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Continental AG Interim / Quarterly Report 2006
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Interim / Quarterly Report
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Interim Report as of March 31, 2006
Vahrenwalder Straße 9, 30165 Hanover, Germany
Phone +49 511 938-01, Fax +49 511 938-81770, [email protected], www.conti-online.com
Continental is an Official Partner of the 2006 FIFA World Cup Germany™.
2, der als weltweit erster Serienreifen für ultraschnelle Sportwagen diese maximale Höchstgeschwindigkeit zulässt. Der Conti SC 2 ist nur eines von 1.304 Patenten, die wir im Jahr 2004 angemeldet haben. Zu unseren aktuellsten Innovationen im Dienste der Sicherheit gehören auch das Seitenwand-Torsion-Sensorsystem (SWT), welches das Maß der Reifenverformung z.B. beim Bremsen misst und zur exakteren Reaktion dem ESP übermittelt, oder bionische Adaptionen wie das vom Bremsverhalten der Katzenpfote abgeleitete Advanced Modul Concept (AMC), welches durch eine überproportionale Erweiterung des Reifens den Bremsweg entscheidend verringert. Durch Zukunftsvisionen wie den "intelligenten Reifen" als integrales Element der Chassis, der mit Hilfe eines Profilsensors Daten wie z.B. kritische Fahrbahnzustände übermittelt, werden wir auch zukünftig unser Profil als innovatives Unternehmen nachhaltig stär-
ken.
Consolidated Income Statements
| in € millions | January 1 to March 31 | |
|---|---|---|
| 2006 | 2005 | |
| Sales | 3,611.6 | 3,253.1 |
| Cost of sales | -2,772.5 | -2,494.5 |
| Gross margin on sales | 839.1 | 758.6 |
| Research and development expenses | -156.1 | -142.7 |
| Selling and logistics expenses | -210.3 | -204.9 |
| Administrative expenses | -110.8 | -111.7 |
| Other income and expenses | -20.3 | -17.9 |
| At-equity share in earnings of associates | 5.0 | 1.9 |
| Other income from investments | 5.8 | -2.4 |
| Earnings before interest and taxes | 352.4 | 280.9 |
| Interest income | 7.1 | 5.1 |
| Interest expense | -23.1 | -28.3 |
| Net interest expense | -16.0 | -23.2 |
| Earnings before income taxes | 336.4 | 257.7 |
| Income tax expense | -108.0 | -85.5 |
| Net income | 228.4 | 172.2 |
| Minority interests | -6.5 | -5.8 |
| Net income attributable to the shareholders of the parent | 221.9 | 166.4 |
| Earnings per share in € | 1.52 | 1.14 |
| Diluted earnings per share in € | 1.45 | 1.10 |
Sales/EBIT
| in € millions | January 1 to March 31 | ||
|---|---|---|---|
| 2006 | 2005 | ||
| Automotive Systems | |||
| Sales | 1,435.0 | 1,281.6 | |
| EBIT | 151.4 | 123.8 | |
| as % of sales | 10.6 | 9.7 | |
| Passenger and Light Truck Tires | |||
| Sales | 1,089.1 | 980.6 | |
| EBIT | 108.0 | 91.1 | |
| as % of sales | 9.9 | 9.3 | |
| Commercial Vehicle Tires | |||
| Sales | 346.2 | 306.6 | |
| EBIT | 19.7 | 17.5 | |
| as % of sales | 5.7 | 5.7 | |
| ContiTech | |||
| Sales | 770.1 | 707.9 | |
| EBIT | 82.9 | 58.1 | |
| as % of sales | 10.8 | 8.2 | |
| Other | |||
| Sales | -28.8 | -23.6 | |
| EBIT | -9.6 | -9.6 | |
| Corporation | |||
| Sales | 3,611.6 | 3,253.1 | |
| EBIT | 352.4 | 280.9 | |
| as % of sales | 9.8 | 8.6 |
Interim Report as of March 31, 2006
Change in Executive Board of Continental AG
On February 22, 2006, the Board of Supervisors appointed Mr. William L. Kozyra deputy Executive Board member, effective immediately. Kozyra is president and CEO of Continental Teves Inc., Auburn Hills, MI, U.S.A., and is responsible for the Automotive Systems division's NAFTA business. His appointment underscores the growing significance of this region for Continental and demonstrates the company's continuous international orientation, now at the Executive Board level as well. Through Mr. Kozyra, Continental has an Executive Board member to locally represent its interests in dealings with key North American OE customers.
Agreement to Acquire the Automotive Electronics Business of Motorola, Inc.
On April 3, 2006, Continental AG and Motorola, Inc. announced that the companies had entered into an agreement under which Continental will acquire Motorola's automotive electronics business for approximately US\$ 1 billion. The transaction includes Motorola's operations in the growing fields of controls, sensors, interior electronics and telematics. The acquired operations will be integrated into the Automotive Systems division. The transaction, which is still subject to customary closing and regulatory conditions, is expected to be completed in the first half of 2006.
The acquisition will significantly increase our product portfolio and our R&D capabilities in body and sensor electronics as well as powertrain and chassis controls. Telematics will further enhance Continental's position as a leader in the development and production of active and passive safety elements for the automotive industry.
Motorola's automotive unit employs about 4,500 persons worldwide, approximately 80% of whom are based in North America. It has manufacturing facilities and development engineering centers in North America, Japan, China, Mexico, France, UK and Germany. The majority of sales are made in North America.
Acquisition of Roulunds Rubber
On February 6, 2006, ContiTech AG signed an agreement to purchase Roulunds Rubber A/S. The purchase will most likely be concluded in May. The Danish company employs 1,100 people in Europe and Asia. It develops, produces and sells industrial drive belts as well as drive belts for the automotive aftermarket and original equipment business. The purchase will further strengthen the Power Transmission Group. In particular, the three locations in India, Korea and China will enhance our globalization strategy.
Purchase of Conveyor Belt Operations from Roulunds Tech
On February 14, 2006, the ContiTech Conveyor Belt Group signed an agreement to acquire the conveyor belt operations of the Danish company Roulunds Tech A/S. The purchase will strengthen the conveyor belt business outside of the mining sector.
