It is winter, so it's winter season, so it's Capital Markets Day at Continental. Welcome, everyone, to our new headquarters here in Hanover. They're very, very newly inaugurated just these days. It's an honor for us to host you. And we've even arranged for some snow just to bring you in the mood for the season. Also, welcome to all our guests joining us virtually in front of the screens. We are going to have a very tight agenda today, but before we're jumping into the presentations, let me answer one of the most asked questions the last days. When will the presentations be available online, and when is the press release going online? So that's gonna happen just after the session of our CEO, Nikolai Setzer. You can find all of those documents on our web page.
Having said that, I'm going to give you our CFO, Nikolai Setzer, for-
CEO, please.
CEO.
No problem.
Once again, we're starting-
I know the figures as well.
We're starting-
... by heart. I promise that one. Yeah, Katja knows it.
CEO-
I ask nasty questions-
Niko Setzer
... from the finance part. I'm-
He does
... known for that.
Thank you, Niko.
Thank you, Anna. Yeah, warm welcome from my side. We are really excited to have you here. Two reasons: one reason is to have the Capital Markets Day after three years. December 2020 was the first one. It was just when I took over as the CEO, so we are very pleased that this happens exactly at that place, our new headquarters. It's not inaugurated yet. In 10 days, it's officially open, and we are very excited because this is the place where we all come together. Tires is here, ContiTech, the group functions. Automotive comes from time to time. So here we gather, and from Hanover, we bring Hanover to the world, so to say, and today we bring the world to Hanover personally. So thanks for being here, as well as virtually. Thanks for joining. We are on the move.
We started in the middle of the summer with our TechS how, where we are talking about technology, and honestly, I can tell you, and I speak for the whole team, this is and was a very thrilling event for us. Because technology, this is our passion, what we strive for. That's what we are getting up in the morning, and today we want to show you how, with those technologies, we capture value in the markets. In the meantime, on the move, Wolfgang Reitzle, our Head of Supervisory Board, he facilitated a governance roadshow, update on the latest governance news in front of the annual shareholder meeting 2024. After the Capital Markets Day, as it is four hours today, which are very intense, but with the breadth and the depth of our portfolio and of the sectors, this is obviously not enough to dig in every detail.
For that, we will have sector spotlights later on. Stay tuned, we will tell you once that happen, to go deep dive into it. Before looking forward and see where we are moving on, we thought it makes sense to look back. Which lessons learned did we take? Where is our journey coming from before we see where we are heading to? We sliced the past into four pieces: the era of success, the sunshine era. To be honest, because we had value accretive outperformance, life was good. 2018- 2020, era of decline, our profitability was deteriorating. 2020, as I mentioned, when I started as CEO, era, we call it, of recalibration. We have recalibrated the company, we stabilized the business, and we set the foundation for our era. This will be the focus of today, 2024+, the era of execution.
Execute what we have in our backpack and excelling out of the transformation, which started heavily in 2010-2018 timeframe and moving forward. As said, at that point of time, we were benchmarked performance in all three sectors: premium valuation and investors trust. You see the share price moving upwards, peak 2016, and then going forward. Where have we been in the sectors? ContiTech was clearly operational benchmark for industry solutions, was strong in its balance, so the portfolio was delivering double-digit margins in automotive and in industry. So consistently, we had double-digits margins on the sector side. Tires, operational excellence champion after the crisis, 2009, moving upwards. We constantly delivered, expanded our margins, and we had clearly favorable market conditions.
Remember, 2016, above 20% EBIT margin, those have really where all odds have been for us on the one hand. On the other hand, we have hard worked on our operational excellence and set the ground in order to be benchmark in the industry. In automotive, we came as well out of the crisis with a very strong portfolio, a portfolio which we could execute. We've been strong in operational excellence, delivered as well benchmark margins, and our products reached a very high demand. Particularly on the automotive, remember, in the end of 2018, we had the largest order intake for the today's parameter. With our powertrain, Vitesco, EUR 28 billion. More than EUR 28 billion order intake. Give you a reference, our guidance for this year, between EUR 20 billion and EUR 21 billion.
So you see, we had a huge order book, much larger, which was meant for a vehicle production, which was foreseen at that time to hit the 100 million and above. And those orders were very different than the orders which we had before because the technology transformation dynamics were gaining speed. Whereas before we had traditional legacy business, this business was new, which meant we had to invest heavily in R&D. We had to build up the competencies, which have been different going forward. Much more software, much more complex system orders, which we had, which required upfront investments and. At the same time, where the market was going down, where we had to adapt, we had a much higher margin pressure because significant light vehicle production, in particular in Europe, took place.
In all three sectors, we have the highest exposure in Europe, and we have a strong share of the business, the market, which has come under strong pressure. That's why in 2019, we took the decision for a footprint transformation project. You remember the EUR 850 million of gross savings, which we started in order to adapt to the changes outside. Why have there been cross savings? Because due to the dynamics of the transformation and our exposure exactly to the transformed businesses, top line was melting down. Analog business was phasing out much faster than we anticipated.
At the same time, we had, where the set top line was going down, we had to build different, not only R&D, but as well, the footprint up for different and new products, and at places where obviously we can produce with the most efficient and effective place, which have been different places, different investments. So it was an in-phase, in phase out. That's why we said it will be a cross saving, and there will be lots of savings which will be washed out by additional cost increases. That, realizing in 2020, when it started our Capital Markets Day, we said we have clearly our strategy on three pillars. This has been our answer: strengthen operational performance, consequently, get back to our operational excellence, differentiate our portfolio. The time before was heavily much characterized by us closing white spots.
White spots, mainly on the software side, we have acquired many companies, brought them in, enlarging our technology expertise, but we have been relatively shy in working on our portfolio as well in divestments. Turn change into opportunity, our third pillar, which we initiated there. Once we started and we rolled up our sleeves, COVID was still there. Technological transformation dynamics were even increasing. Light vehicle production was further going down. Semiconductor shortage started. Please keep in mind, we are a large electronic supplier. We are the largest Tier One for electronics, in particular for semiconductors. So this era of semiconductor shortage has hurt us, and we are still in a way to further manage this part. At the same time, Ukraine war was coming later on, hitting Europe.
We are strong on the ContiTech side as well as on the tire side in Europe with our European business and with our sourcing. Means that our three pillars were very much focused on managing through crisis. We had one crisis after the other, which we had to manage, but on top, we were managing our transformation, the transformation footprint correction, which I mentioned before. We are now, in the meantime, at EUR 700 million gross savings, so EUR 150 million to go. Everything is executed. Everything will come in the next one to three years, and it comes by the, by the vast majority, it comes on the automotive side. We have further initiated operational activities on the R&D side, and later on, Philipp von Hirschheydt will tell you a bit more which initiatives we had there.
We had, due to the cost inflation, really focusing on repricing. We had, with the largest burden on semiconductors and electronic increases, as well, a very large burden to reprice in our business. That's what we did in the last two and a half years, striving to get the fair pricing for the cost increases, which we've seen. We managed successfully the Powertrain spin-off, the first spin-off this company did, very efficiently and effectively. Keep in mind, once you spin off a large business, the remaining core has as well some headaches and some stranded costs, which we had clearly, efficiently and effectively to manage, which we did. We performed best ownership reviews, you will see the results today, and we clearly switched to targeted order intake. Remember the EUR 28 billion?
Much more careful, looking on where we create value, where we have the right competencies in place, and where we can create value and be selective there. On the Tire and ContiTech side, we call this value over volume. We drove organizational robustness, changed automotive completely. Spin-off Vitesco, two divisions remained. We brought this into one automotive and organized it in business areas. Philipp comes to the next, to the latest developments there. And on ContiTech, we changed clearly as well, they are market-oriented on industry business into the different markets and having a strong focus on those different areas, including setting up an automotive business. Advanced sustainability, clearly on the tire side, and strengthen governance. You know, in those three years, we had several governance subjects, which we handled intensively, and we are very grateful that Olaf Schick joined our team.
He will say a few words where the status is right now in our company and where we're heading to, and how do we turn the change of regulations, which is getting more and more into an opportunity for Continental, based on a more robust organization. So looking at all what we did, you see as well at the low end, this was the share price when I started as CEO. This is the share price basically right now, maybe some weeks ago. Doesn't matter what you see. Same as for our adjusted EBIT margin. We started at about 6% for the group. We are here in our guidance. You find this, again, at 6%. The ones who know me personally, not only in sports as well in business, I'm really competitive.
I can tell you, our team, and you will see later on stage, they're all really competitive. This is very disappointing for us. We worked as much as we never did in our life. I can tell you personally, those three years have been the most intense of my career. We moved so many things. We took so many great actions. We made as well mistakes. Everybody does mistakes, but we did lots of things, we moved them, but the result is the same as before. We're very disappointed, but are we frustrated? No, because we know we have the energy, and we have the motivation now to the team to make use of what we learned. We've reorganized, we have a future-proven team, we have the portfolio now analyzed, we are now ready to execute and focus on our energy in the more robust organization.
We still have technical leadership. The ones who have been there in July could see we have a huge pipeline of great technologies. We have to capture the value out of it. We laid the foundation for our execution. How are we doing this? What is now the priority and key focus? We call this Strategic Triple Play, and to make this clear, they are not happening sequentially; they're happening all at the same time. First, and foremost important, we had short term, means the next two to three years, by efficiency measures, by our self-help cost measures, which you will see later on, consistently deliver until then and come up to the lower corridor of our guidance. That's the clear commitment and the clear guidance which we are giving. For me and the team, that means clear targets, holding the team accountable, and strict execution.
Once we see it's not enough, then execute faster and do something on top. The midterm in parallel, it's not sequentially, in parallel, we have to further work and move up in the next five years in the corridor of our midterm targets. By adding additional measures and executing portfolio strategy, you will see some in the few which we have already defined. That means prioritization, clear focus. What are the businesses which add value for us? Industrial logic, and industrial logic into two perspectives: the technical one, every business within our company has technical focus, we are a technical company, growth potential, and must pay in on our system relevance. Must be relevant for our business and the technology around it to make it stronger as it could be alone. Secondly, the financial perspective. We must see the potential to operate at benchmark profitability.
If one of the two is not fulfilled, we have to talk, we have to look into it, and we have to take measures. Once we take those decisions, rigorous decisions. Last, the long-term vision, the long-term execution, which does not mean that we wait long, but we have to take now as well decisions. What are the technologies and commercial vehicle, Autonomous Mobility, for instance, our partnership with Aurora, this will take place longer than the five-year horizon. We have to take now very strict decisions. What are the technologies we focus on? Manage this efficient and effectively, adapt to transformational change, and invest into the right people. Bring the teams up, that we can manage this in the right way. If we are doing this and we are successful, we are the mobility and material solutions provider for safe, smart, and sustainable solutions.
And you see that all the three sectors, they perfectly fit underneath. They all have a certain center of gravity, maybe more on the mobility or more on the material side, but all combined, they pin in, and all combined, we have a strong asset and a unique asset within this group. And despite the fact that we see and we consistently adapt and apply optimization cycles, we see in the configuration of our group, the best setup to execute this upside potential and to crystallize the value which we see in the businesses. By having ContiTech as a reliable profitability sector, upside potential through increased industry share, see later on, ambition to get even up to 80%. Tires delivering strong cash generation by operational excellence. There's no way to be relaxed on that part. This is our core.
We will further drive this through customer-centric solutions, getting even better on the customer front. Automotive, the twofold part, it is the growth engine. It has higher growth potential going forward, the markets, but as well, our business. However, performance improvement is necessary, and this is what we commit for and going for. The group is there to support the sectors by aligned capabilities. One example, strength and governance, Olaf and the team being there, helping out. Ariane, on the HR side, making sure that we have the best fit on the best jobs. We are still 200,000 people. There is a lot to assess, and we have the unique opportunity to every time change and bring up the best people on the best positions.
Katja, for efficient capital allocation, making sure that the mechanisms which we have in place are as well used and stringently executed. Best ownership principles, we will follow up greatly on the group side. You need a, let me say, neutral side, which is pushing and bringing this forward, and helps as well in the portfolio execution with a team in place, does this over the whole group. I said, our strategic capabilities we got to use, and at the same time exploit the synergies which we have mainly on our common market verticals, fleet market, for instance, replacement market industry. That's where we are joining together, not just in the automotive, to be said, and on the technology and the material side. Technology, artificial intelligence is one area which we can strongly strive from automotive through the other areas, through the group.
This is areas where we see, on the one hand, independent when necessary, means clear direction, and everybody has the right to be successful within its portfolio, and strongly fighting and hunting for the business, being empowered and making decisions. United, we are purposeful, where we can be stronger as a group, where we can use the aligned capabilities, we make ourselves stronger. What does it mean for the ContiTech side? Ensure success, I already mentioned, clear industry focus and as well, upside potential. Ensure success by focusing on the strong margin and creative industry business. What decision have we already taken? The legal and physical independence of OE Solutions or the automotive business around hoses and engine mounts in this area will get independent until 2025. But at the same time, so we don't wait for that, it gets right-sized and improved in terms of business....
Long term, as I mentioned already, we have the ambition to achieve 80% industry share. We don't mind to achieve this earlier, by the way. However, if you just look on our midterm, what we can achieve organically, we can up to a 60% share, and you see later on what that means in terms of CAGR. Within industry, we have to make use of our strong industry reposition to profit on the profitable replacement business from it. And on the second part, our unmatched portfolio, if you compare us in ContiTech as well on the industry side, we brought the portfolio together in the regions and execute now on this portfolio together, paired with a material leadership, which we have. Tires, resilient.
We are very happy on the resilience of the tire team and the strong cash performance, which we could materialize even under difficult conditions, more difficult than they have been from 2010 to 2018, where we had very favorable market conditions. Operational excellence through customer-centric solutions. Still, the core operational excellence, this is the life insurance of our tire business. Every day propelled to get more excellent in terms of operations, paired with strong technology and brand power. This is our position in the tire business, and via that, we are condemned to realize the opportunities which we see there, which are mainly tech-driven. Electrification, for instance, opens a larger profit pool, which we want to tap into because it's technological tires, it's mixed improvement, such as UHP, where we are great positioned. Sustainability only works with new technology.
This is our responsibility we are striving to. I already mentioned strong exposure to Europe. We must get swiftly faster APAC and Americas up in order to balance our portfolio faster, on the one hand. On the other hand, this is great profit opportunity for us as well to tap. By all of that, customer centricity, Christian will explain more in detail, is the one which differentiates us on the customer side. Last but not least, automotive. I already mentioned growth, the one hand, on the other hand, upside wire performance. Lead, focus, perform is clearly what Philipp and the teams are driving. Lead in all products. Technology, I think it's clear, but as well in value creation. It must be both.
Technology is—it only makes sense for us to be in a lead position if we can capture value out of it, which means that we have to focus strict portfolio management on value accretive, under value accretive principles, and in order performance uplift, in particular on the short term, but as well in the mid, rigorous execution of our cost reduction programs. You could already read the—some left and right. We have introduced already, we prepared it. Now we are in the execution phase, where they hit the road and where we have—we execute them in order to get top in operational and commercial performance. Something which we have lost, and we are very honest, in the time of decline, where we have to get back, swiftly.
Portfolio review, I mentioned we did this for the whole company, but in particular for automotive, we looked into all strategic options, which we see. We reviewed under the industrial logic as well as the financial one, and we came to the conclusion that User Experience business area, we should pursue further strategic options, prepare for that, and that all starts with a carve-out, legal, as well as in the physical one. With industrial logic, why we are coming to this conclusion? User Experience is a very attractive and great business. We have a strong order book, means technical focus as well as growth potential is seen. However, if you look on our system relevance, User Experience as strong hardware business, the software, in the meantime, is decoupled, is and moved into high-performance compute, which we manage in architecture.
