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Continental delivers record earnings again and plans further clear improvements for 2008

From Gasgoo.com| February 22 , 2008
 

- EBIT pro forma raised substantially by 14.9% to €1,839.8 million

- Sales pro forma lifted to €15.960 billion / proposed dividend of €2 per share

- Free cash flow before acquisitions totals €1.05 billion / preliminary figures

- Sales and EBIT set to improve again in 2008

- Reduction of debt is top priority / 2010 gearing ratio between 80% and 100%

- Synergy effects from VDO acquisition estimated at more than €300 million in 2010

 

Hanover (Germany), February 21, 2008. Hanover-based Continental AG delivered record figures for sales and earnings in 2007 for the sixth time in a row: the international automotive supplier increased its consolidated sales (pro forma in the old structure according to prelimi­nary figures) by 7.2% to €15,960.1 million. The consolidated operating result (EBIT) im­proved by €237.9 million (14.9%) year-on-year to €1,839.8 million. “We intend to consistently continue our record streak this year,” announced Continental Executive Board Chairman Manfred Wennemer on Thursday in Hanover during the Financials Press Conference. “De­spite the clouds hanging over the economic environment, we are setting clear targets: strengthened by our Siemens VDO acquisition, in 2008 we intend to improve the total calcu­lated sales generated in 2007 of around €26.4 billion. In 2008 the EBIT margin before amor­tization resulting from the purchase price allocation (ppa), restructuring and integration expense should exceed the adjusted pro forma value of 9.3% for 2007. With Continental in its traditional setup, we have kept the promises we made. In the new company era, this will not change.”

 

At the same time, Wennemer also announced an unchanged proposed dividend of €2 per share for fiscal year 2007. “The top priority is to reduce debt. For this reason, despite a new record result we will not be increasing the dividend again,” emphasized Wennemer. “We carefully considered not paying a dividend. But we consider that reliability is an overriding principle. We had always underlined the fact that our shareholders should participate appropriately in the success of the company. We demonstrate this with our dividend proposal which results in a slightly higher distribution ratio of 31.7% after 29.8% in the previous year.”


Wennemer stated concrete targets for reducing debt: “By the end of 2010, we want to re­duce our gearing ratio to our strategic target figure of 80% to 100%. Over the past few years, we proved that we have steadily cut our gearing from the maximum of 168% recorded in 2001. The solid free cash flow that Continental continuously generates played a crucial role in this. Before acquisitions the figure was €1.05 billion in 2007. We do not believe that this trend will change in the years to come. Our official position is that we expect to generate more than €1 billion here in 2009.”

 

Wennemer emphasized that for Continental, 2008 will be dominated by the integration of the acquired Siemens VDO business. “As announced, we will tackle all the required projects this year and work through most of them. Based on previous analyses, in connection with the Siemens VDO integration we see an opportunity to leverage net synergies of more than €300 million in 2010,” explained the Executive Board Chairman of Continental. “Furthermore, we feel that our plans to date confirm our assumption that in 2008 and 2009 combined, integration and restructuring expense will fluctuate in the lower three-digit million range.”

 

Sales and earnings in 2007 (pro forma - old structure)

(previous year: 10.8%). After adjustment for changes in the scope of consolidation and special effects, EBIT rose by €205.3 million (12.4%) to €1,867.4 million (previous year: €1,662.1 million). The ROCE for the Continental Corporation (old structure) amounts to 20.3% (previous year: 18.7%). 

Reported sales and earnings in 2007 (incl. Siemens VDO starting Dec. 1, 2007)

According to the preliminary figures, consolidated sales jumped 11.6% year-on-year to €16,619.4 million (previous year: €14,887.0 million).

