Continental CEO Discuses Q3 2010 Results - Earnings Call Transcript
Continental AG (
)
Q3 2010 Earnings Call
November 03, 2010 10:00 am ET
Executives
Rolf Woller - IR
Wolfgang Schäfer- CFO
Stefan Scholz - Head, Finance and Treasury
Hannes Boekhoff - Head of Press
Analysts
Horst Schneider - HSBC
Philip Watkins - Citi
Yann Benhamou - Exane
Henning Cosman - WestLB
Gaetan Toulemonde - Deutsche Bank
Aleksej Wunrau - BHF Bank
Christian Ludwig - Bankhaus Lampe
Thomas Besson - Merrill Lynch
Stephanie Renegar - JPMorgan
Henning Cosman - WestLB
Bastin Wagner - Old Material Asset Management
Philip Watkins - Citi
Presentation
Operator
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Continental AG Q2 2010 Earnings Call Transcript
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Continental AG Q1 2010 Earnings Call Transcript
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Alexander & Baldwin Management Discusses Q3 2010 Results – Earnings Call Transcript
Ladies and gentlemen, welcome to the conference call of Continental AG Nine Months Results 2010. This call is being recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. (Operator Instructions) I now hand over to Rolf Woller. Please go ahead, sir.
Rolf Woller
Thank you very much. Warm welcome to everybody here from Hanover. Good morning, good afternoon wherever you are in the world to our nine months conference call. Together with me here in Hanover I have Wolfgang Schäfer, our CFO; Stefan Scholz, the Head of Finance and Treasury, Hannes Boekhoff, the Head of Press and myself from the IR team.
Before I handover to Wolfgang, just some housekeeping items. First of all in the press release interim report and the presentation should have been sent to you already during the morning. If you has not received it you can download it from our internet page which is www.contiir.de or www.conti.com. Those actually were not able to join the conference call can listen to the webcast in the internet. After Mr. Schäfer has lead you through the presentation, there will be the chance actually to raise questions which we are hopefully able to answer in an appropriate way.
With that, I’d like to hand over to Wolfgang. Please go ahead.
Wolfgang Schäfer
Good afternoon. Thank you for your interest and time in Continental AG. I will take the next roughly 45 minutes to explain the Quarter Three developments of Continental in the structure which you are used to from us. Before I start with slide three probably let me do some very high level summary of the last nine months and of the last quarter.
We are still benefiting from the tailwind of the economic recovery. For us, it’s no doubt that will prevail for the whole year now and we have no indication that it will not prevail at least under the first quarter of 2011.
Now, due to this development, we have increased our guidance to somewhat little bit about €25 billion sales, but these do not expect any further increase when we are going to present our final year numbers in February.
Second, we have managed to transform this momentum into the profit margin so, our guidance from 8 to 8.5% can be rate to 9% for the full year. This is including our all the negative effect of scarcity of electronic components we have talked about that already in the last year which are decreasing then over the next six months and of the raw material and natural rubber issue and of the ramp up of electronic vehicle components which was all in this quarter.
All three effects basically have major strong negative impact on quarter three. Same message here. The 9% is more probably what the value will be around at year end and again do not expect any further raise in this guidance from our side.
Third issue, the net income is negatively impacted by and the improvement in the operating margin is not brought forward to the net income mainly due to tax effect on cash and P&L tax rates and smaller one in this quarter, a one time effect related to the bond issue.
Fourth and last, summary issue nevertheless, we see a positive free cash flow development in quarter four somewhat better than expected whether on €500 million free cash flow generated in that quarter. This will help to reduce debt and in addition, the bond issuance of the €3 billion in the last three months will have to reduce our or it help to reduce banker.
Much as the summary of the development in the first nine months and have said this, I would move to page three to a summary of the financial highlights of the group and as you know it from us all of these highlights mentioned here will be later on be explained in more detail.
The sales up 33% year-over-year on the first nine months and the adjusted EBIT up more than €1.1 billion year-over-year which means an improvement to €1.8 billion of the adjusted EBIT in the first nine months with the margin of 9.4%.
The Automotive Group all of it have an adjusted EBIT margin at 6.5% after the nine months. The Quarter Three adjusted EBIT in automotive was depressed by special freight cost and by the ramp-up cost in Powertrain.
On the Rubber Group, we have an adjusted EBIT margin of 14.8% after the nine months despite a €170 million cost burden from the rising raw material cost in this quarter. Special items amounted to roughly €77 million after the nine months.
I said that already increased our full year out of €25 billion sales and an adjusted EBIT margin to stay at around 9%. We have the tax ratio impacted by the write down on inter carryforwards and other factors, it will stay at around 50% in 2010, I will come back to that later.
Now, if you look at the balance sheet effect in the first nine months, we had cash consumption limited to €170 million despite a strong increase in all business activities, free cash flow will amount to €500 million in the fourth quarter and will allow for further debt reduction.
We had CapEx in the first nine months at €782 million. This will increase to around €1.2 billion in the full year 2010 so; roughly go through depreciation not accounting for PPA. Net debt at €8.1 billion after nine months so, basically stable on the numbers we have seen after the first half of the year and the net debt to adjusted EBITDA is at 2.3 after the nine months.
We have managed to balance out the maturity profile considerably by issuing bonds, four bonds in the amount of €3 billion. If you move to page four, I have some details here of the recent bond issuances. The issue of the bond was (inaudible) financed. It is senior secured notes with maturities in 2015, 2016, 2017, and 2018 and the net proceeds were used as you have expected that to repay the Tranche B and Forward Start facility in full and to partially reduce the amount of the Tranche C so, overall we have now €4.1 billion on the Siemens VDO debt which is maturing in 2012.
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