"Declining market environment": Continental rolls deep into the red line

              Tuesday, November 12, 2019

              In the next few years, the new focus on electronics and the associated downsizing will bring enormous costs to Continental. But even now the automotive supplier has to cope with a minus in daily business. The board nevertheless sees a "solid development".
              Loss of billions in books, falling profits in current business: Continental, the second-largest automotive supplier, is under considerable pressure before its fundamental reorganization. Because the Hanoverians have to cope with a high write-off and at the same time paralyze the car market in many countries, they ended the third quarter deep in the red. At the same time, the decision to realign to more electronics and the resulting downsizing in the coming years are likely to be expensive. Continental 126.96 The bottom line for Conti was a minus of almost two billion euros from July to September. The company said it was largely due to the one-time effect of reduced goodwill from previous acquisitions and initial costs of the remodeling program. But also in day-to-day business, adjusted operating profit recently fell significantly by one-fifth to just under EUR 615 million. Chief Executive Elmar Degenhart spoke of a comparatively solid development in view of the delicate situation of the industry – "despite the continuing decline in the market environment". But the signs point to difficult times: "In the next five years, unlike other market participants, we do not expect global output to pick up significantly," said CFO Wolfgang Schäfer. In the third quarter, sales of cars and light commercial vehicles fell by three percent, but it should be minus six percent for the full year. "In Europe, we do not see much momentum for stronger growth," said Schäfer. From the huge Chinese market one could expect only tailwind, if the trade disputes with the USA relax clearly. The automotive supplier and tire manufacturer from Lower Saxony recently increased its sales slightly by three percent to 11.1 billion euros – but only if one factors in the effect of acquisitions and exchange rate changes. On its own, Conti's revenues fell 0.3 percent year-on-year.Focus on electronics, software and e-mobilityThe car industry is undergoing a transformation to e-mobility as well as networked and automated driving. This poses problems for manufacturers and suppliers, who previously mainly produced internal combustion engines and parts thereof. And there is less, but highly specialized work. In addition, slowing economic growth in many places on the sales. "The current situation requires us to permanently increase our competitiveness," emphasized Degenhart. The "Transformation 2019-2029" program is transforming the Group – away from hydraulics and combustion technology, to more electronics, software and e-mobility. The core areas are assisted and autonomous driving, networking, services, the stable tire business and business with industrial and end customers. The employees should be qualified, but there should also be job cuts. By 2023, the restructuring at Continental could affect around 15,000 jobs, 5,000 of them in Germany. Degenhart had said that dismissals can not be ruled out, but only as a "last resort." At the same time, new jobs are being created. At the end of September, the company employed more than 242,000 people worldwide. Schäfer said about the ongoing negotiations with the employees: "The talks are location-based in order to find the best possible solutions for employees." One assumes that such solutions can be presented at many locations soon: "But one or the other location can also move into the next year." Industry leader Bosch is also shedding jobs. As a result, Conti offers a broad range of sensors and electric drives Business, the Group has been able to cushion the change relatively well so far. "Looking at our purely operational performance, we developed reasonably well in the third quarter," said Schäfer. Thus, Vitesco – the future split off powertrain – received in October a major order from the Opel-based PSA and Hyundai for e-drives. Here there is "unchanged strong revenue growth, in the third quarter, the revenue would have amounted to 64 million euros, said Schäfer. "We now see customers calling these products, which we have been waiting for a bit longer." For the VW electric car ID.3 Continental also provides an on-board computer, which should facilitate updates or finding charging points. Other major suppliers are also struggling with foreseeable uncertain demand. Industry leader Bosch continues to expand jobs. This should be carried out in a socially responsible manner at affected locations, Bosch asserted – redundancies due to operational reasons were initially not planned.

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