Continental AG: Solid Growth with Pioneering Technologies: Continental's Order Intake at Record Level

- Organic sales growth of 4.3 percent to EUR11.0 billion
- Automotive and Rubber Group growing organically considerably faster than the markets
- Adjusted operating result of EUR1.1 billion / adjusted EBIT margin of 9.7 percent
- Net income virtually stable at EUR738 million or EUR3.69 per share
- New record: Order intake in Automotive Group amounts to EUR11 billion

Hanover, May 8, 2018. The technology company Continental started the year by demonstrating its strong capacity for growth in a sluggish market environment. "Thanks to our operational strength, we again grew strongly worldwide in the first quarter - much faster than our relevant markets, which declined in the same period. We will continue our growth momentum and are still aiming for sales of approximately EUR47 billion before exchange-rate effects. The adjusted EBIT margin is set to exceed 10 percent," said Continental CEO Dr. Elmar Degenhart on Tuesday at the presentation of the business figures for the first quarter of 2018.

Asked about the solid growth, Degenhart declared: "Continental has a pioneering technology portfolio. We are one of the few system suppliers to offer all relevant technologies for the mobility of the future. We thus make safer, cleaner and more efficient mobility possible for people and their goods, now and in the future." The order intake in the Automotive Group in particular are an expression of its customers' appreciation of the technologies that Continental is developing. At EUR11 billion in the first quarter, they are at a record level.

Exchange-rate effects in particular created headwind in the first three months. Despite these negative effects amounting to EUR546 million, sales were on a par with the same period of the previous year at EUR11.0 billion.

After the first three months, the adjusted operating result of EUR1.1 billion was down on the previous year's figure. This is due both to negative exchange-rate effects and to negative effects from inventory valuations amounting to EUR100 million. In total, the company expects related negative effects on earnings of around EUR150 million in the first half of 2018, which, as reported in a mandatory announcement on April 18, can no longer be offset by the end of the year.

"Our first quarter was weighed down by strong exchange-rate effects in smaller markets in which our local production footprint is very limited. We saw extreme fluctuations in exchange rates between currencies in these countries, coupled with the strong appreciation of the euro. This unusual situation weakened our natural hedge against exchange-rate effects. However, it is still the case that our EBIT margin is largely hedged against exchange-rate effects at the corporate level, as we produce and sell locally in many of our markets," explained CFO Wolfgang Schäfer with regard to the transaction effects from exchange-rate changes in the first quarter.
 

1 Before changes in the scope of consolidation.
2 Before amortization of intangible assets from purchase price allocation (PPA), changes in the scope of consolidation and special effects.
3 Excluding trainees.
 

Sales of the international automotive supplier, tire manufacturer and industrial partner were up by 0.1 percent year-on-year to EUR11.0 billion. Adjusted for changes in the scope of consolidation and exchange rates, sales growth came to 4.3 percent. The net income attributable to the shareholders of the parent of EUR738 million was nearly on par with the level of the previous year (EUR750 million). Earnings per share amounted to EUR3.69 (previous year: EUR3.75).

Adjusted EBIT fell by 9 percent year-on-year to EUR1.1 billion. This corresponds to an adjusted EBIT margin of 9.7 percent after 10.6 percent in the first quarter of the previous year.

The Automotive Group increased its sales organically by 5.5 percent in the past quarter. Sales amounted to EUR6.8 billion.

"Our automotive business has performed very well. Organic growth of 5.5 percent in a declining market environment is an excellent achievement," said Schäfer, assessing the results of Continental's three automotive divisions. Referring to the difficult environment and the decline in the production of passenger cars and light commercial vehicles by a total of 1 percent globally, he added: "We grew nearly 7 percentage points faster than the market with our automotive business."
 

1 Excluding trainees.
2 Before changes in the scope of consolidation.
3 Before amortization of intangible assets from purchase price allocation (PPA), changes in the scope of consolidation and special effects.
 

In the first three months, the Rubber Group generated sales of EUR4.2 billion (previous year: EUR4.3 billion). The sales of these two divisions were thus approximately on par with the previous year. Adjusted for exchange-rate effects and changes in the scope of consolidation, the growth amounted to 2.3 percent.

"With organic growth of 5.1 percent, our industrial specialist ContiTech was again able to demonstrate some of its strengths. Conveyor belts and industrial hoses in particular contributed to this growth - from a substantially lower basis," said Schäfer, expressing his satisfaction. The Tire division grew 2 percentage points faster than the market, which declined slightly at the international level, and thus made further gains.

Continental continued to reduce its net indebtedness in the past quarter. As at March 31, net indebtedness amounted to less than EUR2 billion, partly because the dividend of EUR900 million will not be paid out until the second quarter. The gearing ratio fell from 12.6 percent at the end of December 2017 to 11.7 percent at the reporting date. Continental's liquidity reserves amounted to EUR5.9 billion at the end of the first quarter of 2018.

Free cash flow amounted to around EUR41 million on March 31, 2018, after EUR133 million in the same period of the previous year. This was due to the lower operating result and the increase in working capital as a result of strong growth.

With regard to capital expenditure, Schäfer emphasized: "We are investing heavily in our worldwide growth and in pioneering technologies. This is reflected in our capital expenditure and research and development expenses of more than EUR1.3 billion." In the first three months, Continental invested EUR459 million in property, plant and equipment, and software. The capital expenditure ratio therefore amounted to 4.2 percent (previous year: 4.6 percent). The technology company's net expenditure for research and development was EUR848 million, which equates to 7.7 percent of sales. In the same period of the previous year, the ratio was 7.1 percent. This development was driven mainly by the rapid advance in digitalization, Schäfer explained.

At the end of the first quarter of 2018, Continental had more than 240,000 employees, over 4,600 new employees compared to the end of the year. Two-thirds of the growth is due partly to the reinforcement of the Automotive Group's global research and development team. One-third of the additional staff was hired in the Rubber Group. These employees are required primarily for the expanded production operations and the growing sales.

Continental develops pioneering technologies and services for sustainable and connected mobility of people and their goods. Founded in 1871, the technology company offers safe, efficient, intelligent and affordable solutions for vehicles, machines, traffic and transport. In 2017, Continental generated sales of EUR44 billion and currently employs more than 240,000 people in 61 countries.
 

Contact for journalists

Henry Schniewind
Spokesman, Business & Finance
Continental AG
Phone: +49 511 938-1278
Cell: +49 1516 886 42 62
E-mail: henry.schniewind@conti.de

Vincent Charles
Head of Media Relations
Continental AG
Phone: +49 511 938-1364
Cell: +49 173 314 50 96
E-mail: vincent.charles@conti.de
 

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