Continental AG Doesn't Need to Sell Stock Before 2012, Finance Chief Says

Continental AG, Europe’s second- biggest auto-parts maker, won’t need to sell shares again before 2012 as the company works to return its debt to investment grade, Chief Financial Officer Wolfgang Schaefer said.

Continental may pay a dividend on 2011 earnings as profit improves, Schaefer said today in a phone interview. Helped by a stock sale completed in January, the company has financing until 2012 covering its net debt of 8.2 billion euros ($10.7 billion), and there are no plans “in the short term” to resume talks with banks on rescheduling loans, he said.

“We are not considering at all raising new capital next year,” Schaefer said from Continental’s headquarters in Hanover, Germany. “We expect to reach investment-grade status in 2012 and are therefore convinced that the current amount of equity capital is the right one.”

Growth in the global car industry and spending cuts by Continental enabled the company to report net income of 227.7 million euros in the three months through March, the manufacturer’s first quarterly profit since 2008. Sales jumped 39 percent to 6 billion euros, Continental said today in a statement.

The first quarter provided a “very firm basis” for reaching the company’s 2010 goals, Chief Executive Officer Elmar Degenhart said in the statement.

Photographer: Wolfgang von Brauchitsch/Bloomberg

An employee carries a tire at the Continental AG factory in Aachen, this year. Close

An employee carries a tire at the Continental AG factory in Aachen, this year.

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Photographer: Wolfgang von Brauchitsch/Bloomberg

An employee carries a tire at the Continental AG factory in Aachen, this year.

Continental forecast in April that sales may rise as much as 10 percent, or twice the growth rate predicted in February. Degenhart said today that the car-parts division’s earnings before interest and taxes, excluding one-time gains or costs, may be as much as triple the 2009 figure of 192 million euros.

Maturity Date

The 1.1 billion-euro share sale in January helped Continental refinance a 3.5 billion-euro debt payment due in August, with the remaining amount to be covered by a 2.5 billion-euro loan to be repaid in 2012. The company has another 7.5 billion euros in debt payments scheduled in 2012. Creditors can force an earlier repayment if dominant shareholder Schaeffler Group seeks full control of Continental.

“As long as the company can avoid a capital increase, that could be a positive thing for shareholders because their stakes don’t become diluted,” said Frank Schwope, an analyst at NordLB in Hanover with a “buy” recommendation on Continental stock. “Schaeffler has no interest in a share sale, because they would have to participate if they want to keep a controlling stake.”

Continental declined 2.8 percent to 41.37 euros in Frankfurt trading after gaining as much as 3.2 percent earlier today. The stock has advanced 13 percent this year, valuing the manufacturer at 8.27 billion euros.

Debt From Takeover

Continental’s debt stems from its purchase in 2007 of Siemens AG’s VDO automotive-electronics division. Continental cut its workforce by 3.4 percent last year to 134,434 employees, put 22,000 workers on shortened hours, slashed capital spending and delayed development projects to conserve cash. Schaeffler Group, the world’s second-biggest roller-bearing maker, is burdened by a separate 12 billion euros of debt after a credit- financed takeover of Continental in 2008.

The creditor banks of Continental and Herzogenaurach- Germany-based Schaeffler are now under less pressure to safeguard their loans as Continental’s economic position has improved, said Schwope at NordLB.

The manufacturer is “well positioned financially,” allowing it to hold off on a possible high-yield bond sale until market conditions are “favorable within the normal fluctuations,” CFO Schaefer said in the interview, declining to specify terms he’s seeking.

Continental’s earnings will receive a boost from better- than-expected sales at the car tire unit, Schaefer said in a conference call with analysts today.

Unit sales of replacement tires in North America and Europe will grow 4 percent this year, at the upper end of a range specified in February, while sales to manufacturers will also gain more than previously estimated, he said.

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net.

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