Continental AG (CTTAY.OB)
Q1 2010 Earnings Call Transcript
May 4, 2010 10:00 am ET
Rolf Woller – Head, IR
Wolfgang Schäfer – CFO
Yann Benhamou – Exane
Philip Watkins – Citi
Francois Maury – Oddo Securities
Horst Schneider – HSBC
Christian Ludwig – Bankhaus Lampe
Stephanie Renegar – JPMorgan
Edoardo Spina – Morgan Stanley
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Welcome to everybody. Thank you for joining this conference call about our first-quarter performance. If I want to put it in four bullet points, we had a good start in the first quarter, we profited from good markets in the automotive and in the tire markets, we earned results from our restructuring efforts in the last two years and we see a promising comeback of our Automotive division. But in the last point, we are still somewhat unsure about the development in the second half of the volume development.
However, if I look on the presentation slide number three, the highlights of the first quarter. Sales were up by 39% year-over-year, of course compared to quite a weak quarter to a very weak quarter, first quarter last year, and 5% up against the last quarter 2009. The quarter one adjusted EBIT was up by 641 million year-over-year, and the adjusted EBIT improved now to 605 million, which is an adjusted margin of 10.2% in the first quarter. This is even above the first quarter of 2008, although sales are still down by almost 10% compared to this quarter two years ago.
The Automotive Group has an adjusted EBIT margin at 8% in the first quarter. Again, we had strong results in Chassis & Safety. We had a further recovery in Interior, though the commercial vehicle market did not yet really pick up, and we have a continuous improvement in Powertrain. The Rubber Group achieved an adjusted EBIT margin of 14.5% in the first quarter.
All divisions contributed to a sustained adjusted EBIT level compared to the fourth quarter of 2009. And we do not yet have impact of the escalated raw material prices into our profit, especially the natural rubber prices. Overall, we have almost no special items booked in the first quarter of 2010.
If you look at the first quarter from a balance sheet point of view, we managed to limit the cash consumption to 363 million, despite a strong increase in our business activities. We had no major cash out in the first quarter for restructuring undertaken in 2009. This will come in the second half of the year only and first half of 2011. We limited the Capex at 178 million, but that will increase in the coming quarters.
And the net debt was down to 8.2 billion at the end of the first quarter. The net debt to adjusted EBITDA was 2.7 times at the end of the first quarter.
If you look at the highlights on the sales and profit development, we managed or we reached 6 billion in sales, the 39% plus year-over-year. And you will see we are in a V-shaped curve as a group, the worst quarter, the first quarter 2009 now coming up back to the 6 billion in the first quarter 2010. Constant recovery of sales in those four quarters, quarter-by-quarter. But if you see here as well, it's still 10% below the pre-crisis level, which we had.
On the EBIT, adjusted EBIT, although we are below this pre-crisis level, we managed to come back to the old level, which was 10.2%. The restructuring over the last two years helped. If you just look at the personnel, we have 153,000 people in the end of the first quarter of 2008, just after the takeover of the Siemens VDO business. We are now at 137,000 people. We improved the footprint at the same time, and we had a tight cost control, specifically over last year and this is still in place and will remain.
Look on the next page, in the split between the Automotive Group and the Rubber Group, you'll see different patterns. We have the V-shape even stronger, the V-shaped recovery in the Automotive business. You can see that on the sales level, we are 3.77. We are still 13% below the peak in the two first months of 2008, but we are 50% up compared to the lowest quarter, first quarter of 2009. And this is mirrored as well on the profit side, where we have to compare the 300 million profits now in the first quarter of 2010 to the minus 146, which we had in the first quarter of 2009. And on the total level, we are back on the level which we had in the first quarter of 2008.
On the Rubber side, you see a more stable development. We didn't have – it's not really a V-shaped – about three quarters more stable. Though we still see an increase, we are now 3% only below the level of 2008 and we are 20% below as well a weak, but not such a weak quarter in the first quarter of 2009. Profit development improved against the first quarter 2009, but in the last three months, more on a stable level.
The raw material impact, as I said, is not yet seen in the first-quarter numbers. We are still profiting on the cheaper raw material prices, which we could get last year.
If we walk through our indebtedness on the page six, you can see that starting with a net debt of 8.89 billion end of last year. We had Capex now in the first quarter 178 million, and we had a net change in working capital of 857 million. Now the change in receivables, up 700 million, there is no change in the overdue, so it is just due to the higher business volume which we had in the first quarter. We have only a very small increase in the change in inventories, and the change in payables are not as strong as you might expect.