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2019 Annual Report



2019 Annual Report

Continental Corporation - 2018 Annual Report

Corporate Strategy

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Reorganization for strategic flexibility and long-term success.

Continental has had a new organizational structure since January 1, 2020, in order to actively shape the mobility of the future. This reorganization was in response to the accelerated change in powertrain technology, the growing demand for digital solutions and the increasingly digitalized working environment. For more information, see the Structure of the Corporation section.

Spin-off of the Powertrain business area
We are preparing to fully spin off the Powertrain business area with subsequent listing. This initiative will be voted on at the Annual Shareholders’ Meeting on April 30, 2020. The reason for the transformation into an independent legal entity and spin-off is the change in the powertrain 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 will be in an even better position to actively support the expected long-term consolidation process.

Transformation 2019–2029 structural program aims to strengthen the company’s competitiveness over the long term
We launched the Transformation 2019–2029 structural program in response to declining global automotive production and the growing customer demand for digital solutions. The program also takes into account multiple parallel developments: an increasingly digitalized working environment, the emerging crisis in the automotive industry and the accelerated change in powertrain technology as a result of more stringent emissions legislation.

The program has two main aims: to increase efficiency and productivity through adjustments to the organization and portfolio, and to place a greater focus on key growth areas of the future. As such, we are planning to reduce gross costs by about €500 million annually from 2023. We expect the program to cost around €1.1 billion over its 10-year term. These costs will mostly be incurred between 2019 and 2022. We do not rule out additional projects if the current program does not achieve the desired impact.

Seven strategic dimensions for enhancing the value of the corporation on a sustainable basis
Our seven strategic dimensions have not changed. They complement each other and are geared toward sustainably creating value for all stakeholders.

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. After 17.0% in 2018, we achieved -1.0% in 2019. The negative effect in EBIT caused by special effects of €3.31 billion (mainly as a result of impairment and restructuring expenses), contributed to this result.

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. To achieve this, 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 2019, our share of sales in Asia was 22%, and in North and South America it totaled 29%.

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 business areas in Automotive Technologies as well as ContiTech are among the leading providers with the majority of their products. In the tire business, we are number four in the world. Furthermore, we hold top positions in individual segments and markets in this area.

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. We develop and produce numerous products and solutions, which enables us to best 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 59 countries and markets in which we are represented. In the reporting year, we expanded our production through acquisitions and the construction of new manufacturing facilities. This included opening our new tire plants for passenger tires in Thailand and for truck and bus tires in the U.S.A., increasing manufacturing capacity for agricultural tires in Portugal, laying the foundations for a motorcycle tire factory in Thailand, and beginning the expansion of drive-belt production for the agricultural industry in Germany. In total, the number of our production sites increased in the reporting year from 233 to 249.

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
We aim to reduce our dependence on the automotive industry by creating a balanced customer portfolio. To that end, we want to increase our business at an above-average rate in industries outside of the automotive industry, 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 Tires and ContiTech business areas.

Our activities relating to software products for the end-user market and industries outside the automotive industry will have an increasing effect on our customer portfolio. Examples include advanced traffic management, digital tire monitoring, intelligent solutions for the agricultural sector and for conveyor belts, as well as new technologies that go beyond the vehicle.

The share of sales with end users and industrial customers outside of the automotive original equipment sector remained stable at 29% in 2019.

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 established core markets, we continuously enhance our position as one of the leading product and system suppliers. We manage and structure our product and technology portfolio with the goal of being represented and competitive in all phases of the respective product life cycles. At the same time, we systematically promote product innovations and technologies. If an attractive opportunity arises, we purchase future-oriented technological expertise or enter into partnerships with other companies.

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. 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.

Around 57,000 employees in 52 countries took part in the survey in the reporting year. It revealed, for example, that agreement with our four company values remains high at 86%. The results also showed that clarity about the company’s strategic focus and trust in the decisions taken by top management have declined (by three and two percentage points respectively). In addition, clear differences exist between the individual business areas. Modest improvements of two percentage points were recorded in the areas of stress management and work-life balance. Our employees’ feedback reflects our strengths and simultaneously highlights the areas we must address in order to continuously enhance our organization and our culture.