Continental Aktiengesellschaft (CON) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the conference call of Continental regarding the H1 results 2021. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand over to Bernard Wang, who will lead you through this conference. Please go ahead.

Thank you, operator, and welcome, everyone, to our Q2 2021 results presentation. Today's call is hosted by our CFO, Wolfgang Schafer. Also here in the room with us is Stefan Scholz, Head of Finance and Treasury. If you have not done so already, the press release and presentation of today's call are available for download on our Investor Relations website. Before starting, we'd like to remind everyone that this conference call is for investors and analysts only. If you do not belong to either of these groups, please kindly disconnect now. Following the presentation, we will conduct a Q&A session for the sell-side analysts. To provide a chance for all to ask questions, we would ask you to limit yourself to no more than 3 questions. This will help us conclude our call on time. With this, I would now like to hand you over to Wolfgang Schafer.

Thank you, Bernard. Let me begin today's presentation on Slide 3, starting on the left. On the whole, we had a solid second quarter with a year-on-year operating leverage of 39% at the group level. It was supported by the recovery in demand, continued cost discipline and restructuring savings. However, the operational situation varies across the different group sectors. Starting in Automotive. The shortage of semiconductors continues to be a challenge, specifically restraining volume growth, higher supply chain costs and operational inefficiencies due to volatile customer call-offs. Our teams continue to work closely with the customers and suppliers to minimize disruptions as much as possible. In parallel, we continue to win new business with innovative technologies, including a high-volume pillar-to-pillar display solution for more than EUR 1 billion of lifetime sales. In Rubber, sustained operational excellence delivered substantial growth and profitability. Tires was particularly strong due to volume recovery as well as double-digit year-on-year price/mix development. ContiTech also performed well operationally though margins were sequentially impacted by reduced and volatile OE volumes and increased raw material headwinds. In Powertrain, electrification technology almost tripled its sales versus a year ago. Additional bookings for E-axles and inverters will sustain this growth momentum. Switching to our current priorities. We do expect the semiconductor situation to improve over time. However, there still remains a considerable amount of uncertainty and volatility. New events like the COVID-related stoppages in Asia, specifically Malaysia, have constrained deliveries from multiple suppliers. The supply of semiconductors will remain, therefore, very tight in the coming months and continue into next year. Accordingly, we have lowered our growth expectation for global light vehicle production to 8% to 10% versus 2020. Also, supply chain costs are incrementally worsening. The expected headwinds from logistics for Automotive Technologies is now about EUR 200 million, and prices for electronics and commodity inputs are rising. We are working with our suppliers and customers to mitigate these challenges. However, the offsets will only become more effective starting in 2022. Inflationary effects are also affecting Rubber Technologies. Prices for butadiene and other oil-related materials have increased substantially, while natural rubber remains on a high level. Thus, we have increased our raw material headwind forecast for Rubber from EUR 350 million previously to now EUR 500 million. Put it in another way, the impact in H1 was about EUR 75 million, but it is expected to rise in H2 to around EUR 425 million. On the tech side, we continue to push innovation in strategically relevant fields. Examples include EV tires, user experience as well as software with Continental and Elektrobit as the first suppliers in the market with and in-vehicle integration of Amazon Alexa customer system. This complements well our offerings in high-performance computing, software and integration services. It is also an extension of our collaboration with Amazon coming on top of our already announced cooperation on the Continental Automotive Edge platform. Also, Vitesco launched their fourth-generation EMR4 E-axle product, and I'll come to that later. We remain on track with our cost