Contl Ag S/Adr

Thank you operator and welcome everyone to our Q4 and full year 24 results presentation. Today's call is hosted by our CEO Nikolai Zetzer 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 website as per usual. The annual report of Continental AG will be published on March 18 and before starting I'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 will conduct a Q&A session for sell-side analysts. To provide a chance for all to ask the questions, we would like you to ask to limit yourselves to no more than three questions. This will help us to conclude on time. And with this, let me now hand you over to Nico.

Yeah, welcome from my side. So 2024 was a year characterized by a challenged top line on the one hand. On the other hand, progress on the bottom line, which is an even more important part from where we are coming from. 2.6% down organically in consistently markets on the automotive side, but as well in particular second half on the industry side for Contitech. As I said, this challenging market, we've been able to increase EBIT. So 150, 70 million in absolute terms on top, or 0.7 in return on sales, so from 6.1. So 22, we have been at 5.0, by the way, just to remind. 6.1, now we are at 6.8. So substantially improved, mainly by the measures which we implemented, as I said, because we haven't seen, particularly in automotive and quantitech, any good tailwinds. So, on automotive, we progressed with our pricing. For 2024, negotiations are finalized with a high share of sustainable agreements. I come to this then later on the automotive group from plan. And the self-help measures are fully on track. This cost saving of 400 million for this year already safeguards with more than 200 million last year, which gets us on track. And as I said, I come to those measures then later. Tires ended with, again, solid performance, which we have seen as well in the quarters before. Healthy winter tire business helped. And the PLT replacement markets sell-in has been better than we've seen them before, particularly then at the end, as well on the US side, we could see better PLT markets. And truck tire finally stabilized, yes, on a lower level, but stabilization is seen, first of all, as positive. And Contitech, both markets, down, persistently down, weighing on the performance, so full focus on strict cost disciplines. and measures which we've introduced. So, you see the 7.8% margin in Q4. We had a solid Q4 leading us then into 2025, and we have already announced further measures on the quantity tax side. So, this led as well in only slightly up to a million. You will see them on the next slide as well. This has been burdened by one-offs such as tax efforts for spin-off preparation, so dividends within the group, which led to non-cash effective tax expenses, around 100 million. So if you add those, we would be, as well on the NEOT side, 110 million up versus prior year, so which lets us then on the ROC to 11.4. So given that 10% is our work or our threshold to generate value, we have generated in 24. Again, value fell slim by 1.4%. But we generated this. And looking on the adjusted free cash flow, we have been at the upper or slightly above the guidance, which we had going into Q4 that was driven by a positive improvement, substantial positive improvement on the oil and water side. So as I mentioned before, healthy winter tire season helps in Europe. And this is even stronger given the fact that we had negative impacts by one-offs. So finally, last line, you see that this draws as well our net indebtedness down from about 4 billion to 3.7. So 3 million we've been able to deleverage on the debt side, net debt side. So that translates into our dividend proposal. So you see we foresee a slight uptick to 2.5 euro. Where has this driven from? As said, higher NEAT than the year before, positive free cash flow development for the full year, decrease in net debt. We have achieved on a group level our financial results, annual results, which we are giving. So we have all reasons to let the shareholders as well participate in the positive development, which we've seen in 2024. If you now, from our net income or to our net income at the 100 million non-cash effective expenses, you end at slightly below 40%. So, we are with that within the corridor on the upper end, as we have been in the last years as well. However, given the positive development, we strongly believe that this is the right decision leads as well to a 4% dividend yield overall, which seems to be from our point of view reasonable. So looking now, as I mentioned, into automotive, I mentioned before, it was a year clearly challenged top line. However, we made strong progress on our self-help measures, which are leading as well into 2025 as the price negotiations at number one. So much higher sustainable price agreements than we had last year getting into the first quarter. That makes us go with confidence as well into Q1 2025, much higher confidence than we had last year. And for this year, besides the fact that there are still some pricing to close, we are focusing on redesigned to cost activities in order to really manage our BOM and generate further cost savings in order to improve the bottom line. Operational excellence year-on-year inventory. We had reduced our inventory by 255 million. That supported the free cash flow with 2024. And as well for this year, not at the end, we continue our inventory reduction and we are targeting a turn rate increase by one year over year. Coming to the strong progress, you know our FG&A measures which we have implemented, the greater 200 million savings are effective in 24 already. All agreements are in place. It's just further execution of the rest which is still open order to achieve the 400 million. And as we are already that far, we are investigating further potential given the market environment which I said which is still not providing table in particular for Europe and for North America. On the R&D side, 200 million overall improvement in absolute terms. In those 200 million, it's important that 150 are restructuring expenses which we take out, so to say. In absolute numbers, you just see 50, but the restructuring costs are shown here as one-offs. If you take those out, we are 200 million down, which gets our net R&D rate from 11.8% last year to 11.4. So, as well, relative, so our top line was that much stressed. we improved on our R&D share. Just to give, again, 2022, we have been at 12.4, so one percentage point which we improved. In particular, Q4, we reached an 8.5% net R&D, even though the reimbursements have been lower than the year before strong improvement here. As we have announced, we have the targets to get below 10% in 2027. With the current market environment, we took the decision to reduce our R&D headcounts by additional 3,000 until the end of 2026. It should, on the one hand, increase our efficiency and clearly our cost base. On the other hand, as we mentioned with our R&D initiative, by consolidating R&D hubs, by bringing the project teams together, by optimizing our footprint, which is relatively fragmented still of today, we are fully convinced that this will even increase our effectiveness So stronger R&D output by reduced input in terms of cost. So last but not least, I mentioned the 255 on the inventory reduction hub. But overall, we have achieved as well, operatively, a positive cash flow. And this cash flow on automotive is without tax and interest because we are paying this on a group level. So you see about 350 positive. This is a turnaround, and we expect this Going further, as it is from utmost importance to establish a capital market-ready company for automotive for the spin-off, which is planned for the second half of the year. Looking into Contitech, as well, burdened in this case by the double dips, so auto weak, as we have seen in auto, but as well the industry markets, particularly in the second half, in Q3, have been quite weak, so strong focus on self-help measures here as well. So for our OESL business area, which is heavily exposed to auto, we have successfully worked on pricing parts last year, which we completed as well as self-help measures, which has driven OESL 400 base points into positive territory of profitability, and we have contributed with positive cash flow here. So we continue our measures. We have further initiated measures for variable and for fixed, and for variable in particular, Bill of materials, standardization, harmonization. So, we've given clear targets of the team. Central team is steering this. And we target 50 million euro variable cost reduction program. And this is on top of the programs which we have anyhow by improvement measures implemented. So, this is a major activity which we are driving forward in order to improve and secure the results. On the fixed cost reduction, you could see focus 2025 that we took, again, January measures on the footprint. So, we have announced planned closures, five additional sites in January, in Germany over 580 headcounts. So, those are closures and right-sizing, and as I said, particularly the right-sizing part in particular on the German side. So, last but not least, complexity reduction. OESL Carford is on track. We are progressing, and market sounding takes place as we speak. So, as we said in the first quarter, we are moving forward, and progress is made. With that, I hand over for the detailed results to Olaf.

