Continental Achieves Adjusted Annual Targets in 2019 and Focuses on a Healthy Mobility Ecosystem

• Sales up slightly at €44.5 billion (2018: €44.4 billion)
• Market growth: about -6 percent; organic sales growth: -2.6 percent
• Adjusted operating result: €3.2 billion (2018: €4.1 billion); adjusted EBIT margin 7.4 percent (2018: 9.3 percent)
• Operating result (-€268 million) and net income (-€1.2 billion) negative due to non-cash write-downs already reported
• Free cash flow before acquisitions and carve-out effects: €1.3 billion (2018: €1.9 billion)
• Proposed dividend: €4.00 per share (2018: €4.75)
• Market outlook for 2020: global passenger car production expected to decline for a third successive year (-2 to -5 percent)
• Examination of additional measures to enhance competitiveness in view of the deteriorating environment; initial findings expected in May 2020
• Guidance for fiscal 2020: consolidated sales of around €42.5 to €44.5 billion; adjusted EBIT margin of around 5.5 to 6.5 percent​​​​​​​

Hanover, March 5, 2020. In a sharply deteriorating market environment, Continental achieved its adjusted targets for fiscal 2019, as the technology company announced on Thursday at its annual press conference in Hanover. According to preliminary figures, the DAX company’s sales in the past fiscal year were €44.5 billion (2018: €44.4 billion), while the adjusted EBIT margin was 7.4 percent (2018: 9.3 percent). That corresponded to an adjusted operating result of €3.2 billion (2018: €4.1 billion). While global automotive production declined by about 6 percent in 2019 according to the latest estimates, Continental’s organic sales development in the same period was down 2.6 percent, thus outperforming its markets.

At the same time – as reported at the end of October 2019 – diminished market expectations in particular required non-cash write-downs in the amount of €2.5 billion. The impairment testing of recognized goodwill as required by accounting standards led to a reported operating result of -€268 million (2018: €4.0 billion) and net income of -€1.2 billion (2018: €2.9 billion).

The Transformation 2019–2029 structural program 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 digitalization of products and business processes. “2020 will be a transition year in our structural transformation. Our structural program and our new organizational 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 program 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.

Continental referred to the possibility of additional adjustments when it announced its structural program at the end of September 2019, and did not rule out further projects if the effect of the measures defined at the time turned out to be insufficient to achieve the profit targets set.

With regard to the medium and long-term challenges facing the global automotive industry, Degenhart is confident: “Continental and its industries are currently undergoing a profound transformation. It affects everything that makes up our business, from products and processes to business models and structures. We are facing major challenges; but what I see above all for Continental are enormous opportunities.” Continental has, he said, established a sound technological position and strong balance sheet at an early stage. “We are much better prepared for difficult conditions than we were before the last downturn in the automotive industry. We have a clear plan for our future success,” said Degenhart.

A significant part of this plan consists of focusing all efforts on strengthening profitable growth areas. These include assisted, automated and connected driving; the implementation of new vehicle architectures and connectivity of cars with the help of new, high-performance computers; the business with software and data based on intelligent products made of plastic, rubber or electronics; as well as the industrial and end-customer business. The clear priority for the deployment of capital is profitable growth. This goes hand in hand with a further strengthening of the corporate culture. The key elements of this will be Continental’s company values, increasingly decentralized decision-making responsibility and future-oriented employee training. “Suppliers like Continental make an important contribution to a healthy mobility ecosystem that offers protection to the environmental, economic and social climate all at once,” said Degenhart.

In the last fiscal year, Continental continued to undertake a high level of capital expenditure. “We are investing billions in the mobility of tomorrow. Only a small number of companies around the world can do that in these challenging times. At the same time, we have substantially stepped up our cost discipline in all areas,” explained CFO Wolfgang Schäfer.

In fiscal 2019 alone, Continental invested around €6.7 billion (2018: €6.3 billion) in research and development, as well as in property, plant and equipment, and software.

In the future, around 10 control units will do the work of up to 100 of the control units seen in current cars. Continental is consolidating diverse sets of functions in these high-performance computers on the basis of its own software and algorithms as well as applications from software partners. “Only a small number of systems suppliers are able to consolidate the huge amounts of software involved for the car of the future and synchronize it all. Continental is one of them, and has already won several major contracts in this area from major car manufacturers around the world,” explained Degenhart.

Continental is already supplying its high-performance computers for new vehicles being mass produced in large numbers. These computers from Continental enable a high degree of vehicle connectivity. This includes the ability to install new functions as well as safety updates, which are downloaded via a wireless connection. They are also powerful enough to enable entirely new applications in the car. “More is clearly becoming less. Our new vehicle computers are reducing complexity and raising driving convenience to new levels, particularly for electric vehicles. With our systems, the vehicle becomes an active part of the Internet. This is pioneering work, putting us at the forefront when it comes to software expertise for connected cars,” explained Degenhart.

High-performance vehicle computers will also pave the way for entirely new control concepts in the vehicle interior. Displays and cameras as well as intelligent and adaptable surfaces will be combined seamlessly with active haptic feedback in the future. This means vehicles will feature large curved glass surfaces consisting of various displays – including touch displays – stretching across the full width of the vehicle. These will be complemented by interactive control elements built into the surface, so they are invisible until they are needed.