Continental Aktiengesellschaft (CON) Earnings Call Transcript & Summary

Dear, ladies and gentlemen, greetings from Hanover, Germany. On behalf of Continental and our entire worldwide team, welcome to the final day of our Capital Market Days. My name is Bernard Wang, and I head the Investor Relations team. As many of you may, know, Continental will celebrate its 150th birthday next year, not to mention our 150th anniversary as a public company. However, never in our history have we held such a public communication to the capital markets as this one. In addition, this is the first investor event that we have ever hosted exclusively in virtual form. Being virtual means that this engagement is fully inclusive, allowing us to be more accessible and more transparent, not only to just investors and analysts but to all stakeholder groups. Now many of you have already joined us over the previous days for virtual expert sessions on a broad scope of topics, from technology to operations to sustainability. As a reminder, all virtual expert sessions are available for replay on the Continental Investor Relations website. Now on to today's program. I'm pleased to be joined today by the Executive Board of Continental, starting with Nikolai Setzer, our CEO since December 1 and continuing his role as Chairman of the Automotive Board; then Frank Jourdan, heading Autonomous Mobility and Safety; Helmut Matschi, who heads Vehicle Networking and Information; Christian Kotz from the business area, Tires; Hasn-Jurgen Duensing, Head of ContiTech; Dr. Ariane Reinhart, our Chief Human Relations Officer and Chief Sustainability Officer; and finally, Wolfgang Schafer, our Chief Financial Officer. Today's agenda is shown on this slide. First presenting will be Niko in his role as CEO. Thereafter, the subject will shift to Automotive Technologies, with Niko presenting in his capacity as Chairman of the Automotive Board. This will be followed by presentations of AMS by Frank and D&I by Helmut. We'll then conduct a joint Q&A session with the 3 gentlemen, focusing on Automotive Technologies. Following a break, we will continue with Rubber Technologies. First, hearing about tires from Christian, followed by ContiTech with Hans-Jurgen and then by a second joint Q&A session. Then after a final break, Ariane will present on human relations and Wolfgang on financials. We will then conclude the day with a final joint Q&A with Niko, Ariane and Wolfgang. Now let me now start today's program by introducing our CEO, Nikolai Setzer. Niko was born in 1971. Directly after completing the studies in mechanical engineering in 1997, Niko joined Continental, starting in tires testing and development. He then went on to lead various business functions within Tires, eventually being appointed to the Executive Board in 2009 as Head of Passenger and Light Truck Tires; and then in 2011 as Head of the entire Tire division. From ,011 to 2019, Niko oversaw a period of significant performance in Tires in all important metrics: sales growth, profitability margins and return on capital. In 2019, he transformed himself from a tires guy to an automotive guy, becoming the spokesman of the Automotive Board. At the beginning of this month, Niko became our CEO. His mission: Lead Continental so that it can emerge as a winner of the industry transformation. Niko, the virtual floor is yours.

Yes. Hello, everyone. Thank you, Bernard, for the nice introduction. I'm Niko, and welcome to Continental's Capital Market Days. Just 2 weeks ago, as mentioned, I was appointed CEO of Continental. And I feel very proud, privileged and excited to lead this great and powerful company at a very special time in its history. As Bernard mentioned, this is our most transparent and inclusive capital market event ever. Despite the challenges of the current COVID situation, we are motivated today to show to our investors as well as all stakeholders what we stand for, what our strengths are and where we plan to go. In addition, it is especially important to me as CEO to tell how I see Continental, describe the opportunities in front of us and why I'm confident that we will emerge as a winner of the industry transformation. While I'm new to the CEO position, I'm certainly not new to Continental. In my over 23 years here, I have become very familiar with all aspects of the company. Therefore, believe me when I say that I have strong conviction in our technologies, our capabilities, and most importantly, our people. Why? First, we are proven technological pioneer, as you see on the chart. One example, we were the first to commercialize radio sensors back in 1999. This product launched our hugely successful ADAS franchise. Another example, number two, this year, we became the first supplier in the market to industrialize a software-defined vehicle architecture for the Volkswagen ID.3. Second, we are capable of performing at a high level. This is best embodied by our industry benchmark operational efficiency in tires. Admittedly, we have performed better before in tires as well as in automotive and ContiTech, but we are working very hard to return to our prior profitability levels. We will outline these ambitions in today's presentations. Last but not least, I'm very confident in our people. I have been very fortunate, I can tell you, to work with countless talented and dedicated fellow Continental employees. Every day, I'm inspired by their capacity to change and to grow. As CEO, I'm honored to be leading them through our transformation. By the way, let me briefly address Vitesco Technologies as they are not participating in today's Capital Market Days -- or capital market day. Those that are familiar with Vitesco who know that they are uniquely positioned to become a leader in electrification. And both Vitesco and Continental are convinced that a spin-off is the best for both sides. So it has taken longer than we expected. We are committed to finishing the spin-off in 2021. All preparations are proceeding according to plan. Let's come to the next slide. Before talking about Continental, let me first walk you through some context. As the charts here show, I mean left and right, the development of our key end markets are very much below prior expectations. Just 2 years ago, IHS thought that there would be close to 100 million vehicles produced in the world in 2020. First, the cyclical decline, then COVID have reduced this year's forecast to just over 70 million. LMC's forecast for replacement tires tell the same story. We very much expected, both vehicle production and tire demand to nicely rebound midterm from their current levels. Still, a considerable gap to prior expectation remains. Because of this, we have further expanded our restructuring program to address the worsened situation. Believe me, these actions are definitely painful, in particular, for me, being 23 years part of Continental, but we are firmly convinced that they are necessary to make Continental fit for the future and set the right conditions for our transformation. Beyond the economic situation, further technological and society changes are affecting our operating environment, from digitalization to shifts in technology, to a faster pace of change, to increasing competitive intensity, and finally, the massive society significance -- or social significance of sustainability. All these aspects will require us to adapt what we do and how we go about doing it. However, rather than seeing these changes as challenges, which they are, the Continental team is determined to turn them into meaningful opportunities to grow and create value. Indeed, doing so will mean that we constantly review and adjust our organization and our activities definitely more frequently than before speed. Nevertheless, I'm confident that our strategy will put us in a position to benefit from these trends. Beyond embracing opportunities from the megatrends, there are 2 additional motivations behind our strategy. The first is our passion to win. This is one of Continental's 4 core values and one that, in my view, has utmost relevance for us today. Yes, the world and our industries are undergoing significant transformation, but our passion to win tells us that we want -- that what we want is not just to merely survive the transformation, but to emerge as one of the winners. The second motivation is related to 2 of our other core values, trust and for one another. We at Continental have known for 150 years that business is a team sport, and winning is -- in the sport requires not only trust among all in the team, but also making sure that all feel connected to the team's achievements. Thus, we not only want to win the transformation, but we want to do so by creating value for all stakeholders, in particular, for shareholders, but also for our customers, suppliers, employees, partners and communities. This is especially important to me personally, as I feel the only way we can properly win the transformation is as a team. Now having set the stage, let me introduce to our strategy going forward. Our strategy is built on 3 parts: strengthen operational performance, number one; differentiate our portfolio, number two; and turn change into opportunity. Let me start by addressing strengthen operational excellence. Just like in sports, our ability to perform has an impact on our ability to succeed. Part of this involves the restructuring program I mentioned earlier. Another part involves our commitment to improve efficiency and quality consistently and continuously. Only through improved performance we will be able to generate the financial resources necessary to fund our transformation. The second component is to differentiate our portfolio. For those that are familiar with Continental, myself included, a consequential differentiating of our portfolio is something new, so it is very important I get this across. In the past, we are very -- we have been very fortunate that almost all parts of our portfolio experienced solid positive growth. This is no longer the case. Yes, a considerable part of our portfolio is involved in high-growth business driven by technology and innovation. These areas are very important to me as a CEO because they represent our exciting future growth. However, other parts in more mature businesses, for these value businesses, the clear focus will be on profitability and cash conversion. The third and final part is to turn change into opportunity. This is very much a people topic. In order to successfully transform, every one of us at Continental must be able to transform. Doing so will require us to see change as an opportunity. One such aspect where we are already making progress is sustainability. Another aspect relates to our values and mindset, specifically our passion to win and our commitment to transparency and ownership. Let me now dive deeper into the first dimension of our strategy, operational performance. As I already mentioned, restructuring is difficult. Giving bad news to 30,000 colleagues is a very painful part of my job. But as CEO, I'm convinced that rightsizing the organization and generating cross-cost savings of more than EUR 1 billion are critical to make Continental and Vitesco more sustainably successful. Concretely, this means we will reduce our manufacturing capacities in high-cost regions, most notably Germany. And through those -- these measures and supported by new launches in West Coast region, we are advancing the share there by about 5 percentage points, 70 to 75. The same approach applies to R&D activities, where personnel reductions in high cost and the expansion of our footprint in West Coast takes place, mainly in our well-established locations in Romania, Mexico, India and China, just to name a few of them, leading to an advanced share of about 10 percentage points, 50 to 60. Let's now talk about excellence in operations, quality and standardization. While we are good at these aspects, we continue to work on improving our effectiveness and efficiency. Let me touch upon 2 examples shown here. First, one reason why our tires profitability is the industry benchmark is because we are the industry leader in energy efficiency, a topic very important to us. Based on publicly available data, our energy usage per tonne of produced product is nearly 20% below that of our competitors' average. And we plan to reduce energy use by another 20% by the end of the decade. Second, as software becomes the dominating driver of our R&D costs, it is critical that we drive standardization to increase productivity in this area. To this end, we have developed numerous platforms, tools and processes to boost productivity and ensure quality. One example involves the reuse of standard software modules, such as Electro Adaptive Autosar, into all of our high-performance computing platforms. Another is the establishment of the Continental cooperation portal to automate software validation between ourselves, our customers and other software suppliers. This unique tool helps to ensure quality and to reduce time to market for software projects. Let me now move on to the second part of our strategy, differentiate our portfolio. The slide here illustrates how we differentiate our portfolio between growth and value. I talked earlier about what we consider growth, but let me repeat it again here. To be a growth business, it must be in a dynamic and fast-growing market where technological innovation allows for outperformance of the underlying market. And value is crystallized by focusing on market position, growth and long-term profitability. Examples of growth businesses can be found in all of our 4 business areas. For Automotive Technology, it relates to software, architecture and networking, autonomous mobility and smart mobility, all areas where we have established positions and impressive expertise. In Tires, growth businesses are fleet services as well as expansion in selected regions such as North America and Asia. For ContiTech, it's about smart solutions beyond rubber, specifically digital solutions, new materials and new business models. In contrast, value business operates in more mature, stable markets. In Automotive, these are our franchises in safety and user experience. In Rubber, this is our EMEA, Europe and Middle East and Africa, Tire business and our ContiTech-based business. Now just because one part of our portfolio is growth and another one is value does not mean that there are no connections between them. For example, in Automotive, software and system integration span both growth and value, allowing us to leverage our resources to realize synergies. I come to this part later in my Automotive part. And all regions of our Tire business benefit from the strength of our global manufacturing network and purchasing power. These synergies are important for our value creation in both growth and value business. Now that we have defined growth and value, let us discuss what we mean when we say that we want to manage growth and value business differently. In growth, where markets are very dynamic and the ownership of profit pools is not yet established, innovation, growth and speed matter. The winner will be the one who can grow in the most value-accretive way and invest in building out an attractive market position. Only by doing so we can achieve a long-term position of sustainable profitability. Achieving this may require us to consider strategic options to access competitive funding for investments as well as improve our ability to attract talent and potential partners needed to drive innovation. As CEO, I very much want to make sure our growth businesses are managed this way so they can maximize their value. Regarding value, these are profitable businesses where we have solid positions that will benefit from the expected midterm market recovery still. However, given a higher degree of maturity of their underlying markets, only limited outperformance above market is to be expected. Therefore, our clear philosophy will be to manage these businesses for cash conversion, meaning we must be selective about growth and have a laser focus on profitability. Strategically, these businesses will be subject to regular reviews about whether we are the best owner and how value can be maximized. Divestures could be one option. So this option will be done only after thorough review and considering potential dissynergies. With this, I hope it is now clear that we will have a differentiated strategy to advance the entire group. Let me now turn to the final point, turn change into opportunity. Just 12 days ago, we launched our new sustainability road map. This is one of the most comprehensive sustainability road maps in the supplier industry. Sustainability is also firmly integrated in our corporate strategy. Here are the 3 aspects -- or the 3 key aspects, I should say. Clear targets. Our sustainability ambition is detailed in our 4 focus areas and the goals we want to achieve by 2050. Activities in the middle. For us, sustainability is not only about reduction but also about transformation. On the one hand, sustainability will make some existing businesses nonviable in the future. On the other hand, tremendous opportunities will also rise to grow new and innovative business. Accountability, on the right. Our motivation for sustainability is not only in our DNA but also matters for remuneration. Starting this year, we simplified our long-term incentive program to 3 criteria. The first 2 are related to the share price, both absolute and relative total shareholder return, to align our interest with shareholders. The third criteria covers sustainability factors. Because we know that to be sustainably successful, we must have an environmentally responsible, motivated, healthy and diversity. This system is uniformly applied to me and my Executive Board colleagues as well as all senior executives and executives in the company. So the entire company team is aligned. Last but not least, very important. Any discussion on change cannot overlook the people factor. People are so important. We at Continental very much take pride in our 4 core values. This all starts with trust, the basis of everything we do, not just between each other as employees but also with all stakeholders. Today's virtual and inclusive Capital Market Days is one channel for building trust. Freedom to act. Everyone in the Continental team is encouraged to be entrepreneurial and take responsibility. This is critical for speed and innovation. For one another. As mentioned earlier, we at Continental believe business is a team sports. Thus, high-performing, collaborative and diverse teams are critical to our success. And this culminates in, at the very top, our passion to win. You've heard me say many times that we want to emerge as a winner of the transformation and that we want to win as a team and create value for all stakeholders. Thus, this value has a very high standing for me as CEO. But value and winning alone is not enough. Winning also requires that we have the right mindset. This includes being flexible and agile as well as delivering quality and impact. However, to me, transparency and ownership are the most important characteristics we now need to succeed. This means that we are open in our communication, take decisions based on facts and figures, and ultimately, are held accountable for consequences. So let me summarize. We hope that today's presentations will convince you that we are here to grow value for all stakeholders by fulfilling our commitment to deliver on our 3 strategic pillars. We believe the timing is right. Our strategy is right, and the opportunity is huge. This is exciting. And we look forward to working with all of you. Thank you for your support of Continental. I very much look forward to engaging with you through today's question-and-answer session. And now let me hand back to Bernard.

Thank you, Niko. Thank you very much. Now let's move on to the next part of today's agenda, Automotive Technologies. Before turning the floor over again to Niko, we'd like to show a brief video now on Automotive Technologies. [Presentation]

We hope you enjoyed our video. With this, let me now hand you over again to Niko.

Thank you, Bernard. Welcome again. Let me now switch gears from my roles as -- a role as CEO to my role as Chairman of the Automotive Board. In my previous presentation, I previewed the major topics we cover in our Automotive business. I would like to begin this presentation by elaborating on these themes. Those that follow the automotive industry are aware that it is currently undergoing a significant transformation. Now most people would frame the transformation in terms of the change in the propulsion method, from combustion engines to electric drivetrains, maybe even fuel cells. But outside of this shift, there are 6 further trends at work that will define the future of mobility. The first 4 are market trends that are probably familiar to many of you. First, autonomous mobility. This embodies the promise that vehicles can sense and plan actions to support or even replace the driver. Second, smart mobility envisions that big data in the cloud can be leveraged to make transportation more efficient and convenient. Third, user experience, or UX for short, has always been a decisive purchasing criteria for vehicles. But the digitalization of the human-machine interaction makes UX matter more than ever for consumers and carmakers. And fourth, in the field of safety, shifts towards electromobility and autonomous driving and tighter regulations will all require further advancements in safety, concepts and technologies. But beyond these market trends, there are 2 additional technological trends, very important, which are occurring in the background. First, almost all of today's vehicles rely on an electronic architecture based on decade-old concepts. And in order for cars to be technologically capable to enable the 4 trends, a fundamental paradigm shift in architecture is necessary, from a decentralized patchwork architecture towards a more centralized, high-performance computing that seamlessly and securely networks the vehicles to the cloud. The final trend, software is perhaps the most revolutionary. Instead of being defined by mechanical virtues like horsepower, the future of mobility will be defined by the capability of its software. More specifically, what functions does software enable? How well does it perform? And how securely does it operate? Now none of these 6 trends are completely new. Many have been around now for a couple of decades. For example, assisted driving has been around now for 20 years. I referred before to the radar in 1999, ever since Continental brought the first radar sensor into the market, as I explained. Another example is smart mobility, stand-alone concepts, such as telematics, were first introduced by Motorola, now part of Continental in the late '90s. However, the advancement of technology is significantly accelerating all trends. In autonomous mobility, it has taken 20 years to get from assisted driving to partially automotive driving. It is our expectation that technology will allow for full autonomous driving in the next decade. And in smart mobility, we expect that the explosion of transportation-related big data analytics will allow for full ecosystems and data-driven business models by 2030. Of course, fulfilling the promises of these technologies will take not only time but also sizable investments. This is especially necessary to enable the paradigm shift from the hardware-defined vehicles of the old world to the hardware- and software-defined vehicles of the new world. But we also expect that substantial value-creation opportunities will also materialize from these investments in the form of new mobility applications and functions, new revenue streams and new business models. With our portfolio of leading technologies, we believe Continental is in a prime position to capture these opportunities. How is Continental addressing the industry transformation? With a transformation of our own. Those that have followed Continental for many years are probably familiar with our 2 strong franchises in autonomous mobility and safety, formerly known as Chassis & Safety; and vehicle networking and information, formerly known as Interior. Through a combination of organic growth and acquisitions, both have achieved technologically leading positions in their respective markets. But with the substantial trends that are underway in the automotive industry and to keep -- to best keep Continental at the forefront of these changes, we have brought the 2 business areas together under a new realigned organization called autonomous -- Automotive Technologies. Some of you may also wonder why Powertrain is not part of this transformation. But as I covered in my previous presentation, we are fully committed to the spinning of Vitesco Technologies next year as we are convinced it is the best path for Vitesco as well as for Continental. What is Automotive Technologies about? Simple and straightforward. We want to deliver on 3 significant promises related to the future of mobility, sorry: safe, connected and convenient. To better achieve these aims, we have realigned our activities into 4 vertical action fields: autonomous mobility; smart mobility; user experience, UX in short; and safety, matching the 4 main market trends I discussed earlier. In addition, we have also realigned our activities into 2 horizontal action fields, very important: architecture and networking and software and system excellence. This arrangement not only allows us to better address the paradigm shift related to these themes but also to enable the value-creation potential for all action fields. That's the important part. Let me further elaborate on this on the next slide. With this realignment of our activities, we are putting ourselves in a strong position to realize advantageous synergies in multiple dimensions, as shown here. Let's start on the left with vertical integration. The new setup better positions us as a full stack provider, capable of efficiently combining all system layers needed to fulfill customer needs in each given vertical, from the base hardware and base software to differentiated functions and services all up to the cloud. The next benefit comes in the form of horizontal integration. As discussed earlier, future vehicles will be enabled by a common centralized architecture with functions defined by software. This technological shift will allow Continental with our broad capabilities to realize 2 distinct synergies. First, we can combine functions to implement an application. For example, Kevin sensing algorithms in the UX domain can be united with the sensors and intelligence in the autonomous driving domain for more effective driver monitoring, a really required capability for Level 3 autonomous systems. A second important synergy, we can leverage our standardized hardware and software platforms to generate better economies of scale and scope in our R&D activities. The third synergy comes in the form of project management. Traditionally, the development of modules in automotive systems occurs in isolation. Some are made by the OEMs themselves. Others are purchased from suppliers, and Continental is frequently involved in integrating the system together. However, the advent of software-defined vehicles is changing this game, not only because systems are getting more complicated but also because software can be updated through the lifetime of the vehicle. Our strong know-how and experience in automotive software and systems as well as our proven automotive-grade workflow and toolkits make us a partner of choice in managing this complexity. The last but not least important energy is -- synergy is scalability. Recently, many carmakers have made public statements recognizing the same trends as shown here and insist on addressing everything in-house. Maybe not everything, but a lot in-house. However, the individual economics are limited by size -- by the size of the OEMs and scope of their own businesses and organizations. None can easily replicate the scale and organizational advantages that Continental already possesses. Put simply, with the unique breadth and depth of our portfolio as well as our proven capabilities, we can deliver to our customers, not only cost-competitive and attractive solutions but also a faster time to market than they can achieve themselves. We just discussed how the new realigned automotive technologies organization is well positioned to maximize synergies across action fields to create value. The chart here shows an additional dimension of value creation, namely that of growth. With our comprehensive portfolio, we expect that Automotive Technologies will be able to deliver sales growth of around 2 to 4 percentage points above light vehicle production. However, there's one more dimension of value creation that comes from differentiated management of individual action fields, as I mentioned in my first speech. This would occur along the lines of growth and value, as I addressed before. Under this distinction, the action field safety and user experience are categorized as value. Why? So both will very much benefit in the midterm from the recovery in vehicle production. The underlying safety and user experience markets are stable and mature, limiting opportunities for us to outperform underlying light vehicle production in these action fields. Based on the limited outperformance perspective, it is our intention to manage these action fields with a focus on profitability and cash conversion. In contrast, by virtue of existing strong market presence and significantly higher outperformance expectations, the other 4 action fields are categorized as growth. Let me take autonomous mobility as an example. We already have a sizable business in this area, generated -- generating more than EUR 2 billion in sales in 2019. With its substantial backlog for additional sensors as well as for automated driving, high-performance compute for upcoming Level 2+ and Level 3 systems, they are very much primed to continue outperforming at double-digit growth rates. Another example from the action field, architecture networking. I mentioned earlier that we are the first supplier in the market to industrialize a software-defined vehicle architecture. In the near term, growing this new business will come at the expense of our sizable existing franchise of conventional electronic controls units. Hence, the midterm outperformance expectation is here only 3%. However, we are confident that this self-disruptions, as we have to call it, will pay off in the long run as the entire automotive industry accelerates their transformation towards centralized computing and software-defined architectures. And Helmut will explain a little bit more about that later. In addition to the subjects of growth and innovation, we are not forgetting that operational performance is also critical to our competitiveness. Only the strong operational performance we will be able to deliver our customer cost-competitive solutions and generate the returns necessary to invest in further growth. Among all the group sectors, Automotive Technologies will be making the greatest contribution, around 60% towards more than EUR 1 billion of gross cost savings targeted by the group by 2023. Achieving this target will be neither easy nor painless as thousands of colleagues will be affected by the structural program, as mentioned earlier. However, the Automotive Technologies management team is committed to implementing the measures required for our contribution. How will we achieve this? KPIs for manufacturing and R&D can tell the story. First, in manufacturing, as you are aware, we have already initiated capacity-reduction measures in high-cost regions. While the growth outlook of the next years will require us to increase capacities, this is planned to occur predominantly in best-cost region, resulting in expecting -- in expected 10 percentage point increase in our best-cost footprint in the midterm, 78% to 85%. The same trend also applies to R&D, where cuts and high cost will be supplanted by growth in best cost. Here too, we target a 10 percentage point increase in the meantime from 50% to 60%. What does all this mean for our midterm profitability ambitions? In 2020, we expect the adjusted EBIT margin for Automotive Technologies to be approximately minus 2%. Our aim is for the margin to reach a range of approximately 6% to 8% in the meantime. And 2 factors will drive this. First and foremost, being growth. In addition to the strong anticipated recovery in light vehicle production, I've shown this before, which, according to IHS, should be something like 5% to 7% in the midterm given the low basis from 2020, we expect another 2 to 4 percentage point contribution to growth from outperformance. We assume here, in this chart and in general, that this volume growth will support profitability with an assumed operating leverage of around 20%. On top of growth, improvements in operational performance are also expected to support profitability, most notably from our cost-reduction activities but also from operational excellence, quality excellence and standardization. Not shown here but, of course, an important part of our improving our potential performance is a strong emphasis on cost conversion, focused on the action fields, user experience and safety. Allow me to end my presentation with the most important takeaways. First, based on the long-standing technology leadership of AMS and VNI, Automotive Technologies possesses one of the most comprehensive future-oriented portfolios in the industry, covering the 6 dominating trends that will define the future of mobility. Second, with our new organization realigned toward action fields, we are putting ourselves in a strong position to realize advantage synergies in multiple dimensions. Third, in addition to creating value through synergies across action fields, we will also create value by differentiating between how individually action fields are managed in terms of growth and value. Fourth, we are not forgetting that operational excellence is also very critical to our competitiveness. Because only with stronger operational performance, we will be able to deliver our customer cost-competitive solutions and generate the returns necessary to invest in growth. Finally, this culminates in our ambition to outperform light vehicle production by around 2 to 4 percentage points and deliver an adjusted EBIT margin of around 6% to 8%. Thank you.