It's a hardware business where we see it, we are not in a position where it can profit from our technology pool, from our strategic direction. We are going there. So it means though it's a profitable, highly attractive business, we review whether another owner could not make more value out of this asset. EUR 3.5 billion, another EUR 1.4 billion, which are under review, and they are defined with measures there. Why? They belong into the second bucket. Mainly, we currently don't see or explore the full potential to be on benchmark profitability. That's why 1.4 together, this is roughly 25% of the automotive sector, which is there under review and with measures.
The last one, streamlining business, is already decided and in execution, so we dissolve Smart Mobility business area, still continue the businesses, but under the umbrella and under the lead of other business areas. So explore the profit pools with all the power which we have at a lower cost and more synergetic area. That's the reason here. What does it mean at a glance in terms of financial outlook? Katja will obviously share much more details. You see from EUR 42 billion sales to EUR 53 billion-EUR 54 billion. This is 6% CAGR as a group, ContiTech and Tires at 5%, Automotive at 8%. So automotive still drives the growth, but as well in ContiTech and Tires, we see lots of opportunities to outgrow the markets. Adjusted EBIT margin, no new midterm targets.
However, we want to achieve, and we are committed to achieve them in two to three years from now, 8% on the group, 9% ContiTech, 13% Tires, which we already achieve, and Automotive 6%. Due to the fact that we have seen that even in under challenging circumstances, we have been able, for this year as well, our guidance, to deliver 13%. We levered our we lifted our corridor from 12%-16% to 13%-16%, paying in then into the 8%-11% on group side. So to wrap it up, what are to my CEO speech, you will see lots of presentation from the sectors as well as from Katja at the end. The reasons to invest in Conti, top in tech where it counts. Clearly, technology is at our heart. This is our DNA, but it must add value.
We must have a top position, which we can transfer and capture value out of it. We see strong value creation upside, highest one in automotive, followed by ContiTech, by tangible performance improvements, self-help. We have to move it up. We don't wait for the sunshine. We don't mind if markets are turning back and helping us, but we prepare ourselves for the weather. And last but not least, we have a very determined team, decisive execution and performance-driven, powered by the passion of our people. I've been working in all our business areas. This is clearly what you see every day once you go into our sites. We have passionate people. It's people business, and we are convinced with our people base, we can drive and lift the upside as a company.
One person who is really determined, passionate about governance, but not only about governance because he dealt as well in finance, M&A, and he has a very broad scope. He perfectly fits to us, and I realized this day we didn't talk to each other, but if you look at his outfit, perfectly match mine. So great minds think alike. Olaf, please give us an update where you see us on the governance side.
Thank you so much, Niko. Welcome also from my side. Very quick input on governance, but first, I would like to introduce myself. My background, I'm a lawyer. I have working experience in international law firms before I took over various corporate leadership positions, including Chief Compliance Officer of Daimler. My last position was Chief Financial Officer of Mercedes-Benz Group in China. My expertise, my areas of focus have been overall governance systems from design to implementation, realigning risk management and compliance management, setting up processes for new risk fields such as data, AI, or human rights. Also negotiating with authorities on terminating investigations or ending proceedings, and also finance.
Now, as of first of May this year, I've joined the Executive Board of Continental, and from day one, I have been fully embraced by, on the one hand, the colleagues here in the Executive Board, on the other hand, by the entire Conti team. And this was really great welcome, and so I also could get going from day one. So there is strong support on driving governance, and it is also very impressive how the Conti colleagues are living the values, and both together is a strong basis for the changes that are required by our governance. We all know that regulatory requirements are increasing, not only in Germany and the EU, but also globally.
It is getting more difficult to manage this, so we have adjusted our approach, and my role is to help to navigate Continental through this complexity. Now let's look at our governance approach. We have defined a clear roadmap with clear milestones for state-of-the-art governance. We are integrating our holistic risk management, internal control, and compliance management. The focus is on robust processes and systems, and this includes all relevant areas from the more classical topics: anti-corruption, antitrust, anti-money laundering, sanctions, export control, but also supply chain and also technical compliance, and here covering the complete life cycle of our products, whether it's hardware or software. Now, governance is cost of doing business, but we have to manage this efficient, and we have to manage it risk-oriented and also proactively and effectively.
And therefore, we're scaling our processes, and to cover these increasing regulatory requirements in a systematic but also in a lean way. Our governance approach is also embedded in our transformation and sustainability strategy, and that is very important. While we want to focus more on prevention, we need to stay agile and we need to foster the spirit of innovation, right? We are not here from our side to slow Conti down. The opposite is true. We need speed. I want speed, but we need to be more resilient. Conti is a fantastic organization, and it's... For me, it stands for technology and for people. So our target is to over time turn governance into a competitive advantage, and that's our contribution from the governance side to create sustainable value. So thank you. That's already the quick input from my side.
Happy to talk later if you have questions, and now I'm happy to hand over to my dear colleague, Philipp.
Thank you, Olaf, and thank you for bringing me on stage, and a very warm welcome from my side. My name is Philip Nelles, and I'm more than 20 years in this company, and I held various positions in ContiTech in the last 20 years, and since 2021, I'm leading the ContiTech sector of Continental. Let me share with you what we stand for at ContiTech and what we do every day. We connect, we convey, and we cover. With this, we are famous in the market for more than 150 years. Take a first example of our high-quality hose solutions. In this example, a fueling system for the aviation industry. High quality, making operations run safely and smooth. We convey, we move materials across, the different industries, from construction and mining and quarries-
We serve solutions that exist in the toughest environments across the very different environments of our customers. We convey, surfaces are everywhere. Surfaces are in vehicles, in home and living, and you'll be surprised to see later on in the next 30 minutes where surfaces are all around us. ContiTech at a glance. We serve our customers on a global base, and with more than 42 employees, we generate sales of around six to eight, EUR 6.8 billion-EUR 7.2 billion every year. With our mixed portfolio, we are well set up and balanced in the industry business with 55, and in the automotive with 45. With a significant, I can tell you later, growth opportunity in industry.
For a regional view, our 35 and more locations worldwide are balanced in all three major industrial and business regions, however, with a clear growth potential for APAC. With this, we have set ourselves, summing it all up, what do we want to be and stand for? Our purpose of ContiTech is to be the first choice for our customers with material-driven solutions. Now, what makes us really unique? Our global expertise in different materials, from rubber and thermoplastics, and many more, combined with an unmatched product portfolio, gives us a very unique position. We turn materials into solutions. We make sure that things work, that we create multi-material and multi-component solutions, making a difference for performance for our customers. We solve problems for demanding industries. We move material. We create products that move bulk materials on the toughest conditions.
More than 5 million tons are transported every day with our conveying solutions. We partner with our customers to drive technological progress. We make sure that we balance and transfer technologies from the one industry to the other to create progress with technological solutions. Did you imagine that our belts pull elevators? This has been an innovation driver in the 1990s, where, due to high-rise buildings, elevator manufacturers needed different materials, different products, to make system runs more smoother, less maintenance, and being designed in a smaller way. With our top customer, since then, our length of belts delivered for the elevator industry turn around more than 3 times across the globe.
So with this, and of course, as mentioned from Niko, with our reorganization this year being implemented, being much more organized in a customer and market-oriented way, we are perfectly positioned to succeed in existing markets. Now, what are these markets? And I would like to turn your attention to our exciting markets we are in. In total, you see nine markets that represent 90% of our total revenue streams. On the one hand side, as mentioned already, 55% in industry. A very diverse industry base, balancing nicely different cycles of industries and transformation, offering opportunities for us. On the other side, 45% in the automotive arena with commercial vehicles, ICE passenger vehicles, but also, of course, the growing electric passenger vehicle market. Now, I'd like to highlight a few of them now, because why are they really important to us?
Take the mining industry and quarries. This is where we are in and moving materials, making raw materials move from the place where they are into the places where they're needed, is key to further development. That's where we are in, on safe grounds. Material handling and manufacturing. Products need to be produced and manufactured and sent with logistics systems across the world. We make sure that flow is efficiently managed and organized with various components in this industry. And the printing and packaging industry. We recently acquired a business, making sure we are a true global player here, because products everybody buys, again and again, differentiate themselves how they are wrapped, sometimes in plastics, in cardboard, and however you make your product in your marketplaces, differentiate.
It's all about our rollers, our plates, from a printing blanket, technology point of view, that we always know what's inside the box when we package them. Commercial vehicles and ICE passengers, for sure, is still a huge part of our business, is the backbone of our industries, making transportation and mobility safe. That's where we are as well. Now, those of you listening, you clearly saw I did not talk about all of them because I'll deep dive in a few of them because they represent our growth engines for the future. Now, coming to the execution, and where do we want to drive our business in the upcoming years? It's clear the direction is set. We want to strengthen the industry share. You see our actual share, 45, 55, already talked about, and we want to clearly move the needle.
We want to grow our industry share up to 80%, and that's our clear ambition that we designed into our organization in our new structure to make sure growth engines are taken serious. Why do we shift into industry? It's about high-quality business. It's about creating value with specialized products in specialized environments with our customers. Take a simple garden hose. That's an easy product, but our products, they serve with high temperature resistance or low permeation, a special purpose, and that factors in a price increase of easily 10 factors or more in the marketplaces... broader revenue streams. We see more and more that our system-critical products are really important to our customers.
To support our customers to really create long-term, solid, and safe value streams, that means they ask us for components to better install their products and for service around existing system-critical components we deliver. That delivers for us broader revenue streams. Number three, longer product life cycles. The transformation speed and the cycles are less speedy in industry. And while preparing, I came across, and I was really astonished to the extreme, the product Gold Snake, a hose, a multipurpose hose, was introduced to the marketplace in 1930. Can you imagine? And it still exists, and we do great business and value creation with the product since then. So much more stable revenue streams. Number four, less cyclical, was already mentioned. Overall, in our industry businesses, we see, compared especially to automotive, less cyclical businesses.
Last but not least, seizing new opportunities, definitely in expanding and definitely grabbing new opportunities in the marketplaces. We'll get to that in a second. So overall, with optimized capital allocation, we enhance value creation through a targeted capital allocation, which means pushing our investments stronger into industry. Now, the next steps: how will we really do it? I brought some examples here with me. We are clearly set up to grow, mainly organically. Number one, increasing market share. It's all about capturing our share in replacement. We are known as a technology partner and as a manufacturer and supplier to the industrial OE customers across the various industries. Now, our share with a replacement, combined with, or in relation to an industry OE share, is roughly 1:1, and we clearly intend to boost our replacement share via the traditional replacement channels, distribution, or direct replacement.
Expansion of product portfolio. You can imagine that with our broad portfolio, still there are white spots. So these gaps we intend to fill up where we are underrepresented, and the most important is short term, coming up in 2025 with an SOP in Mexico, our greenfield for hydraulic hose. Here we see clear opportunities to expand our product portfolio. Number 3, developing the marketplace. I shared the pie chart with our potential in APAC, so investing into further greenfields in APAC will be the logic next step for us as customers' demands increase on a level that we bring solutions to the marketplace. Diversifying through venture units. Now, that's really exciting. I mean, we are in 153 years in the meantime, in these markets around rubber, increasing a thermoplastic share, even adding metals and sensors.
So we launched a product this year called BAL.ON. Now, who is a bit sporty in this arena here, of course, would recognize BAL.ON is a product that might be a revolution to the golf training industry. Because we combine a pressure sensor in a shoe sole with artificial intelligence, giving you real-time information the human eye cannot see, making sure you detect how to improve your golf swing. This is asked a lot from players and pros around the world, and we have in the shoe sole our technology transfer coming from surface solution, from foils, actually, thermoplastics, and it was an idea to integrate a function, printed electronics, printed sensorics. So this together gives you data in combination with a smart pod and, of course, a learning app on your smartphone, and creates a new kit that we launched into the marketplace in Europe this year.
Please stay tuned for the next upcoming months. We have more ideas to come in our venture unit. Of course, last but not least, talking a lot about organic growth, we, of course, screen. As you know, ContiTech, since a lot of years, we have integrated 13 companies in the last 8 years. We screen and continue to look for opportunities, expanding, especially here, where we see, opportunities to grow. Now let's talk about growth engines, because all of this in the industrial arena is supported by clear defined, growth engines. These are trends that drive actually technological, progress, fueling our industries. These are 8 mega trends in total, which are globally relevant and push the demand of our customers, let it be sustainability or circular economy, where we see opportunities to solve problems with our material-driven solutions.
It's a great potential, uplifting our high-quality business by the increasing demand of material-driven solutions. Actually, it's a doubling effect, and I come to that later, because the basic macroeconomic trends are in favor for us, and our solutions and our targets being in these markets is as well for us an opportunity. Now, I want to pick the first one, which is our growth engine, construction and home. Surfaces, as we sit here in this room, are everywhere around us. Surfaces are not only in vehicles, but we took all our competencies for sustainable materials, surfaces that are breathable, which you can print on and clean again with easy access. You can imagine a lot of things on the outside and inside, and we put this together in our demonstrator.
500 sq m, inside and outside, on our ContiHome, making sure we showcase what we can offer. This market, the decoration area and the home and living part, not only the vehicle part, is for us, definitely a big market where we can expand and renew and upgrade residential and commercial areas, where we clearly see the market is steadily growing with 2%, and we want to outperform with 6%... and it is clear with design. Combining sustainable solutions that are more and more required as people take care, we also combine that without compromise on stunning designs, and even as seen on the golf shoe, you can imagine here with lights, with comfort, we can add a lot of functions, integrating functions into a surface. Second growth engine. We all know the energy sector is going through a huge transformation.
See, the COP28 now actual discussions, of course, the big energy sector has to move and will move in a different pace into CO2 neutrality and CO2 reduction. We are in that sector already with a number of products and application and customers, and we see a very changing environment now into, for example, the hydrogen value chain. The production, the storage, the transportation, and the dispensation of hydrogen is an opportunity, and of course, all derivatives like ammonia and others, where I believe strongly, and the team is in backing, that we believe our existing customer interaction can be leveraged moving forward into that transformation period.
And that transformation period towards efficiency, carbonization, and also localization to where energy is needed, we believe that in a significant market where the CAGR is 5%, we will grow with the market as we are in it today, and accompany our customers, creating value long-term into new and clean energy, partnering with the key players today, and that gives us speed to market and being insiders here for that transformation. Number three growth engine is off-highway, everything which is off the street. Now, this includes agriculture or construction machines, and I brought an example here of a recent acquisition, WCCO in North America, and especially in North America, but increasingly in Europe, efficiency in farming, precision farming, making sure our customers help their customers to improve the growing demand for food and the efficiency in the farming industry.
This picture shows a grain saver belt. 14 meters of width for a harvester is really efficient, but it's even more efficient if the grain you cut falls onto a conveyor belt that efficiently from left and right, moves without losing grain, dropping off and jumping off inside the harvester. A great opportunity, us delivering a value add for our customers, making harvesters more efficient. This is just one example of multiple examples I could list, which shows the demand for technical upgrades in that industry and our customers and the ultimate consumer, the farmer, asking for it. Especially here, with that demand, we see that we can outpace the market that is growing 3% in total, with a 9% CAGR playing an important growth factor for ContiTech.
Now, all of this on the industry side shows our growth ambition, the growth engines on the one hand side, the macroeconomic trends on the other side, which delivers a 7% strong CAGR over the next period of time, which is clearly driven by, number one, the market growth with 4%, but also a 3% clear outperformance we want to target and execute over the time period. Now, with that, taking a short break because ContiTech is not only industry, it's also automotive, and now I want to deep dive into the automotive piece. We have a clear ambition on a different direction for automotive. The clear direction is to increase profits and have selective growth. We do not want to rely too much in the long term on a single business field, which is the automotive business, representing 45% of ContiTech in the future.
