Continental Realigns for Future Mobility

Notification required under Section 17 (1) Market Abuse Regulation (MAR)

Hanover, July 18, 2018. On January 9, 2018, as market rumors arose, Continental AG confirmed in a notification required under section 17 (1) MAR that it is in the early stages of analyzing how its organization could become even more flexible in response to the fast changing environment in the automotive industry.

After completion of the analysis, the Executive Board of the technology company decided today to undertake one of the largest organizational realignments in the company's history.

The decision provides for the creation of a holding structure of Continental AG under the new "Continental Group" umbrella brand. The Holding Structure will be supported by three pillars, the "group sectors" Continental Rubber, Continental Automotive and Powertrain. The new names and the corresponding reporting structure will applied starting 2020. The group sectors will be established, or adjusted where necessary, step by step. This realignment requires the approval of Continental AG's Supervisory Board, which is to be obtained on July 26, 2018. The Supervisory Board's Approval is also required for the carve-out of the current Powertrain division into an independent entity under a new name by the beginning of 2019. Its partial public offering (IPO) is possible beginning mid-2019.

Furthermore, the current Chassis & Safety and Interior divisions will be reorganized by the beginning of 2020. They will become two business areas newly named "Autonomous Driving Technologies" and "Vehicle Networking Technologies". Their business results will be reported in the new group sector Continental Automotive. Both business areas will be supported by a newly created central Automotive Research and Development function.

The independent organizational structure of the two current Tires ("Tire Technologies" in the future) and ContiTech divisions will remain unchanged. Their business results will be reported under the future Continental Rubber group sector.

Powertrain business aligned to meet the requirements of markets and customers

Subject to the approval of Continental AG's Supervisory Board, the Powertrain division will be carved out into an independent business area under a new name by the beginning of 2019. In addition to the combustion engine business, this new entity will also be in charge of all business of the future involving hybrid and electric drive systems, as well as current battery activities. This includes, for instance, the joint venture for 48-volt battery systems recently announced. At the same time, Continental is preparing a partial IPO for the new Powertrain company, which could take place starting mid-2019. Continental does not, however, plan to relinquish control of the Powertrain business in the medium or long term. Andreas Wolf is to assume responsibility for the new Powertrain company at the beginning of 2019. He is currently in charge of the Body and Security business unit in the Interior division.

The carve-out of the Powertrain group sector will lead to estimated operational costs of approximately EUR350 million. A large part of the operational costs will be incurred in 2018 and 2019. There will also be negative tax effects totaling about EUR100 million. These will be incurred primarily in 2019. The outlook for the Continental Corporation for 2018 is unaffected by this.
The key points agreed upon with the employee representatives in "Continental in Motion - our Alliance for the Future" on April 18, 2018, apply to the planned organizational changes at Powertrain.
The reason for creating a new independent entity is the foreseeable change in the powertrain business. The way the market evolves will largely be determined by political demands regarding emission limits. The pace at which political decision-makers are pushing regulations varies, particularly in key markets, including Europe, North America and China, as well as Japan and South Korea, and growth markets such as India. This requires a great deal of flexibility on the part of the industry in order to be able to react quickly to the individual needs of the various markets, regulatory authorities, societies and customers.

Reorganization of the Chassis & Safety and Interior divisions

The business and activities of the two other current Automotive divisions Chassis & Safety and Interior will be realigned with the changing requirements and future opportunities of the markets. By the start of 2020, these operations will be organized in two newly formed business areas with the names "Autonomous Driving Technologies" and "Vehicle Networking Technologies".
The Autonomous Driving Technologies business area will include automated and autonomous driving as well as all chassis functions. The Vehicle Networking Technologies business area will deal with a vehicle's internal connectivity as well as its external connectivity with other vehicles and traffic infrastructures. The details are expected to be worked out and announced by mid-2019.
With this reorganization, Continental is above all pursuing the goal of gearing its business with pioneering technologies toward continuing profitable growth, while exploiting this and future growth opportunities faster and more efficiently. In its new automotive business (without the Powertrain division), the technology company expects to increase sales from about EUR19 billion in 2017 to approximately EUR30 billion in 2023.

The creation of a central Automotive R&D function will support the realignment of the automotive business. In this new function, development activities of the current Interior and Chassis & Safety divisions as well as the R&D operations of the current central functions will be integrated, where they will play a more crucial role and be strengthened at the operational level. Approximately 12,000 to 15,000 software and hardware engineers will join together in a global Continental powerhouse for advanced development and application engineering. In addition, about 17,000 engineers will remain in the two new business areas Autonomous Driving Technologies and Vehicle Networking Technologies.

Rubber group: Continental retains ownership of its nucleus

The Tire and ContiTech divisions currently make up the Rubber Group, which in the future will be reported under the new name "Continental Rubber Group Sector". The two business areas will continue to specialize in the development of technology products based upon rubber and plastics.
This business, which is the nucleus and origin of the 147-year-old Hanover-based company, will continue to be owned by Continental. The sale of a minority interest, in the form of an IPO for example, is not planned at present, but is an option for the future. Several years ago Continental already prepared a possible transformation of this business into an independent entity. No further steps are necessary for this at present.


Contact:
Person making the notification: Rolf Woller, Head of IR