Thank you, Nico. Yeah, if you look at page seven and we look at the quarterly development, you can see two overarching trends. As Nico said, sales remained under pressure, with only tiles being able to grow organically at 2.6% at the same time, though we managed to increase our profitability in each sector In Q4, both in relative and in absolute terms, that means our strategic focus on value creation pays off. Now, let's go more into details for each sector. Start with automotive on page eight. As I mentioned, we had to face organically declining sales of minus 3.2%, so basically in line with the market, but the picture was very differentiated. business area, as you can see. Architectural networking developed well with 7% organic growth, benefiting from customer mix and slightly positive effects from new product launches in 2024. SAM and UX continue to be burdened from lower-than-expected take rates of our products and vehicles, as well as delayed launches of new platforms. Furthermore, the customer mix in the markets was not in favor of our product portfolio. Particularly in UX, These effects also had a significant impact on profitability, while SEM did a very good job in managing costs. Nevertheless, we were able to improve our adjusted EBIT by €75 million. This was mainly due to cost-saving programs, self-help measures, which overcompensated for the lower volume effects. We realized savings in both SFG&A as well as in R&D. This is particularly worth mentioning since our R&D reimbursements came in slightly below the level of Q4 2023. With the 6.6 margin in Q4, we realized an adjusted EBIT margin of 2.3 for the full year. This is marginally below the low end of our target. We have set ourselves for the full year. But if we look at the sales headwind we faced throughout the year, I think we can actually be proud of the achievements of the automotive organization. If we look at the breakdown of the sales on slide 9, you can see the familiar picture of the previous quarters. While we performed well in Europe, outperforming the market by 4%, we lost compared to the markets both in North America and China. Again, this was attributable to an unfavorable customer mix, phasing out products and low take rates. All this resulted in a worldwide sales performance in line with the sales-weighted market for the quarter. Also, for the full year, we came in just in line with our weighted market. With page 10, order intake, even though a lot of sourcing decisions of our customers have been pushed out into this year, so 2025, we came in at a book-to-bill ratio of one. For the single quarter, this means an order intake of 5.1 billion euro, of which Safety in Motion realized almost half of it. A good portion of that came from our latest generation of brake systems. I think this is a good message. that we're continuing to win orders with our MKC2 brake systems, and our customers trust in our leading technology capabilities for one-box solutions also in Asia. Besides them, also architectural networking contributed well to the order intake, mainly with awards for body and zone controllers, as well as for passive start and entry applications. Now, let's continue and look at tires. Even though the comparison base was quite solid, tires managed to outperform Q4 of 2023, we realized sales of €3.7 billion, which is corresponding to 2.6% organic growth. Within this, both volume and price mix were positive. On the volume side, we benefited from overall good replacement markets, particularly from healthy winter tire seasons in Europe. And also on the European truck side, we saw at least a stabilization in volume. In terms of price mix, Immuted OE volumes combined with good replacement market contributed to a good channel and product mix. And as you know, a good replacement business is also margin accretive, which you can see in the 13.9% adjusted EBIT margin that we realized in Q4 for tires. And this was predominantly driven by European replacement volumes and a good mix effect from ultra-high performance and winter tires growth. But also an APEC is a good sales environment This helps us to overcompensate the negative material costs we face in Q4, as well as the ongoing negative year-over-year effects from labor costs that we see. On the next page, we actually want to provide you some additional information around the status quo of our tire business. If you look at the channel mix, you can see that the replacement markets, which make up around 80% of our sales in 2024, is by far the most important revenue contributor. Region by region, this differs a bit, but the main message stays the same. The EPEC region, which is certainly also attributable to some purchasing incentives, has the largest OE share with 27% of sales, while our main market, Europe, only has 15% OE share. Segment-wise, passenger car tires with more than three-quarters of overall sales clearly make up for the largest portion of our revenues. And if you look at the percentage of premium tires which means Continental branded tires in our portfolio, it also stands at 77%. Out of these, 60% are ultra high performance tires, which is an increase of 300 basis points compared to last year. And if you only look at the share of sales of our