Contl Ag S/Adr

This conference will be recorded. Good afternoon, ladies and gentlemen, and welcome to the Continental AG Analyst and Investor Call H1 Results 2025. 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 IR.

Thank you very much, and welcome everyone to our Q2 2025 results presentation. I'm glad that we have a strong C-level presence here today again. Our CEO, Nikolai Setsa, our CFO, Olaf Schick, as well as Philipp von Hirschheit, the future Aumovio CEO. And for the Q&A, Roland Welzbacher will join us as well. Both the press release and presentation of today's call are available for download on our investor relations website. And as always, I'd like to remind everyone that this conference call is for investors and analysts only. If you do not belong to either of these groups, please kindly disconnect now. Following the presentation, we will conduct a Q&A session for sell-side 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 each. This will help us to conclude our call on time. And before we start, Let me remind you of some accounting technicalities that are also occurring in Q2. Due to the spin-off in September, we applied for IFRS 5 accounting for continued and discontinued operations. As a result, among others, depreciation and amortization for automotive and contract manufacturing has been stopped. This has a significant positive effect on EBIT and net income. The EBIT effect amounts to 235 million euro. equal to 240 base points in automotive when looking at the Q2 adjusted EBIT. In the IR presentation, however, we are working with a like-for-like comparison, so still considering depreciation to reflect the operational performance of automotive. And of course, also KPIs like net income would have looked different if depreciation was not stopped. To make it easier for you to consider the subject of continued and discontinued operations in your models, we have provided a slide with pro forma comparative figures for all quarters of the previous year or continued operations in the appendix to the presentation. You can find it on page 26. And with this upfront, let me now finally hand over to you, Nico.

