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Continental Shares and Bonds

 

Continental posts negative share-price performance for first time in four years.

Year-end rally following consolidation on the stock markets
At the beginning of 2016, the continuing decrease in the prices of many raw materials – particularly crude oil – led to growing concerns about the global economy among many investors, triggering a downward trend on the stock markets worldwide. In early February, more cautious statements regarding economic development made by the U.S. Federal Reserve (Fed) and weaker economic data from the U.S.A. and China caused a further slump in prices. In this context, the DAX fell to around 8,700 points by February 11, 2016 – a decrease of 19% compared to its 2015 year-end level of 10,743.01 points. Mid-February 2016 saw the start of a recovery phase on the markets after prices for crude oil and other raw materials had stabilized. Weak foreign-trade data from China caused sentiment to deteriorate again in the first half of March. The announcement of additional expansive measures by the European Central Bank (ECB) did not have any significant impact on the stock markets in mid-March. The cut in the key interest rate to 0.0% and in the interest rate on deposits to -0.4% as well as the expansion of the monthly bond purchase program from €60 billion to €80 billion until March 2017 were in line with market participants’ expectations. Weaker economic data from Germany and the U.S.A., however, caused share prices to fall.

Starting mid-April 2016, the recovery in prices for crude oil and other raw materials, combined with positive economic data from Europe, China, and the U.S.A., caused share prices to increase. Following the publication of the initial estimate of the U.S. economy’s annualized growth for the first quarter of 2016, which was lower than expected, stock market sentiment deteriorated again in early May. Better-than-anticipated company results in Europe and the U.S.A. for the first quarter of 2016 had only a stabilizing effect over the remainder of the month. At the end of May, growing expectations of an interest rate hike by the Fed in June strengthened the U.S. dollar and weakened the euro. The DAX also benefited from positive economic data and again rose above the level of 10,000 points. In early June 2016, the positive sentiment changed after polls in the United Kingdom showed growing support among voters for an exit from the European Union in the upcoming referendum. Fears of a so-called Brexit increased until mid-June and pushed the DAX down to a level of 9,500 points, which was also partly due to continuing uncertainty regarding the future monetary policy of the major central banks. A week before the referendum on June 23, 2016, investors increasingly felt that Brexit was unlikely on the basis of new polls, resulting in a rapid recovery in share prices. The unexpected decision by 51.9% of voters to leave the European Union brought about a plunge in prices on international capital markets, with a particularly strong impact on European stock markets.

At the start of the third quarter of 2016, better-than-anticipated U.S. labor market data brought about a recovery phase on the European stock markets. This trend was supported by positive company results over the remainder of the quarter. Starting from the second half of August, falling crude oil prices and speculation about future U.S. interest rate policy unsettled many investors. On the European stock markets, this led to profit taking and was reflected in a slight decrease in share prices. When the interest rate hike did not materialize in the U.S.A., share prices increased again in the second half of September, before concerns about major German banks again led to profit taking.

Price performance of Continental shares in 2016 versus selected stock indexes (indexed to January 1, 2016)

Price performance of Continental shares in 2016 versus selected stock indexes (indexed to January 1, 2016)

At the beginning of the fourth quarter of 2016, the uncertain outcome of the U.S. presidential election caused many investors to act cautiously and conservatively. This was reflected in a sideways trend on most global stock markets. Initially, the outcome of the U.S. presidential election particularly benefited U.S. shares from the pharmaceutical, banking, infrastructure, and construction sectors. Many investors expect the new government to increase public spending and deregulate the financial sector in particular over the coming years. The Dow Jones index reached new highs, rising above the level of 19,000 points for the first time in late November 2016. At the beginning of December, many investors’ growing expectations of an increase in the expansionary European monetary policy also led to stronger price increases on European stock markets. The DAX consequently rose above the level of 11,000 points for the first time in 2016. At its meeting in December, the ECB resolved to extend its bond purchase program, originally due to expire in March 2017, until the end of 2017. However, it lowered the monthly bond purchase volume from €80 billion to €60 billion from April 2017. Meanwhile, the price rally in the U.S.A. continued in anticipation of a moderate key interest rate hike by the Fed. The Dow Jones index was quoting just below the level of 20,000 points in mid-December. At its meeting in December, the Fed raised its key interest rate for the second time after December 2015, increasing it by 0.25% to a range of 0.5% to 0.75%. The unexpected prospect of three rather than two further interest rate changes in 2017 caused the dollar-to-euro exchange rate to rise to a 14-year high while also slowing the momentum of the price rally on the stock markets. Finally, weak U.S. economic data led to profit taking and falling price quotations on stock markets worldwide at the end of the year.

