Earnings call transcript: Continental AG Q4 2024 sees revenue decline, guidance steady

Continental AG (OTC:CTTAY) reported a challenging fourth quarter for 2024, with a 2.6% organic decline in revenue. Despite this, the company improved its group adjusted EBIT margin and reduced net debt. According to InvestingPro data, the company maintains a GREAT financial health score of 3.16, indicating strong operational fundamentals. The stock reacted positively in premarket trading, rising 0.31% to $22.45.

Key Takeaways

• Continental AG’s revenue declined by 2.6% organically in 2024.
• The company improved its group adjusted EBIT margin.
• Net debt was reduced from €4 billion to €3.7 billion.
• A slight dividend increase to €2.50 per share was proposed.
• Premarket trading saw a 0.31% increase in stock price.

Company Performance

Continental AG faced a challenging year in 2024, with a 2.6% organic decline in revenue. Despite this, the company managed to improve its adjusted EBIT margin, signaling effective cost management and operational efficiency. The reduction in net debt from €4 billion to €3.7 billion further highlights the company’s focus on strengthening its financial position.

Financial Highlights

• Revenue: €38-41 billion projected for 2025
• Adjusted EBIT Margin: €6.5-7.5 billion for 2025
• Net Debt: Reduced to €3.7 billion
• Dividend: Proposed increase to €2.50 per share

Market Reaction

In premarket trading, Continental AG’s stock rose by 0.31% to $22.45. This movement reflects a positive investor sentiment despite the revenue decline, likely due to the company’s improved EBIT margin and reduced net debt. The stock trades at a P/E ratio of 12.32 and has delivered a strong YTD return of 13.14%. The stock remains within its 52-week range, with a high of $24.81 and a low of $18.89. Want deeper insights? InvestingPro subscribers get access to over 30 additional financial metrics and exclusive analysis.

Outlook & Guidance

For 2025, Continental AG projects group revenue between €38-41 billion and an adjusted EBIT margin of €6.5-7.5 billion. The company also anticipates an adjusted free cash flow of €800-1,200 million, indicating confidence in its operational strategies and market position. InvestingPro data shows analyst targets ranging from $24 to $30, with 2 analysts recently revising their earnings expectations downward for the upcoming period. Get access to the comprehensive Pro Research Report, along with real-time analysis of 1,400+ top stocks, to make more informed investment decisions.

Executive Commentary

CEO Nikolai Zetsa remarked, "2024 was a year characterized by a challenged top line on the one hand, on the other hand, progress on the bottom line," highlighting the company’s dual focus on managing revenue challenges while improving profitability. CFO Olaf Schick added, "We provide Automotive with a very solid balance sheet," underscoring the company’s financial resilience.

Risks and Challenges

• Global Light Vehicle Production: Expected to remain flat in 2025, which could impact demand.
• Regional Market Declines: Anticipated declines in Europe and North America could affect sales.
• R&D Cost Management: Reducing R&D headcount by 3,000 by 2026 poses execution risks.
• Semiconductor Costs: High electronics content could pressure margins.
• Tariffs and Trade Barriers: Ongoing monitoring required due to potential impacts on costs.

Q&A

During the earnings call, analysts inquired about the impact of tariffs, with the company noting a high level of localization in the U.S. market. Questions also focused on semiconductor costs, which account for 40% of automotive sales, and the company’s strategies for improving working capital in 2025.

Full transcript - Concentra Group Holdings Parent Inc (CON) Q4 2024:

Conference Operator: Dear ladies and gentlemen, a warm welcome to the Continental AG Analyst and Investor Call Full Year Results twenty twenty four. At this time, all participants have been placed on a listen only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Max Vestmeyer, Head of Investor Relations.

Max Vestmeyer, Head of Investor Relations, Continental AG: Thank you, operator, and welcome, everyone, to our Q4 and full year twenty twenty four results presentation. Today’s call is hosted by our CEO, Nikolai Zetsa and our CFO, Olaf Schick. A small reminder that both the press release and presentation of today’s calls are available for download on our website as per usual. The annual report of Continental AG will be published on March 18. And before starting, I’d like to remind everyone that this conference call is for investors and analysts only.

So if you do not belong to either of these groups, please kindly disconnect now. Following the presentation, we will conduct a Q and A session for sell side analysts. To provide a chance for all to ask you the questions, we would like you to ask to limit yourselves to no more than three questions. This will help us to conclude on time. And with this,

Nikolai Zetsa, CEO, Continental AG: let me now hand you over to Niko. Yes. Welcome from my side. So 2024 was a year characterized by a challenged top line on the one hand, on the other hand, progress on the bottom line, which is even more important part from where we are coming from. So you see that 2.6% down organically in persistent markets on the automotive side, but as well in particular second half.

On the industry side, for ContiTech said, this challenging market, we’ve been able to increase EBIT, so SEK 170,000,000 in absolute terms on top or SEK 2,700,000.0 in return on sales. So from 6,100,000.0, so SEK 2,000,000, we have been at 5,000,000, by the way, just to remind. Now we are at 6.8%. So substantially improved mainly by the measures which we implemented, I said, because we haven’t seen particularly in Automotive and Quantitec any good tailwind. So on automotive, we progressed with our pricing.

So 2024 negotiations are finalized with a high share of sustainable agreements. I come to this then later on the automotive recruitment plan. And the self-service measures are fully on track. This cost saving of SEK 400,000,000 for this year already safeguarded. So we had more than SEK 200,000,000 last year, which gets us on track.

And as I said, I come to those measures. Then later, tires ended with again, solid performance, which we have seen as well in the quarters before. Healthy winter tire business helped. And the PO2 replacement markets sell in has been better than we’ve seen that before, particularly then at the end as well on The U. S.

Side. We could see better PLT markets. And truck tire finally stabilized, yes, on a lower level, but stabilization is seen, first of all, as positive. And in ContiTech, both markets before down persistently down, weighing on the performance of full focus on street cost discipline and measures which we’ve introduced. So you see a 7.8% margin in Q4.