Thank you very much, Niko. The next presentation today will be held by Frank Jourdan, Head of the business area, Autonomous Mobility and Safety. Frank was born in 1960 and holds degrees in electrical engineering and control systems engineering. He's spent his entire career in the automotive industry and most of it at Continental: first as a software development engineer for braking systems at ITT and then later heading manufacturing and business activities. He led the business unit vehicle dynamics during a period when the innovative MK C1, 1-box electronic brake solution was developed. Frank was supported to the Executive Board in 2013, and since then, has been responsible for AMS, formerly the division Chassis & Safety. Frank, on to you.

Thank you, Bernard, and welcome to our participants. I will guide you now are Autonomous, Mobility and Safety. Let's start with our vision. We believe that traffic accidents should become a thing of the past. Our ultimate goal is, in fact, 0 fatalities, 0 injuries and 0 crashes. That's not just a vision that gives the entire organization its purpose. Our vision, subsequently to development of products, which contribute to Vision 0. This in those 2 fields, safety and autonomous mobility. Those are closely linked as without safety, autonomous vehicles will not be accepted. We are, I guess, that's clear, active worldwide and work together with all major OEMs. This year, we generated about EUR 7.5 billion sales. That's heavily impacted by the declining light vehicle production due to the pandemic. Now with sense Planet, we pave the way towards Vision 0. On the graph on the upper-left side, you can see how fatalities in Germany been reduced over time with the introduction of seatbelts, ABS, airbag, ESC systems. Still 3,000 fatalities a year. If you look at worldwide numbers, this is really astonishing that still 1.35 million people died in traffic accidents in 2018. 50 million got injured. So that, again, when I said it's a purpose, this is the purpose of AMS to reduce or ideally eliminate those numbers. We have a twofold approach towards that. Markets with high safety standards, we increase the performance of the existing systems and drive further automation Level 2 plus 2 Level 3. In markets with lower safety standards, we want to increase the awareness with campaigns like Stop the Crash and drive implementation of safety regulations to increase the installation rates of established mature safety systems. All this helps us on our way to reach Vision 0. Now SincePlan. We sense the environment of the vehicle using our sensors. We plan its actions using our control units and the embedded algorithms. And we act by controlling and using the actuators of the vehicle to really make sure that safety is established. In case an accident might happen, our restraint systems are there to mitigate the impact of the crash. Now let's have a closer look on how we contribute to the action fields. I think one thing is clear. The actual field autonomous Mobility interaction with safety. It's in our name. That's our main contribution. But also if you look at architecture and networking as well as software, those are extremely important fields for us. On the architectural side, it's extremely important to have standard components like systems on chip, microcontrollers as well as software stacks, which can be used in all action fields to achieve those synergies. On the software side, there's not many systems today would go without software. And as the architecture change, functions can be distributed over different hardware. So it's very important that we have a common way how we develop software, flawless without failures. I mean those are safety systems. Failures in software are not accepted. So this field of software and system excellence is extremely important for all action fields. Now let's have a closer look on the distribution of our sales towards those action fields. You can see the EUR 7.5 billion we have today and the contribution over those 4 action fields. The main and the biggest area is safety, where we clearly want to have a value management in our stable and mature markets. It's an extremely profitable business, and we focus on profitability and cash conversion. On the other hand, we have autonomous mobility, fast-growing. We will outperform -- we continue to outperform that market with our technological innovations. And we focus on market position, growth and long-term profitability, with, for example, focused investments, mentioned AI, LiDAR -- a long-range LiDAR. I will come to that in a little bit. Now let's start with, as mentioned, the biggest safety -- the biggest action in safety is a solid base for our foundation to drive AMS forward. We have a long history and experience in electromechanical systems, including software. Let's start with the sensors. Sensors are the basis for all those vehicle functions. Just some numbers. EUR 400 million, we delivered last year. Those sensors measure not only the environment. They also are important for all kinds of other vehicle functions from USPS, for example, acceleration, chiros, all are in our portfolio of sensors. Now when you look at brake systems. Brake systems, We have 2 areas, one is the hydraulic brake, the other the electronic brakes. In hydraulic brakes, we have a negative outperformance, minus 3%. This has mainly to do with substitution. If you look at actuation, vacuum boosters are substituted by electronic boost. Nevertheless, without our calibers and trump brakes in HBS, there will never be a dry brake systems. On the other hand, we have our electronic brakes, growing business, plus 3% outperformance. The content is increasing with integrating the actuation, as just mentioned, there is no vacuum booster in the vehicles anymore. So therefore, this will be electrified in our 1 box. Then we have restraint systems, commodity market with very high installation rates, protected -- protecting top market position with anticipatory and connected functions leverage in-house competencies. Now safety and motion HPCs. This is a new rising control unit, where specifically, Level 2+, Level 3, Level 4 systems, there needs to be a unit which controls all the actuators. Different functionalities want to control the brake, want to control the propulsion, want to control steering. This needs to be arbitrated, and therefore, those new types of controllers are rising. In the midterm, it's not a substantial amount of sales we see there. But in the long term, this is a huge growth field. Let's have a closer look on brakes. It doesn't matter which powertrain or which size the car is. Friction brakes with electronic brake systems will stay the dominating system. In the late '80s, we launched our first ABS. Since then, we had a top market player -- or we are a top market player for electronic brake systems. In 2016, we've been first to market with the so-called 1-box design. It's an integrated actuation and modulation. 1-box design is perfectly addressing all upcoming requirements. We see an installation rate going up from 5% today to over 30% in the long term. It's a much higher content per car, as you can see on the slide, which will further increase with the introduction of a pure electric by yen. The next production ratio is already in development. It's a consequent evolution and improves cost packaging and even enables modularity for all vehicle segments. First to market in numbers. I mean we have 6 customers with more than 50 SOPs up to now. In 2019, we delivered 1 million units. Nearly 40 awards are on backlog for our 1 box. We just recently, very happy about that, got a waterfall premium OEM with lifetime sales of EUR 1.8 billion, where we become single source for their platforms. Now safety in a nutshell. We have a comprehensive product portfolio. You won't find many with that portfolio. We have the entire sales plan ex chain. We bring safety in all driving situation. And with our extensive knowledge and understanding of the vehicle system, of the individual components, we will assure that our Vision 0 will be realized in the future. We're creating value by translating market trends into tangible solutions. 1 box is one great example for that. We increase content with a vertical and horizontal integration, and we manage profitability through cash conversion. Now let's look at autonomous mobility. This is a -- it's higher differently. In terms of value, we have huge growth here. This is, by far, the strongest growing area in AMS. Our sensor heritage is the foundation for sustainable profitable growth here. The autonomous market is strongly growing. Today, our business is mainly with sensors, radar and camera. We have the entire package of sensor technologies to realize safe, highly automated and autonomous-driven vehicles. Radar is very strong. We have, again, the complete portfolio. We continue to grow strongly. Our new 4D radar is benchmark and will manifest this position. When it comes to camera, we're working very closely with partners on our smart cameras, Cardica Horizon and others, to really participate and benefit from technologies outside of Continental. Surround few cameras. We are first to market with many innovative features in the field of visualization, adaptive 3D views, transfer and hot. We've got a session word for that, trailer reverse assistant other functions. When it comes to what we call ADCU. So this is a control unit, an ECU for assisted and automated driving, we see growth in the area of 80% outperformance in the midterm. And we can provide here the full stack, including integration of third-party software. LIDAR. LIDAR is a technology which will come with Level 3 and higher. LIDAR, we are working since a couple of years and have an experienced team. With our short-range LIDAR, we start with serious production beginning of next year. And we are leveraging this experience together with a strong partner AI to develop a long-range LIDAR, which is global benchmark with first targeted SOPs in 2024. On the mid and long term, software as a product and integration services will become additional growth drivers. We stay strong where we are strong, and we complement our portfolio. This leads to extraordinary growth. Now the focus in the industry has moved from Level 3 to Level 2 Plus systems. And with Level 2 Plus, you have the driver in the fallback. And as you can see on the slide, Level 2 Plus already brings much higher value in the car. When we talk of regular Level 2 Plus system, it's a different name, we call it Level 2 Performance, you have twice the value of a regular Level 2 system. When you go to Level 2 Premium system, you talk already about 4x the value of a regular Level 2 systems. Once we get into Level 3, there the investments get higher and the content is rising even further. So it's definitely by far more than 10x what you have in a Level 2 system. We have maximum benefit out of that growth because of our complete portfolio. Able to sell customers our USPs. We have the full package and the full knowledge, including the right partners. Great opportunity for us to play our strengths. Now modular and scalable hardware and software platforms to manage high complexity, this is extremely important. You need to have a scalable hardware platform to be able to have synergies between all those levels of assisted and automated driving. We can provide a full stake when it comes to software. And we always cluster it in driving and parking functions in perception, so what is the environment looking like, environmental model is the term here, as well as the basis, the operating system and the middleware, where we have in-house a lot of competencies with Elektrobit and Argus, where we can provide an operating system and the middleware. But what we can see in the industry is that most systems of higher complexity, let's say, Level 2 Premium as I called it before, there are several partners working together. It's not coming all out of one. The OEM provides functions. The supplier provides functions. It needs to be integrated. You have specific cybersecurity solutions. I mentioned Argus. And that needs to be integrated. And this is also a strong strength. Sounds strange, but it is a really strong asset of ours that we can provide the full solutions but also capable of integrating solutions from different sources. We also see that there's a trend that as the architectures in the car change and the software gets decoupled from the hardware. It's a very important step which we see in the industry, this decoupling of software and hardware. Some companies provide just hardware. It is possible now. And some others provide functions. So this is also a growing field for us that we are providing software functions to our customers and also provide the integration services to integrate software from others with our -- onto our hardware. Also very important to develop all those things is our AI competence. We have big AI centers around the world. I'm also proud to have some of the industry-leading computers in our facilities, too, and that's a new animal when it comes to automated driving. There's hundreds of terabytes of data which we have either in our simulation or have out of fleet, driving -- fleet driving around the world collected. This data needs to be labeled and then used to really further train and teach our AI algorithm. This leads huge computing power, which we have on hand. Now let's come to something entirely different, away from high tech and automated driving, to managing our operational performance. And AMS is contributing with around 15% to the group's cost saving of EUR 1 billion in 2023. I'll just show on this chart here the 2 KPIs in manufacturing as well as in R&D, how our footprint is changing. We will move from about 75% of best cost manufacturing, as we call it, to a level of 80%. And when it comes to R&D, we move from 50% to 60%. Now the EBIT bridge. In 2020, we expect the adjusted EBIT margin for AMS to be approximately 1%. On midterm, our clear target is to return to a margin of approximately 6% to 8%. Two factors will drive this. First and foremost is growth. One part will come from the anticipated recovery in light vehicle production. An additional contribution will come from our expected outperformance of 3 percentage points. On top of growth, improvement in operational performance are increasing our profitability, most notably from our cost reduction activities but also from operational excellence, quality performance and standardization. Not shown here, but an important part of improving our financial performance is the strong emphasis on profitability and cash conversion with focus on the action field safety. So in summary, sense, plan, act in safety and automobility together to reach our Vision Zero. That's what we stand for. That's what we drive for. We have our value contributor, safety. We have our growth driver, autonomous mobility. And I'm very optimistic that with that, we will reach the outperformance of 2% to 4% and our targeted EBIT performance of 6% to 8%. Thank you very much.

Thank you, Frank, for the presentation. Let's move on to the next presentation and the next presenter, Helmut Matschi, head of the business area Vehicle Networking and Information. Helmut was born in 1963 and holds a degree in communications technology. After finishing his studies in 1986, he joined Siemens Automobiltechnik as a development engineer. Over the next 2 decades, Helmut served in various engineering and business management capacities, eventually being named to the Executive Board of Siemens VDO Automotive in 2007. Helmut joined Continental with the Siemens VDO acquisition. He's been on the Executive Board since 2009 and since then responsible for VNI, formerly the Interior Division. Helmut, the virtual floor is yours.

Thank you very much, Bernard, and also especially remembering me that 35 years of experience are right now there for me. And ladies and gentlemen, there has never been a more exciting time of transformation, product transformation going on. And with that, what you see already on this first chart here, Vehicle Networking and Information. You see vehicles, you see commercial vehicles, you see passenger cars, which are always on. And this is what is driving us. Connect, inform, integrate, these are these buzzwords around our specific strategy where we are connecting all the persons in the vehicle with the vehicle but also the vehicle with the infrastructure. In terms of the information, it is so much about the user experience to have all these wow effects for the joy of use. And everything comes together with all the features and functions in the way of the systems integration, which is the DNA of our business area driving that. And you see with all these people, EUR 7.8 billion in terms of sales all across the world, and this not only for OEMS but also to many other different customers. So when looking right now, how we have assigned these sales into the organization, then this is that we have 3 business units, 2 of them on the passenger car side and one of them on the commercial vehicle and services. They are evenly distributed when it comes to sales. The 2 passenger cars business unit are a little bit larger. With the first one on connected car connectivity, our connected car networking, it is fully about how to enter the vehicle, how to start the vehicle and how to connect it to everywhere. And so therefore it is very good that these 2 main core product areas that they are in a top position: on the one hand, the connectivity; and on the other hand, the body controls, which do migrate to the high-performance computer on the body side, which is very important for us. Also in a top position, it is all the instrumentation, which is the core of human machine interface, the second business unit I'd like to talk about. And there is a very strong transformation of all the instrument clusters towards display solutions and the cockpit HPCs. I will address them a little bit later. Under the commercial vehicle and services, it's so much about all these products, plus the commercial vehicle specific ones. And also here, we do have the proposition in the tachographs, which is preparing ourselves for the next level. And this is the services which are in there. And also what we do since a long time is all the aftermarket serving with our brands on Continental, on ATE and on Galfer. Now I would like to leave this view from the business units on the organization and directly go into the strategic view of the new automotive technologies. And so therefore, you see in this chart that we are contributing to all the 6 strategic action fields, focusing on the 3. And these 3 is architecture and networking, where it is horizontally, horizontally because of the connectivity on the telematics, horizontally because the body and cockpit HPC are so much horizontally integrating functions. But there are also 2 verticals, the strong one on user experience, which is not only about instrumentation towards the new approaches but also all the smart access where we might replace keys with the smartphone access. And in terms of the smart mobility, it is fully about the tachographs, the onboard tolling and all the services. We will address them right now. Now let us look how this view is migrating this EUR 8.8 billion in sales in terms of the strategic action fields. So when we look towards the user experience, this is the larger one out of that, so around about EUR 4 billion in sales, and growing with the 1 percentage point, this outside of the outperforming the market. And this is also the reason why we put this type of business, very strong on the value side, as Niko pointed out before. In terms of growth, we are having these other 2 main areas. On the one hand, architecture and networking outperforming the market with 3 percentage points. And this is where already high-performance computer is in, which will play a very strong role and even a stronger one when it comes from midterm to long term. The smallest but very important kid on the block is the smart mobility because there the growth rate is the largest with plus 10 percentage points, around about. And on that basis, this growth area is that much that is becoming pretty significant when it comes to the midterm area, so 2 to 4 percentage points, around about. Now let us deep dive into the first strategic action fields, architecture and networking. And of that, we see very clear. We won all the first 3 supplier awards for the central electronics. And more interesting enough, 2 of them are already in production. One of them, this famous VW ID.3 vehicle where we are doing this famous in-car application server #1. And why is that so much different compared to all these previous electronics, what we did over the last decades? Because it's based on a new fully connected architecture, and to know how to master this architecture from the components to the cloud is an important element. Second, the horizontal integration driving this forward is also something which is pretty strong up there. And these projects, they require a huge amount of people. This project management is so complex, an own specific setup, an own organization for that. That one helped us. And now we are ready to scale this. This, no one can take away from us. And this is therefore also the point why that VNI sales in this action field is so much showing how this transformation is running. We see, starting from the lower elements to the upper, that by purpose, we are driving down the PCMs, gateways, the in-vehicle infotainment in order to grow in the area of the target product group, which is about the high-performance computers. And you see that this is, from almost 0 niche with 100 percentage points outperformance, growing to become pretty significant in midterm. But even more important is it will grow to more than 50% sales share in the long-term area. On top of that, connectivity will be in all vehicles. So therefore, it was good that we concentrated very much from the very first point, 3% outperformance in this area. And now when we look to the second one, which is about the user experience, this is another element because here we are very strong in terms of the market share, a full transformation from mechanical instrument clusters into the area of display solutions. And out of that, it is not only about display commodity. There are a lot of core competencies in which we are all leading. We have identified exactly for ourselves how to create the value there, what to buy and what to take in order to create the own value on top of that and in addition with different business models, to scale from product, why are the user experience to OEM specific solutions even up to 3-dimensional capabilities. And with that, we support the value in 2 elements: on the one hand, towards the customer in order that we help them to brand differentiate; and on the other hand, with the asset structure to drive everything here according to value. And this is leading to another chart full of transformation. Instrument clusters, we are pushing to transform minus 30% against the market towards the full digital clusters. When you look, then you'd see that the full digital clusters are growing only with the market. Why? Because this product is just a one generation transition product going forward into the way for full digital clusters into the display solutions. And this is what is growing with 30 percentage points. And you see this is becoming the target group for the user experience, ease and joy of use. Clear that we also take the information technology on the head-up display driving forward with this enhanced interaction, another plus 15 percentage points, another plus 5 percentage points on all the smart access where we help to add on into the key also the smartphone in order to access the vehicle. Broad situation, 1 out of 4 cars equipped with our products, and this means more than 120 million user experience products annually. This is leading me to the third main strategic action field in which we are going forward with. It is about the smart mobility. And here, everything comes together. On the technology side, it's highly up there because we have the full vertical stack up there: measuring, transmitting, using data. And now we are in this phase of commercializing the service where we focus on these 4, what you see out there. And the largest one in the midterm will be the key as a service not only for OEs but for pretty diverse customer groups. And so this is where that growth is supported on the one hand because our customers, they do benefit in all this total cost of ownership but also that we help them in order to give 100% compliance to all these new and heavy regulations. And this is also up there that with this full stack, what we are providing there, that we have the holistic solutions and have the full systems available for the smart mobility. So this is then leading to a very interesting scenario because all the elements are growing double digit. When we look to this business right now, which, of course, is today in a smaller range, then you see this identified by 50% out of hardware business like mainly the digital tachographs. But this made us the trust center for trucks in all these areas. And on that basis, also there is fleet management, which is already services. And this is an area which is growing with another 10 percentage points outperforming the market. And on that basis, this Zonar brand, what we are having is helping us a lot driving that business forward. And then there are many new businesses in terms of services, which are out there on the eHorizon, on the key as a service and the remote vehicle data, which are helping us, plus 20%, plus 50%, in order to come to an expected outperformance there in around about 10 percentage points. Why is it that large? This is because there are 4 growth drivers which are all supporting us there. And this is on the one hand, that logistics is going fully digital. The regulations are highly up there, and more, the mobility types are changing from purely owning to all high -- all different new possibilities there, new and different automated driving. Frank pointed them out. And on the solution demand, it's so much in order to be fully comprehensive to provide the entire solution. And so with that, we see on this basis, that besides all this transformation in terms of the product, we also do a lot in order to strengthen our operational performance. So the VNI portion on the whole aspect is 45% on the gross savings. Why? Because we invested right now so much also during this crisis time of the pandemic in order to transform our products towards the high-performance computers, towards the display solutions in all these elements. So we kept it up there, and right now, this is something we're in this next phase also. We need to save more costs on this basis. And this is what I would like to show to you, how we are bringing that one into best cost in manufacturing and in R&D. The manufacturing, especially for all the display solutions, you only can do them in best-cost countries. The whole world does it in that way. And this is also that we are going into that direction, and this brings us midterm even up to 90% manufacturing in best cost. The R&D is already right now that we are doing this pretty much in best-cost share because 55% is already more than the half right now and growing by another 10% is showing that we are going further that path in order to have also the optimized cost structure there for our future products. So -- and this is right now showing on the EBIT bridge that with all this investment, what we did, and the difficult situation right now where we stayed tuned in other developing these products, that we will most likely end up at around about minus 5 percentage points in this year. And then with all this growth coming out of all this awarded business, what we do see there, like just this one point I would like to mention, 3 billion in terms of the high-performance computers we do have already. And this is helping us boosting also the profitability. The active product transformation is continued there. On the operational performance side, I spoke about these cost structures, which, of course, does affect a high amount of people. And this is something where we do care as much as possible in that way. But then there is also another element to be taken care of, and this is about the fair sales price. We do everything for our customers in terms of integration work, in terms of architecture work. And right now, we are also going forward in that direction for a fair sales price to be remunerated and to have redesigned to cost for all these products in the future. And with that, we are going forward towards the 6 to 8 percentage points. Now let me finalize this. So you see that we have a strong base on the performance, how to go forward with. And on that way, we put these elements on growth and on value up there. So with this first in market to realize the shift on the electronic architecture with these high-performance computers, we are ready to scale. On this basis of the user experience, we did this fast transformation from the instrument cluster, wired the full digital to the display solutions. And with that, we are right now perfectly positioned for this new type of display solutions. And when it comes to smart mobility, it's good already to have service business on top of all this product business. And having that full stack approach, this is helping us obtaining that future growth in the smart mobility arena. And so this is showing how we are coming to this market outperformance 2 to 4 percentage points over the years on top of the market growth with the adjusted EBIT of 6 to 8 percentage points. With that, you see Vehicle Networking and Information growing in the areas of networking and services and on the value base so strongly on the user experience. Vehicle Networking and Information, the transformer for you. Thank you very much.