Yeah, thank you, Max. Welcome from my side. So we are looking back definitely to a very, very busy second quarter. On the one hand, the market and the operational effects which have impacted us. On the other hand, we have reported on the Quantitech independence, which we are striving for the spin-off approval at the AGM. We have followed suit on the OSL transaction. And finally, in June 24th, we had a capital markets day with lots of information. And I want to use the opportunity to thank everybody. We had a high personal participation as well many joining in a hybrid mode. We had many roadshows and conferences and clearly that shows how important the personal exchanges. We appreciate this and we appreciate as well that you took the time in order to dive deep into our transformational story and from the feedback which we got, it's now much, much better understood going forward. And with the second quarter, we want to add another piece of the puzzle going forward. Headline sums it pretty well up, we think. It's a resilient performance, which we have shown in a very highly volatile environment. Barely I've seen such a quarter with so many events on the macroeconomic base, as well as it comes to currency and operational stats. Good news is we are ready to spin off our mobile. So you see on the right side, for all other transformation projects, we only have a heads up that we are fully on track, where there is no driving our transformation forward. And in particular, for our mobile listing in Frankfurt, we have now a date, a targeted date, which we can communicate September 18th, which we are now working on. Looking on the organic sales, you could see on the left side that our sales were dropping from 10 billion to 9.6. So heavy weight by the effects of north of 3%, 3.4%. Mainly the US dollar, but you barely find any currency in the world which is not depreciating versus the Euro value. Unfortunately, as our base in particular on the tire side is mainly in Uran, we have a high cost base in Euro. So organically with minus 0.4%, we're in very weak markets. We are somehow in the market, obviously being there rather flat. Automotive, the highlight, significantly improved to the upper range of the guidance with 4%. And the profitability was driven by the commercials. and operational efforts. So Philip will give you more details later on, but in particular, you could see that the significant fixed cost reductions, which he and his team introduced already last year and the year before, they are really paying off now. And they contribute to a very reduced margin seasonality compared, not only prior, but the year before, so in the first half, With 2.8%, we are within the guidance range, 2.5 to 4, which we have not been in the years before, which is clearly a very positive, as well a positive sign and proof point for the spin to happen September 18th. Tires strongly hit by the FX, as well as strong FX headwind, same as we have on group, more than 3%, with a substantial drop through, which is the one half, which weighs on the profitability of the other half. We've communicated before other tariffs, with two months now with limited compensatory effect from Q3 onwards that will improve when we are going forward. Important to mention that operationally, we have been okay. So we had a strong price mix north of 3%. Volume was given the market as well, okayish. We could with our price because we're compensated for the raw mass headwind, but not for the FX and tariffs, which we are coming in. So as you could see here, not effective yet, but the tariffs from Europe will drop from 25% for auto and pass car tires are included in the auto category, not the truck and specialty, but we are mainly pass on our tire side. They will drop to 15%, which is good news. So this is still 15%, but it will reduce presumably our headwind in the second half by a mid double digit million amount versus what we have assumed before or still at the capital market state, what we have shown. The markets on tires, they have been muted in particular Europe, APEC, North America, or CAGE. And for all markets, it was true that we have been at least within the markets, at least if you look as well for local manufacturers. In Europe and North America and APEC, we have even slightly outperformed the market, which is a good sign going forward. Quantitech continued weak volumes on order as well as industry. However, we have seen at least, we say only, but at least gradual signs. Why only? Because we still hoped for more. Quantitech as well organically going backwards by 1.4%. Unfortunately, and Hadwin, Taris and FX, however, Philip and the team, the other Philip, will continue working strongly on fixed cost management and we could mitigate most of the impact. So 4.8% slightly below the lower point of our guidance, the lower corridor. which translates into we have improved versus first quarter, 5.4 to 5.8, and the second half, we have to further improve going forward. For the group, you see in the white box, the like for like, without EFS5, we end up with 595 million, 6.2%. And if you add the sectors, you see that we have substantial group effects, holding effects in the second quarter, which rates on the results on the group level, which have been for the separation and spin-off activities, a high amount of one-offs which we have absorbed here in the second quarter. And there might come as well then for the second half, a certain separation, one of which we will see another part, which will happen then in automotive, which will then be spun off in September, on September 18th. So net income, you see from 305 to 506, also mentioned by Max, this is a difficult to be compared number because it's not only depreciation, we have as well hypothetical tax effects. To take an out, if you do this, if you assume a flat tax rate, the effect should be an amount of 180 million. So if you deduct this, 325 is still higher than we had last year. So we move forward as well on the net income and you could see as well, bottom down on the net indebtedness, we improved as well by about 650 million. Adjusted free cash flow, we've been down in the second quarter, however, particular for last year, you have to take into account that we had in the second quarter a high working capital effect or one-off effect on contract manufacturing, which is phasing out this year. And last year, we had those very positive effects, which not come again. They have been in an amount of low to mid triple-digit millions, so very significantly getting in. If you make the math for the first half, we are 550 million ahead of prior year, which is, given the market and given where we are, a strong sign. So we are in line with the seasonal pattern on the first as well as on the second quarter, if you adjust for those effects which we had. And, of course, we had in the second quarter now, as we had in the P&L, we had restructuring effects on one end. On the other end, the spin-off related assets, which I already mentioned, which are guiding us. So, looking for equity ratio, Olaf will explain more. There are shorter technical impacts, which dilutes this, which will bounce back after spin. He will mention this more, and the leverage ratio, On top, you see we further improved, I mean, net investment is going down, EBITDA and positive development that helps. And as mentioned on the capital markets, we will further in the future use this KPI instead of equity ratio going forward, because we clearly believe that better reflects our ability to operationally finance our debt going forward. With that, let's move on to the next chart. So there you see the second quarter Figures mentioned group sales minus 0.4. So basically flatish, tie us up based on the strong price mix, 1.4%. Automotive roughly within the market, slightly a little bit lower than the sales weighted market for us with minus 1.2 and Quantitech with minus 1.4. Again, more than 80 million, which we could not on an operating leverage fully mitigate, but with the 5.8% you see on the right side, Sequential improvement, as I said, and if you look for the first half last year and this year, we are, despite being substantially down in sales, just half a percentage point lower, which, as I said, we have to recover and now further improve in the second half, with as well industry warrants come back, but further working on our cost measures. Tyres, S12.0, here clearly I've mentioned FX and Paris, we're hitting without the mitigation measures. As well here, if you do the first half comparison, we are as well here only because the first quarter, second quarter was flip flop last year. First quarter was weak, this year was strong on tires. It's as well about half a percentage point down, given the effects which we have in the second quarter, which is clearly the troughs looking for ethics and tariffs. This is a good result, resilient result, as we mentioned before. And clearly with that, I hand then over for a last time to Philipp von Hirschheit last time under the Conti flag, I have to say. And as the CEO, I'll move you next time, you will wear another jersey with really a strong second quarter. Philipp, give us the details, please.