But let me explain first, our automotive business at ContiTech is twofold. Number one is the newly created original equipment solutions business area. Here we combine a lot of products. On the other hand, we have surface solutions for interior car designs. We put together the business area, original equipment solutions, with products that serve emission reduction, products that serve thermal management, damping and transmission, and last but not least, precision sealing. All of this is OESL. Now, how will we change here? The direction is clear. Everything counts on short-term profit improvement. It's performance improvements. We work hard on targeting customers and projects, transforming our portfolio on the one hand side, and we execute restructuring measures like we announced, and we will execute next year in parts of the organization.
That also goes in line with strict cost management to make sure this unit now with a dedicated management really executes and fulfills the change of our short-term performance program. We will make sure that limited investment goes into the unit, making sure we are really clear on the selective growth piece, which is the electric vehicle transformation. That also happens in this piece very clearly, and I come to that. And on top of that, we have initiated a process and a project team to make sure we are prepared for 2025 with a legal, organizational, and physical carve-out of this organization. The twofold, and we are talking about surface solutions. Surface solutions for car interior designs, and you see a highlight product for a commercial vehicle here on the left-hand side, which makes a translucent highlight material, the comfort zone of a driver in a commercial vehicle.
We are differentiating in the marketplace with high-tech materials that make a difference in sustainability. We use high shares of bio-based materials and recycled materials to make sure that we differentiate and grow with established on the one-hand side, but also a lot of new players on the other hand, in the market. And the growth engine is, for this business, electric vehicles. It is around the new powertrain, the electric drive, which requires not only the battery itself, but to really optimize the range and the range of the electric vehicle, it requires a thermal management system. And here, us being experts in handling fluids and handling temperatures in cycles with fluids running, we are able to create thermal solutions, making sure we contribute with our fluid technology.
On the other hand, and you might have seen it on the outside coming into the building, the Space D, the new living environment and opportunities, making the car interior, the new horsepower, the new differentiator for electric vehicle manufacturers, where customers and consumers aspire to also be clear about that surface solutions are sustainable in the vehicle. We showcased this at IAA as well, and got great feedback from our customers moving in this direction. So overall, the transition into batteries, the transition into new materials and Net Zero components, is something which is attributed to our products and which we serve in the industry.
However, taking the selective growth path with a CAGR here, electric vehicles of 27, we are in that market with a CAGR of 21% over the years, not fully participating as we turn around, mainly the OESL of the business as the next months are coming. Overall, putting it together on a growth perspective, we are less aggressive on a growth path here for industry, with a 2% CAGR, on a growth path, with the change in our portfolio, of course, on the one hand side, but as well, being selective in specific projects on the growth direction, electric vehicles. Now, to ensure success from a growth path and top line, of course, we get into our operational and our fixed cost management. On the one hand side, it's all about operational excellence.
Our factories are supposed to be smart, green, automated, and consolidated in the future. We have a clear path forward, creating for our smart factories, our Industrial 4.0 approach, with more transparency, more traceability for efficiency of our factories and our footprint. Net zero 2040, clearly agreed within the scope of Continental, our trajectory towards net zero in operations, we are on track. Efficiency and labor independency is the name of the game for automation. We continuously improve our processes to make sure we have a cost support here on the fabrication side. Consolidated means less plants, higher turnover per plant, more efficiency, scaling up, bundling wherever it makes sense.
On the other side, we have for the cost and for the cost-fixed cost management, our reorganization that took place this year will contribute being leaner, faster, and more efficient in the outer years, and there's more to come on best cost hubs for our business functions in the upcoming years. All of this, both operational excellence and fixed cost, will contribute with 2 percentage points of our sales midterm targets to reach our profitability. And this is leading directly into that chart. I clearly stand here and confirm 2023 guidance, 6%-7%, with a slight percentage, a slight, opportunity to reach the upper scale of that two numbers, and I confirm our midterm target of 9%-11%.
For both phases, clearly making sure that we achieve a 9% and more in the short-term period. We have four topics that are equally important for both phases, but with a different approach in the first phase. In the first phase, the most important topic for us is the turnaround of our automotive business, contributing with the biggest share here for our profit improvement. Cost management, I talked about, and you see more self-helped and clearly activities started, initiated to pay in on a short term, making sure we jump to 9%. On the outer years, moving forward, continuous volume effects from the market and as shown, more industry help here from our growth engines, from our clear direction, moving forward into more industry share than automotive will help as well.
Cost management continues to be the name of the game for ContiTech, for operational excellence, and that will lead us to 9-11. Now, this 9-11 clearly is a plan with a 60/40 ratio, but we, as described, have a different ambition. Our ambition is clear. 80/20 was discussed already, but that 80/20 leads to a clearly improved upscaling of our profitability of a level of 13%-15%. And that's what our ambition is all about, making sure moving the needle to more industry into 80/20, delivering a higher financial outlook. Overall, altogether, summing it up, EUR 8 billion-EUR 9 billion sales strong at ContiTech, 9-11 midterm target confirmed, 22% ROCE or beyond, and a strong cash generation of 65% at its minimum. And with that, ContiTech continues to create value.
That's our clear direction with a strategic capital allocation, which is moving into the arena of high-quality products on the industry business, number one. Number two, making sure we translate our strong OE position into the value and revenue streams on the replacement side. And last but not least, number three, the long-term value creation to market and customer focus, our organization is set up, everything is built in to make that happen. And with that, we intend to be one out of three sectors, a very reliable sector with profitability and upside potential for the industry share picking up. And with that, I end my presentation, and I could not imagine anybody better than Christian, as we share the same material and make great products out of it. So, Christian.
Thank you.
It's all yours.
Thank you, Philipp. Thank you so much. So then, a very warm welcome also from my side to ice-cold Hanover. Anna already mentioned the winter period. Being the tire guy, I have to admit, I really love this weather. And thank God it finally happened because it helps us moving some products, especially in the seasonal markets. But even more important, it helps our customers to move products, which is what we need in order to prepare the markets for the future. So my name is Christian Kötz. I'm working since nearly 28 years now within the business sector Tires, and I'm leading this business sector since nearly five years. So very warm welcome to Hanover. Who are we within Tires? Where do we stand?
So, I mean, number one, we are now in the meantime, let me say, EUR 14 billion-plus tire manufacturer. This is actually now a growth of nearly 50% within the last 10 years. So we will talk about resilience, we will talk about, you know, reliability. I think we've reliably, also over a very long period of time, developed this business. And number two, different to, especially our automotive colleagues, but also a little different to our ContiTech colleagues, trying to move into very much the same direction.
We are much less exposed to the automotive industry, so we generate 75% of our total business in the replacement markets and only 25% within the direct OE business or in the direct OE industry, which is giving us, obviously, number one, more resilience against cyclical influences, and number two, helps us to create better margins. You've seen on the ContiTech side the difference between the auto side or the auto business and the industry business, and it's not so much different on the tire side, without going into the details. Last point I want to highlight is our regional distribution. This is where we definitely still lag behind. I will talk about this. We have made some significant progress. You have seen ContiTech is already much better balanced.
We have reduced our exposure and our dependency on and from the European market, but we still generate 50% of our sales, around 50% in the EMEA region, which, positive or good news, bad news, also clearly demonstrates how much growth potential we have, specifically in North America and APAC, but I will talk about this. Talking about resilience, I mean, the last four or five years have been, I guess, we all agree, pretty challenging. Niko talked about resilience. Again, in every challenge also is opportunity. There's also chance, and for us, it was definitely an opportunity or a chance to prove the resilience of our business. Whereas many companies, many businesses really suffered from the corona pandemic, from the semiconductor crisis, from the Ukrainian war.
We also had our challenges, but bottom line, since 2018, let me say, despite the little dip we have had in the peak year of corona in 2020, we have continuously grown our business. So that's great news, against all odds, if I may call it like this. But even more important, we have delivered a very, very reliable profit, even in very, very difficult circumstances. And this obviously gives us the confidence that we have the foundation, the operational excellence, to be prepared to harvest also, let me say, the opportunities and the future profit pools I will try to explain within the charts to come.
So summarizing then what we have accomplished over the last five years, average growth of 4.3%, with all ups and downs, but very much in line also with what we've accomplished over a much longer period of time. So talking about the 5% long-term goal or midterm goal, very much in line with what we have accomplished in the past over a long period of time, with a very, very reliable EBIT contribution, which is actually increasing in absolute terms year-over-year since the 2020 drop. I mean, and not only in terms of adjusted EBIT, as you know, even within these very critical years, every single year, we've delivered more than 20% return on the employed capital, and we've every single year contributed significantly to the cash of this company.
So it's a very, very resilient business model, obviously, and it should give us the robustness and the baseline to develop this future or this business also into the future, as the reliable value creator you have experienced, and we are enjoying as well. So nevertheless, also our business, also the tire industry is challenged. I mean, I don't need to go through the mega trends on the left-hand side. You know them all. They are posing challenges. They are also changing and impacting our industry, but they also create lots of opportunities. So without going into the details, but if I try to summarize the consequences, I would highlight three elements.
So number one, the ever-increasing complexity, increase of technical requirements, overall business environment is creating, on the customer side, especially on the replacement side, more and more willingness to collaborate very closely with suppliers, with selected suppliers. Because that's the only way of mastering the complexity of the business, and that's obviously good news for a local manufacturer being locally in every market we operate. So that's definitely one of the trends, one of the consequences we see. I will talk about customer centricity, and this is one of the reasons why we are deeply convinced that this is absolutely essential for us, moving forward and safeguarding also our future success. Number two... I mean, all these technical requirements, is it from a legislative side? Is it due to sustainability requirements?
Is it due to the transformation also of the powertrains or electric vehicles also do cause two effects. Number one, it re-emphasizes the importance and the value of technology and brand, which is good because it works against a commoditization of the business, which is obviously, as a hardware manufacturer, what we need, and we really love technical challenges. So I was running our R&D activities for many, many years. Things could not be complex enough. It should be as demanding as any possible, because that's where we hopefully differentiate, where we have differentiated in the past, where we will differentiate in the future. But they also drive, and I will get to this a little bit more, future further market development in terms of sales mix.
I will talk about the electrification of the powertrain, which is also good news for us, maybe a little bit less good news for other industries, but definitely good news for the tire industry. And the last point I would like to mention is the significantly increasing or content, continuously increasing amount of road transport or road freight transport. Because this, in combination with the asset operators or the logistical companies, becoming more and more professional, becoming more and more mature, and therefore are getting more and more open and are actually even actively demanding solutions beyond the pure hardware to help them optimize their business and reduce, minimize their total driving costs. So these are all consequences out of the mega trends.
They are challenging, no doubt about this, but they are definitely creating lots of profitable growth opportunities for us, where we believe, we are deeply convinced, we are very well prepared to harvest those, and I will try to explain you how and why. In order to address those challenges, in order to be ready for the future, we have changed, or let me say, the strategy. We have implemented our new strategy, which we call Vision 2030, in 2019, and are now very consequently executing on this strategy and investing and prioritizing investments accordingly. The centerpiece, before I get into the individual elements and where do we see the future profit pools, the center element, so to speak, is our attempt and our ambition to try traditional, very product-centric organization into a customer-centric organization. The reason is very, very easy.
We do believe that only based on a very, very deep customer understanding and a very high proximity to customers, we are able to develop and deliver, at the end of the day, services and products to our customers, which do create value for our customers as well as for us. And this ever-increasing complexity of the business is really further accelerating this need and is giving us great opportunities for differentiation. When you talk about the core of our business, the core of our business was, is, and will be developing, producing, selling, and distributing tires. So we are really focusing everything we do on making sure that we optimize and further develop this core. Niko mentioned this earlier, I mean, the foundation of our success over many years is the excellence in our operations.
I mean, we have done over many, many years, again and again, the necessary steps, restructuring the footprint, investing into new facilities. We continue to do that. We are absolutely committed to continue to do that wherever it's needed. You know, some of the KPIs, so already today, 80% of our global capacity is allocated or established within so-called mega plants, and these mega plants provide significant, advantages when it comes to efficiency, but also when it comes to flexibility. By the way, this strong ad hoc business, as we see it right now, if the weather comes, is really then...
You can harvest this if you have supply chain performance and flexibility within the plants, and we can really benefit from these mega plants, not just in terms of efficiency, but definitely also in terms of flexibility and supply, overall supply chain performance. Second, and this 80% will grow. I will talk about this because some of the greenfields we've built over the last couple of years, we are now very, very consequently, enlarging into mega plants, so that we will really also grow this pie again to the absolute maximum possible. 75% of our global capacity is also already located in best cost countries, which is obviously giving us a cost advantage as an efficiency advantage.
But not only are those plants super efficient and the manufacturing supply chain performance super efficient, but they're also helping us to deliver a super high quality product, which is essential for a premium brand and which is really recognized and rewarded by our customers. So within this core, what we have seen, and to be honest, that was really, as you, many of you, most of you know, the main contributor for our business success, even though volumes were under pressure, was the positive mix development. So we have seen the sales mix on the PLT side continuously improving, and we do believe that there is significantly more potential on the one side due to the, let me say, normal development in OE.
If you take also combustion engines of the last couple of years, they continuously moved into higher inch sizes, higher inch, tires, higher performance tires, but the electrification of the powertrain will further propel and boost this positive mix. Why? Because these vehicles are, on the one side, technically demanding. On the other side, due to the load are requiring and some other technical requirements do require bigger sizes. This is why we very early on started to work with, globally, with the BEV manufacturers to be a trusted and reliable partner to those manufacturers. Today, the 10 biggest manufacturers of BEVs worldwide, they all rely on Conti tires. Not only the traditional ones, if I may call them, and I don't mean this negative, but definitely also the new ones.
As an example, we are the, by far, biggest non-Chinese tire supplier to BYD, and I could mention a couple of other examples. So we do believe these investments we have done over the years will really help us to further boost our sales mix, which is a natural development. Further, further, let me say, propelled and boosted by the electrification of the powertrain. Why are we successful? We are successful, I mean, on the one side, deep customer understanding, customer proximity, also in OE, but also because we have the right technology and we have the right products. Not only for the BEVs, but also for the traditional UHP applications. I mean, this has been proven over many, many years with the necessary OE approvals, but it's also proven by countless test results, consumer reviews, clearly proving that we have the necessary competencies in this field.
This is why, as you can see on the top right-hand side, we have, within the last five years, significantly increased the share of UHP tires in our total portfolio. Not just in line with the market, but as you can see on the bottom right-hand side, significantly outperforming the market. We are more than committed to continue to invest here on the technology side, as well as on the production capacity side. It's not so much on the production capacity only to invest into total volume, but it's also extremely important to invest into the right structure. There again, these mega plants do help us to be efficient and effective, to utilize this trend, and we are very, very confident that this trend will continue and maybe even further accelerate.
Second part of investments on the operational side, as far as our manufacturing footprint is concerned. I mentioned in the beginning, we generate still 50% of our sales in Europe. You see, left side, we have significantly reduced our dependency, but if you turn this around, and are already generating nearly 50% of our sales in APAC and Americas. But in other words, we still generate 50% in Europe, and Europe is not making 50% of the global tire market. So it's very, very clear we have significant growth opportunities outside of Europe. Considering, if you go through the individual market profitabilities, and you look into the details, it's very obvious that these are very, very profitable markets. And this is why we will continue to invest into our existing manufacturing footprint in Asia.
