Edited Transcript of CON.DE earnings conference call or presentation 5-Mar-20 2:00pm GMT

The results, though it is in the required guidance range, particularly in the automotive business, was nevertheless very unsatisfying. Unfortunately, 2020 is shaping up to be another tough year. Market conditions remain difficult, while economic and political uncertainty, challenges from regulatory changes, technological disruption and so on, remain significant headwinds. And there is the impact of the COVID-19 virus. None of our 24,000 colleagues in China nor out of China are infected, and most of our 50 locations in the country resumed operations in the middle of February, but only a few are back to normal levels.

No locations outside of China are affected thus far. With the situation remaining very dynamic and visibility changing on a day-by-day basis, we are closely following developments and are ready to take measures to ensure the safety of our people and the viability of our business. However, all these factors combined will likely result in a third consecutive year of negative light vehicle production.

With the situation becoming more difficult, we are working on further measures for increasing productivity and competitiveness beyond the current structural program, which we have announced last September. We will communicate on great details in the May time frame.

Despite the current challenges, Continental remains well positioned for the medium term. The new automotive organization and centralized R&D are fully up and running to better leverage our strength in software, and systems excellence and in vehicle architecture, and our tires teams are focused on managing the challenging European market situation by ramping up our new plants in North America and Asia.

Margin enhancement measures at ContiTech continue to move forward. Our balance sheet remains solid, and we continue to have favorable access to financing, including the first revolving credit line in our industry that takes sustainability components into account.

We also revamped our remuneration system so that, among other changes, there is a higher emphasis on EBIT, cash flow and shareholder return as well as the inclusion of sustainability criteria. Another important change is shareholder return, not only influences the incentives paid to senior executives but now applies to all rank and file in the company. We will provide an update on these topics and on our medium-term plan at our upcoming Capital Markets Days on June 3 and 4 here in Hanover.

Lastly, the planned spin-off of Vitesco Technologies is progressing as planned, whether it’s Capital Markets Day scheduled for March 23 in London, subject to the approval of the Supervisory Board, the spin-off will be submitted for approval at the Annual Shareholder Meeting on April 30.

Now let me continue with Slide 4 with some highlights from the order intake in the Automotive Group during the year 2019. As we communicated, we started applying more conservative assumptions about the market in our calculations for order intake in 2019 or more than a 10%, closer even to 15%, volume assumptions below what was used in 2018. We also saw customers delaying their sourcing decisions due to market uncertainties. These are the main drivers behind the decline in order intake to EUR 33 billion versus EUR 40 billion in 2018.

In Chassis & Safety, the order intake totaled EUR 11.5 billion last year. This includes around EUR 4 billion of advanced driver assistance system orders, double the current sales level of about EUR 2 billion. The orders cover all of our full product portfolio, so it includes radars, cameras, ADCUs, and the fast-growing ADCU area makes up basically 20% of the ADAS orders intake while another 40% comes from the next-generation radar products, including the first contract for our 4D imaging radar.

Outside of ADAS, the total book-to-bill was about 1x, a decline versus 2018 due to delayed customer sourcing decisions as well as the more conservative market assumptions, as mentioned already.

Powertrain had an order intake of about EUR 10 billion. HEV order intake remained at EUR 1.8 billion. In addition, the book-to-bill for our underlying business, including ECU sensors, etc., but excluding the noncore ICE technologies of Powertrain, the book-to-bill was a solid 1.4x.

Thus, logically, the year-on-year decline which we see here is related to Vitesco’s decision to exit or phase out the noncore ICE technologies for combustion engine, meaning taking no new orders in these noncore areas, which generated EUR 2.4 billion of sales in 2019.

Finally, Interior order intake was EUR 11.4 billion. The reduction versus 2018 was due both to the market assumption changes as well to the transition from analog to digital instrumentation clusters. In contrast, our backlog orders for high-performance computers continues to grow to additional orders won in 2019. They will be used in applications such as integrated interior cockpits and in-car application service. These projects clearly demonstrating in our comprehensive hardware and software expertise for future vehicle electronics architecture.

And on Slide 5, this is showing the progress update on our currently running transformation program. Labor force adjustments are continuing, as an example, with the total variable headcount reduction in automotive of 4.6% in 2019. We were able to reduce capital expenditures before IFRS 16 effect to below 2018 levels, though they are already including some additional investments because of the spin off of Vitesco. More actions for cost and CapEx savings as well as working capital optimizations are underway. Specifically, CapEx reduction is very much in the focus.

In terms of footprint, measures have been approved across all divisions and are currently being carried out. First work council agreements could also be achieved while additional adjustments are under evaluation. Lastly, further portfolio decisions have been taken, including the exit or phase out in Powertrain and an exit of our pedelec business. The divestiture of our share of the SAS joint venture closed in January, while additional businesses are being evaluated for divestiture.

We continue to expect the currently running structural program to deliver gross cost reduction of around EUR 500 million starting 2023. These savings will be attributable to around 15,000 affected jobs by the end of 2023 with 20,000 affected by 2029. In total, the program is expected to cost around EUR 1.1 billion, with expenses of EUR 665 million already booked in 2019. The remaining to the EUR 1.1 billion are expected to be recognized mostly in 2020, while most of the cash outflows of the restructuring are expected to occur until the end of 2022.

As mentioned earlier, and consistent with our previous communication, we are presently examining and working on further cost reduction matters beyond the current structural program to support margin enhancement.

Let me proceed to Slide 6 to the most important financial KPIs of 2019. Reported sales came in at EUR 44.5 billion, flat versus 2018, excluding FX effects of EUR 648 million and changes in consolidation scope. Organic growth was minus 2.6%. Adjusted EBIT declined year-on-year by 21.5% due to lower volumes, and if you just look on the P&L logic, increased depreciation and amortization expenses. The resulting adjusted EBIT margin was 7.4%. Special effects totaled minus EUR 3.3 billion, predominantly related to noncash impairments of about EUR 2.5 billion, as we had announced in Q3 last year, and restructuring charges of nearly EUR 700 million mentioned already. These factors weighed on net income after taxes, which came in at minus EUR 1.2 billion, as well as trailing ROCE, which came in at minus 1%.

