Welcome everyone to our FY 2020 results presentation. Today's call is hosted by our CFO, Wolfgang Schafer. 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. To provide a chance for all to ask questions, we'd like to ask you to limit yourself to no more than 3 questions each. This will help us conclude our call on time. With this, let me now hand you over to Wolfgang.
Thank you, Bernard. Let me begin today's presentation on Slide 3, starting with a review of 2020 and our priorities for 2021. We were confronted in 2020, as you all know, not only with significant volatility in all our end markets, but also The task of protecting the health and safety of our employees in this environment, the Continental team performed well, safety and efficiently ramping down operations during the lockdown and successfully ramping up thereafter to serve the market recovery. In addition, we effectively protected our financial health with a strict focus on cash and cost control. Fixed costs came down year on year by 8% and CapEx declined by 33%.
In Automotive Technologies, with Global light vehicle production down by over 16% and our important European market down 21%, We were able to deliver regionally weighted outperformance of over 3 percentage points. Serious production of our first to market iCAS 1 high performance computer always commenced. In Rabat Technologies, we proved our resilient profitability through strong operational performance, including strict cost and spending control. ContiTech was even able to improve its adjusted EBIT margin versus 2019 despite the sizable volume decline. In Powertrain, Vitesco's outperformance of close to 1,000 basis points shows not only that it is profiting from the trend towards electrification but also the resilience of its core business in electronics and sensors.
2021 starts with a challenge to manage supply chain constraints, mainly related to the shortage of semiconductors. In the end of 2020, we have been working closely with our suppliers and customers to minimize these effects. However, Additional supply chain disruptions resulting from natural disasters such as earthquakes and snowstorms, border closures related to the pandemic, bottlenecks of for other raw materials and of course volatile demand have not made the situation any easier. Therefore, our 20 21 outlook includes additional supply chain related expenses, mainly extra freight costs of approximately EUR 200,000,000 for Automotive and Powertrain. The Continental team is also busy with developing with deploying the strategy we presented to you in December, Many initiatives related to operations portfolio and organization are underway.
One important aspect That we have announced today relates to a stronger differentiation of our portfolio between growth and value. I will cover this on the next slides. We are also continuing to make progress with our structural cost reduction program. Measures are underway At a majority of locations with approximately 5,000 positions have been already been affected so far. We expect discussions with Weber representatives at the remaining locations to conclude in the near future and are on track to achieve the EUR 1,000,000,000 gross cost savings target from 2023 onwards.
And finally, the planned spin off of Vitesco Technologies is entering its final phases. The Tesco's Tech Day and Capital Market Day are scheduled for 2 weeks from now in advance of the Annual Shareholder Meeting on April 29. If approved, the spin off and subsequent listing will then be completed in the second half of the year. Moving to Slide 4. I return to the subject of portfolio.
Back at our Capital Market Day in December, We presented the elements differentiate our portfolio as one of the cornerstones of our strategy. The key principle behind this What's the consequent differentiation between growth and value businesses and how they should be distinctively managed? As shown, automotive mobility is clearly one growth area for us. This means That to best create value, autonomous mobility, like the other growth businesses, must have the proper resources to build out an attractive market positioned through innovation, growth and speed to secure its share of future profit pools. At the same time, We remain committed to improve the contribution from our value businesses so that growth initiatives can be sufficiently The resilience of this combination makes us confident that we will achieve our midterm growth and profitability targets.
In addition to the more disciplined capital allocation between growth and value, we are also considering organizational adaptions that would allow us to better assert our strategy and reflect our strengths and focus on transparency and ownership. Slide 5 covers the specifics of the opportunity in autonomous driving. You know that over the Last 2 decades, we have built a solid business and technological position. With EUR 2,000,000,000 in sales in 2019, We are among the leaders in the market. ADAS delivered double digit profitability in the last years.
We have achieved this performance by being one of the few in the industry that can provide full stack solution covering sensors, HPC, software and functions. That is what makes us an attractive partner for other leading and emerging players in this area such as the list of names shown here on this chart. Our discussions with customers indicate that the opportunity pipeline for us will accelerate in the coming years. Indeed, we are currently in discussion with customers over an order volume €70,000,000,000 that will be decided within the next 3 years, double the volume which was on the market in the last 3 years. The main driver, the transition from today's L1 and L2 systems to L2 plus L3 and VION.
This will represent a significant increase in the content per vehicle opportunity for us. And it will come in the form of not just components, about systems and their associated services integration and functions. To Capture a sizable share of these opportunities, we decided to increase the RD and ADAS in 2021 by about EUR 200,000,000 to EUR 250,000,000 It includes both investments in our own technology as well as core investments with external partners. We are confident that this pragmatic approach We'll not only mean better access to competitive funding, but also attract the talent and partners needed to drive Innovation and that maximize our chances of success and value creation. The areas we expect investments Our most advantageous of our vision, AI for autonomous driving and Let me now move on to a review of our performance KPIs for fiscal year 2020 on Slide 6.
