efficiency (e.g. automation) is occurring to offset higher labour requirements, and (2) that pricing pressure is softer in China than globally. Increased automation is also being coupled with increased integration of the local supply chain. In 2014, a new textile plant was inaugurated to integrate production of airbag cushions vertically, and in 2013, a propellant plant was opened to produce gas generant for airbags. This brought the localisation rate of the supply chain to 70%. We think that overall, investment in cost-savings measures can roughly offset rapid growth of personnel costs. With component failure rates also stabilising at very low levels, it is probable that quality control costs have also fallen to normalised levels. According to our estimates, Autoliv enjoys higher-than-group average margins in China, though we think this is likely to revert to the group average over time as sales growth slows faster than costs. Few major local competitors We believe major competitors in China are the same as global competitors such as Takata, TRW, Delphi and KSS. Due to passive safety equipment being driven by reliability and quality assurance, we think local players are as yet unable to compete on failure rates, particularly on contracts for foreign OEMs. Domestic airbag maker Jinheng Automotive likely has a small share of the market. Additionally, small players face cost pressures from lack of scale, which further impairs their ability to compete. In steering wheels, there are a larger number of competitors, including Fawer and BHAP. Recent investments Since 2011, Autoliv has invested c.$90m in new facilities and expansions in China at four locations, including three new plants. However, no new investments were announced in 2014 other than the signing of an agreement with Great Wall.  The largest investment was $50m in 2013 for a textile facility in Nantong, near Shanghai, which vertically integrated textile manufacturing in China. The project consisted of a weaving plant with 150 employees and an airbag cushion plant with 1,000 employees.  In 2012, $33m was spent on a propellant manufacturing facility in Changzhou, also near Shanghai and $8m on expanding a technology centre in Shanghai in 2012.  In 2011, $6m was spent replacing the Changchun plant, which produces seatbelts and airbags, and employs 450 staff.

European Automotive Suppliers 77 20 January 2015

List of subsidiaries and facilities Autoliv started doing business in China in 1989 and the country now generates 16% of total revenues. The Chinese operations are structured as 16 subsidiaries, including one joint venture. The majority of revenues are likely derived from sales of passive safety devices such as airbags and seatbelts. Autoliv operates 12 production facilities, with production of the full range of passive safety components. Active safety production is not yet present, and will no doubt depend on when regulatory forces begin to drive active safety content growth.

Figure 103: Autoliv's Chinese subsidiaries Subsidiaries Ownership Autoliv (Beijing) Vehicle Safety Systems Co Ltd 51% Autoliv (Changchun) Vehicle Safety Systems Co Ltd 100% Autoliv (China) Electronics Co Ltd 100% Autoliv (China) Inflator Co Ltd 100% Autoliv (China) Steering Wheel Co Ltd 100% Autoliv (China) Automotive Safety Systems 100% Autoliv (Guangzhou) Vehicle Safety Systems Co Ltd 100% Autoliv (Nanjing) Vehicle Safety Systems Co Ltd 100% Autoliv (Shanghai) Vehicle Safety Systems Co Ltd 100% Autoliv (Shanghai) Management Co Ltd 100% Autoliv (Shanghai) Vehicle Safety System Technical Center Co Ltd 100% Changchun Hongguang-Autoliv Vehicle Safety Systems Co Ltd 30% Autoliv Shenda (Tai Cang) Automotive Safety Systems Co Ltd 60% Autoliv Shenda (Nanjing) Automotive Components Co Ltd 100% Autoliv (Jiangsu) Automotive Safety Components Co Ltd 100% Autoliv Asia Management (Shanghai) Co Ltd 100% Source: Company data, Credit Suisse research

Figure 104: Autoliv China manufacturing facilities Plant Product Location Started Changcun (ACC) Seatbelts, airbags Changchun 2002 Beijing (ACB) Seatbelts Beijing Acquired from Delphi 2010 Shanghai (ACS) Airbags Shanghai 1999 Shanghai (ACW) Steering wheels Shanghai 2006 Shanghai (ACI) Inflators Shanghai 2004 Shanghai (ACE) Safety electronics Shanghai 2004 Jiangsu (CNF) Fabrics/textiles Jiangsu 2013 Jiangsu (CNC) Airbag cushions Jiangsu 2013 Jiangsu (ACX) Seatbelt webbing Jiangsu 1995 Jiangsu (ACP) Propellant Jiangsu 2013 Jiangsu (NHA) Seatbelts Jiangsu 1990 Guangzhou (ACG) Seatbelts, airbags Guangzhou 2005 Source: Company data, Credit Suisse research

European Automotive Suppliers 78 20 January 2015

Valuation and key risks Our valuation is based on two methodologies, equally weighted to capture long-term as well as short-term earnings potential. 2015 EV/EBITDA: To capture near-term earnings potential, we take our 2015 EBITDA estimate and, based on historical data and peer group comparison, apply a multiple of 8.7x, which is ~12% below the top end of the trading range, but ~52% above the average multiple during the period 2010-2013. This model yields a fair value of $105 per share.

Figure 105: Model yields fair value of $105 per share Assumptions 2015e EBITDA 1,088 Multiples 2010-2013 Avg. 5.7x High 10.0x Low 3.5x

Assumed multiple 8.7x vs. avg 51.8% vs. high -12.8% vs. low 146.8% EV 9,467 Equity adjustments 597 Equity value 8,870 Number of shares 84.34 per share 105.2 Source: Company data, Credit Suisse estimates The Credit Suisse HOLT tool yields a warranted price per share of $140.1, based on a 3.9% discount rate. However, for our target price, we apply a discount rate of 5.0% to reflect a higher risk premium. Key potential upside risks: Faster-than-expected penetration of active safety components More cost savings from footprint adjustments Value accretive acquisitions Key potential downside risks: Cost pressure as wages rise in low cost countries and further relocation is limited Inability to make further earnings-accretive acquisitions in active safety Active safety regulations and standards are delayed or loosened

European Automotive Suppliers 79 20 January 2015

Credit Suisse HOLT valuation Credit Suisse forecasts for 2014-2018 The CFROI chart (Figure 106) reflects our forecasts for sales, margins and returns. Based on our assumptions, HOLT calculates an average CFROI® of 9.2% for 2014-2018. HOLT incorporates a discount rate of 3.9% for the explicit period of five years. Based on our explicit forecasts, HOLT calculates asset growth of 3.9% in 2014, which is expected to become stable by 2018. HOLT assumptions beyond a five-year window Beyond the five-year window, HOLT assumes the CFROI and discount rate fade to 6%, while asset growth fades to 2.5%, incorporating the economic reality of competition and causing higher returns and growth to regress to the mean. HOLT yields a warranted value of $140.1 per share, with the explicit forecast representing 16% of the total EV and the terminal forecast accounting for 84%.

European Automotive Suppliers 80 20 January 2015

Figure 106: HOLT valuation—warranted price $140.1

AUTOLIV SDR (ALIV)

Current Price: USD 104.48 Warranted Price: USD 140.11 Valuation date: 16-Jan-15

Sales Growth (parallel % point change to forecasts) Dec 12A Dec 13A Dec 14E Dec 15E Dec 16E

in USD -2.0% -1.0% 0.0% 1.0% 2.0% Sales Growth, % 0.4 6.5 6.5 6.5 6.5 EBITDA Mgn, % 13.0 12.4 12.4 12.4 12.4 -2.0% 2% 8% 15% 21% 29% Asset Turns, x 0.94 0.9 0.9 1.0 1.0

-1.0% 11% 17% 24% 31% 40% CFROI®, % 9.5 9.3 9.0 9.1 9.3 Disc Rate, % 5.4 4.5 3.9 3.9 3.9 0.0% 19% 26% 34% 42% 51%

Asset Grth, % 7.6 4.7 3.9 3.5 3.1 to to forecasts) 1.0% 28% 36% 44% 52% 62% Value/Cost, x 1.3 1.6 1.8 1.7 1.6

Economic PE, x 13.9 17.5 19.4 18.4 17.2 2.0% 36% 45% 54% 62% 73%

EBITDA MarginEBITDA (parallel % point change Leverage, % 12.8 11.3 9.5 9.9 9.9

More than Sales Growth (%) More than 10% Within 10% 50 10% upside downside 40 30 20 CFROI & Discount Rate (in %) 10 14 0

12 -10 -20 10 -30 2009 2011 2013 2015 2017 8

6 EBITDA Margin 4 18 16 2 14 0 12 2009 2011 2013 2015 2017 10 Historical CFROI Historical Transaction CFROI 8

Forecast CFROI Forecast CFROI 6 HOLT HOLT - Credit Analyst Data Suisse Scenario 4 Asset Growth (in %) 2 0 10 2009 2011 2013 2015 2017 8 6 Asset Turns (x) 1.2 4 1.0 2

0 0.8

-2 0.6

-4 0.4 2009 2011 2013 2015 2017 0.2 Historical Asset Growth Rate Forecast Growth Forecast Growth RAGR 0.0 2009 2011 2013 2015 2017

Source: Credit Suisse HOLT®. CFROI and HOLTare trademarks or registered trademarks of Credit Suisse Group AG or its affiliates in the United States and other countries .

Source: Company data, Credit Suisse HOLT

European Automotive Suppliers 81 20 January 2015

Financial statements

Figure 107: Income statement USDm unless stated 2013 2014E 2015E 2016E 2017E Net sales 8,803.4 9,271.7 9,886.5 10,656.5 11,447.5 Cost of sales -7,098.8 -7,510.8 -8,046.9 -8,645.5 -9,252.4 Gross profit 1,704.6 1,760.9 1,839.6 2,011.0 2,195.1 Gross margin 19.4% 19.0% 18.6% 18.9% 19.2%

SG&A -389.9 -410.6 -437.9 -472.0 -507.0 R&D and engineering expense -489.3 -539.3 -575.1 -619.9 -665.9 Amortization of intangibles -20.4 -17.2 -14.8 -13.2 -12.4 Other income (expense), net -43.6 -120.0 -50.0 -50.0 -50.0 Operating income 761.4 673.8 761.9 856.0 959.8 Operating margin % 8.6% 7.3% 7.7% 8.0% 8.4%

Equity in earnings of affiliates, net of tax 7.3 8.0 8.0 8.0 8.0 Interest income 3.9 4.0 4.0 4.0 4.0 Interest expense -32.9 -67.0 -67.0 -67.0 -67.0 Loss on extinguishment of debt 0.0 0.0 0.0 0.0 0.0 Other financial items, net -5.7 -6.0 -6.0 -6.0 -6.0 Income before taxes 734.0 612.8 700.9 795.0 898.9 Pretax margin % 8.3% 6.6% 7.1% 7.5% 7.9%

Income tax expense -244.1 -183.8 -224.3 -254.4 -287.6 Tax rate % 33.3% 30.0% 32.0% 32.0% 32.0% Net income 489.9 428.9 476.6 540.6 611.2 Minorities 4.1 3.6 4.0 4.5 5.1 Net income attributable 485.8 425.4 472.6 536.1 606.1

Basic NOSH 95.5 89.5 83.9 83.9 83.9 Diluted NOSH 95.9 89.9 84.3 84.3 84.3 Basic EPS 5.09 4.75 5.63 6.39 7.22 Diluted EPS 5.07 4.73 5.60 6.36 7.19

DPS declared 2.02 2.13 2.24 2.54 2.87 DPS paid 2.00 2.13 2.24 2.54 2.87 Payout ratio % 39.5% 45.0% 40.0% 40.0% 40.0%

EPS adj. - items affecting comparability Unusual costs -47.0 -120.0 -50.0 -50.0 -50.0 Adjusted operating income 808.4 793.8 811.9 906.0 1,009.8 Adjusted operating margin % 9.2% 8.6% 8.2% 8.5% 8.8%

Net income adjustment -72.1 -84.0 -34.0 -34.0 -34.0 Net income, adjusted 562.0 512.9 510.6 574.6 645.2 Net income attributable, adjusted 557.9 509.4 506.6 570.1 640.1

Diluted adjusted EPS 5.82 5.67 6.01 6.76 7.59 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 82 20 January 2015

Figure 108: Balance sheet USDm unless stated 2013 2014E 2015E 2016E 2017E Cash and cash equivalents 1,118.3 1,623.8 1,155.5 1,255.9 1,380.1 Receivables, net 1,688.0 1,777.8 1,895.7 2,043.3 2,195.0 Inventories, net 661.8 700.2 750.2 806.0 862.6 Income tax receivables 56.0 56.0 56.0 56.0 56.0 Prepaid expenses 86.1 86.1 86.1 86.1 86.1 Other current assets 90.2 90.2 90.2 90.2 90.2 Total current assets 3,700.4 4,334.1 4,033.6 4,337.5 4,670.0

Property, plant & equipment 1,336.2 1,483.0 1,641.1 1,809.1 1,988.2 Investments & other non-current assets 259.0 259.0 259.0 259.0 259.0 Goodwill 1,610.1 1,610.1 1,610.1 1,610.1 1,610.1 Intangible assets, net 77.3 60.1 45.3 32.1 19.7 Total non-current assets 3,282.6 3,412.2 3,555.5 3,710.3 3,877.0

Total Assets 6,983.0 7,746.3 7,589.1 8,047.8 8,547.0

Short-term debt 339.4 68.3 68.3 68.3 68.3 Accounts payable 1,199.9 1,269.5 1,360.2 1,461.3 1,563.9 Accrued expenses 633.9 675.9 713.9 748.9 780.9 Income tax payable 74.8 74.8 74.8 74.8 74.8 Other current liabilities 180.5 180.5 180.5 180.5 180.5 Total current liabilities 2,428.5 2,269.0 2,397.7 2,533.8 2,668.4

Long-term debt 279.1 1,527.6 1,527.6 1,527.6 1,527.6 Pension liability 147.3 147.3 147.3 147.3 147.3 Other non-current liabilities 127.7 127.7 127.7 127.7 127.7 Total non-current liabilities 554.1 1,802.6 1,802.6 1,802.6 1,802.6

Total Liabilities 2,982.6 4,071.6 4,200.3 4,336.4 4,471.0

Common stock 102.8 102.8 102.8 102.8 102.8 Additional paid-in capital 1,329.3 1,329.3 1,329.3 1,329.3 1,329.3 Retained earnings 2,965.9 3,199.8 3,483.4 3,805.0 4,168.7 Accumulated other comprehensive income 0.5 0.5 0.5 0.5 0.5 (loss) Treasury stock -417.2 -977.6 -1,547.8 -1,547.8 -1,547.8 Total parent shareholders' equity 3,981.3 3,654.8 3,368.2 3,689.9 4,053.5 Non-controlling interest 19.1 19.8 20.6 21.5 22.5 Total equity 4,000.4 3,674.6 3,388.8 3,711.3 4,076.0

Total liabilities and equity 6,983.0 7,746.3 7,589.1 8,047.8 8,547.0

Net debt Total debt 618.5 1,595.9 1,595.9 1,595.9 1,595.9 Cash and cash equivalents -1,118.3 -1,623.8 -1,155.5 -1,255.9 -1,380.1 Debt-related derivatives -11.5 -11.5 -11.5 -11.5 -11.5 Net debt (cash) - company def. -511.3 -39.4 428.9 328.5 204.3 Net debt (cash) - CS def. -499.8 -27.9 440.4 340.0 215.8

Leverage ratio -0.3 0.1 0.5 0.4 0.3 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 83 20 January 2015

Figure 109: Cash flow statement USDm unless stated 2013 2014E 2015E 2016E 2017E Net income 489.9 428.9 476.6 540.6 611.2 Depreciation & amortisation 286.0 310.5 326.3 351.7 377.8 Deferred income tax 35.2 0.0 0.0 0.0 0.0 Loss on extinguishment of debt 0.0 0.0 0.0 0.0 0.0 Undistributed earnings from affiliates -2.7 0.0 0.0 0.0 0.0 Change in receivables -245.5 -89.8 -117.9 -147.6 -151.7 Change in inventories -63.6 -38.4 -50.0 -55.8 -56.6 Change in payables 299.7 69.6 90.6 101.2 102.6 Change in income tax 28.2 0.0 0.0 0.0 0.0 Other net adjustments 10.7 42.0 38.0 35.0 32.0 Changes in operating assets & liabilities 0.0 0.0 0.0 0.0 0.0 Operating cash flow 837.9 722.9 763.6 825.0 915.3

