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Sales up 2.1%

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Sales up 2.1% before changes in the scope of consolidation and exchange rate effects

Management Report Economic Report Annual Report 2014 Continental AG 106 Tires in € millions 2014 2013 ' in % Sales 9,784.4 9,583.2 2.1 EBITDA 2,280.8 2,137.7 6.7 in % of sales 23.3 22.3 EBIT 1,829.4 1,752.7 4.4 in % of sales 18.7 18.3

Research and development expenses 216.9 204.7 6.0

in % of sales 2.2 2.1

Depreciation and amortization1 _{451.4 385.0 17.2}

– thereof impairment2

— –1.3 100.0

Operating assets as at December 31 4,882.7 4,309.3 13.3

Operating assets (average) 4,932.0 4,645.8 6.2

ROCE 37.1 37.7

Capital expenditure3 _{724.3 798.6 –9.3}

in % of sales 7.4 8.3

Number of employees as at December 314 _{47,338 44,508 6.4}

Adjusted sales5 _{9,609.8 9,583.2 0.3}

Adjusted operating result (adjusted EBIT)6 _{1,867.1 1,788.3 4.4}

in % of adjusted sales 19.4 18.7

1 Excluding impairment on financial investments.

2 Impairment also includes necessary reversal of impairment losses. 3 Capital expenditure on property, plant and equipment, and software. 4 Excluding trainees.

5 Before changes in the scope of consolidation.

6 Before amortization of intangible assets from purchase price allocation (PPA), changes in the scope of consolidation, and special effects.

Research and development

Research and development expenses rose by €12.2 million or 6.0% year-on-year to €216.9 million (PY: €204.7 million), corre- sponding to 2.2% (PY: 2.1%) of sales.

Depreciation and amortization

Depreciation and amortization rose by €66.4 million as com- pared to fiscal 2013 to €451.4 million (PY: €385.0 million) and amount to 4.6% (PY: 4.0%) of sales. In fiscal 2014 there were no impairment losses or reversals of impairment losses (PY: rever- sals of €1.3 million).

Operating assets

Operating assets in the Tire division increased by €573.4 mil- lion year-on-year to €4,882.7 million (PY: €4,309.3 million) as at December 31, 2014.

The Tire division posted a €222.5 million rise in working capital to €2,064.9 million (PY: €1,842.4 million). Inventories increased by €41.2 million to €1,332.4 million (PY: €1,291.2 million). Operating receivables increased by €129.2 million to €1,811.0 million (PY: €1,681.8 million) as at the reporting date. Operating liabilities were down €52.1 million at €1,078.5 million (PY: €1,130.6 million).

Non-current operating assets amounted to €3,586.4 million (PY: €3,192.2 million), up €394.2 million year-on-year. This increase was primarily due to the €321.7 million rise in property, plant and equipment to €3,267.3 million (PY: €2,945.6 million). Good- will increased by €54.8 million to €152.0 million (PY: €97.2 million). In addition to minor exchange rate effects, at €52.9 million this development is essentially due to the acquisition of shares in MPI SAS, Mandelieu, France, and REPARATION PNEUMATIQUES DU SUD EST (REPNEU) SAS, Grasse, France.

Overall, the acquisition of MPI SAS, Mandelieu, France, and REP- ARATION PNEUMATIQUES DU SUD EST (REPNEU) SAS, Grasse, France, through Continental Holding France SAS, Sarregue- mines, France, as part of a share deal led to a rise in the operat- ing assets of the Tire division of €81.6 million. Other changes in the scope of consolidation and asset deals did not result in any notable additions or disposals of operating assets.

Exchange rate effects increased the Tire division’s total operat- ing assets by €99.2 million in the year under review. In the pre- vious year, this effect had reduced operating assets by €251.4 million.

Average operating assets in the Tire division increased by €286.2 million to €4,932.0 million compared with fiscal 2013 (€4,645.8 million).

Management Report Economic Report Annual Report 2014 Continental AG 107

Capital expenditure (additions)

Additions to the Tire division decreased by €74.3 million year- on-year to €724.3 million (PY: €798.6 million). Capital expendi- ture amounted to 7.4% (PY: 8.3%) of sales.

In the Tire division, production capacity was established and expanded at European best-cost locations, in North and South America and in Asia. There were major additions relating to the construction of new plants in Sumter, South Carolina, U.S.A., and Kaluga, Russia, and the expansion of existing sites in Mount Vernon, Illinois, U.S.A.; Otrokovice, Czech Republic; Puchov, Slo- vakia; Lousado, Portugal; Hefei, China; and Camacari, Brazil. Quality assurance and cost-cutting measures were also imple- mented.