In line with our last guidance in December 2020, reported Sales came in at €37,700,000,000 down 15.2% on a reported basis and down 12.7% organically. The stronger euro, especially relative to the Brazilian real, Mexican peso and U. S. Dollar, resulted in an FX headwind of roughly EUR 1,000,000,000. The significant sales drop was the main cause of the substantial decline in adjusted EBITDA around EUR 1,300,000,000 and a resulting margin of 3.5%.
Operating leverage was about 28%. Special effects totaled a negative €1,900,000,000 due to restructuring costs, Goodwill impairments and cardboard effects. Net income was minus €962,000,000 and trailing ROCE was minus 3.2%. The higher gearing ratio as well as the lower equity ratio reflect this. Free cash flow, excluding acquisitions Carrefour effects came in at EUR 1,100,000,000 supported by cost and CapEx discipline and positive working capital effects.
I will cover these specifics later. The solid free cash flow kept net indebtedness It's flat year on year at roughly EUR 4,100,000,000 Let me now move on to the Q4 performance by group sector starting on Slide 7. The Sharp demand recovery in almost all markets helped us to achieve an organic sales increase of 3.9%. All group sectors positively contributed. Despite this, the group adjusted EBIT margin decreased by 140 basis points to 6.5%.
The main drivers were higher net R and D expenses and warranty claims in Automotive and Powertrain. Conversely, Rubber Technologies adjusted EBIT margin increased by nearly 3.80 basis The improvement resulted from cost discipline, positive pricemix and a raw materials tailwind. Let me now review organic sales performance for automotive and powertrain versus regional vehicle production in the Q4 on Slide 8, the European market returned to positive growth in Q4, in the region growing year on year by 2%. Automotive Technologies performed in line with the market. Organic growth in Powertrain was above 22%, aided by increased demand for electrification products.
In North America, Automotive Technologies underperformed the market due to planned timing shifts of volumes at certain customers. Powertrain delivered impressive regional outperformance of 11 percentage points. And last but not least, automotive significantly outperformed in the Chinese market by 6 percentage points with VNI and MS both recording double digit organic growth in China. Powertrain, on the other hand, underperformed in China market due to a decline in noncore activities. Taken together on a global level, automotive slightly outperformed its regionally weighted average by 100 basis points, while Powertrain outperformed by 11 percentage points.
Now continuing to review This area starting on Slide 9 with autonomous mobility and safety. AMS reported sales Totaled EUR 2,200,000,000 5 percent below the prior year level. After excluding the deconsolidation of our Chinese HBS Joint venture and FX effects, organic growth was almost 4%. This was driven by strong volume recovery On a product level, growth was led by others and passive safety and Sensorics. Despite the organic sales increase, AMS profitability decreased significantly by nearly 500 basis points to a a margin of 4.6%.
Higher net R and D expenses and warranty costs were the main causes. As for order intake, a recovery in bidding activity resulted in bookings in Q4 totaling EUR 3,300,000,000. The biggest contributors were others products, including riders and cameras as well as electronic parking Vehicle networking information is covered on Slide 10. Organic Growth at VNI was 2.4% in the 4th quarter, supported by continued double digit growth in China in South Korea. On the other hand, sales were softer in Europe, particularly in Germany as part of the declining demand for instrument clusters.
In terms of adjusted EBIT, the recovery in sales to almost previous year's level and Continued strict fixed cost management could not compensate for higher net R and D expenses and warranties. Therefore, Adjusted EBIT margin came in at minus 4.2%. As in previous quarters, order intake in VNI remains restrained by continued delays of major customer sourcing decisions. However, we did book sizable orders for 4 digital clusters and Smart Access Systems, helping order intake in the quarter to reach EUR 2,200,000,000. Let me now cover Rubber Technologies, starting with tires on Slide 11.
While reported sales in tires declined 5.3 percent. Organic growth was only slightly down by 0.5%. China continued its trend of positive volume growth in Q4. Winter tire demand in Europe continued to be weak. Overall, volumes were down 3%.
Price mix remains solidly positive at +2.6 percent as replacement tires continue to enjoy a strong mix contribution and pricing attainment. These factors more than compensated for negative OE pricing. Despite flat sales, adjusted EBIT jumped to nearly EUR 550,000,000 equating to a margin of 19.1%. This was largely supported by reductions in fixed costs, which were down 8% year on year and significant raw material tailwind of almost €80,000,000 We expect raw materials to become a cost headwind in 2021 due to increasing prices for natural rubber and butadiene. Also benefits from cost savings will fade this year as many measures were temporary in ContiTech on Slide 12.
