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Development in the Divisions

Chassis & Safety

  • Sales up 12.7%
  • Sales up 9.7% before changes in the scope of consolidation and exchange rate effects
  • Adjusted EBIT up 13.7%

Sales volume
Sales volumes in the Electronic Brake Systems business unit rose by 10.1% year-on-year to 18.3 million units.

In the Hydraulic Brake Systems business unit, sales of brake boosters increased by 24.0% year-on-year to 18.7 million units in the period under review. Sales of brake calipers surged by 27.9% as against the year before to 42.0 million units.

In our Passive Safety & Advanced Driver Assistance Systems business unit, sales of air bag control units were up 15.1% as against the previous year to 14.3 million units. Sales of driver assistance systems soared by 61.4% year-on-year to 1.7 million units.

Sales up 12.7%; Sales up 9.7% before changes in the scope of consolidation and exchange rate effects
Sales in the Chassis & Safety division rose by 12.7% as against the previous year to €6,510.8 million in 2011 (PY: €5,775.4 million). Before changes in the scope of consolidation and exchange rate effects, sales rose by 9.7%.

Adjusted EBIT up 13.7%
 The Chassis & Safety division's adjusted EBIT rose by €86.5 million or 13.7% year-on-year in 2011 to €716.7 million (PY: €630.2 million), equivalent to 11.3% (PY: 10.9%) of adjusted sales.

EBIT up 16.3%
As against the previous year, the Chassis & Safety division posted growth in EBIT of €92.9 million or 16.3% to €661.9 million in 2011 (PY: €569.0 million). The return on sales rose to 10.2% (PY: 9.9%).

The return on capital employed (EBIT as a percentage of average operating assets) amounted to 16.4% (PY: 14.2%).

The amortization of intangible assets from the purchase price allocation (PPA) reduced EBIT by €53.0 million (PY: €53.8 million).

Special effects in 2011
 The Chassis & Safety division's total net income due to special effects from the reversal of restructuring provisions no longer required amounted to €4.6 million.

In 2011, impairment losses of €1.8 million were recognized on the property, plant and equipment of the Chassis & Safety division's operations at the Deer Park site in the U.S.A.

In addition, there were smaller impairment losses and reversals of the same on property, plant and equipment resulting in a net gain of €0.2 million.

The Chassis & Safety division generated income of €0.6 million from the negative difference on an asset deal.

An impairment test on an at-equity investment of the Chassis & Safety division resulted in an impairment loss of €5.4 million.

The total expense to the Chassis & Safety division from special effects amounted to €1.8 million in 2011.

Special effects in 2010
Smaller impairment losses totaling €3.4 million were recognized on property, plant and equipment in the Chassis & Safety division.

The initial consolidation of a company in South Korea and the disposal of shares in an associated company in China resulted in a gain of €1.3 million.

There was also income of €3.6 million mainly due to the reversal of provisions that were no longer needed as part of finishing up various restructuring activities.

The cost-cutting program initiated worldwide in response to the economic crisis led to expenses for severance payments of €8.9 million in 2010.

The total expense to the Chassis & Safety division from special effects amounted to €7.4 million in 2010.

Procurement
Residual capacity bottlenecks on the part of suppliers were almost totally eliminated thanks to the strong economic situation at the start of 2011. The regional disasters (earthquake in Japan, March 2011, flooding in Thailand, October 2011) resulted in production stoppages at the suppliers affected in these areas. Supply shortages to customers were prevented by the use of alternate supply sources, technical alternative solutions and the fast redevelopment or resumption of production.

Rising commodities prices were passed on by suppliers in some cases. In particular, materials prices were negatively affected by the prices for rare earths as of the end of the year.

Research and development
Research and development expenses rose by €40.8 million or 9.7% year-on-year to €463.1 million (PY: €422.3 million), or 7.1% (PY: 7.3%) of sales.

