refinancing.
American Depositary Receipt data Ratio 1:1
ISIN number US2107712000 Reuters ticker symbol CTTAY.PK Bloomberg ticker symbol CTTAY ADR level Level 1 Trading OTC
Sponsor Deutsche Bank Trust Company Americas
Shareholder structure of free float (in %)
Roughly 5 million of the shares outstanding are held by private individuals in Germany. 80 million shares are attributable to institutional investors in Europe, North America and Asia.
Subscribed capital unchanged at €512 million The subscribed capital of Continental AG did not change in 2012. It amounts to €512,015,316.48 and is divided into 200,005,983 no-par-value shares. Each share has the same dividend entitlement. In line with Article 20 of Continental AG’s Articles of Incorporation, each share grants one vote at the Annual Sharehold- ers’ Meeting. There is authorized and contingent capi- tal.
Net income per share attributable to the share- holders of the parent increased to record level In the year under review, earnings per share rose by 52% to €9.42. In addition to the strong operating performance, this disproportionately high increase was also attributable to a considerably reduced tax rate and special effects in net interest expense. The com-
Proposal for an increased dividend
The Annual Shareholders’ Meeting will be held in Han- over on May 15, 2013. The Executive Board and the Supervisory Board have resolved to propose a divi- dend distribution of €2.25 per share for the past fiscal year to the Annual Shareholders’ Meeting. This corre- sponds to €450.0 million or a dividend payout ratio of 23.9% of net income attributable to the shareholders of the parent. Based on the dividend proposal and the significantly higher annual average Continental share price, this results in a dividend yield of 3.1% for 2012. In fiscal 2011, a dividend of €1.50 per share was paid, amounting to a total payout of €300.0 million. The dividend payout ratio was 24.2%, and the dividend yield calculated on the same basis was 2.6%.
Capital markets influenced by numerous elements of uncertainty
In 2012 the capital markets remained dominated by the debt crisis in Europe and the very expansive monetary policy of the central banks in the U.S.A., Japan and Europe. There were also continued uncer-
Key figures per share in € 2012 2011 Basic earnings 9.42 6.21 Diluted earnings 9.42 6.21 Free cash flow 8.26 2.45 Dividend 2.25* 1.50 Dividend payout ratio (%) 23.9* 24.2 Dividend yield (%) 3.1* 2.6 Total equity (book value) as at December 31 43.84 35.73 Share price at year-end 87.59 48.10 Average share price 72.55 58.55 Average price-earnings ratio (P/E ratio) 7.7 9.4 High 87.95 76.28 Low 48.10 39.44 Average trading volume (XETRA) 638,588 640,216 Number of shares, average (in millions) 200.0 200.0 Number of shares as at December 31 (in millions) 200.0 200.0 * Subject to the approval of the Annual Shareholders’ Meeting on May 15, 2013.
All market prices are quotations of the Continental share in the XETRA system of Deutsche Börse AG.
economy, which for a long time had proven to be robust in contrast to the general trend, also weakened somewhat in the final quarter of 2012. In addition, growth in China slowed considerably and did not show signs of stabilization until the fourth quarter of 2012. In the U.S.A., the anticipated recovery in economic per- formance did not materialize. Here, the second half of the year was dominated by the presidential elections and at the end of 2012 increasingly by the country’s debt problems with the threat of the fiscal cliff mecha- nism, i.e. an automatic increase in taxes and reduction in spending.
German stock indexes close at high for the year In this environment, the German benchmark index DAX went through many ups and downs in the first half of 2012 – driven initially by hopes for the U.S. economy, progress in combating the debt crisis in Europe and a sufficient supply of liquidity to the capital markets, followed by recurrent concerns regarding the econom- ic development in the U.S.A. and Asia and the situa- tion in Europe. An interim high of more than 7,000 points was reached in the first quarter. After the sub- sequent market correction, the DAX quoted at 6,416 points at the end of the second quarter. This repre- sented a 9% increase as against the last trading day of the previous year. The MDAX recorded a rise of 16% to 10,344 points in the same period. Despite the in-
creasingly weak real economic data, German shares performed very positively in the first half of 2012. This was driven by the containment of the debt crisis in Europe, the continued expansive monetary policy and the growing expectation that it would be possible to emerge from the economic low point – if only with a moderate recovery – over the course of 2013. In the context of sustained low interest rates and with more and more investors taking refuge in tangible assets, equity became increasingly attractive again as an asset class.