Expenditures for PPE -385.6 -445.0 -474.6 -511.5 -549.5 Proceeds from sale of PPE 6.3 5.0 5.0 5.0 5.0 Acquisition of businesses -2.0 0.0 0.0 0.0 0.0 Net proceeds from divestitures 0.0 0.0 0.0 0.0 0.0 Other 3.9 0.0 0.0 0.0 0.0 Investing cash flow -377.4 -440.0 -469.6 -506.5 -544.5

Net change in short term debt 272.8 -271.1 0.0 0.0 0.0 Issuance of long term debt 0.0 1,248.5 0.0 0.0 0.0 Repayments of long term debt -277.3 0.0 0.0 0.0 0.0 Cash for extinguishment of debt 0.0 0.0 0.0 0.0 0.0 Dividends paid to non-controlling interests -3.3 -2.9 -3.2 -3.6 -4.1 Dividends paid -191.0 -191.4 -189.0 -214.4 -242.4 Shares repurchased -147.9 -560.4 -570.2 0.0 0.0 Common stock and purchase contract issue 0.0 0.0 0.0 0.0 0.0 Common stock options exercised 27.0 0.0 0.0 0.0 0.0 Capital contribution from non-controlling 0.4 0.0 0.0 0.0 0.0 interest Acquisition of subsidiary shares 0.0 0.0 0.0 0.0 0.0 Other 1.0 0.0 0.0 0.0 0.0 Financing cash flow -318.3 222.7 -762.4 -218.1 -246.6

Effect of FX on cash and equivalents -1.6 0.0 0.0 0.0 0.0 Net change in cash 140.6 505.5 -468.4 100.4 124.3

Cash & equivalents at start of period 977.7 1,118.3 1,623.8 1,155.5 1,255.9 Cash & equivalents at end of period 1,118.3 1,623.8 1,155.5 1,255.9 1,380.1 Source: Company data, Credit Suisse estimates

Figure 110: Divisional estimates USDm unless stated 2013 2014E 2015E 2016E 2017E Sales Airbags and associated products 5,686.0 5,887.7 6,172.2 6,565.1 6,959.2 Seatbelts and associated products 2,772.7 2,867.8 3,003.8 3,192.2 3,380.7 Active Safety products 344.7 516.1 710.6 899.2 1,107.6 Total 8,803.4 9,271.7 9,886.5 10,656.5 11,447.5

EBIT (Adj) Passive Safety (Airbags + Seatbelts) 811.8 783.5 769.2 816.0 888.0 Active Safety -3.4 10.3 42.6 89.9 121.8 Total 808.4 793.8 811.9 906.0 1,009.8

EBIT margin % Passive Safety (Airbags + Seatbelts) 9.6% 8.9% 8.4% 8.4% 8.6% Active Safety -1.0% 2.0% 6.0% 10.0% 11.0% Total 9.2% 8.6% 8.2% 8.5% 8.8% Source: Company data, Credit Suisse estimates

European Automotive Suppliers 84 20 January 2015

Europe / Germany Auto Parts & Equipment

Leoni (LEOGn.DE) Rating NEUTRAL*

Price (16 Jan 15, Eu) 52.90 Target price (Eu) 52.90¹ Market cap. (Eu m) 1,728.19 Secure outlook under solid execution Enterprise value (Eu m) 1,987.6

■ Outlook—China earnings should be secure until 2016: Execution *Stock ratings are relative to the coverage universe in each problems in China are unlikely and we expect the two upcoming ramp ups to analyst's or each team's respective sector. be completed on schedule and in budget. With orders secured, a top-line ¹Target price is for 12 months. growth rate of ~15-20% should be achievable until 2016. The company is Research Analysts targeting a doubling of WSD China revenues from €200m in 2012 to €400m Alexander Haissl by 2016. WCS growth may be less rapid, but should continue to make up 44 20 7888 8507 [email protected] nearly one-half of China revenues. Increasing powertrain electrification and Mike Dean hybridisation can also drive content growth. 44 20 7883 2371 [email protected] ■ Market position—low base: We see upside potential to market share, Fei Teng which we estimate is around ~5%, as companies like Delphi and Lear move 44 20 7883 9978 their focus away from the automotive cables. We also see the potential to [email protected] win orders from OEMs that already have business with Leoni in other Specialist Sales: Andrew Bell regions. 44 20 7888 0479 [email protected] ■ Risks—execution and business structure changes: The primary risk is a repeat of the Mexico plant cost overruns scenario occurring in China. However, ramp ups at Chinese plants have good track records. Pressure to enter into JVs could increase if Leoni wants to increase sales to Chinese OEMs. ■ Impact: If the ramp ups progress smoothly in China, growth rates are likely to develop in line with 2016 company targets. However, consensus expectations seem to discount a guidance miss, which suggests some upside potential to expectations on a group-wide basis. ■ Valuation—Neutral, target price €52.9: We value Leoni on an equal- weighted average of 5.2x 2015E EV/EBITDA and our Credit Suisse HOLT valuation. Share price performance Financial and valuation metrics

Year 12/13A 12/14E 12/15E 12/16E 59 Revenue (Eu m) 3,917.9 4,095.9 4,425.5 4,884.3 49 EBITDA (Eu m) 284.14 330.35 396.10 455.59 39 Adjusted Net Income (Eu m) 105.52 137.55 186.75 231.22 CS adj. EPS (Eu) 3.23 4.21 5.72 7.08 29 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Prev. EPS (Eu) — — — — Price Price relative ROIC (%) 12.06 13.34 15.82 17.16 P/E (adj., x) 16.38 12.56 9.25 7.47 The price relative chart measures performance against the P/E rel. (%) 119.2 93.0 75.4 66.7 DEUTSCHE BORSE DAX INDEX which closed at 10167.77 on EV/EBITDA 7.0 6.0 5.0 4.2 16/01/15 On 16/01/15 the spot exchange rate was €1./Eu 1. - Dividend (12/14E, Eu) 1.40 IC (12/14E, Eu m) 1,192.28 Eu .87/US$1 Dividend yield (%) 2.6 EV/IC 1.7

Performance Over 1M 3M 12M Net debt (12/14E, Eu m) 259.5 Current WACC 9.00 Absolute (%) 8.6 25.7 -10.6 Net debt/equity (12/14E, %) 27.8 Free float (%) 100.00

BV/share (12/14E, Eu) 28.5 Number of shares (m) 32.67 Relative (%) 4.7 11.3 -14.9 Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates.

European Automotive Suppliers 85 20 January 2015

Leoni LEOGn.DE Price (16 Jan 15): Eu52.90, Rating: NEUTRAL, Target Price: Eu52.90 Income statement (Eu m) 12/13A 12/14E 12/15E 12/16E Per share data 12/13A 12/14E 12/15E 12/16E Revenue (Eu m) 3,917.9 4,095.9 4,425.5 4,884.3 No. of shares (wtd avg) 33 33 33 33 EBITDA 284 330 396 456 CS adj. EPS (Eu) 3.23 4.21 5.72 7.08 Depr. & amort. (121) (121) (124) (127) Prev. EPS (Eu) — — — — EBIT (Eu) 163 209 272 329 Dividend (Eu) 1.00 1.40 1.70 2.10 Net interest exp. (26) (23) (21) (19) Div yield 1.89 2.65 3.21 3.97 Associates 0.26 0.30 0.35 0.40 Dividend payout ratio 30.96 33.25 29.74 29.67 Other adj, (6) (6) (5) (5) Free cash flow per share 0.96 1.56 2.66 3.06 PBT (Eu) 131 181 246 305 (Eu) Income taxes (25) (44) (59) (73) Key ratios and 12/13A 12/14E 12/15E 12/16E Profit after tax 106 138 187 232 valuation Minorities (0.38) (0.35) (0.40) (0.42) Growth (%) Preferred dividends — — — — Sales 2.9 4.5 8.0 10.4 Associates & other — — — — EBIT (31.4) 28.3 30.0 20.8 Net profit 106 138 187 231 Net profit (32.7) 30.4 35.8 23.8 Other NPAT adjustments — — — — EPS (32.7) 30.4 35.8 23.8 Reported net income 106 138 187 231 Margins (%) EBITDA margin 7.3 8.1 9.0 9.3 Cash flow (Eu) 12/13A 12/14E 12/15E 12/16E EBIT margin 4.2 5.1 6.1 6.7 EBIT 163 209 272 329 Pretax margin 3.3 4.4 5.6 6.2 Net interest (31) (28) (26) (24) Net margin 2.7 3.4 4.2 4.7 Cash taxes paid (24) (44) (59) (73) Valuation metrics (x) Change in working capital (30) (22) (30) (45) EV/sales 0.51 0.49 0.44 0.40 Other cash & non-cash items 109 121 124 127 EV/EBITDA 7.0 6.0 5.0 4.2 Cash flow from operations 187 237 281 314 EV/EBIT 12.2 9.5 7.2 5.9 CAPEX (156) (186) (194) (214) P/E 16.4 12.6 9.3 7.5 Free cashflow adj. — — — — P/B 2.1 1.9 1.6 1.4 Free cash flow to the firm 31 51 87 100 Asset turnover 1.6 1.6 1.7 1.7 Acquisitions — — — — ROE analysis (%) Divestments 3 — — — ROE stated-return on 13.1 15.7 18.6 19.9 Other investment/(outflows) 3 (14) (15) (16) equityROIC 12.1 13.3 15.8 17.2 Cash flow from investments (151) (200) (209) (230) Interest burden 0.80 0.87 0.90 0.93 Net share issue/(repurchase) — — — — Tax rate 19.3 24.0 24.0 24.0 Dividends paid (50) (33) (46) (56) Financial leverage 0.56 0.50 0.41 0.35 Issuance (retirement) of debt (86) — (28) — Credit ratios (%) Other 92 — 28 — Net debt/equity 31.9 27.8 21.7 16.4 Cash flow from financing (43) (33) (46) (56) Net debt/EBITDA 0.93 0.79 0.59 0.45 activitiesEffect of exchange rates (1) — — — Interest coverage ratio 6.3 9.2 12.9 16.9 Changes in Net Cash/Debt (8) 4 27 28 . Net debt at start 256 264 259 233 Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities Change in net debt 8 (4) (27) (28) (EUROPE) LTD. Estimates. Net debt at end 264 259 233 205

Balance sheet (Eu m) 12/13A 12/14E 12/15E 12/16E Assets Cash and cash equivalents 198 202 201 230 59 Accounts receivable 534 547 572 592 Inventory 510 530 570 630 49 Other current assets 90 90 90 90 Total current assets 1,332 1,370 1,434 1,542 39 Total fixed assets 710 794 885 992 29 Intangible assets and goodwill 231 225 219 215 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Investment securities — — — — Other assets 127 127 127 127 Price Price relative Total assets 2,400 2,516 2,665 2,876 Liabilities The price relative chart measures performance against the DEUTSCHE BORSE Accounts payable 699 710 745 780 DAX INDEX which closed at 10167.77 on 16/01/15 Short-term debt 41 41 41 41 On 16/01/15 the spot exchange rate was €1./Eu 1. - Eu .87/US$1 Other short term liabilities 224 224 224 224 Total current liabilities 964 975 1,010 1,045 Long-term debt 421 421 393 393 Other liabilities 188 188 188 188 Total liabilities 1,572 1,583 1,591 1,626 Shareholders' equity 826 931 1,072 1,248 Minority interest 1 2 2 3 Total equity & liabilities 2,400 2,516 2,665 2,876 Net debt (Eu m) 264 259 233 205

European Automotive Suppliers 86 20 January 2015

Ramp ups should lead to harvesting phase We estimate that revenues of €513m from China are roughly evenly split between the Wiring Systems Division (WSD) and the Wire and Cable Solutions division (WCS). The automotive WSD supplies largely to foreign OEMs and is an execution-oriented business similar to Leoni's WSD operations worldwide, with plants located close to customers. Market share is as yet very low, but revenue growth is relatively secure until 2016, with order backlog in place, driving two more plant ramp ups that will take place in the next two years to fulfil the order book. The WCS division accounts for around of quarter of Leoni's Chinese headcount and produces a variety of cable and wire products for industrial and consumer applications, including healthcare, solar energy, data cables and other miscellaneous electrical cables.

Figure 111: Leoni in China—key information Revenue (2013) €513m (13% of group) Market share (2013E) ~5% (automotive cables) CSe operating margin ~6% Subsidiaries structure 10 consolidated subsidiaries + 1 JV Employees (2013E) ~3,500 Facilities 4 manufacturing facilities (WSD) + 6 manufacturing facilities (WCS) Key products Automotive cables, consumer & industrial wiring Source: Company data, Credit Suisse estimates WSD: continued strong execution should drive China profits Amidst the Mexico plant-related profit warning, Leoni management was quick to point out that the equivalent ramp up process at the Langfang plant in China (supplying Daimler) executed successfully and on time. While the Mexico problem was arguably a localised issue, the relative comparison suggests a stronger organisational set-up in China, which is then capable of executing ramp ups with no issues.

Figure 112: China revenue growth vs. headcount growth Figure 113: Majority of China sales coming from foreign three-year CAGR OEMs, 2013

35% 4% 30.1% 30%

25%

20% 17.1% Sales to Foreign OEMs 15% Sales to local OEMs

10%

5%

0% 96% China revenue China headcount Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse research The good track record in China suggests we should expect the two upcoming ramp ups to be completed on schedule and in budget. With orders secured, a top-line growth rate of ~15-20% should be achievable until 2016. The company is targeting a doubling of WSD China revenues from €200m in 2012 to €400m by 2016 and group revenues in Asia of €1bn (implying China revenues around €800m at the current split). The next plant coming online is the Tieling plant, which will supply wiring systems to BMW.

European Automotive Suppliers 87 20 January 2015

Market share and content growth potential Leoni's market share seems likely to have upside as companies like Delphi and Lear move their focus away from the automotive cables business. Its low base gives more potential to win orders from OEMs that already have business with Leoni in other regions. Increasing sales to local Chinese OEMs appears unlikely for now due to a lack of existing relationships and possible pressure to enter into JVs. Automotive cable content per vehicle is an additional long-term tailwind. The company estimates that a hybrid powertrain contains 20% more cable content than a combustion engine. Emissions regulations and energy efficiency incentives are driving growth of alternative powertrains, and significant new engine and platform ramp ups in 2015-16 suggest that automotive cable content growth could accelerate in the coming years. China subsidiaries—all but one is 100% owned Just one JV exists for Leoni in China, serving a largely research-based function (Intedis JV with Hella). All other operations are 100% owned, which helps Leoni to streamline the management process and allows greater control over strategic decisions. With little business being done with local OEMs anyway, we believe that it makes little sense at this stage to enter into JVs and have to split earnings with a partner. Competitors

Figure 114: Leoni automotive cables competitors Foreign competitors Local competitors Yazaki China Auto Electronics Group Delphi China Feilo Lear Beijing Force Automotive Wire Sumitomo Electric Beijing Hainachuan Furukawa Source: Credit Suisse research

European Automotive Suppliers 88 20 January 2015

List of subsidiaries and facilities

Figure 115: Leoni subsidiaries in China Name Location Ownership Products Wire & Cable Solutions (WCS) Leoni Cable (China) Co Ltd Changzhou 100% Cord sets, cables for steam generator irons, cable assemblies and wiring harnesses for electrical appliances Leoni Cable (Xiamen) Co Ltd Xiamen 100% Cord sets, cables for steam generator irons, cable assemblies and wiring harnesses for electrical appliances Leoni Special Cables (Changzhou) Co Ltd Changzhou 100% Leoni Wire (Changzhou) Co Ltd Changzhou 100% Bunched wire (bare/tin/silver plated), bunched conductors (bare/tin/silver plated), single wires, braided wires; 150 employees, 11,000 m2 area,

Wiring Systems Division (WSD) Leoni Electrical Systems (Shanghai) Co Ltd Shanghai 100% ~2,000 staff Langfang Leoni Wiring Systems Co Ltd Langfang 100% Leoni Wiring Systems (Tieling) Co Ltd Tieling 100% To be opened Leoni Wiring Systems (Changchun) Co Ltd Changchun 100% Wiring systems for Audi C6, foaming of wiring systems; 200 employees, 2,788m2 area Leoni Electrical Systems (Jining) Co Ltd Jining 100% Leoni Electrical Systems (Penglai) Co Ltd Penglai 100%

Associates Intedis E/E-Engineering and Technology Shanghai 50% 50% owned by Hella; vehicle architecture development, (Shanghai) Co Ltd development of prototype functions Source: Company data, Credit Suisse research

Figure 116: Leoni locations in China Company Location Products Wire & Cable Solutions Leoni Cable (China) Changzhou Electrical appliance assemblies Leoni Cable (China) Changzhou Industrial cables, communication cables, healthcare, fibre optics Leoni Cable (China) Changzhou Industrial cables, wind & solar power Leoni Wire (Changzhou) Changzhou Automotive cables Leoni Cable (China) Shanghai n/a Leoni Cable (Xiamen) Xiamen Electrical appliance assemblies

Wiring Systems Division Leoni Wiring Systems (Changchun) Changchun Automotive wiring systems Leoni Electrical Systems (Jining) Jining Automotive wiring systems Leoni Electrical Systems (Penglai) Penglai Automotive wiring systems Langfang Leoni Wiring Systems Langfang Automotive wiring systems Leoni Electrical Systems (Shanghai) Shanghai Automotive wiring systems Leoni Wiring Systems (Tieling) Tieling Automotive wiring systems Source: Company data, Credit Suisse research

European Automotive Suppliers 89 20 January 2015

Valuation and key risks Our valuation is based on two methodologies, equally weighted to capture long-term as well as short-term earnings potential: 2015E EV/EBITDA: To capture near-term earnings potential, we take our 2015 EBITDA estimate and, based on historical data and peer group comparison, apply a multiple of 5.2x, which is ~32% below the peak recorded during 2010-2013 and ~15% above the average for the same period; our model yields a fair value of ~€52.6 per share.