reduction program to achieve our cost target of greater than EUR 1 billion gross cost savings from 2022 onwards. Agreements have been reached in nearly all locations and are in line with our communicated targets. And to confirm, the spin-off of Vitesco Technologies is said to be completed in September. Our teams are working hard to finalize the prospectus, which should be available early next month with a listing expected mid-September. Please note that the spin-off will result in a negative onetime impact on adjusted EBIT of around EUR 80 million. That is included now in the outlook for Automotive Technologies. This is due to an accounting treatment of the spin-off that will, upon its implementation, allocate profit generated by effective parts of Automotive Technologies to both discontinued operations and to the new segment, contract manufacturing. The accounting treatment has no effect on the net income. Let me use the next slide, now on Slide 4, to run you through some of our technology and business highlights. Starting with user experience. As we have discussed at our Capital Markets Day in December, our transformation to a supplier of rich and immersive in-vehicle digital user experiences is well underway, as seen here on this slide with some of our recent launches. Unique L and C-shape display solutions will be introduced in the next month. Both complemented cockpit high-performance computers for advanced functions like [ hourly ] updates and driver monitoring. The recently announced high volume order for a pillar-to-pillar display solution is the latest addition. Our total order intake is now around EUR 5 billion in lifetime sales for new display solutions with SOPs starting mid-'21. With custom demand for our innovative solution remaining high, we are confident that this figure will continue to grow. Continuing on Slide 5, with the spotlight on our tire business. Recently, many investors have asked us if our tires can also be found on electric vehicles. Yes, they can. Actually, we have been active in this market for a long time, being one of the first movers in our industry as the initial tire outfitter for the Tesla model S. In the meantime, we have become a broadly positioned leader in the field. As you can see here on the slide, our tires are fitted onto many of the world's most popular EV brands and models ranging from premium and sport cars and SUVs to volume models. Actually the Ford Mustang Mach-E and the BYD Han are just the latest successes we have had. As EV share of vehicles grows, we expected that this list will continue growing as well. Now moving to Powertrain, Slide 6. You're already familiar with our very successful EMR3 E-axle product, which can be found on over 20 vehicle models worldwide in more than 200,000 vehicles. With the introduction of the fourth generation of our E-axle, we have taken all our expertise and experience over the past decade and put it into the new EMR4. It significantly expanded scalability, provides customers with more flexibility so that one platform can cover small to large vehicles from mass market to premium. We have improved on the best-in-class characteristics of the EMR3 by reducing weight by another 25% in the respective power thread and increasing efficiency by up to 5%. On top, the EMR3 embodies all of our learnings over 4 product generations regarding standardization and manufacturing efficiency, which will provide competitive economics for us and for our customers. Business acquisitions for EMR4 underway and Vitesco looks forward to providing updates on this going forward. Let me now shift to our financials, starting on Slide 7. Reported sales came in at EUR 9.9 billion, 50% above last year's comparable period, which, as you know, was heavily impacted by lockdowns in many of our geographies. Excluding negative exchange rate effects of EUR 173 million and changes in the scope of consolidation, organic growth was 55%. Due to the volume recovery and ongoing strict cost management, adjusted EBIT increased year-on-year by over EUR 1.3 billion, resulting in an adjusted EBIT margin of 7.2%. Without the application of IFRS 5, the adjusted EBIT margin for the group would have been 5.9%. Special effects totaled negative EUR 55 million, nearly half of the amount is spin-off related. Net income after taxes increased year-on-year by almost EUR 1.3 billion to EUR 545 million. Trailing ROCE was at 4.8% or 4.2% excluding IFRS 5. Free cash flow, excluding acquisitions, divestitures and carve-out effects came in at EUR 327 million, a significant