Continental Aktie

Good afternoon, ladies and gentlemen, and welcome to the Continental AG Analyst and Investor Call Q1 Results 2026. [Operator Instructions] Let me now turn the floor over to your host, Max Westmeyer, Head of Investor Relations.

Thank you very much, and welcome, everyone, to our Q1 2026 results presentation. Today's call is hosted by our CEO, Christian Kotz; and our CFO, Roland Welzbacher. And as always, a quick reminder that both the press release and the presentation of today's call are available for download on our Investor Relations website. Furthermore, this conference call is for investors and analysts only. If you do not belong to either of these groups, please disconnect now.

Following the presentation, we will conduct a Q&A session for the sell-side analysts on this call. To give everyone the opportunity to ask questions, we kindly ask you to limit yourselves to no more than three questions.

And before handing over, I'm pleased to share that following our AGM, the Supervisory Board extended the appointment of Christian Kotz in his role as CEO ahead of schedule until March 2030. This reflects the Board's strong support of Continental's leadership and strategic direction. And personally, Christian, I'm very much looking forward to our future collaboration.

And with that, over to you for the Q1 key messages.

Yes. Thank you, Max, and a warm welcome also from my side to everyone online. Thank you for joining us today.

So let me first provide you some insights into the, I think, most pressing topic currently, which is the impact resulting out of the military conflict in the Middle East, which is obviously also affecting our industry. So a couple of things or topics to be mentioned here.

First, from a sourcing point of view, our direct exposure to the Middle East is limited, very limited, to be honest, with direct sourcing from the region being small and largely interchangeable. Nevertheless, we are closely monitoring supply chains and remain in constant exchange with suppliers, especially concerning potential challenges in their supply chain, so talking about potential indirect effects on to the supply chain, which are obviously much more complex and also much more difficult to observe.

Second, from a financial point of view, so we are, of course, affected by changes in our material cost base. So we have assessed this current impact in terms of additional costs resulting from mainly higher raw material prices due to a typical lag of 3 to 6 months before changes in those spot prices are recognizable in the P&L.

The first quarter is, therefore, not yet impacted by the higher raw material prices. Despite that, we expect additional gross costs, so costs before potential mitigation measures, of low to mid triple-digit million euros for the remainder of 2026. And these costs are expected to start to materialize and to be visible in our P&L from Q2 onwards.

So this figure includes our current assessment on increased logistics, energy and material costs. So this is not only the material cost impact, but the total impact we are currently assessing and assuming. So good news is that we are confident and remain confident that we can mitigate the negative impact to a good extent.

We have proven this in the past, and we continue to be confident that we will be able to manage this also this time. So this can be done, for example, through efficiency improvements in production and also further fixed cost improvements, safety stocks for critical raw materials to ensure short-term product availability because it's obviously not only a direct cost subject, but also raw material availability subject and commercial measures.

However, and you know this from the past, such measures do also require some lead time to become fully effective, which we have obviously considered in our assessment. So based on these mitigation measures, we can confirm our guidance and also our expectations regarding where we aim to land within the guidance remain unchanged.

So leaving the Middle East crisis aside, there were some good news around oil dependency we could announce during Q1. In the last couple of years, I talked about this in previous meetings and occasions, we have also actively reduced the dependency on fossil fuels in our tire production. And we can now confirm and mention that we now fully phased out coal and heavy fuel oil and, thereby, obviously, reducing our fossil energy exposure and further supporting a more sustainable, resilient and independent manufacturing footprint.

And in this sense, since January this year, all of our plants worldwide have transitioned to alternative energy sources to generate the steam required for tire manufacturing and heating, so not using heavy oil and coal for this energy generation anymore.

And with this step, and I think it's one of these proof points that particularly, in the current environment, the sustainability strategy and the necessary measures or the corresponding measures are actually delivering direct and tangible benefits for our operations, and therefore, also our results.

So before we move into the financials, let me briefly highlight an important change in our Supervisory Board. As of the conclusion of the Annual General Meeting on the 30th of April, Madam Soussan has formally assumed the role of the Chair of the Supervisory Board. Over the past months, we have already been working very, very closely with her. And we are very pleased to welcome her in this position and are looking forward to a very constructive and fruitful cooperation.

At the same time, I would also like to use the opportunity to express my gratitude and the gratitude of the entire Board and the Continental team to Wolfgang Reitzle for his longstanding contributions as the Chair of the Supervisory Board of Continental.

And another important topic to be mentioned, we are making the expected progress in the sale of ContiTech. We are fully on track, still aiming for a potential signing by the mid of this year. At the same time, I kindly ask you for your understanding that we will not share any further details at this stage of the transaction. But as I said, we are, according to plan, moving ahead.

With that, let me start my comments on the quarterly performance. In a challenging market environment, particularly for ContiTech, and we will talk about this later on, and despite FX headwinds, which are affecting ContiTech as well as Tires, we achieved sales of EUR 4.4 billion, and this corresponds to an organic decline actually of our sales of 0.9% compared with the first quarter of last year.

Our adjusted EBIT for the group was nevertheless increasing year-over-year, reaching EUR 522 million, which is translating into an adjusted EBIT margin of 11.9%. Once again, strong price/mix in Tires played an important role in this development, and also our healthy performance in the passenger car tire replacement business, especially in the UHP segment supported the result.

And in addition, we continue to benefit from tailwinds from lower raw material costs in Q1, still reflecting the market prices we saw in the second half of last year, so as I said earlier, not impacted at all by the potential and the anticipated impact on the raw material costs out of the conflict in the Middle East.

And also for ContiTech, we improved the results and its adjusted EBIT in relative and in absolute terms and also, here, despite continued weak market conditions. And this obviously reflects the ongoing focus on mix improvements as well as the anticipated rebound in the margin accretive distribution business, the strong increase after a weak Q4, but it also shows that Q4 of last year really was a negative one-time event and quarter.

So the operating performance was also one of the main reasons for our positive adjusted free cash flow, a lower seasonal working capital buildup was supportive as well, but Roland will go into more details later on. And due to this positive cash flow, our net debt slightly improved sequentially compared with Q4 of last year, while the leverage ratio now improved to 1.9.

So on the next slide, we illustrate what I touched on already. So the Tires result demonstrates the ongoing resilience of our business. We managed to come in at a sales of close to EUR 3.3 billion and were able to increase the earnings to 14.4% despite the before mentioned headwinds from tariffs and FX.

The sales of ContiTech for the period came in at close to EUR 1.2 billion. Also here, besides headwind from FX, the year-on-year sales decline also reflects the closing of OESL at the beginning of February. Recall that we have successfully closed the sale of OESL at that point in time. So once more ContiTech is clearly on the right track in terms of profitability development and improvements.

And with that, I would hand over to Roland for more details, starting with the insights into our relevant markets.

Yes. Thank you, Christian, and hello, everyone. So let me begin with the market environment for Tires in the first quarter. As we expected, in OE passenger car tires, volume declined in both Europe and North America, and after a strong run in the past years, we have seen now a significant downturn in the Chinese markets, driven primarily by lower local NEV production with government subsidies now phasing out.

In the passenger car replacement business, elevated dealer inventories resulting from the high import volumes in '25 continue to play a major role also in the first quarter '26. As a consequence of the necessary destocking, EMEA volumes are down with imports below the prior year level.

The Americas also clearly trending below last year. Same is true for Latin America, where we are experiencing a very difficult market environment. China, however, showed a slight year-on-year increase, partly reflecting the weaker OE environment I was talking about.

Now turning to Slide #7 and to truck tires. The picture is mixed. In Europe, we see increases in both OE and replacement demand in the market. In North America, however, OE volumes continued to decline year-on-year with replacement markets significantly below last year's level.

Slide #8. In this market, Tires was performing really well, as you can see. Despite facing continued strong FX headwinds of over 4% and volumes being down in a similar magnitude, we still reached sales of EUR 3.3 billion. The main reasons for the negative volume development were the subdued passenger car OE demand in EMEA as well as the soft OE and replacement markets in the Americas. In contrast, we performed very well in the Chinese market, particularly in OE.

So all in all, we achieved an adjusted EBIT margin of 14.4%, 1 percentage point up versus last year, and even improved in absolute terms despite lower sales. This was supported once again by a price/mix contribution this time of 4%, up from 3.3% in Q1 last year. This improvement once again underlines the robustness of the tire business.

Price/mix contributions mainly came from a broad range of levers, including, of course, product and also channel mix, and all regions contributed with a solid performance in UHP sales.

Moving to Slide 9. If we look at the regional picture, the underlying dynamics of our business become even clearer. Sales in the Americas on the left side were impacted by foreign exchange headwinds of minus 8.3%, most impacted of all regions due to our sales and footprint structure and the sharp changes in the U.S. dollar over the last 12 months.

In passenger car tires, OE volumes were down in line with a weak market environment. Replacement volumes in the U.S. and Canada remained broadly in line with the prior year level, outperforming a declining environment, while Latin America saw a significant decline.

In truck tires, volumes declined in both OE and replacement. Towards the end of the first quarter, however, we began to see initial signs of stabilization on the OE side with decent sales figures in March. Price/mix remained positive. However, it could only partially offset the significant negative volume effects in the quarter.

In EMEA, sales were impacted by foreign exchange headwinds of minus 1.8%. In passenger car tires, OE volumes were down while replacement business was performing quite decently, supported by a strong performance in the UHP segment. In truck tires, OE volumes were positive and we once more managed to outperform in this area, whereas replacement volumes came in slightly below the prior year level. Price/mix remained continuously positive, supported by a broad mix contribution across product, channel and countries. And all of this contributed to a strong organic growth of 2.7%.

Last but not least, APAC. Sales were impacted again also by foreign exchange headwinds, this time, minus 4.4%. At the same time, we delivered a solid organic growth, supported by a positive volume development in both OE and replacement, with a particularly strong contribution from the UHP segment.

However, our sales were reduced by portfolio measures, you remember, like the exit of the truck business in India and also the closure of our Malaysian plant, resulting in a low double-digit million euro impact in the quarter. Price/mix like in all our regions remained continuously positive and was able to significantly offset the negative FX impact.

Moving to the next slide. Let me start with the sales development of ContiTech in the first quarter, Page 10. What looks like a very sharp drop off at first glance is the result, however, of our transformation. Following the closing of OESL at the beginning of February, only 1 month of OESL sales is included in this year's first quarterly sales figure compared with a full 3-months contribution in Q1 of last year, reducing sales in total by around EUR 300 million.

Combined with the negative currency effect as well as a continuously challenging market environment, as mentioned by Christian, especially outside of Europe, this resulted in sales of EUR 1.2 billion. At the same time, the adjusted EBIT margin improved to 7.9%, including that 1-month contribution of OESL, which is not hurting in absolute figures, but it is clearly dilutive to ContiTech returns in percent of sales.

Without OESL, the Q1 profitability of our industrial business stood at 8.7%. In that business, we saw the expected recovery in the distribution business, particularly in EMEA as well as in the industry segment of Surface Solutions. In contrast, markets for material conveyance continued to remain subdued.

Our profitability also benefited from a continued focus on higher-margin products as well as the expected rebound in the distribution business. In addition, improvement measures started to materialize during the quarter, supported by a favorable development in material prices.

And given the complexity of ContiTech's raw material portfolio, forecasting the impact of the recent price increases requires more details and some more time than for Tires. And despite that, we're confident that mitigation measures will also offset these additional costs, and we therefore confirm the sector's guidance.

Turning now to our cash flow on Slide 11. Even though low in absolute terms, our adjusted free cash flow performance was particularly strong for the first quarter. The main reasons for this were the very healthy operational performance as we laid out on the previous slides as well as the limited seasonal buildup in working capital in Q1, which was mainly driven by lower inventory buildup at Tires and the effects of still lower raw material prices year-over-year.

CapEx improved slightly compared to last year's Q1, especially due to slightly lower CapEx in Tires. ContiTech stayed rather flat year-over-year, following our approach to run it like a continued business operation.

Slide 12 highlights the positive market impact of our cash generation on the balance sheet. Despite some precautionary measures to safeguard our raw material supply, which temporarily leads to slightly higher inventory levels for selected raw materials, we were able to keep working capital in percentage of sales in line with last year's level. As a result of the Q1 cash flow, our net debt declined sequentially, slightly improving our pro forma leverage ratio to 1.9.

Let me now turn to our market outlook for '26 on Slide 13. Due to the military conflict in the Middle East, the forecast data is highly uncertain. Generally speaking though, we're not yet seeing a significant impact on OE and replacement demand. Therefore, we're also largely keeping our market outlook intact with minor changes to reflect a slower-than-expected start into the year, such as in the U.S. truck business.

Our base assumption remains intact. 2026 from our point of view will be a low to no growth environment. All of this translates into our guidance for 2026, which is summarized on Slide 14, which we confirm today. We've analyzed multiple scenarios to evaluate the potential impact of higher prices for raw material, energy and freight and, as an outcome, we incorporated a low to mid-triple-digit million euro headwind into the Tires outlook.

As we have proven in the past years, as Christian said, we're confident that we can implement mitigation measures to offset the vast majority of the additional costs. And as a result, no changes are necessary within the currently very challenging environment. And the same is true for ContiTech as well, of course.

Potential U.S. tariff measures, should they be implemented, would represent an additional cost headwind. However, as the details, as you all know, have not yet been specified by the U.S. administration, a reliable assessment or quantification of the impact is not yet feasible.

We might be talking about additional gross cost of up to a mid- to high double-digit million U.S. dollar amount for tires still. Potential measures to mitigate this cost can also only be defined once we know the details of potential new tariffs. However, we might try to optimize the existing levers even further.

So with this being said, I would like to hand over now the rest of the time to you guys. Operator, could you please open the line?

[Operator Instructions] The first question is from Akshat Kacker, JPMorgan.

Christian and Roland, I'm Akshat Kacker, JPMorgan. Congratulations on a good quarter and a good start to the year. I have 3 questions, please.

The first one is on your unchanged 2026 guidance. I think it's a very strong message given the size of the gross impact that you're talking about for rest of the year. And the question is, I'm trying to understand what is this mainly driven by.

Did you start the year with a very cautious outlook? Or was it a much stronger Q1? Or are you just confident in your ability to implement price increases and mitigate these costs in the second half? Just trying to understand because you haven't changed your expectations within the range for the business as well for the full year.

The second one is on cost inflation due to the conflict. Could you just share more details behind the low to mid-triple-digit million impact expected for 2026? How much of it is raws, how much is energy and how much of it is logistic costs? And how much of this would already be reflected in your Q2 result?

And the last one is on the ContiTech performance in Q1. A lot of questions that we get is around the sustainability of this result. So when I think about excluding OESL, your margins were at the high end of your full year range, but your organic sales were still down 4% to 5% in the first quarter. Could you just give us more details on how do you expect the business to perform in Q2, both from a top line and margin perspective?

All right, Akshat. Roland here. I think I'm going to take all 3 of your questions. Starting with the guidance in Q1, yes, we came out at Tires, 14.4%. We're certainly at the upper end of our guidance for the full year.

But if you look at all the challenges ahead, the high volatility and the low visibility of all these geopolitical influences we discussed internally a lot, and we believe still having a guidance with 13% to 14.5% is fully reflecting this uncertainty. So we feel comfortable right now.

Q1 was good. So we had a nice price/mix, as you have seen, and it helped us to offset missing volumes, which were largely due to market development. And also the FX. FX, as you know, hit us hard in Q1. It's probably going away in Q2 and then turning neutral in the second half. So, so much to the guidance.

On the cost inflation side, you heard what Christian said about our assessment -- the current assessment, we have to say, because it is, let's say, a dynamic situation. If the crisis would last longer than we anticipate today, then obviously we have to update our assumptions on the cost increase and also then our mitigation measures available.

If you think about breaking out the material portion of this amount we were talking about, then a good guess would be around about 80%. So 80% of this amount, low to mid-triple-digit million euro what we expect right now is raw material, and the rest of the 20% is in energy and transport. And we believe it comes with a delay because, as you know, we're not buying spot.

So we also have long-term contracts. It's going to take to 3 to 4 months, as we pointed out, before it actually hits our P&L. So it probably hits us late in Q2, and then it will come in full blown in the second half. And this is also true for the mitigation. So we are putting together a program how to -- how we'll be able to offset all these additional costs. There is obviously a commercial part.

We also need to focus on our fixed costs. We need to squeeze every little bit of efficiency out of the plants. We're stocking up on some critical components. So there's a number of things we're trying to do now to offset the cost expectations we have right now. And it would also come with a delay, but already starting then hopefully in Q2.

And then on the third part, that was ContiTech, right? How sustainable are the Q1 results, how do we look right now at the second quarter with a good result already in Q1?

Well, you probably remember what we said on our commentary on Q4 last year, we had some negative onetime effects we expected to swing now on the positive side in Q1. It's actually happened. So this swing is, let's say, it's a low double-digit euro million amount from Q4 into Q1. This positive onetime effect, we will not have in Q2, right? That's the first thing we need to say to Q2.

Second thing is we expect the market to recover in the course of the year more strongly in the second half, but already slightly in the second quarter. So we expect slightly higher sales. And we expect with regard to EBIT to come out at a similar result than we have seen in Q1.

So we believe, yes, it is sustainable and it's going to improve in the second half of this year. This is why we're confident that actually we are on track also with our sales process because this is not a road block. This is actually giving us confidence in the process itself.

Maybe just one additional comment, Akshat, on your first question because I think one of your -- Christian here, sorry for that. I think one of the underlying questions was, have we been a little bit too careful and cautious with our outlook. I will turn this around and say no.

But we have been operationally stronger than what we have hoped for and planned for in Q1 when it comes to what we really accomplished in terms of mix because mix was really the main contributor and also the operational performance in terms of how our factories performed and how we really managed our costs in this very challenging environment.

The next question is from Christoph Laskawi, Deutsche Bank.

It's Christoph from Deutsche Bank. The first one would be a bit of a follow-up on the inflation impact and mitigation measures. The way I read it was that in Q2, there's already a bit of mitigation but only very late. The negative impact comes through. So could in Q2, actually, the net still be slightly positive and this moves then to a net negative in H2 and probably a stronger one in Q4 than in Q3? If you can comment?

And then a bit tied to the -- I thought you're seeing also just in terms of current trading, you said there was no notable changes in OE and replacement so far. Was there anything within replacement like trade downs or changes in certain parts of the market like Tier 1, Tier 2 which is of note? Or is it really surprisingly resilient?

And [Audio Gap] that you're planning, just assuming that there's a price component of that, is -- what kind of assumption do you take on the volumes or the price demand elasticity as a result of that more looking towards H2?

And lastly, one comment and -- I have one question, and I appreciate you don't take strategic decisions on short-term volatility. But does the current environment in any way accelerate certain footprint decisions that you are considering with regards to changes in plants, either closing or expanding them in the regions?

Thank you, Christoph. Roland. I'll take the first one, a follow-up on the inflation and mitigation piece. Let me start from the end. So if you look at 2026 as a whole, when we started into the year, we were expecting a significant tailwind from the raw mat side. Now we learned that the crisis might have a substantial impact on the cost side, taking away a large portion of this.

We still believe at the end of 2026, based on the current assumption, on the net side, we're still positive in the mid double-digit million euro amount, right? This is the current assessment. That might change.

Let me explain a little bit our assumptions behind that. Our assumptions going into this cost estimate is the U.S. dollar on average -- I'm sorry, not the U.S. dollar. The U.S. dollar amount of the oil price on average for the year would be around $80, $85, right? So the current level is way beyond that.

So the assumption is that we will see this rather high level until July, August this year, and then it would go down because we're all hoping and actually expecting that the crisis would end at some point this year. It probably stays at an elevated level, though. So it will not go down to precrisis levels immediately because there is too much that already, but this is our base assumption.

So -- and now talking about phasing. We believe as there is a time lag before it hits the P&L, we see the major portion of the amount falling into the second half, probably something landing already in Q2. And our expectation so far in Q2 on the raw mat side was that we still have a substantial tailwind.

So this is probably then already affected a little bit by the cost. How much we will see in Q2 still remains to be seen. Visibility, as I said, is pretty low. But once we get closer to quarter end, obviously, we have more visibility and can comment better.

Then, Christoph, let me take the second question, which was, I think, the question on, do we see potential trade downs on the replacement side so that the current inflation may affect, let me say, the mix in terms of split between Tier 1, 2 versus Tier 3, 4.

A couple of things, I would say. So number one, in the relevant markets for us, so especially Western, Central Europe, North America, but also in China on the replacement side, we do not see that the premium market is impacted. So we really see this continuous resilience. So that's the tier split, so to speak.

And from a size mix standpoint, I mean, the size mix is anyway determined by the demand, which is determined by -- or the demand is determined by the mix of cars and shipments, and this is really not impacted, obviously.

So we continuously see this positive UHP development. And having not only Continental tires, but also other brands to fulfill customer requirements in the UHP segment in the non-Tier 1 segment we believe is really a very nice -- or it is proving to be a complementary offer to our B2B customers. So it actually supports our positioning.

So replacement trade down, not really visible. There are some destockings or destocking events and, let me say, effects, mainly in North America, but also in Europe due to the anticipated tariffs. But this is really affecting Tier 3 and Tier 4 on the sell-in side, and it's not really affecting or we don't really see any impact on the Tier 1 and 2.

All right. And then question number 3, I think, was on the volumes mainly. And you've seen that we took quite a hit in Q1 on the volume side. This will substantially reduce according to our expectation for the second quarter.

And actually, for the second half, we expect a flattish development. This is without any impact second round effects from the Iran crisis. We don't know whether any shortages in any components will have an effect on the supply chain, will have an effect on the OE business, and then will have an effect eventually on us.

So right now, we don't see that, to be very clear. So we see a flattish development in the second half on the volume side and a much better development already in Q2, but this is the base case right now.

I think the last question was do we see further footprint decisions or the need for further footprint measures and does the current environment accelerates the needs, because as you rightly say, obviously, we don't take this decision based on short-term changes in the environment.

These decisions need to be based on long-term trends, and this is why we decided on the footprint and the portfolio measures you're already aware of, so the exit of the truck tire business in India, the closing of our facility in Malaysia.

We are progressing with some further measures. We talked about the intent and the agreement we've reached to sell our retail operations in France, which we progress and are very confident that we can close this hopefully very, very soon. And we will continue to work on -- continuously work on additional footprint measures where we see the need.

But the current environment doesn't really accelerate the needs or the pressure. It's more the question of consequently executing the road map and the measures we anyway have planned and see the need for.

Next in line is Harry Martin, Bernstein.

The first one, just looking into the nearer term, are you seeing any evidence yet of prebuy from wholesalers ahead of price increases coming in the industry? And would this potentially benefit more budget tires than the premiums? Or do you think it would be quite similar across the board?

And then the second question that I had, I just wanted a bit more color on the supply shortages, the bottlenecks on some of the critical raw materials that you have. Which materials are we potentially closest to that? And of your production volume, how many months do you have raw material supply secured for as of today?

Okay. Harry, thank you for the questions. I guess I'll take them both. So first was, is there any signal or evidence on potential prebuys B2B in view and lieu of the current situation and potential price increases. So I don't really see this right now.

I think -- I mean, to be honest, there has been so much uncertainty within the market now for such a long period of time. So there were so much discussions around potential tariffs in different places of the world. FX rates has changed so dramatically. I mean, the visibility on demand was very, very unclear.

And I do believe the willingness of especially wholesalers to invest into prebuys is really reduced. It's very speculative. You never know how the situation will actually look like in 2 months from now. So I don't think that this is really a very relevant impact, and I don't really see a significant signal or significant activities in this area.

Second was your question on raw material coverage. So this is obviously a very, very different raw material -- category by raw material category. We have in certain raw materials, obviously, more alternatives and much less dependency on, let me say, oil. So taking a look at natural rubber, supply chains are not impacted. Most probably, rather demand will go down if the world economy is weakening.

So should we buy now more natural rubber to prestock? I don't think it's a great idea, to be honest. So completely different, obviously, on materials where the dependency on oil is significantly higher and maybe also the dependency on certain supply locations is higher.

And there, we obviously take some measures to secure availability for a longer period of time. So I cannot really say that it wouldn't be serious, for the lack of better words, to say we are covered until whatsoever.

This is very much dependent on each individual raw material category. But for the ones -- and this is mainly very specific chemicals, so not really volume drivers, this is where we do ensure currently that we are protecting our production as much as we can.

Next question is from Ross MacDonald from Citi.

I have 3 questions. They're all kind of focused on the same theme. I noticed this is the third quarter now within Tires you're close to the very top end of the margin guidance, near 14.5%. And so my 3 questions are really just trying to get to the bottom of what is going to take that margin lower in Q2, Q3, Q4, i.e., why shouldn't we be tracking towards the upper end of the guidance range here?

So the first question is on mix. Could you talk a little bit about the mix trends? It seems like UHP is very strong in Q1, and there's also a channel mix benefit, right? If you could maybe just comment a little bit on your UHP utilization rates.

And then given that the light vehicle production is down in Q1, presumably, you've been able to push some additional UHP units into the replacement channel. So is there anything in the mix in Q2 that we would force me to take my numbers down on mix in Q2? Or do you think this mix trend continues? And then just be interested on the mix point, whether you think you're taking share here in UHP or if you're growing very much in line with the market?

The second question is on inventories, linked to Harry's question, but maybe specifically, if you could comment on your Continental inventories in the system or your perceived inventories in the system and whether there's any benefit from Q2 onwards selling into the dealer network in the U.S. and Europe?

And then linked to that, maybe you could comment on winter tire inventory levels. I know Q3, Q4 was very strong on winter tire demand. Do you think there's a similar dynamic in the second half of this year on winter tire? I'd be interested in how you see the inventories there.

And then the final question is really just on Q2 margins within tires. If I remember correctly, Q2 was unmitigated on the tariff exposure. It would be really helpful if you could give us a steer on where you see the Q2 margins for Tires tracking relative to the guidance range.

Okay, Ross. So we will try to catch all of you and cover all of your questions. Let me start off with, I mean, provocatively, you say, I think we continue to be at the higher end of the corridor. Why shouldn't you assume that we will continue to be there? Let me say a couple of things.

Number one, we've always said now within the last, what is it now, a couple of years, actually, that 13% to 16% is our target. And our intent is obviously with all of the measures we are taking to move to the upper end of this corridor, which is our target, which is our objective, which continues to be our objective. And we are taking the necessary measures. And I do believe if the world would have kept stable to a certain extent within the last years, we would have made significant progress on that way.

Unfortunately, whenever we do something, then the next headwind or a very special event hits us, which then brings us back to more or less where we have been before. And I think Q1, where we don't really have an impact from the Middle East crisis, from energy costs, from raw material costs, potential demand impacts clearly demonstrates that we would be and are on a very good way in terms of our core operational performance to really improve within the corridor.

So what's changing? I mean, I think we've talked about this. Obviously, I think no one seriously and reliably can predict what will happen within the next 9 months. Will there be any supply chain interruptions? Is this having an impact on the demand curve, especially for the outer quarters, obviously. So you know us, we continue to stay cautious because we want to be the reliable performer, let me say, within this corridor.

Operationally, though, I think we are making good progress. Let's just hope that at a certain point in time, normality would come back and that purely the operational performance is determining then also our financial results.

On the first question, Roland, do you want to add something?

Yes, a quick follow-up, because, Ross, you asked what would need to happen in order to come out lower, right? We have seen the recent announcement on the 25% tariffs. We don't know yet whether tariffs are covered or not, when it's going to be applied, at which rate, and so we need to understand the details first.

And you know from last year, we have been at a slight advantage with our structure. So it really depends now on the details, how effective our mitigation plan would become. This is number one.

And then number two, we have seen this positive impact on the raw mat side now in the first quarter. Of course, we try to mitigate the impact now coming with the crisis, but it's all about market dynamics as well. So we need to wait and see whether it becomes fully effective, what we hope for and what the base assumptions right now is.

And then on the volume side, we all look at the cost, the input cost impact of the crisis. We're not yet seeing any volume impact because we cannot really assess whether the mileage will be affected or even the brand choice will be affected coming from the sticker shock at end consumer side.

So we don't know that. There's simply a lot of uncertainty, and it can fall both ways. So this is why we believe we need to be cautious a little bit, although having a very good result in Q1.

Second question was on the winter tire business and inventory levels. In the after season, we have seen a strong sellout in the winter tire markets, and this was driven by weather conditions mainly.

So we did not do a full research right now, but what dealers tell us is that the stock levels are normal or below normal, and that would usually mean this is a good chance to have, again, a good winter business in the next season, although we do not have order intake yet, which really confirms this.

And then question number 3 was margin expectation in Tires, right, second quarter?

I mean, if you go through the individual lines, Ross, then and you compare changes versus last year, so Q2, I mean, it's probably fair to assume that we will continue to see from the volume side a low to no growth effect. So why should it suddenly now recover? So we continue to be cautious there.

We will see some raw material tailwinds still in the second quarter versus second quarter of last year. So that's helpful. There is a negative FX effect, but it is much less negative than in Q1 year-over-year because we are getting close to the period of time where then the exchange rate effects last year actually happened.

It's definitely a positive tariff impact year-over-year because, as you rightly said, last year, you remember this is when all the tariffs were implemented. It took us some time to implement the mitigation measures. So assume for a second that we will not see now additional tariffs, as Roland just mentioned, then this should be really a positive support.

And there's no reason for us to believe that from a mix standpoint, we will see, let me say, a slowdown of our positive mix improvements. We have seen now over the last couple of quarters.

So overall, I would say Q2 is definitely -- or needs to be definitely better than Q2 of last year, but most probably below Q1 of this year. This is what I would frame it, assuming the rest will somehow stay stable and we don't see significant new surprises coming up short term.

Yes. A quick follow-up on one point I think we missed from you, Ross. UHP utilization rates. I'll make it quick. There's no idle capacity sitting around in UHP. I mean, besides the non-idle capacity in UHP, as I always mentioned, we continue to invest into the quality of our capacity. So we prepare for further UHP growth and are prepared for further UHP growth from a capacity and manufacturing standpoint.

The next question is from Monica Bosio, Intesa Sanpaolo.

My questions, most of them have been already answered. But just a follow-up on the growth headwinds from raw mat. Most of the impact will be in the second half, but I believe that there will be a carryover effect also in 2027. I know it's early to say, but do you believe that this carryover inflation impact would be still in the region of triple digit or maybe something better, in the region of mid-double digit?

And second question is on Europe, EMEA region and China, where the company performed quite well. It surprised me, especially on Europe. I was wondering if the company is getting market share and if there are relevant differences in terms of price/mix by countries.

And the very last is on the working capital. The company managed to keep the working capital and revenue stable. Should we expect that this will be the case also for the full year?

Yes. All right. Monica, Roland here. Talking about the carryover, that's very early to say. That really depends on how long the crisis is actually dragging on. Most likely will be a carryover on the cost side. But we also put mitigation in place. There will also be a positive mitigation effect. So our expectation would be that it's net basically. That's to the first one.

Second one, China share of market, do you want to take that?

No. I mean you said a couple of things. I think you specifically looked at EMEA. So China, you highlighted, I think there was not really a question in EMEA or for EMEA. The question was, do we gain market share? And is there a price/mix difference by country? That's how I got your questions.

Yes. Correct.

So I think, as you obviously know, our target continues to be to get the possible compromise between volume, price/mix. And we do believe that we have managed this, let me say, compromise and finding the right balance reasonably well in all areas, in all regions, specifically in the EMEA region. So -- and this is really no different between individual countries.

You probably know we are very much steering Europe as one market and not country by country. We want to be and we are perceived as a very reliable partner by our B2B customers, and for that, you really need to see Europe as Europe and don't take specific approaches in individual countries. So everything I say for Europe is really relevant for all countries within Europe.

Was there an open question then?

It was on the working capital for full year in terms of revenues, if you believe that you can keep it stable also over the full year.

Yes, it's not going to be a big game changer because the tailwinds are now on the free cash flow side coming to working capital in Q1. This will turn around because we expect raw material prices to increase so inventory value will go up by the end of the year most probably. In terms of volume in the working capital side, we need to wait and see how demand looks like. But right now, I would not see a big significant impact coming from working capital.

[Operator Instructions] A follow-up from Akshat Kacker, JPMorgan.

Just a quick clarification, a couple of questions. The first one is on OE indexation. And could you just talk about contribution from pricing in general and if there was a negative impact from OE indexation in the first quarter?

And the second question is on your very helpful guidance for volumes in the second half. You now expect them to be flattish. What's driving that optimism? What products, segments or markets are expected to improve in terms of that year-to-year development?

Okay. So first, and I think you're not surprised about my answer. I'm not going to comment on specific pricing contributions. As you know, we are always trying to find the right balance between volume, price mix, which is the driving force.

But clear, I mean, we have certain businesses which are indexed. And OE is one of those major parts of our business which is indexed and where you then basically have obviously the contribution in both directions with a certain time delay.

The second question was on why are we optimistic for the second half in terms of volumes. To be honest, I wouldn't call it optimistic. I would call it, we believe, at the end of the day, it's a stable environment. We have had some -- I mean, we have no -- on the -- especially on the PLT replacement side, we have no real indication that miles driven or the usage rates of tires are going down.

I mean, that could be obviously still something which is impacted -- which is changing dependent on oil prices and potential consumer behavior. On the other side, there are also some, let me say, counter effects.

So from a travel standpoint, people don't fly so much, but use the car a little bit more again. So there are all kinds of, let me say, impact in different directions, which make us believe at the end of the day that we will continue to see a flattish environment.

But we have had, especially on the replacement side, some prestocking effects last year, you remember, and that should more or less be over which, at the end of the day, then drives our assumptions for the volume development for the rest of the year.

As there are no more questions in the queue, I'm closing the Q&A session and handing the floor back over to the host.

Yes. Thank you very much, and thanks, everyone, for participating in today's call. As always, the Continental Investor Relations team is happily available should you have any follow-ups.

And with that, we conclude today's call. Thank you very much, and goodbye.

Dear ladies and gentlemen, a warm welcome to the Continental AG Analyst and Investor Call Full Year Results 2025. [Operator Instructions]

Let me now turn the floor over to your host, Max Westmeyer, Head of Investor Relations.

Thank you very much, and welcome, everyone, to our Q4 and full year 2025 results presentation. Today's call is hosted by our CEO, Christian Kötz, and our CFO, Roland Welzbacher.

A quick reminder that both the press release and the presentation of today's call are available for download on our Investor Relations website. The annual report will be published later this month on March 19.

Before we start, 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. [Operator Instructions]

With that, let me now for the first time, hand you over to our new CEO, Christian Kötz.

Thank you, Max, and welcome -- a very warm welcome also from my side to everyone online. Thank you for joining us today. I'm actually glad to have the chance to join this earnings call. And as Max said, for the first time as the CEO of Continental. 2025 was a year of significant transformation and delivery for Continental. We may decisive strategic progress while achieving our financial targets.

As you all know, we've completed the sale of OE-related part of ContiTech business, the so-called OESL business in February 2026. With this, we have materially reduced the OEM auto exposure of ContiTech. And with this, started sales process for the remaining ContiTech business. We are continuously executing our strategy to become a pure-play tire company.

So let me really summarize the key developments in Q4. Starting with sales. So in a challenging environment, we delivered organic growth of 0.8%, resulting in EUR 19.7 billion of sales. The tire contribution is actually a growth of -- organic growth of 2.4%, whereas we have seen and experienced a negative impact organically of 3.3% on the ContiTech side organically.

Adjusted EBIT reached EUR 2 billion with a margin of 10.3%, mainly driven by healthy price/mix in tires as well as strict cost discipline and resilient replacement demands. So ContiTech continue to face challenging automotive and industrial markets, especially in APAC and North America with pressure on mix and volumes, particularly in Q4.

The transformation, which I initially mentioned also had an impact on our result. So our NIAT was significantly burdened by special effects of around EUR 1.7 billion mainly related to the Automotive spin-off, the AUMOVIO spinoff and the transformation of ContiTech and the individual effects are shown on the chart. Adjusted cash free -- cash flow, however, came in at EUR 959 million, so at the upper end of our guidance, driven by solid operational performance, mainly in the tire sector.

Thanks to the strong free cash flow generation in Q4, we further reduced net debt and improved the pro forma leverage ratio to around 2.0 as planned, as anticipated and as was also communicated at our last Capital Markets Day. So overall, I think we navigated this transition in 2025 very successfully, giving us the opportunity to return some of the earnings to our employees, but also, of course, to our shareholders.

And as previously mentioned and explained, we adjusted our NIAT for noncash and nonrecurring items of a total of EUR 1.2 billion, resulting in a dividend payout basis, so an adjusted NIAT of around EUR 1.1 billion. This means we will propose a dividend for the financial year 2025 of EUR 2.70 per share to this year's Annual General Meeting for approval.

The proposal reflects, therefore, our clear commitment to the target payout corridor of around 40% to 60%. As communicated at our last Capital Markets Day and the proposed dividend basically sits right in the middle of this corridor, and this ensures an attractive dividend yield of 4.8%, while maintaining financial flexibility during the ongoing transformation.

So now a quick glance at the Q4 results by sector. Overall, group performance came in broadly in line with prior year. So once again, this was supported by a very strong fourth quarter in Tires. I think Roland will touch on that in more detail. Particularly proud we are that we managed to organically grow in Tires. I mentioned the total year results, but also in Q4 and to keep earnings stable despite headwinds from tariffs and FX.

So now over to Roland for more details on our Q4 financials.

Yes. Thank you, Christian, and welcome, everyone, from my side as well. Turning now to the market environment for Tires. On Slide 7. Over the course of the year, the replacement market in Europe has changed quite a bit, strong Asian imports, initially supported market volumes. But as these imports slowed, total market volumes declined year-on-year. This effect was further reinforced by tough comparisons with last year.

Despite this, we achieved organic sales growth in EMEA in Q4, underscoring the resilience and strength once again of our business. I'll speak about our regional mix in more detail later on. North America and China, however, grew slightly compared to a weaker Q4 2024. Light vehicle production in China continued to show solid momentum while development in Europe and North America were more mixed.

Over to Slide 8. Let me briefly focus on the truck tire markets. In Europe, truck tire replacement market showed continuous resilience also in Q4. North America picked up during the year after a slow start into '25, resulting in slight growth in Q4.

This is mainly driven by the continued variable volume in commercial vehicle production in North America, so the OE business, which we also had to manage in Q4. In Europe, however, production figures continued to rebound and at least we're seeing a little bit more positive tonality from the U.S. truck OEMs as well.

Over to Slide 9. Let's now discuss the Tires performance in this environment. Despite facing continued strong FX headwinds, lower volumes and a tough comparison based on the volume side, we managed to reach the prior year profitability level with sales of EUR 3.6 billion in Q4.

We achieved an adjusted EBIT margin of 13.9%, supported once again by healthy price/mix of 3.4% which underlines the robustness of our business. Price/mix was once more driven by many areas, product, channel and regional mix. A mid-double-digit million euro tailwind also came from lower raw material prices. In addition, first positive impact from our portfolio measures started to provide a slight support to our adjusted EBIT margin as well.

Slide 10. If we look at the regional picture on Slide 10, the underlying dynamics of our business become even clearer. We saw mixed volume trends. Positive support on the PLT side came mainly out of APAC and the U.S. and Canada, but overall, the Americas remained a challenging environment for us, particularly in the truck tire business. However, positive price/mix as well as the passenger car tire volumes in the U.S. and Canada helped to stabilize our results even though on a comparably low level given the headwinds from tariffs and FX.

In EMEA, negative volumes were fully offset by strong price/mix effects, also supported by a positive development in truck tires. This resulted in an organic sales growth of 1.1%. Also APAC delivered strong organic growth, driven by a recovery in both OE and replacement passenger car tires in China. This more than compensated for the loss of volumes following the closure of the truck tire business in the region.

In addition, a healthy price/mix performance in the region was able to substantially offset the significant foreign exchange headwinds, which mainly came from the Chinese renminbi as well as the Australian dollar.

On Slide 11, you can see the result of the ongoing mix improvement and increasing UHP share. We managed to increase the share for both Continental branded tires as well as for our broader passenger car tire portfolio. Across all brands, the UHP share now stands at 55%, up 3 percentage points compared to last year.

Remaining figures were rather resilient and did not change much compared to last year, perfectly reflecting our business model. Replacement tires accounted once again for 76% of total sales. Continental branded tires represented 77% of passenger car tire sales and also our regional mix did not change materially compared to '24.