We have built now the foundation, which we are now scaling. We have done major steps in China, which we will further do. We are now really ramping Ayong up as quickly as possible into a mega plant and do also some other investments. So this is what we can organically grow and can organically do. But it's also very obvious, it's also our responsibility, our duty, to actively look for M&A options if they can help us to speed this up. Because organically, you can only do that much within a certain period of time. A boost, and organically, would really help us in this area to become even faster and better globally balanced. So but we will do our homework, and this is how we target and focus and prioritize all of our investments.
We will grow our footprint in Americas and in Asia, but we will also make sure that the foundation of our economic success, the super efficient European network, will stay the industry leader when it comes to operational excellence. So investing into automation, investing into high-performance technologies, investing into sustainable technologies, I will talk about this in a minute, will remain very high on our agenda as well. So talking about sustainability, I mean, every industry is challenged by or is challenged to become, I should better say, more sustainable along the entire value chain. This is definitely true for the tire industry because we are a very energy-intense and also material consumption-intense industry. So that's a challenge. Yes, it is a challenge, but it's also an opportunity for differentiation.
So, like many other companies, we have very, very ambitious sustainability targets which go far beyond the decarbonization of our footprint. Not only Scope 1, Scope 2, but also Scope 3. We also look in various other factors, because I think being responsible, being sustainable, cannot only be reduced to being decarbonized in your footprint. And the benchmarks do clearly show also in that area, from that sense, our operational excellence is really excellent. And we are more than committed to continue to invest into this field, because on the one side, we talked about business necessity and operational license to operate, but on the other side, it's also a great business differentiator and a great business opportunity for us. Why?
We will try to make this, or I will try to make this a little bit more tangible, how we do this, how we turn the sustainability needs and technologies into concrete business value. One example, already today, based on certified product-specific life cycle assessments, which we are able to provide. We help our customers, again, customer centricity, to reach their sustainability goals. Is it Scope 3 CO₂ emissions? Is it water consumption? Is it energy intensity? Various different categories, and we do really see that especially the professional customers are really gaining attraction and traction, looking for those specific life cycle assessments to help them to achieve their goals.
You know, the OEMs, but also major replacement customers, have committed also to significant goals, and if they don't have the supply base to help them reach their goals, and we all know Scope 3 is a very significant contributor, they will never get there. Second example, we have launched products which are really industry benchmark in terms of the content of sustainable materials. This is serious production available for end consumers and OEMs, as we speak, and not prototype tires. We do really see that these products are gaining attraction from a media attention standpoint, but definitely also from a customer standpoint. More driven by OE as we speak, by the way, mainly by the high-end manufacturers, because they are looking also for ways of differentiation.
Not so much yet on the end consumer side, but if we can turn this into additional exposure, especially on high-end vehicles, I'm absolutely confident. We are absolutely confident that we will turn this then also into very profitable additional replacement business. And the last example, by innovating, executing, renew, or recycle technologies, we are already today reducing our dependency on raw material availability, but also raw material costs. Because it's very obvious, the more you're able to reuse end-of-life tires, is it because you renew them or you recycle them? You reduce your exposure to raw material availability and costs. And here again, this is a complete new field of technical innovation and partnership, where I do believe premium manufacturers like us have huge opportunities for differentiation moving forward. So we talked about opportunities.
If I summarize what I've tried at least to explain, number one, we are—I am very confident that this positive sales mix development will continue. So it helped the industry, it helped us, and I think we have delivered very, very strong sales mix improvements over the last years. It helped the industry, it helped us to reach financial goals despite weak replacement market demand. And we are very nicely prepared with our technologies, with our OE fitments, to really harvest this potential and make—we will make sure that we will invest accordingly into this profit pool. Number two, I mentioned our significant growth opportunities outside of Europe, being North America and Asia.
Yes, we are still very European exposed, but on the other side, this means we have great opportunities there, and we do believe, I do believe we have a great footprint with the plants we have built over the years now to scale them and really drive additional business development in these very profitable markets. And last but not least, I tried to explain why and how we believe the trend for sustainable solutions is not just a business necessity and our responsibility, as we call it, but also a great opportunity for us. But there's one more opportunity I would like to explain, which we even call our opportunity and our strategic pathway, but it's not because it's the only opportunity, but we use the phrase for it.
That's around what I said in the beginning, the increasing road freight transportation and, the, let me say, professionalization and the, the increasing maturity of these fleets. Today, mainly truck fleets, transportation fleets, but we also do see that in other commercial industry applications, agricultural fleets, also fleets running, vehicles, in port operations, airports or harbor ports, they all look for opportunities to improve their overall efficiency. And here, we can really leverage the competencies we have in this group. So we have electronics on board, we have sensors on board, we have software engineers on board, we have tire know-how, we have a service network, and we have really great opportunities to leverage this specifically for this area of application. Where are we today?
In the meantime, we have implemented a 360-degree service and product offering, and we are now scaling this offering in core target markets. You see the growth numbers in the middle, and we do believe that there is significant further profitable growth opportunity, and we will continue, let me say, to leverage the competencies within the total group to harvest and utilize also this opportunity. So summarizing what you have seen, we are very confident that we will continue to grow our business organically. We may have the one or the other chance on top. From where we are today, the EUR 40 billion-plus, to midterm EUR 17 billion-EUR 18 billion in turnover, and obviously, more importantly, at the margins you are used- we are used to see within the last years. And as said earlier, we have-...
Let me say, changed our targets from 12%-16% to 13%-16%. Why? Number one, because we have seen within very difficult circumstances, we are able to achieve those goals. And number two, we do believe we have even further increased the resilience of our business based on the measures we have taken, and we have already executed, partly restructuring our manufacturing footprint and investing into the future profit pools, where it's now time to leverage and harvest the fruits. I talked about the sales targets, I talked about the profitability targets, and of course, we will not give up our outstanding, return on the capital employed.
We are very confident that we will be able to grow this even further, again, by better utilizing the assets we have invested in with the necessary growth, and will also continue to deliver the cash, which is needed to finance the future investments. We have done this in the past, we will do this in the future, and we are very, very confident that we will continue to set industry benchmarks as far as value creation is concerned. So then, in a nutshell, with this, we do feel very, very confident that we have a clear path for future success. We talked about the resilience of our business. We talked about the operational excellence, which we will maintain and further improve as much as we can.
With this, we do believe we have the foundation then to utilize the future profit pools I've tried to explain, and we will continue to invest into these profit pools in a very consequent and very focused way in order to make sure that we are the value creator we have been for so many years, and I think you and we really enjoyed over all these years. With this being said, I thank you for your attention, and I'm sure we are going to have lots of discussions, not only at the Q&A, but also at the break. Thank you. Anna?
Thank you so much, Chris Kötz. Well, you've said it already, so we're gonna break now. And also for our virtual guests, we're gonna be back at 3 P.M., which is Hanover time. Thank you so much.
... We can get started. So welcome back after the break, and welcome back, or welcome to Automotive. My name is Philipp von Hirschheydt, and I'm heading the automotive sector since May. And what I do want to show and present to you today, what are we doing? How are we moving forward in order to come back to where we have been in 2018? A very successful company, as Niko Setzer showed in the beginning. I have been asked just when we started of whether I'm nervous today. Yeah, and because your first capital markets presentation.
And I said, "Actually, I'm not, because we have a very solid and sound strategy put in place in order to to help us, ourself, out of the crisis we are in." And I will show you today why and how, and what we are going to do in order to be successful, as we have been in the past. Many of you might read Manager Magazin, and I have been presenting several times, and you see that my people say, "Okay, we know exactly when Philipp comes into a webcast, what he's going to say." We need to be successful. We need to become a self-financing company. We need to come back to the levels where we have been. And the good thing is, we have been there already for many times and for many years. Where do we stand today?
So what is our starting point? We are today a EUR 20 billion sales company, give or take. We have around 100,000 employees, and we are, in terms of profitability, not where we want to be. But we are one of the biggest automotive company in the world. We have more than 50 product clusters, where we are very successful, drive the automotive world into the future. And we do have a global footprint. We have 56 plants in 21 countries. You know, some of them we are still going to restructure in the Transformation 2019- 2039 program. And we do have 82 locations in 18 countries. That already looks quite, quite a lot, and I'm going to go into much more detail of what we are intending to do here.
But what's very clear, and what's very clear for the organization, is we need to create value. We as an organization, the entire 100,000 people, do know that we need to create value while driving the future of mobility. So where we have been, where have we been coming from? And I think a very solid analysis of where we, where we stand and why have we been come here is very necessary. You see here, until 2018, we were one of the benchmark suppliers in the industry. We have been running at 9% EBIT. We have been a benchmark company in industrializing lots of very good hardware products. And then comes the era of decline and recalibration. What has happened? Niko has already explained it.
We have been, as being the largest or one of the largest electronics manufacturer, more exposed to external factors than any other. We have run through a very strong, severe supply chain crisis, and this has hit our organization intensively. Once you are the biggest, you get least semiconductors, you are going to disrupt the entire industry. And our entire intention has been, over the times, to keep the automotive industry up and running. So we have seen, we have tried to make our customers-
... run, we make our customers produce. That's why we have significantly invested in order to make that happen. We have had huge premium freights, we have a lot of disruption in our operations, and we have, at that time, had on top, what Niko explained, the highest order book in the industry. So we have also, in that time, needing to manage the technological transformation from analog to this, to digital. So this is where we have been and where we are coming from, and that led us to 2022, barely break even, and to 2023, now 2%-3% EBIT guidance. So this is now the time where we are needing to change. We are coming out a very difficult situation. We have been hit by lots of exogenous factors, but now it turns. The major part of supply chain crisis is over.
We are still one of the largest electronics manufacturer, and we can really ride on the wave which is going to come. That's one part, but what we are wanting to focus on is on a clear three-pillar strategy. Niko explained it already. We want to lead, we want to focus, and we want to perform. Looking into where we are today, we are a company, a leading system supplier with a world-class product portfolio. We have high-tech and high-quality electronic hardware, which we match with very intelligent software and substantial software expertise, and where we have found very significant and experienced partners going forward. So we are a leading automotive system supplier. We have all set, we have the basis for being successful. What we now need to do, we need to execute our programs.
We need to ensure that we are going what we promise, deliver, and that we are going to have the commercial success which we are able to do and which our customers are very regularly confirm we are. So what means lead, focus, and perform for us? Lead means we want to be between the three top-notch in the respective industry share. We want to pair our hardware excellence, being one of the largest electronic supplier, with the software competence, which we gained over acquisitions, which we gained over significant growth. We have meanwhile more than 20,000 software engineers in our organization, and with this, we are very much convinced we build and have built up and are able to deliver a system expertise which just a few can really match.
Very clear, we need to work on things where we earn money, where we create value. Means we need to be between the top three or we exit. Exit means we focus. Focus means we need to review, first of all, our organizational setup, I come to that, but we also need to see where we allocate our resources. We will also talk about spending, R&D going forward. Then we need to see whether we are able to improve the product group, or we need to ensure that we are also going to divest as a consequence, if we think we are not going to bring this product group to financial benchmark.
We also analyze of whether these products, of course, fit to our overall lead perception and where we are going to be good at, and what needs to be the system we are needing to offer. But important is, we need to be able to create value. And in order to support this value creation, we have set up a cost reduction program, which is in four different pillars structured. The first one, and you have read that in the news, we have already announced that we are going to take out EUR 400 million of costs until 2025. Secondly, we need to get better in our plants. I were mentioning that we have been hit most during the supply chain crisis. We have also discussed already that, in terms of R&D efficiency, we do have quite some room to improve compared to competition.
If we do that, we are a company which is dealing in industry sectors where significant growth is being expected, we should be able to have a significant operating leverage. So we will leverage, and we will bank on our technology and leadership position. We need to become a strict execution company along our value chain, our value principles. We need to see that we follow the product life cycle of a product. Once we grow, we invest. Once we maintain the business, once growth is going to be less, we need to take out costs, and then we need to harvest in the respective area in order to take out costs and to gain the respective EBIT to invest into new products. So we need to implement, or we have implemented a strict, a very strict profitability management. So you see, it's in our hands.
We are very much convinced we have built up a comprehensive self-help program. Let's go into the different pillars. Let's start with lead. We have already, during the tech show, shown that we want to concentrate on sectors which deal with safety, which with excitement, products which create excitement and which are autonomous. We have the business area, SEM, Safety and Motion, which is dealing in that area and where we assume that the business area, and have put that into our plans, will outperform the production figures of 100 basis points. Our main sales drivers today are braking sensor systems and airbag systems. In exciting, we do have our business areas, architecture and network, User Experience, and Software and Central Technologies.
We have here also we foresee that we are also able to grow significantly faster than the underlying markets. That's why we also increase today the outperformance of User Experience from 100 basis points to 400 basis points. Then we have one of our stars in our portfolio, autonomous mobility. Also here, we do foresee a significant growth going forward with radars, with cameras, and with the ADAS ECUs. So this is the present and the future going to come. Where do we stand in terms of lead? We've selected eight product groups, which you can see here, just as an example, which somewhat represents 50% of our portfolio. In these product groups here, you see, we are shown where we are within the top three.
In many areas, you see, we are very proud to be one part of top three, which do have a significant share in the respective market. But this is just an example. We do have significantly more businesses which are already in that area, in that arena, creating and being within the top three leaders of the respective market. So this is presence. This is hardware, many times, or basically everywhere. It's hardware. So how is the world changing? The world is changing, and technology requirements are changing. So we see that systems architecture is changing, and this is one of the big questions which we regularly become. We come from a very heterogeneous ECU ensemble into a consolidated and centralized arena of functions. And these are many times been done in the cloud, meanwhile.
And what we also see is that the well-known tier world in automotive supply is been changing. The way we do business is substantially changing from today to tomorrow and the day after tomorrow. This creates new players. This creates, but it, it creates as well, new commercial, commercial path. We have already talked about Aurora business during our tech show, where we want to do hardware as a business going forward. We want to develop constant revenue chains. And our answer is that we are, and I said that already in the beginning, we see ourself as the system integrator in the automotive world, automotive supply world. We do have high quality hardware paired with very intelligent software, and there's a lot of experience which we want to bring together.
We have in our technology, which is purpose-built with artificial intelligence, and we do have a strong partnership. One of them, Ambarella, which we mentioned. We also work intensively with NVIDIA. We work with Qualcomm in this arena. So what are we doing? What is our job in this system integration? We are able to combine the software with automotive requirements, and we ensure that the automation is going to work properly, for example, with our Continental Cooperation Portal. We can also ensure that we master the huge amount of data which is going to come. We can process it. We have meanwhile, more than 1,000 artificial intelligence engineers in our rows, and we are able to ensure that machine to machine, that car-to-car communication is going to be the future.
We are able to manage the entire tech stack, from systems on a chip, hardware, middleware, functions, to cloud services. We have just recently announced our partnership with Google, and we have a long-standing software partner, 100% wholly owned Elektrobit, with whom we are intensifying the work we are doing. And one thing where we think which is going to make the difference, we are able to manage complexity. We have the in-house competence from cross-domain to autonomous driving, high-performance computers. We are able to manage between customers, between platforms, and within the customer, between the different platforms a customer have. So we are able to manage the complexity and scale, and that's where we think we are also going to make a significant difference in our markets.
So our offering is going to go up to the well-known Aurora partnership, where we are able to do, to deliver the entire tech stack up to Level 4 driving with the, with the respective fallback system. So we are, we are very much convinced with our lead principle, we are going to have a significant say in the market of the software-defined vehicle. So if we're looking at selected markets, ideas, how do we combine hardware and software? You see, we have, and I showed that a very outstanding technology platform on the hardware side, which we are now going to enhance with significant more content per vehicle. So the full sensor suite, as one example, is what we are going to deliver to Aurora with the radar, camera, and Lidar, and ultrasonic sensors combined into one partnership.