ContiTech sales Ended the year on a strong note with organic growth up 2.9% year on year. On the OE side, Mobile Fluid Systems volumes grew in line with the recovery in vehicle production. Industrial and aftermarket developed also well, supported by volume growth in air springs and surface solutions. In regional terms, ContiTech also benefited from solid demand out of China. In addition, ContiTech has made notable progress with its thermal management solutions during 2020.
Not only did our lightweight hoses and lines go into production on the Volkswagen ID3, we have won additional orders worth EUR 2 €75,000,000 for similar solutions in hybrid and electric vehicles at German, Asian and American OEs. Moving to profitability. Thanks to the execution of previously implemented performance enhancements measures that started in 2018 And supported by short term fixed cost savings, ContiTech achieved an adjusted EBIT margin of 9.5%, slightly down from Q3 due to higher OE business share in Q4. We also announced further restructuring methods Finally, let me cover Powertrain Technologies on Slide 13. Sales of roughly €2,100,000,000 represented an Impressive organic increase of 13.5% versus Q4 2019.
This was driven by the business unit Electrification Technology, which almost tripled its sales to EUR 140,000,000 year on year. Sales of power electronic products as well as our high voltage e axle drive where especially, where Electronic Controls also benefited from increased demand in Europe. Nevertheless, adjusted EBIT in the quarter reached only €6,000,000 equivalent to a margin of 0 point Benefits from restructuring and short term fixed cost saving measures were not able to compensate for higher net R and D expenses as well as claims related expenses. Excluding Equation Technology, the adjusted EBIT margin for Powertrain would have been almost 5%. Order intake of €2,200,000,000 benefited from several business wins in electrification.
Let me now continue to the overview of the cash flow for fiscal year 2020 on Slide 14. Due to the challenging environment in 2020 and the resulting lower EBIT, operating cash flow, excluding carve out effect, came in at EUR 2,700,000,000 As for working capital, it was €130,000,000 higher versus year end 2019, so roughly at a normal level relative Investing cash flow, excluding acquisitions, was negative €1,800,000,000 The improvement versus 2019 of €1,800,000,000 was due to lower capital expenditures inflow from divestitures in VNI and Contitec as well as lower capitalized R and D. The resulting free cash flow before acquisitions and carve out effect That amounts to EUR 1,100,000,000. Slide 14 shows the liquidity position. We ended 2020 with EUR 10,700,000,000 including cash of EUR 2,900,000,000.
The additional revolver of EUR 3,000,000,000 which we secured at the beginning of The COVID crisis in Q2 2020 was never used. Our target is unchanged to have a liquidity position of above EUR 5,000,000,000 in less volatile normal times as you know it from prior years. Our bond maturity profile also supports our financial position outside of the coming EUR 200,000,000 redemption in April. The remainder of our debt will only come due in 2023 and thereafter. Slide 16.
As already announced in February, the Executive Board will recommend to the Annual Shareholder Meeting in April not to pay a dividend for till 2020 due to the negative net income. We do confirm our dividend policy of a dividend payment ratio of 15% to 30% of net income in the future. Slide 17, our market expectations for full year 2021. The outlook assumes that there are no new unexpected impacts from the ongoing COVID-nineteen pandemic on production, the supply chain or demand. We remain confident that the market recovery we saw in the second half of twenty twenty will continue for the midterm.
However, The near term outlook will be more challenging due to COVID and supply chain risk, especially in the 1st and second quarters of 2021. Nevertheless, given the low comparable base from 2020, we expect global light vehicle production to increase year on year between 9% 12% with the recovery in all regions. For passenger recovery replacement tires, We expect demand to be up by 6% to 8%. Again, this growth is mainly related to the low comparable base from 2020, especially in 2nd quarter. For commercial vehicles, we anticipate that production in 2021 will decrease by 7% to 11% globally, driven by a strong decrease in the China market.
Meanwhile, truck tire replacement volumes in Europe and North America are expected to be up by 4% to 6% year on year. I'm now on Slide 18. Before going through Continental's outlook for 2021, one short remark, even though we expect to complete planned spin off Our Vitesco Technologies in the second half of this year, our 2021 outlook assumes powertrain remains fully consolidated in our financial figures for the Assuming a positive decision of the Annual Shareholder Meeting, the forecast may be adjusted. As shown on the previous slide, even factoring in supply chain constraint, we expect a significant recovery in all our underlying markets. We also expect continued outperformance in automotive and powertrain from content growth in HPC, advanced driver assistance systems, digital displays and electrification.
These factors will overcompensate for the phase out of Instrument clusters and non core powertrain products. For Rubber, we expect a positive contribution from pricemix. Assuming that the exchange rate prevailing at the end of 2020 persists for the entire year, We expect the sales headwind from FX of about 2% for both automotive and rubber with the impact disproportionately in the first half of the year. Combining these elements results in a sales outlook of €24,000,000,000 to €25,000,000,000 for Automotive, €16,500,000,000 to €17,500,000,000 for Rubber and €40,500,000,000 to €42,500,000,000 for the group. Moving to the EBIT bridge on Slide 18.
