Continental AG Business Report FY2007

Business Highlights

Financial Overview 2007

in million euros FY2007 FY2006 change in % Factors
In Total    
Sales 16,619.4 14,887.0 11.6 (1)
EBIT* 1,675.8 1,601.9 4.6
Chassis & Safety
Sales 4,648.6 4,521.7 2.8 (2)
EBIT* 567.0 528.3 7.3
Sales 1,177.0 650.7 80.9 (3)
EBIT* (73.5) (21.2) -
Sales 1,531.6 858.6 78.4 (4)
EBIT* 10.8 25.1 (57.0)
Passenger and Light Truck Tires
Sales 4,975.6 4,693.6 6.0 (5)
EBIT* 738.7 605.9 13.5
Commercial Vehicle Tires
Sales 1,452.4 1,468.3 (1.1) (6)
EBIT* 124.1 136.2 (8.9)
Sales 3,063.9 2,868.7 6.8 (7)
EBIT* 362.8 318.6 13.9

*EBIT:Earning Before Interest and Taxation

(1) Overall
- This increase resulted both from organic growth and from changes in the scope of consolidation. Exchange rate changes had an offsetting effect. Siemens VDO contributed 659.3 million euros to sales.
- Siemens VDO impacted EBIT by 164.0 million euros in December 2007.

(2) Chassis & Safety Division
- The rise in sales is partly due to organic growth and partly to changes in the scope of consolidation, especially resulting from the acquisition of Siemens VDO.
- Electronic Brake Systems business unit sold 15.7 million electronic brake systems in FY2007. The North American market continued to develop gratifyingly.
- With 2.9 million ESC units the company achieved there a growth in sales volumes of 45.1% compared to 2006.
- Sales of wheel speed sensors were up 8.5% to some 64 million units.
- Sales volumes at the Hydraulic Brake Systems business unit also rose, largely due to increased new business and higher unit sales figures. The Company lifted sales volumes of brake boosters by 9.1% to 13.4 million units. Brake calipers saw a rise of 1.8% to 34.5 million units.

(3) Powertrain Division

- The increase in sales is accounted for both by organic growth and by changes in the scope of consolidation, primarily through the acquisition of Siemens VDO and Motorola's automotive electronics business.

(4) Interior Division
- The increase in sales is the result of both organic growth and changes in the scope of consolidation, primarily through the acquisition of Siemens VDO and the automotive electronics business acquired from Motorola.

(5) Passenger & Light Truck Tires Division

- At 107.4 million tires, the company achieved volumes above the previous years's level. Sales in the Original Equipment business unit exceeded the figure for 2006. The Company was able to lift sales volumes in Europe, while volumes in the NAFTA region were substantially lower than the previous year's figure as planned.
- Matador, the Company acquired in FY2007, contributed 46.0 million to sales.

(6) Commercial Vehicle Tires Division
- Worldwide the Company increased sales volumes of truck tires by 3.4% to 7.2 million units, with the European Truck Tires business unit increasing its sales volumes compared with the previous year, while sales to the replacement business were 5.1% above the previous year.
- Sales of truck tires in The Americas business unit showed a decline. Original equipment business was down 19.2%, while replacement business was up 1.3%

(7) ContiTech Division
- With the exception of the Benecke-Kaliko business unit, all business units achieved increased sales compared with the previous year. Air Spring Systems and the Conveyor Belt Group achieved the largest improvements.