improvement versus minus EUR 1.8 billion in Q2 2020 when the lockdowns impacted both profitability and working capital. Let me now move on to the performance by group sector, Slide 8. In Automotive Technologies, we saw a strong year-on-year organic growth of 57%, thanks to the recovery in European and North American vehicle production. This number was about 8 percentage points ahead of the increase in global vehicle production. This growth drove a sizable improvement in profitability but was restrained by higher supply chain costs. The adjusted EBIT margin was negative 1.6%. Rubber Technologies, we achieved a very strong recovery in sales and adjusted EBIT. Organic growth was 50% and the adjusted EBIT margin reached 14.6%. The raw material headwind in Q2 was still moderate with EUR 75 million. Our Powertrain Technologies achieved an organic growth of 64%. The continued robust demand for electrification technology products was the main driver here. This growth as well as IFRS 5 helped the adjusted EBIT margin to increase from negative 16.3% in Q2 '20 to positive 9.5% in Q2 '21. Excluding IFRS 5, the margin would have been 3.5%. Slide 9, AMS. Sales came in at more than EUR 1.8 billion with solid organic growth of 63%. All product areas had the impact of the semiconductor shortage especially advanced driver assistance systems and electronic braking. The effect was most pronounced at European and North American customers. Reduced volumes affected the adjusted EBIT margin, which was minus 1.4%. In addition, higher year-on-year premium freight charges of around EUR 30 million and operational inefficiency caused by demand volatility influenced profitability. These factors diluted the operating leverage to 23%. ADAS R&D increased year-on-year by about EUR 25 million in Q2 and by about EUR 40 million in H1. We have revised our expected increase in advanced driver assistance systems R&D to about EUR 150 million to EUR 200 million for the full year, which means about EUR 60 million to EUR 70 million in quarters 3 and 4 each. Despite customers continuing to delay their sourcing decisions due to market uncertainties, AMS recorded an order intake of EUR 1.9 billion in the quarter. The biggest order wins were related to electronic brake systems as well as for passive safety and sensorics. VNI is covered on Slide 10. Just as in AMS, the semiconductor shortage affected all product areas, especially Connected Car Networking. Regionally, we saw the most significant vehicle production stoppages among European and North American customers. These factors restrained organic growth to 53%. Higher sales and an operating leverage of 36% helped drive the year-on-year margin increase to minus 1.8%. This was achieved despite higher logistic costs of around EUR 30 million and, like in AMS operational inefficiencies, from volatile demand. VNI recorded again a solid order intake of EUR 2.4 billion, including more than EUR 1 billion for our pillar-to-pillar digital display, as mentioned before. Other business wins include further bookings for head-up displays as well as new orders for telematics and commercial vehicle products. Moving to Rubber Technologies, starting with tires, Slide 11. Organic growth in the tire business was up 55% versus the year-ago period. FX remained a material headwind of 4% in Q2 primarily related to the stronger euro versus the dollar. The FX headwind is expected to recede in H2. Volume growth in Q2 was 43%, led by a broad market recovery for truck and passenger car replacement tires in North America and Europe as well as prebuy effect ahead of announced price increases. On the other hand, while OE demand is up year-on-year, it was down sequentially due to production stoppages. Price/mix achieved plus 12%. This reflects the favorable business environment, particularly in EMEA and the Americas. Specifically, the main contributors were a higher share of ultra high-performance tires as well as price increases in replacement. This resulted in an adjusted EBIT of EUR 515 million and a margin of 17.8%. Please note this includes a one-off, an EBIT-relevant tax benefit of EUR 25 million from South America, Brazil. Excluding this one-off effect, operating leverage was at 46%. Raw materials in Q2 accounted for a negative impact of EUR 50 million, balanced out by positive inventory revaluation effects. Different to H1, we expect a large headwind from raw materials in H2, as already discussed in prior calls, which is currently estimated to be about EUR 350 million. Given the magnitude of the