The improved market conditions, Outperformance and cost saving measures from the structural program will contribute to automotive EBIT in 2021. Conversely, The previously mentioned supply chain constraints will result in about EUR 200,000,000 of additional logistics We anticipate that twothree of the headwind will occur in H1 and the remainder in H2, assuming the situation normalizes. In terms of business areas, AMS is expected to bear about half of the additional cost, while VNI and Powertrain will be at 1 quarter each. The other cost factor in the bridge is the previously mentioned additional R and D expenses in IMS of about €200,000,000 to €250,000,000 related to autonomous driving. And Rabe, we expect year on year margin expansion in both tires and ContiTech despite the reversal of temporary cost savings and based on current conditions, higher year on year raw material costs of around €200,000,000 Both business areas will also benefit From ongoing restructuring activities regarding FX, we are naturally hedged at the group level.
Tile is expected to have a disproportionately negative FX transaction effect due to export activities from Europe. The aforementioned factors result in an adjusted EBIT margin outlook of 1% to 2% for automotive, 11.5% to 12.5% for Rubber and the resulting 5% to 6% for the group. Continuing on the outlook for cash flow on Slide 19. The operating cash flow expectation includes an outflow of EUR 700,000,000 for restructuring, The first portion of the total EUR 1,200,000,000 outflows for 2021 to 2022 that we previously indicated. Assuming normalized business activity, working capital is expected to be relatively stable.
We expect capital expenditures to be around 7% Consolidated sales up from 5.9% in 2020. Therein, we expect higher CapEx in rubber from postponed investment Higher CapEx in automotive due to growth investments and dis synergies from the planned spin off. In total, we expect group Free cash flow before acquisitions and carve out effect to be between €900,000,000 1,300,000,000 and therefore on previous year's level At the midpoint, though it indicates the mentioned cash out for restructuring. Slide 20 covers the remaining elements in our outlook. Due to the ongoing structural program and further costs Related to the carve out of the Powertrain division, we anticipate special effects to total approximately €600,000,000 The financial result is expected to be about negative EUR 220,000,000 while the tax rate is expected to be Around 27%.
As in the past years, PPA amortization should be just under EUR 200,000,000 This It concludes today's presentation. And Bernard, I hand over to you again.
Great. Operator, we now open the line for the Q and A session.
Schafer. Schafer. And the first question is from Tom Nourien, RBC, your line is now open. Please go ahead.
Yes. Hi. Tom Narayan, RBC. Thanks for taking the question. The first one is, I wanted to drill down a bit, if I The implied outperformance of 1% to 2% is below your midterm 2% to 4% guidance you issued back in December for outperformance.
I know some of this is coming from phase out of legacy business, particularly at B and I. We're just wondering what the outperformance for 2021 would be Including those phase outs. Also, how long will these phase outs take? And the second question on tires, Could you comment on the pricing environment to combat the raw material price inflation you called out in 2021? I know Michelin is Pushing through a price increase now that should be largely implemented in H2.
Does that $200,000,000 raw material headwind you called out Include price increase impacts. And then could you comment on any potential benefits
To start with the question on the outperformance and Specifically, we and I clusters, we do see further reduction in the cluster business About EUR 300,000,000 in sales for 2021, which then is Increase in the outperformance of between 1% to 2% for automotive. And if you As for what is left, then there is still about EUR 600,000,000 sales this year to be expected. So logically, Prior year 2020 was about SEK 900,000,000 Pricing environment is quite okay. Tires, we To include in our guide the EUR 200,000,000 headwind for raw materials, But we do include as well pricemix improvements. We see them in the U.
S, and we see them as well in Europe. The tariff benefits in the U. S. For basically the rest of most of or many of the Asian Tire imports, is helpful. I mean, partly led to some pre buys in last year.
It's helpful. We have seen though in the past that it is always helpful for a limited period of time, and then imports find their way in the U. S. Through some other ways.
Okay. Just a quick follow-up on that
V and I phase out of the legacy business. Over what Time period, is that the entire midterm plan that you guys have? Or is it really mostly weighted in like 2021 and maybe 2022?
There is another bigger chunk in 2022 and 2023, and then we are basically through with that topic.
Okay. Thank you.
The next question is from Thomas Besson, Kepler Cheuvreux. Your line is now open. Please go ahead.
Thank you very much. I'll have three questions as well, please. Firstly, I apologize for asking it, but I'm sure someone else would have if I hadn't. Can you, Wolfgang, please qualify the guidance? Is it fair to believe that as it is to some extent the first guidance of a new CEO, It may be even more conservative than it would normally be.