Employees

The number of employees in the Tire division increased by 2,830 to 47,338 (PY: 44,508). At the production companies, the increase in staff numbers was due to the recruitment of addi- tional staff in connection with the ongoing expansion of the two new plants in Kaluga, Russia, and Sumter, South Carolina, U.S.A. Furthermore, the increase in the number of employees is also attributable to expansion projects at distribution and retail companies, in particular as a result of the acquisition of MPI SAS, Mandelieu, France, and REPARATION PNEUMATIQUES DU SUD EST (REPNEU) SAS, Grasse, France.

Management Report Economic Report Annual Report 2014 Continental AG 108

Sales up 1.4%

Sales up 1.3% before changes in the scope of consolidation and exchange rate effects

Sales in the ContiTech division rose by 1.4% year-on-year to €3,931.2 million (PY: €3,878.3 million) in 2014. Before changes in the scope of consolidation and exchange rate effects, sales climbed by 1.3%.

Both automotive replacement business and original equipment (OE) business posted growth in sales in 2014. In industrial business, sales did not reach the previous year’s level.

Adjusted EBIT down 6.4%

The ContiTech division’s adjusted EBIT fell by €29.8 million or 6.4% year-on-year in 2014 to €438.5 million (PY: €468.3 mil- lion), equivalent to 11.3% (PY: 12.1%) of adjusted sales.

EBIT down 6.2%

Compared with the previous year, the ContiTech division posted a decrease in EBIT of €28.8 million or 6.2% to €433.3 million (PY: €462.1 million) in 2014. The return on sales fell to 11.0% (PY: 11.9%).

ROCE amounted to 30.8% (PY: 36.5%).

Special effects in 2014

In the ContiTech division, income totaling €2.3 million resulted from bargain purchases from purchase price allocations. €0.7 million of this was attributable to the Fluid Technology business unit and €0.6 million to the Benecke-Kaliko Group business unit. There was also €1.0 million from the final purchase price alloca- tion of a transaction in 2013 in the Conveyor Belt Group busi- ness unit.

Special effects in 2013

Special effects in 2013 had a negative impact totaling €0.3 million in the ContiTech division. This included impairment losses on property, plant and equipment totaling €0.2 million.

Procurement

Like the Tire division, the ContiTech division benefited from similar year-on-year raw material price effects. The prices for natural rubber, synthetic rubber and carbon black were signifi- cantly lower than the previous year’s level. However, owing to a lower share of natural rubber, which saw the biggest year-on- year price decline, and a higher share of specialty rubbers, the price decline at ContiTech was less pronounced than in the Tire division.

Research and development

Research and development expenses rose by €0.7 million or 0.8% year-on-year to €85.3 million (PY: €84.6 million), corre- sponding to 2.2% of sales as in the previous year.

Depreciation and amortization

Depreciation and amortization rose by €4.3 million compared to fiscal 2013 to €118.5 million (PY: €114.2 million) and amounted to 3.0% (PY: 2.9%) of sales. In fiscal 2014 there were no impairment losses or reversals of impairment losses (PY: impairment losses of €0.2 million).

Operating assets

Operating assets in the ContiTech division increased by €170.4 million year-on-year to €1,406.1 million (PY: €1,235.7 million) as at December 31, 2014.

Working capital was up €61.5 million at €608.0 million (PY: €546.5 million). Inventories increased by €15.7 million to €415.8 million (PY: €400.1 million). Operating receivables in- creased by €49.3 million to €637.4 million (PY: €588.1 million) as at the reporting date. Operating liabilities were up €3.5 mil- lion at €445.2 million (PY: €441.7 million).

Non-current operating assets amounted to €973.9 million (PY: €857.7 million), up €116.2 million year-on-year. This increase was primarily due to the €108.3 million rise in property, plant and equipment to €814.8 million (PY: €706.5 million). Goodwill increased as a result of the acquisition of various business units and exchange rate effects by €6.4 million to €96.6 million (PY: €90.2 million).

The acquisition of Gorvi S.A., Pamplona, Spain, and Mecapol S.A., Wagrowiec, Poland, by ContiTech Global Holding Netherlands B.V., Maastricht, Netherlands, as part of a share deal increased the operating assets of the ContiTech division by €16.7 million. Other changes in the scope of consolidation and asset deals did not result in any notable additions or disposals of operating assets.

Exchange rate effects increased the ContiTech division’s total operating assets by €29.7 million in the fiscal year. In the previ- ous year, this effect had reduced operating assets by €35.2 million.

Average operating assets in the ContiTech division climbed by €139.7 million to €1,407.2 million in comparison to fiscal 2013 (€1,267.5 million).