We are delivering not only wet braking, we are the first in market with semi-dry brake systems. We have a partnership with DeepDrive, where we are going to deliver and offer to the market a wheel hub drive with integrated brake systems. So we are basically everywhere at the forefront and at the end, what in our different safe, exciting, autonomous arenas, we are able to deliver into the market and what our customers expect. And we are going to develop new sources of revenue, whether it's hardware as a service, whether it's software as a service, whether we are going to offer digital key management systems. These are the things where we think we are the leader in the market. Taking the lead, product side. What happens if we do not see that we are leading?
We have done a very thorough, active portfolio management. Since June, we have been analyzing the entire automotive sector, as you might imagine. We have looked into opportunities, into risks, into threats. And we have said we are analyzing, as Niko said, we are analyzing basically in two different criteria. Is the product group supporting us in our combination of hardware and software-defined system integration? That's the first thing, the strategic approach. And the second one: Are we able to manage the product at financial benchmark levels? Are we able to drive our business, and that's a clear promise, 6%-8%, we need to do midterm. Are we able to drive that product into the 6%-8% financial arena? So we looked at value creation, we looked at system expertise.
We managed to see what is un- within our technological focus and how do we see growth going forward. And then we said, there are products which we need to look at. Basically, we are going to change over the next years, 25% of our product portfolio. We need to improve, and if we don't see that we are going to be financial benchmark within our respective product, we need to sell, or we are going to close the respective product group going forward. Streamlining the business means from today's structure, you know we have six business areas. We have announced mid of November, that we are going to dissolve the Smart Mobility business area and are going to bring it into the other business areas.
We have, in this arena, decided to carve out the User Experience business area and to look into whether we are the best owner going forward. I come to that. And we have been analyzing all other core business areas of what we might need to sell, which product group is not going to be core going forward. So in the future, we are going to have four business areas, very stringent, clear leadership principles, clear value focus, in order to ensure that we are going to be the automotive leader, this, this system partner of choice in the range of 6%-8% return on sales. So why have we been deciding on User Experience to think of whether we are the right partner going forward, the best owner?
In User Experience, we do see a highly attractive business, which showed a strong order momentum, and where we do see, and I've shown that in the beginning, we have a leading market position on the display side, on the head-up display side, as well as on the digital cluster side. We have a very highly innovative team. We have a strong management team in place there in User Experience, and we have a global footprint. We are being seen as one of the major and mega partners of all big OEMs. However, what we also have seen, User Experience, due to the technological development, is a product which is going to be very hardware-focused. The intelligence out of the former digital cluster is going to go into the high-performance compute area.
The high-performance compute area is going to be... we centralized everything there in our architecture network business area. So which means the User Experience arena is going, at least within Continental, is very much focused on producing a very solid, a very highly challenging manufactured part as the experience, as the display is going to become in the car. We also see that we have to significantly invest in order to extend the market position going forward. And as I said, our strategy is to focus on hardware plus intelligent software. User Experience as a hardware product is not going to be at the centerpiece of our strategy.
That's why we decided we are going to carve out the business from a legal, from a managerial, from an operational point of view, and are going to see whether and if we are going to be the right owner going forward. So we are going to pursue our strategic actions. Smart mobility, a business area, which we already announced mid of November, we are going to dissolve. We are going to move according to best synergies, to the three different business areas, which we already have. We have set the commercial and special vehicle part, which is basically 50% of the EUR 2.6 billion business area, we are going to move to autonomous mobility. Why do we do so?
I have already said that Aurora is going to be a big part, and a huge part, going forward, of our success. That means we are going to bring these two businesses together, and we ensure that with a very experienced management team, we are driving this business towards a significant growth. So you see here, one of the huge mega topics we are working here are ADAS sensors and S instrumentation, and we do see a significant potential there to improve the business while moving it together with autonomous mobility. Secondly, lights and actuators, a business which is being formed out of the former Osram joint venture, which we dissolved some years ago.
This is a business which stems from Architecture Network, and we are going to bring that back into, let's say, mother home, and it's from January 1, going to be part of our Architecture Network businesses going forward. And then we have lastly the Automotive Aftermarket, which is going to concentrate on diagnostic services, on services for OES, so spare part business. And we are saying that this business fits best into our central technologies arena, where we are going to drive everything which is going to work for the entire stack- for the entire business areas within our automotive sector. So this is going to be running starting from January 1. I come back to autonomous mobility.
Just to summarize, to make very clear, why do we think we have a unique opportunity here? We have a major player for commercial vehicle autonomous driving opportunities, and we are able to manage between commercial vehicle and our passenger car business a significant focus which will drive the business going forward. Good. This is from a focus part. Very clear, we have EUR 5 billion ContiTech sales, which we are going to change. Our User Experience is going to be somewhat EUR 3.5 billion, and EUR 1.5 billion we are moving elsewhere, improve, sell or close going forward. What do we do with the rest?
How do we ensure that we are going to come to the 6%-8% in the midterm? So we have set up, as I said, four different arenas. We have operating leverage, operational excellence, fixed cost reduction, and R&D efficiency. On the operating leverage side, we want to improve until within the timeframe of 3-5 years by 1 percentage point. Same applies to operational excellence, and I were already mentioning that we are going to go for EUR 400 million cost savings until 2025 on the fixed cost reduction side. And last but not least, we need to improve our R&D efficiency and will increase our business by 1 percentage point or we'll decrease our R&D cost to sales by 1 percentage point in the short term.
So this is the bridge, the famous, as Katja said, told me. If we look into the bridge, we do see we have factored in some market growth, but market growth is, on the short term, relatively minor. And that's where we were focusing on. We were focusing on what are we able to do? How can we help ourselves out of where we are today? Because the clear target is to run to 6% short term. So we have set out a program which ensures over operating leverage, over operational excellence, fixed cost reduction, you see the major part comes here, and R&D efficiency to reach the 6%, and I go into all measures more, more in detail now to tell you where we stand, what we do, and how we do it.
So the 6% is the first step in order to come then to the 6%-8%, and the clear target is to come to the upper range of 8% of the 6%-8% in the midterm. So what are we going to do? On the operating leverage side, we have basically two things. We have seen that, and that what I, what I mentioned already, we foresee a significant outperformance in terms of sales going forward. Secondly, we need to ensure that we are going to get our products priced at the right level. So we are going to very specifically discuss which products need to have a significant profitability hop up going forward.
The major part is going to come that our highly innovative products are going to come and going to ensure that the content per vehicle is going to grow within our organization. So we need to get more out of each customer. Operating leverage means for us, once we keep our costs under control, sales is going to grow and need to ensure that our operating leverage is significant growing, and that we are going to get significantly more EBIT out of every sales recorded, of every euro recorded more. Operational excellence. I were already describing that we have been hit hardest by the semicon crisis. We have had a significant amount of Premium Freight over the last years. We have set up huge projects during the semicon crisis, where we said: How do we source strategically different going forward?
What do we need to do different in order to ensure that we are never going to come back into that situation? We have set up partnerships on the semicon side. We have set up a significant machine in order to ensure that we are going to deliver the right, the right product at the right time. And we are very much convinced that with that, we are now and we do see all successes already this year, quite significantly. Premium freights are going to go down, and we know now how to manage our supply chain in order to ensure that premium freights are not going to go up again. And you might imagine, if you are in such a crisis as a plant, you have a significant pressure in many directions, and the first pressure is delivery.
We need to get back to improve the efficiency in all our plants. We have been the master of industrialization in the past, the 9%, and if you ask our customers, they always tell us, "You have been the best industrialization company in this world, in the automotive world." We do see that we are step by step getting back to that. That needs to bring us, not only in terms of scrap reduction, in terms of significant better productivity going forward, in reduction of labor and machine-depending costs, a significant jump forward. That's why we are increasing the manufacturing cost per unit, while also minimizing our obsolescence costs. That's the one part. That's the cost part. Having been in such a crisis, we have significantly accumulated inventory in order to ensure that our customers are not running short.
So we need to ensure that our inventory is going to go down, that our turn rates are going to go up, and we are very much convinced that we are going to be able to have 300 basis points, means the ratio of working capital to sales is, as a target, going to go down by 300 basis points. This is something where we already see the first signs in 2023, and where all projects have been put in place to see the next signs in 2024, and in 2025, we are going to have reduced our inventory quite significantly. Having less inventory, being more efficient, having better cost in place, we should and will also be able to significantly reduce our spendings rate.
So it means investments into line utilization should be minimized because we are going to be much more efficient. So we are going to have our spendings, our capital expenditure to sales significantly below 7% going forward. That's the target for the next five years. The fixed cost reduction program, which we call Accelerate, is something which we are working on since June, July. In June, we started, in July, we set up the teams, and you see here, we meanwhile have defined measures of EUR 400 million, which we are currently implementing step by step in order to ensure that we are going to have the run rate already in 2025 and have the costs reduced by EUR 400 million going forward. How and what are we going to do? We are going to reduce our organizational levels by at least two.
So we take out two management layers of our organization. We bundle activities. You have seen we go from six business areas to four business areas. We take out one overhead of one business area, and we are going to focus step by step, the organization into becoming a fast and agile organization going forward. We are streamlining processes. You might imagine being in such a crisis, you have had a lot of additional things to be done. Our processes have not geared towards fast and agile because of the crisis. But it's something which we are pulling back, and we are very much convinced, and as you can see here, we have meanwhile already defined EUR 400 million as measures which we are now putting in different degrees of implementation.
We have from DI 1 to DI 5, we are already at DI 3 with a major part of them. So they're going to come, they're going to start in 2024. We are going to see already a significant share of it in 2024 and the full extent then in 2025. And last but not least, we are a technology company. We are the system integrator of choice. We are a company which is able to deliver a significant share of different products. We have more than 50 product groups. We have more than 30,000 R&D engineers. I talked about 20,000 software engineers.
But going forward, and after we meanwhile implemented the change from an analog business to a digital business, having been coming now out of the crisis, needing to ensure that we on a very regular basis re-qualify our products, we do see a significant chance in also reducing our R&D cost to sales. How are we going to do that? I've shown to you that we have today 82 R&D locations within our network. We want to, and we have basically somewhat 450-500 R&D engineers per location. We want to increase that to 700 R&D guys per location. So we want to significantly increase the size of our R&D locations and reduce the number of locations we do have today.
By doing so, we ensure that we are working significantly better together and that we are able to leverage our different software capabilities significantly better. If you run big projects, you have meanwhile, in big software projects, 400-500 software engineers working on one project. Now, if you distribute that over 82 locations, you might imagine what a managerial effort we have behind it. Bringing all of it together, we do have a unique chance to significantly improve our costs and the quality of our products we deliver. And what we also want to do over the course of the next years is to increase our best-cost country share from 60% of all our engineers to 70% going forward. How are we going to do that? We are going to significantly grow in China....
We do see a significant chance in China to increase our share with Chinese OEMs, where we are currently have a significant business, but we do foresee that we have even more chances to grow in China, and by that, consolidate a significant amount of additional sales also in Asia. So the target is that we are going to go from 12% of sales in 2023, that is roughly our forecast, that we are going to go to a single-digit number in the midterm arena, and that we are going to be in the short-term arena already one percentage points better. So with this, we are foreseeing that we are going to be, in the midterm, a company which is between EUR 26 billion-EUR 29 billion sales, with a ROCE of above 20%.
As I said, it's in our hands, and this is very clear to the entire management team that we are going to make that, no? We are going to be at 6% short term, and the target is midterm to come to the upper end of our range. And if we do so, and all products, all projects, all machines are geared to that, we are going to reach 45% cash generation going forward. So we are going to create value. We are going to create value through market leadership, through our technology, and through a rigid and stringent cost reduction program. That's where we are looking for. We have a clear path to value creation, and we are a global company. We are in the market for the R market, and we will execute our three-pillar strategy to drive profitable growth going forward.
By that, we are very much convinced. We are not only going to be where we are, what we are promising today, but we will also drive the future of mobility with Continental Automotive. Thank you very much. With that, I hand over to my dear colleague, Katja.
The real CFO. Katja Dürrfeld, just to pick, just to pick it up from the beginning. Yeah, thank you, Philipp, for sharing the interesting and exciting insights into the new automotive strategy. Our team today has shared with you what we want to do and how exactly we're going to achieve that. And I will translate all of that in the next couple of minutes into a compelling business case for our group. But first of all, maybe there's some interest in the room, how we will end the year 2023. And I would like to take the chance to confirm, in principle, our midterm guidance for this year, but I would also like to take the chance to narrow some of the corridors a little bit for you.
Looking at ContiTech, we expect to end the year a little bit shy of EUR 7 billion in sales, with an adjusted EBIT margin on the top end of the corridor, closer to the 7%. On the tire side, already indicated during our Q3 presentations and the Q3 call, that we had significant headwind in the markets from the pure volume on the replacement side. Due to that, we will probably end the year around EUR 40 billion, even if the weather currently looks a little bit like some help on the sales side. On the profitability side, you will be happy to hear that most probably we will end the year with a 13% . Last but not least, coming to Automotive.
Also here, I indicated during the Q3 that we will probably have the sales at rather the lower end of the guidance, too, which will bring us to around EUR 20 billion in sales, and you should expect the profitability to be around 2% at year-end. In the past years, two years, in fact, I had the chance to meet a lot of you in person on different conferences or in different occasions, and I've listened a lot to the feedback that I've received from all of you during that time. Therefore, I would like to inform you that in our era of execution, we will expand the visibility and the level of disclosure that we will provide to you going forward. We will regularly report on our measures and the progress we've made.
We have provided you not only with a new midterm guidance, but we've also provided you with a clear short-term milestone that we work on to achieve. Going forward now a little bit deeper into the figures, just let me remind you on one thing: all the figures that we will see now on the slides going forward are without any effects from our portfolio measures that my colleagues, Philipp and Philip, have told you before. Yeah, just to make that clear. Starting with the top line. Our top line is influenced by the market development, and what you do see here in the development is that we expect to outperform our relevant markets in all three sectors. This will bring us short term to a top line of EUR 44 billion-EUR 48 billion on group level, and midterm to EUR 51 billion-EUR 56 billion.
Just keep it in mind, without any portfolio measures. But how does this top-line growth translate into profitability? And here, the bridges come back into place. You've heard from all my, my colleagues that all three sectors will contribute to the bottom-line development going forward. Tires will provide the stability to the group, and ContiTech and Automotive will continue to improve gradually over the short and midterm time. Short term, our group profitability will hit the lower end of our midterm guidance and be above 8%, with all three sectors being in the profitability range. Midterm, we will be at 8%-11% on group level, and you've seen from Christian that he has increased his midterm guidance from 12%-16% up to 13%-16%. But where does all this profitability improvement come from? Does it come from the markets?
No, it does not. And you can also see that here clearly in our, in our bridges, yeah? So it's not the market that helps us, so what else will help? It will be ourselves. We have to roll up our sleeves and help ourselves. Top-end technology is a key, and this top technology, we will make sure that we price it adequately. So we will work on our commercial excellence programs in all areas. Margin matters. And we've demonstrated during the course of the last two years that we are able to do that. Our technology is highly valued by our customers, and with the negotiations that we've been through during the past two years, we still were able to record a record order intake, despite that fact. But it's not only on the commercial excellence side.
The great technology that we have on hand in all our three sectors allows us to outperform in our targeted profit pools everywhere. Then talking about operational excellence, I think all of my colleagues have touched that topic clearly. On the operational excellence, it is really key that we manage our fixed costs in a very strict and stringent way. We want to become lean, agile, and effective. But it's not only the fixed cost on the administration side that we're talking about. Also, when we talk about operating leverage, we were hit really hard by all the disruptions in the supply chain during the course of the last years. And Philip has mentioned special freights, for example. Looking back into 2021, we had special freights in automotive of more than EUR 200 million.