increase, we anticipate that price/mix will only be able to partly compensate. Moving to ContiTech, Slide 12. ContiTech showed a very solid organic growth of 43%, supported by all segments. While OE grew strongly year-on-year, it declined sequentially due to the semiconductor shortage. In industrial and aftermarket, while demand remained stable overall, Surface Solutions and Powertrain Transmission continued to grow. China, once again, was our strongest growth driver. Volume growth, strong pricing and further progress on restructuring supported the year-on-year margin increase to 8.2%. At 29%, operating leverage was affected by production volatility in the OE business and raw material headwinds of EUR 25 million. We expect pricing to only partly compensate for increasing raw material headwinds, which we expect to be about EUR 75 million in H2. And on Powertrain Technologies, Slide 13. Sales of roughly EUR 1.8 billion were up organically by 64%. Electrification Technology sales of EUR 152 million tripled versus the year ago quarter, thanks to booming demand for E-axles and power electronics, especially in Europe. Though Electrification Technology has not been limited by semiconductor supply constraints, other business areas were affected as evidenced in the sequential sales drop of 8.5%. The adjusted EBIT margin achieved 9.5% or 3.5%, if I exclude IFRS 5. It mainly benefited from higher volumes, ongoing cost discipline and higher R&D reimbursements. Excluding Electrification Technology, the adjusted EBIT margin for Powertrain we have been 13.8%, respectively, 7.6% without IFRS 5. Order intake was solid at EUR 1.9 billion, of which, almost half was achieved in the Electrification Technology primarily for high-voltage solutions. Cash flow on Page 14. Free cash flow of EUR 327 million was supported by a significantly higher operating cash flow of EUR 686 million, improved EBIT and a more normal level of working capital were the main drivers. The operating cash flow also includes cash outflows for restructuring of EUR 48 million. Investing cash flow remained at a low level while CapEx only 4.6% of sales in Q2 2021. We expect CapEx to accelerate in the coming quarters and to reach the full year CapEx to sale of around 7% for continuing operations. Continuing on Slide 15, market overview. As mentioned, considering the semiconductor shortage, we have revised down our growth expectations for both passenger vehicles and commercial vehicles. We now expect light vehicle production in '21 to grow by 8% to 10%. This, taking into account the severe impact from chip shortages in Q2 as well as other less severe impact in Q3. For replacement tires, we slightly increased our forecast due to the ongoing favorable market environment, though we do expect growth rates to come down in the second half of the year as comps get tougher. And then on Page 16, let me conclude today's presentation with our updated outlook. As a reminder, all the parameters shown here are only for continuing operations. Let me explain some of the changes since our last update in May, starting with automotive, we have lowered the revenue bandwidth to EUR 16 billion to EUR 16.5 billion to reflect our lower expectations for vehicle production. The adjusted EBIT margin has also been lowered to account for not only lower volumes but mainly for higher anticipated supply chain costs and as well as a spinoff accounting treatment of EUR 80 million, which all are included in the 0.5% to 1% bandwidth. In Rubber, revenue bandwidth is now EUR 17.2 billion to EUR 17.8 billion, basically confirming our existing expectations. However, based on our strong performance in H1 and market expectations for H2, including the updated raw material headwind of around EUR 500 million, we have lifted the adjusted EBIT margin bandwidth for Rubber to 12.5% to 13%. The spin-off of Vitesco in September will result in some effects. This includes the creation of a new contract manufacturing group sector to account for what currently are intercompany sales. From spin-off completion to year-end, we expect contract manufacturing to contribute sales of around EUR 250 million with an adjusted EBIT margin of 2% to 3%. Additionally, know that the net income for the fiscal year will include the result of discontinued operations, which mostly consists of Powertrain up until the spin-off date. Lastly, we have made some minor adjustments to our expectations for financial results and PPA amortization. With this, I end today's presentation, and I open the line to your questions.