Thomas, I would not in principle see this. If you want my at the moment, My evaluation of it, I think, on the rubbers side, it is probably a careful guidance. If I see the actual development, we already briefly discussed with the question before on pricing environment. And this in connection to raw material, I think this is more on the careful side. On the automotive side, I would see it being a realistic guidance.
It's probably to qualify a little bit if you would ask me. I mean, what is Q1 as a starting point of this guidance? The answer would be more on the top line. Probably, we are more at the lower end of the guidance. I mean, there is shortage of Schafer is playing a role and just less volume in the market.
On the Profit side, and this is true for Automotive and Rubber, I would see us more on the upper end side of the on the positive upper end side of the guidance.
Okay. Very clear. Thank you. My other two questions are really symmetric versus your 2 main groups. I'd like to To understand the net impact of raw materials on your automotive business on one side and the price mix versus raw mats In the Rubber Group, basically, could you tell us what you're assuming, whether you're assuming a positive delta in Rubber or neutral?
And what kind of share of your raw materials headwind you believe you're going to be able to transfer to your customers?
Well, I think if you take Q4 as probably an example, 2% to 3% It's a realistic assumption for what we included in our guidance, And this should be fine to compensate the raw material impact actually.
In the tire business, you mean?
In the tire business, yes.
Okay. And so can you also qualify the same thing for automotive and talk about the net impact there, please?
Well, the This is a question a little bit hard to understand, Thomas, but I think the question of raw materials on automotive, this is your question, is it?
Yes.
Okay. Well, the pure raw materials, metal, copper or whatever you might think of, Oil is not of so much important to our automotive businesses. I think you might know now the question, obviously, you might extend the question to prices of chips or electronics. And there, obviously, we do see what other Supplier seeing in the classical raw material, we do feel this and see this on the electronic side. We talked about this shortage already In my presentation, we might discuss it later in this call.
But yes, there we see price The pressure demand for price increase is coming up, price inflation as well on this side, and this is included in the Guidance and it's something which we expect to see more in Q2, Q3, Q4 than we do see it in Q1. While with the extra freight cost, the logistic cost, we see more in Q1 and Q2 and less in Q3 and Q4.
Thank you very much.
The next question is from Gabriel Adler, Citi. Your line is now open. Please go ahead.
Hi, good afternoon. It's Gabriel from Citi. My first question is on the free cash flow guidance because it implies quite a high cash conversion ratio. And when you calculate the net income based on the midpoint of your guidance, I get to a cash conversion of about 100% to 130%, excluding the restructuring cash out, which compares to a mid term target of above 70%. Can you just maybe comment on why cash conversion is expected to be so high in 2021 based on your guide?
One answer is, I think the answer I gave in one of the last calls, we had a similar question And to another year, but the answer is the same. It's basically as the profit is very much coming from the rubber side and rubber is always with a higher cash conversion than we see profits In automotive, so this is a simple answer. If you make a very, Gary, a very rough calculation, This is now very high level. If you look at EUR 2021,000,000,000 in EBIT more expected in 2021, We have SEK 500,000,000 more, and I'm taking very rough numbers, SEK 500,000,000 more in Invest in 2021 than we had it in 2020. But then we have SEK 700,000,000 more cash out for restructuring.
We had already SEK 700,000,000 cash out for restructuring. We had SEK 100,000,000 In 2020, then you would come back as well to about the same free cash flow as we had it last year, and this is basically logic in here. So higher EBIT, dollars 1,500,000,000 more in rest, dollars 700,000,000 cash out for restructuring, dollars 100,000,000 outflow that was As well in 2020 gives again about the same number as we did last year.
Okay. That's clear. And maybe a follow-up then on cash flow And related to that is a dividend. Could you just explain perhaps in a bit more detail the decision behind not paying a dividend? Because I understand your point that net income was negative, The company just did $1,100,000,000 free cash.
It's expected to do another $1,000,000,000 or so free cash in 2021 post restructuring costs. What were the main factors in reaching the division decision, please?
Well, it was actually the Policy we follow for a long time is 15% to 30% more in years and the last year is more at the upper end. But what we did last year, as well discussed, I think, in one call, what we did, we adjusted for Impairments goodwill impairments, as we said, goodwill impairments are not cash relevant. They are only equity Relevant and equity wise, the company is quite well established with balance sheet. And This led still then if you did so in 2019, our payout for 2020, this still led to this dividend payment we did. If you do the same for 2020 And make the calculation this leads in the end to no dividend payment.
So basically, it was sticking to our Dividend policy adjusted for this basically goodwill led to this decision. And yes, you are right, we are Generating free cash flow, but in the end, our indebtedness stayed on the level which we have seen last year. So we did not improve our and Edelness in 2020.