Yeah, thank you very much, Nicole. And I'm also happy to be here and a warm welcome from my side. I'm glad to be on the call to give you some more details on what we have been working on and achieving in the second quarter. on our way to independency on September 18th, as Nico was mentioning. You can see that we had quite some challenges in the second quarter. Sales were down with clearly negative FX effects, although only a limited drop through on profitability as the light vehicle production was flat on a geo-weighted basis. However, the sustainable price agreements which we secured in 2024 have provided a significant stronger base in the first quarters of 2025 that helped us. And the one-off pricing elements we achieved last year where we had a significant lower start to our commercial efforts and strong catch-up effects in quarters two to four creating then the tougher comparisons which are going to weigh on this year's sales performance metrics in Q2. And that is specifically the case in Europe. I'm going to come to that in one of my further slides where we are talking about the regional sales performance. But briefly talking about the performance of the four business areas. In the second quarter, and I have explained that already in the first quarter as well, in the first quarter call as well as during the capital markets day, we are heavily working on portfolio measures, which led to the fact that we phased out a bit to print businesses, which you can see here in the architecture network solutions results, where we have reduction in sales compared to last year. primarily due to this phase out of some specific project. The core business is still developing quite well and quite nicely and in line with all the other business areas. At user experience, we do see now improvements as we already indicated in the capital market day. We have on the one hand side price effects as well as some new launches in our new plant in Novi Sad in Serbia, which had to improve our sales. And which also help then in terms of operating leverage. As you can see, safety in motion and autonomous mobility more or less stable. But more important for us, as we always mention, is profitability, where we made, as you can see on the right-hand side, a significant step into the right direction. There are still the need to improve. In a very challenging market environment, we increased our operational results by 110 basic points compared to last year's second quarter. These are the main drivers for this strong development where the execution of our operational and commercial efforts. We are going to go into some more details. What we also achieved in the second quarter was a bigger one-time effect on the pricing side, which will not repeat in the coming quarters. but will help us as it is going to be a sustainable price improvement for the rest of the year. So to our 4% margin, basically all business areas contributed. Autonomous mobility was the second time this year around break even, which is a strong achievement compared to last year. And if we look at the H1 results, We can also see that you might remember on the capital markets day we explained that we have the biggest challenge on the user experience side. Here we made also significant steps forward and reached then the breakeven number in the first half of 2025. So a very encouraging result which will help us to move forward also in the next time to come. Another reason for our strong result is that the impact from tariffs is limited due to the fact that we produce in our majority in our Mexican plant, and we do have a very high share of USMCA-compliant imports into the U.S. And negotiations with customers and suppliers for the parts where we have to pay tariffs are ongoing, and therefore, we do not see any material contribution to those additional costs from our customers in this quarter. But if we meanwhile agreed with most of the customers on reimbursements, this will then start to materialize from quarter three onwards. What we also did, we have been working on our fixed costs. Just one example, we have further reduced our headcount in R&D, and this contributed then to a significant improvement of more than 30 million of net R&D expenses. Although we were not able to repeat the high number of reimbursements of last year, so from a gross point of view, we made a significant step forward. And what we also achieved in quarter two is that the automotive free cash flow before interest and tax is, despite the fact that we have quite significant outflows for restructuring, and that thanks to an improved operational performance, we are at around, So, also that huge improvement compared to 2024. So, let's go on and into more details with regards to the transformational progress. And thank you very much, Max. So, you see here, we are on our trajectory to make our overall infrastructure more and more competitive and to reduce our break even. We made, again, significant steps forward. We were always talking about that we have clearly found measures in the pipeline, and more and more are now also ending in the bottom line, and we are going to see then even more improvements over the course of 2025 and then as well as in 2026. So what you see is on the left-hand side that we have reduced again in 2025 by more than 6,000 or by 6,000 employees, our organization and make them fit for future. You remember that we announced two years ago that we are wanting to reduce our SG&A costs by 200 million in 2024 and 400 million in 2025. In the first half of 2025, we have already implemented 150 million of that, so we are good for the 200 million to come, and we expect or we target at least to significantly overachieve also our initial goal and to get ourselves even fitter for future. And we're already talking about R&D efficiency. We have reduced another 1,500 employees compared to the year end 2024. and that score will translate into an improvement of net R&D expenses adjusted for restructuring by around 120 million euros in the first half of the year, and that should run then also into the second half. I'm already mentioning on the ANS side that our portfolio management is well on track. We have done some smaller divestments. One we mentioned already in the last year, this is the Zona sale, which we have now retroactively taken out of our comp base, which made our adjusted EBIT 0.2% or points better on a like-for-like base. that we and what we target we execute and this helps us to improve our overall profitability. I have already explained the stop of parts of the bill to print businesses. We will also there further streamline operations. You have heard and that's what we mentioned already during the capital market days that we are intending to divest our Italian drum break business. that's also very well on track and we expect closing in the fourth quarter of 2025. And this measure will have also immediate visible effects on our profitability. So we are working on getting our portfolio up and running and fit for future asset. So we are still working on some projects to be given back. So some impacts on sales you're also going to see over the course of quarter three where we have also ended and terminated some smaller projects. However, all that with a clear intention to have an immediate effect on our bottom line. So, let's go to the next page where we explain the regional sales. And you can see here that in terms of outperformance, Our picture changed this time for Europe. One reason is the phase out of the bill to print business and architecture network solutions. And also we had last year in the second quarter quite significant commercial effects means repricing which led to a very high comp. And in this year we have been much more focusing on North America as well as in Asia, where we improved our commercial efforts, improved our commercial effects. So, the positive trend from Q1 persisted in North America, and as you can see, also in China. In North America, our performance was mainly strengthened by an improved customer mix, but also by ramp ups, as well as the sizable one-time customer contribution. And in China, where we have been doing significant better than the market, we have benefited particularly from launches of our Mark C2 project, and that is specifically with Chinese OEMs. So, if we then come to the last page, which I'm presenting today, the page number eight, the order intake, you can also see here that we are on a, We have incoming orders of 5.7 billion in the second quarter with a significant win, again, significant wins on the autonomous mobility side where we were able to have quite good awards for satellite cameras in the premium segment. We have also gotten orders from Chinese OEMs for long-range radars. not only from Chinese, but also from others. And we have also gotten a significant award and substantial one for our commercial special vehicle unit, which we consolidate into the autonomous mobility area. And what you can see also here, not only we managed to ramp up new projects on the Mark C2, we're also getting new orders, new orders across the world. specifically in Asia, and also from Chinese OEMs. And we also extend our presence on the suspension system side. And architecture networking, we're also contributing with 1.6 billion for DC telematic control units, as well as for several other gateways and light control solutions. So, that's from our Conti Automotive. Next time, then, our Mobio. And with that, I hand over back to Olaf.