Siemens VDO contributed €659.3 million to sales. Consolidated EBITDA improved year-on-year by €189.1 million or 8.2% to €2,490.6 million. EBITDA totaled 15.0% after 15.5% in the previous year. The consolidated operating result (EBIT) increased by €73.9 million to €1,675.8 million, a rise of 4.6% against the previous year (previous year: €1,601.9 million). Return on sales fell to 10.1% (previous year: 10.8%). After adjustment for special effects, EBIT had improved by €103.0 million (6.1%) to €1,780.1 million (previous year: €1,677.1 million). The adjusted return on sales amounts to 10.7% (previous year: 11.3%). Siemens VDO reduced EBIT by €164.0 million in December 2007. This figure includes amortization from purchase price allocation in the amount of €66.7 million. Furthermore, December 2007 at Siemens VDO was influenced by special factors like restructuring expense. ROCE amounts to 7.5% (previous year: 18.7%). “It must be noted here that Siemens VDO is recog­nized with a full capital-employed basis but only one-month EBIT,” explained CFO Dr. Alan Hippe. He also noted that the combined sales of Continental and Siemens VDO for the whole of 2007 would have totaled approximately €26.4 billion. Net income attributable to the shareholders of the parent climbed by €38.7 million (3.9%) to €1,020.6 million (previous year: €981.9 million). This corresponds to earnings per share of €6.79 (previous year: €6.72). 

Finances and investments

Primarily as a result of the Siemens VDO purchase, net indebtedness increased by €9,675.4 million year-on-year to €10,856.4 million (previous year: €1,181.0 million). The gearing ratio thus amounts to 158.3% (previous year: 25.1%). “Our successful capital in­crease through proceeds of €1.48 billion has already had a significantly dampening effect,” stressed CFO Hippe. Interest expense rose by €43.6 million against the previous year to €154.2 million (previous year: €110.6 million). Research and development (R&D) expense climbed by €157.8 million (23.3%) year-on-year to €834.8 million (previous year: €677.0 mil­lion) and accounts for 5.0% of sales (previous year: 4.5%). This is mainly due to changes in the scope of consolidation from the acquisition of Siemens VDO and the automotive elec­tronics business of Motorola. Additions to property, plant and equipment and software of €896.9 million were up by €91.9 million on the previous year’s figure (€805.0 million). As in the previous year, capital expenditure amounts to 5.4% of sales.

Employees

The workforce of the Continental Corporation soared by 66,430 employees – an increase of 77.9% against the previous year – to 151,654 (previous year: 85,224), mainly due to the first-time consolidation of Siemens VDO (+ 60,519), Thermopol (+594), AP Italia (+510) and the Matador Group (+2,531). The workforce grew in all divisions as a result of increases in vol­ume.

 

Dividends

The Executive Board proposes to the Supervisory Board that an unchanged dividend of €2 per share be distributed. The proposal to be presented to the Annual Shareholders’ Meeting on April 25 is still, however, subject to the decision of the Supervisory Board.

 

Outlook 2008

“For 2008, we are targeting a sales volume above that of the pro forma 2007 sales figure of €26.4 billion reported for Continental and Siemens VDO. In 2009, we intend to generate growth of around 5% in line with our strategic goals. All divisions will contribute towards in­creasing consolidated sales,” announced Executive Board Chairman Wennemer. “In addi­tion, we anticipate for 2008 an EBIT margin before amortization resulting from the purchase price allocation (ppa) and before restructuring and integration expense that exceeds the pro forma adjusted value of 9.3% of 2007. For 2009, we expect the EBIT margin after ad­justment for the mentioned effects to improve further.” 

Due to the acquisition of Siemens VDO, the ratio of research and development expense to sales in 2008 will rise to around 6%. “We aim to reduce this ratio over the coming years. A ratio of just under 6% can be expected for 2009,” said Dr. Karl-Thomas Neumann, who is the Corporation's Executive Board member responsible for technological development. “In the next two years, we will also continue our expansive investment policy,” added Wennemer. “For this reason, we expect capital expenditure of about 6.0% of sales for 2008 and 2009. The dividend amounts for the next two years will also take account of our efforts to reduce Continental’s debt quickly. Therefore an increase for 2008 and 2009 cannot be expected from the current standpoint.” 

With targeted annual sales of more than €26.4 billion for 2008, the Continental Corporation is one of the top automotive suppliers worldwide. As a supplier of brake systems, systems and components for the powertrain and chassis, instrumentation, infotainment solutions, vehicle electronics, tires and technical elastomers, the corporation contributes towards enhanced driving safety and protection of the global climate. Continental is also a competent partner in networked automobile communication. Today, the corporation employs approximately 150,000 people at nearly 200 locations in 36 countries.

 

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