Frankfurt/Hanover (February 23, 2006) -- In 2005, Continental AG has set a new milestone in its corporate history, which now spans almost 135 years. The international automotive supplier set new peak values for both sales and earnings last year, despite a generally subdued global automobile market and considerably higher raw material prices. "We have managed to continue our successful course by combining strengthened innovative power, a successful acquisition policy, sound growth and stringent cost control. We will continue to follow this strategy consistently in the years to come," said the Chairman of Continental's Executive Board, Manfred Wennemer, Thursday in Frankfurt during the annual financial press conference. "We will do everything in our power to further expand the position we have achieved."
Sales, earnings, indebtedness and capital expenditure
Consolidated sales rose by 9.8 percent to EUR13,837.2/USD17,219.0 billion (prior year: EUR12,597.4/USD15,674.9 billion). When adjusted for exchange rate effects and from effects of the scope of consolidation, this is a rise of 3.7 percent over last year results. Changes in the scope of consolidation arose in 2004 in conjunction with the sale of the business units of agricultural tires and ContiTech Ages, as well as the acquisition of Phoenix AG. In 2005, the business unit of Sealing Systems was sold and Phoenix Xtra Print acquired.
Operating result (EBIT) increased at an even higher rate of 30.2 percent to EUR1,507.1/USD1,875.4 billion (prior year: EUR1,157.4/USD1,440.2 billion). The return on sales amounted to 10.9 percent (prior year: 9.2 percent). "When adjusted for scope of consolidation and one-time effects, EBIT in 2005 rose by EUR165.1/USD205.5 million over the previous year," explained Dr. Alan Hippe, Executive Board member responsible for finances.
"During 2004 and 2005 there were a number of special items that occurred as a result of restructuring expenditures, write-offs, liquidation of pension provisions and sales of business units. As a result, charges in 2004 totaled EUR216.6/USD269.5 million and in 2005 EUR86.0/USD107.0 million. Furthermore there were consolidation effects."
Sales and earnings of the divisions
Automotive Systems increased its sales by 4.5 percent to EUR5,230.6/USD6,509.0 billion (prior year: EUR5,007.7/USD6,231.1 billion). Adjusted for exchange rate effects, this implies a rise of 3.8 percent. "Sales increases over last year are primarily due to higher volumes in ESC, brake boosters and brake calipers, as well as electronic control units for driving authorization systems – particularly from the higher rate at which vehicles in the U.S. are being equipped. The greatest sales growth was achieved in the business units Electronic Brake and Safety Systems," said Dr. Karl-Thomas Neumann, Executive Board member for the Automotive Systems division. The operating income (EBIT) of the Automotive Systems division rose by 14.3 percent to EUR570.1/USD709.4 million (prior year: EUR498.9/USD620.8 million) and achieved a return on sales of 10.9 percent (prior year: 10.0 percent).
The Passenger and Light Truck Tires division increased its sales by 8.3 percent to EUR4,444.6/USD5,530.9 billion (prior year: EUR4,104.2/USD5,106.9 billion). Adjusted for changes in the scope of consolidation and exchange rate effects, sales increased by 3.8 percent. Operating result (EBIT) of the Automotive Systems division surged by 57.5 percent to EUR669.0/USD832.5 million (prior year: EUR424.8/USD528.6 million). This implies a return on sales of 15.1 percent (prior year: 10.4 percent). Adjusted for scope of consolidation and one-time effects, operating result rose in 2005 by EUR96.5/USD120.1 million. The division increased its sales by 3.9 percent to 106.2 million tires. Operational sales were on prior year’s level. Business in the NAFTA region developed positively overall. "All told, in the fourth quarter of 2005 we still almost reached the operating break-even point we were aspiring to," said Continental Tire North America, Inc. (CTNA) President, CFO Dr. Alan Hippe. "We expect that during this year, more progress will be achieved and we can stabilize this positive trend. More efficient cost structures will help, as will the new plant in Brazil, where production has started."