We had a solid Q4 leading us then into 2025, and we have already announced further measures on the quantity tax side. So this led as well in a near only slightly up to SEK 1,000,000. You would see then on the next slide as well. This has been burdened by one off such as tax efforts for spin off preparation. So dividends within the group, which led to noncash effective tax expenses around SEK 100,000,000.

So if you add those, we would be, as well on the near side, SEK 110,000,000 up versus prior year, so which lets us then on the ROCE to SEK 11,400,000.0. So given that 10% is our work or threshold to generate value, we have generated in SEK 24,000,000. Again, value, so slim by 1.4%, but we generated this. And looking on the adjusted free cash flow, we have been at the upper or slightly above the guidance, which we had going into Q4. That was driven by a positive improvement substantial positive improvement on the oil and water side.

So as I mentioned before, healthy winter tire seasons helps in Europe. And this is even stronger given the fact that we had negative impacts by one offs. So finally, last line, you see that this drove as well our net indebtedness down from about SEK 4,000,000,000 to SEK 3,700,000,000.0, so SEK 3,000,000,000 we’ve been able to deleverage on the debt side net debt side. So that translates into our dividend proposal. So you see, we foresee a slight uptick to EUR 2.5 Whereas the Strvenfjorm, as said, higher near than the year before, positive free cash flow development for the full year, decrease in net debt.

We have achieved on a group level our financial results, annual results, which we are giving. So we have all reasons to let the shareholders as well participate in the positive development, which we’ve seen in 2024. If you now from our net income or to our net income at the SEK 100,000,000 net non cash effective expenses, you end at slightly below 40%. So we are with that within the corridor on the upper end as we have been in the last years as well. However, given the positive development, we strongly believe that this is the right decision leads us well to a 4% dividend yield overall, which seems to be from our point as well reasonable.

So looking now, as I mentioned into Automotive, I mentioned before, it was a year clearly a challenge top line. However, we made strong progress on our sales of measures, which are leading as well into 2025 as the price negotiations are number one. So much higher sustainability price agreements than we had last year getting into the first quarter. That makes us go with confidence as well into Q1 twenty twenty five, much higher confidence than we had last year. And for this year, despite the fact that there are still some pricing to close, we are focusing on redesign to cost activities in order to really manage our BOM and generate further cost savings in order to improve the bottom line.

Operational excellence, year on year inventory, we had reduced our inventory by SEK $255,000,000. That supported the free cash flow in 2024. And as well for this year, not at an end, we continue our inventory reduction and we are targeting the term rate increase by one year over year. Coming to the strong progress, you know our SG and A measures, which we have implemented, the greater SEK 200,000,000 savings are effective in 2024 already. All agreements are in place.

It’s just further execution of the rest, which is still open order to achieve the SEK 400,000,000. And as we are already that far, we are investigating further potential given the market environment, which I said, which is still not providing tailwind in particular for Europe and for North America. On the R and D side, SEK 200,000,000 overall improvement in absolute terms. In those SEK 200,000,000, it’s important that SEK 150,000,000 are restructuring expenses, which we take out, so to say. In absolute numbers, you just see SEK 50,000,000, but the restructuring costs are shown here as one offs.

If you take those out, we are SEK 200,000,000 down, which gets our net R and D rate from 11.8% last year to 11.4%. So as well relative, so our top line was that much stressed. We improved on our R and D share. Just to give again 2022, we have been at 12.4%, so one percentage point, which we improved. In particular, Q4, we reached an 8.5% net R and D.

Even so, the reimbursements have been lower than the year before, strong improvement here. As we have announced, we have the targets to get below 10% in 2027. And with the current market environment, we took the decision to reduce our R and D headcounts by additional 3,000 until year end 2026. It should, on the one hand, increase our efficiency and clearly our cost base. On the other hand, as we mentioned, with our R and D initiatives, by consolidating R and D hubs, by bringing the project teams together, by optimizing our footprint, which is relatively fragmented as still of today, we are fully convinced that this will even increase our effectiveness.

So stronger R and D output by reduced input in terms of cost. So last but not least, mentioned the EUR $255,000,000 on the inventory reduction help, But overall, we have achieved as well, operatively, a positive cash flow. And this cash flow on automotive is without tax and interest because we are paying this on a group level. So you see about SEK $350,000,000 positive. This is a turnaround and we expect this going further as it is from utmost importance to establish a capital market ready company for automotive for the spin off, which is planned for the second half of the year.

Looking into ContiTech, as well, burdens in this case by the double dip, so auto weak as we have seen in auto, but as well the industry markets, particularly in the second half in Q3, have been quite weak. So strong focus on sales out measures here as well. So for our OASL business area, which is heavily exposed to auto, we have successfully worked on pricing parts last year, which we completed as well as self help measures, which has driven OES four hundred basis points into positive territory of profitability, and we have contributed with positive cash flow here. So we continue our measures. We have further initiated measures for variable and for fixed and for variable in particular, bill of materials, standardization, harmonization.

So we’ve given clear targets of the team, central team steering this, and we target EUR 50,000,000 variable cost reduction program. And this is on top of the programs, which we have anyhow by improvement measures implemented. So this is a major activity, which we are driving forward in order to improve and secure the results. On the fixed cost reduction, you could see FOCUS 2025 that we took again January measures on the footprint. So we have announced plant closures, five additional sites in January.

Germany, overall, five eighty headcounts. So those are closures and rightsizing and I said, particularly the rightsizing part and particular on the German side. So last but not least, complexity reduction. OES Alcarfout is on track. We are progressing and market sounding takes place as we speak, As we said in the first quarter, we are moving forward and progress is made.

With that, I hand over for the detailed results to Horace.

