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Sales up 3.4%

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Sales up 4.9% before changes in the scope of consolidation and exchange rate effects

Management Report Economic Report Annual Report 2014 Continental AG 97

Chassis & Safety in € millions 2014 2013 ' in %

Sales 7,514.9 7,269.2 3.4

EBITDA 1,018.1 990.2 2.8

in % of sales 13.5 13.6

EBIT 680.2 598.9 13.6

in % of sales 9.1 8.2

Research and development expenses 629.5 535.3 17.6

in % of sales 8.4 7.4

Depreciation and amortization1 _{337.9 391.3 –13.6}

– thereof impairment2

4.7 41.4 –88.6

Operating assets as at December 31 4,000.6 3,865.3 3.5

Operating assets (average) 3,956.5 4,032.6 –1.9

ROCE 17.2 14.9

Capital expenditure3 _{411.6 401.7 2.5}

in % of sales 5.5 5.5

Number of employees as at December 314 _{38,127 36,496 4.5}

Adjusted sales5 _{7,513.7 7,269.2 3.4}

Adjusted operating result (adjusted EBIT)6 _{708.5 692.0 2.4}

in % of adjusted sales 9.4 9.5

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.

investing activities. Other intangible assets fell by €22.0 million to €70.1 million (PY: €92.1 million). This decrease was mainly due to the amortization of intangible assets from purchase price allocation (PPA) in the amount of €25.5 million (PY: €50.9 million).

Overall, the acquisition of the remaining 50% of shares in Alpha- peak Ltd., Lichfield, U.K., as part of a share deal increased the Chassis & Safety division’s operating assets by €24.3 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 Chassis & Safety division’s total operating assets by €89.3 million in the fiscal year. In the previous year, this effect had reduced operating assets by €96.8 million.

Average operating assets in the Chassis & Safety division fell by €76.1 million to €3,956.5 million as compared to fiscal 2013 (€4,032.6 million).

Capital expenditure (additions)

Additions to the Chassis & Safety division rose by €9.9 million year-on-year to €411.6 million (PY: €401.7 million). As in the previous year, capital expenditure amounted to 5.5% of sales.

In addition to increasing production capacity in Europe, invest- ments were made in expanding the locations in North and South America and Asia. Production capacity for the Vehicle Dynamics and Hydraulic Brake Systems business units was expanded in particular. Important additions related to the crea- tion of new production facilities for electronic brake systems.

Employees

The number of employees in the Chassis & Safety division rose by 1,631 to 38,127 (PY: 36,496). In all business units, the in- crease was due to an adjustment in line with greater volumes. In addition, the expansion of research and development activi- ties in the Advanced Driver Assistance Systems and Vehicle Dynamics business units also led to a rise in the number of employees.

Management Report Economic Report Annual Report 2014 Continental AG 98

Sales volumes

Sales volumes in the Transmission and Fuel & Exhaust Manage- ment business units were up year-on-year in fiscal 2014, with Fuel & Exhaust Management posting both organic growth from existing business (formerly Fuel Supply) and additional unit sales from the integration of Emitec. The Sensors & Actuators busi- ness unit is also recording growth. The volume increase here is attributable in particular to the considerably higher sales figures for exhaust sensors, which were boosted by stricter environ- mental regulations in Asia, particularly in China. The Engine Systems business unit posted growth in engine management systems and turbochargers. By contrast, sales volumes of injec- tors and pumps were down on the previous year’s level. There was a similar situation in the Hybrid Electric Vehicle business unit, where falling sales figures for electric motors and battery systems were offset by rising volumes in the field of on-board power supply systems.

Sales up 3.7%

Sales up 2.9% before changes in the scope of consolidation and exchange rate effects

Sales in the Powertrain division rose by 3.7% year-on-year to €6,494.3 million (PY: €6,260.3 million) in 2014. Before changes in the scope of consolidation and exchange rate effects, sales climbed by 2.9%.

Adjusted EBIT down 18.9%

The Powertrain division’s adjusted EBIT decreased by €60.5 million or 18.9% year-on-year in 2014 to €259.2 million (PY: €319.7 million), equivalent to 4.1% (PY: 5.1%) of adjusted sales.

EBIT down 153.9%

In comparison to the previous year, the Powertrain division posted a decrease in EBIT of €276.3 million or 153.9% to €-96.8 million (PY: €179.5 million) in 2014. The return on sales fell to -1.5% (PY: 2.9%).

ROCE amounted to -3.5% (PY: 6.1%).

The amortization of intangible assets from purchase price allo- cation (PPA) reduced EBIT by €64.5 million (PY: €126.9 million).

Special effects in 2014

In the Powertrain division, the acquisition of the remaining shares in Emitec Gesellschaft für Emissionstechnologie mbH, Lohmar, Germany, made it necessary to recognize an impair- ment loss on the at-equity accounted investee, leading to ex- pense of €33.8 million, and a negative special effect from the reclassification to profit and loss of the effects previously re- ported under reserves recognized directly in equity in the amount of €1.9 million.

In view of the increasing competition in the development and production of battery cells for the automobile industry, we and our Korean partner SK Innovation Co., Ltd., Seoul, South Korea, concluded and implemented an agreement to dissolve the joint venture SK Continental E-motion Pte. Ltd., Singapore, Singapore. This led to an impairment loss on the at-equity accounted in- vestee in the amount of €74.3 million in the Powertrain division.

Furthermore, we took this new development as a triggering event to adjust the value of property, plant and equipment in the Hybrid Electric Vehicle business unit to the current utiliza- tion of capacity. This led to additional impairment losses on property, plant and equipment in the amount of €69.8 million.

After an in-depth quality review, we did not launch a diesel injector that was based on technologies from the time before the Siemens VDO acquisition. Impairment losses of €61.6 mil- lion on intangible assets and property, plant and equipment were incurred in the Powertrain division in this context, as well as restructuring expenses of €22.3 million, of which €6.2 mil- lion was attributable to impairment losses on property, plant and equipment.

This situation also prompted us to check pumps based on tech- nologies from the time before the Siemens VDO acquisition, primarily in the diesel sector. This resulted in the necessity to recognize impairment losses on property, plant and equipment as part of valuation at the lower of cost or market value. This led to an additional expense of €27.3 million in the Powertrain division.

Further impairment losses on property, plant and equipment resulted in expense of €3.5 million.

The reversal of restructuring provisions no longer required resulted in a positive special effect of €9.4 million.

Special effects in 2014 had a negative impact totaling €285.1 million in the Powertrain division.