passenger car tires excluding van, we even reached a share of 66% in 2024. Now let's look at ContiTech. As you saw at the beginning of the presentation, ContiTech had to deal with declining revenues in Q4. On the back of weekend markets in both industry and automotive, we lost more than 100 million euros of sales, which equals an organic decline of 5%. Particularly, the off-highway and commercial vehicle markets continued to burden our sales volume, whereas we saw some stabilization in the construction and home market, while aftermarket performed well. In that environment, self-help became even more important, and you can see in our results that we were able to execute the necessary measures. As a result of this stronger quarter, we came in at the upper corridor of the profitability guides, which we issued with the Q3 reporting. An important contributor was the ongoing improvement of our original equipment solutions business. OSL came in not only EBIT positive, but also cash flow positive in 2021. And we are also continuing making good progress with the carve-out of that business and starting the M&A process. Now, on page 14, let's look at cash flow. Looking at the operating cash flow, you can clearly identify improved earnings as well as continuous inventory management as some of the key levers. They helped us to compensate one-offs, such as reacquisition of shares in Quantitech AG. We mentioned that before. At the beginning of the year, as well as costs for both restructuring and carve-out measures in automotive and Quantitech. On the positive side, we saw a low to mid triple-digit million-euro cash inflow from changes in working capital, more precisely in receivables, in our contract manufacturing business. On the investing side, we were very disciplined regarding capex, mainly because of the high market uncertainty, delayed product launches, as well as efficiency measures. That wraps up my Q4 commentary. Now let's look at 2025, starting on page 15. Beginning with our expectations for the worldwide light vehicle production, we're currently expecting that the existing trends of last year will continue. We are seeing Europe down 3% to 5%, and North America also down at low single digits. We expect a slightly positive development in China. We're expecting worldwide light vehicle production to be flat overall. There's a continued negative geomix for us. For commercial vehicle production, though, we could see slight increases on the very weak comparison base of 2024. On the replacement, Tire side, we are currently expecting slight growth potential in all major markets leading to an expected zero to 2% growth rate worldwide overall for passenger car tires. That is also quite in line with our expectations for the commercial vehicle replacement markets. If we look at the industrial production, then we expect China to remain the growth driver of the industry where Europe and North America could be flat or slightly up. Let's look at our 2025 guidance in this challenging environment. For the group overall, we're expecting revenues of around 38 billion to 41 billion euro at an adjusted EBIT margin of 6.5 to 7.5 and an adjusted free cash flow of 800 million to 1.2 billion euro. This includes capex of around 6% of sales. Looking at the sectors, we're currently expecting the automotive sales to remain under pressure and to come in between 18 to 20 billion euro at an adjusted EBIT margin of 2.5 to 4%. That means we will see further improvements on the back of our self-tax measures despite the very challenging sales dynamics. For tires, we're expecting to come in between 13.5 and 14.5 billion euro sales at an adjusted EBIT margin of 13.3 to 14.3%, giving we are facing a lot of uncertainties in 2025. combined with a headwind on the raw materials. And for ContiTech, we're currently anticipating sales between 6.3 and 6.8 billion euro, with an adjusted EBIT margin ranging between 6 and 7%. Contact manufacturing, we are phasing out, and we will continue, so it will continue to decline in 2025. Sales will presumably be between 100 and 200 million euro at a zero margin as planned. To make the bridge from adjusted EBIT to net income, we're expecting PPA amortization of around minus 100 million euros as in the prior year, as well as special effects of around minus 700 million euros. They will mainly be driven by restructuring on the one hand and spin-off effects both roughly in the same magnitude. The financial result should once more come in at around minus 150 million euros despite the lower level of net debt. Since we will have to pay slightly higher interest in the current environment, the tax rate finally is expected to normalize again and will be around 27%. Please keep in mind that both our market outlook and our guidance do not include any potential significant changes to global tariffs. And then maybe final statement from my side before I head back to Max. We are on track with the spinoff preparations. We have achieved so far all milestones that we have set ourselves, and the plan is to go to the AGM in April, have then capital market days, mid of the year, and then execute the spin the second half of this year, everything on track as planned. And with that, I hand back to Max.

