Continental Starts 2023 with Solid Results
EQS-News: Continental AG / Key word(s): Quarter Results/Quarterly / Interim Statement
Hanover, May 10, 2023. Continental started 2023 with solid results, in line with its expectations. The technology company anticipates a further improvement in earnings over the course of the year, in particular due to rising production figures for passenger cars and light commercial vehicles, inflation-related price adjustments and cost discipline. As a result of inflation, the company is expected to incur additional costs in 2023 of around €1.7 billion for materials, wages and salaries as well as energy and logistics. Continental is maintaining its outlook for 2023.
“Despite adverse market and external conditions, we ended the first quarter of 2023 with solid results. The good start to the year by our Tires group sector and the earnings performance of ContiTech are encouraging. Furthermore, Automotive’s earnings were up slightly, marking a strong improvement compared with the same quarter of last year. As we anticipated, the group sector’s earnings in the first quarter were below our full-year forecast and are expected to increase as the year progresses,” said Continental CEO Nikolai Setzer when presenting the quarterly figures on Wednesday in Hanover, Germany. “We also made progress in other areas in the first quarter, again recording strong order intake and concluding an exclusive partnership with Aurora for autonomous trucking systems.”
In the first quarter of 2023, Continental achieved consolidated sales of €10.3 billion (Q1 2022: €9.3 billion, +11.1 percent). Its adjusted operating result (adjusted EBIT) was €578 million (Q1 2022: €428 million, +35.0 percent), corresponding to an adjusted EBIT margin of 5.6 percent (Q1 2022: 4.6 percent).
Net income in the first quarter was €382 million (Q1 2022: €240 million, +59.6 percent). Adjusted free cash flow amounted to -€949 million (Q1 2022: -€174 million).
“The negative free cash flow was caused by two main reasons: increased inventories to maintain our supply chains and a high level of receivables. We plan to reduce both over the course of the year. Free cash flow will therefore improve significantly as the year progresses, additionally supported by the increase in earnings,” said Continental CFO Katja Dürrfeld. “Overall, we started 2023 in line with expectations and are therefore maintaining our full-year outlook.”
Continental still anticipates consolidated sales for fiscal 2023 of around €42 billion to €45 billion and an adjusted EBIT margin of around 5.5 to 6.5 percent. This includes additional costs of around €1.7 billion as a result of the price increases for materials, wages and salaries as well as energy and logistics. Adjusted free cash flow for the current year is expected to be around €0.8 billion to €1.2 billion.
Increase in automotive production in the first quarter of 2023
The global production of passenger cars and light commercial vehicles weakened slightly compared with the fourth quarter of 2022 (Q4 2022: 21.9 million units) but increased year-on-year, according to preliminary figures. Compared with the first quarter of 2022, it rose by around 6 percent to 21.1 million units (Q1 2022: 19.9 million units).
Vehicle production in Europe in particular grew to around 4.5 million units in the period from January to March 2023 (+17 percent). North America recorded an increase of around 10 percent to 3.9 million units. China, by contrast, suffered a weak start to the year, producing around 5.7 million vehicles in the first quarter of 2023. This was about 8 percent down year-on-year.
For the year as a whole, Continental continues to expect the global production of passenger cars and light commercial vehicles to increase by 2 to 4 percent compared with the previous year’s figure of around 82.3 million vehicles.
Key figures for the Continental Group
1 The methodology used in the consolidated financial statements for the recognition of uncertain tax positions has been changed. For more information, see Note 2 (General Information and Accounting Principles) of the notes to the consolidated financial statements in the 2022 annual report. The comparative period has been adjusted accordingly.
2 Before changes in the scope of consolidation.
3 Before amortization of intangible assets from purchase price allocation (PPA), changes in the scope of consolidation, and special effects.
4 In the year under review, the methodology used for the presentation of income and expenses in connection with specific warranties, restructuring measures, severance payments, as well as impairment and reversal of impairment losses on intangible assets and property, plant and equipment was changed. They are now assigned to the relevant functional areas. The comparative period has been adjusted accordingly.
5 The assignment of income and expenses from certain business activities within the functional areas has been changed. The comparative period has been adjusted accordingly.
