So hard Continental meets the farewell to the burner
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Experts fear that switching to the e-car will seriously damage the industry. Now supplier Continental has to make high billions of depreciations. While shareholders are happy, the mood in the workforce is clouded.
Deutschland's second-largest automotive supplier Continental is pulling the ripcord against the background of lower growth rates and the shift to e-mobility. Because there is no clear recovery in the next five years, Continental is now writing 2.5 billion euros mainly on the value (goodwill) of its acquisitions from previous decades. At that time there was no talk of e-cars. As a result, Continental will record a loss for the year as a whole, according to the Hanover-based company.
It's the first red number at Continental for a decade. Last year, the Group had reported revenue of € 44 billion and 243,000 employees still 2.9 billion euros profit.
In simple terms, Continental is now reassessing what its various business activities in the industry environment and economic development are still worth under realistic assumptions. "We do not (…) expect that the global production of passenger cars and light commercial vehicles will significantly increase over the next five years," said CFO Wolfgang Schäfer. "We have adjusted our assumptions for the medium-term market development."
7.2 billion euros as "goodwill" in the balance sheet
Corporations must also prove to the auditors time and again that no excessive carrying amounts are recognized for purchased activities. The focus here is on the goodwill balance sheet item, a kind of hope value if the purchase price is above the objective valuation for machinery, fleet, land or customer contacts. However, experts also speak of a kind of time bomb on expensive takeovers when expectations are not met.
In the balance sheet of 2018 Continental still had a value of 7.2 billion as goodwill. This amount had accumulated over decades and dozens of acquisitions. For example, Continental bought the automotive engineering business from Siemens many years ago.
On the stock market, cleaning up in the Conti balance sheet was certainly rated positively. The share price rose by almost four percent to a good 123 euros.
While the shareholders are pleased about the price increase, the mood in the workforce of Continental is rather clouded. The message about the red numbers comes a few weeks after the company announced the reduction of 20,000 jobs worldwide and the closure of several plants. This too was partially justified by the trend towards the e-car.
The Continental Executive Board also decided not to market its propulsion business as part of Continental and thereby to raise additional capital, but to split off as a spin-off. As a result, two companies with conti roots are listed on the stock exchange.
The current Continental shareholders are given another share as a present: in addition to the Continental paper, a share of the previous drive business, which operates under the name Vitesco Technologies. The price ratio will then settle down again.
Vitesco includes engine technology for internal combustion engines, such as fuel injection, as well as technology for electric cars. The existing Continental shareholders then have shares in two companies and can juggle accordingly.
The plans must be approved by the Supervisory Board and the Annual General Meeting in April 2020. However, this is considered a matter of form because at Continental, the Schaeffler billionaire family, with a 46 percent share, has the indirect say and such far-reaching decisions have certainly been probed in advance.
In support of the spin-off of the Powertrain division, Continental referred to the currently barely foreseeable conditions for a partial listing, which was no longer the sole option.
CFO Wolfgang Schäfer made it clear in a telephone conference that the future independent powertrain sector could participate so much better in the reorganization of the industry both on the combustion side and in electric vehicles. Now it is about the need for a quick adaptation "to the great opportunity of electrification in the market, but also to the need to shut down capacity". This could better manage a small, independent organization. There are currently no discussions about a possible consolidation.
. (tagsToTranslate) Hegmann – Gerhard (t) Electric Motors (t) Electric Mobility (t) Mobility (t) Hanover (t) Vitesco Technologies (t) Career (t) Continental (t) Wolfgang Schäfer (t) Siemens (t) Powertrain