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.

Thank you so much, Nico. Great to be here with you. And let's look at the group highlights first. As Nico already mentioned, despite challenging market conditions which hit our top line development you see on the right side of the page across the board on the bottom line. Significant improvement year over year. So let's look sector by sector. Let me start with automotive. Looking at the top line and looking into each business area, you see a mixed result which simply reflects the different market conditions in the individual parts of the business. um let's start with autonomous mobility here we were impacted by the ramp down of key radar technology while then at the same time next generation replacement business begins to ramp up but not yet at the same pace next architectural networking we performed strongly versus the comparative period based on the combination of our product mix and customer mix and here we see stronger results coming out of europe user experience The business area here, a number of factors played a role in our performance. The broader market weakness, slow ramp-ups in new vehicle launches together, some key businesses phase-outs and some customer vehicle mix challenges that reflects, let's say, the weak performance. Now, let's look at the bottom line. In the middle, important here is the contribution from the new price agreements that Nico mentioned, which brought the necessary drop-through effect on the adjusted EBIT side. Further, we also made progress in terms of sustainability of our agreements, though we still have a lot of discussions still ahead of us. But overall, it is stepwise an improved result that we see here. Finally, we also need to mention that we continue to see the low premium rates, which has a positive effect, and we see good first results coming in from our fixed cost reduction program, and we will, of course, absolutely continue with the fixed cost reduction focus going forward. If you look at the performance, Overall, the market followed a similar narrative as in Q1. The center of light retail production growth remained in China. However, this quarter we saw first steps of recovery also in North America, while Europe further weakened. Against this mixed development, we achieved a small worldwide 100 basis points outperformance for the quarter. If you look more detailed, closer, let's start with Europe. Here we came out ahead of the market with the conclusion of price negotiations played, of course, a key role. But we continue to be burdened by delayed customer-vehicle launches, as said, which can also directly affect our vehicle product mix. Nevertheless, we are confident that we have the right focus and are positioned to immediately benefit once the planned ramp-ups that are coming and gain actually speed. Next, North America, we have the continued uncertain economic environment that's affecting consumer behavior and the vehicle mix our customers are offering. In addition to that, we are working through a significant generation upgrade cycle where all the technology is being phased out while we ramp up the next generation technology. So we are in this cycle, for example, in our radar and braking solution business. Next, China. Here, the same vertically integrated OEMs are really the engine of this growth as we have discussed in the last quarters. For Continental, we are however now progressing with our strategy to increase the portion of sales with our local Chinese customers and support our international customers with their ambitions in the Chinese market. Against this backdrop of market uncertainties and a very weak Europe, the management team and I We have decided to slightly lower both top line and bottom line guidance corridors for automotive for this year. I will come back to that later. If you look at the order intake, let's start with our user experience. With the 2.1 billion Euro single customer award, EUX has proven that our energy display solutions are actually very strongly demanded. That's a big step, very important for UX. Safety in Motion has succeeded to win multiple new awards to the value of two billion euros for our next generation braking system. A key portion of this is with one important Asian customer where we will support the solutions across the two real platforms. So you can see our state of the art braking solutions are actually in high demand across the globe. And then, Architecture Networking where the team has secured the important platform expansion business for our body high-performance computer, and which is really a testament to our competence in the strategic field. We also achieved awards from our lighting solutions area. Let's go to tires next. Overall, although our sales, as you can see on the left side, were basically flat versus the comparative quarter, we achieved a significant improvement on the bottom line. a more good Q2 result has enabled us to get back into the guidance corridor for H1. And this result was despite the challenging market environments. So let's look at the details. Top line, we faced persistent FX effects, but could capitalize on the replacement tire market improvements, particularly in Europe and from growing market in APEC. Bug markets globally remain weak except for high imports of Asian tires. This ongoing trend, combined with negative effects from OEM cost indexation, continue to slightly burden our price mix, as we have indicated here on the chart. On the OEM cost indexation topic, we do foresee that this will normalize in the second half of the year. Let's