In the second half of the year, the DAX rose substan- tially and, following a temporary consolidation in the autumn, reached 7,612 points as of the end of 2012. The annual performance is therefore 29%. The MDAX performed even more strongly, rising by 34% to 11,914 points in 2012, and ended the year close to its all-time high.
Positive price development of European automobile and automotive supplier stocks
The automobile and automotive supplier industry was influenced by a mixed market development in 2012. Although sales volumes of new cars increased world- wide, there was a significantly widening gap between the developments in different regions. Whereas new car business boomed in the U.S.A. and China in
Share price performance vs. major stock indexes (indexed to January 1, 2012)
particular, the passenger car market in Western Eu- rope declined considerably from October 2011, with significant downswings in the final months of 2012 and severe consequences for mass manufacturers in some cases. The commercial vehicle market also developed weakly overall in 2012 due to the economic slowdown. The sector index for European automobile and auto- motive supplier stocks, the EURO STOXX Automobiles & Parts, rose to its high for the year of 343 points (+37%) in March, then underwent a correction to 270 points at the end of June and closed the year at 338 points. This corresponded to an annual performance of 35%.
Return to DAX and strong operating performance lead to 82% price increase
Continental shares performed very positively in 2012. In the first quarter of 2012, Continental shares record- ed a 47% price increase, already representing a con- siderably better performance than the reference index- es DAX, MDAX and EURO STOXX Automobiles & Parts, which rose by between 18% and 28%.
The share performance was boosted primarily by the
cant price increase of 36% for the first half of the year. As of the middle of the year, they thus exceeded the share price performance of comparable companies in the sector index for European automobile and automo- tive supplier stocks by 28 percentage points, as well as outperforming the DAX and the MDAX by 28 and 20 percentage points respectively. In the second quarter of 2012, investors acknowledged both the report on the first-quarter business performance and the confir- mation – despite growing uncertainty – of the compa- ny’s outlook for the year, which forecast new sales and earnings records. Signs that the Continental shares would return to the DAX also had a positive impact. In the second half of the year, the shares resumed their positive development, climbing back above the €80 threshold in early August for the first time since 2008. In comparison to the beginning of 2012, Continental shares recorded an increase of 58% as of the end of the third quarter. On the last day of trading in 2012, Continental shares reached their high for the year at €87.95, and closed the year at €87.59. With a price increase of 82%, our shares significantly outperformed the reference indexes DAX, MDAX and EURO STOXX
Quarterly share price performance (in %)
term of seven years, fixed interest rate of 4.5%), and the early start to refinancing for the syndicated loan maturing in April 2014 with the aim of further improving the financial and maturity structure while also increas- ing financial flexibility. There was also a positive effect from the return to the DAX as at September 24, 2012, and the increase in free float.
Share yield also very attractive over ten years Continental shares also remain an attractive investment when considered over a ten-year period. Over this period, a stake of €10,000 would have seen an in- crease in value of 507%, or €50,700, as a result of the positive price performance alone. Had the dividend distributions been immediately reinvested (in line with the DAX or MDAX performance index), the value of that investment would have risen by almost 600% to €69,438 over the same period of analysis. This corre-
sponds to an average yield of 21.4% p.a., considerably better than the reference indexes DAX (10.2% p.a.), MDAX (14.7% p.a.) and EURO STOXX Automobiles & Parts (11.2% p.a.).
The time period of the last five years reflects the crisis on the stock markets in 2008 and 2009. Thanks to last year’s very good performance, an investment of €10,000 in Continental shares on January 1, 2008, would have grown by €648 (1.3% p.a., in line with EURO STOXX Automobiles & Parts) by December 31, 2012. While the MDAX achieved a yield of as much as 3.8% p.a., the DAX investment resulted in a loss of €564 (-1.2% p.a.) after the five years.
