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MarketScreener Homepage  >  Equities  >  Xetra  >  Continental AG    CON   DE0005439004

CONTINENTAL AG

(CON)
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Continental : Delivers Solid Operational Performance in Weak Market Environment

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11/12/2019 | 02:35am EST

DGAP-News: Continental AG / Key word(s): 9 Month figures
Continental Delivers Solid Operational Performance in Weak Market Environment

12.11.2019 / 08:31
The issuer is solely responsible for the content of this announcement.


- Sales up 3 percent in the third quarter to EUR11.1 billion (down 0.3 percent organically)
- Adjusted EBIT of EUR615 million (margin: 5.6 percent)
- Net income in the third quarter of -EUR1.99 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 EUR11.1 billion. In the same period of the previous year, they totaled EUR10.8 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 EUR615 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 EUR44 to EUR45 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.

Further information on the specified measures is available in a separate press release published today by the Interior division.

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 EUR615 million. The adjusted operating margin was 5.6 percent (previous year: 7.1 percent). This figure includes the provisions for warranty claims of EUR187 million announced in July 2019.

The adjusted EBIT of EUR615 million for the third quarter was above the reported EBIT of -EUR1.97 billion. The negative difference was EUR2.585 billion. Net income attributable to the shareholders of the parent also fell to -EUR1.99 billion. In the prior-year period it was EUR626 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.


Key figures for the Continental Corporation

  January 1 to September 30 Third quarter
EUR millions 2019 2018 ? in % 2019 2018 ? in %
Sales 33,414.1 33,174.3 0.7 11,103.4 10,787.8 2.9
EBIT -393.9 2,989.8 113.2 -1,970.5 851.6 -331.4
in % of sales -1.2 9.0   -17.7 7.9  
Net income attributable to the shareholders of the parent -926.4 2,185.8 -142.4 -1,986.4 626.1 -417.3
Basic earnings per share in EUR -4.63 10.93 -142.4 -9.93 3.13 -417.3
Diluted earnings per share in EUR -4.63 10.93 -142.4 -9.93 3.13 -417.3
             
Adjusted sales1 32,965.9 33,146.4 -0.5 10,928.2 10,785.5 1.3
Adjusted operating result (adjusted EBIT)2 2,366.8 2,989.6 -20.8 614.5 768.7 -20.1
in % of adjusted sales 7.2 9.0   5.6 7.1  
             
Research and development expenses (net) 2,678.0 2,534.3 5.7 858.6 821.4 4.5
in % of sales 8.0 7.6   7.7 7.6  
Capital expenditure3 2,204.4 1,956.2 12.7 778.1 781.8 -0.5
in % of sales 6.6 5.9   7.0 7.2  
             
Free cash flow -749.9 -4.9 15,204.1 275.6 -127.3 -316.5
             
Net indebtedness as at September 30 5,453.5 2,995.1 82.1      
Gearing ratio in % 34.3 16.9        
             
Number of employees as at September 304 242,516 244,582 -0.8      
             
 

1 Before changes in the scope of consolidation.
2 Before amortization of intangible assets from purchase price allocation (PPA), changes in the scope of consolidation, and special effects.

3 Capital expenditure on property, plant and equipment, and software.

4 Excluding trainees.

IFRS 16, Leases, was adopted on and has been applied since January 1, 2019. It is applied using the modified retrospective

approach, under which the previous year's figures are not adjusted. As a result, some of the figures above are not comparable with

the prior-year period.


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 EUR343 million (previous year: EUR74 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 EUR1.2 billion and EUR1.4 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 EUR6.6 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 EUR187 million, which were incurred primarily by the Powertrain division.


Key figures for the core business areas

  January 1 to September 30 Third quarter
Automotive Group in EUR millions 2019 2018 ? in % 2019 2018 ? in %
Sales 20,005.8 20,203.4 -1.0 6,554.9 6,411.2 2.2
EBIT -1,771.0 1,445.5 -222.5 -2,424.5 364.2 -765.7
in % of sales -8.9 7.2   -37.0 5.7  
             
Number of employees as at September 301 138,289 141,037 -1.9      
             
Adjusted sales2 19,896.3 20,181.0 -1.4 6,511.3 6,411.2 1.6
Adjusted operating result (adjusted EBIT)3 827.2 1,364.4 -39.4 101.6 254.0 -60.0
in % of adjusted sales 4.2 6.8   1.6 4.0  
             
Rubber Group in EUR millions            
Sales 13,450.7 13,011.8 3.4 4,561.4 4,390.0 3.9
EBIT 1,460.2 1,641.9 -11.1 487.2 519.4 -6.2
in % of sales 10.9 12.6   10.7 11.8  
             
Number of employees as at September 301 103,749 103,103 0.6      
             
Adjusted sales2 13,112.0 13,006.1 0.8 4,429.8 4,387.7 1.0
Adjusted operating result (adjusted EBIT)3 1,618.4 1,722.8 -6.1 543.4 546.7 -0.6
in % of adjusted sales 12.3 13.2   12.3 12.5  
             
 

1 Excluding trainees.

2 Before changes in the scope of consolidation.

3 Before amortization of intangible assets from purchase price allocation (PPA), changes in the scope of consolidation, and special effects.

IFRS 16, Leases, was adopted on and has been applied since January 1, 2019. It is applied using the modified retrospective

approach, under which the previous year's figures are not adjusted. As a result, some of the figures above are not comparable with

the prior-year period.


The Rubber Group generated total sales of about EUR4.6 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 EUR2.2 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 EUR2.7 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 EUR5.5 billion. This represents a decline of about EUR200 million compared to the end of the second quarter of 2019, when it totaled around EUR5.7 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 EUR5.3 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.

Continental develops pioneering technologies and services for sustainable and connected mobility of people and their goods. Founded in 1871, the technology company offers safe, efficient, intelligent and affordable solutions for vehicles, machines, traffic and transportation. In 2018, Continental generated sales of EUR44.4 billion and currently employs more than 240,000 people in 60 countries and markets.

Press contact

Henry Schniewind
Spokesman, Business & Finance
Continental
Phone: +49 511 938-1278img
Cell: +49 151 688 64 262img
E-mail: henry.schniewind@conti.de

Vincent Charles
Head of Media Relations
Continental
Phone: +49 511 938-1364img
Cell: +49 173 314 50 96img
E-mail: vincent.charles@conti.de
Press portal www.continental-press.com
Media center continental.com/media-center
Quarterly results www.continental.com/quarterly-results



12.11.2019 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG.
The issuer is solely responsible for the content of this announcement.

The DGAP Distribution Services include Regulatory Announcements, Financial/Corporate News and Press Releases.
Archive at www.dgap.de


Language: English
Company: Continental AG
Vahrenwalder Straße 9
30165 Hannover
Germany
Phone: +49 (0)511 938-1068
Fax: +49 (0)511 938-1080
E-mail: ir@conti.de
Internet: www.continental-corporation.com/de
ISIN: DE0005439004
WKN: 543900
Indices: DAX
Listed: Regulated Market in Frankfurt (Prime Standard), Hamburg, Hanover, Stuttgart; Regulated Unofficial Market in Berlin, Dusseldorf, Munich, Tradegate Exchange; Luxembourg Stock Exchange, SIX
EQS News ID: 910319

 
End of News DGAP News Service

910319  12.11.2019 

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© EQS 2019
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