Auto Group Drags Down Continental’s 2016 Outlook

Continental has reduced its outlook for fiscal 2016. The main reason for this is the recent combined occurrences of isolated unrelated events in the technology company’s three automotive divisions (Automotive Group).
These primarily include warranty cases for products supplied by the Chassis and Safety and Interior Divisions between 2004 and 2010, and possible expenses for pending antitrust proceedings. The total negative effect is expected to be about €390 million. A third earthquake in the Kumamoto region of Japan in August 2016, after the two in April, worsened the situation at the micro control units located there. The Interior division therefore anticipates sales losses of about €100 million. After the first of these natural disasters, the anticipated sales losses were €50 million.
Together with other expenses, the Interior division’s EBIT is expected to be €50 million lower. Added to this is the short-term increase in research and development expenses of €60 million in the Interior and powertrain divisions. These isolated cases have resulted in a negative effect on the reported and adjusted EBIT of the three automotive divisions for the current year to around €480 million.
The outlook for the corporation, which was last amended on August 3, 2016, has been revised.  The adjusted EBIT margin of the Automotive Group has been lowered to 6.5 percent (previously 8.5 percent), dragging the corporation’s adjusted EBIT margin to 10.5 percent this year from the previous 11 percent.
Despite the negative effects, Continental anticipates an adjusted EBIT margin of over nine percent for the fourth quarter of 2016 in the Automotive Group.

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