Max Vestmeyer, Head of Investor Relations, Continental AG: Thank you, Niko. Yes, if you look at Page seven and we look at the quarterly development, you can see two overarching trends. As Niko said, sales remained under pressure with only tires being able to grow organically at 2.6% at the same time, though we managed to increase our profitability in each sector in Q4, both in relative and in absolute terms that means our strategic focus on value creation pays off. Now let’s go more into details for each sector. Start with Automotive on Page eight.

As I mentioned, we had to face organically declining sales of minus 3.2%, so basically in line with the market. But the picture was very differentiated per business area as you can see. Architecture and networking developed well with 7% organic growth, benefiting from customer mix and slightly positive effects from new product launches in 2024. SEM and UX continue to be burdened from lower than expected take rates of our products in vehicles as well as delayed launches of new platforms. Furthermore, the customer mix in the markets was not in favor of our product portfolio, particularly in UX.

These effects also had a significant impact on profitability, while Sem did a very good job in managing costs. Nevertheless, we were able to improve our adjusted EBIT by EUR 75,000,000. This was mainly due to cost saving programs, self help measures, which overcompensated for the lower volume effects. We realized savings in both SFG and A as well as in R and D. This is particularly worth mentioning since our R and D reimbursements came in slightly below the level of Q4 twenty twenty three.

With the 6.6% margin in Q4, we realized an adjusted EBIT margin of 2.3% for the full year. This is marginally below the low end of our target. We have set ourselves for the full year. But if we took if we look at the sales headwind we faced throughout the year, I think we can actually be proud of the achievements of the Automotive organization. Now

Nikolai Zetsa, CEO, Continental AG: if

Max Vestmeyer, Head of Investor Relations, Continental AG: we look at the breakdown of the sales on Slide nine, you can see the familiar picture of the previous quarters. While we performed well in Europe, outperforming the market by 4%, we lost compared to the markets both in North America and China. Again, this was attributable to an unfavorable customer mix phasing out products and low take rates. All this resulted in a worldwide sales performance in line with the sales weighted market for the quarter. Also for the full year, we came in just in line with our weighted market.

On Page 10, order intake, even though a lot of sourcing decisions of our customers have been pushed out into this year, so 2025, we came in at a book to bill ratio of one. For the single quarter, this means an order intake of EUR 5,100,000,000.0, which Safety in Motion realized almost half of it. A good portion of that came from our latest generation

Nikolai Zetsa, CEO, Continental AG: of brake systems. I think this is a good message

Max Vestmeyer, Head of Investor Relations, Continental AG: that we’re continuing to win orders with our MKC2 brake systems and our customers’ trust in our leading technology capabilities for one box solutions also in Asia. SiteSEM also, architecture networking contributed well to the order intake mainly with awards for body and zone controllers as well as for passive start and entry applications. Now let’s continue and look at tires. Even though the comparison base was quite solid, tires managed to outperform Q4 of twenty twenty three. We realized sales of EUR 3,700,000,000.0, which is corresponding to 2.6% organic growth.

Within this, both volume and price mix were positive. On the volume side, we benefited from overall good replacement markets, particular from a healthy winter tire seasons in Europe and also on the European truck side, we saw at least a stabilization in volume. In terms of price mix, muted OE volumes combined with good replacement market contributed to a good channel and product mix. And as you know, the good replacement business is also margin accretive, which you can see the 13.9% adjusted EBIT margin that we realized in Q4 for tires. And this was predominantly driven by European replacement volumes and a good mix effect from ultra high performance and winter tires growth.

But also in APAC, we saw a good sales environment. This helped us to overcompensate the negative material costs we faced in Q4 as well as the ongoing negative year over year effects from labor costs that we see. On the next page, we actually want to provide you some additional information around the status quo of our tire business. If you look at the channel mix, you can see that the replacement markets, which make up around 80% of our sales in 2024, is by far the most important revenue contributor. Region by region, this differs a bit, but the main message stays the same.

The EPYC region, which is certainly also attributable to some purchasing incentives, has the largest OE share with 27% of sales, while our main market, Europe, only has 15% OE share. Segment wise, Passenger Car Tires with more than three quarters of overall sales clearly make up for the largest portion of our revenues.

Nikolai Zetsa, CEO, Continental AG: And if you look at the percentage of

Max Vestmeyer, Head of Investor Relations, Continental AG: premium tires, which means Continental branded tires in our portfolio, it also stands at 77%. Out of these, 60% are ultra high performance tires, which is an increase of 300 basis points compared to last year. And if you only look at the share of sales of our passenger car tires, excluding van, we even reached a share of 66% in 2024. Now let’s look at ContiTech. As you saw at the beginning of the presentation, ContiTech had to deal with declining revenues in Q4.

On the back of weekend markets in both industry and automotive, we lost more than EUR 100,000,000 of sales, which equals an organic decline of 5%. Particularly the off highway and commercial vehicle markets continued to burn our sales volume, whereas we saw some stabilization in the construction and home market, while aftermarket performed well. In that environment, sales had became even more important and you can see in our results that we were able to execute the necessary measures. As a result of the stronger quarter, we came in at the upper corridor of the profitability guides, which we issued with the Q3 reporting. An important contributor was the ongoing improvement of our original equipment solutions business.

We sell came in not only EBIT positive, but also cash flow positive in 2024. And we are also continuing making some progress with the carve out of that business and starting the M and A process. Now on Page 14, let’s look at cash flow. Looking at the operating cash flow, you can clearly identify improved earnings as well as continuous inventory management as some of the key levers. They helped us to compensate one offs such as reacquisition of shares in Quantitec AG.

We mentioned that before at the beginning of the year as well as cost for both restructuring and carve out measures in automotive and Quantitec. On the positive side, we saw low to mid triple digit million cash flow from changes in working capital, more precisely receivables in our contract manufacturing business. On the investing side, we were very disciplined regarding CapEx, mainly because of the high market uncertainty, delayed product launches as well as efficiency measures. That wraps up my Q4 commentary. Now let’s look at 2025, starting with Page 15.