Yeah, and I would like to hand the rest of the time to you guys. So, operator, could you please open the line for Q&A?

Thank you very much. So the first question comes from Michael Espinel of Jefferies. Over to you.

Thanks, Keeley, Nicola, Olaf and Max. Just two from me. Sorry. Just from a tariff perspective, obviously you mentioned that your guidance is in the absence of tariffs. Can you give us some kind of idea of what the impact might be given the tariff announcement overnight?

Overall, still to be quantified. Looking on our footprint, we have invested in two tire plants in the last 10 years in the U.S., so we have a high localization. We have a smaller plant in Mexico in SAP, which is serving the local market, but there are as well some goods coming to U.S. So now we are optimizing supply chains, talk to customers how to manage the situation, and once we know more, then we will inform on that. Our overall we can say we are relatively local and not overexposed there.

Okay, and a follow-up on tariffs then. From a logistical perspective, from what you see on kind of the border in Mexico and in your internal processes, are tariffs able to be implemented from today? Like, will the people at the borders have the capability to take paperwork and payment and everything for tariffs?

I can only say we are ready. How much that will influence then the procedure at the terrorist border, we are not able to judge, but We assume, as this is not coming completely as a surprise, that there are enough procedures there in order to handle that. We are ready for this. So we have to assume that this works as well.

Okay, great. And then last one for me. I think you've made some comments before that margin should structurally grow in tires. Your 25 guidance at the midpoint is for margins to be roughly flat on 24. Is there something holding back margins in tires this year? Or put another way, what do we need to see to start moving towards those midterm targets?

That's a good question. So we could already see in the second half, and in particular the fourth quarter, then raw mass and certain cost input parts have increased. This is what we have to balance with volume, price mix, and our performances for this year, depending how the markets will react. So it's still relatively early for the year. We set the guidance as it is, and we develop from here. We are hopeful so far Q1 started okay. That's what we saw. We know as well that March this year, not again, Eastern is in March now. It's different than last year, so we should have a solid march, which has started right now, so that we assume that we have a better Q1 than last year. Last year was Q1 the weakest quarter. We assume now that we have a better quarter than last year, and then we go from there. And if we have opportunity to be better, please trust us. We are fighting for this, and we will pursue doing that. Okay, great.

Thanks for your time, and sorry for the disruptions.

Thank you very much. The next question comes from Christoph Lascavi of Deutsche Bank. Over to you.

Good afternoon. Thank you for taking my questions as well. The first one actually sticking with tires and the top line guide. At midpoint, it seems like very modest growth is affected. If I understood it correctly, you expect volumes to be positive, price mix to be positive, and just at current spot, FX should be a positive as well. Could you just provide a bit more detail around how you would see those buckets trending in 25 overall? And then the second question on the auto free cash flow, it's good to see that it was positive, quite easily positive in 24. Could you give us any indication on 25 excluding all the one time cash outs that you would face? Is the run rate set to continue, or are there any deviations from that? Thank you.

Yeah, for the first one on the top line, you get a little bit the similar answer as I just mentioned before. You're right. We assume positive volume development this year, not on the automotive OE market. Automotive OE market, we assume, as S&P in particular for our sales weight going down, track stabilized, as I mentioned, but an improvement on the replacement market, so on one part of our business, which would translate then for the whole sector in a certain volume, and then as well in a positive mix, as most of the mix comes from that part. How much remains still to be seen? As I said, we are positive for Q1 being better than last year, and we are positive as well that we achieved those volumes as well as price mix increases. How much that remains to be seen, that's why we have a guidance as well with the upper corridor if we are better, but too early to judge.

Maybe for the second question, for us, it was important that automotive improves its margin in 2025, also achieves a positive cash flow in 2024. And both the next step will be further margin improvement in 2025. And also here, we are starting better in Q1. And we will, let's say, achieve We hope to achieve positive territory already in Q1. And for the cash flow, it will further improve in 2025. But we cannot give more details at this stage.

Thank you. And just one last one, as it wasn't really discussed too much on the breaking issues with BMW. It wasn't really part of the comments, so I assume everything remains as you stated in previous quarters as well, no changes to the provisions or how you assess the situation.

No changes to the provisions. Recall is going on. Software update is functioning. And the provision that we have built in the middle two-digit million euro area is still the right provision. We have built for the full year 2024.

Thank you.

And everything else we discuss with our customer.