New Brake Plant in Zvolen
On February 3, 2006, the new plant in Zvolen, Slovakia, was officially opened for the production of brake calipers, which will also supply auto plants in the booming automotive business in Eastern Europe. The Zvolen plant is to be expanded to create one of the Automotive Systems division's largest manufacturing and assembly locations for brake calipers.
Sale of Stankiewicz GmbH
Effective April 1, 2006, Stankiewicz GmbH and its subsidiaries were sold to the investor Gilde Buy-Out Fund, Utrecht, Netherlands, following the concentration on ContiTech's core businesses. Stankiewicz had been acquired by Continental in 2004 as a business unit of Phoenix AG.
New Tire Plant in Brazil
On April 5, 2006, we officially opened our new tire plant in Camaçari, Brazil. By the end of 2006, the plant will be turning out 9,000 car tires a day; in the first half of 2007 daily output will be increased to 14,000 units. Production of commercial vehicle tires will start in July, with a daily output of 1,000 tires by the end of 2006. With a capacity of 6 million passenger and light truck tires and 700,000 commercial vehicle tires, the plant in Camaçari will supply mainly the NAFTA region.
Announcement of the Indefinite Suspension of Tire Production at the Plant in Charlotte, U.S.A.
On March 10, 2006, Continental Tire North America, Inc. (CTNA) announced plans to indefinitely suspend the production of passenger and light truck tires at the Charlotte, U.S.A. plant on September 15, 2006. These as well as the previously announced measures can be withdrawn to the extent the United Steel Workers of America and CTNA still reach an agreement on the proposals to reduce manufacturing costs. The implementation of these restructuring measures began in the first three months of 2006 with the reduction of approximately 140 hourly workers, for whom termination benefits of €0.9 million have been accrued. We expect that the total charges to implement these measures will amount to just over €90 million.
Automotive Systems Receives Supplier Award from Toyota
At the end of March, Toyota Motor Europe presented the Automotive Systems division with the Supplier Award 2005 for project management. Toyota had turned over the responsibility for an entire brake system to Automotive Systems for the first time. The award was presented by Toyota in recognition of our performance in preparing the production and supplying the brake system for the compact car Yaris.
New Infrared Sensors for Greater Safety in Standard-Size Vehicles
In March, Automotive Systems introduced a new generation of economical infrared sensors which will soon make it possible to provide even price-sensitive standard-size vehicles with functions ranging from distance warning to activation of the passive safety system, thus making the cars safer and more comfortable. The new sensor generation is an important component in the effort to improve general traffic safety through high market penetration. The first supply contracts have already been signed. The new sensor generation will premiere in 2007 in vehicles from an Asian manufacturer.
Continental's Positive Share Price Performance
In the first quarter of 2006, Continental shares continued the positive performance trend from the previous quarters. Having reached a record high of €91.24 on March 30, 2006, our shares closed on March 31 at a price of €90.85. This represents a 20.4% increase in the share price in the first quarter of 2006. In the same period, the DAX, the leading German stock index, rose 9.5%, while the Dow Jones Automobiles & Parts Euro-Index was up 16.4%.
Impact on Interim Reports
Companies Consolidated
are carried at equity.
Although certain elements of the Corporation's business are seasonal, the overall comparability of the interim consolidated financial statements is not compromised. All significant effects in the current period are shown in the financial summaries or in the accompanying explanations. There have been no other major changes in estimates or contingencies between the prior annual report and comparative interim periods that have led to mateEBIT rose by 25.5% to €352.4 million (previous year: €280.9 million), and the return on sales to 9.8% (previ-
The net interest expense at €16.0 million was lower than the same period of 2005 (€23.2 million). This improvement was brought about primarily by the further
The net income attributable to the shareholders of the parent increased 33.4% to €221.9 million (previous year: €166.4 million) as well as earnings per share to
In the first quarter of 2006, there was a free cash flow of -€230.2 million (previous year: -€161.0 million), due mainly to the higher average level of working capital compared with year-end 2005 resulting from seasonal fluctuations and increased capital expenditure compared with the first quarter of 2005. In addition, inventories for the passenger and light truck tire business in the NAFTA region were increased as a precautionary measure in conjunction with the possible restructuring at the Charlotte plant. Net indebtedness was €176.9 million higher than at year-end 2005, but at €670.1 million down €470.3 million in comparison with the first quarter of 2005. The gearing ratio fell to 16.7% compared with
For the three months to March 31, 2006, research and development expense rose by 9.4% compared with the same period of 2005 to €156.1 million (previous year: €142.7 million), representing 4.3% of sales (previ-
In the first quarter of 2006, €200.1 million (previous year: €158.4 million) was invested in property, plant and equipment and software. The capital expenditure ratio after three months amounted to 5.5% (previous year: 4.9%). Automotive Systems invested mainly in new technologies for electronic brake and safety systems. The tire divisions primarily continued to expand capacity at their low-cost locations, including increased production capacity for high-performance tires in the Passenger and Light Truck Tires division and greater production volumes in Malaysia in the Commercial Vehicle Tires division. Both divisions focused investments in the new plant in Brazil as well. ContiTech invested in rationalizing
production processes and new products.
ous year: 8.6%).
reduction in indebtedness.
€1.52 (previous year: €1.14).
March 31, 2005 (37.1%).
ous year: 4.4%).
rial adjustments in the current interim period.
In addition to the parent company, the consolidated financial statements include 265 domestic and foreign companies in which Continental Aktiengesellschaft holds a direct or indirect interest of more than 20% of the voting rights. Of these, 232 are fully consolidated and 33
Related to December 31, 2005, the total number of consolidated companies increased by one as the result of an acquisition; however this resulted in no significant change
In relation to March 31, 2005, the net scope of consolidated companies increased by two. The principal additions to the companies consolidated relate to the acquisition of Xtra Print Holding GmbH and its subsidiaries. The major disposals included the ContiTech division's
in the net assets or results of the Corporation.
