Contl Ag S/Adr

The conference is now being recorded. Ladies and gentlemen, welcome to the Continental AG analyst and investor call of the nine-month results 2023. At our customer request, this conference will be recorded. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to Anna Fischer, who will lead you through this conference. Please go ahead, Madam.

Thank you and welcome everyone to our third quarter 2023 results presentation. Today's call is hosted by our CFO. Small reminder that both 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 question and answer session for sell-side analysts. To provide a chance for all to ask questions, we would kindly ask you to limit yourself to no more than three questions. This will help us conclude our call on time. With that, let me now hand over to you, Katja. the same Katja as yesterday, but thanks to a very happy personal event from today with a new surname, Garcia Vila.

Thank you, Anna, and a warm welcome from my side. It's great to have you all here with us today. So let's get started on slide three. I'm pleased to say that we completed the third quarter fully in line with our expectations. Group level third quarter 2023 sales came in at 10.2 billion euros. despite being 1.5% below last year's comparable quarter, we delivered on the adjusted EBIT margin, achieving 6.2%, 150 basis points higher than the third quarter 2022. Now I would like to highlight some key areas that contributed to our third quarter result, starting with automotive. We performed well with a solid sales result of 5 billion euros. Through the finalization of most price agreements, as well as further supply chain stabilization measures, we achieved an adjusted EBIT margin of 2.8%. With a clearer view to the end of 2023, and mostly due to continued currency translation headwinds, we've adjusted slightly down the automotive sales guidance for 2023 by €500 million, with a new corridor of €20 billion to €21 billion. The adjusted EBIT guidance remains unchanged. Looking to tires, We achieved solid results in weak markets. With this continued performance, we have decided to increase the full year tires adjusted EBIT margin corridor by 50 basis points to 12.5% to 13.5%. And for Contitech, we saw resilient quarter three performance in challenging markets and our colleagues continue to be on track for their guidance this year. Across all sectors, We continued to experience FX headwinds, which, as mentioned, have resulted in an adjusted full year 2023 guidance on sales for automotive. Finally, our adjusted free cash flow amounted to €466 million, which demonstrates our steady and stepwise progress this year in managing pricing developments and strict focus on inventories and receivables. We are on target for our guidance this year. Following our clearly defined refinancing strategy and making use of good refinancing conditions, we issued a 3.5-year bond in August 2023. We were already anticipating the refinancing of maturing financial liabilities and the purchase price liability due in January 2024 from the assignment of shares in Quantitec AG Hanover from Continental Pension Trust EV Hanover. Let's look now to the third quarter performance by group sector on slide four. Looking at all sectors, you will see continued progress and sharpening of our expectations being now halfway through the second half of the year. Starting with automotive, sales grew organically by 5.1% compared to the previous year's quarter to 5 billion Euro sales in line with the market. Our adjusted EBIT margin improved year-on-year by 30 basis points to reach a solid 2.8% reflecting new price agreements. I just mentioned as well as continued cost discipline and stabilization of the supply chain. Regarding the impact we see from the UAW strikes in the United States, our year-to-date impact is double-digit million euro, but the final number depends on the catch-up effect to come from agreements now in place. We want to talk closely day by day and adjust accordingly. For tires, Against the backdrop of weak volumes in the replacement market, we still managed a flat organic sales growth and an adjusted EBIT margin increase to €453 million or 13.2%, a 140 basis points increase versus Q3 2022, reflecting strong price-mix performance in a challenging environment. To Contitech, we had another stable quarter with organic sales growth of 1.2% year-on-year for the comparable quarter and adjusted EBIT of 6.6%, resulting from price adjustments against inflation upsetting weak volumes in our industrial business. Finally, we continue our ramp down for contract manufacturing according to plan. Let's look into our automotive results in more depth on slide five. Starting with our business areas, we had solid organic sales growth across the board, except for user experience, which reflects a temporary reduction linked to product generation changes we are introducing at key customers. The sales headwind from FX of negative 3.3% was partially offset by the further positive impacts from the new price agreements concluded in the third quarter. We expect currency translation headwinds to remain strong into the fourth quarter, affecting our sales top line, leading to the need for the adjustment in our automotive sales guidance. A new pricing agreement from the third quarter also played a key role in securing the adjusted EBIT margin result of 2.8%, as well as reduced special freight costs and improved operational performance. We are on track to meet our adjusted EBIT margin guidance, where we envision landing in the middle to lower end of the corridor. Looking into 2024, we will continue our annual price review program with our customers, expecting that some contracts will need to be renewed to ensure continuity of the adjusted pricing, while others need to be reviewed to reflect potential cost development in 2024. Let's now look to slide six, where we deep dive into our sales