Thank you, Helmut. So let's now move on to the next part of today's program, the Q&A session for automotive technologies. Niko and Frank, may I invite you to the stage again to join Helmut. Now since this is today's first Q&A session, let me explain how we'll go. Sell-side analysts that cover Continental are dialing into the telephone queue at this moment. Our operator will let me know who is next in line to ask a question. [Operator Instructions] Now as we wait for the telephone queue to fill, let me start first with a very current topic for many investors. Mr. Setzer, there have been many reports in the media in the past couple of weeks about a possible shortage of semiconductors in the automotive industry. Continental and some of our customers are supposedly affected. Can you give us an update on the current situation?

Yes. Thanks, Bernard. And this is definitely a question which is important. So as we all know, the disruption caused by the coronavirus crisis has caused extreme volatility, in particular in the automotive industry. And that's where we are in. After the industry shutdown in the early phase of the coronavirus crisis, so in the range of March, April and May, and the resulting abrupt drop in demand the automobile -- of the automotive manufacturers, especially now in China, we're increasing their production volumes much faster than foreseeable and expected by market experts some months ago. This results in a general supply shortage, but in particular for semiconductors due to the lead time. Of course, the semiconductor manufacturers have also been affected by the pandemic itself. In the meantime, they have responded to the unexpected demand by increasing their supply. However, as already mentioned, due to the usual long lead times in the semiconductor industry, their required additional volumes will only be available with a considerable delay. So the potential bottlenecks will extend into '21. However, we are working around the clock with our customers and with our suppliers to minimize the effects of the semiconductor shortage, but we cannot rule out that it will cause disruptions in the production.

Thank you, Niko. So the queue is now filling up, and let's go to the queue. The first question will be asked by Horst Schneider.

This is Horst Schneider from Bank of America. So the first question, that relates to the outperformance guidance that you have provided for the auto technologies segments. I know what happens tomorrow, I sit in front of my model and I ask myself, what should I punch in for '21, '22, '23, thereafter? Is it now 2%? Is it 4%? So therefore, I want to understand a little bit better. On what does it depend that you do 2% or 4%? Or is it more that you grow initially or you outperform initially by 2% and then towards the end of the time, rather by 4%? Or is 2% the minimum outperformance target? Can you maybe specify a little bit what is the path of the journey? And on what does it depend? Is it 2% or 4% outperformance?

Niko, would you like to take that question?

Yes. Definitely, this is a great and relatively difficult question. Thanks for that one. So I have to imagine, it depends. I mean where does it come from? We have seen that in particular in those growth focus areas, we have seen outperformance of the underlying vehicle industry. And for each of those segments, the outperformance is different over the time frame. And let me take just this one example because you have seen vehicle architecture and networking, which Helmut was talking about the high-performance compute. So the outperformance on those areas not just depends on the new technologies coming in, so the high-performance compute areas, which definitely -- as you could have seen as well in our market session and as it has been shown there, which will come at a certain later point in time. So most of the high-performance compute solutions, we have started basically right now, but they will generally roll out in the time frame '24, '25. So this comes at a bit later point. The fact on how, and Helmut has shown this, the existing portfolio, the decentralized ECUs will at the same point get reduced is really relatively difficult to be predicted. Lots of the other trends have as well those ins and ups. So how this will come up for us, it's very difficult to precisely guide. That's why we have this 2% to 4%. Is it fair to assume with some technologies looking into autonomous mobility and as well as on the VNI side that it is more supposed that at a later stage, those new technologies more outperform and contribute to the overall growth? I would say that's a fair assumption. So most likely at the beginning, it should be a bit lower, whereas at the end, the new technology is hitting then the road, it should get a bit higher.

Okay. Sorry, I'm going to ask directly on that, a follow-up. So that means that in the beginning, more 2% or at least 2%? And can it be also -- towards the end of the period, could it be also above 4%?

This is a very precise question, and I think I answered in the middle. I mean look, our market is so volatile right now. There is no way that we can predictably name and quote a certain outperformance for the time. Can it be lower? I mean it all depends on when as well the new technologies are starting with the customers and how are the other phases out. We can only give an orientation and a guidance and a direction. There is no way to make this now very precise. Can it be above 4%? I mean it depends as well on the customers' choices and how successful we win the transformation as we have said before and how solidly the customer is counting on us, whereas others, we can just simulate the markets which we see for our products given what we have in our order intake so far on hand. And there we can just say 2% to 4%. So no precision. Can it be lower? Can it be higher? Of course, everything can happen nowadays. I mean the pandemic has shown that things are changing pretty fastly. However, as said, it is a fair assumption that at the beginning, due to technology changes, it is a bit lower. And at the end, it's a bit higher. Sorry for not providing more precise figure.

I fully understand that. But just -- and on the last one, is the impression right that in Autonomous Mobility and Safety, the chance that the growth will be higher is initially higher as compared to VNI?

Maybe for Frank first and then Helmut?

I mean I don't want to compare to VNI. I just say that yes, with the trends towards Level 2 Plus, which is on a technology side, easier to implement right now versus Level 3, which will take a little longer. There is definitely an upward chance, which is quite high.

Yes. And in terms of the VNI, it is on that basis that I feel pretty comfortable with these growth rates, what we spoke about. And so therefore, I think the execution, simply looking to this, what is already there in terms of booked orders is fine. And so therefore, we will go forward this path as presented.

Thank you, Horst. So our next caller is Gabriel Adler.

Thank you all for the presentation this morning. This is Gabriel Adler from Citigroup. My question is for Mr. Setzer and is on the strategy to manage your growth and your value portfolio. It's encouraging you expect midterm outperformance to recover towards the 2 to 4 percentage points that we've just discussed. But it's also clear that the growth rate is being inhibited by legacy businesses. So my question is, what progress has been made and what additional steps are being considered with regard to divestitures in order to accelerate the exit from underperforming value businesses and truly reposition on these auto divisions?

Okay. Overall, I would like to start this answer with, as you all know, we started the transformation program, a transformation program within our operational excellence, one strategic pillar where we reviewed already where are the areas where we see that we have to improve our performances. That's where we review as well are there segments, are there areas where we are not the best owner, what can we do. And this part is a work in progress, so to say. And we are working this now through as we have presented it. On your second part, the question is, is there further opportunity for divestitures, further opportunity to adjust the portfolio. As we mentioned, we will, with as well this separation, have a close eye and offer transparency on the individual units, which have their targets to perform, which have to deliver in the area where the targets are set. And we will constantly monitor this. We will obviously review there and doing a best ownership test, so to say, review as well the market. However -- and this is important for our strategic execution because we, on purpose -- and we've worked really strongly on that, on purpose, we defined 6 action fields. And you've seen the 2 horizontals. We strongly believe with this vertical and horizontal integration and the opportunity for scalability, we create synergies. And we have a unique setup, if you compare our setup of the 6 action fields with others in the market. Obviously, we don't talk about specific competitors. But if you see our positions versus the one or the other, we clearly see that the depth and the breadth of our portfolio is an advantage. And if you assume -- and we accept that those 6 action fields are clear trends which we follow in the future, it makes totally sense to keep them strong and interlinked with each other. So each area where we're looking into and thinking best owner test, we will always keep in mind what are the dissynergies on the functional side, on the integration side, which will come in, and obviously as well on the total automotive community. And to make this clear, so far, there is nothing which we have specific on our plate right now.

Gabriel, you have another question?

Yes. Just following up on this differentiating between value and growth, it would be useful if you could talk a bit about also the reinvestment rate that you're targeting for the value businesses compared to the growth businesses, just to help quantify this. Can give us a better sense of how much capital is being allocated to value compared to growth?

I mean we will not shoot out a firm number. However, I can tell you we will very selectively look on it. And it is important, and it came as well across, I think, on the safety part one Frank were discussing, where we've seen on the UX part there as well within the value areas, segments which are clearly more on a growth path. I mean the digitalization on UX, we see there is further investment needed not only on the manufacturing side but as well in R&D. And on the safety side, there are segments in safety which are as well outperforming the underlying market. Of course, we will and have to support very selectively those areas. Those areas where this is not that much needed, we will selectively look into the investment side. So for sure, if you look for percentage investments it will be most likely, depending on the mix in different areas, lower on the value side than on the growth side, for sure. But we have not given clear directions or indications how it looked like. And this is as well very important because what are we talking on the growth side. I mean -- or if you look as well in particular on Helmut's area, it's not so much then the CapEx side, it's the R&D invest which we are talking. And there, we have to look very specifically in what is the return of specific R&D investments, what -- and when is the return kicking in. And that's why we say on the value side, we clearly focus on profitability and cash conversion. And on the upper side, on the growth side, it is more value creation on a different time scale. Sorry that I cannot answer you with sharp investment rates or R&D rates there because simply we have not set that. We are, however, looking very deeply and track this internally, of course, for sure.

Thank you, Gabriel. Our next caller is José Asumendi.

José, JPMorgan. Thanks very much, Nikolai, for the CMD. I think very, very useful sessions to understand much more around the strategy, so thank you for that, first of all. I've got 3 questions, please. I'll take them one by one. First one for Nikolai, very simple question. I mean when you look at the organization, when you look at your reporting lines, have you changed anything in the structure, either on the reporting lines, how people communicate with you to be able to tackle the problems quickly? I guess we have sometimes the impression that Continental was not able to react as quickly as the market trends. So how are you making the company more agile?

Okay. That is a good question. So looking on the time line, I'm now how many days in my job? 16. You should not expect after 16 days, the whole organization has already changed and changed reporting lines, knowing that I've been obviously as well on the automotive part already since April last year in the function and with the colleagues, Helmut and Frank, realigned automotive. And I think this is the place where we already implemented lots of changes, which we have shown with our action fields. We have brought a central CTO, Dirk Abendroth, who presented as well one action field session. With his organization, he supports the 6 action fields completely. And those areas where synergies are coming or where you have forward-looking areas -- I mean excuse me, not forward-looking but R&D activities, which have a longer time scope, more the 3, 4, 5 to 10 years area, this is being hold centrally. So we centralized there our process, methods and tools, for instance. We centralized there as well our handling and managing of the R&D locations on a global scale, our software parts. Elektrobit and Argus, for instance, those 2 franchises, they are included in the central department of the CTO under his responsibility in order to swiftly drive because you need, definitely for such software companies, a different management than you see it on the pure hardware side. So we did this January 1. We have changed and adapted this organization. This is what I outlined under automotive technologies. And during this year, we made this organization -- this new organization alive. So we just had our automotive convention about 10 days ago where we discussed. And due to the fact corona helped in this case, so we had the full executive management team around the globe because it was a virtual event with us. And we rolled out the strategy, and we were coming up exactly with this part. The one part is what we do, and this is what we've clearly defined with our 6 action fields and those areas. It now comes -- and this is, I think, the point you touched on, how we execute this, how we integrate, how we leverage scale, how do we add value out of the organization, which we have. We fully aligned this. We've kicked it off. And we are very confident that we are able by that to increase speed, increase agility. And we are more than willing to adjust as frequently if we have to adjust. I hope that answers...

Very useful. Second question, please, for Frank and also for Nikolai. Looking at the slide where you showed the different growth patterns by division, right, I'm trying to understand if you can give us some color, please, whether autonomous mobility can drive higher margins than safety within this division. It looks like autonomous mobility can grow quicker than safety in the midterm. If you can give us some color on whether we have there some product mix improvement, underlying trend that we can think about. And also, you outlined the restructuring measures. Which of these products are going to be the biggest beneficiaries of the restructuring measures you're taking within AMS? I have a third question after that, please.

Okay. I'm not sure if I fully understood the question, right, when you talked about margins between safety and autonomous mobility. One thing is clear that -- and that's back to a question which was asked to Niko about investments specifically on the R&D side. The invest on the R&D and autonomous mobility is by far much higher than the invest in R&D of our safety field. So there's a much higher ratio you have there, which is affecting the margins there. Potential is higher in autonomous mobility with its underlying growth. When it comes to the question about restructuring, I mean we have one area. And I mentioned the negative outperformance of -- oxymoron, negative outperformance of 3% of HBS. And that is where the strongest activities in AMS are when it comes to restructuring, to make sure we have the right footprint, to make sure we have the right products in there. There might be some products, and I mentioned one, which is declining substituted vacuum booster. So those are the fields which benefit most in AMS from the restructuring activities.

Yes. My third question is to Helmut and also to Nikolai, very similar question. Within your subdivisions, which one do you think is going to be the biggest beneficiary of the restructuring actions you're taking? And also the highest-performance computers, by when do you roughly think you will achieve the sweet spot of profitability on this product?

Yes. So for the first part on the beneficiary of the restructuring, this will be definitely pretty strong on the HMI side because this is where we have the full transformation from the instrument clusters, which have been purely mechanical on a basis with pointers, with styles, with cages and on that basis, fully going via this full digital clusters to the display solutions. And so this is also a big change from an electromechanical product towards a full electronic product with a lot of optical, haptical appearance and things like that. And so therefore, the complete type of production skills is changing, and also the competition is something where we are much closer towards display technologies. And therefore, with all these activities, the business unit HMI will participate here the strongest. The other point was what about the profitability scenario of the high-performance computers. Yes, with the amount of R&D activities running like this ID.3 program right now, on the basis of 600 people internally, 400 people externally, so a 1,000-people program in order to make such a product ready, this was of course a very high upfront invest. Now start of production is there. The first 80,000 parts are being produced, running and going forward with that. And this is that we are looking forward to have positive cash flow on these type of products within the year to come.

Thank you, José, for the 3 questions. So let's move on to the queue. Next in the queue is Tim Rokossa.

Niko, good to see you on stage so shortly after really taking over the job. I don't think many other CEOs would have done that. My first question is you're going through a major restructuring. You are going through a major repositioning, divesting a business that is good now, but it was historically much weaker than the group automotive average. There was -- you shift away towards the more profitable and better-growing businesses. Traditionally, you say you focus a lot more on software and future growth areas. And yet the outcome is basically dissimilar to what we had before, 6% to 8%, 200 to 400 basis points of outperformance. So even saying in the near term, the outperformance could be slightly weaker, just to Horst's question. Were you surprised when your divisional heads presented you those targets and you added them up? And why shouldn't you expect better outperformance and better profitability if you're really focusing on the more interesting part?

Honestly, I was not surprised because I can say that I know the developments in our different divisions or business areas as we call them. Quite closely -- I follow them quite closely. And I was fully into it and obviously as well involved in our plans. And we were discussing for length where do we see our future. I mean first of all, you see we are coming in the year 2020, which is obviously with all the volatility, not the easiest one to make prediction of the future. This is number one. However, as you've seen as well in our bridges with the growth to come, which comes because you are coming from a relatively low end year 2020, that already contributes, plus our operational excellence parts. So why did we come up with this? I mean it has most likely been never that difficult with all the transformation which happens on the side in VNI that we've seen products which are phasing out much, faster, new ones which are coming closer -- which are coming in, too. So you have this change on the one side. At the other side, you see the tremendous change of the industry and the invest needed in operational excellence, and Frank referred to this. I mean looking in the Autonomous Mobility and Safety area where change in products, in customer needs and complexity is so fast and needs resources, they are still market positions to be built up. So we have to be very careful, close white spots, looking into this because we want to emerge as winner, as we said. So there is no time to lose. Then focusing on the action fields, closing white spots, building up our market position and using our framework. At the same time, as you referred to, operational excellence, we have to go through our transformation, which as I mentioned unfortunately has very painful measures to take on. So this is a very difficult transition, no doubt. However, we are convinced with what we have on the plate on the technology side, what we have executed so far and what we bring in, that we have great opportunities to profit from it. That's why we see it change into an opportunity and come up with those targets. If you ask -- and this is implied in your question, whether I've been disappointed, whether we have to expect higher or lower, we believe, and that's where we're coming up, that those are realistic targets. That's why we included them. We are well aware as well being a technology company, being on a way in particular on the growth areas, I mean where we need those investments, that we need value and the cash conversion and our profitability in order to be able to follow this fast pace of those fast trends. So in a nutshell, we believe this is realistic. Is it easy? No. It is ambitious because we have to follow an operational excellence approach and at the same time, closing white spots, focusing on efficiency and R&D, making this happen -- happening. Software is a complex animal, which we have to manage and leverage out of the synergies out of that, which we can do. I think that is, in a nutshell, how I would see those targets going forward.

Okay. Fair enough. And if we think about one of the future growth areas, the autonomous mobility, specifically when we think about Level 3 or even Level 4 and Level 5 systems, you have one competitor out there that is very vocal that they don't really see your guys sitting at the table any longer when it comes to complex autonomous driving systems, basically just saying it's them and Bosch for almost 100% of the contracts. What do you say to that? Is your ambition clearly to be more than just the hardware and partial software provider in that area? And is it true that you're winning less than 10% of the contracts right now?

I mean I know who you're referring -- I know who you're referring to. I'm not sure if that's true when you -- when it comes to contract won or not won. I mean I think my presentation -- I hope my presentation made it clear that we do not see ourselves as what you said, a hardware provider, which I would then take a sensor, a radar, a camera, a Lidar or a control unit. No, far more, we will and we are already providing -- and we have quite some contracts where we not just provide the hardware. We provide components of the functionality. And I have not seen in the market, and we look at it very closely, what's happening in all of our customers, a supplier doing a full system. So I don't know who talks about how many full systems they want. I haven't seen that yet. So it's always bits and pieces of it and the integration effort, and we have quite some projects won where we do the integration effort. So again, I don't want to comment about others, but our vision here is very clear. It's not just hardware.

Yes. I mean this is clearly to be emphasized, and we have seen it as well in our expert sessions. And hopefully, we brought the message across that our ambition is -- I mean there's nothing bad with hardware. And it is the base for having as well central compute and making utilization with the knowledge which you have there, developing the right functions and being able to integrate. And sensor fusion is a capability where we believe we are very strong. And this has been as well conveyed from radar, camera and all sensors which are coming as well in-house from us, do a proper fusion and taking the right steps out of that. And clearly, our ambition is, and that's why it's one action field, autonomous mobility. But are there white spots? We have said before, yes, there are areas where we can further improve. However, we are committed to close them as fast as it is possible and as it makes sense, we have to say. I mean this is an area with lots of scope, lots of areas where we can go from. There you have to have as well a certain focus. You cannot do everything. But we have a clear strategy and vision there, which is clearly hardware, yes, software, yes, and going into functionalities and going forward because we want to be a strong player in this field.

And specifically, thank you for giving the details on the individual subsegments and outperformance. I think that's very much appreciated.