The Commercial Vehicle Tires division showed a sales decline of 8.1 percent to EUR1,379.2/USD1,716.3 million (prior year: EUR1,500.7/USD1,867.3 million). Adjusted for changes in the scope of consolidation and exchange rate effects, however, sales increased by 6.2 percent. The division improved its operating result (EBIT) by 47.1 percent to EUR153.0/USD190.4 million (prior year: EUR104.0/USD129.4 million), achieving a return on sales of 11.1 percent (prior year: 6.9 percent). Global truck tire sales rose by 1.7 percent to 6.7 million parts. "The business units commercial vehicle tires Europe and North America achieved sales rises over the previous year. In Europe, original equipment sales rose by 14.6 percent; in the replacement business sales figures were below those of the previous year by 4.3 percent, despite a slight gain in market share. In North America, the original equipment business grew by 9.9 percent, while replacement business declined by 0.9 percent," explained the Executive Board member responsible for the division, Dr. Hans-Joachim Nikolin.
The ContiTech division increased its sales by 40.3 percent to EUR2,894.2/USD3,601.5 billion (prior year: EUR2,063.4/USD2,567.5 billion). Phoenix contributed EUR985.3/USD1,226.1 million to sales. Adjusted for changes in the scope of consolidation and exchange rate effects, sales increased by 2.4 percent. "In particular the business units Air Spring Systems, Power Transmission Group and Conveyor Belt Group contributed to this sales growth," said the Executive Board member responsible for the division, Gerhard Lerch. He referred especially to the successful integration of Phoenix AG, acquired in 2004: "We have moved forward considerably in this respect and are ahead of schedule. Positive effects have already become apparent and will increase this year." The operating result (EBIT) of the ContiTech division rose by 6.2 percent to EUR160.4/USD199.6 million (prior year: EUR151.0/USD187.9 million), achieving a return on sales of 5.5 percent (prior year: 7.3 percent). Adjusted for scope of consolidation and one-time effects, the operating result rose by EUR26.6/USD33.1 million over the prior year.
Continental had a workforce of 79,849 people throughout the world at the end of 2005. "We paid again considerable attention to labor costs, which constitute a significant financial management measure at 22.1 percent," emphasized Thomas Sattelberger, Executive Board member for human resources.
"The human resource and finance departments have therefore created a Group-wide labor cost management system. Together with the works councils, we have implemented programs for labor cost reduction together at 17 sites in Germany; six of these were in 2005. Labor cost savings amount to EUR40/USD49.8 million per year. This creates key economic preconditions for maintaining and to some extent developing these sites. Capital expenditure associated with this program is also approximately EUR40/USD49.8 million. We see this as a demonstration of Continental’s ability to unite global competitiveness with social partnering."
The Executive Board is proposing to the Supervisory Board that the dividend be increased by 25 percent to EUR1.00/USD1.20 per share. The Supervisory Board's decision as to whether to recommend this proposal to the Annual Shareholders' Meeting on May 5 is still pending. The dividend payed in 2005 and the share price rise in 2005 of 60.5 percent constitute a stock yield of 62.2 percent for the entire year.
Outlook for 2006
"We anticipate continued growth in consolidated sales and further improvement in Group operating result in fiscal 2006. All divisions will contribute to these results," said Mr. Wennemer, the Chairman of the Executive Board. "In 2006, the subject of acquisitions will continue to top our list. Furthermore, we will expend considerable energies to achieve our challenging growth targets without sacrificing our margins. We intend to actively manage containment of anticipated raw material price rises; this will also have to include price increases.
"Due to our customers’ demands, we expect that research and development expenses will be approximately 4.3 percent of sales in 2006. With respect to investment, we are assuming a capital expenditure ratio of between 6.0 and 6.5 percent this year. A further reduction in financial indebtedness is planned for 2006. We will implement activities as early as 2006 to structure our balance sheet more efficiently," announced Wennemer.
Continental Tire North America, Inc. (www.continentaltire.com), based in Charlotte, North Carolina, is a group company of Germany-based Continental Corporation, a leading supplier of brake systems, chassis components, vehicle electronics, tires and technical elastomers. In 2004 the corporation realized sales of EUR 12.6 billion (USD 16 billion). At present it has a worldwide workforce of more than 81,000.