Coronavirus: Continental Cancels 2020 Outlook

• 2020 outlook withdrawn due to ongoing uncertainty regarding market development
• Preliminary results for first quarter: consolidated sales of around €9.4 to €9.8 billion; adjusted EBIT margin of around 2 to 3 percent
• More than 40 percent of production locations worldwide have temporarily ceased activities
• CEO Dr. Elmar Degenhart: “We are safeguarding liquidity by cutting costs substantially and thus maintaining our ability to function effectively”
• About 30,000 employees registered for short-time work in Germany as at April 1, 2020
• Solidarity with workforce: Executive Board and executives worldwide forego 10 percent of their salary in April

Hanover, April 1, 2020. Continental is withdrawing its outlook for the current fiscal year due to the uncertainty regarding the duration of restrictions caused by the coronavirus pandemic and the related possible consequences for production, the supply chain and demand. As announced by the company today in a mandatory disclosure, the timing for a new outlook for 2020 currently cannot be determined since the situation remains very dynamic. Previously, Continental had anticipated consolidated sales for the current year of around €42.5 to €44.5 billion and an adjusted EBIT margin of around 5.5 to 6.5 percent.

At the same time, the technology company published its preliminary business figures for the first quarter. Based on these figures, Continental expects to achieve in the first three months of the year consolidated sales of around €9.4 to €9.8 billion and an adjusted EBIT margin of around 2 to 3 percent. In the Automotive Technologies group sector together with the former Powertrain division, sales of around €5.7 to €5.9 billion and an adjusted EBIT margin of around 0 percent are expected. In the Rubber Technologies group sector, sales of around €3.7 to €3.9 billion and an adjusted EBIT margin of around 7 to 8 percent are expected.

“In periods of crisis, financial liquidity is of top priority. To this end, we are cutting our costs, optimizing our working capital and postponing projects and investments that are not urgently required until further notice. We are, however, continuing to push ahead at full steam with key development projects as well as preparations for upcoming production start-ups. In this way, we are maintaining our ability to function effectively and confidently,” said CEO Dr. Elmar Degenhart. At present, more than 40 percent of Continental’s 249 production locations worldwide have temporarily ceased activities for a few days to several weeks in order to protect employees and in response to the drop in demand.

The consequences are reflected in reduced working hours. In Germany alone, about 30,000 employees and thus half of the current workforce have been registered for short-time work as at April 1, 2020. This affects all corporate functions – from production and research and development through to administration, including employees at Continental’s headquarters in Hanover. Certain business units already started reducing working hours in mid-March 2020.

Degenhart summarized: “Our most urgent goal is to further reduce the cash outflow substantially in light of the challenging market development. The numerous steps we have taken are in line with the respective market requirements and the regulations issued by local authorities. We are also coordinating with employee representatives.”

Pointing out the company’s ample liquidity reserves (as at February 29, 2020: cash and cash equivalents of around €2.3 billion and unused committed credit lines of around €4.6 billion), Degenhart added: “We are strong and remain confident. After all, we have a crisis-tested team and a sound balance sheet. And that is why we will master this crisis successfully.”

Dr. Ariane Reinhart, Continental’s Executive Board member for HR, added: “We have agreed with employee representatives to use all available options in the coming weeks to respond to this crisis in a flexible manner. Our mutual goal in the current phase is to protect our employees and to protect jobs. Instruments such as short-time work in Germany help us here.”

As a result of the coronavirus pandemic, short-time work is planned at various German locations for several weeks, and can last for 6 to 12 months depending on the development of the market situation. The extent to which short-time-work is utilized and its duration varies from location to location, depending on local conditions.

Continental is also making use of such options in countries in which comparable instruments for shorter working hours are available. The company is currently considering how it can support affected employees in countries where there are no comparable instruments that safeguard the employees’ take-home pay.

Continental’s Executive Board has therefore decided to voluntarily forego 10 percent of its monthly income for the month of April. A large number of executives are already foregoing parts of their salary and are contributing a similar amount on average.

In some countries, as in Germany, the Executive Board will soon be calling upon executives to similarly demonstrate their voluntary solidarity. Degenhart commented: “Many members of the global Continental team are currently doing short-time work, or are having to accept salary cuts or other restrictions. We are therefore asking our executives worldwide for their solidarity and personal support. As the Executive Board, we wish to set an example and are foregoing 10 percent of our basic salary for the month of April. We are asking all executives who have not yet done so to follow our lead and make an equal financial contribution on their part. This will demonstrate how resolutely united we are in critical times and how we will mutually strengthen one another for the future.”

“In this challenging situation, we must all do our part – in the spirit of ‘For One Another.’ Our values-based and value-oriented company culture is the foundation on which we will successfully overcome this crisis together,” said Reinhart.

The cutback in production affects in particular Continental’s locations in Europe as well as in North and South America. In China, the company halted production at its plants after the outbreak of the coronavirus in compliance with local regulations. Continental has gradually resumed production there starting February 10, 2020.

Certain production lines will continue to be operated at Continental locations worldwide so that the company can fulfill its delivery obligations. In addition, products that are vital for industries crucial to people’s needs, such as medical technology (for instance hoses), water works, the food industry or public utilities, will still be produced in many plants of the ContiTech business area.

Continental is protecting its employees in ongoing production with appropriate equipment as specified in its corporate-wide pandemic plan and in compliance with the protection regulations of individual countries. Extensive protection schemes minimize the risk of infection at the respective locations.

Of employees who are able to work from home, more than 95 percent or about 85,500 are currently doing so.

Excerpt from Continental’s withdrawn outlook from March 5, 2020:

Continental Group: consolidated sales, at constant exchange rate effects, of around €42.5 to €44.5 billion; adjusted EBIT margin of around 5.5 to 6.5 percent.

Automotive Technologies together with the former Powertrain division: sales, at constant exchange rate effects, of around €25.5 to €26.5 billion; adjusted EBIT margin of around 3 to 4 percent.

Rubber Technologies: sales, at constant exchange rate effects, of around €17 to €18 billion; adjusted EBIT margin of around 10 to 11 percent.