Beginning with our expectations for the worldwide light vehicle production, We’re currently expecting that the existing trends of last year will continue. We are seeing Europe down three percent to 5% and North America also down in the lower single digits. We expected slightly positive development in China. We’re expecting worldwide light vehicle production to be flat overall. There’s a continued negative fuel mix for us.

For commercial vehicle production though, we could see slight increases on

Nikolai Zetsa, CEO, Continental AG: the very weak comparison base of 2024.

Max Vestmeyer, Head of Investor Relations, Continental AG: On the replacement tire side, we are currently expecting slight growth potential in all major markets leading an expected 0% to 2% growth rate worldwide overall for passenger car tires and is also quite

Nikolai Zetsa, CEO, Continental AG: in line with our expectations

Max Vestmeyer, Head of Investor Relations, Continental AG: for the commercial vehicle replacement markets. If we look at the industrial production, then we expect China to remain the growth driver of the industry where Europe and North America could be flat or slightly up. Now let’s look at our 2025 guidance. In this challenging environment, for the group overall, we’re expecting revenues of around EUR 38,000,000,000 to EUR 41,000,000,000 at an adjusted EBIT margin of EUR 6,500,000,000.0 to EUR 7,500,000,000.0 and adjusted free cash flow of EUR 800,000,000 to EUR 1,200,000,000.0. This includes CapEx of around 6% of sales.

Looking at the sectors, we’re currently expecting the automotive sales to remain under pressure and to come in between EUR 18,000,000,000 to EUR 20,000,000,000 at an adjusted EBIT margin of 2.5% to 4%. That means we will see further improvements on the back of our sales measures despite the very challenging sales dynamics. For tires, we’re expecting to come in between EUR 13,500,000,000.0 and EUR 14,500,000,000.0 sales at an adjusted EBIT margin of 13.3% to 14.3, giving we are facing a lot of uncertainties in 2025 combined with a headwind on the raw material side. And for ContiTech, we are currently anticipating sales between EUR 6,300,000,000.0 and EUR 6,800,000,000.0 and adjusted EBIT margin ranging between 67%. On that manufacturing, we are phasing out and we will continue so it will continue to decline in 2025.

Sales will presumably be between EUR 100,000,000 and EUR 200,000,000 at zero margin as planned. To make the bridge from adjusted EBIT to net income, we’re expecting PPA amortization of around minus EUR 100,000,000 as in the prior year as well as special effects of around minus EUR 700,000,000. They will mainly be driven by restructuring on the one hand and spin off effects, both roughly in the same magnitude. The financial result should once more come in at around minus EUR $250,000,000 despite the lower level of net debt. Since we will have to pay slightly higher interest in the current environment, The tax rate finally is expected to normalize again and will be around 27%.

Please keep in mind that both our market outlook and our guidance do not include any potential significant changes to global tariffs. And then maybe final statement from my side before I head back to Max. We are on track with the spin off preparations. We have achieved so far all milestones that we have set ourselves and the plan is to go to the AGM in April, F10 Capital Market Days mid of the year and then execute the spin in the second half of this year, everything on track as planned. And with that, I hand back to Max.

Yes. And I would like to hand the rest of the time to you guys. So operator, good fields, please open the line for Q and A.

Conference Operator: Thank you very much. Yes, dear ladies and gentlemen, the Q and A line is now open. So please press 9 and then the star key to state your question. I repeat the combination is 9 and the star key. So the first question comes from Michael Espinal of Jefferies.

Over to you.

Michael Espinal, Analyst, Jefferies: Thanks, Kitty, Nicola, and Max. Just two for me sorry. Just

Nikolai Zetsa, CEO, Continental AG: from

Michael Espinal, Analyst, Jefferies: a tariff perspective, obviously, you mentioned that your guidance is in the absence of tariffs. Can you give us some kind of idea of what the impacts might be given the tariff announcement overnight?

Nikolai Zetsa, CEO, Continental AG: Yes. Overall, still to be quantified. Looking on our footprint, we have invested in two tire plants in the last ten years in The U. S. So we have a high localization.

We have a smaller plant in Mexico in SAP, which is serving the local market, but there as well some goods coming to U. S. So now we are optimizing supply chains, talk to customers how to manage the situation and once we know more then we will inform on that. Our overall, we can say we are relatively local and not overexposed there.

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

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

Michael Espinal, Analyst, Jefferies: Okay, great. And then last one for me. I think you’ve made some comments before that margin should structurally grow in tires. Your ’25 guidance at the midpoint is for margins to be roughly flat on ’24. Is there something holding back margins in tires this year?

Or put another way, what do we need to see to start moving towards those midterm targets?

Nikolai Zetsa, CEO, Continental AG: It’s a good question. So we could already see in the second half and in particular the fourth quarter, then raw mats and certain cost input products have increased. This is what we have to balance with volume, pricemix and our performances for this year depending how the markets will react. So it’s still relatively early for the year. We set the guidance as it is and we develop from here.

We are hopeful so far Q1 started, okay. That’s what we saw. We know as well that March this year, not again Eastern is in March now. It’s different than last year. So we should have a solid March, which has started right now, so that we assume that we have a better Q1 than last year.

Last year was Q1 the weakest quarter. We assume now that we have a better quarter than last year and then we go from there. And if we have opportunity to be better, please trust us. We are fighting for this and we will pursue doing that.

Michael Espinal, Analyst, Jefferies: Okay, great. Thanks for your time and sorry for the disruption.

Conference Operator: Thank you very much. The next question comes from Christoph Vaskevi of Deutsche Bank (ETR:DBKGn). Over to you.

Christoph Vaskevi, Analyst, Deutsche Bank: Good afternoon. Thank you for taking my questions as well. The first one actually sticking with tires and the top line guide. At midpoint, it seems like very modest growth is affected in. If I understood it correctly, you expect volumes to be positive, pricemix to be positive and just at current spot FX should be a positive as well.

Could you just provide a bit more detail around how you would see those buckets trending in 2025 overall? And then the second question on the auto free cash flow, it’s good to see that it was positive, quite easily positive in 2024. Could you give us any indication on 2025 excluding all the one time cash outs that you would face? Is the run rate set to continue? Or are there any deviations from that?