Depreciation and amortization
Depreciation and amortization declined by €2.3 million as against fiscal 2010 to €320.4 million (PY: €322.7 million) and amount to 4.9% (PY: 5.6%) of sales. This included impairment losses totaling €1.6 million (PY: €3.8 million) in 2011.

Operating assets
Operating assets in the Chassis & Safety division increased by €74.4 million year-on-year to €4,014.9 million (PY: €3,940.5 million) as of December 31, 2011.

Rising by €89.2 million to €613.9 million (PY: €524.7 million), working capital played a key factor in this development. Inventories expanded by €16.3 million to €356.0 million (PY: €339.7 million). Operating receivables rose by €185.1 million to €1,104.2 million (PY: €919.1 million) as of the end of the reporting period also due to the improvement in business as against the previous year. Operating liabilities were up by €112.2 million to €846.3 million (PY: €734.1 million).

Non-current operating assets amounted to €3,898.6 million (PY: €3,874.6 million), up €24.0 million year-on-year. Goodwill increased by €2.7 million as a result of currency effects to €2,333.6 million (PY: €2,330.9 million). Property, plant and equipment increased by €48.5 million to €1,270.0 million (PY: €1,221.5 million) due to investing activities. Other intangible assets fell by €28.2 million to €202.6 million (PY: €230.8 million). This was mainly due to the amortization of intangible assets from the purchase price allocation (PPA) in the amount of €53.0 million (PY: €53.8 million).

Changes in the scope of consolidation and asset deals did not result in any notable additions or disposals of operating assets in the Chassis & Safety division.

In the fiscal year, exchange rate effects increased the Chassis & Safety division's total operating assets by €16.4 million (PY: €122.2 million).

In line with the rise in operating assets as of the end of the reporting period, the average operating assets of the Chassis & Safety division increased by €27.7 million as against fiscal 2010 to €4,024.7 million (PY: €3,997.0 million).

Capital expenditure (additions)
Additions to the Chassis & Safety division rose by €80.0 million year-on-year to €327.1 million (PY: €247.1 million). Capital expenditure amounted to 5.0% (PY: 4.3%) of sales.

Production capacity was systematically expanded in all business units and set up for new products. The main additions related to investments in the production of the next generation of electronic braking systems.

Employees
The number of employees in the Chassis & Safety division rose by 2,170 to 32,665 (PY: 30,495). The increase in all business units is primarily due to an adjustment in line with greater volumes. Capacity was mainly boosted in best-cost countries.

Chassis & Safety in € millions
  2011 2010 Δ in %
Sales 6,510.8 5,775.4 12.7
EBITDA 982.3 891.7 10.2
in % of sales 15.1 15.4  
EBIT 661.9 569.0 16.3
in % of sales 10.2 9.9  
Research and development expenses 463.1 422.3 9.7
in % of sales 7.1 7.3  
Depreciation and amortization1 320.4 322.7 -0.7
- thereof impairment2 1.6 3.8 -57.9
Operating assets (at December 31) 4,014.9 3,940.5 1.9
EBIT in % of operating assets (at December 31) 16.5 14.4  
Operating assets (average) 4,024.7 3,997.0 0.7
EBIT in % of operating assets (average) 16.4 14.2  
Capital expenditure3 327.1 247.1 32.4
in % of sales 5.0 4.3  
Number of employees (at December 31)4 32,665 30,495 7.1
 
Adjusted sales5 6,315.8 5,775.4 9.4
Adjusted operating result (adjusted EBIT)6 716.7 630.2 13.7
in % of adjusted sales 11.3 10.9  
1) Excluding impairments on financial investments.
2) Impairment also includes necessary reversals of impairment losses.
3) Capital expenditure on property, plant and equipment, and software.
4) Excluding trainees.
5) Before changes in the scope of consolidation.
6) Before amortization of intangible assets from the purchase price allocation (PPA), changes in the scope of consolidation, and special effects.
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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.