You're welcome.

Thank you, Tim. We'll go to our next person in line. That would be Victoria Greer.

Thanks for the presentations. The first question for Nikolai, in Dirk's presentation last week, he showed a slide talking about new value streams across the life cycle of the vehicle coming from software maintenance, from new features and functions and from cloud services. I think it was Slide 5 in his presentation. Could you talk about how you see the business model that would allow services revenue from software to flow to Conti from the consumer, I guess, through the OEM? And then how does that flow into Conti?

I guess you have to separate 2 items. The one item is over-the-air updating maintenance, adapting software over lifetime and being able to provide as well additional functions during the time the car evolves. This is a clear competence of Elektrobit and our central software, so to say, which is as well applied in our different areas. So this is more a service which we are providing to the OEMs and which is consistently offered and which is clearly a business which evolves over time. So the vehicle was in the past, that's why we are saying very much defined by hardware updates. In the future, it will be clearly by software updates. The second part you referred to is how to profit from delivering new solutions by the way of data and connectivity solutions. Data is in the cloud, which offers new business models. And there I would hand over to Helmut, who refers to that one within the category, smart mobility.

Yes. Thank you, Niko, for that. And what I like in your question is because it is directly saying, what is the need, where is this high-performance computer and new architecture coming from? Because out of these changes on the software side on this over-the-air updates, this is where the OEM would like to do future business. But it's also a big work for us because on the one hand, compared to previous times where we just have had a product brought to production, and then it was pretty silent for us. Right now, a lot of performance work does start because the maintenance activities are directly planned, and the software updates activities are directly planned. And then there are different business models how to do that. On the one hand it is about the direct remuneration. The other one is about certain licensing models for that. And these are all, right now, things which have been realized right now with the customers. And also this is how these changes do come right now after all this upfront, invest what we did. So therefore, this is showing that Continental is not only based on the hardware portion of the business but also on the software and services side.

I think I would add because in particular, on the smart mobility, I mean, we see clearly one trend in mobility, and this is fleet. Fleets, we see on the -- I mean, on the commercial side, this is -- since long and large group, but on the par side, this further evolves and evolves. And if you are talking business models, all that fleets need is total cost of ownership. That should be at its best and that's where we with, number one, our products and hardware products and the software products and connecting with the cloud with our fleet management systems. This is the business model which is spread over the company. And which is, on the one hand, strong on the smart mobility side with VNI. So we have with our VDO digital tachographs and so on with Sonar. Sonar, we bought a fleet management company in the U.S., which is active, which enhances as well their school bus systems but as well-connected -- connects trucks and supplying several services. We add now there as well our services, which we have in the other business areas, such as tires, for instance, tire pressure monitoring. Sounds like an easy service. You would say, okay, tire pressure monitoring. If I know this locally as a fleet manager, how does that help me? I mean each breakdown is a nightmare for a fleet. So if you can already predict it before by our algorithms, and if you have the connection to the fleets and we connect more and more as we speak fleets, and not only the commercial ones, they have been, obviously, since long in the focus. In the meantime, we connect as well past fleets. The next part, as I said, is besides [ tire wear ] [indiscernible] is as well predicted. So when is the tire used? And we are able to offer those additional services, which reduce total cost of ownership, which is directly an added value for the fleet management and is then a product which we can keep alive and build up business models on that. So just to give a bit of an example, how we see that coming. And Gilles Mabire in his session, smart mobility, has referred as well to this. And I'm sure Christian Kotz, who comes later, explaining the tire business will specifically come on that part as well. How is our business model using those new options of connectivity? And as we said, from the hardware to the cloud, we believe, and with our broad portfolio, that there are lots of opportunities for us to offer additional value to our customers.

Great. And then a second question for Helmut. Thinking about central electronics, you've outlined today that you've won the first 3 contracts that were available in the market. I wanted to ask you a bit about how these contracts look and how are they structured? And so things that we'll be thinking about there would be, for example, how should we think about content per car for central electronics, more high value on a few platforms or lower value but higher penetration? Is it an area where you typically win the full platform as the sole supplier? Or is it more like traditional supplier business where you're one of probably 2, 3 suppliers? Is there anything different about how the central electronics contracts are getting structured?

Yes. When we look how they originally have been structured, then this was a pure bill of material type of business like a renewal over decades. And so the whole industry did undergo here right now this very big change because realizing that this is not only like having a specification, fulfilling the specification, bringing the product into production. There was a huge learning curve there because when right now, this setup is done for a fully connected architecture, suddenly, all the electronics communicate with each other. And so the integration work is 60% while the feature and function work is only 40%. And so therefore, right now, this is how all these business models do change. For this point, what is the type of an ECU, type of contract? And what are then all the other things concerning maintenance, further support and these type of things? And so therefore, we find right now hardware business models and software business models in parallel. And when I look right now for the last contracts, which we did, then we have fully already this software-oriented product business models already realized. So you see that the change is not only a technical transformation, it is also a business model transformation.

Yes. And so in those 3 contracts that you've won already for central electronics, you are the supplier to the whole platform. Is that the way to think about it?

We have -- yes, we are the supplier for the whole platform for this vehicle for this central electronics. And this is also showing another thing. The volume in such kind of products is getting larger. So this means the investment up there, then to scale this afterwards, this is a very strong element out of this. And so therefore, all these aspects need to be thought very thoroughly. But it is also paying off in that way, as I described, how the contracts will change, how the realization is done, how all this learning curve over these last 18 months have been brought forward.

Thank you, Victoria. So we have 3 more people in the queue and about 7 minutes left. So if we can maybe be quick, then we can get out on time. So let's go to the next caller, Sascha Gommel.

I'll be quick with the first one. You talked a little bit about the growth areas and the value areas. What I want to talk a bit about in the growth areas, a lot of those spaces are, A, very competitive; and B, very R&D intensive, which we've obviously seen in the last years where you've spent considerably above 10% of sales. So I was wondering, at some point if you are not reaching your market position or financial KPIs, would you also consider disposals or exiting businesses in areas that you currently consider as growth areas?

I mean I think I answered this at the beginning in the way that we monitor all our areas. I mean obviously, you would first say a high-growth opportunity already today, and this is true for all our growth areas. We have already relatively strong competencies and expertise. We believe that we can outperform the underlying vehicle production that would be typically not an area where you think about divestitures or where you question it. However, as said, each area has to live up and create value, at least in the mid and long run in those areas, and we constantly would review there as well. Best ownership principle holds true for growth and as value, so there is no better or worse at this case. So we wanted to have both areas in the same way.

That's very clear. And then my second question would be on the margin targets. I understand the 6% to 8% for the automotive business in the next 3 to 5 years, if I understand it correctly. But historically, both divisions managed to get double-digit margins in the past. Do you think, given the automotive industry right now, it's totally impossible to get back to 10% plus margins? Or do you think the 6% to 8% is the midterm target, but there's more upside beyond that?

I mean there, I refer to my answer, which I said before, what do you expect given the year 2020? And you've seen the results where we are ending. Would I totally rule out that better margins could be possible? Nobody could do this. However, we clearly believe that those targets are realistic, but they are ambitious. And we have to go through this transformation now. We have a lot on our plate. As I mentioned before, I mean, nothing is to be ruled out. However, it is a way to go. There is no doubt.

Thank you, Sascha. So our next caller is Henning Cosman.

If we can please stick with the profitability. I think, Niko, you said in your opening remarks that you have that laser focus on profitability, which I think is much appreciated. And you have, of course, quite a good track record yourself and especially during your activity at tire. So maybe I can ask it a little bit differently. So you're talking about the 20% operating leverage on the incremental volume from the low 2020 base. We also have the 600 million growth savings target. If I take these 2 together, that sort of lands me at the 7% margin for the midterm. Now my question is more shouldn't the operating leverage be higher? Because if we look at the operating leverage on the way down to the lower 2020 base, it's been more like 30% to 40%. It's the similar operating leverage that we've seen sequentially in Q3 over Q2. So is that precisely where the range comes from? And where you can get closer to the top end? Or Can you just please talk a little bit about the gives and takes in that profitability?

I mean, first of all, your math ties. So obviously, that's how we painted as well the picture. And we assumed for good reasons, a 20% operating leverage because we believe over the time frame, with the measures which we have, and obviously, this is driven, like every operating leverage by top line growth, is a feasible target, which we can achieve. Is it not ambitious enough? Could it be higher? Honestly, 20% operating leverage over a midterm time frame is an ambitious target. I mean what we have on our plan, we have to execute. We have a transformation program, yes, and it is decided. However, we have to get it on the ground. It takes, in automotive, time as well to do certain changes. We have, obviously, to constantly deliver to our customers. So there are some prerequisites which makes a higher operating leverage, which we -- if it's higher, we are more than happy that we have it, but which would make it, from today's point of view, not really a realistic view to be shown. Can it be better? I mean, be our guest. Why has this year shown a much higher operating leverage? We have been hidden very strongly by the transformation. It was a huge market downturn. And as we have before, we still kept relatively high, comparable to other companies as well, R&D going because clearly, we want to further invest and continue to invest on our growth fields and our growth action fields. So namely on the other side where we have to execute our programs, and as Helmut referred to, we have those softwares and orders on hand, we are obliged, and we are more than happy to realize them and execute them on the R&D side. So there are 2, 3 areas which clearly has tempering or increasing our negative operating leverage, if you like to, in 2020 which, going forward, you cannot reverse in that way because we have still enough to do in order to get to the 20% based on all the restrictions which are made before.

Just to clarify, in your mind, the floor and the ceiling for the margin range is very much connected to the top line growth? So if top line growth is higher, it's the ceiling. If it's lower, it's the floor?

I would not take this immediately into it. I mean, obviously, the question came before. It depends obviously as well on mix. It depends how the transition take off. Of course, if you look on our bridge, top line growth is the operating leverage is a big driver. There is no doubt. And once you come in 2020 with the relatively low volumes, this is a major contributor. But I would not say that it's the only indicator to say on the upper and the lower end. It depends as well on our mix, on our operational excellence measures, how strongly we are there. And honestly, just before came up the question our relatively high R&D costs, we are working consistently on our efficiencies there. We have lots of process [ measures ] already indicated. We have to leverage those efficiency measures as well in order to support, beside top line growth, our margin expansion.

If I can just squeeze the second question. It was going to be on cash conversion and especially there in your value or mature areas. You talked about the self-inflicted disruption. Is this so significant now that you have these big -- so legacy blocks, if you will, where you don't have to invest so much anymore and can run this for cash that we're now getting into a period where, on the divisional level as a whole, the cash conversion will much improve in outsource? Or is that too ambitious?

I mean for the total order -- I mean, we will refer later on, on the cash conversion in the group, but let me just focus because you mentioned value and why have we put cash conversion there? Because we have a clear focus, laser focus on profitability, as we said, but as well a clear focus on our CapEx spend, which we need to do there. As I said, there are certain areas which are growth but others on a more muted area. And clearly, we have to look there consistently, which CapEx is the one which delivers future value and which one we have to really be strict on because we need that part in order to close wide spots and to invest it on the upper area. That's why we said cash conversion is a very close focus here by managing our operations at the best way and very strictly look on the CapEx side and on the operational expenditures on those value side in order to make use of it. And as said, later cash conversion [ both country ] we will refer to this as well on the total group level.

Thank you, Henning. We're out of time, but let's -- we got 1 more caller on, so let's hit your questions. Pierre-Yves Quemener, [indiscernible].

Just 1 last question for me. One of the pushbacks on Conti is that the time line for cost cutting kicking our growth to accelerate seems to be a bit distant, too far away. Could you please simply define what do you understand by medium term, more '23 or more '25?

That is a difficult one. So we say medium term is 3 to 5, so -- and it depends on those different measures. There are some which are automatically run longer, and we have announced certain projects which definitely take until 2025. Some in our transformation [ seed ] program, we even said, which will take until 2029 once you have a phase out as we have seen on the Vitesco part. Some are getting earlier. So it is, case-by-case, different. And within 3 to 5 years, I mean, 2023, we already said we will have the biggest chunk of those realized in terms of savings, but they continue then later. So it is still 3 to 5 and again, some are even running number.

Okay. Just a squeezing a small one. Does that mean or does that imply that the lower end of growth targets are top [ medium ] targets will be already achieved in 2023 at the minimum?

I mean we have a range which we said. And this range, we said we want to achieve on the midterm base, which is in between of 3 to 5 years. That's our statement, and that's what where we stick to.

And with that, our time for the Q&A session is now complete. So thank you, everyone, for your questions. As promised, we'll now have a break for the next approximately 45 minutes, and reconvene here at 14:00 Central European Time. Thank you, and see you again soon. [Break]

So ladies and gentlemen, welcome back to the studio here in Hanover. Let's now continue the second portion of today's program covering the group sector rubber technologies. Next presentation will be held by Christian Kotz, Head of the business area, Tires. Christian was born in and studied Mechanical Engineering and Economics in Braunschweig, about an hour from here in Hanover. He joined Continental's Tires business right out of University in 1996. During his more than 2 decades with the company, Christian has worked in various roles, including product development, key account management and business management, both in Europe and in the Americas. He joined the Executive Board in 2019, holding responsibilities for the tires business area as well as group purchasing. With this, Christian, the virtual floor is yours.

Thank you so much. Thanks for the very friendly introduction, and a very warm welcome also from my side. Welcome to the world of tires within the Continental Corporation so within the next 20 minutes or so, I will try to give you a short summary of what we have accomplished within the last 10 years, or from 2009 to 2019, where we are today, and obviously, most important, where we want to go and what we want to accomplish. So let me start with a very, very short recap. So what you see on the left-hand side is what we have accomplished as a tire team within the last 10 years, so since the last economical crisis. So we have more or less doubled our business. So we grew the tire business from a roughly EUR 6 billion business to a EUR 12 billion or close to EUR 12 billion business. We have significantly reduced our dependency on Europe in terms of sales. So we have better balanced our global sales footprint. Nevertheless, we still generate more than 50% of our business within the traditional market. So in the EMEA region. And last not least, and obviously, most importantly, in line with our sales development, we've also doubled our absolute EBIT contribution to the total corporation. And with this, I think we have clearly demonstrated, over the last couple of years, a pretty impressive success story we at tires are proud about. And it also gives us the confidence that we are able and will manage the challenges in front of us successfully as well. So 2 additional things I wanted to highlight here, which are specific to our business and different to the business --- of the business areas in automotive you've seen before. Number one, obviously, our customer sales split. So we in tires generate 75% or close to 75% outside of the direct OE business, which we believe is a very healthy sales split in terms of customer split because it gives us more resilience against economical cycles. And number two, let me say, turn a weakness into an opportunity. So as I said, we still generate a lot of our business, more than half of our business within the EMEA region. In turn, this means we still have significant growth opportunities in the Americas region as well as in APAC, and I will get back to this. So I want to use this chart now to turn the focus from, let me say, the past to where we are today and then trying to, let me say, develop out of this, the challenges we are seeing ahead of us short term as well as mid- to long term. So what you see here is, over the same time frame, 2009 to 2019 and now the 2020 estimates are included as well, what has happened to our sales line, shown by the Conti yellow line as well as to our costs, shown by the gray line. So I mean, the distance between these 2 lines is obviously the margin we have generated, and we are generating. So over a long period of time, as you can see, the sales line has outperformed the cost line, which means we have continuously improved our margins in absolute as well as in relative terms. So starting from 2016, we have to admit our margin softened simply because our sales growth was not sufficient to cover our cost growth anymore. And what you can see as well is within the last 12 months or now 11.5 months, obviously, the corona situation has further amplified this trend, and the distance between these 2 lines is further narrowing. So 2 strategic challenges and challenges, business challenges for us we have to address as a business area. One, more on the short-term side, how do we manage and adjust our costs according to the changed business scope? And second, obviously, more on the mid- to long-term side, we will only be able to widen this gap again between these 2 lines if we also address the growth line and make sure that the yellow line will outperform the gray line moving forward. But before we go into the more long-term view, let me quickly summarize what we have done short term. And I think it's a nice proof point again of what we are able to do within tires. I think over many, many years, again and again, we have proven that we are able to manage challenging circumstances in a very agile, flexible and consequent way. So on the left-hand side, you see, by the end of this year, we will have reduced our fixed costs compared to 2019 by more than 8%. And operationally, if you exclude the still increasing depreciation, the reduction will be actually above 10%. We have reduced our spending by more than 40%. So overall, obviously, to safeguard our P&L, but also to safeguard and support our cash flow performance in order to be able to operate and navigate successfully within this very challenging environment. I'm showing this because, as I said earlier, I think it nicely demonstrates our ability and our, let me say, commitment as well as a tire team to manage those crisis. So moving more to the right-hand side, midterm targets. On the CapEx side, so starting with the investments, Moving forward, we are pretty confident that we can balance depreciation versus invest. So for the ones who followed the tire business area over a longer period of time, you know we have invested heavily into our business over the last years. The foundation for future growth is laid. So we do believe, moving forward, we will be able to get into a balanced situation, which is obviously helping our EBITDA and therefore, also the cash flow performance. And on the cost side, Our clear target, and going back to the yellow versus the gray line, our target is obviously to make sure that we get more and more efficient and that we reduce our fixed cost as a percent of sales by at least 0.5% per year. And to be honest, here, the corona crisis helps to a certain extent because the measures being taken will also help us or is actually helping us to overall reduce our cost base moving forward. So from that standpoint, at least some support out of the current crisis. In order to manage this efficiency, we obviously have to address both sides of the equation and both sides of this picture I showed you earlier. So on the one side, we need to make sure that we can deliver a sustainable and reliable growth, so to make sure that really the sales growth is outperforming the cost growth. But on the other side, obviously, we have to make sure that we do everything possible to secure our overall fitness. So fitness and operational excellence, making sure that you perform in the best possible way within the peer group is key for success. And to find the right balance between these 2 parts of the equation is what we are trying to address with our Vision 2030. And we have consciously chosen the name or the brand Vision 2030 because as you probably know, the Vision 2025, which has been the North Star, let me say, of the tire division for the last 10 years, has served us well as a division. You've seen the figures and the accomplishments we have achieved. So we want to show internally as well as externally that the Vision 2030 is a consequent continuation of this success story, obviously, also with new priorities and new focus points we have to implement, which I will try to explain. And last comment here, I mean, finding the right balance between these 2 sides. So focus on growth versus focus on efficiency or excellence is very much dependent on where we are. So dependent or different region by region but also different product segment by product segment. Looking into a little bit more details here, and I don't want to go in too much detail because I can spend hours talking about this, obviously. But the centerpiece of our new vision, what we call Vision 2030, is that we are in process and very actively working on transforming a traditionally product-centric organization into a customer-centric organization. Why? We are facing a business in the tire industry of increasing competitiveness. New competitors are emerging basically continuously So differentiation purely by product, quality, performance or the brand itself will not be sufficient to secure future success. This is why we are convinced that we have to add services value around our product. And what adds value, what adds positive value is obviously the decision of the customer. That's why we have to orchestrate everything we do around customer requirements, customer needs. We have to put the customer first and not the product first. This is the basic idea. That's why we are changing organizational structure, business units and so on and so forth. We do this in order to support what we call our core, what you see on the top left side. So our core has been, is and will be what we can do best. So designing, manufacturing, selling and distributing tires. So that's the core of our business, will remain the core of our business. We see 2 new fields emerging for differentiation. One, we call our opportunity. I will get into more details later on. And the second one, we call -- and I think you can easily imagine what is behind this, we call our responsibility. And again, I will explain it a little bit more details later on. Obviously, everything is based on the performance and the quality of the team. I think we in tires have shown and demonstrated over many years that we have an excellent global team, and we will continue to invest here because the people has made the difference in the past, are making the difference today and will also make the difference moving forward. So now sorting our strategic action fields into these 2 sides of the equation I've showed you earlier. So growth on the one side, operational excellence and efficiency on the other side. And just as a very short summary, the main activities or action fields we are working on, and let me start with the growth fields, which are shown on the left-hand side of the chart. I told you earlier, our, let me say, underrepresented market share in the Asian region as well as in Americas is providing significant growth opportunities for us moving forward, and we will consequently utilize those growth opportunities. I will show you some more details later on. Second area of growth, our customers, especially today in the area of commercial applications, fleets are more and more demanding and also ready to accept services around the product. So we call this our Conti360 portfolio or service offering. We will enhance this portfolio and this service offering continuously in order to utilize this differentiation possibility to maintain and further develop our core business but also to open new revenue streams. Third area of growth, the public need and the demand and also the social need, to be honest, for sustainable solutions along the entire value chain opposing, I would say, a significant challenge for the tire industry as a whole. But you can again turn this challenge into an opportunity, and that's what we are committed to do to make sure that we are the most progressive tire company, making sure that we realize everything we do in the most sustainable and responsible way, a great opportunity for differentiation. I will show you some more details later on. And last not least, the continuous increasing demand for high-value products is giving us also continuous growth opportunities via mix. I mean for the ones being familiar with the tire industry, mix has been a significant growth contributor for the industry. We are very confident moving forward that this will continue to be the case. I will not show you more details here, but with our very strong position in OE with our technology leadership, we believe we are very, very strongly equipped and prepared to utilize this growth opportunity as well. So moving more on to the right-hand side of the equation, efficiency. I mean, we are working in a very capital-intense industry. So being efficient in operations is key for success. I will show you some more details what we are doing and what our targets are in order to sustain and defend this leading position. We have positioned ourselves and demonstrated over years that we are amongst the technology leaders as far as product quality and technology is concerned. We will continue to invest into this. We will not give up here, and we will definitely not reduce our efforts to maintain and further defend and, let me say, extend this position. Third, the brand and the equity of the brand is a key differentiating factor. Over the last years, we have developed the brand nicely. We will continue to invest into that. And last, but for sure not least, excellence not only in manufacturing as far as efficiency is concerned, is key for future success, but even more so in terms of supply chain performance. So we are living in an ever-increasing complexity or in a world of ever-increasing complexity and very volatile customer demands. So the ability to support and supply the right tire, at the right point in time, at the right place is key for future success, another key focus area for us moving forward where we are constantly investing and are actually increasing our efforts. So some more details on some of those selected items. And again, I would start with operational excellence and manufacturing. As said earlier, capital-intense industry, you're either leading in this area or you -- as far as I'm concerned, have low chance to be a leader also in terms of profitability. I think we have proven over many years that we are one of the industry leaders in this area, and we are committed to defend this position. You see on the chart a couple of KPIs. So even today, we already have 80% of our globally installed capacity installed in what we call mega plants, so plants with an output of more than 100 kilotons per year, which is giving us huge advantages in terms of efficiency but also in terms of flexibility. In reality, 50% of our total capacity is even installed in super mega plants, so in plants of more than 300 kilotons per year output, which is giving us even an additional competitive advantage. And I just want to add here that all the greenfields and the new plants we have added over the last 10 years or 8 years are designed and prepared to grow into this mega plant size. Second, by 2022, we will have more than 75% of our capacity installed in best cost countries. With the measures, third, we have taken on the capacity side, especially worldwide, but also with the latest announcement we have done by 2022, we should be safely back to utilization rate of above 90% in our plants, which is absolutely needed in order to run operations efficiently. And I mentioned this earlier, flexibility and performance in supply chain is key for future success. We used the KPI of inventory turns here to demonstrate or measure our competitiveness. If you compare our abilities and our performance here versus competitors, you see we are already today industry-leading. And again, we are more than committed to defend this position. And for the ones who have been able to join the expert session on Monday, you have seen more details, more content in terms of projects, technologies and so on and so forth we are working on in order to defend this position. So let me get to growth. I said earlier, our not so much balanced global sales footprint is serving us or is providing us additional growth opportunities. So what you see here is passenger light truck tires, left; truck tires, right, our growth in terms of volume from 2009 to 2019, and then also per region. And what I wanted to show with this is, I think, within the last 10 years, we have clearly demonstrated that we are able to outperform markets on the one side. And we know how to outperform the markets and significantly grow the business in those areas where we are still underrepresented. And we are more than committed, let me say, to continue to apply this recipe to secure future success. So in PLT, focus on APAC and the Americas; in truck, on the Americas as well as Europe. I mentioned earlier a new area of differentiation but also a new area of potential growth. We call it our opportunity. I said earlier, we see that more and more customers today, mainly in the area of commercial applications and fleets, are requesting additional services around the product and are getting more and more ready to pay for it as well. The -- let me say, the continuous digitalization of our world is offering also additional opportunity to provide those services in a more efficient way but also to enhance the service content. So we've started this journey to merge them from a pure hardware company to a fully integrated solutions provider already many years ago. I think we are uniquely positioned as a company because we not only have the tire know-how and the service network, but we also have the automotive know-how. So the sensor know-how, the electronics know-how, the software know-how. So everything needed in-house to really master this transformation, the best in our industries, and we are definitely committed to do this. We have made significant progress over the last years. Again, for the ones who have been able to join the expert sessions, you have seen very concrete customer examples, which are, I think, making this journey a little bit more tangible and also to demonstrate what the value is. But in order to summarize this, just a quick summary of the whys. I mean we do this in order to defend our tire business. By selling services, we can also sell more tires. Second, we can sell more services, so new revenue streams; third, new products, retreads or electronics; and last not least, it will help us to give more stability in our business and make us more indispensable by moving from a products and service sales business into a subscription or revenue-based business. We see it, as I said earlier, as our clear responsibility to do everything we do in the most sustainable way. So again, a journey which we started many years ago, we are already pretty much advanced. You see on that chart a couple of examples from material sourcing over operations, over the use phase to end-of-use phase, we have given ourselves very concrete, very ambitious targets for every single element of this entire value chain because we believe you need to address the sustainability requirements and be responsible along the entire value chain. Again, in the expert session, very concrete targets, ambitions have been mentioned, and we are very, very confident based on what we have started already more than 5, 6, 7, 8 years ago, we are in a very advanced situation and can utilize this challenge also as a differentiator. So what does this all mean for our financials? Starting on the left-hand side, based on everything we have done today, we believe on an adjusted EBIT side, we will finish the year at around a 13% EBIT level. So I think I mentioned this earlier, again, we demonstrate, as a tire team, within the current year that we are able to manage challenging situations, extremely successful. This gives us a very, very sound basis for future success as well. So moving into the -- into our targets and into the future. I've tried to explain you where the growth should come from. We are targeting an average growth rate from 2020 to -- for the next years of at least 5%. I've shown you where the operational performance improvements should come from and that we are absolutely committed to defend our leading position here, which should lead us to a margin corridor and an adjusted margin corridor of at least 12% to 16%. And let me say, we are -- with this, we are deeply confident and very, very confident that we can reliably perform within this corridor even under very, very challenging circumstances at a very, very high and value-adding ROCE level of above 20%. So let me sum this up. As said before, we are known to be an industry leader as far as operational excellence is concerned. I think we have taken the necessary measures, and we are deeply committed to defend this leading position. Second, growth. Besides the global footprint, also the areas which are shown here under differentiation will give us the opportunity to deliver and achieve the reliable and sustainable growth we need in order to deliver the financial performance we have shown. And I said this earlier, it's -- the best technology, the best competencies are worth nothing without a great team. I think we in tires truly have an outperforming, very reliable global team. I'm very proud to be part of this team since more than 20 years. And I'm absolutely sure that this team will continue to deliver like we have delivered within the last 10 years. With this, I thank you for your attention, and I think we are back then later on for the joint Q&As. Thank you.