Figure 117: Model yields fair value of €52.6 per share Assumptions 2015e EBITDA 396.1 Multiples 2010-2013 Avg. 4.5x High 7.6x Low 2.8x

Assumed multiple 5.2x vs. avg 15.1% vs. high -31.9% vs. low 85.2% EV 2060 Equity adjustments 341.0 Equity value 1718.8 Number of shares 32.67 per share 52.61 Source: Company data, Credit Suisse estimates The Credit Suisse HOLT tool yields a warranted price per share of €82.3, using a 5.2% discount rate. However, for our target price, we apply a discount rate of 7.0% to reflect a higher risk premium. Key potential upside risks: Faster-than-expected ramp up of new projects Higher volume contributions from new plants More pronounced recovery of key end markets Key potential downside risks: Higher-than-expected ramp up costs for key projects (China, Mexico) Structural margin pressure due to increasing labour costs Loss of major contracts

European Automotive Suppliers 90 20 January 2015

Credit Suisse HOLT valuation Credit Suisse forecasts for 2014-2018 The CFROI chart (Figure 118) reflects our forecasts for sales, margins and returns. Based on our assumptions, HOLT calculates an average CFROI® of 8.8% for 2014-2018. HOLT incorporates a discount rate of 5.2% for the explicit period of five years. Based on our explicit forecasts, HOLT calculates asset growth of 6.2% in 2014, which is expected to decline to 4.4% by 2018. HOLT assumptions beyond a five-year window Beyond the five-year window, HOLT assumes the CFROI and discount rate fade to 6%, while asset growth fades to 2.5%, incorporating the economic reality of competition and causing higher returns and growth to regress to the mean. HOLT yields a warranted value of €82.3 per share, with the explicit forecast representing 14% of the total EV and the terminal forecast accounting for 86%.

European Automotive Suppliers 91 20 January 2015

Figure 118: HOLT valuation: warranted price €82.3

LEONI AG (LEOGN)

Current Price: EUR 51.98 Warranted Price: EUR 82.30 Valuation date: 16-Jan-15

Sales Growth (parallel % point change to forecasts) Dec 12A Dec 13A Dec 14E Dec 15E Dec 16E

in EUR -2.0% -1.0% 0.0% 1.0% 2.0% Sales Growth, % 2.9 2.9 4.5 8.0 10.4 EBITDA Mgn, % 8.8 7.8 8.1 9.0 9.3 -2.0% -15% -9% -3% 4% 11% Asset Turns, x 1.30 1.4 1.3 1.3 1.4

-1.0% 12% 19% 27% 36% 46% CFROI®, % 10.4 8.7 8.2 9.0 9.8 Disc Rate, % 6.5 5.4 5.2 5.2 5.2 0.0% 39% 48% 58% 69% 81%

Asset Grth, % 4.3 -3.4 6.2 5.6 6.5 to to forecasts) 1.0% 67% 78% 90% 102% 116% Value/Cost, x 0.8 1.2 1.1 1.0 0.9

Economic PE, x 7.9 13.8 13.4 11.4 9.6 2.0% 95% 107% 121% 136% 151%

EBITDA MarginEBITDA (parallel % point change Leverage, % 40.4 30.8 28.3 27.0 27.1

More than Sales Growth (%) More than 10% Within 10% 40 10% upside downside 30 20 CFROI & Discount Rate (in %) 10 0 12 -10 10 -20

8 -30 2009 2011 2013 2015 2017 6 EBITDA Margin 4 12

2 10

0 8 2009 2011 2013 2015 2017 Historical CFROI Historical Transaction CFROI 6

Forecast CFROI Forecast CFROI 4 HOLT HOLT - Credit Analyst Data Suisse Scenario 2 Asset Growth (in %) 0 20 2009 2011 2013 2015 2017

15 Asset Turns (x) 1.6 10 1.4 5 1.2 1.0 0 0.8 -5 0.6 2009 2011 2013 2015 2017 0.4

Historical Asset Growth Rate Forecast Growth 0.2 Forecast Growth RAGR 0.0 2009 2011 2013 2015 2017

Source: Credit Suisse HOLT®. CFROI and HOLTare trademarks or registered trademarks of Credit Suisse Group AG or its affiliates in the United States and other countries .

Source: Company data, Credit Suisse HOLT

European Automotive Suppliers 92 20 January 2015

Financial statements

Figure 119: Income statement €m unless stated 2013 2014E 2015E 2016E 2017E Sales 3,917.9 4,095.9 4,425.5 4,884.3 5,184.4 Cost of sales -3,240.1 -3,368.0 -3,609.3 -3,979.8 -4,222.0 Gross profit on sales 677.8 727.9 816.3 904.5 962.3

Selling expenses -196.4 -204.8 -212.4 -224.7 -230.7 General and administration expenses -191.0 -200.7 -208.0 -212.5 -217.7 Research and development expenses -106.1 -109.0 -119.3 -133.9 -143.0 Other operating income 10.4 12.3 13.3 14.7 15.6 Other operating expenses -31.3 -16.4 -17.7 -19.5 -20.7 Expenses from associated companies and joint ventures -0.3 EBIT 163.1 209.3 272.1 328.6 365.7

Finance revenue 0.5 0.8 0.8 0.8 0.8 Finance costs -32.7 -29.0 -27.0 -25.0 -23.0 Other income from share investments 0.3 0.3 0.4 0.4 0.5 Income before taxes 131.2 181.4 246.3 304.8 344.0 -31.9 Income taxes -25.3 -43.5 -59.1 -73.2 -82.6 Tax rate 19.3% 24.0% 24.0% 24.0% 24.0% Net income 105.9 137.9 187.2 231.6 261.4

Attributable to: Equity holders of the parent 105.5 137.5 186.8 231.2 261.0 Non-controlling interests 0.4 0.4 0.4 0.4 0.5

Earnings per share (basic and diluted) in Euro 3.23 4.21 5.72 7.08 7.99 Weighted average shares outstanding (basic and diluted) 32,669,000 32,669,000 32,669,000 32,669,000 32,669,000

Number of Shares at year end (m) 32.67 32.67 32.67 32.67 32.67

DPS 1.00 1.40 1.70 2.10 2.50 Payout ratio 31.0% 33.3% 29.7% 29.7% 31.3% Source: Company data, Credit Suisse estimates

European Automotive Suppliers 93 20 January 2015

Figure 120: Balance sheet €m unless stated 2013 2014E 2015E 2016E 2017E Cash and cash equivalents 198.0 202.4 201.4 229.6 157.0 Trade accounts receivables and other financial assets 522.2 535.0 560.0 580.0 615.0 Other assets 82.2 82.2 82.2 82.2 82.2 Receivables from income taxes 12.3 12.3 12.3 12.3 12.3 Inventories 509.7 530.0 570.0 630.0 670.0 Assets held for sale 8.0 8.0 8.0 8.0 8.0 Total current assets 1,332.4 1,369.9 1,433.9 1,542.1 1,544.5

Property, plant and equipment 709.8 794.5 884.9 992.3 1,110.3 Intangible assets 82.3 76.6 71.0 66.5 62.4 Goodwill 148.4 148.4 148.4 148.4 148.4 Shares in associated companies and joint ventures 0.5 0.5 0.5 0.5 0.5 Trade receivables from long-term development contracts 46.9 46.9 46.9 46.9 46.9 Other financial assets 4.9 4.9 4.9 4.9 4.9 Deferred taxes 57.0 57.0 57.0 57.0 57.0 Other assets 17.7 17.7 17.7 17.7 17.7 Total non-current assets 1,067.4 1,146.4 1,231.2 1,334.1 1,448.1

Total assets 2,399.7 2,516.2 2,665.1 2,876.2 2,992.5

Equity and liabilities Current financial debts and current proportion of long-term 41.3 41.3 41.3 41.3 41.3 financial debts Trade accounts payable and other financial liabilities 698.7 710.0 745.0 780.0 840.0 Income taxes payable 39.5 39.5 39.5 39.5 39.5 Other current liabilities 147.0 147.0 147.0 147.0 147.0 Provisions 37.1 37.1 37.1 37.1 37.1 Total current liabilities 963.6 974.8 1,009.8 1,044.8 1,104.8

Long-term financial debts 413.7 413.7 386.2 386.2 249.7 Long-term financial liabilities 6.9 6.9 6.9 6.9 6.9 Other non-current liabilities 9.3 9.3 9.3 9.3 9.3 Pension provisions 113.3 113.3 113.3 113.3 113.3 Other provisions 22.6 22.6 22.6 22.6 22.6 Deferred taxes 42.8 42.8 42.8 42.8 42.8 Total non-current liabilities 608.5 608.5 581.0 581.0 444.5

Share capital 32.7 32.7 32.7 32.7 32.7 Additional paid-in capital 290.9 290.9 290.9 290.9 290.9 Retained earnings 537.2 642.1 783.1 958.8 1,151.2 Accumulated other comprehensive income -34.5 -34.5 -34.5 -34.5 -34.5 Equity holders of the parent 826.3 931.1 1,072.2 1,247.8 1,440.2 Non-controlling interests 1.3 1.7 2.1 2.5 3.0 Total equity 827.6 932.8 1,074.2 1,250.3 1,443.2

Total equities and liabilities 2,399.7 2,516.2 2,665.1 2,876.2 2,992.5

Net Debt 256.99 252.61 226.08 197.83 134.01 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 94 20 January 2015

Figure 121: Cash flow statement €m unless stated 2013 2014E 2015E 2016E 2017E Operating cash flow before working capital 229.7 258.9 311.2 358.6 390.9 Change in working capital -42.3 -21.8 -30.0 -45.0 -15.0 Operating cash flow 187.4 237.1 281.2 313.6 375.9

PPE CAPEX -153.6 -200.0 -208.9 -229.9 -243.5 Other investing cash flow 3.0 0.0 0.0 0.0 0.0 Investing cash flow -150.7 -200.0 -208.9 -229.9 -243.5

Dividend payments -49.0 -32.7 -45.7 -55.5 -68.6 Other financing cash flow -86.7 0.0 -27.5 0.0 -136.5 Financing cash flow -135.7 -32.7 -73.3 -55.5 -205.1

Change in cash & equivalent -98.9 4.4 -1.0 28.2 -72.6 FX -1.4 Cash beginning of the period 298.3 198.0 202.4 201.4 229.6 Cash end of the period 198.0 202.4 201.4 229.6 157.0 Source: Company data, Credit Suisse estimates

Figure 122: Divisional estimates €m unless stated 2013 2014E 2015E 2016E 2017E Sales Wiring systems 2,321.100 2,397.931 2,637.724 2,980.628 3,189.272 Wire & Cable 1,760.982 1,866.081 1,971.332 2,099.184 2,199.943 Reconciliation -164.196 -168.139 -183.545 -195.463 -204.850 Group 3,917.886 4,095.872 4,425.510 4,884.349 5,184.365

EBIT Wiring systems 116.115 124.520 170.489 211.637 236.674 Wire & Cable 47.148 84.826 101.613 116.956 129.047 Reconciliation -0.163 0.000 0.000 0.000 0.000 Group 163.100 209.345 272.102 328.593 365.721

EBIT margin % (external sales) Wiring systems 5.0% 5.2% 6.5% 7.1% 7.4% Wire & Cable 3.0% 5.0% 5.7% 6.1% 6.5% Group 4.2% 5.1% 6.1% 6.7% 7.1% Source: Company data, Credit Suisse estimates

European Automotive Suppliers 95 20 January 2015

Europe / United Kingdom Engineering & Construction

GKN (GKN.L) Rating OUTPERFORM*

Price (16 Jan 15, p) 355.90 Target price (p) 410.00¹ Market cap. (£ m) 5,846.48 Well positioned in China Enterprise value (£ m) 6,477.3

■ Extensive JV network: GKN was one of the earliest companies to set up a *Stock ratings are relative to the coverage universe in each foreign invested JV in China for automotive components. Alongside HUAYA, analyst's or each team's respective sector. GKN set up Shanghai GKN HUAYU Driveline Systems (SDS) in September ¹Target price is for 12 months. 1988. SDS operates three plants in Shanghai, a plant in Wuhan (to supply Research Analysts Central China) and a plant in Changchun (to supply Northern China). SDS Jonathan Hurn, CFA also operates a JV in Chongqing with Chang'an (est. 2006) to manufacture 44 20 7883 4532 and assemble small-sized drive shafts for customers in the mid-west of [email protected] China. Finally, GKN also has a JV with Henan Zhongyuan Engine Fittings Alexander Haissl Stock Company to supply cylinder liners domestically and for export. 44 20 7888 8507 [email protected] ■ Higher profitability: China represents GKN's highest margin geography Mike Dean with profit margins of c15%+. This puts it ahead of the US (c.10%), Europe 44 20 7883 2371 [email protected] (c.6-7%) and Japan (c.5%). Customer exposure for GKN in China is c.60% Fei Teng global OEM's and c.40% domestic. Rising demand and penetration of AWD 44 20 7883 9978 has been a secular driver for GKN Driveline. [email protected] ■ Risks: These include China automotive production growth and the Specialist Sales: Andrew Bell 44 20 7888 0479 sustainability of the high margins generated in China. In relation to the latter, [email protected] GKN has always acknowledged that margins are likely to come down over the medium term with the challenge being to bring margins up in other parts of the business to help offset this. Furthermore, we would also highlight that our forecasts discount only low levels of margin growth for Driveline in 2015- 16 vs. 2014 and the increasing preference for AWD (including China) should be beneficial for margin mix. ■ We reiterate our Outperform rating: In our recent note (GKN – Don't underestimate the auto opportunity, 12 January 2015), we highlighted that GKN Driveline/Powertrain exposure offers potential for high levels of structural growth and as a result, we believe current consensus estimates for these divisions are too cautious. Our FY16 EBITA forecasts are currently 7% ahead of consensus expectations. ■ Valuation: Our target price of 410p is based on a global peer group SOTP. Share price performance Financial and valuation metrics

Year 12/13A 12/14E 12/15E 12/16E 396 Revenue (£ m) 7,594.0 7,425.0 7,922.0 8,637.1 346 EBITDA (£ m) 896.00 913.00 980.70 1,079.40 296 Pre-tax Profit Adjusted (£ m) 578.00 589.00 654.70 750.40 CS adj. EPS (p) 28.31 27.99 30.19 34.18 246 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Prev. EPS (p) — — — — Price Price relative ROIC (%) 20.10 17.44 19.48 21.79 P/E (adj., x) 12.57 12.71 11.79 10.41 The price relative chart measures performance against the P/E rel. (%) 94.1 94.5 89.1 87.4 FTSE ALL SHARE INDEX which closed at 3525.18 on EV/EBITDA 7.3 7.1 6.3 5.5 16/01/15 On 16/01/15 the spot exchange rate was £.76/Eu 1. - Dividend (12/14E, p) 8.53 IC (12/14E, £ m) 2,580.72 Eu .87/US$1 Dividend yield (%) 2.4 EV/IC 2.5

Performance Over 1M 3M 12M Net debt (12/14E, £ m) 630.8 Current WACC 9.00 Absolute (%) 3.6 13.7 -12.6 Net debt/equity (12/14E, %) 32.4 Free float (%) 100.00 BV/share (12/14E, £) 1.2 Number of shares (m) 1,642.73 Relative (%) 3.3 10.2 -9.0

Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates.

