At the same time, EBIT rose by 24% to 436.8 million euros, up from 352.4 million the previous year.
For the first three months of 2007, there was a free cash flow of 119.8million euros, down from 230.2 million. Net debt was 141.3 millioneuros higher than at year-end 2006. "This was mainly incurred throughthe financing of the acquisition of the automotive electronics businessof Motorola and the contributions to the Contractual Trust Arrangement(CTA) of 630 million euros," explained CFO Alan Hippe.
Deutsche Bank analysts described the results as “very strong,” citingthe 6.5% sales increase (before changes in the scope of consolidationand exchange rate effects) as “significantly higher” than Europeanproduction, which was up 3%. NAFTA production fell 12%. The analystsdescribed the EBIT result, up 24%, as particularly strong consideringthe good result in the first quarter of 2006.
“However, even if price/mix effect was strong in both tyre divisions, a100% operational gearing is by nature not sustainable for an industrialcompany. And we still believe that an almost 12% EBIT margin (beforeMotorola) is close to a peak for an auto part company,” the analystscommented.
"We’ve had a very good first quarter, which was characterized by anoverall gratifying development in car production, especially in Europeand Asia. Other positive factors were the increases in replacementsales for passenger and light truck tyres in Europe and North America,where we upped earnings significantly," said Continental ExecutiveBoard chairman Manfred Wennemer, adding:
"Backed by these positive results for the first three months, we’rehighly confident that we will again improve sales and operating resultin absolute terms and thus dependably achieve our goals for the year.We still consider, however, raw material prices to be a majoruncertainty factor and are currently expecting them to stabilize at ahigh level on the whole."
Wennemer pointed out that the company increased research anddevelopment expense by 18.6% to 185.2 million euros, representing 4.7%.In the first three months of 2007, 160.1 million euros (previously200.1 million euros) was also invested in property, plant, equipmentand software, primarily in new technologies for electronic brake andsafety systems, as well as in expanding manufacturing capacity in alldivisions. The capital expenditure ratio amounts to 4% (previous year:5.5%) of sales. In the first quarter of 2006, “major investments” inthe construction of the new tyre plant in Camacari, Brazil, affectedthe capital expenditure ratio.