Let me now turn to ContiTech on Slide 12. ContiTech continued to be impacted from a delay in market recovery. In the fourth quarter, sales declined organically by 5.2%, reflecting weak demand in the automotive business and also ongoing industrial headwinds such as the conveyor belt business in China and the North American distribution and off-highway business.

Customer caution and the deferral of business orders into '26 further constrained our results towards year-end, something we saw starting to partially reverse already in Q1. The adjusted EBIT margin before IFRS 5 came in at 2% as a result, impacted by the discussed unfavorable mix as well as earlier incurred stand-alone costs coming from a faster-than-anticipated progress in the transformation and carve-out related one-offs.

Very important to mention ContiTech has defined a lot of self-help measures which are firmly in place and are expected to materialize over the course of 2026. This will help to further strengthen our Industrial business, which delivered sales of EUR 4.4 billion and an adjusted EBIT margin of 7.1% in 2025.

Turning now to our cash flow on Slide 13. Free cash flow in the fourth quarter was particularly strong. This was driven by the less seasonal pattern in CapEx throughout the year, disciplined cost management, and as always, on the Tire side, a strong cash inflow from working capital in Q4, mainly driven from the winter tire business in Europe.

And just some further comments on the bridge. The EBITDA decline year-on-year was mainly due to noncash restructuring and transformation costs. You can see the offsetting effects in the other line.

Slide 14 highlights the positive impact of our strong cash generation on the balance sheet. Working capital followed. As I said, its typical seasonal pattern in Q4, clearly decreasing after a buildup in the previous quarters. The change compared to prior year, however, is mainly driven by the accounting change for OESL. Their assets and liabilities are now classified as held for sale, therefore, no longer part of our working capital. Without this, it would have remained broadly unchanged compared with the prior year.

As a result of the Q4 cash flow, our net debt declined in the first quarter, resulting in a pro forma leverage ratio of around 2.0 fully in line with our expectations that we have already communicated during the 2025 Capital Market Day.

Let me now turn to our market outlook for '26 on Slide 15. This year, light vehicle production is currently forecasted to remain below last year's level in our key markets in Europe and North America and even in China, resulting in our expectation of slight decline in OE production worldwide.

Passenger car replacement market forecast, however, hint towards minor growth well across all regions. And this is also true for the truck business in Europe. In the U.S., however, we're seeing a bit more mixed picture, slight rebound in commercial vehicle production throughout the year against a very weak comps of '25 should have an adverse impact on the truck replacement business, however, in that region.

Overall, we are expecting no growth to very low growth environment for tires. ContiTech industrial production is expected to remain mixed. On Europe, we expect a gradual growth following periods of stagnation, while the American market remains highly volatile due to U.S. tariff measures and ongoing geopolitical tensions.

Slide 16, all of this translates into our guidance for 2026, which is summarized now. On this page, it includes currently effective tariffs and is based on foreign exchange rate also at current levels. And let's be very clear, it does not yet reflect potential changes to input costs or other impacts of the recent geopolitical tensions with regard to Iran and the Middle East.

For the group, we expect sales of around EUR 17.3 billion to EUR 18.9 billion with an adjusted EBIT margin between 11% and 12.5%. This is, of course, mainly coming from Tires, where we expect sales of EUR 13.2 billion to EUR 14.2 billion and an adjusted EBIT margin in the range of 13% to 14.5%.

This broad range just as for ContiTech and the group is mainly a result of the uncertainty we're seeing from the volatility in currency development, where particularly the U.S. dollar is trending into or has been trending into an unfavorable direction, the uncertain volume development also driven by the changes in tariffs and geopolitics as well as a net impact from raw material in 2026.

For ContiTech, sales are expected to come in between EUR 4.2 billion and EUR 4.8 billion with margins of 7% to 8.5%. This does include the general result of OESL, which stood at EUR 117 million sales, slightly above breakeven profitability. Adjusted free cash flow is expected to be around EUR 0.8 billion to EUR 1.2 billion.

This includes CapEx of around 7%, mainly driven by ongoing investments into our Tires business. PPA is going to be significantly down to around EUR 25 million per year, mainly from ContiTech. Other special effects should amount to roughly EUR 250 million, already including the deconsolidation effect from OESL as well as the expected costs associated with the sale of ContiTech. And in the current setup of Continental, we should currently anticipate to see a slightly decreased tax rate of around 24%, given the change in our country mix compared to our previous setup, including AUMOVIO.

And with that, I would like to hand over now the rest of the time to you. So operator, could you please open the line for the Q&A?

[Operator Instructions] The first question comes from Akshat Kacker of JPMorgan.

Akshat from JPMorgan. I have 3 questions, please. The first one on ContiTech margins. You mentioned, excluding OESL, the business was at 7% margins roughly in 2025, 4.6% margins in Q4. Could you just give us some more details in terms of the start of the year? How should we think about margins in Q1? And if you could help us think about the second half margin profile, how much improvement should we expect based on the cost actions that you have taken in this division last year? That's the first question.

The second one is a quick one on the sales process. So the announcements last month said that the first round of bids were expected in March. Could you confirm if the process is on track? And what is the time line from here, please? And the last one on the tire business. You have talked about some kind of pressure in the Americas, which is similar to what we've heard from your peers in terms of higher inventories and sell outcomes in that region. Could you talk about overall pricing for Conti in that market? You were successful in increasing prices against tariffs last year? Do you see those price increases sticking in the U.S. market?

All right. Akshat, I'm going to take the first one. We thought about how to put more flavor on the Q1 expectations on ContiTech, and it's a little bit difficult because there is no Q1 '25 we can refer to. So what we would like to do instead is guide you a little bit compared to Q4. So in order to allow for like-for-like comparison, excluding OESL, we're focusing on the sequential development.

In the last 3 months, we still did not see a material improvement in the industrial sector, even expecting volumes to be slightly down in Q1. The anticipated mix improvements I talked about earlier, however, should help to compensate for most of the lost volume on both the top and the bottom line. FX should presumably not be a factor sequentially. In addition, we're expecting a low to mid-double-digit contribution from not repeating negative one-offs in Q4 as well as some onetime safeguarding measures in Q1, helping the bottom line to clearly improve versus Q4.

Nevertheless, we still most likely will not be able to reach the lower end of our EBIT guidance for the full year already in Q1. This is true for the industrial business itself, but also because we see the EUR 170 million January sales contribution from OESL just above breakeven, also going into our Q1 results, given the closing only happened beginning of February.

Now we talked about the second half. So despite the fact that the margin is not yet in the guidance range, the year is starting as planned. So we see stepwise improvements in the upcoming quarters, also supported by continued safeguarding and restructuring measures, which we have already put in place and where we expect benefits coming through, specifically in the second half.

So number two, M&A process. We started the M&A process. We reached out to investors already in December and then started the full-pron process. In Jan end indeed, we're expecting offers to come in, in March. Now it remains to be seen right now, we're on track in terms of timing, and we still believe we can close the transaction within the year 2026.

Yes. So let me jump in then here. Akshat, by the way, from my side, as well. Just to add in maybe on point number two and also in anticipation of maybe a potential follow-up question. So we also don't really see that the current military conflict in the Middle East is impacting our process to sell ContiTech. So if this is a question you might have or concern you might have we really don't see an impact for the time being.

And to your third point, Tire business in the U.S., first of all, let me differentiate between the 2, let me say, burdens or the pressure points. One country-specific pressure points and the other one on the other side are the more generic industry pressure points. So the country-specific pressure points are very much related to the fact, as you all know, we are importing quite a number of tires from Europe. So our business was under pressure, is under pressure in the U.S. simply due to FX. So producing in euro and selling in dollar is obviously much less interesting and attractive as it is used to be. And number 2, the tariffs are impacting us potentially a little stronger than the one or the other competitor.

Those are the country-specific pressure points, which put the burden on our results and are challenging us. Let me say, the second part are then more the generic industry pressure points. So the weak market demand plus the high pressure from the imports.

Are we able to offset those impacts? I mean I'm not going to comment on pricing stand-alone. Clearly, we continue to focus on finding the sweet spot in terms of price mix and volume and being still underrepresented, as you know, in the U.S., mainly in the U.S. and Canada. We do believe we have good opportunities to find the sweet spot and finding ways offsetting these negative pain points, let me say, as good as we can. An environment, which is definitely specifically in Q1 still challenging because you compare in Q1 than still last year quarter without tariffs versus this year, a quarter with tariffs, last year, a quarter with exchange rates, which were still favorable versus this year, a quarter with very unfavorable exchange rate effects. So challenges, specifically in the U.S. in Q2 and Q1, but optimistic to sequentially improve during the course of the year.

Then we are moving on to the next question. Next question comes from Christoph Laskawi from Deutsche Bank.

The first one on the exposure to energy costs, please. We've seen, obviously, oil and gas prices spiking this week and thinking back to end of '22 when the debate around the inflation around gas prices, in particular, back then, it would be great to get a refresher of roughly the euro amount exposure as a percent of sales in absolute terms in your sourcing? And also in general, how you manage to pass these on to customers potentially in the past? And also how you source these essentially oil and gas for heating in the production, et cetera? Is it hedged throughout the year? Or are you closely aligned to spot? And then the second question on more shorter-term tires, please. One of your competitors was very negative on volumes in Q1 [indiscernible] said they don't share that. Could you comment too? Do you see the market down 10% or is it better? It's probably fair to assume volumes down in Q1. Could you comment on inventories and how you generally see entire Q1 trading? And if we should assume you are in the guidance range or would be rather on the door and if you can make a comment at this point at all?

All right, Christoph, it's Roland here. Let me take the first one. Your questions about the energy cost. Let me approach this from a slightly different angle. So across Continental and in each sector, basically, tires kind of take energy-related purchasing accounted to clearly below 5% of the total ticket mix of the total purchasing volume, of which natural gas and electricity account for roughly 75%. So 5% of purchasing is energy, 75% of the 5% is the natural gas and electricity. Now we have seen gas prices doubling in the last couple of days. So it remains to be seen whether this higher level will then be sustainable or not? That's a key question for us with regard to the impact on our financials, obviously.

The same is true for oil prices. So currently, we see an increased level of oil prices and it remains to be seen for how long the crisis continues and whether we see it a long period of time, high oil price levels, which will then have, of course, an impact on our financials.

And again, same as you remember last time, it was tariffs and FX. We put in mitigation measures in place, same here, if we would see an elevated level now coming from the crisis going into our raw material and in energy prices. And obviously, we would look for offsetting measures on the cost side as well as market related.

And usually, part of is covered with indexation clauses in certain contracts with customers and a certain part is not. Before we turn to Christian for the volumes, let me pick up your last question on a little bit more flavor in Q1 tires in general. What we expect now is indeed that volumes remain weak.

We have seen that already in Jan and in Feb. To some extent, we believe March is going to be better, but still volumes will be somewhat disappointing. But we also see price/mix coming in strong and potentially offset the volume negative. And what we see and already anticipated because we're in Q1 now and Q1 last year was a completely different environment in terms of FX that we have strong headwind on the FX side.

Now going into a P&L. In Q1, the U.S. dollar has slightly come down a little bit over the last 2 days. We don't know whether this is going to be sustainable or even continues and would have a slightly offsetting effect that remains to be seen. But for now, we expect this to be, again, a drag on our Q1 financials. You know that we are looking forward for the raw material tailwinds we have seen in Q4 continuing now into Q1.

We have slightly offsetting effect potentially from reevaluation of stocks if the raw materials have declined now our period of time. On the tariff side, again, the cross effect is similar to Q4. And you know that wages and other input costs, logistics costs were also going up. Again, we have an inflation effect and, of course, a negative consequence then on our financials.

Yes. I mean, Roland, obviously, a very comprehensive answer. Let me just add 1 or 2 things maybe. So Christoph, you asked specifically for the volumes, inventory levels, I think Roland already alluded to the fact that, yes, we believe Q1 from a volume standpoint, probably below last year for various reasons, the OE business is not starting off strong. You see probably also the OE volumes in China since quite a while, maybe not as strongly developing as we used to see it during the course of last year.

We had some special effects. So the winter storms in the U.S. did not have -- to have a strong start into the year. We had, as you all know, also in Europe, pretty challenging, let me say, weather conditions which are not necessarily good for sell-in. Nevertheless, we do believe that these conditions have been good or are good for the total year because it helps our customers to sell off inventory. So we believe the inventories are trending towards a more favorable situation.

So all in all, and I tried to explain this earlier, most probably -- and we believe Q1 will be the most challenging quarter of this year we are facing. Is it in the guidance range or without the guidance range, to be honest, it's too early to tell. I mean you also know that even in Q1, the seasonality is pretty strong. March is the dominating months within this first quarter. So it depends very much now on how March will come in plus many other effects. But yes, Q1 is the most challenging quarter from today's perspective.

And if I might sneak in 1 follow-up just on the tire bridge, obviously, because it's discussed a lot currently. On your assumption for the positive raw materials, is it fair to assume around mid-double digits, mid- to high-double digits is factored in the guide as a positive? Or is it smaller than that?

I would say mid to high, pretty much our expectation. As I said, we're still trying to understand some reevaluation effects on the stock side, which already offset this, but I would say this is also broadly in line with our expectation.

The next question comes Ross MacDonald of Citi.

It's Ross MacDonald at Citi. I have 3 questions, please. The first one, just linked to Christoph's question around 2022, and obviously, the experience around some of the shocks we saw back then. Obviously, this is a different conflict. But one thing that stood out back in 2022 for Conti was the impact of marine shipping rates. I know these haven't been rising too much, but can you maybe speak around how hedged you are for the next 12 months on the marine shipping side, just in case we see any inflation in spot rates on the logistics piece?

The second one on FX, on the tire bridge. Could you maybe give us your assumptions around the USD rate you're assuming in the bridge there and potentially the drop-through from FX to EBIT that we should assume from the modeling side? And then a final one, just again a modeling question. On the other/consolidation line, I think it dropped to a very low level in Q4, how should we model that for 2026, please, on revenues and EBIT for new leaner Conti?

All right. Let me start with the FX question. First of all, the drop rate in '26 will not be so much different from the drop rate in '25. It's usually between 40% and 50%. On the -- in Q1, FX will be substantial the effect because we started the U.S. dollar last year at [ 104 ]. And then in Q1, it was still pretty strong and then it got a lot weaker. And now compared to Q1 '26 with Q1 '25, we expect a significant FX headwinds going into P&L, probably more significant to what we have seen in Q4 last year. On the consolidation side, I'm not sure whether I understood.

Yes. behavior, let me just add on that. I think what we've seen in Q4 on the other or holding line slightly or very low amount mainly to a revaluation of some accruals as well as some transformation-related charges that we could make. So this is nothing that we would see on a sustainable level. So if you would look into our 2026 assumptions, we are rather looking into, let's say, EUR 150 million-ish cost item on the holding side, obviously, very much depending on how stand-alone costs were developed at which point we will look into stand-alone cost. But I think this should be a fair ballpark for you to look at.

Maybe then some -- just one -- some comments and Ross, by the way, I -- 1 or 2 comments on your first question, especially with regard to logistic costs and the potential impact. So obviously, as you all know, the region is not necessarily primarily relevant for us. We generate less than 1% of sales in that region. But the direct impact or the indirect impact on our P&L via raw material cost and logistics and/or logistic cost is what we need to obviously take a very close look.

And let me say, evaluate and supervise the situation carefully. I mean, as you said, we don't necessarily see a jump in the energy costs or the shipping costs yet. I think it is very much dependent, to be honest. So the Strait of Hormuz is not relevant here. It's a question of whether you see an impact on to the Suez canal. So longer delivery times, supply versus demand evaluation or development, which might impact us. But this can also be besides being a challenge at a potential negative cost impact, it could also be a significant opportunity, because for the ones producing in the market for the market and this is what we have done and concentrated on since so many years, we are for sure much less exposed through those logistic costs that many other, especially the big importers. So yes, it's an area which can create besides material costs, second burden -- cost burden. On the other side, we should be like some others significantly underexposed to these costs, and that can also, therefore, drive an opportunity and not just a challenge.

[Operator Instructions] The next question is from Harry Martin of Bernstein.

The first one, I just wanted to push a little bit more on the ContiTech margin. If I look at Slide 15, it actually shows industrial production was up in every region this year, but the margins ex-OESL have kept coming down. So I mean what really gives the conviction that you can have the step-up in margin in 2026, when as you point out, the industrial production growth isn't a significant accelerator and maybe just some color on which are the really high-margin regions or product lines that need to come back for the new guidance to be hit.

And then on the tire side, I just wanted to ask the expectation for volumes to be around flat for the full year. That's probably a touch below some of the peers that have reported. We've heard from 2 of the largest players in the industry, they're going to have a big step-up in new product launches this year versus last year. Perhaps is that why they expect some volume share gain? Or do you have a similar step-up in new products as well?

Do you want to start with the first one? Roland here. Let me take the ContiTech question. Different Q1 was the expectation, '26. So if we look at what didn't went well or was remained pretty soft on ContiTech in Q4 in terms of market segments that was...

So ladies and gentlemen, here's the operator, the sound seems to be missing. We seem to have some sort of issues here. Dear speakers, can you hear me? Are you still there?

Maybe this works on the backup line, no?

Yes, this works perfect.

Sorry, we lost the connection somehow. And I don't know, Harry, where did you lose us?

Right at the beginning of your answer.

Of my answer. So you got -- correct?

No, I think it dropped at the very beginning when Roland started talking about which segments were the weakness in Q4.

Let me repeat, no problem at all. So I said -- the question was about Q4 and then what sector specifically would need to increase in the '26 in order to bring us to the point where we wanted to be. So the industrial business is burdened in most of the business areas, so ContiTech in Q4, that is energy, construction, mining, auto aftermarket. And if you look specifically, which needs to turn around, those who were specifically weak in Q4, that is APAC, particularly China, continue to be difficult. The American Off-Highway business remains soft as well and the distribution business, which is a high-margin business for us, also experienced unexpected weaknesses towards the end of the year. And this needs to rebound.

So we first signs talking to customers, the confidence is growing. We also see first light at the end of the tunnel, looking at our order book in '26, although Jan and Feb remained also somehow soft. We see first signs that are going to improve, and it will be a stepwise process.

Okay. And then I was trying to comment on your second question with regards to the volume expectations. So first, yes, we basically assume stable volumes for us year-over-year on the PLT side, but basically also on the truck side with significant nuances, so to speak, region by region, segment by segment. And yes, we are also launching new products in order to be able to at least defend our market share or gain market shares. So if markets do recover stronger than what we anticipate and what we have explained. We do believe we might also have then some volume chances. And just to highlight some examples, we are in process of just launching in the U.S. our very first all-weather tire, the Secure Contact AW, where we have very nice preorder book and where we are cautious in terms of our forecast. So we might have some opportunities, but we are also launching new truck tires, bus tires, like the Efficient Pro in Europe, which is clearly outperforming the industry on the commercial vehicle OE business side or we are investing significantly in terms of size range, not only in Conti, but also in all of our second and third line brands in the area of UHP tires.

So yes, we are cautious. I mean, we have seen in the last couple of years that being too optimistic on volume side has proven to be a challenge, and that's why we consciously decided to take a more conservative approach. If markets do recover stronger than what we account for, we believe we are well prepared as far as our product portfolio, our product performance is concerned to also benefit then from a potentially stronger rebound of the market. And apologies for the technical challenges.

So dear ladies and gentlemen, at the moment, there are no further questions in the queue. But before that, I have seen a question shortly appearing from Monica Bosio. [Operator Instructions] I see a follow-up from Ross McDonald, Citi here.

I'll make most of this opportunity to ask 2 follow-up questions. Maybe a longer-term question, given you've just taken over responsibilities as CEO. Could you maybe update us on your strategic priorities? Obviously, ContiTech sale and navigating this geopolitical uncertainty I imagine is the key focus maybe longer term, if you can give some words on what stamp you want to leave on the business and how we should think about the group segments, whether you would look at inorganic growth, maybe M&A in some specialty categories we'd be interested on the long-term vision. I know we've just had the CMD last year, but potentially an update there? And then secondly, linked to the ContiTech sale, you've obviously been very generous with the dividend this year. But how should we think about as and when that deal is done, how you think about the split between de-gearing special dividend, if applicable, and buybacks? Those would be my 2 questions.

Yes. Okay. Thank you, Ross. Let me take the first one, and then we can probably share the second one. Roland and I saw more on the long-term side. I mean, as you know, I'm new in the CEO role, but I'm not new in the tire area. So you will not see significant surprises for me how I want to drive and how I believe we should develop the tire business. So first priority, obviously, now is to successfully complete the transformation. And we all know these are challenging tasks. We are very, to a certain extent, proud that we accomplished everything we have accomplished in 2025, even though we only had really very limited time. So successfully spinning AUMOVIO successfully now closing the OESL gives us really confidence that we can close this transformation during the course of 2026. Then obviously, a second priority, which goes in parallel is to further optimize, let me say, healthiness -- the organic healthiness of our tire business which partly goes also into your second question. So how can we optimize and yes, further improve our balance sheet, but how can we also further optimize our organic operational performance? And there, clearly, the focus is on, as we always mentioned and as we explained also at the Capital Markets Day, on the one side, the very consistent and consequent focus on the UHP tire development and the business development where we still see lots of opportunities, you will see us to continue to consequently focus on our portfolio. We have done quite some steps also there during the course of last year. So as you know, we've exited our agricultural business. We have closed 2 facilities, truck tire production in India and our facility in Malaysia. We have optimized -- further optimized our retail footprint with some significant adjustments. We're in process of closing our textile production in the U.S., and you will see us to do some further steps in order to optimize, let me say, our operational performance without any inorganic shape. And then third, and I can only then repeat what I said in the past. We do believe at the end of this transition, we are then a very, very healthy tire company, very solidly financed with strong operational performance, this should bring us into the situation that in case consolidation takes place, in case there are reasonable and justifiable inorganic growth opportunities we should be ready to be able to participate, and we would actively look for opportunities. But as I mentioned in the past and I can only repeat myself, it needs to make financial sense. It needs to be complementary and we will see whether those opportunities will arise, yes or no. But clear, we want to be fit for that and ready for opportunities in case they might arise.

So then your second question was on the utilization of the potential proceeds. I mean before Roland chips in and this relates and also to what I said earlier, obviously, we were partly in line with what we communicated at the Capital Markets Day. We will use these proceeds really in 2 ways: one, to improve our balance sheet and second, to also let our shareholders participate. So how we do this and which shape, we do this, we will need to decide. Roland, anything to add there from your side?

Not really much to add just probably in terms of timing. First of all, what we need in order to approach this decision-making process is more visibility on the potential proceeds of the ContiTech sale. And then we can better assess what the right way and right format would be. That's all.

And I hope the voice quality is okay because we are really working with...

I can hear you quite well.

Is it okay? Good. Good to know.

Yes, yes, we can hear you very well. The next question is from Monica Bosio, Intesa Sanpaolo.

Yes. Sorry, maybe I lost a part of the speech. But I just wanted to ask if you -- so the company is expecting tailwinds in raw materials obviously, now the situation could change. But as things are, can you quantify the raw material tailwinds? And I was just wondering if you have a sort of sensitivity in terms of price -- petrol price per barrel on the raw material side, in general.

And my second question is on the PLT tires, the shares of the ultra high performance tires you are guiding for flat volumes, both in passenger cars and trucks, but can you please just give us some flavor on the volume trend in the ultra high performance tires maybe 1%, 2% something similar. And what do you expect to gain market share the most in terms of geographical area if I may ask?

So where do we start? I can start maybe from the back. On the UHP side, so obviously, you are right. We -- and even though we count on that market, we do believe that we have significant UHP growth opportunities. We believe the markets will grow annually by roughly 8% CAGR. That's what we assume in terms of global UHP growth. And obviously, we don't want to lose market share. We want to rather gain market share. But this gives you -- even if we would only grow in line with the market, the growth rates we should accomplish in the area of UHP tires and the share of UHP tires of our total business, I think this was in the presentation all the details are in the 55% for our total portfolio, I think, 65% or 62%, sorry, of our Continental branded business. And this should further significantly increase. Market share gains besides UHP, I mean, you know, we generated 53% of our total business last year in the EMEA region, 33% in Americas and 14% in APAC. So obviously, it will be probably difficult to gain relevant market shares in the EMEA region, where we are definitely more in the defending mode, whereas we have significant growth opportunities with the market, but beyond the market by gaining market share in the Americas, focusing on North America and in Asia, given the size of the market relative to the share of our total business, I think it becomes very clear that we have the significant growth opportunities.

Let me continue, Monica, Roland here with your question on raw mat and oil price and assumptions and so on. So let me start with the raw mat impact. As I said earlier, in Q1, we're expecting a mid- to high-double-digit euro million amount then probably partially offset by some revaluation effect on the stocks. For the full year, then obviously, it's going to fade out substantially in the second half. So for the full year, it would still be a triple-digit euro million amount, the base assumption. So big plus in the first half and then leveling out in the second half.

Now that was before Iran. That's a pre-Iran situation. So also on the oil prices, we anticipated that basically the level of Jan and Feb will basically continue throughout the year. It remains to be seen now to what level and which level is sustainable throughout the year '26. And if it would be a substantially higher level than we initially assumed. And obviously, we have a lot of less tailwind on the raw material side. And then we would also have to look into measures in order to bring down costs in other areas and also then look at market-based mitigation measures like we did with tariffs and FX last year. Does that answer your question?

Okay. Yes.

The last question for today, a follow-up from Akshat Kacker again.

Akshat from JPMorgan. A couple of quick follow-ups. The first one on the free cash flow bridge. Could you just share your expectations around the different elements? You clearly expect EBITDA to improve year-over-year, absolute CapEx is expected to be higher, so that might be an offset. Do you see any room for working capital optimization or improvement with your free cash flow guide for 2026? That's the first one.

And the second one, a follow-up on the tire bridge. You talk about business inflation being partly offset by portfolio measures. Could you just give us some more details on expected business inflation this year and how much of that can be offset?

Yes. Akshat -- let me -- Roland here. Let me take the first question on the cash flow. I think you would expect some improvement on the EBITDA side, obviously, because this must be our target for this year to improve earnings and we have all the right measures in place to be able to do that. CapEx, I would say, slightly increased in terms of percentage on net sales as well as an absolute amount, not a big step but slightly increased. And then on working capital side, I would not see much room for movement or contribution. So that's my view on cash flow.

And your second question?

I think if I got it right, Akshat, you asked for how much of the general -- I mean, in my words, how much of the general inflation we feel we can offset with portfolio measures, more or less, was this the question?

Yes, please.

Okay. So I mean if you take a look at 2025 without going into the details, we had obviously some -- I mean we had the general inflation effect. And we had some on the cost side, especially on the period expense side. And we had some, let me say, compensating effects. One is, as much as FX overall hurts. It obviously helps a little bit to offset and compensate the inflation in euros.

And the second part is the portfolio measures. And we more or less for 2025 kept, therefore, our costs in euros -- the fixed costs roughly stable. Very, very little inflation. So dependent on how things will develop in 2026, we definitely have the intent to get to, hopefully, similar levels but it remains to be seen, obviously, on the one side, what happens to the FX. So it helps us on the cost side. It hurts us on the sales side. If I can wish, then I definitely wish for a stronger dollar for the bottom line.

And second part is how much of the pending portfolio measures we are working on. And you know, for example, we are working on trying to sell our retail operations in France, which would have a pretty significant impact depending on how much progress we can accomplish in all of those projects. Intent continues to be to offset at best, all of the inflationary effects, but too early to quantify now.

Thank you all so very much for my side, ladies and gentlemen. As there are no questions in the queue, I am closing the Q&A session and handing the floor back over to your host.

Yes. Thank you very much, spot on in terms of timing. Thank you all for participating in today's call. And sorry again for the technical difficulties. As always, we, on the Continental Investor Relations site are available, should you have any follow-up questions. And as I mentioned already, our annual report with all the details around 2025 will be published on March 19. With that, we conclude today's call. Thank you very much, and goodbye.

Good morning, and welcome to Continental's Annual Press Conference. I'm delighted to welcome you once again from our corporate headquarters in Hanover. With me in the studio are our CEO, Christian Kotz; and our CFO, Roland Welzbacher. Hello. Thank you so much for joining us.

Our annual press conference will have the same format as in the previous years. To begin with, both gentlemen will give you an overview of our 2025 results, our expectations for the current year and an update on key strategic and technological developments. As usual, you will then have the opportunity to ask questions.

We'd really appreciate if we could actually see you. [Operator Instructions] You will also be able to see the questions from your colleagues there, and we'll answer as many questions as possible live here in the studio. If any questions should remain unanswered, we'll get back to you afterwards. We'll also address any questions of a local nature after today's webcast. One final note. A recording of the entire webcast and the presentations will be available later on our press portal. [Operator Instructions]

Let's now take a look back at 2025, a year centered on our realignment. Financially, we achieved our targets for the Continental Group. Christian, what's your take on this?

Ladies and gentlemen, today, it is a personal milestone for me, my first annual press conference and my first as a CEO. I took over at the start of the year after almost 30 years at Continental. It's a great honor for me and one that fills me with both respect and with pride.

My sincere thanks go to my predecessor, Nikolai Setzer. He spent 16 years shaping the company as a member of the Executive Board, first in the Tire business, then as Executive Board member for Automotive and finally, as CEO. He guided Continental safely through the coronavirus pandemic and the chip crisis, and he was instrumental in driving forward the company's realignment.

We've made substantial progress in this area over the past year. A key milestone came on the 18th of September when our Automotive group sector went public as AUMOVIO, in record time, after just 1 year of preparation. Since then, we've sold our OESL business area, which produces hoses and bearing elements for the automotive industry. In early February, OESL was taken over by the industrial holding company Regent.

Overall, 2025 was marked by a weak economic development. Our business was hampered by tariffs and by exchange rates as well as by ongoing geopolitical conflicts. Despite all of this, we achieved a good adjusted operating result. We expect the intense competition and challenging market conditions to continue in 2026. However, we are confident that we will further improve our financial performance.

Another clear goal for this year is the completion of our realignment. The final step is the sale of ContiTech. Interest is rather strong because ContiTech has tremendous potential as a focused industrial player. After the sale, Continental will become a pure-play tire manufacturer for the first time in our company history. This marks a new chapter for us.

One of my priorities is to prepare Continental for this independence in the best way possible. It's also clear that the market won't wait and neither will our competitors. So we will continue to work hard to strengthen our competitiveness, especially when it comes to technology, productivity and costs.

Thank you, Christian. So to summarize, we achieved a lot in 2025. We made significant progress with our realignment. Operationally, our results were good.

When it comes to the detailed look at what we've achieved and our outlook for 2026, we have Roland Welzbacher for you.

Ladies and gentlemen, in financial terms, 2025 was shaped by increasing trade barriers and significant exchange rate effects. Each of these factors impacted us by more than EUR 100 million. The markets did not provide any tailwinds either. Passenger car production in Europe and North America were in decline. Tire markets grew only marginally and industrial demand was weak.

Despite these challenges, we achieved our financial targets, both for the Continental Group and for Tires. The same applies for adjusted free cash flow. ContiTech's earnings fell short of our expectations, which was mainly due to continued diminished market demand. Overall, we achieved a good adjusted operating result.

Our consolidated sales amounted to EUR 19.7 billion in 2025. Organically, sales increased by 0.8%. We achieved an adjusted EBIT margin of 10.3%, while the adjusted operating result was EUR 2 billion. In total, we generated net income before noncash one-off effects of EUR 1.1 billion. Adjusted free cash flow was just under EUR 1 billion and therefore, at the upper end of our expectations.

Against this background, the Executive Board is proposing a dividend of EUR 2.70 per share, which amounts to around EUR 540 million. This is in the middle of our distribution range of 40% to 60% based on net income before noncash one-off effects.

This distribution is also possible, thanks to our very robust balance sheet as demonstrated by our investment-grade ratings and our strong refinancing position. Our equity ratio is 23%. Our net debt stands at EUR 5.2 billion. This translates into a pro forma leverage ratio of 2.0. We'll reduce our debt step by step, supported by the planned sale of ContiTech and the strong capital inflows from our Tire business.

Tires once again achieved good results in 2025 with sales totaling EUR 13.8 billion, roughly on a par with the previous year. That also applies to the adjusted EBIT margin, which was at 13.6%. This was largely due to our business in premium and ultra-high performance tires. We responded quickly to the strong headwinds from tariffs and exchange rates by reducing costs, continuing to make full use of local capacities and impressing our customers with excellent service.

Our ContiTech Group sector recorded sales of EUR 6.0 billion and an adjusted EBIT margin of 5.3%. To improve ContiTech's earnings, we adopted measures that are already taking effect this year. We intend to save an additional EUR 150 million annually from 2028.

Now let's have a look at 2026. Our Tire markets are unlikely to see much growth. Global production of passenger cars and light commercial vehicles is expected to decline. At the same time, the economic environment remains volatile. Our outlook is also based on exchange rates at the beginning of the year and on the current level of tariff impacts.

Allow me to add some additional comments. The tariff burden on our passenger car tires will not fundamentally change as a result of the recent Supreme Court ruling. Tariffs of 15% will continue to apply. We are currently reviewing what additional options may arise for us from the changes in U.S. tariff regulations. And we hope you understand that we cannot comment on potential next steps at this point.

In addition, the military conflict in the Middle East is further intensifying an already tense geopolitical situation. Potential impacts on Continental are not reflected in our outlook. The region accounts for less than 1% of our consolidated sales, so the direct effects on us are limited. However, the indirect effects on the global economy, including the effects on our supply chains are difficult to determine at the time. Once again, these developments just underscore how volatile the situation actually is.

Let's now move on to our outlook. We expect consolidated sales of between EUR 17.3 billion to EUR 18.9 billion and an adjusted EBIT margin of 11% to 12.5%. Free cash flow is expected to be between EUR 0.8 billion and EUR 1.2 billion. For Tires, we anticipate sales of EUR 13.2 billion to EUR 14.2 billion and an adjusted EBIT margin of 13% to 14.5%. For ContiTech, we expect sales of EUR 4.2 billion to EUR 4.8 billion and an adjusted EBIT margin of 7% to 8.5%.

This represents another step forward for us. Our goal as a pure-play tire manufacturer is to improve our profitability even further. We're therefore aiming for the upper end of our medium-term target of an adjusted EBIT margin of 15% to 16%. To achieve this, we are continuing to invest in our 19 tire plants worldwide. One example is our plant in Hefei, China, where we currently have a production capacity of around 15 million tires. By 2027, we plan to expand this to around 18 million tires, which will allow us to meet customer demand with maximum efficiency and quality. Next year alone, we plan to invest roughly EUR 1 billion in the Tire business.

ContiTech also has substantial potential to further increase its profitability through the cost measures that were already initiated, its focus on the industrial business and an expected market recovery.

Ladies and gentlemen, as you can see, we expect to make further progress in 2026. We'll continue to grow with our outstanding ultra-high performance tires. We also expect tailwinds from lower prices of raw materials as well as from a recovery in our industrial markets in the second half of the year.

Thank you, Roland. It's clear that 2025 was dominated by tariffs, geopolitics and our rapid and successful realignment. Our focus for 2026 is to increase earnings.

Christian, may I ask you now to share your strategic view on our development and your outlook for the future.

As Roland outlined, the economic environment remains challenging. The fact that we progressed so rapidly and successfully with our realignment in these volatile times is a tremendous achievement by our entire team. This is the Continental spirit, which we want to and that we will preserve. For this, I would like to thank all of our 78,000 employees worldwide. They will share in our operational success through our group profit-sharing program.

It is our employees who develop, produce and deliver top technologies for our customers, allowing us to create value for our shareholders. And we are appreciated for it. For example, just yesterday, as Tire Manufacturer of the Year at the Tire Technology International Awards.

Our products are winning awards, too. In 2025, our tires were ranked among the top 3 in 65 tests. In over 80% of all expert tests, we reached the podium across all 3 world regions. Our outstanding SportContact 7 is a case in point. It underwent extensive testing in 2025, and in every test in Germany, it was placed first. In total, it won 5 tests here in this country as well as many more in other countries. This demonstrates quite clearly our strength in the premium segment and in ultra-high performance tires, meaning tires measuring 18 inches and above. Last year, these accounted for 62% of our sales of Continental branded car tires. Across all our tire brands, they made up 55%.

We continue to see major potential in the ultra-high performance segment. Our strong position gives us momentum. In the coming years, the UHP market is expected to grow by around 8% annually, driven largely by increased demand for SUVs and the rising share of electric vehicles. Electric vehicle manufacturers already rely heavily on our tires for original equipment, 17 of the 20 highest volume electric vehicle manufacturers put their trust in Continental tires as do the top 10 in Europe. That's why we continue to invest in our technological expertise and in our brand. Crucially, our business is based on long-standing, reliable relationships with retailers around the world because we are strong only when we are working together.

We also offer a broad product portfolio with more than 14,000 items, and our delivery is quick and reliable. For example, customers in Europe who order today, receive their tires by tomorrow in more than 90% of the cases. Our dense network of local warehouses makes this possible.

Sustainability is also a key priority for us. Our UltraContact NXT has once again been recognized for its high share of alternative materials and its excellent performance. Sustainable products also enhance our customers' efficiency. Two great examples are our new city bus tire, Conti Urban NXT and our new commercial vehicle tire, Conti EfficientPro, both reduce rolling resistance and increase range. Especially important for our customers, electric buses can boost their range by up to 15%.

Sustainability is at the heart of what we do, for our products and for our production. Since the beginning of the year, all of our tire production sites worldwide have phased out coal and oil as energy sources for heat generation, to give you one example. All European plants where we produce new tires are also certified for traceability of materials according to an internationally recognized standards. By 2030, we aim to use at least 40% renewable and recycled materials in our tires.

Our major plants in Hefei in China and Mount Vernon in the United States are now certified as well. These plants are located in key growth areas. We continue to see strong growth opportunities in North America and APAC, regions with greater economic momentum than Europe and where our market share is still comparatively low. So we have room to grow, and we will seize the opportunity, working together with our central and local teams.

Growth in North America and APAC will also help us to further diversify our global sales distribution. In the past fiscal year, 53% of tire sales were generated in the EMEA region, 14% in the APAC region and 33% in the Americas.

Just recently, we introduced our new all-season tire for the U.S. and Canadian markets, the SecureContact AW. It's designed for every type of weather and every passenger car in that particular market.

We're also increasingly developing our tires with the support of AI. AI simulations predict tire behavior under various conditions quickly, precisely and resource-efficiently. In tire development, we use state-of-the-art driving simulators and create digital twins of our tires. This allows us to generate different tire variants within just a single day. Our customers benefit from this because we are able to meet their requirements quickly and precisely. We're shortening development times, we're saving test kilometers and we're reducing material consumption. This means we can bring innovations to the road faster, more sustainably and more safely.

Artificial intelligence is also used to support our customers, such as fleet managers. Tire sensors measure tread depth, pressure and temperature, enabling accurate predictions of mileage. This improves service intervals and reduces carbon emissions. And we use AI in quality control as well. Imaging systems detect even the slightest deviation in production, some of which are not even detectable to the human eye. All these examples show that we are well positioned in the global market. With our portfolio, with our brand and with our innovative strength, we are a reliable partner for our customers with local production and fast deliveries. We also continue to work on improving our performance because efficiency and profitability are what's driving us today and in the future.

ContiTech, too, is active in technologically demanding fields, in machinery and plant engineering and mining and in agriculture. ContiTech is one of the top suppliers in these sectors. It's also extremely well positioned in technologies that are becoming increasingly important for the industry. One example is carbon storage in the North Sea. Here, carbon dioxide is locked away deep beneath the seabed. ContiTech is involved in one of the first European projects of this type. The group sector supplied a high-pressure hose roughly 430 meters long used to inject and store liquid CO2 in deep rock formations. This hose meets extremely demanding material requirements. Conditions in the North Sea are harsh and the internal pressure is enormous, about 200 bar. That corresponds to the pressure at a depth of 2,000 meters underwater.

ContiTech is also setting new standards in digital infrastructure with new premium cooling hoses for data centers. These stabilize server temperatures, enhance energy efficiency, prevent failures and extend the service life of the equipment. They meet strict fire safety requirements and are suitable for modern cooling methods, including direct-to-chip single-phase cooling.

