Continental Confirms Guidance for Year as a Whole Following Expected Difficult Start

(PresseBox) ( Hannover, )
- As anticipated, first quarter proved difficult
- Global passenger car production expected to stabilize
- Consolidated sales amount to over €8 billion after three months
- Adjusted EBIT totals approximately €800 million / margin of 10.0 percent
- Investments, particularly in future markets, rise to about €430 million

In spite of the difficult market development in Europe, international automotive supplier Continental held its ground in the first quarter of 2013 and is confirming its guidance for 2013 as a whole. "As anticipated, the first three months of this year were difficult. However, our business has already regained momentum. We're confident that global production of passenger cars will continue to stabilize. We also expect the tire replacement markets in Europe to pick up following the unusually long period of cold weather," said Continental CEO Dr. Elmar Degenhart on Friday at the publication of the quarterly figures in Hanover. "For the current year, we therefore still anticipate a rise in sales of around 5 percent to more than €34 billion and an adjusted EBIT margin of over 10 percent, particularly since we have already hit these targets in the first quarter despite all the adverse circumstances."

In the first three months, the Continental Corporation's sales amounted to €8.0 billion. They were down 3.4 percent from the same quarter of the previous year, which had recorded the highest sales in Continental's history. Due to the leap year in 2012 and the early Easter holidays in 2013, the first quarter had three fewer working days than the same period of the previous year. In many countries, this had a negative impact on the development of passenger car production and tire sales volumes. Furthermore, the unusually long period of cold weather affecting large parts of Northern Europe meant that drivers changed over to summer tires later than usual.

In the first three months, the operating result (EBIT) decreased year-on-year by a slight €40 million, or 5 percent, to €747 million. This was due partly to persistently high research and development expenses, which climbed to 8.7 percent of sales in the Automotive Group. The EBIT margin remained virtually stable at 9.3 percent, after 9.5 percent in the same period of the previous year.

The adjusted consolidated operating result (adjusted EBIT) amounted to €796 million, representing a decline of around €93 million or 10.4 percent, as against the first three months of the previous year. At 10 percent, the adjusted EBIT margin was still doubledigit, after 10.7 percent in the very strong prior-year period. The figures for both the previous year and the current year include the first-time adoption of the accounting standard IAS 19 (revised 2011)*.

Net income attributable to the shareholders of the parent fell 8.6 percent to €441 million in the first three months. Earnings per share thus amounted to €2.21 in the first quarter after €2.41 in the previous year.

After the first three months, Continental reduced its net indebtedness by more than €1.2 billion year-on-year* to €5.6 billion. "In comparison to the end of last year, we posted a usual slight seasonal increase of €293 million," explained Continental CFO Wolfgang Schäfer. The gearing ratio stood at 64.2 percent after the first three months of 2013.

Schäfer indicated that net interest expense had deteriorated, as announced, to minus €123 million: "We had to adjust the fair value of our derivative instruments, above all the respective carrying amounts for the early redemption options for the bonds, in the first quarter of 2012, which resulted in a positive effect. This no longer had any effect, however, in the first three months of this year, and so there was a negative impact year-on-year. This was not fully off-set by the further reduction of interest expenses. The latter fell by €33 million, or more than a fifth, to €112 million. This was due to the significant reduction in net indebtedness as against the same period of the previous year.

We are continuing to work on reducing our interest expenses and are preparing to redeem one or more of the outstanding euro bonds before the end of the current year."

In the first three months of this year, the international automotive supplier, tire manufacturer and industry partner invested €431 million. This corresponds to a year-on-year increase of more than €40 million and a capital expenditure ratio of 5.4 percent, after 4.7 percent the previous year. 60 percent of the capital expenditure related to the Rubber Group, particularly the expansion of capacity in North and South America and Asia.

At the end of the first quarter, the Continental Corporation had just under 173,000 employees, meaning that more than 3,200 jobs had been built up since the end of 2012.

The Automotive Group generated sales of €4.9 billion after three months, with an adjusted margin of 7.2 percent, after 8.1 percent in the same period of the previous year. "Given the negative development of passenger car production in Europe and the persistently high expenses for research and development of new products, this represents a solid result," said Degenhart.

The Rubber Group generated sales of €3.1 billion in the first quarter. The adjusted margin improved to 15.4 percent, after 15.2 percent the previous year. "In the Rubber Group, the stable price/mix development on the sales side helped us to keep the previous year's good margin level at a high level and thereby compensate for the effects of declining sales volumes on earnings. We are expecting volumes to develop positively in the second half of the year. The delayed shift from winter to summer tires due to the unusually long winter is, moreover, likely to be reflected positively in the second quarter," declared Degenhart.

*Background information on the first-time adoption of the accounting standard IAS 19 (revised 2011):

The changes in accounting standard IAS 19 (revised 2011), Employee Benefits, are being applied for the first time as at January 1, 2013. The company has restated all figures for the comparative periods in line with the amended requirements.

The expenses from interest cost on pension obligations and the return on plan assets are now no longer allocated to personnel expenses in the relevant functional areas, but instead are reported separately under net interest expense. This likewise applies to interest effects from other long-term employee benefits.

The new regulations focus on abolishing the recognition of actuarial gains and losses using the corridor method. The recognition of past service cost over the vesting period is also no longer permitted. The reporting of defined benefit costs and the measurement of net interest income and expense has been changed as well.
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