When weighing your investment options in the past year, you again placed your trust in Continental’s ability to create value with technologies for mobility and other sectors. Your Continental recently caught up with the group of the ten most highly valued companies in Germany in terms of market capitalization. On behalf of our global team, we would like to thank you for your trust.
Our approach to creating value and achieving profitable growth has clearly met with approval. It can be summed up in three words: global, sustainable, and innovative. Our global Continental team of around 190,000 employees once again put in an outstanding performance in 2014, and for this, we thank them most sincerely.
We have made some impressive achievements, most notably:
- Our profitable growth. We have boosted our sales by 3.5 percent to €34.5 billion and our EBIT by 2.5 percent to €3.3 billion.
- Our sound net assets position. Our net indebtedness at the end of 2014, and thus before the cash outflow for the Veyance acquisition, was below three billion euros, continuing at the excellent level of earlier years.
- Our capacity for innovation. Excellent examples of this are our 48-volt technology for hybrid drive systems for cars, our expanded development centers in Asia, our High Technology Performance Center for the development and production of top-quality tires in Korbach, Germany, and our new Intelligent Transportation Systems business unit in Silicon Valley, California, U.S.A. The latter will develop brand new business models for the car as part of the Internet.
Your trust in our performance potential paid off again in 2014, with the value of your shares rising 10 percent. In addition, we are delighted to be able to propose to the Annual Shareholders’ Meeting in April 2015 that a dividend of €3.25 per share be distributed to you.
All in all, we systematically continued along our successful path last year. And we did so in spite of persistent weak economic growth in Europe and South America, the uncertain situation in Ukraine and Russia, and significant exchange rate fluctuations for some currencies. In addition, uncertainty on the markets was fueled by the sharp decline in the oil price in the final quarter of the reporting year.
Nonetheless, our achievements in the past business year have further strengthened the foundation for profitable growth and boosted our future viability. Three out of four newly registered vehicles worldwide are fitted with Continental’s solutions, products or systems, making them safe, environmentally friendly, comfortable and convenient – and all that at an affordable price.
We firmly believe that the best and most effective way to create pioneering solutions is with a pioneering corporate culture, and we have been rigorously developing precisely such a culture for some time now. In doing so, we have been encouraging our employees and managers to network more intensively with each other. We have been promoting overarching cooperation across organizations and cultures. And we have been fostering the self-organization of our individual teams. Together, all these factors make us even faster and more effective.
We are delighted to welcome Dr. Ariane Reinhart, an HR expert with a proven track record, as a new Executive Board member and Director of Labor Relations. Since October 1, 2014, she has been responsible for the HR department, which we now refer to as “Human Relations.” We firmly believe that, in the long term, investing in our employees brings us the highest yield. With Ariane Reinhart advancing our overarching strategy, we have a key competitive advantage in the race for the world’s best minds.
Another new member of the Executive Board is Hans-Jürgen Duensing, who will join the team on May 1, 2015, as head of our ContiTech division. With his many years of experience in this business, he will be taking over from Heinz-Gerhard Wente, who will be retiring after 40 years at the company when his position on the Board is scheduled to end on April 30, 2015. Our very special thanks go to Mr. Wente for the valuable contribution he has made to Continental during his many years of untiring service. Together with his team, he successfully turned our rubber and plastics specialist ContiTech into an internationally competitive automotive supplier and industrial partner that makes an above-average contribution to the corporation’s earnings on a regular basis.
Our strategic corporate goal is to continue increasing the share of our sales generated with industrial clients and the aftermarket, which is currently at around 27 percent, toward the 40 percent mark. ContiTech is making a very valuable contribution here. With the purchase of Veyance Technologies, closed early in 2015, we have acquired a specialist in rubber and plastics technology that is an ideal fit for our business in the ContiTech division, since Veyance generates nine out of ten euros of its sales in industrial business. Hans-Jürgen Duensing will push forward with the integration of Veyance and the pursuit of our strategy.
