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Megatrends and Innovations

 

We play a major role in shaping the megatrends in the automotive industry.

In the year under review, we developed and launched a number of new products and systems in line with the automotive industry's megatrends that make driving safer, more comfortable and more sustainable. In some cases, they represent several trends rather than just one. Some examples of this are:

Safety megatrend or the vision of accident-free driving
 The world's roads are getting more crowded. Increasing traffic heightens people's need for safety. Although the number of fatal accidents has decreased steadily worldwide since 1970 despite the exponentially growing number of vehicles, every accident is one accident too many. Vehicle development focuses on driving safety, collision avoidance and protection during accidents.

As a partner of the AKTIV (Adaptive and Cooperative Technologies for Intelligent Traffic) research initiative, we developed a new driver assistance system that helps the driver stay in his or her own lane and brake at the right time in congested traffic in badly marked and narrow areas. By using a combination of radar and camera technology, the construction site assistance detects lane limits, road users in front of and to the side of the vehicle as well as cars pulling in and out of the lane in front of the vehicle. The system then guides the driver intuitively towards the middle of the lane by means of feedback to the steering wheel, warns of the threat of rear-end accidents and engages active hazard braking in an emergency.

Employing a new technology, we are the first supplier in the world to offer a high-quality truck emergency brake assist with just one single sensor, which cuts costs substantially. The emergency brake assist recognizes standing obstacles on the road and provides the driver with an early warning of a rear-end collision. If the driver does not react appropriately, the system automatically triggers emergency braking. The sensor is used in a major German manufacturer's range of commercial vehicles. Continental is therefore supplying an elementary component for the early recognition of standing hazards and thus the prevention of rear-end collisions, which account for a large share of fatal truck accidents each year on highways.

Environment megatrend or the vision of emission-free driving
 Fossil fuels are running out and our air is becoming ever more polluted. The reaction to this is comprehensive legal regulations and sustainable use of resources. The need for environmentally friendly technologies that aim to reduce fuel consumption and emissions is becoming increasingly urgent and is an important growth market in the automotive sector.

Starting in 2011, Continental will be the first automotive supplier to produce an all-electric powertrain for a standard vehicle manufactured by a European carmaker. This means that, in addition to the battery and the power electronics, we are putting the third key component for electromobility into mass production: the engine. With 60 kW or 75 kW depending on the model, our engines provide impressive torque. The electric engine can accelerate from a dead stop like no other combustion engine of the same weight. Thanks to substantial progress made in its compact and lightweight construction, the Continental synchronous engine weighs just roughly 65 kilograms. In comparison, a conventional combustion engine weighs between 80 kilograms (1.2 liter) and 150 kilograms (2.0 liter) excluding transmission, depending on the manufacturer and design type.

Until now, combining short braking distances on wet and dry roads with low rolling resistance was highly problematic. With our new ContiEcoContact 5, we have launched a product onto the market that unifies both. Compared to the previous model, the ContiEcoContact 5 boasts 20% less rolling resistance and 12% better mileage as well as shorter braking distances on wet roads. This means a vehicle with these new tires uses about 3% less fuel than the same car with standard tires. ContiEcoContact 5 is approved for speeds of up to 300 kilometers per hour.

The new Continental HSL2 2 ECO-PLUS XL long-distance tire can carry the increased loads on the front axles of future truck generations. The Euro 6 emissions standard that comes into force at the beginning of 2013 demands that vehicle manufacturers build new engines with more complex exhaust purification and aftertreatment technology. Catalytic converters, exhaust gas recirculation, particulate filters and considerably larger cooling systems greatly increase the load over the truck's front axle. The newly developed long-distance tire, which has 500 kilograms of greater axle load-bearing capacity, also ensures a reduction in fuel consumption thanks to its optimized rolling resistance.

Another factor in reducing fuel consumption and therefore also CO2 emissions is lightweight construction. Substituting metal with plastic is an important approach here. We were the first automotive supplier to develop heavy-duty power unit mounts made from plastic, thus ushering in the use of much lighter load-bearing components in the automotive industry. These components include engine and transmission mounts, torque rod supports and torque reaction mounts which are up to 50% lighter and require less energy to produce.

Information megatrend or the vision of vehicles linked at all times
 Not only is more and more information being exchanged between the driver and the vehicle, the data stream and dialog between vehicles and their environment are also constantly increasing. This requires efficient and transparent information management to reduce the burden on the driver as much as possible and guide him or her quickly and safely through increasing volumes of traffic.

Two European automotive manufacturers decided in favor of Continental's new head-up display. The installation space for the head-up display was reduced by almost half so that it can be installed in smaller models as well. With the head-up display, the carmaker can project various relevant information such as speed, navigation details or even warnings in the direct field of vision of the driver, allowing him or her to concentrate on the traffic without missing important information. This translates to enhanced safety since reading information from the screen in the center console takes about one second, in which time a vehicle driving 50 kilometers per hour has already covered 14 meters.

The Continental Filling Assistant is a new application that records the correct tire pressure directly via the smartphone and will make driving safer and more economical in the future. The vehicle's electronics are connected wirelessly with the driver's smartphone, allowing data to be exchanged quickly. The Filling Assistant shows the exact pressure in each of the car's tires, so optimum tire pressure can be achieved when topping up the air in the tires even if inflation pumps at the filling station do not measure the pressure accurately. When the tire has been inflated to the correct pressure again, an optional short honk and flashing signal will sound to confirm this to the driver. Technical requirements for the system are a tire pressure monitoring system with the corresponding sensors in the tires and factory-integrated vehicle electronics with a wireless interface. The first large-scale installation of the Filling Assistant in new vehicles is slated to start in 2013.