Free cash flow before acquisitions and carveout effects came in at EUR 1.3 billion, about EUR 600 million lower than in the previous year, but in line with our updated outlook. The main driver of the decrease was lower EBIT, while the first-time adoption of IFRS 16 had a positive impact on depreciation of EUR 346 million. Both IFRS 16 and the impairment affected the gearing and equity ratios.

Now if we move to the quarterly perspective, this is shown on Slide 7. The reported sales in Q4 totaled EUR 11.1 billion, 1.5% lower than the year-ago quarter on a reported basis and 4.2% lower on an organic basis. The organic sales decline, increased depreciation, amortization and weaker winter tire sales were the main reasons behind the year-on-year decline in the adjusted EBIT margin from 10% to 8%.

I move to Page 8, Automotive Group. As mentioned earlier, the challenging vehicle production environment in Q4 ’19, most notably in Germany and North America, restrained organic growth in the reported period to minus 4%. This was a significant driver for the decline in the adjusted EBIT margin, which was 5.2% versus 7.6% in Q4 2018.

Starting with Chassis & Safety, sales came in at EUR 2.3 billion, with organic growth at minus 2.9%. Weaker demand in Germany and North America were the main reasons for the sales decline. In terms of products, ADAS and passive safety positively contributed to organic growth while the hydraulic brake business was down year-on-year. And you know that in hydraulic brake business, we normally don’t have an outperformance to the market development. Despite negative organic growth, the adjusted EBIT margin expanded by 50 basis points versus the year-ago quarter, helped by resilient margins in ADAS and passive safety.

In Powertrain, sales of EUR 1.9 billion were 3.6% below last year’s comparable base. The GM strike in North America had an adverse effect on volumes. Furthermore, demand from European customers also weakened. At EUR 52 million, HEV sales were softer than in Q3 due to sequentially weaker demand in North America for 48-volt systems. Excluding HEV, the adjusted EBIT margin for Powertrain would have been 4.7%.

In Interior, organic growth of minus 5% was due to lower volumes, in particular, in our important German market and for analog instrument cluster product. Lower commercial vehicle production also affected volumes in our commercial vehicle and aftermarket business. The year-on-year margin decline of 620 basis points is tied to these markets’ development as well as transactional FX effects, which were close to EUR 100 million, included in purchasing as well, and higher R&D expenses. If you look on a product basis, main factor is the transition from the analog to the digital clusters.

I move to Slide 9. As mentioned, organic growth in Automotive was materially impacted in Q4 by negative production in our key German, European and North American markets. German car production was down 8%, from which Automotive generates more than 70% of its sales. Despite this, automotive, as a whole, was able to outperform light vehicle production by over 2% on a full year basis. And if you do a country-by-country adjustment, we had a similar outperformance as well in the fourth quarter.

I continue to the Rubber Group on Slide 10. Organic growth in the Tire division was minus 3.7% versus the year-ago period. This development partially resulted from the warm weather in Europe but negatively affected winter tire demand. Q4 2018 was a record quarter for winter tires sales. and Q4 2019 was about 10% below that number.

Sales also declined due to lower passenger and commercial vehicle production levels in Europe and North America. Lower volumes, coupled with increased period expenses and ramp-up costs for our new plants were the reasons behind the 270 basis points decline in adjusted EBIT margin to 15.3%.

Move on to ContiTech. In addition to the ongoing downturn in vehicle production, ContiTech also started experiencing softening demand among its industrial and aftermarket customers in the fourth quarter, both trends negatively affected ContiTech’s organic growth, which was minus 5.5% even though cost discipline and the announced margin enhancement program supported profitability could not compensate for this significant volume decline, thus, the margin came down year-on-year by 80 basis points to 6.7%.

And this leads me to the Q4 2019 tire sales transition. Slide 11, tire volumes in Q4 came in at minus 4.1% due to reasons I mentioned earlier. Price/mix came in at plus 0.5%, with a mix effect resulting from both increased share of replacement tire sets relative to what I said, and a higher proportion of ultra high-performance tires. Completing the bridge, FX and consolidation effects positively contributed EUR 36 million and EUR 50 million, respectively.

Slide 12 shows the breakdown of free cash flow on slide — on the slide, adjusted for pension funding in 2018 and carve out effects in 2019, cash flow from operating activities declined by EUR 637 million to EUR 4.4 billion. As mentioned, lower EBIT was a significant negative driver while IFRS 16 supported this figure. Cash flow from investing activities was marginally better on a year-on-year, at negative EUR 3.2 billion, helped by more disciplined capital expenditures. The resulting free cash flow was EUR 1.3 billion.

Page 13, net indebtedness bridge. Compared to the end of 2018, net indebtedness increased by EUR 2.4 billion to EUR 4.1 billion. The first-time adoption of IFRS 16 accounted for the majority for EUR 1.7 billion of this increase. Total liquidity amounted to EUR 8 billion at the end of 2019 versus EUR 6.3 billion at the end of 2018, and I already mentioned the placement of 2 significant bonds of EUR 500 million and EUR 600 million in the last year, and preparing the payback of bonds in this year are basically the reason for that.

Slide 14, it is still our approach to orient our dividend payout ratio to a target corridor of 15% to 30% of net income attributable to shareholders as well as to smoothen the amplitude of dividend variations as these 2 targets are conflicting in 2019. We also considered expected developments for the cash flow investments and a sustainable financial strength of the balance sheet and decided to propose a dividend of EUR 4 per share to the Annual Shareholder Meeting. The planned spin-off of Vitesco Technologies later this year is not expected to affect our approach to setting future dividends.

I will now continue the presentation with the outlook for 2020, starting with our market assumptions on Slide 15. Back last November, we expected the third consecutive year of decline in global light vehicle production in 2020, market conditions so far in 2020 are confirming this view. We currently expect production in Q1 to be more than 10% below the year-ago period, and China to be seasonally down at, at least, 30%. This is reflected in our expectation of at least 2% year-on-year decline on a full year basis as basically the upper end of our guidance and at minus 5% versus 2019, which is the lower end of the bandwidth, assuming that the production volumes lost in Q1 are not recovered. It also assumes softer demand in our important European and North American markets due to macroeconomic risk and new CO2 regulations. However, our market, in some instance, do not and cannot include further significant negative effect that COVID-19 may have on production, logistics and demand, either for us or for our customers.