2023, we were also above EUR 200 million with regards to special freights. For this year, I can already tell you that we bring that down to a small three-digit million number in special freights, but you see, there is more to come. There is more potential, clear potential out there. And just imagine what all these disruptions in the supply chain have done to our profitability and our operating leverage in the plants. Getting the supply chain back under control, having it stabilized, also partially with elevated working capital, is exactly what will help us to improve also on the operating leverage in our plants. Next topic, footprint rightsizing. Philip has mentioned that. Here we talk, for example, about the footprint rightsizing in our regarding our R&D locations.
We have 82 R&D locations at the moment in automotive, and we're working on consolidating them, bringing more efficiency, more effectiveness, and a lower cost level for the R&D. You might have realized that I've not mentioned our Transformation 2019-2029 program anymore. In 2019, we have announced that we will generate EUR 850 million in gross savings from that program. Today, I'm happy to report that by the end of 2023, we will already have achieved EUR 700 million in gross savings from this program, out of which EUR 500 million are directly attributable to automotive. The remaining EUR 150 million will be generated through next year through a continuous rightsizing of the still existing plants in automotive. For us, this program is more or less come to an end.
This is why from now on, I will continue to report to you on our new self-help program with net savings going forward, and I will provide you with periodic updates on the achievements that we have made. So now that we've shown you how we will generate more profitability for the group, let me talk a little bit more about the effective value creation. So how do we boost value creation now in Continental? The group, as a whole, and I personally will make sure that we allocate our capital most effectively within this group. When financing operations, I heard a lot of times the fear that we would finance the growth in automotive on the back of our tires, of our tires business. Please be ensured, we don't do that.
We evaluate each and every investment clearly and carefully based on an IRR calculation, trying to make sure that every investment we make pays into our financial ambitions and into our strategy. Talking about the strategy, you've heard that we are conducting portfolio reviews, you've heard that we've just taken decisions to carve out businesses. We will need to use some of the funds to finance the carve-out of the businesses. Another topic that you can allocate your capital on is mergers and acquisitions. You've heard some ambitions on mergers and acquisitions in one of our sectors, and be sure that we will continuously evaluate potential opportunities, and if there's a strategic fit for Continental, we will still act on it.
Looking here, that is something that I'm really proud of as, for Continental, and this is also something that we've been known for over the past couple of years. We do have a very solid balance sheet, and be assured that we have a clear commitment to keep it that way. Yeah. Even if our debt level has slightly increased due to the elevated level, working capital levels that we have, we don't see that to stay an issue in the near terms. Talking about value creation, we also need to talk about the total shareholder return, and this is where I would like to spend some minutes on the topic of dividends. We've decided to update our dividend policy for Continental.
Over the past 10 years, we've always paid at the upper end of our former, of our former dividend policy, which ranged from 15%-30%. Now, we've decided to elevate this, this corridor from 20%-40%. We've also, in previous years, last year, for example, decided to adjust the net income after tax through specific non-cash relevant items, and we'll continue to seek that opportunity, too. So what we've done is we've taken these two effects and decided to update the policy to also give a clear guidance to you on what to expect with us in the future. There's something else that I'm pretty proud of when I look at Continental, and this is our continuous investment-grade rating. And please be assured that our commitment as a team is to keep that rating at a BBB or BBB+ level in the midterm.
To do that, we are also committed to keep the gearing ratio of below 40% and to have an equity ratio of more than 30%. This is our commitment. Now I would like to take the chance. I've promised you some more disclosures and some more details than what you have received in the past, and this is one of the slides where you can definitely see that. For the first time, we've broken down our midterm expectations on capital expenditure on sector level. We expect for ContiTech to be at between 4% and 5% of CapEx, Tires, 7%-8%, and Automotive, 6%-7%. In total, this brings us to a midterm target on capital expenditure between 6% and 7%.
And by the way, addressing the Tires, financing the others, Tires has the highest CapEx, which means we continuously invest into our profitable Tires business, not only on expansion, but also on continuous mix improvement, which is so crucial for the profitability of this business. What we've also added is a figure on cash generation per sector. Yeah. You see that there's quite some variety in this figure between forty—more than 45% in Automotive and more than 65% in ContiTech. We calculate this figure by taking the EBITDA, deducting the CapEx, and putting it into relation to the EBITDA. This should provide you with an idea how strong the cash generation is in our individual sectors. Those three together still form our midterm target of having a cash conversion on group level of more than 70%.
So to bring it all together, I've provided you with a slide with a lot of figures, but instead of reading them all out to you now, let me maybe highlight the one or the other figure that is very relevant for the individual sector. Looking at ContiTech, for example, ContiTech will bring the Adjusted EBIT Margin already short term above 9%, so within the, over the, lower end of our midterm guidance. ContiTech will provide the strongest cash generation in the group midterm, with more than 65%. Looking at Tires. In Tires, we will already also be in the level of our midterm guidance, with regards to profitability short term. Tires will provide the highest return on capital employed in the group continuously, and will be at a cash generation of more than 60%.
Talking about Automotive, already short term, we will get into our guidance corridor by hitting more than 6% return on sales adjusted on the short term. We have improved and increased our expectation on return on capital employed for Automotive, and we've increased our outperformance guidance from 2%-4%, as we had it before, up to 3%-5%. For the first time, we are giving you a short-term and a midterm target on R&D and percent of sales, which will be at around 11% short term and which will be in a high single-digit number in the midterm. So how does that look like on group level? Top line will short term come to EUR 44 billion-EUR 48 billion, midterm to EUR 51 billion-EUR 56 billion.
We will also, on group level, be in the range of our midterm guidance and hit more than 8% already short term. Our return on capital employed will be above 15% short term and above 20% midterm, and our cash conversion ratio will be better than 70% near and short term- short and long short and midterm. For modeling purposes, please, anticipate a tax rate of around 27% to be considered. So all that, at least to me, looks like a pretty compelling business case on group level. Over the past 3 years, we've worked really hard, and we've laid the foundation. We've sharpened our capital allocation concept, and we've built a committed and financially driven organization, as you've seen it here.
So, as the CFO of this group, what could be more exciting for me than to welcome all of you to Continental's era of execution? Continental is on the move. This year, we've shown you our technology at the Tech Day. We've shown you today where we want to go and how exactly we all are going to get there. We, as a group, are ready to create value for a better tomorrow, powered with the passion of our people. Thank you very much for being here with us today, and I would like to hand over to Anna, who will moderate our Q&A session. Thank you very much.
Thank you, Katja. We will do the Q&A session in just about a minute. Just give us the opportunity to rearrange the stage. We'll be back in one minute.
... Okay, so welcome back, and we're gonna jump right into the Q&A. Oh, my God! Okay, I'm seeing lots of, lots of hands. Let me just do the logistics first. And lovely to see that even in three hours, we could not answer all of your questions. We have three charming ladies in the room with mics. And we're gonna try to keep an order. Make sure you speak in the mic, and you could enormously help us if you ask one question, allow for the answer, keep on the mic, ask a second question, and then pass it on as you go. I'm gonna start over there 'cause Rachel is standing next to Tim. So Tim, why don't you start?
Thank you, Anna. Thank you, Rachel. Tim from Deutsche Bank. Thank you for today. I think. Can I just say that you guys come across as a very energetic and great team that works very well together, and you talked about net savings, which is already by itself a great success. Now, let's come to three questions. You spoke a lot about accountability today, all of you guys did. Accountability, short and midterm. Short term means two to three years, midterm means four to five years. How should we hold you accountable?
Yeah.
two to three and 3-5, Tim.
Then maybe to Niko, Katja, or Philipp on automotive, two questions. I think absolutely key is here to convince us about the self-help case. We've heard that many times before already. Diana, we spoke many times about your personnel reduction program that lasted for so many years, which for a lot of us was a bit difficult to understand in a very cyclical industry. Now, that's great with a net savings target, but how can we get conviction in the self-help story? Have you really changed your order intake strategy? Do we see quarterly progress on this? Will it be rather something that we see by 2025, 2026, to suddenly kick in? How is there more confidence possible? And then I have one final question afterwards.
Maybe I start and then I hand over to Philipp-
Yes.
because this is what I tried as well to explain at the beginning in my charts, where I spent some time to look on the past. So what have we done in the last, in particular, the few years, once in this area, I managed as well automotive, you know, I had my two heads. This was exactly the time where we had all the headwinds from the market, and at the same time, we had to develop our new order intake, which we had. We've been very busy with semiconductors. We developed the complexity, the new products coming in, so the whole organization was busy. At the same time, we were developing already on the product, on the projects. We developed, and we started an R&D excellence project already before.
We prepared everything, and now the organization, after turning out of all those crises, is now exactly at the point where it can execute them and where we can see. We collected everything all the time, and we are now in a position to execute. There, I hand over to Philipp, who has done this analytics. He joined at the beginning of 2022, automotive, January first, so he led the business area UX, so he had all the insights, you know, that gathered until he's now responsible to execute it.
Yeah, Tim, I think, I mean, we need to regularly report on that, there's no doubt. I mean, that we need to do anyhow, yeah? We have, as I tried to show, already a lot of measures in place. We have an organization where we can take out significant layers with significant amount of people. So we are in the process of starting the discussion with the respective social partners. The measures have been defined. We have also given out a target number, where we say in the mid-four-digit number, we need to cut out of SG&A. And I think that's a given fact. I mean, this is going to come.
On the R&D side, we have, as Niko just explained, we do have—we, we are, we are in the—we have been starting the transformation to analog, from analog to digital. This is what's now going to come and which we are now rolling forward. We can now start to leverage on the expertise which we gained. We have modules developed, which we use in new products and new projects. And that also means we need then to consolidate respective teams in order to ensure that this has also been lived. And there we are also, we have an R&D excellence program, which runs for one and a half years meanwhile, which is, which can now take on really pace because we are—we feel we are out of the crisis, yeah? And that's, I think, the important part.
That's now the time where we are able to execute on all these additional topics, which we have been doing over the past years.
Philipp, can I just add on this? Because you said it took a while, you know, it, you know... Katja just told us within four years, you know, we delivered nearly 80% what we promised, and this in particular with Germany. None of all of our competitors did such a hard restructuring than we did, with so many plant closures, you know, factories, including also Europe, like, you know, France, Belgium, Portugal, Spain, you name it. So I think it went quite smooth and less costly than competitors. We know this also. So I think it was not too bad, and we will continue, as Philipp said. Yes, you can see we are doing it without headlines. You know, we're doing it, you know, as soon as possible, and we will deliver as we did in the past.
... and maybe just to answer one of the last questions the first question you had, in fact, if we've changed something about the order intake strategy, yeah? I think this is also what Philipp has described quite clearly, that the pure growth or the pure volume is not as decisive as the focus on value creation. And this is what is also displayed in our order intake strategy. This is also why we say we do selective order intakes, to make sure whatever we take on board really pays into our midterm targets and our strategy.
We have the resources to do it.
We have the resources to do it.
May I add to that?
Sorry. Sorry, I see you pick it up.
We see a board meeting right now.
Yeah. It's like-
Because we set clear targets in doing the acquisition process. Where clear KPIs, which need to be fulfilled in order to be allowed to acquire new business. And I said, we need to change into a value-driven company, no? I mean, I have been working 10 years in tires, and value creation is the point and the strategy you need to fulfill, no? That's what we're also doing now in all directions in the automotive part.
Last question from my side, then. That's on the portfolio management then, in automotive. I remember various strategic review rounds of powertrain before Vitesco actually happened. You told us that years before-
Mm-hmm.
that it finally went ahead. I also remember that, Philipp, I already discussed with Mr. Degenhart about the disposal of the automotive assets within ContiTech that is now being discussed. That's a couple of years ago, even, Niko, before you took the job, right? So, what sort of timeline have you set yourself for these portfolio management reviews? Will all of that be done within the short term, that we have just quantified as two to three years, or is some of that vaguely at some point in the future-
Oh.
or continuous process?
I think short term is a very good horizon. It is not so easy, and we are a very... We have a network, yeah, where we were really driving efficiency going forward. To entangle, detangle, this is not so easy, but short term is a very good horizon you can take.
You've seen it on the ContiTech side, 2025. So we started now the process, which is within the short-term horizon, and same holds true. Integrated was the name which you were missing, right? We are very integrated.
Integrated, yeah.
We've always integrated new acquisitions, very much driven under synergetic points of view. This is why carving out takes time.
Thank you very much.
I can really confirm. I mean, I said, the project is set up.
Yeah.
We are working on it, and we will be ready in 2025 to discuss also on the ContiTech side, all strategic options that are out there, like in Philipp's case, from a total sale to a joint venture or however a strategic option looks like. Not decided today, but we'll be ready in 2025.
We just closed our negotiation with the reps regarding reducing by half, you know, 800 people again in ContiTech hose.
True. Thank you.
Thank you, Tim, and just pass it over to Sanjay, and then we go to course for that table. Thank you.
Thank you for taking my question also. Sanjay Bhagwani from Citi. I've got three questions as well. So first one is like... I mean, a very quick math tells me that you are guiding for somewhere around 500 basis points of margin expansion in short term, which I think you're saying is two to three years. So how should we think of the path of this? Is it more likely to be linear? I know you are not guiding for 2024, but yeah. Does the execution start here and now, that we start to see the benefits from 2024? Or this could be more of a back-end loaded, if you can provide some color on that, please.
I think I already told you in the lunch break that I will not do any guidance for 2024 at this point in time.
Mm-hmm.
But when you've listened to Philipp's Vortrag, to Philipp's presentation-
Speech
... to Philipp's presentation, and you also saw, for example, the bridge with regards to the cost-saving program Accelerate. There you saw that we even already had a very short portion in implementation at the moment. So you should not expect that to be a fully loaded at the end program, but that you will already see effects during the course of next year.
We start immediately with the-
Yeah
... measures. Whether they are fully linear or a little bit, that depends, obviously, on the execution speed.
Yeah.
But we have nothing to lose. I mean, we need to.
Yeah.
We are fully committed to apply that speed.
Thank you. So it looks like a reasonable margin expansion next year as well. And my second question is on the organic growth outperformance. It's good to see that you finally upgraded the guidance for that. So if you can please, I mean, if you can please provide color on this, what drove this? And what gives you confidence that for the next, each of the years, I suppose, in the short term, you outperform the automotive production by 300-500 basis points? Is it the content where you actually have a very high visibility, or it's also a function of renegotiating the contracts? If you can provide some color on that, please.
Yeah. We, as we said, we have—as I explained to you, we have had a huge order in book at the beginning of this decade, which is now running into production. So the transformation from analog to digital is one part, and of course, I mean, the smaller part of it is going to be what we call on the commercial excellence side. But this is also something which we need to make very clear, that products which we now going to be, to ramp up, are needing to be at the right price level in order to ensure that we are also going to be profitable.
So this is one part, but the by far major part is because of the fact that now new project can kick in, new products are going to be launched, which shall help us to be significantly above the underlying markets.
Thank you, and the final one on this, EUR 1.4 billion of additional revenue, what products does it include? And, when do we hear on that, the outcome of that, please?
... So this is, these are different product groups, which we are going to review now and going to start deal with going forward. We do not want to disclose now what it is. We want to announce once we have something done, and then not to overcommit and under-deliver, we really, really want to. We are now starting to analyze also there, the carve-out necessities and what needs to be done in order to be clearly ahead of the market, and then ensuring that this is going to be executed on short, on, within the short-term period.