Thank you very much. Next question is from Jose Assomendi of JP Morgan. Please.

Thank you very much. A few questions, please. Can you comment a bit on the margin evolution with respect for the automotive division? Q1, Q2 looks like a like a challenging start of the year when it comes to production, but you also have the cost savings that you're booking and the efficiency plans you're booking on a year-on-year basis. If you could just comment whether the first quarter should be better than last year or not, and a little bit about the efficiency measures that you're expecting. The second question regards also on the auto division. Nico, if you can comment maybe on some of the business wins you had within Safety in Motion, ANN or autonomous mobility, anything that you would, you know, stand out, any big, large business wins in the second half of 24. And then question three will be on Contitech. We'd love to hear a bit more what's holding back the margin and what can you do structurally to improve the profitability of the division? Thank you.

So for Q1, Q2 auto, Olaf has already referred. I mean, honestly, we had a relatively weak first quarter start into last year. So, and as Olaf said, we are targeting to get into positive territory in the first quarter. How much and far remains to be seen. As I said, March is still the highest auto month in front of us so far. We are within what we could see for the start. You're right that light vehicle production for us will be slow in the first quarter. In particular, the sales weighted for where we are. We have, on the one hand, the self-help measures, which you mentioned. They're coming then as they increase daily over last year. They help us as well in the year-over-year comparison. And don't forget the pricing. So, we have a very high level of sustainable pricing. We had our weakness last year getting into the year. What means weakness? We have later on caught up on that part, but in the first quarter, we had many of those agreements on purpose, not signed. So, that helps the improvement. On the second quarter, Some of that is already mitigated. We had already some pricing last year, and the fixed cost measures which we had were then ramping as well up, so the incremental on the second quarter should be much, much lower if there are any, but too early to judge. First quarter, strong improvement versus last year with our target to be on the positive territory side. On the order intake, we can say in the fourth quarter, Olaf has already mentioned we've been extremely pleased with the safety and motion order intake, and in particular with MKC2, which is the braking system which we are supplying as well to BMW. As you know, we have from the $2.4 billion, this brake system has been $800 million order intake in one quarter, which is very, very solid and strong, and in particular as well from Asian players. That gives us the confirmation order intake is on track. Customers appreciate our brake system. performance and our strongest technology, leading technology, which we have in there. That's, to me, the main highlight. You've seen we've been roughly on one, and the rest has been more typical business, like airbag ACUs, where we have a relatively strong positioning in which helped us. And we see as well on the zone controller part, So more high-performance compute architecture, which is getting in where we are going more from the decentralized part as well to the central part, be it high-performance compute, or then the distribution architecture like a zone controller. Those have been the highlights here. On the Contitech, we have, I would say, three parts in here. The one part is OESL. We have improved by 400 bps last year, but still it's a low single-digit return on sales number, which weighs on the overall result, which we have on the Contitex side. If we look for the pure industry business, we are still north of a double digit and plan as well to continue this. So the markets are clearly under pressure. And our surface solution part, which has as well half of its business is automotive, has as well weak markets and the home goods market, which is somehow challenged, which is somewhere in the middle between those two. What are we doing? On the one hand, I mentioned variable cost, which has all the business areas. So standardization, particularly on the industry side, because this is clearly a high complexity where we see lots of opportunities to get better fixed cost reductions, which we are doing. And as mentioned, five planned closures or ride sizing we have announced in January. So we will optimize the footprint optimization, which we have, and generate savings via that. So mainly for this year, again, particularly for the first half self-help, which we continue as well for the second half. For the second half, we at least hope for a certain industry recovery. If it doesn't come, then we continue our self-help measures and prepare ourselves for recovery then coming later.

There you go.

Perfect. Thank you very much. The next question is from Horst Schneider, Bank of America. Please go ahead.

Yes, good morning. Hope you can hear me. It's Horst here. Perfect. The first question that I have relates to Contitech. So since I think your guidance is noted including the disposal, so could you maybe say how the guidance would look like if you were now disposing this Contitech automotive business in the court of H1 In that context, maybe you can provide an update where you stand now on the disposal. That's question number one. Question number two is on automotive again. Because your guidance, the lower end implies something like 10% revenue decline. And I wonder basically what needs to come true that really the revenues here decline by 10% and more longer term then. And that is also for the spinoff. It seems to me that the 6% margin target that you have put out for 2025-2026 for automotive is no longer valid because you are missing kind of 2 to 4 billion euros of revenues. So with that in mind, I do not think you want to revise the guidance now in this call. But nevertheless, with that in mind, what is the necessary cash equipment for automotive in the spin-off? Thank you.

So, with Quantitech, you are right, OESL is part of the guidance. However, as mentioned, we pursue and started the sales process in the first quarter. So, we are in touch with potential buyers and partners and are now starting this process as we speak. More to come then after the first rounds and after we see that we are moving forward. On how would Quantitech look like without OESL, as we have announced, It's roughly 2 billion euro sales, the OSL business area, and a low single-digit return on sales. So you can do the math, and then you can somehow calculate what Quantitech would mean with our DOL side.