In replacement tire sales for passenger vehicles, we expect slightly negative volumes in Europe, stable demand in North America and negative growth in China due to COVID-19. For commercial vehicles, we anticipate significant production declines in all regions. Truck tire replacement volumes are expected to decline marginally.

Also not shown on the slide, we also expect that weaker macroeconomic conditions in Europe, North America and China will result in a year-on-year decline in demand from industrial and aftermarket customers. The headwind will restrain the 50% of Continental sales that are tied to these markets.

The expectations for PLT replacement tires, commercial vehicles and — commercial vehicle tires as well as industrial and aftermarket do not account for currently, obviously, unforeseeable impact from COVID-19, as mentioned before.

I move to Slide 16. Before going through the outlook for 2020, please let me make 2 remarks. First, even though we expect to complete the spin-off of Vitesco Technologies in the second half of this year, our outlook 2020 has to assume that Powertrain remains fully consolidated in our financial figures throughout the full year. We are legally required — when the legally required approvals have been granted, the forecast will be adapted.

Second remark, our outlook assumes constant exchange rates versus 2019. Now based on these assumptions and the assumptions shown on the previous slide, we expect the difficult market conditions to result in sales decline in both Automotive and Rubber. We expect, though, to outperform the underlying markets through content growth, market share gains and price/mix. We also expect the acquisitions made last year by ContiTech to add about EUR 100 million to the rubber sales.

Combining these elements result in a sales outlook of EUR 25.5 billion to EUR 26.5 billion for Automotive and EUR 17 billion to EUR 18 billion for Rubber, and this makes EUR 42.5 billion to EUR 44.5 billion for the group.

Now Slide 17 showing the EBIT bridge. Market conditions will also negatively impact EBIT development in both divisions. Profitability in Automotive and Rubber will be affected by lower volumes via operating leverage, specifically in tires’ pricing pressures from OE customers, specifically in Europe, cost inflation and unabsorbed costs from new plants will impact margins. In ContiTech, profitability will be affected by lower customer demand from OE as well as from industrial and aftermarket.

We will see some higher depreciation expense in 2019, specifically in Automotive. R&D expenditures in Automotive will remain constant year-on-year due to continued investments in software. Also in Automotive, while we do not expect the warranty claims from past years to recur, the planned spin off will result in near-term dissynergies in both Continental’s and Vitesco’s structures.

Now this was more a P&L view. If you look from a divisional point of view, while if I assume — just to give one reference point, if we assume constant sales volume for the Auto Group, so basically, the upper end of our guidance, Chassis & Safety, now AMS and Powertrain, Vitesco expect in this scenario margin improvement, and it is only interior where we see further margin pressure as the transition to the digital displays is still underway.

Countermeasures against the margin development in Automotive includes further stricter cost discipline throughout the company as well as the continuation of ContiTech’s margin enhancement program, not included in the outlook are further cost saving measures beyond the core of the current structural program, as I mentioned, to be released and talked about probably around May period.

Now all these factors resulted in an adjusted EBIT margin outlook of 3% to 4% for Automotive and 10% to 11% for Rubber, and this makes 5.5% to 6.5% for the group.

Now continuing on the outlook for cash flow on Slide 18. The most significant restraining factor in the year-on-year cash flow development in 2020 will be lower EBIT as well as outflows for past warranty claims and restructuring. On the other hand, the divestiture of our SAS joint venture to Faurecia will provide net cash inflow of EUR 225 million. Regarding capital expenditure, we expect this to be around 7.5% of consolidated sales, approximately flat versus 2019 on an absolute basis. Therein, we expect lower CapEx in Rubber and higher CapEx in Automotive due to growth investments, and in Automotive, specifically due to the spin-off of the Vitesco. Measures to optimize working capital and capital expenditures should provide a positive effect. In total, we expect the group free cash flow before acquisitions and carve out effects to be between EUR 0.7 billion and EUR 1.1 billion. Now Slide 19 covers the remaining elements of our outlook due to the ongoing structural program and further costs related to the carve-out of the former Powertrain division, we anticipate special effects to total approximately EUR 600 million. The financial result is expected to be around EUR 200 million and the tax rate, around 27%. As mentioned already, capital expenditures are expected to be around 7.5% of consolidated sales, including effects from the spin-off of Vitesco while PPA is anticipated to total around EUR 200 million as it was in 2019.

Now with this, I conclude today’s presentation, and I open the line to your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question is from Alexander — Kai Alexander Mueller, Bank of America.

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Kai Alexander Mueller, BofA Merrill Lynch, Research Division – Associate and Analyst [2]

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I think, as a first start, and thanks for including some of the coronavirus issues so far this year in what you guide for. I think the first one is really on your supply chain. As we’ve obviously heard from a couple of your competitors that, especially on sourcing tier 2 parts, there could be supply chain issues from China. Can you maybe update us on that? Is there anything you can see right now? Or what contingency plans do you have in place? And if we are looking at possible shutdowns in Europe, how would that impact you? If you can give some sort of color on that.

And the second point is, just trying to understand really the automotive business. Obviously, there’s a lot of pressure coming from pricing from your customers, but as little as 3 years ago, we had a margin of about 8%, where you’re now guiding to 3% to 4%. Clearly, the market has come down, but if we get a stabilization or we come back to the market where you were before, is this business capable of getting back to the 8%? Or has something fundamentally changed in terms of what you get paid for your products?

And then just as a last one, on your restructuring, you obviously said the restructuring charges or costs will be all the way until 2022. Can you give us a little bit of color in terms of the phasing with regards to the cash outs for the next 3 years?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [3]

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And to start with the supply chain, this is probably more somewhat of an operational description. We have a team of more than — clearly, more than 100 people which is working in Continental, and I think very similar to what is happening at other suppliers which try to assure that we don’t have any disruption in our supply chain from our production sites to our customer as well as from our suppliers to our production site. It worked okay, up to now. As you notice, it worked, obviously, okay, with other players in the industry as — besides Korea, I think we are — I’m not aware of any production site which came to a stand.

