Essen, Germany – Continental performed well in the first quarter of 2022 despite an increasingly turbulent market environment, reporting strong tire business. Many external factors, such as the war against Ukraine, the coronavirus pandemic, electronic component shortages and cost increases in procurement and logistics, presented major challenges. Consolidated sales in the past quarter were €9.3 billion (Q1 2021: €8.6 billion, +8.2 percent), and adjusted EBIT was €439 million (Q1 2021: €728 million, -39.8 percent), corresponding to an adjusted EBIT margin of 4.7 percent (Q1 2021: 8.5 percent).
“The past quarter was overshadowed by the war against Ukraine and its drastic effects on already high energy prices and strained logistics chains and commodity markets. In addition, measures to contain the coronavirus pandemic, particularly in China, had an adverse effect on economic development. In view of the multiple challenges, we took various steps to minimize the impact on earnings,” said Nikolai Setzer, CEO of Continental, on Wednesday in Hanover, adding: “Price increases in procurement and logistics affected us significantly in the first quarter. Despite this considerable headwind, we achieved a good result in the tire business. For Automotive, we are confident that the measures taken will result in improved earnings over the course of the year.”
Continental took immediate action to address the numerous challenges and effectively maintain production and supply chains, for example by further diversifying raw material sources at an early stage, building up security stocks and reorganizing its value chain in the electronics sector. Continental is also working with its customers to share the burden of increased costs.
In the first quarter of 2022, Continental generated a net income of €245 million (Q1 2021: €448 million for continuing and discontinued operations). Adjusted free cash flow was -€174 million (Q1 2021: €646 million for continuing and discontinued operations).
“Adjusted free cash flow in the first quarter of this year was negative due primarily to higher procurement costs and inventory buildup. For the year as a whole, we anticipate an adjusted free cash flow of around €0.6 billion to €1.0 billion,” explained Katja Dürrfeld, CFO of Continental. The higher inventories are the result of increased security stocks for raw materials and semi-finished products and the seasonal buildup in the tire sector.
In the first three months of the year, global automotive production was significantly lower than in the first quarter of the previous year. The market for passenger cars and light commercial vehicles in Europe fell particularly sharply (3.8 million units, -19.1 percent). North America also recorded a slightly weaker start to the year compared with the previous year’s quarter (3.6 million units, -1.8 percent). In China, the production of passenger cars and light commercial vehicles was up year-on-year (6.1 million units, +6.1 percent). According to preliminary figures, global production of passenger cars and light commercial vehicles fell by 4.5 percent compared with the first quarter of 2021 to a total of 19.7 million units (Q1 2021: 20.7 million units).
The weak automotive production in conjunction with increasing procurement and logistics costs impacted the Automotive group sector in particular. Its sales increased by 3.2 percent to €4.2 billion (Q1 2021: €4.1 billion). After adjusting for exchange-rate effects and changes in the scope of consolidation, it posted organic sales growth of -1.2 percent. The Automotive group sector therefore outperformed the market, with global automotive production falling by 4.5 percent in the first quarter of this year. Its adjusted EBIT margin was -3.9 percent (Q1 2021: 2.4 percent).
The Tires group sector achieved a good result, recording increased sales volumes in the car tires and commercial-vehicle tires replacement business compared with the previous year. With sales of €3.3 billion (Q1 2021: €2.7 billion, +20.1 percent), it achieved an adjusted EBIT margin of 17.1 percent (Q1 2021: 16.6 percent). Inventory valuation had a positive effect of around €200 million on earnings due to increased acquisition and production costs.
The considerable cost increases for procurement and logistics also affected the ContiTech group sector, which posted sales of €1.6 billion (Q1 2021: €1.5 billion, +3.3 percent) and an adjusted EBIT margin of 5.4 percent (Q1 2021: 10.2 percent). The conveyor belt and industrial hose businesses performed particularly well. Sales in the drive belt and air spring replacement business also rose.
Market developments will continue to be characterized by high volatility in the coming months. After a production output of 77.1 million passenger cars and light commercial vehicles last year, Continental expects an increase of between 4 and 6 percent for the year as a whole (previously: 6 to 9 percent). Negative effects from cost inflation for key inputs, especially for oil-based raw materials as well as for energy and logistics in Tires and ContiTech, continue to become significantly more material.
Continental has therefore adjusted its outlook for the year as a whole, as reported on April 21, 2022. Consolidated sales are now expected to be around €38.3 billion to €40.1 billion (previously: around €38 billion to €40 billion), and the adjusted EBIT margin is expected to be around 4.7 to 5.7 percent (previously: around 5.5 to 6.5 percent).
For the Automotive group sector, Continental expects sales of around €17.8 billion to €18.8 billion (previously: around €18 billion to €19 billion) and an adjusted EBIT margin in the range of around -0.5 to 1 percent (previously: around 0 to 1.5 percent). This still includes higher procurement and logistics expenses of around €1 billion as well as additional expenses for research and development of around €100 million in the Autonomous Mobility business area.
For the Tires group sector, Continental expects sales of around €13.8 billion to €14.2 billion (previously: around €13.3 billion to €13.8 billion) and an adjusted EBIT margin of around 12.0 to 13.0 percent (previously: around 13.5 to 14.5 percent). This includes a year-on-year increase in procurement and logistics costs of around €1.9 billion (previously: around €1 billion).
For the ContiTech group sector, sales of around €6.3 billion to €6.5 billion (previously: around €6.0 billion to €6.3 billion) and an adjusted EBIT margin of around 6.0 to 7.0 percent (previously: around 7.0 to 8.0 percent) are expected. This includes a year-on-year increase in procurement and logistics costs of around €600 million (previously: around €300 million).