Very positive performance of Continental bonds The Continental bonds recorded a positive perfor- mance in 2012. There were pleasing increases in value Performance over ten years (including reinvested dividends)
Investment period for €10,000 Continental DAX MDAX
EURO STOXX Autos & Parts 1 year (Jan. 1 – Dec. 31, 2012) €18,585 €12,906 €13,390 €14,030 Yield in % p.a. 85.8 29.1 33.9 40.3 5 years (Jan. 1, 2008 – Dec. 31, 2012) €10,648 €9,436 €12,078 €10,674 Yield in % p.a. 1.3 -1.2 3.8 1.3 10 years (Jan. 1, 2003 – Dec. 31, 2012) €69,438 €26,317 €39,389 €28,862 Yield in % p.a. 21.4 10.2 14.7 11.2
Price performance of Continental bonds
in the three bonds maturing in 2016 (volume of €625 million), 2017 (volume of €1 billion) and 2018 (volume of €625 million). These bonds recorded price increases of between 537 and 651 basis points by the end of the year. The bond maturing in 2018 stood out with the highest increase in value. The bond with the shortest remaining term, maturing on July 15, 2015, improved only slightly as compared to the end of the previous year and closed 61 basis points higher. In the second week of September 2012, Continental successfully issued its first U.S. dollar denominated bond. The issue volume of $950 million was oversub- scribed several times over and was placed with institu- tional investors in Germany and abroad. The interest rate of 4.5% p.a. is considerably lower than the rates for the corporation’s last bond issues in 2010 (6.5% to
8.5%). The bond, which has a term of seven years and matures on September 15, 2019, was issued by Con- tinental Rubber of America, Corp., Wilmington, Dela- ware, U.S.A. It is guaranteed by Continental AG and selected subsidiaries. Following a price increase in the first days of trading, the price then fell to 100.3790% in early November. By the end of the year, this bond had recovered to 102.2930%, representing for inves- tors an increase of 229 basis points as against the issue price.
The company’s positive operating performance and the ratings upgrades announced by the rating agen- cies during the year were also reflected in a decrease in the premium for insurance against credit risks (credit default swap, CDS) in 2012. Over the course of 2012, the Continental five-year CDS fell by 59% to 198 basis
German securities identification
code/ISIN Coupon Maturity
Volumes
in millions Issue price
Price as at Dec. 31, 2012 Price as at Dec. 31, 2011 A1AY2A DE000A1AY2A0 8.500% July 15, 2015 €750 99.0047% 108.1960% 107.5870%
points (PY: 477 basis points). This development was once again considerably better than that of the iTraxx X-Over, the index showing the CDS development of companies with the same credit rating. It decreased by only 36% to 482 basis points over the course of 2012. Return to investment grade rating on stand-alone basis
In the year under review, the sustained positive operat- ing development enabled the Continental Corporation to generate another significant improvement in profit- ability and in the key balance sheet ratios for the credit rating. In May 2012, Standard & Poor’s (S&P) upgrad- ed the credit rating from B+ to BB- and confirmed the positive outlook. Both S&P and Fitch have since rated Continental within the investment grade category on a stand-alone basis, i.e. without taking into account the creditworthiness of the major shareholder. In late September, the rating agency Moody’s also upgraded its rating for Continental from Ba3 to Ba2 and raised the outlook from stable to positive. Here, too, the creditworthiness of the major shareholder is the only factor standing in the way of a higher rating in the investment grade category (sound credit quality level). Continental is standing by its goal of returning to a rating in the investment grade category – the higher credit category characterized by low default rates – in the medium term. The minimum target ratings are BBB and Baa2.
Dec. 31, 2012 Rating Outlook Standard & Poor’s BB- positive Moody’s Ba2 positive Dec. 31, 2011 Rating Outlook Standard & Poor’s B+ positive Moody’s Ba3 stable
Regular and open dialog with investors and analysts
One of the key tasks of Investor Relations (IR) at Con- tinental is a systematic, intensive and ongoing dialog with existing and potential investors in its shares and bonds, as well as with equity and credit analysts and other capital market participants. This dialog focuses on past and present business transactions, but espe- cially anticipated transactions as well. To ensure equal treatment of the target groups and a continuous flow of information, our activities are geared towards
providing all market participants with relevant and useful information at the same time. This is one of the reasons why Continental assesses its free float share- holder structure at regular intervals.