ContiTech is also researching new sustainable raw materials. You already know about our natural rubber from dandelions. But what about plastic-producing bacteria? That's new, so-called cyanobacteria grow using light and carbon dioxide. This bacteria create a material that serves as a substitute for oil. It's completely bio-based and suitable for numerous applications for cars, furniture, numerous everyday surfaces. The research is still in its early stages, but we believe it has great potential. Our team is working with strong partners. The German Federal Ministry of Research, Technology and Space is supporting the project.

ContiTech is also investing in its future. In the future of its plants, for example. Our principle remains, in the market, for the market. That's how we create customer proximity. An example is our plant in Mount Pleasant in the U.S. Here, we're planning a new facility for rubber compounding, and we're investing USD 85 million.

These examples show that ContiTech has a broad technological base and is ready for the future. Potential buyers also find this attractive. We're currently involved in promising discussions and continue to expect the sale of ContiTech to be completed over the course of the year.

Ladies and gentlemen, we have a clear value creation strategy, and we are implementing this strategy step by step. Our share price performance last year confirms that we are on the right track. And there are good reasons for this. Firstly, our strong cash flow; secondly, our robust business model; and thirdly, the potential to further improve our earnings.

By the time of our next annual press conference, Continental will likely be a pure-play tire manufacturer. What sets us apart is the contact, the contact of our tires, that our tires have with the road and the contact we maintain with people, with our customers, with our employees, with our investors and of course, with you, dear journalists. That's what defines Continental. That's our recipe for success.

And now I'm looking forward to answering your questions.

Thank you, Christian. A focused strategy with a clear road map for financial improvement and a confident outlook for the future despite all the challenges.

Now it's time for your questions. [Operator Instructions] At the moment, I can't see any questions on the chat, which is why I would start with a question to Roland.

The suggestion for the dividend. Could you explain this against the background of the net result? There were two net results that you talked about. Maybe you can explain to us how this actually works.

Yes, of course. Ladies and gentlemen, you saw in our press release, the group result was minus EUR 165 million at the end of the year. Despite all this, we suggested EUR 2.70 dividend. How does that work? In 2025, we had two one-off nonoperational and noncash effective one-off effects. One because of the exit of AUMOVIO, EUR 680 million. And one of the sale of OESL, EUR 560 million. And two things added together, EUR 1.2 billion. If you add this to the minus EUR 165 million, you correct this value to EUR 1.1 billion.

And on the Capital Market Day in June, we said that in the future, a dividend of 40% to 60% of the earnings are envisaged. EUR 540 million is the dividend that we are suggesting. So this is in the middle, 50% to be precise.

Thank you very much, Roland. We cannot see any questions on the chat. You are very welcome to write your questions into the chat if you like. Otherwise, I'll ask you a question, Christian.

Roland mentioned the conflict, the military conflict in Iran. Do we see any effects from this that could have an impact on the sale of ContiTech?

Well, first of all, for us, the region primarily is not necessarily a region which has significant effects on our business. We employ about 100 colleagues in the region. We are in close contact to our colleagues over there. They are all well. We are, of course, observing developments very closely, and we are, of course, observing how the development is further.

Then the impact on the business and the potential sale. Well, the effect on our business, the region is responsible for below 1% of our sales. So we don't expect any direct business effects. Of course, there are still two topics that could become relevant. The oil -- crude oil price development because crude oil, of course, is a very important raw material for many of our products. And with a certain lead time and depending on prices, it will have an effect on our products. And then the unpredictable impact of the military conflict to the development as a whole. Then impact on the sale of ContiTech, we don't see any effect here up to now. We still believe or are convinced of a sustained power of ContiTech, and there is strong interest in buying ContiTech. So from our point of view, there will be no effect on the sale of ContiTech.

Clear statement, no effects on the planned sale of ContiTech.

Now we do have one question in the chat. We are pleased about it. Sebastien Ash from the Financial Times. Thank you very much for your question. And this is actually on the same lines. The conflict in the Middle East, is that included in the outlook? How could the conflict have an effect on the raw material prices? Roland?

Sebastien, clear answer, no. It's not yet included in our outlook. Please let me briefly go back to the year 2025. What have we seen with the raw material prices. In particular, in the second half of the year, raw material prices plummeted quite a lot, which is a good starting basis for 2026 because in the year-on-year comparison, we have an alleviation.

Now we all see that the crisis in the Middle East is becoming bigger. The question is what kind of influence will that have on our costs. And as Christian mentioned, on the economic situation in general. We believe it is still too early to come to a final concluding statement. It depends on how long the conflict will be there to stay, where we see oil and gas prices, those are important inputs for us. Should the conflict be longer and the oil price should be going above EUR 100, we, of course, will have significant effects on the cost side, then we will have to react on the cost side and on the market side.

At the moment, it's still too early to give you any final statement on this. We try to understand what is happening. We try to analyze what our options would be. And as we do it with tariffs and did with tariffs and exchange rate last year, we'll pretty quickly adapt to a new situation.

Thank you so much. So we hear it is still too early to put numbers to effect.

So I'm very pleased that we have one live question. Mr. [indiscernible] from NZZ. I hope I pronounced your name correctly. Please give us your question now. We're looking forward to it.

Yes, [indiscernible], that's right. I come from NZZ, the digital financial magazine for shareholders.

The share price reaction, first of all, was negative on the publication today. Analysts, when it comes to your outlook for 2026, were rather disappointed. They say sales guidance, they would have expected a bit higher, maybe with the margins, and it's being said that you said that the year started rather weakly. Do you feel adequately understood? Or maybe can you give us some more explanation about it? How you see this disappointment or whether you would want to add something to it?

Yes. Market reaction, Roland, maybe you would like to comment on this.

Yes, of course. We talked to analysts this morning. All in all, I think people do understand that in this rather insecure environment, we provide a wide corridor for returns. We still see not a lot of visibility as regards the situation on the tariff side. Of course, we do have some contrary tendencies in exchange rates. You maybe remember in May last year, we started to pay additional tariffs, and the dollar exchange rate significantly changed only to our disadvantage in the last half of the year. In the first quarter, we will have contrary effects because of these two factors.

On the other side, we do have a better raw material situation. We did have it. Of course, we have to expect and wait and see how this conflict is going to shape. We don't see -- there is a certain insecurity -- general insecurity here. In the first half of the year, we continue to see a rather weak market environment. And then that's what our customers are reflecting to us in various market segments. We can reckon with a more lively market in the second half of the year. That's what we plan for. We are careful when it comes to development of our sales, but we're also confident that we find solutions for the challenges that we will have in 2026. We are of the opinion that we will be able to increase our results, which is why we gave out our guidance adequately.

Thank you very much, Roland. And thanks for your question. Let's carry on with one of the questions from the chat, Ms. [ Kutcher ] from [indiscernible]. Thank you for your question.

She says, are there any more specific information on job cuts at ContiTech? When can you give us specific numbers on impact and figures of employees? Yes, Mr. Kotz will answer that.

Well, as you saw, our results in 2025 at ContiTech did not come up to our expectations. So not only from this point of view, but also because of the market development, we see the necessity to adjust the cost structure to the changed scope of ContiTech, but also in order to be sustainable in competition. And EUR 150 million per year are to be saved. The full year effect will be seen in 2028 for the very first time.

And regarding the implementation, we are discussing with our social partners, with the representatives of the employees, and we will communicate figures as soon as there are details to be communicated.

Thank you very much. Ms. [ Kutcher, ] so you'll have to wait just a little while longer.

Let's get back to the topic of the Middle East and the conflict. Mr. [ Engemann ] has another question here. He says, what does the conflict mean for your supply chains? Are these affected? Roland, I think you said something on this before. Could you just give us some more information?

Yes, well, when it comes to affecting supply chains, it's a bit early to tell. We're seeing the effects from the Strait of Hormuz where the trade of oil has been restricted. This has effects on prices immediately, of course. We have increasing gas prices that we saw. At the moment, there is not a bottleneck to observe, but we see that prices for the raw materials that are directly affected are going up.

On the other hand, of course, these are shipping routes and capacities of ships, of course, will be affected. Now it remains to be seen what disruptions will occur there. And basically, for most of the materials, we have more suppliers so that we have other options. But at the end of the day, I don't think anyone can say today what's going to happen.

Okay. Thank you for that. We don't have any further questions at the moment, and I would like to once again provide you with the opportunity to ask questions. We would love to see you live. So you can also do that if you like.

Now I have just been informed that there are no questions. So thank you very much. Thank you very much for your interest, for your questions. Thank you, Christian and Roland, for your explanations. If there's anything else you'd like to ask, our press team remains at your disposal as usual. And of course, you can also find information, all the facts and figures in the press section of our website. So feel free to take a look. That's all from us. All the best, and see you next time. Bye-bye.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Thank you very much. And welcome to all of you to our Q3 2025 results presentation. Today's call is hosted by our CEO, Nikolai Setzer; and our CFO, Roland Welzbacher. Both the press release and the presentation of today's call are available for download on our Investor Relations website. And 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 disconnect now.

Following the presentation, we will conduct a Q&A session for sell-side analysts. [Operator Instructions]. And before handing over, I want to briefly highlight some extraordinary effects that impacted our Q3 figures. As you're already used to it from the former VMovIia reporting, the signing of the sale of our original Equipment Solutions business within ContiTech has resulted in some accounting technicalities. Here, too, IFRS 5 applies and the assets and liabilities attributable to OSL were reclassified to assets and liabilities held for sale.

Furthermore, the sale has resulted in a write-down of the assets, which reduced the basis for depreciation. The depreciation of the new book values of the OSL assets has stopped. Without the signing, there would have been no impairment trigger and the depreciation would have been roughly EUR 6.5 million higher in Q3.

With this upfront, let me now hand you over to Niko.

Thanks, Max. Very welcome to the call of an, again, eventful third quarter. Our quarters have been in the last time, always eventful, but this time with 2 major events and 2 major milestones, as already mentioned.

On the one hand, the IMovO spin-off with a fantastic ring the bell event on September 18. So this was very impressive going forward for sure. And you could see already that it started quite well as well in terms of market cap. So just in that day, EUR 700 million in market cap was additionally created and success story continues. I should say, as of today or better yesterday, it's in the meantime, greater than EUR 2 billion, EUR 2.4 billion roughly. or 15% in 7 weeks.

And if you look the underlying indices they are definitely not 15% up. So we clearly outperformed. With that measure, the market, not just that this measure has been greatly looking as well how it was executed. speed and precision from announcement, August, we started last year, December decision and September 18, then the listing with the final transaction, I should say. So that shows how focused and determined the Conti team was and is once we decide on strategic realignment and all hands on deck, and I'm really grateful that the team has achieved this on time and on budget, I should say, in particular, or even more because the OESL sale has been signed basically in parallel.

So it was August 27 when the signing took place with the industrial holding company regions, which is, and that's why we were pursuing the strategic move from our point of view, clear better strategic owner for that asset to develop its value accretive going forward.

And on the one hand, on the other hand, we see for ContiTech, this is a clear strategic move to focus even more on the industry business, on industry customers, getting now to an 80% industry business. And therefore, our strategy, which we announced 3 plus 1 champions, 3 sectors plus the , the one is OESL. We see us following suit with those 2, focusing now on the last 2, which are within the group.

And just to finalize this one, expected closing is until first quarter 2026. And then OSL is done. And at the same time, we fully focus then on the ContiTech independence. So with those strategic milestones coming now to our performance and it's a good operational performance. But first of all, those strategic moves have had as well strong impacts, in particular on the Near base. You see on the special effects on the right side that combined both had an impact of greater than EUR 1 billion, EUR 1.1 billion negative impact. Roland will give more details in his part.

However, I want to highlight right now already, those have been all noncash effect of one-offs means as we did it as well in previous years, we -- our dividend policy allows for adjusting such events means they would be out of the dividend base, which we will then look into for next year's dividend.

Secondly, leverage ratio. So now on a pro forma base means we have excluded out of the 12 months EBITDA, the automotive deconsolidation effect, EUR 680 million, so very substantial, which is getting us right now to 2.2. So we said we believe to be at around 2-ish. This is now September until year-end. We are working further to with our cash as well to deleverage. So we are on target, and we have expected such a ratio. So from the more strategic part now to the operational part, you see organic growth, 2.6%, which is a decent growth given that the last quarters have been more shy, very strongly driven by tires, tires 3.7%, which you would see on the next chart, why I mentioned it already because that tells you immediately that the growth was very much driven or all driven by tires. ContiTech still slightly improving, but slightly negative organically with 0.6 and responsible clearly, replacement tire business and there, the regions, North America and APAC and PAT helped as well overall good operational performance.

And you could see that channel mix, regional mix, our measures all contributed to a strong price/mix on the sales part. And you see that the negative impacts, which we had still lower volumes in line with the year-to-date, so at a minus 1 percentage points roughly. Strong exchange rate effects with drop-throughs and the tariff effects, they have been almost completely offset by all the mitigation measures which we took in place, which we started more or less at the beginning of the year and which are now unfolding. So the adjusted EBIT margin is with a strong comp of last year, basically close to be stable.

On ContiTech, as mentioned before, slight sales down. However, earnings are significantly up. That is a proof that our measures or safeguarding measures, which we have initiated, they clearly pay off. And the environment in an environment which is still weak on the industry as well as on the OE side. However, we can admit that the third quarter already shown some signs, in particular, September of improvement. So industry business, our business areas have been in at least a positive territory with regard to growth, whereas OE is still down.

I already mentioned, OSL results in a stop of depreciation, EUR 65 million. Already now I can mention ContiTech would be as well up in terms of earnings even without that effect. And we have excluded it, which you see in the middle from the group result where it has only a minor effect.

Looking on the adjusted free cash flow, here, a slight operational improvement, EUR 157 million to EUR 169 million, so EUR 12 million. But you have to consider that last year, we had the one-off payment from Vitesco EUR 125 million. If you adjust for that, you see that operationally, we are going in the right direction. And this holds as well true for the adjusted EBIT of the group, which you see on the upper there, if you deduct the EUR 125 million, you see that our EBIT has improved there as well based on the stronger sectors -- 2 strong factors.

And looking on the group operational holding costs, you see like-for-like that we are trending. If you do the math, you see that we are trending as well downwards on those costs, and we have elaborated on that. This is expected, and we are further working in order to get further to the pure play of tires, now combined with ContiTech to lower holding costs, which are in line with our businesses.

So looking into the figures. All in all, you see a challenging quarter, but with the strong September ending, so the second half of September was on the stronger upper side, it helped with solid performances. On tires, you see 3.6%, which I already mentioned. Again, sales in replacement PAT up, whereas the OE part and in parts as well truck tire was down, still is overall with the strong price/mix in organic sales growth.

And the result, you see on the right side, 14.6% to 14.3%, flattish, again, strong comp last year. It was a strong quarter with the EUR 508 million, only slightly down with the EUR 501 million based on our mitigation measures, which took place. ContiTech, again, 0.6% industry up, OE down, both trending as well the OE side trending a bit better in the year-to-date trend. So that is a positive. And you see on the right side, even if you deduct from the EUR 97 million, the EUR 6.5 million Max mentioned, gets you to EUR 91 million, you see we are up from EUR 44 million to EUR 61 million. So in a difficult environment with organic sales slightly down, particularly the industry business contributed and the safeguarding measures we managed quite well on the ContiTech side to mitigate the impact.

And with that, I hand over to Roland.

Yes. Thank you, Niko, and a warm welcome also from my side. My pleasure today to join my first earnings call as a speaker, not just for Q&A as last time. Before we start looking at the entire Q3 figures, let me start with a brief look at the Q3 developments in our key markets and regions based on the latest available information. So due to some delay in the data on imports, you will see some retroactive changes in the database moving forward.

On this page, you see the market dynamics in which we operate with our passenger and light truck tires business. Light vehicle production overall improved, but we're coming from a very low level, so rather easy comps year-over-year. The strong performance of the Chinese market continues, also driven by government subsidies and exports and Europe, while being slightly positive, flagging compared with the other market dynamics due to weaker demand and declining vehicle exports, while North America seems to normalize a little bit in a still difficult macroeconomic environment.

Now over to the tires market. PLT replacement sell-in was slightly down in Europe and North America. However, you have to consider the solid comparison base Q3 '24 and looking at the single quarters, it can be clearly seen that the impact of imports to Europe that were partly driven by the anticipation of potential antidumping measures by the European Commission is normalizing.

On Chart 7, coming now to the trends for our Truck tires business. As far as commercial vehicle protection is concerned, there are still only slight signs of recovery in Europe, even though we're coming from a very low level already in Q3 '24. The North American volume trend is even worsening sequentially. Truck tire replacement business continues to show modest positive momentum.

In EMEA, demand remained muted due to ongoing economic uncertainty, while in North America, it's been lately fueled by pre-tariff import activity. However, this trend is already slowing down. And how these market dynamics translate now into the performance of the Tires Group sector, you can see on the next Slide #8. Tires is significantly impacted by the highly volatile environment. Once more, we had to deal with substantial headwinds from FX and tariffs.

Overall, as Niko said, volumes slightly declined on the same level as in the first half, mainly due to the continuing weak PLT OE market and softer truck tires replacement demand for local manufacturers business. However, demand for our tires in PLT replacement was healthy in North America and APAC during Q3. The sell-in for the winter tire season was also comparatively strong with a promising order book also from a mix perspective. And despite all challenges, we managed to perform in line with the market or even slightly better in our key regions.

The strong price/mix of plus 4.8%, predominantly driven by product, channel and country mix more than compensated for the negative impact from FX and lower volumes in the top line. We benefited from regional trends, positive effects in sales channels and the continuing trend towards premium and ultra-high performance tires in our product portfolio.

In terms of profitability, price/mix helped us to almost completely compensate for lower volumes, the drop-through on FX and the mid-double-digit million euro cross burden still from tariffs. Raw material costs provided a slight tailwind versus prior year in Q3 with more positive effects now expected in Q4. And while we're talking about tariffs, the timing for the tariff reimbursements from the U.S. government and whether we still receive it in '25 or in '26 is still unclear. However, this will not have any impact on our ability to reach our cash flow guidance for the full year.

This brings us to Chart #9. So we shed some more light on our regional performance. Let's take a look at the trends and drivers in Americas, EMEA and APAC. Starting with the Americas. We achieved strong organic sales growth of plus 5.1%. While we faced a slightly negative volume effect due to a very weak truck tires OE market, robust performance in both PLT and truck tires replacement volumes helped us to offset this. Favorable price/mix largely compensated for FX and volume effects, whereby mix was also strongly influenced by channel mix effect.

Moving on to EMEA. Here we saw an organic growth of plus 2.7%. The negative volume effects were mainly driven by weak PLT OE and truck tire replacement business. Truck OE, however, that's the difference to the Americas recovered strongly, and the PLT replacement business was supported by a healthy start into the winter business. In addition to that, sequentially improved price/mix fully compensated for FX and volume headwinds.

Finally, on the right side, APAC. On the sales side, we delivered plus 3.2% organic growth. Our PLT business showed solid growth in both channels, OE and replacement. On the truck side, however, Q3 was impacted by the closure of the APAC truck tires business in Motipuram, India. Price/mix performance was largely flat sequentially.

So all in all, we demonstrated healthy organic growth across all regions despite the challenging market conditions.

This brings us now to Chart 10 over to ContiTech. Despite continuing weak volumes in the automotive and industry sectors, there are slight signs of improvement as evidenced by sequentially increasing volumes in our industry business and the automotive business showed a slightly positive development in September too. FX effects on sales were again negative, though with limited drop-through to earnings for ContiTech.

Other than tires, raw material impact overall was still slightly negative in Q3 due to some offsetting effects caused by some ContiTech-specific materials. However, the negative effects of lower volumes and exchange rate losses were more than offset by price/mix, the safeguarding measures we implemented, such as our measures to compensate for the impact of tariffs and by positive effects related to our transformation, resulting in adjusted EBIT significantly above the prior year level.

Those are onetime effects associated with the planned separation between AUMOVIO and ContiTech and Technical as we stopped depreciation in OESL, which increased the adjusted EBIT, as Niko said, from a pro forma 6.1% to 6.6%. Excluding OESL, the ContiTech margin in Q3 would have been at 8.5% with sales amounting to EUR 1 billion.

With that healthy underlying performance and an expected sequential improvement in Q4, mainly because of a seasonally stronger industrial business as well as continuous cost-saving measures, we're confident to achieve the lower end of the guidance corridor for ContiTech. With that, let's talk about cash flow on Page 11. The Q3 free cash flow generation operationally slightly improved compared to Q3 2024. For prior year, however, you need to consider that Q3 '24 was positively affected by a one-off effect from the reimbursement from Vitesco that Niko already touched upon earlier.

The other changes in the operating free cash flow mainly relate to changes in employee benefits and some other changes in other assets and liabilities. Capital expenditures increased compared to the previous year, mainly due to our continued investment in respective extension projects such as our plant in Rayong, Thailand, ongoing construction of our new tire distribution center in Texas, for example, as well as a more balanced quarterly phasing of our CapEx spend compared to the last year. So much to the operational part.

Let's move on to Slide 12. I would like to briefly address the more technical implications concerning our balance sheet resulting from the spin-off of AUMOVIO. The left side shows how our net debt has developed over the last few quarters. You can see the influence of the spin-off in Q3 '25. All figures up to June 30, '25 are presented as reported for the entire group as it existed back then. That means for continuing and discontinued operations. The figures as of September 30, '25 refer only to continuing operations.

EBITDA for the pro forma leverage ratio was adjusted for the deconsolidation effect resulting from the spin-off. As expected, we came in at around 2x leverage, which is a level that we will now continuously drive downwards in the upcoming quarters.

On the right side, you can see how the total equity as well as the net debt was particularly affected by the cash contribution to AUMOVIO. At the same time, the total assets were reduced by the disposal of the associated net assets. All in all, this led to an improvement of the equity ratio from 14.6% as per the end of June to 22.2% as per the end of September, just as we already expected in H1.

All KPI targets mentioned on our CMD do, of course, remain valid. That means we will continue to operationally strengthen our balance sheet.

With that being said, let's move on to our market outlook on Page 13. After a very negative picture of light vehicle production expectations, especially in Europe and North America, S&P Global has raised their expectations for financial year '25. However, we see in this forecast certain risk related to supply chain disruptions, such as the situation around Nxperia, for example, so we remain cautious.

The latest S&P Global figures on commercial vehicle production show that the situation has further deteriorated. Although the negative trend in Europe is gradually reversing, it is still far from sufficient to achieve growth for the year as a whole and the outlook for North America has also deteriorated significantly once again. Our assumptions regarding the passenger car tire replacement markets did not change materially, while we increased the outlook for the commercial vehicle replacement business on the back of a healthy year-to-date performance.

And for the Eurozone, we slightly increased our assumptions for overall industrial production following the latest developments in this area. However, this is a very broad picture of industrial activities for the Eurozone.

Unfortunately, we have not yet seen that positive momentum in the important areas for the ContiTech Industrial business.

Let's now turn to our guidance. As already announced in our prerelease in October, we are confirming the guidance for sales, EBIT and cash flow. However, some changes had been made because of the impact of Continental's transformation, the noncash one-offs are affecting our earnings before tax, which leads to a distortion of our regular tax rate since we, of course, still have to pay taxes in the countries where we are doing business. This is leading to an expectation of a low triple-digit percentage tax rate for the full year.

Without the spin-off, without the transformation, there would have been no adjustment for the tax rate, meaning it would have still been at around 27%, in addition, we have also adjusted the value for expected special effects from EUR 350 million to EUR 1.5 billion for the same reasons, meaning this adjustment is solely attributable to the transformation-related special effects that we have already explained.

Please keep in mind, for mainly giving you the guidance for special effects and tax rate, we can model a net income. Our dividend policy does, however, as mentioned in the introduction by Niko and previously done in the past, allow us to exclude those noncash one-offs for the basis of our dividend proposal in 2026.

In other words, the changes in the guidance will presumably not impact the dividend this year. Furthermore, we've also adjusted our CapEx guidance from 6% to 6.5%, mainly due to the ongoing plant expansion in Asia. With this, we come to the end of our presentation. I would like to hand over the rest of the time to you now.

Operator, could you please open the line for the Q&A?

[Operator Instructions]. And the first question is Akshat Kacker, JPMorgan.

Akshat from JPMorgan. I have 3 questions, please. The first one on the market outlook for the passenger car replacement business. I see that you've talked about a slight decline in demand in the second half of the year versus the first half. And when we think about the inventory situation, I think something that has been very well flagged is the high inventories of tires in Europe and the U.S. So how do you assess the current inventory levels in these markets? And are you cautious on sell-in volumes when we head into this year? That's the first question.

The second question is on the winter tire market, which I think mainly underpins the very strong price mix that you've had in the quarter. And it's a more structural question on the evolution of this market, given that we have had 2 very strong sell-in seasons in 2024 and '25. How do you expect this market to evolve going forward, please, given the discussions we've always had on a structural declining winter tire market due to all-season tires, but also global warming?

The last question is on the cost actions that you have talked about and the fixed cost measures that you have taken in response to tariffs. Are there any structural cost savings that you can carry into 2026? Or are most of these measures onetime in nature, please?

Let's start with the market outlook on the PLT side, and I would like to refer to your comment on the inventories level. So overall, I think the inventories, specifically in Europe on the PCA side were driven by imports and the imports, again, were driven by the expectation with regard to antidumping measures. Whether they come not and to what extent and when is still unclear. So if it would not come, then stocks obviously would normalize pretty fast, I guess. It had a dampening effect on the sell-in. Whether this now continues into the first half of '26 remains to be seen. In U.S., of course, we also have seen raised imports, but the dynamic was due to the tariffs.

There was a lot of preload on the inventory side with regard to the tariffs. This is now also normalizing to some extent. It also takes time. It also muted to some extent the demand. But overall, in general, for volumes in Q4, as Niko pointed out in the beginning, we are rather on the cautious side. So we expect a slight decrease, flattish at this.

With the winter tire market, this is, as you pointed out, a strategic question. So, so far, we've seen in the last years, still a solid business there. I mean, in those markets where still there is the winter tire regulations. So we assume that this will drag for a certain time, and this will still support the tire business strongly as well as our position strongly.

On the other hand, we see as well that those which are changing due to climate situations, they are going into our season business. And on the all-season side, we are well positioned. So it's a one-for-one change to that. How this will play out remains to be seen. Still, what we said in the Capital Markets say that overall tires is not a strong growth business, but in the area of 1% CAGR. So you should see a switch, but moves then strongly over time from the winter side will move towards season and then as well to summer. On the fixed cost measures, you asked what is structural.

On the tire side, we have announced the restructuring measures in Malaysia, Oita, Tuck tire, Motipuram, India. I mean they are -- all those actions are getting as well into next year and helping on ContiTech, we have announced as well several plant closures and structural measures. So there is a certain amount of those which are executed this year, which are in execution, which will bring positive fixed cost savings then for the next year. However, with the one or the other part, like the Tuckire, Motipuram, there's obviously as well business, not from high enough quality in terms of value creation. That's why we are pursuing this, but there's a certain kind of business which is as well then phasing out, which you have to keep in mind.

And the next question is from Christoph Laskawi, Deutsche Bank.

The first one, please, on essentially competitive situation in tires. And one of your main competitors talked about portfolio repositioning to rebalance volume and market share. Do you see any increasing commercial or competitive pressure in Q3, Q4 right now or so far, no major impact?

And then the second question, just if you could provide -- I know it's quite early, but the main building blocks that we should think about on volume price mix, potentially FX and cost for tires and ContiTech into '26. And then remind us of the onetime cash effects that you had in '25 and what to expect in '26, please?

Yes. First of all, as you know, we don't comment competitors. So no comment from our side to that. At the end of your question, you referred to market situations. I think Roland already mentioned how we currently see the markets. right now, we should say from the trending point, similar to where we have been in the 9 months. That's what Roland has as well referred to. So we are minus 1% in volume so far. So we managed quite well the balances between our cost situation, the market and the different dynamics.

And we assume for the fourth quarter that this is unchanged. Obviously, we're always striving to be better. That's why Roland mentioned as well and to be flattish at best. We had a stronger second half last year, so higher comps overall. So this is the market dynamics in which we are operating right now.

Going to the second part for the fourth quarter, the other important metrics. FX, assuming that it continues on the FX rate, then right now, FX should be the same because it was relatively stable last year. In Q2 this year, it changed. So it should be relatively stable for the fourth.

And then looking even into the first quarter, you should see similar effects as then second quarter, really the exchange rate on the globe versus the euro have changed overall. Cost situation, we have seen on the indices and the spot prices since the second quarter into the third quarter already that they were downwards. We had only limited effects in the third quarter based on inventory and consumption.

We assume that this gets a larger effect in Q4, still being certain shy due to how we currently see the inventories and the markets and the different parts and then would drag as well into 2026. on the price mix or I should call it quality business, the quality of our business because it depends on sales channel mix, where we've been relatively rich in the third quarter. North America, larger tires, larger mix. That is pure math. Similar to Asia Pacific, we see we see that certain trends should persist. However, as mentioned, we had a really strong quality of our business in the third quarter. Certain parts will continue for sure. How it all plays out remains to be seen.

We have seen the question on the winter tire business, strong order book so far. Sell-in was good. Now we are hoping November, December to see as well a strong sellout. So winter weather in Germany right now is not so [indiscernible]. So we hope that we see some snowflakes and some predictions, then obviously, this helps as well the quality and the price mix to be more supportive in the fourth quarter.

Yes, I can take the free cash flow question. So going back 2024, we forecasted that total expected onetime effects for '25 are expected to be in a high triple-digit million euro area, more or less evenly split between restructuring, separation costs and taxes. So restructuring cash outs are mostly borne by AUMOVIO. Spin-off cash outs have been specified in the prospectus, EUR 279 million, thereof over EUR 200 million will ultimately be borne by AUMOVIO. Cash outs will mostly be covered by Continental. This should lead to one-offs on the Continental side amounting to roughly 1/3 of the originally anticipated volume.

And for '26 that should be gone, right?

Well, from the -- let's say, from the first 2 steps of the transformation that is Omo and OES, we do not expect any big effects for '26.

On the tax side, we announced that we are looking into plant measures as well, which is also dragging into 2026. So there will be some one-offs associated to that, effects -- but it's minor compared to what you've historically seen, yes.

The next question is from Horst Schneider, Bank ofAmerica.

The first one that I have relates to ContiTech and the disposals. So on OESL, you have, of course, not quantified the purchase price, but what effects can we expect basically on debt when the OSL disposal gets executed? And in that context as well, do you expect closure of that this year or it's more in January, if I remember right? And in that context, maybe also you can give an update on the disposal process of the remainder of ContiTech. So when that is really kicking off and when you expect basically closure of that? And in that context, again, when we think about net debt to EBITDA and your long-term guidance, 1x, but I think that is more for 2029. -- how should we think about net debt to EBITDA when the ContiTech disposal gets executed because that determines then, of course, the potential special dividend.

So when this decision is made, do you want to be exactly at 1x net debt to EBITDA or you can be also above because you just want to trend towards end of the decade towards 1? That would be the other question.

Well, from the -- let's say, from the first 2 steps of the transformation that is AUMOVIO, we do not expect a big effect for '26.

On the tax side, we announced that we are looking into plant measures as well, which is also dragging into '26. So there will be someone else associated to that special effect obviously. But it's minor compared to what you've historically seen.

The next question is from Horst Schneider with Bank of America.

The first 1 that I have relates to ContiTech and the disposals. So on OSL, you have, of course, not quantified the purchase price, but what effect can we expect basically on debt when the OSL disposal gets executed. And in that context as well, do you expect closure of that this year? Or it's more in January, if I remember right.

And in that context, maybe also you can give an update on the disposal process of the remainder of ContiTech. So when that is really kicking off and when you expect basically closure of that. And in that context, again, when we think about net debt-to-EBITDA and your long-term guidance, 1x. But I think that it's more for 2029. How should we think about net debt to EBITDA when the ContiTech disposal gets executed because that determines and of course, the potential special dividend.

So when this decision is made, you want to be exactly at 1x net debt EBITDA or you can be also above because you just want to trend towards end of the decade towards 1? That would be the other question.

All right. So let me take the first one. We agreed not to announce any details of the transaction with the buyer of OESL. So I cannot be too specific, but all the debt associated with the business will transfer to the buyer. This is mainly expected for the pensions.

Pension debt items.

Exactly. And then [indiscernible], I think you mentioned that already early in Q1 2026 to be expected for OES -- and then for the entire sales process for ContiTech, we more or less stay on track what we already announced. So we are in the final stages of preparation that should be finalized before Christmas, and then we're basically ready to approach the market, and we want to complete the transaction in the second half of '26. So there is no news because we're still on track. And long term, with regard to capital allocation and net debt-EBITDA ratios, we always said midterm, that is 27 to 29, we want to get to a leverage ratio of 1 or below, whereas we have certainly some flexibility with regard to the timing.

So when we will -- that depends on the market conditions, how is our business situation at this point of time. And obviously, what does the preferences overall to be evaluated.

Okay. Just a quick follow-up. This ContiTech disposal, basically, the remainder can be initiated already before the OESL transaction is completed or it only starts when OESL is completed?

No, it starts already. As Roland mentioned, we are in the preparation. We are going into the market already in parallel than in the first quarter in 2026. And OSL is itself carved out as its own business. The one is independent from the other.

And the next question is from Monica Bosio with Intesa Sanpaolo.

The first one is a flavor between the passenger car tires and the truck tires. I know that the company does not split between the 2 areas, but can you give us a flavor of the underlying margins in trucks? And can you imagine that the margins in trucks could be in the mid-single-digit zone or maybe better? Any color on this would be really appreciated.

My second question is more on the strategic side. As you mentioned that the tariff impact for 2026 is still not very visible. But more in general, in the long, medium term, what could be your strategic response to tariffs?

And the very last is on the margins for the fourth quarter for the truck tires. So on back of the favorable winter tire season and on the back of the sound results achieved in the third quarter, should we expect margins for the full year closer to the upper part of the Covid or range because at this moment, the consensus is not accounting this. Just to check from you.

I will take the first one. So we are not splitting the margins between PAT and truck tire. But in general, each businesses which we have has to create value, so at least create or give the returns on the cost of capital. This must be -- this is true for truck tire as well for PAT. You saw us in India getting out of a certain business where this was not the case. [ Alocita, ] we've seen the same. So we act once we are getting into it and Truck Tire has as well a different cost of capital. It's a different business model. It's different cost base. That's why you cannot compare it. But again, we don't publish the different margins.

However, as we have a strong position in Europe and Americas, you can believe that we have -- we are creating as well value over there. Otherwise, we wouldn't be in that business supporting and further investing into it. strategic response to tariffs.

First of all, our strategic response were mitigation measures as much as we could. Obviously, we explore our North American manufacturing sites or the North American manufacturing sites, which we have to the MAX. We are doing debottlenecking measures and so on. For further more long term, we have to wait until really the dust settles. So we have right now a certain tariff, which is in place. We have to see how the dynamics as well on the cost side will go further out.

And then as typically, we take further measures with regards to our sourcing and where we produce those tariffs. Keep in mind that building a tire plant is a very strategic long-term decision. We have to be sure that the environment and the framework and the market is in line for a longer period of time to justify such a decision.

And with regard to your third question, Monica, I expect that you're asking about the guidance, right, right? So that was my understanding. So we feel totally comfortable with the current guidance in place for ContiTech 6% to 7% and Antares 12.5% to 14%. So right now, we're remaining cautious for Q4. We're slightly optimistic, but we remain cautious. There's no need to change this. We just confirmed it, and we want to stay with this.

The next question is from Harry Martin, Bernstein.

The first one that I have is on the CapEx increase. It sounds like this is for capacity increase in tires primarily. So can I just ask about the motivation here? Is this effectively shifting capacity out of higher cost locations or an attempt to win more volume share in total?

The second question, I have a few really on ContiTech. The first one, just on the Q3 performance. Is the industrial business now back to double-digit margins in Q3? And how far away from the midterm target, the industrial business specifically now?

And then finally, on the industrial separation process. Now that you've been working through that for a few more months, can I ask what you found out about potential dissynergies between the separation? What proportion of the group's purchasing volume of rubber or some shared raw materials go to the tire business versus the industrial business? And what is your current thinking about how the segment margins may be impacted by that dissynergy on the separation?

I can take the first one, Harry, on the CapEx side. But what we've seen this year and what was the course for the slight increase in the ratio is, first of all, our investments into 2 regions, that is Americas and Asia for the tires business. So we're continuing to invest in our plant in China.

And in the second phase of expansion for our Thailand plant in Guanong, this was basically driving the ratio up. There's a little bit of a phasing element, as I already said in the beginning. So the motivation is explicitly not what you said, shift to best costs or it is more expansion into the 2 regions where we want to get stronger.

Yes. Looking for the industrial margins, so we don't publish the full industrial margins. Keep in mind that ContiTech without the OSL still includes the Surface Solutions parts, which has as well automotive business. For that, we published that we reached in the third quarter, 8.5%.

Looking for 2024, we have shown this on the Capital Markets, we have been at 8.0%. So we improved by 0.5 percentage point, and this mainly comes from the industrial business now. With 80% industrial business, you can do the math and somehow see that this business is in a better shape than before. However, we are not where we are targeting to be. The 11% to 13% is the midterm target for this parameter, including SSL. And the market itself is not where it should be. It's still a weak market environment. When I mentioned that September has shown some positive signs. It's still on a low base and the minus 0.6% organic growth was as well versus last year, already reduced sales.

So we are still in a trough, but a trough, which shows that slowly, but surely, we see some light of better trends, let's put it that way. Disysenergies rubber, what we can say, so we are not there yet. So we have now separated our purchasing. We built up our purchasing on the ContiTech side. But with the very small part only of same rubber materials from the same suppliers, this is really a minor part. We don't assume any larger dissynergies from the material side.

We even believe on the material side, we should have opportunities by having a ContiTech purchasing team, which fully focuses on a very, very complex purchasing part with a high variety of materials and the tire side with a lower complexity, however, higher volume, those 2 parts, and that's why we are doing as well the independence. That's why we are convinced that both parties are better off in the separation. We clearly believe that we can eliminate the synergies and even create momentum and better purchasing conditions for the individual companies.

The next question is from Thomas Besson, Kepler Cheuvreux.

It's Thomas at Kepler Cheuvreux. I have 3 questions as well, please. First, could you tell us whether you've decided yet what you intend to disclose in the future for the car business as we get closer to the target of having Continental a pure tar business. I've noticed you're giving us revenues and organic growth for 3 regions, but you're not giving profitability, you're not giving passenger or truck cars. What's the plan there, please?

Second question, when I look at Q2 '24 versus Q2 '25, Q3 '24 versus 325, I'm a bit surprised by the margin evolution. There was a strong decline in Q2, a much greater resilience in Q3 with relatively similar volumes, worse effect and a delta in price/mix that's not sufficient to explain the substantially greater resilience in Q3. Could you explain what I'm missing, please?

And thirdly, just to be fully clear on the base for the dividend you're going to give -- propose to shareholders for 2025. Could you tell us what is the clean net income base over 9 months on which you're going to base your reflection, please?

Yes, I can take the first one, the tires reporting structure. I think we wanted to already point out in which direction we want to report in the future by providing now a regional sales split. So we believe this is the best way of creating transparency into the Tires business by splitting it by region, not by product segment.

At some point in time next year, probably between signing and closing, we will have to change our reporting and provide more details also by region than in the Tires business still to be decided what the right moment in time will be, but we cannot do that before that because otherwise, that would trigger then probably backward split and we get into problems with the auditors.

So with the sequential improvement on the tire side, Q2, Q3? I mean, in Q2, we have mentioned that we had all the negative effects FX already started. We had the tariffs, which have been higher at the beginning, where you've seen now as well the lower base and then certain reimbursements which were coming then within the third quarter, all our mitigation measures, which we implied due to the tariffs only unfolded in the third quarter, as I mentioned.

On the material side, we mentioned before, there was a certain tailwind has been small, but there was sequentially, there was an improvement. And overall, the third quarter volume, so it's as well at a minus 1% versus prior year, but the third quarter volumes are a bit higher than in the second quarter. So those are all the reasons, the positives, which were the negatives in the second quarter were reversing then in the third quarter. That's the reason why our margin is substantially better than we have been there.