Thank you very much, Christian.

You're welcome.

So our next presentation will be held by Hans-Jurgen Duensing, head of the business area ContiTech. So Hans-Jurgen is a native son of Hanover. having been born and completed his university studies in economics in this city. He joined Continental in 1985, and over the next 3 decades, worked in various business and leadership functions in the conveyor belt and the power transmission businesses. In 2004 to 2015, he led the conveyor belt business unit. In 2015, Hans-Jurgen was appointed to the Executive Board with the responsibility for ContiTech. Hans-Jurgen, please go ahead.

Thank you, Bernard, for your welcome. Yes, 3 decades in Continental means for me, in person, 3 decades -- over 3 decades of excitement, challenges, and extreme interesting time of transformation. And that's not me only who have these positive feeling about Continental. It shows the awards we got this year from Romania and from Hungary, where we got the Employer of the Year 2020. ContiTech is coming out of a history of Continental 150 years close. We are close to 150 years. We started with a single product, and now we are a provider of solutions. And we started with rubber. In the meantime, we have a bundle of materials, and we're going in the direction of digitalization. We use, over this period of time, always the advantage to being part of Continental with all these technologies we have access to, what we need for digitalization, for example, or rubber technology. Our business is active in a variety of industries. So our biggest customer area is the automotive industry. So 50% of our sales last year, we did in automotive. And there, we are in different activities, so for example, in different fluid organ systems. So for circulation of brakes for fluids in the cooling system and heating system. We are in the suspension area and in the absorption of vibration. We are in the interior of the car, so the surface of a seat, of a roof, of a panel is part of our portfolio, as well, we are active in the mounts of engines. In addition to that, we have activities in many areas of the industry. So for example, we are in the [indiscernible] industry with belts or with rubber track. We are in the suspension area. We are as well as in automotive in the fluid arena for different applications. And we are in the mining industry with conveyors in the cement industry, in the cycle industry. And we're in the interior, where we deliver surfaces as we do in the automotive part, in the industry part as well, for example, for door panels, or for window roofs. So all in all, a very diverse picture and very well balanced over many areas, and our target is always to be the technical leader and one of the most important suppliers for our customers in the rubber as well in the plastic area. Let me describe the parts of my responsibility that were, in principle, 3 phases. So the first phase was the time of major acquisition between '14 to '17, where we were able to acquire Veyance, which is the former Goodyear technology business; and Hornschuch in 2017, which we added on surface material for the interior. This time was a fantastic growth part. So we were coming from less than EUR 4 billion going above EUR 6 billion in very short-term notice, and this was exactly the target of that time. Then came a time of slowdown in key markets. So for example, the oil price fall from $100 a barrel to close to $20. The mining industry, the agriculture industry, the truck industry and as well the automotive industry started in '17 already to have a decline up to '19. So this was then a time of consolidation where it was clear that our main target is not growth anymore. And we decided to go in the third phase, which I'd like to call operational performance, in '18 already because we said when growth will not be possible anymore as in the past, maybe the markets would decline further. It will be extremely important from our side to have the best operational performance ready. And to be honest, for sure, nobody from our side predicted what will happen in 2020. But this third phase and the preparation for that in '18 already helped us in the lot for today and the future. So the markets are challenging for sure, and we have a lot of changes. So the slowdown, as already said in some key markets, have forced us to concentrate on operational performance. The commoditization of products is going more and more faster forward. And this is, for us, the opportunity to differentiate by material science and digitalization, where I see ContiTech as preferred supplier for our partners. So we have great opportunities of differentiation in times where customers look for commoditization in products only. Third part, we saw by [ Friday ] for future sustainability discussion that there will be a change in many technologies. The decline of ICE business is 1 example for that. So this was clear already years ago that we have to shift performance activities in the area of BAF technology to make the transformation happen as early as possible. And last but not least, the sustainability. This is a critical mission for us because we are very close with our [ true chemical ] industry. But we see a lot of opportunities, and we start early to fill up our pipeline with sustainable solutions. So it's an acceleration process in the direction to our vision, and our vision is still valid since 2017. Our vision is smart solutions beyond rubber. And this means there are 2 principal parts. The first one is the smart solution part. This means we make our products digital. We have digital capabilities, and we will connect them and make them ready for connecting our products in a full system, and we really want to make our product smart. The second part is then the rubber expertise, and expand the rubber expertise means as well beyond rubber. So it does not mean that we have not necessarily rubber expertise in the future, but we have to develop further innovative materials as they are thermo plastics, metal parts, whatever it is, a combination of all. So these 2 elements are key in our vision. And this is based on 3 pillars in our strategy to make our strategy successful happen. The first one is operational excellence, perform. And there are 2 other ones, which are very close connected. This is the transformation of our organization and the innovation. Both have to accelerate the growth and the capture value. So based on these strategy pillars, I want to start, first of all, what we are doing with operational performance. So as you can see by this slide, with a strong focus on performance since 2018 already, we were able -- although the sales was declining from '18 to 2020, a by roughly 13%, we were able to keep our margin level over the time stable. So this was only possible because we have structural improvements and operational excellence improvements. So the structural improvements came out capacity alignment. We started to make our capacity right for the needs in the market. So we have a precise look where it's necessary to grow our capacity and where it's necessary to reduce capacities, because being in the market for the market is key for us. So this came up in the result up to date that we have redesigned 20 locations of 100 to make our capacity exactly right to the needs of specific markets. We made our organization more slim. We -- we're going down from 8 to 6 business units because to make us faster and have less structural cost in the back. Third one was the portfolio transformation. We decided to make a portfolio and split our activities, where I come later to, in growth fields and value feeds and where will we concentrate future more on, not to make everything in average, really have a focused setup. In operational excellence side, we were in the period where we're growing very fast, very often in problems to get our manufacturing costs under control. Since we concentrated and reorganized ourselves in more central functional performance units, we were able to reduce our manufacturing variation to a minimum and improve very much in our manufactured performance. The quality improvements went hand-in-hand with the quality first activities of corporate that we were able, over now many years, to improve year-by-year and make the best quality in the first step happen. So these helps as well, in addition to the quality and the satisfaction of the customers helped us to reduce cost. Labor cost agility. We saw that in time of growth, it can happen that we have an overload in a plant, and that is not positive. We have seen that in the period of stagnation, that it's extremely important to have an enormous agility in the plant, not to create outperformance cost in time of overload and not when there is not sufficient work to do. So we have now an agility ready. We refocused our organization to be more agile, and we can easily go up by plus/minus 20% without big variations. And last but not least, value selling. In the period of time where it was of high value for customers to pay for a high service level is over. So as said, the products are becoming more and more equal, and so it's more and more difficult to add on services which are not paid. So we decided to let the customer judge what is best for him. So we offer a different level of service now, and it's up to the customers to give us a clear feedback when he is ready to pay for or not for. And by these very strong feedback, we have a very clear adjustment now what is the need of the market and what is not the need of the market. And by that, we were able to have a better operational performance. So overall, we were able to improve our cost structure in the direction of profitable growth by 2 percentage points from '18 to '20. And the reference year of '18 is because at that point of time, we started to change our strategy. Our midterm proposal and confirmation goes in the direction 9 to 11. And this is, in my opinion, possible because we are still in the phase of further operational improvements, structural changes. And in the background of further growth, it should be possible. Now I would go to the pillar #2 and #3, the transformation and innovation to accelerate our growth and to create value. We have splitted our industry in 2 parts. On the one hand side are these areas where we focus more on value creation. And on the other side, more on growth. So in the area of value creation, we have the defined 8 fields as well on the side of growth. And we see a lot of opportunities on the growth side as well on the value side. So from the portfolio of today, 70%, roughly 70% of our revenue is coming out of the area of value and 30% is coming out of the area of growth. So we want to shift this part of growth to an area of more 40%, and we like to reduce the value part more in the direction of 60%. Our strategy is clear. We want to outperform the market more in the area of growth. We will focus on outperform And we will differentiate not only by material but for sure by material expertise and as well digital expertise. We will have in phase to have an internal growth as well in external growth, and it will come with opportunities and examples we realized already. On the value area, we will try to focus on profitability. We will deliver the growth if the market is growing, but there, we will have a very cost-driven strategy. And we will go, if necessary, in activities to divest, to adapt capacity, or to phase out. So all in all, market growth in the growth area are already seen in the direction between 3 to 5, plus the outperformance. So it's clearly defined that 1/3 of our business and a future bigger part have an over proportional growth. Examples, as said already, on the value side. If there is no opportunity to have profitable business and have a market position, which is important as it was in the lightweight conveyor business where we were only focused on U.S. activities, we have decided to step out of the market, and we have to divest this business in 2020. Another example is the ICE business. This is a highly attractive business. But it is not a growing area, as you know. So we focus there on profitability and cash generation and we do not invest over proportional in this area anymore. On the other side, on the value side, there, we have done 2 important acquisition or acquisition in the joint venture. It was the acquisition of the Italian company, Merlett, where we got access to thermoplastic expertise to industry applications and this is an attractive area. The same on the joint venture side with aft that we created a 50-50 joint venture for thermal flow solutions, which goes in the direction of automotive industry where we're bringing the knowledge of Continental with aft, an expert in plastic materials, together. So these are examples to show how we want to differentiate our business. And by these portfolio management, we want to actively go into our growth business fields and grow over proportional in these areas. To give you 2 examples of our vision and strategy, 1 for smart solutions, the other one for beyond rubber. What does that mean going in the direction of digitalization and offer our different business models? So smart solution is the drone inspection, one good example. You see the conveyor belt there and the drone. The drone is able to fly in areas where it's rule and the maintenance of such products extremely difficult for our customers. So with the drone, it's possible via camera and via the microphone to detect problems in the field. So you see by the small yellow point, there is an overheated part. So the drone will, by the camera, detect that as well by the noise and go back to the main station. And there, we have installed with the data, based on active learning and artificial intelligence, the opportunity to detect these problems immediately and have a premaintenance before damage happens. Because a damage is the most severe, what can happen to our customers. As here, it's shown EUR 170,000 per hour cost is easily in a distance of 20 kilometer, which is easily can happen for a conveyor belt. Standstill is the most severe problem which can happen. So to avoid that and to make the maintenance smooth and in advance, this is a fantastic solution. And we do it not alone, we do it in cooperation with 3 principal customers worldwide where we're in a cooperation to develop this system. On the other side, a good example, beyond rubber of the automotive industry. There, you can see the line in a BEV car, which is the ID.3, the new one from Volkswagen. This is a completely new solution. You'll see the hoses, which are not hoses. These are, in principle, lines out of rubber, out of plastic metal. There are sensors in. There are valves in. There are connectors in and the different part of materials. And this is the flow of the temperature. So we control the flow, the temperature of the battery and the air condition in the car. So all in all, the length of the line is 8x longer than before in highly digital. So all in all, a high-value creation and interactive business, which we strive for in the future. So overall, as said already coming from a 7-point plus profitability. We go in midterm double digit, 9% to 11%. And there are 2 principal areas. The one is the growth, which we hope will happen that corona will disappear or being less dominant for us in the industry so that we have a volume recovery. We want to outperform in the growth fields, and we will make when transformation of the portfolio happen. And we will continue on operational excellence. Transformation C of Continental until '29 is ongoing. We are part of that and all announcements are not executed. So we are in the middle of the way. So additional effect out of operational performance will help us to come to the midterm promising of around 10%. So to summarize, I see extremely strong foundation. We have a good balanced portfolio as a base. We are in all markets around the world as global partner in a very strong position. We will transform our portfolio continuously by sharpening the direction of growth and creating value on the other side. We will continue to improve our performance. The profitability out of operational excellence will happen. We have now already 2 years behind us, and we will continue doing so. So we are already on the flow. And last but not least, the transformation will happen by differentiation not only in material expertise as well in digital solutions. And all, that will pay in our vision, smart solutions beyond rubber.

Great. Thank you, Hans-Jurgen.

You're welcome.

Thank you. Next in the agenda today, another joint Q&A session this time for Rubber Technologies. Christian, may I invite you again to join Hans-Jurgen on the stage.

So just as in the earlier session, we'd like to ask all analysts on the line to ask just 1 question at a time, indicate whom your question is directed and limit yourself to 2 questions. Also just as before if time permits, we'll be happy to conduct a second round of questions. I see we already have a couple on the line, the first one being Victoria Greer.

First question is for Christian. I wanted to ask why only 12% as the bottom end of the margin guidance for tires? If I exclude the crisis years of 2008 and 2020, you've exceeded 12% every year for 15 years. In your presentation, you talked about some of the reasons that the margin has declined. In recent years, increasing D&A was a big part of that. 2019, D&A was already EUR 850 million, over 7% of sales. It feels as if that probably doesn't need to increase anymore. I'm sure you will want to frame the 12% really as a floor as very conservative. But are you also here telling us that there will be more margin headwinds for tires? For example, maybe that is investment in growing in services. Perhaps it's about raw materials, which on a long-term view are still at pretty low levels. Maybe there is something there that doesn't necessarily change absolute EBIT. But if you get price increases, offsetting realizing costs, percentage margin obviously could come down. Or is it maybe about the regional mix changes? You've got a lot of scale in Europe. You're very strong in winter tires. Both of those will be quite high margin. Should we be thinking about growth in the other regions as a structurally more margins for tires?

Okay, Victoria. So first of all, thanks for the question. I mean to be honest, it's not very surprising. And I think we have seen within the year, especially this year, again, how big the leverage of some external factors is on our business. So I mean, as you said, we are -- we have enjoyed a very nice recovery, let me say, as far as financial performance is concerned in Q3. And also in Q4, I've indicated, we are pretty confident that we will finish the year at least on an adjusted EBIT level of 13%. So then moving forward to look at the corridor of 12% to 16%, I mean, you are rightly mentioning we definitely want to make sure that we continue to be a very reliable partner so -- that we make sure that we can deliver nearly at all circumstances within this corridor. I think we are proving again in this very challenging year that we are able to deliver, but we want to make sure that we are really 100% reliable. Second topic, I mean, if we have chances to exceed this corridor, so if there are opportunities provided by a stronger market recovery by some other external factors, I mean, we will definitely not stop. So if we can turn this opportunity into additional profitability, we will definitely -- I think we have showed and proven this in the past, we will turn these opportunities into reality. So you're rightly mentioning, we want to make sure that we are 100% reliable. That's why you can call it probably a more conservative corridor. Third topic I would like to mention is that, I mean, we are definitely committed to control the factors we have in our hands. So this is on the one side, operational excellence, cost structure efficiencies, on the other side and also the products. But we have seen within the tire industry that we have many external factors, which can have a huge influence and impact on our business very, very short term. So just to mention the raw materials. I mean, we are really enjoying a significant tailwind in Q3, Q4, which is giving us, just out of the raw material side, 2 percentage points or more over this very short period of time in terms of profitability. But we also know the type can change, and you can also have a headwind, and it's going to be -- we have seen this in the past and difficult to also adjust prices accordingly with the same speed. So we have a high leverage from these external factors. FX is another factor. I mean, I think today, the dollar is at, where are we today, [ $1.22 ] or [ $1.215 ] or something like this. So this is, as a European-based manufacturer, also a certain risk. So in essence, we want to make sure that we are really 100% reliable and will deliver within this corridor in a very, very reliable way. You have mentioned just as a last remark, maybe, if there is risk or a margin risk out of our investments into digital solutions or a country mix or regional mix, no, this is definitely not the case. This is not the reason why we are more cautious. I mean the service business is not very asset intense. I mean on the cost side, it's not very intense. So it's actually giving us some mix opportunities. And on the regional side, I mean, you are following the tire industry very closely. You know that the margins, which are possible within -- especially China, but also North America, are healthier than in the past in Europe. So this regional mix is actually giving us some more mixed opportunities than risk. So in a nutshell, you're right, we want to be 100% reliable. We want to make sure that we can really deliver, reliably deliver within this corridor. And as I said earlier, if we have chances to exceed the corridor, we will definitely take those chances.

That's really clear. And then a second question for you, please, Christian.

