We’re Back on the Road to Success, Conti Shareholders Told

Addressing the company’s Annual Shareholders’ Meeting, held in Hannover, Germany on April 28, chairman of the Continental AG Executive Board, Dr. Elmar Degenhart, stated “if you wanted to summarise the year 2009, you could boil it down to a simple notion – state of emergency.” The major events affecting the market, he added, resulted in the most dramatic economic crisis in the post-war era.

“The underlying conditions had rapidly changed at an unbelievable pace – also for your Continental,” Degenhart continued. “Whole markets plunged in double digits, even up to 60 per cent in some sub-segments. That was unimaginable until now and the drama of that time is unsurpassable. And, as if the effects of the economic crisis had not been enough, our own internal challenges appeared.”

These challenges primarily were, the Executive Board chairman elaborated, the ongoing integration of Siemens VDO, the further development of structures within the “briskly growing” company, high debt resulting from the VDO acquisition and financing the upcoming maturities, the “suitable completion” of the Executive Board team, and a start with the company’s new major shareholder under “extremely unfavourable” general economic conditions.

“Many saw Continental fall back hopelessly in competition,” Degenhart shared. “Others thought that Continental would not reach the next round. But they were all wrong. That is due to the many individuals who continued to place their trust firmly with us in these difficult times. Almost everyone here in this hall may be counted among these individuals. You stood with your Continental. I thank you for that!

“Today, we can say: We demonstrated strength in the crisis. We demonstrated decisiveness and gained new self-confidence. You know this from sports: There are teams that, after a setback, find their way back into contention. In the process, they unfold new and unforeseen strengths. Your Continental presents itself to you today as such a team. And I now have very good news for all those who have kept the faith with us and trusted us until today: The crisis has made us stronger. We are now fighting even more intensively and energetically for mutual success. Full of energy, we will take advantage of our future opportunities. In other words: Your Conti team is back on the road to success!”

Financial highlights during the year include reducing net indebtedness by roughly 1.6 billion euros to less than 9 billion euros (further reduced to 7.8 billion euros in January 2010 due to a capital increase), an adjusted EBIT of close to 1.2 billion euros (which Degenhart commented was achieved despite sales falling by around one-sixth to approximately 20 billion euros), and the implementation of a refinancing packaging in December 2009. Yet Degenhart’s positive overview was tempered by the red ink Conti’s books. “The net income attributable to the shareholders of the parent is completely unsatisfactory,” he stated. We recorded a loss here of 1.65 billion euros in 2009. Continental thereby posted negative net income for the second year in a row. This unacceptable result is attributable primarily to goodwill impairment, chiefly in connection with the Siemens VDO acquisition.”

EBIT for the company’s tyre-related Rubber Group exceeded the “impressive results of 2008,” Dr. Degenhart shared. “The performance of the Passenger and Light Truck Tires division was particularly outstanding. It realised record earnings in spite of considerable decreases in sales in the past crisis year…The Commercial Vehicles Tires division also put up a more than respectable fight in 2009 in view of market slumps of up to 60 per cent at times in some segments. Its adjusted EBIT in the past year was well in the black. It is also currently on the right path in this difficult market environment.”

Commenting on Continental’s improved performance in the first quarter of 2010, Degenhart said “for all our delight at the successful start to the year, we know that new challenges await us. For one thing, increasing raw materials prices will particularly affect earnings in the tyre divisions from the second quarter onwards. In addition, how the automotive industry will develop in the second half of the year, particularly in Europe, cannot be foreseen. It would therefore be premature to infer a trend for all of 2010 from the positively completed first quarter.” The Executive Board chairman is, however, confident company sales will grow between five and ten per cent during the full year, and year-on-year adjusted EBIT is also anticipated to improve.