Nico, low single-digit return on sales, I'm guessing it means something like 2%. Is that quite ballpark?

2% is a low single-digit return. Yes. Okay. Thank you. I tried. Okay. Go on. Thank you. Excellent. So the second part, yes, we chose on purpose a larger bandwidth on our sales because currently we see that so many moving parts on our customer base. We see our markets. We heard As well today, tariffs are coming in even though they are not fully included in our guidance yet. However, we anticipate turmoil as well from 2025. In this foggy situation, we rather guide on a larger base and we prepare ourselves. That is as well internally for us the signal. If the market is not in our favor and our tailwind, we have to take actions and we have to manage our costs very, very disciplined. That is the basic message which we want to send externally, but which we will do as well internally. So if you see as well our margin guidance, take into account $18 billion as to make the math, this is a substantial deduction of sales, which is then having effect as well on the bottom line, which by all means, by the measures which we are doing, we try to prevent. How we are going forward, and if we got to mid and long term, yes, we had in our capital market say in December 2023, different market situation than we have today on the total base and absolute base as well on customer mix and as well on product mix. Product mix has changed again looking for certain types which are vehicles are built in Europe which might change again and in North America which postponed electrification and so on. So for the next short and mid-term guidance, we refer to our capital market stay mid of the year. That's where we are looking into the mid and long-term plan. We are looking as well on our margin guidances and to do this, so to say, from scratch and from the current situation and take everything into account, which we saw in the last two years. For the time being, as said, we are preparing for both, for upswing as well as downswing and clearly full focus still on our cost situation in order to manage as well our capital structure going then into the spin. Something to add for the capital structure?

Yes, absolutely, Nico. So we will provide Automotive with a very solid balance sheet, which means they will have a net cash position, excluding pension and leasing liabilities. The exact amount we will announce in due course. And Continental, after the spin, will keep investment grade.

Small follow-up maybe for Nico. Nico, tomorrow we have got this announcement of the EOC automotive action plan. I'm not sure if the European Union involved you in this discussion, but from a supplier perspective, what can the European Union do in your favor within this action plan?

So we have been, as all the suppliers, automotive suppliers as well, involved. However, as you know, this is very much currently, and if it comes to the fleet, CO2 measurements, we are powertrain agnostic measurements. So we have not been at the forefront. However, everything in this action plan which improves the competitiveness of Europe and our OEMs, which we have here, you know that we are somehow overexposed to Europe and as well to the European OEMs. So everything which supports competitiveness here, which supports our industry, is, of course, as well as something positive for us.

All right. Let's see what they do. Thank you so much.

Thank you.

Exactly.

We have to see the written rules, what is coming up, and then we judge, and then we come further. Absolutely right.

All right. Thank you.

Thank you very much also from my side, dear ladies and gentlemen. The next question is from Thomas Besson of Kepler Chevrolet. Over to you, Thomas.

Thank you very much. I would like to start with a question on cash flow, please. Can you share with us your assumptions for the interest restructuring and tax outflows for 2025 and compare that with 2024 and explain why in Q4 interest and taxes looked higher than in previous quarters? That's the first question. The second, could you talk about the expected seasonality of group margins? I know the group is probably going to change over the course of the year, but if it stays as it is, which I think is the way you've guided for the year, would you expect a stronger second half, which is what I would assume, or a stronger first half? And lastly... Is there any more granularity you would like to share with us on the timeline or expected capital market events to come? Or if not, when should we expect to get that granularity, please? Thank you.

Maybe I start with the second one, and then you do the... Oh, you want to start with the cash part, and then I come with the... Expected seasonality. So, yes, based on our reimbursement business, which is still more heavy in the fourth quarter, and as you've seen in the years before, we expect a stronger second half than the first half. That holds us right through what I said for our markets, in particular the industry markets, which we are expecting the second half to be more favorable than in the first half. So as we have seen it last year, not that strong in the seasonality because you heard us saying that we assume automotive in the first quarter to be strongly better than last year and reaching positive territory. We said as well tires, which had a weak first quarter last year, were based on Eastern March and April, as you remember. a stronger first quarter than last year. That helps as well the group to be stronger in the first quarter than last year and have less pronounced. However, we assume, again, a staggered increased profitability during the course of the year.

To the first question, if you look at the special effects, we have two main effects 2025 that is in the same magnitude for one part is restructuring, the other is one-offs for the spin-off. execution. If you look at the financial results, we have to consider that in the year 2023, we had some special impact driven by the CNY, which we didn't see in 2024. So it will be on the same level in 2025, roughly as 2024. The tax rate in 2024 is impacted by what we mentioned at the beginning of the presentation when we explained the NIAT some non-cash relevant taxes in preparation of the spinoff. That's why the tax rate is going up and then normalizing again at 27% in 2025.