Yeah, thank you, Philipp. So, I will continue with tires. And Nico already highlighted that tires are significantly impacted by the highly volatile environment. Substantial headwinds from FX and tariffs are distorting the strong operational performance of tires overall. Volumes slightly declined, mainly due to the continuing weak OE market and softer overall replacement demand in Europe. However, replacement markets in APEC and North America held up well, and this development supports the mixed effect in our EBIT. We managed to perform in line with the market or even slightly better in our key regions. We also see further stabilization in the European markets. market for truck tires, both in OE and replacement segments, but on a low level. North America, the truck tire replacement business benefited slightly from the continued weak performance of the truck OE business. So when we look at price mix, we see good results of 8.2%, primarily driven by mixed improvements. We benefited from regional trends, positive effects in sales channels, and the continuous trend towards premium and ultra-high performance tires in our product portfolio. The development helped us at least promote and compensate for the raw material headwind in the mid-double-digit million-euro area in Q2, as well as increases in fixed costs. However, this quarter's results were severely affected by macroeconomic factors. In addition to the headwind from last week, profitability was significantly burned by tariffs as our mitigation measures were unfolding with a delay as of mid-June. The net headwind from these two factors, FX and tariffs, is in the low three-digit million euro range and is distributed almost equally between tariffs and FX. And then the bigger picture, despite the volatile market environment, profitability for H1 is only slightly below previous year's level. So, that's actually a strong signal of the operational performance of tires. Let's look at ContiTech on the next page. Despite continuing weak volumes in the automotive and industry sectors, there are slight signs of improvement, as evidenced by slight organic volume growth in our industry business. However, the trajectory of expected improvement remains uncertain. We need to see that. On a positive note, sales have stabilized quarter over quarter. The fixed effects on sales were again negative, with limited off-year earnings. Our strict focus on fixed cost management fully mitigate the impact of lower volumes year over year. However, you could achieve improvements versus the first quarter. Then let's look at the free cash flow. The second quarter operation of free cash flow generation was burdened by ongoing restructuring and spinoff efforts. You can see that. And if you look at the development versus the prior year, you need to consider that Q2 2024 was positively affected by one of the effects from changed payment terms and contract manufacturing. Obviously, it didn't have this effect in the second quarter of 2025. Since cash flow generation in Q2 seasonally tends to be rather neutral, we came out with a negative adjustment for cash flow due to the ongoing restructuring and spinoff. efforts already mentioned, but also investment activities on the tire side. However, and Nico said that at the beginning, we achieved in the first half of 2025, we cash flow improvement over 400 million Euro compared to the prior year. Then I would like to address on the next page, a more technical aspect concerning our balance sheet that you see only in this quarter. And that's the temporary drop in our equity ratio. So continental equity as per June 30, 2025, has been significantly reduced due to the reclassification of our mobile equity into other short-term financial liabilities. This reflects the upcoming distribution of our mobile shares to our shareholders due to the spinoff. This liability position is with the spinoff, the balance sheet total will be reduced significantly by assets held for sale. Assets held for sale amounted to 18.1 billion Euro each year, too. That means our total assets will basically be reduced by 50%. As stated at the Capital Market Day, we expect a leverage ratio of around two times after the spinoff, and all KPI targets mentioned in our Capital Market Day, of course, remain valid. and equity ratios above 30% that we target for. Now, let's look at the market outlook. Light metal production in North America has proven to be quite resilient so far. As a result, expectations have also improved over the two months of being effective. Therefore, we raised our North American NDP expectations for 2025 to a range of minus five to minus 3%. Expectations for Chinese vehicle production have also improved. In total, we expect flat vehicle production worldwide. The outlook for commercial vehicle production was significantly worsened, in particular in North America. Our assumptions regarding the tires replacement market and industry production did not change. Okay, if you look at our guidance, we have and adjusted our guidance at the capital market day. We are now confirming this guidance with the reduced tariffs and mitigation measures taking effect. We are now expecting a mid-upper-digit minimum yield, lower headwinds in the second half for both buyers and the group. For the more, we still guide for negative special effects of around 50 million. This does not include the deconsolidation effects in connection with the planned spinoff. Although our free cash flow guidance has not changed. But let me give you a short summary of how the extra negative effects expected for the full year 2025 are distributed across the group sectors based on the free cash flow bridge that we have provided to you in March when we presented the financial year 2024 figures and gave an outlook. Everything said so far in that regard and what we said back then is still valid. Most of the cash outflows for restructuring are attributable to automotive, and only a smaller portion relates to . Payments in connection with the spinoff will be primarily borne by automotive. This includes costs in connection with the listing, IT separation, and branding. The part remaining is mainly related to IT separation. It is too early to share any more details, but certainly both automotive and continental will have to bear part of the spin-off related taxes as we named them to the magnitude before. Major part of all spin-off related costs will accrue still in 2025. With that, we come to the end of our presentation.

