Dear ladies and gentlemen. Welcome to the conference call of Continental regarding the Q1 results 2021. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode, and after the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star followed by zero on your telephone for operator assistance. May I now hand you over to Bernard Wang, who will lead you through this conference. Please go ahead.
Thank you, operator. Welcome everyone to our Q1 2021 results presentation. Today's call is hosted by our CFO, Wolfgang Schäfer. Also here in the room with us is Stefan Scholz, Head of Finance and Treasury. If you have not done so already, the press release and presentation of today's call are available for download on our Investor Relations website. Before starting, we'd like to remind everyone that this conference call is for investors and analysts only. If you do not belong to either of these groups, please kindly disconnect now.
Following the presentation, we will conduct a question and answer session for sell-side analysts only. To provide a chance for all to ask questions, we would ask you to limit yourself to no more than three questions. This will help us conclude our call on time. With this, let me now hand you over to Wolfgang Schäfer.
Thank you, Bernard. Let me begin today's presentation on slide three, starting on the left. All approvals for the spin-off of Vitesco Technologies, with the subsequent listing have been secured. The last one at our shareholder meeting last week. I'm sure you are aware of this. Operationally, we had a very solid start into 2021, as already announced in our release on April 23rd. The recovery trend of the group's businesses that started in the second half of last year continued in the first quarter. Ongoing discipline in cost and strict working capital management supported our results.
In Automotive Technologies, we were able to generate solid profitability despite the continued shortage of semiconductors. Thanks to the hard work of our teams, 24/7 of basically 700 people, we were largely successful in managing this constraint. It did come at the expense of higher supply chain cost of about EUR 70 million, in line with our expected full-year headwind of EUR 200 million. That covers both Automotive and Powertrain and is included in our guidance. We received further orders for high-performance computers, bringing our cumulative order intake in HPC to about EUR 5 billion of lifetime sales in all world regions.
Our digital display business also accumulated EUR 1.3 billion of new orders, predominantly for display solutions. In Rubber Technologies, operational excellence and favorable price mix helped to achieve solid volume and profit growth. In Powertrain Technologies, electrification technology revenues continued their strong momentum and were up by 65% compared with a year ago quarter. We were also successful in securing a major order for silicon carbide inverters for the first time from our customers, Hyundai Motor Company. Switching to the right side of the slide, our current priorities.
Operationally, we expect the shortage of semiconductors to further worsen and reach its peak in this quarter too. Full recovery of the volumes requested probably will not be in 2021. This goes in line with price increases for semiconductors and continued extra freight costs. Customer demand will stay volatile. Raw material prices for our rubber products are further increasing as well as logistic costs. We do see a market environment in both rubber business areas, though, which allow us to compensate for this with pricing.
Strategically, and in order to increase transparency and ownership, we decided to realign our hard ADAS business into an independent and separately reported Autonomous Mobility business area. This change will take effect on January 1st, 2022. More details will follow on the next slide. As part of its expanding partnership strategy, ADAS has also concluded an MoU with Horizon Robotics. The joint venture is positioned to provide local and global vehicle manufacturers with industry-leading Advanced Driver-Assistan ce Systems, as well as autonomous driving software and hardware system solutions.
Based in China, Horizon Robotics is a pioneer in developing software and hardware AI edge solutions, focusing on ADAS and autonomous driving. We have announced a collaboration with Amazon Web Services to develop the Continental Automotive Edge platform, we call that CAEdge, which will allow automakers to efficiently and securely develop, deploy, and manage software on connected and autonomous vehicles. We are already realizing the benefits of CAEdge in our first projects with AWS related to highly automated driving.
Outside of those examples, we are working on deploying further operational portfolio and organizational initiatives. We have also made major progress in the last month in implementing our cost reduction program. Most notably, we have agreed with labor representatives on a social plan for the tire plant in Aachen and on basic points for the automotive plant in Karben. Basically, all major agreements are in place now and in line with our assumptions for the cost reduction program.
