German components giant Continental Corporation today announced its financial results for the fiscal year 2019 (January to December), and as it battles tough market conditions like its peers, the Group posted a six percent decline in its global automotive production.
While overall revenues stood at 44.5 billion euros (2018: 44.4 billion euros), almost flat as the last year, organic sales growth dropped 2.6 percent. It recorded adjusted EBIT margin of 7.4 percent (2018: 9.3%) and an adjusted operating result of 3.2 billion euros (2018: 4.1 billion euros).
The company says that while its operating result (- 268 million euros) and net income (- 1.2 billion euros) were negative due to non-cash write-downs, the free cash flow before acquisitions and the effects of transforming its powertrain division into an independent legal entity (Vitesco Technologies) amounted to 1.3 billion euros.
According to Dr Elmar Degenhart, chairman of the Executive Board, Continental, “Continental continues to outperform its markets even in challenging times. Last year the entire automotive industry suffered a clear downturn. In operational terms we put in a respectable performance overall, but ultimately the 2019 result, particularly in the automotive business, was not satisfactory.” At the same time, he pointed out that, in a challenging situation, the dividend proposed to shareholders is only slightly lower than last year’s at euro 4 per share as against euro 4.75.
Coronavirus to impact growth in 2020
Continental forecasts global passenger car production to decline for a third successive year. For 2020, the company does not anticipate any recovery in the economic environment and expects global production of passenger cars and light commercial vehicles in 2020 to keep following the downward trend.
It says it is likely to decline by 2 to 5 percent year on year. These estimates take into account the impact of the Coronavirus on production volumes, as can be determined to date. Continental currently expects global production to decrease by more than 10 percent year-on-year in the first three months of this fiscal year. In China, the decrease is likely to be at least 30 percent in this period. The market forecast does not include possible further disruptions to production and the supply chain as well as demand as a result of the continuing spread of the Coronavirus. It says such disruptions cannot be gauged at the current time.
“The economic environment will remain challenging in 2020,” explained Wolfgang Schäfer, Continental’s CFO. He further added, “In addition to the declines in production, the globally interconnected automotive industry will be impacted by turbulence arising from the Coronavirus epidemic, trade conflicts that remain unresolved, drastically more stringent emission regulations in Europe and the rapid digitalisation of business processes and products.”
Guidance for 2020
Considering the declining sales growth in shrinking markets, the 2020 fiscal year got off to a subdued start, as expected, owing to continuing market uncertainty. On the basis of assumptions about trends in its markets and industries, Continental anticipates consolidated sales for 2020 of around 42.5 to 44.5 billion euros and an adjusted EBIT margin of around 5.5 to 6.5 percent. Sales in the 'new automotive technologies' group sector together with the former powertrain division are expected to amount to around euro 25.5 to 26.5 billion euros, with an adjusted EBIT margin of around 3 to 4 percent. On the other hand, its sales in the 'rubber technologies' group sector are forecast to total around 17 to 18 billion euros, with an adjusted EBIT margin of around 10- to- 11 percent.
Transformation 2019–2029 structural programme
The 'Transformation 2019–2029' structural programme is Continental’s answer to the global decline in the automotive industry, the disruptive technological transition in the drive system sector, and the ever swifter digitalisation of products and business processes. “2020 will be a transition year in our structural transformation. Our structural programme and our new organisational structure will bring significant progress in the medium term,” said Degenhart.
At the same time, he pointed to the deterioration in the global economic environment that has occurred since the structural programme was announced in September 2019. The absolute decrease in the production of passenger cars and light commercial vehicles has now reached the level seen in the crisis years of 2008-09. This is being worsened further by the current spreading of the Coronavirus and the corresponding reduction in production in China.
“The uncertainty in the industries that are relevant for us is growing rapidly. An economic recovery will take longer than anticipated,” said the CEO, adding, “That is why we are currently looking into how we can effectively respond to a weakening overall situation and its impact in the medium term, with further measures that go beyond our current structural program. Above all, we are at present pursuing two goals that are crucial for our success - continuously rising productivity and our sustainable competitiveness.”
As matters currently stand, the company expects to have initial findings from this process in May 2020 and will provide further information in due course.