The logic is a little bit — many of our parts normally are shipped via — sent via ship, 4- to 6-week transportation time over the ocean. And there, we had — obviously, everybody has this type of lead time for many products to react. So if your production now starts, you cannot fill another container. There are still containers on the ocean to get to the customer. And the problem leaves some time to be solved, and this is what these people are doing. Our production sites in China are back to basically 75% of production volume, which is not all needed for China. Our customers in China are, by far, not on that level. So some of this can be used to be delivered to other customers. We are working, in some cases, achieve to switch suppliers away from China, our suppliers away from China to other production sites. We try to shift our product to production sites which are not affected. And all these, together with airfreight, together with sometimes road transportation versus a boat transportation up to now ahead to keep the supply chain running for our product. And we are doing everything to keep the situation as it is, and to make sure that our customers are not going to suffer.

This, obviously, is all done in a very close cooperation with our customers, which sometimes have to agree to get a product from another production site with very short notice. And it is done together with our suppliers as well.

Pricing — question on pricing. I think our margin, first, you were starting with margin, fair comment. I mean, margin plus 8% in our guidance of 3% to 4% only. The — I’d say, if I concentrate on Chassis & Safety, AMS and Interior BNI, the Chassis & Safety margin is somewhat below the level when we had this automotive margin of 8%. But this is still in a range, I think, which can be explained and is not so surprising versus the good years which we had 2 years ago. If markets improve, I think there is no reason why this should not come back to 8%. And if it’s on a short-term improvement in the markets, if we would assume such a scenario, I think this was your question, no doubt that the margin would come up to the old level. We have this topic in Interior, and this is our topic in the Automotive area where the margin, mainly due to this shift from these clusters, the analog to digital, analog, where we had an excellent market position, excellent profitability situation, now to suddenly changing prices, which as well affect pricing and analog customers are putting significant pressure on that. And this is one of the main reasons why we see the strong market decline plus, unfortunately, at that time, a strong headwind from FX, as mentioned, of about EUR 100 million. And then we had — though it was a lower number of warranty claims last year.

Now this is topped on with these very attractive new projects which we have on this high-performance computers in the car, which, again, at the moment are significantly adding to R&D. I think we have mentioned on other occasions that there are a couple of hundred people in this project which are working on these things. And if you have significant number of those projects, obviously, this is a burn which can be fed in the P&L. And all this together is, at the moment, the situation of Interior. We are strongly working on that, massively working on that. Unfortunately, it would be not realistic to promise for this year a significant improvement. Just the opposite, we see a further decline in the margin in Interior until this is the expectation, then we reach the ground and can further improve. So they’re short term, coming back to the 8% 2021 or 2022. Even if the market would strongly improve, it’s probably very aggressive. But I mean, we will talk about our strategy, our product strategy and our overall strategy, not only in BNI and Interior, but about the whole Automotive and our group and on our Capital Markets Day.

The restructuring charges, third question, I think this was probably more relating to the cash flow guidance. We have this, about EUR 800 million cash out of this EUR 1.1 billion restructuring. And if you assume that the program is starting now in being implemented after we have finished the first discussions with the one other location already, then you’ll probably assume 1/3 of this amount in each of the next 3 years, so in between EUR 200 million to EUR 300 million in 2021 and ’22.

For this year — probably not your question yet, but sort of the question will come. For this year, you can assume that in our cash flow guidance, out of this and out of the additional CapEx, which we have to do to split the company in these 2 parts, Vitesco on the one hand side and Continental on the other hand side, that this overall is more than EUR 300 million burdens of restructuring and this CapEx for the cash flow guidance of 2020.

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Kai Alexander Mueller, BofA Merrill Lynch, Research Division – Associate and Analyst [4]

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Okay. So is the EUR 300 million incorporated in your guidance?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [5]

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Yes. Yes.

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Operator [6]

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Next question is from Ashlee Ramanathan from Redburn.

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Ashlee Ramanathan, Redburn (Europe) Limited, Research Division – Research Analyst [7]

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It’s Ashlee here from Redburn. Firstly, thanks for providing the quantification of the corona, that’s very helpful to see some European companies putting some numbers to that. So I’ll leave the Powertrain to one side with the CMD coming up, and I wanted to come back to the Interior’s division here where I’m quite concerned about the margin trajectory. I mean, mechanically, if we play this through, we could be looking at low, low single digits, 1%, 2% margin in 2020.

I just wanted to understand — you mentioned in response to Kai’s question, the transition to analog to digital. Also, we’ve got some concerns, maybe the R&D ratio might be skyrocketing here. Obviously, we’ve got some drop-through from the top line as well. Medium term, Interiors, how do we feel about the trajectory of this business from a margin perspective? Lower for longer, structurally, do we come back to the 8% margin only if we see car production pick up? That’s the first question.

And then secondly, kind of drilling down into these restructuring costs. It was noted in the presentation that potentially we could be seeing an expansion of the cost-cutting program, you’ve just said that maybe EUR 200 million to EUR 300 million is included into 2020. Is there upside surprise to this number in the sense that could we see restructuring costs slightly higher in 2020 if you need to accelerate your cost cutting program? And then what does this mean for the dividend? Could you just remind us of your policy here with respect to covering the dividend with free cash flow at a full year dividend, we’re looking at something like EUR 800 million cash out for this year?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [8]

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To start with the latter one, I think it is too early to talk about dividend 2021. Actually, we did not make a decision on anything of that. We — I just basically confirmed, we want to stick to the 15% to 30% and some stability, but we have to see how the year is developing and specifically, how the outlook for the years to follow is. But in principle, it is our intention to stick to those 2 elements of the guidance, which at the moment, well, I know it’s a little bit difficult to get in line.

Now the restructuring cost. I mentioned that we are working on additional cost reduction measures, which will end up in restructuring cost. This by the way, will include all divisions. It is not concentrated on Automotive. It is for the whole group. And it is too early. I said we will talk about it in May. It is too early to give any impact on 2020 potential reserves and as well cash effects of that.

Interior margin. I understand the question. It is — at the moment, it is 2 effects at the same time. On the one hand side, we have this, in principle, nice growth, which we see in these high R&D intensive, high-performance computers in the car. And we have an excellent market position there, and we see the orders coming. And it is more restrained by capacity than by anything else that we do not have more. This is nice, but at the moment, it is not margin accretive as these R&D costs are sitting, the results are safe. You know this. And this is coming together with the situation of this transformation to the digital clusters from a very attractive, very nice business for us, where we were best-in-class in the market, analog to this situation, we’re not only the new business at the moment, still has to be ramped up. But as well, the old business is getting massive price pressure from the customers because they say, “Well, I switch faster to the new one.” If you cannot give me some cost reductions, price reductions from their point of view and the other one. This is the situation. And this is what we are coping with at the moment and coping with every day more because, I mean, we are — as we’re very unhappy with this situation at the moment, obviously.