The DAX closed 2016 up 6.9% at 11,481.06 points, while the EURO STOXX 50 ended the year with a 0.7% increase to 3,290.52 points.

Continental share price declines
In addition to a decline in the general stock market sentiment, automotive companies worldwide were impacted in the first half of 2016 by growing concerns about demand for passenger cars in the U.S.A., China and Japan. Analysts also lowered their expectations and recommendations for the sector. In addition to bank and insurance stocks, the Brexit vote also had a particularly negative impact on European automotive stocks at the end of June 2016. It was not until the third quarter that the share prices of European automotive manufacturers and suppliers recovered as part of the general market recovery. This was supported by the better-than-expected number of new passenger car registrations, particularly in Western Europe and China. In the fourth quarter of 2016, shares in the European automotive sector also benefited from the year-end rally. As a result, the EURO STOXX Automobiles & Parts was able to significantly improve its negative performance, closing 2016 down 3.9% at 521.33 points.

Following a decline at the beginning of the year, the Continental share price stabilized at around €180 in mid-February 2016. Over the remainder of the first six months of 2016, it stayed between €175 and €203. After the Brexit vote, it temporarily fell as low as €162. As a result of the general market recovery, it exceeded the €180 mark again in mid-July and spent the remainder of the third quarter quoted at around €190. All in all, Continental’s shares mostly followed the price development of the EURO STOXX Automobiles & Parts during the first nine months of 2016. The revised corporate outlook published on October 17, 2016, had a negative impact on Continental’s shares in the fourth quarter. Following the publication of the figures for the third quarter of 2016, the share price hit its lowest value for the year of €158.20 during the course of November 10, 2016. In the following weeks, Continental shares benefited from new buy recommendations by several analysts and from the year-end rally on the stock markets. They ended 2016 down 18.2% at a price of €183.70 (PY: €224.55).

Price performance by quarter in 2016 (in %)

Price performance by quarter in 2016 (in %)

Performance of Continental shares over various time periods versus selected stock indexes
Investment period
for €10,000
Continental1

DAX

EURO STOXX
50 1
EURO STOXX
Automobiles & Parts1
1 year (Jan. 1, 2016 – Dec. 31, 2016) €8,342 €10,687 €10,470 €9,925
Yield in % p.a. -16.6 6.9 4.7 -0.8
3 years (Jan. 1, 2014 – Dec. 31, 2016) €12,111 €12,019 €11,752 €12,294
Yield in % p.a. 6.6 6.3 5.5 7.1
5 years (Jan. 1, 2012 – Dec. 31, 2016) €41,908 €19,465 €17,179 €24,311
Yield in % p.a. 33.1 14.2 11.4 19.4
10 years (Jan. 1, 2007 – Dec. 31, 2016) €24,739 €17,404 €11,867 €23,639
Yield in % p.a. 9.5 5.7 1.7 9.0

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Outperformance of Continental shares compared over five and ten years
In terms of its share-price performance, Continental was at the bottom end in the annual ranking of the 30 DAX shares in 2016, taking 27th place (PY: sixth place). Even assuming the dividend distribution of €3.75 had been immediately reinvested, the performance of Continental shares was substantially weaker than that of the DAX, the EURO STOXX 50 and the EURO STOXX Automobiles & Parts (including reinvested dividends in each case) in 2016, after having outperformed the benchmark indexes in each of the years from 2012 to 2015.

