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March 05, 2020 03:27 PM

Conti considering cost-cutting moves in wake of lower 2019 earnings

Tire Business Staff
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    HANOVER, Germany — Continental A.G. is evaluating new cost-cutting measures after posting a 20% drop in fiscal 2019 adjusted pre-tax operating profit and a $1.37 billion net loss as worldwide vehicle demand slumped and production is expected to keep falling.

    Conti, which called its 2019 results "respectable" but not satisfactory, plans to disclose details of cost-cutting plans in May, according to CEO Elmar Degenhart, who acknowledged personnel cuts could be in the offing as well.

    For the year ended Dec. 31, Continental reported EBITDA of $5.57 billion on sales of $49.8 billion, which yields an operating ratio of 11.2% versus 14% a year ago.

    The net loss — which included non-cash, goodwill write-downs of $2.8 billion due to diminished market expectations — contrasts with net earnings of $3.3 billion in fiscal 2018.

    Mr. Degenhart said Conti met its targets, putting in a "respectable performance overall, … but we're not satisfied with our 2019 results, especially in the automotive business."

    He went on to say management is confident. "Backed by a strong balance sheet, we are prepared to weather the storm better than we were before the economic crisis in 2008-09."

    For the year 2020, Conti said it expects earnings to rebound and sales at best to be on par with 2019. Fiscal 2020 got off to a "subdued start," Conti said, owing to continuing market uncertainty.

    Conti's tire business reported flat fiscal 2019 pre-tax operating earnings (EBITDA) on 3.5% higher sales, amid what the company describes as a "declining environment."

    Tire unit earnings held steady at $2.8 billion on sales of $13.2 billion, Conti said, for an operating ratio of 17%. The company did not, at this time, provide more detailed results.

    The company did, however, say it produced over 142 million passenger car tires last year, advancing it to No. 3 in the league of car tire makers worldwide. Conti did not specify which competitor it thinks it displaced, but in 2018 Astutus Research, a London-based market research firm, said Conti's capacity growth to that point in time — totaling close to 20 million units a year — had pulled the German company equal with Goodyear in the passenger/light truck tire realm.

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