Steps such as these are essential for our long-term success, since the cyclical fluctuations in the automotive industry are becoming increasingly volatile. Although we cannot make ourselves invulnerable to this trend, we can provide some balance, and the Rubber Group is already making a substantial contribution in this regard.
With more than 700 new premium stations under the umbrella of our Best Drive sales network, we have significantly expanded the access our tire portfolio has to central European markets such as France, Spain and Poland, as well as to core global markets like China and the U.S.A.
Competition in the development and production of battery cells for the automotive industry is becoming increasingly fierce. Demand for electric vehicles is growing much more slowly than governments would like and industry would hope. As a result, at the present time it is hardly worth investing in new factories for producing battery cells. Together with our South Korean partner SK Innovation Co., Ltd., South Korea, we therefore no longer saw any economic basis in the medium term for business operations in our joint venture SK Continental E-motion Pte. Ltd., Singapore. For this reason, we significantly reduced existing activities and investments in the third quarter of 2014, adjusting the value of property, plant and equipment in the Hybrid Electric Vehicle business unit in line with the current utilization of capacity. The joint venture was dissolved toward the end of the year.
Our goal starting from 2020 is: more than 50! We have undertaken to achieve sales of over €50 billion by the start of the new decade. Each of our five divisions is expected to make roughly an equal contribution to achieving this goal – while also keeping the profitability of the company as a whole in the double-digit percentage range. At the same time, we are also keeping our sights set firmly on a return on capital employed (ROCE) of at least 20 percent.
Essentially, we design pioneering solutions for and contribute to three major developments on the world’s roads:
- 1. The goal of zero road accidents with the ever increasing number of vehicles worldwide. Zero accidents are no longer a utopia! The time has come to make accidents a thing of the past.
Our advanced driver assistance systems are already helping millions of drivers, for instance by automatically keeping the vehicle in lane, monitoring the blind spot, braking in emergencies, parking independently, and protecting pedestrians from collisions. With all of these examples and many more, we are making a significant contribution to improving safety on the roads. Our business in advanced driver assistance systems is expected to see annual growth of almost one-third in the future, rising from around €500 million today to around €1.5 billion in 2018.
- 2. The desire for clean air by lowering fuel consumption and reducing CO2 emissions.
The 48-Volt Eco Drive system for graduated, cost-effective powertrain hybridization enables more efficient recovery of braking energy. This, together with forward-looking energy management technologies, can cut fuel consumption by around 13 percent.
- 3. The automation, digitalization and interconnection of vehicles on roads all around the world and in industry.
We are convinced that cars will become part of the Internet in the future. When vehicles are connected, they are even safer, more efficient, more intelligent, more comfortable, and more convenient. For this purpose, we offer new technologies such as the touchpad with active, haptic feedback. It enables drivers to communicate with the machine via touch-sensitive surfaces, without words and without needing to take their eyes off the road.
We spend more than two billion euros a year on research and development for future mobility. This is equivalent to more than six percent of annual sales – an exceptionally high level. With around 11,000 engineers, programmers and experts in the field of software, we are Germany’s second largest employer for these professions.
In addition to technological opportunities, we are also taking advantage of potential arising from the roughly three percent annual growth in global vehicle production. For 2020 we anticipate a production volume of 100 to 105 million new passenger cars.
Accordingly, our capital expenditure ratio remains at a steady level of five percent to six percent of sales. We are continuing to invest heavily in future technologies that will help us make mobility safer, more intelligent, more environmentally friendly, and more affordable. For instance, in November 2014 we opened a new technology center in Puchov, Slovakia, to satisfy the rising demand for new technologies to manufacture our range of tires.
We expect sales in 2015 to exceed €36 billion, which does not yet take into account the effects of the consolidation of Veyance.
As you can see, your Continental is working to continue growing profitably and faster than the market.
It is your trust that drives us!
We look forward to continuing along our successful path together with you.
Dr. Elmar Degenhart
Chairman of the Executive Board
Dr. Elmar Degenhart
Chairman of the Executive Board