Thank you.

Nikolai Zetsa, CEO, Continental AG: Yes. For the first one on the top line, you get a little bit the similar answer. As I just mentioned before, you’re right. We assume positive volume development at this year, not on the automotive OEM market. Although OEM market, we assume as S and P in particular for our sales, where it’s going down, track stabilized, as I mentioned, but an improvement on the replacement market.

So on one part of our business, which would translate them for the whole sector in a certain volume and then as well in a positive mix as most of the mix comes from that part. How much remains still to be seen? As I said, we are positive for Q1 being better than last year and we are positive as well that we achieved those volumes as well as price mix increases. How much that remains to be seen? That’s why we have a guidance as well with the upper corridor if we are better, but it’s too early to judge.

Max Vestmeyer, Head of Investor Relations, Continental AG: Maybe for the second question, for us it was important that automotive improves its margin in 2025, also achieves a positive cash flow in twenty twenty five twenty twenty four, sorry. And both the next step will be further margin improvement in 2025. And also here, we are starting better in Q1 and we will, let’s say, achieve we hope to achieve positive territory already in Q1. And for the cash flow, it will further improve in 2025. But we cannot give more details at this stage.

Christoph Vaskevi, Analyst, Deutsche Bank: Thank you. And just one last one as it wasn’t really discussed too much on the braking issues with BMW (ETR:BMWG). It wasn’t really part of the comments. So I assume everything remains as we stated in previous quarters as well. No changes to the provisions or how you assess the situation?

Max Vestmeyer, Head of Investor Relations, Continental AG: No changes to the provisions. Recall this going on. Software (ETR:SOWGn) update is functioning. And the provision that we have built in the middle 2 digit million euro area is still

Nikolai Zetsa, CEO, Continental AG: the right provision that we have built for the

Max Vestmeyer, Head of Investor Relations, Continental AG: full year 2024.

Christoph Vaskevi, Analyst, Deutsche Bank: Thank you.

Max Vestmeyer, Head of Investor Relations, Continental AG: And everything else we discuss with our customer.

Conference Operator: Thank you very much. Next (LON:NXT) question is from Jose Asumendi of JPMorgan. Please go ahead.

Jose Asumendi, Analyst, JPMorgan: Thank you very much. A few questions please. Can you comment a bit on the margin evolution we should expect for the Automotive division Q1, Q2? It looks like a challenging start of the year when it comes to production, but you also have the cost savings that you’re booking and efficiency plans you’re booking on a year on year basis. If you could just comment whether the first quarter

Nikolai Zetsa, CEO, Continental AG: should be better than last year

Jose Asumendi, Analyst, JPMorgan: or not? And then it will be what are the efficiency measures that you’re expecting? The second question, regards also with on the Alto division. Niko, if you can comment maybe on some of the business wins you had within Safety and Motion, A and N or autonomous mobility, anything that you would stand out? Any big large business wins in the second half of twenty twenty four?

And then question three will be on ContiTech. We’d love to hear a bit more what’s holding back the margin and what can you do structurally to improve the profitability of the division? Thank you.

Nikolai Zetsa, CEO, Continental AG: So for Q1, Q2 auto, what have you referred? I mean, honestly, we had relatively weak first quarter start into last year. So and as what I said, we are targeting to get into positive territory in the first quarter, how much and far remains we’ve seen. As I said, March is still the highest auto month in front of us. So far, we are within what we could see for the start.

You’re right, that light vehicle production for us will be slow in the first quarter, in particular, the sales weighted for where we are. However, we have on the one hand the self help measures, which you mentioned, they are coming then as they increase their year over last year. They help us as well in the year over year comparison. And don’t forget the pricing. So we have a very high level of sustainable pricing.

We had our weakness last year getting into the year. What means weakness, we have later on caught up on that part, but in the first quarter, we had many of those agreements on purpose not signed. So that helps the improvement. On the second quarter, some of that is already mitigated. We had already some pricing last year and the fixed cost measures, which we had were then ramping as well up.

So the incremental on the second quarter should be much, much lower if there are any, but too early to judge. First quarter strong improvement versus last year with our target to be on the positive territory side. On the order intake, we can say in the fourth quarter and Olaf has already mentioned, we’ve been extremely pleased with the Safety and Motion order intake and in particular with MKMC2, which is the braking system, which we are supplying as well as to BMW. As you know, we have from the 2,400,000,000.0, this brake system has been 800,000,000 order intake in one quarter, which is very, very solid and strong in particular as well from Asian players. That gives us the confirmation order intake is on track.

Customers appreciate our brake performance and our strong technology leading technology, which we have in there. That’s to me the main highlight. To be fair, you have seen we have been roughly on one. And the rest has been more typical business like Airbag ACUs, where we have a relatively strong positioning in, which helped us. And we see as well on the zone controller part, So more high performance compute architecture, which is getting in where we are going more from the decentral part as well to the central part, beat high performance compute or then the distribution architecture like a zone controllers.

Those have been the highlights here. On the ContiTech, we have, I would say, three parts in here. The one part is OESL. We have improved by 400 bps last year, but still it’s a low single digit rate of mass sales number, which weighs on the overall result, which we have on the Contitec side. If we look for the pure industry business, we are still north of double digit and plan as well to continue this.

So the markets are clearly under pressure. And our Surface Solution part, which has as well half of its businesses, automotive, has as well weak markets as enter home goods market, which is somehow challenged, which is somewhere in the middle between those two. What are we doing? On the one hand, I mentioned variable cost, which helps all the business areas. So standardization, particularly on the industry side, because this is clearly a high complexity where we see lots of opportunities to get better fixed cost reductions, which we are doing.

And as mentioned, five plant closures or rightsizing we have announced in January. So we will optimize the footprint optimization, which we have and generate savings via that. So mainly for this year, again, particularly for the first half self help, which we continue as well for the second half. For the second half, we at least hope for a certain industry recovery. If it doesn’t come, then we continue our self help measures and prepare ourselves for recovery then coming later.