We are well on track to achieve our target of greater than EUR 1 billion gross cost savings from 2023 onwards. Last but not least, with all approvals in place, Vitesco Technologies is on course to complete its spin-off and subsequent listing this September. Moving to slide four. As mentioned, our current business unit will become an independent automotive, autonomous mobility business area with the sector Automotive Technologies starting in January 2022. The structure will allow us to more effectively leverage our capabilities and technologies in this area to size attractive growing market opportunities.
The realignment will provide greater transparency, including more detailed financial reporting. You can see that ADAS has achieved impressive growth over the last years with solid profitability. The additional R&D expenses we announced are aimed at sustaining the long-term value creation of this business. As a consequence, there will be a separate business area covering our safety activities with our braking, Passive Safety, and Sensorics business. This will allow the organization to focus on their value strategy to enhance profitability and cash conversion. Now I come to the Q1 financials.
Next slide. Reported sales came in at EUR 10.3 billion, 3.5% above last year's comparable period. Excluding negative exchange rate effects of EUR 426 million and changes in the scope of consolidation, organic growth was 8.6%. Adjusted EBIT increased year-over-year by just over EUR 400 million, mainly due to a recovery in volumes and ongoing strict cost management. The adjusted EBIT margin was 8.1%. Please note that due to the intended spin-off of Vitesco Technologies, IFRS 5, non-current assets held for sale and discontinued operations, it's called, had to be applied.
Due to this application, depreciation ceased for discontinued operations starting March 16th, 2021. This is the date when our supervisory board approved the spin-off. This obviously has a positive EBIT effect. The EBIT effect for the first quarter was EUR 22 million. It's only for the two weeks since March 16th in the first quarter. There, depreciation ceased, and it is not surprisingly, mainly a positive EBIT support for the powertrain business, as this is the discontinued business. The effect will become more material in Q2.
Without this application, the adjusted EBIT margin for the group would have been 7.9%. Special effects totaled EUR -71 million, mainly related to the spin-off and the transformation program. Net income after taxes increased year-over-year by EUR 156 million to EUR 448 million. Trading ROCE came in at -2% or -2.1% excluding IFRS 5. Free cash flow, excluding acquisition, divestiture, and carve-out effects, came in at a strong EUR 670 million, unusually high for a Q1 in our business. Low inventory levels because of the semiconductor shortage and because of the high demand for tires as well as timely payments of our customers supported the number.
Slide six. In Automotive Technologies, we saw a rebound in volumes, mainly driven by the low comparable base in the Chinese market from Q1 last year. With our disproportionately strong share in the European and North American markets, which were down year-on-year, we were disadvantaged by geographical mix. Organic growth for automotive was 3.4%. Due to this growth and our focus on cost savings, we were able to increase our adjusted EBIT margin by 260 basis points to 4.5%. In Rubber Technologies, we achieved a very strong recovery in sales and adjusted EBIT.
Organic growth achieved 11.7%, the adjusted EBIT margin increased by 490 basis points to 14.5%. As mentioned already, this performance was achieved through solid operational excellence and a favorable price mix development in tires. In Powertrain Technologies, we continued the strong sales development driven by electrification technology, resulting in an organic growth of 12.8%. Adjusted EBIT margin also increased from 0.7% in Q1 2020 to 3.8% in Q1 2021, or 2.9% here the effect obviously is higher excluding the IFRS 5.
Slide seven, showing our regional outperformance in Automotive Technologies and Powertrain Technologies adjusted for the unfavorable geographical mix. I mentioned that earlier Automotive Technologies sales were about 200 basis points behind light vehicle production in Q1. Underperformance in Europe was a result of the anticipated decline in our analog instrumentation business, while the regional underperformance in North America was due to semiconductor-related production impacts. In China, we grew in line with the market.
Powertrain Technologies, we considerably outperformed in Europe due to the continued strength of our electrification business. Our North American business outgrew the market as well. These drivers compensated for the regional underperformance in China caused by semiconductor-related production impacts. Adjusted for geographical mix, Powertrain Technologies outperformed light vehicle production by 400 basis points. Now I will go through the individual businesses, starting on Slide eight with AMS. Sales came in at EUR 2 billion with organic growth of 3.8%.
