Continental revises 2022 outlook, publishes preliminary Q1 results

Due to several factors, Continental is adjusting its outlook for fiscal 2022. The company expects global production of passenger cars and light commercial vehicles to increase by between four and six per cent year-on-year in 2022, a lower rate than the six to nine per cent growth that the prior outlook (published 9 March 2022) was based on. Negative effects from cost inflation for key inputs, especially for oil-based raw materials as well as for energy and logistics for the Tires and ContiTech businesses, are also becoming significantly more material.

Assuming exchange rates for the rest of the year do not materially differ to those in the first quarter of 2022, Continental has made the following changes to its 2022 outlook based upon the aforementioned factors:

Consolidated sales are expected to be around €38.3 billion to €40.1 billion (previously: €38 billion to €40 billion), and the adjusted EBIT margin is expected to be between around 4.7 to 5.7 per cent (previously: around 5.5% to 6.5%).

For the Automotive group sector, Continental expects sales of around €17.8 billion to €18.8 billion (previously: around €18 billion to €19 billion) and, as a result of the lower sales expectations, an adjusted EBIT margin in the range of around -0.5 to 1 per cent (previously: around 0% to 1.5%). This still includes higher procurement and logistics expenses of around €1 billion as well as additional expenses for research and development of around €100 million in the Autonomous Mobility business area.

For the Tires group sector, sales are now expected to be around €13.8 billion to €14.2 billion (previously: around €13.3 billion to €13.8 billion), with an adjusted EBIT margin of around 12.0 to 13.0 per cent (previously: around 13.5% to 14.5%). The adjusted EBIT margin range assumes a year-on-year increase in procurement and logistics costs of around €1.9 billion (previously: around €1 billion).

For the ContiTech group sector, Continental expects sales of around €6.3 billion to €6.5 billion (previously: around €6.0 billion to €6.3 billion) and an adjusted EBIT margin of around 6.0 to 7.0 per cent (previously: around 7.0% to 8.0%). The adjusted EBIT margin range assumes a year-on-year increase in procurement and logistics costs of around €600 million (previously: €300 million).

For the Contract Manufacturing group sector, sales of around €600 million to €700 million and an adjusted EBIT margin of around 0 to 1.0 per cent are still expected.

Capital expenditure before financial investments is expected to total around six per cent of sales (previously: less than 7%).

In fiscal 2022, free cash flow of around €0.6 billion to €1.0 billion (previously around €0.7 billion to €1.2 billion) is expected before acquisitions and divestments.

Lower sales & earnings possible

Continued or worsening tensions relating to the geopolitical situation, particularly in Eastern Europe, could result in further lasting consequences for production, supply chains and demand. In addition, further negative effects could arise as a result of the ongoing COVID-19 pandemic and the related supply situation. Depending on the severity of the disruption, this may result in lower sales and especially earnings in all group sectors as well as for the Continental Group compared to the prior year.

Q1 2022 results

Based on preliminary data, the following are the key financial results for the first quarter of fiscal 2022, showing the figures for continuing operations in the reporting and comparative periods:

Consolidated sales amounted to €9.3 billion (Q1 2021: €8.6 billion), and the adjusted EBIT margin was 4.7 per cent (Q1 2021: 8.5%). Before changes in the scope of consolidation and exchange- rate effects, sales increased year-on-year by 5.3 per cent.

Sales in the Automotive group sector were €4.2 billion (Q1 2021: €4.1 billion), and the adjusted EBIT margin was -3.9 per cent (Q1 2021: 2.4%). Before changes in the scope of consolidation and exchange-rate effects, sales were down year-on-year by 1.2 per cent.

Sales in the Tires group sector were €3.3 billion (Q1 2021: €2.7 billion), and the adjusted EBIT margin was 17.1 per cent (Q1 2021: 16.6%). The adjusted EBIT margin benefited from a special effect of around €200 million. This took into account in the inventory valuation the increased procurement and manufacturing costs. Before changes in the scope of consolidation and exchange-rate effects, sales increased year-on-year by 17.4 per cent.

Sales in the ContiTech group sector were €1.6 billion (Q1 2021: €1.5 billion), and the adjusted EBIT margin was 5.4 per cent (Q1 2021: 10.2%). Before changes in the scope of consolidation and exchange-rate effects, sales increased year-on-year by 3.6 per cent.

Sales in the Contract Manufacturing group sector were €210 million (Q1 2021: €265 million), and the adjusted EBIT margin was 5.8 per cent (Q1 2021: 24.5%).

Capital expenditure before financial investments totalled €444 million (Q1 2021: €243 million). Free cash flow before acquisitions and divestments was -€174 million in the first quarter. Net indebtedness as at 31 March 2022 was €4.1 billion.

Continental will release the quarterly statement for the first quarter of 2022 on 11 May 2022.