look at the bottom line. We had a positive drop through from the improving replacement markets. while we also worked hard to ensure the slightly negative price mix effects were compensated by cost efficiency measures. And we benefited from the support of raw material costs. You can also see that. Maybe as additional transparency, this slightly negative price mix here was the result of a weaker regional and customer mix, in particular with regard to Americas, but this should improve in the second half of the year. Looking forward to the second half, we think that our H1 adjusted EBIT performance should also be a good indicator of the overall H2 performance. Q1 was impacted by some negative one-offs. Q2 had some positive ones. So overall, H1 is a good indication. Also in tires, we anticipate that the recovery of the market in general will be weaker than previously thought. And on that basis, we have reduced our top line guidance down by 500 million euros. On the bottom line, we keep our original guidance corridor of 13 to 14 percent. Next, then, quantity tests. Looking to our sales and the negative organic growth that you see here, this was due to continuing weak industrial markets. Thumbs-up markets such as off-highway, construction, printing industries remained a challenge. We worked like an automotive, very consequent on our internal self-help measures to ensure that we improved the bottom line, and this was successful. 60 basis points improvement on the adjusted limit side. There you can see that here for the comparative quarter came from positive results out of commercial excellence program, and Nico had indicated that, and the closure also of price agreements. Other self-help measures, which you saw on the scorecard just some minutes ago, positive mixed development also support us. So overall, you can see the focus of our organization is really to adapt quickly to a very challenging market environment, and this was done successfully. Looking to the full year, we are taking the step to slightly lower the guidance corridor on the adjusted EBIT side from approximately 6.5% to 7%. 6.5% to now, 6.5 to 7%, so we're narrowing the corridor. And this is mainly due to the weakness over on our industry markets. The sales guidance, we leave untouched. So this will stay at 6.6 to 7 billion euro, but we do anticipate here that we actually will likely land at the lower end of that corridor. Let's go back to the group level cash flow. In summary, we achieved Solid results in the working capital side, Nico mentioned that, and strictly managed our investing in line with our strategy. We are back into a positive cash flow position for the quarter. In the note, and Nico also said that, but I want to repeat that, we made a 100 million Euro payment to enter the diesel fine proceedings in June. So that was a cash out. Looking to the second half of this year, we are slightly adjusting down our free cash flow guidance due to the lowered sales guidance that I mentioned. So the new corridor is around 600 million to 1 billion euros. Let's look at the markets. We talked a lot already about the challenging behavior in the markets. We made revisions in line with our messages today. So starting on the left with the passenger cars and light trucks, legal markets, we adjust to the further weakening of the European market. China continues to grow, but not at the same pace as previously thought, leading to a worldwide adjustment down to minus three to minus 1%. So that's worldwide. On the truck-UE side, we reflect the worsening European and North American markets with the new corridors that you see, particularly Europe. It's a bit dramatic, actually, It is development. On the replacement tire side, we're just down by 100 basis points for North America passenger and light truck volumes, and that's due to uncertainties that we see in the market. Of course, it's clear we will closely monitor the developments. Now, let me sum up, as I indicated before, the key adjustment that we had made to our guidance. Q1 was the necessary step in the right direction, but the market situation has led us to reduce the top line for automotive and tires with the direct follow-through effect then on the group level. For Contitech, we maintain, as I said, however, with the weak industrial market situation, we will likely land at the lower end of this quarter. On the adjusted EBIT side, The market weakness and delayed ramp-ups will continue to impact our product and customer mix at Automotive and, as mentioned, industrial weakness for ContiTech, and therefore we have adjusted the corridor accordingly. You will note here that we did not adjust on the groupler. For Automotive, with this guidance update, we are reflecting the market uncertainties and weaknesses, particularly in Europe. Finally, I also want to I have a last statement here to our spin-off plan for our automotive group sector that we announced two days ago. I would also like to reiterate what Nico has said. This is very exciting. We see positive momentum in the organization, highly strategic and important next step to unlock the full potential of Continental. And I really look forward to sharing next level of details with you as they become available. And you can be sure that I also personally stand fully behind this further evaluation. and in parallel, as we said, we will prepare the implementation already. I want to thank you. Today was a bit more lengthy presentation. For us, it was important to go more into detail in the presentation, but now I think we can open up for questions and go to the Q&A. Thank you.