Okay, to the last point, Capital Markets Day. So, the announcement of the timeline is coming soon, so buckle up. Reserve your calendar for the whole summer. No, seriously, it will come up in the coming weeks, upcoming weeks, and Max will inform investor relations departments once the dates are fixed and they will invite you.

And then you will also, at the capital market days, give you short and midterm targets for both sides, Continental and Oto.

Thank you.

Thank you very much. Moving over to the next question. Next question is from Harry Martin of Bernstein. Please go ahead.

Hi, everyone. Thanks for taking my questions. The first one, just coming back to the tire margins, the question really is why were the margins not up more than 20 basis points in 2024 versus 2023? Volumes increased. You went from 76% to 81% replacement mix, increased the premium high rim diameter share. I think you've mentioned some of this is cost related. So how much is the gap between pricing and raw material today offsetting some of that positive mix? And can you increase prices to recover some of that in 2025? Or is it some of the production sites in Europe that are holding margins back? The second question on the working capital improvement, the management of working capital this year has been very positive. Can you comment on how sustainable some of those improvements are into 2025 and whether this is more in the automotive side or in the tire business? And then the final question, I'm interested in the status of the automotive spinoff. You've mentioned, again, monitoring capital market readiness. Clearly tariffs, production cuts don't make things easier. So can you give a sense of how the debates have been evolving in the boardroom to the new market reality when it comes to the spin-off? And are there any key metrics at all that you're monitoring that would make you delay or reconsider the automotive spin-off? Thank you.

I'll start with the last one. As we indicated, we had a We had a detailed analysis we needed to conclude by end of 2024 checkmark. For us, it was important to achieve, let's say, margin improvement automotive, positive free cash flow automotive checkmark, headcount reduction S plan. It was also important to achieve that. Now we are on track in the preparations. We have a detailed separation plan, very detailed capital market readiness plan, we on track to execute it to fulfill it so all our milestones we are we are living up to it um next is supervisory board approval in march next then afterwards the agm so so we are on track uh and we will execute to spin uh this year in the second half so the sustainability working capital improvements in 2025 i guess

This refers in particular to automotive. As we have mentioned, we had a substantial working capital improvement. Just to look into history, we had a huge working capital buildup during the Semicon crisis. So 2020-21, we piled up not just Semicons, but the whole bill of materials. So we had relatively large capital increase during that timeframe. means we are still not on a level where we cannot further improve. That's what we are planning for 2025. So on number one, we see it's sustainable. Number two, we are targeting further improvements as well in terms. And as you've seen with our guidance, it's not based on strong top-line growth. This means as well in absolute terms that we are planning to reduce further working capital on the automotive side 2025. On the tire side, it always remains how the business runs. And Quantitech, we will be as well restrictive, but their working capital part is less of a point. So tire margins, why not more up? As you mentioned, the negatives coming and as well going forward is raw material increases. So we saw them during the course of the year turning around raw materials. They have been a tailwind at the beginning and then coming later, they have been a headwind. So it was a negative mid-double-digit million euro impact in the P&L and Q4. So that weight on those results, number one. Number two, not everything which you see in price mix, which we are showing is going one-to-one to the bottom line. Obviously, price is going down, but looking on the mix part, this is not one-to-one getting in, and we have certain markets, particularly as well on the U.S. side on the first part, which is typically rich, heavy, and strong, which have not been that strong on 24 and 23. So going forward in 25, as mentioned, raw materials, from right now see again an upswing going further. How this plays out in 25 in the whole business environment and industry environment, we don't know. And that is the same to the increase of pricing. So we will make our pricing decisions based on our volume and profit strategy during the course of 25. And we will try via that as well to optimize our results. Thank you very much.

Thank you. The next question is from Monica Bosio of Intesa San Paolo. Please, Monica, go ahead.

Yes, good morning. Good morning, and thanks for taking my question. The first one is on the automotive business and the quality performance towards the market. The car production at the global level will be likely at a minus one with a negative trend for Europe, especially in the first part of the year. Conti is somewhat overexposed to Europe, so my question is, should we expect the company will manage to perform in line with the market or likely we will see an underperformance by year-end in the automotive division. That's my first question. The second one is a follow-up on the tar business. You said that in the last quarter of 2024, the roadmap impact was double-digit million euro negative. Can you just give us a rough indication for 2025? And you also said that... maybe there will be some price actions. Would you see as reasonable by year-end an overall price mix at 1.5%, 1.7% for the entire business? And the very last question is on the free cash flow by year-end. As a special effect, you indicated the 700 million euro, but I'm just wondering what is the net effect cash impact on the pre-cash flow from restructuring in 2025? Thank you very much.