European Automotive Suppliers 96 20 January 2015

GKN GKN.L Price (16 Jan 15): 355.90p, Rating: OUTPERFORM, Target Price: 410.00p Income statement (£ m) 12/13A 12/14E 12/15E 12/16E Per share data 12/13A 12/14E 12/15E 12/16E Revenue (£ m) 7,594.0 7,425.0 7,922.0 8,637.1 No. of shares (wtd avg) 1,657 1,657 1,657 1,657 EBITDA 896 913 981 1,079 CS adj. EPS (p) 28.31 27.99 30.19 34.18 Depr. & amort. (310) (320) (327) (335) Prev. EPS (p) — — — — EBIT (£) 586 593 654 744 Dividend (p) 7.90 8.53 9.21 9.95 Net interest exp. (73) (70) (66) (64) Div yield 2.22 2.40 2.59 2.80 Associates (10) (14) (15) (15) Dividend payout ratio 27.91 30.48 30.53 29.12 Other adj, 75 80 82 85 Free cash flow per share 23.60 14.79 21.40 23.20 PBT (£) 578 589 655 750 (p) Income taxes (105) (123) (151) (180) Key ratios and 12/13A 12/14E 12/15E 12/16E Profit after tax 501 447 504 570 valuation Minorities (4) (4) (4) (4) Growth (%) Preferred dividends — — — — Sales 10.0 (2.2) 6.7 9.0 Associates & other (130) (104) (90) (93) EBIT 8.5 1.2 10.2 13.9 Net profit 367 339 410 473 Net profit (25.3) (7.7) 21.1 15.4 Other NPAT adjustments 28 (19) — — EPS 3.8 (1.1) 7.8 13.2 Reported net income 395 320 410 473 Margins (%) EBITDA margin 11.8 12.3 12.4 12.5 Cash flow (£) 12/13A 12/14E 12/15E 12/16E EBIT margin 7.7 8.0 8.3 8.6 EBIT 586 593 654 744 Pretax margin 7.6 7.9 8.3 8.7 Net interest (65) (63) (59) (61) Net margin 4.8 4.6 5.2 5.5 Cash taxes paid (52) (61) (90) (126) Valuation metrics (x) Change in working capital (47) (101) (86) (118) EV/sales 0.87 0.87 0.78 0.69 Other cash & non-cash items 243 217 227 235 EV/EBITDA 7.3 7.1 6.3 5.5 Cash flow from operations 665 585 645 674 EV/EBIT 11.2 10.9 9.5 8.0 CAPEX (274) (340) (290) (290) P/E 12.6 12.7 11.8 10.4 Free cashflow adj. — — — — P/B 3.3 3.0 2.7 2.3 Free cash flow to the firm 391 245 355 384 Asset turnover 1.2 1.2 1.2 1.3 Acquisitions (74) (8) — — ROE analysis (%) Divestments — — — — ROE stated-return on 23.6 17.3 19.9 20.2 Other investment/(outflows) (35) 26 50 50 equityROIC 20.1 17.4 19.5 21.8 Cash flow from investments (383) (322) (240) (240) Interest burden 1.0 1.0 1.0 1.0 Net share issue/(repurchase) 3 1 — — Tax rate 21.7 26.1 26.3 27.1 Dividends paid (124) (133) (143) (155) Financial leverage 0.52 0.42 0.25 0.11 Issuance (retirement) of debt — — — — Credit ratios (%) Other (203) (30) — — Net debt/equity 40.8 32.4 16.7 3.6 Cash flow from financing (324) (162) (143) (155) Net debt/EBITDA 0.82 0.69 0.38 0.08 activitiesEffect of exchange rates — — — — Interest coverage ratio 8.0 8.5 9.9 11.6 Changes in Net Cash/Debt (42) 101 261 280 . Net debt at start 690 732 631 370 Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities Change in net debt 42 (101) (261) (280) (EUROPE) LTD. Estimates. Net debt at end 732 631 370 90

Balance sheet (£ m) 12/13A 12/14E 12/15E 12/16E Assets Cash and cash equivalents 184 184 184 184 396 Accounts receivable 951 1,040 1,109 1,209 Inventory 931 965 1,054 1,175 346 Other current assets 244 233 249 271 Total current assets 2,310 2,422 2,596 2,839 296 Total fixed assets 1,945 2,045 2,090 2,130 246 Intangible assets and goodwill 1,476 1,396 1,314 1,229 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Investment securities — — — — Other assets 508 514 499 484 Price Price relative Total assets 6,239 6,377 6,499 6,682 Liabilities The price relative chart measures performance against the FTSE ALL SHARE Accounts payable 1,047 1,069 1,141 1,244 INDEX which closed at 3525.18 on 16/01/15 Short-term debt — — — — On 16/01/15 the spot exchange rate was £.76/Eu 1. - Eu .87/US$1 Other short term liabilities 639 701 748 816 Total current liabilities 1,686 1,770 1,889 2,059 Long-term debt 916 815 554 274 Other liabilities 1,842 1,842 1,842 1,842 Total liabilities 4,444 4,427 4,285 4,175 Shareholders' equity 1,775 1,930 2,194 2,487 Minority interest 20 20 20 20 Total equity & liabilities 6,239 6,377 6,499 6,682 Net debt (£ m) 732 631 370 90

European Automotive Suppliers 97 20 January 2015

Valuation: Target Price 410p Our target price for GKN is 410p. This is based on a global peer group SOTP.

Figure 123: GKN Global Peer Group SOTP % of Group - Driveline 41% Enterprise Value EV/EBITA (x) PE (x) Company Ticker Price Currency 2015E 2016E 2015E 2016E 2015E 2016E Dana DAN 21.8 USD 4,050 3,991 7.2 6.4 10.4 8.8 American Axle Manufacturing AXL 22.9 USD 2,855 2,647 8.4 7.8 9.0 8.9 Borg-Warner BWA 55.0 USD 12,672 12,415 10.3 8.8 14.7 12.5 Delphi Automotive DLPH.N 71.2 USD 21,871 21,215 9.8 8.5 12.5 10.8 JTEKT Corporation 6473.T 1,942.0 JPY 811,473 795,053 9.5 8.9 12.4 11.9 NTN 6472.T 516.0 JPY 274,698 274,681 5.9 6.7 10.8 10.0 Exedy 7278.T 2,863.0 JPY 126,067 116,067 5.2 4.3 9.4 8.3 Magna International MG.TO 129.1 CAD 26,767 26,623 8.7 7.9 10.7 9.1 Valeo SA VLOF.PA 105.8 EUR 8,668 8,493 8.8 7.5 12.6 10.9 Average 8.2 7.4 11.4 10.1

% of Group - Aerospace 38% Enterprise Value EV/EBITA (x) PE (x) Company Ticker Price Currency 2015E 2016E 2015E 2016E 2015E 2016E Alenia Aermacchi SIFI.MI 7.8 EUR 8,494 8,429 8.7 7.8 11.7 10.4 Spirit Aerosystems SPR 43.8 USD 6,498 6,213 8.2 7.2 12.1 11.5 Precision Castparts PCP 230.8 USD 34,300 32,357 10.3 8.7 15.0 13.3 BE Aerospace BEAV.OQ 61.2 USD 9,242 8,849 10.5 9.0 12.4 10.7 Triumph Group TGI.N 66.5 USD 4,060 3,968 7.3 6.6 10.1 9.0 Senior SNR.L 3.2 GBP 1,387 1,350 12.4 11.0 15.2 14.3 Transdigm TDG.N 202.9 USD 16,536 16,100 15.4 13.9 24.0 21.2 Average 10.4 9.2 14.4 12.9

% of Group - Land systems 6% Enterprise Value EV/EBITA (x) PE (x) Company Ticker Price Currency 2015E 2016E 2015E 2016E 2015E 2016E Deere and Co DE.N 86.49 USD 32,687 33,115 14.5 13.1 16.2 14.4 CNH Industrial CNHI.MI 6.5 EUR 15,102 14,701 7.1 7.5 9.2 8.6 Agco AGCO.N 43.63 USD 4,291 3,978 9.6 8.4 14.8 13.8 Average 10.4 9.7 13.4 12.3

% of Group - Powder Metallurgy 15% Enterprise Value EV/EBITA (x) PE (x) Company Ticker Price Currency 2015E 2016E 2015E 2016E 2015E 2016E Sumitomo Electric Industries Ltd. 5802 1,492.5 JPY 1,512,086 1,463,053 11.2 8.6 9.9 9.7 Hitachi Powdered Metal 4217 2,127.0 JPY 458,524 457,008 12.4 9.5 22.1 13.2 Average 11.8 9.1 16.0 11.5

Enterprise Value EV/EBITA (x) PE (x) Company Ticker Price Currency 2015E 2016E 2015E 2016E 2015E 2016E GKN Adj. Peer Multiples Weighted 9.7 8.6 13.3 11.5 Source: Credit Suisse estimates, Reuters consensus for Dana, Alenia, CNH, Hitachi.

Figure 124: Peer group SOTP generates a target price of 410p based on average multiples above in millions, unless otherwise stated

Source: Company data, Credit Suisse estimates

Background to forecasts can be found in our recent GKN note GKN – Don't underestimate the auto opportunity, 15 January 2015.

European Automotive Suppliers 98 20 January 2015

GKN screens well on HOLT CFROI The pink bars in Figure 125 show GKN's CFROI based on IBES consensus estimates (sell-side estimates), while the green dots show the market-implied CFROI (share price driven/buy-side expectations). The second chart highlights the spread between the forecast CFROI and the market-implied CFROI. Based on this analysis we draw the following conclusions: ■ Market-implied CFROI (green dot) is below that implied by current consensus estimates (pink bars). We believe the latter is not overly demanding, implying that the market is not fully valuing GKN's level of forecast return. ■ CFROI forecasts for GKN have been on an upward trend since 2009. We expect this to continue. ■ The spread between the buy side (market implied CFROI, green dot) and the sell side (forecast CFROI, pink bars) is towards the highest level for two years.

Figure 125: HOLT valuation Historical Expectations

Spread:Market Implied CFROI vs. T+1 Forecast CFROI

Source: Credit Suisse HOLT Lens

Credit Suisse HOLT valuation Credit Suisse forecasts for 2014-2018 The CFROI chart in Figure 126 reflects our forecasts for sales, margins and returns. Based on our assumptions, HOLT calculates an average CFROI of 8.1% for 2014-2018. HOLT incorporates a discount rate of 5.2% for the explicit period of five years. Based on our explicit forecasts, HOLT calculates asset growth of 2.2% in 2014, which is expected to increase to 2.4% by 2018. HOLT assumptions beyond a five-year window Beyond the five-year window, HOLT assumes the CFROI and discount rate fade to 6%, while asset growth fades to 2.5%, incorporating the economic reality of competition and causing higher returns and growth to regress to the mean. HOLT yields a warranted value of 636p per share, with the explicit forecast representing 20% of the total EV and the terminal forecast accounting for 80%.

European Automotive Suppliers 99 20 January 2015

Figure 126: HOLT valuation—warranted price 636p

GKN PLC (GKN)

Current Price: GBP 3.56 Warranted Price: GBP 6.36 Valuation date: 19-Jan-15

Sales Growth (parallel % point change to forecasts) Dec 12A Dec 13A Dec 14E Dec 15E Dec 16E

in GBP -2.0% -1.0% 0.0% 1.0% 2.0% Sales Growth, % 13.3 9.6 4.0 6.7 9.0 EBITDA Mgn, % 12.4 11.8 12.3 12.4 12.5 -2.0% 24% 32% 40% 49% 59% Asset Turns, x 0.74 0.7 0.7 0.8 0.8

-1.0% 42% 50% 60% 70% 81% CFROI®, % 9.1 8.0 6.9 7.7 8.2 Disc Rate, % 6.1 5.0 5.2 5.2 5.2 0.0% 59% 68% 79% 90% 102%

Asset Grth, % 12.2 -0.3 2.2 2.2 2.1 to to forecasts) 1.0% 75% 86% 98% 110% 124% Value/Cost, x 1.0 1.3 1.1 1.0 0.9

Economic PE, x 10.6 15.9 15.9 13.2 11.4 2.0% 92% 104% 117% 130% 145%

EBITDA MarginEBITDA (parallel % point change Leverage, % 33.6 24.6 21.4 18.3 14.8

More than Sales Growth (%) More than 10% Within 10% 25 10% upside downside 20

15 CFROI & Discount Rate (in %) 10 10 5 9 8 0

7 -5 6 2009 2011 2013 2015 2017 5 4 EBITDA Margin 3 14 2 12 1 10 0 2009 2011 2013 2015 2017 8 Historical CFROI Historical Transaction CFROI 6 Forecast CFROI Forecast CFROI

HOLT HOLT - Credit Analyst Data Suisse Scenario 4

2 Asset Growth (in %) 0 14 2009 2011 2013 2015 2017 12 10 Asset Turns (x) 8 1.0 6 0.9 4 0.8 2 0.7 0 0.6 -2 0.5 0.4 -4 2009 2011 2013 2015 2017 0.3 0.2 Historical Asset Growth Rate Forecast Growth 0.1 Forecast Growth RAGR 0.0 2009 2011 2013 2015 2017

Source: Credit Suisse HOLT®. CFROI and HOLTare trademarks or registered trademarks of Credit Suisse Group AG or its affiliates in the United States and other countries .

Source: Company data, Credit Suisse HOLT

European Automotive Suppliers 100 20 January 2015

Europe / Germany Auto Parts & Equipment

Rheinmetall (RHMG.DE) Rating UNDERPERFORM*

Price (16 Jan 15, Eu) 36.36 Target price (Eu) 35.60¹ Market cap. (Eu m) 1,440.02 China growth driven by JVs Enterprise value (Eu m) 1,627.4

■ Outlook—well established JVs drive growth: RHM's strategy in China is *Stock ratings are relative to the coverage universe in each different versus the rest of our coverage, as ~95% of sales come from its analyst's or each team's respective sector. JVs with HASCO, as its wholly-owned units are still in ramp up process. Our ¹Target price is for 12 months. outlook for its HASCO JVs remains positive, as the unit company should Research Analysts benefit from incremental business with its key customers VW and GM. The Alexander Haissl sales target of ~25% CAGR 2012-2016 seems realistic. Moreover, we also 44 20 7888 8507 [email protected] see upside potential for its wholly-owned entities coming from a low base. Mike Dean ■ Market position—JV structure best option: In our view, the JV structure 44 20 7883 2371 [email protected] for RHM is the best option in China, as it allows RHM to take advantage of Fei Teng HASCO's (SAIC owns ~60%) network. The competitive landscape is similar 44 20 7883 9978 to Europe with the main players being Mahle and Federal Mogul. [email protected] Specialist Sales: Andrew Bell ■ Risks: In addition to cyclical production risk, a major risk for RHM in China is 44 20 7888 0479 its dependence on HASCO and its key customers VW and GM. Financial [email protected] risk is limited, in our view, given the JV structure. Wholly-owned entities account for ~1% of divisional sales and taking the 50% JV share into account, exposure to China is ~10% for its automotive unit. ■ Impact—limited: Overall, we believe China has a limited impact on RHM in the near term given the size and structure of the business. ■ Valuation: We maintain our Underperform rating with a €35.6 target price, as ongoing uncertainty regarding its Defence unit likely hinders a more meaningful rerating. Our target price is based on a 2015E SOTP and Credit Suisse HOLT.

