Contl Ag S/Adr

Thank you, Operator, and welcome everyone to our first quarter 2024 results presentation. Today's call is hosted by our CFO, Katia Garcia-Vila. A 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 like to ask you to limit yourself to not more than three questions. This will help us conclude the call on time. With this, let me now hand you over to Katja. Thank you, Anna.

A warm welcome to you all. It's good to be here with you today. So let's jump straight in on page number three. Starting on page 3, as you saw with our pre-release on April 16, we had a soft start to 2024. Our results, although expected, were burdened by weak markets, especially in Europe, and FX effects across all sectors. Automotive was impacted by the significant portion of agreed 2023 pricing not rolling over into 2024. Our negotiations here are currently still ongoing. We see first progress. We target to finalize the agreements as soon as possible without sacrificing quality. Of course, we are aiming to have them agreed on a sustainable level, but this is something we can only comment on once we are done and the agreements are signed. Despite a weak first quarter, we are confident that the year will play out like it has over the last two years with improvements through the year, negotiation results re-established in our prices, and our cost-saving measures kicking in. On this basis, we confirm our guidance. For tires, we see the chance to be in the corridor for H1 as a whole, while for ContiTech, we expect the second half of the year to bring the tailwind from our self-help measures, enabling us to achieve our guidance. With that said, let's look at a few of the numbers. On group level, we came in at 9.8 billion euro sales with an adjusted EBIT margin of 2%. Our free cash flow on the year-on-year comparison showed some improvements in working capital while being burdened by the special one-time effect of the payment for the repurchase of the Contitech AG shares, which happened in Q1, bringing us to the approximately minus 1.1 billion euro result. To our last topic on the page, I am pleased to reiterate what we have announced on the 25th of April. The Public Prosecutor's Office of Hanover has closed the fine proceedings against Continental AG. Continental accepted the decision and will not be taking the matter to appeal. The fine will not lead to any significant additional impact on earnings in fiscal 2024, thanks to a provision set aside for this purpose in previous years. On the basis of and in accordance with existing contractual provisions, Vitesco Technologies is in this respect generally obligated to indemnify Continental against the ensuing costs and liabilities. This follows the principle that all opportunities as well as risks from the transferred business are passed to Vitesco Technologies as part of its spin-off. While this I am pleased to say we complete the investigations and can now pivot our focus to our daily business, which includes the continuous strengthening of our integrity pillar throughout the organization. Now let's move to the details on each sector level, moving now to page four. Beginning with automotive, here the year-on-year comparison, we see the top line burdened by the effects I mentioned, volumes, pricing, and effects, resulting in a negative organic growth of 2.4%. The adjusted EBIT margin was particularly hard by the pricing topic, as well as this year's labor inflation effects, which was bundled into the pricing negotiations. Now to tires on the sales side, we also came in lower than the comparative quarter, with a negative organic sales result stemming from the headwinds of FX, as well as volume and price mix effect. On the adjusted EBIT side, we were also below the comparative quarter 2023, coming in at 11.7%. For Contitech, the top line was burdened by weak industrial and automotive markets, as well as negative FX and pricing effects, showing in the organic growth versus the comparative quarter. The adjusted EBIT margin was burdened accordingly, as well as by the mixed effect and labor inflation, which led us to a 5.4 result. not satisfactory at all, even if we did anticipate the challenging start to this year. Let's look further into the best sector details starting with automotive on page five. As a reminder, we do not report on our business area smart mobility anymore. Last year, in our capital market day, we announced this solution explaining that a considerable amount of its sales, roughly 50%, would go into autonomous mobility with the rest being split between architecture and networking, receiving around 30%, and software and central technologies, receiving around 20%. On this basis, we report our software and central technologies business area for the first time. To support a like-for-like comparison, we present the first quarter 2023 figures also following the new structure on a pro forma basis. On the top line, autonomous mobility and architecture and networking delivered solid organic growth year on year, while safety and motion was down in line with our market exposure. In the software and central technologies and user experience business areas, we were impacted particularly by the geographic mix and unfavorable customer call-offs. This and ramp-up delays, or some with a softer start than