Thank you very much. I'm taking over then. Dear ladies and gentlemen, if you are dialed in the conference call and have a question for the speakers, please press 9 followed by the star key on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you wish to cancel your question again, please press 9 star a second time. So one moment for the first question, please. The first question comes from Horst Schneider, Bank of America. Over to you.

Yes, good morning. Hope you can hear me. It's from Bank of America. Couple of questions, please. The first one, quite simple. When you talk about positive raw material effect in tires in Q2, could you maybe quantify that? And could you also maybe provide an outlook how you expect the raw material prices or how that's going to impact you in the second half of this year? I think there's going to be a slight drag then, especially with Q2. Question number two, a little bit more complicated. It's an automotive. So I think that the midpoint of your new automotive guidance range applies to something like 6% margin. So maybe you can outline what are the levers basically towards the 6% margin and also if we should keep some downside risks in mind. If I maybe could add a third question then. It's on the outperformance, because I perceive that this is probably the main problem still in your business in automotive, that the outperformance is a little bit lower than you would expect, driven by U.S. and China. What are, again, the drivers that you can return back to the 3% to 5% outperformance track in the next few years? Thank you.

Thanks, Horst. Starting with the first question, I mean, the material effect itself, we don't highlight or quantify. However, you've seen we have made a good progress on the tire side with the margins, and you see clearly that as well, year over year, there have been a positive tailwind. coming from the material side net pricing. That's why we moved as well year over year over quarter over quarter. Moving forward, that is supposed to diminish over the course of the year. Supposed, how this will come remains to be seen. The market right now for raw materials is relatively mixed. In the last months, we've seen already natural rubber has come down a bit on the other side, it goes up. So this is a very mixed bag and we follow We expect our main effects then on the tire side coming from how the markets play out. You've seen OE and truck. We hope that truck is coming back. But clearly, from the volume side standpoint, we have seen a better Q2, which we hope then follows suit in the second half. On the auto, 6% margin or 6% or 7% what you mentioned in order to come in our guidance. Yes, that's right. Those are still 6%. the same levels which we mentioned after the first quarter. Clearly, there is still pricing to come. We referred to the three quarters which we have now. That implies that another quarter still has to come. We target to close this in third quarter, but for sure as mentioned in the second half. We still see operational improvements coming. Olaf referred as well to the premium freight part where we still had the first quarter certain hiccups as well with the launches, which we have, which are implying them and helping on the outperformance part, which was still, we've been 1% better than market in the second quarter, but still we had a drag with the launches, which have been volatile in terms of volumes and partly delayed, which were related then to additional ramp-up costs, which we assume to get down in the second quarter. half and contributing them on the operation side. The other part was the fixed cost I mentioned. One third of the 150, which we planned was basically in the second quarter. This is the other one to come. And the last bucket, which gets us then to the higher margin is the R&D reimbursements, which we typically see in the fourth quarter. And this is the typical list, which you always see in the fourth quarter. If you add this all together, you get to the guidance which we were giving.

Nikos, just a quick follow-up. When we look at the Q2 margin, that includes already all the labor cost inflation that you also expected for the full year. So when I do the forecast for Q3, Q4, I don't have to add additional labor costs versus Q2. Is that correct?

We don't expect additional inflation on the labor cost or increases for the second half versus the first half. That is correct. Okay. Excellent. Thank you.

Thank you very much. Then we are moving on to the next question. Next question comes from Tim Rucosa of Deutsche Bank AG. Please go ahead.

Yeah, thank you very much, gentlemen, and good to talk to you again this week. I'm sure you guys are really busy this week. My questions refer primarily to understand the underlying business of the automotive division. Can you help us understand, Olaf, or maybe you, Nico, I don't know, how much of the improvement that we're seeing, and that is very good to see, is self-help really from the restructuring? And then also when we think about the progression in the second half, I'm sure there's a lot of R&D reimbursements that you're probably expecting in Q4. Will the Q3 margin be in line with Q2 and then Q4 be much stronger? Or how should we think about the cadence here? And is there any sort of quantification on the reimbursement side that you can help us with? From my discussions over the last two days with investors, I think the overriding upside for the case from your stock from here is crystallizing the value of tires to the spinoff. Autos will need to see how the market looks like, how much progress you make in the restructuring and so on and so forth. Nico, is there anything on tires that you believe could have been done in the past that prevented these guys from being even stronger? Can you give us any examples there why that would be better on a standalone basis or will it just continue to be as good as it is? Thank you.

