Germany's Volkswagen and Continental made the best out of a terrible first quarter for the global auto industry, hoarding their cash as they hope for an improvement in the months ahead. While both reported detailed accounts showing they had swung to underlying operating losses, analysts were well prepared for dismal figures after car markets slumped sharply.
Instead, they focused on how quickly the two companies were using up their cash as the crisis boosted borrowing costs. Shares in Continental gained 3.5 percent to 19.07 euros by 1333 GMT, while VW fell 3.6 percent to 234.50 euros. VW had already published preliminary results last week. French carmaker Renault is expected to publish first-quarter revenue figures and update its outlook for the year after the Paris stock market closes.
Continental reversed the seasonal inventory outflows typical of the first quarter and improved collecting on unpaid bills, helping release 500 million euros of cash tied up even as its own suppliers clamoured for quick payments.
Investments in brick and mortar facilities also fell, but the group still burned over half a billion euros in free cash as revenue and earnings collapsed, with car markets hit by what executives believe will be the sector's worst quarter of 2009.
"Q1 numbers were weak, but cash flow performance was not bad at all when considering the company shrank by more than one third in the quarter," Morgan Stanley said in a note. "It is totally normal for Continental to burn cash in Q1 due to seasonal working capital factors. With this in mind, we are impressed with Conti's relatively limited cash burn in the quarter, considering the scope of the top-line decline."
Continental's cash burn in the quarter accounted entirely for the rise in net debt to 11.0 billion by the end of March. Chief Executive Karl-Thomas Neumann reaffirmed the group would generate enough free cash in 2009 to reduce its net debt to less than the 10.5 billion recorded at the start of the year.
Excluding restructuring costs and goodwill writedowns, Neumann said he still expected to post a "clear operating profit" this year, saying there was already a noticeable improvement in the second quarter. Volkswagen cut receivables drastically and slashed production 24 percent to reduce inventories of unsold vehicles.
VW had already said last week it had net liquidity of 10.7 billion euros at the end of March. Germany's third-biggest automotive supplier, ZF Friedrichshafen, said it could not rule out posting a loss for 2009, which would be its first annual loss in 13 years. The company reported a first-quarter loss on Wednesday as sales dropped by around a third. Nonetheless, Chief Executive Hans-Georg Haerter said there were early indications that the market may have bottomed out.
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