October 23, 2019. In response to Continental's powertrain business Vitesco Technologies (the original powertrain business group), the Group's executive board decided to completely separate it at the day's meeting, which indicates that the Group is actively taking measures to respond to the accelerating trend of powertrain electrification . At the same time, in the face of many unpredictable situations, the Group decided to make adjustments to potential IPO projects in 2020, and will no longer advance various preparations for the IPO of the powertrain business. With the approval of the Supervisory Board of Continental, Vitesco Technologies 'split listing proposal will be submitted to the annual shareholders' meeting on April 30, 2020 and a decision will be made, which is expected to take effect in the same year.
"In the future, our powertrain business will be given independence and flexibility to meet growing demand. We are convinced that through this adjustment, Vitesco Technologies will continue to maintain good development prospects and profitable growth, and is constantly changing. Leadership in drive technology continues to be maintained in the market environment, "said Dr. Elmar Degenhart, CEO of Continental, explaining the decision made by the executive board.
"Our goal is to create clean and sustainable travel, so it is natural that we want every car to have an electrically powered heart. With the approval of the Supervisory Board, we will focus more on the future and develop a clear development path. Vitesco Technologies is a leader in electrification, and we are ready to take full advantage of the growth opportunities brought by the transition from internal combustion engines to electrification. "Said Vitesco Technologies CEO Andreas Wolf.
Key data confirmed in Q3 2019 in line with expectations
DAX Continental announced the first draft of key financial data for the third quarter of 2019, which is in line with analysts' current expectations. Consolidated sales in the third quarter were approximately 11.1 billion euros and adjusted EBIT margin was approximately 5.6%. Auto Group sales were approximately 6.6 billion euros and adjusted EBIT margin was approximately 1.6%. This figure includes a warranty claim reserve of € 187 million, which was announced in July 2019. The Rubber Group has sales of approximately 4.6 billion euros and an adjusted EBIT margin of approximately 12.3%.
Key figures for the third quarter, Continental and its core business areas
Given the unresolved trade disputes, the current uncertain Brexit process and the declining market conditions, our performance in the third quarter has been quite good from an operational perspective. Therefore, we confirmed our annual sales expectations and adjusted interest and tax Pre-profit and pre-acquisition free cash flow, "Wolfgang Schäfer, chief financial officer of Continental, commented on the key figures. He added that "the global production of passenger cars and light commercial vehicles will not increase substantially in the next five years, so we have adjusted our expectations for the development of the medium-term market accordingly."
As part of the annual plan, adjustments to market expectations have resulted in a total impairment loss of approximately 2.5 billion euros of non-cash goodwill and other intangible assets, which has been reflected in financial data for the third quarter of 2019. In addition, there are changes in many expectations, including long-term growth rates and discount rates that have been used.
In addition, Continental Group withdrew 97 million euros in the first nine months of 2019 for the "change 2019-2029" structure adjustment plan announced on September 25, 2019. Although it is unclear how much the restructuring related to this plan will cost, it is expected to be reflected in the fourth quarter of 2019 financial data.
"Continent Group's current balance sheet is quite robust and should be maintained in the future. Our structural adjustment plan will help this. The results caused by asset impairment and accruals are not expected to have dividends for fiscal 2019 The distribution plan has a substantial impact. These two special events will not affect our expectations of key data in the future, such as data reflecting our operating performance: adjusted earnings before interest and taxes, "Schäfer said.
The Group revalued the goodwill from acquisitions made before 2008. This revaluation was an important factor in asset impairment. The impact of asset impairment on the business group is as follows: the chassis and safety business group is 724 million euros, the body electronics business group is 1.537 billion euros and the powertrain business group is 244 million euros.
Asset impairment and advancement of structural adjustments are special events and have no impact on EBITDA profits that have been adjusted for them. Reported EBIT, net income attributable to shareholders of the parent company, and equity and debt ratios are not affected by these adjustments. As a result, losses due to these negative events are expected to reach at least 2.8 billion euros. The tax rate is expected to remain around 27%, which does not include the impact of asset impairment, but includes the tax impact caused by the separation of Vitesco Technologies' organizational structure. All other elements previously expected remain unchanged.