Continental reduces 2016 outlook

As a result of “the recent combined occurrence of isolated unrelated events” affecting three divisions within its Automotive Group, Continental has reduced its outlook for the 2016 financial year. The three Automotive divisions’ adjusted EBIT for the current year has been lowered by around €480 million, with the Automotive Group’s adjusted EBIT margin decreasing from more than 8.5 per cent to over 6.5 per cent. Continental’s overall adjusted EBIT margin is now expected to be over 10.5 per cent this year, rather than over 11.0 per cent.

The most significant of the abovementioned events involves warranty cases for products supplied by the Chassis & Safety and Interior divisions between 2004 and 2010, as well as possible expenses for pending antitrust proceedings. The total negative effect is expected to amount to around €390 million.

Furthermore, a third earthquake in the Kumamoto region of Japan at the end of August 2016 further worsened the situation for an important supplier of micro control units located there. The Interior division therefore anticipates sales losses amounting to at least €100 million. Two earthquakes in April this year had already had a significant impact on production. After the first of these natural disasters, the anticipated sales losses were €50 million. Extra freight expenses, necessary product adjustments and increased manufacturing costs mean that the Interior division’s EBIT is expected to be €50 million lower.

Added to this is a short-term increase in research and development expenses, to the tune of €60 million, in the Interior and Powertrain divisions. The reasons for this are the significantly accelerated structural transformation taking place in the automotive industry, which has led to temporarily increased development expense for infotainment systems, and promptly initiated increased research into environmentally friendly drive systems. As a result, the Powertrain division’s adjusted EBIT margin for the current year will be below the previous year’s level of 5.7 per cent.

Despite the negative effects, Continental anticipates an adjusted EBIT margin of over nine per cent for the fourth quarter of 2016 in the Automotive Group. All other parts of the outlook remain unchanged; consequently, the sales forecast for 2016 is still at around €41 billion before exchange-rate effects.

The joint outlook for the Rubber Group’s Tire and ContiTech divisions has been fully confirmed.