anticipated, led to less content delivered in the quarter versus the comparative period. FX effects were a burden for all sectors. For automotive, we had a negative 1.6% impact. For the quarterly comparison, we see especially the burden from pricing. Compared to the first quarter 2023, we could, unlike this year, already report on at least some concluded agreements. Finally, the regionally weighted global market development, as well as delayed ramp-ups combined, led to an overall unfavorable dynamic. On the adjusted EBIT side, while we benefited from small improvements in premium freight versus the comparative quarter, the result was neutralized by the R&D net base effect, as we did not have the same pull in our R&D reimbursement payments in this quarter. Finally, the price drop-through effect and additional labor inflation effects weighed us down in the first quarter. Despite this difficult start to the year, we are confident in our plan and that our extensive measures will bring us into the guidance corridor for the full year. On that basis, we confirm the guidance for automotive. How will we achieve it? Volumes in the second quarter waited for our regional footprint are expected to positively contribute. And for the sales help, I would like to reference to the bridge we gave you back in March. This is our roadmap for how we will get it done. Firstly, starting with operating leverage. Here we have two levers we are working with. Firstly, establishing again fair pricing with our customers for our solutions through negotiations, which includes the additional labor inflation that we anticipate this year. We have started the negotiations with our customers, and even though they are tough, we are confident that we will solve these issues with our customers in a sustainable factory and sustainable metal. Secondly, through outperforming the market with our solution mix. Despite the cooler than expected ramp up of new vehicles in the first quarter, we still expect those platforms to go into production, though it's too early in the year to be able to give more information. Perhaps a tangible example here can help to underline this confidence. We have just published a press release on our extensive technological contribution to the new Mercedes E-Class. From our leading smart digital access system to our powerful long-range radars, our telematic control unit that manages the communication in and out of the vehicle, and a lot more. Even the tires and interior surfaces come from us. All that shows we are a strong partner to our customers' ambition for smarter, safer, and more autonomous driving. to operational excellence, where improvements will continue to come from our razor-sharp focus. Our incremental efficiency improvements in manufacturing and overall stabilizing supply chain enables us to continue to influence positively premium freights. We had improvements also in this quarter. From today's perspective and our current assumptions, we are confident that we will achieve the savings as planned. And finally, to our last bridge element, our fixed cost reduction program. On February 14th, we announced that we are consolidating our footprint in the Rhine mine area to further optimize and streamline administrative and R&D functions. This is part of the overall fixed cost reduction program, which will affect a total of around 5,400 positions worldwide. The complete program is in the execution phase. We also announced our automotive program to improve R&D efficiency with the reduction of 1,750 positions worldwide. Additionally, we will increase our efficiency and pool our research and development activities to improve our long-term competitiveness and achieve our R&D to sales target ratio of 9% midterm. Although we will not yet see significant savings in the R&D efficiency program this year, rather from 2025 onwards, we do anticipate already a high double-digit to a low triple-digit net effect from our administrative streamlining project in 2024 with the rest of the savings in 2025. Now to slide six. Let's look at how we performed market by market. European production was particularly weak in the first quarter with key customer vehicle launches delayed further, hindering our performance in the region. However, we still came out slightly ahead. In North America, we see two factors affecting the majority of our performance here. In addition to the negative ramp up, ramp down situation, which we already addressed, the first being customer affordability, where the combination of pricing, interest rates, and credit levels are affecting vehicle equipment with latest technology. Secondly, market inventory levels are nearing target volumes, so the potential volume upside is reduced. China produced a stronger market growth. However, on the automotive electronics side, we can only benefit to a limited extent from this market dynamic, given the customers driving this growth. We do have solid sales with both Chinese and international OEMs in China, including being in the ramp-up phase with another Chinese OEM in the strategic high-performance computer business. Looking to our future on page seven, you can see we achieved an order intake of 4.6 billion euros for the quarter. Starting with our strategic growth business area autonomous mobility, of the 1.9 billion