When compared over longer periods, our share price performed considerably better despite the price decrease in 2016.

  • Investing €10,000 in Continental shares at the beginning of 2014 would have generated a yield of 6.6% per year or an increase in value of 21% to €12,111 over the past three years. Among the reference indexes, only the EURO STOXX Automobiles & Parts generated a slightly better yield.
  • Over the past five years, the same investment would have generated an increase in value of 319% to €41,908 (33.1% p.a.). In this case, a considerably higher yield would have been generated than with an investment in the reference indexes.
  • A comparison of the performance over the past ten years also shows a substantial increase in value of 147% to €24,739 for a €10,000 investment in Continental shares. With an annual yield of 9.5%, Continental shares outperformed the reference indexes over this ten-year period as well.

Continental euro bonds at low yield level
The Continental euro bonds remained at a low yield level during 2016.

The shorter-term Continental euro bonds posted slight price decreases due to their approaching maturity. The 2.5% euro bond maturing on March 20, 2017, fell 211.2 basis points below its closing price for 2015, quoting at 100.567% as at the end of 2016. Over the reporting period, the price of the 3.0% euro bond maturing on July 16, 2018, declined by 197.9 basis points to 104.703%.

In the first six months of 2016, the longer-term Continental euro bonds benefited from the falling interest rate level for corporate bonds in the eurozone. This was attributable to the decision taken by the ECB in March 2016, and implemented since June 2016, to extend its bond purchases of euro-denominated corporate bonds with an investment grade rating. Furthermore, in June they benefited from investors’ increasing demand for bonds in the run-up to and aftermath of the Brexit referendum.

Starting from mid-July 2016, reduced uncertainty led to a slight decrease in prices on the bond markets. The longer-term Continental bonds also declined somewhat during the second half of 2016. At the end of 2016, the 0.5% euro bond maturing on February 19, 2019, was quoted at 101.081%, or 80.5 basis points more compared to the end of 2015. The 3.125% euro bond maturing on September 9, 2020, was quoted at 111.024% at the end of 2016, up 22.6 basis points compared to the end of 2015.

Outstanding bonds as at December 31, 2016
WKN/ISIN Coupon Maturity Volume in
€ millions
Issue price Price as at Dec. 31, 2016 Price as at Dec. 31, 2015
A1VC6B /
XS0972719412
2,500 % March 20, 2017 750.0 99.595 % 100.567 % 102.679 %
A1X24V /
XS0953199634
3,000 % July 16, 2018 750.0 98,950 % 104.703 % 106.682 %
A1Z7C3 /
DE000A1Z7C39
0.500 % February 19, 2019 500.0 99,739 % 101.081 % 100.276 %
A2DARM /
XS1529561182
0.000 % February 5, 2020 600.0 99.410 % 99.747 % -
A1X3B7 /
XS0969344083
3.125 % September 9, 2020 750.0 99.228 % 111.024 % 110.798 %

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Price performance of Continental bonds in 2016

Price performance of Continental bonds in 2016

Successful placement of a 0% euro bond
Under Continental’s Debt Issuance Programme (DIP), a euro bond with an interest coupon of 0.0% was offered by Continental AG for the first time and successfully placed with investors in Germany and abroad on November 28, 2016. With a nominal volume of €600.0 million, the issue price was 99.410%. The new bond has a term of three years and two months. It was introduced on the regulated market of the Luxembourg Stock Exchange on December 5, 2016. At the end of 2016, it was quoted at 99.747%, up 33.7 basis points on its issue price.

Five-year CDS premium ends 2016 below its level at the beginning of the year
Turbulence on the raw materials and stock markets at the beginning of the year resulted in rising premiums for insuring against credit risks (credit default swap, CDS). By February 12, 2016, the five-year CDS premium for Continental had increased by more than 40 basis points to about 105 basis points from its level of 63.400 basis points at the end of 2015.

