Conti had already prepared investors for a bad result in March.
(Photo: dpa)
Dusseldorf Given the war in Ukraine and the corona lockdown in China, it was only a matter of time before the first companies in the auto industry had to adjust their profit targets downwards. Continental made the start this Thursday. “The negative effects of the cost increases for important supplies, especially for oil-based raw materials and in the energy sector and logistics for Tires and Contitech, are increasing significantly,” said the Dax group from Hanover.
With roughly the same sales, Conti only expects an adjusted profit margin of between 4.7 and 5.7 percent for the current fiscal year. When the annual figures were published at the beginning of March, the group management had still assumed a return of up to 6.5 percent.
However, Conti had already pointed out that the outlook was subject to change in view of the Ukraine war that had broken out a few days earlier. In 2021, after two years of losses, the group managed to return to the profit zone.
“Should the geopolitical situation, particularly in Eastern Europe, remain tense or even worsen, this could cause further lasting disruptions in production, supply chains and demand.” The Covid pandemic and the associated supply situation could also have further negative effects result, said Conti.
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The main reason for lowering the outlook is the weaker development of business in the auto and industrial divisions in the first quarter. The core business with car components, software and sensors achieved a profit margin of just 4.7 percent in the first three months of the year. In the same month last year, the margin was still 8.5 percent. At Contitech, the margin in the first quarter almost halved compared to the same quarter of the previous year at 5.4 percent.
Conti CEO Setzer is under pressure at the auto division
Above all, the higher raw material and logistics prices are putting pressure on income. Conti expects additional expenses of around one billion euros for the car division. In addition, 100 million euros will be spent on research and development for automated driving. The industrial division has to spend 600 million euros more than expected.
The tire division, on the other hand, is able to buck the trend. Although Conti expects the costs to double here to almost two billion euros, the traditional business manages to avoid a slump in profits. In the first quarter, the margin was over 17 percent, which is actually an increase compared to the previous year.
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For CEO Nikolai Setzer, the forecast reduction in the core business, i.e. the car division, is bad news. In the worst case, the business could make losses. The focus of Setzer and the new CFO Katja Dürrfeld is currently on the core division. When presenting the annual figures in March, Dürrfeld had explicitly stated that all efforts would be made to lead the car division into the profit zone in the long term.
Setzer, on the other hand, currently has a dual function, as he has also taken on operational responsibility for the car division in addition to the entire group. Insiders report that he gathered companions from his time in the tire division there.
In his tire time, it was a “sworn team” that brought the division into shape. “But if this team still doesn’t deliver any results worth mentioning in two years, Setzer is risking his reputation,” reports people close to the company. In view of the expected decline in earnings, the current year should therefore not bring any relief for Setzer. He only has the coming year to rehabilitate the car division.
More: “Duty of care for employees”: Continental temporarily resumes production in Russia