And then the last one basis for dividend and clean net income. I mean you've seen our net income, it's minus EUR 756 million negative. If you now would adjust this for the special effects, we also show on one of the first charts in our presentation, already EUR 1.1 billion is due to the OTI recycling driven by the spin-off of AUMOVIO and then the second portion EUR 680 million, sorry, EUR 680 million.

The other part is the U.S.

And EUR 454 million is then driven by OESL. And this together would already most likely bring us to positive territory. So we did not do the math because it's a technical question, but it's certainly not negative.

And there's the fourth quarter to come?

You should get us at a reasonable net income, let's put it that way.

And the next question is from Ross MacDonald with Citi.

My first question is just coming back to Tires. And you mentioned the second half of September, in particular, was accelerating. Can you maybe give some commentary around whether that trend has continued into the fourth quarter? And obviously, we're tracking at the sort of midpoint of the tire margin range. So just keen to understand if you feel like we're tracking in the upper half now for the full year guidance on the Tires margin.

My second question also again on Tires. Given the weakness that we see in truck original equipment, could you potentially update on factory load or factory capacity utilization rates, please? And maybe comment on how big a benefit to group margins it would be if we see, let's say, the truck cycle at a normal level?

And then my final question is coming back to Christopher's comment on the U.S. market. Obviously, Michelin have reduced their exposure to ATD. Could you comment on your exposure to ATD? I understand you sell to ATD. So just curious in the third quarter, if there was any additional potentially one-off volume benefits as you took additional share with ATD, -- it'd be very interesting in understanding the volume dynamics in the U.S. there.

Ross, thank you very much. So let me take the first one on Q4 trends in general. We already commented a little bit on it. So raw mat slightly up versus Q3, maybe mid-double-digit million euro amount. FX more or less in line with Q3. Volume also in line, potentially even flattish year-over-year, as we said, price/mix slightly below Q3 because the quality of business in Q3 was really very good, rather towards Q2 this year. And then fixed costs slightly worse than Q3. That's more or less the comment, our expectations going into Q4. We don't want to be more specific at this point in time with regard to the guidance for tires.

Yes. And there's the Q4 to come. So obviously, many things can happen on the sales channel and so on with regard to the sales quality of our business. Let's see how that ends, and we referred already to the winter. -- which is not a winter yet so much. On the truck tire plant utilization, the OE part, we are largely exposed to replacement to the aftermarket than to the OE part. So obviously, lower OE affects our plant utilization, which is a bit lower at that point of time. However, we can replace it with -- in a certain part with the replacement business. We have as well some factories where we share PLT with truck tires. So we manage this quite well going through, which means on the other side, if truck obviously comes back, that helps to how much remains to be seen difficult to quantify.

Yes. And on individual customers, sorry, we don't want to comment on individual customers. Obviously, ATT is an important customer for us and will remain an important customer for us, but there's always we can say...

On this one as in other markets, and we have a substantial share overall in the U.S. market means we have several many customers where we are balancing our businesses carefully in order to balance as well risks and opportunities.

That's helpful. Maybe if I could phrase that final question just slightly differently then. Obviously, versus some of your peers, you're clearly gaining share, let's say, in the U.S. market. Is that a trend you expect to continue? And would that trend be at a similar level to the third quarter? Obviously, just removing the individual wholesaler names, but just keen to understand the momentum on market share gains in the U.S. that you expect into '26.

So we don't comment on gaining share. that's not the important part anyhow. So looking on how our business continues, we are confident and R Roland said that we continue as well on North America and the Asian PLT replacement business, where we have clearly seen positive momentum in the third quarter, and we assume this going on. What our position is afterwards in the market, that is the result of what we are doing and not vice versa.

And the next question is from Michael Punzet, DZ bank.

I have 2 questions. Maybe first one on your statements in the pre-close call. Can you maybe explain the difference between the statements in the pre-close call and the final margin development for both divisions, especially since this must be result related to the development in September? And the second one is on the special items. Can you give us any kind of guidance what we should expect for special items related to the transformation process besides the stopped depreciation on OESL?

So the first part, I will do. So what was the difference? I already referred at the beginning, the second half of September was very strong. We came out of the July, August, which were kind of muted. First half of September took over momentum. And then in particular, at the end, we have seen the markets much better. This -- in terms of volume, there was more volume coming in.

There was more favorable quality of business, so price mix. So clearly, in the different regions, which are contributing as well to the better results, we have seen unexpectedly better ones. We had -- we came out at lower cost, lower fixed cost as we have predicted the tariff relief, which was then in September then published where we had to do the math back. So what have we paid before, how much, how do we reconcile and book for it this effect has been larger.

And then we had as well transitional service agreements with AUMOVIO, which came in positive on the cost side on the IT license allocation. So you see it was a month ending with many positives, which has resulted in a more positive result than we have foreseen it in the pre-close call. So good news came relatively late.

Yes. That leads us to the second one. So special items of the transformation, let me refer back to Chart 4 of the presentation where we try to list all of the effects in Q3. We already touched upon the most important one. So the impairment impact, EUR 455 million and the EUR 680 million coming from the auto spin. And then there is some other carve-out related project costs for ContiTech as well as auto and also some tax-related special effects coming from the carve-out and from the spin-off.

And then the only thing left is then the restructuring, EUR 22 million in Q3, EUR 111 million in total for year-to-date. There is more or less all the special effects, which we explained on Page 4.

So that means there will not be any major part or the major additional special items in Q4 related to the transformation.

Well, that could well be that there is a little bit still in terms of FX change related and there probably some A-related project costs still coming in Q4, but it's not as big as you've seen here in Q3. Q3 was the major impact of everything to do with the spin-off and the large portion of the current preparation for OESL and also for Callitec.

And the next question is from Michael Aspinall, Jefferies.

Michael from Jefferies. Just one, you might not comment, but it's being discussed a lot, so I thought I asked directly. Wondering if you can give us any thoughts as to the value of ContiTech.

Yes, your assumption is right. We get value, we believe in the strong value of ContiTech, which is then underpinned by strong interest in this asset, which we believe is a great one. A valuation asset, we will not comment yet. This will come then later in the process. Sorry for that.

We're getting basically calls every week from potential buyers saying process, and we want to be part of it. So we believe it's going to be an attractive purchase price, but of course, we don't want to be specific.

And the last question is from Horst Schneider, Bank of America.

Maybe we get it done in 30 seconds. I'm glad that I can ask a follow-up. Briefly on price/mix because that seems to come down again, normalize in Q4. Ronald, I think you said also at the Munich Auto Show that going forward, you would expect that 3% to 4%. So the 3% is a minimum number we can assume going forward, not for Q4, it more refers maybe '26 and thereafter.

And on cost savings specifically in ContiTech, can you maybe quantify to what extent cost savings have driven the ContiTech results year-to-date? And what specifically, not just on cost savings, but in general, any statement on ContiTech Q4? Because I think Q4 is always the strongest quarter usually for ContiTech also in terms of margin. Is that going to be the case also this year?

So I do it very fast. I start with the back Q4. I mean, if you do the math, Q4 must be stronger than the year-to-date must be the best quarter. Otherwise, to get into the margin corridor. We said as well before, it will be for ContiTech more at the lower part depending on how the Q4 will end. So yes, and most of the improvement versus prior year was clearly from the cost side. If you take this as a comparison, a bit we worked obviously as well on the quality of our business, repositioning and more focus on the higher quality business, let's put it that way, but really a large portion of that is coming from our safeguarding measures. as obviously, the sales part has not contributed a lot.

To the price/mix part, I mean, how Q4 will end remains to be seen. It depends on all sales channel mixes and so on, which we assume rather stable, and we already referred to that Q3 was on a high level. Everything was coming in, larger markets, larger customers with larger tires contributed, which is great. Going forward, as mentioned at the Capital Market Day, historically, a mix in the range of 2% to 3%, 2%, 2.5% has been shown.

Looking at the trends in the market, EV, the new car park and the new cars which are registered with larger higher tires suggests that such a trend should extrapolate for the future. And then it all depends the additional one, how we perform in the different markets. Our main growth markets are the Americas as well as Asia Pacific. Truck tire might come back, which adds then to that on top.

And with that, we have come to the end of the time. So thank you, everyone, for participating today. As always, we, the Conti IR team are happily available if you have any remaining questions. And with that, we would like to conclude for today. Thank you very much, and goodbye.

Good afternoon, ladies and gentlemen, and welcome to the Continental AG Analyst and Investor Call H1 Results 2025.

[Operator Instructions]

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 Setzer; our CFO, Olaf Schick; as well as Philipp von Hirschheydt, the future Automobile 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 yourself to no more than 3 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 automobile 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 EUR 235 million, equal to 240 basis 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, Niko.

Thank you, Max. Warm 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 has impacted us. On the other hand, we have reported on the ContiTech 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 24, we had the Capital Markets Day, we have a lot of information. And we -- I want to use the opportunity to thank everybody. We had a high personal participation as well many joining in a hybrid mode.

We have many road shows 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.

This headline sum 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 where so many events on the macroeconomic base as well as it comes to currency and operational side. Good news is we are ready to spin off automobile. So you see on the right side, for all other transformation projects, we only have heads-up that we are fully on track. We are -- there is no obstacle driving our transformation forward. And in particular, our automobile listing in Frankfurt, we have now a date -- a targeted date which we can communicate September 18, which we are now working on.

Looking on the organic sales, you could see on the left side that our sales were dropping from EUR 10 billion to EUR 9.6 billion. So heavyweight by the FX of north of 3%, 3.4%, mainly the U.S. dollar, but you barely find any currency in the world, which is not depreciating versus the euro where, unfortunately, our base, in particular on the tire side is mainly in euro, 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 commercial and operational efforts. So Philipp 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 year but the year before, so in the first half with 2.8%. We are within the guidance range, 2.5% to 2.4%, which we have not been in the year before, which is clearly a very positive as well a positive sign and proof point where the spin to happen September 18.

Tires strongly hit by the FX as well as a strong FX headwind, same as we have on group more than 3% with substantial drop-through, which is the one half, which weighs on the profitability, the other half, as we have communicated before other tariffs with 2 months now with limited compensatory effect from Q3 onwards, that will improve and we are going forward.

Important to mention that operationally, we haven't been okay. So we had a strong price mix north of 3%. Volume was given the market as well, okay, we could with our price mixes were compensated for a raw mat headwind but not for the FX and tariffs, which we are coming in. So as you could see, cut here, not effective yet, but the tariffs from Europe will drop from 25% for auto. And Paska 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 built 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 Markets Day, what we have shown.

The markets on tires, they have been muted in particular, Europe, APAC, North America, okay-ish. And for all markets, it is true that we have been at least within the market, at least if you look as well for local manufacturers. In Europe and North America and APAC, we have even slightly outperformed the market, which is a good sign going forward.

ContiTech continued weak volumes on order as well as the industry. However, we have seen at least, we say only, but at least gradual signs, why only because we still hoped for more. ContiTech as well organically going backwards by 1.4%. Unfortunately, and headwinds, tariffs and FX, however, Philipp and the team, the other Philipp, continue working strongly on fixed cost management, and we could get 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% in the second half, we have to further improve going forward.

For the group, you see in the right box, the like-for-like without IFRS 5, we end up with EUR 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 weighs 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 that might come as well then for the second half certain separation one-offs, which we will see another part, which will happen then in automotive, which will then be spun off on September 18.

So net income, you see from EUR 305 million to EUR 506 million, also mentioned by Max, this is difficult to be compared number because it's not only depreciation, we have as well a hypothetical tax effect, so to say, to take an out if you do this, if you assume a flat tax rate the effect should be in the amount of EUR 180 million. So if you deduct this EUR 325 million is still higher than we had last year. So we moved 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 EUR 650 million.

Adjusted free cash flow, we've been down in the second quarter, however, particularly for last year, you have to take into account that we had in the second quarter a high working capital effect or one-off effects 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 of the first half, we are EUR 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 the one hand, on the other hand, the spin-off related assets, which I already mentioned, which [indiscernible].

So looking for equity ratio, Olaf will explain more. There are short-term 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 [ income ] is going down, EBITDA positive development that helps. And as mentioned on the Capital Markets Day, 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 in figures, we mentioned Group sales, minus 0.4%, so basically flattish, tires 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 ContiTech with minus 1.4%, again, more than EUR 80 million, which we could not on an operating leverage fully mitigated. 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 0.5 percentage point lower, which I said we have to recover and now further improve in the second half as well industry volumes come back, but further working on our cost measures.

Tires at 12.0%. Here clearly, had mentioned FX and tariffs were hitting without the mitigation measures as well here, if you do the first half comparison as well here only because the first quarter, second quarter was flip flop. Last year, first quarter was weak. This year, it was stronger on tires. It's as well about 0.5 percentage point down given the effects which we have in the second quarter, which is clearly the trough looking for FX and tariffs, this is a good result, resilient result, as we mentioned before.

And clearly, with that, I hand then over for the last time to Philipp von Hirschheydt. 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.

Yes. Thank you very much, Niko. 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 18, as Niko 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 [ daily ] wages basis.

However, the sustainable price agreements, which we secured in 2024 have provided a significant stronger base in the first quarter 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 quarter 2 to 4 are creating then tougher comparisons, which are going to weigh on this year sets out 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 4 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 the build-to-print businesses, which you can see here in the Architecture Network Solutions results where we have a reduction in sales compared to last year that is primarily due to this phaseout of some specific projects.

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 improvement 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 have then in terms of operating leverage.

As you can see, safety and motion and autonomous mobility more or less stable. But more important for us, as we always mentioned, 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. But in a very challenging market environment, we increased our operational results by 110 basis 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 onetime 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 breakeven, which is a strong achievement compared to last year. And if we look at the H1 results, we can also see that -- and 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 sure 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 as we meanwhile agreed with most of the customers on reimbursements, this will then start to materialize from quarter 3 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 EUR 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 2 is that the automotive free cash flow before interest and tax is despite the fact that we have quite significant outflows for restructuring and thanks to an improved operational performance, we are at around breakeven again. So also that huge improvement compared to 2024.

So let's go 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 breakeven. We made, again, significant steps forward. We were always talking about that we have clearly find 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, whereby more than 6,000 or by 6,000 employees, our organization and made them fit for future. You remember that we announced 2 years ago that we are wanting to reduce our SG&A costs by EUR 200 million 2024 and EUR 400 million in 2025. In the first half of 2025, we have already implemented EUR 150 million of that. So we are good for the EUR 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.

We are already talking about R&D efficiency. We have reduced another 1,500 employees compared to the year-end 2024, and that will translate into an improvement of net R&D expenses adjusted for restructuring by around EUR 120 million in the first half of the year and that should last and also then should run then also into the second half.

We are already mentioning on the A&S side that our portfolio management is well on track. We have done some smaller divestments. One we mentioned already end of last year, this is the [ zonal ] sales, which we have now retroactively taken out of our comp base, which made our adjusted EBIT 0.2 percentage points better on a like-for-like base. That means 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 build-to-print businesses. We will also, therefore, the streamline operations. You have heard, and that's what we mentioned already during the Capital Market Day that we are intending to divest our Italian Drum Break business that's also very well on track, and we expect closing 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 as said, so we are still working on some projects to be given back. So some impact on sales, you are also going to see over the course of quarter 3, 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 outperformance our picture changed this time for Europe. One reason is the phaseout of the build-to-print business at Architecture Network Solutions. And also we had last year in the second quarter, quite significant commercial effects means repricings, 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 effect.

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 a sizable onetime customer contribution. And in China, where we have been doing significantly better than the market, we have benefited particularly from launches of our MK C2 projects on that specifically with Chinese OEMs.

So if we then come to the last page, which I'm presenting today, the Page #8, the order intake, you can also see here that we are on a good track. We have incoming orders of EUR 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 ones for our commercial special vehicles 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 MK C2. We 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 and airbag systems side.

And architecture networking were also contributing with EUR 1.6 billion for TC, Telematic Control units as well as for several other gateways and light control solutions.

So that's from our ContiAutomotive. Next time then automobile. And with that, I hand over back to Olaf.

Yes. Thank you Philipp. So I will continue with tires and Niko already highlighted that tires is significantly impacted by the highly volatile environment, substantial headwinds from FX and tariffs. Understating 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 APAC and North America held up well and this development supports the mix 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 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 3.2%, primarily driven by mix improvements.

We benefited from regional trends, positive effects on sales channels and the continuous trend towards premium and ultra high-performance tires in our product portfolio. This development helped us at least to more than 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 results were severely affected by macroeconomic factors. In addition to the headwind from FX, profitability was significantly burdened by tariffs as our mitigation measures were unfolding with a delay as of mid-June. Overall, the net headwind from these 2 factors, FX and tariffs is in the low 3-digit million euro range and is distributed almost equally between tariffs and FX.

The bigger picture despite a volatile market environment, profitability for H1 is only slightly below previous year's level. So that's actually strong signal of the operational performance of tires.

So now 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 a slight organic volume growth in our industry business. However, the trajectory of expected improvements remains uncertain. We need to see that. On a positive note, sales have stabilized quarter-over-quarter. The FX effects on sales were again negative from the limited opening to earnings our strict focus on fixed cost management and production performance on could not fully mitigate the impact of lower volumes year-over-year. However, we could achieve improvements versus the first quarter.

And let's look at the free cash flow. The second quarter operational free cash flow generation was burdened by ongoing restructuring and spin-off 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-off effects from changed payment terms and contract manufacture. So obviously, it didn't have this affects the second quarter of 2025.

Since cash flow generation in Q2 seasonally tends to be rather neutral. We came out with a negative adjusted free cash flow due to the ongoing restructuring and spin-off as already mentioned, but also investment activities on the tire side. However, as Niko said that at the beginning, we achieved in the first half of 2025 free cash flow improvement over EUR 400 million compared to the prior year.

Then I would like to address on the next page, more technical aspect concerning our balance sheet, you see only in this quarter. And that's the temporary drop in our equity ratio. So Continental's equity as per June 30, 2025 has been significantly reduced due to the reclassification of automobile equity into other short-term financial liabilities. This reflects the upcoming distribution of our mobile shares to our shareholders due to the spin-off. This liability position is not part of net debt.

With the spin-off, the balance sheet total will be reduced significantly by asset held for sale. Assets held for sale amounted to EUR 18.1 billion in Q2. That means our total assets will basically be reduced by 50%.

As stated at the Capital Markets Day, we expect a leverage ratio of around 2x after the spin-off and all KPI targets mentioned at our Capital Market Day of course, remain relative that means also an equity ratio of above 30% that we target for.

Now let's look at our -- the market outlook. Light vehicle production in North America has proven to be quite resilient so far. As a result, the expectations have also improved after 2 months of tariffs being effective. Therefore, we raised our North America LBP expectations for 2025 to a range of minus 5% to minus 3%, expectations for Chinese vehicle production has also improved in total in respect to flat vehicle production worldwide, also for commercial vehicle production was significantly worsened in particular, in North America. Our assumptions regarding the tire replacement market and industry production did not change.

Okay. If you look at our guidance, we have announced and adjusted our guidance at the Capital Markets Day. We are now confirming this guidance with the reduced tariffs mitigation measures taking effect. We are now expecting limit double-digit million lower headwind in the second half for both [indiscernible] and the group. Furthermore, we still guide for negative special effects of around EUR [ 350 ] million. This does not include the deconsolidation effects in connection with the plant spin. Although our free cash flow guidance has not changed.

Let me give you a short summary of how the extraordinary 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 we 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 smaller portion is [indiscernible].

Payments in connection with the spinoff will be primarily born by automotive. This includes costs in connection with the listing, IT separation and branding. The part remaining with Continental is mainly related to IT separation.

Regarding the tax effects, it is too early to share any more details, but certainly both automotive and Continental will have to bear a part of the spin-off related taxes and we named them to the magnitude before. A major part of all spinoff-related costs will accrue still in 2025.

With that, we come to the end of our presentation.

Yes. 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, already when I hand it over to Philipp, a historical analyst and investors call because it's the last one with automotive, and it's the last one with 2 individuals with our CFO, Olaf Schick and with Philipp von Hirschheydt, 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 a good bye 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're 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 has everything which is needed in order to be successful going forward.

So the champions, the 3 plus 1, as we said, they are on track. So thanks to you both for your contribution in the past and please don't forget to invest everything to have a strong listing on September 18 and drive our other projects forward, which I have no doubt you will do. And at the same time, I mentioned at the beginning, 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's 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.

[Operator Instructions]

And the first question is from Christoph Laskawi, Deutsche Bank.

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 that's it with [indiscernible] 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 would 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 the mitigation measures are coming through with July and then obviously, the tariff cut from August 1 onwards, so that we could even see in Q3 already 1 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?

Yes, I will start -- Olaf here. I will start with the first question on the great topic with BMW. As you know, we supply BMW at a lower MK C2 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 Continental filed a lawsuit a few days ago.

Look, that's something that you in such a phase of 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 of BMW and then -- and we will -- everything else we discuss with BMW, we will continue that dialogue.

And also, you saw that in Philipp's presentation, it's important, right? This MK C2 brake technology is well accepted in the market. We received new orders also in the second quarter also from China, as you saw on the presentation. Our provision is still correct, as they confirm our provision as of today. The situation going forward will remain with automobile. The spinoff basically will not be affected by these proceedings, but this is, content-wise, an automobile topic, but you cannot compare that actually with the Vitesco scenario where you have a kind of proceedings by authority. So that's very different. So it's difficult to make an analogy.

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

Yes. Then I take your third 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, this 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. But looking back at Q1. So we lost versus -- sorry, to Q2, we lost versus last year Q2, around about EUR 100 million adjusted EBIT, and that was basically all about tariffs and FX and without that effect, we would have been close to EUR 500 million.

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 to 25% to 15%, hopefully, for PLT hopefully, pretty fast. And then our mitigation will become fully effective, so there will be a big relief in what we expect then for the full year still for the second half to 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 of compared the peak was in July 18. If it stays around about 1.15 then we expect north of EUR 100 million additional burden for the second half of the year.

The next question is from Jose Asumendi, JPMorgan.

Full agree Niko, unprecedented incredible times at Continental, the changes we're seeing are incredible in the context on the history of the company. Certainly very, very interesting times. And I fully agree. This will empower both companies to deliver better results.

A couple of questions. And obviously, wishing all the very best to to everyone in your roles. Can you comment a bit, please, on cash generation, maybe second half to the first half? And if you could provide the color within tire and auto, expectations for the full year and specifically, how do we think about many a little bit 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 sites?

Jose, good to hear you. Look, we still have a -- I mean, if we look at auto and Philipp can then add the cash performance in the first half of the year was quite strong. Still, you still have the seasonality of the business going forward, right? So we expect -- also was before interest and taxes basically breakeven a strong 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. So second half of the year, we see the strong seasonality of that business. So we expect a strong cash flow performance in the second half of the year.

Okay. Let me add to that, Jose, yes. So with regards to automobile in the second half, I mean, I explained that we have been basically breakeven 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 was mentioning, but -- and we will still be breakeven 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 subdivisional 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 at the 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, a 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 breakeven. So this will make the biggest jump, whereas each and every business area, media business area need to contribute by reducing costs and adjusting the infrastructure towards the sales volume and towards better drop through and better operating leverage going forward and making the breakeven point significantly lower than in the past years.

We have formed a -- coming to your third question and the question of what are the main achievements, which we managed in new orders. I think what we do see already for quite some quarters is that our MK C2, our integrated brake system is a very appreciated technology -- technologic 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, we -- and that's what we tried 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 life cycle and that's what you see. You see consistent and continuous orders coming in for existing projects -- 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 breakeven, but that we then will also see additional orders going to flow into Q3 and Q4.

And the next question is from Ross MacDonald, Citi.

Hopefully, you can hear me. I had 3 questions, I think, fairly simple questions. First one, just on tires. One of your competitors actually lifted 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 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%. I don't 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 OES sale, I saw a headline that you expect that to be wrapped up in Q3. Any comments in terms of likely timing and cash-in impacts could be helpful, I think.

Yes. So let me start with the tire side, and start for the volumes. 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 [indiscernible] season has started with a strong order intake but we also have tough comps 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 had a very strong price/mix effect in our EBIT in Q2 and we continue -- we see this to continue into H2.

Okay. Then I add on with the question towards -- across 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 instable of overall macroeconomic environment, we expect that -- or 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 parameter of automobile, 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 obviously, which we said in the past is still valid. We are moving forward, and we are confident to conclude this transaction, still in the second half of this year.

And your question of any impact from the start, we said that you should not expect any specific cash impact for us. The clear idea of the [indiscernible] transaction is making out of the ContiTech 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 flow or the other results.

At the moment, there seem to be no further questions. [Operator Instructions] And we have one more question from Horst Schneider, Bank of America.

One leg already in holidays. But just small ones on tires. Can you maybe quantify the negative raw mat effect in Q2 and provide an outlook for the second half?

And also, can you same then also quantify maybe the FX drop through that you have seen in the second quarter?

Let me start with the fixed 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 EBIT and this will then turn around in Q3. So we already expect pretty neutral effect in Q3 and a slightly positive effect than in Q4, which makes H2 slightly positive.

Maybe small add-on for automotive. Philipp, can you elaborate now on the chances that you can achieve this in automobile than for the full year, the upper end of the guidance range? And what speaks against this assumption? You alluded on the -- at the CMD to this weaker Q3 that was clarified in the preclose call. So maybe an update on the H2 outlook and why automobile shouldn't achieve the upper end of the guidance range?

Yes. 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 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, we -- if so, we would need to do that going forward as then the automobile perimeter. So we are still -- we feel comfortable where we stand, but we feel not yet comfortable to change the guidance into any direction.

And all the best for your second leg in the holidays, Horst.

And we have one follow-up question from Ross MacDonald, Citi.

Sorry for the delay there. Yes, given, I think, plenty of analysts on holiday, I'll jump in with a couple more. Just interested, Philipp, on the automotive side, on Slide 7, 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 U.S. 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?

Yes. I mean with regards to China, we do see, and that's what we always 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 had -- that 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 said 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 and 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 America 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, Ross?

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

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

Yes. 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 Conti IR 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.

Welcome. Welcome, everyone, to Continental's Capital Market Day 2025. Welcome to you joining online, but in particular, of course, also to the ones who made it here to sunny Frankfurt. We're excited to have you and to present to you a very interesting day for Continental. And we have a 3-part event prepared for you. We will kick it off with a nice and crisp overview into the transition, the transformation of Continental. Obviously, the second part, also of high interest, will be the future Aumovio company with Philipp von Hirschheydt and his team presenting their strategy, and we will round up the day with a joint event where you can experience technology and meet management and exchange, ask all the questions you would like to.

So a strong lineup of speakers, you will meet the people who drive Continental who make sure we deliver every day. And if we look at what is ahead for today in terms of agenda, Niko Setzer, our CEO, will kick it off with his view on the transformation of Continental, where we are and what will happen next. Philip Nelles will provide an insight into ContiTech as an industrial pure play. On the tire side, Christian Kötz will follow up with his view on the transformation and the organization, together with Roland Welzbacher, who will take over as CFO starting October 1. Our current CEO, Olaf Schick, will wrap it up with his view on midterm targets and capital allocation. And of course, you will have the chance to ask Q&A as well.

So you will get insights on strategy, performance, opportunities. And with that, it's the right time to hand over to Niko Setzer, who is driving the transformation with more precision and energy than arguably anyone else. Niko?

Thank you, Max. Thank you. A warm welcome from my side to this Capital Markets Day. The last Capital Markets Day we had 18 months ago, so it was December 2023. And this is as well my first chart. This was exactly the chart, which we have shown there in order to explain where we are coming from and where we are heading to. And this is important for today, and I will come to this at the end of the chart.

First of all, you might all realize and many of you know us already since a long time, we had a long era of success from 2010 to 2018, where all our businesses were basically developing on the positive side, followed by an era of decline the 2020, where markets were hitting us hard, and it was a very painful decline as well or deterioration of our profitability. Followed by the era of recalibration where we set until December 2023, the foundation for the era, which is starting right now. We turned many, many stones in that company, and we are coming and entering and we clearly committed we are going now into the era of execution 2024+. And we hope very much that once you have finished this day, you really see we meant it that way.

We really meant it and executing company-changing decisions on the one hand and on the other hand, while working on the excellence of our businesses improving it forward. The speed of our internal transformation is and the need in particular and the reason is increasing day by day. We have shown as well in December '23 that the market is not giving tailwind. That's why we said we very much focused on self-help. We have to help ourselves going forward. If the market performs, we don't mind, we are happy. However, we saw on strength technical transformation since December '23, we can say the intensified competition, in particular on the automotive side. Philip and team will show this in the afternoon. It's getting more intense.

New entrants coming in, which are questioning the status quo, means we have to adapt and we have to focus on what we can do best, our USPs, which we can offer to the market. Macroeconomic development, still very difficult. Volatility is high. Visibility is low, and we see further cost pressures. Our customers, they take affordable products into their buying consideration more and more. Means for us, there's increased demand on adjusting our cost structures. We have to work on cost -- that is our homework and even more than we have seen in December '23, and we come to this later. And global supply chains are getting stressed more and more.

I don't have to mention geopolitical tensions, which we see on a daily basis, very unfortunately, and we see new trade barriers coming in. So this is affecting all markets. It's affecting all our businesses. However, it affects them very different. That's why we need as well tailor-made specific focused answers, focused answers per sector and even within the sector, it depends on which region and which product is concerned. And we need those answers in 2 dimensions. The one dimension is clearly strengthening the independence because we need individual answers. What we did, 2024 plus era of execution, spin-off of automotive, sale OESL, which we carved out already or we took the decision already a while ago. That's why we are relatively fast here.

ContiTech Group sector, which we announced on April 8 and optimizing management structures on the tire side, Christian and Roland will explain a bit more for tires. Obviously, once we perform all those transactions, tires will become a pure play and has to adjust and being ready for the stand-alone pure play to come. And on the other side, operational improvement, I already mentioned the cost pressure, which we see in the market. We have to do our homework. We have to safeguard competitiveness, significant restructuring on the automotive side and more has been even announced in the first quarter. Same for ContiTech. We turned around OESL.

Dagli and team did a great job, cash flow positive as well last year. However, as well on the industry side, we have to reduce complexity and further work wherever we can to adjust our costs. And on tires, we have seen in the recent months and weeks already portfolio measures, which have been taken, step out of certain business, optimizing the business in order to improve our operational effectiveness and by that, create more value. This safeguarding of competitiveness is as well seen in our results. If you compare where we are coming from in 2021, so this was still the era of recalibration, let's put it that way. We have improved by 120 basis points our adjusted EBIT margin, very much driven by automotive.

Automotive was coming out of red territory, as we all know, 360 basis points. However, it shows that we have strongly improved. And we have what we specifically see in the first quarter where we have achieved as well an adjusted EBIT margin of 6% coming from 2.1% in the year '24. Honestly, the reference is a low one. Yes, however, you see, we have stabilized. We have a more resilient business. And once we announced that we are pursuing and looking into the spin in August last year, we said we need a solid underlying margin on the automotive side. Last year, we have been already on a level of 2%. You saw that the first quarter was much stronger, and we reached as well as lower seasonality of this business, a weakness, which we had in the years before.

So we can say after this first quarter, we are now ready to realize the potential of our -- which is in our stand-alone businesses. As of today, we are a group with 3 plus 1, as we say, 3 sectors: Automotive, Tires and ContiTech. And we will transform them with all the measures, which we are implementing in this transaction in strong individual players. As mentioned, 3 plus 1. The plus 1 is OESL, the automotive business of ContiTech because this is not a sector itself. However, it's as well a business, which we made stand-alone and where we clearly believe that it can perform stand-alone better than within the company.

Highest priority is clearly the spin of Auto for September this year. This is priority #1. At the same time, we are capable because we already started with the carve-out of OESL a bit earlier, let's put it that way, that in parallel, we can execute as well the sale of OESL, making ContiTech an industry pure play and finally leading then to a pure-play tires on that. Let me make this clear. The spin is priority #1. Nothing should jeopardize the spin. And this is where we have all hands on deck. However, what we can execute in parallel, we wisely do in order to act fast in the current environment.

And the spin of automotive will lead then to a listing in September 2025. What we are currently doing, we are ensuring the stand-alone readiness of automotive on the organizational side. In particular, we are preparing the spin-off documentation, and we are optimizing still our operations. In order to have for automotive then December -- in September, sorry, a strong start as an independent company to lead by being top in tech. That's, by the way, the history we can say for the 3 plus 1 for all our businesses since 1871. This is a technology-driven company, and this is the clear strength on the automotive side transforming us an even higher high-performance organization and delivery, which you see this afternoon presented by Philipp von Hirschheydt and the teams.

Automotive is a EUR 20 billion business and a strong industry player. OESL is much smaller in the range of EUR 2 billion; however, in its business, it is a strong player in the competitive field. And we see in it, Dagli and team, as I mentioned, turned it around a strong value proposition, which a new owner can further develop and can develop with more value creation going forward. The sales process, we said we are going -- starting the first quarter to the market is fully on track. Very likely, it will be a financial buyer, and we are confident that we conclude this still in the second half of 2025, which leads ContiTech, as mentioned, into a pure play. If you take out of the EUR 6.5 billion sales of ContiTech last year, you take out the EUR 1.92 billion, you get to EUR 4.5 billion industry player, more than 80% industry business. So it is a pure play.

It's one of the largest industry player in the technical and thermoplastic rubber business. So that is a strong asset, a strong asset, which from a 6% EBIT margin, ContiTech realizes or has realized in 2024, getting to an 8% by excluding OESL already, and we anticipate strong potential where ContiTech Industry has been as well as a business in the past. We anticipate this strongly going forward and in particular, once a new owner has the opportunity to focus even stronger on it. We have done a dedicated analysis what is the best transaction for ContiTech. We announced this on April 8. And today, we can say that we finished this concept phase, and we are confirming the initial assumption that a sale as a transaction is the most value-accretive option for ContiTech itself and as well for the RemainCo for Continental AG.

We see that both strategic and financial buyers or private equity have a strong interest, a comparably strong interest because as I said, we see it a strong asset. We have knowledge from the past that there are players out there, which are really interested to develop this as an industry pure-play father. We are confident step by step, but in 2026 that we can conclude such a transaction. And you see from the transaction separation costs and tax effects, this is all included. It is a low triple-digit million euro number. That is comparably low. Why? Because ContiTech industry part is already fairly separated. OESL, as mentioned, the carve-out happened already earlier. Automotive is out, and there are very few overlaps with the tire side, which makes it then a relatively swift separation.

So -- and once the transaction for ContiTech is happening, then tires is getting the Continental AG. Some may say, and we see this in particular as well, [ Jon ] is writing, this is back to the roots. This is not correct. This company has been never a pure-play tire company. So we started at 1871, there were no tires. They were technical rubber business where we're starting with all goods around it. And this company has been always a mixed bag of different businesses, later on the automotive part were coming, which have been dealt with it at the same time. This is the first time that we can really, as Continental AG fully focus on tires.

And Christian, Roland and the whole team, they are really fired up to get into this journey, which is an exciting journey where they will prepare already today for and then going forward after the execution in 2026. What you can already be insured, it's a strong, resilient tire champion, strong profitability over time, highly cash generative by best-in-class operational efficiency, which we have to always work on, customer-centric strong brand, in particular here, you see as well top and tech proven as well by the market products. And if you see what trends are coming in the market, regulations which are coming and tech is needed in the future. We clearly believe that with the tire business, we are well positioned to tap into those new profit pools, which are growing going forward.

So we see that in 3 to 5 years, the company will look different, and this will not -- you heard me saying that ContiTech sales transaction is foreseen for 2026, this will not happen that way. We want to give you an idea, an indication as a potential, not as a target because the company will not look like that in the next 3 to 5 years. What would be the potential in the next 3 to 5. For that reason, you see ContiTech, we have excluded OESL. That is the EUR 4.5 billion. So this would be after spin and after OESL sales process in the second half. We see the potential to outperform the market to a EUR 5 billion to EUR 6 billion sales. As said, this is just the 80% plus industry business.

And from the margin, here, you see the 6.2% to 8.1%, which is then ContiTech as an industry pure play to develop on 11% to 13%, a margin where we have been in the past as said, and Philip Nelles will present the measures and why are we confident that we can get there. On the tire side, you see versus CMD 2023, the market has not been as strong as we have assumed at that point of time. So the midterm potential we see right now, EUR 14.5 billion to EUR 16 billion. If the market develops better, then we assume we are fine. We don't mind, but we have to make our homework and being sure. And this still means -- and this is true for ContiTech as well for tires that we outperform the underlying markets. And we stick to the margin corridor, which we have announced on tires, 13% to 16% because we see in the current environment, low visibility, very difficult to adjust 18 months later that this is still the right guidance going forward.

So to wrap it up, for everybody in this room as well as online, I hope you could see era of execution, we mean it like that. Company-changing decisions, which we are executing. The team is fully fired up in order to do this, in order to master the transformation by creating 3 pure-play champions. And being invested in Continental means that you are part of the journey, which is an exciting one, which suggests after reaching stability that automotive has upwards potential going forward.

ContiTech a hidden champion for industry, as I mentioned, high-value industrial asset. We see strong interest from the market and tires, first time in history as a resilient tire pure play. And if we do everything right, which we have right now in back; in fact, which we're working on. We are very convinced that this will lead into the next era of success, not in 1 group, but in 3 plus 1 champions.

With that, I hand over to Philip Nelles, explaining you, as said, how ContiTech will develop.

Thank you very much, Niko, and a very warm welcome from my side here to the Capital Market Day, Continental. And let me make a clear bold statement for the beginning to let you really know what is ContiTech. ContiTech stands for system-critical rubber and thermoplastic solutions that connect, convey and cover to keep our industrial customers' businesses running. That is the root and the core of what we do for more than 150 years. Back then, rubber was an exciting new material where we pioneered in many products and applications across different regions and markets in that field.

Today, we have become a truly global company across all regions being present and growing. And however, this complexity has risen over the past decades, and we have seen very recent dynamic changes in the global markets. We believe it's the right point of time, and I stand here to make sure you have an understanding in the next couple of minutes, what does it mean making out of ContiTech a rock-solid industrial pure play with a significant upside potential for creating more value and more profits.

From a 2024 standpoint, taking the actuals and making sure you get a detail on what is ContiTech with OESL, the automotive component business and without. We're moving from a EUR 6.4 billion to EUR 4.5 billion company with the 2% of EBIT improvement formally on paper. And that is just the start of a journey for more upside potential. With a strong cash flow and cash generation overall, but a significant, and that's what we promised as an ambition in the Capital Market Day back in 2023, and we have been working diligently on it, making sure our ambition coming from a 45% industrial exposure to reach an industrial pure play with 80%, that's going to become reality once the sale of OESL will be executed in the second half of this year.

We're going to execute that with a global qualified and experienced team of 24,000 roughly employees worldwide. And from a business model point of view, with a very nicely spread regional balance of our sales in the 3 world regions, a truly global industrial player and with a solid business model channeling into the market with a 50% replacement aftermarket share, which we intend and see growth potential over time. Now we are in business for more than 150 years. We know what we do, our teams globally. We have 5 product lines that are there. And yes, the Continental company has started based on technical rubber products, a horse buffer being one of the first products in the marketplace, making rubber a product and a revenue stream for Continental in the very early days.

And since then, we have always been pioneering, providing to our customers innovation, innovative products and new applications across connect, convey and cover and translating customer requirements and market requirements into recipes and making the material the common base of our approach and synergy inside ContiTech. Till today, based on that position, we explore markets. Take total conveyance with a leading position transporting bulk material in many industries, namely mining or construction, we provide solutions based on a leadership position in global markets. And on that, we expand our service offerings and adding engineering, adding qualifications, adding a service model, potentially leading into a pay per ton model and a full one-stop shop service provider for our customers worldwide, leading into further potential revenue streams.

A second example where we intend to move forward based on fluid handling systems. Fluid handling systems, hoses that work in many industries. For decades, our hoses compete and provide solutions with high temperatures, low temperatures, underwater, above water, tiny hoses or hoses you could even almost walk through in many different industries and in very tough industrial environments. That's what we do. And here, as a proof point, enlarging and being in attractive markets, that's something we see as a clear potential in the near-term future, adding further products like hydraulic hoses and the proof point to mention here is our greenfield production ramping up and getting to SOP very soon in quarter 3 this year.

