Upbeat Continental says well positioned for car industry growth trends
By Andreas Cremer and Jan Schwartz
BERLIN (Reuters) - Germany's Continental AG has forecast growth in profitability and sales next year on the back of rising car demand, seeing itself as well positioned in growth areas such as emission-cutting technologies and driver-assistance systems.
The group, whose products range from tyres and brakes to vehicle information management systems, is benefiting from a push by manufacturers to use more sophisticated technology as well as from 13 months of rising vehicle registrations in its core European markets.
"(The) sales line should grow and profitability should grow," finance chief Wolfgang Schaefer said on Tuesday in an interview with Reuters TV. "The company is well positioned in the mega trends of the automobile industry."
Continental took a writedown on its powertrain division which sent its third-quarter adjusted earnings before interest and tax (EBIT) down nearly 6 percent, but remained positive on prospects.
It said its adjusted operating profit margin could narrowly beat a target of around 11 percent this year as prices fall for commodities such as rubber, after already lifting the measure twice in recent months.
It also stuck to a forecast for sales to grow to a record 34.5 billion euros (27 billion pounds) from 33.3 billion in 2013, despite currency headwinds shaving off 650 million euros.
The company's shares were up 2 percent at 160.15 euros as of 1248 GMT, having hit a six-week high of 160.65 euros.
By comparison, Japan's Denso Corp <6902.T>, partly owned by Toyota Motor Corp <7203.T>, last week posted a 16 percent decline in six-month operating profit as development costs and investment outweighed higher revenue.
Continental's optimism about its business is fostering plans for further expansion.
Buoyed by more than 6 billion euros of liquid funds and agreed credit lines, the company is on the lookout for deals in the rubber industry and other non-automotive segments to trim its reliance on volatile car markets, CFO Schaefer said.
NO TARGET
The Hanover-based group earlier this year acquired Veyance Technologies, a U.S.-based maker of industrial hoses and belting, for 1.4 billion euros, aiming to diversify its operations.
In a newspaper interview last month, Schaefer said Continental could shoulder another purchase of between 1 billion and 2 billion euros, possibly in Asia, without impacting its credit rating, stoking expectations that a deal might be imminent.
"There is no specific target at the moment," Schaefer told Reuters. "I would not necessarily expect it (an acquisition) to come up in the next 12 months."
Adjusted earnings before interest and tax (EBIT) fell 5.9 percent to 962 million euros, missing a consensus forecast for 1.01 billion in a Reuters poll of analysts.
The drop reflects writedowns of about 334 million euros in the powertrain business, which accounts for almost a fifth of group earnings, Continental said.
Given lacklustre demand for electric and hybrid vehicles, Continental has depreciated its powertrain assets and will scale back dealings with South Korea's SK Innovation <096770.KS>. The two companies have been cooperating in a joint venture since 2012 to develop battery cells for electric cars.
Analysts noted earnings had slipped from unusually high year-ago figures. The adjusted quarterly EBIT of 1.02 billion euros posted in 2013 was the best result for at least 11 quarters, according to company records.
(Additional reporting by Axel Threlfall Editing by Maria Sheahan and David Holmes)
