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. 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 twenty twenty one results presentation. Today's call is hosted by our CFO, Wolfgang Schafer. Also here in the room with us is Stefan Schultz, 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. Questions. This will help us conclude our call on time.
With this, let me now hand you over to Wolfgang Schafer.
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 23.
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, 20 fourseven of basically 700 people, we were largely successful in managing this constraint. It did come expense of higher supply chain cost of about €70,000,000 in line with our expected full year headwind of €200,000,000 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 €5,000,000,000 of lifetime sales in all world regions.
Our digital display business also accumulated €1,300,000,000 of new orders predominantly for display solutions. In Ramen 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 the 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. Now now 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 two. 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 risk 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 01/01/2022. 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 assistance 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 drive. On top, we have announced a collaboration with Amazon Web Services to develop the Continental Automotive Edge platform. We call that Catch, 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 catch in our first projects with AWS related to high automated 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 Carbon. 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 €1,000,000,000 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 opportunity. 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 and 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 breaking, passive safety and seltzeric business. This will allow the organization to focus on their value strategy to enhance profitability and cash conversion. And now I come to the Q1 financials, next slide. Reported sales came in at EUR10.3 billion, 3.5% above last year's comparable period. Excluding negative exchange rate effects of EUR426 million and changes in the scope of consolidation, organic growth was 8.6%.
Adjusted EBIT increased year over year by just over €400,000,000 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 powertrain technologies, IFRS five non current assets held for sale and discontinued operations, of course, had to be applied. Due to this application, depreciation fees for discontinued operations starting 03/16/2021, this is the Dave and Howard Supervisory Board approved the spin off. This obviously has a positive EBIT effect.
The EBIT effect for the first quarter was €22,000,000 It's only for the two weeks since March 16 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 effect totaled negative €71,000,000 mainly related to the spin off and the transformation program.
Net income after taxes increased year over year by €156,000,000 to $448,000,000 Trading ROCE came in at minus 2% or minus 2.1% excluding IFRS five. Free cash flow excluding acquisition, divestiture and carve out effects came in at a strong EUR $670,000,000 unusually high for 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. However, with our disproportionately strong share in the European and North American markets, which were down year on year, we were disadvantaged by geographical mix.
Thus, 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 two sixty basis points to 4.5%. In Rabbit Technologies, we achieved a very strong recovery in sales and adjusted EBIT. Organic growth achieved 11.7% and the adjusted EBIT margin increased by four ninety 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 twenty twenty to 3.8% in Q1 twenty twenty one or 2.9%. Here the effect obviously is higher excluding the IFRS five. Slide seven, showing our regional outperformance in automotive and powertrain technologies. Adjusted for the unfavorable geographical mix, I mentioned that earlier, technology 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, 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 AFS. Sales came in at EUR2 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. Petite 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 EUR30 million. A similar level of premium freight is also expected for Q2. Additional expenses for ADAS R and D was €15,000,000 in Q1. This figure will increase in the coming quarters in line with our full year expectation of 200,000,000 to €250,000,000 as explained in the last call.
With customers delaying their sourcing decisions due to market uncertainties, AMS recorded a respectable order intake of €1,000,000,000 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 three thirty basis points is tied to higher sales and focus on cost discipline.
These factors compensated for higher logistic costs of around €20,000,000 B and I recorded a solid order intake of 2,900,000,000 As mentioned earlier, this includes more than €1,300,000,000 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 commercial vehicle 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, I've mentioned, is exceeding our €5,000,000,000 with customers in all world regions. Slide 10, tires.
I don't know, 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 US 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. Pricemix 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 US 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. Also, we expect raw material headwinds to increase from EUR 200,000,000 previously to now EUR $350,000,000 for the Rubber Group overall.
These headwinds will start becoming material in Q2. However, we did not revise our earnings outlook for Rubber as we believe we can compensate for these additional costs through pricing. QuantiTech 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 two eighty 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 €2,000,000,000 were up organically by 12.8%. Electrification technology sales of €157,000,000 were up by 65%, mainly driven by high voltage exo drives and power electronics, especially in Europe. In addition, sensing and actuation business also contributed to growth. The adjusted EBIT margin achieved 3.8% for 2.9% excluding IFRS five, benefiting from higher volumes and strict fixed cost discipline. Additional logistic costs were a headwind of about EUR 20,000,000.
Excluding the Electrification Technology, the adjusted EBIT margin for Powertrain would have been 6.9%. The order intake of 1,900,000,000.0 Euro 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 €670,000,000 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 €55,000,000 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 €11,000,000,000 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 €3,000,000,000 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. And with the next slide, slide 16, let me conclude today's presentation.