Additionally, data center cooling hoses also a new product line we are launching near term to make sure we capture attractive market potential in the next months and quarters to come. And this is nicely showing that we in ContiTech as industrial pure play cover very many interesting and very attractive end markets. You see here sizable, growing and fragmented solution-driven markets where we are present in with our product lineup. Fluid solutions hoses in many of the markets or a cross-selling potential here covering construction and home being present with applications around many of our products. And underlying very important for us as a growth potential and outgrowing the market space for us, important and traffic light marked here with a GDP plus potential as an underlying macro trend where we benefit and intend to benefit over the near-term future.

Significant as market inside ContiTech covering the 80% of our markets and our business share being the industrial pure play for industrial components. How have we come to that position and what is our go-to-market approach? Coming from a nice broadly diversified customer base, not having a higher dependency in any region, nicely diversified, our route to customers is mainly via engineered products with our brand and our reputation over decades from the first start of -- first days of Continental via original equipment on the industrial side, intermediates as well, super nice cross-selling, cross-product selling opportunities and project business in the end user market directly. That delivers a potential flywheel supporting us, utilizing the position in the original markets, enabling the recurring aftermarket business that we intend taking already to a 50% share and even improving for further revenue and profit pools.

We have defined our vision from strategic to execution to vision to become the first choice for material-driven solutions. And 2 major pathways will lead our way supporting not only on the growth side, but also on the operational excellence. Outgrowing sizable markets, we intend to increase our customer penetration. That goes without saying with existing accounts that we serve for decades being reputated with these customers, but also having a clear plan in place how to conquer and acquire and get awarded for new customer accounts. Intensifying market presence, we see nice opportunities and have a pathway described with activities for selected markets, improving our presence and exploring potential new profit pools.

Expanding product and service offering coming from many leading positions via product and application and reputation, we intend to selectively expand on the base of offering service, engineering around a full-stop shop we offer for our customers, making sure uptime and operational costs for our customers are decisive and improved. On the operational excellence, pathway #2, streamlining product variance and reducing costs, extremely important for us, good potential, making sure we execute on what we designed as our platform strategy, making sure we bundle and optimize the way we go to market and make sure we benefit from a stronger standardization and harmonization focusing on the 5 products described recently.

Simplify and standardize production landscape, we have been adjusting and reacting to market weaknesses in the industrial arena, announcing restructuring of our footprint and optimizing the footprint in total that we have, enabling a higher output per location and production plant, making sure we increase efficiency over time in our production landscape. And consolidating supplier base while securing supply resilience in these days, extremely important. But based on our platform strategy here as well, the material side, we are enabling our teams to standardize, harmonize and make sure we bundle and use scale effects.

All of this leading to a midterm potential that we see coming again without OESL from a base of 8 percentage points on adjusted EBIT over time to the midterm potential 11% to 13% based on volume, mix and cost. Volume, of course, being supported. We expect industrial markets being on a lower base now recently in the last 1.5 years to recover step-wise here and there. And we adjusted our structures, capacities are prepared to pick up volume in the short period of time, leading into a growth curve that potentially leads us to EUR 5 billion to EUR 6 billion. This would be a midpoint of 4% CAGR. And of course, with the strategy I described, we clearly intend to outperform the market, the GDP, GDP plus business model we are striving for.

Mix, as I said, bundling, harmonizing, streamlining product variance and the way we go to market, focusing on the 5 products. And last but not least, with significant cost efforts already taken, stabilizing in a weak market environment and lower volumes our profitability year-to-date. And last year, we see additional improvements leading us to the 11% to 13%, double-digit profitability midterm potential. Clearly, standing here on stage saying that there is an ambition that we internally intensively discuss and get prepared for that a stand-alone ambition would even lead to a higher profitability and sales chance. This is something that we are preparing, making sure we are envisioning and executing that over the course of the next quarters.

Putting it together, summarizing ContiTech, we are here making sure creating and shaping a rock-solid industrial pure play with an upside potential. And that means we are already and will expand on that a global champion in system critical rubber and thermoplastic solutions for industrial markets. We will utilize and expand leading market positions in highly attractive and sizable end markets. We are perfectly positioned and ready to turn our size being probably the largest rubber and thermoplastic component developer and supplier of this world and to outperform market growth. We are diversified and our revenue base is very resilient. That shows our history, and we continue, including a significant growth potential on the aftermarket contribution.

So last but not least, attractive margin. You've seen it with a strong upside potential. That's what ContiTech stands for, and we intend to make sure to execute in the next months and quarters to come. Thank you very much. And I hand over to Christian.

Thank you, Philip. And a very, very warm welcome. Good morning also from our side. Our side, us, this means myself being in charge of our global tire operations, but also from Roland Welzbacher. As said, he will jump in later on, who is the CFO of our group sector, Tires, today and will become the CFO of our group effective October 1.

So let me start off with emphasizing that we really, as a global tire team are also extremely excited about the transformation we are going through as a group. Why? Because simply, we believe it's going to help us to even more focus on what matters to our business and even more focus on what we are passionate about, and that is tires, which should help us, which will help us to achieve our objective and our promise, which is to continue to outperform our industry in terms of value creation based on customer-centric solutions and services and operational excellence. But before we go there, before I explain what we are planning to do in order to achieve this promise and commitment and objective, obviously, also worth a couple of minutes to take a look at who we are and where we stand.

So you've seen this chart before, starting from the top left, we are a very strong global #4 in the tire industry today. And we believe we have very good opportunities to become a global #3 within the foreseeable future. If you follow the industry, we have really closed in significantly over the last 10 years, and we will continue to focus on becoming one of the leading companies or tire companies in the world. Number two, we have proven our value creative performance and our value creation, not only in terms of profitability, but even more so in terms of return on capital employed and cash generation. We will talk about this because we believe that this is really essential for a tire company to keep this in mind and focus on cash generation based on a very, very effective and efficient manufacturing footprint.

Tire industry is a manufacturing industry. And if you are not super-efficient in manufacturing, you are not going to outperform the industry in terms of financial performance. I will talk about this. If you take a look then at our, let me say, business distribution. So yes, we are a European-based company. So we have a very, very strong foothold and foundation in what we call the EMEA region. On the positive side, it clearly already demonstrates and shows how big our growth potential is outside of Europe in North America, mainly and APAC even more so. I will talk about this later on. You see, I mean, as usual for a tire company, we are much less dependent on the automotive industry, which is one of the reasons why we have this resilience and robustness in terms of our value creation performance, which we have demonstrated over so many years.

We are very much focusing on the PLT segment today. Nevertheless, we are and want to be a full portfolio supplier. If you want to be one of the globally leading tire manufacturers, I mean, you need to make sure that you are really active and engaged in all business segments where you can create, obviously, the value you are looking for. Again, you see pretty significant growth opportunities, especially in the specialty tire segment. But in PLT, then last not least, being focused on PLT, obviously, even more focused in this segment on what we call the UHP segment. So the ultra-high performance segment, I will talk about this later on because it's decisive for the profitability of a tire company and providing also significant growth opportunities moving forward.

So number two, talked about the manufacturing footprint. We do believe we have a very, very effective and efficient footprint. You see the number of plants we're having in each region. You see how much of production in this region we realize today in what we call mega plants. I will talk about this later on because we are deeply convinced that these mega plants do provide significant advantages in terms of efficiency, but also in terms of flexibility. And then in the bottom, you see basically how much sales we generate of our total sales in each region. And number two, how much of the production globally we generate in each region.

And what we are trying to show here and what I believe is really the challenge in the industry is you need to find the right balance between, on the one side, being local, so producing where you want to sell in order to ensure customer proximity and supply chain performance, which gets more and more important. I will talk about this later on as well. But on the other side, consolidating production in as few facilities as possible in low-cost countries in order to utilize and scale the efficiency effects. And you have to find the right balance between the 2, and we are deeply convinced that we have a footprint, which is really very, very efficient and effective in this sense and has provided besides then technology, supply chain performance and also our brand.

The fact that we have again -- and again proven the resilience and robustness of our business in terms of value creation, which led to the fact that even within the last 5 years, and I guess you all agree these last 5 years, thinking about corona, thinking about chip crisis, thinking about the Ukrainian war and the latest developments haven't been easy and, you could, I think, fairly call them challenging. We nevertheless, in each year, were able to reach profitabilities in our targeted corridor of 13% to 16% and accumulated over this period of time, therefore, generated more than EUR 10 billion of adjusted EBIT and close to EUR 10 billion of free cash flow before interest and taxes, which shows somehow, obviously, number one, already the resilience and robustness of our business; number two, where we are focusing on and where we will continue to focus on.

And number three, obviously, why we are confident that we're also moving forward to be able to defend this value creation performance and outperform the industry in terms of our value creation. So how do we want to do that? How do we want to ensure this? How do we want to fulfill this commitment? And 3 or 4 categories, I would like to explain in a little bit more detail. One is enhanced mix. Second is drive operational excellence. Third is portfolio management. Niko has talked about this already. We'll show you in a little bit more detail what exactly we are planning to do and why. And last not least, shaping a lean and agile organization.

So the transformation, the change we are going through right now, obviously also provides significant opportunity for us to change the organization and make sure that from an organizational standpoint, we are ready to master the challenges in front of us. So let's dig now a little bit deeper into these individual categories, and let's start with mix. Before we talk about the structure of the demand and the overall development, I would like to use the opportunity to take a quick look at the global PLT markets and 2 main messages here. On the right-hand side -- on the left-hand side, you see we continue to believe that we will only see very, very moderate growth. Moving forward, we have seen very moderate growth also only in the past.

It's a very mature industry. It's not a growth industry. Nevertheless, it's very resilient, and we plan for only very moderate growth also moving forward in terms of total demand. On the right-hand side, and you have seen this already in our charts earlier or in my chart earlier, where you've seen the split of our sales by region. Yes, we have a very, very strong foundation in the EMEA region. And if you would focus on Europe within EMEA only, you could imagine that our market share would be even significantly higher than that. But it shows you the other way around as well how big the growth potential for us in the Americas and APAC specifically is, and we will continue to invest to make sure that we are really utilizing this, let me say, generic volume growth and growth opportunities.

But one level deeper, looking now into the demand, let me say, structure, even though markets are not growing or only moderately growing, they improve constantly in terms of, let me say, quality and mix. So on the left-hand side, you see what we have done within the last 5 years in terms of developing our share of UHP business and non-UHP business of our total business. So you see we have really significantly improved the share of our UHP business. And this is great because, obviously, on the right-hand side, you see the anticipated market development, even though we only plan for 1.3% CAGR in terms of total demand. If you take a look at the structure of the demand, the UHP demand will continuously increase -- will significantly increase, continue to increase. Why?

Number one, because the OEMs continue to build bigger cars and using tires to upgrade their vehicles. We have seen the developments over the last decade, and there are so many cars in the pipeline and has been pushed into the market, which will further drive this mix. And number two, the electrification of the powertrain is further amplifying this trend because battery electric vehicle-driven cars simply need bigger tires for technical reasons, which I could explain. So we are very, very confident that this market provides significant growth opportunity in terms of mix, not necessarily in terms of total volume, but definitely in terms of mix, which is -- and I mean, we wanted to use this opportunity also to make this clear, the profitability, and this is our profitability.

Comparing now these different product segments, is it a 17-inch or 19-inch or 22-inch tire, profitabilities are significantly different. And this is why mix is so decisive and being able then to utilize this mix opportunity is of utmost importance to ensure value creation as a tire manufacturer. And I will talk about what it takes in order to utilize this mix opportunity. Not only in PLT, but also in truck, we do believe there is growth potential and also mix improvement potential. Same chart, left-hand side, overall market development, right-hand side, split by region, market, but also our market share. Starting on the left-hand side, also here, we believe only moderate growth will take place. I mean the CAGRs are a little bigger. It depends a little bit on where you start from. I mean, right now, we start from a very low base.

The truck tire markets are very much under pressure. So starting from that level, there's hopefully a stronger CAGR than on the PLT side, but we probably will also continue to see higher volatility in this segment compared to the PLT markets. On the right-hand side, you see that we are basically only focusing on Europe and the Americas and in the Americas, mainly on North America. And we will continue to do that. Why? Because only there, we really do really see the chance to differentiate via technology, product and other means to justify a premium price because at the end of the day, we obviously need to have a premium price position in order to achieve our profitability goals.

And in these markets, North America as well as in Europe, we have customers like these big commercial fleets being extremely professional, really looking for significantly more than just a high-quality product for a reasonable price, and where we do see the opportunity to really leverage our strong product technology with hardware and software services and retread or 360 service solutions in order to differentiate ourselves and, by doing that, ensure that we also really can justify a premium price. And this is why we really focus on the truck side only on Europe and the Americas, and I will talk about this on the portfolio side, why we've decided also to exit even more markets in Asia where we do not see this opportunity for differentiation.

Second cluster, operational excellence. And also here, it's not just manufacturing excellence. It's not just excellence in operations or manufacturing operations, but it's also excellence in terms of customer services, which is basically supply chain, operational efficiency in our plants, but also R&D, operational excellence, operational excellence in R&D as well as in brand building. Let's start with what we call here customer centricity because I believe that's one area, which is of growing importance and which is partly really underestimated and gives us today, I believe I'm deeply convinced pretty much a competitive edge. Why?

Complexity of the industry and of the business is continuously increasing. This leads to the fact that dealers, retailers are not willing to stock tires and not able to stock tires anymore because you have never the right tire on stock. So they are more and more dependent on the availability of their vendor to supply at any time. And that's why besides investing into manufacturing excellence, investing into supply chain excellence is for us really a priority item. And to make this a little bit more tangible, we have listed here a couple of facts and figures. So today, as we speak in the meantime, close to 15,000, so 14,500, a little bit more, different PLT articles we sell globally, different articles just in the PLT segment.

Two, in the meantime, more than 150,000 B2B customers direct, so we supply more than -- on the replacement side, more than 150,000 B2B customers direct and we generate more or less or more than 90% of this business of our total sales by local sales teams in these markets, taking care for these customers, supported by the necessary logistic infrastructure, which leads to the fact, and these are EMEA numbers then on the right-hand side, the rest are global numbers that for 98% of all orders, we are able to supply the tire, the needed tire within 24 hours. And this is what we believe is really essential also to safeguard your future success.

And we believe this is even of growing importance because this complexity, this article complexity is specifically in the UHP segment, has increased in the past and will continue to increase significantly moving forward. So that's why we not only invest into manufacturing capacities and flexibility, but also significantly in our capability to distribute these products, we do because we do believe it's a competitive advantage. It adds costs, yes, but it makes you even less dispensable from a customer standpoint and even further improve the resilience and the robustness of your business. So it's a kind of life insurance, and we will continue to invest into this.

Second, manufacturing excellence. So I talked about the fact that we need to find the right balance between being in the market for the market to ensure customer proximity and supply chain performance. I just talked about this. And on the other side, consolidating production in as few production sites as possible to use the economies of scale and optimize efficiency. And we will continue to do that. So this is why, for example, and we just used this example because we have communicated this decision a couple of weeks ago, closing one of our non-mega plants in the Asian region Alor Setar, Malaysia.

And by just looking at the figures, output per employee comparing a standard plant, which is admittedly an old plant and really a small plant compared to what we call a mega plant and taking a look at the output per employee, taking a look at other characteristics, I think it clearly shows how much efficiency potential is in making sure that you really consolidate as much production in these mega facilities as you can without losing customer proximity and, therefore, supply chain performance. And we will continue to do this, continue to invest also in line with what we have done in the past in order to maintain this competitiveness of our manufacturing footprint, which is already here today, comparing here now using a couple of efficiency KPIs, but also sustainability-related KPIs.

Because they are really in manufacturing getting more and more important, how much energy you consume, how much water you consume, how much waste you generate is not just a cost factor, but more and more also a regulatory requirement. So making sure that we really keep efficient, competitive in this field of manufacturing or in the core field of manufacturing is for us one of the top priority items. We have a very efficient, effective footprint, and we are more than committed to defend this versus these are our top 5, the average of our top 5 competitors, where we do believe we have a competitive advantage today, and we will make absolutely sure that we maintain this.

And then last not least, cluster on the operational excellence side, R&D excellence or excellence in R&D and then brand building. I mean I'm a born or raised tire engineer, so I would love to talk about more technical details, but this would lead us probably nowhere. But I think -- and I hope you agree, we have proven over so many, let me say, now decades, either via press test results for all kinds of product segments and all kinds of markets or via our ability to achieve OE approvals in all regions on all customers in all product segments that we definitely have this product capability, the technical competence, which we will continue to defend.

And last not least, brand building. I mean, the brand is a very, very key asset of our success and a very necessary precondition to achieve also the premium price positioning. We are seen as one of the top 3 valuable tire brands in the world. And this is obviously partly based on our technical competence, our technical success, our OE presence, the quality of our products over so many years, but also supported by the necessary marketing investments, and we will continue to make sure that we develop and build this brand focus outside of Europe because in most of the European markets, we have the awareness, we have the brand identity we need. We have still some opportunities to further grow in other places of the world.

So because talking now again about the mix opportunity, the chance to really improve sales, but also profitability by driving mix is not just a question of having one capability. I do believe -- we do believe we are deeply convinced the secret sauce is to have all of these ingredients. And this means having the technology competence. So having the technology, the capabilities combined with the necessary brand, combined with a super-efficient manufacturing footprint and the supply chain performance. And I tried to explain why this is so decisive and an organization, which is close to the customers in order to really utilize this mix improvement potential.

So it -- we believe we are well prepared to harvest those opportunities. And number two, we are also deeply convinced that it is very difficult for newcomers, let me say, and challengers to copy these individual elements because it's significantly more than just the technical capability or cost efficiency. It's the total portfolio and potpourri of things you have to be able to provide in order to be able to harvest those fruits and those opportunities. So mix, operational excellence.

Third category, active portfolio management. I mean we have done this in the past. We will continue to do this. And within the last couple of months, we have, let me say, amplified or accelerated our efforts in this sense in order to make sure that we really focus on where we generate the margins we are looking for and really concentrate on the elements where we can really create the value according to our expectations. So -- and we will -- I mean, not just investing like on the UHP side, like in technology, like in distribution, but also exiting is part of our then, let me say, business equation. And there are 3 main focus points we are focusing on and where we will continue to look at.

So number one, on the manufacturing side. So making sure that we really further optimize our footprint, our manufacturing footprint in this target conflict of capacity utilization versus customer proximity versus bigger plants and as having as few plants as possible to scale the efficiencies. And this is why we have decided to close, which is executed Aachen in the past. This is why we have stopped now producing truck tires in India just a couple of weeks ago because we simply do not see the chance to reach our profitability targets. And this is why we will close Alor Setar, our production facility in Malaysia by the end of the year in order to make sure that we really continuously optimize this balance and make sure that we really have the operational excellence we need and we are looking for.

So this will obviously not necessarily negatively impact our sales, but should improve the return on sales and should definitely further improve our return on capital employed. Second category, which is very much a European chapter, let me say, as probably most of you know, we are running our own or controlled retail outlets in mainly all of our European countries, which is a very asset-intense operation, owning those shops, renting those shops. And we are really trying now since quite a while to make sure that we only hold, let me say, a footprint on the retail side, which is really essential to safeguard our business and either franchise operations or even close those operations where we don't find then a franchisee in order to find the right balance between the employed capital via high asset intensity and the returns we are generating.

So we have done significant measures, more measures to come. These activities will negatively impact our sales because we are exiting or we are canceling also certain noncore businesses, but will help us again to improve our return on sales and also our return on capital employed. And the last category is, we will continue to review our portfolio for business fields, segments, approaches where we either lack scale and, based on that, do not really see the chance to reach our profitability targets in the foreseeable future. And the latest example here is that we've announced to exit the agricultural business again because here, we simply lack scale. And based on this not existing scale, which would take forever to organically build it, we don't see really the opportunity to reach the profitability targets we are looking for.

Category #4, the lean and agile organization. So as I said earlier, obviously, the transformation is challenging, but it also provides a huge opportunity. And the opportunity is to make sure that we now really shape and design our organization, which is number one, focusing on consumer business. So truly building a corporate culture and an organizational setup, which focuses on what matters for us the most, which is not the OE business, which is the consumer business. Second, ensuring a tailor-made governance. I think we've talked about this in various individual discussions. It's a subject, which is of growing importance. So the regulatory requirements are ever increasing.

And the more you're able to efficient, effectively address all of those regulatory requirements, the more competitive you are within your individual competitive space. And the less complex your business operations are, the more you are able, I think, to make sure that you have really tailor-made, efficient and effective governance models. And we definitely are and will use this opportunity to ensure and utilize this chance. And last not least, it should make us definitely a faster and more agile organization once again, within the volatility we are all facing, I guess you all agree, a decisive factor, not only today, but even more so in the future.

And we do believe as the global tire team, number one, we have the expertise and the knowhow based on all these decades of experience in the tire industry on board, but at the same time, also the diversity in order to manage those challenges ahead of us. And I think Niko said this in the beginning, we are working on the final structures right now, how this organization will be set up, who is taking which type of responsibilities, how do we organize also P&L responsibilities under the global view. It's too early now to present and also too early to quantify the impacts, but that's definitely the other area we are very, very strongly working on in order to prepare and get ready for stand-alone readiness and operations.

So to wrap up my part, and I want to use this opportunity to really express this very, very clearly. We are very much aware that the tire industry is not a growth industry. So you have seen very mature demand increases, very moderate growth rates, which is not a problem as long as you really manage the business for that. And that's why we are deeply committed to manage this business for value and not for growth. And we do believe this provides then the value creation and the cash flow creation, which is needed as a, let me say, basis for attractive shareholder returns, which we will focus on. And what this means then in terms of quantified targets and a quantified outlook, I would ask Roland to take over. Thank you for your attention.

Yes. Hello, everyone, and thank you, Christian, for the nice bridge into the financial outlook. While we are very confident about our long-term financials, we are currently facing some challenges and uncertainties with regard to the impact of trade policies and related market dynamics. We continue to expect our sales 2025 to be within a range of EUR 13.5 billion to EUR 14.5 billion. However, due to the currently applied significant tariffs on tires and raw material imports as well as continuing FX headwinds, we need to revise our guidance for year-end 2025 adjusted EBIT margin towards a range of 12.5% to 14%.

Assuming the situation is going to stay as it is, we expect to see the full net effect going into the bottom line. However, at the same time, we believe we still have opportunities to come out above prior year in case of a more favorable economic framework in Q3 and Q4. Due to the ongoing high volatility, and you probably agree with me, low visibility, we believe a wider range is currently properly reflecting the circumstances. Midterm, we want to grow our sales from currently EUR 14 billion into a range of EUR 14.5 billion to EUR 16 billion. The consequent execution of our strategy road map as laid out by Christian, gives us the confidence with regard to meeting our margin targets.

How are we going to do this? Number one, we will enhance the focus on the most value-accretive market segments, being more selective on the business we keep, being more selective on the business we take on and reallocate our resources accordingly. Number two, we will focus and clearly clean and continue cleaning our portfolio from nonperforming and noncore businesses, and we will also further adjust the footprint of our operations. While this is limiting our top line opportunity growth opportunities to some extent, ballpark up to EUR 1 billion in the course of the next 2 years, it will deliver a substantial contribution to our margin improvement. We expect to grow our volumes in line with the markets. You've seen that on the chart.

That is between 1% and 1.5% every year, while we also continue to expect attractive price/mix gains in sales terms approximately 2% and above every year. All of this is meant to bring us closer to an ROS level of 15%, 16% midterm. Whereas for the time being, we decided to keep the corridor of 13% to 16% in order to take into account potential adverse effect if negative trade policy implications would continue over a longer period of time. The spin-off of Aumovio and the sale of ContiTech will require cost management on our part to effectively address dissynergies coming with the breakup. On the other hand, it will also provide us with opportunities coming with Tires being a stand-alone and pure-play company with regard to capital allocation and more independence from OE industry dynamics.

We have proven over and over again that we can change and adapt quickly to new circumstances and remain financially resilient also in difficult times. This gives us the confidence that we'll not only be able to improve profitability going forward, but also to maintain a high level of asset efficiency with ROCE above 25% and cash generation well above 60%. How? By steering our resources towards strategic profit pools on the one hand and, as I said before, by consequently executing our strategy and our portfolio management road map. We are committed -- I'm personally committed that Continental Tires stays industry benchmark for value creation going forward.

And with this, let me hand over to Olaf Schick for further details on group level. Thank you very much.

Yes. Thank you very much, Roland. Great to see you all. I would like to sum it up briefly from an overall finance perspective. And I would like to start with our view on the second quarter. So let's start with the current performance. We are continuing in the second quarter, the very solid performance of the first quarter despite volatile times, despite trade disruptions. Let's start with automotive. Automotive sales is impacted by FX. That is clear. There is no tailwind, but profitability level of Aumovio in the second quarter is clearly above the profitability level of the first quarter and above Q2 2024, and that's driven by progress on fixed cost measures.

Aumovio is very successful in cost measures, in particular, reducing the headcount while improving and optimizing processes. Positive effects from sustainable pricing and headwind from tariff impacts are limited due to high USMCA share and mitigation measures are ongoing, in particular, negotiations with our customers. You will see this afternoon the Aumovio presentation, you will see a great management team. You will see their focus on technologies and a clear path to increased profitability and sustainable cash flow.

ContiTech. We see in the second quarter improvements in certain industries, but it is also clear that top line remains under pressure or is under pressure and also driven by on cost measures, on portfolio measures, some of them were announced earlier this year. So that's very intensive and ongoing. Tires second quarter is impacted by FX on the one hand and tariffs. This was mentioned already. Tariffs, what are the tariff mitigation measures by tires? Rework the supply chain, focus on producing more premium tires in the U.S., max out capacities, negotiations on the OE side and also, in general, pricing measures. And as it was mentioned, these mitigation measures will start to kick in from now on. And then on a positive note, also solid development of via winter tires sell-in and the headwind from raw material costs are starting to ease.

Now let's look again. As a summary, on our adapted full year 2025 guidance, it is very important, this now includes current FX levels, and it includes tariffs as far as they are effective today. In particular, the 25% on top tariffs for tires that we are importing from Europe to the U.S. So here, you see now ContiTech and is important full year 2025, this is including OESL. Niko mentioned, we plan to execute the sale transaction of OESL within '25, but here, we still include OESL. We have an adjusted -- I mentioned the top line pressure for ContiTech and adjusted sales corridor of EUR 6 billion to EUR 6.5 billion, we are confirming the adjusted EBIT margin corridor of 6% to 7%. Tires, it was mentioned by Roland, the sales corridor of EUR 13.5 billion to EUR 14.5 billion is confirmed.

And now the adjusted EBIT margin corridor of 12.5% to 14% and everything that Roland said with regard to that corridor and where we stand, I fully confirm. That brings us on a group level, sales EUR 19.5 billion to EUR 21 billion and an adjusted EBIT margin corridor of 10% to 11%. We are confirming our adjusted free cash flow corridor of EUR 600 million to EUR 1 billion. We all know this is a transitional year. We do have impacts driven by the spin-off, by restructuring and certain tax effects, but we are confirming the free cash flow corridor. Midterm, there is outstanding potential.

You saw the presentations by Philip and by Christian, there is outstanding potential for both Tires and ContiTech. The Tires sales corridor midterm, 14.5% to 16% was explained. This is driven by active portfolio measures on the one hand and then lowered vehicle expectations. On the other hand, we are confirming the 13% to 16% adjusted EBIT margin corridor, and this is including stand-alone costs. So that's also Tires pure-play midterm. ContiTech, now the sales corridor, excluding OESL, obviously, because this is midterm, EUR 5 billion to EUR 6 billion and then clear commitment to reach double-digit margins, midterm 11% to 13%, as explained by Philip, driven by volume, mix and cost.

We are committed to ensure effective capital allocation to generate value. On the one hand, financing operations, it was very impressive what you saw in the presentation, right, how important that is. Manufacturing excellence, investments into the footprint mix, supply chain optimization, the whole product portfolio to ensure that we also, in the future, will have a test-winning product portfolio and the best products for our customers. Portfolio management, Christian mentioned the measures on the divestment side, also active M&A. We are not excluding, but we all know value-accretive portfolio enhancement are not that easy to find. So I would say it's less in focus. Then, of course, constantly improve the balance sheet structure driven by operational performance. And then we have a very strong focus on shareholder returns.

And when we look at shareholder returns, I would like to explain it in different phases, how we see it. Phase #1 is the automotive spin-off. Our shareholders will benefit from the Aumovio listing with a very strong balance sheet. There is no balance sheet of competitors out there that is as strong as Aumovio. Why? Aumovio will be debt-free, excluding lease and allocated pension obligations, and we will provide Aumovio with a net cash position of EUR 1.5 billion. It is important to us that the listing will be successful and it will be successful and that the future of Aumovio will be successful. That leaves Continental with an expected leverage ratio of around 2, net indebtedness divided by reported EBITDA. And again, focus to delever via operational performance. And we know the Tires and ContiTech business is margin-strong and cash-strong.

The next phase is then the ContiTech Sales transaction, Niko mentioned, we want to execute that transaction in the year 2026. The proceeds of the sale will be used on the one hand to delever and then will also be used for special dividend or share buybacks. Further details, we will announce later. This is too early. And then the midterm potential as Tires pure-play leverage ratio, the target is equal or below 1, equity ratio above 30%. Credit rating target, BBB+. And within the dividend payout ratio corridor that we have announced earlier and we are confirming today, the 40% to 60%, we see higher dividends within the existing corridor, and we also see further potential for share buybacks.

This transformation that we are all explaining and showing to you today of Continental is significant. We are doing this with speed, with focus, with discipline and diligence. That means absolute focus on cost optimization while we transform Continental. That also means state-of-the-art governance and state-of-the-art governance means tailor-made governance for every phase in which we are in, including risk management, including internal control system and compliance. We have our values. The values of Continental are very present and very important to us. They are framed by integrity. We will roll out a new code of conduct for Continental within the next days. Also that is important in these volatile times. And then, of course, we will ensure effective financial and nonfinancial reporting as well. We confirm our commitment to our sustainability targets.

To sum it up, you have here an energized management team and a full dedication to our transformation road map, not only by the team here presenting, but by the whole leadership team of Continental. We have a very strong focus on improving our balance sheet structure, focus on shareholder returns as we showed in the different phases. I think the pure-play opportunities that were teased today, that's just the beginning. That's very exciting, what's about to come. Overall, this is positive momentum what we are having here, what we are driving forward.

And with that, I would like to conclude and say, thank you.

Well, I think you've seen it's quite a profound transformation that we are undertaking at Continental. And I think it is happening at quite an unparalleled speed. So it's a lot going on in parallel. And I think with the speed that we're showing in the transformation, it's also just right to keep the presentation nice and crisp and to allocate more time for you guys to ask your questions. And that's exactly what we will do now. It will only be possible to ask the question here on site, so we will not have an online question opportunity.

[Operator Instructions] Gentlemen, if you would now join me on stage so that we have your questions, please. And I think by far, the earliest one was Thomas Besson, and if we want to start here at the beginning.

I have 2, please. First question on the midterm revenue targets. You're now targeting revenues for '27, '29 that are 10%, 15% below what you were targeting in '23 for like '27. Can you help us bridge these revenue targets? I mean I think you've mentioned the EUR 1 billion of possible lost revenues on cleaning up the portfolio on the tire side. Thus, I guess, currencies, maybe the client mix has played a negative role. But I mean we are losing a substantial amount of revenues versus the past. So that would be great to understand exactly what's going on.

And the second question would be on what you would intend to do on M&A. I think last time around, you had said that the tire business would eventually be willing to be a consolidator. Now you're exiting the ag-tire business. You still have a specialty business. Could you elaborate on what Conti would eventually like to do? Whether it implies acquiring small companies or going more into some segments that you're not necessarily present or get greater exposure, for instance, to Asia where you will be strong?

All right. I think I will take the first one. Not surprisingly, but Thomas, if you look where we base 2023 on sales on and where we are currently in our guidance 2025, you see that most of the sales reduction already applied in those 2 years because the 2 years came very different than we anticipated in December 2023. So 2/3 of the reduction, which you mentioned basically realized in the past. If you take the baseline from today, 2024 and extrapolate then the 3 to 5 years, you get a CAGR, which is relatively similar, in particular, on the ContiTech Industrial side, don't forget that you have to exclude OESL. And definitely, the automotive technical rubber business has not developed same as Aumovio in the market like we predicted.

So we guided now or our potential, which we've shown was without OESL. And there, you still have a CAGR of about 4%. But if you do the math, in the past, it was a similar CAGR, still outperforming GDP plus what Philip said. So there is not a big difference. The biggest difference is that as well from 2023 to right now, the industry markets and as well, us, we have not developed in the same. And on the tire side, it's very much the same last 2 years and the baseline, we have not moved in the direction that we have seen, plus what Roland mentioned.

So I would say, from 2023, we have seen more a growth trend of 3% CAGR. This is now on the 2 percentage CAGR point and this 1%, which is missing, was basically or close to what we see in portfolio, but as well the markets right now. And in the non-visibility where we are right now, you might say we take a cautious approach. We might say it's realistic. Because if it comes better, as I mentioned at the beginning, we don't mind to have tailwind. But currently, the last 24 months and the 18 months have taught us, don't expect tailwinds.

Do your homework. And it's not the sales focus, which, of course, we are fighting every day, and we want to perform our sales, but we have to self-help still. What we want to teach as well our organization, we have to be fully competitive and then grab the opportunities, which we have in the market. I hope this explains that. And I think M&A, that's Christian...

I mean, just to add then as well, and I think that was -- we try to make this clear, we will definitely focus on value and not on volume. So we will continue to make sure that we secure bottom line and value creation and not top line is a priority item in an industry, which is not a growth industry. If we have more opportunity than what we think the market will provide, then definitely, we will not shy away, but focus is and priority is clear. So M&A, I mean, I would say, number one, I think it's clear when you see the road map Olaf has shown, if we would have executed all of these steps, we would end up or we will end up as a very robust and extremely healthy tire company also from a balance sheet standpoint, who would have all financial means and all cash flow generation performance to also consider M&A.

And we will -- we have done this in the past. We will continue to do this. It's a question of opportunities. And they need to be on the one side, content-wise, attractive and do make sense. And from a content, the direction is not changing. So it needs to be complementary. So it should either help us to accelerate our growth in Asia. That would be one element or to close, let me say, product portfolio holds, which we are having. You have seen our split of the different product segments where it's very obvious where we are lacking in terms of or versus where we are strong.

But on the other side, it needs to make financial sense. And if you take a look at what has happened on the M&A side and acquisitions in the tire industry over the last, what is it now, 5, 6, 7 years, number one, not a lot of acquisitions or transactions, which took place and the ones who took place has taken place maybe for conditions, which are a little difficult to justify to say the least from a financial standpoint.

And I think Thomas did it perfectly fine already. It would be great if you could limit yourself to 2 questions. I think I forgot to say that. José, you are the next one.

I'll stick to 2 questions, José from JPMorgan. I wanted to come back to the profit bridge on tires and just give us a bit of sense of the restructuring charges you are embedding in your forecast for discontinuation of the businesses or also increasing the utilization of the plants? And the second question, just coming back to Asia growth and the potential you have to maybe grow in China as well. How are you set up in China? And how do you see the business evolving in the next years?

Do you want to...

No, I can. I can. I mean, on the one side, the -- let me say, on the profit bridge, so the costs, which we believe we will need to accept, so to speak, to do the necessary portfolio measures and the majority of the case is relatively limited. So Alor Setar or now Modipuram, number one, these are not huge facilities. It's not like closing an Aachen or something like this. And number two, it's also in places where simply the cost consequences are much more, let me say, controllable and limited compared to some other locations. Second part then Asia setup in China. So we are really self-sufficient in China. So we produce 95% or more than 95% of what we sell in China.

And we also only use basically to 95% or more our facility in China for local sales, so we are neither importing significantly nor exporting significantly from China. And we do believe that this is the right setup because it's very margin attractive business opportunity. But I mean, more and more also from a regulatory standpoint, yes, guided by limitations of what you're able to utilize your assets for. So -- and this is why we continue to invest into our facility, which is Hefei in China, in line with our sales growth. We've just initiated or are in process of executing the last extension phase. You've seen the Hefei picture, so this is now an EUR 18 million tire per year PLT tire per year factory, and we will continue to grow this or maybe other locations dependent on how we will succeed in terms of sales growth.

I think one important addition to make is that if you look at the bridge for the restructuring, obviously, this will be adjusted for. So this will not directly impact on how we guide in terms of EBIT, just to add on that. So you will not see it on the way what we see on the top line, but obviously...

And the cash impact was covered by the guidance, so yes, the cash impact is net.

Correct. Yes.

That's significant that it changes the overall view.

It's Harry Martin from Bernstein. A couple of questions on the tire business, please. The first one, a metric that Continental once reported was capacity utilization. I appreciate the announcements of a couple of small closures. But if I look back over the last 5 years, 6 years, there's been a lot of large mega plant capacity additions in a period when volumes in the business have been coming down. So how do you think about capacity utilization in the portfolio at the moment? Is it a key metric that you track? And how do you see that developing?

Is there some more rationalization that's needed within the portfolio to come? Or are you expecting a volume recovery means that you're about the right -- the size for today? And then I also just wanted to ask about the retail footprint rationalization in Europe. Roughly, what proportion of the current sales within the tire business is that retail business? Where would you expect that to go after the portfolio rationalization is complete? And how much margin upside can that deliver on its own?

Okay. So I mean, number one, capacity utilization, I said this in the charts, and that remains true. I mean, the tire industry is a very asset-intense industry. And if you don't run your facilities on a high utilization rate, you are losing significant efficiencies. So you have to make sure that you really utilize your capacities. On the PLT side, I am very okay with the current situation, to be honest. So we utilize our capacities in the corridor we are looking for. We don't want to be 100%. But because when you miss opportunities, you want to have a certain level of flexibility. But let's say, you should be at least in the 90% to 95% capacity utilization. And with the measures we have announced, also now the closure of Alor Setar, we are perfectly in line.

On the truck side, situation is a little different. Truck markets are very weak as we speak. I mean, I mentioned this also looking at the CAGR. You have seen also that some of our competitors have announced some pretty significant restructuring measures on the truck tire production side. I mean we are exiting truck tire production in Modipuram, so in India, which is not really relevant from a volume standpoint. So there, we do not run currently at the utilization rates we would need. But we do believe that markets will recover from the very low levels we are seeing today and getting back into the utilization we are looking for.

Christian, maybe add one part because you specifically referred to volume and volume was added. Maybe you can refer to mix development in the plants.

Yes, that's -- I mean, what you see is, I talked about the mix and I talked about the complexity. So what you can clearly see, if you take a look at our total output, number one, measured in number of tires, but on the other side, measured in tonnage. You see this really going more and more apart. So even though you don't increase your output necessarily in the number of tires, you increase your output pretty significantly in terms of tonnage simply because you are producing and selling significantly bigger tires. So -- and that's what we need to obviously also have to adjust to and complexity, I mean, producing then these 15,000 articles in our 20 plants, the complexity per plant, and we are producing many tires in various plants at the same time in order to secure and maximize supply.

You can easily imagine that the volume per article is constantly going down, which is not necessarily helping to improve output out of the same machinery. And that's also, let me say, a compensating factor to still ensure capacity utilization. So rationalization in Europe, so how much of our total business we are doing via our own retail operations and how significant is this moving forward? So on the PLT side, the part here in Europe is significantly below 10%, and it's deteriorating year-over-year, and we more and more focus our retail network on supporting rather the truck business.

I talked about the fleets. I talked about the fact that these highly professionalized fleets are looking for more than just a reasonably priced and high-quality tire. They look for total cost of ownership. They need services. They need breakdown services, and we are really trying to target our network and cater it to specifically support this need. And you can do this with a much smaller footprint compared to the higher portfolio footprint we traditionally had. So in PLT, it's really significantly below the 10% and will further reduce without impacting our total business. On the truck side, it remains important. It's a question of how do you provide what you need with the least amount of assets and costs.

If I saw it correctly, then we have Horst next and afterwards, Christoph, please.

Yes. My first question is on the overhead costs. So when we had -- when you had the last CMD in December '23, you were still talking about an integrated automotive company. And now we are talking basically about the group, which gets more or less split up. So what is the impact of the overhead costs and how you aim to compensate that because your targets have not really changed in terms of margin.