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

Horst Schneider, Analyst, Bank of America: Yes, good morning. Hope you can hear me. Talk to you. Perfect. The first question that I have is relates to ContiTech.

So, since I think your guidance is not yet including the disposal, so could you maybe say how the guidance would look like if you were now disposing this ContiTech Automotive business in the quarter of H1? In that context also, maybe you can provide an update where you stand now on the disposal. That’s question number one. Question number two is on automotive again, because your guidance, the lower end implies something like 10% revenue decline. And I wonder basically what needs to come through that really the revenue here decline by 10% and more longer term then and that is also for the spin off.

It seems to me that the 6% margin targets that you have put out for ’25, ’20 ’6 for automotive is no longer valid because you are missing kind of EUR 2,000,000,000 to EUR 4,000,000,000 of revenues. So with that in mind, I do not think you want to revise the guidance now in this call. So therefore but nevertheless, with that in mind, what is the necessary cash equipment for automotive in the spin off? Thank you.

Nikolai Zetsa, CEO, Continental AG: So with Cognitech, you are right. OESL is still part of the guidance. However, as mentioned, we pursue and started the sales process in the first quarter. So we are in touch with potential buyers and partners and are now starting this process as we speak. More to come then after the first rounds and after we see that we are moving forward.

On how would ContiTech look like without OASL, as we have announced, it’s roughly EUR 2,000,000,000 sales, the OASL business area and a low single digit return on sales. So you can do the math and that you can somehow calculate what ContiTech would mean with our DOA side.

Horst Schneider, Analyst, Bank of America: Nikkad, low single digit return on sales, I’m guessing it means something like 2%. Is that the white ballpark?

Nikolai Zetsa, CEO, Continental AG: 2% is a low single digit number, yes.

Christoph Vaskevi, Analyst, Deutsche Bank: Okay. Thank you. I tried. Okay, go on. Thank you.

Nikolai Zetsa, CEO, Continental AG: Excellent. So the second part, yes, we chose on purpose a larger bandwidth on our sales because currently we see that so many moving parts on our customer base. We see our markets we heard as well today, tariffs are coming in even though they are not fully included in our guidance yet. However, we anticipate turmoil as well from 2025. In this foggy situation, we rather guide on a larger base and we prepare ourselves.

That is as well internally for us the signal if the market is not in our favor and our tailwind, we have to make take actions and we have to manage our costs very, very disciplined. That is the basic message which we want to send externally, but which we will do as well internally. So if you see as well our margin guidance take into account SEK 18,000,000,000 as you make the math, this is a substantial deduction of sales, which is then having effect as well on the bottom line. But by all means, by the measures which we are doing, we try to prevent. How we are going forward?

And with regard to mid- and long term, yes, we had in our Capital Markets Day in December 2023 different market situation than we have today on the total base and absolute base as well on customer mix and as well on product mix. Product mix has changed again looking for certain types which are weaker, up in Europe which might change again and in North America which will postpone electrification and so on. So for the next short and mid term guidance, we refer to our Capital Markets Day mid of the year. That’s where we are looking into the mid and long term plan. We are looking as well on our margin guidance and to do this, so to say, from scratch and from the current situation and take everything into account, which we saw in the last two years.

For the time being, as said, we are preparing for both for upswing as well as downswing and clearly full focus still on our cost situation in order to manage as well our capital structure going then into this bit. Something to add for the capital structure?

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

Horst Schneider, Analyst, Bank of America: Small follow-up maybe for Nico. Nico, tomorrow we have got this announcement of the EU Automotive Action (WA:ACT) Plan. I’m not sure if the European Union involved you in this discussion. But from a supplier perspective, what can the European Union do in your favor within this action plan?

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

Horst Schneider, Analyst, Bank of America: All right. Let’s see what they do. Thank you so much. Exactly.

Nikolai Zetsa, CEO, Continental AG: We have to see the written rules, what is coming up and then we judge and then we come further. Absolutely, Ross.

Max Vestmeyer, Head of Investor Relations, Continental AG: All right. Thank you.

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

Thomas Besson, Analyst, Kepler Cheuvreux: Thank you very much. I would like to start with a question on cash flow, please. Can you share with us your assumptions for the interest restructuring and tax outflows for 2025 and compare that with 2024? And explain why in Q4 interest and taxes looked higher than in previous quarters? That’s the first question.

The second, could you talk about the expected seasonality of group margins? I know the group is probably going to change over the course of the year. But if it stays as it is, which I think is the way you’ve guided for the year, would you expect a stronger second half, which is what I would assume or a stronger first half? And lastly, is there any more granularity you would like to share with us on the time line for expected capital market events to come? Or if not, when should we expect to get that granularity, please?

Thank you.

Nikolai Zetsa, CEO, Continental AG: Maybe I start with the second one and then you or you want to start with the cash

Max Vestmeyer, Head of Investor Relations, Continental AG: flow and you can definitely expect

Nikolai Zetsa, CEO, Continental AG: the seasonality. So yes, based on our reimbursement business, which is still more heavy in the fourth quarter than as you’ve seen in the years before, We expect a stronger second half than the first half. That’s also true what I said for all markets, in particular, the industry markets, which we are expecting in the second half to be more favorable than in the first half. So as we have seen it last year, not that strong in the seasonality because you heard us saying that we assume automotive in the first quarter to be strongly better than last year and reaching positive territory. We said as well tires, which had a weak first quarter last year based on Eastern margin April, as you remember, a stronger first quarter than last year.

That helps us well, the group, to be stronger in the first quarter than last year and have a less pronounced. However, we assume again a staggered increased profitability during the course of the year?