Okay. Thank you. And then my final third question is on the R and D spending, which is expected to rise this year. Your net R and D ratio will probably go up to about 9% of sales this year, which compares to 7.5% in 2019. Is this 9% level now sort of considered the required rate of investment for comms going forward if it wants to drive growth through software and ADAS components.
And is there even a chance that perhaps it rises above 9% as the order books continue to recover? Thank you.
Well, our overall R and D expenses 2019 to 2020 were basically sideways. And if I take out this Additional R and D, we discussed the SEK 200,000,000 to SEK 250,000,000 for others. In 2021, R and D expenses even Would have come down about EUR 50,000,000 to EUR 100,000,000. This is our expectation. And now with this others Coming back into or having this additional EUR 200,000,000 to EUR 250,000,000 we are moving above this Level of 2019 2020, which we have seen and by that the obviously, the quarter is not coming as much down as we Would have seen it without these additional EUR 200,000,000 to EUR 250,000,000.
I don't expect that this number is further increased or the quarter is further increasing.
Okay. Thank you.
We finished, I mean, obviously, this is a high number of investments we do. As I mentioned, we I have agreed on these additional investments, not in a business administration And this investment spend on R and D, be it with own people or be it with corporations because we see this big Order volume of up to EUR 70,000,000,000 over the next 3 years on the market, and we have to prepare ourselves to move To improve our capabilities more in the whole systems area, Not only components, I mean, we were already strong there, but the we get the feedback from the customers more and more that the whole system is even more important For this bigger chunk of the business, which will be on the market, and this is exactly where we want to invest in. Topic of data management, I mentioned a topic of vision, including LiDAR and artificial intelligence to further move to everything which is software systems related in this This will be this year as this business opportunity is there from EUR 22,000,000,000 to EUR 24,000,000,000. The number EUR 70,000,000,000 is what we expect in that time. There will be as well additional spendings, additional cost in that about amount in 2022.
This is by the way, this is not something which we did not include in our margin guidance For automotive, in the midterm, which was discussed on the Capital Market Days, which is 6% to 8%, and it was as well included in our sales guidance, which we have given at that time and our performance guidance.
Okay. Thank you.
The next question is from Vashagome, Jefferies. Your line is now open. Please go ahead.
Yes, good afternoon. Thanks for taking my questions. The first one, we're actually going back The Q4 results in automotive. And can we drill down a little bit in the one offs that you or so called one offs that you don't adjust for in Q4? Because it looks like R and D alone accounted for $200,000,000 of, let's say, elevated spending.
And then I was just wondering if you can explain how much If that's the correct number or correct assumption and how much was kind of warranty across the Automotive business then on top of that? That will be my first question.
We had about we called it about 200 In automotive, excluding powertrain, we had about €150,000,000 to €200,000,000 of Yes. Non adjusted type of one timers. 1 was this is what you call the higher R and D cost. This was The reimbursement quarters where we saw that there was a shift in other quarters. And then there was warranty bookings, which were generously done in the Q4 and year.
But anyway, The profitability was very much subdued. These SEK 150,000,000 to SEK 200,000,000 were more on the VNI side than they were on the AMS side. And this was specifically due to the Reimbursement topics in R and D and overall the R and D cost. There was another chunk of the business, which was somewhat above EUR 50,000,000, Which was in the powertrain business. And this was more relating to warranty bookings.
Okay. Understood. Thank you very much. And then there was a jump in the DNA of VNI, Even if I exclude the impairments, was there a reason behind that, in particular? The run rate was kind of $130,000,000 $140,000,000 and it jumped above $200,000,000 in the Q4.
So I just want to make sure I understand What the right rate of D and A is in that business?
There were asset impairments, which were not goodwill impairments in there As well related to the restructuring program, which we did not adjust for.
Okay. Perfect. And then on the payable side, You didn't have the usual seasonal pattern that your payables tend to be supportive in Q4. What was the active management that you paid your suppliers early? Or what was behind that?
Yes. There was a little bit of active management in there. We wanted to make sure that for, let's say, the starting point of 2021, We were at back at a working capital level, which is adequate to the business. And actually, we saw that our customers We're paying quite well. And so we adjusted a little bit on that side to basically have a working capital quota.
If you take the level 4, The Q4 level of sales and do the math, we basically had a working capital quota of around 12%. And this is, as you know, the 11.5% to 12.5% of working capital It's the normal level we should we do achieve on sales, and this is what we did achieve in the 4th quarter. And therefore, we are quite without any negatives, we move the working capital from 20 And have on the sales level of Q4, have the right working capital level.
Perfect. Understood. And then my last question is on ADAS. Just wonder if you can explain why ADAS sales were roughly down in line with the market, maybe touch better, Given that it's such a high growth business and you have actually quite good order intake, was that kind of contract phasing? Because if you calculate, it was also down 15% So in 2020.
