Contents Corporate Profile 2 Corporate Information 4 Our Products 6 Business Overview 13 Financial Highlights 32 CEO’s Statement 33 Management Discussion and Analysis 36 Directors and Senior Management 48 Directors’ Report 56 Corporate Governance Report 74 Independent Auditor’s Report 86 Consolidated Balance Sheet 92 Consolidated Income Statement 94 Consolidated Statement of Comprehensive Income 95 Consolidated Statement of Changes in Equity 96 Consolidated Statement of Cash Flows 97 Notes to the Consolidated Financial Statements 98 Five Years’ Financial Summary 168 02 NEXTEER AUTOMOTIVE GROUP LIMITED ANNUAL REPORT 2019 Corporate Profile Nexteer Automotive Group Limited (the Company) together with its subsidiaries are collectively referred to as we, us, our, Nexteer, Nexteer Automotive or the Group. Nexteer Automotive is a global leader in advanced steering and driveline systems, as well as advanced driver assistance systems (ADAS) and automated driving (AD) enabling technologies. In-house development and full integration of hardware, software and electronics give Nexteer a competitive advantage as a full-service supplier. As a leader in intuitive motion control, our continued focus and drive is to leverage our design, development and manufacturing strengths in advanced steering and driveline systems that provide differentiated and value-added solutions to our customers. We develop solutions that enable a new era of safety and performance for traditional and varying levels of ADAS/AD. Overall, we are making driving safer, more fuel-efficient and fun for today’s world and an automated future. Our ability to seamlessly integrate our systems into automotive original equipment manufacturers’ (OEM) vehicles is a testament to our more than 110-year heritage of vehicle integration expertise and product craftsmanship. Our culture inspires employees to achieve personal and corporate growth by focusing on the Company’s core values across all aspects of the Company: people, operational excellence and enterprise growth. We aim to be the partner of choice for both our customers and suppliers by delivering dependable, safety-critical products and building enduring relationships. Nexteer provides real-world, vehicle-level solutions by being: • Customer Focused: Respected and trusted for delivering on commitments • Proactive: We listen carefully to understand customer needs, requirements and aspirations • Innovative: A market leader in steering and driveline system innovation and value-added service • Agile: Able to respond quickly with high-quality, cost-effective solutions • Global: Committed to exceeding customer and vehicle needs every time, in every customer-targeted market NEXTEER AUTOMOTIVE GROUP LIMITED ANNUAL REPORT 2019 03 Corporate Profile GLOBAL FOOTPRINT & CUSTOMERS World Headquarters: Auburn Hills, Michigan, United States of America (USA or US) Manufacturing Plants: 28, including 2 non-consolidated joint ventures (JV) Technical & Software Centres: 4 Customer Service Centres: 14 Global Customers: 60+, including BMW Group (BMW), Changan Automotive (Group) Co., Ltd. (Changan), Dongfeng Peugeot Citroën Automobile Co., Ltd. (DPCA), Fiat Chrysler Automobiles N.V. (FCA), Ford Motor Company (Ford), General Motors Company and Subsidiaries (GM), Groupe PSA, Maruti Suzuki India Limited (Maruti-Suzuki), Renault-Nissan-Mitsubishi Alliance (RNM), SAIC General Motors Co., Ltd. (Shanghai GM), SAICGM-Wuling Automobile Co., Ltd. (SGMW), Toyota Motor Corporation (Toyota) and Volkswagen Group (VW) as well as domestic automakers in India, China and South America 04 NEXTEER AUTOMOTIVE GROUP LIMITED ANNUAL REPORT 2019 Corporate Information BOARD OF DIRECTORS LEGAL ADVISERS Executive Directors As to Hong Kong Law ZHAO, Guibin (趙桂斌) DLA Piper Hong Kong (Chief Executive Officer and Vice Chairman) (became Vice Chairman and no longer served As to Cayman Islands Law as Chairman with effect from June 3, 2019) Maples and Calder RICHARDSON, Michael Paul (President) (retired with effect from January 1, 2020) AUDITOR FAN, Yi (樊毅) PricewaterhouseCoopers Non-Executive Directors Certified Public Accountants and Registered PIE Auditor WANG, Jian (王堅) (Chairman) (appointed with effect from June 3, 2019) AUDIT AND COMPLIANCE COMMITTEE ZHANG, Jianxun (張建勛) LIU, Ping (劉平) WEI, Kevin Cheng (蔚成) (Chairman) (appointed with effect from June 3, 2019) YICK, Wing Fat Simon (易永發) YANG, Shengqun (楊勝群) LIU, Ping (劉平) (retired with effect from June 3, 2019) (appointed with effect from June 3, 2019) YANG, Shengqun (楊勝群) Independent Non-Executive Directors (retired with effect from June 3, 2019) LIU, Jianjun (劉健君) WEI, Kevin Cheng (蔚成) REMUNERATION AND NOMINATION YICK, Wing Fat Simon (易永發) COMMITTEE COMPANY SECRETARY YICK, Wing Fat Simon (易永發) (Chairman) LIU, Jianjun (劉健君) FAN, Yi (樊毅) ZHANG, Jianxun (張建勛) AUTHORISED REPRESENTATIVES HEADQUARTERS ZHAO, Guibin (趙桂斌) 1272 Doris Road FAN, Yi (樊毅) Auburn Hills, Michigan 48326, USA NEXTEER AUTOMOTIVE GROUP LIMITED ANNUAL REPORT 2019 05 Corporate Information REGISTERED OFFICE PRINCIPAL BANKERS P.O. Box 309, Ugland House Bank of America Merrill Lynch Grand Cayman, KY1-1104 Bank of China Cayman Islands Bank Pekao SA China CITIC Bank PRINCIPAL PLACE OF BUSINESS IN China Construction Bank Comerica Bank HONG KONG JPMorgan Chase & Co. 31/F, Tower Two PKO Bank Polski Times Square Shanghai Pudong Development Bank 1 Matheson Street The Export-Import Bank of China Causeway Bay Wells Fargo Capital Finance Hong Kong STOCK CODES PRINCIPAL SHARE REGISTRAR AND Share Listing TRANSFER OFFICE Ordinary Shares The Stock Exchange of Hong Kong Limited Maples Fund Services (Cayman) Limited (Stock code: 1316) P.O. Box 1093, Boundary Hall Cricket Square Senior Notes Listing Grand Cayman, KY1-1102 US$250,000,000 5.875% Cayman Islands Senior Notes due 2021 The Stock Exchange of Hong Kong Limited HONG KONG BRANCH SHARE REGISTRAR (Stock code: 5826) AND TRANSFER OFFICE Computershare Hong Kong Investor Services Limited COMPANY WEBSITE Shops 1712-1716 http://www.nexteer.com/ 17th Floor Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong 06 NEXTEER AUTOMOTIVE GROUP LIMITED ANNUAL REPORT 2019 Our Products OUR PRODUCTS e design, develop, manufacture and distribute steering and driveline systems and components, Wprimarily for automotive OEMs. A steering system consists of the components required to provide lateral directional control of the vehicle. Our steering system product lines include electric power steering (EPS) and hydraulic power steering (HPS), as well as steering columns and intermediate shafts. A driveline system (DL) consists of the components required to transfer power from the transmission to the driven wheels. Our DL products include front-wheel drive halfshafts, intermediate drive shafts and rear-wheel drive halfshafts, as well as propeller shaft constant velocity (CV) joints. NEXTEER AUTOMOTIVE GROUP LIMITED ANNUAL REPORT 2019 07 Our Products ELECTRIC POWER STEERING (EPS)S) EPS uses an electric motor to assist driver steering. competitive brush motor column-assist EPS (BEPS) Our hardware and software are developed concurrently specifically tailored for developing markets. OEM and work together to connect the driver with the road customers that use our BEPS include: SGMW for the – accounting for driving dynamics and the operating Wuling Hongguang S/S3 minivan, Bao Jun 730 MPV and environment. This “connection to the road” provides the Bao Jun 510/560 SUV; and Changan for the Oushang driver an experience consistent with the vehicle’s brand MPV, CS15 and CS70 SUV. (such as luxury, sport, etc.), while also giving important safety cues regarding the road surface the driver is Rack-assist EPS (REPS) integrates the required electric traveling on (such as icy, gravel, etc.). assist mechanism with the steering rack where they are contained under the hood in the engine compartment. In addition, EPS is a key ADAS feature enabler. EPS We have a market-leading position in North America translates data from the vehicle’s central electronic with OEM customers such as: Ford in the F-150 pickup control unit (ECU) into precise mechanical steering truck; FCA in the light-duty Ram 1500 pickup truck; functions. Many Nexteer EPS-enabled ADAS features and GM in various light-duty trucks and SUVs. We also are already on the road today such as park assist, lane supply our REPS in performance vehicles, including the keeping, lane departure warning, traffic jam assist and Ford Mustang, Dodge Charger and Dodge Challenger. more. Pinion-assist EPS expands application range and Depending on the type of EPS system, a computer flexibility. Single pinion-assist EPS (SPEPS) integrates module applies assistive power via an electric motor the electric assist mechanism with the steering gear coupled directly to either the steering gear or the pinion shaft. OEM customers who use our SPEPS steering column. include: BMW in the 1 Series, 2 Series, X1 and Mini; Groupe PSA in the Citroën C3 and DS3; and DPCA in the Column-assist EPS (CEPS) integrates system electronics Citroën C-Elysee. (motor, controller and sensor) and the assist mechanism with the steering column. OEM customers that use Dual Pinion EPS (DPEPS) allows for the primary pinion our CEPS include: GM in various small cars, such as to be optimised for vehicle dynamics and performance the Aveo; Shanghai GM in the Sonic and the Captiva and a secondary pinion to be optimised for assist. During sport utility vehicle (SUV); and FCA in various small 2019, we received our first DPEPS programme award in cars, such as the Fiat 500. In