Sales Up 11.0%; Earnings Improve 25.5%
Consolidated sales for the first quarter of 2006 rose by 11.0% compared with the same period of the previous year to €3,611.6 million (previous year: €3,253.1 million). Before changes in the scope of consolidation and exchange rate effects, consolidated sales increased
Raw material prices are being driven to new heights from continuing heavy demand for raw materials worldwide, political uncertainties and ongoing speculation. The increasing raw material prices, in particular for natural rubber and oil, reduced EBIT in the first quarter by approximately €50 million compared with the average prices for 2005 as a whole and by about €79 million compared with the prices for the first quarter of 2005. We assume that this negative trend will continue in the next quarters
Sealing Systems business unit.
Continental Corporation
by 8.8%.
of 2006 as well.
After the first quarter, the price of Continental shares continued to rise following the announcement of the acquisition of Motorola's automotive electronics business, reaching a new record high of €96.36 on April 5.
Workforce Increases
As of March 31, 2006, Continental's employees numbered 80,596, an increase of 747 compared with December 31, 2005. New employees were hired in the Automotive Systems, Passenger and Light Truck Tires, and Commercial Vehicle Tires divisions. In the ContiTech division, the number of employees declined.
Valuation Principles
This Interim Report, as presented, has been prepared in accordance with International Financial Reporting Standards (IFRS). These accounting principles are disclosed in detail in the Annual Report 2005. As the consolidated financial statements were prepared under IFRS for the first time as of December 31, 2005, in accordance with the EU Regulation and in conjunction with section 315a HGB, there were changes for the entire fiscal year 2005 that had an effect on the interim reports published in 2005. These changes affected primarily the presentation of certain minority interests as well as the final classification and measurement of certain items such as development expenses. The comparative amounts for the prior period have been adjusted and classified accordingly, for comparison purposes.
Share price performance
Impact on Interim Reports
Interim Report as of March 31, 2006
America and CTNA still reach an agreement on the proposals to reduce manufacturing costs. The implementation of these restructuring measures began in the first three months of 2006 with the reduction of approximately 140 hourly workers, for whom termination benefits of €0.9 million have been accrued. We expect that the total charges to implement these measures will amount to quarters. Having reached a record high of €91.24 on March 30, 2006, our shares closed on March 31 at a price of €90.85. This represents a 20.4% increase in the share price in the first quarter of 2006. In the same period, the DAX, the leading German stock index, rose 9.5%, while the Dow Jones Automobiles & Parts Euro-
After the first quarter, the price of Continental shares continued to rise following the announcement of the acquisition of Motorola's automotive electronics business, reaching a new record high of €96.36 on April 5.
As of March 31, 2006, Continental's employees numbered 80,596, an increase of 747 compared with December 31, 2005. New employees were hired in the Automotive Systems, Passenger and Light Truck Tires, and Commercial Vehicle Tires divisions. In the ContiTech
This Interim Report, as presented, has been prepared in accordance with International Financial Reporting Standards (IFRS). These accounting principles are disclosed in detail in the Annual Report 2005. As the consolidated financial statements were prepared under IFRS for the first time as of December 31, 2005, in accordance with the EU Regulation and in conjunction with section 315a HGB, there were changes for the entire fiscal year 2005 that had an effect on the interim reports published in 2005. These changes affected primarily the presentation of certain minority interests as well as the final classification and measurement of certain items such as development expenses. The comparative amounts for the prior period have been adjusted and classified accord-
division, the number of employees declined.
Index was up 16.4%.
Workforce Increases
Valuation Principles
ingly, for comparison purposes.
January 2, 2006 March 31, 2006
Automotive Systems Receives Supplier Award
New Infrared Sensors for Greater Safety in
2007 in vehicles from an Asian manufacturer.
Share price performance
90
100
110
120
Continental's Positive Share Price Performance In the first quarter of 2006, Continental shares continued the positive performance trend from the previous
Continental DAX Dow Jones Automobiles & Parts
In March, Automotive Systems introduced a new generation of economical infrared sensors which will soon make it possible to provide even price-sensitive standard-size vehicles with functions ranging from distance warning to activation of the passive safety system, thus making the cars safer and more comfortable. The new sensor generation is an important component in the effort to improve general traffic safety through high market penetration. The first supply contracts have already been signed. The new sensor generation will premiere in
At the end of March, Toyota Motor Europe presented the Automotive Systems division with the Supplier Award 2005 for project management. Toyota had turned over the responsibility for an entire brake system to Automotive Systems for the first time. The award was presented by Toyota in recognition of our performance in preparing the production and supplying the brake system for the
just over €90 million.
compact car Yaris.
Standard-Size Vehicles
from Toyota
Although certain elements of the Corporation's business are seasonal, the overall comparability of the interim consolidated financial statements is not compromised. All significant effects in the current period are shown in the financial summaries or in the accompanying explanations. There have been no other major changes in estimates or contingencies between the prior annual report and comparative interim periods that have led to material adjustments in the current interim period.
Companies Consolidated
In addition to the parent company, the consolidated financial statements include 265 domestic and foreign companies in which Continental Aktiengesellschaft holds a direct or indirect interest of more than 20% of the voting rights. Of these, 232 are fully consolidated and 33 are carried at equity.
Related to December 31, 2005, the total number of consolidated companies increased by one as the result of an acquisition; however this resulted in no significant change in the net assets or results of the Corporation.
In relation to March 31, 2005, the net scope of consolidated companies increased by two. The principal additions to the companies consolidated relate to the acquisition of Xtra Print Holding GmbH and its subsidiaries. The major disposals included the ContiTech division's Sealing Systems business unit.
Continental Corporation Sales Up 11.0%; Earnings Improve 25.5%
Consolidated sales for the first quarter of 2006 rose by 11.0% compared with the same period of the previous year to €3,611.6 million (previous year: €3,253.1 million). Before changes in the scope of consolidation and exchange rate effects, consolidated sales increased by 8.8%.
Raw material prices are being driven to new heights from continuing heavy demand for raw materials worldwide, political uncertainties and ongoing speculation. The increasing raw material prices, in particular for natural rubber and oil, reduced EBIT in the first quarter by approximately €50 million compared with the average prices for 2005 as a whole and by about €79 million compared with the prices for the first quarter of 2005. We assume that this negative trend will continue in the next quarters of 2006 as well.