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Ashlee Ramanathan, Redburn (Europe) Limited, Research Division – Research Analyst [9]

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Is there anything you can do in the short-term to insulate the margins in Interiors? Or do we just have to write this out for 12, 18 months?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [10]

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We are sitting together in 2 weeks with the very group, a group which again has to answer these questions. We are working on that, but I would not raise too much hope that there is a significant 200 basis points or so improvement on the short-term to be achieved. Believe me, we have looked at that more than once, and we have put the pressure on the business to deliver what is possible in the end. At the moment, it is — it would be restraining order intake for attractive programs. This obviously could have a fast effect on improving margins by reducing R&D costs. But again, this, we think we should not do, overall, looking at the future of the business.

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Operator [11]

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The next question is from Thomas Besson, Kepler Cheuvreux.

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Thomas Besson, Kepler Cheuvreux, Research Division – Head of Automobile Sector [12]

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It’s Thomas Besson with Kepler Cheuvreux. A few questions, please. First, I’d like to come back to some comments that have been made today on Vitesco and the some kind of a Capital Market Day coming. Can you just give us an indication of what you deem to be a reasonable amount of capital at the time of the separation? Is that something like what Autoliv did with Veoneer around $1 billion? Or is that something substantially lower? That’s the first question.

Second, car margins, you guide us for another decline in 2020. Should we assume that this is a trough for car margins in 2020 or does the opening of your 2 latest plants still affect 2021 further negatively?

And the last one, sorry, I’m not sure I fully understood what has been said. Could you just make clear whether the guidance already include some possible hiccups in production elsewhere than in Asia in Q2, in Europe and in North America? And also whether the cost-cutting actions you’re working on could be potentially more aggressive than the plan that has been disclosed last September.

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [13]

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Could you repeat the last half sentence. I didn’t understand. What was it?

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Thomas Besson, Kepler Cheuvreux, Research Division – Head of Automobile Sector [14]

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The last one was to ask whether the plan you are currently working on, and on which you may give us more details in May, could be more aggressive than the plan you’ve disclosed in May?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [15]

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Yes. The plan will be, obviously, more aggressive as we want to enhance margins in the business more than we had seen this now. As market expectations from our point of view have worsened versus the last September announcement. This is the whole thing we are doing. We just have this program, and we are adding additional measures — we have to add additional measures to the program and not only for Automotive as well for the Rubber Group, to assure that the profitability of the company has improved in the years to come. The — well, this is a somewhat difficult — I’m now working backwards through your questions. A little bit difficult question to answer, I think, does it include hiccups in production. Well, it obviously includes the minus 1/3, basically, of Chinese production in the first quarter, which includes stand stills in production in all of our factory, basically, in all of China. And now, on the customer side, our — the plans are back to, I think, what I know to 30% to 40% production level, and they are further moving up. So this is included. Does it include hiccups in production for plans of our customers outside of China? No, it does not. We assume — we hope, we do everything that can avoid this. And at the moment, we managed to avoid it, and we are quite optimistic that we will be in a position to avoid it.

Now should this virus have a bigger effect on Europe, and I’d say, worst case probably would be that the same occurs as we have seen it in China, starting in January, then obviously the situation will be completely different. Again, I think there was not very much demand in China from the customers, which could not be fulfilled though the production sites were standing because the customers did not order new cars. They just did not work in the stores and did not order new cars. And therefore, the standstill in the production side was actually not building up any pent-up demand. It was just that nobody wanted a car, but nobody could produce a car, I’m exaggerating. And by that, this was in line.

Question, obviously, is, do we not only negative? Are there incentive programs started? There is some discussion in China. There was a discussion, I think, recently, going back to what we had some years ago, 3 years ago. I think it was when — complete value-added tax was taken off the car price. If this finally is materializing, If this is implemented or not remains to be seen. That — I cannot judge this, but I know there is some discussion on this. And then, I mean, we can all draw scenarios if in the U.S. and in Europe additional programs are built up to support overall economic development. This could as well have a positive impact on the world car production. I’d say if some of this happens, this could be our minus 2% scenario. If none of this happens, it could be the minus 5%. And if even Europe, and finally, the U.S. would have the same situation as we have seen it in China, then it would be a new scenario not included.

Last question. No, I have 2 more here. The question of tire margins. Yes. The ramp-up of the production sites, the additional costs are now included in the P&L. And whatever happens now in increasing the volume coming out of these factories is starting to cover these additional costs via the margin of the tires produced.

And now the last question of you, Vitesco. The capital — I understood the question was, how is the company Vitesco AG capitalized there? Please wait for the separation report, which we will add to the — when we publish the agenda for the General Shareholder Meeting, I think, 6 weeks ahead of the 30th of April. So in some weeks from now, a couple of days from now, you will see it.

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Operator [16]

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The next question is from Tim Rokossa, Deutsche Bank.

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Tim Rokossa, Deutsche Bank AG, Research Division – Research Analyst [17]

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Yes. Mr. Schäfer, I think there’s no doubt that you’re operating in a very tough environment, specifically with no autos, but I think the virus will hopefully pass at some point, and we’re looking at a stock price where your market cap is about EUR 17 billion, you come from about EUR 50 billion. So I think the majority of your investors will simply ask themselves, is this a proper reset? Is this a kitchen-sinking scenario? Do you feel on top of things now and can start to move on? Or is this really just another update in the middle of the storm? And then if there would probably a lot more negative things to come? What do you think on that?

And then secondly, when we look at the rubber margin, I’d like to come back to the tire side again. We’re noticing that, for example, when we compare you guys to Michelin that the price mix for Michelin is substantially better than what we’re seeing from you guys. That did not use to be the case. Is there anything that changed with respect to your mix? Or are you seeing materially more negative pricing in the market?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [18]

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What we — again, I’ll start with the last question. Michelin, and so far, is not comparable as the share of business, which Michelin has in Europe is significantly lower than our share in Europe. So this, at the moment, is the mix — the regional mix of Continental is disadvantageous to us. Price pressure is in Europe, actually, on the OE side and on the replacement tire side. And our high share in Europe is putting us in a disadvantageous position versus the competitor you were mentioning. But do we feel on top of things? I think, Chassis & Safety, AMS, but I mentioned already of — I think, while disappointing that the margin is somewhat down, but for me, mostly explainable with the volumes, working on it, adjusting the cost side, moving in the right direction. If you look at ContiTech to take the rubber side, I think, again, we see that the program cost, enhancement program is working in all difficult market conditions. If you look at the total year, I think margin is okay. Not there where we want to be, but there is more to come. So I’m not very worried about this.

