Contl Ag S/Adr

And welcome everyone to our Q1 2023 results presentation. Today's call is hosted by our CFO, Katja Dürfeld. Small reminder that both the press release and presentation of today's calls are available for download on our Investor Relations website. Before starting, we'd like to remind everyone that this conference call is for investors and analysts only. If you do not belong to either of these groups, please kindly disconnect now. Following the presentation, we will conduct a question and answer session for sales side analysts. To provide a chance for all to ask questions, we would ask you please to limit yourself to no more than three questions. This will help us conclude the call on time.

With this, let me now hand you over to Patja. Thank you very much, Anna, and a warm welcome from my side also. Despite a continued challenging environment carried over from 2022, we have set a good pace for our Q1 result and we are confident that we will deliver as guided for 2023. Let's look together at the details starting on slide three with the most important KPIs of quarter one 2023 and group highlights. Group level Q1 2023 sales came in at €10.3 billion, 11.1% above the last year's comparable quarter, and organic growth was 10.1%. Adjusted EBIT margin was 5.6%, 100 basis points higher than Q1 2022, with all sectors positively contributing. Adjusted free cash flow came in strongly negative at €949 million, inventories continue to remain high and receivables weigh on working capital march being the strongest sales month in the quarter is reflected in the receivables as well as the latest price agreement which are not cashed in yet with our actions on working capital we are confident to achieve our guidance here also on adjusted free cash flow let's have a look at our highlights in q1 an automotive Ongoing price negotiations are progressing, and at the end of the first quarter, we've already first sustainable agreements in place, while improvement measures show also good effects. We see also benefits from supply chain stabilization, less premium rates, and efficiencies from R&D. Building on our strong automotive order intake in 2022, Q1 2023 continues the trend at 6.6 billion euro lifetime sales, reinforcing that we bring the right solutions to meet our customers' future needs. And tires, an adjusted EBIT margin of 13.5%, just above our margin corridor, has had a good pace for the year, with strong prices and mixed overcompensating, decreasing volumes and inflation. Despite this positive start, we do expect market dynamics to become even more challenging. In Contitech, the combination of actions undertaken last year to improve operational efficiency and a favorable price portfolio has contributed to the improved adjusted EBIT margin of 6.4%. Overall, I am pleased the measures we are running to improve our plant operational performance are already sequentially impacting the bottom line. Additionally, now the strategic side, we have news from two of our sectors. Firstly, in automotive, where we have entered a strategic partnership with Aurora, which I will highlight on the next slide. And in Contitech, we have achieved the next milestone in the acquisition of Trello Box printing technology business, with the closing on May 2nd, further strengthening our industry focus and supporting our midterm targets. On personal note, Firstly, we have the great news that our supervisory board has extended the appointment of our CEO, Nico Zetzer, by further five years. And secondly, Nico and I are handing over the automotive management to the new CEO for automotive, Philipp von Hirschheit, and sector CFO, Claudia Holtkemper. This will free up time for Nico and I to focus even more on the group. On slide four, I would like to highlight in more detail this exciting partnership with Aurora. We combine our Continental systems expertise with Aurora's industry-leading autonomous technology for our common goal to jointly realize the first commercially scalable autonomous trucking systems. Continental will deliver the entire hardware set as well as a new fallback system. The partnership is based on a completely new business model for Continental. hardware as a service. Different to traditional supplier business, we will generate revenue for every truck mile driven. With Aurora, our planned start of production will be in the United States in 2027. Here we will bring increased safety, reduced fuel consumption, and faster delivery times to this important industry with a total U.S. address in the market of approximately 700 billion U.S. dollars. Together, we will realize the first commercially scalable autonomous trucking system paving the way for broad adoption of autonomous mobility in the commercial trucking sector. As another autonomous mobility partnership update, I am also pleased to announce that we have now confirmed a first delivery for our jointly developed stack with Umbrella as a complete level four fallback system. Let me now move on to the Q1 performance by group sector on slide five. In automotive, we see a strong increase of 17.1% in the year-on-year organic sales growth and margins improved by 490 basis points to positive 4.8%. Both effects were supported by the first signed price contracts and focused operational efficiency actions also supported the EBIT margin improvements. And tires, organic sales growth of 4.9%, as mentioned, underscored by the price mix overcompensating volume reductions. The adjusted EBIT