Thank you, Olaf. Before we are jumping now into the Q&A, I want to jump in because This is today, I mentioned this at the beginning, I really want to hand it over to Philip, a historical analyst and investors call, because it's the last one with automotive and it's the last one with two individuals, with our CFO, Olaf Schick, and with Philip von Hirschheit, which will both then leave basically at the same time, at the September time frame, and they leave the jersey of Continental, as I mentioned before. So by no means, as we are now 5th of August, this is the goodbye. because there are still ways to go and you know me until the last breath, you wear the Conti jersey, we are fully convinced that you contribute. However, it's a recognition to your strong contribution and performances and I think everybody has seen the proof. We are on track with our transformational parts which have been strongly supported and pushed by Olaf and automotive, you could see we are now on a way where we can say sustainably, we have an automotive sector which can develop as an own entity, much better than within Conti and have everything which is needed in order to be successful going forward. So the champions, the three plus one, as we said, they are on track. So thanks to you both for your contributions in the past. And please don't forget, to invest everything to have a strong listing on September 18th and drive our other projects forwards, which I have no doubt you will do. And at the same time, mentioned at the beginning of Max, we have the future CFO. So Roland will take over the helm of Olaf once he's leaving. He is as well already on the call and he is then able to answer in particular, obviously, the tire questions as he is the CFO of tires already now and will be in the future. So with that, I hand over to the operator to open the Q&A. Thank you.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press 9 and star on your telephone keypad. In case you wish to withdraw your question, press 3 and star on your telephone keypad. And the first question is from Christoph Lascavi, Deutsche Bank. Please go ahead with your question.

