Continental withdraws outlook for ‘uncertain’ 2020

The entire automotive industry has been impacted by the coronavirus pandemic, and companies are taking steps to ensure their survival. Continental has provided an update on the latest measures being implemented, including reduced working hours and displays of executive solidarity. It has also buried its outlook for 2020.

More than 40 per cent of Continental’s 249 production locations around the world, predominantly in Europe and the Americas, have temporarily ceased activities, both to protect employee health and in response to declining demand. These production stops range from a few days to several weeks. Production in China was halted after the outbreak of the coronavirus in compliance with local regulations, and since 10 February has gradually resumed.

Plant closures mean reduced working hours. In Germany alone, about 30,000 employees – around half the company’s current workforce – have registered for the government-subsidised short-time work (Kurzarbeit) programme as of 1 April 2020. Those who’ve signed up for the scheme include employees working in production, research and development, and administrative capacities, including staff at Continental’s headquarters in Hannover. Certain business units already started reducing working hours in mid-March.

“We have agreed with employee representatives to use all available options in the coming weeks to respond to this crisis in a flexible manner,” comments Dr Ariane Reinhart, Continental’s Executive Board member for Human Resources. “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.”

Short-time work is planned at various German locations for several weeks but could last for six months to a year, depending on how the market situation develops. The extent to which short-time-work is utilised and its duration will vary from location to location, depending on local conditions.

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

More than 95 per cent of the employees who are able to work from home – about 85,500 – are currently doing so.

Solidarity with the workforce

Members of the company’s Executive Board are voluntarily foregoing ten per cent of their income for the month of April. Continental adds that a “large number” of executives are also contributing similar amounts. The Executive Board will soon call upon executives based in other countries to “similarly demonstrate their voluntary solidarity.”

“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,” explains Continental’s chief executive officer, Dr Elmar Degenhart. “As the Executive Board, we wish to set an example and are foregoing ten per cent 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.”

Reinhart adds: “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.”

Outlook for 2020 no longer applies

Continental has withdrawn its outlook for the current fiscal year due to the uncertainty regarding the duration of coronavirus-related restrictions and the possible consequences for production, the supply chain and demand. The company announced in a mandatory disclosure today that it cannot currently determine when a new outlook for 2020 will be issued as the situation remains very dynamic. Previously, Continental had anticipated consolidated sales for the current year of around 42.5 to 44.5 billion euros and an adjusted EBIT margin of around 5.5 to 6.5 per cent.

The company has also published its preliminary business figures for the first quarter of 2020. Based on these figures, Continental expects to achieve consolidated sales of around 9.4 to 9.8 billion euros and an adjusted EBIT margin of around two to three per cent for the three months to 31 March. Sales of around 5.7 to 5.9 billion euros and an adjusted EBIT margin of around 0 per cent are expected in the Automotive Technologies group sector together with the former Powertrain division. In the Rubber Technologies group sector, sales of around 3.7 to 3.9 billion euros and an adjusted EBIT margin of around seven to eight per cent are expected.

“In periods of crisis, financial liquidity is of top priority. To this end, we are cutting our costs, optimising 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,” says Degenhart. “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 of 29 February 2020: cash and cash equivalents of around 2.3 billion euros and unused committed credit lines of around 4.6 billion euros), Degenhart adds: “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.”