Yes.

You were very straightforward in your presentation in saying that entire companies can differentiate only on product anymore. It has to come from being more customer-centric. It's something that I know a lot of investors struggle within this whole theme of shifting to a service model in tires is how quickly fleets can really grow as customers, particularly for passenger tires. So could you talk about how much of the shift to a services model is really under your control at Conti? And how much of it is waiting for customers to evolve, too? And if you could frame that both give priority terms of your midterm target of doubling Conti to 60 to kind of mid-teens or so of tires revenue and then over the longer term, where could that go?

Yes. No. I mean, number one, I would say, today, if we summarize everything -- or the total business, we are summarizing under Conti360 or direct business with fleet. We are at a level of close to EUR 1 billion today. And as you rightly said, the target is to double this amount within the next 3 to 5 years. I mean, you can clearly see that those big fleets are significantly growing. I mean you also clearly see, it's currently still very much dominated by commercial application fleets. So the big logistics fleets. But you can clearly also see this expanding into the passenger and light truck area. The first logical expansion is obviously give priority the van segment. I mean the last-mile delivery, the current corona situation is probably also further supporting the growth of these type of business models. We have great van tires. I mean, as we said earlier, you need the service network and then you also need the electronics and the [ sensoric ] know-how, which we have give priority house. So we see a lot of opportunity to extend give priority the service business also into this segment. And last, I mean also on the PLT side, I mean, mobility share platforms like SHARE NOW and models like this are also definitely interested to optimize the total cost of ownership. They are very, very open for innovative solutions. We have just implemented the first digital service solution for the partner here on the PLT side. The partner here is SHARE NOW, which is not just giving tire pressure monitoring and temperature and therefore, preventive maintenance recommendations, but it's also based on an algorithm predicting and measuring actually then anti-skid depths. And you can clearly see that those type of customers and consumers are very, very open. How fast this business will develop and will grow into, let me say, really relevant part of our business, it's very, very difficult to predict. To be honest, we saw these mobility share platforms would grow faster, given the sustainability requirements. Let's see what the consequences out of the current pandemic will be, but we definitely see this business growing as well. And as you rightly said, we want to double within the next 3 to 5 years, and I think there's much more opportunity than that.

Our next question comes from Sascha Gommel.

It's Sascha from Jefferies. My first question would be a bit similar to what Victoria asked give priority tires, but now on ContiTech. If we would exclude the second quarter, you're more or less there give priority your margin range. So I understand the contribution from top line and cost savings, but maybe you can also point out some of the headwinds you're seeing give priority the business, just to get a clearer view of why you don't think you can get them back to the 12%-plus levels that ContiTech has shown give priority the past. That will be the first question.

Okay. I'll answer to your first question, right, before you mentioned the second one. Now thank you, Sascha, for your question. It goes a little in direction what Christian as well said. We have tailwinds, but we have headwinds. And the one positive point is the material. So we depend give priority many areas from the material price and due to the relatively low oil price and the material, which are give priority a historical low-price level. And what we buy give priority the first half of the year, we produce and use and sell give priority the second half of the year. So the positive effect out of the downfall of material price give priority the first half, we have now give priority our figures give priority the second half. So due to that, it was a positive surprise for everybody, including myself, that we can -- could generate so good margins give priority the third quarter, but a great part is coming out of the material side. In addition to that, we have clearly given priority totally to fixed cost and structure cost reduction. So we let the feet on the pedal, brake pedal for a very long time. So no traveling, no expenses, which are not have a short-term payback. So these not be possible to continue. These will stop our transformation innovation process too harsh give priority the future. So we have to come back to a time after corona or with corona, which is not so extreme from the cost of material side as it was give priority the second and third quarter than of this year. So I see that as a phase of normalization, which will start now, and that's the reason why we are not promising something above 11%.

Helpful and very clear as well. And then my second question would be on M&A, given that ContiTech was probably the most active division within Conti over the last years. Is there anything -- I know no specific names, but any area, product group or vertical integration or region where you currently see the need to acquire? Or do you think that ContiTech as it stands today is give priority perfect shape?

No. Perfect shape, never, and as well not for M&A activities. So there's always room of improvement. When you ask about region, I would say we are very well present give priority Europe and Americas, but we are not so good present give priority Asia. So if there would be an opportunity give priority Asia, highly welcome. And as said and described give priority my presentation, if we see white spot areas, it might be useful to accelerate the process to acquire companies. So it will go give priority the direction of technologies, maybe start-up companies. So give priority focus, will be more smaller in midsized companies. So I would not exclude it, but it must be fit perfect to our strategy, and it has to be at a reasonable price level. So nothing specific foreseen give priority the short-term notice, but we will not exclude at all acquisitions give priority the next time.

So our third set of questions will come from Henning Cosman.

Christian, sorry, I just have to come back to the margin element again. I'm listening to you and I'm looking through your slides, and it all sounds like you're going to attack the 20% margin level again and then we get to the last slide, and the range is a bit different from that. So I'm afraid I still haven't really understood how we could get to the bottom end or the midpoint. I fully appreciate this is meant to be a sort of all-weather target, right? But coming from the base where we are now and considering your statements about volume growth, not only from the low level, but also outperformance continuing what you've done over the years, considering all the cost improvement potential, maybe you can try and help me one more time how we could get to the bottom end or even the midpoint for that matter. I'm still really struggling to understand that.

Okay. I mean thanks for the question, and thanks for giving me the opportunity maybe to go into a little bit more details here again. I mean, one thing I mentioned this earlier is really the raw material and the fixed impact. So I mean, you -- we will have roughly EUR 200 million or more than EUR 200 million as a tailwind just give priority Q3, Q4. So if you apply this on a sales base of EUR 5 billion, then give priority the 2 quarters, this alone is a 4% EBIT margin impact, which you can harvest or you are running behind. So -- and we have seen give priority the past that the volatility is relatively high. So I agree, we want to make sure that we are very, very reliably performing within this corridor. The second part, which is giving us simply a little bit of, let me say, concern is the uncertainty of the market and the fact that we are still -- and as I said earlier, are more than 50% exposed to the business give priority Europe. For me, at least for us, the consequences of the pandemic on the market are really not clear. What will this really mean to customer demand? We are still generating not only 50 -- more than 50% give priority Europe, but also more than 70% of our business give priority the PLT arena. So especially the PLT side of the business is probably even more unsecure and dynamic as far as the potential consequences of the pandemic are concerned. And within our exposure give priority Europe, plus the fact that we also, as you all know, are the market leader as far as OE share is concerned. Again give priority Europe, with all the uncertainties here, has given us or has basically led to the consequence that we wanted to make sure that we have also a very conservative scenario give priority which we would still very, very safely deliver. But as I said earlier, I mean, and to be honest, now seeing the fourth quarter and seeing some of the recovery effects, we are getting more optimistic again. On the other side now, let's see what the lockdown measures will really mean within a short period of time again. So I would say we wanted to be, give priority a nutshell, we wanted to be absolutely safe better than sorry within a given environment, which is extremely volatile and dynamic, especially give priority the business fields where we are still very much dependent on.

Follow-up on the raw material element. I appreciate that this can be volatile and rather a headwind next year. But over the medium term, and of course, you're giving medium-term targets here, it's still rather healthy as an environment for the industry-pricing discipline. If I look over the cycle or over 2 cycles for yourself, price/mix raw material has at least been neutral or rather a tailwind for yourselves. So again, seeing you putting this give priority a medium-term context, you're not seeing this change are you, that this would turn against you and on a net basis of price/mix raw material could become a net negative? That's not what you're saying, it's just short-term volatility, is it?

No, it's -- I mean it's a short-term volatility, but with a lot of uncertainty, I would say, especially give priority Europe. This is what I was trying to say. So what will happen to the imports? What will end consumer behavior do? What will happen to the brand mix? I mean, as you know, the size mix is as important for us as the brand mix is. Will end consumer behavior change? So we want to really make sure that we fully understand how the consequences will be. And I think it's fair to say no one really knows, especially give priority Europe. And given the circumstances, we wanted to make sure that we are definitely more under conservative than on the aggressive side. This is a very fair statement, that's for sure.

So the next one give priority the queue would be Gabriel, Gabriel Adler.

My question again is for Christian. I just wanted to come back again on the margin recovery. I know you've had some questions on it already, but I think it's important. Because you've restructured your production footprint give priority tires and you talked a lot about targeting this 90% capacity utilization, which should help generate efficiencies from the mega plants, but what I really wanted to understand is you're getting back to 90% capacity utilization. What is structurally different? That means that your margins will be capped at 16%. And give priority the comments by far, are you pretty suggesting that it's only possible to recover to those historic levels of high-teen margins give priority tires, depending on external factors that are out of Conti's control?

Yes. So I would say, if we want to exceed the corridor, we definitely will need support and help from the market, which we do not control on the demand side, on the end consumer. So not only give priority terms of absolute volume, but also give priority terms of end consumer behavior. So brand awareness, brand sanity, so to speak, on the one side, but also raw materials on the other side. I mean as I said earlier, I mean, if we have opportunities to go beyond that corridor, we will definitely utilize those opportunities. Yes, I can only repeat what I said now. Given the very dynamic give priority unsecured circumstances and adding a very difficult, let me say, reliability on our future end-consumer behavior will be, especially give priority Europe, we have been conservative. No doubt about that. I mean if things develop according to, let me say, an average estimation, we should have a good opportunity to perform rather on the upper side of this corridor and not just give priority the middle. I mean that's also a very, very fair assumption.

Okay. That's helpful. And you've commented a lot on raw materials being a big contributor to the tailwind right now. It looks like raw material prices are rising again and is likely to increase again next year. Could you just comment perhaps on what Conti's approach will be to pricing give priority this environment give priority terms of whether you have to pass through some of the benefit that you had this year to customers, and how you look prior to pricing next year if raw material prices continue to rise?

So I mean, looking into this year, as you rightly say, so it's -- and you're aware of the numbers, it's a huge tailwind for us. Based on the very special short-term circumstances, I think there is a high level of price discipline. I mean what has happened is that the total supply chain has -- or the inventory give priority the total supply chain has been reduced because simply during the first wave of the pandemic, the companies, at least we lost more production than we lost sales, which, at the end of the day, leads obviously to less inventories, then there's a certain amount of recovery effect. Everyone was looking for cash flow also give priority the total supply chain, is it on the wholesaler, but as well as on the retailer side. So you have a certain kind of recovery effect, where availability is currently limited. But I do believe -- or I'm deeply convinced, to be honest, it's a short-term effect. And within this given environment, there's obviously no reason to fight for volume via price, and this is giving us really the opportunity to harvest or to utilize this raw material tailwind. So moving into 2021, I mean if you just follow, natural rubber is one indicator. As you know, it's not the main indicator, but it's a very relevant indicator. Only since I think April, the price per kilo has rise -- has risen again from $1.10, something like this to $1.60, $1.70, even lately. So there is a huge and [ re-bike ] natural rubber as we speak, which we will consume give priority 3, 4, 5 months from now. So our ability to pass these raw material costs on to customers is very much dependent then on the supply and demand situation. And again, I mean, the predictability of the market, especially give priority Europe is currently extremely limited. So what will happen, too, in consumer demand? What will be the balance between sales development versus production development? So currently, we are more give priority a situation that we recover inventories a little bit because our plants are mastering the current coronavirus challenges extremely well. So our ability to, let me say, compensate then these headwinds short term is very uncertain. I mean it's our task, obviously, to make the best out of the given market environment, but it is very difficult to predict under the given circumstances.

If I could just follow up briefly on the supply-demand point that you raised. I mean how concerned are you about that limited availability and supply -- limited supply reversing and oversupply becoming an issue again? Or do you think the industry has done enough to scale back supply that it shouldn't come back is such a problem?

No. I mean we are taking some measures -- some others are also taking measures give priority order to adjust capacity. On the other side, what you can also clearly see that give priority the total supply chain, especially the retailers are really more and more focusing on their working capital. So they want to make sure that they save the cash and protect their cash as good as possible. So they are not really going for give priority advanced ordering, big inventory levels, which is at the end of the day, really an advantage for local producers. This is one of the reasons why besides the fixed dependency. This is one of the reasons why, over the years, we've invested heavily into our manufacturing footprint give priority order to be able to produce the tires where we sell the tires. So having now the plants everywhere give priority the world to being able to produce the tires where we need to sell those tires will be an advantage also from that end because with the volatility, with the uncertainty, customers are more demanding short-term availability, which is much easier to provide for local producers compared to importers. So overall, the supply and demand balance can shift again, but I do believe the local manufacturers are more protected from this because of the reasons I was trying to explain.

So we have 2 more on the line at about 8 minutes. So next one up is Horst Schneider.

So this is Horst from Bank of America. I've got also a question to Christian regarding your growth assumptions that you are taking on the market. I get the feeling that you are rather cautious on the European outlook. But isn't it the case that also Europe had a more severe downturn give priority 2020 give priority contrast to China and U.S.? And along for that reason, that there's also growth potential give priority Europe give priority the magnitude of something like 5% to 6% CAGR by 2025. That's question #1. The question #2 is more on ContiTech, but I will ask that later on. Sorry, also for Christian. Christian, on outperformance, the trend towards large -- I mean to more EVs. Doesn't that lead to a larger outperformance just because we have got larger room sizes which are gaining share?

Okay. So 2 questions, I would say, I have to answer. Number one was, I think, on the demand prediction for Europe moving forward. Yes, we take a cautious approach. I mean to be honest, we have seen also before the pandemic that the demand give priority Europe was constantly shrinking. I mean we see -- and at best stable market environment over the last 3 to 4 years. Within the last 2, 3 years, actually shrinking year-on-year, I mean, not to a big extent, but year-on-year. And moving forward now, obviously, 2020 has been very much distorted -- -- but if you take 2020 out and if you put this into the bigger perspective, I mean, what you see give priority Europe is that the tires are lasting longer. So the European Commission will implement also a wear, minimum wear requirement for tires, which will be put on to the tire label as well. The importance of fleets and the growing importance of fleets, the ability to measure total cost of ownership also on the PLT side will put more emphasis on durability, on lifetime. I mean it's a great opportunity for us as far as service revenues and capture a bigger share of this total market is concerned. But give priority terms of total market demand, I do believe it's going to be a burden. So overall, yes, there can be some pent-up demand and recovery and compensation effect provided or as a consequence out of the corona pandemic. But give priority the long run, I do believe, and we are deeply convinced and that what we are preparing for that demand give priority Europe will be stable at best. So that was the first question. The second was, I think, on the EVs? So -- and so what was the question on the EV? Can you help me once again? Ah, the increase.

The increase in EVs, yes, will lead to a higher outperformance.

Yes. I mean it's -- an EV is not an EV, number one, I would say. So you have some of the EVs, which are really completely designed and are having completely different tire sizes. I mean, if you take the i3 of BMW or some other vehicles, we call those type of tires tall and narrow. So very high diameter but narrow. So a new high-value product segment is emerging. On the other side, you have some standard vehicles where the combustion engine is the same type or looks exactly the same as the electric version and also the tires are really not different. So dependent on where you are, I think it's a very different consequence. But overall, some of those tires do -- some of those vehicles do definitely provide some more mix opportunities, so not give priority terms of total demand. But then give priority terms of mix, which we need give priority order to, and I mentioned this earlier, to grow give priority sales even though we might not be able to grow so much give priority absolute volume.

Great. So now the last question for this round, Tim Rokossa.

Tim from the Deutsche Bank. I would have 2 questions for Christian, please. The first one is when we think about plant consolidation, how important is that for your goal to reach 90% utilization by 2022, specifically when we think about the conflict with EV IG Metall in [indiscernible]? And how crucial is that also to get to your margin target at least the upper end that you were sort of indicating if everything works out?

So obviously, thanks for the question, Tim. Just one correction. We on the rubber side, our union representatives are organized not within the IG Metall but within the IG BCE. So just as a remark. I mean it is important for us to get back to a better utilization level within the plants because, I mean, tire production is capital intense, as you all know. And if you don't run into a certain or at a certain minimum utilization rate, you create lots of inefficiencies. I mean to be honest, if we -- I mean it's key that we get this done. We are give priority the middle of the negotiations, but we are also confident that we will find a solution give priority order to execute this decision. How to do this then give priority detail? I mean that's all part of the current negotiations. It's a very essential element of our strategy, no doubt about that, but not the only part. I mean the other elements you have seen - so gross, additional service revenues, global footprint, are as important as the increased plant utilization, which is especially key for our performance give priority Europe.

So even if you didn't find an agreement with the labor union in [indiscernible] you would still be able to achieve the target that you had give priority mind?

No. I mean at the end of the day, as I said, that's not the only key to success. So if we get this done or not, it's not the only thing which will determine, are we delivering within the COVID or not. Nevertheless, it's clear. I mean, we see that we have overcapacities, and we need to adjust the capacities according to the needs. This is why we have taken the decision, and this is why we're absolutely committed to execute this decision as well.

Okay. And my second question, when we met for the first time that was at our IA conference give priority Frankfurt, a bit over a year ago, you had really just taken over on the geography of the tire division. And you said to me that you would never push volume, regardless of how the situation looks like. Now we hear about market share gains as part of your strategy give priority North America and Asia. When we hear market share gains, there's usually this bell that rings, alarming us of potential price decreases give priority order for you to buy that market share. Can you just confirm that you do not intend to do this with a lower cost strategy but rather really entirely product-driven?

No, absolutely. I mean, we have the difference give priority profitability between the premium manufacturers and, let me say, the quality manufacturers. We also clearly see it within our footprint between our quality brands and our premium brands, and it's very, very clear how decisive the prices for your profitability. So we have no intentions, let me say, to sacrifice or to jeopardize our price level. I do believe, and this is what I was trying to bring across, I mean, we are still so underrepresented give priority terms of market share give priority North America and also give priority Asia, specifically give priority China, that by, let me say, normal business development means. So additional portfolio marketing activities, extended retail footprint, customer service requirements or solutions, we have a lot of opportunities to grow the business. Of course, we have to be competitive, but we have no intention to buy shares. We want to make sure that we sustainably grow and not have short-term jumps, but have a consistent and sustainable growth path for the years to come, which is much better for our bottom line results than short-term jumps and adjustments then potentially as well, which you are facing if you are too much on the price side active.

Our EBIT bridge remains relevant of raw materials, of course. But aside from that, we can expect it to remain positive.

I mean that's the intention, at least.

Great. Time is up. So with that, thank you for participating in our second Q&A session. Thank you for questions. We'll now have a break for about the next 30 minutes or so and reconvene at 15:45 Central European time. See you again soon. [ Break ]

So ladies and gentlemen, welcome back again to the studio here give priority Hanover. We are now give priority the third and final portion of today's program. The next presentation will be held by Dr. Ariane Reinhart, our Chief Human Relations Officer. Ariane is a native daughter of Hamburg, having been born there give priority 1969 and completed her degrees and Doctorate in Law give priority the city. Outside of a brief period spent at the International Labor Organization give priority Geneva, Ariane has spent her entire career give priority the automotive industry, first 15 years give priority various HR roles give priority the Volkswagen Group located give priority Germany, Brazil and the U.K. And then she joined Continental's Executive Board give priority 2014, responsible for Group Human Relations and as Director of Labor Relations. She also serves as our Chief Sustainability Officer. Ariane, the virtual floor is yours.

