Continental AG (CTTAY.OB)

Q2 2010 Earnings Call

July 28, 2010 10:00 am ET

Executives

Wolfgang Schaefer - CFO

Rolf Woller - IR

Analysts

Horst Schneider - HSBC

Philip Bukins - Citi

Gaetan Toulemonde - Deutsche Bank

Aleksej Wunrau - BHF

Thomas Besson - Bank of America Merrill Lynch

Eduardo Spina - Morgan Stanley

Presentation

Wolfgang Schaefer

Good afternoon, thank you for your interest and your time. With some general comments from my side before I would like to explain to you the information on the charts and the second quarter numbers approved that we are gaining speed on the road to set back to the road to success. We are profiting from the strong ebusiness worldwide, in addition we achieved market share gain in the replacement in the US and in Europe.

And our product over proportionally growing because there are parts of the megatrends in the auto industry and we are as well as seeing positive results from a continued type cost control to gather with the results from the restructuring. And I think finally we proved our ability to improve the maturity profile and the debt structure of our company with the issuance of the bonds two weeks ago.

Now I move to the slide3, we highlight a summary of financials starting with the P&L effects in the second half sales in the first half are up by 40%, second quarter being still 10% or even 10% above the first quarter year-over-year 40%. First half of the year with adjusted EBIT up by 1.1 billion year-over-year. The adjusted EBIT improved to 1.3 billion with a margin of 10.4% and the half year 2010 the first quarter was 2.2%, the second quarter 10.6%

The automotive group achieved an adjusted EBIT margin of 7.7% in the first quarter. Power train breakeven if possible to be reached in 2010 if a positive business development as we've seen it in the first half of the year. The rubber group achieved an adjusted EBIT margin of 15.5% in the first half but we have communicated already for some months there are on 250 million burden from raw materials cost are expected in the second half of 2010.

Special items now at around 70 million most of them in the second quarter, $32 million of that are related to the Hanover/Stoecken plant closure, we still the expect the special items to be around 100 million for the total year. We had in the second quarter write down of tax loss carried forward burden of 88 million which is non cash effective but influencing our after tax profit. If you look at the balance sheet, cash consumption was limited to 44 million in the first half of 2010 despite a strong increase in our business activities, we had no major cash out in the first half for restructuring still excepting that to come in the second half of the year. Capital expenditures at $430 million in the first half of the year so far below depreciation by it will increase to around $1.3 billion in the full year so back to the depreciation level.

Net debt was down to $8 million at the end of the first half, net debt to adjusted to EBITDA at 2.3 end of June. We received the Financial Reporting Enforcement Panel report I think you are aware that they were doing an investigation in Continental on the 2008 numbers. The objections regarding the justification of the growth rate in 2008 are finished, they don't require any changes to our previous financial statement.

Last highlight I would like to mention the bond issuance, we have placed the bond as always announced within the six months some days later we decided to issue Continental first bond since a while as a benchmark bond versus maximum volumes to make sure that it is well received but (inaudible) I think both targets were achieved. The bond was now just before we start the conference ranging around 105%. It's a senior secure note with an amount of $750 million it took off 8.5%, five year duration with a rating of S&P Moody's of B1 so that same as the company's rating.

The net proceed have been used to repay an amount of transfer be under the syndicated loan facility. And in the end it helped to further improve the maturity profile and the funding diversity of the company. The next step will be done on an opportunistic basis when the market allows for it. We saw direct effect in Moody's which changed the corporate rating to B1 with a stable outlook compared to the negative outlook which we've had before.

Moving to slide5, we are back on the sales to pre crisis in the quarter too with 6.6 billion but if you look at the margin it's up from around 9% second quarter of 2008 pre crisis level to now 10.6%. $700 million adjusted EBIT in the second quarter I think this is confirming good performance which we have shown already in the quarter one. And the quarter one we are as I said already we are gaining speed back on the road to success.

If you spilt the groups into automotive group and rubber group so I'm moving to chart 6, auto is getting close to the pre crisis sales level is 4.089 billion in sales compared to $4.1 billion which we've had in the second of 2008. And rubber is already above the level which we've had in the pre crisis time. Profit wise auto is back to the pre crisis level unfortunately we had high extra cost due to the scarcity of electronic components and that constrained further improvement on the profit side and this extra cost were all due in the second quarter of 2010.

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