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Sales up 3.7%
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Sales up 2.9% before changes in the scope of consolidation and exchange rate effects
Management Report Economic Report Annual Report 2014 Continental AG 99 Powertrain in € millions 2014 2013 ' in % Sales 6,494.3 6,260.3 3.7 EBITDA 443.3 650.2 –31.8 in % of sales 6.8 10.4 EBIT –96.8 179.5 –153.9 in % of sales –1.5 2.9
Research and development expenses 635.1 561.8 13.0
in % of sales 9.8 9.0
Depreciation and amortization1 540.1 470.7 14.7
– thereof impairment2
168.4 38.9 332.9
Operating assets as at December 31 2,641.4 2,759.7 –4.3
Operating assets (average) 2,733.0 2,936.9 –6.9
ROCE –3.5 6.1
Capital expenditure3 428.0 360.5 18.7
in % of sales 6.6 5.8
Number of employees as at December 314 34,529 32,353 6.7
Adjusted sales5 6,383.1 6,260.3 2.0
Adjusted operating result (adjusted EBIT)6 259.2 319.7 –18.9
in % of adjusted sales 4.1 5.1
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.
Special effects in 2013
On January 1, 2013, the closing took place for SK Continental E-motion Pte. Ltd., Singapore, Singapore, a company jointly managed by SK Innovation Co., Ltd., Seoul, South Korea, and Continental, after the agreement to form the company was signed in July 2012. The transaction resulted at that time in income of €23.6 million in the Powertrain division.
The annual impairment test on goodwill resulted in an impair- ment loss of €27.6 million in the Powertrain division.
Impairment losses on property, plant and equipment resulted in expenses totaling €11.2 million for the locations in Kaluga, Russia; Trutnov, Czech Republic; Cuautla, Mexico; Sibiu, Romania; Limbach-Oberfrohna, Germany; Nuremberg, Germany; and Shanghai, China. The division also recognized an impairment loss of €0.1 million on intangible assets.
The reversal of restructuring provisions no longer required resulted in a positive special effect of €0.9 million.
Special effects in 2013 had a negative impact totaling €14.4 million in the Powertrain division.
Procurement
The procurement market for the Powertrain division was char- acterized by differently developing raw material prices. While prices for platinum fell, rising prices were observed for palladi- um and aluminum, though these were avoided in part thanks to forward buying activities. The procurement cooperation with the Schaeffler Group was successfully continued. Local pro- curement of components in the regions close to production was expanded further.
Research and development
Research and development expenses rose by €73.3 million or 13.0% year-on-year to €635.1 million (PY: €561.8 million), cor- responding to 9.8% (PY: 9.0%) of sales.
Depreciation and amortization
Depreciation and amortization rose by €69.4 million compared to fiscal 2013 to €540.1 million (PY: €470.7 million) and amounted to 8.3% (PY: 7.5%) of sales. This included impairment losses totaling €168.4 million (PY: €38.9 million) in 2014.
Operating assets
Operating assets in the Powertrain division declined by €118.3 million year-on-year to €2,641.4 million (PY: €2,759.7 million) as at December 31, 2014.
Management Report Economic Report Annual Report 2014 Continental AG 100
Working capital increased by €99.6 million to €326.3 million (PY: €226.7 million). Inventories increased by €57.6 million to €319.1 million (PY: €261.5 million). Operating receivables in- creased by €90.3 million to €1,101.0 million (PY: €1,010.7 million) as at the reporting date. Total operating liabilities were up €48.3 million at €1,093.8 million (PY: €1,045.5 million).
Non-current operating assets amounted to €2,762.5 million (PY: €2,801.9 million), down €39.4 million year-on-year. Goodwill increased by €106.2 million to €954.4 million (PY: €848.2 million). This essentially resulted from the acquisition of Emitec Gesellschaft für Emissionstechnologie mbH, Lohmar, Germany, in the amount of €77.5 million and exchange rate effects of €28.7 million. Property, plant and equipment, at €1,674.1 mil- lion, was €39.9 million above the previous year’s level of €1,634.2 million. Other intangible assets fell by €29.7 million to €75.1 million (PY: €104.8 million). This decrease was mainly due to the amortization of intangible assets from purchase price allocation (PPA) in the amount of €64.5 million (PY: €126.9 million).
In the Powertrain division the acquisition of the remaining shares in Emitec Gesellschaft für Emissionstechnologie mbH, Lohmar, Germany, led to a rise in operating assets of €176.0 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 Powertrain division’s total operating assets by €88.4 million in the fiscal year. In the previ- ous year, this effect had reduced operating assets by €77.6 million.
Average operating assets in the Powertrain division declined by €203.9 million to €2,733.0 million as compared to fiscal 2013 (€2,936.9 million).
