Continental to list powertrain business by 2020; expects auto market downturn over 5 years

Continental to list powertrain business by 2020; expects auto market downturn over 5 years

Technology firm Continental has decided to fully spin off its powertrain business Vitesco Technologies (Powertrain division) with subsequent listing. The company says it is tackling the accelerating trend toward powertrain electrification and “reacting to the at present largely unpredictable conditions” for a potential partial IPO in 2020. With this, it will no longer pursue the preparation of a potential partial IPO of its powertrain operations, which had originally been considered.

The above is subject to the approval of the Supervisory Board of Continental by April 30, 2020. It could then take effect within the same year.

“In the coming year, our powertrain business should be given the independence and flexibility it needs for further growth. We firmly believe that, in this way, Vitesco Technologies can continue on its promising and profitable course for the future and assume a leading role in the dynamic market environment for drivetrain technologies,” said Continental CEO Dr. Elmar Degenhart, explaining the decision of the Executive Board.

Meanwhile, the DAX company also released its preliminary key figures for the third quarter of 2019. Consolidated sales in the third quarter were at about EUR11.1 billion and the adjusted EBIT margin was about 5.6%, compared to 7.8% in the third quarter of 2018. Sales in the Automotive Group were about EUR6.6 billion, with an adjusted EBIT margin of about 1.6%.

Sales in the Rubber Group were about EUR4.6 billion and the adjusted EBIT margin was about 12.3%.

“Considering the unresolved trade disputes, the unclear situation regarding Brexit, and declining markets, we did reasonably well in the third quarter from an operational standpoint. We thus confirm our annual outlook for sales, adjusted EBIT and free cash flow before acquisitions,” said Continental’s CFO Wolfgang Schäfer.

However, he added: “We do not anticipate that global production of passenger cars and light commercial vehicles will experience any material improvement in the next five years, so we have revised our assumptions for the medium-term market development accordingly.” The assumptions made and adapted as part of the annual planning process led to non-cash impairments of goodwill and other intangible assets totalling about EUR2.5 billion, which were recognised in the third quarter of 2019.

The main reason for this revaluation, which is required by accounting standards, is the revision of market expectations.

“Continental has a very sound balance sheet, and it should stay that way in the future. Our structural program will help ensure that. We do not anticipate any material influence on the setting of the dividend for fiscal 2019 as a result of the impairments and expenses. These two special effects will not have an effect on the main elements of our outlook such as the adjusted EBIT, which describes our operating performance,” said Schäfer.


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