[Operator Instructions] Our first question is from Tom Narayan, RBC.

Tom Narayan, RBC. First, on tires, how does Q2's replacement-to-OE ratio compared to historical levels? My sense is that it was probably above normal given the soft OE tire market, and this might have boosted margins for tires. The second, a number of automakers over the past few months have made statements suggesting they want to in-source EV components like e-motors, inverters and others. How concerning is this for your Powertrain business? And lastly, Michelin is benefiting from its exposure to high-margin specialty tire businesses, including mining, ag and construction. Are these end markets something Conti would like to grow bigger into?

Thank you for the question. First, replacement OE was somewhat lower in Q2, but the question is what do you compare it to, which quarter you compare it to. But over the average of the last year, it was a little bit lower, has helped the margin, yes. But it's not the main driver of our margin improvement, what we have seen. In-sourcing of the EV components. What we are finding out in the discussions with the OEs, yes, there are OEs which are considering to in-source, but what they are considering to in-source is mostly in the big majority, in the big volumes, is the assembly of the product, which in the end, make up in E-axle. We still have the discussions ongoing on delivering, in principle, the design and delivering as well the overall products, and some of them might do the final assembly on their own. This is our actual takeaway. We are not talking about DC/DC converters and other products, which anyway seem to be a product which the majority of the OEs wants to buy from suppliers. And finally, correct. We envy Michelin for their specialty tire business, specifically with these very big mining tires. Though this market, specifically the latter one, is very much taken with many, many years of build up Michelin, and I think Bridgestone is very strong there as well. Nevertheless, yes, the overall tire market is something. We are -- we started already 2, 3 years ago to a stronger focus on. We had a production fractor in our Portugal fraction. We have a production site in Sri Lanka, where we are producing for these segments among other production -- smaller production spots. And yes, we are trying to grow there faster. And if there would be a possibility, I would not include as well with some external M&A. But at the moment, we don't see any opportunity there.

Our next question is by Gabriel Adler of Citi.

This is Gabriel from Citi. My first question is on cost inflation. In the auto business, how confident are you of recovering some of that increased input costs you mentioned for electronic components? And given that prices are continuing to rise, do you think even if you take into account what you may recover by passing through to customers, will it still place an incremental headwind next year? And then my second question is on tires, again on price/mix. Maybe you could just comment, please, on how you expect price/mix to develop in the second half. Do you expect to fully compensate raw materials on a full year basis, even if you can't manage it for the second half in isolation?

For the price increases in automotive, which we are seeing, on the one hand side, on semiconductors on the other hand side as well on the materials and parts which we are buying, is something which in the at least midterm, we cannot carry on our own P&L. We have to pass it over to the customer. There is no question to that. At the moment, though, the discussions with our customers are still concentrating on delivering the right volume at the right time and the sufficient volume, what they want to get from us. And so this discussion about this price compensation, which we see in our input cost, is something which will start soon, but did not really start at the moment. To your second question, price/mix for tires. We expect price/mix to continue positively in the second half of the year, and our guidance basically includes a 3% to 4% price/mix increase in the second half of the year, which actually, if you do them, the actual numbers to the midpoint of the guidance, which show you that there is no significant volume growth expected. But the main increase in the top line, which came out -- would come out of such an arithmetic is price/mix. Nevertheless, just to continue on that, because this would be -- will be one of the other questions. This comparison, if you take this EUR 300 million additional raw material costs, which we will see in the second half of the year, this is 5% to 6%. And therefore, there is an uncompensated part still in the second half of the year, which is roughly 3.5% to 4% of raw material price increase hitting the P&L, on the one hand side, price mix improvement on the other hand side. And this is something then which most probably should come in the beginning of 2022. We don't have any reason to assume that we cannot pass it on. But there will be a time lag in between the year '21 and '22 passover. So expected 3% to 4% is in the price/mix with an EBIT effect of 2% to 3%.

Okay. Could I just follow up on the cost side of things? Is the reduction in the ADAS R&D in any way related to the cost pressures you're seeing elsewhere in the business? Are you finding ways to reduce the R&D requirement for ADAS to offset other cost pressures? Or will there be other savings there on the ADAS side?

The reason that this number is not as high as we thought in the beginning of the year is that part of it, as we discussed and you might remember as well as going into corporations, potentially doing even partnerships and the discussions on that side are somewhat more delayed than we had expected in the beginning. This is the main reason. A little bit of it is as well availability of engineering capacity, but the measured part of this somewhat delayed partnership.

Okay. So we could see some of that come back in 2022?

Yes. Correct.

The next question is by Thomas Besson, Kepler Cheuvreux.