Stronger demand in China was the main reason for the sales increase, overcompensating a slight decline in North America. Passive Safety and Sensorics was the biggest contributor to growth. The adjusted EBIT margin increased by 190 basis points versus the year-ago quarter to 4.8%. This was mainly enabled by organic growth and cost discipline, but partially restrained by higher premium freight charges of around EUR 30 million. A similar level of premium freight is also expected for Q2. Additional expenses for ADAS R&D was EUR 15 million in Q1.
This figure will increase in the coming quarters, in line with our full-year expectation of EUR 200 million - EUR 250 million, as explained in the last call. With customers delaying their sourcing decisions due to market uncertainties, AMS recorded a respectable order intake of EUR 1 billion in Q1. The biggest order wins were related to electronic brake systems. VNI is covered on slide nine. Organic growth was 3.7%, driven by continued resilient demand in China and South Korea, while Europe was soft due to analog instrumentation, as commented earlier.
The year-on-year margin increase of 330 basis points is tied to higher sales and focus on cost discipline. These factors compensated for higher logistic costs of around EUR 20 million. VNI recorded a solid order intake of EUR 2.9 billion. As mentioned earlier, this includes more than EUR 1.3 billion new bookings for digital displays, predominantly for display solutions for German and French customers. The other business win highlight is the first HPC for a commercial application at a leading European commercial vehicle manufacturer.
This product will fulfill the increasing requirements for connectivity, complexity and functional scope demand by truck manufacturers and fleet operators, such as for over-the-air updates. Order intake for the HPC, as mentioned, is exceeding now EUR 5 billion with customers in all world regions. Slide 10. Tires. I will now cover the Rubber Technologies. Organic growth in the tire business was up 15.8% versus the year-ago period. FX was a significant headwind of 5.4%, primarily related to the stronger euro versus the U.S. dollar.
Volume growth in Q1 was 9.2%, led by the recoveries in the Chinese and North American replacement markets, as well as in our truck business. Price mix achieved 6.7%. Pricing for replacement tires was positive in replacement in all regions, while OE prices suffered from annual price agreements and the pass-through clauses for raw materials. Mix was driven by a higher share of ultra-high performance tires, a higher share of Continental-branded tires, and a positive regional mix, especially from the U.S. and China.
Together with fixed cost discipline, this resulted in a strong increase of the adjusted EBIT margin by 600 basis points to 16.6%. Some of the fixed cost benefits are expected to fade in the remainder of 2021. We expect raw material headwinds to increase from EUR 200 million previously to now EUR 350 million for the rubber group overall. These headwinds will start becoming material in Q2. We did not revise our earnings outlook for rubber, as we believe we can compensate for these additional costs through pricing. ContiTech on slide 11.
ContiTech showed a solid organic growth of 4.5%, supported by all segments, OE business, as well as industry and aftermarket. Volume recovery was led by Mobile Fluid Systems and Surface Solutions. The demand for Advanced Dynamic Solutions remained strong. Regionally, the strongest growth came from China, followed by Europe. Volume growth, strong pricing, and the effect of the cost reduction program started in 2018, supported the margin increase year-on-year by 280 basis points to 10.5%.
Like for tires, raw material headwinds will increase in the coming quarters. Compensation with strict fixed cost control as well as continued progress on restructuring and strong pricing should be possible. Finally, powertrain technologies on Slide 12. Sales of roughly EUR 2 billion were up organically by 12.8%. Electrification technology sales of EUR 157 million were up by 65%, mainly driven by high-voltage axle drives and power electronics, especially in Europe. Sensing and Actuation business also contributed to growth.
The adjusted EBIT margin achieved 3.8%, or 2.9%, excluding IFRS 5, benefiting from higher volumes and strict fixed cost discipline. Additional logistic costs were a headwind of about EUR 20 million, excluding the electrification technology, the adjusted EBIT margin for powertrain would have been 6.9%. The order intake of EUR 1.9 billion was aided by the silicon carbide inverter win from Hyundai, which I discussed earlier. Slide 13 provides an overview of the cash flow.
Consistent with the cash conversion target we gave at our capital market day in December, we have adapted our definition of free cash flow to exclude effects related to divestitures. Hence, last year's divestiture of the SAS joint venture is excluded in the comparison shown here. Overall free cash flow of EUR 670 million was driven by higher EBIT, a low inventory level, in-time payments of our customers, and lower CapEx. The figure also includes cash outflows for restructuring of EUR 55 million. CapEx was only 2.8% of sales in Q1.