EBIT rose by 25.5% to €352.4 million (previous year: €280.9 million), and the return on sales to 9.8% (previous year: 8.6%).
The net interest expense at €16.0 million was lower than the same period of 2005 (€23.2 million). This improvement was brought about primarily by the further reduction in indebtedness.
The net income attributable to the shareholders of the parent increased 33.4% to €221.9 million (previous year: €166.4 million) as well as earnings per share to €1.52 (previous year: €1.14).
In the first quarter of 2006, there was a free cash flow of -€230.2 million (previous year: -€161.0 million), due mainly to the higher average level of working capital compared with year-end 2005 resulting from seasonal fluctuations and increased capital expenditure compared with the first quarter of 2005. In addition, inventories for the passenger and light truck tire business in the NAFTA region were increased as a precautionary measure in conjunction with the possible restructuring at the Charlotte plant. Net indebtedness was €176.9 million higher than at year-end 2005, but at €670.1 million down €470.3 million in comparison with the first quarter of 2005. The gearing ratio fell to 16.7% compared with March 31, 2005 (37.1%).
For the three months to March 31, 2006, research and development expense rose by 9.4% compared with the same period of 2005 to €156.1 million (previous year: €142.7 million), representing 4.3% of sales (previous year: 4.4%).
In the first quarter of 2006, €200.1 million (previous year: €158.4 million) was invested in property, plant and equipment and software. The capital expenditure ratio after three months amounted to 5.5% (previous year: 4.9%). Automotive Systems invested mainly in new technologies for electronic brake and safety systems. The tire divisions primarily continued to expand capacity at their low-cost locations, including increased production capacity for high-performance tires in the Passenger and Light Truck Tires division and greater production volumes in Malaysia in the Commercial Vehicle Tires division. Both divisions focused investments in the new plant in Brazil as well. ContiTech invested in rationalizing production processes and new products.
Automotive Systems
Sales Up 12.0%; Earnings Improve 22.3%
Sales by the Automotive Systems division increased during the first quarter of 2006 by 12.0% to €1,435.0 million (previous year: €1,281.6 million). Before exchange rate effects, sales grew by 9.3%.
All business units – Electronic Brake and Safety Systems, Hydraulic Brake Systems, Chassis & Powertrain, Electric Drives, Body Electronics and Aftermarket – were able to increase sales compared to the first quarter of 2005.
Automotive Systems improved its EBIT by 22.3% to €151.4 million (previous year: €123.8 million) and the return on sales to 10.6% (previous year: 9.7%).
Passenger and Light Truck Tires Sales Up 11.1%; Earnings Improve 18.6%
The Passenger and Light Truck Tires division increased sales for the first three months of 2006 in comparison to the first quarter of 2005 by 11.1% to €1,089.1 million (previous year: €980.6 million). Before exchange rate effects, sales rose by 7.6%.
We recorded a 5% increase in volumes sold to the automotive industry worldwide. Whereas replacement sales in the NAFTA region nearly reached the previous year's figure, sales to the replacement market in Europe exceeded the previous year's level. The product mix improved once again.
The increasing raw material prices impacted the result for the first quarter 2006 by approximately €23 million compared with the average prices for 2005 as a whole and by about €45 million compared with the prices for the first quarter of 2005.
The Passenger and Light Truck Tires division lifted EBIT by 18.6% to €108.0 million (previous year: €91.1 million), achieving a return on sales of 9.9% (previous year: 9.3%).
Commercial Vehicle Tires Sales Up 12.9%; Earnings Improve 12.6%
The Commercial Vehicle Tires division recorded a rise in sales for the first three months of 2006 of 12.9% to €346.2 million (previous year: €306.6 million). Before exchange rate effects and changes in the scope of consolidation, sales were up by 8.2% compared with the same period in the previous year.
In Europe, we achieved increases in sales volumes totaling 4%. The number of tires sold to vehicle manufacturers as well as sales to the replacement market were up on the previous year. We were able to outperform first quarter 2005 sales levels in the NAFTA region as well, recording higher volumes for the original equipment business and volumes just short of the previous year's figures for the replacement business.
Consolidated Balance Sheets
1,418.5 126.2 3,121.1 110.9 10.2 95.9 5.7 88.7 46.3 7.7 5,031.2 1,433.7 2,267.6 34.6 308.4 34.1 8.2 830.5 – 4,917.1 9,948.3 1.4
372.3 1,298.7 1,402.8 -192.4 194.9 3,076.3 1,394.1 139.5 334.4 1,456.8 27.5 3,352.3 1,197.5 305.8 468.5 611.0 416.5 520.4 – 3,519.7 9,948.3 37.1
March 31, 2005
373.4 1,307.8 2,049.7 -156.7 220.8 3,795.0 1,298.0 159.5 354.0 942.3 34.9 2,788.7 1,322.1 340.8 462.3 897.3 482.9 416.5 42.1 3,964.0 10,547.7 13.0
373.4 1,309.5 2,271.6 -164.3 227.2 4,017.4 1,299.5 142.2 355.0 1,007.7 30.3 2,834.7 1,359.7 377.3 470.0 730.8 519.2 479.6 96.7 4,033.3 10,885.4 16.7
March 31, 2006 Dec. 12, 2005
March 31, 2005
1,423.8 122.9 3,267.8 122.7 9.3 98.6 85.1 10.2 51.1 2.3 5,193.8 1,418.6 2,114.6 51.6 269.8 30.2 62.4 1,273.8 132.9 5,353.9 10,547.7 1.3
1,418.5 120.1 3,307.0 124.3 9.8 72.6 83.8 – 46.1 1.1 5,183.3 1,540.5 2,508.7 44.4 379.3 21.6 79.1 989.3 139.2 5,702.1 10,885.4 1.3
March 31, 2006 Dec. 31, 2005
Assets in € millions
Other intangible assets Property, plant, and equipment Investments in associates Other investments Deferred tax assets Deferred pension charges Long-term derivative instruments Other long-term financial assets
Goodwill
Other assets Non-current assets
Inventories
Other assets Income tax receivable
Common stock Capital reserves Retained earnings Other reserves Minority interests Total equity
Deferred tax liabilities
Non-current liabilities Trade accounts payable Income tax payable
Other liabilities
Indebtedness
Other liabilities
Current liabilities Total equity and liabilities Gearing ratio in %
Long-term provisions for other risks Long-term portion of indebtedness
Short-term provisions for other risks
Other short-term financial liabilities
Liabilities related to assets held for sale
Trade accounts receivable Other short-term financial assets
Short-term derivative instruments Cash and cash equivalents Assets held for sale Current assets Total assets Capital turnover
Total equity and liabilities in € millions
Provisions for pension liabilities and other post-employment benefits
The increasing raw material prices impacted the result for the first quarter 2006 by approximately €20 million compared with the average prices for 2005 as a whole and by about €27 million compared with the prices for the first quarter of 2005.
