Continental may carve out car engine components business

BERLIN/HANOVER (Reuters) - Continental (CONG.DE) said it might carve out its business that makes car engine components, potentially paving the way for a stock market listing for parts of the division, but sidestepped investor demands for a greater say in the deliberations.

The auto parts and tyre maker has been in talks with banks about a possible structural overhaul to become more nimble and adjust to far-reaching shifts in the auto industry towards electric and self-driving technologies.

Continental will expand the "Powertrain Division" which accounts for less than a fifth of its 44 billion-euro (38.6 billion pounds) annual sales and makes components for battery and combustion engines, Chief Executive Elmar Degenhart said.

"That could mean we partially separate out the business as an autonomous organisation," he told the company's annual general meeting (AGM) in Hanover on Friday. "We are giving this (entity) more entrepreneurial freedom."

The car industry and its suppliers, facing a regulatory crackdown on diesel emissions, are adjusting their businesses and spinning off operations to become more efficient.

Continental has agreed a pact with labour unions to win their support for the restructuring and pledged to shield jobs at the powertrain business for five years.

But investors are not as closely involved in the management discussions which Degenhart has said should provide clarity on the company's future structure by mid-2018. Some of them used the AGM to voice their discontent.

"Why do you come to agreements with the workers and not with us," asked Alexander von Vietinghoff-Scheel of Germany's DSW association for private investors.

"In principle we have no objections to such deliberations but we want to be included."

Winfried Mathes, a fund manager of Deka Investment which owns 1 percent of Continental's equity capital, said shareholders welcomed any plans designed to increase the value of the company they have invested in.

"But given such a far-reaching modification (as under discussion at Continental), an intensive dialogue with you is very important to us," Mathes said, calling on top executives to provide some detail of the possible changes.

Analysts have said a possible overhaul of Continental's diversified structure could result in creating more independently run divisions for the powertrain, electronics and rubber operations.

But Degenhart kept his cards close to his chest.

"We are in the phase of analysing (options), that's why there are no concrete plans as yet that can be communicated," the CEO said, declining to give more detail.

Earlier on Friday, Continental said the impact of currencies caused a 9 percent drop in adjusted earnings before interest and tax (EBIT) in the first quarter and stuck with expectations that exchange rate effects could dent revenue by more than 1 billion euros ($1.21 billion) this year.

Shares in the group were trading down 1.3 percent at 221.30 euros as of 1233 GMT.

The company last week scaled back its profitability outlook for 2018 on expectations that currency headwinds and inventory valuation would inflict a 150 million euros negative hit to first-half earnings.

(Reporting by Andreas Cremer and Jan Schwartz; Editing by Maria Sheahan and Jane Merriman)