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2020 Annual Report

150 Years of Continental

2020 Annual Report


Chairman’s Letter

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Dear Shareholders,

I am writing this letter to you at the beginning of 2021, our anniversary year. 150 years of Continental: through the years, the company has enjoyed many highs and navigated through numerous lows. We are now once again experiencing a fundamental turning point for the industry, and the start of a new era.

At the end of 2020, my predecessor, Dr. Elmar Degenhart, stepped down from his position for health reasons. It is indeed a great honor for me to succeed him in this role. Following the global financial crisis in 2009, Elmar Degenhart achieved an unprecedented increase in value for Continental. He guided us back into the DAX 30 and spent over 10 years laying the key foundations for our long-term viability and value creation. Now more than ever, our shared values provide an outstanding basis upon which the global Continental team and I are building. For this, we all owe him our gratitude.

The current phase in our transformation is a very demanding one. It requires that we act decisively and with determination. We will overcome the three major challenges facing us in a focused and pragmatic manner.

The first challenge is the fundamental technological transformation over the medium to long term, the likes of which we have never experienced in our industries. Digitalization, software and electric drive systems are at the heart of this transformation. All three offer us enormous opportunities that we will seize systematically. As early as 2018, we had already started to transform our business and our structure.

The second challenge is the steep decline in vehicle production, which has been at an extremely low level since 2018. Last year, just 75 million or so passenger cars and light commercial vehicles rolled off our production lines. This is a far cry from the 100 million vehicles that we anticipated for 2020 prior to the crisis. We do not expect to return to pre-crisis levels until 2025 at the earliest.

And the third challenge is the coronavirus pandemic, which suddenly made the situation we were in even worse. But our global team responded to the pandemic quickly and flexibly. More than 93,000 employees started working from home, and in Germany around 32,000 employees took up short-time work. Wherever necessary, the team made sacrifices and worked to reduce costs, and for this we would like to thank everyone sincerely.

Nevertheless, these three developments have clearly left their mark on our results for 2020. Given the circumstances, we performed well from an operational perspective, for example achieving a positive free cash flow and securing new production orders worth billions. All in all, however, we had to deal with some quite considerable setbacks, in terms of sales as well as earnings.

Our answer to these developments is our newly aligned strategy, which is based on three cornerstones.

The first and most urgent of these is strengthening our operational performance. This involves adapting our cost structure to the changing business environment quickly and precisely, improving our quality and increasing our productivity.

The second strategic cornerstone is differentiating our portfolio. Specifically, this means prioritizing value for part of our business and focusing on growth in the other. Both targets have different requirements – meaning they each require a different approach.

To this end, we are currently adapting capacities and processes. We are transferring operations from some locations to others and are also closing some in cases where this cannot be avoided. By doing so, we want to achieve gross savings of more than €1 billion annually from 2023 onward. We are implementing this transformation rapidly, stringently and in a targeted manner, while maintaining transparent dialog with our employee representatives. The process, however, is not entirely painless. But the fact is that global competition is becoming increasingly fierce. And the only way for us to ensure our future success and safeguard jobs is to make these changes.

Process organization and technical advancement are important, but the future consists of much more than that. After all, it is people who shape the future. That is why the third cornerstone of our strategy is turning change into opportunity. Here, we are focusing primarily on our exceptionally strong passion to win, on transparency and speed, and on trust and a culture of feedback. New incentive schemes lay further key foundations – for example, in the area of sustainability.

Continental is proving to be more determined than almost any other supplier in this area. From as early as 2022, for example, we want to make our global business for emission-free vehicles completely carbon-neutral. To this end, we can use the crisis as an opportunity to get an early start on our next growth phase.

This new course should pay off within the next three to five years. As markets around the world recover, our sales will pick up again. We are targeting organic growth of around 5 to 8 percent on average over the medium term. For the adjusted EBIT margin, we are striving for around 8 to 11 percent, and our target for the return on capital employed is around 15 to 20 percent – even if we continue to face pandemic-related challenges in the short term. These could be, for example, bottlenecks in the supply of electronic components, possible volatility due to further lockdowns, or the development of raw material prices.

150 years ago, Continental started producing soft rubber components and cushioning for horse hooves. These were followed by hard rubber products. Finally came the breakthrough with tires for bicycles, and later for motor vehicles. Today, we have developed into one of the largest suppliers in the global automotive industry. Now, it is time for the next decisive step: we are transforming ourselves into a global company for technology and mobility. To do so, we are drawing on our traditional strengths. At the same time, we are relying on new key areas in digitalization, software and sensor technology.

We are convinced that this approach will be successful: we are using current changes to achieve innovation and a new focus. This has allowed us to emerge as winners from past crises. And we are also overcoming the current transformation in this way, by continuously creating more value. For you, our shareholders. For our customers. And for all our other stakeholders.

Nikolai Setzer
Nikolai Setzer
Chairman of the Executive Board

Nikolai Setzer

Nikolai Setzer
Chairman of the Executive Board