We expect this to normalize in the coming quarters. For the full year, we still expect unchanged CapEx to sales to be around 7%. This leads to the liquidity update on slide 14. Total available liquidity remains high at almost EUR 11 billion at the end of Q1. Clearly above the required level for a company of our size and structure. We therefore will not extend our anyway unused and never used credit line of EUR 3 billion, which we arranged as a COVID risk cushion last May.
As a reminder, neither the credit lines nor other financial indebtedness are subject to any financial covenants or rating triggers. Slide 15 is showing our market overview. We have not adjusted our forecast for the year 2021. Nevertheless, we expect the shortage of semiconductors to further worsen versus Q1 and reach its peak, as mentioned, in this quarter, with a strong volume impact on Q2 versus Q1. However, we do assume that the situation will improve in the second half of the year.
With the next slide 16, let me conclude today's presentation. Our outlook for the Vitesco Technologies spin-off now formally decided. We have adapted our outlook to reflect powertrain technologies as discontinued operations. Thus, all the parameters shown here are only for continuing operations and are basically in line with our previous guidance. There are only three changes to note. First, as mentioned, we now expect raw material headwinds for rubber to be around EUR 350 million versus around EUR 200 million previously.
Second, special effects is now around minus EUR 300 million, was EUR 600 million before, reflecting powertrain as discontinued operations. Actually, it's only an adjustment due to the exclusion of powertrain of this guidance. Lastly, the expanded bandwidth for free cash flow has now been increased to EUR 1.1 billion-EUR 1.5 billion. This was previously EUR 200 million less in the bandwidth, so EUR 0.9 billion-EUR 1.3 billion. The increase is due to a reduction in expected cash outflow for restructuring to about EUR 500 million. This was previously EUR 700 million.
This decline reflects the timing shift in cash outflows due to the recent restructuring agreements. With this, I would like to end today's presentation, and I open the line to your questions.
One moment, please, for the first question. The first question is from Gabriel Adler, Citi. Your line is now open. Please go ahead.
Hi. Thank you. Gabriel from Citi. Hi, Wolfgang and Bernard. Thank you for the presentation. My first question is on the guidance. Can I ask whether you view the 1%-2% margin guidance in Auto as cautious following these results? I understand you have these cost headwinds coming through from R&D and also logistic costs. You've just generated 70% of your full year Auto EBIT target at the midpoint in this first quarter. Your view on whether you're more confident now on reaching the top end of the 1%-2% range would be appreciated. That's my first question.
A little bit hard to understand, but I understood that you basically asked if the Automotive Technologies guidance is too careful, specifically looking probably at the first quarter result. There are some factors which make us more careful there. One, it's not easy to predict forecast of the top line. We are in a very volatile environment, I think, discussed in many other occasions. No surprise to you. Secondly, we have the announced EUR 200 million to EUR 250 million of additional costs in our Advanced Driver-Assistance Systems business, is only with EUR 50 million in Q1.
If you do the math, probably about EUR 60 million -EUR 70 million now in the following quarter, significant increase versus Q1. Unfortunately, thirdly, we do see a continuation of this extra freight cost, which we have seen in Q1, in Q2, and then a little bit less, but still significant in Q3 and Q4. Fourthly, we do see price increase demands, and partly already agreed upon with semiconductor suppliers, which will be another burden for the left three quarters of the year. This is included in our guidance. Therefore, we should be okay with that guidance, I think, on the lower side.
We don't feel in a position at the moment to move it up on the upper side, which probably was a little bit your question.
Yeah. Okay. Understood. My second question is on cost control. You mentioned cost discipline in AMS, in VNI. Can you elaborate on how much of this cost discipline continues to come from temporary measures and how much of it is a result of the restructuring that the company's been doing?
The majority of it is from now from the restructuring. The cost reductions, which we see now are only at ContiTech to a very low effect. There is still some short-term work in Germany, and it's only in Germany regional mix. Everything else of the costs which we are showing now are basically run rate costs. If I mention specifically in tires that some of these run rate costs still might increase over the rest of the year, this is not related to personal cost, but this is more marketing, sales, and cost in this area, where still tires is very careful.