Acquisition of Siemens VDO
- In December 2007, the Company announced completion of acquisition of Siemens VDO Automotive AG. Net synergy effect of at least 170 million euros as of 2010 is expected of this 11.4 billion euro investment.
- Through this acquisition, the development system for comprehensive electronics control technologies in broad areas from environment, safety, display through information will be established to be competitive in the global market.
- The new Company will make efforts in early development of the next generation safety systems including one for integrated control of driving support, telematics and electronics brake devices. As for hybrid units, early achievement of zero emission will be targeted as a result of synergy effects of the Company's motor/electric technologies and Siemens VDO's engine control knowhow. (From an article in the Nikkan Jidosha Shimbun on Dec. 7, 2007)
- As part of the acquisition of Siemens VDO, the organizational structure of the Company was changed. The former Automotive Systems division was dissolved and integrated into three new divisions Chassis & Safety, Powertrain and Interior together with the activities of Siemens VDO.
- The three new automotive divisions will benefit from the acquisition of the Siemens VDO automotive business as well as from further growth in demand in Asia

Other Acquisitions
- In February 2007, Contitech Division acquired 100% of the shares of the hose manufacturer Thermopol International Ltd., London, including its subsidiaries, at a final price of 25.2 million euros.
- In September 2007, the Company acquired 100% of the shares of Pacifica European Holding Ltd., UK, and its subsidiary Automotive Products Italia (SV) S.r.l. (AP) from the Australian Pacifica Group Ltd. at a purchase price of 63.1 million.
- In November 2007, the Company acquired a majority interest of 51% in the tires and conveyor belt business and the rubber-processing machinery business unit of Matador Group, which is headquartered in Puchov, Slovakia.

- The Company is awarded the contract to outfit all models in the new Mercedes-Benz C Class. It supplies the summer tires to those models. (From a press release on May 8, 2007)
- The Company's summer tyres are supplied to the new Fiat Bravo.(From a press release on May 16, 2007)
- The Company supplies the brake-system for vehicle stability control to the new Lance Evolution X. (From an article in the Nikkan Jidosha Shimbun on Jul.12, 2007)
- ContiTech Fluid Technology has developed the lines for SCR (selective catalytic reduction) technology and supplies DEUTZ a heatable EPDM-based hose line module specially developed for carbamide transport (AdBlue). (From a press release on July 23, 2007)
- The Company is awarded the contract to provide tires to Fiat 500 (From a press release on August 7, 2007)
- The Company provides winter tyres for BMW including the BMW X5, 1 Series, 3 Series and Z4. (From a press release on Sep. 6, 2007)
- ContiTech Fluid Technology business group's Shanghai plant started delivery of power-steering lines to Delphi for installation in a new Chery vehicle model. This marked the first deliveries to a domestic Chinese automaker. (From a press release on Sep. 28, 2007)
- Benecke-Kaliko supplies two-tone door trim for the new BMW 5 Series. (From a press release on Nov. 16, 2007)
- Passenger and Light Truck Tires Division gained new approvals of tires in FY2007 for following models; VW BlueMotion (exclusive supplier), Maserati Grand Turismo, Jaguar XF, Porsche Carrera, Boxter and Cayman, Audi S6, TT and A5, Volvo V70, XC70 and XC 60, BMW Minis, Ford Fiesta and Kuga, Mercedes-Benz E-Class AMG, GM Cadillac DTS and Chevrolet Cobalt SS, Suzuki Splash, Toyota Yaris and Kia Picanto.
- In 2007, the Company supplies the self-sealing tires to the new Passat CC.

Joint Ventures
- In India, the Company signed a joint venture agreement with Rico Auto Industries to build a plant for hydraulic brake systems. Production is scheduled to start at the end of 2008.


- The Company is to sell Brose Group electric motor operations, the sale being agreed by the two companies on December 20, 2007. The activities of the Electric Motor Drives business unit in Wurzburg and Berlin, as well as the development office in Nuremberg and the location in Oldenburg will be transferred to the buyer. In addition, there are six plants in La Suze/France, Gainesville/U.S.A., Reynosa/Mexico, as well as in Shanghai, Zhangjiagang and Changchun (all in China). The Company has approximately 4,200 employees working for its electric motor operations, with sales totaling 740 million euros in 2007. (From a press release on Dec. 20, 2007)
- Effective January 1, 2008, Continental Teves Japan Inc. sold significant parts of its plant, including the related buildings and machinery at the Hiroshima location in Japan, to Nisshinbo Industries Inc. for the symbolic amount of 1 yen in order to avoid the cost of a plant closure.

