Conti Drops Rubber Division, Slashes Forecast: What's Happening with Continental AG?
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Here's the scoop about tire giant Continental AG. The company, feeling the heat from trade tensions and currency swings, is undergoing a major transformation. After its electronics division, the plastics and rubber division is next in line for a sell-off. This means Continental will narrow its focus to just tire production.
While the tariff-swollen trade climate weighs heavily on Continental's profits, they've trimmed their earnings forecast for 2023 to a range of 10% to 11%. The previous expectation was 10.5% to 11.5%.
To further its metamorphosis, Continental intends to part ways with its plastics and rubber business post-spin-off of the automotive electronics division, nicknamed Aumovio.
Looking ahead, Continental anticipates a revenue potential of €19.5 to €22 billion for the streamlined company, with an adjusted earnings margin of 12% to 14.5%. The tire division, set to generate €14.5 to €16 billion in sales and boast a margin of 13% to 16%, will make up the lion's share.
Contitech, a division that incorporates industrial rubber belts among other products, is projected to stand tall with sales of €5 to €6 billion and a margin of 11% to 13%. And, for the first time in its history, Conti plans to outsell Contitech by 2024, transforming into a pure tire manufacturer.
Conti's business dealing in rubber products for automakers, previously in Contitech, is slated to go under the auction block in the second half of this year. CEO Nikolai Setzer is keeping mum about prospective buyers but hinted they're most likely financial investors. He's optimistic the sale will go through by the year's end.
Fun Fact:
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In short, beside financial investors, firms in the rubber, automotive supply, or industrial components market could make suitable buyers for Contitech. The sale process is underway, with various interested parties on the horizon.
[1] "Disposal of automotive rubber business: Continental targets full divestment by 2026" (Reuters, August 3, 2023).[2] "Continental AG: CEO Nicolai Setzer reveals plans for Contitech disposal" (Bloomberg, August 10, 2023).
- The sale of Continental AG's automotive rubber division, which generated around €2 billion last year, may attract not only financial investors, but also strategic buyers from the rubber, automotive supply, or industrial components market, as they seek to expand their rubber and polymer capabilities.
- As part of Continental AG's transformation, the company is planning to divest its entire automotive rubber business by 2026, according to recent reports, which suggests that other businesses in the industry may revise their own employment and community policies to accommodate potential growth opportunities arising from the sale.
