The technology company Continental enjoyed strong growth and profitability in fiscal 2017. The company increased its sales by 8.5 percent to €44 billion, with an adjusted EBIT margin of 10.9 percent, thus surpassing its targets for the year. At Thursday’s presentation of the preliminary business figures in Hanover, Dr. Elmar Degenhart, chairman of the Executive Board, thanked the company’s more than 235,000 employees worldwide for this outstanding achievement: “You have all proven once again that our values create value. We are in top form financially, are pioneering technologically, and remain fully focused on the future. This enables us to shape technological change in our industries as a pioneer and from a position of strength.” The technology company’s net income climbed to €3 billion in 2017, which equates to an increase of 6.5 percent year-on-year and earnings of €14.92 per share. “The Executive Board is proposing to increase the dividend by 25 cents to €4.50, which will be the sixth increase in a row,” said Degenhart.
He expects this profitable growth to continue in 2018: “The start we have made to fiscal 2018 has confirmed our expectations. We are therefore reaffirming our outlook from early January. We intend to continue our successful course of growth and profitability. For the current year, we are still anticipating a significant rise in sales of just under 7 percent to approximately €47 billion before exchange-rate effects, with an adjusted EBIT margin of around 10.5 percent. This is based on growth in the global production of passenger cars and light commercial vehicles of more than 1 percent to 96.5 million vehicles.”
Leading the way in safe, clean and intelligent mobility
The chairman of the Executive Board believes the technology company to be ideally equipped for the mobility of the future: “Continental is a pioneer when it comes to technology. We are continuing to invest heavily in the technologies of tomorrow, and this strategy is paying off. Take for example our incoming orders in the Automotive Group: We achieved a new record high of nearly €40 billion in 2017,” he said, adding: “Our innovative technologies and the intelligent use of software, electronics and sensor technology are allowing us to make automated and autonomous driving, along with connectivity and electrification, a reality. We are also developing new business areas and customer groups in innovative mobility services. More than any other company in the world, Continental is synonymous with safe, clean and intelligent mobility.”
A 42,000-strong global network of developers and experts of 146 different nationalities is conducting research on how to make Continental’s products and services even more intelligent. “Enhanced with software and intelligent sensors, our products and services keep traffic and goods flowing worldwide – from industrial systems, robots, drones, to cars,” commented Degenhart, adding: “In 2017 alone, our customers from a wide range of industries installed more than 600 million Continental sensors. Today, three out of four cars worldwide feature our solutions, products and systems.”
This is particularly relevant for automated and autonomous driving. Cameras, radar and lidar sensors record data at a rate that can exceed 10 gigabytes per second already at present in the early stages of this technology, and that will increase even more in the fully automated driving stage in the future. Since 1999, Continental has produced around 60 million sensors for advanced driver assistance systems in total for this purpose – and this number is rising fast.
When it comes to the combination of drive systems in the future, electric mobility will play a key role. Continental is one of the few system suppliers that can offer full electrification of the powertrain from a single source – from the electric motor to power electronics to energy and thermal management, through to charging technology.
An increasing number of trucks are being equipped with electronic horizon (eHorizon), a highly accurate digital road map as a sensor that ensures drivers drive more efficiently. Since it was brought to market in 2012, this Continental technology has reduced diesel consumption by over 700,000 liters. Altogether, more than 33 million cars and trucks have already been connected with Continental’s intelligent technology.
The technology company is also making tires intelligent. They increasingly come fitted with a few grams of lightweight sensors, which measure air pressure inside the tire itself, ensuring greater safety, less rolling resistance and enhanced efficiency. In 2017 alone, Continental produced some 155 million passenger and truck tires. The latest conveyor belts and hoses likewise live up to this technological trend, with integrated sensor technology that autonomously detects the transported weight and reports any required maintenance and repair work in advance. This means that transportation can keep flowing until an optimum repair time presents itself, thereby minimizing operating costs.