Our roadshow activities are based on the results of these analyses. Regular information for interested investors, analysts and other market players is also ensured by means of our quarterly and annual report- ing by conference call, which focuses on discussing current and future business performance.
A capital-market-oriented basic presentation of Conti- nental AG is provided in the form of our Fact Book, which is updated on a regular basis and is available on the Internet. The importance of sustainability issues on the capital market is constantly increasing. To meet the specific information requirements of socially re- sponsible investors (SRI), we created another basic presentation with key figures and content on the topic of sustainability already in 2011. This and all other materials can be accessed on the Internet (www.continental-ir.com). The IR team can be con- tacted at [email protected].
Several awards for Investor Relations work again In the year under review, the Continental Executive Board and the Investor Relations team once again received several prestigious awards from key market observers for their IR activities. The top rankings and prizes again attest to the excellent quality of Continen- tal’s IR work.
Further intensification of our IR activities
The positive business performance, the improved financing structure together with the upgrades by the rating agencies and the return of Continental shares to the DAX again significantly increased interest in the company among the various different capital market participants. We therefore further intensified our IR activities in 2012. In particular, we increased the num- ber of roadshows, investor conferences and events at our Automotive Group locations. In the context of issuing the U.S. dollar denominated bond, we also held a deal roadshow in New York and Boston. Our IR work continues to cover the major financial centers in Europe, North America and Asia. In the year under review, we spoke to a total of 2,250 investors at con- ferences and roadshows. Following the return to the DAX, we held an analyst conference (Analyst & Bank-
ers Day) at our Contidrom test center near Hanover again for the first time after a three-year break.
Overall, we increased the number of roadshow days (not including the separate deal roadshow) from 25 in the previous year to 42, consisting of 26 in Europe, ten in North America and six in Asia. We presented our company at 25 (PY: 23) equity and credit conferences. The regional focus here was Europe with 15 confer- ences. We also took part in seven conferences again in North America and three in Asia. The Executive Board again appeared personally at around a third of these activities, reaching over 50% of the investors spoken to.
Following the return to the German benchmark index DAX, a total of 29 equity analysts and 11 credit ana- lysts currently prepare regular analyses, assessments and recommendations on Continental securities. The coverage has thus increased, meaning that the scope for prompt and professional discussion and dissemina- tion of relevant company news on the capital market has improved further. At present, 20 analysts give Continental shares a positive investment assessment (buy, outperform, overweight). Only one analyst cur- rently rates the share negatively (sell, underperform, underweight).
Continental AG and the corporation closed fiscal 2012 very successfully again, significantly increasing sales, operating earnings and net income. The Executive Board and Supervisory Board of the company worked together closely in this process. In the year under review, the Supervisory Board and its committees fulfilled all the tasks incumbent upon them under appli- cable law, the Articles of Incorporation and the By- Laws. They closely monitored the work of the Execu- tive Board, regularly advised it and carefully supervised it in the management of the company and have satis- fied themselves of the legality and propriety of man- agement. As explained in further detail below, the Supervisory Board was directly involved in a timely manner on all decisions of fundamental importance to the company.
The Executive Board provided the Supervisory Board with regular, timely and comprehensive updates in writing and verbally on all issues of relevance to the company, namely planning, business strategy, signifi- cant business transactions in the company and the corporation and the related risks and opportunities, and compliance issues. The Supervisory Board was continuously informed in detail of the sales, results and employment development in the corporation and indi- vidual divisions as well as the financial situation of the company. Where the actual course of business deviat- ed from the defined plans and targets, the Executive Board gave a detailed explanation with reasons to the Supervisory Board and the measures introduced were discussed with the Supervisory Board and its commit- tees. In addition, the Supervisory Board, the Chair- man’s Committee and the Audit Committee dealt in-
Prof. Dr.-Ing. Wolfgang Reitzle, Chairman of the Supervisory Board