Market turbulences thwart Continental’s sales hopes

Market turbulences thwart Continental’s sales hopes

Business news |
Increased raw material costs, disruptions in the supply chain and the semiconductor crisis have spoiled Continental's first quarter. Large orders in the field of display technology provide a silver lining on the horizon.
By Christoph Hammerschmidt

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War in Ukraine, the Corona pandemic and the still rampant chip shortage gave automotive supplier Continental an increasingly turbulent market environment. Despite an 8% increase in sales to €9.3 billion, the technology provider’s net result fell by 45% to just €245 million in the first quarter. According to Continental’s press release, cost increases for procurement and logistics played an exacerbating role – a clear indication of the disrupted supply chains in this market environment.

“The past quarter was overshadowed by the war against Ukraine and the accompanying massive impact on already high energy prices as well as strained logistics chains and commodity markets. In addition, the steps to contain the coronavirus pandemic, particularly in China, negatively impacted economic development. In view of the multiple challenges, we have taken measures to limit the impact on earnings as much as possible,” said Nikolai Setzer, Chairman of Continental’s Executive Board, adding: “For example, price increases in the areas of procurement and logistics hit us hard in the first quarter.”

Continental has taken a number of measures to address the dislocations in the supply chain, particularly for semiconductors. These include greater diversification of raw material sourcing and building up safety stocks, especially of semiconductors. In addition, a reorganisation of the value chain in the electronics sector has been carried out, the company announced, although without giving details.

The slump in global automobile production in the first quarter of the current year was a particular problem for Continental – it was significantly lower than in the first quarter of the previous year. In particular, the market development of passenger cars and light commercial vehicles in Europe declined sharply (3.8 million units, -19.1 percent). On a global scale, production of passenger cars and light commercial vehicles worldwide fell by 4.5 per cent compared to the first quarter of 2021 to a total of 19.7 million units (Q1 2021: 20.7 million units).

Nevertheless, the sales of the technology supplier for the automotive industry increased, albeit only slightly: In the Automotive division, sales rose by 3.2% to €4.2 billion. Continental thus performed better than the market, it says.

For the coming months, Continental’s management expects continued high volatility. For the Automotive sector, the company lowered its sales expectations slightly – they are now expected to be between around €17.8 and €18.8 billion after previously around €18 to €19 billion. In addition, the EBIT margin could be in the range of about -0.5 to 1 per cent; previously, Hanover was expecting about 0 to 1.5 per cent. As before, this takes into account increased procurement and logistics expenses of around 1 billion euros as well as additional research and development expenses in the Autonomous Mobility business unit of around 100 million euros. In the medium term, the major orders worth more than € 5.8 billion (about 50% more than in the previous year) that the company landed could provide a boost. Solutions in the area of display technology were particularly successful.

https://www.continental.com/en/

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