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2018 Annual Report


2018 Annual Report

Continental Corporation - 2018 Annual Report

Corporate Strategy

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New organizational structure for strategic flexibility and long-term success.

Continental will be reorganizing itself until 2020 in order to actively shape the mobility of the future. We will therefore be able to respond even more flexibly to the requirements of various customers, markets, government agencies, and companies and make faster and more efficient use of our opportunities.

A holding structure will be set up under a new umbrella brand. This will be divided into two group sectors, in addition to the Powertrain division. The reporting structure is to be used starting 2020.

  • The Chassis & Safety and Interior divisions will be reorganized by the beginning of 2020. The two areas will be supported by a newly created central Automotive Research and Development function, which will bundle basic research and applications as an independent unit.
  • The two current divisions Tires and ContiTech will remain unchanged in terms of their independent organizational structure and will form the second group sector.

As part of the realignment, the Powertrain division was transformed into an independent group of legal entities at the beginning of 2019. In addition to the combustion engine business, its activities will continue to include all future business involving hybrid and electric drive systems and all current battery activities. At the same time, we are preparing a partial initial public offering (IPO) for Powertrain, which will be possible in the second half of 2019. However, control over the new company is not to be relinquished in the medium to long term. The reason for the transformation into an independent group of legal entities is the change in the drive business, the development of which is determined chiefly by regulatory emission limit requirements, which vary in the markets that are important to us. Rapid adaptability is therefore essential in order to succeed in this business. Another reason is the increased focus on electric mobility. Considerable investments have already been made here and will continue to be necessary in the future. Furthermore, a legally independent business is in an even better position to actively support the expected long-term consolidation process in these markets.

Seven strategic dimensions for enhancing the value of the corporation on a sustainable basis
Our seven strategic dimensions will not be affected by the reorganization. They complement each other and are geared toward sustainably creating value for all stakeholders and ensuring the future viability of the company.

1. Value creation – enhancing the value of the corporation on a long-term basis
For us, enhancing the value of the corporation on a long-term basis means sustainable success while taking into consideration the cost of capital. Our long-term target is at least 20% ROCE. We did not reach this target in the reporting year. After 20.6% in 2017, we achieved 17.0% in 2018.

2. Regional sales balance – globally balanced distribution of sales
Another aim is a globally balanced distribution of regional sales, which will allow us to become less dependent on individual regional sales markets and on market and economic fluctuations. In this way, we can take advantage of the opportunities available to us on the promising markets in Asia and North America, while also bolstering our strong market position in Europe. We aim to gradually increase the share of our consolidated sales in the Asian markets to 30%. In China, we want to grow at an above-average rate in the next few years. The total share of our sales in the North and South American markets should be maintained at a minimum of 25%.

In 2018, we achieved a 22% share of sales in Asia. The share of our sales in the North and South American markets was 28% in total.

We substantially reinforced our dealer network in Australia in 2018 by acquiring Tyre and Auto Pty Ltd., based in Melbourne, Australia, one of Australia’s largest tire and auto service suppliers. With currently 258 branches, the company is well represented above all in the country’s densely populated coastal regions. The company, which has more than 1,200 employees, is headquartered in Melbourne. Its core business comprises the sale of tires for passenger cars and light commercial vehicles as well as tire services, inspection and maintenance.

3. Top market position – among the three leading suppliers in all relevant markets
We want to shape our future based on a leading position and thus play a major role in advancing technological development in individual sectors. We therefore want to be among the world’s three leading suppliers with regard to customer focus, quality and market share in the long term.

In terms of sales in their respective markets, the Automotive Group’s divisions and the ContiTech division are among the leading providers with the majority of their products. We are number four in the world in the tire business. Furthermore, we hold top positions in individual segments and markets.

Among suppliers with sales of more than €3 billion, we play a leading role in digitalization. The digital products include, for example, sensors, electronics and software products.

4. In the market for the market – high degree of localization
Our global business model is based on a high degree of localization, with numerous product applications developed and produced locally. In this way, we are best able to meet the respective market conditions and requirements of our customers. The aim is for at least eight out of 10 application developments to be carried out locally, and for the percentage of local production to be just as high. Through our development and production teams worldwide, we offer solutions and products for high-quality cars and affordable vehicles, as well as customized industrial applications. At the same time, we are purchasing locally – insofar as this is possible and cost-effective – as well as marketing locally.

We have production locations in 38 of the 60 countries and markets in which we are represented. In 2018, we expanded our production in various countries. In Hungary, the production of hoses and air sleeves was expanded and a new plant was planned for automotive electronics. In Lithuania, we laid the foundations for the production of electronic components. In the U.S.A., we expanded production capacity for high-quality synthetic leather materials, which are used in transportation, the leisure sector and the hospitality industry.

We are still working on being able to count one of the Asian manufacturers among our five largest automotive customers. We aim to achieve this with a high degree of localization. Two Asian manufacturers are among our 10 largest customers.

5. Balanced customer portfolio – balance between automotive and other industries
In order to reduce dependence on the automotive industry, business is to be increased in industries outside of the automotive original equipment sector while at the same time achieving further growth with carmakers. In the medium to long term, we want to lift the share of sales with end users and industrial customers outside of the automotive original equipment sector toward a figure of 40%. This will be based on our Tire and ContiTech divisions.

Our activities relating to software products for the end-user market will have an increasing effect on our customer portfolio. Examples include advanced traffic management, intelligent payment systems, maintenance management and new technologies that go beyond the vehicle.

The share of sales with end users and industrial customers developed steadily at 30% in 2018.

6. Technological balance – combination of established and pioneering technologies
Our product portfolio should consist of a profitable and viable mix of established and pioneering technologies. We set and follow new trends and standards in high-growth markets and market segments. In our established core markets, we ensure that our position as one of the leading automotive suppliers and industrial partners keeps on developing. This allows us to be represented and competitive in all phases of the respective product life cycles.

We are now working on getting highly automated driving ready for production and at the same time on systems for fully automated driving on the highway in 2025. Highly automated driving will allow drivers to temporarily focus on activities other than driving. With fully automated driving, this should be possible for sections of the route without the driver having to act as a fallback mode. We are also focusing on autonomous driving. Firstly, we are testing components and systems for driverless robot taxis in cities with our Continental Urban Mobility Experience (CUbE) test platform. Secondly, we are already pursuing the development of vehicle systems for autonomous vehicle fleets as a conceptual idea for the more distant future.

We are expanding our portfolio with software-based and mobility services that complement existing products and benefit our customers.

7. Great people culture – a culture of inspiration
An inspiring management culture, in which employees can enjoy demonstrating their full commitment and achieving top performance, is a requirement for a successful business. We promote a culture of trust and personal responsibility, one in which we openly deal with and tolerate our mistakes and turn them into lessons learned. Our working conditions are intended to make it easy for our employees to focus on what is important and to strike the right work-life balance. We keep in regular contact with our employees, for example through our worldwide survey, OUR BASICS Live, which is carried out annually with a representative sample of the workforce. This gives our employees the chance to tell us about how satisfied they are in general, the quality of management in the company and their attitude toward Continental. Participation is voluntary and anonymous.

More than 50,000 employees took part in the survey in the reporting year. At 86%, agreement with our four corporate values remains high. This high percentage is particularly pleasing since we are currently seeing extremely radical changes in the industries relevant to us. For the automotive industry alone, digitalization, automation, connectivity and electrification represent the greatest upheaval in its more-than-130-year history. For more information on the employee survey, see page 50.