Continental expects higher earnings in 2023

Essen, Germany – Despite the challenging macroeconomic environment, Continental achieved its adjusted sales and earnings target in fiscal 2022. The company’s performance was particularly impacted by the effects of the war in Ukraine, the restrictions due to the coronavirus pandemic in China, the ongoing semiconductor shortage and additional costs of around €3.3 billion resulting from price increases for raw materials, semi-finished products, energy and logistics. For the current fiscal year, the technology company expects higher sales and earnings, thanks in particular to rising production figures for passenger cars and light commercial vehicles and continued high cost discipline.

“2022 was particularly challenging for us in several respects. The war against Ukraine drove up the prices for raw materials, semi-finished products, energy and logistics. It is also the reason why we continue to strive for a controlled withdrawal from the Russian market,” said Continental’s CEO Nikolai Setzer during the annual press conference in Hanover on Wednesday, adding: “Despite facing challenges, we performed well operationally. We met our sales and earnings forecast for the Continental Group and achieved a respectable result. This was thanks to the hard work and commitment of around 200,000 Continental employees worldwide, to whom I would like to express my sincere gratitude.”

To meet the many challenges and strengthen its resilience, Continental implemented more focused cost management and more integrated supervision of its procurement and logistics chain for electronics. It also broadened its supplier base. “We have proven to be resilient in times of crisis, and we are well positioned to ensure Continental’s long-term development with a focus on value creation,” said Setzer. Continental also initiated price adjustments in all group sectors to compensate for the effects of inflation.

Consolidated sales up by 16.7 percent in 2022
According to preliminary figures, consolidated sales totaled €39.4 billion in the past fiscal year (2021: €33.8 billion, +16.7 percent). Before changes in the scope of consolidation and exchange-rate effects, sales rose by 12.3 percent. In a volatile market environment, the company achieved an adjusted EBIT of €2.0 billion (2021: €1.9 billion, +5.2 percent), corresponding to an adjusted EBIT margin of 5.0 percent (2021: 5.5 percent).

In the past fiscal year, net income was influenced by negative special effects amounting to around €1.0 billion. Higher interest rates and other valuation-related effects, in particular, resulted in impairment losses of more than €850 million in the Automotive group sector. In connection with its business activity in Russia, Continental also impaired assets of around €87 million as a result of the sanctions imposed. Consequently, net income amounted to €67 million (2021: €1.4 billion).

Adjusted free cash flow was €200 million (2021: €1.2 billion for continuing and discontinued operations). Adjusted free cash flow was lower than the previous year due primarily to the buildup of inventories and receivables, and higher capital expenditure.

Continental Executive Board to propose dividend of €1.50 per share
“The Executive Board will propose to the Annual Shareholders’ Meeting a dividend of €1.50 per share. We took two factors into account in arriving at this figure: the negative and predominantly non-cash special effects on net income and the downward share price trend last year,” said Katja Dürrfeld, CFO of Continental. This amounts to a distribution of around €300 million, she continued.

Expectations for fiscal 2023
Continental expects global production of passenger cars and light commercial vehicles to increase by between 2 and 4 percent in 2023. In 2022, this increased by around 7 percent to approximately 82 million vehicles.

Significantly higher costs for materials, wages and salaries as well as energy and logistics – amounting to around €1.7 billion – are again expected to weigh heavily on the earnings position in fiscal 2023.

Based on these assumptions and given the exchange rates at the beginning of the fiscal year, Continental anticipates consolidated sales for 2023 of around €42 billion to €45 billion and an adjusted EBIT margin of around 5.5 to 6.5 percent.

Continental expects the Automotive group sector to generate sales of around €20.5 billion to €21.5 billion and an adjusted EBIT margin of around 2 to 3 percent.

For the Tires group sector, Continental forecasts sales of about €14.5 billion to €15.5 billion with an adjusted EBIT margin of around 12 to 13 percent.

Continental expects the ContiTech group sector will achieve sales of about €6.8 billion to €7.2 billion and an adjusted EBIT margin of around 6 to 7 percent.

Capital expenditure before financial investments is forecast to be around 6 percent of sales.

Adjusted free cash flow is expected to be around €0.8 billion to €1.2 billion.

“We stabilized our profitability over the course of the year. In the second half of 2022 in particular, we achieved year-on-year gains and implemented and optimized many things. Nevertheless, we know that we need to continue improving if we want to meet our mid-term targets, which is why we are determined to increase our earnings,” said Katja Dürrfeld, CFO of Continental.

In the medium term, Continental is aiming to achieve a consolidated adjusted EBIT margin of around 8 to 11 percent.