July 20, 2020 / 6:20 PM / 15 days ago

Continental burns cash in second quarter as sales slump by 40%

BERLIN (Reuters) - Continental (CONG.DE) suffered a 40% year-on-year decline in group sales during the second quarter, causing the German automotive supplier to burn cash and forcing it to refrain from providing an outlook for the current business year.

FILE PHOTO: Logo of German tyre company Continental is seen before the annual news conference in Hanover, Germany March 2, 2017. REUTERS/Fabian Bimmer

Consolidated group sales declined by 39.8% to 6.62 billion euros, the company said on Monday as it reported results early. Operating margin was minus 9.6% and reported free cash flow was a negative 1.78 billion euros.

The automotive sector, spearhead of Germany’s export-driven economy, has been hammered by the coronavirus pandemic which has struck as it was already struggling to shift away from diesel- and petrol-powered cars to “green” electric vehicles.

Big-three German carmaker Daimler (DAIGn.DE), reporting a second quarter loss last week, said it would stop building Mercedes-Benz sedans in the United States and Mexico as it seeks to cut costs.

Hanover-based Continental’s three operating divisions all suffered steep sales declines, with Automotive Technology down 45.6% on an organic basis, Rubber Technology off by 33.1% and Powertrain Technology lower by 40.8%. None turned a profit.

Commenting on its negative free cash flow, Continental said this was mainly due to a deterioration in its operating profitability as well as negative working capital effects caused by recent sales volatility that could soon reverse.

The company had liquidity reserves of over 10 billion euros at the end of the second quarter, consisting of 2.5 billion euros in cash and cash equivalents and unused credit lines of 7.7 billion euros.

Those reserves were up from 6.8 billion euros at the end of the first quarter, after the company issued bonds and expanded its bank lines of credit.

“Though the business situation improved substantially over the course of the second quarter, the environment continues to be characterized by considerable uncertainty due to the ongoing coronavirus pandemic,” Continental said.

“It thus remains difficult to gauge possible further adverse consequences on production, the supply chain and demand,” the company added, saying it was still not in a position to give an outlook for the 2020 business year.

Continental will report full second-quarter results on Aug. 5.

Reporting by Douglas Busvine; Editing by Michael Nienaber and Andrew Cawthorne

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