I wouldn’t comment on Vitesco, as we have the Capital Markets Day soon in London. And then it stays with the tire business and with Interior. And you mentioned on the tire business or your questions already, the pricing, I think this, at the moment is something which is putting some pressure on the margin on the tire side, as we have seen on the tire business. And it remains to be seen how much of this is going away in the future or if there is somewhat a tendency that this pricing is a new normal in Europe. We do everything. And we believe if Europe comes back to some growth, that the pricing should improve and should come back to the better levels, which we have seen before. But again, this would need some, not dramatic, but some time of growth and not of volume reduction in Europe.

And then Interior to mention the last division, I mean, I think I commented on that already, strongly working on it and getting through this situation where we have 2 unfortunate margin burdening topics at the same time.

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Operator [19]

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The next question is from Sascha Gommel, Jefferies.

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Sascha Sebastian Gommel, Jefferies LLC, Research Division – Equity Analyst [20]

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The first question would actually be on your gross R&D spending of around 10%. One of your key peers is talking about reducing their share of gross R&D percent of revenue. From your remarks today, I understand that you don’t see a lot of scope to cut your R&D spending. So I was wondering if you can comment on that?

And then my second question, I’ll ask afterwards.

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [21]

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By gross R&D, no, I would not expect a significant reduction there as we are having more and more of these products being pure software or software electronics, which has an higher R&D share. And I gave an example of these high-performance computers in Interior, which is pure R&D. I mean, what we are working on in the midterm is that this gross R&D, if it stays on that level, probably stays on that level that — in the investments, we see a compensation for the higher R&D in plant and machinery investments, which at the moment, unfortunately, is somewhat unvisible because of these additional investments due to the carve-out of the Vitesco Powertrain business.

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Sascha Sebastian Gommel, Jefferies LLC, Research Division – Equity Analyst [22]

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I see. And then my second question would be on tires again. Given that the volumes in Europe, in particular, have been weak and then also on winter tires, I guess, the mild winter was not helping. So I was wondering if you can comment on the inventory levels at the dealership level, if you think this could be a major burden in 2020 to actually work through some of this inventory?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [23]

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Well, winter was higher, was not dramatically higher, but it was higher at demand. In the end, as you rightly stated, was lower, and in January, February, we did not really see a bigger outflow as the weather did not improve in a way that we had more snow in those areas where you might not switch to winter tires anyway. On the summer tire and all-year-round tire business, we have a normal situation in the inventories.

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Sascha Sebastian Gommel, Jefferies LLC, Research Division – Equity Analyst [24]

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Okay. So that means you already kind of reduced your production over the course of last year to address for that?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [25]

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Correct.

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Operator [26]

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The next question is from Victoria Greer, Morgan Stanley.

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Victoria Anne Greer, Morgan Stanley, Research Division – VP [27]

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A few, please. Firstly, on your existing restructuring programs. I was kind of expecting you to give us a few more details around exactly how you get to the 15,000 by 2023. We haven’t heard anything from you on details there, really, for a few months now. Can you give us a bit of a feeling on how those negotiations are going and when we might expect all of those details?

Secondly, coming back, I guess, to the point about your R&D versus Capex. Clearly, there’s a burden on 2020 CapEx for the Vitesco, as you talked about. For 2021, directionally, should we think about CapEx potentially coming down significantly if one full of that is out?

And then coming to tires and asking, I guess, a bit differently about capacity utilization. Where is that now? How do you think about managing that? And at this stage, do you plan to still go ahead with the remaining expansion plans in your original 2021 plan?

And then lastly, just on the high-performance computer orders, could you talk a bit more about those? What’s the details in terms of customers, if you can say, launch timings? And what does this product look like?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [28]

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Okay. So details on the restructuring. I think I gave some details on portfolio, on footprint, which is the bigger part and the main part where we have the discussions as well with the works councils on a local basis. We have proceeded faster than we thought. You might take the indication that we have booked EUR 700 million of the EUR 1.1 billion — close to EUR 700 million to EUR 1.1 billion restructuring costs already in 2019. You know IFRS, you can only book these restructuring costs when there is a high certainty that the measures can be implemented. So I think we had a stronger-than-expected procedure there. We were advancing faster than we thought as our discussion in — I think in the October call as well was that we only expected EUR 300 million to EUR 400 million to be booked in 2019. Now the number was basically double. So we are proceeding as we expect on the right way. We are — I cannot give details — additional details on the enhancement of the program. But this relates partly to your third question, part of your question, tires capacity utilization. The number in some plants is not satisfying. Obviously, as we had expected tire capacity, what we are now experiencing when we ramp up these factories in Thailand and the truck production side in the U.S. that we have a better distribution of our production site and demand. So we will, in the years to come, be in a position to reduce shipping from Europe to the rest of the world, which is good. But on the other hand side, we obviously have to include in our restructuring program as well as the topic of capacity in the Tire division, and we will.

The next question was on R&D and capital expenditure. Capital expenditure in 2021, still we some — we’ll see some effects of the carve out. And by the way, when I talk about this carve out, the carve out is, in the end, splitting 1 factory in 2 sites, sometimes you’ll have to add another site. And this is part — you can make an interpretation of that, that it’s a pre-done investment in the production side. We probably, on the other situation not having this carve out, would have to be done 2 years later or 3 years later. So this is type of earlier investments and we would have to do normally. They are required to get this separation of the 2 companies, if higher CapEx in ’19, ’20, ’21 should be somewhat a reduction of CapEx in the years following then — in the 2, 3 years following then.

And the question on the high-performance computer, I give to Bernard Wang because you know he has worked at Infineon, and he’s very well the expert on these products.

