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Development in the Divisions

ContiTech

  • Sales up 15.8%
  • Sales up 16.0% before changes in the scope of consolidation and exchange rate effects
  • Adjusted EBIT up 12.1%

Sales up 15.8%; Sales up 16.0% before changes in the scope of consolidation and exchange rate effects
Sales in the ContiTech division rose by 15.8% as against the previous year to €3,583.1 million in 2011 (PY: €3,095.3 million). Before changes in the scope of consolidation and exchange rate effects, sales rose by 16.0%.

Non-automotive business posted the biggest year-on-year increase, climbing by roughly 18%. Sales in automotive OE business were up by around 14%, while growth in automotive aftermarket business was around 10%. With the exception of the Benecke-Kaliko and Power Transmission business units, all business units enjoyed considerable double-digit growth rates.

Adjusted EBIT up 12.1%
 The ContiTech division's adjusted EBIT climbed by €48.0 million or 12.1% year-on-year in 2011 to €446.2 million (PY: €398.2 million), equivalent to 12.5% (PY: 12.9%) of adjusted sales. The year-on-year decline in the return on sales is mainly due to rising raw material prices, which resulted in a gross cost to the division of €157 million.

EBIT up 12.9%
As against the previous year, the ContiTech division posted growth in EBIT of €47.5 million or 12.9% to €417.1 million in 2011 (PY: €369.6 million). The return on sales fell to 11.6% (PY: 11.9%).

The return on capital employed (EBIT as a percentage of average operating assets) amounted to 38.7% (PY: 34.8%).

Special effects in 2011
The antitrust proceedings initiated in 2007 against Dunlop Oil & Marine Ltd., U.K., a subsidiary of ContiTech AG in the area of offshore hoses, resulted in further expenses of €10.7 million in 2011.

Smaller impairment losses totaling €0.7 million were recognized on property, plant and equipment in the ContiTech division.

The ContiTech division's total net income due to special effects from the reversal of provisions no longer required amounted to €0.3 million.

On July 7, 2011, Continental Industrias del Caucho S.A., Madrid, Spain, reached an agreement with the employee representatives to close the site in Coslada, Spain, by the end of 2011. The plant, which assembled air conditioning lines, started reporting losses after a major contract was lost at the end of 2009. The site was closed as of December 31, 2011. This resulted in restructuring expenses of €14.1 million in 2011.

The total expense to the ContiTech division from special effects amounted to €25.2 million in 2011.

Special effects in 2010
The antitrust proceedings initiated in 2007 against Dunlop Oil & Marine Ltd., U.K., a subsidiary of ContiTech AG in the area of offshore hoses, resulted in further expenses of €20.8 million.

Impairment losses of €2.1 million were reported in the ContiTech division.

The cost-cutting program initiated worldwide in response to the economic crisis led to expenses for severance payments of €2.7 million in 2010.

There were also negative one-time effects totaling €0.3 million primarily due to restructuring expenses and income from disposals of companies.

The total expense to the ContiTech division from special effects amounted to €25.9 million in 2010.

Procurement
ContiTech was also heavily impacted by the general price trends. Its broad product portfolio and the significant growth rates in its various business units posed a challenge to ContiTech to ensure the availability of specific commodities to meet customer requirements. A balance of central materials sourcing and flexible local purchasing ensures optimum procurement results for the ContiTech division.

Research and development
Research and development expenses rose by €4.3 million or 7.1% year-on-year to €65.0 million (PY: €60.7 million), or 1.8% (PY: 2.0%) of sales.

Depreciation and amortization
 Depreciation and amortization declined by €0.7 million as against fiscal 2010 to €97.9 million (PY: €98.6 million) and amount to 2.7% of sales (PY: 3.2%). This included impairment losses totaling €0.8 million (PY: €2.1 million) in 2011.

Operating assets
 Operating assets in the ContiTech division rose by €30.2 million year-on-year to €1,066.9 million as of December 31, 2011 (PY: €1,036.7 million).

The key factor in this development was the rise in working capital by €31.7 million to €554.8 million (PY: €523.1 million). Inventories expanded by €4.1 million to €364.6 million (PY: €360.5 million). Operating receivables rose by €39.3 million to €548.3 million (PY: €509.0 million) as of the end of the reporting period due to the growth in business as against the previous year. Operating liabilities were up €11.7 million to €358.1 million (PY: €346.4 million).

Non-current operating assets amounted to €684.6 million (PY: €675.7 million), up €8.9 million year-on-year. This increase was essentially due to the €9.1 million rise in property, plant and equipment to €568.1 million (PY: €559.0 million).

The formation of the company ContiTech Tianjin Conveyor Belt Ltd., Tianjin, China, and the acquisition of Mining Industrial Resource Supplies Pty Ltd, Perth, Australia, by Phoenix BV, Amsterdam, Netherlands, as part of a share deal led to growth in operating assets of €6.8 million. There were no other changes in the scope of consolidation or asset deals with notable additions or disposals of operating assets in the ContiTech division in 2011.

In the fiscal year, exchange rate effects reduced the ContiTech division's total operating assets by €11.1 million. In the previous year, this effect had increased operating assets by €25.1 million.

Average operating assets in the ContiTech division climbed by €18.1 million to €1,078.8 million as against fiscal 2010 (€1,060.7 million).

Capital expenditure (additions)
Additions to the ContiTech division rose by €10.3 million year-on-year to €110.6 million (PY: €100.3 million). Capital expenditure amounted to 3.1% (PY: 3.2%) of sales.

In addition to rationalization and expansion investments in Germany, production capacity was increased at the European locations in Romania and Hungary. The division also invested in the expansion of production facilities at its locations in Brazil and Mexico. Production capacity was increased for the Asian market in China and South Korea.

Employees
 The number of employees in the ContiTech division increased by 1,416 compared with the previous year to 27,249 (PY: 25,833). The rise in staff numbers was due to volume increases in all areas and the expansion of production by several business units in Mexico, China, Romania and Hungary. The acquisition of the companies ContiTech Tianjin Conveyor Belt Ltd., Tianjin, China, and Mining Industrial Resource Supplies Pty Ltd, Perth, Australia, in the Conveyor Belt Group business unit also led to a further rise in headcount.

ContiTech in € millions
  2011 2010 Δ in %
Sales 3,583.1 3,095.3 15.8
EBITDA 515.0 468.2 10.0
in % of sales 14.4 15.1  
EBIT 417.1 369.6 12.9
in % of sales 11.6 11.9  
Research and development expenses 65.0 60.7 7.1
in % of sales 1.8 2.0  
Depreciation and amortization1 97.9 98.6 -0.7
- thereof impairment2 0.8 2.1 -61.9
Operating assets (at December 31) 1,066.9 1,036.7 2.9
EBIT in % of operating assets (at December 31) 39.1 35.7  
Operating assets (average) 1,078.8 1,060.7 1.7
EBIT in % of operating assets (average) 38.7 34.8  
Capital expenditure3 110.6 100.3 10.3
in % of sales 3.1 3.2  
Number of employees (at December 31)4 27,249 25,833 5.5
 
Adjusted sales5 3,564.4 3,091.4 15.3
Adjusted operating result (adjusted EBIT)6 446.2 398.2 12.1
in % of adjusted sales 12.5 12.9  
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.