Continental significantly increases profits in first quarter

(PresseBox) ( Hanover, )
- Net income rises by a third to €588 million or €2.94 per share
- Sales grow by 4.4% to €8.4 billion after three months
- EBIT at approximately €900 million
- Credit terms improved with new syndicated loan

The Continental Corporation posted a strong start to the year, significantly increasing its profits. In the first quarter of 2014, net income attributable to the shareholders of the parent grew by 33.3% to €588 million. Earnings per share therefore rose to €2.94 per share after €2.21 in the same period of the previous year. "In the opening months of the year, we once again demonstrated that we are very capable of combining our growth with value creation," said Continental's CEO Dr. Elmar Degenhart on Tuesday at the presentation of the financial figures for the first quarter. "We intend to continue along our current path in the coming months, too."

At the presentation of key data during the Annual Shareholders' Meeting on April 25, the international automotive supplier, tire manufacturer, and industrial partner had already raised its outlook of comfortably achieving an adjusted EBIT margin of more than 10.0% in the current year to more than 10.5%. At the same time, the sales target of approximately €35 billion for fiscal 2014 was confirmed.

In the first three months of this year, consolidated sales rose by 4.4% year-on-year to €8.4 billion. Adjusted for effects relating to the scope of consolidation and to exchange rates, which had a significant negative impact again in the first quarter, sales increased by as much as 8.3%.

EBIT rose by almost 21% year-on-year to €903 million as at March 31. This corresponds to a margin of 10.8% after 9.3% in the previous year. Adjusted EBIT for the first quarter climbed by 19.7% year-on-year to €953 million in the first quarter. The adjusted EBIT margin was 11.4% and was thus above the 10.0% mark after the first three months of 2013.

The Continental Corporation reduced its net indebtedness to €4.2 billion as at the end of the first quarter. This is €47 million lower than at the end of 2013 and almost €1.4 billion lower than the comparative figure from the previous year. The gearing ratio thus improved to 43.2% at the end of March 2014.

"To enable Continental's stronger operating performance and its improved rating to be reflected in the financing conditions as well, we replaced the previous loan volume of over €4.5 billion at the end of April with a new syndicated loan in the same amount with 31 international banks. This also gives us more leeway with regard to maturities," explained CFO Wolfgang Schäfer. The new loan consists of a term loan of €1.5 billion and a revolving credit line of €3.0 billion. The interest margin has now been reduced by almost half.

As at March 31, 2014, Continental had liquidity reserves of just under €6 billion, consisting of cash and cash equivalents of around €2 billion and committed, unutilized credit lines of almost €4 billion.

As announced, the refinancing of the high-yield bonds in 2013 is making an impact. The interest costs for the bonds issued in 2013 average only around 2.9% and are thus almost 60% lower than the costs for the bonds redeemed early in 2013. Interest expenses accordingly fell by €36 million to €114 million in the first three months of 2014. At the same time, net interest expense decreased by €43 million year-on-year to €80 million.

Continental improved its free cash flow by €375 million to almost €64 million in the first quarter. Schäfer reiterated the goal of achieving free cash flow for the year as a whole of more than €1.2 billion before acquisitions.

In the first three months, Continental invested a total of €341 million in property, plant and equipment, and software. The capital expenditure ratio thus amounted to 4.1% after 5.4% in the same period of the previous year. Continental increased its research and development expenses by 8.9% in comparison to the first quarter of 2013 to €544 million. This corresponds to a ratio of 6.5% of sales after 6.2% in the previous year.

As at the end of the first quarter, Continental had 182,138 employees, representing an increase of more than 4,300 employees in comparison to the end of 2013. This was due primarily to production ramp-ups, the expansion of research and development in the Automotive Group, and additional production capacity in the Rubber Group.

The Automotive Group generated sales of €5.1 billion in the first three months of this year. At 8.2%, the adjusted EBIT margin was higher than the previous year's level of 7.2%.

The Rubber Group also generated a slight increase in sales to €3.3 billion in the first quarter and its adjusted EBIT margin of 17.2% was up on the previous year's level of 15.2%.
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