So it's a bundle of several businesses, and it is a bundle, and knowing Philipp, it's not a static bundle. We will work on this. We will continue the portfolio management process so it can change: something can go in, something can go out. That's why we don't specifically, as well due to the size, report on the individuals, but once we are having more actions going forward, we report on that.
Thank you. That's very-
Thank you, Sanjay. If you could pass that to Horst, or maybe Yara, you can give it... Thank you so much.
Yeah. Thank you for taking also my questions. It's Horst from Bank of America. Maybe a question for Niko. In the press, we were reading a lot of gossip the last, I don't know, three, four months probably. And it was always said you've have been a big fan of disposing automotive completely. So therefore, my first question would be to you: why focusing on selective disposals? Why not directly saying, "Okay, we separate the group because there are not much synergies between tires and automotive. We have got then two companies on the market, or we dispose automotive." Why not that solution?
So yeah, first of all, unfortunately, there have been lots of rumors left and right. But as you know, you have the right contact partners, you can ask what our strategy is, and it's still the same. We do very objectively our strategic reviews. We did this for the company, for automotive as a whole, for all options there as well, individually within automotive. And within the strategic review, we came to the result that we are truly convinced to leverage all the potential which we see, and we believe in the potential in automotive, and the upside which we can grasp, and the value which we can capture, that in the current configuration, as well, being responsible for automotive, being the owner, we see that we are the best owner to drive that upside. That's why we decided we continue in the current configuration.
We see the best value crystallization in what Philipp has shown, 25% of the portfolio, which is under change, which we look thoroughly into, we execute. The other areas which have system relevance itself, which are communicating businesses, which we believe we can make stronger than having them physically stand alone within the automotive area. This is the best measure to crystallize the value, so we have decided against it. However, market is dynamic. We are dynamic. Moments are dynamic. We will constantly review this decision, whether it's still the best one.
That would have been exactly my next question. Is it stone or not? But obviously not. Okay. Then on the disposals, because I realize again and again, then it's about carve-outs. Carve-outs take time. I can imagine it's difficult to dispose businesses as long as the carve-out is not finished. So that means we should expect really the first significant disposals only probably in 2025, maybe only in 2026. Is that the right reading or?
Yeah, I guess Philipp answered that question already before the short term, which is-
It holds also true for ContiTech, of course.
Yeah, short term.
ContiTech, we said 2025. The business is independent. So however we can start, obviously, you need to have a certain readiness-
Mm-hmm
... of carve-out. However, you can start already before to test the market and see which option is the best one. But the time to finalize it must be in a shorter horizon. You're absolutely right.
Mm-hmm.
In the short-term horizon, we are working on our speed.
Yes.
Who knows Philipp? He's a fast guy. He will push this forward. On the group side, as I said, we will push as well in order to-
Yeah.
... take speedy, to set the boundaries, that we can be faster than we have been as well in the past, to create the right flexibility for the organization.
Okay. Then the next question is, then on the target that includes still the businesses, which could be maybe disposed. So what is the upside then, potentially coming from the structure, which is 25% of the business and automotive not anymore in? Is, what is the margin upside from that? When we say now, I think that refers then more to the midterm targets, sorry, to 6%-8%. So could it be without the disposals or with the disposals then, could it be even more than that? Or the 6%-8% is more, or can be realized just with the disposals? That's the question. Maybe a little bit complicated. Sorry.
No, your, your question is clear. And, and I start with a general question, then Katja will come with a more financial answer. So as we diluted, both Philipp and myself, you have the two different buckets. The one part was clearly industrial logic on the technical side. User Experience is a great business. We have a strong order intake, we have a strong market position, it's a profitable business going forward. The reason to go for a best ownership review and see whether there's a better owner out there, is the system relevance within Conti. The other bucket, the one of the half-- one of, of half, is clearly on the profitability side. We see currently that... Or we have doubts, that we have the potential to operate those on benchmark marg- on benchmark margins, and many of them, they are as well in the red zone, losing money.
It means everything, improving them, including as well a potential disposal, would improve the overall profitability. Those are businesses which are diluting our margin currently, and would as well dilute our margin on the short term going forward.
... and do dilute the margin in the midterm guidance that we've laid out, because I reassured that, all that we've laid out here as financial targets on the midterm horizon does not include any portfolio measures.
Mm-hmm.
Taking what Niko said, you could expect an improvement as soon as we've taken decisions on how to drive the EUR 1.4 billion in sales further.
Mm-hmm.
At the very last question... how do you motivate, how do you motivate the employees which are now up for disposal? I could imagine that is a major business risk or not. If I was an employee now in one of the units that should get disposed-
Horst, look at Vitesco.
That's what I want-
Look at Vitesco.
Look at Vitesco, yeah.
What we did.
It's a success story.
We worked hard, and I always say, I worked my butt off in order to make this company successful once we spun it off. I mean, it's a family member-
Yeah
which left the company, but we did everything to make out of this a great company. It really developed nicely.
Yeah.
It developed nicely. The future has come now differently than at that point of time, but it doesn't matter. We really managed it nicely, and people as well, inside as well as outside the company, they have seen there's nothing bad with it. Once a company decides and says: We are not the best, there must be a better owner. In this case, it was a spin-off where we said, "You are. Be your own owner, get your own investors, drive your story.
They've done it.
We will create value. Fair bit. That's under those decisions, we will take it. It's value for the company, but as well, and values for customers and employees. We are looking in all of that, and that will motivate people. At the beginning, change is difficult. We all know that. Ooh, what happens? But once you get in and they really understand, and Vitesco is a great example, that it can be a motivating part.
It always comes down to leadership, Horst, you know. Leadership means direction, energy, and I think if you can convince people, you know, that this is, you know, a very exciting path and adventure, which also pays off for themselves, and we have this good example, like Niko said, with Vitesco, I think you can motivate people.
Mm-hmm.
And, it will be possible. We just proved, proved it already.
Okay, good luck.
Thank you, Horst. Horst, if you could just give it to your neighbor, Thomas. Thank you.
Thank you very much. It's Thomas at Kepler Cheuvreux. I'll start with question on automotive, please. Can you give us a bit more granularity on the future car data assets? So, I mean, we are going to end up, if I understood correctly, with four new business units you're going to keep, plus one you want to eventually separate. Is it thinkable to have, for 2023, a bit more details on each of these business units? And when we move forward, an ability to kind of understand the bridge, because basically, I mean, I'm one of the old guys now in this assembly.
I've been looking at Conti for more, almost 25 years, and I'm a bit lost with the last lack of history on these businesses. So it was a bit easier to understand and to grasp these businesses when we knew-
Sorry for that.
What was inside. No, it's fine. Obviously, it's good to see you change, but basically, for us, it's a bit like a French company called Valeo, black box. So we'd love to be able to understand. So right now, can you give us a bit more information about UX revenues and adjusted EBIT for 2023 as the rough indication? That's the first question.
I would say in principle, Thomas, you know that we are providing you with a, sometimes with an update on profitability on business area level. We've done that for 2021, and we've also done that for 2022, and we will also provide you with an update at a certain point in time. So you will get it, but not as of today.
Okay.
For the EUR 1.4 billion, I think we've already expressed that we will not break that down into individual businesses. This is not just one business area, Thomas. Yeah, these are product groups that we are looking at. Yeah. So, therefore, I'm sorry, I cannot provide that.
Yeah, but what we can say is that on the bridge-
Sales
Of automotive, you have seen the different indications of the different business areas.
That is true.
Yeah.
Mm.
UX is a profitable business?
Yeah.
We have-
Exactly
... increased as well, the profitability. However, I guess that goes farther, your question, how is the individual business areas looking like? This is exactly one something where we need the spotlight on. After the capital market, as I said, really to look, how is the structure looking later on? I mean, Philip has diluted on the outperformance of the different areas, of the four business—well, the five-
Five
... let's put it that way, even on six, but then later on it will get less. But yeah, underneath the 1s, this is clearly what we can do in the spotlights, and then going as well deeper because the business areas itself have as well, drivers underneath in order to drive that forward.
So maybe what I meant, if I wasn't clear, is maybe we could have 2022 or 2022 and 2023 revenues and adjusted EBIT for each of the new four business units. It would give us the impression that we can-
Ah
... start understanding what's going on. But just an analyst point. Two other analyst questions. Can you help us understanding how much you're purchasing in terms of electronic components in automotive? Because I think that's probably one of the areas where you can save money and keep that money after being hit by that over the last few years. And remind us as well, in automotive, your combined exposure to BYD and Tesla, because I think on the Q3 call, you gave us your exposure to the Chinese automakers, but not to these two winning companies today. Thank you.
Oh, maybe.
Mm.
Maybe you talk on the purchasing volume, and I talk about BYD and Tesla.
I can also talk about BYD and Tesla.
Don't you talk about BYD?
Let's start with this.
Yeah.
Let's start with BYD, look, maybe. What we do see is... I mean, you have mentioned the two OEMs, which have a very high vertical integration, and specifically in products which we deliver.
... So for us, the reachable market share within these two companies is limited compared to other companies. But looking into BYD, this is not the fact in China as it is, as it is entirety, no? There are lots and lots of Chinese OEMs we do very good business with, and where we do see a huge potential to expand our exposure there. And that's where we foresee to grow, specifically in China. And I mean, we will see once BYD is also searching for partners like us, being a huge tier one, supporting them in developing their business. Same applies to Tesla, no? And-
Coming to the purch-
Oh, sorry.
Yeah, to the purchase volume. I mean, you could see in the last two years, we had, give or take, EUR 1 billion additional headwind from the material cost side and automotive, and the most part of that is electronics. That gives you an idea how much it was grown over the last two years, and that gives you an idea what the potential could be if, and that's what your question suggests, this market is going flat, or there may be slightly some downwards trend going forward.
Mm.
For the time being, clearly, we see that there are still other inflationary tendencies and other product groups are coming up, so we still don't guide for 2024. Don't get that wrong. But the expectation that this market changes substantially remains to be seen. But again, we had the highest impact on the headwind, so once it goes in the other direction, we should see this as well. But we're aware our automotive and our customers, they will ask as well for a fair pricing in the other way, which is fair enough. So we have been very open in our increases and worked in partnership with the OEMs. Obviously, once it goes in the other direction, they will ask us as well for a fair share when it should go in that direction.
Thank you. I have one last question, please. Autonomous mobility is a loss-making business for the time being. Can you explain us why? Because a French company, for once, is doing better than you, at least optically on an EB-
Oh, they are good French companies.
No, no. Valeo is doing a bit better. I think it's broadly breakeven. So it's unusual and surprising. Can you explain why you are losing money, and what the path to a breakeven or profitability in that segment? Thank you very much.
Yeah. I mean, we have, just three years ago, initiated the program, Phoenix, which we-- where we, by intention, invested into R&D capacity, three to two hundred to three hundred and fifty million euro each and every year. So this comes on top of the regular R&D investments, and by that, we wanted to expand our businesses going also in different arenas and having more products available within the autonomous mobility area. And we are successful. You have seen that we are-- we managed to acquire Aurora as a huge partner. The problem is that many of these businesses, which we now acquire, comes only in 2028, 2027-2028. So it's a significant front loading, which we need to do.
That into R&D cost, that's also a reason why we have such high R&D costs. Managing down our R&D cost to a single-digit number means we are going to grow our AM business, and we are going to reduce then the R&D cost, which came in addition over the course of the last years.
We are very competitive, components there, ADAS, which we started, so the answer is clear. As Philipp said, it's the R&D side, where we had very complex projects, which we are managing and which we have to work down over the time in order to get more efficient and more effective with all the learnings which we have implemented. So it's an R&D game.
Thank you very much.
Okay, a hand raised. Okay, can we have a mic at the front here for Giulio, maybe? Thank you. Thank you, Giulio.
Hi, thanks. Just following up on the autonomous driving. I mean, you've done a review of every business, and you have decided that autonomous driving is a core business for you, and you are the best owner of this business. Now, this is the most competitive part of what you do, effectively, because it's so fast-moving, fast-changing. You had to step up R&D. What, what is the process behind this decision? Well, because, I mean, I guess opening up the capital of this business to an external partner or looking for- to, to work more closely with other partners could have been an option that could have given you maybe a bit of a head start instead of waiting until 2027, 2028.
I mean, you have seen. I mean, we have decided already to carve it out. That has—this decision has been taken one and a half to two years ago, and we are pursuing this carve-out. And what we have seen, and what I've tried to explain, is that this is one core of the software-defined vehicle, no? If we compare hardware with intelligent software, then autonomous mobility is one of the centerpieces which we are driving forward. Are we going to say—I mean, as Niko said, the world is developing. If we do see that we are going to have the necessity to either expand or to find the right partner, and changes and market environment is changing, then we are at least already prepared.
But for the time being, we do see that we are the best owner of autonomous mobility, and that there are huge chances ahead of us, which we are very much convinced we can grab, also being in the position we are in today.
Decisions of the partners which we took is already going in a direction. Horizon Robotics in China, the Aurora case, Ambarella on the chip side, and Verima model, this is all gaining speed, gaining competence in mitigating risks. So this is clear, and we will pursue wherever we see that the partner fits in a combination technology agreement, it's all perfect. With Aurora, it's even deeper. We are together in a clear business combination there, driving this automated driving. I mean, we are open for that going forward and check the market wherever that can help us.
Yeah, and actually following up on this, the Ambarella partnership, I know maybe this, this is not the time for that, but can you maybe give us an update on where do you currently stand? Is there any progress on when you think you're starting commercialization, order intake, interest for-
Yeah.
Maybe some anecdotes-
Mm-hmm
... on interest from partners or anything?
Yeah, we have developed our partnership further. We make step by step, we improve our system, and we are in several acquisition processes to gain the first order. This is something which is now in process, and we do foresee that we are going to be next year at the right level in order to have then also the first orders in place, specifically.
One order we have already, Philipp.
One we have, yeah, but.
Our Aurora is running on our Ambarella-
Aurora is running on-
You already forget. Forgot
... On the fallback system. It's running on Ambarella chip, but to have the big
On the PaaS side.
On the PaaS side, a big contract, that's something which we expect in the second half of next year.
Second half of next year.
Yeah.
Perfect. Thank you.
If you just make us a sign, we'll make sure that the mic is coming to you. I'm seeing you, Horst.
Go, yeah.
Okay, if no one else, go ahead.
Oh, okay. Thank you.
Yeah.
Less strategic question maybe, and I don't expect you to give a guidance on 2024. But,
But you have to.
But you ask still.
I mean, when we discuss outlook with OEM before, we get always the guidance, negative unit costs. So they have got also labor cost burden, of course, but we always get the impression there continue to be additional compensations for suppliers because you are also faced with labor cost increases. To what extent you still expect extra compensation next year? Is that anything that we can hope for or it's finally done now with 2023?
Sure.
I would say we told you that there's still a lot of moving parts at the moment when talking about 2024 and what to expect in the markets. For some areas, we do have a pretty good good view at the moment. For example, when you think about labor cost increases for Germany, yeah, there the agreements with the unions are clearly laid out. We have two relevant unions for us here in Germany, which is the IG BCE and the IG Metall. Yeah. So these costs are clearly are clear to us. We're still on the purchasing side, we have moving parts. We see in some areas, we still see cost increases.
For example, now coming back in, on the rubber side, for example, we do see that some chip families, which will still continue to be shorter, still show potential price increases, while in some other areas, we see—we do see other effects. We will take all that into consideration, then come up with an idea if we expect inflationary headwinds to continue for next year, and then we will also tell you what we will discuss with our customers.
For sure, there will be intense discussions again.
Yeah.