At the moment, we don't see we need so much business running very well, but you cannot be careful on that for a longer period, then it has a long-term negative effect on your brand, on your perception in the market. This, in the tire business, will partly increase, but this is included in our guidance over time.
Okay. My last question is on the tire business and on the price mix. Could you maybe elaborate on how you expect price mix to develop given that you still have price increases to come through on replacements and also the reversal of the OE indexation as in Q2? Is it possible that we see price mix above the very impressive 6.7% that we just saw in the first quarter and through the rest of the year?
I don't want to give a guidance on price mix for the total year, but we still see in the market good pricing environment. I heard from our U.S. colleagues that even there to get a day to change your tire in a store, you have two weeks to wait, which is unheard of, I think, in the U.S. Just showing that there is high demand, and this is always a good possibility to be strong on pricing. We do as well see that the mix development in principle is nothing which was very much bound to Q1. I would be optimistic that the mix, at least in Q2, and I think following as well, is on a positive trend.
I'm not sure, some of you might remember we gave, in the years before, we always talked about these high performance tires share in our business, only two years ago, we stopped talking about 16-inch tires plus winter tires. We, at that time, switched it to 18-inch tires plus winter tires. The 16-inch tires three years ago was a little bit above 40%, and we are now with the 18-inch plus and winter tires above 40%. It shows it's really a positive development over time. Did not show up so much last year with this volatile business and the other negative impact we had on the result, this trend was already there last year and is now continuing.
Okay. Thank you. I'll hand it back.
The next question is from Sascha Gommel, Jefferies. Your line is now open. Please go ahead.
Yes, good afternoon. Thank you for taking my questions as well. The first one would actually be a direct follow-up on the price mix component in the tire business. Pricing is going up for the rest of the year. I was wondering in the second half of the year, winter tire sales, is my understanding, were pretty low last year from you to your dealers because of the inventory situation. Shouldn't that be an incremental positive on the mix?
I would like to answer in December when we see how the season was running. If it stays as cold as we have had it in Europe up to now, probably it gets a very good season. It could be potentially positive, though, I think we have discussed that before. We now see that the all-season tire volume is stronger and stronger increasing, and part of that will clearly, I mean, replace the winter tire sales. By that, we believe that probably in the midterm, we will not reach these 20 million+ winter tires, which we have sold in the good years, 2018 and before. Yes, there is a chance, I would not exclude that, but don't overestimate it.
Okay. Understood. My second question would be a bit on current trading and how you see Q2 shaping up versus Q1. IHS has been quite a laggard in terms of adjusting light vehicle production. How much do you think IHS needs to come down versus Q1, let’s say to 20 million from Q1? How much do you think is a realistic level of light vehicle production in the second quarter? What would that mean for you?
How to say?
I mentioned it's a volatile environment. We really see a strong fluctuation in what our customers ask, understandably, as they are constantly adapting as well to make sure that they still have cars to sell, where they have the chips, and I think everybody does a great job in the supply chain at the moment. Our estimation is it is a stronger decline versus Q1, if you look on a quarter-to-quarter development, and it could be 10% or even more. This is not what I could say is a guaranteed number. Probably it is better, but I would not exclude that it gets in about that region.
Okay, perfect. My last question, very quickly on the restructuring program. The total program is EUR 1.8 billion. How much of that is booked now, and when will you most likely book the remaining part of it?
The majority is the EUR 1.6 billion up to now is booked. The left over EUR 200 million, while we foresee it still for this year, a part of it might even be last year. A stronger part of it, a bigger part of it, by the way, is at Vitesco and powertrain, and therefore might not be booked anymore in the Continental remaining organization.
Understood. Thank you very much.
Thank you.
The next question is from Victoria Greer, Morgan Stanley. Your line is now open. Please go ahead.
Good afternoon. A couple of things, please. Could you talk a bit about where you think sell-out trends are in tires? Obviously, it's a bit difficult to get a handle on that, but any thoughts there would be helpful. Connected to that, how much longer do you think the tire distribution chain will stay in a restock mode? That's the first one. Secondly, on the new Autonomous Mobility division, I guess I can track that to your midterm growth versus production expectations that you gave for that segment, about 10 percentage points at the Capital Markets Day in December.
