Conti Publishes “Very Strong” First Quarter Figures

Continental AG’s consolidated sales for the first quarter of 2007 rose by 9.8 per cent compared with the same period of the previous year to 3.964 billion. At the same time EBIT rose by 24 per cent to 436.8 million euros, up from 352.4 million the previous year. For the first three months of 2007, there was a free cash flow of -119.8 million euros, down from -230.2 million. Net debt was 141.3 million euros higher than at year-end 2006. “This was mainly incurred through the financing of the acquisition of the automotive electronics business of Motorola and the contributions to the Contractual Trust Arrangement (CTA) of 630 million euros,” explained CFO Dr. Alan Hippe.

Deutsche Bank analysts described the results as “very strong,” citing the 6.5 per cent sales increase (before changes in the scope of consolidation and exchange rate effects) as “significantly higher” than European production, which was up 3 per cent. NAFTA production fell 12 per cent. The analysts described the EBIT result, up 24 per cent, as particularly strong considering the good result in the first quarter of 2006.

“However, even if Price/Mix effect was strong in both tyre divisions, a 100 per cent operational gearing is by nature not sustainable for an industrial company. And we still believe that an almost 12 per cent EBIT margin (before Motorola) is close to a peak for an Auto part Co,” the analysts commented.

“We’ve had a very good first quarter, which was characterized by an overall gratifying development in car production, especially in Europe and Asia. Other positive factors were the increases in replacement sales for passenger and light truck tyres in Europe and North America, where we upped earnings significantly,” said Continental Executive Board chairman Manfred Wennemer, adding: “Backed by these positive results for the first three months, we’re highly confident that we will again improve sales and operating result in absolute terms and thus dependably achieve our goals for the year. We still consider, however, raw material prices to be a major uncertainty factor and are currently expecting them to stabilize at a high level on the whole.”

Investments

Wennemer pointed out that the company increased research and development expense by 18.6 per cent to 185.2 million euros, representing 4.7 per cent. In the first three months of 2007, 160.1 million euros (previously 200.1 million euros) was also invested in property, plant, equipment and software, primarily in new technologies for electronic brake and safety systems, as well as in expanding manufacturing capacity in all divisions. The capital expenditure ratio amounts to 4.0 per cent (previous year: 5.5 per cent) of sales. In the first quarter of 2006, “major investments” in the construction of the new tyre plant in Camaçari, Brazil, affected the capital expenditure ratio.