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Development in the Divisions

Interior

  • Sales up 10.7%
  • Sales up 11.5% before changes in the scope of consolidation and exchange rate effects
  • Adjusted EBIT up 25.5%

Sales volume
Sales volumes in the Body & Security business unit were up for the majority of product groups in 2011. Particularly high increases were seen in access control and starting systems, door control units, comfort locking systems and seating comfort systems. In the Infotainment & Connectivity business unit, sales volumes for audio and connectivity components declined in fiscal 2011. This development was primarily influenced by lower demand for audio products in the U.S. market as well as for audio and connectivity products at some European vehicle manufacturers. In the area of multimedia systems, sales volumes rose thanks to increased demand from China and Europe. Volumes sold by the Commercial Vehicles & Aftermarket business unit were up significantly on the previous year's figures. The biggest increases were in the original equipment business, with spare part and aftermarket activities continuing at a high level. Volumes in the Instrumentation & Driver HMI business unit climbed significantly as against the previous year, especially for instrument clusters.

Sales up 10.7%; Sales up 11.5% before changes in the scope of consolidation and exchange rate effects
Sales in the Interior division rose by 10.7% as against the previous year to €6,110.7 million in 2011 (PY: €5,518.1 million). Before changes in the scope of consolidation and exchange rate effects, sales rose by 11.5%.

Adjusted EBIT up 25.5%
 The Interior division's adjusted EBIT climbed by €104.2 million or 25.5% year-on-year in 2011 to €512.5 million (PY: €408.3 million), equivalent to 8.4% (PY: 7.4%) of adjusted sales.

EBIT up 68.1%
As against the previous year, the Interior division posted growth in EBIT of €134.2 million or 68.1% to €331.2 million in 2011 (PY: €197.0 million).

The return on sales rose to 5.4% (PY: 3.6%). The return on capital employed (EBIT as a percentage of average operating assets) amounted to 7.6% (PY: 4.5%).

The amortization of intangible assets from the purchase price allocation (PPA) reduced EBIT by €201.5 million (PY: €215.1 million).

Special effects in 2011
The Interior division generated net income of €32.9 million in 2011 due to special effects, essentially from the reversal of restructuring provisions that were no longer required and from lower healthcare obligations in connection with restructuring.

In 2011, impairment losses of €12.0 million were recognized on the property, plant and equipment of the Interior division's operations at the Deer Park site in the U.S.A.

In addition, there were smaller impairment losses on property, plant and equipment resulting in a total loss of €0.7 million not relating to restructuring activities.

The total income generated by the Interior division from special effects amounted to €20.2 million in 2011.

Special effects in 2010
 In 2010, the Interior division incurred expenses of €5.6 million for additional final activities regarding the disposal of certain business operations.

Winding-up activities for the disposal of an associated company led to a gain of €2.1 million and tax expenses for the corporation in the same amount.

As part of finishing up various restructuring activities, there was also income of €12.4 million from the reversal of provisions that were no longer needed as well as reversals of impairments on property, plant and equipment.

The cost-cutting program initiated worldwide in response to the economic crisis led to expenses for severance payments of €9.2 million in 2010.

The total expense to the Interior division from special effects amounted to €0.3 million in 2010.

Procurement
The procurement market for Interior was marked by continuing high demand for electrical and electromechanical components. The natural disasters in Japan and Thailand and the regional production standstills this caused exacerbated the supply situation. Semiconductors, displays, relays, disc drives and circuit boards in particular were hit by delivery bottlenecks. Internal and customer production shutdowns were avoided thanks to systematic crisis management. The supply chain delays that developed were worked off by the end of 2011.

Research and development
Research and development expenses rose by €41.7 million or 10.2% year-on-year to €449.6 million (PY: €407.9 million), or 7.4% (PY: 7.4%) of sales.

Depreciation and amortization
Depreciation and amortization rose by €5.5 million as against fiscal 2010 to €427.6 million (PY: €422.1 million) and amount to 7.0% (PY: 7.6%) of sales. This included impairment losses totaling €12.7 million (PY: reversals of impairment losses of €4.8 million) in 2011.

Operating assets
 Operating assets in the Interior division declined year-on-year by €70.9 million to €4,299.6 million as of December 31, 2011 (PY: €4,370.5 million).

Working capital increased by €17.1 million to €721.7 million (PY: €704.6 million). Inventories expanded by €24.4 million to €577.4 million (PY: €553.0 million). Operating receivables rose by €85.9 million to €987.0 million (PY: €901.1 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 €93.2 million to €842.7 million (PY: €749.5 million).

Non-current operating assets amounted to €4,065.7 million (PY: €4,209.2 million), down €143.5 million year-on-year. Goodwill dropped by €0.2 million as a result of currency effects to €2,201.4 million (PY: €2,201.6 million). Property, plant and equipment were virtually unchanged year-on-year at €987.0 million (PY: €984.1 million). Other intangible assets fell by €167.6 million to €667.1 million (PY: €834.7 million). This was mainly due to the amortization of intangible assets from the purchase price allocation (PPA) in the amount of €201.5 million (PY: €215.1 million).

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

In the fiscal year, exchange rate effects increased the Interior division's total operating assets by €9.5 million (PY: €116.1 million).

In line with the reduction in operating assets as of the reporting date, the average operating assets of the Interior division declined €27.7 million as against fiscal 2010 to €4,375.1 million (PY: €4,402.8 million).

Capital expenditure (additions)
Additions to the Interior division increased by €56.4 million to €247.7 million (PY: €191.3 million). Capital expenditure amounted to 4.1% (PY: 3.5%) of sales.

Investments focused primarily on the expansion of manufacturing capacity for the Body & Security and Instrumentation & Driver HMI business units. In particular, these investments relate to sites in Germany, Mexico, Brazil, the Czech Republic, Romania and China.

Employees
The number of employees in the Interior division increased by 2,052 to 31,666 (PY: 29,614). The headcount in the Body & Security business unit rose by a total of 1,019 people, 763 of whom due to the volume increase in North America in particular and 256 employees resulting from the expansion in development operations. The positive global sales performance coupled with the broader presence in Asia (mainly in Malaysia and China) and the extension of the development site at Timis,oara, Romania, meant a rise in the number of staff of 359 in the Commercial Vehicles & Aftermarket business unit. Significant sales growth with strong growth rates in the NAFTA market and Asia plus a rise in the number of employees in R&D at best-cost locations led to an increase of 682 people in the Instrumentation & Driver HMI unit.

Interior in € millions
  2011 2010 Δ in %
Sales 6,110.7 5,518.1 10.7
EBITDA 758.8 619.1 22.6
in % of sales 12.4 11.2  
EBIT 331.2 197.0 68.1
in % of sales 5.4 3.6  
Research and development expenses 449.6 407.9 10.2
in % of sales 7.4 7.4  
Depreciation and amortization1 427.6 422.1 1.3
- thereof impairment2 12.7 -4.8 364.6
Operating assets (at December 31) 4,299.6 4,370.5 -1.6
EBIT in % of operating assets (at December 31) 7.7 4.5  
Operating assets (average) 4,375.1 4,402.8 -0.6
EBIT in % of operating assets (average) 7.6 4.5  
Capital expenditure3 247.7 191.3 29.5
in % of sales 4.1 3.5  
Number of employees (at December 31)4 31,666 29,614 6.9
 
Adjusted sales5 6,110.7 5,505.9 11.0
Adjusted operating result (adjusted EBIT)6 512.5 408.3 25.5
in % of adjusted sales 8.4 7.4  
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.