At the full-year results, you talked about a high order intake potential for autonomous driving for the next few years. How could that affect your top-line growth expectations in that division? I.e., do you need order intake to accelerate to meet your growth expectations for autonomous, or could that business grow more quickly if the orders come in as you expect? Thanks.
Well, at the moment, we see that the tire sales distributors are on the same path as they were in the first quarter to take our tires. I think Q2 should be a good quarter again in tires, and Q3, Q4, probably too early to answer such a more short-term question on the tire dealers. Moving in the right direction, and probably as mentioned already in the call for the last guidance, probably tire guidance has a chance, or the rubber guidance, to be even better than the upper end of the guidance. Out performance in Advanced Driver-Assistance Systems, I think there is no change to what we have said in December.
I don't see that the order intake at the moment would change our expectations to the better or to the worse side of our expected out performance.
Okay, thank you. Anything around where you think sell out is trending in tires, maybe versus 2019 levels?
What was the question?
Could you repeat that again, please?
Could you repeat that? A little bit hard to understand here.
We obviously can get a good handle on what the sell in to the distribution looks like for replacement tires, but sell out to consumers is a bit harder to understand. Is there any insights you can give us around the sell out rates to consumers, how that's trending now versus, say, 2019 levels?
Very strong as well. Bernard, you have.
Yeah, it's going quite well, and it's one of the areas where we actually have an advantage. If you remember from Capital Markets Day, we talked about how we have a very strong turn rate, 6x inventory turn rate. That's due to our very good logistics and localized manufacturing, and we're benefiting from that, the very strong pull-through from the market. Does that help?
Okay. Thank you.
The next question is from Giulio Pescatore, Exane. Your line is now open. Please go ahead.
Hi, all. Thanks for taking my question. I would like to go back on the separation of the Autonomous Mobility segment. Could you maybe repeat the rationale for the separation? I know you mentioned better reporting, but could this one day perhaps lead to a complete separation or spin-off? What would be the benefit of such a scenario?
We did not decide on any further step besides a clear own organization unit now within Continental to increase the transparency which we have promised at the Capital Markets Day, because that's our CEO specifically promised and said this is what he definitely wants to create. We want to create more ownership for an own business area culture to make sure that in this very fast and differently than other areas developing business, that we can manage all these potential cooperations with others, potentially as well the one or other joint venture which is required to increase the business and overall to stay ahead of the technology.
Okay, thanks. Following up on that, given the capital requirement of this business in terms of keeping up with the competition and investing in innovation, shouldn't it be better to get perhaps the market to value this business independently and give perhaps better access to capital to these operations?
Well, as I mentioned, we do not discuss this at the moment, but should we come to a point where we believe that this is the right solution for the business, if we have an own BA, this is a business area, this is obviously faster and easier to implement as if we were not doing this step. Don't see this in any way as any announcement for moving in that. It is not discussed at the moment. Again, should we in one day in time in the future see this was required, at least we would be better prepared.
Okay, thank you. Would you perhaps consider a similar move for VNI, maybe separating the displays and digital cluster to the better growth and more exciting areas of that business?
At the moment, we did not announce anything in that direction.
Okay, thank you. Just another one on powertrain, if I may. Could you confirm maybe how much was the cash burn of Vitesco in the first quarter? Is it right it was about EUR 300 million cash burn?
No, they had a positive free cash flow in the first quarter.
Okay. Thank you.
The next question is from Thomas Dupont. Mr. Dupont, your line is now open. Please go ahead.
Thank you. Thank you very much. I'd like to come back to tires and rubber first. Can you comment on what you expect for price mix versus raw materials? Your earlier comments suggest that the price mix is going to remain strong. You raised the guidance for raw mats to EUR 350. Is it reasonable to understand that you expect a positive gap between the two? That's the first question.
Is it the gap between price mix, Thomas, and the raw material price increases?
The difference between your positive price mix and the negative impact of raw materials.