Our outlook with the Vitesco technology 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 $350,000,000 Euro versus around 200,000,000 Euro previously. Second, special effect is now around minus 300,000,000 Euro, was 600 before reflecting powertrain at discontinued operations.
So actually, as well, it's only an adjustment due to the exclusion of powertrain of this guidance. And lastly, the expanded bandwidth for free cash flow has now been increased to EUR1.1 billion to EUR1.5 billion. This was previously EUR200 million less than the bandwidth, so EUR0.9 billion to EUR1.3 billion. The increase is due to a reduction in expected cash outflow for restructuring to about 500,000,000 This was previously €700,000,000 And 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.
Ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial 01 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial 02 to cancel your question. The first question is from Gabriel Adler, Citi.
It's Gabriel from Citi. Hi, Wolfgang Bernard. My first question is on the guidance. Can I ask whether you view the 1% to 2% margin guidance in auto as cautious following these results? I understand you have these cost headwinds coming through from R and D and also logistical costs.
You've just generated 70% of your full year auto EBIT target at the midpoint in this first quarter. So your view on whether you're more confident now on reaching the top end of the 1% to 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. But there are some factors which make us more careful. One is not easy to predict forecast of the top line. We are in a very volatile environment, think discussed in many other occasions. No surprise to you.
And secondly, we have the announced EUR 200,000,000 to $250,000,000 of additional costs in our advanced driver assistance system business is only with EUR 50,000,000 in Q1. So there will be well, if you do the math, probably about EUR 60,000,000 to 70,000,000 now in the following quarters, 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. And fortunately, 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. So this is included in our guidance.
Therefore, we should be okay with that guidance, I think, on the lower side. But we don't feel in a position at the moment to move it up on the upper side, which probably was a little bit to your question.
Yes. Okay, understood. My second question is on cost control because you mentioned cost discipline in AMS and 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 the company has 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 some short term work in Germany, and it's only in Germany regional mix. Everything else of the cost which we are showing now are basically run rate costs. If I mentioned 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 than it has a long term negative effect on your brand, on your perception in the market. So this entire business will partly increase, but this is included in our guidance over time.
Okay. And then my last question is on the tire business and on the pricemix. Could you maybe elaborate on how you expect pricemix to develop given that you still have price increases to come through on replacements and also the reversal of the OE inductation back in Q2. So, is it possible that we see pricemix above the very impressive 6.7% that we just saw in the first quarter through the rest of the year?
Well, I don't wanna give a a guidance on price mix for the total year, but we we still see in the market good pricing environment. I heard from our US colleagues that even there to get a day to change your tire in a in a store, you have two weeks to wait, which is unheard of, I think, in The US. So 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.
We are I'm not sure some of you might remember we gave in years before, we always talked about this high performance tire share in our business. And only two years ago, we stopped talking about 16 inch tires plus plus winter tires. We, at that time, switched it to 18 inch tires plus plus winter tires. And the 16 inch tires three years ago was a little bit above 40%, and we are now with the 18 inches plus in winter tires above 40%. So 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, but this trend was already there last year and is now continuing.
Okay. Thank you. I'll hand it back.
The next question is from Joshua 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 on the price mix component in in European in the in the tire business. When we think about so pricing is is going up for the rest of the year.
And then I was wondering, in the second half of the year, winter tire sales, it's 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 was running. If it stays as cold as we have had it in Europe up to now, probably it gets a very good season. So 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 will clearly, I mean, replace the winter tire sales.
And by that, we believe that probably in the midterm, we will not reach these 20,000,000 plus winter tires, which we have sold in the good years 2018 and before in and and before. So, yes, there is a chance that would not exclude that, but don't overestimate it.
Okay. Understood. My second question would be a bit on on current trading and and how you see kind of q two shaping up versus q one. Because IHS has been quite a laggard in terms of adjusting light vehicle production, how much do you think IHS kind of needs to come down versus q one, let's say, to €20,000,000 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 do you say? Well, it's I mentioned it's a volatile environment. We really see a strong fluctuation in what our customers are understandably as they are constantly adapting as well to 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. Is 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.
So this is not what what I could say is is a guaranteed number. Probably, it is better, but we I would not exclude that it gets in in about that region.
K. Perfect. And then my last question, very quickly on the restructuring program. The the total program is 1,800,000,000.0. How much of that is booked now, and when will you most likely book the remaining part of it?
Majority is the €1,600,000,000 up to now is booked. And the leftover, 200,000,000. 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 that we test that we test great powertrain, and therefore, might not be booked anymore in in the country, finally, organization.
