Contl Ag S/Adr

Good afternoon, ladies and gentlemen, and a warm welcome to the analyst and investor call regarding the H1 results of 2024 of Continental AG. 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 your host, Max Westmeyer, Head of Investor Relations.

Thank you, operator, and welcome, everyone, to our second quarter results presentation. Today's call is hosted by our CEO, Nico Setzer, and our CFO, Olaf Schick. A small reminder that both the press release and presentation of today's calls are available for download on our IR website. And before starting, we'd like to remind everyone that this conference call is for investors and analysts only. So if you do not belong to either of these groups, please kindly disconnect now. Following the presentation, we'll conduct a question and answer session for cell site analysts. To provide a chance for all to ask questions, we would like to ask you to limit yourselves to no more than three questions. This will certainly help us to conclude in time. And with this, let me now hand you over to Nico.

Yeah, welcome everybody for the second time this week. That's why I want to start already with a recap what we have shown this Monday. The executive board took the very important decision to crystallize as much value as we can by our separation and 100% spin-off of the automotive group, and I've summarized this on two charts. We had a little bit longer intro on Monday, but the main facts you will find here. As said, after the strategic review, We decided to move on. We are now going into a detailed analysis, which takes until Q4, where we'll then take the decision on the spin-off. And after we have analyzed all structures of the new automotive, as well as of the new continent, so to say, and the transaction steps are further laid out, and if this positive decision will be then taken in the fourth quarter, then with annual shareholder meeting in 25, we target them to execute the spin-off until the end of 25. In parallel, very important, we already start all necessary preparations for the implementation steps in order to have them already in the possible execution phase once we can start and take the decision. So target is creating two strong independent list of players, giving via that Philip and his team the entrepreneur freedom, which is needed in the very difficult market environment in this such high volatility to be fast, agile, and making sure that all decisions are fully focused on automotive. We can say that now two days later as well, there have been many webcasts as well on auto. The auto team, they are extremely excited and we are absolutely convinced that this is not just crystallizing the best value for auto, where we see a clear catalyst of that decision, but as well for the new goal on Continental that helps to clearly focus getting agile and making sure that the sectors continue their strong businesses and as well their strong strategies and visions, which means on the tire side, stepping in the profit pools based on our strategy vision, which we have, and we see that in the second quarter we have been relatively successful with that. And for Contitech, we have to clearly say the way to get an industry leader and get more focused on the industry side with greater than 80% industry business is going along, means the OESL, the automotive business within Contitech is further pursued with the cohort for that business is further pursued to have them stand alone and execute this endeavor in 2025. So if we're looking for the transaction summary, you see listing of the automotive group targeted by end of 24. I already mentioned this at the Frankfurt Stock Exchange. There has been lots of questions about the balance sheet as well in the call. We target obviously to have a very attractive balance sheet with very limited depth on the automotive side. That's clear, that's our targets. absolute design. We only know once we decide then for the spin-off and we move forward. Same holds true, by the way, as well. For the new core, it isn't new continental. It is today an investment grade, and we target this further going forward. So automotive group is expected based on valuation, which we only know once we are listed to qualify for the MDAC. That's based on our evaluations, and you see on the right side, the company is basically cut in half, which is then 20.8 billion Euro sales on the automotive side based on 2023, including contract manufacturing, which phases further out. This is the contract manufacturing for VITASCO, and it then still keeps a very strong player with 100,000 employees on the right side and 100,000 on the left side. As the nature of a spin-off, there's no investment needed into automotive going forward from the shareholders and no proceeds on the other hand for Continental. Simply, the shares are in the new company according to the holding of today. And one-time costs will be further worked out. What we see so far is a low to mid-triple digit euro million amount on the one-time and on the tax effect, a low triple euro amount. With that, I'm coming now to the first half. Obviously, we keep you updated. It's over time and as that next big step is then until the fourth quarter, the decision and further details will come. It is a journey which we started but very important for the journey is as well our performance, it's decisive on the country part but in particular on the continental part. So you see on the top line, we ended the second quarter with 10 billion Euro sales, which is a negative organic growth of about 3%. So which is clearly driven by weak markets on the industry side, particularly on Quantitech, which is a bit worse than the 3%. Olaf will show the details later on. Tires have been basically flat, and we already mentioned that there was a swap from March into April, which we profited from, and we clearly saw replacement markets, in particular in Europe, more supporting our business than we've seen in the first quarter. And automotive slightly outperformed the weighted light vehicle production with a minus two versus the minus 3%. However, overall, we assume that the markets will further persist in a more weakness than we have seen before. We thought that second half will be more, had more tailwind for the industry business, which is now a bit tempered. That's why we adjusted our guidance according what we see in the markets. And again, ODAS will come to that later. However, we reached 7% EBIT margin, which is a big step up, not just where it was last year, but as well, where it was the first quarter. Where did it come from on the automotive side? Strong improvements. First of all, all three sectors contributed to this, but automotive with three quarters now of the price and negotiations finalized. had an effect and lifted the margins. This was still a margin drain in first quarter. And the self-help measures, I come to the details on the next charge. They are showing their first effects and we are moving further forward. I said more details on the next one. On the tire side, yeah, in particular, the replacement market helped and supported. On the European side, where we have a relatively strong business, we could profit from that. And we see in Asia Pacific, particularly as well in China for the replacement market. For us with growth, so Tyatt is back in the full year guidance, 13 to 14%, and we ended the first half at 13.2, and with a strong quarter, 14.7% return on sales lifted us the upwards. Quantitech made as well significant improvements, very much based on South Arab cost