EBIT of the Commercial Vehicle Tires division rose by 12.6% to €19.7 million (previous year: €17.5 million). As in the previous year, the return on sales amounted to 5.7%.
ContiTech
Sales Up 8.8%; Earnings Improve 42.7%
The ContiTech division's sales for the first quarter of 2006 rose 8.8% to €770.1 million (previous year: €707.9 million). Before changes in the scope of consolidation and exchange rate effects, sales rose by 10.0%.
All business units were able to exceed their sales and earnings compared with the first quarter of 2005, with the Power Transmission Group and Fluid Technology achieving the most substantial gains.
ContiTech raised EBIT by 42.7% to €82.9 million (previous year: €58.1 million), and its return on sales to 10.8% (previous year: 8.2%).
Outlook
For 2006 as a whole, we expect to improve consolidated sales and the operating result, with all divisions contributing to the increase.
We will try to compensate the rising prices for materials, particularly for crude oil, natural rubber and steel, with price increases, mix improvements, and rationalization measures.
We expect to continue increasing capital expenditures in 2006 and anticipate a capital expenditure ratio of between 6.0% and 6.5%.
Consolidated Balance Sheets
Interim Report as of March 31, 2006
Automotive Systems
Sales Up 12.0%; Earnings Improve 22.3%
rate effects, sales grew by 9.3%.
Sales by the Automotive Systems division increased during the first quarter of 2006 by 12.0% to €1,435.0 million (previous year: €1,281.6 million). Before exchange In Europe, we achieved increases in sales volumes totaling 4%. The number of tires sold to vehicle manufacturers as well as sales to the replacement market were up on the previous year. We were able to outperform first quarter 2005 sales levels in the NAFTA region as well, recording higher volumes for the original equipment business and volumes just short of the previous year's
The increasing raw material prices impacted the result for the first quarter 2006 by approximately €20 million compared with the average prices for 2005 as a whole and by about €27 million compared with the prices for
EBIT of the Commercial Vehicle Tires division rose by 12.6% to €19.7 million (previous year: €17.5 million). As in the previous year, the return on sales amounted to
The ContiTech division's sales for the first quarter of 2006 rose 8.8% to €770.1 million (previous year: €707.9 million). Before changes in the scope of consolidation and exchange rate effects, sales rose by 10.0%.
All business units were able to exceed their sales and earnings compared with the first quarter of 2005, with the Power Transmission Group and Fluid Technology
ContiTech raised EBIT by 42.7% to €82.9 million (previous year: €58.1 million), and its return on sales to 10.8%
For 2006 as a whole, we expect to improve consolidated sales and the operating result, with all divisions contrib-
We will try to compensate the rising prices for materials, particularly for crude oil, natural rubber and steel, with price increases, mix improvements, and rationalization
We expect to continue increasing capital expenditures in 2006 and anticipate a capital expenditure ratio of
Sales Up 8.8%; Earnings Improve 42.7%
achieving the most substantial gains.
(previous year: 8.2%).
uting to the increase.
between 6.0% and 6.5%.
Outlook
measures.
figures for the replacement business.
the first quarter of 2005.
5.7%.
ContiTech
All business units – Electronic Brake and Safety Systems, Hydraulic Brake Systems, Chassis & Powertrain, Electric Drives, Body Electronics and Aftermarket – were able to increase sales compared to the first quarter of 2005.
Automotive Systems improved its EBIT by 22.3% to €151.4 million (previous year: €123.8 million) and the
The Passenger and Light Truck Tires division increased sales for the first three months of 2006 in comparison to the first quarter of 2005 by 11.1% to €1,089.1 million (previous year: €980.6 million). Before exchange rate ef-
We recorded a 5% increase in volumes sold to the automotive industry worldwide. Whereas replacement sales in the NAFTA region nearly reached the previous year's figure, sales to the replacement market in Europe exceeded the previous year's level. The product mix
The increasing raw material prices impacted the result for the first quarter 2006 by approximately €23 million compared with the average prices for 2005 as a whole and by about €45 million compared with the prices for
The Passenger and Light Truck Tires division lifted EBIT by 18.6% to €108.0 million (previous year: €91.1 million), achieving a return on sales of 9.9% (previous year:
The Commercial Vehicle Tires division recorded a rise in sales for the first three months of 2006 of 12.9% to €346.2 million (previous year: €306.6 million). Before exchange rate effects and changes in the scope of consolidation, sales were up by 8.2% compared with the
return on sales to 10.6% (previous year: 9.7%).
Sales Up 11.1%; Earnings Improve 18.6%
Passenger and Light Truck Tires
fects, sales rose by 7.6%.
improved once again.
the first quarter of 2005.
Commercial Vehicle Tires
same period in the previous year.