Share price performance Financial and valuation metrics

Year 12/13A 12/14E 12/15E 12/16E 56 Revenue (Eu m) 4,613.0 4,619.2 4,892.2 5,190.7 46 EBITDA (Eu m) 293.00 303.48 432.63 474.56 36 Adjusted Net Income (Eu m) 29.00 38.76 121.35 149.30 CS adj. EPS (Eu) 0.76 1.02 3.20 3.94 26 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Prev. EPS (Eu) — — — — Price Price relative ROIC (%) 3.45 5.32 10.26 11.06 P/E (adj., x) 47.56 35.59 11.37 9.24 The price relative chart measures performance against the P/E rel. (%) 346.2 263.4 92.6 82.5 DEUTSCHE BORSE DAX INDEX which closed at 10167.77 on EV/EBITDA 5.4 5.4 3.7 3.3 16/01/15 On 16/01/15 the spot exchange rate was €1./Eu 1. - Dividend (12/14E, Eu) 1.00 IC (12/14E, Eu m) 1,552.96 Eu .87/US$1 Dividend yield (%) 2.7 EV/IC 1.0

Performance Over 1M 3M 12M Net debt (12/14E, Eu m) 187.4 Current WACC 8.60 Absolute (%) 2.1 5.4 -23.3 Net debt/equity (12/14E, %) 13.7 Free float (%) 96.59

BV/share (12/14E, Eu) 33.7 Number of shares (m) 39.60 Relative (%) -1.2 -2.0 -24.5 Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates.

European Automotive Suppliers 101 20 January 2015

Rheinmetall RHMG.DE Price (16 Jan 15): Eu36.36, Rating: UNDERPERFORM, Target Price: Eu35.60 Income statement (Eu m) 12/13A 12/14E 12/15E 12/16E Per share data 12/13A 12/14E 12/15E 12/16E Revenue (Eu m) 4,613.0 4,619.2 4,892.2 5,190.7 No. of shares (wtd avg) 38 38 38 38 EBITDA 293 303 433 475 CS adj. EPS (Eu) 0.76 1.02 3.20 3.94 Depr. & amort. (212) (195) (207) (219) Prev. EPS (Eu) — — — — EBIT (Eu) 81 108 226 255 Dividend (Eu) 0.40 1.00 1.65 2.00 Net interest exp. (49) (50) (53) (50) Div yield 1.10 2.75 4.54 5.50 Associates 27 25 28 32 Dividend payout ratio 52.32 97.86 51.57 50.81 Other adj, (24) (29) (30) (29) Free cash flow per share 0.69 (0.10) 2.89 3.07 PBT (Eu) 35 55 170 209 (Eu) Income taxes (13) (13) (46) (56) Key ratios and 12/13A 12/14E 12/15E 12/16E Profit after tax 22 42 124 152 valuation Minorities 7 (3) (3) (3) Growth (%) Preferred dividends — — — — Sales (1.9) 0.1 5.9 6.1 Associates & other — — — — EBIT (70.9) 33.4 108.9 13.0 Net profit 29 39 121 149 Net profit (83.2) 33.7 213.1 23.0 Other NPAT adjustments — — — — EPS (83.2) 33.7 213.1 23.0 Reported net income 29 39 121 149 Margins (%) EBITDA margin 6.4 6.6 8.8 9.1 Cash flow (Eu) 12/13A 12/14E 12/15E 12/16E EBIT margin 1.8 2.3 4.6 4.9 EBIT 81 108 226 255 Pretax margin 0.8 1.2 3.5 4.0 Net interest (49) (50) (53) (50) Net margin 0.6 0.8 2.5 2.9 Cash taxes paid — — — — Valuation metrics (x) Change in working capital 27 (69) (30) (60) EV/sales 0.34 0.35 0.33 0.30 Other cash & non-cash items 136 179 148 167 EV/EBITDA 5.4 5.4 3.7 3.3 Cash flow from operations 195 168 291 312 EV/EBIT 19.5 15.1 7.1 6.2 CAPEX (169) (172) (181) (195) P/E 47.6 35.6 11.4 9.2 Free cashflow adj. — — — — P/B 1.1 1.1 1.0 1.0 Free cash flow to the firm 26 (4) 110 117 Asset turnover 0.9 0.9 1.0 1.0 Acquisitions — — — — ROE analysis (%) Divestments 23 — — — ROE stated-return on 2.2 3.1 9.2 10.6 Other investment/(outflows) (27) (31) (39) (42) equityROIC 3.4 5.3 10.3 11.1 Cash flow from investments (173) (202) (220) (237) Interest burden 0.43 0.51 0.75 0.82 Net share issue/(repurchase) 5 — — — Tax rate 37.1 23.5 27.0 27.0 Dividends paid (75) (15) (38) (63) Financial leverage 0.46 0.46 0.43 0.40 Issuance (retirement) of debt (13) — — — Credit ratios (%) Other 24 — — — Net debt/equity 10.3 13.7 10.6 9.2 Cash flow from financing (59) (15) (38) (63) Net debt/EBITDA 0.47 0.62 0.36 0.30 activitiesEffect of exchange rates (3) — — — Interest coverage ratio 1.7 2.2 4.3 5.1 Changes in Net Cash/Debt (40) (49) 33 12 . Net debt at start 98 138 187 154 Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities Change in net debt 40 49 (33) (12) (EUROPE) LTD. Estimates. Net debt at end 138 187 154 142

Balance sheet (Eu m) 12/13A 12/14E 12/15E 12/16E Assets Cash and cash equivalents 445 396 429 441 56 Accounts receivable 1,126 1,134 1,154 1,224 Inventory 906 950 970 1,000 46 Other current assets 38 34 34 34 36 Total current assets 2,515 2,514 2,587 2,699 Total fixed assets 1,156 1,184 1,213 1,247 26 Intangible assets and goodwill 874 859 843 827 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Investment securities — — — — Other assets 312 306 306 306 Price Price relative Total assets 4,857 4,863 4,949 5,079 Liabilities The price relative chart measures performance against the DEUTSCHE BORSE Accounts payable 721 700 710 750 DAX INDEX which closed at 10167.77 on 16/01/15 Short-term debt 51 51 51 51 On 16/01/15 the spot exchange rate was €1./Eu 1. - Eu .87/US$1 Other short term liabilities 1,168 1,168 1,158 1,158 Total current liabilities 1,940 1,919 1,919 1,959 Long-term debt 532 532 532 532 Other liabilities 1,046 1,046 1,046 1,046 Total liabilities 3,518 3,497 3,497 3,537 Shareholders' equity 1,255 1,279 1,362 1,449 Minority interest 84 87 90 93 Total equity & liabilities 4,857 4,863 4,949 5,079 Net debt (Eu m) 138 187 154 142

European Automotive Suppliers 102 20 January 2015 Rheinmetall China Business overview Revenues generated in Asia account for c.8% of RHM's automotive revenues. As the business in China is largely driven by JVs with China, the share of consolidated sales is rather low. Just taking the wholly-owned units, we estimate that China accounts for only 1% of divisional revenues. By taking 100% of JV revenues into account, the share would be ~18% (assuming 50% of JV sales, the China share is 10%). When splitting up the sales in China (taking 100% of JV sales), Kolbenschmidt Pierburg Shanghai Nonferrous Components Co., Ltd (KPSNC) accounts for 69% of sales. KPSNC focuses on the production of cylinder heads, engine blocks and structural parts. Kolbenschmidt Shanghai Piston Co., Ltd (KSSP) and Pierburg Huayu Pump Technology (PHP) account for 27% with WFOEs being 4%.

Figure 127: Rheinmetall automotive sales by region (2013) Figure 128: China sales by unit (1H14)

6% 4% 1% 7% 23% Germany Rest of Europe 27% KPSNC 13% North America KSSP/PHP China (WFOEs only) WFOEs Asia RoW 69%

49%

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research Financial summary In 2013 total revenues in China (JVs at 100%) stood at €528, out of which €499m came from its JVs; thus 95% of revenues came from JVs with the remaining coming from its wholly owned units. Also on a profitability level, JVs are the main driver with €39m EBIT in 2013 (margin of 7.8%) while RHM's wholly owned units recorded a loss of €2m (-6.9% margin). The main reason for losses at wholly owned units reflects the early stage of the business (start-ups). Sales CAGR 2010-14 (JVs at 100% plus wholly owned units) stood at 25%. At its 2013 CMD, the company indicated that sales are expected to grow at 2.5x by 2016 vs. 2012 revenues, which implies a sales CAGR of 25% for the period 2013 to 2016. Main customers for Rheinmetall in China are VW and GM. We estimate total headcount of 3,650 employees (permanent employees of 1,700 at the JV level and 150 at the wholly owned entities, with the remaining 1,800 being temporary workers).

European Automotive Suppliers 103 20 January 2015

Figure 129: Rheinmetall China financial summary Financial summary Sales 2013 JV (100% basis) € 499 Wholly-owned € 29 Total China € 528

Sales CAGR 2010-14e 25%

Guidance 2012 sales x 2.5 Implied CAGR 2013-2016e 25%

EBIT JV (100% basis) 39 Wholly-owned -2 Total China 37

Headcount JV permanent 1700 Wholly-owned permanent 150 Temporary workers 1800 Total 3650

Main customers VW and GM Source: Company data, Credit Suisse estimates

HASCO key JV partner RHM in China operates three 50/50 Joint Ventures with HASCO, three wholly foreign- owned enterprises (WFOEs) and one subsidiary of a JV. The first JV with HASCO was established in 1997 with the Kolbenschmidt Shanghai Piston Co.,Ltd (KSSP). Further JVs in 2001, Kolbenschmidt Pierburg Shanghai Nonferrous Components Co.,Ltd (KPSNC) and Pierburg Huaya Pump Technology (PHP), followed. In July 2014, RHM's automotive unit announced that HASCO had also become a strategic partner for its Casting business (Germany) with revenues of around €200m.

Figure 130: Rheinmetall's China subsidiaries Company Stake Partner Product At equity Kolbenschmidt Shanghai Piston Co., Ltd (KSSP) 50% HASCO Pistons Kolbenschmidt Pierburg Shanghai Nonferrous 50% HASCO Cylinder heads, engine blocks and Components Co.,Ltd (KPSNC) structural parts Pierburg Huayu Pump Technology (PHP) 50% HASCO Electrical & Mechanical pumps

Wholly Foreign-Owned Enterprises KSLP Co., LTD Kunshan 100% Large-bore pistons MS Motor Service Asia Pacific Co.,Ltd Shanghai 100% Pierburg China Ltd., Kunshan City 100% EGR modules, electric throttle bodies

Subsidiary of a JV Pierburg Mikuni Technology Corp., Shanghai 51% Water-oil pumps Source: Company data, Credit Suisse research

European Automotive Suppliers 104 20 January 2015

Competitive landscape Overall, the competitive landscape is similar in China with regards to global players. For its Pistons JV, we see Mahle and Federal Mogul as key players. Moreover, we see domestic players like Hunan Jiangnan Red Arrow Co. Ltd or Anqing Huanxin Co, Ltd (JV of Anqing Goetze Piston Ring Co., Ltd, Teikoku Piston Ring Co (Japan) Ltd and Federal Mogul (US)). Competitors for engine blocks are Honsel or Nemak.

European Automotive Suppliers 105 20 January 2015 Valuation and key risks Our valuation is based on two methodologies, equally weighted to capture long-term as well as short-term earnings potential: 2015 SOTP: To capture near-term earnings potential, we set up a SOTP for 2015; for automotive, we apply an EV/EBIT multiple of 8.0x in line with supplier peers; for defence, we apply an EV/Sales multiple of 0.4x. Our model yields a fair value of €35.7/share.

Figure 131: SOP yields fair value of €35.7 per share (based on 2015) 2015E Method EBIT Sales multiple EV Defence 66.9 2369.0 EV/sales 0.4x 947.6 Automotive 205.0 2523.2 EV/EBIT 8.0x 1640.0 Others -18 EV/EBIT 6.1x -110.4 Total 253.8 4892.2 2477.2

Net debt 154 Pensions 891 Financial assets 14 Minorities 90 Total equity 1121 adjustments

Equity value 1356 Number of shares 37.9 Per share 35.7 Source: Credit Suisse estimates The Credit Suisse HOLT tool yields a warranted price per share of €68.6. However, compared to HOLT, which incorporates a discount rate of 5.6% for the explicit period, we apply a higher rate of 7.7% (previously 6.9%), as the risk premium is likely to be higher in our view given meaningful uncertainty in particular with regards to the company's Defence business. Key potential upside risks: More cost savings in automotive and Defence New major order wins in Defence Positive outcome of sector consolidation Key potential downside risks: Higher margin pressure on Hardparts business Further defence budget cuts Negative outcome from sector consolidation

European Automotive Suppliers 106 20 January 2015

Credit Suisse HOLT valuation Credit Suisse forecasts for 2014-2018 The CFROI® chart (Figure 132) reflects our forecasts for sales, margins and returns. Based on our assumptions, HOLT calculates an average CFROI of 4.2% for 2014-2018. HOLT incorporates a discount rate of 5.6% for the explicit period of five years. Based on our explicit forecasts, HOLT calculates asset growth of -0.4% in 2014. HOLT assumptions beyond a five-year window Beyond the five-year window, HOLT assumes the CFROI and discount rate fade to 6%, while asset growth fades to 2.5%, incorporating the economic reality of competition and causing higher returns and growth to regress to the mean. HOLT yields a warranted value of €68.6 per share, with the explicit forecast representing 22% of the total EV and the terminal forecast accounting for 78%.

European Automotive Suppliers 107 20 January 2015

Figure 132: HOLT valuation—warranted price €68.6

RHEINMETALL AG (RHMG)

Current Price: EUR 36.01 Warranted Price: EUR 68.59 Valuation date: 16-Jan-15

Sales Growth (parallel % point change to forecasts) Dec 12A Dec 13A Dec 14E Dec 15E Dec 16E

in EUR -2.0% -1.0% 0.0% 1.0% 2.0% Sales Growth, % 5.6 -1.9 0.1 5.9 6.1 EBITDA Mgn, % 9.4 7.5 6.0 8.2 8.6 -2.0% 9% 15% 21% 28% 35% Asset Turns, x 0.64 0.6 0.6 0.6 0.7

-1.0% 40% 48% 56% 64% 74% CFROI®, % 5.2 4.0 2.5 4.1 4.7 Disc Rate, % 6.5 5.8 5.6 5.6 5.6 0.0% 71% 81% 90% 101% 113%

Asset Grth, % -0.1 -1.3 -0.4 2.0 1.7 to to forecasts) 1.0% 103% 114% 125% 138% 151% Value/Cost, x 0.8 0.9 0.8 0.7 0.7

Economic PE, x 15.0 21.3 30.2 18.2 15.4 2.0% 134% 146% 160% 174% 190%

EBITDA MarginEBITDA (parallel % point change Leverage, % 41.2 40.3 43.1 43.2 43.1

More than Sales Growth (%) More than 10% Within 10% 20 10% upside downside 15 10 CFROI & Discount Rate (in %) 5 0 8 -5 7 -10 6 -15 5 2009 2011 2013 2015 2017 4 3 EBITDA Margin 12 2 10 1

0 8 2009 2011 2013 2015 2017 Historical CFROI Historical Transaction CFROI 6

Forecast CFROI Forecast CFROI 4 HOLT HOLT - Credit Analyst Data Suisse Scenario 2 Asset Growth (in %) 0 14 2009 2011 2013 2015 2017 12 10 8 Asset Turns (x) 0.8 6 4 0.7 2 0.6 0 0.5 -2 0.4 -4 -6 0.3 2009 2011 2013 2015 2017 0.2

Historical Asset Growth Rate Forecast Growth 0.1 Forecast Growth RAGR 0.0 2009 2011 2013 2015 2017

Source: Credit Suisse HOLT®. CFROI and HOLTare trademarks or registered trademarks of Credit Suisse Group AG or its affiliates in the United States and other countries .

