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Continental Tire’s parent firm, Continental AG of Germany, says it is embarking upon a series of yet-to-be specified cutbacks “following an extensive analysis of the substantial negative development in the automotive industry in the last six weeks.”
Company officials note that “a cost-cutting program in the high three-digit millions range is in force, including the postponement of investments as well as the stretching of expenditures in the area of research and development. At the same time, operational measures for 2009 are being adapted to the predictably poor economic environment in the industry.”
“Our customers have cut their production in the fourth quarter much more than had been expected: In total, 1.5 million fewer vehicles than planned will be built this quarter in the US and Europe alone,” says Continental Executive Board Chairman Dr. Karl-Thomas Neumann. “This corresponds roughly to the entire decrease in production in the first three quarters in these regions and affects nearly all vehicle manufacturers.”
Chief Financial Officer Dr. Alan Hippe, vice chairman of the Executive Board and head of the Rubber Group, adds that the company “continues to have its eyes firmly set on reducing debt. If we refrain from dividend payments, there would be a considerable contribution to debt reduction in fiscal 2008 and 2009. Such a move would thus also contribute to the stabilization of our financial situation. Based upon the dividend of €2 per share paid out for 2007, this would result in a relief of some €338 million per year.”
Neumann points out that, in view of the drastic drop in car sales predicted for 2009 down to the level of the early 1990s, especially in Western Europe and North America, “there is the risk that goodwill impairment up to about €1 billion will have to be posted for the Automotive Group on the 2008 balance sheet. A key goal is still to again strengthen the equity ratio as much as possible. In this connection, we are looking into all other conceivable options.”
A cost-cutting program that began last month is the largest in the history of the company, according to Neumann. “In the second half of 2008, we already hit the brakes hard, making noticeable and painful cuts in all areas for 2009 in order to be amongst the winners when the markets recover,” he explains.
“In some cases, we postponed or stopped extensive investment plans,” he continues. “Moreover, in talks with our customers we have stretched or restructured expenditures in research and development wherever possible. This has lowered our investment costs for the coming year by roughly a half a billion Euros compared to our original intentions and adjusted the R&D expenditure by €200 million as well.”
Hippe emphasizes that, thanks to the continuing strong business development in the Rubber Group, Continental will retain a substantial cash flow for fiscal 2008.
“In the next two years we are also expecting to reduce net financial indebtedness, as we assume that free cash flow will remain in the three-digit millions range despite the very difficult market environment predicted for 2009,” says Hippe. “Should we refrain from dividend payments, financial liabilities would go down even faster. Nonetheless, Continental must also adapt its financial structure to the new situation as a consequence of the adjustment to its operational activities.”
For more information, visit www.conti-online.com.