Yes. It was partly contract phasing and specifically in Japanese business, we had there, which we talked about already earlier with 1 you probably know The big customer where we had big others business with some phasing out.
The other aspect to consider, Sach, That ADAS, of course, is much more heavily Europe and North America focused in terms of geographic mix compared to the other businesses.
Perfect. Thanks for all the color.
The next question is from Jose Asumendi, JPMorgan. Your line is now open. Please go ahead.
Thank you, Jose.
I'm afraid to connect and it's really bad. I suggest that you dial back in And then register again for the Q and A and we will pull you back up. Is that all right? Because we can't hear you at the moment. Thank you.
And I'll suggest we just go to the next question and that one's from Horst Schneider, Bank of America. Your line is now open. Yes.
Thank you and good afternoon for taking all of my questions. Just want to make sure that I got the guidance Basically for 2022, right, that you gave in the Q and A here. So is it fair that basically this Limited outperformance going to continue into 2022 just because in B and I you continue to suffer from this phase out of Mechanical Clusters Business. And then also on the R and D side, I'm not sure if I got it right. So did you say that The higher R and D also continues into 2022.
Can you just clarify again, please?
No, Horst, I only commented on those two factors, which are part of the overall. I yes, rightly so, if I understood this correctly, I said this EUR 200,000,000 to EUR 2 €50,000,000 others will continue probably in 2022, probably not in that amount, but there will be some in 2022 as well because The business we are going for, isn't that? And the second thing I mentioned, but this was not commenting on the overall outperformance, But on headwind on outperformance, and this is right, there is still some fading out of the business of clusters, but I did not comment on the growth of with the rest of the business. All right.
Then my follow-up question is, so is it now fair to understand, I mean, since you leave your midterm guidance unchanged, So basically now 2021 is a trough and from here on everything going to accelerate. I mean headwinds of 2021 will reverse in 2022 And then also outperformance is going to be higher from 2021 onwards?
Well, we I think we mentioned on the Capital Markets Day that we saw on the outperformance is 2% to 4%. We mentioned that in the 1st years 1st year, so I think we mentioned the 1st 2 years, we saw us at the lower end of this range. And this is what we see now, and this We discussed now the reasons basically this fading out business. And yes, for the profitability, it The same, we have these headwinds which we discussed, and we do see the effects of our cost reduction program Only coming in kicking in in the bigger amount starting 2023 following. So yes, you're right.
Okay. All right.
But it sounds still that still the main part, it gets only really good in 2023. 2022 is still a kind of transition year, just that I get that right.
We unfortunately I have some transition years now in a row. I would like to contradict that. You might I mean, it is not yet at the 6% to 8 I mean, unfortunately, you're right. This was the midterm guidance, and so probably, yes, I cannot contradict, yes.
All right, okay. The other question that I had because at the CMD as well, you mentioned these best ownership reviews. Isn't now the time for best ownership review? I mean, when I look at the results that V and I and this cluster business as well, I don't know, isn't it time for that now that you think about this ownership?
While we do think about it, and we did we clearly did not forget it since then. We are working on it. And timing is Yes, always a question on the one hand side, market of our own preparedness of the carve out proceeds and so on. But yes, we are not Forgetting about this aspect, and this is part of what we are working on at the moment and in the time to come.
Okay. But there's nothing specific now that you can mention, right, or that you want to point out?
No, not at the moment.
Yes, yes. All right. And then last but not least is R and D, just that I understand the process. I mean, we only had The CND in December. And at that point of time, you could have warned already about this R and D issue.
So why has it been that much Of surprise for you, why you only tell us about that now? So what has happened basically in the meantime between December End March now that this now comes to the forefront.
Well, we did not give a guidance For 2021, I mean, this is not a topic which, in the end, is completely new to us. What is It's not new to us. It is included in our midterm guidance. It's we knew it there. What was still, I would say, Somewhat new is the reduced volume, which we see due to this shortage of the semiconductor, specifically in Q1 and probably still in Q2 a little bit in Q3 and this logistics cost headwind, which we even at the Capital Markets Day did not expect in such an amount as it is coming.
And this is Basically, the topics which are worsening our guidance against the guidance had you asked me on the Capital Markets Day, but you did ask me, but I didn't answer. It would have been it would have not included those elements. The rest Would have been in there already this 2 months ago or 3 months ago at the Capital Markets Day.
All right, Daniel.
Thank you very much, and good luck. Thanks.
The next question is from Victoria Greer, Morgan Stanley. Your line is now open. Please go ahead.
Good afternoon. 2 from me, please. Firstly, on tires, could you talk a bit about what your plans would be on capacity? Obviously, the changes that you're making in Aachen are well understood. What about other plants?