Over the remainder of the reporting period, the decision taken by the ECB in March 2016 to expand its measures resulted in falling interest rates in the eurozone and a decrease in CDS premiums for euro-denominated corporate bonds. In the run-up to both the Brexit referendum and the U.S. presidential election, growing uncertainty on the capital markets also resulted in slightly higher credit default swaps, although these decreased again after these events.

At the end of 2016, the Continental CDS premium was quoted at 59.081 basis points, slightly lower than its level of 63.400 basis points at the start of the year. The spread in relation to its reference index, the Markit iTraxx Europe, amounted to -13.234 basis points on December 31, 2016 (December 31, 2015: -16.466 basis points).

Further improvement in Continental’s credit rating
On May 11, 2016, the rating agency Standard & Poor’s upgraded Continental AG from BBB with a positive outlook to BBB+ with a stable outlook. On October 24, 2016, the rating agency Fitch also raised its credit rating to BBB+ with a stable outlook. The rating agency Moody’s did not change its credit rating for Continental AG.

December 31, 2016 Rating Outlook
Standard & Poor’s1 BBB+ stable
Fitch2 BBB+ stable
Moody’s3 Baa1 stable
December 31, 2015 Rating Outlook
Standard & Poor’s1 BBB positive
Fitch2 BBB positive
Moody’s3 Baa1 stable

Net income per share reaches new high
In the year under review, the net income attributable to the shareholders of the parent rose by nearly 3% to a new high of €2.80 billion after €2.73 billion in the previous year. The reason for this was the good operating performance overall of the Continental Corporation, coupled with the further improvement in the net interest result. Earnings per share, i.e. the portion of profits attributable to the shareholders per share, are calculated by dividing the net income attributable to the shareholders of Continental AG by the average number of shares outstanding. This figure rose accordingly by almost 3% to €14.01 (PY: €13.64) – also a new high.

Dividend proposal increased to €4.25 per share
The Executive Board and the Supervisory Board have resolved to propose a 13.3% increase in the dividend distribution to €4.25 per share for the past fiscal year to the Annual Shareholders’ Meeting to be held in Hanover on April 28, 2017. This corresponds to €850.0 million or a dividend payout ratio of 30.3% of net income attributable to the shareholders of the parent. Based on the dividend proposal and the annual average Continental share price, this results in a dividend yield of 2.3% for 2016.

A dividend of €3.75 per share was paid for fiscal 2015, amounting to a total payout of €750.0 million. The dividend payout ratio was 27.5%, and the dividend yield was 1.8%.

Free float unchanged at 54.0%
As in the previous year, free float as defined by Deutsche Börse AG amounted to 54.0% as at the end of 2016. The most recent change took place on September 17, 2013, when our major shareholder, the IHO Group, Herzogenaurach, Germany, announced the sale of 7.8 million Continental shares, reducing its shareholding in Continental AG from 49.9% to 46.0%.

As at the end of 2016, the market capitalization of Continental AG amounted to €36.7 billion (PY: €44.9 billion). Market capitalization on the basis of free float in accordance with Deutsche Börse AG averaged €19.6 billion over the last 20 trading days of 2016 (PY: €24.1 billion). The trading volume in euros that is also relevant to index selection amounted to €20.5 billion from January to December 2016 (PY: €27.7 billion).

As at the end of 2016, Continental shares were ranked 16th (PY: 13th) in terms of free float market capitalization and 16th (PY: 14th) in terms of stock exchange turnover among the 30 DAX shares in Deutsche Börse AG’s index ranking.

Increased share of free float in Germany and France
As at December 31, 2016, we once again determined the distribution of free float of Continental shares by way of shareholder identification (SID). We were able to assign 91.0 million of the 108.0 million shares held in the form of shares or alternatively as American depository receipts (ADRs) in the U.S.A. to institutional and private investors. The identification ratio was 84.3% of free float (PY: 93.3%).

A total of 82.5 million shares were attributable to around 600 institutional investors in 39 countries. Private shareholders in Germany, other European countries and the U.S.A. held 8.7 million shares as at the end of the year.

