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      Press Release
      November 12, 2019

      Continental Delivers Solid Operational Performance in Weak Market Environment

      • Sales up 3 percent in the third quarter to €11.1 billion (down 0.3 percent organically)
      • Adjusted EBIT of €615 million (margin: 5.6 percent)
      • Net income in the third quarter of -€1.99 billion due to previously announced one-time effects from goodwill impairment and provisions
      • Adjusted targets for the year as a whole confirmed
      • CEO Dr. Degenhart: “The current situation requires us to enhance our long-term competitiveness. With our global Transformation 2019–2029 structural program we are taking the necessary steps to achieve this.”
      • Continental supplies electronic architecture for highly connected Volkswagen ID. and starts production of fully integrated e-drive system for Groupe PSA and Hyundai

      Hanover, November 12, 2019. Continental delivered a solid operational performance in the third quarter of 2019 despite markets continuing to decline. As the technology company stated today at the presentation of its quarterly figures in Hanover, reported sales rose in the third quarter by nearly 3 percent to €11.1 billion. In the same period of the previous year, they totaled €10.8 billion. Adjusted for changes in the scope of consolidation and exchange rates, sales growth was down 0.3 percent, nearly on par with the prior-year level. By contrast, global production of passenger cars and light commercial vehicles fell by about 3 percent in the same period. Thanks to its forward-looking product portfolio, the technology company was thus able to almost entirely escape the effects of the sharp decline in demand worldwide. The adjusted operating result (adjusted EBIT) was €615 million (margin: 5.6 percent).

      “Thanks to the global demand for our systems and solutions, we were able to keep our sales at a stable level in the third quarter despite the continuing decline in the market environment. The current situation requires us to enhance our long-term competitiveness. With our global Transformation 2019–2029 structural program we are taking the necessary steps to achieve this. It is a challenging but essential process to ensure our viability. We are thus responding proactively to the crisis in the automotive industry and, like 10 years ago, we will emerge stronger,” said Dr. Elmar Degenhart, CEO of Continental.

      Degenhart also confirmed the annual targets for the current fiscal year, which had been adjusted in July 2019. “We are maintaining our outlook for the current fiscal year. We anticipate that full-year sales will be about €44 to €45 billion and the adjusted EBIT margin will be about 7 to 7.5 percent.”

      Strategy 2030: focus on five core areas for future growth

      In view of the current transformation of the automotive industry, Degenhart commented: “We see a wide variety of opportunities in the mobility of tomorrow. With our Strategy 2030 we are focusing fully on our growth areas.” For Continental, these areas include assisted and automated driving, connected driving, mobility services, the tire business, as well as the industrial and end-customer business. Continental is also gearing its Vitesco Technologies powertrain business to achieve profitable growth with electric mobility.

      Continental supplies electronic architecture for highly connected Volkswagen ID.

      One example of Continental’s strong expertise in software and electronics is the In-Car Application Server (ICAS1), which condenses a large number of today’s control units into a small number of high-performance computers. With this new vehicle architecture, Continental is paving the way for a seamless connection between vehicles and the digital world of mobile services and data, making over-the-air updates the norm in the future. ICAS1 enables the seamless integration of data-based apps and functions – such as planning routes optimized for vehicle range and locating charging stations for electric cars. “With ICAS1, we are supplying the heart of a new electronic server architecture. We are delighted to have gained Volkswagen and its ID. series as our first customer,” said Degenhart. Volkswagen, which is Europe’s largest automotive manufacturer, will thus be using ICAS1 technology for its future ID. electric vehicles, including the Volkswagen ID.3, which recently went into production.

      Vitesco Technologies starts production of fully integrated e-drive system

      In addition, Vitesco Technologies – Continental’s drive systems business – recently announced an agreement to supply the first fully integrated drive system for several mass-production models of Groupe PSA and Hyundai.

      “Vitesco Technologies has the potential to assume a leading role for drive systems technologies in the dynamic market environment,” said Andreas Wolf, CEO of Vitesco Technologies. This is reflected by the fact that two leading automotive manufacturers recently opted for the innovative electric axle drive technology from Vitesco Technologies.

      The innovative axle drive system will be used in the future in vehicles such as the small Peugeot e-208 and Opel Corsa-e electric cars, as well as the Hyundai Encino SUV and the Hyundai Lafesta sedan. Based on its strong expertise in the area of electronics, sensors and actuators, Vitesco Technologies is one of the few system providers for high-voltage components and hybridization solutions.

      One-time effects impact quarterly and annual results

      In the quarter under review, the adjusted operating result (adjusted EBIT) reached €615 million. The adjusted operating margin was 5.6 percent (previous year: 7.1 percent). This figure includes the provisions for warranty claims of €187 million announced in July 2019.