- For 2008, the Company aims to achieve sales that exceed the sales reported pro forma for the Company and Siemens VDO for 2007 totaling 26.4 billion euros
- In 2009, the Company wants to attain a growth rate of approximately 5%.


R&D Expenditure

(in million Euros) FY2007 FY2006 FY2005
Gross Expenses 834.8 677.0 589.4

R&D Expenditure by divisions :
    in million euros % of sales
  FY2007 FY2006 FY2007 FY2006
Chassis & Safety 347.5 330.4 7.5 7.3
Powertrain 144.9 77.7 12.3 11.9
Interior 131.5 68.6 8.6 8.0
Passenger and Light Truck Tires 110.5 105.2 2.2 2.2
Commercial Vehicle Tires 43.6 42.7 3.0 2.9
ContiTech 56.8 52.4 1.9 1.8
Total 834.8 677.0 5.0 4.5

- As a result of the acquisition of Siemens VDO, research and development expense in 2008 will increase to approximately 6% of sales arising from the merging of both areas. The Company's goal is to lower this ratio in the coming years. For 2009, a ratio of just under 6% is expected.

R&D Structure

- New R&D centers

At the beginning of 2008, the Company laid the cornerstone for its development center in Shanghai. The new Asia Headquarters for the automotive divisions includes an office complex for design and test laboratories as well as a location for larger inspection and testing equipment. In May 2009, approximately 90 employees are due to begin working there.

The Company opened a new center Yokohama, Japan, in August 2007 where the Company will bundle the research and development activities of its automotive operations.

Product Development

ContiGuard (R)
- ContiGuard (R) is an intelligent safety system in which all active and passive safety-related functions are fully integrated. The heart of system consists of a safety control module that calculates the probability of an accident in every traffic situation. Camera and sensor technologies assist in the analysis.
- Parts of the system are already in series production. In addition, the system's interfaces are defined so that external systems can be integrated seamlessly. Followings are ContiGuard (R) components.

ContiGuard (R) Components
Environment Sensor Electronic Brake System MK60E Sensor Cluster
Gateway Data Transmitter Force Feedback Accelerator Pedal Door Control Unit
Sunroof Control Unit Reversible Seatbelt Pretensioner Seat Control Unit
Brakes Closing Velocity Sensor Side Satellites
Upfront sensor Airbag Control Unit Front Camera System
Camera System Control Unit Interface to Electronically Controlled Steering Telematics Module

Product Development by Division

Chassis & Safety Division
Pre-crash system
The Company developed a sensor that can reduce the severity of accidents at low speed or even avoid such accidents entirely. The pre-crash system scans the area around the vehicle up to ten meters to the right, to the left, and straight ahead. If the sensor signals strike an object, a receiver unit uses the signals to calculate the distance to the car ahead and the closing speed. If the distance between the vehicles closes so rapidly that a rear-end collision is imminent, the braking system builds up sufficient pressure that the brakes respond immediately when the driver applies the brake pedal. If the driver takes his foot off the gas pedal, the system applies the brakes automatically. If the driver does not apply enough pressure to the brake, the brake assist function is initiated. The measures can prevent an accident if a vehicle is driving up to 35 km/h towards a stationary obstacle.

Electro-hydraulic combi brake (EHC)
The Company sees its electro-hydraulic combi brake as the premium solution for linking innovation with safety function. With high-performance hydraulic brakes on the front and electro-mechanical brakes on the rear axle, EHC combines proven technology with innovative functions and - when incorporated into future powertrain concepts - will enable effective energy recovery during the braking procedure.

Powertrain Division
"Downsizing" with piezo gasoline direct injection
Smaller, highly-turbocharged engines, particularly in conjunction with direct injection, offer "downsizing" opportunities - they replace larger normally aspirated engines without compromising performance. In this way, "downsizing" with direct injection has the potential to reduce CO2 emissions of gasoline engines close to those of modern diesel engines.

Interior Division
Sync interface
The Sync telematics interface crates a wireless connection between electronic consumer devices, such as mobile phones and MP3 players, and the vehicle's audio system.

