Nemak 2020 Annual Report

2020 ANNUAL REPORT GRI Standards: 102-1, 102-7 Nemak, S.A.B. de C.V. (“Nemak”) is a leading provider of innovative lightweighting solutions for the global automotive industry, specializing in the development and manufacturing of aluminum CONTENT components for powertrain, e-mobility, and structural applications. In 2020, the Company 3 Nemak at a Glance employed approximately 22,000 people at 38 4 Product Portfolio facilities worldwide and generated revenue of 5 Financial Highlights US$3.2 billion. 6 Letter to Shareholders 10 Lightweighting Developments Controladora Nemak, S.A.B. de C.V. (“Controladora 12 Nemak Safe and Strong Nemak”) is the owner of Alfa, S.A.B. de C.V.’s former 15 Sustainability shareholding in Nemak. Since the main asset of 32 Operating Summary Controladora Nemak are shares representing 34 Board of Directors Nemak’s capital, the business of Controladora 35 Management Team Nemak is substantially similar to the business 36 Corporate Governance of Nemak, and therefore is subject to the same 37 Financial Section operating and financial results. The operating and financial results of Nemak that are reported here are therefore also those of Controladora Nemak. For more information about Nemak, visit: www.nemak.com NEMAK AT LETTER TO LIGHTWEIGHTING NEMAK SAFE OPERATING BOARD MANAGEMENT CORPORATE FINANCIAL SUSTAINABILITY A GLANCE SHAREHOLDERS DEVELOPMENTS AND STRONG SUMMARY OF DIRECTORS TEAM GOVERNANCE SECTION Slovakia Germany Poland United States Russia Czech Republic Austria Spain China Mexico Hungary Turkey Brazil India Argentina GRI Standards: 102-4, 102-6 Revenue Segment Revenue 52% 45% Nemak at North America Heads 15% a glance Transmissions 36% & other Europe 5% Nemak’s manufacturing footprint spans Structural & EV 38 plants strategically located in 15 countries 12% 35% Rest of World Blocks 3 NEMAK 2020 ANNUAL REPORT NEMAK AT LETTER TO LIGHTWEIGHTING NEMAK SAFE OPERATING BOARD MANAGEMENT CORPORATE FINANCIAL SUSTAINABILITY A GLANCE SHAREHOLDERS DEVELOPMENTS AND STRONG SUMMARY OF DIRECTORS TEAM GOVERNANCE SECTION Product portfolio Powertrain GRI Standard: 102-2 • Cylinder Heads • Engine Blocks • Transmission Cases Vehicle Structures • Longitudinal Members • Shock Towers • Subframes E-Mobility • E-Motor Housings • Battery Housings (Hybrid / Fully electric) 4 NEMAK 2020 ANNUAL REPORT NEMAK AT LETTER TO LIGHTWEIGHTING NEMAK SAFE OPERATING BOARD MANAGEMENT CORPORATE FINANCIAL SUSTAINABILITY A GLANCE SHAREHOLDERS DEVELOPMENTS AND STRONG SUMMARY OF DIRECTORS TEAM GOVERNANCE SECTION GRI Standard: 201-1 Financial highlights MILLIONS OF US DOLLARS 2020 2019 CHANGE Volume (M. Eq. Units) 35.1 44.3 (20.7) Total revenues 3,151 4,017 (21.6) Gross profit 389 575 (32.3) Sales & administrative expenses (235) (277) (15.2) Other income (expenses) net (48) (41) 17.1 Operating income 107 257 (58.4) Interest expenses (81) (84) (3.6) Interest income 3 13 (76.9) Foreign exchange (loss) (50) 1 (5100.0) Financing expenses net (128) (70) 82.9 Participation in associates results (1) 2 (150.0) Income tax (12) (59) (79.7) Net income (34) 130 (126.2) EBITDA 1 432 621 (30.4) CAPEX 269 344 (21.8) Net debt 1,227 1,206 1.7 (1) EBITDA = Operating income + depreciation and amortization + non-recurring items Volume Total revenues EBITDA millions of equivalent units millions of US dollars millions of US dollars 2019 44.3 2019 4.017 2019 621 2020 35.1 2020 3,151 2020 432 5 NEMAK 2020 ANNUAL REPORT NEMAK AT LETTER TO LIGHTWEIGHTING NEMAK SAFE OPERATING BOARD MANAGEMENT CORPORATE FINANCIAL SUSTAINABILITY A GLANCE SHAREHOLDERS DEVELOPMENTS AND STRONG SUMMARY OF DIRECTORS TEAM GOVERNANCE SECTION Nemak implemented extensive awareness back half of the year. Nemak echoed this Letter to and prevention measures across its trend in its own operations, bringing overall operations starting in the early days of production back to near pre-pandemic the pandemic. Based on the Company’s levels as lockdowns eased and global shareholders experience at its operations in China— manufacturing resumed pace. where it witnessed firsthand the effects of GRI Standards: 102-10, 102-11, 102-14, 102-15 For the full year, light-vehicle sales in the the initial spread of the virus on the global US and Europe were down 15% and 21%, automotive industry—it leveraged best respectively. Regarding the other markets practices to protect the health and safety where the Company operates, China saw Dear shareholders: of its people, while ensuring business relative outperformance, finishing only 5% Nemak’s efforts to navigate the COVID-19 pandemic continuity amidst the growing health crisis. lower, whereas the Brazilian market saw a were instrumental to its solid performance in This included the creation of a global task 27% reduction. 