Continental AG aims for more record profit in 2006

Reuters / Automotive News

Frankfurt, Germany - German automotive parts supplier Continental AG is aiming for another year of record-beating revenue and earnings on cost-cutting and innovation, it said in remarks released on Thursday.

"We don't expect to receive any support from the global car market in 2006 ... rather we are counting on innovation and cost-cutting to bring us growth and a tidy margin," CEO Manfred Wennemer told reporters late on Wednesday in comments embargoed for Thursday.

Following a fourth quarter that developed similarly to the first three in 2005, the world's fourth-largest tyre maker achieved all-time highs for the full year in turnover, earnings before interest and tax and net profit.

"There was no positive or negative surprise in the fourth quarter," Wennemer added.

Rising demand for margin-rich winter tyres produced in low-cost countries as well as ESP electronic braking systems, which help to prevent deadly vehicle rollovers, have fuelled booming business at Continental.

Continental AG ranks fourth in ERJ's list of top tyre makers and No. 14 on sister magazine, Automotive News' list of the top 100 global suppliers with worldwide original-equipment automotive parts sales of $9300 million in 2004.

No share buyback

Finance chief Alan Hippe said the Hanover-based firm would propose a significant increase to the dividend for 2005 after paying out 0.80 euros per share a year earlier. He said Continental would not buy back its own stock.

"There's no evidence that a share buyback leads to a structural increase in the stock price," the chief financial officer said.

Instead, Hippe intends to make a cash-out payment to move a "generous" part of its $1470 million, or 1200 million euros, in pension liabilities off its balance sheet by funding them.

Analysts, while impressed with the consistently solid performance quarter for quarter at Continental, have criticised the company for being underleveraged with a ratio of net debt to equity at only about 30 percent. They have called on management to make a value-creating acquisition or return spare cash to stockholders through a share buyback.

Hippe is also responsible for the loss-making car tyre business in the NAFTA market, the weak link at the group.

Continental managed to improve the earnings situation there considerably in the second half of the year over the first half, due in part to strong demand for winter tyres in Canada.

The company said global sales of winter tyres rose 11 percent in 2005 to 17.1 million units, and said ESP sales in the United States should double to 3 million units in 2006.

Continental also aims to invest $200 million to $250 million to build a greenfield tyre plant in China with the capacity to manufacture 4 million to 6 million car tyres and 500 000 to 700 000 truck tyres for both the Chinese and export markets.

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From Automotive News (A Crain publication)