Auto Sector Downturn Contributes to Continental’s 2019 Loss
Continental AG posted a net loss of 1.2 billion euros on net sales of 44.5 billion euros for its fiscal 2019 ended Dec. 31, 2019. That compares to net income of 2.9 billion euros on net sales of 44.4 billion euros in 2018.
Based on the exchange rate on Dec. 31, 2019, Continental recorded a net loss of nearly $1.4 billion on net sales of $49.8 billion for fiscal 2019.
Continental outperformed the market in challenging times, according to Dr. Elmar Degenhart, chairman of the board: “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.”
Continental's Automotive Group sales totaled 26.5 billion euros ($29.7 billion), while the Rubber Group's sales were 18.0 billion euros ($20.2 billion). That compares to 2018 sales of 26.9 billion euros for the Auto Group and 17.6 billion euros for the Rubber Group.
Continental said that in fiscal 2019, the Automotive Group (which existed until the end of 2019 and consisted of the Chassis & Safety, Interior and Powertrain divisions) was not entirely immune to the sharp decline in the automotive sector. While global automotive production dropped by about 6%, reported sales in the same period fell by 1.2% to 26.5 billion euros.
Organic sales for the Automotive Group decreased by 3.3%.
The Rubber Group (which operated under this name until the end of 2019, consisting of the Tires and ContiTech divisions) generated total sales of 18 billion euros last year, which was equivalent to sales growth of 2.3% compared with the previous year. Organic growth came to -1.5%. Continental noted that with organic growth of -0.2%, the tire business in particular held its own in a declining environment.
Market outlook 2020: global passenger car production to decline for a third successive year
For 2020, Continental does not anticipate any recovery in the economic environment. The company expects global production of passenger cars and light commercial vehicles in 2020 to decrease for the third year in a row. It is likely to decline by 2% to 5% 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% year-on-year in the first three months of this fiscal year. In China, the decrease is likely to be at least 30% 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. Such disruptions cannot be gauged at the current time.
“The economic environment will remain challenging in 2020,” stated Wolfgang Schäfer, Continental’s CFO. He 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 digitalization of business processes and products.”
Guidance for 2020: 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 billion to €44.5 billion euros. Sales in the new Automotive Technologies group sector together with the former powertrain division are expected to amount to around 25.5 billion to 26.5 billion euros. Sales in the Rubber Technologies group sector are forecast to total around 17 to 18 billion euros.
Focus on profitable growth areas
To deal with the downtown in the automotive industry, Continental is focusing 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.
Continental produced 142 million passenger tires
In 2019, Continental produced a total of more than 142 million passenger car tires globally. According to Modern Tire Dealer research, Continental is the third largest tire manufacturer in the world, displacing Goodyear Tire & Rubber Co.
The company said that tires from Continental will become increasingly intelligent going forward, for example by providing the driver with reliable information not only on the temperature and pressure, but also on the depth of the tire tread. It will also be possible to detect and flag damage at an early stage, thus ensuring a longer tire life and minimizing downtime.
Investing in the mobility of the future
In 2019, 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 euros (versus 6.3 billion euros in 2018) in research and development, as well as property, plant and equipment, and software.