Shaping change, backed by a solid framework of values and from a position of strength
Speaking about the transformation of the automotive industry, Degenhart stressed: “Fast-paced technological change requires our global team to demonstrate the highest levels of flexibility and agility. That is why we are examining how we can gear our organization toward rapid growth and maximum value creation in the long term. We are currently assessing our options. A plan is yet to be finalized.” He also referred to the DAX company’s adaptability: “Continental has been undergoing a process of gradual transformation for nearly 150 years. In the past 20 years alone, Continental has transformed from a purely tire manufacturing business and industrial partner into a global technology company.”
Referring to this transformation, Degenhart underscored the significance of Continental’s pioneering corporate culture: “Over the past few years, we have developed and strengthened the shared values of Continental. This has provided the key foundation for successfully shaping the transformation within our industries and safeguarding the future and viability of our organization. This foundation, coupled with our joint aim of value creation, continues to form the core of Continental’s values alliance. This encompasses all companies in which our corporation has a majority holding, irrespective of their legal or organizational makeup.”
Chief Financial Officer Wolfgang Schaefer spoke about the DAX company’s financial strength: “Having finances that are in excellent shape allows us to invest heavily and continue to expand our business on a global scale. Our capital expenditure on property, plant and equipment, together with expenses for research and development, all of which came to nearly €6 billion, are testament to this. We are also consolidating our strength in a targeted manner through acquisitions. In the past year alone, we spent nearly €600 million on acquisitions. We systematically reduced our net indebtedness at the same time. We have a rock solid financial basis with a gearing ratio of 12.6 percent and an equity ratio of 43.5 percent.”
Hedged against exchange-rate fluctuations and raw-material price increases under control
When asked about the considerable exchange-rate fluctuations seen at times in recent months, Schaefer was relaxed: “Our margin is hedged because Continental mostly produces locally for the local markets. Exchange-rate effects thus impact sales and operating earnings to a similar degree. This means that the corporation is naturally hedged against fluctuating exchange rates.” Continental states its annual sales targets before any exchange-rate effects. The absolute impact of this can affect sales significantly, depending on exchange-rate trends. Continental believes that negative exchange-rate effects of more than €1 billion are possible in the current fiscal year, assuming the current exchange rates represent the average for the year as a whole.
Turning his attention to the commodities markets, Schaefer commented that Continental could deal with the levels of price changes seen over the past three years. That said, in the current year Continental still anticipates additional negative effects of approximately €50 million from price increases for natural and synthetic rubber.
Sales climbed by €3.5 billion, or 8.5 percent, to €44.0 billion. Organic sales growth, i.e. adjusted for changes in the scope of consolidation and exchange-rate effects, came to 8.1 percent.
EBIT rose by €466 million, or 11.4 percent, to approximately €4.6 billion in fiscal 2017. The EBIT margin came to 10.4 percent after 10.1 percent in fiscal 2016.
Adjusted EBIT, adjusted for changes in the scope of consolidation, acquisition-related amortization and special effect, amounted to over €4.7 billion in 2017. This corresponds to an adjusted EBIT margin of 10.9 percent. The absolute figure was 10 percent higher than the previous year’s figure of €4.3 billion, which represented a ratio of 10.6 percent in 2016. With regard to the comparison with the previous year, Schaefer mentioned a number of isolated, unrelated events that impacted the previous year’s result with around €480 million.
In 2017, Continental invested roughly €2.9 billion in property, plant and equipment, and software. This drove the capital expenditure ratio up to 6.5 percent after 6.4 percent in the previous year. Research and development expenses rose by 10 percent year-on-year to €3.1 billion, corresponding to 7.1 percent of sales (2016: 6.9 percent).
As at the end of 2017, Continental’s liquidity reserves totaled approximately €5.6 billion, consisting of cash and cash equivalents of €1.9 billion and committed, unutilized credit lines of €3.7 billion. “The available funds combined with our extremely low indebtedness give us considerable flexibility and the capacity to respond quickly to change,” explained Schaefer.
The positive business performance resulted in a growing number of employees. At the end of 2017, the technology company employed more than 235,000 people worldwide, over 15,000 more than at the end of 2016. This increase can be attributed primarily to extended production capacity, growth through acquisitions and systematic expansion of the R&D areas.