Good afternoon. Thank you for taking my questions. The first one, and sorry for bringing back the unpleasant topic, but it seems like the discussions with BMW are turning into a lawsuit. Is it right to assume that this potential liability will be passed on to our mobile and not sit with Remenko as we've seen with Vitesco? And could you just share your thoughts on the timeline of this potential lawsuit and what we should expect from it? Then the second question will be on tires and the tariff relief and how that will be phasing in the second half. Is it right to assume that the high drop through on FX will probably stay unchanged also in Q3, Q4, but mitigation measures are coming through with July and then obviously the tariff cut from August 1st onwards so that we could even see in Q3 already of one percentage point margin step up from the mitigation and the relief. And then the last question would be just on the free cash flow in Q2. Could you quantify the restructuring cash out and the spin-off cash out that was impacting that number? Thank you.

I will start, Olaf, here. I will start with the first question on the great topic of BMW. As you know, we supplied BMW with the MKC2, so the latest integrated brake system, which is installed in various models by BMW. We still have different leading positions regarding the previous warranty case, and both our customer BMW and also a few days ago looked at something that you in such a phase where you have different legal positions that you secure legal positions in this way. That's actually not unusual. Nevertheless, we believe it's still possible and actually desirable to continue the talks with BMW, and then we will, you know, everything else we discuss with BMW. We will continue that dialogue. And also, you saw that in Philip's presentation. It's important, right? This MKC2 break technology is well accepted in the market, and we received new orders also in the second quarter, also from China, as you saw on the presentation. Our provision is still correct, and we confirm our provision as of today. Going forward, we remain with OMUVIU. The spinoff basically will not be affected by these proceedings, but this is content-wise an OMUVIU topic. But you cannot compare that, actually, with the Vitesco scenario where you have a kind of a proceedings by authority, so that's very different. So it's difficult to make an analogy, yeah.

Do you want to take the restructuring and spin-off related question as well?

Yeah. Then I take your first question as well. Restructuring, spin-off, cash-outs. In Q1 and in Q2, we had each low triple-digit million-euro amount of payouts. So that means in the first half of the year, there was a low to mid triple-digit million-euro amount that we had. Hello, everyone. Roland speaking, and thanks for the question, Christoph. That was the obvious one. So let me start to answer this with looking back at Q1. So we lost versus, sorry, to Q2, we lost versus last year, Q2, around about 100 million adjusted EBIT, and that was basically all about tariffs, NFX, and without that effect, we would have been close to 500 million euros. Now, going into the second half, what we expect on the tariff side, first of all, that we get some relief from the adjustment made on the tariff scheme going down from 25 to 15%, hopefully, for PLT, hopefully pretty fast. And then our mitigation will become fully effective, so that will be a big relief in what we expect in the full year. Still, for the second half, we have an impact on low to mid-euro million additional costs versus the status before. On the FX side, we have a pretty high drop at 50%. In Q2, we expect a similar drop, 40 to 50% in H2. If you remember, the U.S. dollar rate was at 104 at the beginning. The peak was in July at 18. If it stays around about 1.15, then we expect north of 100 million additional burden for the second half of the year.

Thank you. Very clear.

The next question is from Jose Adomendi JP Morgan. Please go ahead with your question.

Thank you very much. Good morning. I fully agree, Nico. I'm present at incredible times at Continental. The changes we're seeing are incredible in the context and the history of the company. certainly, you know, very, very interesting times. And I fully agree, this will empower both companies to deliver better results. A couple of questions and obviously, you know, wishing all the very best to everyone in your roles. Can you comment a bit, please, on cash generation, maybe second half to first half, and you could provide any color within tire and auto, you know, expectations for the full year and specifically how do we think about maybe the second half Second, can you comment on auto, any more color, please, around the subdivisions within it or which of the divisions will be the biggest beneficiaries of the cost-cutting actions you're taking in 25 and 26? And then three, business wins you booked in the first half or second quarter within auto, anything you will highlight, which is driving the growth of the company within the auto side. Thank you.

Hi, Jose, good to hear you. Look, we still have a, I mean, if you look at an auto and Philip can then add the cash performance in the first half of the year was quite strong. So you still have to see the of the business going forward, right? So we expect as auto was before interest in Texas basically break even. a stronger cash performance in the second half of the year. For tires, we had, let's say, second quarter was impacted also by, let's say, investments in tire production facilities in the U.S. and in Asia. We had a good start of the winter tire business already. And so, second half of the year, we see the strong seasonality of that business. We expect a strong cash flow performance in the second half of the year.

