Continental Suspends Production at Plant in Russia

Continental Suspends Production at Plant in Russia

During Continental’s year-end earnings call on Mar. 9, CEO Nikolai Setzer announced that the company would be suspending tire production at its plant in Kaluga in western Russia. Setzer said, “We have made this decision as a result of the war” and promised support for not only the 1,300 employees affected by the closure but also for its Ukrainian employees and those in neighboring countries.

“It is hard for me to find the right words for something that we and many others would never have thought possible,” Setzer said. “There’s again a war in Europe. Since the Second World War, we have been living in peace and stability. The attack on Ukraine has shaken all of us profoundly. Our thoughts are with all those affected and their loved ones.”

Setzer added that Continental has made a donation to the United Nations Refugee Agency and emphasized that its employees’ safety and security is its highest priority.

Setzer and Katja Dürrfeld, CFO of Continental, reviewed Continental’s 2021 earnings and 2022 outlook. Dürrfeld shared that if “the geopolitical situation, in particular in Eastern Europe, remains tense or even worse, this can result in lasting disruption, especially for production supply chains and demand. Depending on the severity of the disruption, this may result in lower sales and earnings in all group sectors as well.”

Despite a turbulent market in 2021, Continental performed well and achieved a positive net income. The coronavirus pandemic, low automotive production due to electronic component shortages as well as significant cost increases in the areas of procurement and logistics had an especially significant impact on the sales and earnings, the company said. Nonetheless, it achieved its adjusted annual targets. With its realigned strategy and corresponding market-oriented structure, the company also strategically set its course for the future.

2021 Summary

According to preliminary figures, Continental’s consolidated sales for 2021 totaled €33.8 billion (approx. $37.12 billion), a six percent increase from 2020 sales of €31.9 billion (approx $35 billion). Before changes in the scope of consolidation and exchange rate effects, sales rose by 7.4 percent, the company said. In a persistently challenging market environment, the company said it achieved an adjusted EBIT of €1.9 billion (approx. $2.09 billion) in 2021, a 37.7% increase from €1.4 billion (approx. $1.54 billion) in 2020, corresponding to an adjusted EBIT margin of 5.6 percent.

“While the low production level worldwide has had a negative impact, particularly on our automotive business, our Tires and ContiTech sectors achieved a good result despite massive cost increases in the areas of procurement and logistics,” said Setzer.

Following a negative net income in the previous year resulting from incurred expenses and impairments on property, plant and equipment, Continental achieved a net income of €1.5 billion ($1.65 billion) in 2021 compared to a loss of €962 million (approx. $1.1 billion) in 2020. The free cash flow before acquisitions, divestments and carve-out effects for continuing and discontinued operations amounted to €1.2 billion (approx. $1.3 billion)

2022 Projections

Not including risks from the war in Ukraine, Continental expects that the global production of passenger cars and light commercial vehicles will increase by 6 to 9 percent in 2022. In 2021, this increased year on year by only around 3 percent to approximately 77 million vehicles as a result of the semiconductor shortage, the company said. The company also anticipates higher procurement and logistics costs of around €2.3 billion (approx. $2.5 billion).

On the basis of Continental’s assumptions regarding the trends in its markets and industries for 2022, the company anticipates consolidated sales of around €38 billion to €40 billion ($32.95 to $43.93 billion) and an adjusted EBIT margin of around 5.5 to 6.5 percent. Continental, however, expects that business will gradually improve following a subdued start to the year.

In particular for the tires group sector, Continental expects sales of between around €13.3 billion and €13.8 billion (approx. $14.6 to $15.16 billion) with an adjusted EBIT margin ranging between 13.5 and 14.5 percent.

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