Conti inititates cost-cutting measures

ERJ staff report (TB)

Tire Business staff report©

Hannover, Germany -- Seeking to reduce the impact of the contracting global economy on its financial integrity, Continental AG is reducing research and development spending, postponing investments and cutting its dividend payment starting with the fourth quarter.

Already during the second half of fiscal 2008 Conti has made adjustments to its investment portfolio that will result in reduced capital spending and R&D spending next year of $645 million and $258 million, respectively. Conti did not disclose which specific projects are being affected.

In disclosing the measures, Continental Executive Board Chairman Karl-Thomas Neumann noted the firm's automotive industry customers have disclosed they will build 1.5 million fewer vehicles in the fourth quarter in the US and Europe, to go with roughly a decline of the same magnitude in the first three quarters of the year.

Despite the negative outlook, Conti expects its pre-tax operating income for fiscal 2008 to be in the 7.5- to 8-percent range, Mr. Neumann said.

Foregoing a dividend payment for the forseeable future would allow Conti to devote up to $435 million in cash a year toward debt reduction, according to Alan Hippe, CFO, vice chairman of the Executive Board and head of the Rubber Group.

Mr. Hippe said Continental will have a “substantial” free cash flow in 2008 thanks to the continuing strong business development in the Rubber Group, the sale of company units undertaken this year and the extensive conversion of the convertible bond maturing in May 2011.

From Tire Business (A Crain publication)