Thank you, Bernard, and good afternoon, ladies and gentlemen. I'm very happy to be here. And you heard a lot of presentations of my colleagues and our CEO, Niko. And what was clear is that we are going to emerge as the winner out of this transformation, and we take these challenges and changes and turn them into opportunities. And why are we going to be the winner? It's clear because we have the best people. We are our competitive advantage. It's all about people give priority the end. We are an employer of choice. We have the right people. And of course, we have the right culture. It's a 150 years start-up company, if you could say so. And my colleague, Hans-Jurgen, just showed you where we're coming from with a hoof shoe, hoof buffer, and this is this one. And this one is a product where we won 2 years ago on invention price. And it shows you that we are able to transform ourselves and innovate and invent ourselves again and again. So we have the right culture give priority this company. And give priority HR, what we have to do is to have the right strategy to enable this company to enable the people to be successful. And we have a bidimensional HR strategy since 5 years already. On the one hand, to industrialize best fit, and on the other hand, to enable transformation. So let's talk firstly about our people. We have more than 234,000 employees give priority more than 600 -- or in nearly 600 locations, nearly 60 countries, and we have 20,000 -- more than 20,000 software engineers. We are an employer of choice, and we are proud of it. In particular, give priority the most important markets for us like Mexico, Romania, and Jurgen just mentioned, we just want to be the most attractive employer even compared to Microsoft and others give priority the U.S. but also give priority other countries. So we are really attractive to our people. And we are focused on technology, as you know. So of these more than 50,000 engineers, we have 20,000 software and IT specialists. And I'm really proud for that particular -- give priority India, for instance, 30% of them are female. And what is really important for us to make optimal use of their skills and development because development is already a question of -- to retain them. The best retention is always to have a development perspective, but also it's much cheaper than to recruit them from outside. So you see that our people is give priority the core of our business and that we are trying to keep them into development. So our culture. Niko was talking about our culture already. So we are a value-driven company, and we are really proud of it. And I can tell you something that working 15 years for an OEM and now working since 6 years at Continental, our culture is also a competitive advantage, believe me. So trust is the basis of everything. And you can see here that people, our people embrace our values. So 75% of our employees agree. We make every year [indiscernible] with our employees that we live up to our values. Freedom to act. It's really important to have an entrepreneurial mindset to let people do the things they think is the right thing for the organization, for one another. We are a team. We can only win as a team. Here, we really play as a team. And as Niko said, we only go win, too, as a team. And last but not least, passion to win. We are the winner of transformation. And as Niko said, you can see it here that 75% of our people agree that we are a winning team. And you need to be a winning team, particularly if you're on the one of the biggest crisis ever give priority industries and if you have one of the biggest or even the biggest transformation program, restructuring program, which we ever had give priority our 150-year-old history. So we need to have the right mindset to tackle all these challenges. And first and utmost is about ownership. You have to take ownership. Quality always starts with me, and our people know this. We have a big ownership campaign. We have several hundreds of ownership champions around the world. It's about flexibility and agility. Sometimes people think that we might not be so agile. I can tell you this is not true. And we are a very agile flat hierarchy company, give priority particular if you compare us to other companies. And our industries can tell you by, so to say, experience, that we are very flexible and agile. We have flat hierarchies. We have a feedback culture, and we really do what we have to do. And like Niko said, most importantly, is transparency and ownership. In particular, if you're give priority a challenging situation like we are at the moment, people need to take ownership. They are responsible. We are responsible. And we have to make it transparent and also reliable. So we have the right mindset. Let's come to our strategy. Like I said, already 2015, we established this strategy. And for me, this is really important that you understand it because being more than 20 years give priority the HR business, people often ask me, give priority a nutshell, what would you say HR is about? And give priority a nutshell, what we are -- what we have to do and what we have to secure is that we have the right people give priority the right place at the right time with the right competencies. This is called best fit. So it sounds easy, but it's really important. Why? Because only if you have the right people give priority the right place with the right competencies, you have a low fluctuation rate. You have the highest quality. You have low absenteeism. And so everything where you can put, so to say, a price tech behind. So you have a very data and also KPI-driven HR organization. So you have 4 management fields and everything starts with HR data, of course. And then you have to do the planning. You have to develop the people, of course, and you have to select the right ones. So this is the part of -- to have a kind of operational excellence, industrializing best fit. And on the other hand, we are the enablers of transformation. We have to set the framework that people can develop, that they can -- organization can develop that they'll try to innovate. And all these, we are doing give priority 4 kind of management field: diversity, leadership, flexibility, learning. And I'm very proud that we are a very diverse team. I will come to this later. So workforce planning, I just mentioned it. If you take it like this, I think workforce planning is the mother of all HR work. Why? Because workforce planning gives you, so to say, an idea on data-driven idea, what kind of people you need when, where and which kind of competencies. So we started already give priority 2016, and I think we were one of the first and only companies of our size to introduce a strategic workforce planning worldwide. So with all business units give priority all countries, we are knowing what kind of people we need give priority the next years. And you need this, on the one hand, for employee branding, but also, of course, for your programs on development and training, and this is how you can do HR work efficiently and effectively, that you do what you have to do and what you need to do and not like a one-size-fits-all. And of course, with this, you need a very reliable database. And data is really important because now it's all about speed and who comes first to hire the talent, and we only need 38 days to hire, for instance, software specialists. So I was asked also, "Do you really get all the people you need? I mean you're competing with high-tech companies with OEMs that might pay even more." And the good news is, yes, we get the people we need. I just said it before. We are -- we'll arrive around 350,000 applications this year. So we tripled nearly give priority the last years our attractiveness and our application number. And this means that we have around 30 qualified applications on average and 14 for software positions. Why is this important? So it's important because only like this, you have the right pool to find the best person. And this is about talent acquisition and kind of diagnostics that you have a validity framework that you have the right people. So we have the right people. We are doing the validity diagnostics all over the world because it's a front-loading to have the right person because if you hire a sleeping pill, it will not -- never be kind of a great champion. So you need to ensure before that you have the right people give priority the place. So this is what we do, and we attract the right people. And how we are doing this, you'll see on this slide that give priority the last 3 years, we came from 160,000 followers to nearly 900,000 followers in LinkedIn. We were, even give priority Germany, said that we are one of the most attractive employers. And like this, we are getting also the acknowledgment of the people and talents, which we need. On the other hand, as you saw give priority the video for -- before -- we have to give people purpose. We have to empower them. So this is, I think, one of the biggest driver why people join us and they stay with us because they see here, they can do a difference. They can pay into a better future. They can really turn the wheel. So people stay with us because they see that it's a purpose. And you also see this with great people we have all over the place. We have more than 1,000 ambassadors doing, on top of their work also, a kind of marketing give priority schools and universities to -- for Continental being an attractive employer. And like I said, we are -- we love dashboards give priority HR, and we are very KPI-driven HR organization. You can see this on this slide that we have a very low unforced fluctuation rate of only 4.5%. And the KPI for the HR colleagues give priority the market is always to be 50% lower than average of the market. For instance, if you have give priority the China 14% of fluctuation rate with engineers, we aim to be at 7%. And this is how we drive our HR organization. And last but not least, we have a very high market recognition. We mentioned this already. We are an attractive employer, and we have also very engaged people, who are -- our sustainable engagement score is about 82%. So this is something that we measure every year, and we are quite content about it. It's quite above average. So what makes the team successful is also about diversity. This is something which, of course, also likes us to say, on the bottom of my heart, to fight for diversity. 77% of our employees are non-German. So we are diverse by nature. But on the other hand, we also need to enhance our diversity. On the one hand, for gender. And we had an objective to go to 16% by 2020. We achieved this earlier by mid-2020. And then we said give priority the Board, of course, we have to get up higher number. 25% of our executives should be female by '25. There's a nice song, 2525. So on the other hand, we have, at the moment, nearly 50% of our executives are non-German. But if you look at the whole, so to say, a ratio of 77% of employees being non-German. Of course, we have to increase there. There is room for improvement, and we are committed also increase this number, which is really important for us is that throughout the hiring process, we are trying to take out all the buyers. This also is connected to the diagnostics and assessment centers we are doing. And on the other hand, of course, also to see do we lose, give priority particular, also females around the process? We don't. We are very lucky about this. And of course, once they are at Continental, we try to develop all the potentials, independent of culture, nationality and gender to find the best fit because this is really something that is paying off. So learning, developing the organization and people. I think this is something which is really a core kind of challenge, which we have at HR and with the whole organization because learning and developing of people is not only HR work. Every leader has a responsibility to develop himself and the team. And what is really important that we see that learning is also something which everybody should take ownership. I'll give you one example that, for instance, we have always a discussion give priority the countries also give priority Germany that people should invest own time to qualify themselves because 80% of qualification costs is labor costs and productivity loss costs. So we made an agreement here give priority Germany that people also have to invest their own time. And what is really interesting, we have today, our learning interface, which is called learning management system, where all our employees, 234,000 are connected. And we have nearly 10,000 learning items give priority this. And only -- in 2020, so 2020, maybe also because of corona was a boosting year of learning and training, we have more than 307,000 participations. So there, you can see that we really have -- and we are on our way to become a learning organization, what is so important. Let me talk about software. I don't think my colleague, Maria Anhalt, already touched on this, too. We had this idea 2 years ago. It was an idea of HR to implement our own software academy. Because we know software skills are rare, it's really expensive to hire them, so now it's better to develop our software guys and also our engineers further. And we also see that give priority particular in software, you have a halftime period of knowledge between 6 down to 1 year. So give priority fact, you're always reskilling. So it's better to have a framework set where you reskill your people, offering all the competence you need from cybersecurity, artificial intelligence, whatever is needed, including also agile work. So what we saw now give priority the last months is due to corona, that we sort of more than doubled our participants from 7,000 to more than 16,000 give priority the last months and we offer nearly 1,000 training hours of content. So this is a great, great achievement. And I think this is really a competitive advantage to other people. And if you combine this with a question of strategic workforce planning, we can also see that what kind of competencies we need give priority the future, and therefore, also adopt our curriculars and also our training content. So I think this is really a great thing what we are doing there. So flexibility. Also there, we are quite bold. It was give priority 2016 that we said we need to have a flexible work -- working framework for our people. So we were quite bold and decide, "Okay, we are going to introduce this threefold flexibility concept give priority 2016, and not only give priority Germany or not only give priority -- for white collars or for -- and our executives know all over the place because we don't to have a 2-class society at Continental." So we are offering now part-time work, sabbaticals and mobile work for all other groups of workers. And of course, you can say, "No, okay, if you're a tire builder or you're going to take your tire at home, it's not possible. No, it's not." But I think this is a question to broaden up the horizon because there are other flexibility possibilities give priority the shop floor, like, for instance, job sharing, different flexible shifts. But some things, you can even do remote with some maintenance staff and even quality things. So this is something where we are really proud of, and this really helped us also during the corona crisis because even in countries like India, where mobile work was not, so to say, part of their working culture, people adapted quite easily, and they felt very comfortable. And you can see this in the numbers. We made a survey with around 10,000 participants in autumn time, and people really understood how to work. They really felt well recognized by their managers and so on and so forth. So working mobile, being flexible is really part of our working style. And now we will go to the next level, learning out of corona and established, so to say, flexibility 2.0, and in particular, now focusing what we can do with the blue collars. Now would you say, "Okay, is this your critical, so to say, group of employees?" Yes, it is also because 50% -- a little bit more than 50% of our people are still working in the plants. And if you believe it or not, it's really getting more and more difficult to get them. So you need to do a kind of employer marketing also for blue collars and therefore, offering flexible working conditions also for blue collars in markets like Hungary, Czech Republic, where you have an unemployment rate lower than 2% in some areas. It's really important to be attractive there. Okay. Remuneration. A compensation always reflects a company strategy. And we redesigned our framework, and I think also Niko already touched on this. And for us, what's important, on the one hand, as a winning team and with a passion to win, to be fair. This means also to align compensation structure of the executive and all leaders so that we have a [ red thread ] to be viable that people are also pride -- they take pride of our company, and on the other hand, also to be sustainable to honor transformation. And if you look at the fairness, it was really important that on the short-term incentive, 75% of the remuneration is measured by the team effort, the team goals. But there's also the possibility with 25% if you're, one, going the extra mile, if you're a super performer, you can get an extra. And if you look at the transformation part, it was really important to introduce sustainability goals. I'm also Chief Sustainability Officer, as you might know. So we will introduce this sustainability goals and our long-term incentive plan and factors like our own CO2 reductions, waste reductions, but also women in management positions. So sustainability, you can see, is really at the heart of our people. And we see that sustainability is a huge business opportunity, as my colleague Stefan Scholz [indiscernible] explained. So we see a lot of potential in there. And embracing sustainability means that our people, nearly half of them will still work in 2050, that it's really at their heart to make this happen. And we have very ambitious sustainability goals. I don't need to go through them. But for this, of course, you need the skills and frameworks and you need the incentives, which I just said. But of course, you also need a sustainable mindset. And this, I can ensure you, we have. We have very sustainable-thinking people. And I could tell you now a lot of this about the people, what they are saying, what they are doing. I give you one little example before we show you a little video is that when we had the pandemic, we started with the pandemic, we came together and we asked the people, our people, "Do you have an idea how we can make our production pandemic-safe?" And we asked this to all the people around the world. In a couple of weeks, we had more than 150 ideas how to do it, to make the production safer. When you enter, you can go on a mat, for instance, and they measure then how many people under production that you keep the distance. And we honor this. And there are some ideas of them we're not only using now for our manufacturing ourselves, but we might make business out of it. So very well business-driven, our people. Passion to win is there. So I'm fully convinced with our people with us. We are the competitive advantage. We will emerge as a winner out of this transformation. Thank you very much. [Presentation]

Great. Thank you, Ana. Great video. Good to see a lot of colleagues there. Let's now change gears for our final presentation to be held by Wolfgang Schafer, our Chief Financial Officer. So Wolfgang was born in 1959, studied business administration and holds an MBA. He has worked in various finance and management functions in his 35-year career, spanning many industries, with the last 20 in automotive. He's been our CFO over the last 10 years, overseeing both a period of strong business growth as well as substantial improvement in our financial indicators. Wolfgang, over to you.

Thank you. Bernard. After a long week of Capital Market Day presentations and finally, last but not least, I will put together and summarize the financial effects and expectations for Continental in the midterm. Before I do so, let me briefly look backward. Until 2017, Continental enjoyed strong growth and a double-digit adjusted margins. Only in the last 3 years, starting 2017, the light vehicle production got lower and in addition, our outperformance was reduced. We later on, partly due to legacy products, analog digital displays frequently discussed in other meetings this morning, reduced outperformance in advanced driver assistance systems and other topics. And finally, in 2020, COVID had an additional negative impact on our top line of minus 14%. All together, adjusted EBIT expectation in 2020 is only 3.5%. Now this is the past and the past is history. Important is our midterm expectation and ambition. Shown on the right side of this slide, the numbers are a summary of all the data which you have seen in the previous presentations. We foresee a return to higher growth rates with a CAGR of 5% to 8% for the coming years midterm. Fair to mention the easy comps of 2020 helped. Based on this top line development and on our cost-reduction initiatives, we target 8% to 11% adjusted EBIT margin midterm. All these ambitions are excluding Powertrain. We have proven in the past that we can achieve it, and we are committed to achieve it again. Before I give more details on the midterm, let me finalize the past with an updated guidance 2020. The main difference to our Q3 guidance is an increase of the expected rubber margin And then, respectively, the group margin and a higher free cash flow expectation. One by one, we expect for the consolidated sales for the group around EUR 37.5 billion, unchanged to what we guided at the Q3 call. Adjusted EBIT margin, up to around 3.5%. Automotive sales and adjusted EBIT margin did not change. We expect unchanged EUR 22 billion in sales and around minus 1.5% EBIT margin. Rubber sales, around 15.5% -- EUR 15.5 billion, the same as we had talked about in the past, but the adjusted EBIT margin up to above 11%. Raw material cost impact expected for the total year, about EUR 200 million, no change. And the CapEx before financial investments slightly down to now around 6%. Bigger change in free cash flow before acquisitions, where up to now we only see it more than 0 positive, we now can say above EUR 0.5 billion. The increase in the rubber profit on the one hand side and working capital elements on the other hand side have helped. Now to '21 and midterm. I will start with the spin-off of our Powertrain business. Vitesco is ready for independence. They were the first to put electrification in their strategic focus with a full range from battery management to drive trains, which is more and more proven right. The sales share of the electrification technology doubled in 2020 to above 6%. And they already supply numerous xEV platforms to many OEs worldwide. But they are not only ready for independence, we are ready for the spin-off. The legal carve-out is done. The operational readiness is established and the market conditions have improved in both equity and debt markets. As next steps, we will ask for the approval of our Supervisory Board intended to get in March next year, the approval of the annual shareholder meeting intended to get on April 29 next year and finally, the listing in H2 2021. And now midterm targets of the group. We just saw 3.5% adjusted EBIT margin is the 2020 starting point. How do we want to improve our profit performance? Well, one element is cost, short term and long term. And the cost measures include both the correction of previously higher growth expectations and the improvement of efficiency and productivity. More concrete in 2020, fixed costs will be down by 6% versus 2019. This includes short-term reductions, which are not permanent, like the short-term compensation from governance mostly in Europe. And it includes permanent lasting reductions like structural headcount adjustments and other fixed cost reductions. The more than 6% reductions are more concentrated on short term, nonpermanent, but they include permanent lasting reductions as well. And by the way, this minus 6% fixed cost reductions are even a little bit better than our target stated in the investors call on April 1. CapEx is down by more than 30% and again, even a bit better than stated in our investors call on April 1. The CapEx reduction includes reduced office building investments as we will have less employees. We were able to skip basically all CapEx intended to increase capacity, and the buildup of the new tire plants in the U.S. and Thailand was fortunately finished already in 2019. We do not expect the CapEx reduction of 2020 to have a significant CapEx carryover effect materializing in 2021. The CapEx relative to sales should not exceed prior years in the years to come. While this slide is concentration on the short-term effects, which we have achieved in 2020, there are, in addition, the midterm annual gross cost reduction targets. As announced, we shall achieve about EUR 1 billion gross cost reduction starting in 2023 to further increase in the following years. The program includes footprint adjustments and process improvements. Many locations worldwide are affected. In many of them, implementation is already done. In others, negotiations with the employee representatives are ongoing, specifically in Germany. First positive cost effects materialized already in 2021. Part of them are the carryovers from 2020, which I just explained. About 15% of the targeted gross cost reduction will be in Powertrain. The onetime costs linked to this program are around EUR 1.8 billion. Out of them, booked as of September 30, 2020, already EUR 1.5 billion. The Powertrain portion within these numbers is roughly 40%. The majority of cash out will be in 2021 and '22, totaling EUR 1.2 billion in these 2 years. The remainder will be in the years to follow. In the previous presentations, we have stated 2 major components of our profit improvement midterm: One, operational performance, I just talked about it; and the second one, growth. Let's have a look at growth now. The expected growth of the Continental Group, excluding Powertrain, of 5% to 8% annually midterm is benefiting from both the recovery of our markets and our outperformance. Regarding automotive and based on the latest IHS numbers, the light vehicle production worldwide is expected to grow 5% to 7% in the next years. We already showed in previous presentations that we expect to outperform this light vehicle production in automotive by 2% to 4%. Main drivers of this outperformance are the growth in autonomous mobility, in smart mobility, in architectural networking and in software and systems excellence. In tires, we expect our relevant market to grow by about 3% to 4% in the next years. This is the mix of the light vehicle production growth, of the replacement tire market growth and of the truck tire market growth. In addition, we expect to outgrow these markets by 1%. Main drivers for the outperformance are gains in market share in our North American and Asian business, specifically China, and the tailwind we get from our fleet solutions. And finally, in ContiTech, we expect the markets to grow by 2% to 3% annually in the midterm. Thanks to our smart solutions and our beyond rubber initiatives, we foresee an outgrowth for Continental of about 1%. Altogether, we expect a 5% to 8% outperformance for the Continental Group, again, always excluding the Powertrain business. And again, fair enough to mention that the low starting point in 2020 supports this average growth rate. Now let's put these 2 components for profit improvement together, growth and operational performance. It shall get us to the midterm target of 8% to 11% adjusted EBIT margin. Starting point is we guided about 3.5% adjusted EBIT margin in 2020. About 60% of the contribution to achieve the target is generated by growth. And here, we assume a leverage of roughly 15%. The other 40% will be contributed by the operational excellence. So much about profit. Let's move to cash. Conti has proven in the past that we managed to generate cash and to turn profit into cash. The lower line of this chart confirms that in the years 2010 to 2018, besides 2 years, in all years, the cash conversion rate of above 70%, mostly significantly above 70% was achieved. We want to continue with this achievement and reach in each year in the midterm more than 70% conversion rate. Again, this is including -- this is excluding Powertrain. This is excluding the cash out for restructuring I showed before, and this is excluding M&A activities, in line with our usual definition. It obviously includes a strong focus on working capital and on CapEx management. And finally, everything shown until now shall support our commitment to investment grade. Our current rating at Fitch is BBB with stable outlook and at Standard & Poor's and Moody's, their equivalent with a negative outlook. Our midterm targets are to have a gearing ratio below 40%. Exceptions due to acquisitions cannot be excluded, but only with a clear visibility to return in the target corridor. The actual year has shown that the 40% target is ambitious enough even for a highly cyclical industry like ours. Equity ratio shall be above 30%. And as mentioned already, the cash conversion of above 70%. And finally, let me confirm our dividend policy, which is in place for a long time, a payout ratio of 15% to 30%. In the past years, payout ratio was always above 20%, mostly above 25%, 1 year even above the upper end of the corridor. This corridor is in line with our investment needs, on the one hand side, as it is in line with our capability to generate cash. Let me conclude now the summary of our midterm ambitions as before, always excluding Powertrain. Automotive Technologies targets for an outperformance of 2% to 4%, and this is the same for AMS and VNI. The adjusted EBIT margin of Automotive Technologies 6% to 8%. Again, no difference between AMS and VNI. And finally, the return on capital employed above 15% for both. Rubber Technologies adjusted EBIT margin, 11% to 14%; tires with 12% to 16%, intensively discussed in the presentation before; ContiTech, 9% to 11%. The return on capital employed above 20%; tires, above 20%; and ContiTech, the same number. And finally, for the group, this adds up to the -- we have seen this already, adjusted EBIT margin of 8% to 11%, return on capital employed of 15% to 20% and finally, the cash conversion of above 70%. And now we come to the last slide of our Capital Market Days. Why do we believe Continental is an attractive investment? Well, we have the benefit from the market recovery, plus our outperformance, plus our cost savings. You invest in a company which will realize embedded value from technology leadership, specifically in automotive. And finally, you invest in a dedicated team and a company which has proven in the past they can do it. Thank you.

Thank you, Wolfgang. So now we're coming toward the end of the agenda. The second to the last item on the agenda is the final Q&A session. Niko and Ariane, may I ask you to again join -- come to the stage and join Wolfgang? So we've done this twice. We'll do it one more time. Same process applies to the final Q&A as before. [Operator Instructions] And we haven't done it yet, but just in case, if time permits, we'll be happy to conduct a second round of questions. So the first question in the final round belongs to Tim Rokossa.

Tim from Deutsche Bank. Let's see if we get to a second round this time. Wolfgang or Niko, to both of you perhaps, but Wolfgang, you mentioned that Conti have seen a lot of volatility over the last years. You moved from being a top performer in the DAX for several years to being one of the worst. You kicked off various strategic reviews and restructuring programs. And a lot of market participants, including myself, would very much really just like to see that Conti is in more stable water, not even to talk about all the possible improvements that we've heard about today. Now when I hear that there's still a lot of negotiations going on and also when we think about all the market uncertainty that is still out there, do you think you are now in a position to really move forward and spend less time with your own organization and rather with the growth opportunities? And if so, why is that the case? That would be my first question.

