HANOVER, Germany — Continental AG said this week it is aiming for sales of $32 billion for fiscal 2008 and will reduce net indebtedness as planned.
Continental said the fourth quarter, however, holds uncertainties due to the declining economy. In response to the substantial deterioration in the market situation, the company has initiated an extensive cost-saving program in addition to ongoing restructuring projects.
"In the first half of the year, the weak market situation in North America was compensated by the favorable economic conditions in Europe and Asia. In the last quarter, however, there were drastic signs of slowing in all markets, whereby the dramatic declines in Europe in particular have negatively affected us. This trend will probably become even stronger, continuing far into 2009," said Continental Executive Board Chairman Dr. Karl-Thomas Neumann.
"With its high efficiency and a strategy of continuous restructuring processes, Continental is well prepared for the difficult challenges ahead. Nonetheless, we have initiated additional programs to cut costs. For instance, in the Automotive Group we will reduce the number of temporary workers, greatly lengthen the plant holiday shutdown period at the end of the year by using the existing work time accounts, and, depending on the location and the order situation, deviate downwards from the 5-day-week until further notice. Furthermore, we are putting investments that are not urgent on hold," said Dr. Neumann.
Consolidated sales for the first nine months of 2008 rose by 60.6 percent to $24.7 million. This increase resulted both from organic growth and from changes in the scope of consolidation, especially from the acquisition of Siemens VDO. Exchange rate changes had an offsetting effect.
Net income attributable to the shareholders of the parent was down 56 percent to $461 million, due mainly to the increased interest expense, with earnings per share lower at $2.84.
The increase in raw material prices had a negative impact of approximately $260 million on the corporation in the first nine months of 2008 compared with the prices for the first nine months of 2007. This affected primarily the Rubber Group.
Looking at the banking crisis, CFO Dr. Alan Hippe, vice chairman of the executive board and head of the Rubber Group, stressed the solid financial position of Continental. "As of September 30, 2008, Continental had at its disposal liquidity reserves of nearly $1.3 billion as well as unused approved credit lines in volumes exceeding $2.5 billion."
He also pointed out that in the third quarter of 2008, conversion rights were exercised extensively under the convertible bond issued in May 2004 for $508 million. "The outstanding amount decreased from $478.9 million to $35.7 million, contributing to a reduction in net indebtedness. We paid the bond back in full on Oct. 23, 2008. This, together with our cash flow, will enable us to substantially reduce our net indebtedness in 2008 as planned."
At $13.7 million, the net indebtedness of the corporation on Sept. 30 was $62.6 million million lower than on Dec. 31, 2007. The gearing ratio amounted to 146 percent.