Maybe Nico, I'll start with the first question. Tim, thank you for the question. We see in the second quarter first results of the cost efficiency measures. So of the over 150 million that we target for this year, one-third will realize already major part of that in the second quarter. The headcount reduction from the 7,150 2,800 were already reduced by within the first half of the year. On the RD side, the operative RD costs were more efficient than before. However, the RD costs you see right now, and also the restructuring cost that's included, that's why it looks higher. But the operative costs will get down over the year. and then also the reimbursements that Nico mentioned will come later in the year. So Q3 will be stronger than Q2, and Q4 will be the strongest quarter in this year.

Thanks, Olaf. Fully agreed. Coming to tires, that is a difficult question, Tim. So first of all, let me say, and I let the tire division a word during the time, where an automotive, there have been some interdependencies, let's put it that way. So there could not have been done in terms of expansion or M&A or something else. Nothing was holding back tires in terms of capital spent. But being the more self-allowed, that is as well true for Contitech, being self-steered, having a management team which is fully steered on this, Being, having as well a fully focused part then on the new core is obviously as well for partners, for the outside world, how to go forward, how to be seen in the market, how to steer the strategy is an advantage of the pure play, but the disadvantage of the synergies typically you have in a conglomerate or being a company commonly. So you cannot quantify, but from the strategic and the focus and being open then for partnering going forward, there are advantages of being more focused and being more clear, being a rubber or a tyre player.

Thank you.

You can see, Tim, really this positive momentum and excitement on the tyres colleagues already two days after the announcement. I can imagine. Thank you, guys.

Thank you very much. Also from my side, we are moving on to the next question from Michael Aspinall of Jefferies. Please go ahead.

Yeah, great. Hi, Nico, Alasdair, Max. Michael here from Jefferies. I'll just start one on the pricing in automotive. I think you mentioned it in the prepared remarks, but can you elaborate just on how enduring the pricing agreements are into FY25? And I'm just trying to get a sense of, you know, if we're at a stage where you don't need to get extraordinary pricing next year like we did again this year. That's the first question.

So overall, and we mentioned this, we are targeting, obviously, sustainable pricing moving forward, and we progressed there. We did larger steps. There is still some pricing to be closed, as I mentioned before, and there are still elements which have to be negotiated or renegotiated for good and for bad going in 2025, but looking how we entered in 2024, 2025, we are definitely much better prepared. We have a higher level of clearly sustainable, and depending how the market flows, then as well on the cost side, this is an advantage to start, but there are still parts out which we have to negotiate for the second half, and there will be as well parts out then once we start into 25.

Okay, and then, that's great, thanks. The most parts of the 400 mil cost savings in FY25, you've kind of guaranteed those. How much should we expect to see a net benefit in 25? I'm just thinking, you know, if you delivered 50 in the second quarter, Sounds like that hundred and second half is FY25 and incremental 250 million then, or incremental 400?

No, the total will be 400. So there's only incremental what's the difference between the 400 and the 150. That's for sure. And how much really we are then able to generate for 25, it's still too early, so we will update on that. So we have now the agreement with union agreements. we are following farther as you would. We see how far we can get, and then once we know clearly what is the carryover effect from 24, how much farther to expect, then we update on how much of the 400, or then the difference between the 400 and the 500 will be already net in 25. Too early to tell. We target to have it obviously as early as we can. We gained good traction, and we clearly see now, and that's where The potential spin-off helps as well, so we can align our organization clearly for an automotive pure play in all areas, so we can review each function and only take those on boards which is efficient and effective going forward.

Okay, great. That's awesome. Just the last one for me. Are you still assessing growth options in tires, especially in Asia? I think that was kind of the capital allocation priority, the growth near term, or should we think about that as just kind of on hold until you get through the spin-off process?

No, we still pursue all options which are there. So we're continuously looking for that. It's the same as I told Tim before, nothing holds us back on the tire side. And once the opportunity is there to catch, each sector has the right to be successful. So we clearly look up and the monitoring and what we can do is not unknown.

All right, great. Thank you.

Thank you very much. The next question comes from Harry Martin of Bernstein. Over to you.

