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Continental Changes Outlook for Fiscal 2016

Oct 17, 2016

  • Combined occurrence of several isolated events has had a negative impact on the reported and adjusted EBIT of the three Automotive divisions of around €480 million
  • Expected margin for the adjusted operating income (EBIT) over 10.5 percent instead of over 11 percent
  • Sales forecast for 2016 remains at around €41 billion before exchange-rate effects
  • Joint outlook for the Tires and ContiTech divisions confirmed

Hanover, October 17, 2016. Continental has reduced its outlook for fiscal 2016. The main reason for this is the recent combined occurrence of isolated unrelated events in the technology company’s three Automotive divisions (the Automotive Group).

These primarily include warranty cases for products supplied by the Chassis & Safety and Interior divisions between 2004 and 2010, as well as possible expenses for pending antitrust proceedings. The total negative effect is expected to amount to around €390 million.

Furthermore, a third earthquake in the Kumamoto region of Japan at the end of August 2016 further worsened the situation of an important supplier of micro control units located there. The Interior division therefore anticipates sales losses amounting to at least €100 million. Two earthquakes in April this year had already had a significant impact on production. After the first of these natural disasters, the anticipated sales losses were €50 million. Extra freight expenses, necessary product adjustments and increased manufacturing costs mean that the Interior division’s EBIT is expected to be €50 million lower.

Added to this is the in part short-term increase in research and development expenses of €60 million in the Interior and Powertrain divisions. The reasons for this are the significantly accelerated structural transformation in the automotive industry, which has led to temporarily increased development expense for infotainment systems, and promptly initiated increased research into environmentally friendly drive systems. As a result, the Powertrain division’s adjusted EBIT margin for the current year will be below the previous year’s level of 5.7 percent.

The company constantly strives to identify new growth prospects for environmentally friendly drive systems resulting from the latest changes in the market conditions. A strategic adjustment is envisaged here in the coming months. This should result, for example, in research and development expenses being more firmly focused on new opportunities.

In short, all these isolated cases combined have resulted in a negative effect on the reported and adjusted EBIT of the three Automotive divisions for the current year amounting to around €480 million.

The outlook for the corporation, which was last amended on August 3, 2016, has been revised as follows:

  • The outlook for the adjusted EBIT margin of the Automotive Group has been lowered to over 6.5 percent (previously over 8.5 percent).
  • The corporation’s adjusted EBIT margin will therefore be over 10.5 percent in the current year (previously over 11 percent)

Despite the negative effects, Continental anticipates an adjusted EBIT margin of over 9 percent for the fourth quarter of 2016 in the Automotive Group.

All other parts of the outlook remain unchanged.

Consequently, the sales forecast for 2016 is still at around €41 billion before exchange-rate effects.

The joint outlook for the Tire and ContiTech divisions (the Rubber Group) has been fully confirmed.