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When People Talk about "Mobility of the Future", They Mean Continental

When People Talk about
  • Annual targets met: sales 44.4 billion Euros, adjusted EBIT margin 9.3 percent
  • Executive Board's dividend proposal: 4.75 Euros per share (up 0.25 Euros)
  • Net income of 2.9 billion Euros almost at a record level (14.49 Euros per share)
  • Continental reaffirming annual guidance despite continued weak markets
  • Powertrain business will trade on the market under the name "Vitesco Technologies"
  • CEO Dr Elmar Degenhart: "Autonomous driving, electric mobility and connectivity: We are supplying technology that others are still testing. Our technology provides for enhanced safety, efficiency and comfort in four out of five vehicles worldwide."

Continental has successfully concluded fiscal 2018. The DAX company's sales totalled 44.4 Euros billion and the adjusted EBIT margin was 9.3 percent, which meant that the technology company achieved its adjusted annual targets. "Leaders deliver good results, even under bad circumstances. Over the past year, we have again demonstrated our excellent performance despite the weak markets. We are continuing to grow faster than our relevant industries and markets," said Dr Elmar Degenhart, CEO of Continental, taking stock of the past fiscal year on Thursday in Hanover. At the presentation of the preliminary business figures for 2018, Degenhart made reference to Continental's extraordinary technological prowess.

"Autonomous driving, electric mobility and connectivity: We are the architects of an ecosystem of safe, clean and intelligent mobility. When people talk about the 'mobility of the future,' they mean Continental. We are supplying what others are still testing. Our solutions, components, and systems are already generating enhanced safety, efficiency and comfort in four out of five vehicles worldwide," said Degenhart, underscoring the company's strong position on the mobility market. He added: "Grip is one of our traditional key fields of expertise in the tyre business. It is part of our corporate culture, and we transfer it even to our connectivity technology, providing dependable solutions to offer secure contact, from the road to the cloud, all from a single source like no other company."

The DAX company's unique technology portfolio once again helped it to grow at a faster rate than its markets in 2018. Continental's organic sales growth was 3 percent. "Our growth is testament to the confidence our existing and many new global customers have in our innovation capacity. In addition, our net income of 2.9 billion Euros was almost at a record level. That is a solid result given the disappointing market development in the past year," remarked Wolfgang Schäfer, Continental's CFO.

At around 1.9 billion Euros, last year's free cash flow, adjusted for acquisitions and funding of U.S. pension obligations, exceeded the modified expectations.

On this basis, the Continental Executive Board is proposing a 0.25 Euros increase in the dividend to 4.75 Euros per share for the past fiscal year. The proposal also takes into account the overall performance of the company in fiscal 2018.The shareholder payout of 32.8 percent is slightly above the top end of the set dividend payout corridor of between 15 and 30 percent of net income.

Fiscal 2019 has got off to a subdued start, as expected, due to continuing market uncertainty. Continental is reaffirming its preliminary guidance from early January. Accordingly, the Hanover-based technology company still expects sales of around 45 to 47-billion Euros and an adjusted EBIT margin of approximately 8 to 9 percent. "The guidance for 2019 is based in part on the assumption that the global production volume of passenger cars and light commercial vehicles will be stable at 94 million. Production in the first half of the year is likely to be down on last year's figure. In our eyes, risk factors include the unclear ramifications of economic development in China and the trade disputes between the U.S.A. and China and between the U.S.A. and Europe - and then there is also the unclear situation with Brexit," Schäfer said.

In the current fiscal year, Continental will lay the important groundwork for the organizational realignment announced last July. A crucial part of this realignment is the potential partial IPO of the powertrain business, which, under the name "Vitesco Technologies," will develop, sell and produce systems and solutions for conventional and electrified drives for automotive manufacturers worldwide. "We completed the transformation of our powertrain business into an independent group of legal entities in record time," Degenhart emphasized. The company's preparations for a potential partial IPO in the second half of 2019 are on schedule. "We want to provide for greater entrepreneurial freedom in a disruptive market environment, which will enable us to transfer the full force of our driving power to the road, converting it into added value," Degenhart said with confidence.

Automotive Group's order intake again at record level

The order intake in the Automotive divisions, which specialize in vehicle electronics, remained at a high level. It amounted to around 40 billion Euros in the past fiscal year and was once more on a par with the previous year's record level. "Safe, efficient and intelligent: Continental technology is steering the mobility of the future," said Degenhart.

Investing in the ecosystem of future mobility

In 2018, Continental continued to invest large amounts in the mobility of tomorrow. In fiscal 2018, the technology company spent over 6.3 billion Euros on projects including research and development as well as the expansion of production facilities and capacities.

"We are investing systematically, logically and substantially in the ecosystem for future mobility," remarked Schäfer. "We've done our homework. Our balance sheet is strong. We have taken advantage of the upturn in recent years and systematically reduced our debt," he emphasized. This would enable the company to easily undertake acquisitions for up to 5 billion Euros.

Number of software experts expected to rise by more than 30 percent by 2022

The global Continental team comprised 243,226 employees in 60 countries and markets at the end of the year. Continental has approximately 49,000 engineers working on new trends and technologies, and just under a third of those engineers have a background in software. Continental wants to increase its workforce of software and IT experts from 19,000 at present to 25,000 by the end of 2022.

