Unsatisfied but optimistic: Continental announces Q2 2022 financial results

After an April to June period punctuated by negative EBIT and a net loss, tyre maker and automotive components supplier Continental says it is “looking ahead to the second half of the year with optimism.” It is also maintaining its full-year outlook despite a current headwind that chief financial officer Katja Dürrfeld describes as being “rather like a hurricane.”

As the German company expected, the “ongoing turbulent market environment” had a noticeable impact in the second quarter of 2022. In particular, Continental’s results were “heavily affected” by the geopolitical uncertainties as a result of the war against Ukraine, disrupted supply chains and massive price increases for raw materials, semi-finished products, energy and logistics, coupled with a shortage of electronic components and the consequences of the Covid-19 lockdowns in China. At the same time, the technology company recorded a high order intake in the Automotive group sector of more than 6.0 billion euros.

Consolidated sales for Q2 2022 were up 13.0 per cent year-on-year to 9.4 billion euros. Adjusted EBIT sank 19.8 per cent year-on-year to 411 million euros, which corresponds to an adjusted EBIT margin of 4.4 per cent, down 1.8 per cent on the prior-year period.

Extremely challenging market environment

“The market environment remained extremely challenging for automotive suppliers in the second quarter. At the same time, we are making significant progress in the development and marketing of our technologies, with a strong order intake in Automotive. This shows that we have the right strategy and positioning. Our most recent mobility study also supports this,” said Nikolai Setzer, chief executive officer of Continental, upon announcing the company’s Q2 2022 results earlier today.

The aforementioned adjusted EBIT for the past quarter was above the reported EBIT of -165 million euros, primarily due to accounting effects of around 370 million euros that needed to be taken into account in the Automotive group sector as a result of higher interest rates. In connection with its business activity in Russia, Continental also impaired assets of around 75 million euros as a result of the additional sanctions imposed. Furthermore, restructuring expenses of 63 million euros were applied to the ContiTech group sector in the second quarter of 2022, primarily for the Mobile Fluid Systems business area due to the announced streamlining of its hose production operations in Germany.

These effects impacted upon net income. This came to -251 million euros in the second quarter of 2022 (Q2 2021: 545 million euros for continuing and discontinued operations). Adjusted free cash flow was -687 million euros (Q2 2021: 302 million euros for continuing and discontinued operations).

Cannot be satisfied with current business results

“The current headwind is rather like a hurricane and will not subside any time soon,” states Katja Dürrfeld. “Given this environment, we have performed well and become more resilient. We cannot be entirely satisfied with our current business results – even if they are as expected – but we are optimistic for the second half of the year. We anticipate a rise in automotive production, and our measures to improve earnings are also taking effect. We are therefore maintaining our outlook for the current fiscal year.”

Continental anticipates a stabilisation of global supply chains in the second half of the year as well as a slight improvement in the availability of semiconductors and continued stable energy supplies in Europe, and particularly in Germany.

All in all, Continental still anticipates consolidated sales for the year as a whole of around 38.3 to 40.1 billion euros and an adjusted EBIT margin of around 4.7 to 5.7 per cent. This includes additional costs of 3.5 billion euros as a result of the massive price increases for raw materials, semi-finished products, energy and logistics. The freight costs for a standard overseas shipping container have in some cases increased eightfold.

To overcome these significant challenges, Continental has taken numerous measures. These include spreading purchasing across multiple sources, building up and maintaining security stocks, carrying out more comprehensive inspections of the procurement and logistics chain for electronics, negotiating prices with customers to share increased costs, and focusing on business with technologically advanced products. As an example, the share of Continental’s premium tyre sales is steadily growing.

Automotive group

Global automotive production in April to June 2022 was on par with the comparably weak second quarter of the previous year. Continued weak automotive production amidst massive increases in costs affected the Automotive group sector in particular. Nevertheless, as a result of continued high demand for its products and positive effects from various measures, the group sector significantly outperformed the market. Its sales increased by 13.7 per cent to 4.3 billion euros. After adjusting for exchange-rate effects and changes in the scope of consolidation, it posted organic sales growth of 7.7 per cent, while global automotive production stagnated. Its adjusted EBIT margin was -2.3 per cent, the same as a year earlier.

Tires Group

Continental’s Tires group sector closed the second quarter successfully, recording increased sales in the car tyres and commercial-vehicle tyres replacement business compared with the previous year. With sales up 17.1 per cent to 3.4 billion euros, it achieved an adjusted EBIT margin of 13.8 per cent, 4.0 per cent lower than a year earlier.

ContiTech

The ContiTech group sector also felt the effects of increased costs and weaker automotive production in the second quarter, posting sales of 1.6 billion euros, an 8.2 per cent year-on-year increase, and an adjusted EBIT margin of 4.9 per cent, 3.0 per cent lower than a year earlier. The industrial hose business performed particularly well, and sales of conveyor belts and air spring systems also rose.