2020, marking a new chapter in its growth and force comprised of top management and transformation journey. Nemak and its people health and safety experts, who in turn Financially, the Company remains in a addressed the year’s extraordinary challenges implemented a variety of measures— solid position, despite the unprecedented head-on, proving agile and resilient in the face of including checkpoint screening, enhanced events of the year. The adoption of strict increased volatility in the global markets. facility disinfection, and the redesign cost controls, combined with prudent of workspaces, among others—to help management of maintenance, contracted minimize the spread of the virus amongst services, and other expenses, proved its employees and the communities where critical to mitigating the pandemic’s impact it operates. on its business, while at the same time helping to lay the groundwork for a smooth Simultaneously, the Company took steps to operational ramp-up. support the long-term sustainability of its business, including operational efficiencies Moreover, these efforts drove year- to optimize costs, expenses and cash flow, over-year reductions in General Sales and the use of credit lines to reinforce its & Administrative Expenses and Cost of liquidity position. Nemak also postponed Goods Sold of 17% and 5% in the second non-essential investments, implemented half of 2020, which in turn helped Nemak flexible work schedules, and temporarily record EBITDA per equivalent unit of idled manufacturing at certain locations, in US$16.2 for the period, its best-ever mark response to widespread reductions in light- for a second half. vehicle production. Total volume was 35.1 million equivalent Following historic shutdowns during the units, down 21% from the previous year, as first half of 2020, the global automotive temporary pandemic-related shutdowns industry saw sustained recovery in both rippled through the global automotive light-vehicle production and sales in the industry. In turn, revenue fell by 22% to 6 NEMAK 2020 ANNUAL REPORT NEMAK AT LETTER TO LIGHTWEIGHTING NEMAK SAFE OPERATING BOARD MANAGEMENT CORPORATE FINANCIAL SUSTAINABILITY A GLANCE SHAREHOLDERS DEVELOPMENTS AND STRONG SUMMARY OF DIRECTORS TEAM GOVERNANCE SECTION US$3.2 billion, from the US$4.0 billion leverage threshold was increased from 3.5 reported in 2019. EBITDA was US$432 to 4.75 times through mid-2021. million, down 30% from 2019, as the uptick in revenue in the second half and The Company finished the year with operating efficiencies attained during the US$437 million in cash. This focus on cash year partially offset the shortfall in revenue preservation resulted in greater flexibility that followed on from the production to meet financing needs amidst an stoppages in the first half combined industry landscape marked by increased with non-recurring items associated with uncertainty. severance payments and other COVID- As a reflection of the Company’s prudent related expenses incurred during the year. approach to managing liquidity and Net Income was -US$34 million, down ensuring financial resilience, the main US$164 million over 2019, driven mainly by rating agencies reaffirmed their existing the same factors that weighed on EBITDA ratings on Nemak’s debt, which, as of the along with non-cash exchange rate effects date of this publication were: investment on financial results. grade by Fitch, and one notch below Capital expenditures were US$269 investment grade by Moody’s as well as million, down 22% over the previous year. Standard & Poor’s. Meanwhile, dividends were paid in April but Nemak continued to work closely with its the remaining dividends were cancelled, customers in support of their lightweighting further supporting Nemak´s efforts to and electrification strategies, helping it preserve cash and ensure business win new business to produce e-mobility continuity. Notwithstanding the headwinds and structural applications (EV/SC) for the Company faced in the first half of 2020, global OEM customers (Original Equipment it finished the year with a similar level of Manufacturers). To this end, it continued Net Debt compared to the previous year. to harness its design engineering, Moreover, by December 31, it had repaid simulation, and casting capabilities to the majority of the credit lines drawn early in the year to support liquidity during the deliver tailor-made solutions that support production stoppages. and protect critical parts, reduce weight and, therefore, increase the battery range During the first half of the year, Nemak of these vehicles. As of the date of this engaged in dialogue with its banking publication, the total order book in its EV/ The Company finished the year with US$437 million partners on the pandemic’s effects on SC segment amounted to approximately

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