Understood. Thank you very much.
Thank you.
The next question is from Victoria Grier, 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. And connected to that, how much longer do you think the tire distribution chain will stay in a restock mode?
So that's the first one. And then 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? You know, 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 as you expect? Thanks.
Well, we see 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, I mean, should be a good quarter again tires. And Q3, Q4, probably too early to answer such a more short term question on the tire dealers, but moving in the right direction. And probably as mentioned already in the quote 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. Outperformance in advanced driver assistance systems, I think there is no change to what we have said in December.
But I don't see that the order intake at the moment would change our expectations to the better or to the worst side of our expected outperformance.
Okay. Thank you. And anything around where you think sell out is trending in tires, you know, maybe versus 2019 levels?
Can you repeat it
again, please?
Could you repeat that? It's a little bit hard to understand here.
So we can 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. You know, 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. Do you
have Yeah. It's going 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, very strong, turn rate, you know, six times turn inventory turn rate. That's due to our very good logistics and localized manufacturing, and we're benefiting from that, you know, that the very strong pull through from the market.
Does that help?
Okay. 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 of spin off?
And 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 how our CEO specifically promised and said this is what he definitely wants to create. And 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. And following following up on that, I mean, given the the capital requirements of this business in terms of keeping up with the competition and and investing in in innovation, should it really be better to get perhaps the market to value this business independently and give perhaps better access to capital to this 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 R and D, a, this is a business area. This is obviously faster and easier to implement as if we were not doing this step. But don't don't see this in any way as any announcement for moving in that case. It is not discussed at the moment.
But 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. And would you perhaps consider a similar move for BNI, maybe separating the displays and digital class to to to the better growth and and and kind of more exciting areas of that business?
Oh, at the moment, we we did not announce anything in that direction.
Okay. Thank you. And just just another one on on Powertrain, if I may. Could you confirm maybe if the how much was the cash cash burn of Itasco in the in the in the first quarter? Was it is it right there was about €300,000,000 cash burn?
Well, they had a positive free cash flow in the first quarter. Thank you.
The next question is from Thomas Toussaint, Kepler Cheuvreux. Your line is now open. Please go ahead.
Thank you. Thank you very much. I'd like to come back to Tal then Robert first. Can you comment on what you expect for pricemix versus raw materials? I mean your earlier comments suggest that the pricemix is going to remain strong.
You raised the guidance for raw mats to €350,000,000 Is it reasonable to understand that you expect a positive gap between the two? That's the first question.
Is it the gap between pricemix, Thomas, and the raw material price increases?
The difference between your positive pricemix and the negative impact of raw materials.
Okay. Yes. If when I said we 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 I mean, if we were sure, we would have changed the guidance. But this I think this would be then the effect which could lead to the 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, EUR $280,000,000, which we are foreseeing EUR $350,000,000 for the Rubber Group overall.
Okay. But 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're saying, but you've mentioned some fixed cost benefits abating, but I'm not sure what would be the headwinds taking down Rubber Group, almost 200 basis points from Q1 for the rest of the year. Maybe you can help me identify the headwind.
This would be then the raw material effect rate. This cannot be passed over to the market as at the moment as you feel I'm more optimistic as at the moment. Probably, there's a good chance that we achieve that.
Okay. It's very clear. I have one last stupid question. I apologize in advance. You've changed the guidance to the continued operations, which I think is fair because you you have no choice.
But at the same time, we are unable to perfectly reconcile what's away from quarter end and what's your contract manufacturing between the different units. So shall we assume that the difference in revenues and EBIT between your continued operations and discontinued operations and the fact that you remove four point is going to stay broadly the same in each quarter?
What we did at the guidance, I'm just but there are obviously different developments of of each of the unions from quarter to quarter as you know from the past. What we did, Thomas, though, is we did not change our guidance underlying guidance for the two remaining automotive business areas. So the only thing we did is we took our, in this case, not disclosed, our train guidance away from it, and the result was what we see there on the sales of 16% to 17% and the 1% to 2%. Okay. I'm not sure if this is this happening a little bit?
Okay.
No. I think we'll we'll wait for the for the prospect use of Digisko.
Yeah. Yeah. Yeah. Yeah.
Mhmm. Thank you.
The next question is from Eduardo 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.
But I think earlier, you mentioned 10% maybe drop quarter on quarter for, like, year for production. I just want to clarify in terms of revenue if we should apply the similar magnitude.