margin decreased by 360 basis points to 13.5%. At Contitech, the organic sales growth of 7.8% and adjusted EBIT of 6.4% show that our actions deliver results. Now, Let's look into the automotive from slide six. Automotive sales have started strongly, with a total of 5.0 billion euro, and as mentioned, a strong 17.1% organic growth. The effects of the first new price agreements in place and increasing volumes were the key drivers for the solid organic growth, as well as the adjusted EBIT margin of 0.8%. Although we are not without challenges, especially in inflation, where headwinds totaled approximately 250 million euros. For further insight into our results, let's look at the organic sales performance of automotive versus regional vehicle production in Q1 on slide 7. Segmented by region, automotive organic growth significantly outperformed vehicle production again, prominently in our important European market, which was supported by our pricing activities, as well as in China. Our development in North America in Q1 was below the market, mainly driven by lower customer call-offs, which we anticipate will recover during the year. Overall, in Q1, automotive outperformed its regionally weighted average by around 7%. Again, a very solid start. On slide 8, we confirm our competitive market position by finishing the first quarter with another strong order intake at automotive of €6.6 billion lifetime sales. Major contributions came from autonomous mobility, valued at €1.7 billion, including awards for 360-degree radar coverage consisting of front, rear, side, and long-range radars. They ensure a holistic environmental perception of vehicles and thus greater safety in road traffic. Further, our user experience team continued their success, achieving 1.6 billion Euro lifetime sales, of which almost all was attributed to new awards in innovative display solutions. Furthermore, the first augmented reality head-up display was awarded. to meet our customers' future corporate needs. Another strong result was also achieved by our safety and motion team, who locked in new business totaling €1.9 billion lifetime sales, mainly deriving from awards for integrated safety, sensors, as well as hydraulic brake systems. In addition, we achieved business and air supply systems, which will increase our stable market leader positions. Moving from automotive to tires on slide 9. The start to the year confirmed our expectations that 2023 would be challenging, and although volumes declined by 8.6%, our tire sector was still able to achieve 3.5 billion euro in sales and an adjusted EBIT margin of 13.5%. Our sales performance was underscored by our strong price mix with more than half of the increase attributed to mix, which overcompensated for the volume reductions and the inflation of labor, logistics, and energy costs of approximately 85 million euro. Raw material remained a headwind in Q1. However, for the entire year, we expect these headwinds to reverse. Tyres has had a good starting pace. However, as I mentioned before, we do expect market dynamics to become even more challenging during the year. And now let's review our final sector, Contitech, on slide 10. As we have seen in the other sectors, volume volatility also played a role in our Contitech business. However, for Contitech overall, we saw positive effects from pricing that compensated volume changes and inflation impacts of approximately 75 million euros. Our price improvements were mainly from carryover of 2022 agreements, while we continue on new price agreements for 2023, which we expect to see the effects from Q2 onwards. On this basis, Contitech delivered an organic growth of 7.8%, leading to 1.7 billion euro sales and adjusted EBIT of 109 million euro, or 6.4%, a 110 basis points increase from Q1 2022. Our targeted measures, including our key focus on improved plant performances, begin to deliver results as seen here in Q1, highlighting our ability to deliver in this sector on our commitment. Now let me continue with the overview of adjusted free cash flow for Q1 2023 on slide 11. Our adjusted free cash flow came in at negative €949 million. This reflected the higher inventory levels needed to secure our supply chains and a higher level of account receivables, mostly due to stronger sales in the final month of the quarter, as well as price agreements concluded in the last minute of the quarter, both of which could not yet be cashed in and therefore still weighed on working capital. The investing cash flow of €355 million in property, plant and equipment supports our product mix needs and capacity expansions, for example, to meet new business volume demands. We are confident that through our key focus programs in 2023, we will achieve our guide. Looking now to our market expectations for 2023 on slide 12. Our expectations are based on current foreseeable effects. assumptions, we confirm our guidance across all industries and regions. For our final topic today, let's review together our outlook on slide 13. We can keep this short as we confirm our guidance without changes. That is not to say the road will be easy, but the combination of our strong team and our deliverables to date, we are confident that we will achieve our guidance for this year. This was my part of the presentation. Now it's your turn. Operator, would you please open the line for the question and answers?

And the first question comes from Sanjay Bhagwani from Citi. Please go ahead with your question.