Thin outlook saddened investors: Conti wants to earn money again

Tuesday, March 9th, 2021

Thin outlook saddened investors
Conti wants to earn money again

The automotive supplier Conti sees the first successes of its massive corporate restructuring. More money is being invested again in future areas. But the forecasts lag behind those of the competition. Many investors do not like that. Some people find drastic words.

After billions in depreciation and high restructuring costs, Continental sees light again at the end of the tunnel. "The low point is behind us. The economic environment is gaining momentum," said CFO Wolfgang Schäfer at the presentation of the 2020 balance sheet. After two years of losses and the failure of the dividend for the past year, the automotive supplier announced a net profit for 2021 again.

With the income from the better-running business, Continental intends to accelerate its restructuring. To this end, the group is bundling and increasing its investments in the growing business with technology for assisted and autonomous driving. An additional 200 million to 250 million euros are to be invested in research and development this year.

However, Conti was unable to score on the stock exchange. The shares of the Dax group from Hanover lost significantly. Analysts blamed the weak outlook for this. Jürgen Pieper from Bankhaus Metzler said that Conti's prognosis for the automotive business falls behind those of other companies in the industry. Even supposedly weaker candidates like ElringKlinger and Conti's main shareholder Schaeffler are more optimistic. "There is nothing to be seen of the former model company Continental," said Pieper.

His colleague Marc-Rene Tonn from the M.M. Warburg said the outlook is weaker than expected. At the same time, he pointed out that the group was still in the process of restructuring. "You should wait until the dust settles," said the analyst.

The world's third largest auto supplier has been under massive pressure in the past two years due to the slump in the auto markets and high investments in electromobility and self-driving vehicles, and has had to tighten its austerity measures several times. The structural program decided against the opposition of the works council and trade unions means that up to 30,000 jobs worldwide are on the verge, 13,000 of them in Germany. Several plants are to be closed. Last year alone, Conti cut almost 5,000 jobs.

Additional costs for logistics

In the Corona year 2020, there was a loss of 962 million euros. In the previous year, the deficit even amounted to 1.2 billion euros. Conti had to set the value of company investments lower and at the same time digest the restructuring in the balance sheet. The charges totaled more than 1.6 billion euros last year. In addition, there is the bottleneck in computer chips, for which Conti has to turn his head.

The Volkswagen Group accuses its supplier of having informed him too late about the shortage of semiconductors, which has brought production to a halt in several plants. The supplier rejects the criticism and sees part of the responsibility in the ordering behavior of the auto industry.

In order to keep bottlenecks in the chip supply within limits, the supplier group has budgeted around 200 million euros for additional logistics expenses this year, most of it for special freight. Around 800 employees are now busy getting components to the carmaker's production lines in good time to prevent production interruptions.

The group now expects business to recover. Global production of passenger cars and light commercial vehicles is expected to grow by nine to twelve percent this year. Group sales are expected to rise to between 40.5 billion and 42.5 (previous year 37.7) billion euros. While Conti in the automotive business and the drive division Vitesco, which is about to be spun off, together expect an adjusted operating margin of between one and two percent, the Rubber Technologies division with its tire business is forecasting a return of between 11.5 and 12.5 percent. Overall, the group wants to achieve an EBIT margin of between five and six (previous year 3.5) percent this year.