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2021 Annual Report

Progress Arises from Change.

2021 Annual Report

 

Chairman’s Letter

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Dear Shareholders,

Difficult times often obscure success. This sums up the situation quite well when looking back at 2021: the ongoing coronavirus pandemic, continuing supply shortages for semiconductors in particular, stubbornly low global automotive production, and massive cost increases in procurement and logistics. And all that on top of the ongoing need to fundamentally transform our industry in the face of climate change, globalization and digitalization.

Yet, despite these challenges, the Continental team had some notable successes:

  • We achieved organic sales growth of 7.4 percent.
  • We won new business in key growth areas, thanks to our technological innovations.
  • And we made rapid progress in implementing our strategy and structurally transforming the company.

While we are proud of our achievements, we are definitely not satisfied – especially when it comes to our financial performance. Our Automotive group sector is feeling the effects and consequences of the semiconductor supply shortage. This has led to higher costs and a negative margin over the past two years since the pandemic began. In ContiTech and Tires, cost increases in procurement and logistics are having a noticeable impact.

Despite these challenges, we succeeded in achieving respectable business results. We increased our free cash flow to €1.4 billion. As a result, the Executive Board and Supervisory Board have resolved to propose a dividend of €2.20 per share to the Annual Shareholders’ Meeting. This corresponds to a dividend payout ratio of around 30 percent.

We are in the midst of a fundamental transformation, from which we want to emerge as winners. Our strategy is clear and is based on three cornerstones:

Strengthening operational performance. We paved the way early to proactively shape the transformation in the automotive industry by launching our Transformation 2019–2029 program. This will enable us to achieve gross savings of some €850 million annually from 2023 onward. We have made good progress in implementing this program.

We are responding to the semiconductor shortage with long-term changes in our purchasing structures, more transparent and efficient processes, and adapted product designs. Together with our partners in the automotive industry, we are striving to find fair solutions in the face of higher procurement costs. In our various markets, we are considering offsetting higher raw materials costs by adjusting our pricing structures accordingly.

Differentiating the portfolio. Growth and value are the two key areas in mapping out our product portfolio, and our organizational restructuring efforts have focused on pursuing these aims accordingly. One example of this is the new market-oriented organization in our Automotive group sector, based on strategic action fields and customer requirements.

Following the spin-off of Vitesco Technologies in the year under review, we are now able to focus our attention and our capital entirely on the segments that we consider key. We are concluding targeted partnerships that advance our business and technology more swiftly, as well as establishing and expanding our own additional areas of expertise.

Turning change into opportunity. In 2021, we established the appropriate organizational structure to do just this. With the Tires group sector for the tire business, the ContiTech group sector for automotive and industrial products, and the Automotive group sector for technologies and solutions for connected mobility, we can seize opportunities even more quickly and translate them into profit. The Contract Manufacturing group sector handles contract manufacturing for Vitesco Technologies and ensures smooth delivery to customers. Transparent structures and a high level of autonomy make us more flexible in an increasingly complex market environment.

We also see opportunities in sustainability, with environmentally friendly and carbon-neutral products. In the year under review, for example, we introduced a car tire made from more than 50 percent renewable or recycled materials.

We are committed to our targets: in the medium term, we want to achieve an adjusted EBIT margin of between 8 and 11 percent, a return on capital employed of around 15 to 20 percent and a cash conversion ratio of more than 70 percent.

We have what we need to achieve this: the right strategy in place, a consistently aligned structure, and our Continental team with its new Executive Board and dedicated employees. I am very grateful to you all. You have impressively overcome the many restrictions and barriers confronting you over the past year.

Our 2021 anniversary year reminded us that after 150 years of change, transformation is truly part of our company’s DNA. We always come out of crises stronger than before – and this time will be no exception. After all, we not only respond to new challenges quickly and decisively, but we also see ourselves as active drivers of transformation. Sustainable, safe and connected driving is the new horsepower of mobility that will continue to bear the hallmark of Continental.

Nikolai Setzer
Nikolai Setzer
Chairman of the Executive Board

Nikolai Setzer

Nikolai Setzer
Chairman of the Executive Board