Covid-19: Continental stops activity at 40% of facilities globally; withdraws forecast for year

German technology/automotive company Continental has withdrawn its 2020 outlook withdrawn due to ongoing uncertainty regarding market development. Previously, Continental had anticipated consolidated sales for the current year of around EUR42.5 to EUR44.5 billion and an adjusted EBIT margin of around 5.5 to 6.5%.

It has also temporarily halted more than 40% of its 249 production locations worldwide, with about 30,000 employees registered for short-time work in Germany as at April 1, 2020. The cutback in production affects in particular Continental’s locations in Europe as well as in North and South America. In China, the company halted production at its plants after the outbreak of the coronavirus in compliance with local regulations. Continental has gradually resumed production there starting February 10, 2020.

Certain production lines will continue to be operated at Continental locations worldwide so that the company can fulfill its delivery obligations. In addition, products that are vital for industries crucial to people’s needs, such as medical technology (for instance hoses), water works, the food industry or public utilities, will still be produced in many plants of the ContiTech business area.

“In periods of crisis, financial liquidity is of top priority. To this end, we are cutting our costs, optimising our working capital and postponing projects and investments that are not urgently required until further notice. We are, however, continuing to push ahead at full steam with key development projects as well as preparations for upcoming production start-ups. In this way, we are maintaining our ability to function effectively and confidently,” said CEO Dr. Elmar Degenhart.

Half of the current workforce have been registered for short-time work as at April 1 cover corporate functions – from production and research and development through to administration, including employees at Continental’s headquarters in Hanover. Certain business units had already started reducing working hours in mid-March 2020.

Degenhart summarised: “Our most urgent goal is to further reduce the cash outflow substantially in light of the challenging market development. The numerous steps we have taken are in line with the respective market requirements and the regulations issued by local authorities. We are also coordinating with employee representatives.”

Pointing out the company’s ample liquidity reserves (as at February 29, 2020: cash and cash equivalents of around EUR2.3 billion and unused committed credit lines of around EUR4.6 billion), Degenhart added: “We are strong and remain confident. After all, we have a crisis-tested team and a sound balance sheet. And that is why we will master this crisis successfully.”

As a result of the coronavirus pandemic, short-time work is planned at various German locations for several weeks, and can last for 6 to 12 months depending on the development of the market situation. The extent to which short-time-work is utilized and its duration varies from location to location, depending on local conditions.

Continental is also making use of such options in countries in which comparable instruments for shorter working hours are available. The company is currently considering how it can support affected employees in countries where there are no comparable instruments that safeguard the employees’ take-home pay.

Continental’s Executive Board has therefore decided to voluntarily forego 10% of its monthly income for the month of April. A large number of executives are already foregoing parts of their salary and are contributing a similar amount on average.

In some countries, as in Germany, the Executive Board will soon be calling upon executives to similarly demonstrate their voluntary solidarity.

Continental says it is protecting its employees in ongoing production with appropriate equipment as specified in its corporate-wide pandemic plan and in compliance with the protection regulations of individual countries. Extensive protection schemes minimise the risk of infection at the respective locations.

Of employees who are able to work from home, more than 95% or about 85,500 are currently doing so.