It's Thomas Besson with Kepler Cheuvreux. I have 3 questions, please. First, I'd like to have a few more comments, please, on the level of car dealer inventories by region and on the pricing environment by region, if it's possible, given how strong price/mix has been for you and competitors in the first half. The second question would be about the contract manufacturing group that you're creating as of now. What kind of revenues should we expect and the contribution margin should we expect for '22? Is it the right assumption to just double the H2 '21 for 2022? Or is it going to be declining already versus the 2x H2 '21? And lastly, you've mentioned the CapEx of around 7% for the year. You had your lowest level of CapEx for almost a decade in H1. So are you really going to spend double-digit CapEx in H2? Or should we think that around 7% may mean like 6% or 5.5%?

Thomas, to start with the later one, I think the 7% is the -- around 7% is the maximum we will spend this year, and there's a good chance that we achieve a number which is lower probably in the range which you were mentioning. The car dealer inventory in all regions, and we are talking about -- I'm not so sure if your question goes on inventories for tires?

For tires, yes, for tires.

It was on the tires. Okay. So lower in Europe and too low in the U.S. Actually, we are fighting to get the tires in time to the dealers, which have very low inventory. So in the end, good situation. Our delivery rate, it should be even higher than it is at the moment. It's at a lower point than normal just because we cannot deliver the tires. We don't -- we cannot produce the tires at the moment, always in that range in time. And obviously, not only us, and this is one of the reasons why the pricing is in good shape. Pricing by region. U.S., very strong. Further, Europe, strong. China, good. No change to what we had reported in the years before for China. So overall good pricing environment. This is the reason why I mentioned that price/mix expectation for -- in our tire guidance is still 3% to 4% for the second half of this year. And actually, there is a bigger part of these price increases. As I mentioned as well, we think this is in P&L effect, the 3% to 4%, 2% to 3%. So you see there is a high element of price increase in there and not even so much more mix. So we are confident we can pass it over, but there are limits. And this is why we will not compensate fully this high amount of raw material price P&L, which we see in the second half of the year. Contract manufacturing, to make it even more complicated in our reporting, I mean we have now the EUR 80 million for the automotive segment. We have introduced now the contract manufacturing. As soon as we have completed the spin-off, we have to change our reporting again, different than it is in the guidance. At the moment, we are only allow -- or we have to include in our guidance, for existing segments, the whole effect of the spin-off. So the Automotive segment is now including this EUR 80 million profit shift, which goes directly into the net profit. For the contract manufacturing, as this is not a segment which, in the actual numbers, is existing, we can only report on those numbers which will be shown after the spin-off is done. So the numbers we are talking about here are those numbers starting mid of September to December. As soon as we have done the spin-off, the contract manufacturing will now be changed to report about a backward total year contract manufacturing number. This number will be around EUR 600 million to EUR 700 million. This number now, Thomas, is strongly decreasing over the next 2, 3 years because we are more and more shifting those production sites at Conti, which are producing for Vitesco and those -- that's the same, by the way, at Vitesco which are producing for Conti, we will shift them to where they belong to those legal units where they belong to. The profit margin will be quite low as the transfer prices will allow for some margin, but not for a significantly high margin. I'm not sure if this was more confusing than helping, but unfortunately, this is IFRS 5 and 8, and we have to follow that.

May I just make sure I understood correctly, and maybe -- I'm done, operator, but at least it will be clear for everyone. So do I understand correctly that this contract manufacturing only starts after the spin-off mid-September? So the -- but you are going to retroactively save it's EUR 700 million of revenue this year compared with what you are talking about. Is that correct?

Well, the now reported -- in our guidance, not reported -- our guidance stated contract manufacturing sales and profit volume. It's the volume we expect starting after spin-off on this year. As soon as we have done the spin-off, we will report the contract manufacturing for the whole year. So there is type of a synthetical number which assumes that contract manufacturing was already done from January to mid of September. There, [indiscernible] will increase.