euros in total, the majority of which is attributed to one large win for our next generation surround radars, which also includes the additional software functions of rear cross traffic assist, including braking, side blind zone alert, including trailer extension, door-open warning, and lane change assist. In our other growth area, architecture and networking, our team demonstrated our technology leadership in the area of smart device-based access and vehicle start solutions with wins totaling approximately 1.6 billion euros across several customers. And finally, we'd like to highlight the awards of our safety and motion team, bringing in close to a billion euro worth of new business in solutions such as airbag control units and latest generation brake systems. Now, let's move to tires on page eight. The numbers show an overall muted performance for this first quarter. Our sales of approximately 3.3 billion euros were affected by headwinds from FX of approximately negative 2.5%, and from lower volumes. We experienced continuing weak developments in truck and passenger car OE markets, especially in Europe. In the first quarter, we had fewer working days compared to last year due to an extra weekend in March and the Easter break in Europe that significantly impacted our sales. We do this effect see reversing in April though. Finally, negative effects from cost indexations in the quarter coupled with the weak truck market led to slightly negative contribution from price mix. So, as you can see, it was a rather tough environment for the first quarter. Looking to the adjusted EBIT side, we had negative drop through from the effects, cost indexation and volume effects, while having a slight tailwind from material which compensated for the inflationary effects on the cost side. Looking towards the second quarter, we see already a strong April and thus do foresee higher sales and margin. H1 overall looks promising to be in the guidance corridor. With the current view and assumptions in mind, we confirm our guidance for tires for the full year. Finally, let's check in now with Contitech and their first quarter performance on page nine. Day two, we're not immune from the challenging start to the year. weak industrial and automotive markets, combined with an unfavorable geographical mix for the business and effects effects of negative 1%, led us to the sales result of 1.6 billion euros for the quarter. Similarly, on the bottom line, we had dropped through from the negative volume and mixed effect, as well as burdens from labor cost inflation. I would like to adhere that during this year, we do expect the inflationary effects to be compensated by results coming through on the cost management side. We will keep you informed on that as the year progresses. Also here, despite the challenging start, we are confident to catch up on the back of a potential recovery in the industry in the second half of the year, as well as from overall self-help improvements, particularly on the automotive side of the business. However, these cost efficiencies and negotiations will show their effect only during the course of this year. Consequently, we confirm our guidance also for Contitech. Now let's move on to our first quarter results for adjusted free cash flow on page 10. Important message here is that we improved operationally in the quarter over quarter comparison. The overall result includes the one time special effect of the Contitech AG share repurchase. This 500 million effect is included in the total €1,086 million negative, so overall for us a good result for the first quarter of the year and fully in line with our own expectations. We are on track and I confirm our full year guidance here too. So let's move now to the outlook for our main markets on page 11 and let me start with the statement that based on today's view we confirm our market guidance. Perhaps Let me just say a few words to some of the topics on the page. Firstly, to the North American passenger vehicle replacement tire market, which you can see was well ahead in the first quarter this year. We do, however, anticipate that when looking at the full year, our corridor still looks reasonable. Secondly, to commercial vehicle production. We adjust our outlook range for Europe to the weaker than expected outlook by minus 1% in the midpoint. While for North America, we adjust to the more positive outlook of the market to the new range of minus 1% to plus 1%. Finally, to truck replacement tires in North America, plus 16% in the first quarter. Here, the market was buoyed by imports from Asia in advance to the change in anti-dumping duties anticipated to come into effect around the summertime. Like you, we will closely monitor the markets as they each develop this year. Finally, to our guidance for 2024 on page 12. Even with this challenging start and difficult market environment, from today's perspective, we, the Continental team, remain confident that our self-help measures will have the needed effect. And therefore, for the group, as well as for each individual sector, we confirm our guidance. So with that, I'd like to now hand over the rest of the time to you. Operator, could you please open the line for the Q&A?

The first question comes from Horst Schneider, Bank of America. The line is open.