Exactly. Okay. Then let me add to that, Jose. Yeah. So, with regards to and the second half, I mean, I explained that we have been basically break even in the first half, and we expect also in the second half, to be above the breakeven line. As you, as Olaf already also said for us, it's also valid that we do have normally a stronger second half than first half. So we expect that we are able to, let's say, bear the additional separation costs, which Olaf were mentioning. And we will still be a break even or even better than on the free cash flow side in the second half of 2025. And then we expect that this is then also rolling then into the next quarters and years to come. From a sub-divisional point of view or business areas, how we call them, who are the biggest beneficiaries? We do the major part of our programs across all business areas. So, in general, all business areas should and will benefit from our measures, being it on R&D side and being it on the SG&A side. But as you might imagine, we have been showing that we had, in 2024, on the user experience side, negative return on sales of 4.8%. So we expect that we do make the biggest step forward there as we explained there that we do have measures in place. We have been in the first half already break even. So this will make the biggest jump whereas each and every business area need to contribute while reducing costs and adjusting the infrastructure towards the sales volume and towards better and better operating leverage going forward and making the break-even point significantly lower than in the past years. We have for my coming to your third question and the question of what are the main, you know, achievements which we managed in new orders. What we do see already for quite some quarters is that our Mark C2, our integrated brake system is a very appreciated technology, technological step forward. So, we have around the world new orders for this specific product, which I think shows the, let's say, the breakthrough which we have achieved there. And we also see that on the autonomous mobility side, we make a big step forward, which should then turn on the outer years of this decade to quite positive sales. And if we look into the architecture network solutions area, and that's what we try to explain in the Capital Markets Day, is that Whatever technological step forward is going to come, we are well prepared because we have products there for the entire product lifecycle, and that's what you see. You see consistent and continuous orders coming in for existing products, but also then for new ones, being it on the telematics side, being it on many other areas. So we are quite happy with the projects which we gained. where we expect then also more order intake in the second half is on the user experience side, where we are currently more focusing on making that business break even, but that we then will also see additional orders going to flow in Q3 and Q4. Thank you very much.

And the next question is from Ross McDonald, Citi. Please go ahead with your question.

Hi there. Hopefully you can hear me. I have three questions, I think fairly simple questions. First one just on tires. One of your competitors actually listed their price mix assumptions for the full year last week. It would be helpful to understand, I think, how you see price mix tracking in the second half relative to that 3.2% in Q2. And then maybe any comments linked to that on volume assumptions into the second half for tires given the you're putting pricing through, but we should also potentially have some restock on the winter tire side. So the first question there on tires. Secondly, on automotive, it sounded like the margin, the sequencing of margins into the second half may be slightly lower from the 4% you printed in Q2. Just be interested in understanding in the guidance range, which is quite wide at 2.5 to 4%, you know, if you can give any color on where you think second half automotive margins appear to be tracking at this time. And then finally, just on the OESL sale, I saw a headline that you expect that to be wrapped up in Q3. You know, any comments in terms of likely timing and cash-in impacts could be helpful, I think. Thank you.

Yeah, so let me start with the entire site and start with the volume. So we expect a slightly higher volume in H2 than it used to be. in H1, we expect soft market environment to continue with just one exception. We get more orders now for the truck tire OE business in Europe. And if we quickly remind ourselves, the start into the visa season has started with a strong order intake, but we also have tough comes because we've also already had a very strong second half last year. So, against this, we expect a slight increase in volume. If we look at price mix, so the 3.2% in sales dropped down at a rather high rate of higher than 80%. We expect this to continue, so a very rich mix in the second half. Price only drops down to a limited rate because, obviously, this is also meant to mitigate the tariff impact. But, nevertheless, we have a very strong price mix effect in our EBIT in Q2, and we continue to see this to continue into H2.

Okay, then I add on with the question towards automotive. And yes, we have had a good first half with 2.8%, which is in our guidance. And we expect, as we said, we confirm our guidance for the rest of the year. I mean, there is a lot of uncertainty out there in the market. I mean, as the first or the second quarter was already quite unstable of overall macroeconomic environments. We expect that, well, I mean, who knows what's going to happen in the second half, specifically on our side. So we are confident that we are on a very good trip, and we are satisfied with the improvements we are doing, but we think that any adjustment of our guidance can and will only be done after, we have been spun off and are going to be independent. And then based on the perimeter of Omobio, we will look at it and might get back to you.