discipline, but on the OSL, on the automotive side, by closing pricing negotiations, So those are done and strongly contributed. And again, what I mentioned before, still, unfortunately, we saw weak industry market persisting in the second quarter. Free cash flow, as last for me to quote, 147 million Euro positive contribution. Here you clearly see, you mentioned this several times, our continuous working capital improvements coming from an elevated level. We know, particularly on the automotive side, after the Semicon crisis, however, we continue to optimize and getting in better structures, which support our working capital and which in this case in the second quarter, even more than compensated the payments, which is linked to the end of fine proceedings. We mentioned that the capital market that we will keep you up to date. What's how our self-help measures are progressing. And you might remember that the improvements towards our midterm targets are mainly driven by those south-south parts because we don't anticipate too much market tailwind on the one hand. On the other hand, our operating leverage is then basically as well driven by our own measures. One measure is clearly the pricing part. Three quarters I already mentioned is the one part. The other part is the portfolio management once it comes as well as performance. So we are focusing clearly on the Chinese market, Chinese OEMs, order intake, you referred to this several times in the last three years, is on track in the last six, seven, eight months. We launched as well two high-performance computes with Chinese OEMs in China, which shows and which is a proof point for our strategy towards the software-defined vehicle. And next steps are as well clearly designed to cost, bringing the material cost ratio to sales farther down. Looking on operational excellence, we are further pursuing reduction in premium trades. We profit from this as well in the second quarter and assume to further profit from this during the course of the year. Inventory trends are already mentioned. They increased by 0.6 and we further see here as well opportunities targeting for the full year that both contribute to a better operations and to reduction of 1% of our costs in terms of the sales. Fixed cost reduction, union agreement is finalized. Lots of our adjustments will happen on the German side and those union agreements are signed in the meantime. So you see, we will have then the opportunity to enlarge further and the reduction so far, which is 1,500 headcounts achieved here to date will then be further extended. And we will get more towards the safeguarding of our 400 million, which we see targeted then from 2025 onwards. So, for 24, that means that we have realized or we had realized one-third of the 150 already. That's how I should phrase it. For the year we target 150, the rest will come then over 25, and you have the carryover effect. So, one-third of the 150. We have realized in the first half and mainly in the second quarter, so the other part is still to come once we go into the second half. Looking on R&D, efficiency here, right-sizing is what we are doing, bundling locations. We have announced that in Rhein-Main, a large area where we have R&D locations, we will focus, we will bring locations together, thereby increase effectiveness. by having engineers working at the same project together and physically at locations on the one hand, on the other hand, saving costs, which we have already achieved in the second quarter. So our R&D to say is net, so net without restructuring, taking the restructuring part out is 30 basis points down, whereas the second quarter of last year, so the right-sizing already show us its effect and the agility namely with external services which we still have on the r d side supporting us which we've strongly reduced we are moving down the right direction and 1300 headcounts as well here already achieved this in this year and that's why we say that the single digit term on the capital market which we announced we are now confident to reach this already in 27. complexity reduction We announced the solution of SMY, that's where truck business and aftermarket business and telematics business was in for the aftermarket, which was integrated into the other business areas and thereby having a more simple setup and less complex setup that worked nicely. This is Pursuit, great teamwork, and we followed Pursuit. So now, and this was announced as well yesterday, we bring the central software and central technology together with our architecture and networking part. So to create a new powerhouse software and electronic solutions within one business area, now those are two strongly collaborating, but bringing them under one leadership, we see that we are even more effective than delivering on the software defined vehicles where hardware needs software and gets out of that systematic functions for the OEM. Portfolio, you don't see on that chart. We announced on Monday that the UX carve out where we are meantime, a detailed concept is ready with for the time being not being pursued. Only reason is that we have to fully prioritize now on the spinoff of automotive, which needs all the attention, which doesn't mean that a later point in time, this detailed concept can be executed. The 104 billion buckets which we announced on the CMD, we further pursue. Portions are in turnaround mode. Pricing helps, which we see on the chart. So certain parts have been repriced. So this loss-making business is addressed in its turnaround models, and the other portions are still under analysis. And we pursue as well options for the one or the other business out of that. We evaluate them and test them. So we're moving forward on those parts as they are not jeopardizing our spin-off target, and they need to be addressed in order to improve our profitability. Looking on the Computex side, so here, same structure. We are working on the operating leverage part. I already mentioned the reprice on the OESL part, as well as Razor Focus, which we have on portfolio optimization. Particularly on the industry side, in the market, we have to permanently adapt our organization and move there forward. Operational excellence as well here, footprint optimization, particular as examples here, Brazil and U.S., and right-sizing our workforce there where here today we achieved a minus 7% in headcount so far. This is not only on the fixed side, but as well on the variable side, and we are pursuing further right-sizing projects in the current environment. which are combined as well as the smart tech tree concepts means getting as well how our optimization levels and smarter factory movements with less people involved. Fixed cost reductions, clearly strong progress on the OSL side. We see again that having a unit standalone and preparing or being in a carve out for preparing standalone is a catalyst for actions. We are moving forward here and We do the same on the organizational setup. We have announced last year that we changed the organization towards a more customer-centric, bringing the industry business together over those three regions. This organization optimization is progressing, and we see as well their results of synergies and additional savings coming in the second half. And last part, I already mentioned complexity reduction. OSR Carport is on track. We further pursue this and global execution is still planned for 2025 and we follow suit here as well. So with that, I hand over for the detailed results. Olaf, please guide us through.