Source: Credit Suisse HOLT

European Automotive Suppliers 108 20 January 2015

Financial statements

Figure 133: Income statement €m unless stated 2013 2014E 2015E 2016E 2017E Sales 4613 4619.2 4892.2 5190.7 5346.4 Changes in inventories/capitalized work 141 Total operating performance 4754 4619.2 4892.2 5190.7 5346.4 Other operating income 107 130.0 100.0 100.0 100.0 Cost of materials -2573 -2490.7 -2537.4 -2726.4 -2766.3 Personnel expense -1308 -1335.0 -1361.7 -1388.9 -1416.7 D&A, impairments -212 -195.4 -206.8 -219.4 -226.5 Other operating expense -687 -620.0 -660.4 -700.7 -721.8 Net operating income 81 108.1 225.8 255.1 315.2 Net interest -77 -78.5 -83.5 -78.5 -76.5 Net investment income and other net financial income 31 25 28 32 36 Earnings before tax 35 54.6 170.3 208.6 274.7 Income taxes -13 -12.8 -46.0 -56.3 -74.2 Tax rate 37.1% 24% 27% 27% 27% Net income 22 41.8 124.4 152.3 200.5 Discontinued operations Net income after discontinued operations Minority interests -7 3 3 3 3 Rheinmetall shareholder 29 38.8 121.4 149.3 197.5

Weighted number of shares 37.93 37.93 37.93 37.93 37.93

EPS - continued operations 0.75 1.02 3.20 3.94 5.21 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 109 20 January 2015

Figure 134: Balance sheet €m unless stated 2013 2014E 2015E 2016E 2017E Goodwill 555 555 555 555 555 Intangible assets 319 304 288 272 255 PPE 1156 1184 1213 1247 1284 Investment property 14 14 14 14 14 At equity 157 151 151 151 151 Other non-current financial assets 6 6 6 6 6 other non-current assets 6 6 6 6 6 deferred taxes 129 129 129 129 129 Non-current assts 2342 2349 2362 2380 2401 Inventories 937 980 1000 1030 1050 Prepayments received -31 -30 -30 -30 -30 Net inventories 906 950 970 1000 1020 Trade receivables 982 990 1010 1080 1100 Other current financial assets 34 34 34 34 34 Other current receivables and assets 118 118 118 118 118 Income tax receivables 26 26 26 26 26 Cash and equivalent 445 396 429 441 29 Assets held for sales 4 0 0 0 0 Current assets 2515 2514 2587 2699 2327 Total assets 4857 4863 4949 5079 4727

Share capital 101 101 101 101 101 Additional paid in capital 307 307 307 307 307 Retained earnings 905 929 1012 1099 1220 Treasury shares -58 -58 -58 -58 -58 Rheinmetall shareholders equity 1255 1279 1362 1449 1570 Minority interest 84 87 90 93 96 Total Equity 1339 1366 1452 1542 1666 Pension provisions 891 891 891 891 891 other non-current provisions 88 88 88 88 88 Non-current financial debts 532 532 532 532 36 Other non-current liabilities 31 31 31 31 31 Deferred taxes 36 36 36 36 36 Non-current liabilities 1578 1578 1578 1578 1082 Other current provisions 388 388 378 378 378 Current financial debts 51 51 51 51 51 Trade liabilities 721 700 710 750 770 Other current liabilities 739 739 739 739 739 Income tax liabilities 41 41 41 41 41 Liabilities with assets held for sale Current liabilities 1940 1919 1919 1959 1979 Total equity and liabilities 4857 4863 4949 5079 4727 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 110 20 January 2015

Figure 135: Cash flow statement €m unless stated 2013 2014E 2015E 2016E 2017E Net income 22 41.8 124.4 152.3 200.5 D&A and impairments 212 195.4 206.8 219.4 226.5 Changes in pension provisions -3 0.0 0.0 0.0 0.0 Gross cash flows 231 237.2 331.1 371.7 427.0 Income from disposition of non-current assets -1 Changes in other provisions 14 0.0 -10.0 0.0 0.0 Changes in inventories -132 -44.0 -20.0 -30.0 -20.0 Changes in receivables, liabilities without financial 159 -25.0 -10.0 -30.0 0.0 Other non-cash expense/income -76 0.0 Cash flows from operating activities 195 168.2 291.1 311.7 407.0

CAPEX PPE -191 -208.3 -220.1 -236.7 -247.4 Cash receipts from the disposal of PPE 6 Investments in consolidated companies/financial assets -5 6.0 0.0 0.0 0.0 Divestment of consolidated companies/ financial assets 17 Cash flows from investing activities -173 -202.3 -220.1 -236.7 -247.4

Capital contributions by third parties 3 Changes in scope of consolidation 1 Changes in equity interest without loss of control 4 Dividends paid out by Rheinmetall AG -68 -15.2 -37.9 -62.6 -75.9 Other profit distributions -7 Purchase of treasury shares 0 Sale of treasury shares 5 Borrowing of financial debts 80 Repayments of financial debts -93 0.0 0.0 0.0 -496.0 Cash flows from financing activities -75 -15.2 -37.9 -62.6 -571.9

Changes in cash & equivalent -53 -49.4 33.1 12.4 -412.3 FX -3 0.0 0.0 0.0 0.0 Cash beginning of the period 501 445.0 395.6 428.7 441.2 Cash end of the period 445 395.6 428.7 441.2 28.9 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 111 20 January 2015

Figure 136: Divisional estimates €m unless stated 2013 2014E 2015E 2016E 2017E Sales Automotive 2458.0 2406.0 2523.2 2699.2 2901.8 Defence 2155.0 2213.2 2369.0 2491.5 2444.7 Others/Consolidation 0.0 0.0 0.0 0.0 0.0 Total 4613.0 4619.2 4892.2 5190.7 5346.4

Operating profit Automotive 160.0 181.1 205.0 228.3 258.2 Defence 60.0 -10.0 66.9 76.8 111.0 Others/Consolidation -7.0 -18.0 -18.0 -18.0 -18.0 Total 213.0 153.1 253.8 287.1 351.2

Margin Automotive 6.5% 7.5% 8.1% 8.5% 8.9% Defence 2.8% -0.5% 2.8% 3.1% 4.5% Total 4.6% 3.3% 5.2% 5.5% 6.6% Operating profit includes at equity income (company definition), Source: Company data, Credit Suisse estimates

European Automotive Suppliers 112 20 January 2015

Europe / Germany Auto Parts & Equipment

Elringklinger (ZILGn.DE) Rating UNDERPERFORM*

Price (16 Jan 15, Eu) 29.53 Target price (Eu) 25.10¹ Market cap. (Eu m) 1,871.02 Selective growth opportunities in China— Enterprise value (Eu m) 2,166.6 turbocharges could provide upside

*Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ■ Outlook—turbocharges could provide upside: The growth strategy of EK ¹Target price is for 12 months. in China differs from other players, as the company is a niche player due to

Research Analysts its product portfolio. Sales growth in China over the past couple of years Alexander Haissl were in the double digits but rather at the lower end of our coverage. With 44 20 7888 8507 new engine platforms coming on stream in particular from western [email protected] companies, we see the opportunity for EK to benefit from higher Mike Dean turbocharging penetration. In our view, content for turbocharged engines 44 20 7883 2371 [email protected] (specialty gaskets plus shielding components) for EK is meaningfully higher Fei Teng versus traditional engines. 44 20 7883 9978 [email protected] ■ Market position—no threat from domestic producers: The competitive Specialist Sales: Andrew Bell landscape is similar to the rest of the world with DANA and Federal Mogul 44 20 7888 0479 being EK's main competitors. For cylinder-head gaskets, EK holds the [email protected] leading market position. We see limited risk that domestic producers will be able to compete in EK's core markets due to quality issues. ■ Impact—midterm upside potential: Accounting for c.10% of the business (taking exports into account c.16%), we see limited near-term upside potential for EK's China exposure. The most significant midterm upside could come from interested turbocharger penetration rates, as content for EK is disproportionally high. ■ Valuation—Underperform with a target price of €25.1: EK is a well- managed niche player, but we see better value elsewhere. Trading at 8x 2015E EV/EBITDA, valuation is already demanding in our view. Our target price is based on 7.4x our 2015 EV/EBITDA estimate and Credit Suisse HOLT.

Share price performance Financial and valuation metrics

Year 12/13A 12/14E 12/15E 12/16E 34 Revenue (Eu m) 1,175.2 1,282.7 1,362.8 1,470.7 29 EBITDA (Eu m) 240.89 242.72 266.70 297.69 24 Adjusted Net Income (Eu m) 105.42 107.55 124.00 146.17 CS adj. EPS (Eu) 1.66 1.70 1.96 2.31 19 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Prev. EPS (Eu) — — — — Price Price relative ROIC (%) 12.29 11.32 12.15 13.11 P/E (adj., x) 17.75 17.40 15.09 12.80 The price relative chart measures performance against the P/E rel. (%) 129.2 128.8 122.9 114.3 DEUTSCHE BORSE DAX INDEX which closed at 10167.77 on EV/EBITDA 9.0 8.9 8.0 7.0 16/01/15 On 16/01/15 the spot exchange rate was €1./Eu 1. - Dividend (12/14E, Eu) 0.55 IC (12/14E, Eu m) 1,081.17 Eu .87/US$1 Dividend yield (%) 1.9 EV/IC 2.0

Performance Over 1M 3M 12M Net debt (12/14E, Eu m) 295.5 Current WACC 8.50 Absolute (%) 8.3 28.1 -9.4 Net debt/equity (12/14E, %) 37.6 Free float (%) 47.99 BV/share (12/14E, Eu) 11.9 Number of shares (m) 63.36 Relative (%) 4.4 13.6 -13.8

Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates.

European Automotive Suppliers 113 20 January 2015

Elringklinger ZILGn.DE Price (16 Jan 15): Eu29.53, Rating: UNDERPERFORM, Target Price: Eu25.10 Income statement (Eu m) 12/13A 12/14E 12/15E 12/16E Per share data 12/13A 12/14E 12/15E 12/16E Revenue (Eu m) 1,175.2 1,282.7 1,362.8 1,470.7 No. of shares (wtd avg) 63 63 63 63 EBITDA 241 243 267 298 CS adj. EPS (Eu) 1.66 1.70 1.96 2.31 Depr. & amort. (76) (78) (80) (82) Prev. EPS (Eu) — — — — EBIT (Eu) 165 165 187 216 Dividend (Eu) 0.50 0.55 0.60 0.65 Net interest exp. (11) (13) (12) (10) Div yield 1.69 1.86 2.03 2.20 Associates — — — — Dividend payout ratio 30.05 32.40 30.66 28.18 Other adj, (5) — — — Free cash flow per share 0.07 0.69 1.32 1.34 PBT (Eu) 149 152 175 206 (Eu) Income taxes (38) (39) (46) (53) Key ratios and 12/13A 12/14E 12/15E 12/16E Profit after tax 111 113 130 152 valuation Minorities (6) (5) (6) (6) Growth (%) Preferred dividends — — — — Sales 4.3 9.1 6.2 7.9 Associates & other — — — — EBIT 19.0 0.1 13.3 15.5 Net profit 105 108 124 146 Net profit 23.0 2.0 15.3 17.9 Other NPAT adjustments — — — — EPS 23.0 2.0 15.3 17.9 Reported net income 105 108 124 146 Margins (%) EBITDA margin 20.5 18.9 19.6 20.2 Cash flow (Eu) 12/13A 12/14E 12/15E 12/16E EBIT margin 14.0 12.9 13.7 14.7 EBIT 165 165 187 216 Pretax margin 12.7 11.9 12.9 14.0 Net interest (8) (13) (12) (10) Net margin 9.0 8.4 9.1 9.9 Cash taxes paid (38) (39) (46) (53) Valuation metrics (x) Change in working capital (54) (26) (18) (32) EV/sales 1.8 1.7 1.6 1.4 Other cash & non-cash items 55 76 80 82 EV/EBITDA 9.0 8.9 8.0 7.0 Cash flow from operations 120 163 191 202 EV/EBIT 13.1 13.1 11.4 9.7 CAPEX (116) (119) (108) (117) P/E 17.7 17.4 15.1 12.8 Free cashflow adj. — — — — P/B 2.8 2.5 2.2 2.0 Free cash flow to the firm 4 44 83 85 Asset turnover 0.84 0.87 0.86 0.87 Acquisitions (3) — — — ROE analysis (%) Divestments 3 — — — ROE stated-return on 16.4 15.0 15.5 16.3 Other investment/(outflows) (13) (12) (12) (13) equityROIC 12.3 11.3 12.2 13.1 Cash flow from investments (128) (131) (120) (130) Interest burden 0.90 0.92 0.94 0.95 Net share issue/(repurchase) (6) — — — Tax rate 25.5 25.9 26.0 26.0 Dividends paid (30) (32) (35) (38) Financial leverage 0.53 0.48 0.43 0.38 Issuance (retirement) of debt 50 — — — Credit ratios (%) Other (44) — — — Net debt/equity 41.9 37.6 29.4 22.7 Cash flow from financing (29) (32) (35) (38) Net debt/EBITDA 1.2 1.2 1.0 0.8 activitiesEffect of exchange rates (3) — — — Interest coverage ratio 14.8 12.7 15.6 20.6 Changes in Net Cash/Debt (35) (0) 36 34 . Net debt at start 260 295 296 259 Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities Change in net debt 35 0 (36) (34) (EUROPE) LTD. Estimates. Net debt at end 295 296 259 225

Balance sheet (Eu m) 12/13A 12/14E 12/15E 12/16E Assets Cash and cash equivalents 63 63 99 133 34 Accounts receivable 207 230 240 245 Inventory 257 265 280 310 29 Other current assets 49 49 49 49 24 Total current assets 577 607 668 737 Total fixed assets 612 664 702 747 19 Intangible assets and goodwill 177 179 181 184 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Investment securities — — — — Other assets 29 31 31 31 Price Price relative Total assets 1,395 1,481 1,583 1,700 Liabilities The price relative chart measures performance against the DEUTSCHE BORSE Accounts payable 69 73 80 83 DAX INDEX which closed at 10167.77 on 16/01/15 Short-term debt 121 121 121 121 On 16/01/15 the spot exchange rate was €1./Eu 1. - Eu .87/US$1 Other short term liabilities 122 122 122 122 Total current liabilities 312 316 323 326 Long-term debt 237 237 237 237 Other liabilities 142 142 142 142 Total liabilities 691 695 702 705 Shareholders' equity 677 753 842 950 Minority interest 28 33 38 44 Total equity & liabilities 1,395 1,481 1,583 1,700 Net debt (Eu m) 295 296 259 225

European Automotive Suppliers 114 20 January 2015 ElringKlinger—China Business overview EK operates three assets in China: Changchun ElringKlinger Ltd., ElringKlinger China Ltd. and ElringKlinger Engineered Plastics (Qindao) Commercial Co., Ltd. Key assets Changchun ElringKlinger Co., Ltd.—88% EK EK has an 88% stake in Changchun ElringKlinger Co., Ltd. with the remaining 12% being held by the State investment company State Machinery Electronics, Light and Textile Industry Investment Corporation. In May 2011, the company opened its new facility in Changchun with total production space of 12,000m2 (more than double versus the previous site). Total headcount is 300 employees. Production is focused on cylinder-head and specialty gaskets, thermal shielding components and plastic housing modules. ElringKlinger China Ltd (Suzhou)—100% EK Assets stem from the SEVEX acquisition (Swiss based company), which operated the Zuzhou plant prior to the acquisition. The product focus is on Thermal and acoustic shielding components, as well as on plastic housing modules. ElringKlinger Engineered Plastics (Qingdao) Commercial Co., Ltd—74.5% EK Products include plastics, such as PTFE and PTFE compounds, and Moldflon. EK's stake is 74.5% with the remaining stake being indirectly held by a German family (stemming from the acquisition of Venus GmbH Heidenheim).