Sales Up 12.9%; Earnings Improve 12.6%
9.3%).
| Assets in € millions | March 31, 2006 | Dec. 31, 2005 | March 31, 2005 |
|---|---|---|---|
| Goodwill | 1,418.5 | 1,423.8 | 1,418.5 |
| Other intangible assets | 120.1 | 122.9 | 126.2 |
| Property, plant, and equipment | 3,307.0 | 3,267.8 | 3,121.1 |
| Investments in associates | 124.3 | 122.7 | 110.9 |
| Other investments | 9.8 | 9.3 | 10.2 |
| Deferred tax assets | 72.6 | 98.6 | 95.9 |
| Deferred pension charges | 83.8 | 85.1 | 5.7 |
| Long-term derivative instruments | – | 10.2 | 88.7 |
| Other long-term financial assets | 46.1 | 51.1 | 46.3 |
| Other assets | 1.1 | 2.3 | 7.7 |
| Non-current assets | 5,183.3 | 5,193.8 | 5,031.2 |
| Inventories | 1,540.5 | 1,418.6 | 1,433.7 |
| Trade accounts receivable | 2,508.7 | 2,114.6 | 2,267.6 |
| Other short-term financial assets | 44.4 | 51.6 | 34.6 |
| Other assets | 379.3 | 269.8 | 308.4 |
| Income tax receivable | 21.6 | 30.2 | 34.1 |
| Short-term derivative instruments | 79.1 | 62.4 | 8.2 |
| Cash and cash equivalents | 989.3 | 1,273.8 | 830.5 |
| Assets held for sale | 139.2 | 132.9 | – |
| Current assets | 5,702.1 | 5,353.9 | 4,917.1 |
| Total assets | 10,885.4 | 10,547.7 | 9,948.3 |
| Capital turnover | 1.3 | 1.3 | 1.4 |
| Total equity and liabilities in € millions | March 31, 2006 | Dec. 12, 2005 | March 31, 2005 |
|---|---|---|---|
| Common stock | 373.4 | 373.4 | 372.3 |
| Capital reserves | 1,309.5 | 1,307.8 | 1,298.7 |
| Retained earnings | 2,271.6 | 2,049.7 | 1,402.8 |
| Other reserves | -164.3 | -156.7 | -192.4 |
| Minority interests | 227.2 | 220.8 | 194.9 |
| Total equity | 4,017.4 | 3,795.0 | 3,076.3 |
| Provisions for pension liabilities and other post-employment benefits | 1,299.5 | 1,298.0 | 1,394.1 |
| Deferred tax liabilities | 142.2 | 159.5 | 139.5 |
| Long-term provisions for other risks | 355.0 | 354.0 | 334.4 |
| Long-term portion of indebtedness | 1,007.7 | 942.3 | 1,456.8 |
| Other liabilities | 30.3 | 34.9 | 27.5 |
| Non-current liabilities | 2,834.7 | 2,788.7 | 3,352.3 |
| Trade accounts payable | 1,359.7 | 1,322.1 | 1,197.5 |
| Income tax payable | 377.3 | 340.8 | 305.8 |
| Short-term provisions for other risks | 470.0 | 462.3 | 468.5 |
| Indebtedness | 730.8 | 897.3 | 611.0 |
| Other short-term financial liabilities | 519.2 | 482.9 | 416.5 |
| Other liabilities | 479.6 | 416.5 | 520.4 |
| Liabilities related to assets held for sale | 96.7 | 42.1 | – |
| Current liabilities | 4,033.3 | 3,964.0 | 3,519.7 |
| Total equity and liabilities | 10,885.4 | 10,547.7 | 9,948.3 |
| Gearing ratio in % | 16.7 | 13.0 | 37.1 |
Consolidated Cash Flow Statements
Consolidated Statements of Changes in
Retained
1,236.4 166.4 –
Adjustment for successive share purchases
-199.2
currency translation
earnings Other reserves Subtotal Total
Difference from
29.9
29.9
-169.3
-131.6
-7.6
-7.6
-139.2
-22.4
-22.4
-24.8
-24.8
166.4
1,402.8
2,049.7 221.9
221.9
2,271.6
1 Includes the expenditure and exercise of rights derived from stock option plans and convertible bonds.
1,309.5
1.7
2,706.2 166.4 231.0 5.8 2,937.2 172.2
34.6
206.8 1.3
-69.0
3,076.3
3,795.0 228.4
-7.7
220.7 1.7
4,017.4
Minority interest
4.7
10.5
-46.6
194.9
220.8 6.5
-0.1
6.4
227.2
-0.7
financial instruments 2
-0.7
-0.3
-0.3
29.9
196.3
-22.4
2,881.4
3,574.2 221.9
-7.6
214.3 1.7
3,790.2
Total Equity
145,416
(thousands)
Number of shares
372.3
Common stock
1,297.4
Capital reserves
1.3
1,298.7
1,307.8
372.3
373.4
373.4
8
145,424
145,865
5
145,870
in € millions
As of Jan. 1, 2005 Net income Comprehensive income
Net profit for the period Issuance of shares 1 Successive acquisitions of shares As of March 31,
