• Operating result climbs to new record of €855.2 million
• Sales up to €11.5 billion despite difficult environment
• Dividends increase by 16 percent
• Outlook for 2004: Corporation wants to boost sales and earnings

Hannover, March 30, 2004. In 2003, Continental AG strengthened its position as one of the leading international automotive suppliers. "Despite the difficult situa­tion of the automotive and automotive supplier industry, we managed not only to increase our sales but also to once again top the previous record earnings of 2002, surpassing them by far," said Manfred Wennemer, Chairman of the Execu­tive Board of Continental, on Tuesday during the press conference in Hannover for the presentation of Continental's financial statements.

Sales, earnings, debt and investments

In 2003 consolidated sales increased by 6.1 percent over the prior year. Including foreign exchange effects and the first-time consolidation of Continental Sime Tyre as of October 2003, they increased by 1.1% to €11.5 billion (2002: €11.4 billion). The consolidated operating result (EBITA) increased considerably by 23.2 % to €855.2 million (2002: €694.3 million). Consolidated net income for the year rose by €88.0 million to €314.0 million. Earnings per share were up €0.62 to €2.37.

The corporation improved the gearing ratio significantly (the ratio between net indebtedness and debt). "We managed to reduce net indebtedness by €730.4 million to €1,168.6 million, resulting in a gearing ratio of 58.9% compared to 110.7% at the end of 2002. This is well below our target of 100%," emphasized Wennemer.

Additions to property, plant and equipment and software totaled €625.8 million, up €5.8 million on 2002. The capital expenditure ratio amounted to 5.4% of sales, as in the previous year.

Sales and earnings within the divisions

The Continental Automotive Systems division (CAS) increased its sales by 7.2% over the prior year. Taking into account changes in exchange rates, sales were up from €4.568 billion to €4.626 billion, or 1.3%. The division boosted its operating results (EBITA) by 18.5% to €369.5 million (2002: €311.9 million).

The Electronic Brake and Safety Systems, Powertrain & Chassis, and Comfort Electronics business units all recorded increases in sales volumes. CAS maintains its number one position in the field of hydraulic foundation brakes for passenger cars, and its electronic brake systems product segment is one of the company's fastest growing sectors. "In 2003, we sold more than three million ESP (Electronic Stability Program) units for the first time, representing a volume increase of 29%," said Dr. Wolfgang Ziebart, Deputy Chairman and responsible for the CAS division. Sales volumes of control units for comfort electronics rose by 34% to 17 million units.

Sales of the Passenger and Light Truck Tires division increased by 8.4%. Taking into consideration changes in the scope of consolidation due to the subsidiaries in Mexico and South Africa and exchange rate effects, sales went up 3.4% from €3.778 billion to €3.907 billion. Overall, the EBITA rose by 87.3% from €184.6 million to €345.8 million.

The extremely good results in Europe more than offset the losses in the NAFTA region, where in 2003 capacity at one of the plants was reduced, administrative staff was cut, and the outsourcing of tire logistics operations was begun. Additional social security expenses in the U.S.A. and higher material prices impacted the results, while the change in the scope of consolidation influenced them positively by €34 million. The previous year's result was impacted by the im­pairment of goodwill in the U.S.A. in the amount of €34 million.

In 2003, for the first time close to 100 million passenger tires were sold (2002: 91 million). Sales volumes to the global automotive industry reached a record level, increasing by 6%. "We are number 1 in the original equipment business in Europe," said Martien de Louw, Executive Board member responsible for the Passenger and Light Truck Tires division. At the same time, sales volumes also rose 6% in the European replacement business.

At €1.262 billion, sales by the Commercial Vehicle Tires division fell short of the previous year's figure of €1.311 billion. Before changes in the scope of consolidation relating to the subsidiaries in Mexico, South Africa, and Continental Sime Tyre, and before exchange rate effects, sales were up 2.8%. Consolida­tion of Continental Sime Tyre in Malaysia, that was assigned to the division in October, had a positive effect.

The Commercial Vehicle Tires division recorded EBITA of €82.4 million, below the 2002 figure of €92.9 million. Before the above consolidation changes, goodwill impairment and land sale in 2003, however, operating earnings improved by EUR13 million compared with the previous year.

"Worldwide we sold a total of 6.0 million truck tires, representing a 2% increase in sales volume over the previous year," according to Dr. Hans-Joachim Nikolin, Executive Board member responsible for the Commercial Vehicle Tires division. European sales rose by 11% and 3% in the replacement business. In North America, we recorded a significant increase of 25% in the original equipment business, while replacement business volumes were slightly down on the previous year.

The ContiTech division, which is organized into eight business units with global operations, achieved an increase in sales of 3.8%. Taking changes in exchange rates into account, sales rose 2.7% to €1.812 billion (2002: €1.764 billion). Sales by the Fluid, Sealing Systems, Air Spring Systems and Vibration Control units rose significantly. The Power Transmission and Conveyor Belt Groups were slightly up on the previous year, while Benecke-Kaliko and Elastomer Coatings did not match the 2002 results. Thanks mainly to product innovations and cost-cutting measures, ContiTech increased its EBITA by €2.5 million to €144.0 million.

Employees

As of December 31, 2003 Continental employed 68,829 staff (2002: 64,379) - a year-on-year increase of 4,450 or 6.9%. This is due mainly to the consolidation of Continental Sime Tyre in Malaysia. Additional staff was however hired in other divisions as well.

Dividends increase by 16%

In view of another significant improvement in the results, the Executive Board and Supervisory Board will propose increasing the dividend by 16% to the record level of €0.52 per share at the Annual Shareholders' Meeting, compared to €0.45 for 2002.

Estimates for 2004

Although the global economy started to pick up in the course of 2003, it is not yet possible to say whether there will be a sustainable economic recovery. As in previous years, there is still a risk that the forecasted recovery for the global economy will be weaker, or fail to materialize.

The Executive Board of Continental AG anticipates that total passenger car production in 2004 will remain at the level of the previous year, however with a slight decline in Western Europe and a strong increase in Eastern Europe and Asia. It is expected that production in North America will also be at the prior year's level. A slight rise in Western European truck output and a strong increase in the NAFTA is anticipated.

"Price pressure will increase, especially in the U.S.A. due to the continuing rebate programs of the automobile manufacturers. This is one more reason why we are analyzing major restructuring measures that may be required in the pas­senger tire business in North America. We expect to break even on an operating basis in our North American passenger and light truck tires business," said Wennemer. "For 2004 we are anticipating a further increase in our consolidated sales and operating result before restructuring costs. This year has gotten off to a good start in the first few months."