The second question that I have relates to the future debt targets, leverage targets. All of you said that, you said share buybacks or special dividends, not end. I don't know, what is the debt target that you have got in mind for the future Continental? Yes, that would be useful. And the last question, sorry, I have a third.

Those are 3, Horst.

But a very small one to Christian. Did I get it right that for tires, the free cash flow conversion rate is something like 90%, 95% of adjusted EBIT when I look back to the last 5 years. Is that something we can use also for the future?

Okay. I will start, Horst, on -- well, first of all, we have already in the past year, started to push down central functions to the 3 sectors. That's maybe the first message. Second, what we see as holding costs currently is a low 3-digit million euro number and low 3 digit, yes, sorry. That is -- that we see and that means also certain dis-synergies. At the same time, and I think this was also came clear by the presentations that the sectors are really working on limiting these dis-synergies and actually looking for synergies. So there is potential out there to compensate that.

In our corridor that we showed, the stand-alone costs are included. So that are already included. And then in general, I mean, it goes without saying that we constantly review and challenge overhead costs while ensuring an adequate governance as we also showed. Share buybacks and/or special dividend, well, on the chart, I showed the different phases, the phase ContiTech sale, we said we will use it partly to deliver, partly as a special shareholder return, you could say, special dividend and/or share buyback because we haven't defined it yet, right? And we look at it from a regulatory, from a tax impact, from an investor preference perspective, we look at it and then we take a decision.

And then the third phase, that's then Tires pure play, where we then see within the existing corridor higher dividends and also there, and that's after second phase, we see further potential for share buybacks.

If there's money left.

And look, today, I would say the leverage ratio that we target at equal or below 1.

Yes. That was the other part. That's what you have shown.

So then free cash flow conversion, I mean, we can do it. So I mean, you have seen very high numbers and over the last 5 years, just taking a look at the adjusted EBIT and then also the free cash flow performance before interest and taxes, you get to this figure. I mean, that's not a standard 95% because it also very much depends on our raw material costs going up or are they going down. In times when they go up, you simply lock more capital into your working capital because -- and you have -- we have relatively high working capital in order to supply or ensure the supply chain performance I talked about. So -- but at the end of the day, a figure, let's say, 75% to 80% should be in the average still the target and very much achievable.

And I think very important to keep in mind that the figure that we've shown there is really pre-interest and tax.

Of course.

So it's an operational cash contribution of the tires business. But if you're a profitable business, obviously, you have to pay taxes. So just keep that in mind to moderate expectations a bit. Christoph?

Two on tires, please. The first one would be if we ignore the M&A opportunity in Asia and think about organic opportunities there. Is this largely a function of the market moving more towards ultra-high performance tires and you being present there with more limited competition versus the lower end. So you are simply outgrowing the market and with that growing market share? Or would you also target to grow in, say, non-ultra-high performance just to have a broad coverage of the market?

And then the second question would be on the chart that you've shown and the absolute EBIT per tire. Is this something that we should expect to be flat from basically today towards the midterm? Or is this moving up, say, an inch every 2, 3 years in the future?

I mean, first question, if I get it right. So I mean, in Asia, it's really a combination of 2. It's gaining general market share. So we have underrepresented market share in Asia, and we do have opportunities to grow our market share without specifically focusing on UHP only. So -- and we will invest accordingly. I talked about Hefei. We are just doubling the capacity in Rayong, Thailand as we speak. And this is all in line with our sales development.

Second, nevertheless, globally, and this is also true for Asia, we focus very much on UHP and there are significant UHP opportunities also in Asia. A good example here now is India. So I talked about the fact that we decided to stop producing truck tires in India. But at the same time, we increase and extend our PLT production in India. Purely focusing on UHP or mainly focusing on UHP tires because also in these developing markets, yes, the share of these type of tires -- of the total market is relatively small.

But in absolute terms, in a country like India, it's still very, very relevant. And with the price level because these are protected markets. So India is, for example, shielded by import duties. So producing UHP tires even if it is small volume in India is a very profitable business opportunity for us. So I would say really both generic market share gains because we have opportunity with a very specific UHP focus and country by country, it's a little different.

Is this answering your question? Okay.

And the second part, absolute EBIT per tire, I mean, we have to say that also what is a UHP tire is constantly sliding. So if you go back 5 years or let me say, 10 years, a 17-inch tire was the UHP tire. When we now talk about UHP tires, we talk about 18-inch and above. A 17-inch tire becomes a standard tire. And so does also profitability in the segments start to erode once it becomes more standard commodity type of segment.

So the profitability on an 18-inch tire today, it's probably not the same in 5 years from now but we add on new categories on top, and this window is constantly, let me say, moving but it erodes to a certain extent on the bottom side, and it improves at the same time as the -- on the increasing top end side. So it's not really -- that's the problem also a little bit with this UHP definition. It's not really a constant definition because also the market is developing and evolving.

And with the complexity you mentioned it will widen even more with the BEVs coming in more articles.

Yes. I mean what is the size, one is the mix opportunity because of sizes? One is just simply because of also very unique specific articles. So -- and the BEVS do require even more specific article sizes we have never seen before, very low volumes. And if you are there able to gain OE approvals and ensure supply, there is mix opportunity because competition, supply and demand is simply a different one than on a [ 205/55R16, ] where everyone has tons of tires available.

And 10 years ago, when 17-inch or 1 inch it moved up in 10 years.

Yes.

And in 17-inch, you had 225 45 17. This was 80% of the market, maybe one size. And if you look today at 19-inch, you cannot count how many sizes. I mean the complexity is varying that makes the UHP -- the pool and the tapping pool more complex and even wider.

I think next is Stephen, and then we have Monica.

Stephen Benhamou from BNP Paribas Exane. I got 2 questions. The first 1 is regarding the channel mix. Loyalty brand seems to be higher for premium tires. Does it mean that for you, there will be a strong emphasis on the OE channel in the short term to secure more market share gains over the midterm in the replacement market. And therefore, this could be potentially not a headwind but a smaller contribution in terms of EBIT margin.

And my second question is regarding the phasing of the plan. Do you plan to have a kind of gradual improvement over the midterm? Or is it a more back-end loaded plan?

I mean, let me work on that one and I would say...

Ronald, might do that second part.

No, that's a good point. Second part. I mean on the channel mix side, Yes, the loyalty -- the brand loyalty is more on the premium side than on quality side or budget side of the brand portfolio. Does this mean we will need to focus even more on OEMs in order to increase or to penetrate, let me say, then the premium market even more, not necessarily. It's also here clearly, number one, the question of mix. Also the Loyalty is very different dependent on, which cars you're on or which models and in which markets. So it's not really one size fits all and we need to become and are very selective and making sure that we try to be on the right vehicles.

And this is why we also more and more merge the OE and replacement responsibility from a business standpoint because you need to really penetrate the market in a more holistic combined way to really utilize these mix and, let me say, full potentials in the midterm. But I don't think -- don't expect that now we get a certain burden of our results because we have to, for a certain period of time, focus more than what we are used to do on OE. I mean, we have always been strong NOE. We have a tradition of being very strong...

Maybe you can focus on EVs as well.

No. I mean, we are obviously -- that's part of the mix. It's not just the brand then obviously the model. So the higher end you try to be now even more on EVs instead of maybe combustions, those type of things and then also dependent on the markets, but we have always been strong we are nicely represented in all areas. By the way, I've not talked about this also significantly active with the Chinese OEMs.

We are basically supplying every Chinese electric or relevant OEM on the electric vehicle side. We are supporting very much also the export volumes which should also help us to get the secondary replacement effects out of these OEMs or these new OEMs as well. So phasing plan, I think that was more the question of with the portfolio measures kick in late in the plan or early.

Well, let me add one more element to what you just said, Christian. I think it's not so much relevant what the share in EV vehicle actually is, it's more relevant, what kind of size is fitted on the EV car because we see more and more compact cars, getting into the car park with an electric drive. So it's not necessarily then driving profitability to have an approval on an EV car. It's more actually the size and the UHP mix, which is then driving the margin. I just wanted to add this point because we were coming from the profitability.

Now Stephen, if I got your question right, in the it was about whether our plant going up to 15%, 16% ROS level I talked about earlier, is then rather backloaded or front-loaded plan. I think it's in the middle somewhere because in the beginning, we will have a strong focus on portfolio management and cleaning also our business. And then that will have certainly then a positive effect on the margin early on. And then the longer we go out into the 5-year plan, then we will have stronger mix benefits coming into the plan. I think it's pretty much balanced.

Monica, you're next.

The question is on the ultrahigh performance tires once again. But do you have a target in terms of weight in a 3 years' time, if you can share it, we appreciate it. And what is the pricing policy related to the increase in the weight of the ultrahigh performance tires within the sector? So if I'm not wrong, you shared some indication in terms of price/mix over the next 2, 3 years? Please correctly, if I'm wrong, so how much is the pricing? And how much is the mix in your strategy? If you can share with us.

And very last is on the customer base in China, what is your customer mix between Western car players and local players?

Okay. So then let me talk about the first question, the last question and maybe Roland, you take the price mix. I think you explained what the assumptions are. So I mean, at the end of the day, I would say, staying with the current definition. So if a UHP tires continues to be 18-inch and above, we should, in the very foreseeable future on the PLT side, go beyond or into the above 50% mark relatively soon in certain markets. So if you take a look at China, we are already above 50% of our total sales is already UHP only. And in other markets, it depends really on the market.

On the other side, you have this, let me say, erosion of what is really a UHP tire. And this is why we don't want to say, okay, our target for UHP is this percent because at the end of the day, also the definition of what is UHP is constantly changing, that makes this, let me say, KPI, I think, less meaningful, to a certain extent.

But we can say as much value creation, we can achieve. We, in our mind, we increase it as much as we can, which make sense.

Of course, makes sense. And then the last question on the customer mix, the OE customer mix is your question in China. So I don't know the absolute percent, but we are significantly more than 50% of what we do is with the Chinese OEMs and significantly below 50% of what we do in China is with the international.

So we narrow the market basically, which currently is produced.

So -- and we were -- I mean, just use the example of BYD. We have been with BYD from the very beginning. We believe we are the biggest non-Chinese supplier to BYD, and we are also active with all of the other significant OEMs since years. So our strategy in Asia or in China on the OE side, not necessarily following our traditional customers into the market but we work from the get-go with the local OEMs. And this is why we have basically the situation that we more or less mirror the total market share or market separation between the Chinese OEMs and the international OEMs being...

Which is 65% to 35% right now?

Roughly. Price/mix?

Yes, price mix. You heard me earlier saying that we expect for the -- over the course of the next 5 years, a price/mix of -- in sales terms, plus 2% year-over-year. Well, obviously, short term, the focus in terms of pricing is on passing on the additional costs we are seeing right now to the customers that is mainly tariff-based and FX based. Midterm, in terms of mix, ballpark trigger would be that we at least see it dropping through to the bottom line from sales by 50%, probably more in the ballpark and the range, 60% to 70%.

Does that answer your question, Monica?

Yes.

Next up is [ Dominic ] there. And if I missed some of you indicating your hands, please just raise it slightly higher, so I can see it as well for the next questions.

This is [ Dominic O'Brien ] from Citadel. I just had a couple of questions on the ContiTech sale. It's understandably been quite a few tough years we've had in ContiTech and you've given us a vision for getting back to double-digit margins. Do the buyers have a recognition of that turnaround potential? And hence, when we think of a transaction price, should we think of it based on the turnaround multiples and the earnings that business can earn on your midterm plan? Or should we think of the transaction price related to the current performance of the business. And then I have a follow-up afterwards.

Well, first of all, the indication that we get so far is that ContiTech is a highly attractive asset in general. Being on this path towards an industrial pure-play, which we are executing on. So prerequisite is definitely the sale and execution of OESL, which brings us into this 80%-plus region of industrials. And based on that, we have first indications that based on our historic but also actual numbers, we see a certain valuation.

But of course, that's framed and we will now work on moving forward to what is really stand-alone and what is, let's say, for this year, next year and the years to come, what is the base for improving the margins.

And I guess, evaluation looking to, Olaf?

It always about the timing and it's -- it's a mix from where you're coming from and what are your proof points and what are the prospects going forward and both have been to take into consideration. And as Philip said, we had strong times to ContiTech there are good reasons in particular as well the automotive side, which deteriorated we have taken our packages. So we have proof points on the one hand.

On the other hand, you've seen our prospects going forward and both has been to be taken in consideration. And still too early, as we said, we are still in the preparation phase going into the market 2026. Follow-up questions then to come once we are getting closer.

Understood. Well, I had a very quick follow-up actually. And you mentioned this 2026 process. Will you be in a position to sort of formalize or accept bids already this year and then the process itself unfolds in '26? Or is that too a stretch to timeline?

Actually, we're still as we -- as Niko communicated just a few minutes ago, we took a clear next step decision just now. We announced to work on the independence of ContiTech from Continental April 8. So now we're going to continue the path forward, executing on next steps, getting more and more prepared, and then we're going to detail out what...

Clearly, the spin is now the decisive part. You've seen there's a lot going on. You heard me say nothing jeopardize this spin. We have to be careful. We have some internal resources on group controlling accounting, M&A, and we have to make sure spin works 100% all hands on deck. At the same time, we have the OESL transaction, don't forget. The pure-play only takes place once there was a transaction in the second half takes place and then real execution phase will be in '26. So we're doing everything which we can prepare.

But balancing doesn't mean that this guy might -- is on the gas pedal, and he wants to do this as fast as it can because the team is fully excited to get there. On the other hand, this guy has test the balance as well the resources and make sure that we do the right things at the right time.

Just to add what Niko said. Last year in August, we announced the spin-off, and we said we will execute it within 2025. And then in March, we've got more concrete. We said it's September, right? This is how we will also handle it here, right? We make an announcement. And the next announcement, we will get more concrete when it's the right time. We don't want to make too early announcements. When we announce something, we will fulfill it and deliver.

Ross, over to you?

Ross MacDonald from Citi. I had a question on the revision to the tires guidance for 2025. You mentioned that's related to tariffs but would you be able to maybe drill into the specific moving parts behind that? Is that volume decline you're seeing in the U.S., specifically in the second quarter? Or is it increased competition in Europe as trade flows move? Or is it a decision to maybe hold off on big price increases and go after market share? Just being curious what's driving that revision?

Second question, just in terms of the best cost country exposure within tires versus the mega factory footprint, obviously, with higher trade barriers that could leave you exposed if your best cost countries are not in your biggest markets. So I'm just curious in terms of the U.S. footprint, how you see that developing over the next few years? And maybe if you could comment on the cost of building one of these mega factories if you have to in the U.S.

I mean I can -- shall I start? Sure. I mean, the reason why we have opened the corridor for 2025 on the bottom side, so to speak, a bit is that we now fully consolidated or considered that tariffs could now stay as they are for the total course of the year. And number two, that exchange rates would stay at the 114, 115 as they are today. So I mean, I said this in the past, we are roughly -- if I take USMCA conform production, on the PLT side, we are roughly 50% sufficient. So 50% of our total volume.

We sell in North America, we produce in the USMCA conform, let me say, a way and the other 50% is coming today basically from Europe. So the 25% import duties do hit us on 50% of our volume. And on top, we have this $1.15 situation where we produce in euros and selling in dollars. So that's a headwind which we are currently having, which is affecting us and assuming now that this would stay and this would not cease or would improve we still are then completely confident that we will stay within this corridor.

Let's see what the future will bring but we do believe it was needed to make sure that we have now really a bulletproof guidance, which does even consider that this, let me say, non-favorable conditions for us would stay.

But maybe you might add as well that we have right now already the costs and the mitigation measures coming later, that's what Olaf as well referred to. The costs for steel, aluminum input costs are already effective. The auto tariffs where PLT tires are included effective since the beginning of May. And all the mitigation measures, which we take in place are coming with a certain time lag, that's why we hit and then our mitigation measures work against it.

So it's coming to your question. Is it volume? Is it other parts? No, it's simply more cost for us where we are working against with mitigation measures in order to level this out then in the second half.

I mean no difference to what I said in January. We are focusing on value and not on volume. So we are definitely not focusing now on using the opportunity to gain market share. No it's safeguarding the results. But I mean we are impacted, as I described, the number 2 mitigation measures take some lead time, whereas the target -- or let me say, the tariffs hit beginning of May right away.

So second quarter is, therefore, most probably the most heavily loaded quarter in terms of these tariff impacts. And this also leads to, let me say, 1 of the 2 parts of your second question. So U.S. manufacturing footprint, as said, self-sufficiency, roughly 50%, including what we do in Mexico. I mean I talked about this in the past, tire industry is very asset intense. So I mean, if you take a look at our greenfields. So if you want to install, let me say, 4 million tires of capacity, you probably will need to invest, let's say, EUR 350 million and it takes you 4 to 5 or 3 to 5 years lead time before this is effective.

So before you now make major decisions to change your manufacturing footprint, you need to have very clear visibility of how long lasting this environment would last. And I think besides the asset efficiency and the lead time in order to then really generate value and you have seen our target, we want to be a return on capital employed above 20%.

And I'm sure you did your homework in comparing our asset efficiency versus our competitors. And I would say it's fair to say that our efficiency is pretty competitive. And this is based also partly on the fact that we run then our facilities for decades and not just for months and years. And this is the second part where you need to make sure before you really now significantly change your invest policy, you must have really long-term visibility of how market conditions would be. And I guess you all agree, it's way too early now to make decisions to change our invest strategy based on what we see today.

And we're having basically 2 relatively new plants in the U.S., we have still the opportunity to step-by-step then based on market.

But we will be careful. And then your last point that was on the having mega plants and maybe not in the countries where we say. Yes, I mean, this is what I was trying to say in the beginning with this balance of having plants in the markets where you sell customer proximity versus on the other side, consolidating as much as you can into big facilities in preferably best-cost countries. So if you go to the extreme, you would have little plants in every little country. This is what we had in the past. You had a plant in Sweden, in Norway, in Ireland.

Long past, 30 years ago.

Long past. So we rather now take really a regional approach and see Europe as 1 region where we try to find the right balance of consolidating within Europe as much as we can in mega plants in best cost countries but not go even a granularity lower and now even divide Europe into subregions and then try to be rightly positioned. So that's why in the market, for the market for us is really a regional and not so much a country-specific view, specifically in Europe.

In the rest of the markets, I mean, I talked about Asia. So we produce in China for China, where we rather take a country-specific view but in Europe, it's very much a European view taking Europe as one consolidated market trying to find the right balance between the target contracts I was trying to explain.

And in light of time, I think we have room for 1 last quick question and that comes with you.

Yes. It's a really quick question. I have a question on your European tires business and Chinese competition in Europe specifically. I mean given that the European Commission has recently launched the investigation antidumping investigation against Chinese tires imports to the European Union. I was wondering if you could give us some view on how would pricing be like in the European Union, if there would be no subsidized cheap Chinese tire imports because what I'm trying to understand is how harmful this Chinese tire imports have been for you and for your pricing in EU?

I would say number one, I would differentiate between PLT and truck tires. So let me start with PLT tires. I mean for good and for bad, everything in tire takes long. I talked about how much money you have to invest in order to really significantly increase capacity, and that's not just only our challenge. That's the challenge for everybody. So what you have seen here in the European market is that also the share of imported tires are increasing but they are not jumping from 1 year to the other.

It's more a steady development rather than a step change, which we have experienced. And therefore, it's also not really a step change in terms of price positioning and other, let me say, opportunities. And I also do believe that in case there will be tariffs being implemented. This will also not lead then suddenly to a completely change picture. Number one, because even prior to potential tariffs, there's only limited capacity in the market and players who are able to digest significant more volume because I mean a retailer here in Frankfurt around the corner will not suddenly buy lots of Chinese tires.

So there are very few huge distributors who are able to consume a significant amount of tires. So even there because of the proliferation of the market and the diversity of the individual players, you won't see really step changes. And the other way around, it's also not that suddenly then there's -- I mean take a look at the total market, EUR 350 million, EUR 360 million tires, total tire demand, let's say, 40% is occupied by imports. This 40% cannot form 1 day to the other, be taken over by local production because simply this capacity is also not there. So even if these tariffs would be implemented. You wouldn't see light year changes, let me say, but it would obviously impact the competitive situation?

It would support local tire.

Obviously, it would support very much local production. Same on the truck side but more pronounced because it's a heavier weight already today. It's more volatility. I talked about lower utilization rates in truck, which we are experiencing these days. So the impact there would be probably be stronger.

All right. All right. And with that, we have already reached the end of part 1 of today's session. So again, I hope you took a lot away from strategy, performance opportunities, and thank you very much for the holistic Q&A. Also, thank you for your question.

This concludes Part 1 for the ones joining us online. Thank you very much for tuning in. And we will resume at 2:00 p.m. with the second part with the presentation of Aumovio. Thank you very much.

[Break]

Dear all, a very warm welcome to the Capital Markets Day of AUMOVIO, the planned spin-off of Continental's Automotive business sector. My name is Michael Saemann. I'm currently lead the Investor Relations Department of Automotive, and I'm delighted to welcome our guests here at the premises in Frankfurt Rödelheim as well as everyone joining us virtually from around the globe. Over the next few hours, I will guide you through a program which is packed with valuable insights into our business. Before we begin, I kindly ask you to take note of the disclaimer, which is important for regulatory reasons. Please also note that a recording of this event will be made available afterwards. Let's begin with a quick look at today's agenda. Our CEO, Philipp von Hirschheydt, will kick off things with his perspective on AUMOVIO, followed by presentations of our CTO and the business area heads with deep insights in their respective field of responsibility.

We will conclude the day with remarks from our acting CFO, Philipp, who recently assumed this additional role. If we look at the broader picture, it's clear that automotive industry is undergoing profound change. It demands greater focus, faster execution and a sharper strategic direction. With the planned spin-off of AUMOVIO, we are responding decisively to these challenges. Since the initial announcement, we have secured the approval and the support of key stakeholders and shareholders. Today marks a significant milestone as we present AUMOVIO in this Capital Day format, the next step in our journey towards the planned spin-off in September, which will be a landmark moment in AUMOVIO's history. Let's get started, and please welcome our CEO, Philipp von Hirschheydt.

Thank you. So good afternoon, not good evening, but good afternoon to all of you also from my side here in Frankfurt, our future corporate headquarter of AUMOVIO. And we are very proud to have you all here showing what our company is able to do, how we see the future of our company and how we see the future of technology in the automotive world. But before we go into our vision for a strong AUMOVIO, for a strong automotive supplier acting on global base, let me quickly introduce myself. As Michael said, I am Philipp von Hirschheydt. I'm going to become the CEO of AUMOVIO and I am since end of May also the CFO of AUMOVIO due to the sudden change and for personal reasons, as Karin Dohm needed to leave us.

I'm more than 20 years in the automotive industry. I am since 2023, responsible for the automotive sector in Continental. And we have embarked on a quite intense journey. We have done a lot of things over the course of the last years. I took over from Niko Setzer working on improving automotive AUMOVIO and making it fit for future. And one major topic, as in any company, is how do we see ourselves, how do we see the brand and how do we see the future of our brand. And with this, I want to show you the future brand video of AUMOVIO as a starting point.

[Presentation]

Yes, I guess so you already -- now you know why we think the spinoff is the right thing to do. As my colleague, Christian Kötz said, for good or for bad, everything takes long and tireless. And we see that our industry are changing in the speed of light. And that makes the big difference between where we are in, what we need to cater and what we need to deal with on a very constant base. So who is AUMOVIO? AUMOVIO is a company with around 90,000 employees. We managed to have sales of EUR 20 billion. We have had an EBITDA of EUR 1.4 billion. But -- and that's something we think is one of the most important things, we have a global presence and a very strong local footprint. And with this requirement, with the prerequisites, we managed to get a positive cash flow in 2024 of around EUR 250 million, and we improved our earnings by 240 basis points over the last 2 years.

So we are a company which make mobility, which is focused on mobility, which is making mobility safe via our business area Safety and Motion. It is exciting via our business area user experience. It is connected via our enabler of value-driven architectures, architecture network solutions. And last but not least, we think the future is autonomous. Mobility is going to be autonomous, and that's how we deal and where we deal with our business area Autonomous Mobility. And you're going to see today as a major part, and many of you have already asked me, you need to talk more about product. And that's today the chance you can ask questions, and we are going to present to you how we see the future of mobility. That's been represented by our CTO, Nino Romano, who will just come after me.

It's represented by our 4 business area heads, being it Jean-Francois, taking the Architecture and Network Solutions arena, via Ismail Dagli, who is talking about Autonomous Mobility; Pavel, our Head of User Experience; and Boris Mergell, who is heading since basically 1 year, our Safety and Motion arena. We are an organization which is very much focused on entrepreneurial spirit. That's why we have made our business area very much in focus and responsible for the business in their respective product arena. So we drive the business via our 4 business areas, and we ensure that where synergies are able to be done, we synergize at a central level. That's how we work on the purchasing side, how we ensure synergies, how we ensure that we are going to grab all chances which are able to be offered in the market. We do see that in specific parts on operations, we are able to combine, in specific parts, we are able to manage even better our production footprint on a global level.

And innovation drive on central level as well as on the business area. All this is going to be presented by our CTO, Nino Romano. We have, of course, other central functions where we say, here we are able to ensure that synergies are being taken and are being brought forward. Before now going into the -- all the details, we -- let's have a talk on the overall market. We do see that our industry is facing a lot of uncertainties, being it market-leading technology, technological uncertainty, although we are power traders, if markets are down, we are facing that spiral as well that our underlying production is limited in terms of growth going forward. And we are also very global industry facing geopolitical uncertainties. To see transformation at speed of light is the change in value chain. We do see that the Chinese market is facing a tremendous competitive environment that even competition is intensifying on a day-to-day base. I think we are well equipped for the future. We are a technology leader. We have global reach and local for local setup.

As I said, we have a very strong purchasing organization. We are basically one of the biggest automotive semicon purchasers in this industry. So we can drive a lot into the market. That's why we also announced just yesterday that we are building up a design team for semiconductors going forward because we think we do have here a competitive advantage which we need to play much more into the market going forward. We have a deeply embedded technology, and we are able to reach that on a local level as well as gaining global scale and global synergies. We will come to that. I will -- I'm going to show -- specifically Nino will going to show you how are we being set up. We are a global company, and we are convinced that global reach is not the only solution for the future. You need to be able to synergetically approach local customers to approach within regions, your customer and the demand of your customers and you are needing to be able to do that on a very effective and efficient way.

In our products, where we are focusing on, we are already an 80% market leader. We are in 80 -- we are in many times, the leader. We are in total at 80% within the top 3 of that respective market. And we are focusing on getting better and better in that arena and ensuring that the ones which are not yet market leader are going to get there or we are able to know of how we are creating value with these specific products. Olaf Schick in the morning has already presented that we are going to go into our independency with a very comfortable financial position. We are basically going to go into our independency without financial debt and with a significant EUR 1.5 billion cushion, something which -- and we are going to show you that today is not normal in our industry, to put it politely.

And we do see that with our products, something we are going to look at with our products, we are going to be able to significantly outgrow a more staggered market. As you can see here, we assume that over the next years, the market itself production is only going to grow by 1% to 2%, if at all. According to a study which we did with Berylls Market Research Institute, we are going to be with our products, our underlying markets are going to grow between 4% and 5%. So we do have a good chance to outgrow the underlying production figures. I talked about lead, I talked about that we are with 80% of our products within and among the top 3. And we are convinced that we have a portfolio, a comprehensive portfolio where we are leading in future-proof technologies. Over the last 2 years, we had a strategy which were based on 3 pillars. We said we want to lead, we want to focus and we want to perform.

We put that on the next level. We said we need to maintain the market leadership but we need to transform our organization now into a high-performance organization. And what we need to ensure something which we forgot from time to time over the last years is to deliver on our commitments. That's something which we are going to show you today. We have a team assembled. I'm very proud of being and leading that team into the future of AUMOVIO. It's a team which is knowing how to deliver and that commitments are commitments at which need to be ensured that respect [Audio Gap]. If we talk about leading, if we talk about portfolios, that we do have with our portfolio the great chance to work in a market which is growing faster than the underlying production. So what we see and where we are convinced of is that the future is going to be the software, how fast it's going to be and how different customers are going to adapt the software in their respective architectures.

But what we know and what we do see is whatever speed a customer is going to take, we are ready to serve. We are ready to serve on a system, on a component and on a service level. We have a long-standing expertise in hardware, and we do have with meanwhile, close to 18,000 software engineers, a significant power in the software arena. And we add to that, services. That's where we think we are able to be a supplier, which is state-of-the-art of today, and we do know how we are going to bring innovation into the future and into the tomorrow. And we do know, and that's what we did over the course of the last 2 years already intensively is we focus. We look into how are we performing. If we are not performing, we are working on improvements. If we are not improving, if we are not seeing a chance to work value accretive in that respective product segment, we decide to sell or close.

Something which we demonstrated just last week where we announced that we are going to sell our plant and the respective business in Italy to a partner where we say he's able to manage the business better than we can do going forward. So there is a rather sharp look at what and where are we able to make profit, how are we able to drive our business value creative. And if we are not able to do so, we take the decisions to focus and to reduce. I was talking about that local scale needs to be regional -- global growth needs to be accompanied by local scale. We're a company which is basically distributed with 50% in Europe and 25% in North America, 25% in Asia in terms of sales. In terms of employees, somewhat similar. You see here, we have already a very strong regional manufacturing footprint across the world, something we are going to work on in order to be on a very constant base, efficient and even more efficient.

Also on the R&D side, we have still chances to improve. We do see that the resiliency, which is required in our market is going to be brought by our infrastructure and which is allowing us to be and to lead into a significant upside potential going forward. Being a regional player is one thing, but we are very much convinced that we need to be able to locally adapt to the needs of the markets. These days, North America is something which is very much in the spotlight. And we do know that -- and we work intensively on preparing our organization towards the different needs and demands of our customers. North America, basically 25% of our sales, we have the established a key market for us, and we are one of the leading automotive suppliers in North America. More than 90%, now more than 92% of our products are USMCA compliant, and we do have long-standing relationships with local OEMs.

And the major part of products we produce and deliver to our American customers or American-based locations are ex-works sold, which means the necessary tariff payments are within our -- with our customers. That's why we are also convinced that we are going to be able to maintain our guidance for 2024 -- for 2025, although having the tariffs in North America. We have prepared our organization. We are working for many, many years according to the principle of in the market for the market, and that allows us to have a very resilient and robust organization. Looking at China, a business where we have been established 30 years ago, our footprint, we have more than 10 manufacturing sites. We have 10,000 employees. And for us, it's a very important market because we do see quite some chances for growth. C-OEMs already represent a great part of our business. We gain a lot of new businesses with our Chinese OEMs, Chinese customers. And we have a lot of things, a lot of R&D and manufacturing already localized.

And we are in the process of empowering our local organization in order to be able to act fast and agile and flexible in a very demanding market environment. So also here, we feel as well set up for the future for additional business and for any competition. I was already talking about how do we set up our organization, having 4 strong entrepreneurial companies, business areas driving their business in their respective business field and centrally managed purchasing, centrally managed supply chain, centrally managed operations and innovation. This is something which we see combined as operations and technology organization, driving execution into the future and working on innovation in terms of make or buy. So we have a start-up company called “co-paceâ€, which is working with a lot of different start-ups in order to make us more competent into new technologies to ensure that we are binding and maintaining the technologies of the future in our field.

So partnering is a strong asset, which we are going to use even more in the future. This on the leading side, the first major pillar of our business, coming into transformation where we say whatever happens, even in being a business which is already a leading position, we need to ensure that from a cost point of view, we are very competitive. We have done a lot over the course of the last 2 years. We have already started in 2019 to close the first sites because of the transformation, which we have foreseen. And we have significantly adjusted our overall infrastructure. We have ramped up new businesses. We have close to 1,000 new product ramp-ups initiated and executed since 2022, and we have repriced a lot of our products. We also did a significant invest into our manufacturing footprint. We moved from high cost to best cost location. We have meanwhile more than 80% of our production in best cost.

And that's why we are very much convinced in the future, we are able to significantly reduce our capital expenditure. In our guidance, we say we are going to invest less than 5%, and we are very -- we are convinced that we are able to bring that also into the long run and that we can leverage what we have and we can leverage the mega plants and mega factories, which we have set up. We have already decided and communicated that we are closing 5 additional high-cost plants. As I said, just last week, we announced that we are going to sell the sixth one so that we are moving more and more our production into best cost country. So with our new products, which are going to come into the market, with the portfolio improvement we have been doing, we are very much convinced there's a significant further potential ahead of us. And one thing we have been working on very intensively has been our overall workforce over the course of the last 15, 18 months.

We have meanwhile reduced by more than 15,000 employees since mid of 2023. And we have, by that, ensured that we are safeguarding the future of AUMOVIO going forward. In a challenging market environment, we are convinced you need to be a very cost-conscious organization. You need to ensure that you are able to drive the business at most and maximum efficiency. And that's how we have been managing over the course of the last quarters on a very regular base to improve our cost base while not jeopardizing our innovation power. So that's why we think, and I explained it already in the beginning, the stand-alone of AUMOVIO is a great chance for us. And that's going to be the catalyst for even higher growth and for better profitable development going forward. So let's look into the delivery. I think the first thing which I wanted to explain is that we have a very strong leadership team in place. We have ensured that this leadership team is performance-oriented. I talked about value creation.

We have set up an organization which is very much entrepreneurial minded and we made everyone directly accountable. So if we are looking now into our remuneration schedule, we do see that -- and that's one of the major intents of us to align the interest of management with the interest of our shareholders. So right after the spin-off, the senior management team, the Executive Board as well as the major part of our senior management team is going to get a so-called spin-off bonus. To be invested into shares of AUMOVIO, the first tranche is going to come right after the spin-off. And the second tranche is only linked to success and to development of the AUMOVIO share and is going to be paid out 18 months after the spin-off. And we have linked the entire remuneration schedule. And you can see here, the fixed part is only 25% to 35% of the total remuneration package, very much linked to financial goals and to one major KPI, I come later to that, is the return on capital employed.

So we are very clear. We do have a great chance to move our organization forward. We have done a lot of things. We have managed to come from breakeven in 2022 to 2.5% in 2024. Our guidance for this year stands at 2.5% to 4%, and we are very much convinced that with -- even with very stable and not very much growing markets, we are capable of reaching the 4% to 6% midterm. Midterm means and this guidance means we want to reach the market average we somewhat see at 5% to 6%. And being an ambitious team, we want to reach then long term, for us, long term is somewhat 2029, 2030 is where we want to be better than the average, where we want to reach 6% to 8%. And the good thing is we have managed a lot of things already now. We know how to execute, and we know what to do in order to be successful. We have managed to reduce our R&D costs already, and we have a clear plan of how to come to 9% or even less than 9% R&D to sales in the long run.

We are moving our manufacturing footprint, and Nino is going to explain that. We are moving our manufacturing footprint even more into best cost country. And we are ensuring that what we do, we do at the right value. So via a very significant cost reduction program, which we initiated and where lots and lots of the results are now going to come over the next years, we are very much convinced we are having our faith, our destiny in our own hand. And that helps us to go also then into the next phase, which is after a significant cost reduction, ensure that our new products, that our innovations, that our new projects are now running into the top line and ensuring that we are going to see also some operating leverage going forward. So we are converting high-margin order intake into sales. So to summarize, we are convinced that we are a company which is ready to rumble, which is ready to act in a very difficult and very demanding and challenging market environment.

We are a global player, and we have top market positions in place for the quite major part of our product portfolio. And one thing very important, we can act on a very strong balance sheet. We don't need to work on a day-to-day basis on financing. We are capable of executing our program of executing our strategy, and we can look at cost competitiveness as one of our key focuses. We have a lot of portfolio measures already done. We have looked into how and we will also look into on a very regular base. Everyone in this organization knows that value creation is the driving force. And we do see now the spin-off as a major catalyst to be able to make us even more successful to ensure that with our highly committed leadership team, we can ensure that the upside potential we foresee is also going to be reflected in the share price going forward. That's from my side. And with this, I hand over to Nino, who is going to guide us through the technological part.

Thank you, Philipp. And also from my side, well, welcome here in Frankfurt on our test track facility. I'm Nino Romano, and I'm the CTO of the automotive sector. And of course, in future the CTO for AUMOVIO. Since my last 30 years of working for Continental, mainly in engineering activity. And in this time, and that's what I was going to explain a little bit, focusing on innovation and brand new technologies. The last 5 years was responsibly within automotive for quality and operations. And I would really like to emphasize again, I'm proud to have you here, talk to you here out of this facility because in this test track, this is really where my career starts. '93, '94, I was a young engineer, working for electronic brake system. And with a small team, we were starting innovating product. At that point in time, this was a stability control project, ESP.

This was then launched in '98. And I think all of us knows exactly that was really one of the breakthrough in vehicle safety. Yes, that I can tell you is bringing back memories sitting with you here exactly on this spot. As you heard from Philipp, mastering market challenges and speed is key. Therefore, also as Philipp said, our AUMOVIO operations technology was established in February 2025 through the merge of R&D and operations function. We merged this function because we aim to achieve an even smoother transition from engineering to production, but further harmonizing process and digitalization across the entire, that's important, product life cycle from innovation to production and what is important for the future beyond. Operations technology takes ownership of various strategic areas. Let me explain a few of them. We're talking about artificial intelligence, supply chain management and sustainability, along our streamlined value generation across the total group.

Overall, this empowered AOT to steer the 2 strategic pillars. You heard this already from Philipp, innovation leadership and execution excellence. Let me outline how AOT contribute to making our AUMOVIO a leader in both innovation on the left side and execution excellence on the right. One, our innovation leadership allow us to set the right focus to assess optimal innovation opportunities to unlock the full power of our business area working together, play an optimized role in technology disruption, come later on to this topic, drive strategic execution and power our business area process with automatization. Second, our execution excellence allow us to drive harmonization across AUMOVIO, drive our production efficiency and overall resilience, identify internal control outliers and uphold governance principles. Through this dual focus, we deliver strong support to all our 4 business areas, allowing us to jointly unlock the full potential in the future of AUMOVIO.

Now I will walk you through the -- I mean, I can only talk about 5, or I will spend hours, but I will pick the 5 key levers that support our value creation fitting within the 2 pillars, innovation leadership and execution excellence. Firstly, on the innovation leadership, we have, a, cross BA innovation; b, disruptive technology focus via or with our partners; secondly, our execution excellence we have; c, standardization across the board; d, the local footprint; and e, resilience throughout the business. AUMOVIO has a proven track record of leading through innovation. We operate with a global R&D force over 31,000 R&D employees located in all key innovation locations. This employee powerhouse drive innovation for our customer on a local-for-local basis. But of course, we cannot do everything alone. In order to focus on our core competency, as said also from Philipp, we seek partnership with leader in their fields.

We collaborate with top innovators across industry to develop future-ready solution. As you can see, our partnerships span a wide spectrum from start-up, some of which coming from our -- from Philipp already said, in-house company co-pace to leading big tech companies. Lastly, we have more than 100 years of innovation, experience in automotive industries. This was already evident in 1923 with the introduction of the Autorex Clock as the first VDO tachograph. And we have continued to introduce pioneering automotive innovation over the years. This was including ABS, adaptive cruise control, head-up display and the first digital key, Jean-Francois. These are already key innovation in the automotive industry, and I'm really proud to have been involved in some of them getting those to life. AUMOVIO does not sit still. We continue to forefront of innovation today. And let me show some of our most recent achievements here.

To be a leader of innovation, we need to see -- set a clear direction of travel. AUMOVIO strive for innovation in the following field, which are lived through our 4 business areas. Connectivity and computing with the first HPC on volume production, autonomous driving with the first commercially viable transportation as a service, by the way, ready for industrialization in '26. future in-car experience, pioneering mass production of OLED and pillar-to-pillar display and last but not least, next-generation safety system with the first-to-market semi-dry brake solutions. My colleague are really, of course, going to touch on these topics and this innovation later on, on their presentation. To deliver cutting-edge innovation in this area, operations and technology support the business area with internal innovation; and second, as said, innovation with our external partners. This structure allow us to focus on the core competency while accessing state-of-the-art technology and ultimately, going faster to market.

