Continental AG Demonstrates Strength by Posting First-Half Profit from Operations

HANOVER, GERMANY - July 20, 2009: Continental AG, Hanover, is demonstrating its unwavering operational strength in the midst of the ongoing crisis in the automotive sector. Based upon preliminary figures for the second quarter of 2009, the international automotive supplier posted a clear profit with an adjusted EBIT of €283.0 million despite further market-driven declines in sales in comparison to the same period of 2008. In the first quarter of 2009, its adjusted EBIT, at -€34.3 million, was in the negative range. In the second quarter, the reported EBIT of €38.8 million also surpassed the breakeven point. Continental also firmly complied with the financial covenants agreed upon with its creditor banks for the end of the second quarter.

“In an extremely difficult business environment and despite the current paralysis due to its uncertain future, Continental still achieved its operating goals. The most extensive cost-cutting package in the company’s history, the management of accounts receivable from GM and Chrysler as well as the rigorous and consistent adaptation of the company to the continuing very difficult market environment in our business fields are showing increasing positive results,” said Continental Executive Board chairman Dr. Karl-Thomas Neumann on Monday in Hanover at the presentation of some preliminary figures for the first half of 2009. He also pointed out that Continental has had to reduce the number of employees worldwide by about 16,000 since the crisis began in September 2008.

"But despite a slight market upturn, for the time being there is no reason to give the all clear: In the second half of 2009 and beyond, the business environment will continue to be a major challenge for Continental as well as for the entire supplier industry. It would therefore be shortsighted, in view of our tight financial situation, to rely solely on our operational strength, especially since the improved operating margins are generated based upon much lower sales.”

Based on preliminary figures, consolidated sales for the first half of 2009 fell compared with the same period of the previous year to €9,063.2 million (H1 2008: €13,254.0 million). This decline was due to the market downturn resulting in part from the unexpected full stop in production at Chrysler in May and June. Sales in the second quarter of 2009 amounted to €4,761.2 million (Q2 2008: €6,614.6 million), thus exceeding sales in the first quarter of 2009 by roughly €460 million. Although consolidated EBIT fell in the first half of 2009 to -€126.2 million, (H1 2008: €912.4 million), EBIT in the second quarter totaled to €38.8 million despite the continuing slump in sales, exceeding first quarter EBIT by more than €200 million.

Adjusted EBIT surpassed the breakeven point in the second quarter in the Automotive Group as well. “Special attention should be drawn to the rigorous cost cutting in the Powertrain and Interior divisions, both of which were able to substantially reduce losses compared to the first quarter,” Dr. Neumann stressed. Added to this is the EBIT of the Rubber Group, which continues to be impressive, bringing the adjusted consolidated EBIT of €248.7 million for the first six months of 2009 (H1 2008: €1,183.7 million) well over the breakeven point. In the second quarter of 2009, the adjusted consolidated EBIT amounted to €283.0 million after -€34.3 million in the first quarter of 2009. Liquidity in the form of cash, cash equivalents and unutilized credit lines continues to be stable after the first half-year.

“The key figures for the second quarter once again clearly demonstrate that Continental's organization is well balanced and makes strategic sense: The Rubber Group, which is less susceptible to economic trends on the whole, is posting substantial profits, providing for reliable cash flow. At the same time, we have gained important business for the future in the Automotive Group,” Dr. Neumann explained. “In view of the upcoming financial liabilities that become due in August 2009 and August 2010, we feel that it is still vital for us to safeguard this strong formation with an appropriate financing situation in the medium and long term,” said Dr. Neumann.

In a letter to the company’s employees, Dr. Neumann and his Executive Board colleagues thanked them for their hard work and commitment under extremely difficult conditions and especially for the understanding of those employees who were affected by the postponement of the June remuneration payments by a few days in some countries. “We initiated these precautionary measures at a point in time when we were not absolutely certain that we would comply with the covenants without this step. As it turned out, we would have managed this without postponing the remuneration payments. All the more reason for us to thank you for your understanding of this unusual procedure,” it said in the letter.

The Continental Corporation’s financial report for the first half-year will be released on July 30. Dr. Neumann also emphasized that the Continental Executive Board will be presenting various future scenarios to the Supervisory Board on July 30: “We still assume that clear direction-setting decisions regarding the future of Continental will be made at the upcoming meeting of the Supervisory Board.”

With sales exceeding €24 billion in 2008, the Continental Corporation is one of the top automotive suppliers worldwide. As a supplier of brake systems, systems and components for the powertrain and chassis, instrumentation, infotainment solutions, vehicle electronics, tires, and technical elastomers, the corporation contributes to enhanced driving safety and protection of the global climate. Continental is also a competent partner in networked automobile communication. The corporation currently employs approximately 133,000 at nearly 190 locations in 35 countries.