So, in regard to the first one, you're right. If we are looking on our sales weighted, we see in particular already in the first quarter, as year over year, Europe is down, that the light vehicles production is weighted negative. It gets then better during the course of the year, but for the full year, it's more in the range of minus 2% than or minus one, which we might see somewhere else. So how do we see our business? We want to be at least in line with the market. So we have materialized this last year by better European performance. We've been, as Olaf has explained, short in North America as well as in China. However, on the globe, we assume to be within the market, and that's what we want to achieve now at least as a minimum. Looking for tires, mid-double-digit million material last year, and number would be in a range for sure of a three-million-digit number for this year. As of now, how much, again, remains to be seen. Very volatile environment, and with the industry performance which might react, we might see as well our raw material feedstocks reacting to this. Your question is 1.5% price makes a reasonable number. If you're looking for the achievements which we had over the last years, 1.5 is within the ballpark. So in particular, once the automotive OE business is still under pressure for this year and we want to grow in replacement, which has a mixed effect itself, truck remains to be seen if it's stabilized. Stable truck typically is as well. A certain mixed effect, but overall that is in the ballpark. which we have achieved as well as last year. So that is kind of reasonable.

And to your last question, so if you look at, compare free cash flow to 2024, you see slightly higher cash outflow from one-offs. Restructuring is probably approximately in line with 2024.

Okay. Thank you. Thank you very much.

Thank you very much, also from my side. The next question is from Sanjay Bhagwani of Citi.

Hi, thank you very much for taking my question also. Three questions. The first one is follow up to Monica's question on the organic growth outperformance, or I think you did clarify that you want to perform at least in line with the market. So on that regard, are you able to provide some color specific to organic safety in motion and user experience what drove the organic growth under performance in quarter four and if you're already seeing that recovering in first half and then overall if you could touch on how do you see the organic growth versus the market in first half versus second half of the year that is my first question and I'll just follow up with the next one after this if that is okay

So we don't guide specifically on the business area performance, Sanjay. So the explanations for SAMUX, Olaf has given already. He said that we want to perform within the sales-weighted markets that holds us by true for the individual parts. So it's very much depending on customer as well as on regional mix, how that develops.

Thank you. So second question is on semiconductor and electronic cost tailwinds. Are you able to remind us what proportion of your automotive sales is the electronic cost? And if you are already seeing this as a tailwind from H1 onwards or any color from the ground on how the electronic costs are now developing?

Absolutely. still too early to guide for 2025. Overall, we see general cost opportunities on that side. Then it very specifically depends on the portfolio and which part on semis we are purchasing. And during the course of the year, we will shed more light on that part. But in general, the trend is there and we are working obviously as well in order to provide those opportunities and stabilize via that our margins. So from the 18 billion production purchasing volume at this last year, I assume. 40%. Yeah, around 40% is on the electronic bill, so somehow bound to Semicon. So it's a relatively large part, and we are a relatively large Semicon. So that depends. The difficulty is still is the complexity we have in particular on the break, but as well in AVEC, ACU is very, very specific ASICs. So it does not help to look simply on the general bread and butter and assume that we are capable to get those. So it is really the devil is in the detail. And that's why we inform them once we speak. But in general, there is a certain cost trend which we want to profit from and which we need in order to expand our margins.

Thank you. So related to that, should the OEMs So it's because of the mechanics of the pricing pass-through, the OEMs will have to initiate the renegotiation, right? This is not like automatically maybe let's say whatever the cost decline comes in, 80% gets passed through the OEMs. Is that correct understanding? Yes.

That is the correct understanding. And with many OEMs, as I mentioned, sustainability into this year. With many, we have as well agreed on a more long-term view and longer year view. So, this is the contractual situation. And if anything has to be re-initiated, it has to be initiated, correct? There's no automatic part. There's no automatic. Correct. Yes.

Thank you. And the last one is on the free cash flow guidance. Sorry if I missed anything. So you are guiding for a free cash flow at midpoint at somewhere around stable free cash flow, but the profits are slightly higher at midpoint. And also, can you please remind us what was the total one-offs for the Contitech minority stake purchase, which was in 24 and not repeating in 25? So just trying to reconcile the cash flow if the underlying profitability is improving significantly And if some of the one-offs from last year are not repeating, then why is the cash flow guidance more stable and not improving? Just overall, is there any other headwinds or special items which we should be aware of?

Yes, we had in 2024, we had two main special topics. One was the 500 million euro for acquisition of Quantitech shares. So that's minus 500. And we had a positive effect from contract manufacturing That was plus 350. So these were basically two major effects. They will not repeat in 2025. 2025 free cash flow, we will see an improved profitability. On the one hand, on the other hand, you will have what I just explained, let's say restructuring one-offs in the same magnitude as 2024, but higher one-offs related to the spinoff.

Thank you. That's very helpful.

Thank you very much also from my side. Since there are no more questions in the queue, with that, I would like to close the Q&A session and hand the floor back over to the host.

Yeah. Thank you, operator. We almost made it on time. Thank you, everyone, for participating in today's call. As always, we, the Conti-IR team, are very happy to be available for you if you have any remaining questions. And with that, we would like to conclude for today's call. Thank you. Goodbye. Thank you. Bye-bye. Thank you.