11/01/2006 Automotive supplier reports strong sales gains – Double-digit increase in adjusted EBIT despite massive pressure from raw material prices – One-time effects impact quarterly result

Hanover, November 1, 2006. Continental AG, Hanover, confirms its outlook for 2006 as a whole after three quarters: "We have done well in a tough environment, and as announced, our sales and EBIT will exceed the record levels of 2005," emphasized Executive Board chairman Manfred Wennemer on Wednesday in Hanover. At the interim report presentation, he stressed that the international automotive supplier had raised its adjusted EBIT by 10.1% to EUR 1,183.2 million after nine months compared with the same period of 2005. "In our industry, it does not really make much sense to look at the quarterly figures. Nevertheless, the third quarter 2006 again shows that, with an adjusted EBIT of EUR 410.3 million, we are nearly on par with the adjusted figures for the same period of 2005. In view of the costs for raw materials, which reached a temporary peak this quarter, and the production cutbacks of key customers in the U.S.A., we feel this is remarkable, since a year ago we achieved our best ever quarterly result."

Consolidated sales for the first nine months of 2006 rose by 6.9% compared with the same period of the previous year to EUR 10,945.3 million (previous year: EUR 10,240.9 million).

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Roulunds contributed EUR 29.8 million to sales (starting May 2006), and Motorola's automo­tive electronics business EUR 262.1 million (starting July 2006). This was partly offset by the loss of sales following the disposal of the Sealing Systems and Stankiewicz units, and the North American off-the-road (OTR) tire operations. Before changes in the scope of consoli­dation and exchange rate effects, consolidated sales increased by 5.6%.

Earnings before interest and taxes (EBIT) fell by 1.8% to EUR 1,116.1 million (previous year: EUR 1,136.0 million), and the return on sales to 10.2% (previous year: 11.1%). Roulunds contributed EUR 1.9 million to EBIT and Motorola's automotive electronics business EUR 2.6 million. Before changes in the scope of consolidation and one-time effects, EBIT rose by EUR 108.9 million or 10.1%. Excluding Motorola's automotive electronics business, the return on sales amounts to 10.4%. The net income attributable to the shareholders of the parent was down 10.2% to EUR 658.5 million (previous year: EUR 733.0 million), with earnings per share at EUR 4.51 (previous year: EUR 5.04).

The increased raw material prices reduced EBIT in the first nine months by approximately EUR 232 million compared with the prices for the first nine months of 2005.

In view of numerous one-time effects and changes in the scope of consolidation, Continental CFO Dr. Alan Hippe referred to adjusted figures in his assessment of the operational devel­opment: "Changes in consolidation and one-time effects increased the results for the first three quarters of 2005 on the whole by EUR 61.7 million, compared with negative effects amounting to EUR 67.1 million in the first nine months of this year. Adjusted for these effects, we achieved an EBIT of EUR 1,074.3 million for the first nine months of 2005, and an EBIT of EUR 1,183.2 million for the first nine months of this year. So, taking these figures into ac­count, in the first three quarters of this year we outperformed the same period of 2005 by EUR 108.9 million. If we just look at the third quarter of 2005, we had positive effects totaling EUR 36.1 million resulting from changes in consolidation and one-time effects. In contrast, we had negative effects of EUR 16.2 million in the third quarter of this year. Adjusted for these effects, there was an EBIT of EUR 414.2 million in the third quarter of 2005, and EUR 410.3 million in the third quarter of 2006."

At EUR 1,580.8 million, net indebtedness was EUR 1,087.6 million higher than at year-end 2005 and EUR 449.7 million higher than at September 30, 2005, resulting in a gearing ratio of 36.6% compared with the same period of 2005 (31.5%). Factors included the payment of EUR 689.4 million for the acquisition of Motorola's automotive electronics business (before acquisition of the operations in China) as well as the contributions of EUR 300.0 million to the Continental Pension Trust (CTA) for the funding of post-employment obligations in Germany.

Compared with September 30, 2005, research and development expense was up 14.1% to EUR 502.5 million (previous year: EUR 440.4 million), representing 4.6% of sales (previ­ous year: 4.3%). In the first nine months of 2006, EUR 530.1 million (previous year: EUR 584.1 million) was invested in property, plant, equipment and software, corresponding to a capital expenditure ratio of 4.8% (previous year: 5.7%). At the end of the third quarter of 2006, Continental's employees numbered 84,561, an increase of 4,712 compared with the end of 2005.

The Automotive Systems division increased its sales in the first nine months of 2006 to EUR 4,401.3 million, up 12.3% compared with the same period of 2005 (EUR 3,919.5 mil­lion). Before changes in the scope of consolidation and exchange rate effects, sales in­creased by 5.3%. The division boosted its EBIT to EUR 474.3 million, up 6.6% from EUR 445.1 million. The return on sales went down from 11.4% to 10.8%. Before changes in the scope of consolidation and one-time effects, EBIT rose by EUR 54.4 million or 12.4%.

The Passenger and Light Truck Tires division increased its sales in the first nine months of 2006 to EUR 3,392.8 million, up 5.5% compared with the same period last year (EUR 3,215.6 million). Before exchange rate effects, sales rose by 4.6%. Sales to the NAFTA re­placement market improved markedly, leading to an increased EBIT before one-time effects. One-time effects led to a 32.4% decline in EBIT to EUR 325.0 million (previous year: EUR 480.8 million) and a return on sales of 9.6% (previous year: 15.0%) for the division. Before these one-time effects, EBIT improved by EUR 8.8 million or 2.2%. This was achieved de­spite price increases for raw materials.

The Commercial Vehicle Tires division reported sales in the first nine months of 2006 of EUR 1,087.5 million, an increase of 7.8% compared with the same period of 2005 (EUR 1,008.8 million). Before changes in the scope of consolidation and exchange rate effects, sales were up 9.0%. The division reported a 23.8% decline in EBIT to EUR 86.6 million (pre­vious year: EUR 113.7 million) – mainly due to increases in raw material prices. Before changes in the scope of consolidation and one-time effects, EBIT fell by EUR 9.6 million or 12.4%.

Sales by the ContiTech division decreased in the first nine months of 2006 to EUR 2,163.7 million, down 0.7% compared with the same period last year (EUR 2,178.9 million). Before changes in the scope of consolidation and exchange rate effects – mainly from sales of the disposed Stankiewicz business unit for the second and third quarters of 2005 of EUR 132.0 million – sales rose by 6.7%. ContiTech increased EBIT by 103.4% to EUR 248.4 million (previous year: EUR 122.1 million), and its return on sales to 11.5% (previous year: 5.6%). Before changes in the scope of consolidation and one-time effects, EBIT was up by EUR 47.8 million or 24.9%.

The Continental Corporation is a leading automotive supplier of brake systems, chassis components, vehicle electronics, tires and technical elastomers. In 2005 the corporation realized sales of EUR 13.8 billion. It currently has a worldwide workforce of around 85,000 employees.

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