Well, I think, yeah, it's it's probably an assumption which if my 10% is the right number, and again, it's volatile on how to predict, And I I assume you get the same message from others, then, yep, it would be in line with our top line because we are affected of 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 who mentioned, the price inflation already for them in the first half and also second half, but they were also quite clear that in 2022, they do not expect to suffer a similar inflation and still expect a normalization. So 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 the discussion about the year 02/2021, and our purchasing people are negotiating strongly against sometimes demands, which we feel are very high. And this and these are not price negotiations, though, for 2022 at the moment. The majority is still concentrating on '21, but I mean, there is a chance that part of this continues into '22 and is a new basis, which very normal is result. But again, on this chips, we do see price variations in in different demand periods. So it's it's a no it's a it's an answer which is not giving too much clarity on that, I think, for you.
But the negotiations and what I was saying was first and concentrating on '21, there is a good chance that part of this cost increase will carry through to '22.
Okay. But sorry. Just a follow-up. So this is linked anyway to the emergency situation? So if the volume emergency goes in '22, then maybe also pricing.
Maybe is that a good way to think about it? What is the structural pressure that you face regardless of the emergency, let's say?
Sorry. I couldn't understand. I don't know if it's our system today, but we have a little bit better understanding. Could you repeat that? I'm sorry for that.
Yeah. Sorry. I just wanted to ask if it's linked to the emergency. Emergency. So 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. No. It is purely related to the emergency situation, and obviously, our customer our suppliers understand their importance and and make use of that fine. This is how business is, but it is not related to any other factor in the 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 gradual improvement when we think about the adjusted EBIT level?
No. It is more gradual. It won't be a stepwise function in in one quarter. And actually, the negotiations, not to our surprise, the negotiations have led to the one or other in the bigger locations to a type of a shift. When we demand it like in Aachen, close the tire factory at the 2021, the negotiation outcome was it will be closed in 2022.
Though we have already reduction of employees in 2021. But 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 €1,000,000,000 plus is assured by the negotiations which we finally have done. But this is all included in our guidance for 2021.
The next question is from Hof Schneider, Bank of America.
And also thanks to the Investor Relations team who had dial in 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. So 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? And is there no kind of worst case guidance that you provide?
Or you really just think there is no realistic guidance?
Well, think, Horst, for automotive, I'd say it's a realistic guidance of 1% to 2%. And depending on the volatile volume finally materializing, I expect it to be in that range. And I mentioned already twice, I think for the rubber technologies, I think it is more on the careful side. And I would not exclude that we can get better than what we are saying. And I think at the end of Q2, we are in a better position to evaluate that.
While 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. But at the same time, as I mentioned, we see probably a more stable pricing situation in the markets. Therefore, guidance not changed by raw material price increases were increased. I don't know, Bernard, if you wanna give more details.
Yeah. And if you're looking at what the what the raw material price will actually do, where we expect the headwinds to come from, as Wolfgang mentioned, it's really through the next few quarters of the year. I mean, the $350,000,000 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 seeing that inflation.
Plus also here and there are some logistics costs. It's not a match matter of supply. We can get our supply, but the logistics costs are are are extra higher this year than before.
Mhmm.
Alright. Customer exposure?
So we as you know, we're one of the biggest suppliers in the world, especially when it comes to automotive electronics, And, we cover our customers all around the world, every region. And, you know, I think we have a pretty good balance mixed out of that. Obviously, you know geographic mix. Right? We're we're heavier in Europe than next would be North America, and then below that China and then then Japan.
And from that, I think you get a feel for, you know, how we are regionally exposed with with the OEs and what what they each do there. But, you know, it's not just our own exposure in the sense of where our revenues are. Right? But if we are in design into a vehicle that is not being produced because another supplier has constraints, we're also affected.
Yeah. Mhmm.
Even if the content per vehicle we supply to that OE is then, let's say, lower than the average vehicle from other OE.
Okay.
Your exposure to Ford maybe, more specifically? You you you don't communicate on that. Right? Exposure by car by carmaker. Right?
No. No. We don't give the details on our Yeah. Our exposure to customers.
But they are not existing top five customers. Right?
They they are a top five customer. But when we talk about top customers, we also include the rubber business as well.
Oh, okay.
So we're also selling tires. We're also selling, from from ContiTech into such customers.
Alright. Thank you. Yep.
Are currently no further questions. So as a reminder, if you would like to ask a question, please press 0 and 1 on your telephone keypad now. And we haven't received any further questions at this point. I hand back to the speakers for closing remarks.
Great. Thank you, operator, and thank you, everyone, for participating in today's call and for your excellent questions as always. So if you have any further questions, please reach out to the Continental IR team. We're available here for you. And, 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. And with that, let's conclude today's call. Please stay safe and healthy. Thank you, and bye bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.