Capital expenditure (additions)
Additions to the Powertrain division increased by €67.5 million year-on-year to €428.0 million (PY: €360.5 million). Capital expenditure amounted to 6.6% (PY: 5.8%) of sales.
In the Powertrain division, production capacity was increased at the German locations and in the U.S.A., China, the Czech Repub- lic, and Romania. Important additions related to the Engine Systems and Sensors & Actuators business units. In the Engine Systems business unit, manufacturing facilities for engine injec- tion systems were expanded in particular. In Kaluga, Russia, investments were made in the establishment of a new plant for the Engine Systems and Fuel & Exhaust Management business units.
Employees
The number of employees in the Powertrain division rose by 2,176 compared with the previous year to 34,529 (PY: 32,353). The increase in staff numbers in the Sensors & Actuators and Transmission business units is due to rising volumes and the further expansion of research and development. In addition, the acquisition of the exhaust technologies specialist Emitec led to a rise in headcount in the Fuel & Exhaust Management busi- ness unit. The number of employees was down in the Engine Systems business unit.
Management Report Economic Report Annual Report 2014 Continental AG 101
Sales volumes
Sales volumes in the Body & Security business unit were signifi- cantly above the previous year’s level in fiscal 2014. There were increases in all regions. This was achieved thanks to new pro- jects in the product groups seat control devices, lighting control and body controllers. Sales volumes matched the previous year’s level in the Infotainment & Connectivity business unit. Unit sales of multimedia systems picked up significantly on account of new products in Asia and on the U.S. market, and growing de- mand in Europe. There was a decline in device connectivity and telematics products. Sales volumes in the Commercial Vehicles & Aftermarket business unit were above the previous year’s level. This is essentially due to the rise in demand for new third- generation braking systems and tire-pressure monitoring sys- tems, and to a higher level of series products being taken on by the replacement part and aftermarket business, especially in Western Europe and NAFTA. In the Instrumentation & Driver HMI business unit, sales figures in 2014 as a whole were higher than in the previous year before consolidation changes. This was primarily attributable to considerably higher demand in China and increased sales volumes in North America and Eu- rope. Sales volumes of instrument clusters saw the strongest year-on-year rise.
Sales up 6.0%
Sales up 8.6% before changes in the scope of consolidation and exchange rate effects
Sales in the Interior division rose by 6.0% year-on-year to €7,002.5 million (PY: €6,605.7 million) in 2014. Before changes in the scope of consolidation and exchange rate effects, sales climbed by 8.6%.
Adjusted EBIT up 21.8%
The Interior division’s adjusted EBIT increased by €126.7 mil- lion or 21.8% year-on-year in 2014 to €708.4 million (PY: €581.7 million), equivalent to 10.1% (PY: 8.9%) of adjusted sales.
EBIT up 59.2%
In comparison to the previous year, the Interior division posted an increase in EBIT of €225.3 million or 59.2% to €605.9 mil- lion (PY: €380.6 million) in 2014. The return on sales rose to 8.7% (PY: 5.8%).
ROCE amounted to 15.9% (PY: 9.5%).
The amortization of intangible assets from purchase price allo- cation (PPA) reduced EBIT by €92.3 million (PY: €182.7 million).
Special effects in 2014
In the Interior division, the divestment of certain activities of the Infotainment & Connectivity business unit at the location in Rambouillet, France, resulted in a loss of €7.3 million. Impair- ment losses of €4.2 million on property, plant and equipment were also incurred in this context.
Further impairment losses on intangible assets and property, plant and equipment resulted in expense of €1.6 million in the Interior division.
The reversal of restructuring provisions no longer required resulted in a positive special effect of €1.2 million.
Effective September 30, 2014, certain activities of the Body & Security business unit were sold to a newly established joint venture. This transaction resulted in a positive special effect totaling €1.7 million in the Interior division.
Special effects in 2014 had a negative impact totaling €10.2 million in the Interior division.
Special effects in 2013
As at January 29, 2013, Continental sold its shares in S-Y Sys- tems Technologies Europe GmbH, Regensburg, Germany, to Yazaki Europe Ltd., Hemel Hempstead, U.K. The transaction resulted in income of €54.6 million in the Interior division.
On July 10, 2013, the European Commission imposed fines on a number of automotive suppliers for anti-competitive conduct in the field of supplying wire harnesses for automotive applica- tions. These companies included S-Y Systems Technologies Europe GmbH, Regensburg, Germany, and its French subsidiary, which had to pay a fine of €11.1 million due to cartel agree- ments with regard to one automotive manufacturer. Since Con- tinental held a 50% share of S-Y Systems Technologies Europe GmbH, Regensburg, Germany, until January 29, 2013, a provi- sion of €9.0 million was recognized in the Interior division based upon contingent liabilities.
The annual impairment test on goodwill resulted in an impair- ment loss of €40.0 million in the Interior division.
The reversal of restructuring provisions no longer required resulted in a positive special effect of €13.8 million.