2005
As of Jan. 1, 2006 Net income Comprehensive income
Net profit for the period Issuance of shares 1 As of March 31,
2006
2 Net of tax.
| in € millions | January 1 to March 31 | ||
|---|---|---|---|
| 2006 | 2005 | ||
| EBIT | 352.4 | 280.9 | |
| Interest paid | -21.5 | -15.4 | |
| Interest received | 6.7 | 4.9 | |
| Income tax paid | -64.3 | -59.9 | |
| Dividends received | 7.2 | 0.0 | |
| Depreciation and amortization | 155.7 | 153.9 | |
| Income/expense with no effect on cash | -2.9 | 10.1 | |
| Changes in working capital | -504.0 | -439.5 | |
| Changes in other assets and liabilities | 21.5 | 34.8 | |
| Cash flow used for operating activities | -49.2 | -30.2 | |
| Proceeds on disposal of property, plant, equipment and intangible assets | 14.7 | 6.9 | |
| Capital expenditure on property, plant, equipment and software | -200.1 | -158.4 | |
| Capital expenditure on intangible assets from development projects | – | -0.2 | |
| Acquisition of subsidiaries | -2.0 | -0.6 | |
| Short-term interest bearing advances | 6.4 | 21.5 | |
| Cash flow used for investing activities | -181.0 | -130.8 | |
| Cash flow before financing activities | -230.2 | -161.0 | |
| Change in indebtedness | -49.9 | -131.6 | |
| Proceeds from the issuance of shares | 0.0 | 0.1 | |
| Dividends paid to minority interests | -1.9 | – | |
| Cash flow used for financing activities | -51.8 | -131.5 | |
| Change in cash and cash equivalents | -282.0 | -292.5 | |
| Cash and cash equivalents as of January 1 | 1,273.8 | 1,114.6 | |
| Effect of exchange rate changes on cash and cash equivalents | -2.5 | 8.4 | |
| Cash and cash equivalents as of March 31 | 989.3 | 830.5 |
Reconciliation of Net Cash Flow to the Change in Net Indebtedness
| in € millions | January 1 to March 31 | |
|---|---|---|
| 2006 | 2005 | |
| Cash flow before financing activities (free cash flow) | -230.2 | -161.0 |
| Dividends paid to minority interests | -1.9 | – |
| Change in equity | – | 0.1 |
| Non-cash changes | -3.0 | -75.2 |
| Other | 51.6 | – |
| Foreign exchange effects | 6.6 | -23.2 |
| Change in net indebtedness | -176.9 | -259.3 |
8 9
Consolidated Statements of Changes in Total Equity
| Number of shares |
Common stock |
Capital reserves |
Retained earnings |
Other reserves | Subtotal | Minority interest |
Total | |||
|---|---|---|---|---|---|---|---|---|---|---|
| Difference from | ||||||||||
| in € millions | (thousands) | Adjustment for succes sive share purchases |
currency translation |
financial instru ments 2 |
||||||
| As of Jan. 1, 2005 |
145,416 | 372.3 | 1,297.4 | 1,236.4 | – | -199.2 | -0.7 | 2,706.2 | 231.0 | 2,937.2 |
| Net income | 166.4 | 166.4 | 5.8 | 172.2 | ||||||
| Comprehensive income |
29.9 | 29.9 | 4.7 | 34.6 | ||||||
| Net profit for the period |
166.4 | 29.9 | 196.3 | 10.5 | 206.8 | |||||
| Issuance of shares 1 | 8 | 1.3 | 1.3 | |||||||
| Successive acqui sitions of shares |
-22.4 | -22.4 | -46.6 | -69.0 | ||||||
| As of March 31, 2005 |
145,424 | 372.3 | 1,298.7 | 1,402.8 | -22.4 | -169.3 | -0.7 | 2,881.4 | 194.9 | 3,076.3 |
| As of Jan. 1, 2006 |
145,865 | 373.4 | 1,307.8 | 2,049.7 | -24.8 | -131.6 | -0.3 | 3,574.2 | 220.8 | 3,795.0 |
| Net income | 221.9 | 221.9 | 6.5 | 228.4 | ||||||
| Comprehensive income |
-7.6 | -7.6 | -0.1 | -7.7 | ||||||
| Net profit for the period |
221.9 | -7.6 | 214.3 | 6.4 | 220.7 | |||||
| Issuance of shares 1 | 5 | 1.7 | 1.7 | 1.7 | ||||||
| As of March 31, 2006 |
145,870 | 373.4 | 1,309.5 | 2,271.6 | -24.8 | -139.2 | -0.3 | 3,790.2 | 227.2 | 4,017.4 |
1 Includes the expenditure and exercise of rights derived from stock option plans and convertible bonds.
2 Net of tax.
January 1 to March 31
-230.2 -1.9 – -3.0 51.6 6.6 -176.9
2006
2006 2005
280.9 -15.4 4.9 -59.9 0.0 153.9 10.1 -439.5 34.8 -30.2 6.9 -158.4 -0.2 -0.6 21.5 -130.8
-161.0 -131.6 0.1 – -131.5
-292.5 1,114.6 8.4 830.5
352.4 -21.5 6.7 -64.3 7.2 155.7 -2.9 -504.0 21.5 -49.2 14.7 -200.1 – -2.0 6.4 -181.0
January 1 to March 31
-230.2 -49.9 0.0 -1.9 -51.8
-282.0 1,273.8 -2.5 989.3
-161.0 – 0.1 -75.2 – -23.2 -259.3
2005
Interim Report as of March 31, 2006
in € millions
Depreciation and amortization
Changes in working capital
Acquisition of subsidiaries
Change in indebtedness
in € millions
Change in equity Non-cash changes
Foreign exchange effects Change in net indebtedness
Other
Income/expense with no effect on cash
Changes in other assets and liabilities Cash flow used for operating activities
Short-term interest bearing advances Cash flow used for investing activities
Cash flow before financing activities
Change in cash and cash equivalents Cash and cash equivalents as of January 1
Cash and cash equivalents as of March 31
Proceeds from the issuance of shares Dividends paid to minority interests Cash flow used for financing activities
Proceeds on disposal of property, plant, equipment and intangible assets
Capital expenditure on property, plant, equipment and software Capital expenditure on intangible assets from development projects
Effect of exchange rate changes on cash and cash equivalents
Cash flow before financing activities (free cash flow)
Dividends paid to minority interests
EBIT Interest paid Interest received Income tax paid Dividends received
Consolidated Cash Flow Statements
Reconciliation of Net Cash Flow to the
Change in Net Indebtedness
Pension Plans
Consolidated net pension expenses (unfunded obligations and net liabilities from obligations and related funds) can be summarized as follows:
| in € millions | January 1 to March 31, 2006 | January 1 to March 31, 2005 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Germany | U.S.A. | UK | Others | Total | Germany | U.S.A. | UK | Others | Total | |
| Current service cost | 7.1 | 2.6 | 1.2 | 0.8 | 11.7 | 5.4 | 3.8 | 0.9 | 0.6 | 10.7 |
| Interest cost on defined benefit obligation |
15.9 | 9.9 | 1.9 | 0.9 | 28.6 | 17.0 | 9.0 | 1.7 | 0.9 | 28.6 |
| Expected return on plan assets |
-4.7 | -13.6 | -2.5 | -0.3 | -21.1 | -4.6 | -11.5 | -1.9 | -0.3 | -18.3 |
| Amortization of actuarial gains and losses as well as other costs |
1.3 | 0.5 | 0.0 | 0.1 | 1.9 | – | 0.4 | – | – | 0.4 |
| Net periodic pension cost | 19.6 | -0.6 | 0.6 | 1.5 | 21.1 | 17.8 | 1.7 | 0.7 | 1.2 | 21.4 |
Consolidated retirement healthcare and life insurance expenses in the U.S.A. can be summarized as follows:
| in € millions | January 1 to March 31, 2006 | January 1 to March 31, 2005 |
|---|---|---|
| Current service cost | 1.1 | 1.4 |
| Interest cost on defined benefit obligation | 4.4 | 6.6 |
| Amortization of actuarial gains and losses as well as other costs | -0.4 | 0.5 |
| Net cost of other post-employment benefits | 5.1 | 8.5 |
Changes Affecting Payments
Pension funds exist only for pension obligations, particularly in the U.S.A. and UK, not however for other postemployment benefits. The companies of the Continental Corporation paid €1.7 million (previous year: €1.6 million) into these pension funds for the period of January 1 to March 31, 2006.