You started with saying this is a question for Wolfgang. I waited for the financial part or the more financial part, and then it looks like an HR part. So yes, but let me start. So to me, to summarize it, how -- what makes us confident that we focus now really on our operations and in particular, then on the strategic items we've presented today, operational excellence on the one hand; on the other hand, grabbing the growth parts. I mean, there is no doubt, and we mentioned this in basically all presentations, I think, that this is a strong transition. And this transformation has effects on us. But so it does on other companies. I mean we cannot exclude them, and we have to manage them in the proper way. So what I can commit to is we have set up the team. I mean we have firmly and announced our transformation program. We have initiated it, and we are now on our way to execute it. Will it be easy? No way. It will still have discussions, there is no doubt. However, we have a plan, and we are on our way to do it. We know what to do, and we are moving forward. We have a clear strategy, which we discussed. We have a clear differentiation, and we have the focus. So the teams are focused now on executing the strategy and going forward. So I can only say we have a clear plan. Is it an easy one? No, we said. It's ambitions, however, with the realistic tone, which we said we believe that the team is behind. We know what to do, and we have to execute and we have to work for. So at least the question marks what to do, this is not there anymore, unless obviously, as we know, in pandemic times, transitions, transformation, there might be new coming. But the what is clearly defined. Now we have to manage the how and we have to move forward. And maybe, Ariane, you want to add something with regard to commitment.

I think it's a very important question. Somehow [indiscernible] somehow maybe also an elephant which is in the room. If we compare us to other companies and competitors, we take a little bit more time. However, what we are doing, we do, that we say we can only commit things which we can then also deliver. And the employee representatives, they also know this. And if you want to emerge as a winner out of this transformation, we're all in one boat of this. We have to see that any kind of commitments are always coupled to performance and KPIs. So in the past, it was quite often that we decoupled it. We made a commitment, guarantees, 10, 15 years, whatever, in which we can in this kind of volatile world not fulfill anymore. So I think it's about a negotiation process, which is fair, which is transparent. We always try to find the best solutions for our people perspectives, either in the company, outside of the company. However, just to decouple any kind of guarantees and commitments from, so to say, performance and KPIs and financial performance, this is not viable and this is also not sustainable. So we have to do it in an adjusted manner, and we have to do it consistently and not to do it quick and then in effect, it might be even more expensive for us in the future and might not be fair for the people as well because it would not be a reliable perspective.

Sorry for the long answer.

[ It's going well ]. Well, my question was long as well. So it's good to hear you feel confident on that side. I think it would be very important if you just really delivered from this point. And my second question is then probably then also to you, Niko, but I'm not exactly sure. We've heard a lot about strategic reviews from you guys. Three years ago was the big one. The end result was rather disappointing from a capital market perspective. Now you're moving ahead with Vitesco. There's a much stronger focus on software and electronics. Can we see other major changes to the company structure? And I'm thinking especially the Tire division. Will that remain 100% owned by Conti forever? Or do you see any opportunities on that side?

This a great question. I mean, you heard in the introduction, and you know this as we know each other. I'm a tire guy, and I led this business for a certain period of time. So -- and I think I made this clear. We have those 2 differentiated strategies, as we said: manage for value, manage for growth. And in order to fuel our growth, to make use of the opportunities on the software side, on the autonomous mobility side, high-performance compute, those areas as well, digitalization on tires, obviously, we need the value part. And if you look in the value creation, which the tire business brought to the company in the last decades, this has been always awesome. So this is a clear value driver. So this is in the DNA of this company. And maybe we started with tires, though those have been very different than today, now this is clearly a DNA from us, it's a strong part of us. And so far, We are very happy with the value contribution on the tire side, which we can make great use of it, either invest it as well on the tire side for future growth because there are growth paths there as well, or make use of it within the company, whoever has the best value idea to create future value. And I'm sure Wolfgang is always looking very much behind them on the company because he always said money has no color. Whoever has the best project to go for, which delivers strong value creation in the future, we will go farther into.

Okay. So I take it, it will remain part of Conti.

Absolutely.

Great. Thank you, Tim. So our next questions will come from Henning Cosman.

It's Henning from HSBC. The first one to Wolfgang, please. Wolfgang, you said in your introductory remarks, it was your role to consolidate everything on to the group level. So I'd like your opinion as the group CFO as well after having heard from Christian and his team that the tire, especially the margin targets, are very much on the conservative side, not to say an all-weather target. So considering the significant earnings contribution of the tires, considering the crisis affecting the auto divisions more, but also the Powertrain spin-off, a very significant portion, would you therefore agree that especially the midterm margin guidance is also on the group level very conservative? And specifically on the cash conversion as well. You said yourself most years were over 100% cash conversion. If you could just go into a bit more detail on the leakage again, why it's closer to 7 -- I know you say above 70%, but why -- where's the leakage, in your opinion?

To answer the third part, here in my office, I watch the question to Christian about the tire margin. And I think you finally, after 3 or 4, asked it, you pressed him finally to say whether [indiscernible] could be better. I mean I think he has explained that there are risk from pricing in Europe, that there are risk from raw material, that there is an OE part of the business and all that together. And that, I think, is a realistic margin guidance which we have given. And I don't want to start on the first minute where we presented to say, "Well, everything can get better." This is what we work on. This is where we commit to. This is quite an increase from what we are showing at the moment. And I think this is what you should take as what we all work for, but it is not something where we say, yes, it could be better as of now. This is what we stand for here, but it is not worse and it is not better. This is the target we have. And I think you should take it as that. Cash conversion, while I mentioned I need to add to what you said. Yes, I said above 70%, and I said in each year. So this is not something we're on average, but we want to be in each year better than the 70%. Don't forget that this still includes some of the cash out and investments we need for the spin-off of the Vitesco business. This is for the next 2 years. There is still some of the production sites, which are current, which have to be doubled, and this is the type of a pre-invest, which then finally will be used in the years and later on, reduce the investment margin. And I think if you take all this into consideration, a minimum of 70% as a cash conversion ratio is a strong commitment. But yes, we say above. And I mentioned as well, look at the past numbers, not by chance, they were on this chart. So if we get the working capital in the line, we want to get it, discussed more than once. When we look at these capital investments, and I mentioned the special effect of the Vitesco spin-off, I think we have a good chance to be above 70%, clearly above 70% in many years.

Thank you And one question to Niko, please. You've obviously been part of the management team for a very long time. But if you allow me, I'd like to ask if after your recent transition, you've already taken a view as to how you want to shape and affect the strategy going forward and potentially even what sort of impact you have taken on this Capital Market Day and how you may have changed or affected what you have presented to us today and over the last few days?

Okay. Was this the real question? Can you repeat again the core of your question, please? Because I...

No, just -- I mean we all know you've been part of the management team for a very long time. And you've sort of -- in that capacity, you've worked towards the overall company targets for just as long. But the question is have you -- since your recent transition into the CEO role, are you taking, in a way, a different direction? Is it a very smooth transition and you're just literally continuing what Dr. Degenhart has started? Have you even affected today's presentation and the Capital Market Day for direction to any extent that we should maybe be aware of?

Okay. There are 2 things. So I explained to you why I did miss the core because I would say, in this preparation of the Capital Markets Day, obviously, I wasn't long highly involved. And as I said before, I was responsible long on the rubber side for the Tire division. Now I'm in automotive, and we really came up with a new strategy on the automotive side. We launched a new organization January 1, 2020, and we have evolved during the course of the year our structured clear automotive strategy with what we are doing, 6 action fields and how we're working together, how we want to leverage those synergies. So this is clearly something new coming up. Does it come new up in my 2 weeks being as a CEO? No, because we have worked on it on the automotive side, on automotive technology. Is it new? Yes, because we have just launched it. We have worked for a certain period of time. We have changed the organization we were coming up. And that explains maybe as well the second part, I mean at least on the automotive side, why there is also not coming the last 2 weeks something completely new because we already [ paired ] it. We launched it, I mean, basically 2 weeks ago in our automotive convention, and we followed through. The other part, if it comes to strategic direction, we worked in the last weeks clearly on it, and we explained it. In particular, the new part, which we saw in the middle was the second pillar, so the management differentiation between growth and value and not just that we make this distinguishment but that we clearly track it. We lock in our targets. We allocate differently resources than we did in the past. And we have clear commitments, which means as well that we stringently follow what will be achieved, whatnot, and we are consequent in this execution. If you ask me, this is what we believe is not a completely different strategy itself, but it's how you execute it, how you live it, how you allocate resources and what you commit to. And the third pillar, obviously, I mean, operational excellence, as said at the beginning, this is in the DNA of the company. We did this. Otherwise, after 150 years, we would not be in a position where we are right now. However, we find it recently, we talked about this in length. And then coming to the third part, people. People, Ariane mentioned, core of what we are doing and the core competitive strength because the difference is made by people, not by some -- I mean we have great technologies. We all know this. But the people are developing those technologies and bring it further. And there, the clear part. I mean, on the one hand, passion to win, as mentioned; the other part, transparency. We hope that we delivered this during the Capital Markets Day as well as commitment for ownership. So those in a nutshell, sorry for taking a little bit longer, those are the parts, which I would say is a new way of living our strategy and executing it.

Henning, can I just add on this? Being more than 6 years a colleague of Niko and now a couple of weeks also being my CEO, I can promise you now, Niko always wants to win. I run a couple of marathons with him, and he always got the best out of me in these days, running record time. So he's a team player. He will get the best out of this team. We will win. We will be the winners. I'm fully convinced he is the living proof, so to say, next to me. And it's really as a team that we are acting here. So you can be sure that there will be different speeds, and we will get there -- where we have to go with Niko as our captain.

Thank you, Henning.

Thanks, Henning.

So our next questioner is Gabe Adler.

A lot of the really exciting great opportunities that you presented today, particularly on the auto side, specifically on the auto side, really focus in on the new technologies that Conti wants to expand into on software and around the centralized electronic architecture, which really seems to be a big change that the industry seems to be facing over the next couple of years. And the topic was brought up earlier in the day around the risks and vertical integration and customers moving into that segment. And I wanted to put the question to you as to how you baked in that risk of vertical integration and how the relationship between Continental and its customers could change in the very attractive high-growth areas in the coming years and how you're baking that risk into your growth assessments that you pay out today?

I mean there is, and particularly on the software side, I think we had this question already in the afternoon, what is the part which the customer will do, what is the part which is left for the suppliers. And there it becomes most obvious because with all the transformation, the car is changing, the vehicle is changing and as well the differentiation for our customers is changing. So the very great logic, the customers on their own, they want to define their functions, which are very much defined by software in the future. So the question was as well in our expert session, where is then the place for suppliers such as [ Continental ] and their clearly answer is there are 2 areas, the non-differentiating part where we can use scale where integration is so important. Integration as well of external suppliers. So on the vertical part as well as on the functional part, different softwares for different functions. but as well on different levels. This is one of our core competencies. That's why we have Elektrobit for and Argus Cyber Security, where we have our software teams in the different areas. So the non-differentiating part, which we can scale clear advantage for the customers on the one hand. On the other hand, with our portfolio, we are having as well software functions, and we are working on those functions. I mean on the high-performance compute, functions play a major role, which we are bringing up to the table. Is there more that the OEMs will do in the future? Might be. But still non-differentiated and parts of the functional product is with the complexity, which is rising. It's still a large market where suppliers' own OEMs can find their businesses.

And in the end, Gabriel, if I can add on this, you always need the right people to do this. And I think compared to other companies and also maybe one of the other OEM, we see that we are still very attractive for the right talent. If, in particular, if it comes to software, like I said before, we get them and we keep them And I think this is always a prerequisite, whatever you want to do, you need the best fit, you need the right people.

Okay. And my second question -- and apologies, I think I just caught the end of the answers that are being transferred onto the line, but again around the cash conversion target. I'm just trying to understand the moving parts there and understanding given that CapEx is remaining at similar levels, you've talked about trying to better manage working capital. So why the 70% target is below historic levels there?

Well, we are back to the same topic I said before. We -- this is we said, above 70%. It should be there in each year. So including some variations in whatever might happen, working capital and others, and therefore, we said above 70%. And clearly, it can be better and there will be years where it will be significantly better than the 70%. .

Our next caller with question is Horst Schneider.

Can you hear me?

Loud and clear.

Okay. Excellent. Yes. Thank you. So I have got just the -- the first question refers pretty much just to some ratios. Maybe you can give some guidance on that [indiscernible]. So that is, for example, on R&D ratio because we talked about efficiency. So does that mean that also the R&D ratio is going to come back basically more to the historic average of something like 9%, for example, for automotive? And then also for CapEx, maybe you can provide some guidance, which trend you expect here. And then on the other ratio, that was on dividend payout ratio, because you say 15% % to 30%. So under which circumstances you would opt for 15% and under which [ LT ] would go for 30%? What does it depend on?

To start with the R&D ratio. Obviously, in a year like 2020, this is something which is distorted because of the massively reduced sales in Q2 now picking up, and R&D quota obviously had to be -- our R&D absolute expenses had to be held on a more stable level. So the starting point in 2020 definitely is not what we expect in the years. It will go down. It will come down. But don't expect it to come back to the 9%. This is with all these portfolio changes, which we were talking about in the last week with all these additional software. And as well partly electronic part, but mostly software part in the business, there will be a higher R&D quota. It will stay double digit. But it will clearly below the level of what you see for this year. At the same time, I mentioned that we don't foresee the CapEx to be above the prior year levels. And I mentioned as well that there are some CapEx is to be expected for the completion of the spin-off in 2021 and still in 2022. But then you can expect these numbers to go down and to go down under the numbers which we have seen in the past. So both of these numbers, and this is part of the improvement in the profitability, both of these numbers relative to sales are getting down. For dividend payments, we have always added in former times to our dividend policy that we take into account when we decide on the dividend recommendation for the annual shareholder meeting the total shareholders' return And this is what we would do in the future. Depending on how the share overall has developed, and this for us is another indication of to go more to the upper end or more probably to the middle end of this range. And finally, obviously, we would always take the cash situation of the year into account.

All right. The last question that I have is probably more for Niko. So when I think about this HPC business, software business, how do you charge that? Because I think it's a completely different charging procedure as compared to a normal automotive component. So should we orient [indiscernible] when we think about margin potential to be more oriented in the classic IT services margins here? So -- which is something like 15% EBIT margin. I know you probably don't want to commit on a certain EBIT margin level. But nevertheless, what should be oriented? And is this more really consulting business? Or is this the classic auto supply for you?

I mean you expect already my answer, but I would not comment on the nice margins, which you were quoting. I mean, first of all, it's still automotive OE business. So we are in competition for this with other strong companies, which are -- want to supply as well high-performance compute. The question, and Helmut already referred to it in particular, I mean, we have been with the ID.3, the ones starting with that, this was an enormous effort and a high R&D effort which we took, which depending and once you've seen the 6 action fields which we're presenting, which have all high-performance compute and sometimes isolated. I mean, an ADCU, automated driving control unit, could be on the one side. On the other hand, it could be a body server together with an [ xEV ] function, for instance, which is getting combined. So there are several there they have all in common that they have high integration efforts. high software extent. And then it depends, coming to your business model, which model you apply later on with the OEMs. This is different. I mean, obviously, a server determines then, over time, the functionalities of the car. So you are talking about maintenance parts. You're talking about over-the-air updatability. So as well concepts, which are going further. So different than to other products, when you sell a brake, for instance, you sell it over time, but you have always the same product here. I mean you updated and you have your product. But here, over time, you have as well revenue streams which you are doing because the product is changing. You integrate new functions. You update it. So it's a mix of a typical OE automotive product, where, obviously, are in competition and with a lifetime or a longer portion which comes with it. How profitable it will be depends at the end how competitive we are and how much we can leverage our scale. Our scale having across customer, but across customers, projects, across different servers and how we are able to create a platform which serves economies of scale and gives them opportunities to leverage margins.

But since you mentioned that your classic competitors there are still then the Bosch, Aptiv, Valeo, it's not then the Silicon Valley tech companies against which you compete in the HPC business?

I think I would agree on that part because there is a lot of automotive-embedded software. which you need to. So it is still very much in automotive. You're coming from basically the body control modules, all those ECUs, which are embedded, which you bring on server. So a strong automotive knowledge is needed and a very strong connection on this prior to the automotive OEMs, yes.

Thank you, Horst. So we have 2 more questioners and about 5 minutes left. So let's go to the next one quickly. José?

José, JPMorgan. Two items, please. First of all, Niko, and coming back to your recently held automotive convention where you had the chance to revise all divisions. Can you talk about where is Conti in the value chain on hydrogen fuel cell and on battery cell manufacturing, please? Second question for Wolfgang. Wolfgang, can you comment a little bit more on the leverage of the company? Maybe those net debt-to-EBITDA ratios, on the longer run, where would you feel comfortable seeing the company evolving on leverage in the coming, let's say, 3 to 5 years?

Okay. First, your question about battery cells and automotive convention. So as this capital market, as well the automotive convention, was not focused on Vitesco. As you know, we are finishing all operations, and we are planning the spin-off of Vitesco next year. So Vitesco has an own Capital Markets Day around March, right, Wolfgang? Yes. We're pleased to shoot those questions again, how electrification will go further in Vitesco, what will happen, how they plan the transformation if it come to battery results. I mean this is already a decision which we took a bit longer than that in the Executive Board, and I have been part of the discussions. And we decided for us that it is not a focus and value-accretive business for us at that point of time. So we have not gone in investment in this area. Does that mean that forever, I'm talking now for Vitesco, this is not possible. For sure, Vitesco will look in it and if technology changes, if news are coming up, that might be an option. But for the time being, it is not. And again, this would be then a question for the Vitesco guys. And Wolfgang, you take the second?

Yes. The leverage ratio, José, we did not change now with this somewhat new setup, which we are showing. We did not change so that we have gearing ratio as a measure for our indebtedness. And there, our target is to stay up to 40% gearing ratio, we feel fine. It can exceed this 40% due to an M&A activity, but then with a clear visibility that we come back in the midterm to this 40% or below because still we are in a very volatile industry. I think everybody knows and has seen this just again in this year. And therefore, we believe this 40% is a range which has proven in this year is fine to be on the safe side, but it shouldn't be much more in the normal course of business.

And our last questions of the day will come from Sascha Gommel.

My first question would be on the working capital side. Come back to the cash flow, I think we haven't talked much about it today. Does it mean there's just not a lot of upside and there's some puts and takes, but overall, working capital in relation to sales should remain more or less flat in the coming years?

Well, we have, on the working capital side, we want to further improve. But, there is a but, we have 2 trends which are somewhat making this even more a challenge. One, more and more business in Asia over this period, where we are discussing about midterm, we will increase our share in the Asian business, specifically in China. And you know that the payment terms in these regions are, for automotive suppliers, worse than they are in the rest of the world. This has to be taken into account. And then we have, at the moment, discussions with the one or other of our customers of changing payment terms from their side. And again, there, at least we see a pressure and not a chance to improve working capital from that side. And taking these 2 factors into account, yes, we want to improve, but there are countervailing trends which we have to take into account when we talk about working capital.

I see. Understood. Very clear. And some of your competitors run a bit more aggressive working capital structure with factoring and reverse factoring at a pretty high level. But that's not something you would consider to kind of raise in order to offset some of those pressures.

Well, we have all on balance sheet at the moment, and we don't have another strategy to switch this, to switch to off-balance sheet working capital positions. In the end, we would have to mention it in the annual report, and the rating agencies would take it into account anyway. So it's more, I think, something like window dressing than anything else.

Understood. And then my next question would -- just briefly on Vitesco because it touches the RemainCo as well. Is there any plan to put cash from the Conti RemainCo into Vitesco? Or how does it work with the spin-off?

Well, we will make sure that the balance sheet of the Vitesco business is sufficient, that this is a solidly financed company, which will be ready to run their business in a solidly financed position. And this is how Vitesco will start. And you probably, in the Capital Markets Day, will see this. And it is -- I don't think it's a question of cash or no cash, but in the end, the overall balance sheet structure is set up in a way that Vitesco is in a position to be active on the debt capital market as well.

Okay. Thank you, Sascha. And with that, our time for the final Q&A session is now complete. So thank you, everyone, for your questions just now and for the entire day. So we're now at the end of our Capital Market Days 2020 program. Before closing the event, let me hand you over one last time to Niko for some brief closing remarks.

Yes. Thank you, Bernard. I want to start with a big thank you. Thank you for listening. I mean where this was the most holistic and the largest event we ever did in terms of Capital Market Day. It was a marathon, as Ariane already mentioned, so several days. So thank you for being patient and for listening to us. I hope that we can convey our messages, our messages that we want to emerge as a winner out of the transformation with passion to win. So thanks as well to the whole management team which has presented. And I'm convinced that you could feel this passion is in this company, and we have a great people culture in order to execute the ambitious targets, but realistic targets, which we have on our plate. You could really see transparency as one of our targets. That's why we had such an intensive Capital Markets Day. We hope you appreciated the transparency which we brought. And please provide feedback to Bernard and the team in order to give us feedback what was the interesting part, where can we maybe compress, where we should be more extensive. And we are more than happy then to adapt and going forward in the future because this is done for you. And we are agile and flexible and want to improve to convey our messages even more precise transparency in the future. And last but not least, as said, it comes with ownership. We are -- we hope that you could see that the whole team is clearly committed to go our way to achieve the targets, the midterm targets, which we brought in. So then without further ado, I wish you as well a great holiday season, and hopefully, see you soon at most likely then in the year 2021. So thank you, and have a good time. Thanks for listening. Thanks for being with us.

Great. Thank you, Niko. So with that, this now concludes our CMD 2020. So on behalf of the entire worldwide Continental team, thank you for taking the time to join us, and thank you for your interest in our company. Repeat what Niko said, we wish you and your families a happy and healthy holiday season, and we hope to see you again soon. Thank you.