As we look at our internal innovation that we -- by the way, there are a couple of core demo cars outside where you can experience exactly those cross-business area activity. Internally, we're exploring through AOT organization by really getting this cross-collaboration through the business area. And we're doing it that way. First, we are creating value while serving full system demand. Second, we are championing the knowledge, sharing from experts in different domains. Third, we check the alignment of technology requirement to be sure that we are avoiding redundancy, optimizing developing, ensure to have an effective interplay between the business area. And last but not least, this framework enables the really through cross-business area innovation, unlocking integrated solutions. On the right, you see the recent example of innovation product, resulting from fusion of components and technology of the different business area.

And as said, few vehicle can be experienced afterward outside. And these are, by the way, deviceless access and cabin sensing. And we have the -- deviceless access is one of our demonstrator afterward. Now let me look on the second pillar, how we support innovation leadership. We focus on finding, enabling and driving disruptive innovation that transport both process and product across the entire organization. We evaluate commercial use and screen for leading partner to access the latest technology, ensure a clear focus on our core competency and enable a faster go-to-market. An example on process innovation, a one-off initiatives where we introduced innovation through a partner is our AI tool. And this is used for analyzing our requirement. Our customers expect us to meet a diverse range of requirements for their product. Reviewing these documents, which can exceed thousands of pages requires extensive manual effort.

Our tools, our AI tools streamlines and standardize the analysis, cutting the manual work by 80%. And now on the right side, an example for product innovation. We are collaborating with a start-up DeepDrive, and this showcases how we combine our deep product knowledge with the expertise of a strategic partner to pioneer long-term disruptive innovation. In this example, we leverage our expertise in braking system and DeepDrive's specific expertise in lightweight electric motors. And with this collaboration has led to the creation of electric brake system unit that is brand new with the potential really to reinvent vehicle brake electrification. And this is what I mean when I talk about our AUMOVIO innovation leadership. Let us now switch to the second strategic pillar, execution excellence. Standardization. We support the value creation of AUMOVIO through standardization across all the business. In the field of production, we continuously increase the level of standardization in all our facilities. And this is absolutely key.

Standardization enable us to drive efficiency and flexibility to manage capacity. We have, for example, standardized 100%, means all of our electronic production line across all plants worldwide, which allowed us to reuse lines and spend around EUR 80 million less CapEx in the last 2 years. This approach enabled us to achieve a CapEx to sales, as mentioned also from Philipp, below the 5% while optimizing, of course, manufacturing costs. There's, of course, still a lot of standardization potential for us in AUMOVIO to deliver and increase our margin improvement. On the bottom, in the field of engineering, we standardized process method and tool to enhance the quality of our work and improve the employee efficiency. Our standardization process and methods result in a reduction of 2.4 million working hours, an equivalent of a potential of 1,400 FTEs. Our standardization engineering infrastructure is one of the driver to achieve an R&D to sales below a ratio of 10%.

Under our execution excellence framework, we have implemented a series of innovative reduction for manufacturing costs, which are still, of course, in progress, but of course, also part of our long-term ambition. And first, variable and fixed cost reduction. We benchmark costs across all plant worldwide, really all the network of the plant worldwide and share the best practice. We work also with our plants on lean manufacturing and on shop floor management, sharing, of course, the knowledge from the plant in all 3 major locations. Second, CapEx reduction. We increased utilization and save CapEx spending through reuse of manufacturing assets. And as already mentioned, we drive improvement of electronic production line loading. And last but not least, we are thoughtful about the level and the timing of infrastructure investments. Third, footprint optimization. We are striving to move our manufacturing to have more than 88% in best cost country, driving a positive impact for our P&L.

And we incorporate resilience aspect as well as customer proximity into our footprint decision. I will share with you a couple of data points later on. With execution excellence, we have seen our clear target to reduce R&D -- our R&D to sales ratio below the 10%. On the left, you see our ambition: one, reducing FTE to less than 27,000; two, increase engineering best cost share to more than 70%; and three, rightsize our R&D footprint. How do we believe to achieve this? On the right, we have identified clear sustainable measure, standardization and reuse, extensive AI use from requirement analysis as shown and coding to generation of test cases, then automated process and method and of course, lean organization, reduced line levels and decreased span of the control. By the way, in the last 1.5 years, we have reduced the number of our managers by more than 200. And as said, the consolidation of our R&D footprint. Based on these levers, we are confident that we will sustainably reduce R&D costs to sales and reach our group ambitions.

Now let us review how we optimize and reach the highest efficiency in our global but local footprint. And also again, on the left, you see our ambition. One, increasing our utilization to 95%, have then 88% of our headcount situated in best cost location. And last but not least, reduce our plant footprint to 45 in long-term targets. Again, why do we believe to achieve these targets? We will put -- we have put a clear sustainable measure to unlock the benefit of our global but local footprint. And these are footprint optimization, alignment of the capacity; and three, driving resilience by focusing on regional production and robust supply chain. Lastly, within execution excellence, let me dive into our resilient supply chain and the benefit of our scale. We proactively manage our supply chain to ensure a seamless production even in the face of global disruption like those that everybody experienced during the pandemic time.

Let me now steer your attention to 2 key initiatives: one, electronic procurement and the second one that is going to show in a couple of seconds, vertical integration besides the many other that we are still focusing on. Electronic procurement. One key example on how we centrally manage our supply chain as one, as Philipp said, largest purchaser for semiconductor is our electronic procurement approach. In the past, each of our plants has to deal with all the supplier worldwide. Now we are managing it centrally, reducing the complexity and increasing, of course, or reducing or increasing the efforts significantly. With this measure, we are committed to maintain the optimal mix between operational performance, stability and working capital expense. As strategic initiative, we are focusing on consignment stock and working closely with our supplier to achieve a healthy consignment rate.

This increased stability of our business and satisfaction was very important of our customers. Now let me come on to the vertical integration. And you heard also from Philipp that today, we announced what we are going to do. And as said, we are one of the largest semiconductor purchaser worldwide in automotive. And while we're already leveraging our purchasing power in procurement, we will pull as said, another exciting lever aiming to reduce our dependency and increase the resilience of our semiconductor supply chain. We will become a specialized semiconductor organization. What does this mean? Our competence -- core competence lie in the understanding of the automotive industry. Therefore, we will design semiconductor based on the specific need of our automotive customers. [Audio Gap] allow us to significantly reduce cost, enabling our margin. And as you know, this is [indiscernible] in the semiconductor industry while operating proprietary [Audio Gap] of our competition. And we are excited [Audio Gap].

As we present to you the next steps.

Thank you very much, Michael. Good afternoon. So indeed, my name is Jean-Francois Tarabbia. I'm Head of the Business Area Architecture and Network Solutions. So I have more than 35 years experience in the automotive industry. And with my computer science education, I started as software developer. And at that time, I dreamed of placing the software as a center of the development of the vehicle. And believe me, at the time it was not at all the case. So -- but you can imagine how today, I'm pleased and proud to lead the business area, which is in the middle of the SDV, software-defined vehicle introduction.

So this business area, Architecture and Network Solutions is a global business and the second largest within AUMOVIO. It is a highly attractive business and going through a very exciting journey. Why? Simply because, as I said, this is a business which is in the middle of the transformation from the hardware-defined vehicle to the software-defined vehicle. It brakes the car part of the IoT and drive the digitalization of the industry. We have a large portfolio covering the full electronic architecture and to fit to the market needs, we structure our products in 3 clusters. Foundation, solution and services. Obviously, every cluster has a purpose. Look, foundation. Foundation focused on standardization and scale. It includes high-performance computer and telematics. Solution. Solution focused on innovation pace, this is what is important, and we do -- it contains products like access features.

And the services focused on providing the right structure with the appropriate business model. We are offering services like feature maintenance and feature integration. So we have a leading position in all what we do. On the next slide, I will explain how -- what is our position today in the current architecture and how we manage the transition aiming to maintain our leadership in the emerging architecture. So the life cycle of every vehicle has 4 phases: conception, development, production and maintenance. Within the current or the traditional architecture, we are mainly involved in development and production, development with our engineering and production with our manufacturing. We develop products according to the customer specification. And when the production starts as the software and hardware are frozen, our main activity is to produce and deliver our products.

We are fully mastering this business for decades, and we are making money with this. So any delay of the interaction of the software-defined vehicle leads to an extension of this profitable business. Yet within the emerging architecture, we support the introduction of software-defined vehicle. We will be involved in a much larger part of the value chain, much earlier and much longer in the maintenance phase. But also, much more intensively in a development and production phase. Early involvement generates new value stream for ANS like engineering for optimization of the architecture. But it also gives us opportunity to promote our core products. During the development and the production phase, we create additional revenue potential with feature integration. [Audio Gap]. So it also gives the opportunity to put in the frame of the IoT. So the tangibility of these opportunities are very high. Already today, we have with 4 OEMs, a strong collaboration on the architecture and more to come.

We also already have several customers with substantial business in terms of maintenance of the features. So let me summarize. We have a strong and profitable business that we can extend as long as the businesses need it. And we are as well very well prepared to benefit from what's come with SDV implementation. So our success doesn't depend on the pace of SDV adoption. So now let me walk you through the significant potential of ANS, hence what to contribute to AUMOVIO. There are many highlights, but have -- I will focus on 5. First, market leader. ANS is global number one, for the combination of computing and communication, connectivity. These are topics of today and of the future. Second, structural growth. We see it as a sweet spot of the automotive value chain. Already today, we have a high content share and we believe to benefit from the structural growth coming with a shift towards SDV.

Third, integrator of choice. We combine hardware, software and deep automotive expertise. This combination makes us strong, and we consider the strength to set us apart from others who can only master selective areas. Fourth, partner ecosystem. We do have a large ecosystem of partners who are leaders in their domain. But what makes us special is that we are very flexible to partner with everyone. Fifth, execution excellence. We delivered good financial results and have the right setup to continue with a strong focus on cost and efficiency. So let me start with the first topic. So ANS is already in a very good position with a strong value proposition. Look, we do have a leading product portfolio. Computing a machine-to-machine as a form structures the backbone of the car electronics. And this is exactly our core competencies with high-performance computer, zone control modules, telematics and gateway products.

These products are the game changer of the automotive industry. Secondly, we have a strong access to customers and a global footprint. So we have a deep relationship with almost all OEMs globally. In Asia, where the growth is, we work with 80% of the top 30 OEMs. We are present in all regions with local research and development, local manufacturing, and with a robust supply chain to serve the local markets. We are close to the customers. And very important, we master the value standard and regulations related to our products and to our services, and this is on a worldwide basis. So our customer access, global reach and leading portfolio translates into strong financial performance, 7.5% return on sales in 2024. So building on what we have today and look into the future, it's an exciting one for us.

So building on what we have today and look into the future, it's an exciting one for us. We believe to be the key beneficiary of what will come with software-defined vehicle. The need for more computing power, the need for more connectivity, IoT, cloud services, AI, you name it. All these trends will generate continuously growing content per vehicle year-over-year.

It is true that the pace of SDV, and [ Philippe ] mentioned this, adoption is uncertain. But it is important to understand that we do not depend on it to achieve our profitability target during the next 5 years. We are ready to benefit from the SDV trends, and as transition unfold, we will see upside in our plan.

So now what is the additional growth of services along the emerging architecture? On the left-hand side of the slide are our strengths. Most of them are based on decades of experience worldwide such as design and production of automotive electronic devices purchased on large scale. This explain why we are top 3 of the 90% of our product portfolio. But on top of this, we capitalized on experience during the last years in driving very complex projects serving software-defined vehicle. Only the in-depth understanding of the entire vehicle architecture of the complete development chain of the automotive practices enable us to tap into this business opportunity. These competencies qualify us as a partner in the frame of software-defined vehicle. The concrete additional services are for us, mainly architecture optimization, feature integration, feature maintenance and build-to-print.

Clearly, we are not the only player looking to capture this upside potential. On the left-hand side of the slide are the new players. I'm going to show you why they need us to succeed. Firstly, OEMs. They are trying to vertically integrate activities as they usually lack the benefit of scalability. They lack as well the expertise and breadth of solutions that Tier 1 have while working with every OEMs. This is why after witnessing a major in-sourcing trends last year, we now see and observing reverse process.

Secondly, the tech giants. They also want to play a role in our industry. However, to be successful, they need in principle, an automotive partner like us to adapt and to integrate their solution in the automotive world. This is why they work with us, and I will address our partnership in the next slide.

Thirdly, there are regional Tier 1 competitors. For example, in China. Here, we engage our local for local structure, local research enablement and local manufacturing. We also develop our local ecosystem with local partners. On the right-hand side of the slide, we describe how we address all these challenges with our ability to integrate both hardware and software tailored to the automotive industry. We have the relevant competence, experience, scalability and broad access to technology.

As you can see, while our challenges all have distinct capabilities and a place in the automotive industry, we retain our foothold in the automotive hardware and software market, and working with us, it's what makes those players successful.

Now I want to address our partnership as it is a very important topic in a fast-evolving environment. I mentioned that we are very flexible to work with any partner required by our customers. But we also have our strategic partners to leverage their competencies to overcome geopolitical cost trends, to access to market or even to limit risks. It is not efficient to try to do everything by our own. We compete where we are strong, otherwise, we partner.

Our approach is exemplified by a long list of partners we are working with and have successfully completed project with us. A concrete example, we partner with Google. Google who has great feature for the automotive industry. But these features need to be adapted for the automotive environment. And this is our role, we adapt and integrate Google features into the automotive world.

Another example showing how our strong partnership. We were the first and among the few Tier 1 being qualified technology partner by the major smartphone providers. And this is crucial for the very important feature, digital access system. So there are just 2 examples among many.

So we talk about the growth potential and the strength of ANS, but it is also important to understand that we have worked hard over the last years to address major issues, especially when it comes to operations and execution. When I took on this role, ANS was struggling with significant challenges, including big issues like budget overruns. Let me go through some concrete examples of what we successfully achieved during the last past 5 years.

On the product side, we have introduced a new business model for engineering services with substantial upfront customer payments. We adapted our portfolio to higher margins. We run systematic redesign to cost. We manage turnaround for products that had negative return on sales.

On the cost side, we have significantly reduced our overheads. We also removed 2 management layers to reduce complexity and costs. We have improved efficiency in recession development with better processes, better methods and better tools and with an improved global footprint. All in all, we have reduced net research and development ratio by 350 bps since 2022.

On the manufacturing cost, we continuously improve -- we continuously, and we still continue, to improve the performance of every plant. We have worked on significant reduction of production and logistics costs, supported by the global AUMOVIO program mentioned by Nino. This effort has led to a significant improvement on adjusted EBIT margin from minus 4.1% in 2022 to 7.5% in 2024. These measures are implemented to be sustainable and to support cash generation. With this, we have now a culture of cost focus and operational excellence.

And last but not least, financial perspectives. Here, a short overview of our sales and adjusted EBIT margin. I have explained our major turnaround in the last years, taking sales to EUR 5.6 billion, and our margin from minus 4.1% to 7.5% positive.

So the question is now where we want to go from here. So we intend to leverage our extensive portfolio, product portfolio and aim to benefit from software-defined vehicle growth to reach sales higher than EUR 6 billion in the long-term. But this is the base case assumption of moderate penetration of software-defined vehicle. If the market accelerates the SDV adoption, we are expected to generate more sales and related margin.

So we have our global scale, local for local approach and strategic technology partnership. We believe to have a strong position compared to most of our competitors. And we will remain very focused on cost and discipline, particularly in terms of research and development expenses and operational excellence. With this, we expect to a mid- to high single-digit EBIT margin in the long-term. We are confident that we can achieve these levels.

As you can see, ANS is a market leader with a strong position to benefit from SDV. We are the key integrator of choice and leverage our partner's ecosystem to maximize innovation and flexibility for OEMs. Following our turnaround, we see a clear path to further growth in sales and margin with potential upside from SDV. ANS is proud to contribute to the success of AUMOVIO. Thank you very much.

Thank you very much for showing us how the architecture of the future will be enabled by you and your team. So now coming to the next topic, automated driving with a whole variety of what we have. So please, Ismail Dagli, join on stage.

Thank you. So a warm welcome from my side as well. My name is Ismail Dagli, I'm responsible for the Autonomous Mobility business area. I've been with Automotive for more than 25 years and with Continental since 2020. I started my journey with a PhD thesis in autonomous mobility at that time with very simple AI, but as well a trunk full of computers. And you can imagine how excited I am to see the rapid progress of the recent years where ideas of the past that we certainly have had become now commercially relevant and viable products.

So AM comprises exciting technologies and is structured in 2 areas with distinct capabilities. One is autonomous mobility and the other one is commercial and special vehicles. Both businesses have a strong positioning in their respective markets as well as an upside potential in growth and profitability.

Firstly, the Autonomous Mobility business comprises 3 strategic pillars. Components as a well-established business includes technologies like radars and cameras. System solutions, there, we realize Level 2+ driving and parking systems for passenger cars. And as a service business. Here, we are pioneers in autonomous trucking. Together with Aurora, we are scaling a per mile business model that is built for commercial success. We combine our competencies with hardware, software and as a service model that enables recurring revenues along the complete life cycle of an autonomous truck.

Secondly, equally important in the segment, commercial and special vehicles. We focus on commercial vehicles and the off-highway market as well as on fleets and workshops. We offer a broad portfolio of vehicle electronics, software and services with a market dedicated setup.

So as just explained, AM is an exciting business area of AUMOVIO with significant financial upside. Here is a quick summary. With our complete portfolio, we are acting in structurally growing markets and benefiting from the trend on one side towards automated driving, and on the other side towards a higher content per truck for CSV.

Our success in AM is built on the 3-pillar strategy. One, a strong foundation in high-performing ADAS components. Two, a cost-efficient driving and parking solution where we expect major profitable growth. And three, the upside potential from as a service business and deployment into autonomous trucking. Meanwhile, within our CSV business, we are operating in a financially healthy position and are the market leader in an attractive market, enabled by the AUMOVIO portfolio. Overall, this gives us a major upside potential, which is driven by profitable growth opportunities based upon our attractive offering.

So the Autonomous Mobility business is following our 3-pillar strategy, component systems and as a service, and here are the respective markets. As all of you experience, driving in your vehicles, the level of automation has increased over the last years significantly and will continue to increase. This is a critical driver for AM. We believe that this development across -- deliver higher content per vehicle across all of our 3 strategic pillars.

To start with components, growing safety regulations are further pushing the demand for Advanced Driver Assistance Systems, ADAS. Hence, AM components have seen an accelerated growth over the last years. Second, higher level of automation in passenger vehicles are expected to drive growth in our system business, especially in Level 2+ systems and particularly with volume vehicle models of our OEMs.

In China, we have seen a fast development and market acceptance of system solutions. Therefore, China offers major growth opportunities and comes with an own ecosystem of solutions. For China, our local and competitive solution is key. In conversations with R&D and purchasing heads in Japan, we also discussed that these solutions can be viable also outside of China, scaling this technology across the complete region.

And thirdly, as a service business, why this emerging market. It's known that truck drivers are a limiting factor in the transportation industry with driver shortages and high wage costs. Autonomous trucking addresses this problem. Moreover, supportive regulations are also a tailwind for this market. And we see a major upside from as a service market in Level 4 trucking, especially in the longer-term. From a market viewpoint for our complete AM portfolio. There is an attractive environment with structural growth opportunities driven by safety regulations and automated driving demand.

So before we jump into more details of each pillar, let me point out the benefits of both, strengthening our stable components business, but also expanding into system and service solutions. We have been successful in the components business for many years. It's our reliable foundation. But in the future, components will be defined and linked towards awarded system business. The value creation within the system that comprises hardware, software and integration will be higher than in components. Therefore, it's key for us to position ourselves in the growing Level 2+ market.

Lastly, AM is pioneering the autonomous trucking, which I feel very excited about. It's game changing and gives us access to recurring revenue business models, allowing us to monetize our service capabilities that we have already in our markets -- in our company. Furthermore, it will enable us to tap into revenue streams, which are independent of the vehicle production numbers of our OEMs.

We are convinced that our 3-pillar strategy is aligned with the market demands and the developments that we have seen in the market, and will enable us to achieve significant growth and margin upside.

Now let's start with the first pillar, our Components business. We have 25 years of experience as an ADAS component expert and offer a comprehensive portfolio with leading positions in radars and satellite cameras. As mentioned, this is our stable foundation. While we see that demand is growing, we also see significant price pressure for our components. To address this, we have already combined our cutting-edge technologies with a market-driven approach and cost competitiveness as a key focus of our development. Through our local for local approach, we have a strong customer base in key regions and leverage economy of scale on one side and as well as market proximity. Thanks to our market success, also proven by our EUR 1.5 billion order intake in Q1 2025, our products are already qualified for Level 2 to Level 4 applications of almost all AD stack players in the market. Therefore, we leverage our strong foundation in components as a launch pad for our systems and services business.

The second pillar of our strategy is passenger vehicle AM systems, which we recently put under the Xelve brand name. In the complete area of systems, we are using our hardware and software strengths and our integration and full stack capabilities to make AD systems a reality. In addition, we are partnering with key partners like Ambarella to complete our technology offering to reduce time to market and offer a cost competitive solution. Our scalable parking systems, this Level 2 to Level 4 capabilities have not only won several customer awards, but also was named as a CES Award Honouree and Innovation Award Honouree in 2024. And further, we had our first SoP.

Now this year, demonstrating the parking capabilities that we have in our company to the market. Our Level 2+ driving solutions, we utilize distinctive SoC, system-on-chip partnership in the respective ecosystem to offer our ready-to-use system that a customer can implement immediately with minimal effort. We call it our turnkey solutions. More and more customers are interested in these cost-efficient full-stack turnkey solutions as it provides an attractive business case and a viable alternative to their in-house solutions.

Now let's go back to China. As highlighted in the market overview, the Chinese market is unique and needs bespoke solutions. We have recognized this already some years ago and engaged in a joint venture with Horizon Robotics to offer Level 2++ solution specifically for the Chinese market. We had our first SoP in 2023, and we have been awarded already 5 projects. We are seeing initial interest for these solutions in other markets outside of China as well. To sum up our system offerings, we focus on scalable cost-efficient solutions with a tailored SoC strategy for the respective markets and customers.

The third pillar of our strategy is called as a service in the ecosystem of autonomous trucking with our exclusive partnership with Aurora. But before we go into the details of our value contribution to this, let's listen to the message from our partner delivered by the CEO of Aurora, Chris Urmson.

[Presentation]

So as shown by Chris, autonomous trucking is happening, and Aurora and AUMOVIO will be the first to industrialize and commercialize this solution with an SoP in 2027. Autonomous trucking is an attractive growth market with supportive fundamentals and addressing critical needs as we resolve the necessity of a human driver and having a positive total cost of ownership impact. Here is a clear commercial case for Level 4. Within this partnership, we leverage each of our unique strengths from Aurora and from us. Aurora brings in their software expertise and their customer access. We contribute with our hardware strength and our fallback system safety expertise. Within the fallback system, we are developing a backup driving system designed to take over in the unlikely situation that the main path fails or becomes unavailable. Besides the hardware kit and the fallback system, we are additionally providing a 24/7 service model because uptime is, of course, key for total cost of ownership.

This is where the strength of both areas, AM and CSV come together. AM benefits from CSVs extensive experience and competency handling workshop networks and offering corresponding services. Besides that, CSV offers AM access to further truck manufacturers for the possibility of additional autonomous trucking windfall business. The established business model is highly attractive for us as it scales with the miles driven and offers a recurring revenue stream, as Chris has mentioned, to AUMOVIO. So let me recap. This is both an exciting and economically appealing story for us.

So far, I have explained to you why AM and our 3 pillars is an exciting business, but now let's look at the second and equally attractive business in our business area, CSV. In the OEM business, CSV offers a comprehensive product portfolio of cutting-edge vehicle electronics and safety solutions, covering the Tachograph, our compliance device for the European Union, Control Units, Telematics, Instrumentation and Displays as well as Advanced Driver Assistance Systems. Further growth comes from the software-defined truck, HPC, high-performance compute, connectivity and electrification, leveraging technologies from all across AUMOVIO, but especially ANS.

This economy of scale and being able to utilize experts from other BAs allows us to also tap into innovative product offerings that we jointly developed with our customers. In the fleet and workshop business, CSV offers a comprehensive Tachograph ecosystem under the VDO brand, providing service solutions to fleets and workshops and creating value across the life cycle of a truck. The Tachograph and their respective services ensure seamless compliance with European legislations and offer a substantial total cost of ownership benefits. In this highly attractive CSV market, we are in a top position, underlined also by our significant order intake of EUR 800 million in Q1 2025.

Secondly, the ability to leverage AUMOVIO technologies and achieve scale benefits provides us with a hard-to-replicate competitive advantage in these very fragmented markets. And thirdly, we have proven ourselves as a trusted partner with a reliable supply chain in times of global uncertainties and utilize our deep rooted expertise and market dedication to drive strategic co-development with our customers.

Lastly, we constantly assess best ownership of our current product portfolio and reallocate resources according to our focused growth strategy. Hence, we are continuing to grow. We are continuing our growth story with having a healthy financial profile. We are strategically expanding our portfolio to increase our content per vehicle, and we are leveraging our Tachograph ecosystem to create value with our data-powered solutions to grow beyond the limits of vehicle production numbers.

Now jumping back from our strong CSV business, to our -- the overall business area again. As just shared, AM and CSV are growth areas. On the path to this growth, we took and are taking strategic decisions for our future success. We are expanding into higher-margin businesses for AM and CSV together with our partners. For us, it's clear that we need strong partners who are experts in their respective fields. Further, we are constantly evaluating our portfolio and are phasing out nonprofitable products and divesting businesses where we see a better owner. We are focusing on growing technologies and solutions going forward.

We are also improving our cost competitiveness all across our businesses. We are streamlining our fixed cost and organizational setup as well as optimizing product design with design to cost and cost reduction measures.

So let me recap. We have taken important measures to further enhance our cost competitiveness on one side, and we are taking and have taken strategic decisions especially in our offering that is expected to drive growth and profitability going forward.

So how does this now all come together in a financial upside? The chart shows our sales and adjusted EBIT development from 2022 to 2024, and our long-term ambition. Let's take a look at the development between 2022 and 2024 first. We have grown our sales from EUR 3 billion to EUR 3.3 billion, 10% growth over 2 years, whereas the CSV business benefited from high order intake years in the past. And the ADAS business was held back by delayed adoption in ADAS components by the delays of our OEMs. AM also faced a strong price deterioration in ADAS components. Within this time frame, despite these headwinds, we improved our profitability with dedicated cost initiatives while still investing in our growth areas.

So where do we go from here? As described, we see significant financial upside. We plan to capitalize on the growth and the market development. We plan to further enhance our 2 reliable strongholds, CSV and components. Once our systems enter the market and our as a service business is launched, we will be able to harvest the benefits of our investments and the new businesses are expected to translate into sales growth and margin upside. Already, we expect to reach breakeven in the shorter-term.

In conclusion, I'm truly excited to see all these outstanding solutions from all business area, hitting the road and shaping the future of mobility. Thank you very much.

Thank you very much, Ismail. That's an interesting and exciting future we are heading to. So following our agenda, it's now the first of 2 Q&A sessions, and I would kindly ask the presenters of the first presentations to join me on stage. And one organizational things, we have 2 people running around with microphones here in the room. So if you want to ask a question, please raise your hand.

Another topic, if followers at home, you -- if you have technical problems following the session, no problem at all. A full functional session will be broadcasted or will be available on our web page afterwards, so you don't miss anything.

So coming to the first questions. Christoph. And please also here, be fair, 2 questions per person to allow as many people as possible.

Both will be on Autonomous Mobility. The first one would be just on the margin improvement that you've highlighted. There you go. Is it fair to assume that it is towards the high single digits, mostly back-end weighted? You said breakeven has probably reached in the shorter-term, but a more meaningful improvement is closer to the end of the decade?

Yes.

And then the second point would be just, is there any more significant margin difference between the ADAS and the CSV business that you could share? Or is it too early to comment on that?

Yes, 2 things. I mean the cost measures that I've described that we have diligently implemented help us in the shorter-term, that's why we improve our margins, and we'll continue to improve our margins. But the -- of course, the upside potential really comes from the higher-margin system and especially as a service business that we then launched in 2027 and beyond.

To answer the second question, our value contribution in CSV is quite high. And our expectation to this market because we are also dealing with a very fragmented market, which comes with higher gross margins, but as well a lot of efforts that we have to engage in order to serve these markets is higher than overall -- that we have overall in the other areas. So naturally, we are expecting higher margins from CSV.

Then maybe Thomas, in the [ midfield ].

Thomas Besson from Kepler Cheuvreux. Two questions, please, for you, Philippe. The first one is, we still don't have a lot of visibility on your business. But from the helicopter view we have for the time being, I've been surprised to see how much of an acceleration we've seen over the last 6 to 12 months on the cost reduction and headcount reduction. So when we have the memory of seeing Vitesco moving from being an ugly business when it was within Continental to being substantially better independently, can you explain why and how everything seems to have dramatically changed in terms of headcount and everything we can see from a consolidated basis? Over the last 2, 3, 4 quarters, why it didn't happen earlier? And how much -- how fast should we see it in the coming quarters? That's the first question.

And the second, you've pointed to the incentivization of management, which I think is great. Can you say how many employees are involved in this bonus scheme, where effectively, a lot of the financial incentives is tied to the success of the next 18 months which I think is great. Thank you.

Yes. Let me try to answer why have we not been doing things earlier. We have undergone a very dramatic development in our industry. We have seen that -- we have been in the ship crisis over quite some time. And we have started already relatively early in 2020-'21 to think about of how do we need to set up ourselves into the right direction.

And I come to that in my second part, talking as a CFO to you, how difficult it is to reorganize and restructure R&D. Because you have a lot of investment done into R&D, and that's the heart of our business, 1 out of 3 people in our organization are R&D engineers. And this is which drives our business forward. Nino was perfectly explaining that. We have been a subject or the result of a buy-and-build strategy over many years which Continental added. And we bought many companies because of capability, because of technology, because of R&D engineers driving our business forward.

As this has been 1 of our major cost items, you need to prepare yourself in order to be able to reduce the business. Now you do the cost, you first need to focus and you can become effective. And then finally, you need to become efficient. And that's where we have been working.

Secondly, so that's 1 major part. We see that we have been taking out 3,000 R&D guys in 2024. And I mean, Jean-Francois has explained how he has turned around his business, which serves as a good example for the rest of our business areas as well, how do we become better. Secondly, we have taken our plans over the course of the last years, and we have been relatively aggressively cutting out overhead costs with a huge project which we initiated, where we are very much focusing on improving our processes. So I think these are the steps which we have been doing. We have, as a management team focusing on that quite intensively, we have prepared ourselves and then we have been executing. So I think that's maybe the difference.

How many employees are involved in the bonus system. I think the first and foremost important thing is that our entire bonus system, which starts at the Executive Board, the KPIs as well as the different parameters are driven down to all executives in the organization. So the bonus scheme is top down to the bottom, exactly the same for all our leaders and executives. The spin-off bonus is only going to go to a certain amount, somewhat mid-digit amount of senior leadership which has a significant responsibility to bring our business forward.

Thank you very much. Next question, [ Ross ] over there, maybe on that side.

Yes. First of all, on Architecture Network, it's impressive to see basically the recovery over the last 2 years. But at the same time, I realize that when I look at your revenue target in Architecture Network, the revenues are not growing anymore that much, I think. Or the margin is not growing anymore that much. I think that's better. So I know that I think in the past, you have talked sometimes about your contract with Volkswagen MEB platform. I think that belongs into that business. Then when I think about the change of the E architecture to zonal domain E architecture, can you give us any example maybe where you have got bigger customers next to Volkswagen in reference customers that you can tell us maybe? Or have you got orders or business basically with also new tech players? Because my understanding is they do the business that you do themselves, they think they can do it better than you.

Then number 2 is on autonomous mobility, coming back on that, what you said before. You said it's more back-end loaded to margin improvement. When I look at the business model, do I get it right that you have put a lot of upfront investments to do? And then basically, later on comes profitability recovery. So my question was comes in between, when you do all these investments. So initially, it's a big loss-making business, this business with Aurora, and return just profitable, late stage? Or how should we think about this business?

So I guess I'll start with ANS. So indeed, the growth is not really impressive. But there are many reasons and good reasons. So first, we were focusing on acquiring very quite high-quality financial KPIs business. And not growing for growing. So we want to always ensure we generate value. We create value, which was in the past sometimes not really in our focus.

There is another reason. That's on the market, SDV is delayed. And sometimes a lot of, I guess, some OEMs start and then they stop the program or they reduce the amplitude of those programs. The sales are not there. And all of this is part of our perspective. And as I said in my presentation, we take a very conservative adoption of SDV. Why? Because all what we acquired in the last years has a good quality and help us to bridge this transition with our financial performance.

So -- and where we are in a very good situation is that we do have the products, the traditional one. And if there is a delay of the architecture, we continue to deliver these programs. And we make money with this. We prove it. While we prepare ourselves, and you mentioned some platform where we were the first one in SDV, we capitalized on the experience and prepare ourselves, as I mentioned, with our structure, to be competitive in this market. So nobody can really predict or we are not able to predict when the growth will come suddenly. And -- but we prepare ourselves for this.

And the next point is that we say it's long term, long term here is 5 years. 5 years is Europe and North America, the cycle of next generation. So it's a little bit short to see what might be in the 6 or 7 years later. Does that answer your question?

Reference customer, again? Yes. So reference customer, we do have customers in China. So I can mention Xiaomi, which is -- I mean, we are very proud to be with the successful new OEM who with him, we've learned to develop this kind of high-performance computer in 18 months from 0 to SOP. So -- which is 1 of them, and we do have with another one.

So as you can see, I mean, with Xiaomi, we have in both now. We have the fast-growing and the new entrants, which are working.

Exactly.

I mean, the financial profile of this is not much different than ordinary OEM projects where you have base development to develop a product upfront that you bring into the market. It's really not much different. And considering that we have windfall business, and I mentioned that in my presentation, we are the pioneers, and there are a lot of competitors of Aurora and such that are now following, and we are in a good position to monetize our development, be it the R&D or be it the cash consumption to put the sensor pots in the trucks. We have different means there to have additional opportunities.

I think important is that the profile is the same. The magnitude is a bit different. So that's why being the pioneer in autonomous commercial trucking requires quite some pre-investments.

Okay. Thanks. The next question, gentleman over there.

I wanted to ask about the opportunity of the as-a-service business in the future. You mentioned the other, autonomous trucking. You haven't mentioned robotaxi. Is that an area where you think that you could offer some sort of as-a-service per-mile component and software integrated solution as well? Or how else do you think about that? And then I also did want to ask, of the EUR 6 billion revenue target in autonomous mobility, how much of that step-up is the Aurora contract and the as-a-service business?

The economics are quite similar. You could engage in robotaxis as well with the same or similar model that we have, like bringing the hardware in plus the fallback system. But at the same time, we want to focus right now on autonomous trucking because for us, it is the most obvious business case to take the driver out, having the driver shortage and so on and so forth, most promising. And when you talk return on invest, it's also most promising from the yields you can get in this business model in the earlier years. So therefore, we refrain from going into a second robotaxi L4 business, but the same mechanics, the same economics could be applied as well.

We are, of course, if we have players who are interested in our great sensors, we are delivering them according to our normal conditions and our traditional business models. The -- what you see in the EUR 6 billion, what I can say is that we are growing in each and every pillar. We are gaining market share in each and every pillar. And the as-a-service business from an absolute terms, is the majority of this growth.

Looking at the agenda, I mean, it's 3:45. So this was the first Q&A session. We will have another one, as said. So we have a short pause for coffee, and then at 4 p.m., we start again. Thank you very much.

[Break]

Well, good to have you all back. I hope you enjoyed the coffee break. One remark. If you haven't done so, there's still chances to sign in for our experience here. So after the session, please feel free to do so. So after this break, getting more excited, and who could be better prepared for excitement than user experience, so the exciting differentiator. So kindly ask Pavel to join me on stage.

Thank you, [ Mikael ]. And yes, a bit difficult after the break, right, to get back. But good afternoon also from my side. Warm welcome. As [ Mikael ] said, my name is Pavel Prouza. I lead the user experience business area, UX. And I have been with the company since 2003, mostly working in various areas of the automotive sector.

Taking on this role has been not just exciting for me, but also for my family. My kids see our displays in the cars and finally understand what I do for work. And finally, I even got to be, again, a cool dad. And now I would like to show you why UX will be exciting and strong contributor to our mobile success and how we will support driving shareholder value.

Few years ago, cars were all about horsepower, engine noise and car design. In today's world of electrification and software defined vehicles, this differentiator has shifted. It is all about user experience, and this is our strength. UX is exciting differentiator and increasingly driving the customer buying decisions.

So what is the user experience business area all about? We are 1 of the global leader in display technologies. We have transformed from a market leader in analog digital clusters to #1 supplier in display solutions. As you can see on the left, we have a comprehensive product offering, enabling differentiation in user experience. We offer cutting-edge innovative display solutions, often combining multiple display.

Now back to the highlights. I will focus on 5 key areas today. One, we are the market leader in structural attractive market. Displays are getting large and more complex and, therefore, offer a higher value to us. Secondly, we are the leading independent automotive display provider. We are independent from the display partner producers and can select and integrate from a broad range of suppliers to offer maximum flexibility to our OEM customers. Thirdly, this enabled us to offer the full range of display solutions from volume products to high-end premium displays, all at scale and high cost efficiency.

Fourth, we have a well-invested asset base, which will drive further efficiencies and allow for upside potential. We have implemented mega factory concept, which is in progress to drive significant scale and standardization benefits globally. And lastly, our attractive business is expected to translate into attractive financials. On the back of structural market growth and book increasing business, we laid the foundation to deliver profitability by focused cost management, efficient operations and driving economies of scale.

So let me now dig a little deeper into those 5 highlights and start with the first of being 1 of the global market leader in attractive growing markets. We are #1 in display solutions, and we are #1 in head-up displays. Firstly, the display solution market is expected to grow by high-single digits over the next years, driven by large display sizes and increased adoption of motor display solutions. Secondly, head-up displays, which were initially developed for premium vehicles. Over the next years, we expect to benefit from increasing market penetration in both the premium and mass market and from new product introductions, like the one on the picture. On the right side with the head-up. This development is expected to result in double-digit growth.

And thirdly, digital clusters. It's a transformation business as customers are moving from high-performance computer-based solutions. We will continue to support these customers who want such solutions, but will manage our portfolio in line with their transition plans. While there are regional differences, all regions contribute to the growth, which aligns well with our global footprint and our business model.

Now coming to the second point. We are one of the leading independent integrator for display solutions. This is based on 2 pillars: independence and integration capabilities. And why this is important? On the first, independence. We are vastly independent from display panel producers, and have more than 10 qualified display panel suppliers in our supply portfolio. And not only here for each component, we have multiple sources. This gives us a true flexibility in make-or-buy decisions, just how it is both cost efficient and valuable to our customers.

And second, integration capabilities. We can tailor our offering to our OEM customer needs and can address a wide range of demands. We can address nearly all technological requirements in-house, but we are also flexible in integrating partners technologies through our broad network with more than 50 active partnerships. For example, the invisible biometric display, which is part of our product demo today. Besides our own technology, we integrate a laser dot projector from our partner, Trinamix and have innovative new OLED panel development with our partner, Visionox, enabling the innovative functionalities. This approach is effective, and it allows us to have the best products for the customer's request with reduced costs, increased resilience through a low dependency on any single supplier, offer cost competitive solutions and serve both the premium and volume market at competitive terms.

Our independency and integrated approach I just outlined allows us to be successful across the full market spectrum from premium to volume markets. First, we can offer cutting-edge high-tech displays. Our displays are frequently awarded for the innovative features. As for example, the mentioned invisible biometric sensing display on this year Consumer Electronic Show awards. We are often pioneers bringing new technologies into the market. For example, we were the first in mass production with OLED and pillar to pillar displays, both milestones for automotive displays. Our premium displays excite the end users and are, therefore, a key differentiator for the OEMs.

And second, we can offer cost-competitive solutions for the volume market. Here, we fully benefit from our global setup and economies of scale to achieve competitive unit costs. For these display, we innovate on the cost side, for example, back cover solution out of stem or hybrid molding materials. Also, these displays are in high demand. Our key strength is the ability to serve a broad market spectrum with maximum flexibility at competitive costs. This is reflected in our strong order intake performance with over EUR 10 billion order intake just for the displays over the last 3 years.