      The adjusted EBIT of €615 million for the third quarter was above the reported EBIT of -€1.97 billion. The negative difference was €2.585 billion. Net income attributable to the shareholders of the parent also fell to -€1.99 billion. In the prior-year period it was €626 million. Factors here were the impairment on intangible assets and provisions announced on October 22, 2019, for the current structural program, which had a negative impact on the reported EBIT and on net income. “The impairment is a non-cash write-down of goodwill from acquisitions that we had to take due to our adjusted market outlook,” said Continental’s CFO Wolfgang Schäfer.

      Schäfer also noted Continental’s solid performance in the third quarter: “If you look at our purely operational performance, we did reasonably well in the third quarter.”

      Sideways trend in car production expected at best in 2020

      The global automotive industry is currently facing a sharp decline in the market environment. “There has been a clear slowdown in production volumes. Fewer than 90 million vehicles are expected to be produced worldwide this year. Compared to the market assumptions from two years ago, that is a decrease of over 10 million vehicles,” Schäfer explained.

      “We, like other market participants, do not expect a material improvement in global production in the next five years,” he added. Looking ahead to next year, Schäfer said: “At best, we foresee a sideways trend in global automotive production in 2020.” He noted, however, that a decline in global production of passenger cars and light commercial vehicles for a third year in succession remains a distinct possibility.

      In the third quarter, the production of passenger cars and light commercial vehicles in China was down by more than 5 percent year-on-year, whereas it was nearly on par with the prior-year figures in Europe and North America.

      The company, however, anticipates that production rates will continue to decline in the fourth quarter in these three key regions. For the year as a whole, Continental expects the decline in the global production of passenger cars and light commercial vehicles to be about 6 percent year-on-year.

      Please find here the key figures for the Continental Corporation

      In the third quarter, free cash flow – before acquisitions and including the effects from the accounting of leases (IFRS 16) as well as the effects of transforming the Powertrain division into an independent legal entity – was €343 million (previous year: €74 million, before the net outflow for the funding of the U.S. pension plans). In light of the regular seasonality and thus a fourth quarter traditionally characterized by a very strong cash inflow, the company is forecasting for the entire year a continued free cash flow before acquisitions of between about €1.2 billion and €1.4 billion before carve-out effects.

      Despite the decline in global automotive production, the Automotive Group increased its sales by 2.2 percent year-on-year in the third quarter. Business performance was stable in organic terms. Sales during this period totaled about €6.6 billion. The adjusted operating margin was 1.6 percent (previous year: 4.0 percent). This includes the provisions announced in July 2019 for warranty claims in the amount of €187 million, which were incurred primarily by the Powertrain division.

      Please find here the key figures for the core business areas

      The Rubber Group generated total sales of about €4.6 billion in the third quarter, which equates to growth of 3.9 percent compared with the same period of the previous year. Organic growth for the third quarter of 2019 came to -0.6 percent. The adjusted EBIT margin was 12.3 percent, which is about the same level as in the previous-year period (previous year: 12.5 percent).

      With regard to the stable trend for the Rubber Group in the third quarter, Schäfer commented: “We have been focusing for a long time on boosting our industrial and end-customer business. This makes us more independent from the trends on the international automotive markets. A prime example is the acquisition of the Merlett Group, a thermoplastics specialist based in Italy, which we completed at the beginning of November.”

      With this acquisition, Continental is expanding the materials expertise of its industrial hose business in the ContiTech division, its industrial specialist. The aim is to offer increasingly intelligent applications with the aid of thermoplastic materials in the future, for example by means of sensors.

      In the first nine months of the year, Continental’s capital expenditure on property, plant and equipment, and software totaled €2.2 billion. This put the capital expenditure ratio at 6.6 percent (previous year: 5.9 percent). The technology company’s net expenditure for research and development was about €2.7 billion, corresponding to 8.0 percent of consolidated sales. The figure for the same period of the previous year was 7.6 percent.

      As at September 30, 2019, net indebtedness was about €5.5 billion. This represents a decline of about €200 million compared to the end of the second quarter of 2019, when it totaled around €5.7 billion. The gearing ratio, which quantifies the degree of indebtedness, was 34.3 percent on the reporting date. Continental’s liquidity reserves amounted to about €5.3 billion on the reporting date of the period under review.

      As at the end of the third quarter of 2019, Continental had 242,516 employees, representing a decline of 710 in comparison to the end of 2018. Adjustments were made primarily in the Automotive Group in response to lower global vehicle production. This was countered by the acquisitions of antenna specialist Kathrein Automotive and anti-vibration specialist Cooper-Standard.

      Click here for the financial report as at September 30, 2019 of the Continental corporation.

      More information here: button

      Available documents

      Dr. Elmar Degenhart

      Dr. Elmar Degenhart, Chairman of the Executive Board Continental AG

      Wolfgang Schäfer

      Member of the Executive Board, Finance, Controlling, Compliance, Law, and IT, CFO

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