Despite the turbulent market environment, German technology firm Continental paints a better picture of the second half of the year and is maintaining its outlook for the current fiscal year. As expected, the ongoing turbulent market environment had a noticeable impact in the second quarter of 2022, however. In particular, the war against Ukraine, disrupted supply chains and massive price increases for raw materials, semi-finished products, energy and logistics, coupled with the shortage of electronic components and the consequences of the coronavirus lockdowns in China, heavily affected Continental’s results. At the same time, the technology company recorded a high order intake in the Automotive group sector of more than EUR6 billion.
Consolidated sales in the past quarter were EUR9.4 billion (+13% over Q2 2021), and adjusted EBIT was EUR411 million (Q2 2021: -19.8%).
“The market environment remained extremely challenging for automotive suppliers in the second quarter. At the same time, we are making significant progress in the development and marketing of our technologies, with a strong order intake in Automotive. This shows that we have the right strategy and positioning. Our most recent mobility study also supports this,” said Continental CEO Nikolai Setzer.
As shown in the representative Continental Mobility Study published in July 2022, connectivity, automation and the user experience play a decisive role for the majority of people (in China, Germany, France, Japan, Norway and the US) when purchasing a new vehicle. The car as well as the technology built into it must also remain intuitive to operate, safe and affordable. Continental is ideally positioned to deliver this across all group sectors – from vehicle electronics and tyres to vegan surface materials.
“The current headwind is rather like a hurricane and will not subside any time soon. Given this environment, we have performed well and become more resilient. We cannot be entirely satisfied with our current business results – even if they are as expected – but we are optimistic for the second half of the year. We anticipate a rise in automotive production, and our measures to improve earnings are also taking effect. We are therefore maintaining our outlook for the current fiscal year,” said Katja Dürrfeld, CFO of Continental.
In the second half of the year, Continental anticipates a stabilisation of global supply chains, a slight improvement in the availability of semiconductors and continued stable energy supplies in Europe, and particularly in Germany.
All in all, Continental still anticipates consolidated sales for the year as a whole of around EUR38.3 to EUR40.1 billion and an adjusted EBIT margin of around 4.7 to 5.7%. This includes additional costs of EUR3.5 billion as a result of the massive price increases for raw materials, semi-finished products, energy and logistics. The freight costs for a standard overseas shipping container have in some cases increased eightfold.
To overcome these significant challenges, Continental says it has taken numerous measures. These include spreading purchasing across multiple sources, building up and maintaining security stocks, carrying out more comprehensive inspections of the procurement and logistics chain for electronics, negotiating prices with customers to share increased costs, and focusing on business with technologically advanced products. As an example, the share of premium tyre sales is steadily growing.
In the months of April to June 2022, global automotive production was on par with the comparably weak second quarter of the previous year, when the semiconductor shortage first really made itself felt. The production of passenger cars and light commercial vehicles was down in the second quarter of 2022, particularly in China as a result of the temporary lockdowns imposed in many cities because of the pandemic (5.4 million units, -5.8%). Europe also recorded a weaker second quarter due to disrupted supply chains (3.8 million units, -5.4%).
In North America, however, the production of passenger cars and light commercial vehicles was up against the very weak prior-year period (3.6 million units, +11.6%). According to preliminary figures, the global production of passenger cars and light commercial vehicles stagnated compared with the second quarter of 2021 at a total of 18.8 million units (Q2 2021: 18.8 million units).
Continued weak automotive production amidst massive increases in costs affected the Automotive group sector in particular. Nevertheless, as a result of continued high demand for its products and positive effects from various measures, the group sector significantly outperformed the market. Its sales increased by 13.7%.
In addition, Continental continued to boost its order volume. This amounted to more than EUR6 billion in the second quarter, around 40% higher than the previous year’s figure.
The tyres group sector closed the second quarter successfully, recording increased sales in the car tyres and commercial-vehicle tyres replacement business compared with the previous year.
When it comes to electric vehicles, Continental tyres are particularly popular. They have received original-equipment approvals for more than 300 different vehicle models already, and seven of the ten most successful manufacturers of electric vehicles worldwide rely on Continental tyres for their original equipment. Overall, the company’s market share in the electric vehicle segment is higher than for cars with combustion engines.
In addition, Continental is launching more and more sustainability components, with tyres containing polyester from recycled PET bottles now available to all dealers in Europe. Continental introduced its ContiRe.Tex technology – which makes it possible to completely replace the polyester conventionally used in the tyre casing – into volume production in April 2022. It currently offers three models featuring polyester from recycled PET bottles, each available in five sizes: the PremiumContact 6, the EcoContact 6 and the AllSeasonContact year-round tyre.
The ContiTech group sector also felt the effects of increased costs and weaker automotive production in the second quarter, posting sales of EUR1.6 billion (Q2 2021: EUR1.5 billion, +8.2%). The industrial hose business performed particularly well, and sales of conveyor belts and air spring systems also rose.
ContiTech is also expanding its industrial business. In San Luis Potosí, Mexico, a new, ultra-modern production site for industrial hydraulic hoses is being built. The planned investment amounts to more than EUR38 million. The new plant will create additional capacity for a wide range of hose solutions in order to cover the increasing demand in North America. Hydraulic products support many key industries, including agriculture, construction, energy, engineering as well as fluid transport in agricultural, construction and many other industrial vehicles. Around 150 new jobs will be created at the new plant.
In addition, the group sector has acquired conveyor belt manufacturer WCCO Belting, headquartered in Wahpeton, North Dakota, US. With this acquisition, ContiTech is expanding its customer portfolio for conveyor belts and strengthening its conveying solutions business in the agricultural industry.
ContiTech has also taken over the conveyor belt system and services business of NorrVulk AB, which is headquartered in Gällivare, Sweden. This complements the technology company’s portfolio for conveyor belt systems and related services and strengthens its business with industrial customers in the region.