According to the SID, the identified level of Continental shares held in Europe did not quite reach the previous year’s level at 61.7% (PY: 64.6%). The identified level of shares held by institutional investors from the United Kingdom and Ireland fell from previously 29.8% to 24.2%. By contrast, the identified holdings of German institutional investors climbed to 15.4% in the year under review (PY: 13.0%). At 6.0%, shareholdings of private German shareholders were slightly lower than in the previous year at 6.6%. Higher shareholdings were identified in France at 6.2% (PY: 4.9%) and other European countries at 5.6% (PY: 5.1%). Scandinavian investors held about 4.3% (PY: 5.2%) of Continental shares at the end of 2016.

Identified shareholdings in the U.S.A. and Canada were down at the end of the year. As at the end of December 2016, institutional and private investors held a total of 19.5% (PY: 24.2%) of the free float in the form of shares or ADRs.

Identified shareholdings in Asia, Australia and Africa fell to 3.1% at the end of the year (PY: 4.5%).

Geographic distribution of free float in 2016

Geographic distribution of free float in 2016

Continental share data
Type of share No-par-value share
German stock exchanges (regulated market) Frankfurt (Prime Standard),
Hamburg-Hannover,
Stuttgart
German securities code number (WKN) 543900
ISIN DE0005439004
Reuters ticker symbol CONG
Bloomberg ticker symbol CON
Index memberships (selection) DAX
Prime All Share
Prime Automobile
NISAX
Number of outstanding shares as at December 31, 2016 200.005.983
Free float as at December 31, 2016 54.0%
American depositary receipt (ADR) data
Ratio 1 share : 5 ADRs
SEDOL number 2219677
ISIN US2107712000
Reuters ticker symbol CTTAY.PK
Bloomberg ticker symbol CTTAY
ADR level Level 1
Trading OTC
Sponsor Deutsche Bank Trust
Company Americas
ADRs issued as at December 31, 2016 6,605,890 (with 1,321,178
Continental shares deposited)

Unchanged share capital
As at the end of 2016, the share capital of Continental AG still amounted to €512,015,316.48. It is divided into 200,005,983 no-par-value shares with a notional value of €2.56 per share. Each share has the same dividend entitlement.

In line with Article 20 of Continental AG’s Articles of Incorporation, each share grants one vote at the Annual Shareholders’ Meeting. The current Articles of Incorporation are available online at www.continental-ir.com in the Corporate Governance section.

Continental share listings
Continental’s shares continue to be officially listed on the German stock exchanges in Frankfurt, Hamburg, Hanover, and Stuttgart on the regulated market. Continental’s shares are also traded on other unofficial stock exchanges in Germany and Europe.

Continental ADR listings
In addition to being listed on European stock exchanges, Continental shares are traded in the U.S.A. as part of a sponsored ADR program on the over-the-counter (OTC) market. They are not admitted to the U.S. stock market. Since the split of the outstanding ADRs on December 23, 2013, in a ratio of 1:5, five Continental ADRs are equivalent to one Continental share.

Continental Investor Relations online
For more information about Continental shares, bonds and credit ratings, as well as our Investor Relations app, please visit www.continental-ir.de. Updates about Continental are also available on Twitter at @Continental_IR.

Key figures of the Continental share1
€ (unless otherwise specified) 2016 2015
Basic earnings 14.01 13.64
Diluted earnings 14.01 13.64
Free cash flow 8.86 7.22
Dividend 4.252 3.75
Dividend payout ratio (%) 30.32 27.5
Dividend yield (%) 2.32 1.8
Total equity (book value) as at December 313 71.35 63.93
Yearly average price-earnings ratio (P/E ratio)4 13.22 15.33
Share price at year-end 183.70 224.55
Average share price 185.26 209.05
Share price at year-high 220.10 234.25
Share price at year-low 158.20 166.60
Average XETRA trading volume per trading day (in units) 436.412 525.734
Number of outstanding shares, average (in millions) 200.0 200.0
Number of outstanding shares as at December 31 (in millions) 200.0 200.0

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