Yes. Good morning, everyone. The first question is on the automotive guidance and the revenue range. At the low end, the $19.5 billion effectively assumes the same quarterly sales run rate from Q1 and Q2 carries on. And that seems quite reasonable, actually, given vehicle production is worse in H2 year on year and regional mix and FX continues to be a drag. I find it harder to understand the upside case. So could you explain what in the order book or any other visibility you have that would explain how it would be possible to still get that 20, 21 billion revenue scenario, which would imply that significant increase in content share or outperformance. The second question is a follow up on R&D reimbursement. So we can see in the income statement the 454 million of other income, which was up 80 million year on year. Can you confirm that that primarily relates to R&D reimbursement? And if so, would you expect a similar full-year increase, or is it simply reflecting an earlier phasing of reimbursement this year versus last year? And then the final one is a strategic one. I wondered if you had any comments or thoughts about the Volkswagen Rivian tie-up on EE architecture. Just in the context, I've heard plenty about you about wanting to become a leader in software defined vehicles. This is a high volume OEM going with a new car maker who does central compute and the underlying software in-house rather than using their into one supplier base. Do you have any comments about that impacts your opportunity set in areas like HBCs or central architectures? Thanks very much.

The first one, very quick. Of course, we're looking at, we're expecting further ramp-ups in architectural networking, user experience, but also autonomous mobility. So a lot depends on the market development, but also the ramp-ups. So that's the reason why we have guided and adjusted the sales corridor.

Yeah, just to add to what Olaf said, you could see that UX was in the second quarter 18% organically down. This is supposed to get better going forward. Let's put it that way. There have been many larger ramp-ups there as well on certain platforms which have been postponed, which we see now moving upwards and which we'll list then later on. And customer mix is as well something in the second part. And the pricing which we finished in the first quarter and all I've already mentioned has helped in the second quarter for a certain outperformance and further pricing to come helps obviously as well then on the top line to move further forward. With regard to R&D reimbursement, I mean, look on our net R&D in the fourth quarter and you can see whether it was 22 or 23, you see that net R&D is substantially down whether it's year to date. So we typically had two percentage points even worse, the three percentage point lower R&D net in order in the fourth quarter versus the year-to-date run rate. So this gives a certain orientation how it depends, obviously, how much on the growth side we have a net, but that's where you see that's the leverage roughly which happens in the fourth quarter commonly. Looking for Rivian, again, too early to judge for us, so we've seen what what the move was coming. And we are in discussion with Volkswagen, with Carriot, and so on. You know, we are relatively strongly involved there as well with our HPCs. We have been the ones that's where we, with ICAS, launched our first high-performance compute, and we are strongly there, and we are more than happy to support as well with our platforms going forward, which consequences this has for us and for Volkswagen and this JV, we cannot judge right now. but we are fully in there. We try on the one hand to understand how we can contribute, on the other hand, then see what that means for us and for Volkswagen.

Thanks very much.

Thank you. Dear ladies and gentlemen, if you have a question for the speakers, please type in nine star on your telephone keypad to enter the queue. Thank you. And we are moving on. Oh, this same combination also closes your question. So there was a question there before. So please type in nine star second time. Monica, it was, I guess. Yes. Thank you, Monica Bosio from .

the next question yes good morning and thank you all and thanks for taking my questions i have three questions on the tire business um you guided for a flat plus three percent replacement market in europe should we see the second half moving toward the upper part of this range And if yes, can we expect more positive volumes in the second half for Conti tires? And my second question is on the dealer's inventory situation. Can you give us a flavor on the stock dealer's inventory situation and any color on the winter tire dealer's stocks? Thank you very much.

Yeah, as I mentioned, the last months have been more encouraging for us in particular as well in Europe. So we assume a better volume development for the second half than we have seen it in the first half, in particular in Europe. However, that depends that the market continues on the way like we've seen it. So far for winter, it's obviously too early to judge. So we have already some orders which look okay, but that really depends then Coming later dealer inventory here, we deem as okay. So we don't, we had last year, relatively good winter sellout and the market sold dealer inventory should be fine. Overall, we can say that Europe on the dealer inventory is fine on the US and North American market, we still saw high inflow from imports over time. This weighs on the dealer inventory parts, however, Here the same, we saw at least in the last month, a bit better situation for the market in particular than there for us. And we assume that the second half here will provide as well more tailwind than we've seen it in the first half. I hope that I answered all questions.

Yes, you did. Thank you.

Okay, perfect. You're welcome, Monika.

Thank you very much also from my side. As there are no more questions in the queue, I'm handing the floor back over to the host.

Thank you very much, operator. And thank you very much for joining today's scheduled call and for participating. As always, the Continental IR team is available for you if you have any remaining questions. And with that, we'd like to conclude for today. Thank you and goodbye.

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