Key financial data  Sales in China of c.€130m or 10% of group sales; however, including exports from Europe into China, we estimate around €200m or 16% of sales  Headcount 630 employees Key competitors  DANA, Federal Mogul

Figure 137: Asset overview and ownership Location Share Changchun ElringKlinger Ltd Changchun 88.0% ElringKlinger China Ltd. Suzhou 100.0% ElringKlinger Engineered Plastics (Qingdao) Commercial Co. Ltd. Qingdao 74.5% Source: Company data, Credit Suisse research

European Automotive Suppliers 115 20 January 2015 Valuation and key risks Our valuation is based on two methodologies, equally weighted to capture long-term as well as short-term earnings potential: 2015E EV/EBITDA: To capture near-term earnings potential, we take our 2015 EBITDA estimate and, based on historical data and peer group comparison, apply a multiple of 7.4x, which is ~33% below the peak recorded during 2010-2013 and 9% above the low point; this model yields a fair value of €25.2/share.

Figure 138: Model yields fair value of €25.2 Assumptions 2015 EBITDA 267 Multiples 2010-2013 avg 7.8x high 11.1x low 6.8x

Assumed multiple 7.4x vs. avg -5.6% vs. high -33.4% vs. low 9.2% EV 1974 Equity adjustments 375 Equity value 1598 Number of shares 63.4 per share 25.2 Source: Company data, Credit Suisse estimates The Credit Suisse HOLT tool yields a warranted price per share of €38.4 using the default discount rate of 4.8%. However, for our target price methodology and in line with the sector, we apply a higher discount rate versus HOLT, as risk premiums (therefore cost of capital) are higher in our view. We apply a discount rate of 6.7% to calculate our target price. Key potential upside risks: More pronounced recovery of E-mobility Faster turnaround of French operations and Marusan More aggressive shift of production to lower cost countries Key potential downside risks: Structural margin pressure on core business (price cost squeeze) E-mobility to record higher losses for a longer period of time Margin dilutive acquisitions

European Automotive Suppliers 116 20 January 2015

Credit Suisse HOLT valuation Credit Suisse forecasts for 2014-2018 The CFROI chart (Figure 139) reflects our forecasts for sales, margins and returns. Based on our assumptions, HOLT calculates an average CFROI of 8.1% for 2014-2018. This incorporates a discount rate of 4.83% for the explicit period of five years, which, in HOLT's view, reflects a normalised rate. Based on our explicit forecasts, HOLT calculates asset growth of 7.0% in 2014, which is expected to decline to 4.0% by 2018. HOLT assumptions beyond a five-year window Beyond the five-year window, HOLT assumes the CFROI and discount rate fade to 6%, while asset growth fades to 2.5%, incorporating the economic reality of competition and causing higher returns and growth to regress to the mean. HOLT yields a warranted value of €38.4 per share, with the explicit forecast representing 11% of the total EV and the terminal forecast accounting for 89%.

European Automotive Suppliers 117 20 January 2015

Figure 139: HOLT valuation—warranted price €38.4

ELRINGKLINGER AG (ZILGN)

Current Price: EUR 29.53 Warranted Price: EUR 38.35 Valuation date: 19-Jan-15

Sales Growth (parallel % point change to forecasts) Dec 12A Dec 13A Dec 14E Dec 15E Dec 16E

in EUR -2.0% -1.0% 0.0% 1.0% 2.0% Sales Growth, % 9.1 4.3 9.1 6.2 7.9 EBITDA Mgn, % 17.9 19.1 18.9 19.6 20.2 -2.0% 29% 29% 29% 19% 27% Asset Turns, x 0.56 0.5 0.5 0.5 0.5

-1.0% 29% 29% 20% 29% 38% CFROI®, % 5.3 7.3 8.1 7.8 8.0 Disc Rate, % 5.9 4.9 4.8 4.8 4.8 0.0% 29% 29% 30% 39% 48%

Asset Grth, % 6.1 5.8 7.0 6.1 5.7 to to forecasts) 1.0% 29% 29% 39% 49% 59% Value/Cost, x 1.5 1.6 1.5 1.4 1.3

Economic PE, x 28.7 21.5 18.1 17.3 15.7 2.0% 29% 29% 49% 59% 70%

EBITDA MarginEBITDA (parallel % point change Leverage, % 20.7 18.0 19.1 18.9 18.9

More than Sales Growth (%) More than 10% Within 10% 40 10% upside downside 30

20 CFROI & Discount Rate (in %) 10 9 0 8 -10 7 6 -20 2009 2011 2013 2015 2017 5 4 EBITDA Margin 3 30 2 25 1 0 20 2009 2011 2013 2015 2017 Historical CFROI Historical Transaction CFROI 15

Forecast CFROI Forecast CFROI 10 HOLT HOLT - Credit Analyst Data Suisse Scenario 5 Asset Growth (in %) 0 20 2009 2011 2013 2015 2017 18 16 14 Asset Turns (x) 0.6 12 10 0.5 8 6 0.4 4 0.3 2 0 0.2 2009 2011 2013 2015 2017 0.1 Historical Asset Growth Rate Forecast Growth Forecast Growth RAGR 0.0 2009 2011 2013 2015 2017

Source: Credit Suisse HOLT®. CFROI and HOLTare trademarks or registered trademarks of Credit Suisse Group AG or its affiliates in the United States and other countries.

Source: Company data, Credit Suisse HOLT

European Automotive Suppliers 118 20 January 2015

Figure 140: Income statement €m unless stated 2013 2014E 2015E 2016E 2017E Sales 1175.2 1282.7 1362.8 1470.7 1582.5 Cost of sales -846.2 -919.3 -966.0 -1028.0 -1092.1 Gross profit 329.1 363.5 396.8 442.8 490.4 Selling expenses -82.3 -89.8 -94.0 -101.5 -109.2 General and administrative costs -47.6 -52.6 -55.9 -60.3 -64.9 R&D -57.1 -60.9 -64.7 -69.9 -75.2 Other operating income 33.2 15.0 15.0 15.0 15.0 Other operating expense -10.3 -10.0 -10.0 -10.0 -10.0 Operating profit 164.9 165.2 187.1 216.1 246.2 Finance income 9.3 9.0 9.0 9.0 9.0 Finance costs -25.1 -22.0 -21.0 -19.5 -17.5 Net finance costs -15.7 -13.0 -12.0 -10.5 -8.5 Earnings before tax 149.2 152.2 175.1 205.6 237.7 Income tax -38.0 -39.4 -45.5 -53.5 -61.8 Tax rate 25.5% 25.9% 26.0% 26.0% 26.0% Current taxes -38.0 Deferred taxes 0.0 Net income 111.2 112.8 129.6 152.2 175.9 of which minorities 5.8 5.2 5.6 6.0 6.5 of which attributable to ElringKlinger shareholders 105.4 107.6 124.0 146.2 169.4

Average number of shares 63.4 63.4 63.4 63.4 63.4

EPS (Basic and diluted) 1.66 1.70 1.96 2.31 2.67

Dividend per share 0.50 0.55 0.60 0.65 0.75 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 119 20 January 2015

Figure 141: Balance sheet €m unless stated 2013 2014E 2015E 2016E 2017E Intangible assets 176.7 178.9 181.2 184.4 188.6 PPE 612.1 663.5 701.7 746.7 799.0 Investment property 12.7 12.7 12.7 12.7 12.7 Financial assets 2.0 2.0 2.0 2.0 2.0 At equity Non-current income taxes 2.2 2.2 2.2 2.2 2.2 Other non-current assets 3.0 5.0 5.0 5.0 5.0 Deferred tax assets 9.5 9.5 9.5 9.5 9.5 Non-current assets 818.3 873.9 914.3 962.5 1019.0 Inventories 257.4 265.0 280.0 310.0 335.0 Trade receivables 207.5 230.0 240.0 245.0 250.0 Current income tax assets 4.0 4.0 4.0 4.0 4.0 Other current assets 45.3 45.3 45.3 45.3 45.3 Cash and cash equivalent 62.9 62.7 99.0 132.9 183.1 Current assets 577.0 606.9 668.3 737.2 817.4 Non-current assets held for sale Total assets 1395.3 1480.8 1582.5 1699.7 1836.4

Share capital 63.4 63.4 63.4 63.4 63.4 Capital reserves 118.2 118.2 118.2 118.2 118.2 Revenue reserves 501.3 577.2 666.4 774.5 902.7 Other reserves -5.9 -5.9 -5.9 -5.9 -5.9 Equity to shareholders 677.0 752.9 842.1 950.2 1078.4 Non-controlling interest 27.5 32.7 38.3 44.3 50.8 Equity 704.6 785.6 880.4 994.5 1129.2 Pension provisions 92.3 92.3 92.3 92.3 92.3 Non-current provisions 10.3 10.3 10.3 10.3 10.3 Non-current financial liabilities 237.3 237.3 237.3 237.3 237.3 Deferred tax liabilities 32.5 32.5 32.5 32.5 32.5 Other non-current liabilities 6.5 6.5 6.5 6.5 6.5 Non-current liabilities 379.0 379.0 379.0 379.0 379.0 Current provisions 19.5 19.5 19.5 19.5 19.5 Trade payables 68.6 73.0 80.0 83.0 85.0 Current financial liabilities 120.9 120.9 120.9 120.9 120.9 Tax payables 14.7 14.7 14.7 14.7 14.7 Other current liabilities 88.1 88.1 88.1 88.1 88.1 Current liabilities 311.7 316.1 323.1 326.1 328.1 Total 1395.3 1480.8 1582.5 1699.7 1836.4 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 120 20 January 2015

Figure 142: Cash flow statement €m unless stated 2013 2014E 2015E 2016E 2017E Earnings before taxes 149.2 152.2 175.1 205.6 237.7 D&A 76.0 77.6 79.6 81.6 83.6 Net interest 11.1 13.0 12.0 10.5 8.5 Change in provisions -1.3 Gains/losses from disposal of non-current assets -0.5 At equity Change in inventories, trade receivables and other -51.6 -30.2 -25.0 -35.0 -30.0 receivables Change in trade payables, and other liabilities -2.9 4.4 7.0 3.0 2.0 Income taxes paid -37.8 -39.4 -45.5 -53.5 -61.8 Interest paid -8.5 -13.0 -12.0 -10.5 -8.5 Interest received 0.4 Other non-cash expenses -14.1 -2.0 0.0 0.0 0.0 Net cash from operating activities 120.0 162.6 191.2 201.7 231.4

Proceeds from disposals of PPE and intangible 2.6 Proceeds from disposal of financial assets 0.8 Investments intangible assets -11.6 -12.2 -12.3 -13.2 -14.2 CAPEX PPE -115.6 -119.0 -107.7 -116.6 -125.8 Payments for investments in financial assets -1.0 Payments for acquisitions of subsidiaries, less cash -3.2 Net cash flow from investing activities -128.0 -131.2 -120.0 -129.8 -140.1

Proceeds from non-controlling interests for the 0.0 purchase of shares Payments to non-controlling interests for the purchase -5.9 of shares Dividends paid to shareholders -29.7 -31.7 -34.8 -38.0 -41.2 Proceeds from the addition of financial liabilities 152.0 0.0 0.0 0.0 0.0 Payments from the repayment of financial liabilities -101.8 Net cash flow from financing activities 14.6 -31.7 -34.8 -38.0 -41.2

Change in Cash 6.6 -0.3 36.3 33.9 50.2 FX -3.3 Cash inflow from acquisitions 5.3 Cast at the beginning 54.3 62.9 62.7 99.0 132.9 Cash at the end of period 62.9 62.7 99.0 132.9 183.1 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 121 20 January 2015

Figure 143: Divisional estimates €m unless stated 2013 2014E 2015E 2016eE 2017E Sales OE 951.0 1048.9 1121.2 1223.1 1328.8 Aftermarket 119.3 127.6 133.4 136.7 140.1 Engineered plastics 92.6 94.0 95.8 98.2 100.7 Industrial parts 4.3 4.3 4.4 4.5 4.5 Services 8.1 7.9 8.1 8.2 8.4 Others 0.0 0.0 0.0 0.0 0.0 Total 1175.2 1282.7 1362.8 1470.7 1582.5

EBITDA OE 189.1 193.7 214.6 243.8 274.0 Aftermarket 23.5 26.3 27.7 28.6 29.6 Engineered plastics 19.7 18.5 20.0 20.6 21.4 Industrial parts 0.6 0.9 0.9 1.0 1.1 Services 3.5 3.4 3.5 3.6 3.7 Others 0.0 0.0 0.0 0.0 0.0 Total 236.3 242.7 266.7 297.7 329.7

EBIT OE 119.6 122.7 141.6 168.8 197.0 Aftermarket 22.3 25.0 26.4 27.3 28.3 Engineered plastics 16.0 14.8 16.3 16.9 17.7 Industrial parts 0.1 0.4 0.5 0.6 0.7 Services 2.3 2.2 2.3 2.4 2.5 Others 0.0 0.0 0.0 0.0 0.0 Total 160.4 165.2 187.1 216.1 246.2 Source: Company data, Credit Suisse estimates

European Automotive Suppliers 122 20 January 2015 LMC global production forecast

Figure 144: LMC global production forecasts by region 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E Africa 482 545 627 695 766 902 927 939 978 Asia 36,908 37,045 41,141 43,098 44,224 46,480 49,207 51,575 54,176 Middle East 1,538 1,606 1,013 709 979 983 1,154 1,452 1,659 North America 11,845 13,095 15,404 16,152 16,908 17,394 18,122 18,380 18,733 South America 4,165 4,265 4,321 4,539 3,781 3,833 4,051 4,201 4,410 Eastern Europe 5,736 6,491 6,702 6,848 6,864 7,082 7,489 7,859 8,125 Western Europe 13,406 14,008 12,741 12,707 13,161 13,254 13,509 14,342 14,664 Total 74,080 77,054 81,949 84,749 86,684 89,928 94,459 98,749 102,745

YoY % Africa 20.3% 13.2% 15.0% 10.8% 10.2% 17.8% 2.8% 1.3% 4.1% Asia 28.6% 0.4% 11.1% 4.8% 2.6% 5.1% 5.9% 4.8% 5.0% Middle East 14.6% 4.4% -36.9% -30.0% 38.1% 0.4% 17.4% 25.8% 14.3% North America 38.9% 10.5% 17.6% 4.9% 4.7% 2.9% 4.2% 1.4% 1.9% South America 13.4% 2.4% 1.3% 5.0% -16.7% 1.4% 5.7% 3.7% 5.0% Eastern Europe 21.5% 13.2% 3.3% 2.2% 0.2% 3.2% 5.7% 4.9% 3.4% Western Europe 12.4% 4.5% -9.0% -0.3% 3.6% 0.7% 1.9% 6.2% 2.2% Total 24.9% 4.0% 6.4% 3.4% 2.3% 3.7% 5.0% 4.5% 4.0% Source: LMC