For both sides, with different expectations, different interests, we are used to this. I mentioned this, since 2020, we have negotiations where, like we never had before. So we have a robust organization to do this, and we will find solutions with the OEMs, I'm sure. And on the other side, we have to increase our productivity. We have to get stronger. We have to work on our costs, otherwise it will not work. So what we are not getting absorbed by our customers, we have to absorb on our own.
But at least you still talk to them, so
Yeah, yeah.
Daily.
Or you discuss the pricing-
We still talk to them.
... Of course, you talk to your customer, but you still discuss the pricing every year.
I think, Horst-
Absolutely.
Philipp also mentioned that we are also talking about repricing our top technology, where there is a need for repricing.
Yeah. Okay. If I can, another question on this outperformance target, 3%-5%. I think, I mean, at least from an analyst perspective, this is the component which is basically the hardest to forecast. Because we don't-- of course, we do not know what, what assumptions are behind that, right? So we just see your customer exposure, which is Volkswagen, which is, Renault, Nissan, Mitsubishi, amongst the top customers. As... I don't know, the belief, for example, in a carmaker like Volkswagen is not that strong. Let me put it that way. That they win market share or that the PPE Platform gonna be a big success. So what assumptions do you take if you now guide for 3%-4% outperformance? And it's a standard question.
You get numbers from the OEM, you need to take a discount, but how do you handle that? Do you work in your expectations as well, that the legacy OEMs, they lose market share, and nevertheless, you can outgrow the market? Is that your view, or what's the view?
I mean, first of all... You can, yeah, go ahead.
No, no. I just thought if Philipp would want to take it or
No, go ahead. We had an order book of book-to-bill. You could see over time, that's what you are doing, 1 to 1 to 3. We had roughly, so which is even ahead of the 3%-5% outperformance, and we look permanently, how do those orders translate? That's what you do as well for business going forward. So, yes, we are doing assumptions on this. Obviously, we have to see how successful we are and how we have to take our assumptions. Nobody knows exactly how the market will develop, how successful which customer is, so we have to take certain assumptions. Looking on as well, our order intake, we are getting more balanced.
We are still underexposed in China, but we see that over time, we mirror more the market, so we are having a higher book-to-bill with Chinese OEMs than with the legacy OEMs in those markets, and we are still successful, but farther successful in balancing our portfolio. How that farther continues, maybe Philipp can add to this. Obviously, we see both parts, executing our business and making the assumptions and balancing our portfolio more, where we see the future will bring more. But it is a constant look into it, but we see from the order book, which we have, with the buffer, with the customer base, which we see, which we assume, we are getting to a solid outperformance of three to five. That's the-
Right. That's how we would.
Thank you, Horst.
Thank you.
Can you pass it over to Stefan, and then we go back to Thomas?
Stefan Burgstaller asked me. I guess, Christian, it should be a compliment that there are not a lot of tire questions.
It's okay for me.
But I wanted to ask a few-
Keep him busy.
The first one is on the M&A strategy that you outlined. Can you give us a little bit more detail of what you're looking for in terms of size? What attributes? Are you looking to buy capacity, brands, and how would you integrate a potential business into the group? And then I'll fire the second one as well, if I may. Can you give us a little bit of an update on where you see the tire cycle? It seems like the destocking has come quite a long way. When we look at the miles driven, they haven't really changed that dramatically. Do you have some confidence that 2024 can be a year of growth for the industry?
Okay. So first, on the M&A side, I mean, first and foremost, everything we do would need to make financial sense. You have seen some consolidations, you have seen some acquisitions which have taken place, where, I mean, the prices which have been paid are difficult to, I think, justify, to be honest. So, we need to look at every opportunity. I mean, the space is, let me say, limited. You don't have hundreds of potentials. I mean, looking into what makes sense, we don't need technology, we don't need a brand. We would look into two areas, which would be interesting for us. One, a regional view, so focusing on Asia, America was the second priority, and two is more a product view.
I mean, we are very strong on the passenger and car, passenger and light truck tire side. We are relatively strong on the truck tire side, but we are very weak on the commercial specialty tire side. So the most interested parts would be an M&A target, which would help us in these two aspects. So regional approach, focusing on Asia, or product approach, looking into specialty tires. I mean, if you can get then an existing business with a good technology and a good manufacturing footprint, that would be obviously a dream. But also other options, and you know that we have done this in the past. I mean, we bought Barum, Otrokovice. We bought Matador Púchov. We bought Mabor Lozano and some other places.
Brownfields, basically buying, then capacity and turn this into attractive capacity, which is also an option. So we are looking in all areas and from all perspectives, and we need to make sure that if there is an attractive option which makes business sense, we are really ready for it and take a serious look. So that should give you a little bit of view of where the priorities would be and are. Second question then on 2024, I mean, I agree. So I think we all, the entire industry has been. So we were cautious moving into 2023 in terms of what we believe markets would do on the replacement side. But also with our cautious approach, we have been surprised how much the replacement markets were under pressure.
So I mean, at the end of the day, you're completely right, miles driven are stable, so there must be a recovery of replacement markets. How quickly will this take place? How sharp will this recovery take place? Let's see. I mean, for sure, 2024 should be a year of replacement sales growth versus an arguable, you know, low base in 2023. But we should see some replacement recovery, mainly in North America and in Europe.
Thank you. Then one question on ContiTech. When we look at this 13%-15%, if I remember correctly, that you laid out, and then 80/20 scenario, that obviously suggests that the... What we all thought already, that the industrial business is considerably more profitable and probably even more profitable than we thought. The first question is, is that profitability, that you, the implied profitability of the industrial business, is that already today at that level, consistent with 13%-15%? And then secondly, what are the hurdles you need to overcome to divest the automotive business? Is it purely going through the process of making it ready? Or secondly, and making it ready is obviously the legal bit, but it's maybe also polishing it.
And the second question is: can you remind us what the largest businesses are within that? And do you think there is a market for those assets right now? I'm thinking in particular around obviously fuel, hoses, et cetera.
Yeah. Thank you, Stefan. I think if I counted well, these were four questions or even five.
... First of all, we, starting with the first question, the profitability and direction, 13%-15% with that 80/20 share. That's our ambition, and we continue to improve our industrial businesses for sure, and, we would, on average, say that our industry business is more profitable than our automotive business, considering the challenges we have been facing also in the automotive market, which are equally valid for ContiTech, as we have been also discussing around the automotive sector. At least in significant parts on cost inflation, for example, volatility of orders and changes in programs, for example. On the other hand, we are clearly developing, further into the direction of making our automotive business ready in terms of a carve-out, and this is happening.
To remind you what is in it is the emission reduction and thermal solutions, thermal management solutions, which is mainly on a fluid product portfolio side. We have the damping and transmission systems, which is all around vibration control, specialized on, for example, engine mounts. And last but least, but not least, the precision sealings, which are specialized products, which is definitely a minor business in this overall setup. I believe that there are multiple strategic or other interest companies overall in a potential scenario, once we are ready with that carve-out. And again, to confirm, we are working intensively on it. And let's see how fast it goes, but definitely we confirm it will be ready, taking and deciding on potentially next steps on a strategic option in 2025.
As I think also presented and laid out, we are heavily working on improving the business as well, because an improvement of the business for sure adds more value to the overall-
Whatever we are doing, which strategic options, we have to improve it.
Will help anyway, getting options on the table and then having also choices. And therefore, yes, we are working on turning it around and improving it, day by day.
Thank you.
I think Thomas was next, and then just make sure you raise your hand in time so we can fly a mic to you.
Thank you. I wanted to follow up on something I think you said, Philip, maybe I misunderstood in your presentation. I think you said 25% of revenues will change, meaning they may be replaced. So, are you considering acquiring assets in automotive as well to replace what could be sold, so UX and the $1.4 billion? Or was it just something I misunderstood?
No, we are not. I mean, we focus now on getting the existing business a value driver. That means we will need to either improve or divest or close. Today, we acquire new businesses within our existing bunch of product groups, but today there is no intent to have a significant acquisition to replace the 25%.
Hmm.
That's why we also, when, if we are looking into our accelerate program, we need to ensure that we are going to have no stranded costs while selling 25% of our business and getting even more fit, no? So this is all... Before the question comes, this is all factored into our plans.
Yeah, I must say I'm a bit surprised because it's the first time all the suppliers I'm looking at are trying to sell assets. So, do you think you're gonna be able to find someone to acquire these assets? And what kind of multiples do you think will be paid for such assets? I mean, the scope of assets to be sold right now is really large.
Yeah. So of course, I mean, we now, we are now going to start to see who could be a better owner of our assets. And that's what we are then analyzing in very details. We are quite confident that there are buyers in there, of whether they are then paying multiples. Niko already mentioned that, that some of our businesses are not doing financially at benchmark levels, and we expect that, maybe others which are driving their benchmark levels could be interested.
Thank you.
Going back to Tim. Thank you.
Yeah. Thank you. Two questions on that, actually, Philip, probably to you or Niko or Katja. What sort of price do you have to get for this? Or is getting rid of the business by itself already valuable enough, potentially? Or would you even be willing to give some money to a potential buyer? The issue is that we're facing, I'm sure Thomas wanted to get to the same point. We have a lot of bankers in the room. They know even better than us that there's no one really that wants to buy these assets right now. At the same time, a lot of people thought that about Vitesco and the powertrain asset as well, and that turned out to be pretty successful, right?
Maybe getting it out of the Continental Group and the Continental cost structure and all the sort of processes you have, may make it a lot easier to restructure the business, for example. Are you willing to give this away for free? Are you even willing to pay some people to take it off you? Or should-
Question or-- the answer is, it depends. As we mentioned, UX is an attractive business, it's profitable, we grow it, and obviously, that's our task to look whether the value which creates it internally is higher or lower that we could do outside. And if there is a better owner, a better owner would be willing to pay for it. If not, then, again, then we run it and continue. There is no problem with that. On the non-profitable side, or those which we see we, we cannot bring to, benchmark profitability, and we still have in a loss-making situation, then it's a business case. A business case, internal situation versus external, and then we have to take a decision. However, task of us is always to improve businesses. That makes the life anyhow easier in an internal as well in an inter- external stage.
So before we look, and then it depends. Markets are very dynamic as well on that side. It was mentioned several times. And we only take the decision once we see that obviously we create more value-
... outside than inside.
I mean, we said, Tim, we said, "Improve, sell, or close." If we do not find someone who is willing to take the business, then as a consequence, and we are not of the opinion that we are going to be able to improve it up towards our profitability guideline of 6%-8%, then we, as a consequence, need to close the business.
Moreover, I'm trying to understand, since your guidance for an adjusted number, closing that business would probably be adjusted for in your cost base, meaning the 6%-8% as a net number is not really something that we would really.
No, whatever means closing.
Yeah. Okay, then, second question, how do your customers react to this? When you put something up like User Experience—you see this gives you a big order for their pillar-to-pillar display for the MMA architecture. Do they like that idea, that they don't know which operator they will deal with in two to three years? How do you assure them that that is still the right partner for them?
Yeah, I mean, we have a strong business, and the business has been run by the team which we have there. And they are able, and they have been showing that they are capable to drive the business forward, and that they are capable of industrializing the products which we have. And we are now going to go into discussions with our customers as well, of how and how we are going to develop the business. I mean, we are going to stay in the automotive industry business. I mean, we are not going to throw the business to someone who is not capable to drive it.
It's the best, better owner.
Yeah.
And even if it's a better owner, customers should be delighted, because this owner can drive this asset to a better technical, synergetic areas. I mean, we are obviously looking in those areas, not that strong in displays. We are strong in electronics, vertical integration, maybe somebody else can do this better, deliver more value. And obviously, as said before, we will evaluate it closely and we take then the right decision.
Thank you.
Thank you. Any further questions from the audience here? Going back to Giulio. Thank you.
Hi, thanks. So, you clearly don't have any direct exposure to, to BEVs, but you do have indirect exposure in the sense that BEVs tend to be more content rich for you. The market is really worried today that BEV penetration might start to slow down. Now, we can discuss, is this right or wrong? Let's see. But this is what the market is worrying about today. In this 3%-5% outperformance, just curious to know, what type of assumptions are you making, and have you accounted for some-
Giulio, all our products are BEV-ready. There is no product which we cannot sell to a into a BEV car. So there is no this, for us, the only question is which customer is
Correct
... going to be more successful than other?
That makes more the difference than-
That makes a difference. But, which powertrain we have there doesn't matter.
Yeah, but you said there is more content on, let's say, screens and ADAS. There is more content today on the average BEV than there is on the average ICE. So if BEV penetration does, let's say, peak for a couple of years, do you think there will be some impact on your outperformance?
No, actually, we don't. I mean, we might be even better outperforming because we know that the ones which we have, where our, the addressable market is lower, for us, is would then most probably grow less, so the outperformance might be even far, far faster. But, there is, like, generally, no, we have, we do not, do not need to take an assumption of BEV's growth, BEV growth into our market plans because, they are, they are not really the driver, of our, of our product sales or not.
If BEV penetration disappoints, customer mix might save you?
Customer mix-
That might be the case.
... larger point.
Exactly.
Thank you.
Obviously, as well, how fast the customer is adjusting-
Yeah
... then its own portfolio. What, what is the consequence? So if we're going down, the customer obviously switches to ICE, right?
Yeah.
And then it's a question, are we incumbent? Which offer do we have? And will this car as well being enlarged by via higher content? Will there be new features coming in, in order to make the car attractive? So bottom line, we deem this not be such a strong influence. Less influence than question which customer wins with which technology.
Yeah.
I do see a hand in the back, but I think it's Romain. Okay.
Romain, s tart.
Thanks. Just a quick one on cash generation. I think you guide on EBITDA minus CapEx. Anything to expect on the working capital management? It's been a big drag to your free cash flow over the past couple of years. Following up on that, cash restructuring costs related to the new restructuring program in the carve-out, how should we think about that over the next couple of years? Thanks.
Okay, so in principle, you've seen over the past two years, when you look also at our balance sheet, that the build-up or the increase in working capital was a burden to the cash flow, for sure. And as Philipp has just mentioned, we are working hard on adjusting our working capital levels back to what we would call a healthy level. And we've also provided, or Philipp has also provided in his presentation, I think it was a 300 basis-
300 basis points
... basis points improvement in the short-term range, to reduce working capital. And we can already see, and we've also shown that I also spoke about it in the Q3 presentation, that we do see really some impacts now rolling in and coming, yeah? And, with regards to the cash flow, and the associated restructuring programs, so to say, we do not adjust the free cash flow that we report, from restructuring measures. Yeah.
Any further questions?
... There was a question from-
Yes, exactly.
Okay.
So, we did receive a question via email. It's from José Asumendi from JP Morgan. He cannot be here today, but greetings to you virtually, José. And the question is: What are the pillars to strengthen technology and profitability for UX, Philipp?
Yeah. We do have, on the UX side, we are in the start of, significant market penetration. The display, the digital clusters are going to go down. I mean, that's what I explained. The technological development is that, we are going to have the intelligence in the HPC, and that the display is going to display then all necessary user information, going forward. So we now need to invest to grow our market position even further. And, and with this growth, we expect to have some economies of scale. And we are able to, by that, to have a stronger position within, the, in within the overall, supply situation which we have there. And that's something where we do see a, a huge potential going forward.
And secondly, the ability of producing different sources of display, of how to adjust to the car itself, that's going to be the better topic. This is a really hardware-related process to say: How do I adjust the display into the cockpit? And that's something which is not everyone able to deliver, and that's something where the User Experience business area has a strong strengths, which they are going to develop even further going forward.
Thank you so much. And having said that, I don't see any further hands risen. So thank you very much for being here with us today and virtually. Have a good rest of the day. Goodbye.
Thank you. Thank you.
And for everyone-