Payments for benefit obligations totaled €30.6 million (previous year: €31.9 million) for the period of January 1 to March 31, 2006.
Capital Expenditure
in € millions
Automotive Systems as % of sales
as % of sales
as % of sales ContiTech as % of sales
Other
2006
Financials press conference Analyst conference
Interim report as of March 31, 2006 Annual Shareholders' Meeting Interim report as of June 30, 2006 Interim report as of September 30, 2006
Financial Calendar
Corporation as % of sales
Passenger and Light Truck Tires
Commercial Vehicle Tires
Payments for other post-employment benefits totaled €5.7 million (previous year: €5.7 million) for the same period.
11
2006 2005
55.2 4.3 55.0 5.6 23.0 7.5 22.7 3.2 2.5
158.4 4.9
February 23 February 23 May 4 May 5 August 3 November 1
January 1 to March 31
57.3 4.0 82.1 7.5 38.0 11.0 22.2 2.9 0.5
200.1 5.5
Capital Expenditure
| in € millions | January 1 to March 31 | ||
|---|---|---|---|
| 2006 | 2005 | ||
| Automotive Systems | 55.2 | ||
| as % of sales | 4.0 | 4.3 | |
| Passenger and Light Truck Tires | 55.0 | ||
| as % of sales | 7.5 | 5.6 | |
| Commercial Vehicle Tires | 23.0 | ||
| as % of sales | 11.0 | 7.5 | |
| ContiTech | 22.2 | 22.7 | |
| as % of sales | 2.9 | 3.2 | |
| Other | 0.5 | 2.5 | |
| Corporation | 200.1 | 158.4 | |
| as % of sales | 5.5 | 4.9 |
Financial Calendar
2006
10
Interim Report as of March 31, 2006
in € millions Current service cost
in € millions
assets
other costs
Current service cost Interest cost on defined benefit obligation
be summarized as follows:
Expected return on plan
Amortization of actuarial gains and losses as well as
Net periodic pension cost
Interest cost on defined benefit obligation
Pension Plans
Changes Affecting Payments
to March 31, 2006.
Net cost of other post-employment benefits
Amortization of actuarial gains and losses as well as other costs
Germany 7.1
15.9
-4.7
1.3 19.6
Pension funds exist only for pension obligations, particularly in the U.S.A. and UK, not however for other postemployment benefits. The companies of the Continental Corporation paid €1.7 million (previous year: €1.6 million) into these pension funds for the period of January 1
Consolidated retirement healthcare and life insurance expenses in the U.S.A. can be summarized as follows:
January 1 to March 31, 2006
UK 1.2
1.9
-2.5
0.0 0.6
U.S.A. 2.6
9.9
-13.6
0.5 -0.6 Others 0.8
Consolidated net pension expenses (unfunded obligations and net liabilities from obligations and related funds) can
0.9
-0.3
0.1 1.5
January 1 to March 31, 2006
Germany 5.4
Total 11.7
28.6
-21.1
1.9 21.1 17.0
U.S.A. 3.8 UK 0.9
January 1 to March 31, 2005
Others 0.6 Total 10.7
28.6
-18.3
0.4 21.4
0.9
-0.3
– 1.2
1.7
-1.9
– 0.7
9.0
-11.5
0.4 1.7
-4.6
– 17.8
to March 31, 2006.
period.
1.1 4.4 -0.4 5.1
Payments for benefit obligations totaled €30.6 million (previous year: €31.9 million) for the period of January 1
Payments for other post-employment benefits totaled €5.7 million (previous year: €5.7 million) for the same
January 1 to March 31, 2005
1.4 6.6 0.5 8.5
| Financials press conference | February 23 |
|---|---|
| Analyst conference | February 23 |
| Interim report as of March 31, 2006 | May 4 |
| Annual Shareholders' Meeting | May 5 |
| Interim report as of June 30, 2006 | August 3 |
| Interim report as of September 30, 2006 | November 1 |
Q1 Continental Aktiengesellschaft, P.O.Box 169, 30001 Hanover, Germany Vahrenwalder Straße 9, 30165 Hanover, Germany Phone +49 511 938-01, Fax +49 511 938-81770, [email protected], www.conti-online.com
Continental is an Official Partner of the 2006 FIFA World Cup Germany™.
Interim Report as of March 31, 2006
06 km/h ermöglicht der neue ContiSportContact
2, der als weltweit erster Serienreifen für ultraschnelle Sportwagen diese maximale Höchstgeschwindigkeit zulässt. Der Conti SC 2 ist nur eines von 1.304 Patenten, die wir im Jahr 2004 angemeldet haben. Zu unseren aktuellsten Innovationen im Dienste der Sicherheit gehören auch das Seitenwand-Torsion-Sensorsystem (SWT), welches das Maß der Reifenverformung z.B. beim Bremsen misst und zur exakteren Reaktion dem ESP übermittelt, oder bionische Adaptionen wie das vom Bremsverhalten der Katzenpfote abgeleitete Advanced Modul Concept (AMC), welches durch eine überproportionale Erweiterung des Reifens den Bremsweg entscheidend verringert. Durch Zukunftsvisionen wie den "intelligenten Reifen" als integrales Element der Chassis, der mit Hilfe eines Profilsensors Daten wie z.B. kritische Fahrbahnzustände übermittelt, werden wir auch zukünftig unser Profil als innovatives Unternehmen nachhaltig stär-
ken.
