Technological Change

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, the com­pa­ny 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. The firm 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, the firm 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 the firm’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.