And, Ross, on the question, as I mentioned at the beginning, we are still fully on track, so everything which we said in the past is still valid. We are moving forward, and we are confident to conclude this transaction in the second half of this year. And your question of any impacts from the start, we said that you should not expect any specific cash impact for us. The clear idea of the OSS transaction is making out of the Quantitech in strong industry champion. That's why we carved out OSL and we bring it to the market. We are clearly convinced that the new owner performs stronger on OSL than we can do it within ContiTech or within Continental. That tells you in the current environment the impact on the cash side is minor and will not have any influence on the cash or the other results.

Thank you. Thanks and all the best for the spin-off. Cheers. Thanks.

At the moment, there seem to be no further questions. If you would like to ask a question, please press 9 and star on your telephone keypad. And we have one more question from Horst Schneider, Bank of America. Please go ahead with your question.

Thank you for taking my question. I was one leg already in holidays. But just small ones on tires. Can you maybe quantify the negative flow rate effect in Q2 and provide an outlook for the second half? And also, can you send and also quantify maybe the FX drops that you have seen in the second quarter? Thank you.

Okay. Let me start with the FX drop. So it used to be between 40 and 50% in Q2, and this is actually what we're also expecting in the second half, as I already said. On the raw mat side, obviously in Q2, that was still a drag on our . And this will then turn around in Q3, so we already expect a pretty neutral effect in Q3 and a slightly positive effect then in Q4, which makes H2 slightly positive.

All right, thank you. Maybe small add-on for automotive. Can you elaborate now on the chances that you can achieve this in automobile then for the full year, the upper end of the guidance range, and what speaks against this assumption? You alluded on the CMD to this UK Q3 that was clarified in the pre-close call, so maybe an update on the H2 outlook and why how Movio shouldn't achieve the upper end of the guidance range. Thank you.

Yeah, we have, as I just explained, we do see still a lot of uncertainty in the market. And we have not yet drawn a clear conclusion of how sales are going to develop. We feel very comfortable within the guidance range which we have been given. both on the sales as well as on the EBIT guidance. However, to now come to conclusion that we can change the guidance and guide towards any other direction, we do think that is too early. And as I said, if so, we would need to do that going forward as then the Omovio parameter So we are still, we feel comfortable where we stand, but we feel not yet comfortable to change the guidance into any direction. No worries. Thank you so much, and all the best.

Thank you very much.

And all the best for your second leg in the audit resource.

Thank you.

And we have one follow-up question from Ross McDonald, Citi. Please go ahead with your question.

Thank you. Sorry for the delay there. Yeah, given I think plenty of analysts on holiday, I'll jump in with a couple more. I'm just interested, Philip, on the automotive side, on slide seven, the regional performance trends. Obviously, quite unlike your EU peers, you're actually outperforming in China in the quarter. Could you maybe speak to how much of that is one-off in nature? I think you talked about some one-offs in UX or whether you expect to be outperforming in China in the second half. And then I guess linked to that, maybe if you could update for the broader regions how you expect full-year performance to track relative to the S&P forecasts. Thank you.

Yeah. I mean, with regard to China, we do see what we already said. We do have a quite solid business in China, and we have some very successful customers on the Chinese OEM side, which we are growing quite significantly with. We also need to say we had a very low comp of last year. That's why in the first half, it was actually easier to outperform than it's going to be on the second half. However, we do see that we have a set with also with new order intake, which is fully in line with the overall order intake of automotive. We do have quite good inflow and we do see quite some chances in the market there. We are working heavily on making our organization even more robust and resilient and taking out costs there as well. So that is not a user experience related topic. It's more on the safety in motion side where we have been gaining quite some businesses in China and where we have been doing better in the first half and in the second quarter. On the North American side, we also see good improvement. And on the European side, actually, this is where we have most of our portfolio measures implemented, where we have businesses which do not fulfill our profitability expectations. That's why we foresee also going forward that we are not going to outperform the European market as much as we have been doing so in the past. I hope this answers your question.

I do think so. He stepped out of the line already.

Oh, okay. And as this was the last question from the audience, I will hand back for closing remarks.

Yeah, thank you very much, and thanks, everyone, for participating in today's call. I hope you have a well-deserved break ahead of you, but of course, if you have any questions, As a follow-up, the ContiIR team is very happily available for you guys. And with that, I would like to conclude today's call. Thank you very much, and goodbye.

The recording has been stopped.