Max Vestmeyer, Head of Investor Relations, Continental AG: To the first question,

Nikolai Zetsa, CEO, Continental AG: if you look at

Max Vestmeyer, Head of Investor Relations, Continental AG: the Special Effects, we have two main effects, 2025 that is in the same magnitude for one part is restructuring, the other is one offs for the spin off execution. If you look at the financial results, we have to consider that in the year 2023, we had some special impact driven by the CNY, which we didn’t see in 2024. So it will be on the same level in 2025 roughly as 2024. The tax rate in 2024 is impacted by what we mentioned at the beginning of the presentation when you explained the LEA, some non cash relevant taxes in preparation of the spin off. So that’s why the tax rate is going up and then normalizing again at 27% in 2025.

Nikolai Zetsa, CEO, Continental AG: Okay. And to the last point, Capital Markets Day. So the announcement of the timeline is coming soon, so buckle up. Reserve your calendar for the whole summer. So seriously, it will come up in the coming weeks upcoming weeks and Max will inform Investor Relations departments once the dates are fixed and they will invite you.

Max Vestmeyer, Head of Investor Relations, Continental AG: And then they will you will also enter Capital Market Days your new short and mid term targets for both sides Continental and OTO.

Thomas Besson, Analyst, Kepler Cheuvreux: Thank

Harry Martin, Analyst, Bernstein: you.

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

Harry Martin, Analyst, Bernstein: Hi, everyone. Thanks for taking my questions. The first one, just coming back to the tire margins. The question really is why were the margins not up more than 20 basis points in 2024 versus 2023? Volumes increased, you went from 76% to 81% replacement mix, increased the premium high rim diameter share.

I think you’ve mentioned some of this is cost related. So how much is the gap between pricing and raw material today, offsetting some of that positive mix? And can you increase prices to recover some of that in 2025? Or is it some of the production sites in Europe that are holding margins back? The second question on the working capital improvement, the management of working capital this year has been very positive.

Can you comment on how sustainable some of those improvements are into 2025? And whether this is more in the automotive side or in the tire business? And then the final question, I’m interested in the sort of the status of the automotive spin off. You’ve mentioned again monitoring capital market readiness. Clearly tariffs production cuts don’t make things easier.

So can you give a sense of how the debates have been evolving in the boardroom to the new market reality when it comes to the spin off? And are there any key metrics at all that you’re monitoring that would make you delay or reconsider the automotive spin off? Thank you.

Max Vestmeyer, Head of Investor Relations, Continental AG: I’ll start with the last one. As we indicated, we had a detailed analysis we needed to conclude by end of twenty twenty four. Check mark. For us, it was important to achieve, let’s say, margin improvement automotive, positive free cash flow automotive, check mark. Headcount reduction as planned was also important to achieve that.

Now we are on track in the preparations. We have a very detailed separation plan, very detailed capital market readiness plan and we’re on track to execute it to fulfill it. So all our milestones, we are living up to it. Next is Supervisory Board approval in March, next then afterwards the AGM. So we are on track and we will execute the spin this year in the second half.

Nikolai Zetsa, CEO, Continental AG: So the sustainable working capital improvements in 2025, I guess this refers in particular to automotive. As we’ve mentioned, we had a substantial working capital improvement. Just to come to look into history, we had a huge working capital build up during the semicon crisis. So 2020, ’20 ’20 ’1, we’ve hired up not just semicons, but the whole bill of materials. So we had relatively large capital increase during that time frame, means we are still not on a level where we cannot further improve.

That’s what we are planning for 2025. So number one, we see it sustainable. Number two, we are targeting further improvements as well in terms. And as you’ve seen with our guidance, it’s not based on strong top line growth. This means as well in absolute terms that we are planning to reduce further working capital on the automotive side ’25.

On the tire side, it always remains how the business runs and Quantitec, we will be as well restrictive, but their working capital part is less of a point. So tire margins, why not more up? As you mentioned, the negatives coming and as well going forward is raw material increases. So we saw them during the course of the year turning around raw materials. They have been tailwind at the beginning and coming later, they have been headwind.

So it was a negative mid double digit million euro impact in the P and L in Q4. So that weight on those results, number one. Number two, not everything which you see in price mix, which we are showing is going one to one to the bottom line. Obviously, price is going down. But looking on the mix part, this is not one to one getting in and we have still certain markets as well on The U.

S. Side on the first part, which is typically rich, heavy and strong, which have not been that strong on ’24 and ’23. So going forward in 2025, as mentioned, raw materials from right now see again an upswing going further. How this plays out in ’25 in the whole business environment and industry environment, we don’t know and that is the same to the increase of pricing. So we will make our pricing decisions based on our volume and profit strategy during the course of 2025.

And we will try via that as well to optimize our results.

Harry Martin, Analyst, Bernstein: Thank you very much.

Conference Operator: Thank you. The next question is from Monica Buzio of Inter Sa San Paolo. Please go ahead.

Monica Buzio, Analyst, Inter Sa San Paolo: Yes, good morning. Good morning and thanks for taking my question. The first one is on the automotive business and the quality performance towards the market. There’s The car production at a global level will be likely at minus one with a negative trend for Europe, especially in the first part of the year. Conti is somewhat overexposed to Europe.

So my question is, should we expect the company will manage to perform in line with the market or likely we will see an underperformance by year end in the automotive division? That’s my first question. The second one is a follow-up on the tire business. You said that in the last quarter of twenty twenty four, the raw math impact was double digit million euro negative. Can you just give us a rough indication for 2025?

And you also said that maybe there will be some price actions. Would you see as reasonable by year end an overall price mix at 1.5% or 1.7% for the tire business? And the very last question is on the free cash flow by year end. As a special effects, you indicated the EUR 700,000,000, but I’m just wondering what is the net cash impact on the free cash flow from restructuring in 2025? Thank you very much.

Max Vestmeyer, Head of Investor Relations, Continental AG: So if

Nikolai Zetsa, CEO, Continental AG: you go to the first one, you’re right. If we are looking on our sales weighted, we see in particular or in the first quarter as year over year Europe is down, the light vehicles reduction is weighted negative. It gets then better during the course of the year, but for the full year, it’s more in the range of minus 2% than the flattish or minus 1%, which we might see somewhere else. So how do we see our business? We want to be at least in line with the market.