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Bernard Wang, Continental Aktiengesellschaft – Head of IR [29]

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Thanks, Wolfgang. I don’t know if I’d say the expert on the products. But Victoria, can’t comment on specific projects and customers. We’re not allowed to disclose those type of things. But we can say that these projects relate to either in-car application servers like the one that we had with Volkswagen we announced a few months back, as well as instrumentation cockpits. These are advanced instrumentation cockpits that need a lot of computing power and connectivity. We’re also involved in that, and those wins are related to that and should go into production in the next couple of years.

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Victoria Anne Greer, Morgan Stanley, Research Division – VP [30]

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CapEx could potentially come down, but really, that’s more a ’22, ’23, ’24 story than a ’21, to be clear?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [31]

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Correct.

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Operator [32]

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The next question is from Chris McNally, Evercore ISI.

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Christopher Patrick McNally, Evercore ISI Institutional Equities, Research Division – MD [33]

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Maybe just a 2-part question. The first on the divisional guidance. I know you’re not breaking down each division. But you spoke a lot about Interiors. Can we talk just about Chassis & Safety, will the margin there be down year-over-year at the midpoint of your guide?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [34]

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Well, I said on the upper part of the guidance, it is up, it is assumed to be up. On the midpoint, it’s probably sideways. This is assuming some reduction in sales. And it’s probably somewhat downwards, but not very strongly. You would take the normal leverage there, but assume that margin on a sideways, top line is improved.

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Christopher Patrick McNally, Evercore ISI Institutional Equities, Research Division – MD [35]

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Okay. That’s helpful. I mean, I guess, because we could sort of pencil in something like a 0 margin on Vitesco. I know you’re not guiding for it, but some margin pressure year-over-year to come up with the Interiors margin? And I guess, you’ve answered it a bunch of different ways, but maybe I can ask in a different light. Is this transition from analog to digital, is it a new situation? Obviously — meaning it’s something that OEMs are inflicting on you now? Or is this something that in retrospect, hindsight, you should have seen coming since, I guess, a lot of us are thinking, it’s no surprise that the industry is going digital? So what has changed in the last 12 months? Or did you sort of know that this cliff was coming for some time?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [36]

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No. We knew this was coming. It was just — it’s a timing question. It’s, I’d say, 3 to 4 years earlier in this magnitude than we had expected. And therefore, we are seeing these topics. We saw this already slightly in Interior margin in 2018. There, they were lucky with some headwind from FX, was not so obvious in the end. Now in 2019, both came together, strong headwind of excess — about EUR 100 million, which I mentioned already. And then this massive increase in the development from ’18 to ’19. And as I said, 3 to 4 years earlier than we had expected, it’s occurring now.

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Christopher Patrick McNally, Evercore ISI Institutional Equities, Research Division – MD [37]

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But that’s interesting, 3 to 4 years earlier. I mean, these aren’t really take rate products, right? So wouldn’t we have known — if we think about the 2019 to 2021, we would have known about that transition in ’16 to ’17, given that the product sort of roll out?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [38]

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Well, we would have done those preparations, which we are doing now on a short, basically, type of an all pressed in the 18 months period, we would have started earlier, would probably make the situation easier.

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Christopher Patrick McNally, Evercore ISI Institutional Equities, Research Division – MD [39]

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Okay. Great. And so we should understand that maybe this is just a timing for — it’s obvious, it’s going to be more than a year, but then your new product which you’ve been bidding on over the last couple of years, when that comes into the market, I don’t know, ’21 to 2024, that, that digit will have a more comparable margin structure. Is that a fair thing to say?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [40]

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Yes. This is it.

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Operator [41]

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The next question is from Gabriel Adler, Citigroup.

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Gabriel M. Adler, Citigroup Inc, Research Division – Assistant VP & Senior Associate [42]

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My question is on working capital, which you suggested, should make a positive contribution to free cash flow in 2020. And can you just comment around where you see the main opportunities to optimize working capital and whether you have any plans to increase the receivables factoring program that is currently in place to support free cash flow whilst your earnings are under some pressure this year?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [43]

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Where we had in working capital due, that’s why to the weaker-than-expected Q4, specifically, tire business, working capital was burdened with additional inventory from our side, so not on the dealer’s table but on our side. We talked about the winter tire season and this is something which I don’t — I would not expect any more for 2020, but hard to predict if there is some unexpected weak Q4, this would be there. And then the overall situation in China starting already in some of the last days of the December, already had some negative impact, not really too much mentionable, but as well on the working capital. So yes, I would assume that in end of 2020, working capital is more advantageous than it has been in 2019.

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Operator [44]

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The next question is then from Tom Narayan, RBC.

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Gautam Narayan, RBC Capital Markets, Research Division – Assistant VP [45]

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Tom Narayan, RBC. First is a follow-up on Tim’s question. With the market cap drop, how it has, at what point do you consider buying back your own stock? I think one of your peers announced something like that today. Then on China, I was just wondering if you could give some cadence on how you see the market development through the year, down 30% in Q1. And obviously, production, when do you think that comes back? And inventories getting taken out of the dealerships.

And then lastly, the replacement tire forecast you guys have in Europe and North America seems pretty soft, just conceptually. I would have thought this would be a function of miles driven, which obviously has been increasing and new auto production from 3 to 4 years ago, which was increasing. Just maybe some color on why that forecast for 2020 is so soft?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [46]

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Question I asked as well to our tire guys, and we don’t have a logic explanation as you were just mechanically expecting it. Completely right, there was good markets in 2016, ’17. We had higher — in addition to the car park, higher production and scrappage ratio on a worldwide basis.

Car park increased and should be. The replacement cycle should start in ’20 of these cars and going on in ’21. So I cannot give any rational expectations. This is just what our salespeople in the end came back with as a best guess for the year 2020. We have had periods like this. Specifically, this is basically — this is specifically, I think, for Europe, true. We have had periods like this sometimes in the past. It is very long now as we saw this weakness already in ’19, and we expect this to continue in 2020. I cannot give any specific explanation. You’re rightly saying the miles driven are not an indicator that this would go down and the carpark development some years ago, again, is not an indication that it should go down. We are not considering — first question of you, not considering to buy back on our stock. And unfortunately, I did not fully understand the second question, if you could repeat that or somebody that came under?

That was China recovery?