Okay. When I said the guidance might, in this case, might be a guidance where we might even come out a little bit better than at the moment we are guiding for, which if we were sure, we would have changed the guidance. I think this would be then the effect which could lead to this situation. Price mix in the end being more positive than what we see as the headwind from the raw material price increases. At the moment for tires, the EUR 280 million, which we are foreseeing EUR 350 million for the rubber group overall.
Okay. In any case, when I look at the Rubber performance in Q1, your full year guidance looks quite high. I don't know what you think, you've mentioned some fixed cost benefits abating, I'm not sure what would be the headwinds taking down the Rubber Group, almost 200 basis points from Q1 for the rest of the year. Maybe you can help me identify the headwinds.
This would be the raw material effect, if it cannot be passed over to the market, as at the moment as you feel I'm more optimistic as at the moment, probably is a good chance that we achieve that.
Okay. It is very clear. I have one last stupid question, I apologize in advance. You have changed the guidance to the continued operations, which I think is fair because you have no choice. At the same time, we are unable to perfectly reconcile what is away from the powertrain, and what is your contract manufacturing between the different units. Shall we assume that the difference in revenues and EBIT between your continued operations and discontinued operations and the fact that you remove powertrain is going to stay broadly the same in each quarter?
What we did at the guidance, and just where there are obviously different developments of each of the units from quarter- to- quarter, as you know from the past. What we did, Thomas, though, is we did not change our underlying guidance for the two remaining automotive business areas. The only thing we did is we took our, in this case, not disclosed our Vitesco Technologies guidance away from it, and the result was what we see there on the page, the 16%-17% and the 1%-2%.
Okay.
Is this helping a little bit? Okay.
No, I think we'll wait for the prospectus of Vitesco.
Yeah.
Thank you.
The next question is from Edoardo Spina , HSBC. Your line is now open. Please go ahead.
Good afternoon. Thanks. I have three quick questions. The first on the automotive for the second quarter, if you can help us to clarify. I think historically, the second quarter is similar level of revenue compared to the first, I think earlier you mentioned 10% maybe drop quarter-on-quarter for light vehicle production. I just want to clarify in terms of revenue, if we should apply a similar magnitude there.
Well, I think, yes, it is probably an assumption, which if my 10% is the right number, and again, it is very volatile and hard to predict, and I assume you get the same message from others, then yes, it would be in line with our top line, because we are affected of those either because we cannot deliver or because others cannot deliver and the car is not built.
Okay. Thank you. The second question is on the semiconductor price. To compare one German competitor of yours mentioned the price inflation already for them in the first half and also second half. They were also quite clear that in 2022, they do not expect to suffer a similar inflation, actually they expect a normalization. I just wanted to ask if you have already a scenario for 2022 and the next few years for microcontrollers price.
Well, at the moment, we are very much in a discussion about the year 2021. Our purchasing people are negotiating strongly against sometimes demands which we feel are very high. These are not price negotiations though for 2022 at the moment. The majority is still concentrating on 2021. There is a chance that part of this continues into 2022, and it's a new basis, which very normal as a result. Again, on these chips, we do see price variations in different demand periods. It's an answer which is not giving too much clarity on that I think for you.
The negotiations and what I was saying was first concentrating on 2021. There is a good chance that part of this cost increase will carry through to 2022.
Okay. Sorry, just a follow-up. This is linked anyway to the emergency situation? If the volume emergency goes in 2022, then maybe also pricing? Is that a good way to think about it? Is it structural pressure that you face regardless of the emergency, let's say?
Sorry, couldn't understand. I don't know if it's our system today, but we have a little bit bad understanding. Could you repeat that? I'm sorry for that.
Yeah, sorry. I just wanted to ask if it's linked to the volume emergency. If you think that the price inflation will fade away once the emergency fades away, or if you can see other drivers of the price.
No, it is purely related to the emergency situation, and obviously our suppliers understand the importance and make use of that, fine. This is how business is. It is not related to any other factor in the bill of material which they have or in their overall worksheets which they have.
Okay. Thank you very much. Sorry, very finally, on the cost savings. You did a lot of restructuring now. I suppose that some cost savings will come in as well. Can you indicate if there is any sort of quarter where we can see a step up in the cost savings, or it's more a gradual improvement, when we think about the adjusted EBIT level?