performance segmented by region for the third quarter. For automotive worldwide, our organic growth developed in line with the market. This was underpinned by our robust performance in Europe, while overshadowed by underperformance in the North American and in the Chinese market. For North America, however, the strong quarter three 2022 comparative base with significant price agreement bookings distorts the view. Looking in detail from a pure volume perspective, our analysis shows that we slightly outperformed the market. In China, we had limited content in the models that gained significant market share in this quarter. We are, however, well positioned in the Chinese market. Based on fiscal 2022 figures, our Chinese OEM sales make up approximately one third of our total China sales. Let's move to our other performance indicator for automotive, our order intake on slide seven. In the third quarter, we secured business worth a total 4.7 billion Euro lifetime sales with our colleagues in safety and motion bringing in further awards on our newest one-box brake system and airbag control system. Architecture and networking team secured business wins on telematic control units and business extensions and integrated body controllers. Now let's move on from automotive to tires on slide eight. I'm pleased to highlight we report yet another good quarter. As mentioned, We achieved an organic sales growth of 0.3% compared to the third quarter 2022, even against the weaker volumes and FX headwinds. Overall, our focus on high value tires combined with a continuously high pricing discipline enabled a sound adjusted EBIT margin result of 13.2%. For the outlook, we saw raw material prices starting to increase again from a currently low base, and we foresee this to ramp up into 2024. Further, as mentioned last quarter, we see uncertainty in the replacement market to remain, which combined with the mature price trend means that we continue to maintain our pricing discipline, carefully balancing value over volume. For our 2023 guidance, we are confident in our ability to perform despite the challenging environment and have therefore positively adjusted up our adjusted EBIT margin by 50 basis points to the new corridor of around 12.5% to 13.5%. And now let's dive into our final sector, Contitech, on slide nine. A stable performance with 1.2% organic growth despite weaker industry volumes. Effects through new price agreements and strong e-volume developments were contributing positively. On the adjusted EBIT side, we achieved a net gain of price over inflation, as well as favorable mix in some industry businesses, which supported our 6.6% result. Coming back on the group level now on slide 10, our adjusted free cash flow result for the second quarter of 2023 of €466 million confirms our positive incremental progress toward our full-year guidance. On the operating side, the improvements on inventory were underpinned by continued supply chain stabilization. We expect the levels of working capital to further decrease towards the end of the year. On the investing side, we balanced well. The automotive project demands entire capacity and mixed investment needs to come out slightly below on the year-on-year comparison here. I reiterate, we continue to be on track to meet our adjusted free cash flow guidance this year. Finally, let's look together at the main market volume trends for the remainder of 2023 on slide 11. Based on our projections, we are making some further small adjustments across all markets. Starting with vehicle production volumes for light passenger cars and light trucks, we have again revised up our worldwide view to 5% to 7%, linked to higher expectations out of Europe and China on the back of the stronger than expected year-to-date vehicle production. As with the second quarter, We also upgrade our guidance for commercial vehicle production in Europe. Now for the replacement tires, passenger cars and light trucks. While our worldwide guidance stays unchanged, we have adjusted between the regions with slight downgrades for Europe and China and a small upgrade for North America. For commercial vehicles, here we see further worsening in the demand and consequent downgrade in both regions. Finally, looking to industrial production, as mentioned last quarter, Here we do see enough further weakening of demand across the Eurozone and slight improvement in the United States to round respective changes while China remains unchanged. So, now let's sum it all up by looking at our outlook for 2023 on slide 12. With a clearer view to how the end of the year will likely develop, I would like to walk you through the adjustments we are making to our guidance for this year. Starting with the tires line, Despite the volatility on the volume side, we are confident in our continued performance and are adjusting up our adjusted EBIT margin guidance by 50 basis points to 12.5% to 13.5%. Next, let's look to the automotive sales line. Here we reduce our sales guidance by 500 million euro to the new guidance range of 20 billion euro to 21 billion euro, reflecting the continued currency translation headwinds and partially weakening call-offs into the fourth quarter. The adjusted EBIT margin guidance remains the same, and we foresee us landing more in the middle to lower end-of-set corridor. The results of the automotive sales adjustment carries through to the group consolidated sales lines, while we also narrow the corridor to reflect the market challenges. Finally, we confirm our adjusted free cash flow guidance. Before I hand over to you all for your questions, I would like to announce our upcoming Capital Market Day on the 4th of December. For details, please take a look at our website or directly contact our IR team. Now, that concludes my key messages for today, and I would like to hand over to you for your questions. Operator, could you please open the line for the Q&A?