Key figures for the Continental Corporation in fiscal 2018

Euro millions 2018 2017 D in %
Sales 44,404.4 44,009.5 0.9
EBITDA 6,235.7 6,678.9 -6.6
in % of sales 14.0 15.2  
EBIT 4,027.7 4,561.5 -11.7
in % of sales 9.1 10.4  
Net income attributable to the shareholders of the parent 2,897.3 2,984.6 -2.9
Basic earnings per share in Euro 14.49 14.92 -2.9
Diluted earnings per share in Euro 14.49 14.92 -2.9
       
Research and development expenses (net) 3,209.0 3,103.7 3.4
in % of sales 7.2 7.1  
Capital expenditure1 3,124.4 2,854.4 9.5
in % of sales 7.0 6.5  
       
Adjusted sales2 44,249.2 43,978.5 0.6
Adjusted operating result (adjusted EBIT)3 4,118.1 4,748.5 -13.3
in % of adjusted sales 9.3 10.8  
       
Free cash flow 1,351.0 1,752.8 -22.9
       
Net indebtedness 1,661.3 2,047.6 -18.9
Gearing ratio in % 9.1 12.6  
       
Total equity 18,333.3 16,290.3 12.5
Equity ratio in % 45.3 43.5  
       
Number of employees (as at December 31)4 243,226 235,473 3.3
       
Dividend per share in Euro 4.755 4.50  

1   Capital expenditure on property, plant, equipment and software.

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.

4   Excluding trainees.

5   Subject to the approval of the Annual Shareholders' Meeting on April 26, 2019.

Electrifying: Vitesco Technologies drives forward the electrification of mobility

Continental's powertrain business will in the future trade on the market under the name "Vitesco Technologies." The transition is planned for the second half of the year. The name combines two key elements of the powertrain business: Vitesco stands for speed and agility, and establishes a direct reference to Continental's attractive product and service portfolio for the mobility and automotive sector. The addition of "Technologies" underscores the commitment as a provider of innovative and pioneering technologies, systems and services. The "Vit" part of the name is derived from the Latin "vita" and signifies intrinsic energy and vigour, thus accentuating the goal and purpose of making sustainable contributions to clean mobility for millions of people worldwide.

In addition to the combustion engine business, the activities of Vitesco Technologies will also include all future business involving hybrid and electric drive systems as well as all current battery activities. Continental is a longstanding technology leader and innovation driver when it comes to electrification of the powertrain. It is one of the few system suppliers that is in a position to offer full electrification of the powertrain from one source - from the 48-volt system and the electric drive to the highly complex power electronics and the battery management system, through to the energy and thermal management systems.

Continental's innovative technologies have allowed it to establish a strong foothold in the powertrain business, which is underscored by the high volume of order intake. This amounted to about 11 billion Euros in 2018, of which around ?2 billion was attributable to the electric mobility segment.

Key figures for the core business areas in fiscal 2018

  Automotive Group Rubber Group
Euro millions 2018 2017 D in % 2018 2017 D in %
Sales 26,855.8 26,565.4 1.1 17,603.1 17,494.7 0.6
EBITDA 3,177.1 3,296.4 -3.6 3,196.6 3,499.6 -8.7
in % of sales 11.8 12.4   18.2 20.0  
EBIT 1,890.4 2,086.8 -9.4 2,278.3 2,593.5 -12.2
in % of sales 7.0 7.9   12.9 14.8  
             
Adjusted sales1 26,840.7 26,546.3 1.1 17,463.0 17,482.7 -0.1
Adjusted operating result (adjusted EBIT)2 1,886.3 2,180.7 -13.5 2,372.8 2,686.6 -11.7
in % of adjusted sales 7.0 8.2   13.6 15.4  

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.

Driverless driving: People do the thinking, Continental technology does the steering

For the mobility of the future, increasing automation will mean ever greater freedom to focus on activities other than driving. So, in the future, people will do the thinking and the vehicle will do the steering. And in more and more vehicles, it is Continental technology that is taking over the controls. Since 1999, Continental has produced a total of about 82 million sensors for advanced driver assistance systems for its customers around the world, and the trend continues to rise.

These sensors are a basis for the driverless mobility of the future. The order intake for solutions and systems that play a role in autonomous driving came to several billion euros in the same period. In 2019, Continental is expecting to surpass the sales threshold of 2 billion Euros in the advanced driver assistance system business. This is proof that the technology company is continuing to expand its leading position in this segment.

Intelligently connected: Millions of cars send and receive information securely with Continental

More than half of new vehicles around the world are connected. With more than 20 years of experience, over 33 million connected vehicles, and the acquisition of Kathrein Automotive, Continental now offers the entire chain of connectivity functions: from the antenna to the display, the safety software to the electronic control unit. Thanks to Continental's fifth-generation cellular communications technology, the next vehicle generation will have 10 gigabits of bandwidth for fast and practical connectivity. With its 5G tests around the world, the company has laid the foundation for vehicles to communicate fast and seamlessly with one another and with the infrastructure. Continental has already received an order for volume production for its 5G connectivity solution.

Tyre production again at record level

Continental sold 155 million passenger car and truck tyres last year, again reaching a record level. This trend was driven by a new record for sales of winter tyres. Top scores in 40 independent national and international tyre tests underscore Continental's technology leadership and premium quality. After all, tyres are the vehicle's only link with the road. Tyre technology is one of the factors that determines whether a vehicle is able to stop in time and stay in the correct lane while cornering.

Industrial business: Avoiding downtime with watchful eyes from afar

Continental conveyor belts ensure that all types of goods remain mobile around the world. Take for example Sweden, where Continental conveyor belts are in service in the largest and most modern underground iron-ore mine in Kiruna, Sweden, and transport more than 27 million metric tons of iron ore each year.

Ever more often, conveyor belts like these are continuously monitored from afar with the help of integrated sensors. With the condition monitoring process, signs of wear and tear can be detected early on, making it possible to minimize machine downtimes. For Continental's industrial specialist ContiTech, it will be normal in the industrial segment to bill mobility services on a precisely itemized basis by the service provided, thanks to these watchful eyes. After all, the more - and the further - these state-of-the-art conveyor belts transport the overburden, the greater the value created for customers and for Continental.

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