So we have materialized this last year by better European performance. We’ve been, as Olaf has explained, short in North America as well in China. However, on the globe, we assume to be within the market and that’s what we want to achieve now at least at a minimum. Looking for tires, mid double digits million material last year and number would be in a range for sure of a 3,000,000 digit number for this year. As of now, how much again remains to be seen, Very volatile environment and with the industry performance which might react, we might see as well our raw material feedstocks reacting to this.

Your question is 1.5% pricemix a reasonable number. If you are looking for the achievements which we had over the last years, 1.5% is within the ballpark. So in particular, once the automotive OE business is still under pressure for this year and we want to grow in replacement, which has a mix effect itself. Truck remains we’ve seen if it stabilizes, stable truck typically is as well, a certain mix effect. But overall, that is in a ballpark, which we have achieved as well in last year.

So that is kind of reasonable.

Max Vestmeyer, Head of Investor Relations, Continental AG: And to your last question, so if you look at compare free cash flow to 2024, you see slightly higher cash outflow from one offs. Restructuring is probably approximately in line with 2024.

Monica Buzio, Analyst, Inter Sa San Paolo: Okay. Thank you. Thank you very much.

Conference Operator: Thank you very much also from my side. The next question is from Sanjay Paglani of Citi. Over to you.

Max Vestmeyer, Head of Investor Relations, Continental AG0: Hi. Thank you very much for taking my question also. Three questions. The first one is follow-up to Monica’s question on the organic growth outperformance or I think you did clarify that you want to perform at least in line with the market. So on that regard, are you able to provide some color specific to Safety in Motion and user experience?

What drove the organic growth underperformance in quarter four? And if you’re already seeing that recovering in first half? And then overall, if you could touch on how do you see the organic growth versus the market in first half versus second half of the year? That is my first question and I’ll just follow-up with the next one after this, if that is okay.

Nikolai Zetsa, CEO, Continental AG: So we don’t guide specifically on the business area performance, Sanjay. So the explanations for CEMIAX, all of us have given already. As I said, we want to perform within the sales weighted market that holds us well through for the individual parts. So it’s very much depending on customer as well as on regional mix, how that develops.

Max Vestmeyer, Head of Investor Relations, Continental AG0: Thank you. So second question is on semiconductor and the electronic cost tailwinds. Are you able to remind us what proportion of your automotive sales is the electronic cost? And if you are already seeing this as a tailwind from H1 onwards or any color from the ground on how the electronic costs are now developing?

Nikolai Zetsa, CEO, Continental AG: So too early to guide for 2025 overall we see general cost opportunities on that side. Then it very specifically depends on the portfolio and which part on semis we are purchasing. And during the course of the year, we will shed more light on that part. But in general, the trend is there and we are working obviously as well in order to provide those opportunities and stabilize via that our margins. So from the EUR 18,000,000,000 production purchasing volume, that is last year, I assume.

40%? Yes, around 40% is on the electronic bill, so somehow bound to semicon. So it’s a relatively large part and we are relatively large semicon device, so that depends. The difficulty is still is the complexity we have in particular on the brake, but as well in Evac, ACU is very, very specific ASICs. So it does not help to look simply on the general bread and butter and assume that we are capable to get those.

So it is really the devil is in the detail, and that’s why we inform them once we speak. But in general, there is a certain cost trend, which we want to profit from and which we need in order to expand our margins.

Max Vestmeyer, Head of Investor Relations, Continental AG0: Thank you. So related to that, should the OEMs so it’s because of the mechanics of the pricing pass through, the OEMs will have to initiate the renegotiation, right? This is not like automatically, maybe let’s say whatever the cost decline comes in, 80% gets passed through the OEMs. Is that correct understanding?

Nikolai Zetsa, CEO, Continental AG: That is the correct understanding and with many OEMs, as I mentioned sustainability into this year, with many we have as well agreed on a more long term view and longer year view. So this is the contractual situation. And if anything has to be renegotiated, it has to be initiated, correct? There’s no automatic tax savings? There’s no automatic savings, correct.

Max Vestmeyer, Head of Investor Relations, Continental AG0: Thank you. And the last one is on the free cash flow guidance. Sorry if I missed anything. So you are guiding for a free cash flow at midpoint at somewhere around stable free cash flow, but the profits are slightly higher at midpoint. And also, can you please remind us what was the total one offs for the ContiTech minority stake purchase, which was in 2024 and not repeating in 2025?

So just trying to reconcile the cash flow if the underlying profitability is improving. And if some of the one offs from last year are not repeating, then why is the cash flow guidance more stable and not improving? Just overall, is there any other headwinds or special items which we should be aware of?

Max Vestmeyer, Head of Investor Relations, Continental AG: Yes, we had in 2024, we had two main special topics. One was the EUR 500,000,000 for the acquisition of Contitec shares, so that’s minus EUR 500,000,000. And we had a positive effect from contract manufacturing that was plus EUR $350,000,000. So these were basically two major effects. They will not repeat in 2025.

’20 ’20 ’5 free cash flow, we will see an improved profitability on the one hand. On the other hand, you will have to what I just explained, let’s say, restructuring one offs in the same magnitude as 2024, but higher one offs related to the spin off.

Max Vestmeyer, Head of Investor Relations, Continental AG0: Thank you. That’s very helpful.

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

Max Vestmeyer, Head of Investor Relations, Continental AG: Yes. Thank you, operator. We almost made it on time. Thank you, everyone, for participating in today’s call. As always, we, the Conte IR team are very happy to be available for you if you have any remaining questions.

And with that, we would like

Horst Schneider, Analyst, Bank of America: to conclude for today’s call. Thank you. Goodbye.

Max Vestmeyer, Head of Investor Relations, Continental AG: Thank you. Bye bye. Thank you.

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