No, it is more gradual. It won't be a stepwise function in one quarter. Actually, the negotiations, not to our surprise though, the negotiations have led to the one or other in the bigger locations to a type of a shift. When we demanded like in Aachen, close the tire factory at the end of 2021, the negotiation outcome was it will be closed in 2022. We have already a significant reduction of employees in 2021. Therefore, the cost savings by these negotiations, and this was similar like typical outcome of negotiations. Similarly, the compromise was not to close it, but close it a little bit later.
Puts the cost savings probably a little bit more in 2022 than in 2021. 2023, the EUR 1 billion plus is assured by the negotiations, which we finally have done. This is all included in our guidance for 2021.
Okay. Thank you very much.
The next question is from Horst Schneider, Bank of America. Your line is now open. Please go ahead.
Thank you so much for taking my questions. Also thanks to the Continental Investor Relations team. I had dialing problems. Thanks for solving them. I have got a question, first of all, on your customer exposure again in automotive, since we got also from the OEMs quite mixed messages on the impact in Q2. In that context, in general, I wanted to know, what is your exposure to the premium OEMs, German OEMs, and U.S. OEMs in total? That's number one. On the raw material price impact, I was surprised that you were raising the impact upwards.
Can you maybe break that up where now the negative impacts are coming from? Is that now kind of worst case guidance that you provide, or you really just think that is now a realistic guidance? Thank you very much.
Well, I think, Horst, for automotive, I'd say it's a realistic guidance, the 1%-2%, depending on the volatile volume finally materializing, I expect it to be in that range. I mentioned already twice, I think for the Rubber Technologies, I think it is more on the careful side. I would not exclude that we can get better than what we are saying. I think at the end of Q2, we are in a better position to evaluate that. What we saw some stabilization, even further increase of the raw material prices versus what we expected when we gave the first guidance.
This is why we have increased it, at the same time, as I mentioned, we see probably a more stable pricing situation in the markets. Guidance not changed by raw material price increases were increased. I don't know, Bernard, if you want to give more details.
Yeah. If you're looking at what the raw material prices actually do, where we expect the headwinds to come from, as Wolfgang mentioned, it's really through the next few quarters of the year. Of the EUR 350 we guided, the vast majority is coming Q2, Q3, Q4. Biggest impacts are from things like natural rubber, but synthetic rubber as well. Also on the chemical side, we're seeing that inflation. Plus also, here and there, some logistics costs. It's not a matter of supply. We can get our supply, but the logistics costs are extra higher this year than before.
All right. Customer exposure?
We, as you know, are one of the biggest suppliers in the world, especially when it comes to automotive electronics, and we cover customers all around the world, every region. I think we have a pretty good balance mixed out of that. Obviously, you know our geographic mix. We're heavier in Europe, then next would be North America, and then below that, China, and then Japan. From that, I think you can get a feel for how we are regionally exposed with the OEs and what they each do there. It's not just our own exposure in the sense of where our revenues are.
If we are in designing to a vehicle that is not being produced because another supplier has constraints, we're also affected. Even if the content per vehicle we supply to that OE is then, let's say, lower than the average vehicle from other OEs.
Okay. Your exposure to Ford, maybe more specifically, you don't communicate on that, right? Exposure by car maker.
No, we don't give the details on our exposure to customers.
They are not within the top five customers, right?
They are a top five customer, when we talk about top customers, we also include the rubber business as well.
Okay.
We're also selling tires. We're also selling from ContiTech into such customers.
All right. Thank you.
Yep.
There are currently no further questions. As a reminder, if you would like to ask a question, please press zero and one on your telephone keypad now. We haven't received any further questions at this point. I hand back to the speakers for closing remarks.
Thank you, operator, and thank you everyone for participating in today's call and for your excellent questions as always. If you have any further questions, please reach out to the Continental IR team. We're available here for you. With the spin-off now set, please also feel free to reach out to the Vitesco IR team. Heiko and his capable colleagues will be more than happy to assist with your Vitesco-related questions. With that, let's conclude today's call. Please stay safe and healthy. Thank you and bye-bye.
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