One of the key reasons why we can successfully manage the full spectrum of this place at scale is our footprint. We have a well invested production network in place. We have made significant investments over the last years and intend to capitalize on them in the coming years, helping to drive our ambition.

We have 6 modern mega factories in all 3 key regions, all located in best cost countries. They are twice the size of standard plants and highly efficient. They have the identical setup globally and standardized production lines. These production lines, we can reuse and multiuse globally, showing significant results in saving substantial investment costs and leveraging efficiencies. Nino described earlier how important it's to achieve standardization and high utilization of the manufacturing sites, and our mega factories are a clear example for this.

On our standard plants, we will continue to streamline, and I will get into it in a moment. The identical production setup just described also allow us to transfer learning from one location to another and thereby achieve better commercial results. Through this transfer, we have already seen a quick improvement in the scrap rates from 5% in last year, where we had several launches of new complex products to 3.5% in the Q1 of this year. And we see reference rates in Asia as low as 1%. We are working on reaching this globally, supporting our long-term ambition. So hopefully, you see our production offers significant upside.

So on the next 2 pages, let me summarize our very -- 4 very tangible key drivers that we are executing to deliver on our upside potential. First one is footprint optimization. As described earlier, we need to ensure high utilization of our mega factories. So rightsizing of our footprint and reducing complexity is a key priority. Over the next 15 months, we will exit 3 out of the 6 standard plants, 2 in high-cost countries and shift the volume to our mega factories over time. These phaseouts have been agreed with works council and are fully in execution. After this, all our plant will be in best cost countries. Second, cost management. Besides utilization, cost reduction is our key focus. So standardization and transfer of our performance improvements in China to Europe, coupled with the rightsizing of our resources are expected to drive significant impact. And we can demonstrate that our measure work.

From last year to this year, we have already significantly reduced cost and have the right measures in place to continue to do so. And 2 more key drivers. Third, portfolio management. We review our projects portfolio and do evaluate to exit and nonsustainable project margins. In such a case, we renegotiate with customers or end the production of these projects. We can then reuse the lines for new and more profitable projects. And lastly, leveraging scale. We will continue to drive value with our premium products where there is more to come, but also expanding our volume market business, especially with Asian OEMs. Our recent order intake with share above 50% from Asian business confirms our cost competitiveness and allows us to balance our portfolio. So our cost competitive setup, innovation capabilities and strong customer access will help capture both growth and value opportunities.

Now like the other BAs, let me summarize how the UX story translates into financials. Here is a short overview of our sales and adjusted EBIT margin. Let me first explain the development from the years '22 to '24. As said at the beginning, we had some challenges. Over the last 2 years, we have been in transformation phase. We repositioned our product portfolio for growth opportunities in Advanced display solutions and head-up displays, but product launches were delayed. This explains the sales decline. Similarly, our margin was impacted by temporary issues and transformation impacts. There have been 3 major topics: launch delays of high-value products driven by OEM market introduction shifts. Impact due to lower operational performance, mainly driven by high scrap and start-up costs, where we have significantly improved, as just explained, and double structural costs on the manufacturing side, we ramp up our mega factories while ramping down our standard cost plants. This transformation will be finalized next year.

As seen on the page before, we have already improved fixed and variable cost performance in our plants by around 4% in total, resulting in much stronger financial performance this year. Going forward, let's take a look at our long-term ambition. So our target is to grow sales above EUR 4 billion and to achieve an adjusted EBIT margin in the mid-single digits. We have already booked a significant portion of attractive business, which will convert into revenue growth. We believe to benefit from the structural tailwinds from the market, asking for large, more complex display solutions, driving our content per vehicle in both premium and volume markets.

We are well positioned with Asian OEMs, which are expected to overproportionately grow the global car production volume. Now on the profitability. We have a clear path to our target. We are leveraging our purchasing power and multi-supply strategy to improve the economic equation. We are advancing operational excellence and plant efficiency while optimizing our global footprint via our mega factories. And at the same time, we plan to further enhance R&D effectiveness and cutting structural costs, creating a stronger base for sustainable and profitable growth. So in a summary, UX is the market leader in structurally growing market.

With strong integration and technology capabilities, full independence and well-invested global footprint, we are resilient and best positioned to capture future growth and deliver higher profitability and cash flow conversion. UX will be the exciting differentiator and strong contributor to our [ mobile ] success. Thank you very much.

Thank you, Pavel. What an exciting future. Well, from this place now to another exciting topic, Safety and Motion, the exciting powerhouse or efficient safety powerhouse. So please, I kindly ask Boris to come here on stage. Thank you very much.

Thank you, Michael.

Yes. Good afternoon. My name is Boris Mergell. I'm responsible for the business area, Safety and Motion. I joined Continental in 2003. I have a PhD in physics, and I have held numerous positions in R&D with a focus on safety products. And in fact, I'm standing here today because of my former car and the excellent safety features despite being in a very severe car accident. So somebody was crashing into me, and I was very lucky and I just walked away with only minor injuries. So as a result, I'm even more enthusiastic about our safety product offering, and I'm fully committed to work towards our Vision Zero, which strives for 0 fatalities, 0 injuries and 0 accidents. And I'm very much looking forward to letting you experience our latest brake technology after we have finished the presentation part of today's Capital Market Day.

SAM offers market-leading products to fulfill our just mentioned Vision Zero. Most of our products make your driving safer, while our electronic suspension systems make your driving more comfortable. Firstly, the focus of our offering is on our market-leading brakes consisting of electronic brake system and traditional wheel brakes. We supplement our brakes with a wide range of leading active and passive safety systems, which you can see on the left. These span from airbag control units to sensors and air suspensions, all building on the expertise that we have gathered in automotive safety over many decades. Our business area also includes an attractive and stable aftermarket business, especially for brakes.

Safety is a critical requirement in every region that we serve and safety regulations are highly complex and require deep local knowledge, which I will speak more about shortly. So consequently, we have a global and local-for-local footprint always close to our customers. I will take 15 minutes to explain to you how we are driving a safer tomorrow in every journey and every moment and why we are an attractive business with a strong financial upside potential. One, we are active in a highly resilient market. Complex safety regulation, scale of the leading players and the 0 failure tolerance in safety technology create high barriers to entry. Two, we have market-leading products differentiated through strong engineering capabilities, the highest quality portfolio and local proximity to all our key customers globally.

Three, we have been a long-standing reliable safety partner for our clients, meeting the complex safety standards that only few can fulfill. However, you are probably aware of the MK C2 brake issue, which we have taken very seriously and for which we have developed hardware and software solutions. I will address this in further detail later. Four, we are continuously innovating and remain at the forefront of the next generation of safety products. And five, we are not satisfied with our 2024 results of 3.5% return on sales. Rigorous cost management is key for us to return to our former level of profitability after several challenging years. I will come back to our homework in this area. We know what to do.

Let me start with the attractive market we are active in. This is rooted in 2 pillars: a resilient business model and high entry barriers. Basically, it's all about complex technology and scale. Starting on the left-hand side, our products are indispensable. Every car needs safety technology, irrespective of the region, market segment or powertrain. And the electrification of the powertrain marks an additional upside for us. Battery electric vehicles are more than 20% heavier, and they require a combination of recuperation with braking. And this is driving then the demand for more air suspensions and technologically advanced brakes.

For our electronic suspension systems, we see substantial order intake growth in 2025. And on the right-hand side, safety technology is rightfully so a highly regulated market. Our products need to fulfill more than 1,000 regulatory safety requirements and even more customer requirements. Our local presence and decades of experience in electronics, mechanics, hydraulics and software allows us to manage this complexity globally in the most efficient way. In addition, safety is a no-compromise market. Customers expect 0 defaults and hence, a failure during a launch or a start-up phase is not tolerated. This can only be achieved with a strong level of experience combined with significant upfront investment. And as a result, the market is stable and consolidated with the top 4 players typically capturing around 60% of the market.

Only very few players can fulfill all those technology requirements at scale, and AUMOVIO is one of them. With our global platform, we serve virtually all top 30 OEMs worldwide. And as shown on the left, we have high market shares of 20% in each product category, which makes me very proud of this testament to our strong product portfolio. Now let me walk you through our key differentiators. Firstly, we are present in all key regions close to our customers. As I outlined earlier, it is paramount to understand each market and the associated regulation. Therefore, our footprint is well aligned with our sales split. Secondly, our technology know-how includes a combination of hardware and software excellence to offer these complex safety systems.

More than 7,000 employees are active in R&D. What many don't know is that more than 2,000 of these are focused on software. This serves as the knowledge base needed in our broad product portfolio and for system integration into software-defined vehicles. Thirdly, our customers value our strong commitments to safety excellence. We take our quality very seriously and have the ambition for 0 defaults. Now to speak to our quality commitment and resulting visibility. Let me come back to my initial statement that we are a long-standing reliable safety partner. Product quality is of highest importance for our offering. However, we have recently experienced quality issues with our products. In early 2024, our brake product MK C2 had a malfunction resulting in recalls. This does not reflect the standards we set for ourselves at SAM.

We have taken comprehensive steps to address the MK C2 issues. In particular, we worked around the clock to find a robust and efficient technological solution. And we learned our lessons and the entire organization is fully committed to meet the quality expectations of our customers. As a result of our efforts, we have continuously increased the number of MK C2 customers. As you can see on the left-hand chart, our MK C2 sales will more than double from '24 to '26, reaching a total of 23 OEMs firmly trusting in the quality of our MK C2 brakes. This gives us confidence that we have taken the right measures to regain the trust of our customers. In addition, across all products, you can see on the right-hand side that our sales plan is already covered with our secured order intake to a high percentage like in previous years.

Next, we have the abilities to continue to remain innovation leader. We believe the players who can master the shift towards next-generation safety systems, the fastest and most efficiently will exhibit significant profitable growth. For our most important product, braking systems, we see a gradual shift towards dry brakes. Our full dry brake systems do not require braking fluids. That's, by the way, why we call it a dry brake. And these offer customers higher performance, cost savings for vehicle systems and reduced complexity. This makes dry brakes ideal for new vehicle architectures and is a win-win for both us and the customer. We are pioneering this evolution. As you can see on the right-hand side, we have the required capabilities, and we were the first to market with one box systems and have been the first awarded for semi-dry brake systems.

Our full dry brake prototypes have been extensively tested by our customers this year in our winter testing locations with very positive feedback. They have since asked us to prepare for upcoming RFQs. Now let me walk you through how we plan to outperform the market in all regions, driving our top line and upside potential. Across all markets, we carefully repriced our offering to support sustainable price levels and to fully recover inflationary costs. Next, we aim to generate upside by rebalancing our customer mix. Firstly, as you see on the slide, Europe and North America will continue to be our strongholds. We will maintain our relationships to remain safety partner of choice. Secondly, we will be able to gain global market share by intensifying our relationships with Asian OEMs, especially in India, Korea and China, which are expected to exhibit higher growth than other regions.

Thirdly, China is an explicit success story for us, high teens market share today and the continuously improving market position over recent years. Chinese OEMs particularly value the premium nature of our products because of the importance of safety to the end consumer. As a result, we are continuously increasing the share of sales with Chinese OEMs in China. We doubled the sales share from 2020 to 2024. And in addition, Chinese OEMs are already expanding internationally. Therefore, they need a partner who understands the local safety regulations. And again, we are ready to capture this growth. While our market position is strong today, there is improvement potential for our current financial standing.

Increased supplier dependency for semiconductors, increased inflation and overstated growth assumptions, coupled with the headwinds in production volumes in the automotive industry explain our current financial results. To address these, we are currently executing a clear cost improvement plan. First, we are executing a focused cost management program, striving to improve our fixed cost structure. We are rightsizing our footprint. Three plants have already been closed since 2021 with further plant exits in preparation. And [ Philipp ] mentioned that we will sell our drum brake facility in Italy that also helps to streamline our product portfolio. We have significantly reduced our workforce, resulting in EUR 80 million fixed cost savings since June 2023 and further reductions of EUR 75 million are in implementation for 2025.

We also plan to increase the share of best cost countries in R&D to support our long-term ambition of having less than 8% R&D to sales. Second, we initiated measures targeting the cost competitiveness of our offering. This shall help us to increase the profitability of existing business and it safeguards future business by ensuring competitive price levels. We reduced our material costs by more than 3% in 2024 and further redesign the cost programs are in the pipeline. Our multi-sourcing initiative of critical components is expected to reduce further our material costs, and it will improve the resilience of our supply chains. And we continue to improve our plant operations, especially in Mexico. Earlier today, Nino described the benefits of internalizing the semiconductor design competency. [ SAM ] is piloting this initiative, and we target around 2% material cost reduction.

All these measures will take us back to our historical growth and profitability. I will summarize how our equity story translates into our sales and adjusted EBIT margin historically and going forward. Let's look at the development from '22 to '24. Temporarily lower call-off volumes and unfavorable customer mix and a slower ramp-up of new technologies, plus only partially compensated inflationary costs weighed on our top line recovery in 2024. We managed to hold our profitability roughly stable despite lower sales and the impact from the quality case.

Concerning our long-term ambition, we are targeting more than EUR 8.5 billion sales with a mid- to high single-digit margin. How will we achieve this? On the top line, we aim to rebalance our customer mix towards Asian OEMs. We set up to improve our product mix with more electronic suspensions and one box systems and with the expected launch of our dry brakes. Meanwhile, the most important driver of our profitability improvement is expected to be our ongoing rigorous cost management. We will continue to take measures to improve the material costs. We optimize our footprint in manufacturing and reduce our R&D to sales ratio.

With this, we are able to make a clear step in the direction of our historical profitability. As you can see, we have done our homework, and we know what to do. We operate in a very resilient and attractive market with high barriers to entry. We will continue to gain market share, especially in Asia and drive top line growth through customer and product mix improvements. And by rigid cost management, we will recover our historically attractive profitability.

Thank you for your attention.

Thank you very much. Now after these exciting presentations about products and offering, we now segue to more the financial numbers. So I would kindly ask Philipp to come to the stage.

Yes. Thank you, [ Michael, ] and thank you, Boris. So 85 slides later and 2.5 hours, let me try to bring all pieces together. I guess so you have now been filled up with a lot of Aumovio details, a lot of ideas, a lot of directions which we have set and a lot of things, what we are intending to do in going into the future in order to remain a company which is going to be a very successful one in the market. Let me now show you our financial strategy. And our financial strategy is based basically on 4 pillars, not on 5, as many others, ours, the financial strategy based on 4 pillars. And the first one you have seen, we have been working significantly over the last 2 years, and we discussed that during the Q&A on headcount reduction.

We have a lot of programs in place. We have basically touched each and every store. We are now needing to turn in the next step, and you remember that I said we turn from LED focus, perform into lead, transform and deliver. So we are now bringing to our first pillar, growth into perspective, and we want to bring the upside potential, which we do see very much combined with margin potential into our P&L going forward. The second one is that we still work on our margin, being it the contribution, being it the gross or being it finally the profit margin, something which everyone of our team has been touching. One thing which we very much focus on, which you're going to see during now my 15 to 20 minutes is our cash flow focus.

We're not only working on cost, we're ensuring that what we turn into profit, we turn also into cash. So there are a lot of programs on the working capital side, on the asset management side, where we are going to leverage our existing asset base going forward. And then lastly, I will also talk about the capital allocation to support our value creation going forward. So very clear, we have tried to lay out very transparent targets and what we do for quite some time now. And I think that's something which we have shown to outside world, we know how to execute. We have a very clear focus. We have a program, we have an objective, and we execute towards that program no matter what. So let me run through these 4 pillars. The first pillar, growth. I mean we have all seen, we have discussed that over the course of today, our markets are not high-growth markets anymore. That's something you can also see in our sales development.

We have been focusing a lot on phaseout of low-margin projects. You have seen that we have managed that, and we have mentioned that several times. We have working on our portfolio, but we also see that the market is not in our favor, and that's why we have also seen a slight decrease of overall sales over the course of the last 12 months. What we have been doing is the things which we haven't stopped, which we haven't given back, we have repriced in case we have seen that we do not create value with our projects. That's why you see here successful repricing, something which during the course of the second quarter, we finalized.

We have meanwhile repriced with all our customers, our contracts, and we now look into growth opportunities going forward. And these growth opportunities going forward, you see already in the first quarter. We have significantly gained more orders in the first quarter 2025 than we have gained in 2024, then turning the trend which we have had in '24 in total order intake around and ensuring that our orders are going to go into the right direction, going to go into the right technology and are going to be value accretive going forward.

So we have very strict and strong KPIs looking at new orders. So every KPI, every order needs to overcome a specific hurdle, which ensures that every business we take on is going to be value accretive. That's why our growth is not as much as we have been showing and explaining over the course of the last years because we are only gaining selectively new businesses ensuring that all new businesses are going to turn into a profitable business case. We are going to -- we are confirming our guidance for 2025, although that the sector automotive has a bit of a different setup than Aumovio in the future, but the EUR 18 billion to EUR 20 billion Aumovio markets are not as much growing as we have thought, we are able to confirm.

Going forward, we looked into the midterm and said we are going to reach EUR 20 billion to EUR 22 billion sales. We expect a slight recovery of the market. You have seen what our trajectory in terms of "LVP(F) is looking like. And we think that until the long-term ambition, we are going to reach more than EUR 24 billion sales, highly driven by our very much growth-oriented businesses in Architecture Network Solutions and in autonomous mobility, which we discussed intensively over the course of the day today. We also see in the other business areas growth chances, but not at the same pace as we do see it there because there, the disruption, the change towards the software-defined vehicle is very much imminent.

So whereas we do see new opportunities, content per vehicle growth in these areas, we do see that we have good chances to win market share also in the Safety and Motion arena, something which Boris explained. Let's go to the margin. Let's go to the second pillar. And that is one chart which we are particularly proud of. You can see the trajectory where we have been working quarter-over-quarter on improving our profitability. And as Olaf Schick already said, the first quarter, we managed to get to 1.6% of EBIT margin, and we expect the second quarter to be at the upper end of our guidance for 2025.

So you see we do see the results of our constant work. We do see that things are running into the bottom line. And we do think -- see that the projects which we are doing are making us stronger. It's not only a matter of getting costs down, it's a matter of getting our organization much more robust into the future. That's why we optimize our footprint. That's why we're looking in additional opportunities. That's why we are also constantly looking into each and every headcount going -- leaving our organization of whether it needs to be replaced. And if it's going to be replaced, why is it not being replaced in a best cost country approach.

So these are the things we are focusing on. And if we are looking into the different arenas, if you're looking into gross margin, so how are our plants, our variable costs working, you see that we improved by 270 basis points between 2022 and 2024. I was already talking about the new product ramp-ups. I were talking about our portfolio management, talking about repricing. We have closed 9 plants. And I think the most important thing is that we look into each and every plant, how do we get better. We have seen on the variable headcount side over the course of this year that we have made big steps forward. We're getting our operations excellence programs into our plants and making by best-to-best comparisons each and every plant more fit.

If we're looking into the overhead, selling, logistics and administrative expenses that -- and I mean, we were talking about already in the morning about dis-synergies. That's something where we are going to see some dis-synergies but where we also have a clear target. Out of this spin-off, we are going to get stronger also in terms of cost out as we went in. So we take 2 years to absorb the additional costs, and then we assume to going to be even better in terms of cost to sales. In total, we have reduced only in these 2 categories more than [ 5,000 ] fixed headcounts. That leads to the fact that we have a significant faster and more agile organization. We turned around 1/3 of the senior management team, and we replaced only 5% to 8% of it. We've taken out 2 layers, and we were very much focusing on getting our processes under control because we are convinced that only with robust processes, we are able to make our business more stronger and more resilient.

That requires less management, that requires strong setups that requires lean organizations. And that's where we have been investing into. And that's where the management team stands for. And that's where we think we still have a huge chance to get even better in the future because the process -- the right process is helping you to manage the organization and the complex organization like ours into the right direction. And now comes the most difficult chart, and I were already in the Q&A telling you that the biggest challenge we have is managing R&D. As you see here, we have in 2022 and 2023, basically not touched our total workforce on the R&D side. But we have already started in 2020 and 2021 with R&D excellence programs. And that takes time until you are able to roll it into the organization because we are an innovation company. We live from products. We live from technology.

So taking out just R&D costs, and that's what we always heard over many years, you have too high R&D costs. We have invested a lot. Ismail was explaining what we are going to do. We want to be the pioneer in commercial trucking. This is something where we see a lot of opportunities. So the first thing is what you need to do, you need to focus your teams. Afterwards, you need to make the teams effective. And then the last step is making it efficient. So we have accrued for all the necessary costs for the next 3,000 employees, which we want to take out over the course of the next 18 months basically. And we are very much convinced that we are going to do that without losing any innovation potential.

As you can see, we have done a lot, and we are very much committed, and that's something you can believe me, that's something which we do not take easy. We sit on a biweekly base together and discuss what is possible, what can we do more in order to be more efficient? Because we also know that artificial intelligence, Nino were explaining it, we have great chances to be even more efficient.

And these are the things we are working on, and these are the upside potentials we are going to show over the course of the next quarters and years. So that's why we are very much convinced with our outlook to reach then midterm, 4% to 6% and long term 6% to 8%, we don't overpromise. We deliver. We are convinced that we are going to deliver. It might be a bit -- I see and still need to convince some people, but we are very much clear on that because we know them. By far, major part of what we do needs to come and will come from our self-help measures. You see that here.

The upside levels, and that's then the long term, the upside measures, we see that we are going to see with the project launch of commercial trucking, with the project launch of additional software architectures that there are additional potentials and projects going to come.

We have evaluated and you have seen why we think the different business areas are going to get into the right direction. We have also known that's something which we wanted to show you today, it's nothing comes stems out of the blue. If we are looking into changing business area, we have demonstrated with architecture and networking solutions, we are capable to do so. You have seen that with the profitability of our business areas, we still have some things to do, but we have great chances and we have already shown that we have the execution abilities to do so.

We're talking about cash flow and the necessity to show that's something which I tell my organization on a very regular base. We need to be and we will be able already in 2024, we were able in 2025, we will also be do -- to be cash flow positive. And that although, we had already quite significant restructuring cash outs. I mean 15,000 employees are not going to go out for free. So we have invested into our organization, and we were still able to manage a positive cash flow.

We have also set up a lot of programs, project teams working on inventory reduction. If you look back and some of you have -- are following Continental for quite some years, before the financial crisis, for the -- not financial crisis, don't want to go so far back, but before the health crisis, the corona crisis, we had been at the semicon crises. We have been the masters of inventory management. We managed in a high double-digit churn rate our inventory. But we still have and have today a lot of things which we carry over from the semicon crises.

So we have a huge chance to manage our balance sheet significantly better. And we have set up and reduced already significantly our overdues, and we are working on improving our payment terms on the purchasing side. So we do see still on our balance sheet a lot of chances and our clear target needs to bring to bring as much as possible out of the EBIT into the free cash flow.

We have been talking in the beginning about capital expenditure. You have heard Pavel, where we did huge investments into mega factories and user experience. As you see here, we have managed down our capital expenditure from 7% to 5% to below 5% already in 2024. And as we have a very well-invested asset base, we are very much convinced we can manage that also in the long run with less than 5%. You also see that on the working capital side, as I were mentioning, we have great chances to improve here and to become better in the long run.

So if we are looking into one of our major KPIs, which is combining profitability with asset management, and that's the return on capital employed where all our figures come together, our strategies of growth, of margin, of capital discipline comes together, we do see a significant upside potential. In 2024, we have managed 3%. And already midterm, we are convinced we are going to get to 12% to 15% and will then soon after reach more than that going forward.

You have seen our management. You have seen our measures which we want to implement on the profitability side. We are working on our capital expansion. We are working on our asset management. So we are very much convinced that this is something which we are going to show that our value creation ability and focus is going to come forward and it's going to show their signs.

And if we're looking at capital allocation, I think we are very grateful to our Tire colleagues. We are grateful to the Supervisory Board. We are grateful to the executive -- I'm grateful personally to my dear Executive Board members, which were willing to give us a significant support to go into our independency. We are going to be at least according to all what we know and according to all what we think are the main peers in our industry, we are going to be the only one having no financial debt. Even having a financial cash position of EUR 1.5 billion, taking over, of course, our net pension provisions because these are the ones we want to earn ourselves and the lease liabilities going forward.

So if we're looking into value-oriented capital allocation, then we are very much convinced this industry is not going to change in the short run. We are seeing a lot of challenges. We are seeing disruptions. We are seeing transformation specifically also in our portfolio. So we are very much convinced we need a strong balance sheet going forward and until we finalized our restructuring efforts.

We have committed ourselves to reach and to manage our business with only 5% capital expenditure. And we want to get to less than 9% R&D, while also continuously reviewing our portfolio and look into where are we good, where can we better and what can others do better than we can do. And that will lead to our -- also in the midterm, we are going to pay out a dividend of what we think is customary in the market, at least being of today, 10% to 30% of net income.

So if we summarize all what we heard today, our financial targets, you see here how do we want and where do we want to get in sales above EUR 24 billion. Where do we want to go in terms of EBIT margin, 6% to 8%. Where do we want to go in terms of return on capital employed, 16% and by that, ensuring that we are value accretive year after year. And we are going to pay out then in the midterm, 10% to 30% of our net income.

Let me quickly summarize what is now the targets for our business areas. And you see here, we want to reach with ANS a mid- to high single-digit profitability. I think we -- Francois explained perfectly which chances we have that there are even additional opportunities if the market turns differently. So this is something we are very much convinced of that we have even additional chances here.

If we're looking into autonomous mobility, Ismail has explained that looking and turning our significant investments into profitability, we are capable of reaching high single digits. You have heard Chris Urmson, who said, in 2027, we are going to get a commercial viable package on the street. Let's be it 2028, but it shows how much we are pioneering of the future of mobility.

In user experience, you can see we have a challenge. We had the same challenge 3 years ago in ANS. We are managed, we are used to manage challenges. We are capable of executing the right measures. And we do know the major task is on the manufacturing side in user experience, being at variable manufacturing cost or being at fixed manufacturing cost. We are closing plants. We're standardizing production. We are making that business fit for future. So we are very much convinced that with mid-single digit, we are going to reach comfortably our targets in the mid- to long run.

Boris Mergell explained to you what do we see in Safety and Motion. It's a business where we have high barriers to entry. We are one of the 60% market share, which is driving this business technology-wise forward. We have a great history here. And we have a very concrete plan where we say we need and we know how to reduce even costs further going forward. We are going to consolidate plants. We are going to invest into the right new products, which are going to come, and we are going to make the entire organization much more efficient, something which we were missing over the last years. And we ensure that quality is at the forefront of everything what we do.

So we see from our point of view, becoming a 6% to 8% automotive supply company is something we see as a very realistic target going forward. So that's why we say we are -- we have the stability with upside as our more view. We lead, we transform and we deliver.

So taking 3 hours of discussion into 5 sentences, what should you take with you? First of all, we changed the culture into a very much value-oriented culture. We know and we focus on where we make money and what we need to do going forward.

Secondly, we are a high-tech company. 80% of our products are among the top 3. And with the rest, we either know how to manage them profitably or we make them also the top 3 or we take decisions of whether selling it or closing it. So we have great ideas of how to turn our products into growth.

Thirdly, we have learned of how to execute and have a very cost-conscious organization. We run into our projects, not with blind eyes. We know what to target. We evaluate that. If necessary, we take external health in order to validate our ideas, and then we execute. We have shown that we have reduced 15,000 employees. We have managed to get plants closed in relatively certain period -- a short period of time.

Fourth, we have the strongest balance sheet in the market. Isn't that cool? So we have huge chances to focus on our restructuring and then looking into the right capital allocation going forward. That's also a clear promise. We are a value-creating company. Once we have managed to get our organization up and running is how we see it, we are going to return capital to you.

And the fifth point is normally and need to be the first one. It's the people. You have had the chance to listen to the senior management team over the last 3 hours. And I can tell you, they are just -- they are representative of the organization we represent. And we have defined, as you have seen in the beginning, our 4 values and one of our 4 values is committed to win.

So this is something we can promise. This is something we can -- we are working on, and I'm more than happy to answer now your questions. Thank you very much.

Thank you very much for this presentation. And this is now the end of our presentation. We will now come to the second Q&A session. So I would kindly ask all the presenters to join me on stage.

Once again, [indiscernible], we have 2 microphones running around and therefore Jose, maybe #1 here over there. And also as a reminder, 2 questions.

I wanted to come back to ANS and you have exponential revenue growth in this division in the next years. And I'm just thinking does the order backlog that you have at the moment support this revenue growth going forward? And from the last Capital Markets Day, I understand you have some exceptional R&D expenditure in this division. How do you plan to reduce R&D?

And then the second question is a quick one. Within UX, are you on track to hit breakeven this year? I'll keep it very brief there.

So for ANS, the topic of research and development costs, as Philipp explained, we -- it was one of our key topics, how we manage the cost of -- and we didn't want to just cut and reduce the resources and not doing our job properly. So that's why it took some time to come to this. But we brought a much better efficiency with a better organization, with a better distribution of the task. We explained also with Nino. Nino explained also using better tools and process methods, and we continue on this to progress. So we are now at a quite good level of costs. We still have to work on this, and we continue on this, but we don't have really a critical situation for the future. So I think it was your question, basically. No. For this, we are on a good way.

On the UX side, if I say it short, so we are well on track actually towards breakeven. So -- and you could see also out of my presentation. So we have improved on the plant side by 4%, our adjusted EBIT margin. And we are also benefiting out of the structural programs, which are running on the all company scale, being it on the R&D efficiency side being this program Adopt and also on the services side [indiscernible] program.

Okay. Maybe Dominic at the back.

It's Dominic O'Brien from Citadel. I just had one question on free cash flow. Thank you for giving us the moving parts on the margin bridge and the revenue side. But how should we think of the free cash flow generation in the medium term and the long term? When I look at the targets, you get to, call it, EUR 1 billion of EBIT maybe in the midterm and EUR 1.5 billion plus in the longer term. Given the capital intensity of the business doesn't seem to increase, you mentioned in CapEx, the sales doesn't go up. Is it fair to assume that the cash flow generation could be sort of 50% conversion and EUR 1 billion cash in the midterm and EUR 1.5 billion plus in the long term?

You only have one question? No, I mean, we have -- as we said, I mean, we are set up our organization to be free cash flow positive each and every year going forward. What we still have to deduct going over the next years is the restructuring costs, which we need to pay. But I do agree. I mean, once we have reached the optimized size, we should go into that direction.

And sorry, just a follow-up. The optimal size, is that something by the midterm we should achieve, -- so call it '27, '28, the restructuring element is done?

I mean all our restructuring efforts, which we have now initiated are going to be finalized in '27, beginning of '28.

Maybe here in the mid.

Two questions on my side, please. The first one is regarding the issue with BMW with the brake issue. Could you please give us an update of the ongoing discussions? And given the strong relationship that we have -- that you have with them and I guess, their strong bargain power, is there any risk that we could anticipate further restructuring post spin-off?

And my second question is about the top line bridge. So the midterm guidance implies a 3% to 4% growth each year over the next 3 years. Could you please help us to quantify the different moving parts between volumes, price and mix?

Good. Maybe I start with the update about the situation. I guess it's then twofold. So one is on the solutions side. I mentioned we worked around the clock. We have established now software and hardware solutions. So on the technical side, I think we are well on track. And then on the financial side, so most probably you want to know about the accruals, we firmly believe that we have the right accruals. I mean we always said about double digit. That's audited. So that is the number we firmly believe into.

Could let me add to the growth question. You are right. I mean that's the mathematical calculation. As I explained, we are working on new projects. We are working on ramping up existing projects, but we are also working on getting negative business out. I mean we are doing constantly portfolio management where, for example, one of the decisions have now turned into reality, and that is the sale of our drum brake plant in Italy, which is going to go out. So you have really a mixture of additional business of taking back -- given back business of sold business going forward. That's why we say this is the best figure we can give to you.

Okay. Maybe I'll start with him and then Horst, that is you again.

It's Harry Martin from Bernstein. Just one question. Something that's been discussed in the past around the spin-off is the ability to open up some of the business units to external funding, the parts of the business that are more capital intensive and you have that need for higher growth investment. You talked about the strong balance sheet today. Is there still the intention to open up any of the business units to external funding? Or do you feel like the capital and the growth investment plans that you've announced today are sufficient in each unit?

I mean we are convinced that what we have in our plan, we can manage to do on our own. That's how we have been equipped, and that's our plan. As I said, I mean, we will, on a very constant base, look into our portfolio. We are now, and that's the clear target within the next 3 months. And as Olaf said in the presentation, the first and foremost priority of Continental is spinning off AUMOVIO. And once we have, let's say, dust has been settled, then we are going to sit together and look into what the future -- what is best future for AUMOVIO, but that's our speculation if we would answer these questions.

Then it was Horst over there, please.

Just a small follow-up on that. It also goes into that direction. So you continue then the carve-out of the UX business, display business after the IPO -- after the spin-off or that remains to be seen that's going to be decided thereafter?

Exactly. It remains to be seen. We're going -- as I said, we now first do the spin-off. And then afterwards, we sit together with the next year, we are going to analyze how is the strategy going forward. We need to discuss that then also with the Supervisory Board, which we are going to have and then we take the next decision, if so.

Okay. Okay. Then the other question that I have is again to Ismail. When we think about this Level 4 system in Aurora again, because my impression is still for entire AUMOVIO, a large part of the recovery depends on that order and that it flies and that the leverage comes in. Has there been on the back of that, any other order you received for Level 4? Or is that the only one you received so far? And why have you not yet received an order, for example, from a normal car OEM?

As I said, we want to be -- we want to focus on that commercial vehicles, autonomous trucking market because that's the best prospect that we see in the market currently. It is an obvious business case. And hence, we are refraining -- I mean, there are requests, especially from the fast followers in that market and further requests from other players in that market. But we are refraining to go into, let's say, a different market with this business model right now. We want to launch safely this Aurora project. and then expand further into other regions. First, with the ODD, operational design domain of trucking. But then, of course, there's other opportunities as well that we will consider, but one step after the other.

Yes, it is a significant upfront investment for us, which we do there. And as we said, our strategy has been lead focus perform...

It just comes to my mind. You said beginning of your speech, Philipp, that you're going to achieve in Q2 upper end of your full year margin range. If already Q2 is upper end of the full year margin range. To me, that implies that also on the full year basis, there's a stronger likelihood that you're going to be also on a full year basis on the upper end of the margin range. Would you say that conclusion is right or wrong or why wrong?

So what we do see is we see lighter sales in the third quarter, significantly lighter sales than we have in the second quarter. So we need to see how the market is developing. But I mean, as I said, we are -- based on all what we know today also on the tariff side in the U.S., we are confirming our outlook and our guidance. And yes, we are going to get somewhere in between 2.5% and 4%. Sorry, why we are not -- because there are 2 things. First of all, we do see -- we need to see how our markets are developing in the second half because up to now, we don't see a significant an uptick. What we do see is a bit lighter markets.

Maybe Jose was the next one to ask.

Just one follow-up on AM. How does it work to double revenues? And can you talk a bit more about the assumptions you have within this division to double revenues, which will drive the top line growth based on the order backlog and the earnings?

How -- can you repeat that part of how to double?

Yes. So AM, you have quite a big growth revenue growth coming through. And just I'm not able to envisage or to see how the order backlog is supporting this revenue number in the next years. -- and then we are seeing one customer on autonomous mobility in truck. So maybe you can just help us a bit more on that assumption.

I mean we are growing in all 3 elements. I mean, today, you have a single camera in a car. In the future, you will have -- you will have up to 11 cameras in the car. Today, you have 1 radar in a car or sometimes 3, you will have 5 to 7 radars in the car. So that's actually just growing with the market, and we have been very successful now placing our components business, and I start with that one. We have done our homework, let's say, in the last years, not only to do competitive technologies, but also cost competitive technologies. And the order intake of Q1 just shows, and we hope to continue this trajectory that we have been doing our homework well in the last years.

So -- and then the second pillar, of course, system solutions. There, we start from a lower base, but we are growing fast. We have won already a couple of awards and the trajectory is also showing in the right direction. And last but not least, I mean, the as-a-service business, trucking, that has a tremendous potential. I just outlined EUR 5 billion in 2033. If you look at the longer term, if this really takes off, I mean, there is an upside potential as well as on the numbers that we see. But this will all depend on how we launch this project and how this then scales into scales in these markets.

And the follow-up was, Philipp, at some point, you've got like 60%, 70% of the business, which is very healthy. UX is going in the right direction, but the expenditure you have on AM is extraordinary high. At which point do you say no more R&D here, and we need to lift the margin of the C because AM is clearly dragging the margin of AUMOVIO, apologies. Sorry, sorry.

Yes. I mean we have shown a 3% improvement between 2022 and 2024. These technologies come with a pre-investment, as Philipp has mentioned. We have invested in parking. We have invested in driving. We have invested now in this autonomous trucking. But you can also see that the R&D rate is continuously decreasing. And this trajectory will go on. We expect that we can curb down our R&D rate in the next years significantly year by year by year.

Yes. I think, if you look at such businesses, you need to look into the R&D rate or R&D cost to sales in 3 to 5 years, because we are investing now into a future into a complete new product field. And we are very convinced that we are going to make that happen. I mean one has asked me what Philipp, if you wake up in 3 to 4 years and you say, what are you particularly proud of? And that's one of the things where we can say we are working on a very concrete measure, which we are going to bring into this mobility world of how to turn trucking autonomous.

And the measures that we have taken are already helping us. You can imagine, 2022 was not the peak year of investment. The investments in our future growth started in 2023 and 2024. And despite the fact we have improved profitability and we have reduced R&D. How does that come? Of course, with our R&D excellence programs, with our effectivity measures, we have also stopped products. We have divested businesses. And all that comes then with a really fixed cost improvement in our business area.

And maybe the last question to the gentleman on the high chair.

Guy Kelly from [ LNG ]. Firstly, there seems to have been a pattern with this business that you size the business and the cost base for a certain level of expected revenues in it for whatever reason, it doesn't materialize. Is there anything that you have done or can do to improve the flexibility or to give yourself some sort of more insulation against disappointments from the customer or from wherever? Yes.

And then second question, as you've said, you're setting your balance sheet up in a very different way from a lot of peers, especially in Europe. Do you expect any commercial advantage from that? Or is it purely capital markets facing that you want to differentiate yourself?

So in terms of flexibility, I mean, what we are now needing -- what we are now doing is we are cutting the infrastructure into the right size. We go to the bottom and all increase which we might experience because markets are returning faster because we win significantly more contracts, we need to do as variable as possible. And we need to have -- we are currently -- we have issued the first, what we call agility targets, which we discuss now where we say, okay, how much potential to breeze a plant needs to have, how much potential to breeze an R&D organization need to have because we know we are in a cyclical environment in a cyclical industry so that we need to have the chance to build up without adding to the fixed cost base on the long term.

So this is the job which we now need to do. I mean we still need to see of where we are able to take out unnecessary costs. And then if we need to grow because of significant business increase, we need to do that as flexible as possible. That's very clear. That's also possible. I mean that's no secret to do that. And I mean, that I even don't think it's a big challenge.

What we do see from our balance sheet is that we are -- that we think we need to overcome this difficult and challenging phase of our industry with sufficient tailwind that we are ensuring that we are able to manage our organization into the right direction, that we are able to take the right restructuring measures, that we are able to set up the business into the right direction going forward. And we do see the chance to not needing to discuss on a very frequent base with financial institutions about financing our growth or the like. but being able to entirely focus on making the right decisions and the right steps forward in such a demanding market.

Perfect. Well, looking at the clock and also on the agenda we set up for today, many thanks for this interesting and insightful questions and many thanks to the presentations. Final remarks, Philipp.

Yes. I think we are very much grateful that you have been here. We have embarked on that journey 10 months ago. This morning with the press, I said we talk many times here about specifically in the automotive industry about Chinese speed, carving out a business of our size, making it able to be spun off within basically 1 year, I think, is already an achievement. I need to say a big thank you to my -- to our corporate headquarter and to my Executive Board colleagues, Olaf, who were pushing us into the right direction.

So we are proud to be here, and we are very much looking forward to manage this business into the future and becoming a cornerstone of the automotive industry going forward. Thank you very much.

Perfect. Many, many thanks for coming to this place. Many thanks for following us online. This concludes the Capital Market Day of AUMOVIO. We wish you all the best, and have a good rest of the day. Thank you.