You talked about higher CapEx for tires after delayed investments In 2020, so what are your plans there and where do you hope to get capacity utilization for tyres in 2021? And secondly, could you talk about whether you have any orders or are in any discussions with any of the new electric vehicle startups that We've been seeing either in China or in the U. S. Thanks.
Well, the investments in tires are not Concentrating on capacity, this is improvements in efficiency and processes, which we are doing there, which we You sold a strong reduction in capacity in investments we did in 2020, which is partly picking up on that and Doing things which we did not do in 2020, but capacity is not what we are concentrating and build up is not what we are doing in 2021. The second topic I did not understand. I just up here in the room.
The new EV startups, if we have orders from there. If we can just generally say we talk with all customers, big and small, we have products that basically cover the entire portfolio and can slot in depending on the customer's needs from single components of both systems. So I think from that you can assume that we talk with a lot of people.
Okay. So discussions, I guess, I take from that, maybe not orders quite yet.
When we have orders to announce, we'll let you know.
Great. Thank you.
The next question is from Richard Hildreth, Morningstar. Your line is now open. Please go ahead.
Thank you. Good afternoon, everyone. Wondering if we can talk a little bit about some longer term strategy for a moment. You have Another German, very large supplier competitor that is opening capacity, probably early in the summer On microchip fabrication and already has wafer fabrication in house. Could you talk, pleased about the Continental strategy?
To what extent are you outsourced? Do you have any of that fabrication in source? And then long term, where do you see the company going in that regard?
Well, we have capabilities to design chips. We do the design. We improve there. We have no intention to do our own ship or wafer production.
Okay. Thank you very much.
The next question is from Pierre Yves Camene.
Actually, I got one follow-up on the guidance, on the medium term guidance for AMS. I'm am not sure I understand if the increase or the new normal in R and D spending will impact your midterm guidance for Now the midterm guidance includes these additional Investment cost R and D increases for the Advanced Driver Assistance Systems business, specifically to move us Even more from components to software to software systems, AI, data management, Vision, it's included in our midterm guidance. Okay, very clear. And just, I would say, housekeeping question. What is the share of tire that you export from euro base to non euro base?
Would you explain the Higher FX impact in 2021 for the tire business? It's about 8,000,000 tires, which we are still exporting from it's Europe to the U. S. And this obviously is something where you feel then the FX impact as it is produced in euro and then sold in dollars.
Okay, clear.
Thank you very
much.
The next question is from Tim Worfkauser of Deutsche Your line is now open. Please go ahead.
Yes. Thank you very much and good afternoon to both of you. I have two questions, please. The first one is just to clarify, Since Mr. Diess on my last roadshow with him was very clear that he sees you as being responsible for them not having enough semi components, You didn't provision anything for potential claim that VW might have towards you when it comes And then secondly, when I saw the R and D numbers this morning, the additional 4 ADAS, I had to remember a discussion that we couple of times and that is that one of your key competitors, Aptiv, is now running around for, I would say, a good 2 years saying that your ADAS product actually not very competitive and that you don't sit on the table for the key negotiations any longer.
Can you just take away that fear that this R and D money that you're now spending is related to you rather catching up on the technology side than really getting you orders in. Can you This is really just something that you have to invest for technology that you potentially already have, but really just to secure the orders. Thank
And to the first part, I mean, The discussions we have in our organization with our customers, and I think this includes Volkswagen and all others, At the moment, it's purely 800 people at Convy are basically working on trying to secure supply at the right point in time to the customer with the right volume. We don't manage always. We do our very best. I think the situation is not so different for many other suppliers. And the OEs themselves, I think, talk as well to the chip suppliers where they have the direct orders from them and get that delivered.
And I think this is the interest of the industry at the moment to get this problem solved and not talking about anything else. And This is why we did not reserve on anything else. The question, Tim, on Addas I'm not sure I should answer that. I mean, we are We want to assure that we are fit for and in the end can qualify for all of the SEK 70,000,000,000 of orders which will be in the market from 2022 to 2024. This is what we think the volume is in discussion with our customers.
And we have to get better In those areas I mentioned, data management, artificial intelligence vision specifically. And this is what we are Taking the money for and either in cooperation or ourselves get better there. The system which the customer more and more wants to have on And I don't want to qualify this. This is something which others have had in the past and we did not or where everybody has to get better. Actually, I couldn't do that Qualified with any qualification, could not really make this distinction.
But there, we feel we have to get better to be ready to get The decent chunk of these orders, which will be on the market, and this is why we do it.
Okay. That's very clear. Thank you, and have a good evening.
Thank you.
And there are currently no further questions. I hand back to the speakers for closing remarks.
Great. Thanks, operator, and thanks everybody for participating in today's call. As always, the IR team is available if you have any remaining questions. And this call is now concluded. Please stay safe and healthy.
Thanks and bye bye.