Affordable vehicles megatrend or the vision of affordable mobility for everyone
 The affordable cars megatrend encompasses all three of the other trends – safety, environment and information. This market segment, comprising cars costing less than $10,000 or €7,000, is growing steadily. Market observers anticipate that in 2015, this segment will represent about 20% of the global production of vehicles under 6 tons (passenger cars, station wagons, light commercial vehicles). These vehicles are manufactured and sold primarily in the high-growth markets of the future in Asia, but also in Brazil and Eastern Europe.

We develop the right solution for every market and every vehicle to satisfy various customer requirements. The scalability of our systems benefits us a great deal in this respect. We also invest in production sites and research and development centers in high-growth emerging markets to meet rising demand. Our high quality standards apply everywhere to all products, no matter where they are manufactured.

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Continental Value Contribution (CVC). The CVC represents the absolute amount of additional value created, and the Delta CVC represents the change in absolute value creation over the prior year. This change in the absolute contribution measured by Delta CVC allows us to monitor the extent to which management units generate value-creating growth or resources must be employed more efficiently. The CVC is measured by subtracting the weighted average cost of capital (WACC) from the ROCE and multiplying this by the average operating assets for the fiscal year. The weighted average cost of capital calculated for the Continental Corporation corresponds to the required minimum return. The cost of capital is calculated as the weighted average ratio of the cost of equity and borrowing costs.

Currency swap. Swap of principal payable or receivable in one currency into similar terms in another currency. Often used when issuing loans denominated in a currency other than that of the lender.

Defined Benefit Obligation (DBO). DBO is defined as the present value of all vested and non-vested benefits calculated on the basis of estimated salary levels at retirement. The only actuarial method that may be used to calculate the DBO is the projected unit credit method. DBO corresponds to PBO (projected benefit obligation).

Derivative financial instruments. Transactions used to manage interest rate and/or currency risks.

Dividend payout ratio. The dividend payout ratio is the ratio between the dividend for the fiscal year and the earnings per share.

EBIT. Earnings Before Interest and Taxes. EBIT represents the results of operations. Since 2002, when the amortization of goodwill was discontinued, EBITDA has been equal to EBIT.

EBITA. EBIT before scheduled goodwill amortization.

EBITDA. Earnings before interest, taxes, depreciation and amortization.

Finance lease. Under a finance lease, the lessor transfers the investment risk to the lessee. This means that the lessor bears only the credit risk and any agreed services. The lessee is the beneficial owner of the leased asset. Finance leases are characterized by a fixed basic term during which the lease may not be terminated by the lessee.

Gearing ratio. The gearing ratio represents the net indebtedness divided by total equity, expressed as a percentage.

Hedging. Securing a transaction against risks, such as fluctuations in exchange rates, by entering into an offsetting hedge transaction, typically in the form of a forward contract.

IAS. International Accounting Standards.

IASB. International Accounting Standards Board. The authority that defines the International Financial Reporting Standards.

IFRIC. International Financial Reporting Interpretations Committee. Committee that reviews and determines appropriate treatment of accounting issues within the context of IFRS and IAS.

IFRS. International Financial Reporting Standards. The accounting standards issued by the IASB.

Interest rate cap. An interest rate cap sets an upper limit for a variable interest rate in relation to a notional debt amount. To the extent that the variable interest due on the underlying debt exceeds the cap amount, the holder of the cap receives income as compensation in the amount of the difference to the cap. An up-front premium is paid as consideration for the cap.

Interest rate swap. An interest rate swap is the exchange of interest payments between two parties. For example, this allows variable interest to be exchanged for fixed interest, or vice versa.

Net indebtedness. The net amount of interest-bearing liabilities as recognized in the balance sheet, cash and cash equivalents, the positive fair values of the derivative financial instruments as well as other interest-bearing investments.

Operating assets. Operating assets are the assets less liabilities as reported in the balance sheet, without recognizing the net indebtedness, discounted trade bills, deferred tax assets, income tax receivable and payable, as well as other financial assets and debts.

Operating lease. A form of lease that is largely similar to rental. Leased assets are recognized in the lessor's balance sheet and capitalized.

PPA. Purchase Price Allocation. PPA is the process of breaking down the purchase price and assigning the values to the identified assets, liabilities, and contingent liabilities following a business combination. Subsequent adjustments to the opening balance sheet – resulting from differences between the preliminary and final fair values at the date of initial consolidation – are recognized as "PPA adjustments".

Rating. Standardized indicator for the international finance markets that assesses and classifies the creditworthiness of a debtor. The classification is the result of an economic analysis of the debtor by specialist rating companies.

ROCE. Return On Capital Employed. We define ROCE as the ratio of EBIT to average operating assets for the fiscal year.

SIC. Standing Interpretations Committee (predecessor to the IFRIC).

US GAAP. United States Generally Accepted Accounting Principles. These principles are subdivided into binding and guiding principles.

Weighted Average Cost of Capital (WACC). The WACC represents the weighted average cost of the required return on equity and net interest-bearing liabilities.