Partnership with Microsoft
Together, the Company and Microsoft Corporation will develop in-vehicle communication, information, entertainment and navigation products. According to the current planning, the first Company's product based on Microsoft's software technology is expected to go into production as early as 2009.

Intelligent car key
The Company's intelligent bi-directional electronic locking system has already been used in three vehicle families. Developers are working, among other things, on a key with an integrated vehicle locator to make it easier to find the car in a large parking lot, for example.

Commercial Vehicle Tires Division

HSL1 and HSR1 tires for coaches
A combination of special tread design and specially formulated rubber compound ensure maximum steering response and tracing stability. At the same time, operators using these tires benefit from lower operating costs and better fuel economy.

ContiTech Division
ContiLock R
Tight hose connections in air conditioning systems are becoming more and more important. When European Directive 2006/40/EC goes into effect in 2011, car air conditioning systems will have to be equipped with new coolants such as CO2. The Company has developed low-permeation and flexible hose lines that make it possible to comply with these stringent regulations. However, the system can only be as tight as the connections between the lines. ContiTech has developed the solution for these critical points with the ContiLock R cold-formed flat connection.

Hybrid ring in CVT
A new drive belt developed by the ContiTech Power Transmission Group makes CVT possible for small cars, too. The so-called hybrid ring functions without lubrication and thus has a high coefficient of friction. The dry-running hybrid ring makes the hydraulic pump redundant. This reduces weight and necessary installation space, which plays a big role in the design of small cars. Having dispensed with the hydraulics, the hybrid ring in CVT technology makes a further contribution to reducing CO2 emissions.

Investment Activities

Capital expenditure
    in million euros % of sales
  2007 2006 2007 2006
Chassis & Safety 279.8 279.1 6.0 6.2
Powertrain 129.6 46.6 11.0 7.2
Interior 65.5 33.8 4.3 3.9
Passenger and Light Truck Tires 220.0 244.5 4.5 5.2
Commercial Vehicle Tires 83.0 91.3 5.7 6.2
ContiTech 99.8 105.7 3.3 3.7
Other/Consolidation 17.2 4.1 - -
Total 896.9 805.0 5.4 5.4

-The Company expects to continue expanding capital expenditures in 2008 and 2009 for a capital expenditure ratio of approximately 6.0% for both years.

By Division

Chassis & Safety Division
- The Electronic Brake Systems business unit continued to invest in expanding production capacity and implementing a new manufacturing concept in response to increased demand for ESC and ABS systems in America and Europe.
- The Hydraulic Brake System business unit invested in the development of a new production facility in Chang-shu, China
- In 2008, the Company is scheduled to begin operations at its new automotive electronics plant in the Indian city of Bangalore.

Powertrain Division
- Investment in FY2007 focused primarily on expanding manufacturing capacity for transmission control equipment.
- The construction of a new plant in Thailand for the production of diesel systems is in planning. Production is slated to start in 2009.

Interior Division

- The investment priority for the Telematics unit was the establishment of additional manufacturing capacity for telematics products in the U.S.A. and the expansion of the plants in China

Passenger and Light Truck Tires Division
- The investment priorities in 2007 included the continued expansion of capacity in the low-cost European countries of Portugal, Romania, and the Czech Republic. The Company also invested in capacity expansion at the production site in the U.S.A., Mexico, and Malaysia.
- The Company took the first step in setting up a tire plant in China, signing an investment agreement for this purpose at the end of October 2007. Construction will start in mid-2008 in Hefei, the capital of Anhui Province. Production at the new plant will start at the beginning of 2010.

Commercial Vehicle Tires
- The main reason for the decrease was the lower level of additions for the new plant in Camacari, Brazil. Important additions were made as a result of the expansion of manufacturing capacity in Mount, Vernon, Illinois, U.S.A. and Puchov, Slovakia.

- The investment priorities were the expansion of the plants in Romania, Hungary, Mexico and Turkey.