Well, we see at the moment that the factories are starting to be ramped up of the OEs again. People are coming back to the factories, to the production sites. For us, roughly 25% of our labor force is not yet back to the production sites at the OEs. It’s more, but again, they are ramping up. And then the big discussion comes, is there an incentive program or not, which would potentially even allow for some compensation of the lost volume. In the first quarter, if this is not the case, it’s probably going back to a normalization in the second half of the year.

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Gautam Narayan, RBC Capital Markets, Research Division – Assistant VP [47]

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Okay. So more pressure in 2Q as well?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [48]

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Yes, there will definitely still be some pressure in Q2. And definitely in April, not all of the production sites of our customers will be back to full speed.

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Operator [49]

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The next question is from José Asumendi, JPM.

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José Maria Asumendi, JP Morgan Chase & Co, Research Division – Head of the European Automotive Team [50]

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Just to come back to the Tire division, sorry, but we’re seeing a margin deterioration, right, from sort of 19% to 14% margin levels adjusted.

I’m really — I mean, I get the headwinds, right? The OE volumes, the pricing, the ramp-up costs. But what makes you so confident that margins can sort of just decline slightly in 2020? Where is the absolute rock-solid level of margins you can achieve on this division? I’m missing a little bit, maybe the contingency plan to tackle the cost base on the Tire division and stabilize the margins. I’m a bit concerned in terms of also of the — how important this division is in terms of cash contribution for Continental. So if you could just maybe talk about that. So what are the underlying sort of emergency measures you’re taking there to normalize the margin?

And also as a little request, please, if it could be possible to disclose again the margins on passenger car tires and truck tires, that will be super helpful, just to understand a bit better the journey, that would be — as a little request, will be much appreciated.

And I’ve got a little — I’ve got a second question, please.

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [51]

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Two effects on the margin in tires. One is the utilization of our production sites.

And I mentioned already, this will be an element of our enhancement, additional cost reduction program, which we are starting and which we — or which we have started, actually, and which we started to put together and which we will talk about in May, because this is the one which we can influence on the tire side. And yes, we fully agree that tires is an important element, obviously. No surprise of our overall profitability. And we will do everything where we can influence it to get the margins back to the level where we like them to be. The other element is the capacity in Europe overall market, and by that, the effect on the pricing on the market, specifically in Europe. And there, we do our best to keep stable prices. It is not at all our interest with reacting to each price move of anybody else to just assure our volume base. But I think the thing we can really influence is the cost base of the tire business. And there, we are working on, and we will talk about that in May. I don’t want to give the margin differential between pass car tires and truck tires.

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José Maria Asumendi, JP Morgan Chase & Co, Research Division – Head of the European Automotive Team [52]

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Understood. No problem. I mean, okay, so maybe you will attack this division with more strength. The other question was on Interiors, the digital — analog to digital. Can you just maybe explain ballpark or give us a number, please, on proportion of revenues. How much does this division represent within Interiors? And are there any other moving parts within Interiors you can improve to offset the decline, just to get a bit more color on the Interior division, please?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [53]

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Well, it was — the business was around about 20%; good times, even a little bit more of the Interior business. This is what is now running in travel with two things, margin-wise, on the one hand side; and on the other side, additional cost for ramping up the new things. And this is what we are working on.

And the additional question, the continuing question was on that?

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José Maria Asumendi, JP Morgan Chase & Co, Research Division – Head of the European Automotive Team [54]

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If there are any other elements within the Interior division. It’s always very difficult to figure out within Powertrain, Chassis & Safety and Interior, what are the moving parts. Are there any other categories within Interiors that you can maybe improve to offset the transition we’re going to go through in digital versus analog which could last 3 years, obviously?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [55]

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Yes, it is included in the program already that we do not only work on this one topic in Interior but that we are working on the aftermarket portion, which is in interior as well as on the other business units in Interior, but not only there, as well in Chassis & Safety to improve the margins. So we are not only concentrating on this topic, which is the obvious one, which is heavily weighing on our margins, we are as well working on this

FX topic, but there is — short-term solution is difficult. This would mean to replace products from

Japanese yen production sites to other more advantageous production sites as far as FX is concerned. And this is — as you know, needs obviously, the agreement of the customer to do so. And this is something which is not done in a quarter or so.

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Operator [56]

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The next question is from Christian Ludwig, Bankhaus Lampe.

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Christian Ludwig, Bankhaus Lampe KG, Research Division – Head of Research & Analyst [57]

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Just a couple of housekeeping questions left. Mr. Schäfer, you gave us the Q4 HEV sales figure. Could you also give us the full year number?

And then in outlook, what you would expect for 2020? Is it fair to assume that this number could actually double with all the e-cars now fully coming to market?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [58]

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The sales was around EUR 230 million, I think. For next year, wait till the Capital Markets Day in London. We will talk about it.

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Christian Ludwig, Bankhaus Lampe KG, Research Division – Head of Research & Analyst [59]

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Okay. And then another question. On the EUR 600 million of restructuring and one-offs that you’re guiding, could you give us a breakdown per division, where roughly would — can we see the big chunks of this?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [60]

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Lots of it is in Powertrain of the now-to-be-booked restructuring cost — the majority restructuring costs, which we do have in there. The majority of them is in Powertrain and the next one is Interior. And they are — I think in Interior, we’re already in a position to book more in ’19 than we had expected, as well as partly in Powertrain. But these are the 2 divisions which have most of the restructuring costs.

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Christian Ludwig, Bankhaus Lampe KG, Research Division – Head of Research & Analyst [61]

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So let’s say, 1/3, 2/3 split is — would that be a fair assumption?

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Wolfgang Schäfer, Continental Aktiengesellschaft – CFO & Member of the Executive Board [62]

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60-40, I would say. Yes.

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Christian Ludwig, Bankhaus Lampe KG, Research Division – Head of Research & Analyst [63]

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60-40. Okay.

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Operator [64]

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Ladies and gentlemen, this concludes today’s Q&A session. I would like to hand back to Mr. Wang.

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Bernard Wang, Continental Aktiengesellschaft – Head of IR [65]

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All right. Thank you, operator, and thank you, everyone, for participating in today’s call. I know there are more questions in the queue. But for the interest of time, we’re going to end here. As always, the IR team is available, if you have any further questions. And of course, please contact us if you’re interested in attending the Capital Markets Days, either for ourselves, Continental, or for Vitesco. Thank you again, and have a nice day.

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Operator [66]

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Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.