Our next question is by Horst Schneider, Bank of America.

The first question that I have is that relates to the raw mat price increase that burden Auto Technologies. And maybe I missed it, and sorry for that, but can you maybe say or repeat what was the burden from that in Q1, H1 what you expect the burden to be in H2? That's the first question. Second question is more on better sequential guidance basically. I mean I realized that you took down the market assumption. But what is now expectation, volume-wise, Q3 and then Q4? Is it more flattish Q3 and then a strong increase in Q4? And I assume that the outperformance again will be around 0 then in H2. And the last one that I have that relates again to margin strength in Automotive because it's not getting stronger as I personally hope for, probably also as you personally hope for. So I remember at the CMD, we talk all the best ownership reviews, et cetera. So what's now the management answer to this kind of margin crisis? Is it that you're going to do more disposal? Do you consider more disposals or that you have got to step up again the restructuring efforts in Automotive?

The raw material burden in H2, Automotive, I understood. I didn't know if you didn't miss anything or I did not quantify that number. But if you think of something in the very low triple-digit numbers, so around EUR 100 million, probably a little bit more, including chip prices, including other raw material price increases. I think that there will be an average which is built into our guidance. Volume Q3...

But, Wolfgang, that is -- that is full year now, the EUR 100 million you talk about?

This is H2. In the beginning of the year, the number first half is significantly lower, for the chips anyway and for the rest as well. I mean we are always talking when we hit our P&L, not when the raw material prices are going to increase. Q3 versus Q4, your assumption is right, that the Q4 is the one which will see the stronger increase. Q3 will be somewhat in between Q1 and Q2 numbers as far as the top line is concerned and only Q4 will then show the high increase, very similar, I think, towards other markets observers, IHS or so, are expecting. And finally, I agree that we would like to see better improvement in the profit margin of Automotive. I think we talked -- in the presentation, we talked about the reasons -- if you want to do a bridge from H1 to H2. And again, if you go to the implied midpoint of our guidance, I mean there is a strong increase in sales of EUR 500 million. We just discussed it. More of it to come in Q4 and in Q3. If you take, I'd say, a 30% or so leverage on that, about EUR 150 million, EUR 160 million, EUR 170 million, then we have this EUR 100-plus million material against it. We have the EUR 100-plus million advanced driver assistance system, additional R&D into account. And then we have this EUR 80 million of Automotive accounting change because of the spin-off. And if you add all this up, we get to this guidance as we have it sitting here on the paper. Yes, we are doing the review, Horst. I mean this is what we have committed to. We talk about it now on a quarterly basis with the Executive Board, but there is nothing to report on that at the moment.

The next question is by Sascha Gommel, Jefferies.

First one would actually be a bit of a follow-up on Horst's question on the restructuring in Automotive. Given where the margin is right now, how much of the EUR 1 billion restructuring program has actually been implemented already? And how far through are you, i.e., how many benefits do we see in the current margin level? That will be the first question.

Well, there's a fewer parts. The majority of the program in -- as it was discussed, was the negotiation now on each single location down to the 80 or so locations. Most of it is done, and it is starting to be implemented. First people have been affected about -- I think, one quarter of the total number of people which we mentioned has been affected as an indicator. But the cost effect of this, obviously, is the only starting to be seen, I think, in Q4 and then next year, until we get to this EUR 1 billion or EUR 850 million, excluding Vitesco in 2023. And at the moment, all the negotiations and everything we can achieve, I think, is targeting in that direction with EUR 850 million for Conti without Vitesco.

Understood. Very clear. The second question is on your order intake in AMS. It has been quite weak for a few quarters now. And I was just wondering if this is kind of broadly across the -- all the businesses and -- or what the reason is for that and given that there is quite some M&A now in the ADAS space with Qualcomm now bidding for Veoneer. Do you think you might need to kind of strengthen your ADAS business through M&A as well?

The last question, I didn't -- do you think -- what was the question?