6 Capital expenditure on property, plant and equipment, and software.
7 Excluding trainees.
Significant year-on-year improvement for Automotive
In the Automotive group sector, sales increased by 18.1 percent to €5.0 billion (Q1 2022: €4.2 billion). With its sales growing organically by 17.1 percent before exchange-rate effects and changes in the scope of consolidation and global automotive production rising only by around 6 percent, the group sector again outperformed the market. At 0.8 percent, the adjusted EBIT margin was considerably higher than in the first quarter of the previous year (Q1 2022:
In addition, Continental recorded a high order volume in the Automotive group sector. This amounted to around €6.6 billion (+13.3 percent) in the first three months of 2023 and included a major order in the Autonomous Mobility business area worth around €1.7 billion for 360-degree radar coverage from front, rear, side and long-range radars. They ensure the all-round monitoring of a vehicle’s surroundings, thus increasing road safety.
The Autonomous Mobility business area has also announced an exclusive partnership with Aurora Innovation. Together, Continental and Aurora will bring autonomous trucking systems to the American market – as early as 2027. The system will be available for carriers and commercial fleet operators across the USA and will help reduce costs to facilitate broader adoption. Continental will contribute not only the entire hardware system, but also a complete fallback system.
Tires group sector makes good start to the year
The Tires group sector had a good first quarter. Despite declining volumes in the tire-replacement business, sales in Tires increased to €3.5 billion (Q1 2022: €3.3 billion, +5.1 percent) and its adjusted EBIT margin was 13.5 percent (Q1 2022: 17.1 percent). The margin was lower year-on-year because of the difference in inventory valuations, with increased raw material costs at the beginning of 2022 having a positive impact on valuations and therefore on earnings.
Continental also received the “Environmental Achievement of the Year – Manufacturing” and “Tire of the Year” awards at the Tire Technology International (TTI) Awards for Innovation and Excellence. Continental’s “Invisible Markers in Tires” project came out on top in the “Environmental Achievement of the Year – Manufacturing” category. The technology contributes to better traceability in the natural rubber supply chain. The Continental PremiumContact 7 was named Tire of the Year.
All of Continental’s current car tires are also suitable for electric vehicles and thus meet their high requirements. This underlines the premium tire manufacturer’s product strategy for electric vehicles.
ContiTech repositions itself and increases its adjusted EBIT margin
The ContiTech group sector took a step forward in the first quarter, posting sales of €1.7 billion (Q1 2022: €1.6 billion, +10.2 percent) and an adjusted EBIT margin of 6.4 percent, compared with 2.3 percent in the fourth quarter of 2022 (Q1 2022: 5.3 percent). In particular, the stabilization of production processes and price adjustments due to inflation contributed to its improved earnings.
From May 2023, ContiTech will also be strategically realigned with the aim of enhancing its impact and efficiency, and improving customer and market proximity. The group sector, which specializes in material applications, will step up its focus on expanding its industrial business. ContiTech will also consolidate its automotive original-equipment business to generate synergies.
With this realignment, ContiTech will create the conditions required for its development from a conventional product supplier to a provider of integrated solutions. The group sector also aims to respond in a more integrated manner than before to the constantly changing requirements of its customers in the various markets and industries.
In line with the prevailing customer structure, the industrial business will be divided regionally into three business areas: Industrial Solutions Americas, Industrial Solutions APAC (Asia & Pacific) and Industrial Solutions EMEA (Europe & Middle East). The majority of ContiTech’s automotive activities will be consolidated in the Original Equipment Solutions business area, which will operate globally in accordance with its customer structure. The Surface Solutions business area will retain its current structure.
Continental develops pioneering technologies and services for sustainable and connected mobility of people and their goods. Founded in 1871, the technology company offers safe, efficient, intelligent and affordable solutions for vehicles, machines, traffic and transportation. In 2022, Continental generated sales of €39.4 billion and currently employs around 200,000 people in 57 countries and markets.
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10.05.2023 CET/CEST Dissemination of a Corporate News, transmitted by EQS News - a service of EQS Group AG.
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