Strategy of profitable growth to address the transformation in the mobility industry. We are committed to our targets.
With our strategy, which was realigned to address the transformation in the mobility industry in 2020, we have paved the way for profitable growth over the coming years. In 2021, we systematically realigned our entire organizational structure and our management processes to this strategy. We see the transformation in the mobility industry as an opportunity. Our strategy is based on three cornerstones:
- Strengthening operational performance
- Differentiating the portfolio
- Turning change into opportunity
1. Strengthening operational performance
By strengthening our operational performance, we can ensure our future viability and competitiveness. We are aligning our cost structure to global market conditions. In 2019, we introduced appropriate measures with our Transformation 2019–2029 structural program. This will allow us to achieve gross savings of €850 million annually from 2023 onward. The new strategy was implemented in 2020, and the organizational structure was aligned with it in 2021.
The former Automotive Technologies group sector (which became the Automotive group sector from January 1, 2022) now has an entirely new organizational structure. The five new business areas are responsible for the successful implementation of this strategy. They have the decision-making authority and flexibility required to be able to quickly respond to market changes. They are supported by an overarching advanced engineering organization called Holistic Engineering and Technologies, or “he[a]t.” he[a]t operates in particular on projects across all strategic action fields, such as the development of high-performance computers. The former Rubber Technologies group sector has been dissolved, and Tires and ContiTech are now independent group sectors. This new structure eliminates an entire intermediate level, making us more streamlined, faster and more efficient.
In connection with the semiconductor shortage, we have launched a task force with the aim of enabling us to better respond to fluctuations on the procurement markets. As a result, we have optimized our early warning systems and adapted our purchasing structure to the procurement networks. In addition, we are building up safety stocks in a targeted manner in order to bridge possible supply shortages more reliably.
2. Differentiating the portfolio
Efforts to differentiate our product portfolio in a more targeted manner concentrating on growth and value are progressing well. Our focus on growth is aimed at establishing strong market positions in innovative fields featuring highly dynamic growth, while our focus on value addresses saturated markets with stable but low growth.
In our Automotive, Tires and ContiTech group sectors, our focus on growth is centered around innovations for safe, connected and automated driving, which will be a critical factor in customers’ future purchasing decisions. Vehicles require technologies from Continental, such as tires, braking systems, hoses for thermal management, digital solutions and services, as well as high-performance computers – irrespective of the vehicle’s drive technology.
We are purposefully entering into partnerships that make us better and faster, in particular with smaller specialist firms and start-up companies. In the year under review, for example, we invested in collaborations for assisted and autonomous driving. Funding that we do not contribute to partnerships is used to establish and develop our in-house expertise.
When it comes to “value,” our focus is on profitable product areas where we have solid competitive positions in markets with a high degree of maturity. These include, for example, display and control systems, surface materials and the European tire business. The aim here is to sustain profitability and generate sufficient funds to enable us to ensure competitive expansion geared to market and technology leadership in growth areas that as yet are unable to fully finance their ambitious growth themselves.
Strategy of the Continental Group
The portfolio strategy also includes possible acquisitions, divestments and partnerships. The business areas are regularly assessed to determine whether they are capable of creating the best possible value for Continental, and how their value can be maximized. The spin-off of Vitesco Technologies was completed in the year under review as part of these efforts.
3. Turning change into opportunity
Continental’s sustainability ambition comprises the four focus areas of carbon neutrality, emission-free mobility and industries, circular economy, and responsible value chain. It describes how, together with our partners, we seek to shape the transformation in the relevant topic areas along the entire value chain by 2050 at the latest. Along with the corresponding guidelines, this sustainability ambition brings together the existing strategies, programs and processes, as well as their further development. The systematic expansion of our business in particular with zero-tailpipe-emission vehicles contributes significantly toward achieving our ambitions in the area of carbon neutrality and emission-free mobility and industries, as well as toward reducing greenhouse gas emissions in the mobility sector. As part of our global Net|Zero|Now program, we also offer our customers the neutralization of our business carbon backpack through negative emissions as of fiscal 2022. The program focuses on business with zero-tailpipe-emission vehicles and thus promotes their expanded use. Detailed information on the implementation of our sustainability ambition can be found in the Sustainability and Combined Non-Financial Statement section starting on page 36 of this annual report.
Our comprehensive new organizational structure helps us seize market opportunities and translate them into profit even more quickly. Transparent structures and a high level of autonomy make us more flexible in an increasingly complex market environment.
In the Automotive group sector, we are focusing on the growing global demand for safer, connected and convenient mobility. This means, in particular, the development of non-differentiating software, which makes up around 60% of a vehicle’s software. Such software consists of programs that are not critical for the marketing of vehicles, but that are necessary to ensure their safe operation. It is crucial to achieve cost advantages through standardization and scaling in this area. 40% of a vehicle’s software relates to functions that make a visible difference, such as for automated driving or infotainment systems. For Automotive overall, we anticipate an adjusted EBIT margin of around 6% to 8% in the medium term as well as a return on capital employed (ROCE) of over 15%.
We want to further consolidate our position among the world’s top tire manufacturers, particularly in the growth markets of Asia and North America. In the passenger-car tire segment, we intend to expand our business with tires for electric mobility and ultra-high-performance tires. We also see future growth in vehicle fleet management services. For the Tires group sector, we anticipate an adjusted EBIT margin of around 12% to 16% in the medium term as well as an ROCE of over 20%.
For the ContiTech group sector, the main opportunities are presented by the growing demand for digital and intelligent solutions. Business continues to be based on products and systems made from rubber, plastic, metal, textiles and electronic components which in the future we will be able to combine with customized and digital service offerings. For ContiTech overall, we anticipate an adjusted EBIT margin of around 9% to 11% in the medium term as well as an ROCE of over 20%.
At corporate level, we aim in the medium term to achieve an adjusted EBIT margin of around 8% to 11% and an ROCE of around 15% to 20%. The cash conversion ratio is expected to exceed 70%.
