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Continental burns cash as Q2 sales slump nearly 40%

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BERLIN — Continental suffered a nearly 40 percent year-on-year decline in group sales during the second quarter, causing the German supplier to burn cash and forcing it to refrain from providing an outlook for the year.

Consolidated group sales declined by 39.8 percent to 6.62 billion euros ($7.6 billion), the company said Monday as it reported some results early. Operating margin was minus 9.6 percent and reported free cash flow was a negative 1.78 billion euros ($2 billion.)

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 amid a shift to electric vehicles.

German carmaker Daimler, 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 percent on an organic basis, Rubber Technology off by 33.1 percent and Powertrain Technology lower by 40.8 percent. 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 ($11.4 billion) at the end of the second quarter, consisting of 2.5 billion euros ($2.9 billion) in cash and cash equivalents and unused credit lines of 7.7 billion euros ($8.8 billion.)

Those reserves were up from 6.8 billion euros ($7.8 billion) 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 2020.

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

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