European Automotive Suppliers 123 20 January 2015

Companies Mentioned (Price as of 16-Jan-2015) AGCO Corp (AGCO.N, $43.33) Aisin Seiki (7259.T, ¥4,075) American Axle & Manufacturing Holdings Inc. (AXL.N, $24.0) Autoliv (ALV.N, $102.11, NEUTRAL, TP $108.0) BAIC Motor Corporation Limited (1958.HK, HK$9.1) BE Aerospace Inc. (BEAV.OQ, $59.63) BMW (BMWG.DE, €93.59) BYD Co Ltd (1211.HK, HK$28.0) BorgWarner, Inc. (BWA.N, $50.8) Brilliance China Automotive Holdings Limited (1114.HK, HK$13.42) CNH Industrial (CNHI.MI, €6.555) Calsonic Kansei (7248.T, ¥614) China Anhui Jianghuai Automobile Co., Ltd. (600418.SS, Rmb12.87) Chongqing Changan Automobile Company Limited (000625.SZ, Rmb20.16) Compagnie Pla Om (PLOF.PA, €23.965) Continental (CONG.DE, €188.7, OUTPERFORM, TP €208.0) DELPHI Automotive PLC (DLPH.N, $66.59) Daimler (DAIGn.DE, €74.38) Dana Holding (DAN.N, $20.49) Deere & Co. (DE.N, $87.3) Denso (6902.T, ¥5,276) Dongfeng Motor Group Company Limited (0489.HK, HK$11.42) Elringklinger (ZILGn.DE, €29.53, UNDERPERFORM, TP €25.1) Exedy (7278.T, ¥2,785) Faurecia (EPED.PA, €32.94, OUTPERFORM, TP €37.0) Fawer (000030.SZ, Rmb9.1) Fiat (FCHA.MI, €10.49) Finmeccanica (SIFI.MI, €8.5) Ford Motor Company (F.N, $15.02) GKN (GKN.L, 355.9p, OUTPERFORM, TP 410.0p) Geely Automobile Holdings Ltd (0175.HK, HK$2.9) General Motors Corp. (GM.N, $33.68) Great Wall Motor (GWLLF.PK, $5.4) Guangzhou Automobile Group (2238.HK, HK$6.93) Hella Hueck (HLE.DE, €38.445) Hitachi Chemical (4217.T, ¥2,094) Honda Motor (7267.T, ¥3,589) Huayu Automotive Systems Co., Ltd (600741.SS, Rmb18.12) Hyundai Mobis (012330.KS, W254,000) Hyundai Motor (005380.KS, W171,000) Hyundai Wia Corp. (011210.KS, W181,500) JTEKT (6473.T, ¥1,849) Jin Heng (0872.HK, HK$0.36) Johnson Controls (JCI.N, $45.39) Keihin (7251.T, ¥1,789) Kia Motors (000270.KS, W52,000) Lear Corp (LEA.N, $95.09) Leoni (LEOGn.DE, €52.9, NEUTRAL, TP €52.9) Magna International (MGA.N, $93.25) Mando Corp (204320.KS, W164,000) Mazda Motor (7261.T, ¥2,492) Michelin (MICP.PA, €78.0) Musashi Seimitsu Industry (7220.T, ¥2,153) NGK Spark Plug (5334.T, ¥3,500) NTN (6472.T, ¥491) Nissan Motor (7201.T, ¥988) Nokian Tyres (NRE1V.HE, €20.28) PSA Peugeot Citroen (PEUP.PA, €11.3) Pirelli (PECI.MI, €11.85) Precision Castparts (PCP.N, $199.63) Renault (RENA.PA, €62.94) Rheinmetall (RHMG.DE, €36.36, UNDERPERFORM, TP €35.6) SAIC Motor Corp Ltd (600104.SS, Rmb24.85) Senior (SNR.L, 306.0p) Spirit AeroSystems (SPR.N, $42.11) Sumitomo Electric Industries (5802.T, ¥1,446) TRW Automotive Holdings Corp. (TRW.N, $102.99) Takata Corporation (7312.T, ¥1,490) Tenneco Inc. (TEN.N, $50.75) Tokai Rika (6995.T, ¥2,384) Toyoda Gosei (7282.T, ¥2,370) Toyota Industries (6201.T, ¥5,970) Toyota Motor (7203.T, ¥7,514) TransDigm (TDG.N, $204.0) Triumph Group Inc (TGI.N, $60.39) Valeo (VLOF.PA, €114.9, OUTPERFORM, TP €126.0) Vector (VCT.NZ, NZ$2.89) Volkswagen (VOWG_p.DE, €191.8) WXQC (000559.SZ, Rmb12.43)

European Automotive Suppliers 124 20 January 2015

Disclosure Appendix

Important Global Disclosures The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Autoliv (ALV.N)

ALV.N Closing Price Target Price Date (US$) (US$) Rating 27-Apr-12 65.31 55.00 U 20-Jun-13 75.33 NR 18-Sep-14 99.59 112.00 N * 30-Oct-14 90.47 108.00 * Asterisk signifies initiation or assumption of coverage.

UNDERPERFORM N O T RA T ED NEUTRAL

3-Year Price and Rating History for Continental (CONG.DE)

CONG.DE Closing Price Target Price Date (€) (€) Rating 16-Mar-12 72.07 85.00 O 04-May-12 71.81 90.00 10-Apr-13 90.81 90.00 N 20-Jun-13 97.86 NR 17-Jul-14 166.45 201.00 O * 18-Sep-14 165.30 208.00 * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM NEUTRAL N O T RAT ED

3-Year Price and Rating History for Elringklinger (ZILGn.DE)

ZILGn.DE Closing Price Target Price Date (€) (€) Rating 18-Sep-14 24.42 25.10 U * * Asterisk signifies initiation or assumption of coverage.

UNDERPERFORM

European Automotive Suppliers 125 20 January 2015

3-Year Price and Rating History for Faurecia (EPED.PA)

EPED.PA Closing Price Target Price Date (€) (€) Rating 18-Sep-14 27.35 36.00 O * 30-Oct-14 25.20 37.00 * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM

3-Year Price and Rating History for GKN (GKN.L)

GKN.L Closing Price Target Price Date (p) (p) Rating 16-Mar-12 217.20 240.00 N 12-Apr-12 203.30 240.00 O 03-Aug-12 210.60 245.00 01-Oct-12 217.00 255.00 15-Mar-13 274.50 315.00 18-Jun-13 307.50 355.00 01-Aug-13 352.60 395.00 02-Dec-13 375.50 430.00 27-Feb-14 408.20 450.00 22-Oct-14 312.10 380.00 NEUTRAL OUTPERFORM 12-Jan-15 348.50 410.00 * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Leoni (LEOGn.DE)

LEOGn.DE Closing Price Target Price Date (€) (€) Rating 18-Sep-14 45.91 52.90 N * * Asterisk signifies initiation or assumption of coverage.

NEUTRAL

European Automotive Suppliers 126 20 January 2015

3-Year Price and Rating History for Rheinmetall (RHMG.DE)

RHMG.DE Closing Price Target Price Date (€) (€) Rating 18-Sep-14 41.35 45.10 U * 06-Nov-14 31.33 35.60 * Asterisk signifies initiation or assumption of coverage.

UNDERPERFORM

3-Year Price and Rating History for Valeo (VLOF.PA)

VLOF.PA Closing Price Target Price Date (€) (€) Rating 02-Apr-13 42.40 NR 18-Sep-14 94.46 119.00 O * 30-Oct-14 88.28 124.00 01-Dec-14 100.00 126.00 * Asterisk signifies initiation or assumption of coverage.

N O T RAT ED OUTPERFORM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2 012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the re lative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10- 15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese rating s were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

European Automotive Suppliers 127 20 January 2015

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 46% (54% banking clients) Neutral/Hold* 38% (50% banking clients) Underperform/Sell* 14% (43% banking clients) Restricted 2% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual fac tors.

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Price Target: (12 months) for Leoni (LEOGn.DE) Method: Our valuation is based on two methodologies, equally weighted to capture long term as well as short-term earnings potential: 1.) 2015e EV/EBITDA: to capture near-term earnings potential, we take our 2015e EBITDA and apply a multiple of 5.2.x, which is ~32% below the peak recorded during 2010-2013 and ~15% above the average for the same period; our model yields a fair value of ~€52.6 per share, 2.) HOLT valuation applying 7% discount rate - model yields fair value of €53.2 per share.

Risk: Key potential upside risks: Faster than expected ramp up of new projects, Higher volume contributions from new plants, More pronounced recovery of key end markets Key potential downside risks: Higher than expected ramp up costs for key projects (China, Mexico), Structural margin pressure due to increasing labour costs, Loss of major contracts Price Target: (12 months) for Rheinmetall (RHMG.DE) Method: our price target is based on two methodologies, equally weighted to capture long term as well as short-term earnings potential. 1.) 2015 SOP - for automotive we apply 8.0x EV/EBIT and for defence 0.4x EV/sales - model yields fair value of €35.7, 2.) HOLT valuation model - we apply a discount rate of 7.7% - model yields fair value of €35.4

Risk: Key potential upside risks: More cost savings in automotive and Defence, New major order wins in Defence, Positive outcome of sector consolidation. Key potential downside risks: Higher margin pressure on Hardparts business, Further defence budget cuts, Negative outcome from sector consolidation Price Target: (12 months) for Elringklinger (ZILGn.DE) Method: Our valuation is based on two methodologies, equally weighted to capture long term as well as short-term earnings potential. 1.) 2015e EV/EBITDA of 7.4x, which is ~33% below the peak recorded during 2010-2013 - model yields fair value of €25.2/share, 2.) HOLT valuation - we apply a discount rate of 6.7% to reach a HOLT-derived target price of €25.

Risk: key upside risks include: more pronounced recovery of E--mobility, faster turnaround of French operations and Marusan, more aggressive production relocation to lower cost countries, key downside risks include: structural margin pressure on core business, E-mobility to record higher losses, margin dilutive acquisitions Price Target: (12 months) for Continental (CONG.DE)

Method: Our €208 target price is based on an average of two methodologies: 1) HOLT, which yields a fair value of €221.8, and 2) a target EV/EBITDA multiple of 7.2x on our 2015 estimate, which yields a value of €193.9

Risk: Key potential upside risks: Stronger-than-expected volume growth in tyres, Margin expansion in tyres, Quicker market penetration of key products for the automotive unit. Key potential downside risks: Rising rubber prices (tightening of the market), which would lead to a margin squeeze (temporary as costs flow through the P&L earlier), Potential share overhang owing to a further reduction in the Schaeffler stake, Declining volumes in tyre and automotive

European Automotive Suppliers 128 20 January 2015

Price Target: (12 months) for Faurecia (EPED.PA) Method: Our valuation is based on two methodologies, equally weighted to capture long term as well as short-term earnings potential: 1) 2015e EV/EBITDA: to capture near-term earnings potential, we take our 2015e EBITDA and apply a multiple of 4.5x, which is ~8% below the peak recorded during 2010-2013 and 15% above the average for the same period; this model yields a fair value of €37.5 per share. 2) HOLT valuation applying 7% discount rate - model yields fair value of €37.3 per share.

Risk: Key potential upside risks: Stronger-than-expected volume recovery in particular in Europe, Consolidation in interior could structrually lift margin, Major new order wins. Key potential downside risks: Poor management exectution (operationally and strategically), Potential Peugeot stake reduction (however unlikely in our view), Market share losses (loss of major orders). Price Target: (12 months) for Valeo (VLOF.PA) Method: Our valuation is based on two methodologies, equally weighted to capture long term as well as short term earnings potential. 1.) 2015e EV/EBITDA of 5.3x, which is the top of the trading range in 2010-2013; model yields fair value of €114.0. 2.) HOLT valutaion - we apply a discount rate of 6.5% - model yields a fair value of €137.2.

Risk: Key upside risks include: stronger than expected sales growth, strong margin expansion and operating leverage, quicker market penetration of key products. Key downside risks include: longer than expected margin recovery of visibility division, higher than expected cost inflation, disproportionally high increases in R&D. Price Target: (12 months) for Autoliv (ALV.N) Method: Our valuation is based on two methodologies, equally weighted to capture long term as well as short-term earnings potential:1.) 2015e EV/EBITDA: to capture near-term earnings potential, we take our 2015e EBITDA and apply a multiple of 8.7.x, which is ~12% below the top end of the trading range, but ~52% above the average mutliple during the period 2010-2013. this model yields a fair value of $105.2 per share, 2.) HOLT valuation applying a 5.0% discount rate yields a target price of $111.7. Risk: Key potential upside risks: Faster than expected penetration of active safefty components, more cost savings from footprint adjustments, value accretive acquisitions. Key potential downside risks: Cost pressure as wages rise in low cost countries and further relocation is limited, inability to make further earnings acrrective acquisitions in active safety, active safety regulations and standards are delayed or loosened. Price Target: (12 months) for GKN (GKN.L) Method: TP is 410p and based on our updated forecasts and global peer group SOTP multiples. Risk: These include macro risks that will result in our assumed level of organic revenue growth not being achieved - examples include reduced demand from Aerospace OEM including Airbus. Elsewhere with its exposure to automotive (both on and off road) it is at risk from greater then expected changes in production volumes . This will have a knock on effect on the level of operational gearing and on EBITDA margin performance.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names The subject company (CONG.DE, EPED.PA, TRW.N, MGA.N, AXL.N, DLPH.N, PECI.MI, VOWG_p.DE, BMWG.DE, FCHA.MI, 0489.HK, 1114.HK, 600104.SS, 1211.HK, 2238.HK, 600418.SS, 7267.T, GM.N, F.N, 005380.KS, 000270.KS, SPR.N, PCP.N, BEAV.OQ, TGI.N, TDG.N, DE.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (AXL.N, VOWG_p.DE, BMWG.DE, FCHA.MI, 0489.HK, 1114.HK, 600104.SS, 2238.HK, 600418.SS, 7267.T, GM.N, F.N, 005380.KS, 000270.KS, SPR.N, TDG.N, DE.N) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (CONG.DE, MGA.N, DLPH.N, GM.N, F.N, BEAV.OQ) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (AXL.N, VOWG_p.DE, BMWG.DE, FCHA.MI, 7267.T, GM.N, F.N, 005380.KS, TDG.N) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (AXL.N, VOWG_p.DE, BMWG.DE, FCHA.MI, 0489.HK, 1114.HK, 600104.SS, 2238.HK, 600418.SS, 7267.T, GM.N, F.N, 005380.KS, 000270.KS, SPR.N, TDG.N, DE.N) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (EPED.PA, GKN.L, TRW.N, BWA.N, MGA.N, AXL.N, 7259.T, 6902.T, 7312.T, 6201.T, PECI.MI, VOWG_p.DE, BMWG.DE, FCHA.MI, 0175.HK, 0489.HK, 1114.HK, 600104.SS, 2238.HK, 600418.SS, 7203.T, 7201.T, 7267.T, 7261.T, GM.N, F.N, 005380.KS, 000270.KS, TEN.N, SPR.N, PCP.N, BEAV.OQ, TGI.N, TDG.N, DE.N, AGCO.N, 5802.T, 4217.T) within the next 3 months.

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Credit Suisse has received compensation for products and services other than investment banking services from the subject company (CONG.DE, MGA.N, DLPH.N, GM.N, F.N, BEAV.OQ) within the past 12 months As of the date of this report, Credit Suisse makes a market in the following subject companies (ALV.N, TRW.N, BWA.N, LEA.N, MGA.N, AXL.N, DLPH.N, 7203.T, 7201.T, 7267.T, GM.N, F.N, TEN.N, SPR.N, PCP.N, BEAV.OQ, TGI.N, TDG.N, DE.N, AGCO.N). As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (LEOGn.DE, RHMG.DE, GKN.L, MICP.PA, 0489.HK, 1211.HK, 2238.HK, TDG.N).

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683. Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (LEOGn.DE, RHMG.DE, ZILGn.DE, CONG.DE, EPED.PA, VLOF.PA, ALV.N, GKN.L, TRW.N, BWA.N, LEA.N, MGA.N, AXL.N, DLPH.N, 7259.T, 7248.T, 6902.T, 7278.T, 7251.T, 7220.T, 5334.T, 7312.T, 6995.T, 7282.T, 6201.T, 012330.KS, 011210.KS, 204320.KS, MICP.PA, PECI.MI, NRE1V.HE, VOWG_p.DE, BMWG.DE, DAIGn.DE, PEUP.PA, RENA.PA, FCHA.MI, 0175.HK, 0489.HK, 1114.HK, 1958.HK, 600104.SS, 1211.HK, 000625.SZ, 2238.HK, 600418.SS, 7203.T, 7201.T, 7267.T, 7261.T, GM.N, F.N, 005380.KS, 000270.KS, 600741.SS, TEN.N, VCT.NZ, 6473.T, 6472.T, SPR.N, PCP.N, BEAV.OQ, TGI.N, SNR.L, TDG.N, DE.N, AGCO.N, 5802.T, 4217.T) within the past 12 months Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. The following disclosed European company/ies have estimates that comply with IFRS: (CONG.DE, VLOF.PA, ALV.N, GKN.L, MICP.PA, VOWG_p.DE, BMWG.DE, DAIGn.DE, PEUP.PA, RENA.PA, FCHA.MI, 7201.T, F.N). Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (CONG.DE, EPED.PA, AXL.N, DLPH.N, VOWG_p.DE, BMWG.DE, PEUP.PA, FCHA.MI, 2238.HK, 7203.T, 7267.T, GM.N, F.N, 005380.KS, SPR.N, TGI.N, TDG.N, DE.N) within the past 3 years. 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The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (Europe) Limited ...... Alexander Haissl ; Mike Dean ; Fei Teng ; Jonathan Hurn, CFA Important Credit Suisse HOLT Disclosures With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report. The Credit Suisse HOLT methodology does not assign ratings to a security. 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The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur. CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.

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