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Why Continental needed to display some nifty footwork


Continental's share price

Continental's share price

Continental's share price

If Continental, the major European producer of tyres, has any popular recognition among the 'great unwashed,' it probably has to do with the company's sponsorship of international football.

The World Cup wouldn't be quite the same blissful spectacle of goalmouth action without the Continental ads linking (for a month at least) the German firm with the Beautiful Game. But Continental (or Conti, as it's often called) has a life off the pitch which has been more exciting and challenging than a penalty shoot-out.

The group - founded in Hanover in Germany in 1871 - has been one of the great innovators of motor tyre technology. It patented the tubeless tyre as far back as 1946. In the 1960s, it produced its first radial tyre. In the late 1980s, it bolstered its business by acquiring a company that had strong links with Ballyfermot, called Semperit. Conti was not just innovative - in the past decade it expanded in India and China and today is the world's second-biggest car components supplier.

However, it has also had management problems that would scare an English Premier League side to death. The firm was shaken in 2008 when it received an audacious takeover bid from the much smaller Bavarian family-owned Schneffler Industries (SCH). It triggered a sell-off of Conti shares leaving SCH holding 90pc of the company and a €12bn debt headache. The ill-fated takeover forced SCH group to reduce its shareholding (now at 46pc); it was also forced to backtrack on a proposed merger and reduce its high level of debt.

Today the company has two significant businesses: automotive and rubber.

The automotive business is the largest with sales of €20bn, the rubber division chips in €13.3bn. The automotive business has three sub-divisions: chassis, powertrain and interior. The chassis division makes airbag electronics, electronic brake systems (EBS) and driver assistance products. It has sales of €7bn and earnings of €890m.

The powertrain division produces delivery systems including hybrid technology, diesel-injection systems and has the lowest profit of all divisions at €320m. The interior division produces car displays, instrumentation and car body security with sales of €6.6bn. Figures for the automotive business show Europe accounting for half the sales.

The company's rubber division consists of tyres and non-tyre products, called Conti Technology. It is the second-largest European tyre producer, with sales of €10bn and the most profitable division of the group.

Globally, there are fewer than 18 major car companies that sell more than one million cars annually. These cars are built by parts supplied by a small number of component companies worldwide like Conti.

If you buy a BMW, Merc or Audi, chances are that the anti-lock brakes will be supplied by Continental, batteries by Johnson Control and the exhaust by Denso. They are more profitable than some car companies, and interestingly Continental or Bosch will have parts in almost every new car, regardless of brand, market, price or geography.

Last year was a record year for the company with sales of €33bn and operating profits of €3.2bn, a vivid contrast to the position five years ago when the company was reporting losses. Today Conti is valued at €32bn.

The tyre business is targeting a fifth consecutive year of record sales, so the company is forecasting 2014 sales at €35bn, and growth of 5pc that won't be entirely dependent on tyre sales. The company's performance is impressive and its shares at €156 are worth watching.

Nothing in this section should be taken as a recommendation, either explicit or implicit, to buy or sell any of the shares mentioned.

Irish Independent